Q4 2025 Citi Trends Inc Earnings Call
Greetings, welcome to...
Speaker Change: Citi Trends, Fourth Clutter 2024 Earnings Conference Call. At this time, all participants are not listening only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce the McKee Senior Associate ICR. Thank you, you may begin.
Speaker Change: Thank you, and good morning, everyone. Thank you for joining us on Citi Trends' fourth quarter and fiscal year 2024 earnings call. On our call today is Chief Executive Officer, Ken Seipel, and Chief Financial Officer, Heather Plutino.
Speaker Change: You should be aware that prepared remarks today, may during this call, may contain forward looking statements within the meaning of the Private Security's litigation reform act of 1995. Management may make additional forward looking statements in response to your questions.
Speaker Change: These statements do not guarantee future performance, therefore you should not place undue reliance on these statements.
Speaker Change: We refer you to the company's most recent report on Form 10K and other subsequent filings within the Securities and Exchange Commission for more detailed discussion of the factors that can cause actual results to differ materially from those described in the forward-looking statement.
Speaker Change: I will now turn the call over to our Chief Executive Officer, Ken Seipel, M.
Ken Seipel: Hello, good morning, everyone, and thank you for joining us today for our fourth-order earnings stall. At Citi Trends, we continue to make significant progress on our strategic
Ken Seipel: We delivered fourth quarter comparable store sales growth of 6.4 percent, a sequential improvement from the third quarter and strong acceleration on a two-year basis.
Ken Seipel: This performance reflects the strength of our highly differentiated position in the marketplace as an off-price value retailer focused on our African American customer.
Ken Seipel: which, in combination with the 591 neighborhood-based source, creates a defensible mode against competition.
Ken Seipel: The Strategic Advantage, combined with our renewed focus on delivering trendy fashions.
Ken Seipel: Great brands and amazing prices has resonated strongly with our customers who have shown remarkable loyalty and responsibility to our improved product offerings.
Ken Seipel: We leverage recent extensive customer research to sharpen our focus on understanding both the demographics and ethnography of our African American customer base.
Ken Seipel: We now have a much better understanding of customer income profiles, and as a result, we've learned that we have a significant group of average and higher income customers, creating a tremendous opportunity for expanding our product assortment to meet their fashion and style needs.
Ken Seipel: As I shared at the ICR conference in January , our business journey is structured around three distinct phases that prepare us to become a strong growth company.
Ken Seipel: First is the repair phase, where we focused on re-establishing fundamental practices and foundational improvements.
Ken Seipel: This includes implementing a three tiered product plan with opening price points, core value products, and familiar brands, while also developing our extreme value product capabilities that offer us an enable us, excuse me, to offer well-known brands at 50-70% below competitive pricing.
Ken Seipel: The repair phase also included building on improving foundation or retail processes across the organization from merchandise allegation and planning to standardizing reporting and metrics.
Ken Seipel: We're still in early stages of all these improvements, the significant opportunity ahead. As we enter 2025, we are a much stronger company, and we're ready to move into the execute phase with the majority of our business initiatives.
Ken Seipel: During the space, we respect our core product selection and value equation to improve and our supply chain speed to increase.
Ken Seipel: which will majorly reduce our working capital requirements and improve inventory turns. We'll do this by leveraging SGNA expenses across all areas of the business to ensure sufficient flow through from sales to profit.
Ken Seipel: The final stage is the optimization phase, which prepares us for business acceleration. This means creating systems and processes that allow sales to flow through efficiently to EBITDA, while simultaneously developing our new story expansion capabilities.
Ken Seipel: The combination of these three phases, repair, execute, and optimize, creates the foundation for its celebrated growth, and it positions Citi Trends to capitalize on the significant market opportunity ahead of us as we expand into both existing and new markets.
Delturning to Fourth Quarter Results [inaudible]
We delivered total sales of approximately $211,000,000.
Ken Seipel: As I mentioned, we registered comparable source sales growth of 6.4%. This top line growth was driven by strong customer traffic, transaction growth, and an encouraging increase in basket size.
Ken Seipel: Our strategic, good, better-best product initiatives and confelling off-priced offerings helped us deliver gross margin rate of 39.7%, a 60-basis-pointed extension as compared to Q4 2024.
Ken Seipel: And importantly, we ended the period with inventories down 6% compared to the prior year. Our inventory is significantly fresher than last year as we remain committed to liquidating age inventory quickly.
Ken Seipel: With the health of our inventory position from, we're turning faster and preserving a significantly higher level of liquidity to react to in-season opportunities.
Ken Seipel: For the quarter, we're pleased with the results of our off-price, extreme value product tests, which feature well-known brands at 15 to 70 percent of suggested retails. This exciting product could grow foot traffic in the quarter and free those with our store associates and with customers.
Ken Seipel: We achieve sales increases in nearly all product categories. In non-apparel, our top performers are giftables, stockings staffers, family basics in the sleepwear, and on categories.
Ken Seipel: On the apparel side, we achieved continued growth in children's and our men's division experience a strong sales trend improvement over the prior quarter.
Ken Seipel: Our only significant miss was in plus size apparel, which was driven by internally controlled execution issues, which have been repaired, and we expect to see an improving trend in plus size by Q2 of this year.
Ken Seipel: We registered five single-digit growth in our footwear business due to strong customer acceptance of an extreme off-value price branded buy. Going forward, we have a significant room for expansion of the footwear category, and the team is working hard to advance and enhance the offering of core goods as well as branded market buys.
Ken Seipel: As we look ahead, we strategically identify key product intensification areas to 2020-25, which include big meals.
Ken Seipel: Women's plus size, family footwear, consumables, and extreme value of price deals. All categories is substantial growth potential where we can better serve our customers.
Our comprehensive three-tiered product strategy is gaining traction.
Ken Seipel: creating a consistent balance assortment that resonates with our customer base across income levels.
Ken Seipel: We know it's important to have a selection of opening price point good product categories for our customers who might be in a limited income.
Ken Seipel: In the coming months, each department will have opening price point products positioned at the back of the departments with visible signage ensuring that our value conscious customers can easily identify these value options.
Ken Seipel: While we remain committed to price accessibility for customers in limited budgets, our research confirms that our core customers have good disposable income and our higher income customers have responded very positively to recognizable brands with a willingness to trade up as we validated with our product testing Q4.
Ken Seipel: This insight has guided our brandy merchandise strategy and amazing prices.
Ken Seipel: We will continue, which we expect that we did more than double in 2025, eventually reaching approximately 20% to 30% of our merchandise units.
Ken Seipel: To be clear, strategically adding well-known brands is an additional opportunity to complement the already successful product we are already known for.
Ken Seipel: In addition, our skilled buyers have demonstrated their ability to negotiate extreme value deals with retail pricing that's at least 50% or more below NSRP while maintaining higher
Ken Seipel: Customer Response to these extreme value branded additions has been incredibly strong, driving both increased traffic and transaction size.
Ken Seipel: As we execute this strategy, we anticipate an upward movement in our average unit retail mix through these better brands and improve quality for their enhancing our modern profile while delivering the compelling value our customers expect.
Ken Seipel: We're also excited about the opportunity to expand our home and lifestyle categories, particularly in the consumable space with our pantry and staff offerings. This category is currently under penetrated compared to the industry averages, presenting a significant growth avenue.
Ken Seipel: Our strategy involves adding well-known stat foods, utilizing our off-price deal capabilities to secure compelling value on recognizable brands like cheeses, beef jerky, Oreos, and other similar stat products.
These items are showing good early results with our customers.
Ken Seipel: Driving frequency by providing them another reason to shop with us while reinforcing our value message.
This category expansion alone is perfectly with our three-tiered product strategy.
Ken Seipel: Ensuring that they meet all the needs of all of our customer segments
Ken Seipel: from our value-conscious customer shoppers, speaking opening price points to those customers with higher disposable incomes who respond well to branded offers.
Ken Seipel: We expect the pan-free and static category to become an increasingly important driver on our go-forward road strategies.
Ken Seipel: From an operational perspective, one of our most promising initiatives involves the testing and implementation of artificial intelligence-based product allocation system.
Ken Seipel: In our repair phase this past fall, we made significant strides in our manual product allocation methodologies by reducing complexity and consolidating store clusters into three straightforward breaches by average and low.
This foundational treatment has already yielded measurable results.
Ken Seipel: But we're now moving beyond these basics toward a more advanced technique. The new AI system enhances our ability to accurately place product based on localized demand, driving sales
Ken Seipel: Early test results are encouraging, with the system demonstrating superior accuracy in predicting store-level demand. We expect this technology to impact our business in 2025 and beyond, creating what we believe will be game-changing improvement in inventory efficiency.
Ken Seipel: This initiative, combined with our supply chain enhancements, will significantly reduce time from vendor to store and position us to respond more quickly to sales trends while improving our inventory turns and working capital efficiency.
Ken Seipel: Turning to our real estate strategy. We're making good progress in our remodel program and our planning to remodel at least 50 stores in 2025 to continue bringing our fleet up to our current standards. In fact, we've already remodeled 18 stores since the start of 2025. In total, this investment is showing solid returns and we're seeing strong customer response to refests and environments. [inaudible]
Ken Seipel: Looking at our loan return growth, we're conducting detailed market studies to identify priority MSA's for expansion.
Ken Seipel: Our strategy will include book back-to-ling existing markets with new locations alongside remodels of current stores to maximize market share as well as entering new select markets. We expect to ramp up new store growth in 2026 and beyond.
Ken Seipel: I'd like to highlight a strong financial position which provides a significant flexibility to execute our strategic initiatives.
Ken Seipel: As of quarter end, Citi Trends maintains a healthy balance sheet with 61 million of cash, no debt, and no drawings on our $75 million revolver. This debt-free structure, with ample liquidity, allows us to take advantage of opportunities in the marketplace, while navigating any potential macro destructions.
Ken Seipel: Invest in 2025, and we are focusing on working capital improvements, particularly in the area of inventory efficiency.
Ken Seipel: For the first time in recent history, we are anticipating positive, free cash exaggeration in the upcoming year, which is a critical milestone in our financial
Ken Seipel: As we know, last quarter, our board approved the resumption of our 50 million dollar share re-purchased program.
Ken Seipel: Since mid-December, we have invested $10 million in share repurchases, which includes 395,793 at an average price point of $25.23.
Ken Seipel: Sir Repurchase will remain an option in our overall balance capital allocation strategy.
Ken Seipel: Going forward, our primary executive capital allocation will be in strategic investors to drive growth.
Ken Seipel: Turning to the first form of sales performance, I am pleased to report that midway to our first quarter we are achieving mid-single-digit performance.
Ken Seipel: And although we've had our share of temporary store clothing to do the weather and so forth, in addition to the late tax refunds and other macro uncertainties, our customers have continued to validate our strategy.
Ken Seipel: As you all know, the new administration has introduced many potential changes in terrorist taxes and government programs that create a good deal of uncertainty for the economy.
Ken Seipel: At this time, it's far too engaged with the specific impact or non-impact to our business and our customers But to address the changing environment we are closely monitoring and anticipating changes we need to make to ensure that we get our financial objectives
Ken Seipel: In regards to tariffs, our off-price business model limits our exposure to the impact of tariffs However, we're also actively working with our vendors to monitor the situation and we're finding ways to make sure that we keep across changes on product to the minimum
Ken Seipel: In addition, I see the improved operational process that I've outlined earlier as another avenue for helping us achieve our gross margin targets this year.
Ken Seipel: Plus, the addition of all price to our business model gives us significant opportunity to make high margin deals on surplus product brought on by Mr. Destructed macro-environment.
Ken Seipel: This year, Citi Trends will be planned to stay aggressive and flexible. We are aggressively driving sales, leveraging our cost-based and maintaining a healthy open-to-buy for flexibility.
Ken Seipel: As I mentioned earlier, we're fortunate to have a healthy balance sheet that allows us to stay aggressively drying the soils and give us the flexibility we need to react.
Ken Seipel: Our customers showing resiliency, our strategies are resonating, and as I mentioned earlier, we are pleased with maintaining solid mid-single-digit comp sales quarter today.
Ken Seipel: With that, I'll turn it over to Heather for a review of our fourth quarter and full your results, along with her our Outlook for Festival 2025. Heather?
Thank you, Ken, and good morning everyone.
Ken Seipel: First, I'd like to echo Ken's comments about the recent positive momentum building at Citi Trends. Our refined strategy and focus have resulted in a fundamental shift in our business that led to another quarter of positive results building on our success in the third quarter.
Ken Seipel: The fourth quarter featured sales momentum with 6.4% comparable for sales growth, coupled with growth margin expansion to last year.
Ken Seipel: While we still have a lot of work ahead of us, our strategic initiative, supported by our healthy balance sheet, has positioned Citi Trends for continued improvement as we head into fiscal 2025.
Ken Seipel: Turning now to the specifics of our fourth quarter results. Our product department updates were more pronounced in the quarter as we focus on delivering exciting product a great value for the holiday season.
Ken Seipel: The Revolting 6.4 COV represents the second quarter of sequential improvement. Importantly, top-line momentum was driven by broad-based improvement across our retail metrics with strong gains in traffic and conversion, along with that growth.
Ken Seipel: We also saw a positive inflection in AUR as customers showed a willingness to trade up into a higher-ticket extreme-value product for carrot as part of our strategy shift.
Ken Seipel: From a cadence perspective, Comp Store sales were positive each month of the quarter with the strongest performance during the nine-week holiday period in which comps were up 7.1%.
Ken Seipel: We estimate that Webber Disruption in January had a 250 basis point headwind to cop sales for the month. Adjusting for that impact, January was only slightly behind holiday sales performance.
Ken Seipel: During the quarter, we closed two stores as part of our ongoing fleet optimization effort, bringing our quarter-end store count to 591.
Ken Seipel: The primary driver of the year-over-year margin expansion was lower freight, partially offset by higher markdowns as we follow our updated approach to take more in-season markdowns keeping our inventory fresh.
Ken Seipel: Growth margin was also helped by continued improvement in shrink due largely to improved results from the physical inventory counts taken in the quarter.
Ken Seipel: As we've discussed in many of these calls, we remain intensely focused on improving our shrink results and driving toward a baseline rate that is more in line with our historic performance.
Ken Seipel: Moving to SGNA, adjusted SGNA expenses totaled $76.7 million in the quarter and increased of 2.6 million during the last year.
Ken Seipel: During last quarter's earnings call, we cited a number of strategic investments and one-time items aimed at driving future growth that impacted Q3 with some anticipated spillover into the fourth quarter.
Ken Seipel: To be clear, these expenses are included in reported S-G-N-A and were not adjusted out. And in the fourth quarter, these one-time items totaled $1.5 million.
Ken Seipel: Adjusted EBITDA for the quarter was $7.1 million, compared to $10 million in Q4 2023.
Ken Seipel: When normalizing each year's result for one-time strategic SGNA costs and certain accounting adjustments, the comparison is $7.4 million this year versus $7.6 million last year.
Ken Seipel: Cat's expense in the quarter was $15.8 million, including a non-cast valuation allowance of approximately $15.5 million.
Ken Seipel: This valuation allowance relates to deferred tax assets, primarily associated with net operating loss carried forward, generated in fiscal year 2023 and 2024.
Ken Seipel: The valuation allowance was recorded due to uncertainty about our ability to fully utilize these tax benefits in the near term.
A test that is performed on a quarterly basis.
Ken Seipel: Going forward, we will continue our quarterly testing to determine the ongoing need for this allowance and will make adjustments as warranted.
Ken Seipel: And, as long as the valuation allowance exists, most of our tax expense or tax benefit will flow through the balance sheet rather than the P&L via adjustments to the allowance.
Ken Seipel: Importantly, these are non-cash accounting adjustments and do not impact our ability to utilize these tax assets for future tax filings.
Ken Seipel: Turning to the full year, fiscal 2024 was a tale of two halves for the company.
Ken Seipel: While Q1 and Q2 were sluggish with a combined comp of 0.7%, our new strategies began to be implemented in Q3, driving significant improvement in both traffic and basket, resulting in second half cobs of 6.1%
The details of our full-year results are as follows.
Ken Seipel: Total fiscal 2024 sales were $753.1 million, an increase of 0.7% versus the 53 weeks of 2023.
Ken Seipel: Comparable store sales calculated on a 52 week, 52 week basis increased 3.4 percent.
Ken Seipel: Adjusted growth margin was 37.5% for the year, and adjusted EBITDA was a loss of 14.2 million.
Ken Seipel: Both of these metrics were negatively impacted by items considered one-time in nature, including markdowns from our large strategic inventory reset in Q2 plus shrink results, both impacting
Ken Seipel: EBITDA also includes strategic expenses including consulting to fuel our transformation initiatives.
Ken Seipel: In total, these one-time items represent a $16.5 million drag on EBITDA for the year.
Ken Seipel: During the year, we opened one new store and closed a total of 12 as part of our ongoing
We also remodeled 35 stores
Now turning to the year end balance sheet.
Ken Seipel: We continue to maintain a healthy financial position with a strong balance sheet, including note debt at the end of the quarter, note drawings under $75 million revolver, and approximately $61 million in cash.
Ken Seipel: With liquidity of approximately 136 million, we believe that we can more than sufficiently fund our business initiatives.
Ken Seipel: As we mentioned last quarter and as Ken touched on in his remarks, our Board of Directors recently approved the resumption of our Share Repurchase Program.
Ken Seipel: In the fourth quarter, we repurchased approximately 135,000 shares for a total spend of 3.8 million.
Ken Seipel: and we continued our share repurchase activity into the first quarter of 2025, repurchasing an additional 250,000 shares, spending $6.2 million.
In Total All.
Ken Seipel: To date, we've used 10 million to repurchase about 396,000 shares, leaving about 40 million remaining on our authorizations.
Speaker Change: As Ken mentioned in his remarks, looking ahead, we'll continue to assess share repurchase versus other investment opportunities, but our primary focus will remain on investments that will drive accelerated profit improvement and growth for the company.
Speaker Change: Total inventory dollars at quarter-end decreased 6% inclusive of a 17% increase in our opportunistic pack-and-hold buys to fuel future sales.
Speaker Change: Average in-store inventory at quarter-end was down 6.7% to last year. Importantly, inventory aging has improved greatly as we focus on in-season markdowns to keep our equipment fresh for our customers.
Speaker Change: We are pleased with our inventory position, composition and freshness ahead of the first quarter selling season
Speaker Change: Now turning to our 2025 outlook. As Ken mentioned in his remarks in 2025, we will transition from the repair phase to the execute phase of our transformation.
Speaker Change: We will continue making strides on our product disortment strategy with keen focus on our African American customer to drive top line growth. We will also continue our work on growth margin improvement while leveraging SGNA to support improved EBITDA flow through.
The details of our 2025 Outlook are as follows
Expecting full-year cocktails growth of low-to-mid single-digit
Speaker Change: Full-year growth margin expected to expand a minimum of 220 basis points versus 2024, consistent with our stated goal of growth margin dollar growth outpacing sales growth.
Speaker Change: S-TNA is expected to leverage in the range of 30 basis points to 50 basis points versus 2024 in spite of inflationary pressures and the reset of incentive compensation accruals with the new fiscal year.
Speaker Change: Earlier, Eva Dott is expected to be in the range of $5 million to $9 million, a $19 million to $23 million improvement versus fiscal 2024.
Speaker Change: Effective tax rate in 2025 is expected to be approximately 0% as any tax expense or tax benefit in the year will result in adjustments to our evaluation allowance as described earlier.
Speaker Change: We plan to open up to five new stores and close up to five stores.
Speaker Change: We plan to remodel approximately 50 locations in the year and as Ken noted have already remodeled 18 stores in the beginning of fiscal 2025. Finally, full-year CAPAC is expected to be in the range of $18 million to $22 million.
Speaker Change: Before I turn the call back to Ken, let me reiterate how pleased we are with the improvement that we've seen in the business throughout the back half of fiscal 2024.
Speaker Change: Ken's leadership strategies and the resulting foundational improvements have reinvigorated Citi Trends and positions of the company for continued improvement into 2025.
Speaker Change: Well, there is much work and much uncertainty ahead of us. I am confident that the continued execution of our refined strategy will serve us and you are shareholders well in the months and years ahead. With that, I'll turn the call back to Ken. Ken?
Thank you, Heather.
Speaker Change: Before we open a call for questions, I wanted to take a moment to express nice sincere gratitude to our dedicated team members across the organization.
Speaker Change: Your tireless efforts in implementing our renewed strategy have just been instrumental in the progress that we're seeing today. I'm particularly impressed by how quickly our teams have embraced the fundamental changes we introduced, from our improved allocation practices to enhanced merchandising strategies.
Speaker Change: We are focused on the act of American customer. Our strength and product value proposition are expanding branded discernment and our operational excellence initiatives. We have a very clear path to restoring EBITDA into the $40 to $50 million range long term.
Speaker Change: We have a line of sight to achieving these targets and we're excited about the substantial upside potential. The combination of these strategies positions Citi Trends to generate meaningful free cash and drives significant shareholder returns.
Speaker Change: And with that, I'd like to turn it over to the operator and I'll chill from the lines for questions [inaudible]
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue.
Speaker Change: and for a participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the start keys. Please limit to one question and one follow-up question, one moment where we pull for questions.
Speaker Change: Our first question is from Jeremy Hamblin, with Craig Hallum, capital group, police receipt.
Jeremy Hamblin: Thanks, and congratulations on the impressive momentum here. You know, I wanted to start by talking about
Jeremy Hamblin: on your two-year stack trends. And I wanted to just get a little bit more color.
Jeremy Hamblin: on what you see as Citi Trends doing different from the industry that's allowing you to kind of sustain that momentum here into 2025 while you've seen a lot of other retailers reporting softening results.
Jeremy Hamblin: Thanks, Jeremy. Appreciate your questions. A couple of things I'd say about what we're doing a little bit differently. First, as you know, and probably I've heard me talk a lot about because I do speak about it quite often. The addition of all price to our business model and really sharpening up the overall price value equation across the board in our core product has been really one of the key unlocks for the business and our customers really have resonated quite well. Thank you very much.
Jeremy Hamblin: I believe that we are, in fact, there's no question we're gaining market share as a result of these stark real-crowned assortment and pricing strategies.
Jeremy Hamblin: And the other piece that I believe, and I mentioned at the very beginning of a call, our competitive position in the marketplace, we have 591 stores, very strategically positioned in neighborhoods.
Jeremy Hamblin: and literally around our customers. And so we become kind of their first alternative. And once we get it right, they are clearly responding. So there's more work ahead for sure. We're just really an early and early and early into this. But I think it's pretty crystal clear that are.
Jeremy Hamblin: and positioning neighborhoods, along with our price of value equation being sharper, is really resonating and will be an opportunity for us to continue to get careholder or, excuse me, marketing share and dancers to share.
Speaker Change: Great, and as a follow-up to that, on the off-price portion of the business, you noted as a key driver. Where was off-price?
Jeremy Hamblin: You know, let's say a year ago, where is it today and where do you expect off price is a kind of portion of your of your inventory. Let's say maybe a year from now or at some point in 2026.
Speaker Change: Yeah, trying not to cut this with too fine of a scalpel, Jeremy, because off-priced is a large term that he has been used in a lot of different ways, you know, like for example, sometimes it's referred to as indices in close-ups. And in that regard, the company is always participating in indices in close-ups.
Speaker Change: What we're doing now when I'm defining off price is really looking at more in season.
Um...
Pretty aggressive deals, in fact, where we're getting extreme value.
Speaker Change: And right now, we're doing about between one and two percent of our business and these extreme value items were really just getting started.
Speaker Change: He's adding a lot, he's adding a lot of energy to the business and a lot of energy to our customer base for sure. I see long-term that growing to around 10% of what we do and that will be all added if it's not a replacement business, so just this one extreme value portion.
Speaker Change: Then on top of that, the other portion that I mentioned earlier, which is into season-type deals which the company has historically done.
Speaker Change: Our entire merchant team is more acutely aware of those opportunities and are getting sharper at their negotiations and we expect that in addition to the end of the growth avenue. I don't want to have a firm number on that.
Speaker Change: but it's pretty clear that that will be the two ways that we attack off price. Extreme value and the season closeout type deals, both of which will be added if to the overall business.
Speaker Change: Great. And I want to follow up. You're also pursuing a bit more kind of brand name deals, which is a strong motivator for your customer.
Speaker Change: I think probably in looking at maybe footwear and apparel is two areas to attack.
Speaker Change: and any color you might be able to share on the types of brands that you might be looking at. I think you had some new brands in stores in Q4, but any color you can share there.
Speaker Change: For sure, yeah, because of other relationships that we're developing with some of these larger brands, I'm prohibited to really speak directly about the brand names externally, but I would say this that we are paying very close attention to.
Speaker Change: your favorite brands, the brands that you would know as top of mind across the board, whether it's in shoes or out of wear or denim or what have you, think about your top selling brands, those are the brands that we're focusing on.
Speaker Change: and in many cases we have deals either in the pipeline or in store or or about to head to stores that would be a composite of those particular brands and what makes them unique and special for us.
Speaker Change: is the fact that they are often done at extreme pricing that is very unique to the marketplace. Because of our size of company, we have the ability to access these deals and we're a little bit more nimble and we can get some pretty good preferential opportunities that way, but from a brand
Speaker Change: Portfolio, or fairly flexible, but just know that we're only going after the big names.
Speaker Change: and we're only going after the great deals. We're pretty selected. We frankly probably pass on more than we can even look at right now. There's so many out there, but certainly that is the focus just to be really, really high aware brands.
Speaker Change: Great, last one for me. So you noted this kind of longer term, adjusted EBITDA target $40 to $50 million.
Speaker Change: That's obviously pretty significant uptick from where you're looking at in 25.
Speaker Change: Wanted to get a sense to get even to the low end of that range, the 40 million, what's the sales level that you need to achieve? You think to kind of get the business up towards that, let's say $40 million range on EBITDA.
Speaker Change: Yeah, we're working through a long-range plan right now. Jeremy, to get more specific to the bad and I get that in front of the board for their approval. So I'll speak a little bit more generically. But if you can think about it this way, the even-done margin of our business is really below industry standard right now. And I'm taking about getting it north of 5% in that 5% to 7% even-done margin range. And that kind of would be essentially the top-line sales of being kind of thinking about it.
Speaker Change: of it in that regard. That's generally the range that we're going to. And obviously we have to go beyond that, but that's step one is to restore that 40 million, 40 to 50 million. And I want to do that at a rate that's in that five to seven percent margin rate initially.
Speaker Change: Great. Thanks so much for the color and best wishes on the continued success.
Thanks Jeremy, appreciate it.
Speaker Change: Our next question is from Michael Baker with DA Davidson. Please proceed.
Michael Baker: Okay, thank you, I'll ask one question and one follow-up question is can you just walk us through?
Michael Baker: The building blocks of the EBITDA increase of 19 to 23 million. I mean, you get 15 million just by showing up.
Michael Baker: because of cycling to one-time issues and no-to-meant single-digit complities that's going to add $25, $30 million in sales. So what's the flow to about incremental sales?
Speaker Change: And are there any sort of good-backed investments such as the $15 million one-timers that flow through from the sales increase minus something? Thank you.
Speaker Change: I'll give you a little bit of a high level. Michael and Heather were approaching this in terms of turnaround and I'll let Heather fill in some of the specific numbers that you're asking about there where we can. A couple of things that we've taken a look at this year to kind of get started was we set up an operating budget that's fairly low.
that we have to basically bare bones operate the business.
Speaker Change: And then from there, we've put together a sales plan that we believe is higher than that, which actually is higher than that that will generate something in the near than about a 25% flow through.
Speaker Change: once we get those numbers and then we have a stretch band that's above that even
Speaker Change: that has a much higher flow through rates. So, the point here, as you've just talked a lot about, is that the handy cap of the business.
Speaker Change: Yeah, the only thing I would say is sales growth, margin expansion, let's not forget that too, right? We'll continue to drive improvement there with a minimum of two and a
Speaker Change: 20 basis points in the guide, so that flew through strength, as you mentioned, is there. And then to Kim's point, as is included in our guide, we'll continue to leverage.
Speaker Change: Our S-G-N-A base being very careful about that in 2025 to make sure that that flow through is at the levels that he mentioned. So that's it, no other secret sauce, just all the hard work and embedded in doing those three things, driving sales, expanding margin, and leveraging S-G-N-A.
Okay, great. Well, I guess the perfect follow-up, then I'll just just
Speaker Change: hit on that so that low base of sale low base destiny is that is that the
Speaker Change: Combed Guidance that you gave of low to mid single digits is that the sort of baseline and then
Speaker Change: You know, the sales above that 25% flow through is that, you know, need to comp above that loader to mid
Speaker Change: or, you know, does that sort of add in sales and then the stress plan is that within the development of mental health, mental health, mental health, mental health, mental health,
Speaker Change: It kind of does, you know, let me tell you how I'm going to think about that and then again, I want to have it to fill in anything there that I may have missed. But in terms of the guidance that you have out there, we're seeing low to mid-single and that really kind of encompasses.
Heather Plutino: Heather Plutino, Nitza McKee, Cody McAlester, Kenneth Seipel, Heather Plutino, Nitza McKee,
to move its current pace.
Got it. Thank you.
Thank you.
Heather Plutino: We have reached the end of our question and answer session. I would like to turn the conference back over to Ken for closing remarks.
Ken Seipel: Well, I just want to simply say thank you everybody. We really appreciate your continued interest and support the City Trends. We look forward to talking with you next quarter. Bye-bye.
Ken Seipel: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.