Citi Trends Inc

Previous wording

The factors that may result in actual results differing from such forward-looking information include, but are not limited to: uncertainties relating to general economic conditions, including inflation, energy and fuel costs, unemployment levels, and any deterioration whether caused by acts of war, terrorism, political or social unrest (including any resulting store closures, damage or loss of inventory) or other factors; changes in market interest rates and market levels of wages; natural disasters such as hurricanes; uncertainty and economic impact of pandemics, epidemics or other public health emergencies; transportation and distribution delays or interruptions; changes in freight rates; the Company’s ability to attract and retain workers; the Company’s ability to negotiate effectively the cost and purchase of merchandise; inventory risks due to shifts in market demand; the Company’s ability to gauge fashion trends and changing consumer preferences; changes in consumer confidence and consumer spending patterns; competition within the industry; competition in our markets; the duration and extent of any economic stimulus programs; changes in product mix; interruptions in suppliers’ businesses; the impact of the cyber disruption we identified on January 14, 2023, including legal, reputational, financial and contractual risks resulting from the disruption, and other risks related to cybersecurity, data privacy and intellectual property; the results of pending or

Current wording

The factors that may result in actual results differing from such forward-looking information include, but are not limited to: uncertainties relating to general economic conditions, including inflation, energy and fuel costs, unemployment levels, and any deterioration whether caused by acts of war, terrorism, political or social unrest (including any resulting store closures, damage or loss of inventory) or other factors; changes in market interest rates and market levels of wages; impacts of natural disasters such as hurricanes; uncertainty and economic impact of pandemics, epidemics or other public health emergencies; transportation and distribution delays or interruptions; changes in freight rates; the Company’s ability to attract and retain workers; the Company’s ability to negotiate effectively the cost and purchase of merchandise; inventory risks due to shifts in market demand; the Company’s ability to gauge fashion trends and changing consumer preferences; consumer confidence and changes in consumer spending patterns; competition within the industry; competition in our markets; the duration and extent of any economic stimulus programs; changes in product mix; interruptions in suppliers’ businesses; the impact of the cyber disruption we identified on January 14, 2023, including legal, reputational, financial and contractual

Previous wording

threatened litigation; temporary changes in demand due to weather patterns; seasonality of the Company’s business; delays associated with building, opening, remodeling and operating new stores; delays associated with building, opening or expanding new or existing distribution centers; and other factors described in the section titled“Item 1A. Risk Factors” and elsewhere in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2024, and in Part II,“Item 1A. Risk Factors” and elsewhere in the Company’s Quarterly Reports on Form 10-Q and any amendments thereto and in the other documents the Company files with the SEC, including reports on Form 8-K.

Current wording

risks resulting from the disruption, and other risks related to cybersecurity, data privacy and intellectual property; the results of pending or threatened litigation; temporary changes in demand due to weather patterns; seasonality of the Company’s business; changes in market interest rates and market level wages; delays associated with building, opening, remodeling and operating new stores; delays associated with building, opening or expanding new or existing distribution centers; and other factors described in the section titled“Item 1A. Risk Factors” and elsewhere in the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2024, and in Part II,“Item 1A. Risk Factors” and elsewhere in the Company’s Quarterly Reports on Form 10-Q and any amendments thereto and in the other documents the Company files with the SEC, including reports on Form 8-K.

Previous wording

We are a leading specialty value retailer of apparel, accessories and home trends for way less spend primarily for African American and multicultural families. Our high-quality and trend-right merchandise offerings at everyday low prices are designed to appeal to the fashion and trend preferences of value-conscious customers. As of August 3, 2024, we operated 597 stores in urban, suburban and rural markets in 33 states.

Current wording

We are a leading specialty value retailer of apparel, accessories and home trends for way less spend primarily for African American and multicultural families. Our high-quality and trend-right merchandise offerings at everyday low prices are designed to appeal to the fashion and trend preferences of value-conscious customers. As of November 2, 2024, we operated 593 stores in urban, suburban and rural markets in 33 states.

Previous wording

As previously disclosed, in January 2023, we experienced a disruption of our back office and distribution center IT systems, (the“January 2023 cyber disruption”). In the first twenty-six weeks of fiscal 2023, we recognized $1.7 million of costs related to the cyber disruption in Selling, general and administrative expenses on our Statement of Operations.

Current wording

As previously disclosed, in January 2023, we experienced a disruption of our back office and distribution center IT systems, (the“January 2023 cyber disruption”). In the first thirty-nine weeks of fiscal 2023, we recognized $1.7 million of costs related to the cyber disruption in Selling, general and administrative expenses on our Statement of Operations.

Previous wording

*Net Sales.*Sales comparisons for 2024 to the prior year are affected by the shift in the calendar caused by last year having 53 weeks. Net sales increased $3.0 million, or 1.7%, to $176.6 million in the second quarter of 2024 from $173.6 million in the second quarter of 2023. The shift in the retail calendar contributed $7.9 million to revenue for the thirteen weeks ended August 3, 2024. Comparable store sales, on a comparable weeks basis, decreased 1.7%, resulting in a decrease of $3.0 million in sales. Net store opening and closing activity resulted in a net decrease of $1.9 million in sales.

Current wording

*Net Sales.*Sales comparisons for 2024 to the prior year are affected by the shift in the calendar caused by last year having 53 weeks. Net sales decreased $0.4 million, or 0.3%, to $179.1 million in the third quarter of 2024 from $179.5 million in the third quarter of 2023. The shift in the retail calendar contributed $7.0 million to revenue for the thirteen weeks ended November 2,2024. Comparable store sales, on a comparable weeks basis, increased 5.7%, resulting in an increase of $9.6 million in sales. Net store opening and closing activity resulted in a net decrease of $2.8 million in sales.

Previous wording

*Cost of Sales (exclusive of depreciation).*Cost of sales (exclusive of depreciation) increased $14.4 million, or 13.4%, to $121.6 million in the second quarter of 2024 from $107.2 million in the second quarter of 2023. Cost of sales as a percentage of sales increased to 68.9% in the second quarter of 2024 from 61.8% in the second quarter of 2023. The 710 basis points increase was driven by an increase of 510 basis points of markdowns (from a strategic inventory reset) and a 220 basis points increase in shrink (driven by physical inventory results and accrual rate adjustment), partially offset by a decrease of 20 basis points in other cost of sales.

Current wording

*Cost of Sales (exclusive of depreciation).*Cost of sales (exclusive of depreciation) decreased $3.1 million, or 2.7%, to $107.8 million in the third quarter of 2024 from $110.9 million in the third quarter of 2023. Cost of sales as a percentage of sales decreased to 60.2% in the third quarter of 2024 from 61.8% in the third quarter of 2023. The 160 basis points decrease was driven by a 40 basis points decrease in shrink (driven by physical inventory results), and a decrease of 120 basis points in other cost of sales.

Previous wording

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses increased $4.2 million, or 6.1%, to $73.8 million in the second quarter of 2024 from $69.5 million in the second quarter of 2023. The increase was driven by one-time CEO transition related expenses of $1.4 million, corporate expense (primarily payroll, insurance and professional fees) of $3.8 million, and store selling and advertising expense of $1.0 million, partially offset by lower incentive compensation expense of $2.3 million. As a percentage of sales, Selling, general and administrative expenses increased to 41.8% in the second quarter of 2024 from 40.1% in the second quarter of 2023, primarily driven by the aforementioned items.

Current wording

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses increased $5.1 million, or 7.3%, to $74.7 million in the third quarter of 2024 from $69.7 million in the third quarter of 2023. The increase was driven by corporate expense (primarily payroll and professional fees) of $2.2 million, including $1.6 million of one-time expenses for strategic initiatives, occupancy expense of $1.0 million, and third quarter 2023 gain on insurance of $2.0 million. As a percentage of sales, Selling, general and administrative expenses increased to 41.7% in the third quarter of 2024 from 38.8% in the third quarter of 2023, primarily driven by the aforementioned items.

Previous wording

*Depreciation.*Depreciation expense increased $0.1 million, or 1.6%, to $4.8 million in the second quarter of 2024 from $4.7 million in the second quarter of 2023.

Current wording

*Depreciation.*Depreciation expense increased $0.1 million, or 0.1%, to $4.8 million in the third quarter of 2024 from $4.7 million in the third quarter of 2023.

Previous wording

*Impairment.*Non-cash impairment expense related to underperforming stores totaled $1.3 million in the second quarter of 2024, comprised of $0.7 million for leasehold improvements and fixtures and equipment, and $0.6 million for operating lease right of use assets. There was no impairment expense in the second quarter of 2023.

Current wording

*Impairment.*Non-cash impairment expense related to underperforming stores totaled $0.6 million in the third quarter of 2024, comprised of $0.3 million for leasehold improvements and fixtures and equipment, and $0.3 million for operating lease right of use assets. Non-cash impairment expense related to underperforming stores totaled $0.2 million in the third quarter of 2023 primarily due to leasehold improvements and fixtures and equipment.

Previous wording

*Income Tax Benefit.*Income tax benefit was $6.0 million in the second quarter of 2024 compared to $2.1 million in the second quarter of 2023. The effective tax rate for the second quarter of 2024 and 2023 was 24.4% and 29.2%, respectively. The difference is attributable to a higher projected net loss for full year 2024.

Current wording

*Income Tax Benefit.*Income tax benefit was $1.3 million in the third quarter of 2024 and in the third quarter of 2023. The effective tax rate for the third quarter of 2024 and 2023 was 15.1% and 25.5%, respectively. The difference is attributable to fluctuations in permanent items during the third quarter of 2024.

Previous wording

*Net Loss.*Net loss was $18.4 million in the second quarter of 2024 compared to net loss of $5.0 million in the second quarter of 2023 due to the factors discussed above.

Current wording

*Net Loss.*Net loss was $7.2 million in the third quarter of 2024 compared to net loss of $3.9 million in the third quarter of 2023 due to the factors discussed above.

Previous wording

*Net Sales.*Sales comparisons for 2024 to the prior year are affected by the shift in the retail calendar caused by last year having 53 weeks. Net sales increased $9.6 million, or 2.7%, to $362.8 million in the first twenty-six weeks of 2024 from $353.2 million in the same period of 2023. The shift in the retail calendar contributed $10.2 million to revenue for the twenty six weeks ended August 3, 2024. Comparable store sales, on a comparable weeks basis, increased 0.7%, resulting in an increase of $2.6 million in sales. Net store opening and closing activity resulted in a net decrease of $3.1 million in sales.

Current wording

*Net Sales.*Sales comparisons for 2024 to the prior year are affected by the shift in the retail calendar caused by last year having 53 weeks. Net sales increased $9.1 million, or 1.7%, to $541.9 million in the first thirty-nine weeks of 2024 from $532.8 million in the same period of 2023. The shift in the retail calendar contributed $3.1 million to revenue for the thirty-nine weeks ended November 2,2024. Comparable store sales, on a comparable weeks basis, increased 2.3%, resulting in an increase of $3.2 million in sales. Net store opening and closing activity resulted in a net decrease of $6.2 million in sales.

Previous wording

*Cost of Sales (exclusive of depreciation).*Cost of sales (exclusive of depreciation) increased $15.0 million, or 6.8%, to $235.9 million in the first twenty-six weeks of 2024 from $220.9 million in the same period of 2023. Cost of sales as a percentage of sales increased to 65.0% in the first twenty-six weeks of 2024 from 62.5% in the same period of 2023. The 250 basis points increase was driven by an increase of 180 basis points of markdowns (as mentioned above) and a 180 basis points increase in shrink (as mentioned above), partially offset by a decrease of 80 basis points of freight and a decrease of 20 basis points in other cost of sales.

Current wording

*Cost of Sales (exclusive of depreciation).*Cost of sales (exclusive of depreciation) increased $11.9 million, or 3.6%, to $343.7 million in the first thirty-nine weeks of 2024 from $331.8 million in the same period of 2023. Cost of sales as a percentage of sales increased to 63.4% in the first thirty-nine weeks of 2024 from 62.3% in the same period of 2023. The 110 basis points increase was driven by an increase of 120 basis points of markdowns and a 100 basis points increase in shrink, partially offset by a decrease of 50 basis points of freight and a decrease of 60 basis points in other cost of sales.

Previous wording

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses increased $7.6 million, or 5.4%, to $148.0 million in the first twenty-six weeks of 2024 from $140.4 million in the same period of 2023. The increase was primarily driven by one-time CEO transition related expenses of $1.4 million, corporate expenses (primarily payroll, insurance and professional fees) of $5.0 million, and stores selling and advertising expense of $2.5 million, partially offset by lower incentive compensation expense of $1.9 million. As a percentage of sales, Selling, general and administrative expenses increased to 40.8% in the first twenty-six weeks of 2024 from 39.7% in the first twenty-six weeks of 2023, due to the aforementioned items.

Current wording

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses increased $12.7 million, or 6.1%, to $222.7 million in the first thirty-nine weeks of 2024 from $210.0 million in the same period of 2023. The increase was primarily driven by one-time CEO transition related expenses of $3.2 million, corporate expenses (primarily payroll, insurance and professional fees) of $6.5 million, stores selling and advertising expense of $4.7 million, and distribution center costs of $0.3 million, partially offset by lower incentive compensation expense of $2.0 million. As a percentage of sales, Selling, general and administrative expenses increased to 41.1% in the first thirty-nine weeks of 2024 from 39.4% in the first thirty-nine weeks of 2023, due to the aforementioned items.

Previous wording

*Depreciation.*Depreciation expense increased $0.2 million, or 2.0%, to $9.6 million in the first twenty-six weeks of 2024 from $9.4 million in the same period last year.

Current wording

*Depreciation.*Depreciation expense increased $0.2 million, or 1.4%, to $14.3 million in the first thirty-nine weeks of 2024 from $14.1 million in the same period last year.

Previous wording

Impairment. Non-cash impairment expense related to underperforming stores totaled $1.3 million in the first twenty-six weeks of 2024, comprised of $0.7 million for leasehold improvements and fixtures and equipment, and $0.6 million for operating lease right of use assets. There was no impairment expense in the first twenty-six weeks of 2023.

Current wording

Impairment. Non-cash impairment expense related to underperforming stores totaled $1.8 million in the first thirty-nine weeks of 2024, comprised of $0.9 million for leasehold improvements and fixtures and equipment, and $0.9 million for operating lease right of use assets. Non-cash impairment expense related to underperforming stores totaled $0.2 million in the first thirty-nine weeks of 2023, comprised primarily of leasehold improvements and fixtures and equipment.

Previous wording

*Income Tax Benefit.*Income tax benefit was $8.7 million in the first twenty-six weeks of 2024 compared to $4.0 million in the first twenty-six weeks of 2023. The effective tax rate for the twenty-six weeks of 2024 and 2023 was 28.5% and 25.3%, respectively. The difference is attributable to a higher projected net loss for full year 2024.

Current wording

*Income Tax Benefit.*Income tax benefit was $10.0 million in the first thirty-nine weeks of 2024 compared to $5.3 million in the first thirty-nine weeks of 2023. The effective tax rate for the thirty-nine weeks of 2024 and 2023 was 25.6% and 25.4%, respectively.

Previous wording

*Net (Loss) Income.*Net loss was $21.8 million in the first twenty-six weeks of 2024 compared to net loss of $11.7 million in the same period of 2023 due to the factors discussed above.

Current wording

*Net (Loss) Income.*Net loss was $29.0 million in the first thirty-nine weeks of 2024 compared to net loss of $15.5 million in the same period of 2023 due to the factors discussed above.

Previous wording

Our capital allocation strategy is to maintain adequate liquidity to prioritize investments in opportunities to profitably grow our business and maintain current operations, then to return excess cash to shareholders through our repurchase programs. Our quarter-end cash and cash equivalents balance was$59.3 million compared to cash and cash equivalents of $65.8 million at the end of the second quarter last year. Until required for other purposes, we maintain cash and cash equivalents in deposit or money market accounts.

Current wording

Our capital allocation strategy is to maintain adequate liquidity to prioritize investments in opportunities to profitably grow our business and maintain current operations, then to return excess cash to shareholders through our repurchase programs. Our quarter-end cash and cash equivalents balance was$38.9 million compared to cash and cash equivalents of $59.7 million at the end of the third quarter last year. Until required for other purposes, we maintain cash and cash equivalents in deposit or money market accounts.

Previous wording

Our quarter-end inventory balance was $135.0 million, roughly flat compared to $134.5 million at the end of the second quarter last year.

Current wording

Our quarter-end inventory balance was $127.5 million, down 1.7% compared to $129.7 million at the end of the third quarter last year.

Previous wording

Capital expenditures in the first twenty-six weeks of 2024 were $5.6 million, a decrease of $1.3 million over the first twenty-six weeks of 2023, as we pared back our investments in new stores and remodels. We anticipate capital expenditures in fiscal 2024 to be approximately $13 million, primarily for opening new stores and remodeling existing stores, combined with ongoing investments in our systems.

Current wording

Capital expenditures in the first thirty-nine weeks of 2024 were $7.6 million, a decrease of $4.0 million over the first thirty-nine weeks of 2023, as we pared back our investments in new stores and remodels. We anticipate capital expenditures in fiscal 2024 to be in the range of $14 million to $18 million, primarily for the opening of one new store and remodeling existing stores, combined with ongoing investments in our systems.

Previous wording

We did not repurchase any shares of our common stock in the first twenty-six weeks of fiscal 2024 or fiscal 2023. See Part II of this Report and Note 8 to the Financial Statements for more information.

Current wording

We did not repurchase any shares of our common stock in the first thirty-nine weeks of fiscal 2024 or fiscal 2023. See Part II of this Report and Note 8 to the Financial Statements for more information.

Previous wording

We have a revolving credit facility that matures in April 2026 and provides a $75 million credit commitment and a $25 million uncommitted“accordion” feature. Additional details of the credit facility are in Note 4 to the Financial Statements. At the end of the second quarter of 2024, we had no borrowings under the credit facility and $1.4 million in letters of credit outstanding.

Current wording

We have a revolving credit facility that matures in April 2026 and provides a $75 million credit commitment and a $25 million uncommitted“accordion” feature. Additional details of the credit facility are in Note 4 to the Financial Statements. At the end of the third quarter of 2024, we had no borrowings under the credit facility and $1.4 million in letters of credit outstanding.

Previous wording

Cash Flows From Operating Activities. Net cash used in operating activities was $14.0 million in the first twenty-six weeks of 2024 compared to $30.0 million in the same period of 2023. Sources of cash for the first twenty-six weeks of 2024 included net loss adjusted for non-cash expenses totaling $6.6 million (compared to net loss adjusted for non-cash items of $22.2 million in the first twenty-six weeks of 2023).

Current wording

Cash Flows From Operating Activities. Net cash used in operating activities was $32.3 million in the first thirty-nine weeks of 2024 compared to $32.9 million in the same period of 2023. Sources of cash for the first thirty-nine weeks of 2024 included (1) net loss adjusted for non-cash items totaling $16.1 million (compared to net loss adjusted for non-cash items of $36.0 million in the first thirty-nine weeks of 2023); (2) a decrease in inventory of $2.9 million in the first thirty-nine weeks of 2024 (compared to an increase of $23.9 million in the first thirty-nine weeks of 2023); (3) a decrease in accrued compensation of $2.9 million (compared to an increase of $1.8 million in the first thirty-nine weeks of 2023); and (4) an increase in layaway deposits of $1.2 million in the first thirty-nine weeks of 2024 (compared to an increase of $0.9 million in the same period last year).

Previous wording

Significant uses of cash from operating activities in the first twenty-six weeks of 2024 included (1) a $21.9 million decrease in accrued expenses and other long-term liabilities (compared to a $31.2 million decrease in the first twenty-six weeks of 2023) due primarily to payments of operating lease liabilities; (2) a $6.1 million increase in prepaid and other current assets (compared to a $3.8 million dollar increase in the same period last year); and (3) a $4.6 million increase in inventory (compared to a $28.7 million increase in the same period last year).

Current wording

Significant uses of cash from operating activities in the first thirty-nine weeks of 2024 included (1) a $35.9 million decrease in accrued expenses and other long-term liabilities (compared to a $45.5 million decrease in the first thirty-nine weeks of 2023) due primarily to payments of operating lease liabilities; (2) a $17.9 million decrease in accounts payable (compared to a $2.3 million decrease in the first thirty-nine weeks of 2023); and (3) a $2.3 million increase in prepaid and other current assets (compared to a $1.7 million dollar decrease in the same period last year).

Previous wording

Cash Flows From Investing Activities. Cash used in investing activities was $5.6 million in the first twenty-six weeks of 2024 compared to cash used of $6.9 million in the same period last year. Cash used in the first twenty-six weeks of fiscal 2024 and fiscal 2023 consisted of purchases of property and equipment.

Current wording

Cash Flows From Investing Activities. Cash used in investing activities was $7.6 million in the first thirty-nine weeks of 2024 compared to cash used of $10.1 million in the same period last year. Cash used in the first thirty-nine weeks of fiscal 2024 and fiscal 2023 consisted of purchases of property and equipment.

Previous wording

Cash Flows From Financing Activities. Cash used in financing activities was $0.9 million in the first twenty-six weeks of 2024 compared to $0.8 million in the same period last year. Cash used in the first twenty-six weeks of fiscal 2024 and fiscal 2023 consisted of payments to settle withholding taxes on restricted stock that vested.

Current wording

Cash Flows From Financing Activities. Cash used in financing activities was $0.9 million in the first thirty-nine weeks of 2024 compared to $0.9 million in the same period last year. Cash used in the first thirty-nine weeks of fiscal 2024 and fiscal 2023 consisted of payments to settle withholding taxes on restricted stock that vested.

Previous wording

Our principal cash requirements consist of (1) inventory purchases; (2) capital expenditures to invest in our infrastructure; and (3) operational needs, including salaries, occupancy costs, taxes and other operating costs. We may also use cash to fund any share repurchases, make any required debt payments and satisfy other contractual obligations. Historically, we have met these cash requirements using cash flow from operations and short-term trade credit. As of August 3, 2024, our contractual commitments for operating leases totaled $231.9 million (with $49.1 million due within 12 months). See Note 10 to the Financial Statements for more information regarding lease commitments.

Current wording

Our principal cash requirements consist of (1) inventory purchases; (2) capital expenditures to invest in our infrastructure; and (3) operational needs, including salaries, occupancy costs, taxes and other operating costs. We may also use cash to fund any share repurchases, make any required debt payments and satisfy other contractual obligations. Historically, we have met these cash requirements using cash flow from operations and short-term trade credit. As of November 2, 2024, our contractual commitments for operating leases totaled $225.2 million (with $49.4 million due within 12 months). See Note 10 to the Financial Statements for more information regarding lease commitments.