Citi Trends, Inc. (NASDAQ:CTRN)

CAPS Rating: 2 out of 5

A value-priced retailer of urban fashion apparel and accessories for the entire family.

Results 1 - 20 of 24 : 1 2 Next »

Recs

4
Member Avatar XMFConnor (97.84) Submitted: 6/23/2011 12:51:31 PM : Outperform Start Price: $14.78 CTRN Score: +1.31

I put some real skin in the game today-- even though my CAPS is already up like 6% on this pick. I think it is just way too cheap at less than 3X EV/EBITDA, 35% market cap in net cash, and strong growth prospects. I also like how it has fared very well in the market decline today.. may indicate that most of the selling pressure is done and that this thing has already hit its trough. Many thanks to people such as TMF1000 who helped me find this idea. I thought I'd return the favor to the CAPS/ MF community by posting my own thoughts. Fool on.

While Citi Trends (CTRN) is undeniably subject to the many risks of a rapidly growing fashion retailer, at the current price, investors are more than compensated for these risks. The company is currently selling for book value, which includes 76 mm in cash (35% of market cap). Other metrics also point towards value: TEV/EBITDA: 2.68, TEV/Sales: 0.22, P/E: 10.47. These seem too cheap for a company with an excellent balance sheet, solid management, and strong growth prospects.

Background

Citi Trends operates a chain of more than 450 retail stores selling nationally recognized clothing brands aimed at a young African American customer base. The stores sit in neighborhood shopping centers in both urban and rural settings and include trendy fashion lines such as Roca Wear, Phat Farm, Baby Phat, and Apple Bottoms by Nelly. Citi Trends also carries in-house brands and offers apparel, intimates, footwear, and accessories for men, women, kids, and infants, as well as home decor.
• Strategy: They aim to provide nationally recognized branded merchandise at discounts to department and specialty stores’ regular prices of up to 60%.
o Their merchandise offerings are designed to appeal to the preferences of fashion conscious consumers, particularly African-Americans
o Purchasing is controlled by a 25-plus member buying team located at our Savannah, Georgia headquarters and our buying office in New York, New York. We purchase merchandise through planned programs with vendors at reduced prices and opportunistically through close-outs, with the majority of our merchandise purchased for the current season and a limited quantity held for sale in future seasons.
o They have purchased merchandise from approximately 1,000 vendors in the past 12 months.
o Approximately 46% of their net sales are represented by nationally recognized brands. They also offer a wide variety of products from less recognized brands and a lesser amount representing private label products under their proprietary brands such as “Diva Blue,” “Red Ape,” “Vintage Harlem,” and “Lil Ms Hollywood.”
Strong Financial Results
• Their niche market has been hit particularly hard the past few years, but they have still been able to grow revenue and net income every single year of their 8-year existence as a public company.
• Their stores have generated rapid payback of investments, typically within 12 to 14 months.
• In 2010, they began to test a new store format with the assistance of a retail design consulting firm. They opened their first new prototype store in Savannah in July 2010 and later opened five more stores with the new prototype design. The stores feature a new color palette and logo, a new layout, new fixturing, dressing room, graphics and lighting, a redesigned checkout area and an expanded footwear department. Based on the reactions from our customers and the results of the new stores, we decided to open all new stores in the new prototype format in 2011.
o From 10-Q: “There were thirteen stores relocated or expanded since last year’s first quarter, all of which impacted comparable store sales. Sales in comparable relocated and expanded stores increased 5.4% in the first quarter of 2011, while sales in all other comparable stores decreased 7.5%.” I can see why the new stores have done better—they are pretty cool. I think these stores will continue to be successful and help them boost sales.
? http://files.shareholder.com/downloads/CTRN/1281571083x0x405640/1a81fa71-12d7-4765-8391-9ec0b530656c/citiNew_Store_Prototype.pdf

Why the Opportunity Exists

CTRN’s stock was hammered on May 17 after it indicated EPS guidance of $1.25-$1.35 for fiscal 2011, much lower than analysts’ consensus estimate of $1.54. Also, they said same store sales should be down 1-2%, including a 1-2% increase in the last three quarters of the year. The stock fell from $21 to $17 and has now drifted down to its 52 week low just below $15.

While the guidance was disappointing, I think that the stock market overreacted for three reasons:

1) The first quarter of 2010 made for a tough comparison since same stores sales were up 9.6%
a. Furthermore, the company did say that same store sales should increase 1-2% in the last three quarters of the year

2) The Store Renovations seem to be a big success
b. As mentioned above, sales in comparable relocated and expanded stores increased 5.4% in the first quarter of 2011, while sales in all other comparable stores decreased 7.5%. While the renovations only occurred over 13 of their stores, I think that there is a good chance that the remodeling efforts continue to have this level of success and can be applied to both future store openings and their existing stores.

3) Management seems to be taking the right steps to keep CTRN in the right direction
i. Their CEO, David Alexander, has 30 years of retail experience including ten years with Family Dollar Stores. I think that the decision to test the new store format at the beginning of 2010 will turn out to be a great move. In addition, their brand sales did significantly worse than their non-branded sales or what they call their fashion merchandise. He plans to focus on shifting the brands in his stores, scrapping the worst sellers, and increasing exposure to the best-selling items
In short, I think that the market overreacted to one quarter to lower guidance.

While disappointing, I think it is merely a bump in the long road of growth that Citi Trends still has in front of it.

a. The Company has 473 stores in 27 states, but about 42% of those stores are in only four states. I think that they can approximately double their store count without saturating the market. Just as a reference, there are 890 current TJ Maxx stores.
b. The company is accelerating the rate of store growth from 60 last year to a planned 65-70 this year.
c. It only recently launched a Facebook fan page. After 4 months, it already has over 121,000 fans: https://www.facebook.com/cititrends

• They are currently estimating 2011 earnings per share in a range of approximately $1.25 to $1.35, which includes an assumption that comparable store sales will be up 1% to 2% in the final 3 quarters of the year. Using comp multiples on the low and high end (10-16X ttm earnings), this would result in a fair price in the range of $12.50- $21.60. This equates to $2.33 of downside risk and $6.77 of upside, or a nearly 3:1 risk/reward from the current market price.

Conclusion

The bottom line is that the market hammered Citi Trends (CTRN) after missing guidance, but there are a lot of reasons to think that this was overdone. Ignoring their large capex spend for their new distribution facility (which should last the company for the next five years), the company would have had positive FCF last year. At less than 3X EV/EBITDA, I think a lot of the potential concerns about CTRN’s future are already price into the stock, and investors get an opportunity to pick up a fast-growing, differentiated retailer with a large margin of safety.

Recs

0
Member Avatar btthus (24.82) Submitted: 5/26/2011 1:05:23 AM : Outperform Start Price: $16.70 CTRN Score: -12.14

Held by insiders   98.2%   
Held by institutions   12.1%   

Recs

1
Member Avatar colddrink73 (93.91) Submitted: 5/23/2011 10:51:27 AM : Outperform Start Price: $16.70 CTRN Score: -12.19

Ummm I think that the drop may have been a lilttle bit oveer down. Looking for a bounce and a recovery.

Recs

2
Member Avatar tenmiles (99.40) Submitted: 5/18/2011 9:45:33 AM : Outperform Start Price: $17.06 CTRN Score: -13.55

Likely long term value around $17 for this debt free retailer with almost 30% of market cap in cash - potential free takeover "option" given from these levels.

Recs

0
Member Avatar smith972 (79.08) Submitted: 2/24/2011 4:47:50 PM : Outperform Start Price: $21.40 CTRN Score: -44.30

HG with no debt. I will go with it.

Recs

0
Member Avatar SorosTracking (49.37) Submitted: 2/22/2010 7:54:51 AM : Outperform Start Price: $29.86 CTRN Score: -103.94

1,198,157 owned
- Q409 13F - Soros Fund Management LLC

Recs

0
Member Avatar hrtrader (< 20) Submitted: 6/25/2009 9:34:07 AM : Underperform Start Price: $23.53 CTRN Score: +125.63

among the overprice retailers, chart appears to be topping

Recs

0
Member Avatar jstegma (29.40) Submitted: 5/12/2009 2:39:02 PM : Underperform Start Price: $11.45 CTRN Score: +37.12

Retail is way overpriced right now. This is one of the areas that is going to get hit the hardest by increasing unemployment. The rate of job losses may have slowed, but employment is still definitely in a negative trend that is unlikely to reverse any time soon. Spending and lifestyle changes still lay in the future for many Americans. Stay away from discretionary retail that can easily be substituted for with something cheaper.

Recs

0
Member Avatar supercoffee (98.25) Submitted: 7/31/2008 5:06:03 PM : Underperform Start Price: $23.12 CTRN Score: +63.44

NEED MORE LOCATIONS

Recs

0
Member Avatar ctd1892 (< 20) Submitted: 4/11/2008 3:37:35 PM : Outperform Start Price: $14.86 CTRN Score: -1.11

Discount retailer of close-outs and cancellations. IPO less than 2 years ago and topped out around $45 per share. Recent concerns regarding internal theft have adversely impacted the stock price. New store openings remain on track at > 100 per year. Outside consulting has provided guidance that should be reflected no later than the Q3 results.

Recs

0
Member Avatar Dublin063 (50.74) Submitted: 4/8/2008 5:52:04 PM : Outperform Start Price: $19.00 CTRN Score: -32.94

Shares of Citi Trends Inc. are rising, after the apparel maker said fourth-quarter profit beat expectations and it offered a strong 2008 forecast.

The company forecast a profit of $1.10 to $1.15 per share, while analysts polled by Thomson Financial predict a profit of $1 per share. Citi Trends said fourth-quarter net income fell 19 percent to $8.4 million, or 59 cents per share, as it increased markdowns to clear inventory. Analysts expected a smaller profit of 44 cents per share.

Wachovia Capital Markets analyst Lyn Rhoads Walther said the company has made a number of changes to help profit, including paring down inventory, installing surveillance cameras to reduce theft and more closely aligning payroll hours with sales.

Recs

0
Member Avatar mvsramakrishna (45.39) Submitted: 3/28/2008 6:55:09 AM : Outperform Start Price: $19.04 CTRN Score: -34.37

Nice clean balance sheet

Recs

0
Member Avatar ANALYST10 (93.47) Submitted: 11/28/2007 12:57:17 PM : Underperform Start Price: $17.00 CTRN Score: +6.43

Latest Earning Report this past week WAS weak, as is the fashion-mix for this company.

Combine this with the downward trending apparel market this holday season and you have a worsening picture for 1st Quarter '08.

The latest major swing to a loss combined with the company's lowered guidance should raise a big enough red flag.

If you must be in Retail, there are many other more attractive options than CTRN, which will not recover until well into 2008 (if then).

Recs

0
Member Avatar TimmyTheGeek (53.21) Submitted: 11/26/2007 3:48:01 PM : Outperform Start Price: $14.50 CTRN Score: +13.48

Ok. I'm making this pick minutes before they announce earnings so I'm guessing we're near bottom. They've already lowered guidance, recognized trouble with inventory levels and inside theft. I'm guessing they will make improvements in these areas. Also, p/e is too low to resist, cash flow is not a problem, and southeast region where they operate is probably not the worst place to be now, while other regions offer future growth options.

Recs

0
Member Avatar sugardadE (98.23) Submitted: 8/28/2007 12:34:02 PM : Outperform Start Price: $24.06 CTRN Score: -49.36

Bottoming out now. The institutional investors made their money and are dumping the stock. Long-term the story looks good. CTRN is almost totally based in the south now. East Coast penetration no farther than Baltimore. Think of all the untapped ghetto markets. NJ/NY and California are beckoning. I did go to a store to check it out and almost got shot. The things I do to make money....

Recs

0
Member Avatar NetscribeRetail (93.03) Submitted: 5/30/2007 6:40:40 AM : Underperform Start Price: $37.91 CTRN Score: +80.20



Trends for the Citi Trends (CTRN) do not seem to follow a healthy trend considering the unsupportive market conditions. Although, revenues in the first quarter of fiscal 2007 which is one of the best selling quarter has spurt by 16.2 percent, the bottom-line suffered, as a result of massive deleveraging in the operating expenses. Easter has been one of the prime selling period of the company however, unseasonably cool weather has curtailed the sales of spring and summer apparel in 2007 thereby truncating the revenue growth immensely.

Lately, SG&A expenses were the main culprits in the reduced net income of the company. These expenses are primarily related to store opening and distribution and corporate costs related to the openings. Management has plans to open 28 to 30 more stores in the remaining period of fiscal 2007. However, the probability of driving sales in the future arouses skepticism as the economic slowdown and rising oil prices would aggravate consumer spending. This could put pressure on the margins considering the expenses incurred to build new stores.

Target market for the company, which is African Americans, looks good considering their wide presence in southeast and the spending levels. However, management expects bleak same-store sales growth for fiscal 2007 based on the poor revenue performance in the best season. As a result, company expects a measly over 8% rise in their EPS, which is much lower than the historical levels. Thus, CTRN looks pretty expensive scrip to buy at the current levels.

Recs

1
Member Avatar ByteTinker (93.79) Submitted: 2/18/2007 4:03:04 PM : Outperform Start Price: $44.25 CTRN Score: -95.67

A regional to national story. Lots of room for growth

Recs

0
Member Avatar dixiecarr (< 20) Submitted: 1/3/2007 10:09:06 AM : Outperform Start Price: $39.22 CTRN Score: -91.02

Great growth potential in the african american market.

Recs

1
Member Avatar corrida (47.56) Submitted: 11/26/2006 10:08:38 AM : Outperform Start Price: $43.12 CTRN Score: -99.97

A regional to national story. Month to month sales increases bode well for this company. Recent spike in price does not make in an ideal time to buy. Suggest waiting for a drop to under 40 and then grabbing a bite.

Recs

0
Member Avatar killthebear (75.32) Submitted: 10/5/2006 11:49:42 PM : Underperform Start Price: $36.67 CTRN Score: +96.35

this stock is WAY OVERPRICED...I will close my position at $25

Results 1 - 20 of 24 : 1 2 Next »

Featured Broker Partners


Advertisement