管理層發言
Greetings. Welcome to Citi Trends First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note I will now turn the conference over to Nitza McKee, Senior Associate at ICR. Thank you. You may begin.
Thank you, and good morning, everyone. Thank you for joining us on Citi Trends First Quarter 2026 Earnings Call. On our call today is Chief Executive Officer Kenneth Seipel and Chief Financial Officer Heather Plutino. Our earnings release was sent out this morning at 6:45 a.m. Eastern time. If you have not received a copy of the release, it is available on the company's website under the Investor Relations section at www.cititrends.com. You should be aware that prepared remarks made today during this call may contain non-GAAP information and forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance. Therefore, you should not place undue reliance on these statements. We refer you to the company's most recent report on Form 10-K and other subsequent filings with the Securities and Exchange Commission for a more detailed discussion of the factors that can cause actual results to differ materially from those described in the forward-looking statements. I will now turn the call over to our Chief Executive Officer, Kenneth Seipel. Kenneth?
Thank you, Nitza. Well, good morning, everyone, and thank you for joining us today for our first quarter 2026 Earnings Call. Simply stated, we had an excellent quarter. Building on the powerful momentum from 2025, nearly every metric accelerated during Q1 2026. And we are seeing strong momentum early in Q2 as well with quarter-to-date comps in the high single digits, which is validating that our strategy is working and our execution is becoming increasingly consistent. As noted in our prerelease last week, in Q1 we generated $13.9 million of adjusted EBITDA, which more than doubles last year's $6.4 million. Our profit improvement was driven by exceptional comparable store sales growth of 13.9%, representing a two-year stack of 23.8% and also marking a 21st consecutive month of sales growth for the company. Our performance was broad based, with sales increases across all product divisions and all store climate zones. While a portion of the quarter benefited from tax refund timing, I would like to highlight that our sales trends before and after the tax refund period on a two-year basis are in the upper teens, consistent with the momentum we delivered in Q3 and Q4 of 2025. And the two-year upper-teens growth trend has continued now in Q2. Our sales growth is being driven by refinements of trend, style, and value of our core merchandising assortment. We also utilize extreme value deals periodically to add excitement to the treasure hunt for our customers. The strong performance of our core merchandising strategy gives us confidence in the durability and sustainability of our top-line performance. Our gross margin rate expanded by 40 basis points, driven by improved merchandise margin rate, partially offset by increased fuel surcharge expense in the freight line. SG&A was well controlled and leveraged by 250 basis points versus last year. I was particularly encouraged by our transaction growth. Consistent with 2025 performance, nearly half of our sales increase was driven by increased customer traffic, a key indicator that our product and brand are resonating. At the same time, we saw meaningful improvement in our basket size, which demonstrates that our customers are responding to the strength of our assortment and the compelling value that we are delivering. From a merchandise perspective, we saw disciplined execution across the business. Family footwear continued its momentum from Q4, with customers responding enthusiastically to expanded branded offerings at exceptional value across all genders. In footwear, our off-price and extreme-value strategy continues to gain momentum driving both traffic and basket growth. Men's also delivered a very strong quarter, driven by increased relevance in streetwear trends for young men. Our updated strategy successfully balances trend-forward product for the younger customer while continuing to serve the style and preferences of our core male customer with updated styling, compelling values, and improved in-stocks. Children's had another strong quarter, benefiting from improved in-stock levels and attention to detail in product selection, which creates stronger value positioning. As I mentioned on the Q4 call, our children's business has become both a cornerstone of our company and a model of consistent disciplined execution. The team continues to deliver highly desired styles, consistent value, and improved inventory in-stock positioning. Women's accessories also posted meaningful gains, which reflects early success in our assortment adjustments to more branded, trend-right product. We were encouraged by customer response to improvements in our women's apparel business, especially in Missy. Women's apparel represents a significant opportunity as we continue to reposition our women's business to fully capture the style, trend, and sizing opportunities that we see in the market. This product momentum is a result of continued refinement of our three-tiered good, better, and best strategy across all merchandising divisions. What is important to note here is that we are serving customers across a wide range of income levels, including a meaningful portion of middle and higher-income consumers. This creates a significant opportunity for us to expand our offering of recognizable brands at compelling prices that align with our style and trend expectations. At the opening price point, we continue to deliver strong value through our CitiScore offering for budget-conscious customers. The foundation of our business remains the better tier, which is typically priced between $7 and $12, where we provide a broad assortment of trend-right product that drives consistency and loyalty. At the top end, we are continuing to expand our best tier through both fashion-forward product and branded extreme-value opportunities, often with extreme discounts up to 75% off MSRP. These product strategies, combined with improved discipline in our open-to-buy process and continued benefits from our AI-driven allocation systems, are driving stronger inventory productivity and improved margin performance. In marketing, our objective is to deepen the connection with our customers and reinforce the role we play in the communities that we serve. In Q1, we extended the momentum from our highly successful holiday 'Joy Looks Good On You' campaign by inviting customers to help modernize the Citi Trends jingle. Engagement exceeded expectations, generating strong social reach and viral moments while also driving incremental store traffic. By quarter end, we had received a meaningful volume of customer submissions, and in Q2 we will select the finalists from those submissions, with the winning jingle expected to be deployed in the second half of the year. Now turning to operations. The SG&A leverage we delivered in the quarter reflects more consistent execution across the organization. As we improve execution, we are able to better leverage the fixed portion of our cost structure without adding commensurate expense as the business grows. I am pleased with the progress across our stores, headquarters, and our distribution centers in controlling costs and improving overall operating disciplines. From a store growth point of view, we opened two new stores during the quarter, one in St. Louis and one in Baltimore. These two locations, along with the three new stores from last fall, are serving as test stores for us as we refine our processes and prepare for accelerating store growth. I am very pleased to report that our new stores are all performing above expectations. As a reminder, one of our primary points of differentiation is our neighborhood store locations, which are embedded in communities where we build trust over many years. The combination of convenience, proximity, and strong word-of-mouth recommendations create sustainable, powerful traffic drivers. Now I will turn the call over to Heather to walk through Q1 financial results in more detail as well as our updated 2026 outlook, and then I will return after her remarks to discuss our priorities for the remainder of 2026. Heather?
Thanks, Kenneth, and good morning, everyone. I am pleased to walk you through our first quarter results and our updated and improved outlook for 2026. We delivered a strong first quarter driven by top-line growth, gross margin expansion, and disciplined expense management, resulting in adjusted EBITDA of $13.9 million, a $7.5 million increase over last year's Q1 adjusted EBITDA of $6.4 million. These results reflect the continued progress of our strategic transformation and the strength of our operating model. Total sales for the first quarter were $231 million, a 14.4% increase versus Q1 2025. Comparable store sales increased 13.9%, ahead of our expectations, driven by both increased transactions and higher average basket. On a two-year stack basis, comps increased 23.8%. Q1 2026 marks our seventh consecutive quarter and 21st straight month of comp sales growth. As Ken mentioned, our comp sales growth trend on a two-year basis before and after the tax refund season has been consistently in the upper teens, including Q2 performance to date. In the quarter, gross margin increased 40 basis points versus last year to 40%, driven by improved merchandise margin, fueled by our strategic investments in allocation and loss-prevention systems and updated processes. These tailwinds were partially offset by higher freight expense. Freight was higher than planned due to rising fuel surcharges. We expect that headwind to continue throughout the year, and we have incorporated its impact into the updated outlook I will walk you through shortly. First-quarter adjusted SG&A expenses totaled $78.3 million compared to $73.4 million a year ago. The increase was mainly driven by expenses to support higher sales. In addition, we had higher store and corporate bonus accruals from improved performance. As a rate of sales, adjusted SG&A for the quarter was 33.9%, leveraging 250 basis points versus last year, demonstrating our ability to leverage our cost structure with higher sales. As I mentioned earlier, Q1 adjusted EBITDA grew $7.5 million over last year to $13.9 million, with adjusted EBITDA margin expanding 280 basis points to 6% as a rate of sales. During the quarter, we opened two stores and closed one location, ending the quarter with 591 stores. We remodeled 25 stores, completing a significant portion of our full-year program in time for the important Q1 tax refund season, or TACMS as we call it. In early Q2, we remodeled an additional 26 locations, completing our remodel program. Now turning to the balance sheet. I am pleased to say that we drove our 13.9% Q1 comp with quarter-end total inventory up only 4.8% versus last year, reflecting our ongoing inventory efficiency initiatives. Our balance sheet remains healthy with $81.1 million in cash at the end of the quarter, no debt, and no drawings on our $75 million revolver. As we have said in several prior investor presentations, we expect our year-end cash balance to be approximately flat to last year's $66 million, reflecting investments in inventory and capital projects, particularly new stores and remodels over the balance of the year. Throughout the year, we expect to remain in a strong financial position, affording us the flexibility to pursue strategic alternatives. Turning to our guidance. With the results of our first quarter, we are updating our outlook for fiscal 2026 as follows: We expect comparable store sales growth of 8% to 10% for the year. With our Q1 comp results, this implies high single-digit comps for the balance of the year. Total sales are expected to grow in a range of 9% to 11%. Gross margin is expected to expand 50 to 70 basis points compared to 39.6% in fiscal 2025 as we continue to leverage new systems and processes to drive improvements in markdowns and shrink, partially offset by higher freight expense due to the fuel surcharges I mentioned earlier. Our revised expectation for freight expense drove the decrease from our prior outlook of 100 basis points of margin rate expansion. We now expect adjusted SG&A leverage in the range of 140 to 160 basis points versus fiscal 2025, higher than our previous outlook of 70 to 100 basis points of leverage due to the impact of higher sales as well as ongoing disciplined expense control. Adjusted EBITDA is expected to be in the range of $35 million to $40 million, with adjusted EBITDA margin expected to expand 200 basis points over fiscal 2025. Our real estate plans are unchanged from the previous outlook, with plans to open approximately 25 new stores, to close four locations, and to remodel approximately 50 locations. Finally, full-year capital expenditures are expected to be in the range of $35 million to $40 million, consistent with the previous outlook. In closing, Q1 represents a strong start to 2026, reflecting the operational foundation we built last year and the continued execution of our strategic priorities. We remain focused on driving sustainable, profitable growth through disciplined inventory management, operational efficiency, and targeted investments in our business. We are confident in our long-term trajectory and our ability to deliver meaningful value for our shareholders. I want to thank our teams across the organization for their continued dedication and hard work which is enabling this transformation. We look forward to updating you, our investors, on our progress next quarter. With that, I will hand the call back over to Kenneth. Kenneth?
All right. Well, thank you, Heather. So as we look ahead to the balance of 2026, we are firmly in the execute phase of our growth plan, focused on delivering against our customer brand promise. Our customers are discerning. They understand that value is more than just price, and they are willing to spend more when the style is right, the trend is relevant, and quality meets their expectations. In short, value is not just price. Our brand promise is very clear: styles that see you, prices that amaze you, and trends that tell your story. Our teams are focused every day on bringing that promise to life for our customers. To support this, we have established three clear priorities in 2026: consistent execution, strong sales flow-through to profit, and accelerated growth. First, consistent execution. As I mentioned earlier, our sales growth is being driven by refinements in trend, style, and value of our everyday core merchandising assortment. Consistent execution of our merchandise strategy gives us confidence in achieving upper single-digit comparable store sales growth this year and in the foreseeable future. A key focus will be repositioning our women's business to fully capture the style, trend, and sizing opportunities in the market across juniors, plus, and Missy. Updating our product offerings to ensure trend-right merchandise is front and center for all female customers represents a meaningful opportunity to drive both traffic and sales. Throughout 2026, we will maintain our disciplined focus on improved style, trend, and value across all product categories, and we will continue to apply the learnings from our strongest performing categories like men's and children's to elevate execution companywide. Our product team has sharpened focus on trend identification, brand curation, and style development. From opening price points to premium branded fashion, our merchant team translates these trends into compelling styles that deliver exceptional value to our customers and meaningful margin to the business. Each season, we are improving our product trend and style execution while leveraging AI to optimize product allocation to the correct store. This creates a long runway of growth as we continue to develop and refine product execution. We have continued opportunity to expand off-price and extreme-value buying capabilities, ensuring a steady flow of compelling brands and products at exceptional value. Extreme-value products are driving both traffic and basket growth while supporting margin performance. The off-price market remains robust, allowing us to be highly selective, which is a key advantage for our model and core to our competitive advantage. We have already secured several strong deals that will support continued momentum into the back half of the year. On the marketing front, we are focused on consistent execution throughout the year. This includes expanding our social and influencer presence, deepening community engagement, and ensuring that our brand is authentically represented in everything we do. This is not just about visibility; it is about deepening relationships and reinforcing Citi Trends in the communities we proudly serve. Our second priority is ensuring strong sales growth with flow-through to profit. Incremental sales are going to translate into accelerated profit growth. Our plan in 2026 calls for about a 10% sales growth while more than doubling EBITDA, making this a pivotal year in the evolution of our profit profile. Foundational to profit flow-through is leveraging our highly fixed expense base as we grow. Best practices implemented during the repair phase and operational areas of the business are beginning to have a positive impact on our cost structure, enabling us to grow sales more efficiently. In addition, we have several tangible initiatives supporting this objective, including our AI-based allocation systems, enhanced store technologies to reduce shrink, and our ongoing supply chain improvements to increase capacity and efficiency. We continue to leverage KPI dashboards across all functions to ensure disciplined execution. A benefit of our improved execution is our ability to absorb macroeconomic challenges like increased fuel charges into our business while still achieving our profit flow-through objectives. Our third priority is accelerated growth, which will be disciplined, return-focused, and strategic. First, beginning in July, we are going to launch our customer relationship management system that we are calling the Insiders Club. The Insiders Club turns traffic into loyalty, loyalty into frequency, and frequency into EBITDA. We are making a deliberate investment in owning our customer relationship and building a sustainable, data-driven growth engine that compounds over time. The objective is to invest early to build customer relationships, and then as the CRM system learns and scales, it becomes a meaningful contributor to long-term shareholder value. The Insiders Club transforms Citi Trends from a transaction-based retailer into a relationship-driven brand. It allows us to know our customer, reward our customer, and grow with our customer while reinforcing the treasure-hunting excitement that makes shopping with us an experience. We will begin activation of the Insiders Club this July and expect the program to build momentum rapidly. We also remain on track with our store growth plans. As Heather mentioned, we have completed 51 remodels so far this year, and we expect to open a total of 25 new stores for the remainder of the year while preparing to accelerate our expansion in 2027. Our approach is grounded on data-driven site selection, local market expertise, and disciplined financial criteria. Using AI tools, we have analyzed three years of actual transaction data from every store location combined with comprehensive geolocation studies to understand the specific customer and market characteristics that drive success. This AI data-driven approach has demonstrated approximately a 90% accuracy in sales prediction, helping us to identify and replicate our most successful store profiles while minimizing risk as we expand our footprint. Beyond the analytics, we are applying strict financial criteria to every new store decision, targeting mature store averages of approximately $1.5 million in sales and mid-teens four-wall contribution margins. Our early results from our newest stores are exceeding expectations, giving us the confidence to accelerate to approximately 40 new stores in 2027. Equally important to our growth initiatives is the growth of our people. We are a company that facilitates the continuous learning and development of all employees to transform, adapt to changes, and improve performance, positioning us to maximize growth opportunities as they arise. As part of that initiative, we are focusing on succession planning for our key leadership roles to ensure continuity of the transformation plan while strengthening our bench talent. Our strong, debt-free balance sheet enables us to explore multiple avenues of growth beyond our current three-year plan. Our strategy is to build a strong organic growth foundation, accelerate expansion where the economics are compelling, and selectively pursue transformational opportunities. We are beginning to evaluate synergistic acquisition opportunities that align with and complement our strategic priorities. We are committed to applying the same disciplined approach to our customer focus, product, execution, and financial returns that has driven our turnaround so far and has generated significant shareholder value creation. So in closing, progress at Citi Trends is well underway. Our track record of consistent comparable store sales increases shows our strategy is working. Our execution is more consistent and our customer connection is stronger than ever. We are debt-free, disciplined, and positioned for growth. We have a clear path to profitable expansion, stronger earnings, and lasting shareholder value. We are clearly focused on our customer. The foundation is stronger and the opportunity ahead is significant. We still have a lot of processes to refine, product categories to optimize, systems to build, and growth opportunities to maximize. We are more than a retailer. We are a neighborhood destination for Black families, delivering style, trend, value, and trust that no one else can deliver. I am confident in our strategy and our team's ability to execute. The foundation we built positions us well for growth throughout 2026 and beyond. Thank you all for your continued support. I will turn it to the operator now for any questions.
分析師問答
Thank you. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the queue. We ask that you wait one moment while we poll for questions. Our first question is from Michael Baker with D.A. Davidson. Please proceed.
Okay. Thanks, guys. So you kind of alluded to the impact of tax refunds. It sounds like it probably helped, but certainly more to it than that. You talked on the period before and after. What do you consider the tax refund period? Or maybe another way to ask this — can you just tell us your monthly trends?
Mike, the most relevant period for the tax refund trend for us is really from about mid-February up to this year, right through the Easter period. For the most part, six to seven weeks is what we would account for the majority of the tax refunds that flowed into the market. When we talk about sales trends prior to that, that includes a bit of January performance as well. But going into February 15 and then coming out after Easter, and even through last week, our trends have remained very consistent with what we experienced in Q3 and Q4. So we have been very encouraged about the overall underlying health of the business. As we noted in Q1, sales spiked up to 23.8% on a two-year basis, which is better than we had been performing. We believe that gap between our baseline and that upside is probably attributed dominantly to the tax refunds in that period, but we are very encouraged about the health on either side of it.
Yeah. Okay. That makes sense. Then I will keep it to one question and one follow-up. This does follow up on that. I think Kenneth, I heard you say high single digits for the foreseeable future. Did I hear that right? And what to you is the foreseeable future?
Yes, Mike, you heard that correctly. When I referred to the 'foreseeable future,' I was speaking specifically about our merchandising plans in place through the balance of this year, through 2026. We are taking a hard look at 2027 right now, and that may moderate a little bit and get into more of the mid-single-digits as we go forward. But the point is we see a long runway of continued increases. Investors often ask whether we can continue to comp the comp, and we have a great deal of confidence in that. There are many merchandising opportunities that we have on the table. We can go store by store, category by category, and continue improving our three-tiered assortment and delivering better value to the consumer. So we see a big ramp up this year, and that will continue, and we do see continued success beyond, but to be clear, I was speaking about the foreseeable future being through the end of this year.
Perfect. Appreciate the color. I will turn it over to someone else.
Our next question is from Jeremy Hamblin with Craig Hallum Capital Group. Please proceed.
Thanks, and congrats on the strength of the business. So as a follow-up, you noted men's category very strong, children's very strong, women's accessories, footwear. In terms of thinking about where you see the biggest opportunities not just for the remainder of 2026 but as we get into 2027, what are the categories where you feel you can really attack and improve? What are the drivers of that? Is it more consistency of the merchandise? Is it more national brands or close-out off-price deals? Any color on the merchandising strategy would be helpful.
We have done a good deal of analytics to think about long-term opportunity for store productivity and which categories inside our box can provide outsized growth. You can go department by department and find significant opportunity across the board. For example, our shoe department has done a nice job the last two quarters. I am very pleased with their results, and they are at the very beginning. We see a path to probably more than double that department over time. We have quite a bit of work to do to get that done, but there is significant growth there. The other area of growth that is probably most significant is broad appeal to our higher-income consumers. They have been responding extremely well, and as we continue to reposition fashion and trend, we are getting strong responses. You might remember in Q4 last year, we launched Young Men's Trend, which was highly successful and has continued into today. We are just beginning to understand how large that business can be. There is a significant opportunity there to continue to mature what is a fairly new business for us. The same is true in our women's division. We are just launching some trends, and I am very excited about the team's work for Q3. The styles are right, the trends are right, and we are making some different investments there. There will be a breaking-out moment for our women's fashion team. Complementary to that, we are exploring implementation and expansion of the Missy category. The point is there is a lot of significant opportunity just getting better at our three-tiered strategy—good, better, best—around the store. Extreme value is fun and drives excitement and traffic, but it is essentially the icing on the cake for us. It is complementary to our core merchandising strategy; we are not reliant on it as our growth engine.
Got it. And then switching gears to unit growth. You are starting to exercise that muscle, accelerating to mid-single-digit growth and potentially beyond as we get into 2027. I wanted to understand the cadence of openings. You opened two in Q1. How should we think about the remainder of the year? And when you get into a more consistent unit growth algorithm, how should we think about the timing of unit openings throughout the year?
We plan to put our new-store cycle on three cycles a year so we can open new stores into peak periods with our best merchandising. That means opening a block of stores in February in advance of tax season, a block in mid-July in advance of back-to-school, and another block in October ahead of holiday. Those three opening cycles will improve our execution and ensure new stores have our best foot forward into peak seasons, allowing us to mature those stores more rapidly. In 2026, we are just getting started, so our opening cadence is a little irregular this year. I would not use 2026 as a proxy; 2027 and beyond will follow the cadence I just described. Heather, would you fill in for Jeremy relative to the remainder of 2026 opening cadence?
For sure. We opened the two stores in February in time for the tax season. We are thinking three to five openings in the July period and then the balance of the planned openings later this year. Again, that speaks to Kenneth's point: 2026 is not a 'normal' go-forward ramp; it is us getting our legs under us.
Great. That is helpful. If I could just sneak one more in on some of the margin color: you noted fuel surcharges across the industry. Can you speak a bit to your inventory shrink performance? And given the really strong comps and comping the comp, can you give color on incentive compensation and whether accrual for that also went up for the year given the strong performance?
I'll start with gross margin. Fuel surcharges were not in our initial guide and are an industry issue; they caused our change in outlook for gross margin from an expected 100 basis points of expansion to the updated guidance. We are seeing positive movement as expected from both markdowns and shrink—those are the tailwinds I referenced. Shrink is improving and markdowns are improving because of investments we've made in AI-based systems and AI-based camera systems, both of which are driving positive results in gross margin. But fuel surcharges are real, we expect them to continue for the balance of the year, and we've incorporated that into the guide. Regarding incentive compensation, we did something a bit different this year and adjusted the incentive compensation accrual in Q1. Last year we were making catch-up accrual adjustments throughout the year, so we decided to take a hard look early. Yes, we adjusted up the incentive comp accrual. We started the year at 100% and are now at about 128%. I'm not unhappy about that, and I'm sure the whole team is pretty happy about it too.
No doubt. Well earned as well. Thanks for taking the questions, and best wishes.
Thanks, Jeremy.
There are no further questions at this time. I would like to turn the floor back over to Kenneth for closing remarks.
All right. Well, thank you again, everyone, for joining us for our call. We appreciate your continued support of our brand. We look forward to talking to you next quarter. Thank you.
Thank you. This will conclude today's conference. You may disconnect at any time, and thank you for your participation.