Citi Trends, Inc. reported unaudited results for the first quarter of fiscal 2019.

Financial Highlights – First quarter ended May 4, 2019

Total sales in the first quarter ended May 4, 2019 decreased 2.8% to $205.0 million compared with $211.0 million in the first quarter ended May 5, 2018. Comparable store sales decreased 4.5% in the quarter.

On a GAAP basis, the Company had net income of $7.8 million, or $8.7 million when adjusted for proxy contest-related expenses*, in the first quarter of 2019, compared with $11.3 million in last year’s first quarter. On a GAAP basis, earnings per diluted share in this year’s first quarter were $0.65, or $0.72 when adjusted for proxy contest-related expenses*, compared with $0.83 per diluted share in the first quarter of 2018.

Bruce Smith, President and Chief Executive Officer, commented, “First quarter comparable store sales were challenging during the four-week period in which tax refunds typically provide a lift to our sales, as tax refunds were not only delayed, but were 3% below last year in the aggregate. Our apparel business was particularly disappointing during the quarter. On a positive note, accessories and home merchandise again posted sales growth, consistent with those categories’ performance over each of the past ten years, a period in which sales of non-apparel grew from 14% of total sales to nearly 40%. Given this continued mix shift, we are working aggressively and rapidly to accelerate our offering of accessories and home assortments, while simultaneously working to improve the fashion offerings across our apparel categories.”

Smith further noted, “In addition to these efforts to improve the mix and apparel fashion, we engaged a consulting firm in March 2019 to initiate a comprehensive analysis of our merchandising, planning and allocation processes and strategies, including, among other things, our competitive landscape, best industry practices, speed-to-market, overall structure and resources. We will also establish a merchandising task force, which will operate under the oversight of a new Board committee, consisting of two of our Directors who each have many years of merchandising experience with high-performance retailers.”

Smith continued, “Importantly, as reflected in our first quarter gross margin, we took the necessary markdowns to end the period clean from an inventory perspective. We entered the second quarter with our inventories in good shape, down 1.1% in comparable stores. Our total inventory increase of 4.7% is attributable to merchandise in new stores that opened since last year’s first quarter and higher levels of distribution center inventory, including increases in next-season-buys. In addition to our merchandising efforts, we continue to look for ways to reduce costs, as reflected in first quarter S, G & A expenses that increased only $400,000, while decreasing $600,000 when adjusted for proxy contest-related expenses.*”

During the first quarter, the Company opened one new store and closed two stores.

Guidance

As the Company enters the second quarter, comparable store sales have been down 6%, against a difficult comparison last year when they were up 10% during the same period. As discussed in last year’s earnings release, the two plus-week timeframe at the beginning of the second quarter in 2018 benefited from timely warm weather. The Company believes that the quarter-to-date comparable store sales decrease of 6% will narrow during the remainder of the quarter, resulting in a full second quarter range of negative 1% to negative 3%. In the second half of the year, the Company expects comparable store sales to be up 1% to 3% as efforts to further accelerate the non-apparel sales mix and improve the apparel fashion take hold.

Based on the actual results in the first quarter, together with expectations for a comparable store sales decrease of 1% to 3% in the second quarter and comparable store sales that are up 1% to 3% in the second half of the year, the Company is lowering its earnings guidance to a range of $1.30 to $1.50 per diluted share for fiscal 2019.

Capital Return Program

The Company announced that its Board of Directors has declared a quarterly dividend of $0.08 per common share, payable on June 18, 2019, to shareholders of record as of the close of business on June 4, 2019.

During the first quarter of 2019, the Company repurchased 82,000 shares of its common stock at an aggregate cost of $1.6 million. At May 4, 2019, $8.0 million remained available under the existing stock repurchase authorization, and the Company had no debt and $80.4 million of cash and investment securities.