Citi Trends Slips to Underperform - Analyst Blog
April 08 2013 - 6:10AM
Zacks
We downgraded our long-term recommendation on Citi
Trends Inc. (CTRN) to Underperform with a target price of
$9.50, based on continued losses suffered over the past several
quarters as well as a troubled ladies apparel division.
Why the Downgrade?
Citi Trends posted loss per share of $0.05 in the fourth quarter.
Although the company’s losses narrowed from $0.36 reported in the
year-ago quarter and compared favorably with the Zacks Consensus
Estimate of a loss of $0.07 per share, it continues to struggle to
resolve fashion issues in its ladies apparel division. Net sales
declined 1.5% to $175.7 million and missed the Zacks Consensus
Estimate of $186 million.
Though the company has made significant progress in resolving
pricing issues and remains on track to resolve fashion issues in
2013, the company expects its first and fourth quarter of fiscal
2013 to be impacted by the shift of one week of fiscal 2013 in
fiscal 2012, due to the additional week that was accounted for in
fiscal 2012.
Following the dismal fourth-quarter earnings results, the Zacks
Consensus Estimate for the first quarter of fiscal 2013 has gone
down considerably. The Zacks Consensus Estimate for the first
quarter has been lowered by 13.8% to 56 cents in the last 30
days.
Cause for Concern
Operating in the consumer-driven retail industry, we believe Citi
Trends remains significantly impacted by the macroeconomic issues,
wherein its customers continue to feel the pinch of increased
payroll tax, higher fuel prices, high unemployment rate and delayed
tax refunds. Moreover, the seasonal nature of the company’s
business typically generates stronger sales during the first and
fourth quarters, which are characterized by the spring and holiday
seasons. As a result, the company is exposed to significant risks
if the seasons fail to deliver the expected operating
performance.
Additionally, the highly fragmented specialty retail sector compels
Citi Trends to compete with larger off-price rivals, mass merchants
as well as smaller specialty retailers on the basis of fashion,
quality and service. To retain its existing market share, the
company may have to reduce its sales prices, which could affect its
margins.
Given the fourth-quarter results and the limited near-term
catalysts, we expect the company’s share performance to remain
strained in the near term.
Specialty Retail Stocks That Warrant a Look
While we prefer to avoid Citi Trends until we see signs of
improvement in the company's performance, other specialty retail
stocks worth a look are Sears Holdings Corp.
(SHLD), Costco Wholesale Corp. (COST) and
Bebe Store Inc. (BEBE). Sears Holdings has a Zacks
Rank #1 (Strong Buy), while Costco and Bebe hold a Zacks Rank #2
(Buy).
BEBE STORES INC (BEBE): Free Stock Analysis Report
COSTCO WHOLE CP (COST): Free Stock Analysis Report
CITI TRENDS INC (CTRN): Free Stock Analysis Report
SEARS HLDG CP (SHLD): Free Stock Analysis Report
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