Citi Trends, Inc. (NDAQ: CTRN) hasn't had much of a trend the last few years as it has swung widely from profits to losses and back. However, the company is hoping to change that in 2008 with a series of changes designed to stabilize its earnings and unlock value for shareholders.
Citi announced a decrease in its earnings for 2007 as its earnings came in at $0.59 in the fourth quarter compared to $0.73 during the same time last year. The decline came as a result of negative same-store sales and a related need to increase clearance markdowns along with the inclusion of an extra week in 2006. Net income also took a hit as the company's profits dropped from $21.4 million in Q4 2006 to only $14.2 million in Q4 2007.
Sales increased 6.2% from $126.8 million to $134.6 million, but this can likely be attributed to the increase in clearance markdowns. Citi effectively sold more products at a discount, which boosted its sales at the expense of its net income and profit margin. Meanwhile, the 1% growth in same-stores sales suggests that the majority of any growth that did occur was at new stores - an unsustainable paradigm.
The sunny side of the story - and cause for today's celebration - was Citi's positive outlook. The company estimated 2008 earnings in the range of $1.10 to $1.15 per share, which crushed analyst estimates of only $1.00 per share. The strong guidance is based on estimated same-store sales growth of 2% to 3% due to a planned 15% increase in selling square footage. Same-store sales are an important measure for retailers since it measures revenue at existing stores rather than newly opened ones.
Some analysts are skeptical that Citi can pull off the gains, saying that the company has a history of unpredictable swings. As a result, many retained their ratings on the stock until the company could "prove" that it was able to make meaningful changes. Investors seem to be a different story, however, as the stock swung up some 25% on the news of a possible turnaround in 2008. Which side is right remains to be seen...
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