Ahead of the trends, or behind the times? That's a big question for many retailers these days, especially given many consumers' ongoing financial belt-tightening. Let's look at two retailers' quarterly results.
Cost of Citi living rises
First-quarter net income actually fell 8.8% to $5.2 million, or $0.36 per share. Sales increased 13.5% to $121 million, with same-store sales squeaking up 0.3%. Gross margin decreased to 38.6% from 39.1%, as sluggish shoppers forced the retailer to mark down merchandise in order to keep sales moving.
It bugs me that Citi Trends had to reclassify the lion's share of the cash on its balance sheet to "non-current securities," since the auction rate securities market has become illiquid. These noncurrent securities add up to $53.7 million that the company can't access at the moment. Citi Trends also mentioned taking a small writedown (which will affect shareholders' equity). The company has $4.7 million in cash and a $35 million credit facility, and in the conference call it reassured investors that it has adequate liquidity to fund its operations.
Many companies put cash to work in such short-term securities, instead of letting that cash sit idle. Still, I'd be wary of any companies with significant amounts of cash tied up in those now-frozen investments.
Citi Trends reaffirmed its guidance of $1.10 to $1.15 per share in 2008 earnings. Judging by the stock's jump today, I guess many investors find that heartening.
Hot ... or not?
The retailer's first-quarter loss widened to $1.4 million, or $0.03 per share, compared to a net loss of $809,000, or $0.02 per share, this time last year. Sales increased a mere 1.1% to $159 million, as same-store sales dropped 2.9%.
However, some investors may have found a silver lining in Hot Topic's announcement that its second-quarter loss should be flat or narrower than last year's. The company's expecting a loss of $0.02 to $0.04 per share (versus a year-ago loss of $0.04 per share).
Search for strength
Investors in both companies seem to be saying, "Wow, it could have been worse." The struggling economy's left many fellow retailers in similarly tough straits.
I certainly haven't given up on retail stocks, but I do prefer the ones coming from positions of strength. For example, I'm looking forward to Aeropostale's
Meanwhile, Citi Trends trades at 17 times this year's expected earnings, which sounds steep to me. Hot Topic trades at 13 times earnings, but given its challenges, I'm not convinced that's cheap enough.
Consider a retailer like American Eagle Outfitters
Retail's not completely down and out. However, the current economic climate means that Fools should carefully weigh any investing decisions in this sector before trying one of these companies on for size.