Citi Trends (CTRN -0.41%) reported second quarter 2025 earnings on August 26, 2025, highlighted by comparable sales growth of 9.2% in the second quarter and an adjusted EBITDA loss of $2.6 million, reflecting meaningful top-line improvement and ongoing turnaround initiatives. With a broad-based sales lift, a 40% gross margin rate (up 890 basis points year-over-year), and a raised full-year guidance, the company provided granular detail on strategy execution, inventory discipline, and long-term expansion plans. Below, we detail three critical insights shaping the investment narrative for Citi Trends, including operational transformation, financial controls, and future growth drivers.

Transformation drives CTRN’s comp sales and gross margin gains

Consistent comparable sales growth was achieved despite a 5.7% reduction in in-store inventory and double-digit declines in total inventory, signaling improved inventory productivity and effective supply chain changes. The company’s strategy is rooted in a dedicated focus on its core customer, investment in updated assortments, and disciplined operational execution across all regions and categories.

"In the second quarter, we generated strong comparable sales growth of 9.2%, marking our fourth consecutive quarter of mid to high single-digit comp sales growth. Year to date, we delivered year-over-year comp growth of 9.6%. And I'm happy to report that sales momentum consistent with our first half top-line trends has continued into the back-to-school season. This August, we'll be representing thirteen consecutive months of comparable store sales growth. Gross margin dollars have increased meaningfully, achieving our highest rate performance in the last several years. As our buying teams have fine-tuned assortments for our core customers, we've experienced faster sell-throughs of regular-priced product, reduced markdowns, and improved operational controls for shrinkage and transportation rates. -- Ken Seipel, Chief Executive Officer

Sustained growth in both top line and gross margin reflects improved inventory efficiency and operational changes.

Disciplined expense management supports CTRN’s turnaround

Adjusted SG&A (selling, general, and administrative) expenses were $78.9 million, up mainly due to reinstated incentive compensation, but all other controllable SG&A leveraged by about 150 basis points. The company remains debt free, with $50 million in cash and no borrowings against a $75 million revolver, reinforcing balance sheet flexibility for continued investment.

"Second quarter adjusted SG&A expense totaled $78.9 million compared to $72.1 million in the prior period. The increase to last year was driven by higher incentive compensation accrual on improved business performance and store and DC expense to process higher sales. As we shared with you in our last call, we reinstated incentive compensation accruals in 2025 after incurring very minimal bonus and equity expense in the last three quarters of fiscal 2024, causing a bonus to no bonus comparison in the second quarter. On a rate basis, Q2 adjusted SG&A was 41.3% of revenue, 50 basis points higher than the 40.8 rate in Q2 last year. The rate increase was driven entirely by this year's incentive compensation accruals. All other SG&A levered by approximately 150 basis points in the quarter, reflecting continued disciplined cost controls and the impact of improved top-line results."
-- Heather Plutino, Chief Financial Officer

Efficient cost control outside of incentive compensation, combined with growing sales and stable liquidity, improves operating leverage and positions Citi Trends for profitable growth as scale and productivity initiatives mature, as evidenced by adjusted SG&A leverage year-to-date.

Technology, format, and new store growth power CTRN’s long-term outlook

AI-driven allocation systems are being implemented to optimize inventory flow and category management across the fleet, with full rollout expected by mid-September 2025. Management plans to remodel approximately 60 stores this fiscal year (up from prior plans of 50), while ramping new store openings to an expected 25 to 40 locations in 2026 as part of a strategy to expand square footage at a mid-single-digit rate annually.

"looking ahead, we're in the process of implementing improved work processes throughout the DCs and implementing special handling areas to assist us in overall processing speed and capacity to grow extreme value products and family footwear. I look forward to sharing more on this initiative on future calls. Looking ahead in operations, test results for our new AI-based allocation system have been well above expectations allowing us to more accurately allocate products based on individual store demand, which has in turn increased sales and improved inventory turns. We are in the process of implementing AI-based allocations to all categories with expected completion in mid-September in time to impact holiday. And currently, we're in the early stages of developing a complementary AI-based merchandise planning system that we hope to have ready for early 2026. Here again, we'll keep you updated on our progress."
-- Ken Seipel, Chief Executive Officer

The integration of advanced allocation and planning tools, combined with targeted capital investment in remodels and new locations, is expected to unlock operational scaling and margin lift, while enabling faster trend response and supporting multi-year EBITDA growth ambitions.

Looking Ahead

Management raised guidance for the year to mid to high single-digit comparable sales growth, gross margin expansion of 210 to 230 basis points, and full-year EBITDA of $7 million to $11 million, representing an improvement of $21 million to $25 million over FY2024. Capital expenditures are projected at $22 million to $25 million, with plans to remodel approximately 60 stores, open three, and close three, and ramp new store openings to 25 to 40 in 2026. The long-term objective is to achieve $40 million or more of EBITDA by 2027, driven by sustained sales growth, new store investment, and continued SG&A leverage.