Citi Trends (NASDAQ:CTRN) may not be quite so trendy for investors at the moment, given its most recent quarterly earnings report.
There was a lot of negativity in Citi Trends' earnings report, such as a 17% decrease in net income and falling margins. Sales, however, did increase by 16% to $106.6 million. (For the full picture, see our Fool by Numbers feature for Citi Trends.)
In an example of a metric that retail investors don't particularly like to see on the upswing, inventories at Citi Trends increased by a whopping 45%. (This isn't the first time burgeoning inventories have presented a red flag -- longtime Fool Rick Munarriz mentioned this issue back in March.) In the conference call, management explained that much of the increase is for new stores and that comparable inventories increased by 13%.
Another factor that drove the stockpile of inventory up is the fact that the company saw an opportunity to buy some wares at good prices, so there's some merchandise sitting in its distribution center waiting for next season. Let's hope the company's on target with items that will prove to be tantalizing to its customers four to six months down the road; management also mentioned that it had gotten behind in some of the current trends in apparel.
Of course, giving its customers a good deal is what Citi Trends is all about. This retailer, which puts its discount stores in distressed urban neighborhoods, competes with the likes of Ross (NASDAQ:ROST), TJX Cos. (NYSE:TJX), and Retail Ventures' (NYSE:RVI) Value City.
Investors also probably didn't find it too heartening that Citi Trends reduced its expectations for earnings this year. It now expects to earn between $1.64 per share and $1.68 per share, down from the previous expectation for earnings of between $1.73 per share and $1.77 per share. The expectation for about a 9% increase in earnings this year is a far cry from the double-digit earnings growth this company delivered for the last four years and, of course, explains disappointment (although, admittedly, the company's up against some tough comparisons).
When Rick wrote about Citi Trends back in March, he mentioned the fact that despite some of the less exciting numbers coming out of the retailer this year, it's still growing its store base at an admirable pace. Given some of the weakness right now, though, anybody who's interested in this stock may get better (read: cheaper) opportunities as the year progresses.
For related Foolishness, see the following articles:
- Check out the first-quarter Fool by Numbers for Citi Trends.
- Is Citi Trends lost?
- Last year, Citi Trends was heating up.
David and Tom Gardner have recommended several retail stocks for Motley Fool Stock Advisor subscribers. To find out which ones and the other stocks they've recommended, take a test-drive for 30 days, free of charge.
Alyce Lomax does not own shares of any of the companies mentioned.
