It was a good holiday quarter for Citi Trends (NASDAQ:CTRN), but the future is running a little low on holiday cheer. That's one way to look at last night's report, which found the company blowing past Wall Street's targets while letting analysts down on its guidance for 2007.

Let's get through the good stuff first. Sales and earnings were up 31% to $126.8 million and $0.73 per share, respectively. Analysts were expecting Citi Trends to earn just $0.69 a share on $124.4 million in net sales. Comps improved by 1.3%. That may not seem like much, but it stacks up nicely on the whopping 22.8% spike in same-store sales from the previous year's holiday quarter.

A year ago, I tagged the company as the best unknown retailer. Citi Trends isn't the kind of apparel retailer you'll find in upscale suburban malls, wedged between an Aeropostale (NYSE:ARO) and a Zumiez (NASDAQ:ZUMZ). It's a discounter that takes pride in landing in distressed urban markets that way too many brand-name chains avoid. Has that made Citi an endearing community favorite? The healthy growth in comps since the company went public two years ago answers that resoundingly.

Was it a perfect report? No. Inventory levels rose a bit faster than sales growth. That's a troubling trend that we also saw back in November. You hate to see merchandise stocking up quicker than it's moving out, as it often leads to a margin-crushing clearance sale. The latest quarter also included an extra week, so don't read too much into that 31% spurt.

Then came the company's outlook. Citi Trends is looking to earn between $0.44 per share and $0.49 per share in the current quarter. Wall Street had its sights set on a $0.57-per-share showing. The full-year target of $1.73 a share to $1.77 a share is closer to the $1.78-per-share analyst projection, but investors are always more concerned with current-quarter misses than longer-term outlooks. That is the more dependable chunk of guidance.

Despite the disappointing forecast, Citi Trends continues to grow. It expects to add between 46 and 48 new stores this year, adding 20% to its total square footage.

That is admirable. Most discount apparel chains, like Ross Stores (NASDAQ:ROST) and Retail Ventures' (NYSE:RVI) Value City, aren't growing nearly that fast. Investors do pay for that growth, though. Citi Trends is trading at 29 times trailing earnings and 25 times what the company believes it will earn this year. The high multiples and pesky inventory levels will keep the bulls at bay until the next quarterly report. As much as I am rooting for Citi Trends, I can't say that I blame them. Keep your distance, but don't be afraid to buy in on any substantial dips.

A look back at Citi Trends in Fooldom:

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Longtime Fool contributor Rick Munarriz thinks that when opportunity knocks, you should always dust for fingerprints. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.