For December, discount retailer Citi Trends (NASDAQ:CTRN) showed a 0.1% decrease in same-store sales. But don't automatically assume this highflier is losing steam.
The company had a particularly strong 2005 because it benefited from those who fled Hurricanes Katrina, Rita, and Wilma. With FEMA vouchers and other government assistance, Citi Trends' customers were able to buy a good amount of apparel, especially at stores in Alabama, Florida, Mississippi, Louisiana, and Texas.
Yet Citi Trends still posted healthy overall sales for December 2006 -- an 18% increase to $60.4 million -- because it continues to aggressively build new stores.
Citi Trends offers branded apparel at discounts ranging from 20% to 60%. The company even has its own brands, such as Citi Steps, Diva Blue, and Urban Sophistication.
The company focuses on African American customers, distinguishing Citi Trends from discounters such as Sears Holdings' (NASDAQ:SHLD) K-Mart, Target (NYSE:TGT), and Wal-Mart (NYSE:WMT).
Citi Trends' stores are typically in low-to-moderate-income neighborhoods, which means the company gets favorable lease rates. What's more, spending on advertising is fairly low, because the company offers low prices every day.
Still, the stock can be volatile. Since September, it has moved to $38 from $30, still below its 52-week high of $57.85.
There is definitely bullishness from the Motley Fool CAPS community, where Citi Trends has earned 41 outperforms vs. only six underperforms. What's more, according to Fool colleague David Meier's recentl return on invested capital (ROIC) analysis on Citi Trends, the company is a standout performer at putting its cash to work, with a 19.3% return. One key has been the fairly quick payback on a new store -- from 12 to 18 months.
The company's footprint was primarily in the Southeast, but over the past few years -- with the help of its May 2005 IPO -- the company has been moving into the Mid-Atlantic and Midwest regions, so there's a lot of room for growth.
All in all, Citi Trends has a profitable business model, with a strong ROIC and sales growth. Foolish readers looking for a retail opportunity should keep an eye on this one.
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Fool contributor Tom Taulli does not own shares mentioned in this article. He is ranked 328 out of 17,523 players in Motley Fool CAPS.
