Citi Trends falls on downwardly revised guidance and two downgrades
Shares of Citi Trends, Inc. (Nasdaq: CTRN) trended down today after the retailer of urban fashion apparel and accessories reported preliminary second quarter guidance below expectations. Adding to investors’ glum, Both First Albany Capital and Avondale Partners downgraded the company today as well.
Citi Trends today said earnings in the three months ended August 4 would amount to $0.02 to $0.05 per share, compared with a Wall Street consensus of $0.15. The company cited higher-than-anticipated expenses and lower margins for the quarter.
While management did not downwardly revise guidance of EPS of $1.64 to $1.68 for the fiscal year, First Albany Capital analyst Paula Kalandiak said he expects Citi Trends’ management to guide down for fiscal year 2007 on the company’s conference call on August 29.
Kalandiak today downgraded Citi Trends to a rating of “neutral” from “buy” in response to the company’s disappointing second quarter guidance. “Based on new guidance, 2Q:07 will be the company's second consecutive quarter of declining year over year earnings,” wrote Kalandiak in a research note. “We are taking a cautious approach until we see signs of improvement.”
Citi Trends also reported relatively upbeat second-quarter sales today. The company said second quarter sales increased 27% year-over-year to $96.8 million, clocking in slightly above the consensus on the Street of $96.4 million. The sales for the most recent period compare with sales in the second quarter last year of $76.33 million.
Avondale Partners analyst Patrick McKeever said that Citi Trends’ sales were actually better than he estimated, but that traffic slowed considerably in the last two weeks of July. McKeever said he is growing incrementally concerned about macroeconomic issues, including the subprime lending crisis. He said he is also concerned about an unanticipated increase in inventory shrink and the company’s ability to effectively mange store labor hours, which McKeever says could contribute to a shortfall in second quarter earnings.
McKeever downgraded Citi Trends as well today to a rating of “market perform” from “market outperform” on Citi Trends’ second quarter sales release. He also lowered his target price to $38 from $52.
McKeever is lowering his estimates for the remainder of the year going forward. He is lowering his second quarter EPS estimate to $0.06 from $0.14. He is also trimming his third and fourth quarter comp estimates to 3.0% from 5.0% for the third quarter and to 4.0% from 6.0% for the fourth quarter.
On account of lower sales and higher SG&A expenses than previously anticipated, Kalandiak is also lowering her estimates, but for the current fiscal year 2007 and for fiscal year 2008. For the current year, Kalandiak now projects earnings of $1.53, down from originally forecasted earnings of $1.65 per share. For fiscal year 2008, she now anticipates earnings of $1.95, down from previously estimated $2.09 per share. Seven analysts polled by Thomson Financial expected earnings per share of $1.65 for the current fiscal year and $2.09 for next fiscal year.
“While we remain big fans of the long-term story, the sudden deterioration in visibility is disconcerting enough to make us take a more cautious approach with our rating,” wrote McKeever in a research note.
Shares of Citi Trends fell 30.23%, or $11.51, to close at $26.57 on Thursday.
