Friday, May 27, 2011

Citi Trends: A Great Idea Does Not Necessarily Lead to Orbital Growth

[guest post by TS]

I was traveling home yesterday from downtown Pittsburgh, taking a circuitous route through neighborhoods that allowed me bypass taking the eastbound highway, and saw a storefront I had not seen before, in a place that used to be part of a Builders Square storefront: Citi Trends.  I had no idea what Citi Trends was, just that something so seemingly incongruous (a new storefront in a has-been strip mall) had to be researched.  :-)

Upon reaching the castle, I fired up FireFox, tripped over to Yahoo! Finance, and found Citi Trends' symbol: CTRN.  Then, recent news, then their May 18th 1st Qtr '11 earnings report.  Then their profile.  This clothing & accessories retail company has been servicing America's African-American audience since 1946. Whoa!

After seeing that the companies retail target is African-American, that location of the store made total sense: the location of the shopping mall (Braddock Hills Shopping Center) is fairly close to Pittsburgh's Braddock & Braddock Hills neighborhoods: Braddock is a depressed area, site of USX' Edgar A. Thompson steel mill, and one of the recently renovated Carnegie Libraries.  Interested in this location, I went to Citi Trends' homepage to see where other stores are located.  Of the 460+ retail locations, Pittsburgh's two are in this location and in the City of Duquesne's Duquesne Plaza. Duquesne is even further depressed, having transitioned further from steel mills, to somewhat renovated "brown fields".

Back to that 1st Qtr earnings report:  the results appear to be somewhat underwhelming, especially given the host of other more rosy retail reports from around the nation (slowdown of the recovery notwithstanding).  Citi Trends reported a 4.3% increase in sales to $189M, but a decrease in earnings, YOY.  Perhaps one could suggest that while America's inner cities are spending more than a year ago, their spending is not quite  matching the increase further out in the 'burbs.

Because of this slow, steady increase in sales, CTRN sports a market cap that's roughly 1/2 of it's annual sales, and the company has $76M cash, with no long-term debt.  This healthy balance sheet leads Brian Pacampara of to observe that "Citi Trends currently sports a cheapish price-to-book ratio of 1.1. That represents a clear discount to giant competitors Target (2.2), TJX (6.6), and Wal-Mart (2.9)".  While profits may be trending downward, this clear value play's revenues are ramping quite healthily year over year. Will you play along?

One interesting note: Citi Trends customers are enjoying the stores - check out this YouTube walkthrough. And a second customer's video (in three parts).


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