UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ | Non-Accelerated Filer ☐ |
Smaller Reporting Company | Emerging Growth Company |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 29, 2025, the registrant had
CITI TRENDS, INC.
FORM 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | |
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20 |
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Citi Trends, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
| August 2, |
| February 1, |
|
| |||
| 2025 |
| 2025 |
|
| |||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | | $ | | ||||
Inventory |
| |
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Prepaid and other current assets |
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Income tax receivable |
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Total current assets |
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Property and equipment, net of accumulated depreciation of $ |
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Operating lease right of use assets | | | ||||||
Other assets |
| |
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Total assets | $ | | $ | |||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | | $ | | ||||
Operating lease liabilities | | | ||||||
Accrued expenses |
| |
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Accrued compensation |
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Layaway deposits |
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Total current liabilities |
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Noncurrent operating lease liabilities |
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Deferred Tax Liability | | | ||||||
Other long-term liabilities |
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Total liabilities |
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Stockholders’ equity: | ||||||||
Common stock, $ |
| |
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Paid in capital |
| |
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Retained earnings |
| |
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Treasury stock, at cost; |
| ( |
| ( | ||||
Total stockholders’ equity |
| |
| | ||||
Commitments and contingencies (Note 7) | ||||||||
Total liabilities and stockholders’ equity | $ | | $ | | ||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
3
Citi Trends, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
Thirteen Weeks Ended | |||||||
August 2, | August 3, | ||||||
| 2025 |
| 2024 |
| |||
$ | | $ | | ||||
Cost of sales (exclusive of depreciation) | ( | ( | |||||
Selling, general and administrative expenses | ( | ( | |||||
Depreciation | ( | ( | |||||
Asset impairment | ( | ( | |||||
Gain on sale of building | | — | |||||
Income (loss) from operations | | ( | |||||
Interest income | | | |||||
Interest expense | ( | ( | |||||
Income (loss) before income taxes | | ( | |||||
Income tax benefit | — | | |||||
Net income (loss) | $ | | $ | ( | |||
Basic net earnings (loss)per common share | $ | | $ | ( | |||
Diluted net earnings (loss) per common share | $ | | $ | ( | |||
Weighted average number of shares outstanding | |||||||
Basic | | | |||||
Diluted | | | |||||
Citi Trends, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
Twenty-Six Weeks Ended | ||||||
August 2, | August 3, | |||||
| 2025 |
| 2024 | |||
$ | | $ | | |||
Cost of sales (exclusive of depreciation) | ( | ( | ||||
Selling, general and administrative expenses | ( | ( | ||||
Depreciation | ( | ( | ||||
Asset impairment | ( | ( | ||||
Gain on sale of building | | — | ||||
Income (loss) from operations | | ( | ||||
Interest income | |
| | |||
Interest expense | ( |
| ( | |||
Income (loss) before income taxes | | ( | ||||
Income tax benefit | — |
| | |||
Net income (loss) | $ | | $ | ( | ||
Basic net earnings (loss)per common share | $ | | $ | ( | ||
Diluted net earnings (loss) per common share | $ | | $ | ( | ||
Weighted average number of shares outstanding | ||||||
Basic | | | ||||
Diluted | | | ||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
4
Citi Trends, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Twenty-Six Weeks Ended | |||||||
August 2, | August 3, | ||||||
| 2025 |
| 2024 |
| |||
Operating activities: | |||||||
Net income (loss) | $ | | $ | ( | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||
Depreciation | | | |||||
Asset impairment | | | |||||
Non-cash operating lease costs | | | |||||
Loss on disposal of property and equipment | | | |||||
Deferred income taxes | — | ( | |||||
Non-cash stock-based compensation expense | | | |||||
Gain on sale of building | ( | — | |||||
Changes in assets and liabilities: | |||||||
Inventory | | ( | |||||
Prepaid and other current assets | ( | ( | |||||
Other assets | ( | | |||||
Accounts payable | ( | | |||||
Accrued expenses and other long-term liabilities | ( | ( | |||||
Accrued compensation | | | |||||
Income tax receivable/payable | | | |||||
Layaway deposits | | | |||||
Net cash used in operating activities | ( | ( | |||||
Investing activities: | |||||||
Purchases of property and equipment | ( | ( | |||||
Proceeds from sale of building | | — | |||||
Net cash provided by (used in) investing activities | | ( | |||||
Financing activities: | |||||||
Cash used to settle withholding taxes on the vesting of nonvested restricted stock | ( | ( | |||||
Repurchases of common stock | ( | — | |||||
Net cash used in financing activities | ( | ( | |||||
Net decrease in cash and cash equivalents | ( | ( | |||||
Cash and cash equivalents: | |||||||
Beginning of period | | | |||||
End of period | $ | | $ | | |||
Supplemental disclosures of cash flow information: | |||||||
Cash paid for interest | $ | | $ | | |||
Cash refunds of income taxes | $ | ( | $ | ( | |||
Supplemental disclosures of non-cash investing activities: | |||||||
Accrual for purchases of property and equipment | $ | | $ | | |||
See accompanying notes to the condensed consolidated financial statements (unaudited).
5
Citi Trends, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share amounts)
Common Stock | Paid in | Retained | Treasury Stock | ||||||||||||||||
Shares | Amount | Capital | Earnings | Shares | Amount | Total | |||||||||||||
Balances — February 1, 2025 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | |||||
Grant of restricted shares |
| | — | — | — | — | — | — | |||||||||||
Forfeiture of restricted shares |
| ( | — | — | — | — | — | — | |||||||||||
Stock-based compensation expense | — | — | | — | — | — | | ||||||||||||
Shares withheld for settlement of employee taxes on vesting |
| ( | — | ( | — | — | — | ( | |||||||||||
Repurchase of common stock | — | — | — | — | | ( | ( | ||||||||||||
Net income (loss) | — | — | — | | — | — | | ||||||||||||
Balances — May 3, 2025 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | |||||
Grant of restricted shares |
| | — | — | — | — | — | — | |||||||||||
Forfeiture of restricted shares |
| ( | — | — | — | — | — | — | |||||||||||
Stock-based compensation expense | — | — | | — | — | — | | ||||||||||||
Shares withheld for settlement of employee taxes on vesting |
| ( | — | ( | — | — | — | ( | |||||||||||
Net income (loss) | — | — | — | | — | — | | ||||||||||||
Balances — August 2, 2025 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | |||||
Common Stock | Paid in | Retained | Treasury Stock | ||||||||||||||||
Shares | Amount | Capital | Earnings | Shares | Amount | Total | |||||||||||||
Balances — February 3, 2024 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | |||||
Grant of restricted shares | | — | — | — | — | — | — | ||||||||||||
Forfeiture of restricted shares |
| ( | — | — | — | — | — | — | |||||||||||
Stock-based compensation expense | — | — | | — | — | — | | ||||||||||||
Shares withheld for settlement of employee taxes on vesting |
| ( | — | ( | — | — | — | ( | |||||||||||
Net income (loss) | — | — | — | ( | — | — | ( | ||||||||||||
Balances — May 4, 2024 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | |||||
Vesting of nonvested restricted stock units | — | | — | — | — | — | | ||||||||||||
Grant of restricted shares |
| | — | — | — | — | — | — | |||||||||||
Grant of vested shares |
| | — | — | — | — | — | — | |||||||||||
Forfeiture of restricted shares |
| ( | — | — | — | — | — | ||||||||||||
Stock-based compensation expense | — | — | | — | — | — | | ||||||||||||
Shares withheld for settlement of employee taxes on vesting |
| ( | — | ( | — | — | — | ( | |||||||||||
Net income (loss) | — | — | — | ( | — | — | ( | ||||||||||||
Balances — August 3, 2024 |
| | $ | | $ | | $ | |
| | $ | ( | $ | | |||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
6
Citi Trends, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
August 2, 2025
1. Significant Accounting Policies
Basis of Presentation
Citi Trends, Inc. and its subsidiary (the “Company”) is a leading off-price value retailer of apparel, accessories and home trends primarily for African American families in the United States. As of August 2, 2025, the Company operated
The condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim reporting and are unaudited. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The condensed consolidated balance sheet as of February 1, 2025 is derived from the audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2025 (the “2024 Form 10-K”). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2024 Form 10-K. Operating results for the first half of 2025 are not necessarily indicative of the results that may be expected for the fiscal year as a result of the seasonality of the business, and the current economic uncertainty.
Fiscal Year
The following contains references to fiscal years 2025 and 2024, which represent fiscal years ending or ended on January 31, 2026 and February 1, 2025, respectively. Fiscal 2025 and fiscal 2024 both have
2. Cash and Cash Equivalents/Concentration of Credit Risk
For purposes of the condensed consolidated balance sheets and condensed consolidated statements of cash flows, the Company considers all highly liquid investments with maturities at date of purchase of three months or less to be cash equivalents. Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents. The Company places its cash and cash equivalents in what it believes to be high credit quality banks and institutional money market funds. The Company maintains cash accounts that exceed federally insured limits.
3. Earnings per Share
Basic earnings per common share amounts are calculated using the weighted average number of common shares outstanding for the period. Diluted earnings per common share amounts are calculated using the weighted average number of common shares outstanding plus the additional dilution for all potentially dilutive securities, such as nonvested restricted stock. During loss periods, diluted loss per share amounts are based on the weighted average number of common shares outstanding because the inclusion of common stock equivalents would be antidilutive.
The dilutive effect of stock-based compensation arrangements is accounted for using the treasury stock method. The Company includes the amount of compensation cost attributed to future services and not yet recognized as assumed proceeds. For the second quarter of 2025 and 2024, there were
7
The following table provides the weighted average number of common shares outstanding used to calculate basic earnings per share to the number of common shares and common stock equivalents outstanding used in calculating diluted earnings per share:
Thirteen Weeks Ended | ||||
| August 2, 2025 |
| August 3, 2024 | |
Weighted average number of common shares outstanding (basic) | | | ||
Incremental shares from assumed vesting of nonvested restricted stock | | — | ||
Weighted average number of common shares and common stock equivalents outstanding (diluted) | | | ||
Twenty-Six Weeks Ended | ||||
| August 2, 2025 |
| August 3, 2024 | |
Weighted average number of common shares outstanding (basic) | | | ||
Incremental shares from assumed vesting of nonvested restricted stock | | — | ||
Weighted average number of common shares and common stock equivalents outstanding (diluted) | | | ||
4. Revolving Credit Facility
In October 2011, the Company entered into a
The facility is secured by the Company’s inventory, accounts receivable and related assets, but not its real estate, fixtures and equipment, and it contains
Borrowings under the credit facility bear interest (a) for SOFR Loans, at a rate equal to the SOFR Rate plus a SOFR adjustment equal to
As of August 2, 2025, the Company had
5. Impairment of Assets
If facts and circumstances indicate that a long-lived asset or operating lease right-of-use asset may be impaired, the carrying value is reviewed. If this review indicates that the carrying value of the asset will not be recovered as determined based on projected undiscounted cash flows related to the asset over its remaining life, the carrying value of the asset is reduced to its estimated fair value. In the first half of 2025, non-cash impairment expense related to underperforming stores totaled $
6. Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
8
portion or all of the deferred tax assets will not be realized. If realization of the deferred tax asset is not considered more likely than not, then a valuation allowance is recorded to reduce the deferred tax asset to its net realizable value.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible and income tax credits may be utilized, management believes sufficient negative evidence exists to require a valuation allowance. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal, resulting in no deferred tax asset balance being recognized.
On July 4, 2025, the President signed H.R. 1, the “One Big Beautiful Bill Act,” into law. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic R&D expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense. The Company expects to utilize the more favorable tax legislation in its corresponding tax filings.
7. Commitments and Contingencies
The Company from time to time is involved in various legal proceedings incidental to the conduct of its business, including claims by customers, landlords, employees or former employees. Once it becomes probable that the Company will incur costs in connection with a legal proceeding and such costs can be reasonably estimated, the Company establishes appropriate reserves.
While legal proceedings are subject to uncertainties and the outcome of any such matter is not predictable, the Company is not aware of any legal proceedings pending or threatened against it that it expects to have a material adverse effect on its financial condition, results of operations or liquidity.
8. Stock Repurchases
The Company periodically repurchases shares of its common stock under board-authorized repurchase programs. Such repurchases may be made in the open market, through block trades or through other negotiated transactions. Share repurchases were as follows (in thousands, except per share data):
Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||
August 2, 2025 |
| August 3, 2024 | August 2, 2025 |
| August 3, 2024 | ||||||
Total number of shares purchased | — | — | | — | |||||||
Average price paid per share (including commissions) | $ | — | $ | — | $ | | $ | — | |||
Total investment | $ | — | $ | — | $ | | $ | — | |||
On November 30, 2021, the Company announced that its board of directors approved a $
At August 2, 2025, $
9. Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, “Improvement to Income Tax Disclosures (Topic 740)”, (“ASU 2023-09”) which requires additional disclosures for income tax rate reconciliations, income taxes paid, and certain other tax disclosures. ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. Adoption is required for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, “Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses” which requires public entities to disclose additional information that disaggregates certain expense captions into specified categories in the Notes to the consolidated financial statements. The new standard is effective for fiscal years beginning after December 15, 2026, and interim periods after December 15, 2027, with early adoption permitted. The disclosure updates are required to be applied prospectively with the option for retrospective application. The Company is currently evaluating the impact this standard will have on its disclosures.
9
10. Revenue
Revenue Recognition
The Company’s primary source of revenue is derived from the sale of clothing and accessories to its customers with the Company’s performance obligations satisfied immediately when the customer pays for their purchase and receives the merchandise. Sales taxes collected by the Company from customers are excluded from revenue. Revenue from layaway sales is recognized at the point in time when the merchandise is paid for and control of the goods is transferred to the customer, thereby satisfying the Company’s performance obligation. The Company defers revenue from the sale of gift cards and recognizes the associated revenue upon the redemption of the cards by customers to purchase merchandise.
Sales Returns
The Company allows customers to return merchandise for up to
Disaggregation of Revenue
The Company’s retail operations represent a single operating segment based on the way the Company manages its business. Operating decisions and resource allocation decisions are made at the Company level in order to maintain a consistent retail store presentation. The Company’s retail stores sell similar products, use similar processes to sell those products and sell their products to similar classes of customers.
In the following table, the Company’s revenue from contracts with customers is disaggregated by Division or product category. It also provides the percentage of net sales for each Division within the merchandise assortment.
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||
August 2, |
| August 3, |
| August 2, |
| August 3, | ||||||
Division | 2025 |
| 2024 |
| 2025 |
| 2024 | |||||
Womens | % | % | % | % | ||||||||
Kids | % | % | % | % | ||||||||
Mens | % | % | % | % | ||||||||
Accessories & Beauty | % | % | % | % | ||||||||
Home & Lifestyle | % | % | % | % | ||||||||
Footwear | % | % | % | % | ||||||||
11. Leases
The Company leases its retail store locations, distribution centers, and certain office space and equipment. Leases for store locations are typically for a term of
The Company analyzes all leases at inception to determine if a right-of-use asset and lease liability should be recognized. Leases with an initial term of 12 months or less and leases with mutual termination clauses are not included on the condensed consolidated balance sheets. The lease liability is measured at the present value of future lease payments as of the lease commencement date.
Total lease cost is comprised of operating lease costs, short-term lease costs and variable lease costs, which include rent paid as a percentage of sales, common area maintenance, real estate taxes and insurance for the Company’s real estate leases.
Thirteen Weeks Ended | Twenty-Six Weeks Ended | |||||||||||
August 2, 2025 | August 3, 2024 | August 2, 2025 | August 3, 2024 | |||||||||
Operating lease cost | $ | | $ | | $ | | $ | | ||||
Variable lease cost |
| |
| |
| |
| | ||||
Short term lease cost |
| |
| |
| |
| | ||||
Total lease cost | $ | | $ | | $ | | $ | | ||||
10
Future minimum lease payments as of August 2, 2025 are as follows (in thousands):
Fiscal Year |
| Lease Costs |
|
| |
Remainder of 2025 |
| $ | | ||
2026 | | ||||
2027 |
| | |||
2028 |
| | |||
2029 |
| | |||
Thereafter |
| | |||
Total future minimum lease payments | | ||||
Less: imputed interest | ( | (1) | |||
Total present value of lease liabilities | $ | | (2) | ||
| (1) | Calculated using the incremental borrowing rate for each lease. |
| (2) | Includes short-term and long-term portions of operating lease liabilities. |
Certain operating leases provide for fixed monthly rents, while others provide for contingent rents computed as a percentage of net sales and others provide for a combination of both fixed monthly rents and contingent rents computed as a percentage of net sales.
Supplemental cash flows and other information related to operating leases are as follows (in thousands, except for weighted average amounts):
| Twenty-Six Weeks Ended | |||||
August 2, 2025 | August 3, 2024 | |||||
Cash paid for operating leases |
| $ | | $ | | |
Right of use assets obtained in exchange for new operating lease liabilities | $ | | $ | | ||
|
| |||||
Weighted average remaining lease term (years) - operating leases |
|
| ||||
Weighted average discount rate - operating leases | ||||||
12. Segment Reporting
The Company is an off-price value retailer of fashion apparel, accessories and home trends primarily for African American families. The retail operations represent a single operating segment based on the way the Company manages its business. The Company’s Chief Executive Officer, as our chief operating decision maker (“CODM”), manages and allocates resources to the operations of the Company on a consolidated basis. This enables the Chief Executive Officer to assess the Company’s overall level of available resources and determine how best to deploy these resources across retail stores that are in line with the Company’s long-term company-wide strategic goals. The Company’s retail stores sell similar products, use similar processes to sell those products, and sell their products to similar classes of customers. All sales and assets are located within the United States. The CODM assesses performance based on consolidated net (loss) income that is reported on the statement of operations as part of the annual budgeting and forecasting process. The CODM considers budget-to-actual variances on a monthly basis when making decisions about allocating capital and personnel. The CODM does not review assets in evaluating results, therefore such information is not provided.
11
The following table summarizes the Company’s
Thirteen Weeks Ended | Twenty-Six Weeks Ended | ||||||||||
August 2, 2025 | August 3, 2024 | August 2, 2025 | August 3, 2024 | ||||||||
Net sales | $ | | $ | | $ | | $ | | |||
Cost of sales (exclusive of depreciation shown separately below) | |||||||||||
Merchandising and other | ( | ( | ( | ( | |||||||
Freight in and out | ( | ( | ( | ( | |||||||
Selling, general, and administrative expenses | |||||||||||
Store expenses - payroll and related expenses | ( | ( | ( | ( | |||||||
Store expenses - rent | ( | ( | ( | ( | |||||||
Corporate expenses - payroll and related expenses | ( | ( | ( | ( | |||||||
Distribution center expenses - payroll and related expenses | ( | ( | ( | ( | |||||||
Other segment expenses (1) | ( | ( | ( | ( | |||||||
Gain on sale of building | | - | | - | |||||||
Depreciation | ( | ( | ( | ( | |||||||
Asset impairment | ( | ( | ( | ( | |||||||
Interest income | | | | | |||||||
Interest expense | ( | ( | ( | ( | |||||||
Income tax (provision) benefit | - | | - | | |||||||
Net income (loss) | $ | | $ | ( | $ | | $ | ( | |||
(1) Other segment expenses represent other store, corporate and distribution center expenses including utilities, repairs, supplies, insurance, professional fees and other miscellaneous fees.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Except for specific historical information, many of the matters discussed in this Form 10-Q may express or imply projections of revenues or expenditures, statements of plans and objectives for future operations, growth or initiatives, statements of future economic performance, capital allocation expectations or statements regarding the outcome or impact of pending or threatened litigation. These, and similar statements, are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, concerning matters that involve risks, uncertainties and other factors that may cause the actual performance of the Company to differ materially from those expressed or implied by these statements. All forward-looking information should be evaluated in the context of these risks, uncertainties and other factors. The words “believe,” “anticipate,” “project,” “plan,” “expect,” “estimate,” “objective,” “forecast,” “goal,” “intend,” “could,” “will likely result,” or “will continue” and similar words and expressions generally identify forward-looking statements, although not all forward-looking statements contain such language. The Company believes the assumptions underlying these forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in the forward-looking statements.
The factors that may result in actual results differing from such forward-looking information include, but are not limited to: uncertainties relating to general economic conditions, including inflation, energy and fuel costs, unemployment levels, and any deterioration whether caused by acts of war, terrorism, political or social unrest (including any resulting store closures, damage or loss of inventory) or other factors; changes in market interest rates and market levels of wages; the imposition of new taxes on imports, new tariffs and changes in existing tariff rates; the imposition of new trade restrictions and changes in existing trade restrictions; impact of natural disasters such as hurricanes; uncertainty and economic impact of pandemics, epidemics or other public health emergencies; transportation and distribution delays or interruptions; changes in freight rates; the Company’s ability to attract and retain workers; the Company’s ability to negotiate effectively the cost and purchase of merchandise; inventory risks due to shifts in market demand; the Company’s ability to gauge fashion trends and changing consumer preferences; consumer confidence and changes in consumer spending patterns; competition within the industry; competition in our markets; the duration and extent of any economic stimulus programs; changes in product mix; interruptions in suppliers’ businesses; risks related to cybersecurity, data privacy and intellectual property; temporary
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changes in demand due to weather patterns; seasonality of the Company’s business; the results of pending or threatened litigation; delays associated with building, opening, remodeling and operating new stores; delays associated with building, opening or expanding new or existing distribution centers; and other factors described in the section titled “Item 1A. Risk Factors” and elsewhere in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2025 and in Part II, “Item 1A. Risk Factors” and elsewhere in the Company’s Quarterly Reports on Form 10-Q and any amendments thereto and in the other documents the Company files with the SEC, including reports on Form 8-K.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. Except as may be required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements contained herein to reflect events or circumstances occurring after the date of this Form 10-Q or to reflect the occurrence of unanticipated events. Readers are advised, however, to read any further disclosures the Company may make on related subjects in its public disclosures or documents filed with the SEC, including reports on Form 8-K.
Executive Overview
We are a highly differentiated off-price value retailer known for trendy fashions, great brands and amazing prices. We offer culturally relevant fashion – what we call “Cultural Cachet” – in apparel, accessories and home trends primarily for African American families in the United States. We curate a three-tiered mix of products featuring well-known brands, core products and opening price goods, with intermittent extreme value deals. Our core product styles are curated trend-right, high quality, value for the price. We offer an assortment of opening price products for the price conscious customer; all sold at competitive prices. Plus, for the treasure hunters, we often have “extreme value” product deals on well-known branded product at 50% to 75% off the manufacturer’s suggested retail price. Consumer insights research validates that our unique culturally relevant styling, and strong value for the price, fosters deep customer loyalty and high shopping frequency in the neighborhoods in which we operate.
As of August 2, 2025, we operated 590 stores in urban, suburban and rural markets in 33 states.
Uncertainties and Challenges
General Economic Conditions
We expect that our operations in the short-term will continue to be influenced by general economic conditions, including on-going inflationary pressures, new tariff programs and changes in consumer sentiment. We continue to monitor the impacts on our business of unemployment levels, wage inflation, interest rates, inflation rates, housing costs, energy costs, consumer confidence, consumer perception of economic conditions, costs to source our merchandise and supply chain disruptions.
Seasonality and Weather Patterns
The nature of our business is seasonal. Historically, sales in the first and fourth quarters have been higher than sales achieved in the second and third quarters of the fiscal year. In addition, sales of clothing are directly impacted by the timing of the seasons to which the clothing relates. While we have expanded our product offerings to balance discretionary with non-discretionary product, traffic to our stores is still influenced by weather patterns to some extent.
Basis of Presentation
Net sales consist of store sales and layaway fees, net of returns by customers. Cost of sales consists of the cost of products we sell and associated freight costs. Depreciation is not considered a component of cost of sales and is included as a separate line item in the consolidated statements of operations. Selling, general and administrative expenses are comprised of store costs, including payroll and occupancy costs, corporate and distribution center costs and advertising costs.
The following discussion contains references to fiscal years 2025 and 2024, which represent fiscal years ending or ended on January 31, 2026 and February 1, 2025, respectively. Fiscal 2025 and fiscal 2024 both have 52-week accounting periods. This discussion and analysis should be read with the unaudited condensed consolidated financial statements and the notes thereto contained in Part I, Item 1 of this Report.
Results of Operations
The following discussion of the Company’s financial performance is based on the unaudited condensed consolidated financial statements set forth herein. Expenses and, to a greater extent, operating income, vary by quarter. Results of a period shorter than a full
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year may not be indicative of results expected for the entire year as a result of the seasonality of our business, and the current economic uncertainty.
Key Operating Statistics
We measure performance using key operating statistics. One of the main performance measures we use is comparable store sales growth. We define a comparable store as a store that has been open for at least 14 full consecutive months without closure for more than seven days within the same fiscal month. Remodeled and relocated stores are included in the comparable store sales results if the selling square footage is not changed significantly, the store is not closed for more than five days in any fiscal month and the store remains in the same trade area.
We also use other operating statistics, most notably average sales per store, to measure our performance. As we typically occupy existing space in established shopping centers rather than sites built specifically for our stores, store square footage (and therefore sales per square foot) varies by store. We focus on overall store sales volume as the critical driver of profitability. In addition to sales, we measure cost of sales as a percentage of sales and store operating expenses, with a particular focus on labor, as a percentage of sales. These results translate into store level contribution, which we use to evaluate the overall performance of each individual store. Finally, we monitor corporate and distribution center expenses against budgeted amounts.
Thirteen Weeks Ended August 2, 2025 and August 3, 2024
Net Sales. Net sales increased $14.2 million, or 8.0%, to $190.8 million in the second quarter of 2025 from $176.6 million in the second quarter of 2024. Comparable store sales increased 9.2%, resulting in an increase of $16.0 million in sales. Net store opening and closing activity resulted in a net decrease of $1.9 million in sales.
Cost of Sales (exclusive of depreciation). Cost of sales (exclusive of depreciation) decreased $7.1 million, or 5.8%, to $114.5 million in the second quarter of 2025 from $121.6 million in the second quarter of 2024. Cost of sales as a percentage of sales decreased to 60.0% in the second quarter of 2025 from 68.9% in the second quarter of 2024. The 890 basis-point decrease was primarily driven by a 580 basis points decrease in markdowns, a 190 basis points decrease in shrink, and a 120 basis points decrease in other cost of sales.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $5.1 million, or 6.9%, to $78.9 million in the second quarter of 2025 from $73.8 million in the second quarter of 2024. The increase was driven by corporate expense (primarily payroll and incremental incentive compensation) of $3.9 million and occupancy expense of $1.0 million. As a percentage of sales, Selling, general and administrative expenses decreased to 41.4% in the second quarter of 2025 from 41.8% in the second quarter of 2024, primarily driven by the aforementioned items.
Depreciation. Depreciation expense decreased $0.2 million, or 4.9%, to $4.5 million in the second quarter of 2025 from $4.8 million in the second quarter of 2024 due to the sale of our corporate office building.
Impairment. Non-cash impairment expense related to underperforming stores totaled $0.2 million in the second quarter of 2025, comprised of leasehold improvements and fixtures and equipment. Non-cash impairment expense related to underperforming stores totaled $1.3 million in the second quarter of 2024, comprised of $0.7 million for leasehold improvements and fixtures and equipment, and $0.6 million for operating lease right of use assets.
Gain on sale of building. Gain on the sale of the corporate office building was $11.0 million in the second quarter of 2025.
Income Tax Benefit. There was no income tax benefit in the second quarter of 2025 compared to a benefit of $6.0 million in the second quarter of 2024. For the second quarter of 2025 and the second quarter of 2024, we used the annual effective tax rate to determine income tax benefit based upon interim period results.
Net Income (Loss). Net income was $3.8 million in the second quarter of 2025 compared to net loss of $18.4 million in the second quarter of 2024 due to the factors discussed above.
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Twenty-Six Weeks Ended August 2, 2025 and August 3, 2024
Net Sales. Net sales increased $29.6 million, or 8.2%, to $392.5 million in the first twenty-six weeks of 2025 from $362.8 million in the same period of 2024. Comparable store sales increased 9.6%, resulting in an increase of $34.1 million in sales. Net store opening and closing activity resulted in a net decrease of $4.6 million in sales.
Cost of Sales (exclusive of depreciation). Cost of sales (exclusive of depreciation) increased $0.5 million, or 0.2%, to $236.4 million in the first twenty-six weeks of 2025 from $235.9 million in the same period of 2024. Cost of sales as a percentage of sales decreased to 60.2% in the first twenty-six weeks of 2025 from 65.0% in the same period of 2024. The 480 basis-point decrease was driven by a 250 basis points decrease in markdowns, a 130 basis points decrease in shrink, and a 100 basis points decrease in other cost of sales.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $5.8 million, or 3.9%, to $153.8 million in the first twenty-six weeks of 2025 from $148.0 million in the same period of 2024. The increase was primarily driven by stores selling and advertising expenses of $2.2 million, distribution center costs of $2.2 million, and corporate expenses (primarily incentive compensation) of $1.4 million. As a percentage of sales, Selling, general and administrative expenses decreased to 39.2% in the first twenty-six weeks of 2025 from 40.8% in the first twenty-six weeks of 2024, due to the aforementioned items.
Depreciation. Depreciation expense decreased $0.7 million, or 6.9%, to $8.9 million in the first twenty-six weeks of 2025 from $9.6 million in the same period last year due to the sale of the corporate office building.
Impairment. Non-cash impairment expense related to underperforming stores totaled $0.3 million in the first twenty-six weeks of 2025, comprised of $0.2 million for leasehold improvements and fixtures and equipment, and $0.1 million for operating lease right of use assets. Non-cash impairment expense related to underperforming stores totaled $1.3 million in the first twenty-six weeks of 2024, comprised of $0.7 million for leasehold improvements and fixtures and equipment, and $0.6 million for operating lease right of use assets.
Gain on sale of building. Gain on sale of the corporate office building was $11.0 million in the first twenty-six weeks of 2025.
Income Tax Benefit. There was no income tax benefit in the first twenty-six weeks of 2025 compared to $8.7 million in the first twenty-six weeks of 2024. For the second half of 2025 and the second half of 2024, we used the annual effective tax rate to determine income tax benefit based upon interim period results.
Net Income (Loss). Net income was $4.7 million in the first twenty-six weeks of 2025 compared to net loss of $21.8 million in the same period of 2024 due to the factors discussed above.
Liquidity and Capital Resources
Capital Allocation
Our capital allocation strategy is to maintain adequate liquidity to prioritize investments in opportunities to profitably grow our business and maintain current operations, then to return excess cash to stockholders through our repurchase programs. Our quarter-end cash and cash equivalents balance was $50.4 million compared to cash and cash equivalents of $59.3 million at the end of the second quarter last year. Until required for other purposes, we maintain cash and cash equivalents in deposit or money market accounts.
Our principal sources of liquidity consist of: (i) cash and cash equivalents on hand; (ii) short-term trade credit arising from customary payment terms and trade practices with our vendors; (iii) cash generated from operations on an ongoing basis; and (iv) a revolving credit facility with a $75 million credit commitment.
Inventory
Our quarter-end inventory balance was $117.6 million, down 12.9% compared to $135.0 million at the end of the second quarter last year.
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Capital Expenditures
Capital expenditures in the first twenty-six weeks of 2025 were $7.7 million, an increase of $2.1 million over the first twenty-six weeks of 2024, as we increased our investments in new stores and remodels. We anticipate capital expenditures in fiscal 2025 to be in the range of $22 million to $25 million, primarily for the opening of three new stores and remodeling existing stores, combined with ongoing investments in our systems.
Share Repurchases
In the first half of fiscal 2025, we returned $6.3 million to stockholders through share repurchases. See Part II, Item 2 of this Report and Note 8 to the Financial Statements for more information.
Revolving Credit Facility
We have a revolving credit facility that matures in April 2030 and provides a $75 million credit commitment and a $25 million uncommitted “accordion” feature. Additional details of the credit facility are in Note 4 to the Financial Statements. At the end of the second quarter of 2025, we had no borrowings under the credit facility and $2.2 million in letters of credit outstanding.
Cash Flows
Cash Flows From Operating Activities. Net cash used in operating activities was $7.1 million in the first twenty-six weeks of 2025 compared to $14.0 million in the same period of 2024. Significant sources of cash for the first twenty-six weeks of 2025 included net income adjusted for non-cash items totaling $29.9 million (compared to net loss adjusted for non-cash items of $6.6 million in the first twenty-six weeks of 2024) and a decrease in inventory of $5.1 million in the first twenty-six weeks of 2025 (compared to an increase of $4.6 million in the first twenty-six weeks of 2024).
Significant uses of cash from operating activities in the first twenty-six weeks of 2025 included (1) a $29.6 million decrease in accrued expenses and other long-term liabilities (compared to a $21.9 million decrease in the first twenty-six weeks of 2024) due primarily to payments of operating lease liabilities; (2) a $9.4 million increase in prepaid and other current assets (compared to a $6.1 million dollar increase in the first twenty-six weeks of 2024); and (3) a $7.1 million decrease in accounts payable (compared to a $10.0 million increase in the same period last year).
Cash Flows From Investing Activities. Cash provided by investing activities was $3.5 million in the first twenty-six weeks of 2025 compared to cash used of $5.6 million in the same period last year. Sources of cash of $11.2 million in the first 26 weeks of 2025 was from the sale of a building. Cash used of $7.7 million in the first twenty-six weeks of fiscal 2025 and $5.6 million in the first twenty-six weeks of fiscal 2024 consisted of purchases of property and equipment.
Cash Flows From Financing Activities. Cash used in financing activities was $7.1 million in the first twenty-six weeks of 2025 compared to $0.9 million in the same period last year. Cash used in the first twenty-six weeks of fiscal 2025 was $0.8 million to settle withholding taxes on the vesting of restricted stock and $6.3 million for share repurchases, compared to $0.9 million used in the first twenty-six weeks of fiscal 2024 to settle withholding taxes on the vesting of restricted stock.
Cash Requirements and Commitments
Our principal cash requirements consist of (1) inventory purchases; (2) capital expenditures to invest in our infrastructure; and (3) operational needs, including salaries, occupancy costs, taxes and other operating costs. We may also use cash to fund any share repurchases, make any required debt payments and satisfy other contractual obligations. Historically, we have met these cash requirements using cash flow from operations and short-term trade credit. As of August 2, 2025, our contractual commitments for operating leases totaled $217.5 million (with $36.2 million due within 12 months). See Note 11 to the Financial Statements for more information regarding lease commitments.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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There have been no material changes to the Critical Accounting Policies outlined in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in our market risk during the twenty-six weeks ended August 2, 2025 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended February 1, 2025.
Item 4. Controls and Procedures.
We have carried out an evaluation under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of August 2, 2025 pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based on that evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information has been accumulated and communicated to our management, including the officers who certify our financial reports, as appropriate, to allow timely decisions regarding the required disclosures.
Our disclosure controls and procedures are designed to provide reasonable assurance that the controls and procedures will meet their objectives. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended August 2, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are from time to time involved in various legal proceedings incidental to the conduct of our business, including claims by customers, landlords, employees or former employees. Once it becomes probable that we will incur costs in connection with a legal proceeding and such costs can be reasonably estimated, we establish appropriate reserves. While legal proceedings are subject to uncertainties and the outcome of any such matter is not predictable, we are not aware of any legal proceedings pending or threatened against us that we expect to have a material adverse effect on our financial condition, results of operations or liquidity.
Item 1A. Risk Factors.
There have been no material changes to the Risk Factors described under the section “ITEM 1A. RISK FACTORS” in our Annual Report on Form 10-K for the fiscal year ended February 1, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Information on Share Repurchases
The Company did not repurchase any shares in the second quarter of 2025. At August 2, 2025, $40.0 million remained under the Company’s stock repurchase authorization.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
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Item 6. Exhibits.
3.1 | ||
3.2 | ||
10.1 | ||
10.2 | ||
10.3 | ||
31.1 | ||
31.2 | ||
32.1 | ||
101 | Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.+ | |
104 | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.+ |
+ Included herewith.
† Pursuant to Securities and Exchange Commission Release No. 33-8238, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of Section 18 of the Securities Exchange Act of 1934 and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, and the undersigned also has signed this report in her capacity as the Registrant’s Chief Financial Officer (Principal Financial Officer).
CITI TRENDS, INC. | ||
Date: September 10, 2025 | ||
By: | /s/ Heather Plutino | |
Name: | Heather Plutino | |
Title: | Chief Financial Officer | |
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