Citi Trends Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 26, 2025

Key Takeaways

  • Positive Sentiment: Comparable Sales Growth: Citi Trends delivered 9.2% comp store sales growth in Q2 (9.6% YTD), marking its 13th consecutive month of comp growth.
  • Positive Sentiment: Gross Margin Expansion: Q2 gross margin rate reached 40%, up 89 bps year-over-year, driven by higher full-price selling, reduced markdowns and improved freight rates.
  • Neutral Sentiment: SG&A expense increased due to reinstated incentive compensation accruals, but ex-bonus SG&A leveraged ~150 bps on improved sales performance.
  • Positive Sentiment: AI-driven allocation tests exceeded expectations, boosting sales and inventory turns; full rollout is on track by mid-September with merchandise planning AI slated for early 2026.
  • Positive Sentiment: Store footprint initiatives continue with 19 remodels in Q2 (28% of fleet updated), three new 2025 store openings, and plans for mid-single-digit unit growth starting 2026.
AI Generated. May Contain Errors.
Earnings Conference Call
Citi Trends Q2 2026
00:00 / 00:00

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Operator

Greetings, and welcome to the Citi Trends Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nisa McKee, Senior Associate at ICR. Thank you. Please go ahead.

Nitza McKee
Senior Associate - IR at ICR

Thank you, and good morning, everyone. Thank you for joining us on Citi Trends second quarter twenty twenty five earnings call. On our call today is Chief Executive Officer, Ken Stipel and Chief Financial Officer, Heather Plutino. Our earnings release was sent out this morning at 06:45 a. M.

Nitza McKee
Senior Associate - IR at ICR

Eastern Time. If you have not received a copy of the release, it's available on the company's website under the Investor Relations section at www.cititrends.com. You should be aware that prepared remarks today made during this call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management may make additional forward looking statements in response to your questions. These statements do not guarantee future performance.

Nitza McKee
Senior Associate - IR at ICR

Therefore, you should not place undue reliance on these statements. We refer you to the company's most recent report on Form 10 ks and other subsequent filings within the Securities and Exchange Commission for a more detailed discussion of the factors that can cause actual results to differ materially from those described in the forward looking statements. I will now turn the call over to our Chief Executive Officer, Ken Seippel. Ken?

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Thank you. Well, good morning, everyone, and thank you for joining us today on our second quarter earnings call. I'm pleased to report another quarter of consistent performance, demonstrating disciplined execution and progress across every area of our business. Our transformation remains guided by a clear three phase framework designed to deliver sustainable profitable growth. First, Phase one is repair, that's restoring our fundamentals and establishing a strong foundation.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Phase two is our Execute phase, embedding consistent best practices and driving reliable performance. And we are going to be entering in the future Phase three, which is Optimize, leveraging new systems and expansion capabilities to accelerate our growth. These three phases create the foundation for a disciplined approach to capture the near term and long term opportunity of growth for Citi Trends. Now turning to our results. In the second quarter, we generated strong comparable sales growth of 9.2%, marking our fourth consecutive quarter of mid to high single digit comp sales growth.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Year to date, we delivered year over year comp growth of 9.6%. And I'm happy to report that sales momentum consistent with our first half top line trends has continued into the back to school season. This August, we'll be representing thirteen consecutive months of comparable store sales growth. Gross margin dollars have increased meaningfully, achieving our highest rate performance in the last several years. As our buying teams have fine tuned assortments for our core customers, we've experienced faster sell throughs of regular priced product, reduced markdowns and improved operational controls for shrinkage and transportation rates.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Our SG and A was slightly deleveraged in the quarter due to the inclusion of incentive compensation for the consistent financial performance of our employees. It's been quite a few years since the company achieved its bonus targets. So I'm excited to add performance based bonus back to our financial profile. Excluding the new performance bonus incentive compensation, our SG and A leveraged in the quarter and leveraged year to date consistent with our guidance. Our top line continues to grow to be broad based and healthy.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Transaction growth has consistently accounted for the majority of our sales gain, which validates the strategic advantage of our neighborhood locations. And additionally, we saw growth in units per transaction while maintaining stable average unit retails. Also, our performance was consistent across climate zones, regions and store volume deciles, which underscores the breadth of improvement across the business. Our turnaround is rooted in a clear and unwavering focus on the needs of our African American customer, who is at the center of everything we do. Neighborhood based locations remain a differentiated advantage with proximity and word-of-mouth serving as powerful traffic drivers.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

We continue to strengthen this connection by elevating the cultural relevance of our assortments, refreshing the shopping experience to better align with our brand voice and investing in customer engagement. Work is underway to design and implement a CRM and loyalty platform that will deepen interaction with our most frequent shoppers, thus enhancing long term customer value. Our product performance in Q2 was broad based and balanced across apparel, non apparel, family basics, home and lifestyle and children's categories. In all categories, customers responded well to elevated fashions and expansion of brand name apparel. Women's plus and big men's apparel had strong performance and both remain early stage businesses with significant runway ahead.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Men's delivered improved results as trend relevant assortments and improved in stocks on basics resonated with customers. In Children's, a cornerstone of our business has continued strong year over year performance. And our customers continue to respond to extreme value deals on well known brands at exceptional prices as we continue to build capabilities to expand this important segment of our strategy. Looking ahead in product, we've made good progress in improving our three tiered good, better and best product assortments, but we are still in early stages. The majority of our initial initiatives, which include better in stocks on basic product, accelerated growth of women's plus and big men's sizes, expansion of the consumables category and the addition of extreme value products have had good early success.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

We see significant growth runway ahead though as we continue to fulfill consumer demand in all of these categories. In addition, our merchants have identified several growth opportunities through assortment refinement as we learn more about our customers. For example, our men's team is working to develop an expanded and more refined assortment for young men. We believe we are under serving this trendy value oriented consumer. Young men's will complement the already strong men's classic and core business.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

In our women's apparel, customers are responding to the increased offering of trendy Missy sized product. Missy product broadens the availability of style and size for women and complements the strong offering of junior product. Customer reaction to our best trendy product has been strong, giving us confidence there's more demand to address. This has led us to add a trend director to identify emerging trends and guide curation of product assortment. We were fortunate to find an accomplished trend director with a successful track record of trend curation at well known brands in the industry.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

I believe the elevation of trend in our men's and women's assortments will be additive and supportive to our merchant teams and resonate strongly with our customers. From an operational standpoint, we made continued progress on our initiatives in the second quarter. Foundational improvements in preseason product planning, in season allocation execution and supply chain speed have enabled us to support a 9.2% comp growth while operating with 5.7% less in store inventory than last year. Working capital optimization provides liquidity and flexibility to react quickly to emerging trends and deal opportunities, while also enhancing gross margin. Our stores continue to make strides in improving neat, clean and organized shopping experiences for customers.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

We've implemented improved in store navigation signing and updated presentation standards to make shopping experience easier. Our supply chain remains stable with progress against productivity and steam goals. And looking ahead, we're in the process of implementing improved work processes throughout the DCs and implementing special handling areas to assist us in overall processing speed and capacity to grow extreme value products and family footwear. I look forward to sharing more on this initiative on future calls. Looking ahead in operations, test results for our new AI based allocation system have been well above expectations allowing us to more accurately allocate products based on individual store demand, which has in turn increased sales and improved inventory turns.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

We are in the process of implementing AI based allocations to all categories with expected completion in mid September in time to impact holiday. And currently, we're in the early stages of developing a complementary AI based merchandise planning system that we hope to have ready for early twenty twenty six. Here again, we'll keep you updated on our progress. As we all know, retail is detailed and execution without measurement is just simply guesswork, which is why our use of KPIs and dashboards for all key functions is critical. The visibility provided helps our team stay on track, identifying where we're hitting the plans and where we need more attention.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

The combination of simple repeatable processes supported by operating procedures plus KPIs makes us confident that we'll be able to drive continual operational improvement for years to come. And a few comments on tariffs. As evidenced in our results, we are successfully navigating the ever changing tariff landscape. In fact, we've actually found the off price products deal making environment to be very robust and advantageous. My direction to the team is be aggressive, remain flexible with ample liquidity.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Our strategy is working. We intend to play our game and win at our game. Now I'll turn the call over to Heather to discuss the financial performance. Heather?

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

Thank you, Tan, and good morning, everyone. I'm excited to have the opportunity to walk you through the details of our second quarter and first half results as well as our improved outlook for the year. Before I do that, let me echo some themes from Ken's comments. The transformation of Citi Trends is underway and is driving significant improvement in both top and bottom line results. As I've said in previous calls, there's a new energy at Citi Trends and the results we get to share with you today are proof that our team's hard work is paying off.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

Turning to the specifics of second quarter results. Starting with the top line, Q2 sales were $190,800,000 up 8% compared to Q2 twenty twenty four with comp store sales growth of 9.2%, our fourth consecutive quarter of mid or high single digit comps. We delivered high single digit comps in each month of the quarter and saw growth to last year in each of our retail metrics, traffic, basket and conversion as the impact of our revised merchandise assortment, including off price deals and more branded extreme value products continues to resonate strongly. As Ken mentioned in his remarks and similar to our first quarter results, second quarter top line improvement to last year is a story of consistency. We saw consistent results across climate zones and across store volumes, and we drove consistent broad based strength across most product categories.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

We produced a 40% gross margin rate in the quarter as planned, our highest Q2 rate since fiscal twenty twenty one and an eight ninety basis point expansion versus Q2 last year. Recall that in the second quarter of last year, we incurred significant markdowns from our strategic inventory reset, allowing us to exit aged and slow moving products while freeing up open to buy for our revised product strategy. The effect of lapping that event, net of the in season markdown cadence established last year, significantly improved year over year markdown expense. We also drove decreased shrink expense in the quarter as a result of ongoing cross functional efforts plus the lap of an accrual adjustment last year. Our broad based Q2 margin rate improvement was also impacted by higher selling margins due to increased full price selling and a favorable mix of higher margin products, all while maintaining our sharp price value equation throughout the store.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

And finally, we saw improvement in cost of freight from favorable contract rates put in place last fall. Second quarter adjusted SG and A expense totaled $78,900,000 compared to $72,100,000 in the prior period. The increase to last year was driven by higher incentive compensation accrual on improved business performance and store and DC expense to process higher sales. As we shared with you in our last call, we reinstated incentive compensation accruals in 2025 after incurring very minimal bonus and equity expense in the last three quarters of fiscal twenty twenty four, causing a bonus to no bonus comparison in the second quarter. On a rate basis, Q2 adjusted SG and A was 41.3% of revenue, 50 basis points higher than the 40.8 rate in Q2 last year.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

The rate increase was driven entirely by this year's incentive compensation accruals. All other SG and A levered by approximately 150 basis points in the quarter, reflecting continued disciplined cost controls and the impact of improved top line results. And it's important to note that for the first half of the year, total adjusted SG and A, including incentive comp levered about 90 basis points to last year. Adjusted EBITDA for the quarter was a loss of $2,600,000 in line with management expectations and an increase of $14,600,000 versus Q2 twenty twenty four results. In the quarter, we sold our 72,000 square foot building in Savannah, Georgia, realizing a gain on the sale of approximately $11,000,000 which is included in reported net income and reported EBITDA, but is excluded from adjusted results.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

We will maintain our presence in Savannah, having leased a new smaller office space not far from the building we sold, giving our teams a fresh new space for continued collaboration. During Q2, we remodeled 19 stores, ending the quarter with 28% of the fleet in an updated format. We also closed one store in the quarter, bringing our total store count to five ninety locations. Before turning to the balance sheet, let me provide a few details on our performance in the 2025. First half comparable store sales were 9.6% with a two year comp stack of 10.3%.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

First half comps were driven by approximately 6% increase in transactions. Adjusted first half EBITDA was $2,800,000 an increase of about $21,000,000 to last year. EBITDA growth was driven by $29,000,000 of incremental sales, four eighty basis points of gross margin rate expansion and 90 basis points of SG and A leverage. Now turning to the balance sheet. Total inventory dollars at quarter end decreased 12.9% compared to last year, with average in store inventory down 5.7%.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

Our success in driving high single digit increases, sales increases with less inventory reflects our focus on improved inventory efficiency through higher churn, plus improvements in supply chain speed. We remain pleased with our inventory level, composition and freshness. At the end of the quarter, we remained in a healthy financial position with a strong balance sheet, including no debt, no drawings on our $75,000,000 revolver and $50,000,000 in cash. Now turning to our fiscal twenty twenty five outlook. Based on our first half results, our confidence in the continued effectiveness of our turnaround plan plus recognition that the macroeconomic environment remains uncertain, we are pleased to update our outlook for 2025 as follows.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

With the strength of sales in the first half of the year, we now expect full year comp store sales growth of mid to high single digits above our previous outlook of mid single digit growth. We now expect full year gross margin expansion of approximately two ten basis to two thirty basis points versus 2024, slightly above previous outlook due to improved inventory efficiency and initial progress on our planned supply chain improvement. SG and A is expected to leverage in the range of 60 to 90 basis points versus 2024, consistent with our first half trend and an improvement to our previous outlook. Note that this is inclusive of the build of the incentive comp accrual. To be clear, we now expect full year SG and A expense of approximately $310,000,000 an increase in EPS guidance due to cost to process and support higher sales and a higher bonus accrual on better business performance.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

With these updates, we now expect full year EBITDA to be in the range of $7,000,000 to $11,000,000 an increase to previous outlook. This revised guidance is 21,000,000 to $25,000,000 above fiscal twenty twenty four results. There is no change to our expected effective tax rate of approximately 0% for the year. We now expect to open three new stores, close three stores and to remodel approximately 60 locations in the year. And finally, full year capital expenditures are now expected to be in the range of $22,000,000 to $25,000,000 Before I turn the call back to Ken, I'll reiterate that we are very proud of our Q2 and first half results and the meaningful progress we've achieved so far.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

Our teams remain focused on continuous improvement with full recognition that there are still significant opportunities ahead of us. We still have processes to refine and areas to optimize as we continue the transformation of our business. The consistency of our performance over the past four quarters gives me confidence that we're building something durable and that our disciplined approach to driving shareholder value will continue to deliver results. With that, I'll turn the call back to Ken. Ken?

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Thank you, Heather. Before we open the call to Q and A, do want to share a few thoughts about our longer range of growth for Citi Trends. So looking forward, we are preparing for store expansion growth. We expect to remodel approximately 50 stores per year and expand square footage in the mid single digit range. We have engaged a third party analytics team to assist us with dissecting the demographics, pica graphics, and geo proximity location of our current customers right down to the individual household level.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

These insights, coupled with a robust financial pro form a, will greatly improve our accuracy and real estate site selection, leading to improved new store return on investment performance. We've identified several MSAs that are attractive expansion opportunities for Citi Trends in 2026 and beyond. Long range, our goal at CityTrans is to achieve $40,000,000 or more of EBITDA 2027 in 2027. This will be driven by consistent single digit sales growth, gross margin dollar expansion, leveraged SG and A and new store expansion. Each initiative within our value creation plan is supported by clear accountability, key performance indicators and execution rigor.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Our leadership team is highly engaged in building out the detailed plans to execute and is fully committed to making these plans a reality. In summary, Citi Trends has delivered four consecutive quarters of comp growth underpinned by transaction increases, broad based product strength and disciplined execution. Our strategy is working, our operational capabilities are advancing, and our customer connection is strengthening. But there's still a lot of work to do. We have processes to refine, we have categories to optimize, and more systems to build, but the path forward is clear.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

We are confident in our ability to deliver continued transformation, drive shareholder value and expand our role as a leading neighborhood retailer for African American families. I'll say thank you to our Citi Trends team for their discipline, their dedication and great results, and thank you to our shareholders for your continued confidence and support. And with that, I'll turn the call back over to the operator, for questions. Donna?

Operator

Thank you. The floor is now open for questions. Questions. Our first question today is coming from Michael Baker of D. A. Davidson. Please go ahead.

Michael Baker
MD & Senior Research Analyst at D.A. Davidson

Okay, great. Thanks. Hopefully, you can hear me. I wanted to ask great quarter. Thanks.

Michael Baker
MD & Senior Research Analyst at D.A. Davidson

Two one question, one follow-up. Let's first just talk about the expenses and the incentive comp and how that plays out going forward? And just sort of how should we think about expenses on a quarterly basis? I think the math implies about $78,000,000 in SG and A for each quarter in the back half on average. Is that the right run rate going forward as we think about 2026 and 2027?

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

Hey, Mike. Heather, hear you loud and clear. A question on SG and A, sure. 78 per quarter, I think that's exactly right. The thing that I will remind you of though, that's a good average per quarter, but Q4 ticks up about 3% versus Q3 because of holiday sales.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

So just kind of think about that as you calendarize. And as we go forward into 2026, we haven't conveyed that yet broadly. I can help you with modeling in our follow-up call.

Michael Baker
MD & Senior Research Analyst at D.A. Davidson

Well, I guess I don't want to waste my follow-up on this, but let me ask two more if I could. One, just thinking about that and the gross margin outlook, what's the right sort of incremental margin flow through on incremental sales? I understand there's a lot of noise this year, particularly as you cycled some things last year, but more about 2026 and 2027. How do we think about incremental margins?

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

Yes. So we've mentioned before that our goal is 20% to 25% EBITDA flow through, which we define as the change in EBITDA over the change of sales versus the prior year. This particular fiscal year is a little choppy because of some odd compares in the last year period and the build of the incentive comp this year. So if you try to normalize that, then you end up at about 25% certainly in the back half of the year of 2025. But that's what we're looking at going forward is 20% to 25% profit flow through.

Michael Baker
MD & Senior Research Analyst at D.A. Davidson

Got it. All right. If I could sneak in one more. I'm intrigued by the trend director, I think you called her, or fashion creative director or him. I guess I don't know if it's her.

Michael Baker
MD & Senior Research Analyst at D.A. Davidson

Any examples of what you're learning from that new hire? How we think that might show up in terms of what the merchandise looks like?

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Yeah, a couple of things on that, Mike. Thanks for the question. Since she's joined, she's really been acutely focused on really interpreting and understanding the consumer voice. But more importantly, the current landscape around the consumer. And what we've been able to gain from her insights is really taking what I call the voice of the consumer and starting to translate that into tangible style and tangible trends.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

So looking at obviously all the emerging things that are happening culturally around, on the landscape, it's pretty difficult to sift through all But she's done a nice job of sifting through all the things, all the noise out there, and distilling it into a handful of key focus trends. And what that has allowed our merchants to do then is to go to market with very specific filters on curating against this trend. And so we're starting to see some of that show up. Gave props to our men's team earlier. They've done a nice job of embracing, the concept right out the gate, they're getting good results in addition to the work that they're doing in their core programs, which has been good work.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

So these two things kind of coming together give us a sense that we're onto something. And I believe that, you'll start to see the results of better, more accurate, and more thoughtful curation as we get into Q4. I'm really excited about where we're headed there.

Michael Baker
MD & Senior Research Analyst at D.A. Davidson

Awesome. Great. Appreciate the time.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Thanks, Mike.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

Thank

Operator

you. The next question is coming from Jeremy Hamblin of Craig Hallum. Please go ahead.

Jeremy Hamblin
Senior Research Analyst at Craig-Hallum Capital Group LLC

Thanks and congrats on the impressive results. I wanted to get into the commentary about, it sounds like the momentum has really continued here in Q3 even as you're lapping much, much tougher compares. Wanted to see if you can provide a bit more color on what's driving that sustained momentum? I know you talked about broad based execution in Q2. But are you seeing more branded deals potentially driving the sustained strength for more well rounded assortment?

Jeremy Hamblin
Senior Research Analyst at Craig-Hallum Capital Group LLC

Any color you might be able to share on that would be helpful.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Yes. Sure, Jeremy. Thanks for the question. And it literally is all of the above. What's happened I think in the course of the last year is we've continued to refine starting first with I mentioned on the call earlier our preseason planning capabilities where we've really been thoughtful about how do we go in and attack the season, as we call it.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

So we really we put a good roadmap out there for winning in Q3 and what do we need to do to get Q3 off to a good start from a back to school perspective. And then that was supported with very thoughtful plans from all of our merchant teams. We do something in a category review process where we're trying put stakes in the ground on what categories can grow. And then behind that, when we back that up with the finances, right, and the open to buy and the amount of receipts required to support those ideas. And it's a very basic program, to be honest with you.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Most retailers do it, but I think we're doing it better than ever and very disciplined and very thoughtful about it. And then the bottom line is you can put a good plan together, but then it comes down to execution. So that's where our teams have been out, in in the market, finding the better product, finding the better styles. So I'd give you a combination, and you can see this in our store. But to give you one example, the team really embraced the brand True Religion, which has been around for a while, but it's actually resonated across the board with our consumers.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

And it was shared against multiple categories. And it's showing up across the store in all lines versus just in one category where we might have approached that in the past. And those ideas like that, there are many more that our teams are building on each other's ideas, and we're starting to see a much better curated product assortment for the total consumer. And then I'd be remiss if I didn't mention our teams in the field and the execution that's going on there, where they've really stepped up their game considerably when it comes to moving freight from the backroom to the floor in a more expedient way. Presentation standards have improved.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

NRDC as well is moving things through. So it literally is from my desk. It's a combination of all things kinda coming together quite well. And I guess I would also, share with you that as we sit around as as leadership team and think about what's working and and what what opportunities we have ahead, frankly, come up with more things on the to do list than we do on the done list. Right?

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

And, it's a little bit humbling to realize, how far we've come and how far we really have to go. But anyway, sorry about the rambling answer there, but the point is, is it really truly is, it's a combination of all of the detailed execution of the strategy kind of coming together.

Jeremy Hamblin
Senior Research Analyst at Craig-Hallum Capital Group LLC

Very helpful. I wanted to shift gears then and talk a little bit about the store base. So you've increased the number of remodels, from 50 to 60 that you planned for this year and I think it sounds like 50 on an ongoing basis. And then as you plan to get back into a unit growth mode, should we be thinking that FY 2026 is a mid single digit type unit growth. And then if you could just share some of the economics behind how much the remodels cost, what type of lift you're getting from them and then what you expect kind of the new store economics to be on new openings on a go forward basis?

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

For sure. I'll give you some of the strategy then and have Heather fill in some of the color on the results there for you. Yes, a couple of things. So this year, we did adjust. We actually added a few more remodels.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

I think we previously announced 50 and and we had line of sight to add 10 more for strategic reasons. Actually, to let you know what we're up to, we added some stores in our Jacksonville market and Columbia, South Carolina market to complement a couple of new store openings we have in those markets. We're going to try to go in and revitalize those markets and refresh the brand on an entire MSA basis. I'm excited about what that might do. We're going to learn a little bit more about that.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Our new stores open up in October, and all of those remodels will be completed there. So the reason we added 10 more stores was just to accomplish a full remodel in both of those marketplaces. Going forward on a new store growth perspective, we are going get into mid single digits. We have line of sight to a number of sites already for 2026. We don't have an exact number of where we're going to be in there, but there'll be some number between twenty five and forty new stores in 2026.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

I would expect at least 25 in that mix and then maybe more, we'll see. We'll have I'll be able to announce that on future calls more specifically, but it'll be in that range. And then the out years after that, we'll have the flywheel built. So we're still kind of building our pipeline. And as I mentioned earlier in my remarks, we're looking very specifically at opportunistic MSAs across the nation.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

We've identified many of those already as places to go. And now we have the hard work of trying to get in and find the right site inside of the market. So that work is underway as we speak as well in a lot of key markets. The final thing that I'll say in terms of return on investment at a high level, our new stores, we're putting them under a financial rigor. And I want you to think about our new store growth going forward as a triangle, right?

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

There's on one side of the triangle is, the rigor and discipline around making sure that we have the right site selection, consumer demographics, and so forth. The other part of the triangle is the actual end market site itself, being an attractive center and so forth. And then the third part of the triangle, is financial rigor, which is making sure that we hold ourselves to a high standard of return on investment. And so with that, I'll turn that over to Heather to let her fill in a little bit of color on that as well as the remodel question you had.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

Yes. I'm going to start with a remodel, if you don't mind, Jeremy. Good morning, by the way. You asked about remodel expense and results. So remodel expense, you'll remember, I think it was 2023.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

We cut the expense of a remodel in about half, right? So on average, we're at somewhere between $85,000 per location to $130,000 I can tell you that the remaining remodels for this year are averaging at $100,000 per store. And these are high volume stores, like 1,900,000.0 per. And then from a results perspective, we continue to see sales lift when we remodel stores. It varies by market, but we're still very comfortable that we're getting return.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

I think it's important though that on a store by store basis that amount is going to change store by store. So in some locations, it's really a matter of refreshing the fleet and doing a market presentation, right? So Ken just talked about Jacksonville, talked about Columbia, South Carolina. We're going to touch stores in that market to make sure that we are doing a full market press on here's the new iteration of Citi Trends. We want excitement in every door.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

We want excitement with our associates. We don't want anybody to feel left behind. So we're thinking about remodels maybe a little bit differently in that it's about fleet maintenance as much as it is about driving incremental sales. For new stores, the financial rigor that Ken spoke of, yes, We are applying financial metrics, making sure we've got the right return on investment. We've got the right payback period.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

We've got the right with the right, the right. We're looking at it very closely in partnership with our real estate team. Top line, you've heard Ken talk about this before. Ideally, we want our per store average at about 1.45, not to put too fine a point on it, but 1,450,000.00 per door. Are we going get that every time?

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

No, but that's what we're striving for, right? And rent at 10%. We've got control payroll, all of that, right? So from a four wall flow through, we look for mid teens and up to make sure that we're supporting the financial performance of the full chain. So that's kind of a look behind the curtain there.

Jeremy Hamblin
Senior Research Analyst at Craig-Hallum Capital Group LLC

That's great color. If I could sneak in just one more. Ken, on the last call you had mentioned some supply chain initiatives that you're working on trying to reduce, I think, the number of days in supply chain and that would allow you to save some money and cost. And I wanted to just understand where are you on that initiative? I know it sounds like as you make progress, you realize you have more progress to make.

Jeremy Hamblin
Senior Research Analyst at Craig-Hallum Capital Group LLC

But I was hoping for a quick update on where that initiative stands. Thank you.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Yes, for sure, Jeremy. We are in, again, use the term early stages, but I think it's fair to say early stages there. We've, what I would call taking out the low hanging fruit. Obviously, we're much faster now. And so think about the supply chain in three big parts, okay?

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Part number one is vendor to to DC. And we're better at managing that in our transportation routing and speed of picking up. From there, we've taken out a few days of that moment. Then you have your in DC processing. And then the third part is DC to store.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

And we've actually sped up the DC to store considerably. That we've changed, our routing, to, actually UPS carrier. And it's taken three or four days out of supply chain from DC to store. So the team did that really at the beginning of the year. We learned how to optimize that, and so we're significantly faster there.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

The area that we're really focused on right now is what I would call the NDC portion. And some of the work that is underway is in our receiving characteristics. I mentioned earlier Invent Analytics, the AI based system, when we throw the switch on that in September, that will save two days out of our receiving process, a day and a half right there. And then we're gonna be adding to that better ticketing standards, which are already being worked on and getting in place right now. That will speed up our ticketing portion.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

And then there's a processing portion which will speed up as well. So those things have been designed now. We understand what we need to do. Now it's a matter of getting them implemented. And so we're at different stages of implementation.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

But I would expect over the third quarter that the majority of these ideas will at least be implemented in our DC. And then we'll start to kind of see and feel better optimization as we get into Q4. So it definitely is a work in progress, but we've made good steps forward with a lot more to do there in the DC.

Jeremy Hamblin
Senior Research Analyst at Craig-Hallum Capital Group LLC

Thank you so much for all the color. Appreciate it.

Heather Plutino
Heather Plutino
CFO & EVP at Citi Trends

Karen.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

Thanks for the question, Jeremy. Appreciate it.

Operator

Thank you. At this time, I would like to turn the floor back over to Mr. Seipol for closing comments.

Kenneth Seipel
CEO & Chairman of the Board of Directors at Citi Trends

All right. Well, I want to thank everyone for joining us today. We look forward to keeping you updated on our progress. Good bye.

Operator

Ladies and gentlemen, this concludes today's event. You may disconnect your lines and log off the webcast at this time and enjoy the rest of your day.

Executives
Analysts
    • Nitza McKee
      Senior Associate - IR at ICR
    • Kenneth Seipel
      CEO & Chairman of the Board of Directors at Citi Trends
    • Michael Baker
      MD & Senior Research Analyst at D.A. Davidson
    • Jeremy Hamblin
      Senior Research Analyst at Craig-Hallum Capital Group LLC
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