Citi Trends, Inc. (NASDAQ:CTRN) Q3 2023 Results Conference Call November 28, 2023 9:00 AM ET

Company Participants

Nitza McKee - Senior Associate

David Makuen - Chief Executive Officer

Heather Plutino - Chief Financial Officer

Conference Call Participants

Jeremy Hamblin - Craig-Hallum Capital Group

Mike Baker - D.A. Davidson

Chuck Grom - Gordon Haskett

John Lawrence - Benchmark

Operator

Greetings, and welcome to the Citi Trends Third Quarter 2023 Earnings Conference Call [Operator Instructions]. As a reminder, this conference is being recorded on Tuesday, November 28, 2023. I would now like to turn the conference over to Ms. Nitza McKee, Senior Associate. Please go ahead.

Nitza McKee

Thank you, and good morning, everyone. Thank you for joining us on Citi Trends' third quarter 2023 earnings call. On our call today is our Chief Executive Officer, David Makuen; and Chief Financial Officer, Heather Plutino. Our earnings release was sent out this morning at 6:45 a.m. Eastern Time. If you have not received a copy of the release, it's available on the company's Web site 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. Therefore, you should not place undue reliance on these statements. We refer you to the company's most recent report on Form 10-K and other subsequent filings with 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, David Makuen. David?

David Makuen

Thank you, Nitza. Good morning, everyone. And thanks for joining us today on our third quarter fiscal 2023 earnings call. I will begin our call with highlights of our third quarter performance. Heather Plutino, our Chief Financial Officer, will then elaborate on our detailed financial results and our outlook. Then we'll open the call for your questions. In the third quarter, our team continued to advance our strategic initiatives while navigating a very challenging selling environment and controlling the controllables, like we always do. We successfully managed the middle of the P&L as we registered a strong gross margin of 38.2% and kept operating expense dollars essentially flat compared to the prior year. That said, our third quarter top line performance did not meet our expectations with sales held back more than we expected by the ongoing challenging macroeconomic backdrop. Our primarily low income customer base, consisting mostly of families earning $45,000 and less per year, is being very selective and purchasing much closer to need as they navigate higher cost of living, a buying pattern further impacted by unseasonably warm weather throughout the quarter. Our third quarter comp sales decline of 6.2%, while similar to the prior quarter's run rate, did benefit from the intentional inventory rebuilds that I referenced during our Q2 earnings call. In particular, rebuilds in Home, Men's, Big Men's and Beauty were embraced by customers, thanks to significantly better inventory levels, enhanced assortments and better values than last year. Additionally, our Ladies business benefited from excellent preseason trend forecasting that showed up in one of our best assortments ever. As the quarter unfolded, we experienced strong and consistent in-store conversion, signaling that many components of our trend right assortment for all ages continue to resonate with our customers.