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Citi Trends Rises 27% As Q3 Results Beat On Profit Beat And Strong Cost Controls

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Discusses the third quarter results with commentary and analysis of the stock

Discounted clothing retailer Citi Trends (NASDAQ:CTRN) closed 27.5% higher on Wednesday, after trading as high as $29.89 following a strong third-quarter result print. The stock remains down -66.8% over 2022 following the rally.

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Citi Trends' Q3 Earnings

For the third quarter, Citi Trends generated $192.3 million in revenue, which declined 15.6% over the year but came in ahead of analyst forecasts of around $187 million. Comparable sales declined by -18.3% over the year which was better than analysts' forecasts of expecting declines of more than -20%.

Income from operations increased to $31.6 million from $11.6 million in Q3 of 2021 and net profits also increased to $24.6 million from $9.0 million.

Underlying profits measured by adjusted EBITDA declined from $17.1 million in 2021 to $7.5 million. Citi Trends reported adjusted EPS of 24 cents which came in ahead of consensus forecasts expecting around -2 cents per share.

CEO David Makuen told investors “Despite a challenging inflationary climate, we delivered on our third quarter internal expectations, demonstrating the resiliency of our agile operating model and continued loyalty of our customers.”

Makuen reiterated its second half guidance to inventors where it expects to generate low single digit growth in sales when compared to the first half. The CEO expects gross margins to remain in the high 30’s to low 40’s and estimates the retailer will end the year with $85 to $100 million in cash on the balance sheet.

Analyst Chuck Grom from Gordon Haskett Research noted that Citi’s low-end customers are faring better than expected. Grom thinks that the full year outlook provided by management reflects conservatism around the tough macroeconomic backdrop. The firm's target increased from $18 to $27 after the result but remained cautious with a ‘hold’ recommendation.

The Fintel platforms insider sentiment score of 84.48 is bullish on the level of insider buying activity in the stock. The score ranks CTRN in the top 3% of 14,693 ranked global companies.

CTRN has experienced two net insiders who have purchased shares in the company over the last 90 days. These insiders have purchased 0.106% of the float during this period.

These insiders were CEO David Makuen who purchased $75,000 worth of shares at $18.64 back in early October. Makuen has made a 58% gain on this trade since purchasing the stock. Fintel journalists wrote an article on the purchase which can be found here.

The second insider was the Chief Compliance Officer and Vice President of HR, Ivy Council who purchased $55,000 worth of shares at $18.25 each around the same trading period.

The stock also has some positive screens in the short interest data section. CTRN has a short squeeze score of 86.71 which ranks the company in the top 2% of 5,065 stocks and also a gamma squeeze score of 90.21.

These scores are based on short interest currently equating to 13.43% of the total float (883K shares) with 1.87 days to cover.

Article by Ben Ward, Fintel