Citi Trends, Inc. CTRN(NAS) Profile Profile
Morningstar Equity Research
Citi Trends, Inc. CTRN (NAS) Last Close
Industry
Sector
23.69
Apparel Stores
Consumer Services
USD
Profile Pricing data through 23 Sep 2010
In addition to this comprehensive company profile, Morningstar offers in-depth analyst research and ratings on selected companies. For information about our full analyst coverage, please contact: Morningstar Equity Research +1 (312) 696-6869 [email protected]
Contents Company Profile
1
Company Data
2
Management & Ownership
3
Industry Focus
4
Citi Trends, Inc. is a value-priced retailer of urban fashion apparel and accessories for the entire family. The company offers quality, branded products from nationally recognized brands, as well as private label products and a limited assortment of home decor items. Its merchandise offerings are designed to appeal to the preferences of fashion conscious consumers, particularly African-Americans. Originally the company’s stores were located in the Southeast, and in recent years were expanded into the MidAtlantic and Midwest regions as well as the state of Texas. The company's merchandising policy is to offer high quality, branded products at attractive prices for the entire valueconscious family. It also offers a variety of products from less recognized brands and a lesser amount representing private label products under its proprietary brands such as ‘Diva Blue,’ ‘Red Ape,’ and ‘Lil Miss Hollywood.’ The company's private brand products enable it to expand product selection, offer merchandise at lower prices and enhance its product offerings. The company's merchandise includes apparel, accessories and home decor. Within apparel, it offers fashion sportswear for men, women and children, including offerings for newborns, infants, toddlers, boys and girls. The company also offers accessories, which includes handbags, jewelry, footwear, belts, intimate apparel and sleepwear, as well as a limited assortment of home decor. The company purchases its merchandise at attractive prices and marks prices up less than department or specialty stores. It reviews each department in its stores at least monthly for possible markdowns based on sales rates and fashion seasons to promote faster turnover of inventory and to accelerate the flow of current merchandise. The company allocates merchandise across its store base according to store-level demand. The merchandising staff utilizes a centralized management system to monitor merchandise purchasing, planning and allocation in order to maximize inventory turnover, identify and respond to changing product demands and determine the timing of mark-downs to its merchandise. The average selling space of the company’s existing 357 stores is approximately 10,200 square feet, which allows it the space and flexibility to departmentalize its stores and provide directed traffic
patterns. The company arranges its stores in a racetrack format with women’s sportswear, its most attractive and fashion current merchandise, in the center of each store and complementary categories adjacent to those items. The Company offers a layaway program that allows customers to purchase merchandise by initially paying a 20% deposit and a $2.00 service charge. The customer then makes additional payments every two weeks and has 60 days within which to complete the purchase. If the purchase is not completed, the customer receives a merchandise credit for amounts paid less a re-stocking fee and service charge. All merchandise sold in the company’s stores is shipped directly from its distribution centers in Savannah, Georgia and Darlington, South Carolina. The company generally ship merchandise from its distribution centers to its stores daily, utilizing United Parcel Service, Inc. and FedEx Corporation. The company competes against a diverse group of retailers, including national off-price retailers, mass merchants, smaller specialty retailers and dollar stores. In addition, merchandise the company sells in its stores is subject to regulatory standards set by various governmental authorities with respect to quality and safety.
©2009 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
Page 1 of 6
Morningstar StockResearch Data Sheet Morningstar®Equity
Pricing data thru Sept. 23, 2010
Citi Trends, Inc. CTRN
Sales USD Mil Mkt Cap USD Mil Industry
Sector
590
351
Consumer Services
Fair Value
Uncertainty
.
.
Citi Trends is a retailer of urban fashion apparel and Citi Trends is a retailer of urban fashion apparel and accessories that focuses on the African-American market. accessories that focuses on the African-American market. The company offers branded merchandise for men, women, The company offers branded merchandise for men, women, and children, as well as private label products and an and children, as well as private label products and an assortment of home decor items. Its brand-name and privateassortment of home decor items. Its brand-name and label offerings, which include hip-hop jeans and oversized Tprivate-label offerings, which include hip-hop jeans and shirts, men's, women's, and children's clothing, shoes, house oversized T-shirts, men’s, women’s, and children’s clothing, wares, and accessories, are sold at 20%-60% less than shoes, house wares, and accessories, are sold at 20%-60% department and specialty stores' regular prices. Citi Trends less than department and specialty stores’ regular prices. Citi was formerly known as Allied Department Stores. Trends was formerly known as Allied Department Stores.
Morningstar Rating —
Last Price
-
-
23.69
43.66 14.00
Rating updated as of Sept. 23, 2010
Apparel Stores Economic Moat
-
57.85 26.78
48.00 13.25
TM
Stewardship Grade
-. 28.12 7.01
Fiscal year-end: January
-
. per share prices in USD 31.47 9.40
37.57 22.40
Annual Price High Low Recent Splits
Price Volatility 39.0 19.0 9.0 4.0
104 Coleman Boulevard Employees: 4600 104 Coleman Savannah, GABoulevard 31408 Savannah, GA236-1561 31408 Phone: 1 912 Phone: 1 912 236-1561Website: http://www.cititrends.com Website: http://www.cititrends.com
1.0 303.0
Monthly High/Low Rel Strength to S&P 500 52 week High/Low 37.57 - 22.40 10 Year High/Low 57.85 - 7.01 Bear-Market Rank 0 (10=worst) Trading Volume Thousand
103.0
Growth Rates Compound Annual Grade: B
Revenue % Operating Income % Earnings/Share % Dividends % Book Value/Share % Stock Total Return % +/- Industry +/- Market
3 Yr
5 Yr
10 Yr
13.0 27.4 11.5 . 11.8 -7.4 -13.7 -13.4
13.1 -1.0 -3.4 . 12.5 0.7 3.0 10.4
22.1 18.6 15.2 . -28.6 1.5 -0.1 3.0
. . . . . . . .
Current
5 Yr Avg
Profitability Analysis Grade: D
Return on Equity % 13.4 Return on Assets % 9.0 Fixed Asset Turns 9.6 Inventory Turns 4.0 Revenue/Employee USD K 128.3 Gross Margin % Operating Margin % Net Margin % Free Cash Flow/Rev % R&D/Rev %
38.7 6.1 4.1 4.2 .
2007
2008
2009
YTD
Stock Performance
. . . . .
. . . . .
. . . . .
. . . . .
. . . . 549
-7.1 -20.7 -19.7 . 542
-61.0 -64.5 -42.2 . 218
-4.7 33.8 41.7 . 212
87.6 64.2 -2.8 . 406
-14.2 -15.1 -16.9 0.0 351
Total Return % +/- Market +/- Industry Dividend Yield % Market Cap USD Mil
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
TTM
Financials
81 36.1 2 2.9
98 36.6 4 4.6
125 37.7 8 6.7
157 37.6 10 6.5
203 37.4 13 6.2
290 38.3 21 7.3
382 38.3 30 7.9
438 36.3 19 4.3
488 38.2 23 4.7
552 38.6 29 5.3
590 38.7 36 6.1
Revenue USD Mil Gross Margin % Oper Income USD Mil Operating Margin %
2001
2003
2004
2005
Ind
Mkt
1
2
5
6
7
14
21
14
17
20
24
19.0 9.6 5.6 4.7 .
22.2 8.5 7.1 14.0 844.2
0.09 . 9 .
0.22 . 9 .
0.44 . 11 .
13.77 . 0 .
0.67 . 11 .
1.08 . 13 5.66
1.51 . 14 7.66
1.00 . 14 9.15
1.22 . 14 10.21
1.36 . 14 11.50
1.68 . 14 13.18
37.9 5.9 4.2 . .
39.5 9.3 5.5 8.3 .
40.3 14.0 9.4 0.1 10.1
. . .
. . .
. . .
11 -6 5
13 -9 4
28 -12 16
18 -16 2
17 -30 -13
40 -23 17
43 -24 19
50 -25 25
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
TTM
Profitability
4.8 34.5 1.5 3.23 7.2
9.0 53.4 2.5 3.58 5.2
. . 4.0 . .
12.0 35.9 3.8 3.19 3.0
12.1 36.0 3.6 3.39 3.0
13.0 26.4 4.9 2.66 1.8
12.4 21.1 5.6 2.22 1.7
7.0 11.1 3.2 2.15 1.5
7.7 11.7 3.6 2.17 1.5
7.6 11.6 3.6 2.12 1.5
9.0 13.4 4.1 2.19 1.5
Return on Assets % Return on Equity % Net Margin % Asset Turnover Financial Leverage
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
06-10
. . 3 .
. . 6 .
. . . .
11 1 17 0.12
14 2 24 0.09
63 0 84 0.01
88 . 118 0.03
89 . 138 0.01
60 . 158 .
123 . 181 .
127 . 196 .
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
TTM
Valuation
. . . . .
. . . . .
. . . . .
. . . . .
47.2 . 2.0 7.5 41.7
29.4 . 1.6 5.2 31.1
13.6 . 0.5 1.7 14.0
13.4 . 0.4 1.4 5.3
21.4 1.2 0.8 2.4 9.5
14.1 0.9 0.6 1.8 6.8
Price/Earnings P/E vs. Market Price/Sales Price/Book Price/Cash Flow
01-10 USD Mil
06-10 USD Mil
Cash Inventories Receivables Current Assets
63 101 . 212
85 108 3 212
Fixed Assets Intangibles Total Assets
64 1 280
73 1 290
Payables Short-Term Debt Current Liabilities Long-Term Debt Total Liabilities
66 . 89 . 99
59 . 86 . 95
Total Equity
181
196
. . . . .
Revenue USD Mil
Valuation Analysis Price/Earnings Forward P/E Price/Cash Flow Price/Free Cash Flow Dividend Yield % Price/Book Price/Sales PEG Ratio
2002
16.4 9.6 11.0 3.7 122.3 *
Financial Position Grade: B
2006
. . . . .
2000
1 Yr
Quarterly Results Current
5 Yr Avg
Ind
Mkt
14.1 12.0 6.8 13.8 . 1.8 0.6 0.7
25.0 . 20.3 . . 3.6 1.1 .
14.6 . 7.5 9.9 2.0 2.7 0.8 .
15.1 13.5 7.0 15.1 1.9 2.0 1.2 1.5
*3Yr Avg data is displayed in place of 5Yr Avg
Most Recent Period Prior Year Period Rev Growth %
Most Recent Period Prior Year Period Earnings Per Share USD
Most Recent Period Prior Year Period
Net Income USD Mil Earnings Per Share USD Dividends USD Shares Mil Book Value Per Share USD Oper Cash Flow USD Mil Cap Spending USD Mil Free Cash Flow USD Mil
Financial Health
Working Capital USD Mil Long-Term Debt USD Mil Total Equity USD Mil Debt/Equity
Industry Peers by Market Cap Oct 09
Jan 10
Apr 10
Jun 10
. .
. .
. .
129.0 .
Oct 09
Jan 10
Apr 10
Jun 10
. .
. .
. .
. .
Oct 09
Jan 10
Apr 10
Jun 10
. .
. .
. .
-0.04 .
Mkt Cap USD Mil Rev USD Mil
Citi Trends, Inc. Industria de Diseæo Gap, Inc.
351 . 11456
P/E
ROE%
590 14.1 . . 14471 10.6
13.4 . 26.3
Major Fund Holders % of shares
Morgan Stanley Inst Small Co Gr I Fidelity OTC Lord Abbett Small-Cap Blend A
5.98 4.49 3.64
TTM data based on rolling quarterly data if available; otherwise most recent annual data shown.
© 2010 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported.
The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
®
ß
Morningstar Equity Research
Citi Trends, Inc. CTRN (NAS) Last Close
Industry
Sector
23.69
Apparel Stores
Consumer Services
USD
Management & Ownership Management Activity
Name
Position
Shares Held
R. EDWARD ANDERSON Director R. DAVID ALEXANDER,JR Director/President/CEO,Director ELIZABETH R. FEHER Executive VP/Other Executive Officer BRUCE D. SMITH CFO/Senior VP IVY D. COUNCIL Senior VP, Divisional JAMES A. DUNN Senior VP, Divisional PATRICIA M. LUZIER Director JOHN S. LUPO Director LAWRENCE E. HYATT Director
Report Date*
InsiderActivity
125,000 57,535 26,167
02 Apr 2010 27 Aug 2010 06 Apr 2010
1,071 -
20,188 15,194 14,057 7,286 7,286 7,286
02 Apr 2010 30 Mar 2010 30 Mar 2010 16 Mar 2010 16 Mar 2010 16 Mar 2010
-
*Report date represents the date on which the owner's common shares held was audited.
Fund Ownership Top Owners
Morningstar Rating
% of Shares Held
% of Fund Assets
Change (k)
Morgan Stanley Inst Small Co Gr I Fidelity OTC Lord Abbett Small-Cap Blend A Fidelity Advisor Small Cap Growth A Lord Abbett Developing Growth A
QQQ QQQ QQ QQQ QQQ
5.70 4.24 3.44 2.12 1.65
1.73 0.36 1.38 0.67 0.72
0 -16 0 -30 11
31 Mar 2010 30 Jun 2010 30 Jun 2010 30 Apr 2010 30 Jun 2010
QQ QQQ QQQ QQQ
0.15 0.60 5.70 0.12
1.95 1.93 1.73 1.72
0 6 0 -1
30 Jun 2010 30 Jun 2010 31 Mar 2010 31 Mar 2010
% of Shares Held
% of Fund Assets
Shares Bought/ Sold (k)
1.52 0.74 0.47 1.29 0.33
1.03 0.04 0.34 1.03 0.06
68 64 59 56 49
30 Jun 2010 30 Jun 2010 31 Jul 2010 30 Jun 2010 30 Nov 2009
2.12 0.05 4.24 1.20
0.67 0.72 0.36 0.05
-30 -17 -16 -15
30 Apr 2010 30 Jun 2010 30 Jun 2010 12 Aug 2010
Portfolio Date
Concentrated Holders
Morgan Stanley Special Growth B Transamerica Morgan Stanley Sm Co Gr I2 Morgan Stanley Inst Small Co Gr I UIF Small Comp Growth II
Institutional Transactions Top 5 Buyers
MFS New Discovery Portfolio 529C Vanguard Explorer Inv Principal SmallCap Growth I Inst MFS VIT New Discovery Series - SC SEI Instl Invt Small/Mid Cap Equity A
Morningstar Rating
QQQQ QQQ QQQQ
Portfolio Date
Top 5 Sellers
Fidelity Advisor Small Cap Growth A Glenmede Small Cap Equity Adv Fidelity OTC iShares Russell 2000 (AU)
QQQ QQQ QQQ
©2009 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
Page 3 of 6
Morningstar Equity Research
Citi Trends, Inc. CTRN (NAS) Last Close
Industry
Sector
23.69
Apparel Stores
Consumer Services
USD
Industry Focus: Retail - Apparel We Think Carter's Has Value in its Pockets 22 September 2010
Zoe Tan
Stock Analyst
Despite near-term headwinds, we think Carter's longterm prospects are bright.
In our view, Carter's CRI second-quarter miss, which was weighed down by several one-time factors, has provided investors with an attractive entry point. While we agree that rising input costs in the apparel industry will have a negative impact on near-term results, we believe Carter's should be able to weather these headwinds better than its peers, given its market-leading position in the space. Additionally, we are optimistic about Carter's long-term prospects, given its well-established relationship with retailers in the wholesale channel, a growing presence of its retail stores, and improving trends in the OshKosh brand. Therefore, we think an attractive buying opportunity will arise if Carter's stock falls below our Consider Buy price of $23.80, which implies forward fiscal-year price/earnings of 10 times, enterprise value/EBITDA of 5.2 times, and a free cash flow yield of 8.6%. We view weakness in Carter's second-quarter results as a one-time phenomenon.
At the end of July, Carter's announced second-quarter results that appeared to be loaded with bad news, including a deceleration in wholesale revenue growth, negative retail same-store sales and reduced floor space at Wal-Mart WMT . As a result, the stock has declined by about 10% since then (or about 26% since its peak in May this year). However, we believe the numbers are not as bad as they seem. Firstly, second-quarter sales were negatively impacted by the Easter holiday timing shift and earlier-thanexpected merchandise shipments to Wal-Mart in the prior quarter, which accounted for almost half of the 14.5% growth posted in the first quarter (see chart below). Additionally, weaker retail store traffic was largely driven by the lack of clearance inventories in the second quarter (total inventories were down 7% at the end of the first quarter), a period where retailers traditionally clear excess spring merchandise, given strong sell-through trends earlier this year. This is also evidenced by the healthy 160 basispoint gross margin expansion during the quarter. Further supporting our view that weakness in Carter's secondquarter sales is more of a one-time phenomenon, the firm has already secured incremental orders for both Carter's and OshKosh in the wholesale channel for the rest of the year and into spring 2011, which will likely translate to highsingle-digit revenue growth over the next few quarters.
Higher sourcing costs are a real near-term threat, but we expect thatnbsp;Carter's will hold up better relative to its peers.
The price of cotton, which is a primary component of kids' apparel (80% of Carter's merchandise is cotton-based), has increased by 40%-50% in recent months to $0.90 per pound in July 2010. Furthermore, the price of shipping a 40-foot dry container from China to the U.S. has increased substantially to $2,800 in August 2010, representing a 94% increase from the $1,400 paid in August 2009. Therefore, we project that higher sourcing costs will weigh on Carter's ©2009 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
Page 4 of 6
Morningstar Equity Research
Citi Trends, Inc. CTRN (NAS) Last Close
Industry
Sector
23.69
Apparel Stores
Consumer Services
USD
Industry Focus: Retail - Apparel margins in the near term. However, we believe Carter's leadership in the children's apparel space will allow it to pass on a fraction of these price increases on staple items such as baby and sleepwear products. In our view, privatelabel brands, which face similar cost pressure, will likely follow suit, maintaining a 10% pricing gap to branded products. Therefore, we remain confident that Carter's can maintain a low-double-digit operating margin in 2011, with margins recovering to the 12% range over the next few years as consumer spending improves. Carter's well-established brand name in the kids' apparel space should drive long-term growth.
The namesake Carter's concept has become one of the major brands in the kids' apparel space, as its value-priced positioning and quality merchandise resonated well with consumers. Over the past decade, Carter's market share grew to 10% in 2009, up from 6% in 1998, which is an incredible feat, in our view, given the emergence of many private label names over the past decade (private label sales in the children's apparel market more than doubled over the past 10 years to 42% in 2009). Additionally, Carter’s has made itself a preferred partner of large national retailers such as J.C. Penney's JCP , Kohl's KSS , and Macy's
M , by being a store traffic driver through consistent adspending and attractive in-store displays. In fact, J.C. Penney's CEO Mike Ullmen, specifically pointed out that "increasing sales of select national brands with great brand loyalty like Carter's have really moved the needle in establishing J.C. Penney's as a destination for mums" during the firm's second-quarter conference call. Therefore, we remain confident that Carter's wholesale business will continue to be a steady revenue generator for the firm. In the mass channel, however, Carter's was faced with floor space reductions at Wal-Mart over the past two years, following the mass merchant's decision to downsize its branded apparel offerings. Nonetheless, this strategy seemed to have back-fired, and Wal-Mart has decided to bring back higher-quality brands into its stores. With a new apparel team at Wal-Mart, Carter's management forecasts that future orders will probably be more predictable and projects incremental orders following the successful door test earlier this year. Carter's expects to ship approximately $8 million to $10 million of incremental volume to the mass merchant in the back half of the year, and another 10% increase in mass channel sales in 2011, based on current orders. We see potential upside in the OshKosh segment.
After acquiring the struggling OshKosh chain in 2005, the firm repositioned the concept into a more upscale and sophisticated children's apparel brand. However, this change did not resonate well with consumers, as not many are willing to pay a hefty premium for branded children's clothing, especially since kids outgrow them pretty quickly. Moreover, as the economy weakened in 2007, management swiftly adjusted OshKosh's brand positioning and lowered its average pricing as much as 20% in the wholesale channel and about 5% in its retail stores. In our view, this is similar to what the firm has done with the namesake Carter's chain in the earlier part of this decade, where prices are adjusted to just 10% above private-label products. During our call ©2009 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
Page 5 of 6
Morningstar Equity Research
Citi Trends, Inc. CTRN (NAS) Last Close
Industry
Sector
23.69
Apparel Stores
Consumer Services
USD
Industry Focus: Retail - Apparel with CFO Richard Westenberger, he explained that this strategy has worked well, as consumers are willing to pay a buck or two more for better quality merchandise. Additionally, the sales volume increase has more than offset lower mark-ups, enabling the firm to grow operating margins to the low double digit range in recent years, up from the high single digits in the late 90s (see chart below). Therefore, we have reason to believe that OshKosh will follow a similar path, albeit at a slower pace, as it is faced with a more competitive market for slightly older kids. In fact, we believe the change has already started to resonate with consumers, as OshKosh's wholesale orders and samestore sales at retail stores has turned positive over the past two years.
©2009 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
Page 6 of 6
Citi Trends, Inc. CTRN (NAS) Last Close
Industry
Sector
23.69
Apparel Stores
Consumer Services
USD
Profile Pricing data through 23 Sep 2010
In addition to this comprehensive company profile, Morningstar offers in-depth analyst research and ratings on selected companies. For information about our full analyst coverage, please contact: Morningstar Equity Research +1 (312) 696-6869 [email protected]
Contents Company Profile
1
Company Data
2
Management & Ownership
3
Industry Focus
4
Citi Trends, Inc. is a value-priced retailer of urban fashion apparel and accessories for the entire family. The company offers quality, branded products from nationally recognized brands, as well as private label products and a limited assortment of home decor items. Its merchandise offerings are designed to appeal to the preferences of fashion conscious consumers, particularly African-Americans. Originally the company’s stores were located in the Southeast, and in recent years were expanded into the MidAtlantic and Midwest regions as well as the state of Texas. The company's merchandising policy is to offer high quality, branded products at attractive prices for the entire valueconscious family. It also offers a variety of products from less recognized brands and a lesser amount representing private label products under its proprietary brands such as ‘Diva Blue,’ ‘Red Ape,’ and ‘Lil Miss Hollywood.’ The company's private brand products enable it to expand product selection, offer merchandise at lower prices and enhance its product offerings. The company's merchandise includes apparel, accessories and home decor. Within apparel, it offers fashion sportswear for men, women and children, including offerings for newborns, infants, toddlers, boys and girls. The company also offers accessories, which includes handbags, jewelry, footwear, belts, intimate apparel and sleepwear, as well as a limited assortment of home decor. The company purchases its merchandise at attractive prices and marks prices up less than department or specialty stores. It reviews each department in its stores at least monthly for possible markdowns based on sales rates and fashion seasons to promote faster turnover of inventory and to accelerate the flow of current merchandise. The company allocates merchandise across its store base according to store-level demand. The merchandising staff utilizes a centralized management system to monitor merchandise purchasing, planning and allocation in order to maximize inventory turnover, identify and respond to changing product demands and determine the timing of mark-downs to its merchandise. The average selling space of the company’s existing 357 stores is approximately 10,200 square feet, which allows it the space and flexibility to departmentalize its stores and provide directed traffic
patterns. The company arranges its stores in a racetrack format with women’s sportswear, its most attractive and fashion current merchandise, in the center of each store and complementary categories adjacent to those items. The Company offers a layaway program that allows customers to purchase merchandise by initially paying a 20% deposit and a $2.00 service charge. The customer then makes additional payments every two weeks and has 60 days within which to complete the purchase. If the purchase is not completed, the customer receives a merchandise credit for amounts paid less a re-stocking fee and service charge. All merchandise sold in the company’s stores is shipped directly from its distribution centers in Savannah, Georgia and Darlington, South Carolina. The company generally ship merchandise from its distribution centers to its stores daily, utilizing United Parcel Service, Inc. and FedEx Corporation. The company competes against a diverse group of retailers, including national off-price retailers, mass merchants, smaller specialty retailers and dollar stores. In addition, merchandise the company sells in its stores is subject to regulatory standards set by various governmental authorities with respect to quality and safety.
©2009 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
Page 1 of 6
Morningstar StockResearch Data Sheet Morningstar®Equity
Pricing data thru Sept. 23, 2010
Citi Trends, Inc. CTRN
Sales USD Mil Mkt Cap USD Mil Industry
Sector
590
351
Consumer Services
Fair Value
Uncertainty
.
.
Citi Trends is a retailer of urban fashion apparel and Citi Trends is a retailer of urban fashion apparel and accessories that focuses on the African-American market. accessories that focuses on the African-American market. The company offers branded merchandise for men, women, The company offers branded merchandise for men, women, and children, as well as private label products and an and children, as well as private label products and an assortment of home decor items. Its brand-name and privateassortment of home decor items. Its brand-name and label offerings, which include hip-hop jeans and oversized Tprivate-label offerings, which include hip-hop jeans and shirts, men's, women's, and children's clothing, shoes, house oversized T-shirts, men’s, women’s, and children’s clothing, wares, and accessories, are sold at 20%-60% less than shoes, house wares, and accessories, are sold at 20%-60% department and specialty stores' regular prices. Citi Trends less than department and specialty stores’ regular prices. Citi was formerly known as Allied Department Stores. Trends was formerly known as Allied Department Stores.
Morningstar Rating —
Last Price
-
-
23.69
43.66 14.00
Rating updated as of Sept. 23, 2010
Apparel Stores Economic Moat
-
57.85 26.78
48.00 13.25
TM
Stewardship Grade
-. 28.12 7.01
Fiscal year-end: January
-
. per share prices in USD 31.47 9.40
37.57 22.40
Annual Price High Low Recent Splits
Price Volatility 39.0 19.0 9.0 4.0
104 Coleman Boulevard Employees: 4600 104 Coleman Savannah, GABoulevard 31408 Savannah, GA236-1561 31408 Phone: 1 912 Phone: 1 912 236-1561Website: http://www.cititrends.com Website: http://www.cititrends.com
1.0 303.0
Monthly High/Low Rel Strength to S&P 500 52 week High/Low 37.57 - 22.40 10 Year High/Low 57.85 - 7.01 Bear-Market Rank 0 (10=worst) Trading Volume Thousand
103.0
Growth Rates Compound Annual Grade: B
Revenue % Operating Income % Earnings/Share % Dividends % Book Value/Share % Stock Total Return % +/- Industry +/- Market
3 Yr
5 Yr
10 Yr
13.0 27.4 11.5 . 11.8 -7.4 -13.7 -13.4
13.1 -1.0 -3.4 . 12.5 0.7 3.0 10.4
22.1 18.6 15.2 . -28.6 1.5 -0.1 3.0
. . . . . . . .
Current
5 Yr Avg
Profitability Analysis Grade: D
Return on Equity % 13.4 Return on Assets % 9.0 Fixed Asset Turns 9.6 Inventory Turns 4.0 Revenue/Employee USD K 128.3 Gross Margin % Operating Margin % Net Margin % Free Cash Flow/Rev % R&D/Rev %
38.7 6.1 4.1 4.2 .
2007
2008
2009
YTD
Stock Performance
. . . . .
. . . . .
. . . . .
. . . . .
. . . . 549
-7.1 -20.7 -19.7 . 542
-61.0 -64.5 -42.2 . 218
-4.7 33.8 41.7 . 212
87.6 64.2 -2.8 . 406
-14.2 -15.1 -16.9 0.0 351
Total Return % +/- Market +/- Industry Dividend Yield % Market Cap USD Mil
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
TTM
Financials
81 36.1 2 2.9
98 36.6 4 4.6
125 37.7 8 6.7
157 37.6 10 6.5
203 37.4 13 6.2
290 38.3 21 7.3
382 38.3 30 7.9
438 36.3 19 4.3
488 38.2 23 4.7
552 38.6 29 5.3
590 38.7 36 6.1
Revenue USD Mil Gross Margin % Oper Income USD Mil Operating Margin %
2001
2003
2004
2005
Ind
Mkt
1
2
5
6
7
14
21
14
17
20
24
19.0 9.6 5.6 4.7 .
22.2 8.5 7.1 14.0 844.2
0.09 . 9 .
0.22 . 9 .
0.44 . 11 .
13.77 . 0 .
0.67 . 11 .
1.08 . 13 5.66
1.51 . 14 7.66
1.00 . 14 9.15
1.22 . 14 10.21
1.36 . 14 11.50
1.68 . 14 13.18
37.9 5.9 4.2 . .
39.5 9.3 5.5 8.3 .
40.3 14.0 9.4 0.1 10.1
. . .
. . .
. . .
11 -6 5
13 -9 4
28 -12 16
18 -16 2
17 -30 -13
40 -23 17
43 -24 19
50 -25 25
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
TTM
Profitability
4.8 34.5 1.5 3.23 7.2
9.0 53.4 2.5 3.58 5.2
. . 4.0 . .
12.0 35.9 3.8 3.19 3.0
12.1 36.0 3.6 3.39 3.0
13.0 26.4 4.9 2.66 1.8
12.4 21.1 5.6 2.22 1.7
7.0 11.1 3.2 2.15 1.5
7.7 11.7 3.6 2.17 1.5
7.6 11.6 3.6 2.12 1.5
9.0 13.4 4.1 2.19 1.5
Return on Assets % Return on Equity % Net Margin % Asset Turnover Financial Leverage
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
06-10
. . 3 .
. . 6 .
. . . .
11 1 17 0.12
14 2 24 0.09
63 0 84 0.01
88 . 118 0.03
89 . 138 0.01
60 . 158 .
123 . 181 .
127 . 196 .
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
TTM
Valuation
. . . . .
. . . . .
. . . . .
. . . . .
47.2 . 2.0 7.5 41.7
29.4 . 1.6 5.2 31.1
13.6 . 0.5 1.7 14.0
13.4 . 0.4 1.4 5.3
21.4 1.2 0.8 2.4 9.5
14.1 0.9 0.6 1.8 6.8
Price/Earnings P/E vs. Market Price/Sales Price/Book Price/Cash Flow
01-10 USD Mil
06-10 USD Mil
Cash Inventories Receivables Current Assets
63 101 . 212
85 108 3 212
Fixed Assets Intangibles Total Assets
64 1 280
73 1 290
Payables Short-Term Debt Current Liabilities Long-Term Debt Total Liabilities
66 . 89 . 99
59 . 86 . 95
Total Equity
181
196
. . . . .
Revenue USD Mil
Valuation Analysis Price/Earnings Forward P/E Price/Cash Flow Price/Free Cash Flow Dividend Yield % Price/Book Price/Sales PEG Ratio
2002
16.4 9.6 11.0 3.7 122.3 *
Financial Position Grade: B
2006
. . . . .
2000
1 Yr
Quarterly Results Current
5 Yr Avg
Ind
Mkt
14.1 12.0 6.8 13.8 . 1.8 0.6 0.7
25.0 . 20.3 . . 3.6 1.1 .
14.6 . 7.5 9.9 2.0 2.7 0.8 .
15.1 13.5 7.0 15.1 1.9 2.0 1.2 1.5
*3Yr Avg data is displayed in place of 5Yr Avg
Most Recent Period Prior Year Period Rev Growth %
Most Recent Period Prior Year Period Earnings Per Share USD
Most Recent Period Prior Year Period
Net Income USD Mil Earnings Per Share USD Dividends USD Shares Mil Book Value Per Share USD Oper Cash Flow USD Mil Cap Spending USD Mil Free Cash Flow USD Mil
Financial Health
Working Capital USD Mil Long-Term Debt USD Mil Total Equity USD Mil Debt/Equity
Industry Peers by Market Cap Oct 09
Jan 10
Apr 10
Jun 10
. .
. .
. .
129.0 .
Oct 09
Jan 10
Apr 10
Jun 10
. .
. .
. .
. .
Oct 09
Jan 10
Apr 10
Jun 10
. .
. .
. .
-0.04 .
Mkt Cap USD Mil Rev USD Mil
Citi Trends, Inc. Industria de Diseæo Gap, Inc.
351 . 11456
P/E
ROE%
590 14.1 . . 14471 10.6
13.4 . 26.3
Major Fund Holders % of shares
Morgan Stanley Inst Small Co Gr I Fidelity OTC Lord Abbett Small-Cap Blend A
5.98 4.49 3.64
TTM data based on rolling quarterly data if available; otherwise most recent annual data shown.
© 2010 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported.
The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
®
ß
Morningstar Equity Research
Citi Trends, Inc. CTRN (NAS) Last Close
Industry
Sector
23.69
Apparel Stores
Consumer Services
USD
Management & Ownership Management Activity
Name
Position
Shares Held
R. EDWARD ANDERSON Director R. DAVID ALEXANDER,JR Director/President/CEO,Director ELIZABETH R. FEHER Executive VP/Other Executive Officer BRUCE D. SMITH CFO/Senior VP IVY D. COUNCIL Senior VP, Divisional JAMES A. DUNN Senior VP, Divisional PATRICIA M. LUZIER Director JOHN S. LUPO Director LAWRENCE E. HYATT Director
Report Date*
InsiderActivity
125,000 57,535 26,167
02 Apr 2010 27 Aug 2010 06 Apr 2010
1,071 -
20,188 15,194 14,057 7,286 7,286 7,286
02 Apr 2010 30 Mar 2010 30 Mar 2010 16 Mar 2010 16 Mar 2010 16 Mar 2010
-
*Report date represents the date on which the owner's common shares held was audited.
Fund Ownership Top Owners
Morningstar Rating
% of Shares Held
% of Fund Assets
Change (k)
Morgan Stanley Inst Small Co Gr I Fidelity OTC Lord Abbett Small-Cap Blend A Fidelity Advisor Small Cap Growth A Lord Abbett Developing Growth A
QQQ QQQ QQ QQQ QQQ
5.70 4.24 3.44 2.12 1.65
1.73 0.36 1.38 0.67 0.72
0 -16 0 -30 11
31 Mar 2010 30 Jun 2010 30 Jun 2010 30 Apr 2010 30 Jun 2010
QQ QQQ QQQ QQQ
0.15 0.60 5.70 0.12
1.95 1.93 1.73 1.72
0 6 0 -1
30 Jun 2010 30 Jun 2010 31 Mar 2010 31 Mar 2010
% of Shares Held
% of Fund Assets
Shares Bought/ Sold (k)
1.52 0.74 0.47 1.29 0.33
1.03 0.04 0.34 1.03 0.06
68 64 59 56 49
30 Jun 2010 30 Jun 2010 31 Jul 2010 30 Jun 2010 30 Nov 2009
2.12 0.05 4.24 1.20
0.67 0.72 0.36 0.05
-30 -17 -16 -15
30 Apr 2010 30 Jun 2010 30 Jun 2010 12 Aug 2010
Portfolio Date
Concentrated Holders
Morgan Stanley Special Growth B Transamerica Morgan Stanley Sm Co Gr I2 Morgan Stanley Inst Small Co Gr I UIF Small Comp Growth II
Institutional Transactions Top 5 Buyers
MFS New Discovery Portfolio 529C Vanguard Explorer Inv Principal SmallCap Growth I Inst MFS VIT New Discovery Series - SC SEI Instl Invt Small/Mid Cap Equity A
Morningstar Rating
QQQQ QQQ QQQQ
Portfolio Date
Top 5 Sellers
Fidelity Advisor Small Cap Growth A Glenmede Small Cap Equity Adv Fidelity OTC iShares Russell 2000 (AU)
QQQ QQQ QQQ
©2009 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
Page 3 of 6
Morningstar Equity Research
Citi Trends, Inc. CTRN (NAS) Last Close
Industry
Sector
23.69
Apparel Stores
Consumer Services
USD
Industry Focus: Retail - Apparel We Think Carter's Has Value in its Pockets 22 September 2010
Zoe Tan
Stock Analyst
Despite near-term headwinds, we think Carter's longterm prospects are bright.
In our view, Carter's CRI second-quarter miss, which was weighed down by several one-time factors, has provided investors with an attractive entry point. While we agree that rising input costs in the apparel industry will have a negative impact on near-term results, we believe Carter's should be able to weather these headwinds better than its peers, given its market-leading position in the space. Additionally, we are optimistic about Carter's long-term prospects, given its well-established relationship with retailers in the wholesale channel, a growing presence of its retail stores, and improving trends in the OshKosh brand. Therefore, we think an attractive buying opportunity will arise if Carter's stock falls below our Consider Buy price of $23.80, which implies forward fiscal-year price/earnings of 10 times, enterprise value/EBITDA of 5.2 times, and a free cash flow yield of 8.6%. We view weakness in Carter's second-quarter results as a one-time phenomenon.
At the end of July, Carter's announced second-quarter results that appeared to be loaded with bad news, including a deceleration in wholesale revenue growth, negative retail same-store sales and reduced floor space at Wal-Mart WMT . As a result, the stock has declined by about 10% since then (or about 26% since its peak in May this year). However, we believe the numbers are not as bad as they seem. Firstly, second-quarter sales were negatively impacted by the Easter holiday timing shift and earlier-thanexpected merchandise shipments to Wal-Mart in the prior quarter, which accounted for almost half of the 14.5% growth posted in the first quarter (see chart below). Additionally, weaker retail store traffic was largely driven by the lack of clearance inventories in the second quarter (total inventories were down 7% at the end of the first quarter), a period where retailers traditionally clear excess spring merchandise, given strong sell-through trends earlier this year. This is also evidenced by the healthy 160 basispoint gross margin expansion during the quarter. Further supporting our view that weakness in Carter's secondquarter sales is more of a one-time phenomenon, the firm has already secured incremental orders for both Carter's and OshKosh in the wholesale channel for the rest of the year and into spring 2011, which will likely translate to highsingle-digit revenue growth over the next few quarters.
Higher sourcing costs are a real near-term threat, but we expect thatnbsp;Carter's will hold up better relative to its peers.
The price of cotton, which is a primary component of kids' apparel (80% of Carter's merchandise is cotton-based), has increased by 40%-50% in recent months to $0.90 per pound in July 2010. Furthermore, the price of shipping a 40-foot dry container from China to the U.S. has increased substantially to $2,800 in August 2010, representing a 94% increase from the $1,400 paid in August 2009. Therefore, we project that higher sourcing costs will weigh on Carter's ©2009 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
Page 4 of 6
Morningstar Equity Research
Citi Trends, Inc. CTRN (NAS) Last Close
Industry
Sector
23.69
Apparel Stores
Consumer Services
USD
Industry Focus: Retail - Apparel margins in the near term. However, we believe Carter's leadership in the children's apparel space will allow it to pass on a fraction of these price increases on staple items such as baby and sleepwear products. In our view, privatelabel brands, which face similar cost pressure, will likely follow suit, maintaining a 10% pricing gap to branded products. Therefore, we remain confident that Carter's can maintain a low-double-digit operating margin in 2011, with margins recovering to the 12% range over the next few years as consumer spending improves. Carter's well-established brand name in the kids' apparel space should drive long-term growth.
The namesake Carter's concept has become one of the major brands in the kids' apparel space, as its value-priced positioning and quality merchandise resonated well with consumers. Over the past decade, Carter's market share grew to 10% in 2009, up from 6% in 1998, which is an incredible feat, in our view, given the emergence of many private label names over the past decade (private label sales in the children's apparel market more than doubled over the past 10 years to 42% in 2009). Additionally, Carter’s has made itself a preferred partner of large national retailers such as J.C. Penney's JCP , Kohl's KSS , and Macy's
M , by being a store traffic driver through consistent adspending and attractive in-store displays. In fact, J.C. Penney's CEO Mike Ullmen, specifically pointed out that "increasing sales of select national brands with great brand loyalty like Carter's have really moved the needle in establishing J.C. Penney's as a destination for mums" during the firm's second-quarter conference call. Therefore, we remain confident that Carter's wholesale business will continue to be a steady revenue generator for the firm. In the mass channel, however, Carter's was faced with floor space reductions at Wal-Mart over the past two years, following the mass merchant's decision to downsize its branded apparel offerings. Nonetheless, this strategy seemed to have back-fired, and Wal-Mart has decided to bring back higher-quality brands into its stores. With a new apparel team at Wal-Mart, Carter's management forecasts that future orders will probably be more predictable and projects incremental orders following the successful door test earlier this year. Carter's expects to ship approximately $8 million to $10 million of incremental volume to the mass merchant in the back half of the year, and another 10% increase in mass channel sales in 2011, based on current orders. We see potential upside in the OshKosh segment.
After acquiring the struggling OshKosh chain in 2005, the firm repositioned the concept into a more upscale and sophisticated children's apparel brand. However, this change did not resonate well with consumers, as not many are willing to pay a hefty premium for branded children's clothing, especially since kids outgrow them pretty quickly. Moreover, as the economy weakened in 2007, management swiftly adjusted OshKosh's brand positioning and lowered its average pricing as much as 20% in the wholesale channel and about 5% in its retail stores. In our view, this is similar to what the firm has done with the namesake Carter's chain in the earlier part of this decade, where prices are adjusted to just 10% above private-label products. During our call ©2009 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
Page 5 of 6
Morningstar Equity Research
Citi Trends, Inc. CTRN (NAS) Last Close
Industry
Sector
23.69
Apparel Stores
Consumer Services
USD
Industry Focus: Retail - Apparel with CFO Richard Westenberger, he explained that this strategy has worked well, as consumers are willing to pay a buck or two more for better quality merchandise. Additionally, the sales volume increase has more than offset lower mark-ups, enabling the firm to grow operating margins to the low double digit range in recent years, up from the high single digits in the late 90s (see chart below). Therefore, we have reason to believe that OshKosh will follow a similar path, albeit at a slower pace, as it is faced with a more competitive market for slightly older kids. In fact, we believe the change has already started to resonate with consumers, as OshKosh's wholesale orders and samestore sales at retail stores has turned positive over the past two years.
©2009 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
Page 6 of 6
