Citi-Trends CTRN
July 06, 2011 - 8:39pm EST by
SpocksBrainX
2011 2012
Price: 15.51 EPS $0.00 $0.00
Shares Out. (in M): 15 P/E 0.0x 0.0x
Market Cap (in $M): 226 P/FCF 0.0x 0.0x
Net Debt (in $M): -93 EBIT 0 0
TEV ($): 133 TEV/EBIT 0.0x 0.0x

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Description

Citi-Trends is a revision to the mean idea turnaround - asset play that ought to work sometime in the next three years.  It closed today at $15.51 (though traded near $15) with a 52 week high/low of $34.52-$14.70.  The company operates apparel and accessories stores for primarily African-Americans of all ages (though I've seen a heavy Hispanic element in the store along with lower income white folk).   There is a somewhat optimistic presentation on the company here:

 http://files.shareholder.com/downloads/CTRN/1314658708x0x329774/bdaa24c4-d5ce-43c9-a780-c91bcb2ece65/Citi_Trends_Slides.pdf

 Here is a list of positives and negatives associated with the idea:

 Positives

*stellar balance sheet.  Company has $93m in cash (no debt) and investments, or $6.40 or 41% of the current market cap.  They aren't going anywhere.

*plenty of trailing cash flow.  Trailing earnings plus d/a is 42m, or 31% of the current enterprise value.  It isn't free cash flow, but again - this company isn't going anywhere.

*lots of growth potential.  CTRN operates 461 stores currently with a saturation guesstimate at 800 to 1,000, or 51% saturated at the current level.  CTRN is currently expanding sqft by 15%.

*no buybacks in their history.  Sure, many view this as a negative, but given the volatility in this area, not only does it not bother me but provides the all-important element you need in any potential turnaround - time. 

*nobody is dying to get into this space.  TJX recently threw in the towel on their ethnic concept and given variable results here others are not in a hurry to open stores in this space (main competitors, besides many moms and pops, might be It's Fashion Metro (run by Cato) and dd's discounts (run by Ross stores)

*history of profits.  Company came public in 2005 and has earned 14.2-21.4-14.2-17.4-19.7-20.9 from 2005-2010.  Operating margins tend around 8.0% (VL) with net margins of 3-4%. 

*same store sales have sucked and will soon become this year's comparison (Jul11 is the first of negative numbers with compares getting easier as the year progresses)

 Negatives

*cash flow is not free cash flow.   Trailing CapEx is 46m and I would expect a similar amount for the year.  So, for now at least while they remain in growth mode, they wont' be adding much cash to the BS. 

*comps have been indifferent last few quarters.  Oct10 was down 8%, with Q4 down 11.4% and Q1 ending April11 down 6.9%.   By the way, despite comps being down this much in Q1 and Q4, net income nearly matched the previous year

*May11 isn't off to a good start either - down 12% in the first two weeks, putting enormous pressure on the stock price as investors extrapolate these results

*nobody believes the forecast - company's forecast is for $1.25-1.35 with 1-2% down comps which implies improvement from here but nobody believes them at this point.  Why should they?

 What Has to Happen for this Idea to Work

1 - positive comps.  They fluctuate, so going up again in the future is not a stretch.  If they do, investors can rethink this as an asset play/turnaround and remember it is a growth company too in terms of sqft.  Company blames current weakness on weak branded sales but, and this is just an opinion, I think this is all macro as others have experienced some weakness in apparel (see FDO latest call)

2 -  gas prices go down.  They are off the highs and given this store's ethnic customer (20 to 40k household income, so rising gas prices have an enormous impact here), this alone could make a huge difference

3 - another Hurricane or some even which impacts the South.  Katrina was a horrible thing but it was a clear boost to this company's fortunes (comps were up 16.7% in FY05 and 8.2% in FY06)

4 - people figure out that even if cash flow gets cut in half, the PCF ratio based on EV is still 6x.  You would also figure that if things get bad enough, management will put a stop to expansion

5 - don't count on it, but price is right at the opening bid, so....insider ownership is only 2.6%.  The time to buy these retailers is when the news is rotten, not good, and maybe somebody could take this private at these prices ++.  Dress Barn do you hear me (highly unlikely, but they seem to buy retailers at a bargain vs. most private equity who seems to only buy when things are peachy)

 I think CTRN makes sense for a well-diversified portfolio and is particular apt for a scaling approach - 20% moves are all that matters here.  The stock fluctuates like a deranged monkey.  All time low was $7, all time high was $57.8.

  Notes -   2010 AR

Finished with 461 stores

Top 5 States: 61 in GA, 45 Tx, 44 Fl, 44 Sc, 39 Lou

In fall weakness in long denim

They have a new store model - Citi Lights

65-70 stores mentioned; Mn and Nbrska new states; expand and relocate 12

New DC in OK

Proxy - CEO made 1.2m, others 368-670k

Insiders only at 2.6%

FMR owns 14.8%, MFS 10.5%, MS 8.7, Well 6.1, others

 

Comp History 

Q4-Dec10                             -11.4%

 

Jan                                         -23.5

 

Dec                                         -10.7%

 

Nov                                        -2.6%

 

Q3 - Oct 10                          -4.2%

 

Oct                                         -8%

 

Sep                                         -4%

 

Aug                                        -1%

 

 

 

Jul10                                     -0.6%

 

                July                        -4%

 

                June                       +0

 

                May                       +2%

 

 

 

Apr10                                    +9.6%

 

                April                      -8.9%

 

                March                   +22.8

 

                Feb                         +10.6%

 

Jan10                                    +1.2%

 

                Jan                         -8.1

 

                Dec                         +6.1

 

                Nov                        -0.3

 

Oct09                     392         +6.3%

 

                Oct                         +4

 

                Sep                         +15

 

                Aug                        +1

 

Jul09                     370         -12.4%

 

                Jul                          -12

 

                Jun                         -14

 

                May                       -10

 

Apr09                    365         +7.4

 

Jan09                    357 (e)   -1.9%

 

Oct08                     341         -4.2%

 

Jul08                     335         +6.5%

 

Apr08                    331         +0.3%

 

Jan08                    319         -1.1%

 
 
 
 
 

Catalyst

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