Citi Trends : Annual Report for Fiscal Year Ending 01-31, 2025 (Form 10-K)
CTRN
Published on 04/15/2026 at 04:22 pm EDT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion may contain forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under the section entitled "Risk Factors" and elsewhere in this Report, our actual results may differ materially from those anticipated in these forward-looking statements.
Discussions of our results of operations for the year ended February 1, 2025 compared to the year ended February 3, 2024 that have been omitted under this item can be found in "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended February 1, 2025, which was filed with the United States Securities and Exchange Commission on April 16, 2025.
Executive Overview
We are the leading off-price value retailer of apparel, accessories and home trends primarily for Black families. Our high-quality and trend-right merchandise offerings at everyday low prices are designed to appeal to the fashion and trend preferences of value-conscious customers. As of January 31, 2026, we operated 590 stores in urban, suburban and rural markets in 33 states.
Fiscal 2025 Business Highlights
Fiscal 2025 Financial Highlights
Our Strategy
We believe that CITITRENDS is in a unique position to serve our loyal customer base, with a long runway for store growth and a strong leadership team supported by a healthy balance sheet. As described in more detail in "Item 1 - Business," we have identified five strategic areas of focus that we believe will accelerate our sales and earnings growth over the next few years:
Offer Compelling Value Proposition. We believe that we can drive increases in traffic and basket by focusing on our three-tiered product strategy of opening prices, core value product and familiar brands at incredible values, all focused on the wants and needs of our Black customers. We believe that delivering newness and freshness results in high customer frequency. Our expanded offering of "treasures", or extreme value product offerings, further strengthens this strategy and deepens our relationship with our customers.
Focus on the Black Customer. We believe that a sharpened focus on our Black customers will drive improved sales through a more focused product assortment designed to address their fashion needs and wants, supporting their ability to express themselves through the creation of their own style. We believe that our refined understanding of our customer will drive increased traffic and conversion in our stores.
Consistent Operational Excellence. We believe that the work we are doing to develop fundamental retail practices and to focus on consistent execution will produce strong, sustainable financial results while positioning us for future, accelerated growth.
Growth. We believe that we can maximize the productivity of our existing 590 stores located in the heart of Black communities by executing on the three areas of focus stated above and by continued refinement of our store format. While we believe that maximizing the productivity of our existing fleet provides significant opportunity for sales and earnings growth, we continue to believe that CITITRENDS has the potential to grow, and we expect to accelerate square footage expansion over time, including through potential assumptions of leases or subleases.
People. We believe that our teams across the organization, led by Ken Seipel, our Chief Executive Officer, and their ability to consistently execute while staying focused on our Black customer, providing great product and a welcoming in-store environment, are a key differentiator for our business and are key to the continued transformation of our company.
We strongly believe that our business strategy centered around these five areas will accelerate our long-term sales and earnings growth.
Uncertainties and Challenges
General Economic Conditions
We are monitoring trends in general economic conditions, including on-going inflationary pressures, new and changing tariff programs and changes in consumer sentiment. We continue to monitor the impacts on our business of unemployment levels, wage inflation, interest rates, inflation rates, housing costs, energy costs, consumer confidence, consumer perception of economic conditions, costs to source our merchandise and supply chain disruptions.
Seasonality and Weather Conditions
The nature of our business is seasonal. Historically, sales in the first and fourth quarters have been higher than sales achieved in the second and third quarters of the fiscal year. In addition, sales of clothing are directly impacted by the timing of the seasons to which the clothing relates. While we have expanded our product offerings to balance discretionary with non-discretionary products, traffic to our stores is still influenced by weather patterns to some extent.
Basis of Presentation
Net sales consist of store sales and layaway fees, net of returns by customers. Cost of sales consists of the cost of products we sell and associated freight costs. Depreciation is not considered a component of cost of sales and is included as a separate line item in the consolidated statements of operations. Selling, general and administrative expenses are comprised of store costs, including payroll and occupancy costs, corporate and distribution center costs and marketing costs. The years ended January 31, 2026, February 1, 2025 and February 3, 2024 are referred to herein as fiscal 2025, fiscal 2024 and fiscal 2023, respectively. Fiscal years 2025 and 2024 are each comprised of 52 weeks, while fiscal 2023 is comprised of 53 weeks.
Results of Operations
The following discussion of our financial performance is based on the consolidated financial statements set forth in Item 8 of this Report. The nature of our business is seasonal. Results may fluctuate due to changes in our business, consumer spending patterns, the macroeconomic environment and strategic initiatives. Furthermore, the seasonal nature of our business may affect comparisons between periods.
Net Sales and Additional Operating Data
The following table provides selected consolidated statement of operations data expressed both in dollars and as a percentage of net sales:
Fiscal Year
2025
2024
2023
(dollars in thousands)
Statement of Operations Data
Net sales
$
819,962
100.0
%
$
753,079
100.0
%
$
747,941
100.0
%
Cost of sales (exclusive of depreciation)
(495,320)
(60.4)
%
(471,036)
(62.5)
%
(462,824)
(61.9)
%
Selling, general and administrative expenses
(313,171)
(38.2)
%
(300,173)
(39.9)
%
(284,530)
(38.0)
%
Depreciation
(18,482)
(2.3)
%
(18,822)
(2.5)
%
(18,990)
(2.5)
%
Asset impairment
(579)
(0.1)
%
(2,536)
(0.3)
%
(1,051)
(0.1)
%
Gain on sale of assets
10,960
1.3
%
-
0.0
%
-
0.0
%
Gain on insurance
482
0.1
%
-
0.0
%
-
0.0
%
Income (loss) from operations
3,852
0.5
%
(39,488)
(5.2)
%
(19,454)
(2.6)
%
Interest income
1,993
0.2
%
2,473
0.3
%
3,874
0.5
%
Interest expense
(342)
(0.0)
%
(319)
(0.0)
%
(306)
(0.0)
%
Income (loss) before income taxes
5,503
0.7
%
(37,334)
(5.0)
%
(15,886)
(2.1)
%
Income tax (expense) benefit
(296)
0.0
%
(5,836)
(0.8)
%
3,907
0.5
%
Net income (loss)
$
5,207
0.6
%
$
(43,170)
(5.7)
%
$
(11,979)
(1.6)
%
The following table provides information about store activity and the change in comparable store sales for each fiscal year:
Fiscal Year
2025
2024
2023
Total stores open, beginning of year
591
602
611
New stores
3
1
5
Closed stores
(4)
(12)
(14)
Total stores open, end of year
590
591
602
Comparable store sales increase (decrease) (1)
9.7
%
3.4
%
(6.8)
%
Key Operating Statistics
We measure performance using key operating statistics. One of the main performance measures we use is comparable store sales growth. We define a comparable store as a store that has been open for at least 14 full consecutive months without closure for more than seven days within the same fiscal month. Remodeled and relocated stores are included in the comparable store sales results if the selling square footage is not changed significantly, the store is not closed for more than five days in any fiscal month and the store remains in the same trade area. We also use other operating statistics, most notably average sales per store, to measure our performance. As we typically occupy existing space in established shopping centers rather than sites built specifically for our stores, store square footage (and therefore sales per square foot) varies by store. We focus on overall store sales volume as the critical driver of profitability. In addition to sales, we measure cost of sales as a percentage of sales and store operating expenses, with a particular focus on labor, as a percentage of sales. These results translate into store level contribution, which we use to evaluate overall performance of each individual store. Finally, we monitor corporate and distribution center expenses against budgeted amounts.
Fiscal 2025 Compared to Fiscal 2024
Net Sales. Net sales increased $66.9 million, or 8.9%, to $820.0 million in fiscal 2025 from $753.1 million in fiscal 2024. The increase in sales was due to a 9.7% increase in comparable store sales, as well as a decrease of $5.4 million from net store opening and closing activity. The increase in comparable store sales was the result of increased transactions with increased average basket contributing to the balance.
Cost of Sales (exclusive of depreciation). Cost of sales increased $24.3 million, or 5.2%, to $495.3 million in fiscal 2025 from $471.0 million in fiscal 2024. As a percentage of net sales, cost of sales decreased 210 basis points to 60.4% in fiscal 2025 from 62.5% in fiscal 2024 driven by lower markdowns and lower shrink expenses since the strategic inventory reset in fiscal 2024, and lower freight expense compared to fiscal 2024.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses increased $13.0 million, or 4.3%, to $313.2 million in fiscal 2025 from $300.2 million in fiscal 2024. The increase was primarily due to $9.7 million of incremental bonus and equity expense and store and distribution center expense to support $66.9 million of incremental sales. As a percentage of sales, SG&A expenses leveraged 170 basis points to 38.2% in fiscal 2025 from 39.9% in fiscal 2024.
Depreciation. Depreciation expense decreased $0.3 million to $18.5 million in fiscal 2025 from $18.8 million in fiscal 2024.
Asset Impairment. Impairment charges for fiscal 2025 related to underperforming stores totaled $0.6 million, comprised of $0.3 million for leasehold improvements and fixtures and equipment, and $0.3 million for an operating lease right-of-use asset. Impairment charges for fiscal 2024 related to underperforming stores totaled $2.5 million, comprised of $1.2 million for leasehold improvements and fixtures and equipment, and $1.3 million for an operating right of use asset.
Gain on sale of building. Gain on sale of the corporate office building was $11.0 million for fiscal 2025.
Gain on insurance. Gain on insurance was $0.4 million for fiscal 2025.
Income Tax (Expense) Benefit. Income tax expense was $0.3 million in fiscal 2025 compared to income tax expense of $5.8 million in fiscal 2024. The difference is attributable to the $16.5 million valuation allowance related to deferred tax assets, primarily associated with net operating loss carryforward generated in fiscal years 2023 and 2024. The cumulative losses during recent years represents sufficient negative evidence to require a valuation allowance, which will be maintained until sufficient positive evidence exists to support its reversal.
Net Income (Loss). Net income was $5.2 million in fiscal 2025 compared to net loss of $43.2 million in fiscal 2024, due to the factors discussed above.
Liquidity and Capital Resources
Capital Allocation
Our capital allocation strategy is to maintain adequate liquidity to support current operations while investing in opportunities to profitably grow our business, including opportunities to accelerate growth through strategic roll-ups and synergistic acquisitions. At the discretion of our board of directors, we may also choose to return excess cash to shareholders. Our year-end cash and cash equivalents balance was $66.1 million compared to $61.1 million at the end of last year. Until required for other purposes, we maintain cash and cash equivalents in deposit or money market accounts.
Our principal sources of liquidity consist of (i) cash and cash equivalents on hand; (ii) short-term trade credit arising from customary payment terms and trade practices with our vendors; (iii) cash generated from operations on an ongoing basis; and (iv) a revolving credit facility with a $75 million credit commitment.
Inventory
Our year-end inventory balance was $113.5 million, compared with $122.6 million at the end of fiscal 2024. The decrease was the result of our strategic decrease in our average in-store inventory due to our ongoing inventory efficiency initiatives and lower pack-and-hold inventory.
Capital Expenditures
Capital expenditures in fiscal 2025 were $22.7 million, an increase of $10.6 million from the prior year, primarily due to new stores being opened and more stores being remodeled in fiscal 2025. We anticipate capital expenditures in fiscal 2026 in the range of $35 million to $40 million, primarily for opening approximately 25 new stores and remodeling approximately 50 stores.
Share Repurchases
In fiscal 2025 we returned $6.3 million to shareholders through share repurchases. See Part II, Item 5 of this Report and Note 6 to the Financial Statements for more information.
Revolving Credit Facility
We have a revolving credit facility that matures in April 2030 and provides a $75 million credit commitment and a $25 million uncommitted "accordion" feature. Additional details of the credit facility are in Note 4 to the Financial Statements. At the end of fiscal 2025, we had no borrowings under the credit facility and $2.2 million in letters of credit outstanding.
Cash Flows
Cash Flows From Operating Activities. Cash provided by operating activities was $21.0 million in fiscal 2025 compared with cash used of $3.8 million in fiscal 2024. For fiscal 2025, significant sources of cash included increase in net income, as well as an $8.8 million reduction in inventory. Significant uses of cash include a $55.2 million decrease in accrued expenses and other-long-term liabilities due primarily to payments of operating lease liabilities.
For fiscal 2024, significant sources of cash included a $7.8 million reduction in inventory and a $0.1 million increase in accounts payable. Significant uses of cash include a $49.5 million decrease in accrued expenses and other-long-term liabilities due primarily to payments of operating lease liabilities.
Cash Flows From Investing Activities. Cash used in investing activities was $8.5 million in fiscal 2025 compared to cash used of $10.1 million in fiscal 2024. Sources of cash in fiscal 2025 included $11.2 million from the sale of a building and $0.6 million from insurance proceeds. Cash used in fiscal 2024 consisted entirely of purchases of property and equipment.
Cash Flows From Financing Activities. Cash used in financing activities was $7.5 million in fiscal 2025 compared with $4.7 million in fiscal 2024. Cash used in fiscal 2025 included $6.3 million for share repurchases and $1.1 million to settle withholding taxes on the vesting of restricted stock. Cash used in fiscal 2024 included $3.8 million for share repurchases and $0.9 million to settle withholding taxes on the vesting of restricted stock.
Cash Requirements and Commitments
Our principal cash requirements consist of (1) inventory purchases; (2) capital expenditures to invest in our growth initiatives; and (3) operational needs, including payroll, occupancy costs, taxes and other operating costs. We have also historically used cash to repurchase stock under our stock repurchase programs. Historically, we have met these cash requirements using cash flow from operations and short-term trade credit. As of January 31, 2026, our contractual commitments for operating leases totaled $309.9 million (with $63.5 million due within 12 months) and our purchase obligations for open merchandise orders totaled $161.7 million due within 12 months. See Note 8 to the Financial Statements for more information regarding lease commitments.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and apply judgments that affect the reported amounts. Actual results could differ from those estimates. We believe the following critical accounting policies describe the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Inventory
Inventory is stated at the lower of cost (first-in, first-out basis) or net realizable value as determined by the retail inventory method for store inventory and the average cost method for distribution center inventory. Under the retail inventory method, the
cost of inventory is determined by calculating a cost-to-retail ratio and applying it to the retail value of inventory. Inherent in the retail inventory calculation are certain management judgments and estimates, including, among others, merchandise markups, markdowns and shrink, which impact the ending inventory valuation at cost as well as resulting cost of sales. Merchandise markdowns are reflected in the inventory valuation when the price of an item is lowered in the stores. We estimate and record an allowance for shrink for the period between the last physical count and the balance sheet date. The estimate of shrink can be affected by changes in actual shrink trends. As a measure of sensitivity, a ten percent change in our estimated shrink as of January 31, 2026, would not have materially impacted our cost of goods sold in fiscal 2025. Many retailers have arrangements with vendors that provide for rebates and allowances under certain conditions, which ultimately affect the value of the inventory. We do not generally enter into such arrangements with our vendors. There were no material changes in the estimates or assumptions related to the valuation of inventory during fiscal 2025.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, "Improvement to Income Tax Disclosures (Topic 740)", which requires additional disclosures for income tax rate reconciliations, income taxes paid, and certain other tax disclosures. ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. In fiscal 2025, the Company adopted ASU 2023-09 in the current period and retrospectively. The adoption of ASU 2023-09 did not have a material impact on the Company's consolidated financial statements as the requirements only impact annual income tax reporting disclosures in the Notes to the Company's consolidated financial statements. Refer to "Note 5. Income Taxes" for additional information.
In November 2024, the FASB issued ASU 2024-03, "Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses" ("ASU 2024-03"), which requires public entities to disclose additional information that disaggregates certain expense captions into specified categories in the Notes to the consolidated financial statements. The new standard is effective for fiscal years beginning after December 15, 2026, and interim periods after December 15, 2027, with early adoption permitted. The disclosure updates are required to be applied prospectively with the option for retrospective application. The Company is currently evaluating the impact the amended guidance will have on its disclosures.
In September 2025, the FASB issued ASU 2025-06, "Intangibles - Goodwill and Other Internal-Use Software: Targeted Improvements to the Accounting for Internal-Use Software" ("ASU 2025-06"), which amends the guidance in ASC 350 to revise the criteria for when an entity is required to start capitalizing software costs and requires an entity to consider whether there is significant uncertainty associated with the development activities of the software when evaluating the probable-to-complete recognition threshold. ASU 2025-06 is required to be adopted in the annual reporting periods beginning after December 15, 2027, including interim periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact the amended guidance will have on its consolidated financial statements and related disclosures.
In November 2025, the FASB issued ASU 2025-11, "Interim Reporting (Topic 270): Narrow-Scope Improvements" ("ASU 2025-11"), which amends the guidance in ASC 270 to clarify the applicability of interim disclosure requirements and enhance the navigability of the existing guidance. ASU 2025-11 provides a comprehensive list of required interim disclosures and establishes a new disclosure principle requiring entities to disclose events that occur after the end of the last annual reporting period. The new standard is effective for interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact the amended guidance will have on its consolidated financial statements and related disclosures.
Disclaimer
Citi Trends Inc. published this content on April 15, 2026, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on April 15, 2026 at 20:21 UTC.