Citi Trends: Q1 2022

What were the last Citi Trends results?

On May 24th, Citi Trends published a press release with the results for its first quarter of 2022. In it, they confirmed their previous guidance, disclosing a decrease of revenue of 27% versus the first quarter of 2021. Comparable store sales were also down 29.2%, as well as the rest of the primary metrics.

As with the rest of the retailers, the macro environment, especially the high inflation, hurts sales. In addition to that, the strength of last year’s first quarter, with significant stimulus in the US, does not help. In fact, total sales grew 1.6% if we compare them to the first quarter of 2019 (before the pandemic).

It is true that inflation, especially in food and energy, is hurting more Citi Trends’ target customers, and it probably will go on doing it in the following months. But, even though Citi Trends is still profitable. So it is not clear if, at these market prices, it deserves such a high amount of short interest (39.4%).

What is the intrinsic value of Citi Trends?

In terms of outlook, the Management expects to finish the year with a range of total sales of $860-$880 million and an adjusted operating income of $23.8-$30.6 million.

With a midpoint of operating income of $27.2 million, if we use a multiple of 10, add the current net cash ($61.66 million) and divide it by the number of shares (8.44 million), we get a target price of $39.5, which would give us a potential revaluation of around 33% from the current price ($29.76).

What is the Citi Trends Capital Allocation?

A catalyst that can make Citi Trends close the gap with its value is the repurchase of shares it is currently doing.

During the first quarter of 2022, Citi Trends repurchased 170,000 shares at a total cost of $5.3 million. That makes an average price of $31, which we could consider a reasonable price from the Management perspective.

But at $29,76, and considering that they still have an approved amount of $54.7 million for this purpose, they could repurchase around 20% of the current market capitalization.

This repurchase of shares could create a short squeeze that catapults even higher its shares’ price.