On Tuesday, Citi Trends (NASDAQ:CTRN) discussed second-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Citi Trends reported a 10.5% increase in Q2 comparable sales, marking its eighth consecutive quarter of growth, with a strong 19.7% increase on a two-year basis.
Adjusted EBITDA for Q2 was $5.5 million, a $6.6 million improvement from the previous year, driven by strong sales and effective cost management.
The company increased its full-year guidance, expecting comparable store sales growth of 9% to 11% and total sales growth of 10% to 12%.
Citi Trends is focusing on three strategic priorities for 2026: consistent execution, sales flow-through to profit, and accelerated growth, with plans to open 20 new stores this year and 40 in 2027.
Operational highlights include leveraging AI for inventory management and customer relationship enhancements, and the launch of the Insiders Club to boost customer loyalty.
Management highlighted improvements in gross margin by 60 basis points and reductions in shrinkage, with store payroll leveraged by 70 basis points.
The company is maintaining a strong balance sheet with $55.9 million in cash, no debt, and an undrawn $75 million revolver, allowing flexibility for strategic investments.
Full Transcript
OPERATOR
Greetings. Welcome to Citi Trends’ second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. The question-and-answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press 0 from your telephone keypad. Please note that this conference is being recorded at this time. I’ll turn the conference over to Lynn Walther with ICR. Thank you, Lynn.
You may begin.
Lynn Walther, ICR
Thank you, and good morning, everyone. Thank you for joining us for Citi Trends’ second quarter 2026 earnings call. On our call today, Chief Executive Officer Ken Seiple and Chief Financial Officer Heather Plutino. Our earnings release was sent out this morning at 6:45 a.m. Eastern Time. If you have not received a copy of the release, it is available on the company’s website at ir.cititrends.com. You should be aware that prepared remarks made today during this call may contain non-GAAP information and forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance; therefore, you should not place undue reliance on these statements. We refer you to the company’s most recent report on Form 10-K and other subsequent filings with the Securities and Exchange Commission for a more detailed discussion of the factors that can cause actual results to differ materially from those described in the forward-looking statements.
I will now turn the call over to our Chief Executive Officer, Ken Seiple. Ken.
Ken Seiple, Chief Executive Officer
Thank you, Lynn, and good morning, everyone. Thank you for joining us today for our second quarter 2026 earnings call. So, building on the momentum from Q1, our second quarter results were defined by consistency—consistent sales trend, consistent execution, and a consistent customer response across every month of the quarter. And I’m pleased to report that consistency has continued into the back-to-school season. Our year-to-date performance on top of strong 2025 results further validates that our strategy is working and that execution is improving.
We remain keenly focused on our three 2026 strategic priorities: consistent execution, sales flow through to profit, and accelerated growth. As we noted in our sales press release on August 10th, our second quarter comparable sales increased 10.5%, which is 19.7% on a two-year basis. This marked our eighth consecutive quarter of comparable store sales growth, with the last six-quarter momentum of plus 9% growth or better. The performance demonstrates the consistency and durability of our strategy, and this focused and disciplined approach is driving a continuation of our two-year stack comparable store sales trend of approximately 25% into Q3 to date during our important back-to-school season. Heather will cover the Q2 P&L results shortly, but I would like to highlight and thank our team for driving results—driving sales along with controlling the expenses—which have converted sales to profit. And speaking of profit, adjusted EBITDA for the quarter was $5.5 million, which was a $6.6 million improvement over last year’s loss of $1.1. For the first half of 2026, we delivered EBITDA of $19.4 million, which is a $14.1 million improvement compared to the prior year, and in fact, we’ve generated more EBITDA in the first six months of 2026 than we generated the entire year last year in 2025. I am very proud of the total team effort that resulted in strong sales flow-through to profit of 28% year to date, beginning with the gross profit line, which has improved 50 basis points to date due to the hard work of our merchandising team. I’d like to recognize the entire product team for improving our selling margin rate while continuing raising the bar on quality and maintaining sharp pricing. Also, thank you to our loss prevention team who’s really led efforts to reduce shrinkage.
Improved selling margin and reduced shrinkage have helped offset the cost pressure of transportation fuel charges in gross profit. Store payroll has been leveraged by 70 basis points year to date. I want to recognize our store teams who have raised the bar on store standards with consistent execution, keeping our stores neat, clean, and organized while at the same time driving productivity gains. Distribution center productivity has also increased to keep pace with our growing business, and the team has found ways to lower our distribution center cost by 60 basis points in the first half through improved efficiency.
And I also want to recognize our sales support teams in IT, finance, merchandise support, human resources, and legal for very strong expense controls. The work in achieving cost efficiencies allowed us to invest in incremental marketing on social media to build brand awareness while at the same time we were able to leverage SG&A by 260 basis points year to date. In summary, job well done, Citi Trends team. I’m really proud of the work here. Thank you.
Now for a few more comments on sales. Q2 marked another quarter of balanced growth, with both transaction counts and basket size increasing over last year. The growth in basket size was also balanced, with customers purchasing more units per transaction and higher average unit retail on mix shift, which continues to validate the strength of our trend-right assortment and the value we deliver across the three merchandising tiers. Q2 is one of our lower sales-volume quarters, so it’s really good to see the consistency of transaction and sales growth during our non-peak periods.
We delivered second quarter sales increases over last year in every merchandise division and across all store climate zones and store volume deciles. That growth was driven by a more trend-right assortment and an improved value proposition, as well as our heightened focus on delivering wear-now product for the summer, enabling us to capture demand during non-peak weeks and capitalize on key moments like Juneteenth, Fourth of July, and the early back-to-school season.
We plan to apply a similar playbook for the non-peak period performance this fall between back-to-school and holiday, building on the strategy that worked so well for us last year. From a merchandising perspective, apparel, non-apparel, and home all increased over Q2 last year and year to date. Our men’s team, children’s team, and family basics produced consistently strong results in the quarter and year to date. And in addition, I’d like to highlight and congratulate our family shoe division.
The shoe team delivered very strong performance in the quarter by focusing on summer wear-now product, elevated on-trend styles, and sharp price-value offerings. I’m often asked by our investors about Citi Trends’ long-term ability to continue to grow sales. Our product momentum continues to be the result of ongoing refinement across our good, better, and best pricing tiers. Each quarter, our assortments have become more balanced as we sharpen the quality-for-price equation on our core product, introduce updated trend product, and ensure that we have a good flow of well-known brands at extreme value pricing.
While we’re really proud of the progress, we do remain humbly aware of the opportunity for continual improvement, and we see a long runway for continued growth in nearly every product category. So as a company, we remain sharply focused on our primary Black customer. Our brand promise to our customers is: styles that see you, prices that amaze you, and trends that tell your story. And what’s important to highlight again is that our customer base spans a wide range of income levels, including a meaningful portion of middle and higher income shoppers.
In fact, customers with household incomes between $75,000 and $150,000 represent about 25% of our customer base and generate more than 40% of our revenue. This creates a significant opportunity for us to expand our offering of recognizable brands at compelling prices that align with their style and trend expectations. You often hear us refer to good, better, and best product tiers as a way of describing how we build merchandise assortments. However, it’s really not quite that linear for our customers, who tend to move fluidly between all three good, better, and best tiers rather than staying confined to a single pricing and style level.
As an example, during a recent visit I observed two young male shoppers who fit our top-tier customer coming to one of our stores and in a single visit purchase items from across all three pricing tiers, beginning with buying a trendy outfit from our best product tier, shopping for everyday items in our better tier, and wrapping up the trip with an opening price-point T-shirt. In another instance, an older male customer purchased from our core assortment and, at his wife’s urging, also purchased a trend item.
These moments reinforce what we’re seeing daily in our stores and in our shopping basket analysis. Balanced good, better, and best assortments are important to round out the shopping basket and are a key component for consistent long-term growth. These product strategies, combined with our improved discipline in our open-to-buy process and the continued benefits of our AI-driven allocation systems, are driving stronger inventory productivity and margin performance.
I mentioned earlier that we made incremental investment in marketing on our social media platforms, building our first-quarter Citi Trends Jingle Refresh Contest, in which we invited customers to help modernize the Citi Trends jingle, and we received a meaningful volume of submissions. In the second quarter, we transitioned to the customer voting phase. Engagement has continued to exceed our expectations, generating strong social reach and viral moments while also driving incremental store traffic, and the winning jingle is expected to be deployed in the second half of the year.
But beyond the fun of the contest itself, this initiative reflects our broader marketing objective: deepening our connection with our customers and reinforcing our role in the communities we serve. I encourage you to take a look at our Instagram channel, where we’ve been sharing some of the best moments from the campaign. On technology, we continue to expand the use of AI across the organization, which I would describe as a steady evolution rather than a single milestone moment.
We recently rolled out an enterprise AI tool to help our teams with data extraction and analytics. This closed AI environment is already helping associates across the business, including our buying teams, work smarter, more efficiently, and in a more timely manner. This complements the AI tools already in use for product allocation and real estate site selection, and we’re in the early stages of applying similar tools to merchandising and assortment planning.
On July 15, we launched our new customer relationship platform, which we’re calling the Insiders Club. The Insiders Club turns traffic into loyalty, loyalty into frequency, and frequency then into EBITDA. This gives us the ability to speak directly to our best and most engaged customers and will generate insight about their shopping habits that we’ll use to refine and fine-tune our strategies going forward. We’re in the early stages of enrollment, and we expect to engage our customers later this fall and build momentum with our best customers during Q4 and well into 2027.
And speaking of early stages, we are building new store opening momentum this year. I’d like to welcome our four new stores opened at the end of July: two stores in Rochester, New York; an additional store in Baltimore, Maryland; and Jackson, Tennessee. We’ve opened nine stores since Q4 of 2025, all of which are exceeding our expectations. Our goal this year is to open approximately 20 stores and accelerate new store growth to around 40 in 2027 and beyond.
Each new location is evaluated using our AI tools and held to strict financial return and investment criteria. For our new stores, we’re targeting a Roughly 1.5 million in mature sales and mid-teens four-wall contributions. Now I’ll turn the call over to Heather to walk through the Q2 financial results in more detail as well as our updated outlook. I’ll return after her remarks for some closing comments. Heather.
Heather Plutino, Chief Financial Officer
Thank you, Ken, and good morning everyone. I’m pleased to walk you through our financial results for the second quarter and first half of 2026. Our Q2 results reflect strong top line growth, continued gross margin expansion, and disciplined expense management leading to adjusted EBITDA of $5.5 million, a $6.6 million increase compared to a year ago. These results are evidence that the transformation of Citi Trends is on track and that the operating model we’ve built can consistently deliver improved results.
Based on our second quarter performance, we are raising our outlook for the year. I’ll walk you through that revised outlook shortly. Turning first to the specifics of our second quarter results, total sales for the quarter were $211.6 million, a 10.9% increase to Q2 2025. Comparable store sales increased 10.5%, or an increase of 19.7% on a two-year basis. Q2 gross margin increased 60 basis points compared to a year ago to 40.6%, driven by higher merchandise margin and lower shrink levels as we continue to leverage investments in improved store-level technology and processes.
These tailwinds were partially offset by higher freight expense. As we discussed last quarter, rising fuel surcharges are leading to higher freight. We expect this to continue throughout the year and have incorporated that impact into our outlook. Second quarter adjusted SG&A expenses totaled $80.4 million compared to $77.4 million a year ago, with the increase to last year driven primarily by expenses to support $21 million in incremental sales.
As a rate of sales, adjusted SG&A for the quarter was 38%, leveraging 260 basis points versus last year, a result of higher sales and our largely fixed expense base. As I mentioned earlier, adjusted EBITDA grew $6.6 million over Q2 last year to $5.5 million, with adjusted EBITDA margin expansion of 320 basis points to 2.6%. During the quarter we opened four stores, as Ken mentioned, and closed one location, ending the period with 594 stores. We remodeled 26 stores in Q2, bringing total remodels so far this year to 51 stores.
Before turning to the balance sheet, let me provide a few details on our performance in the first half of fiscal 2026. First half comparable store sales were 12.2% with a two-year comp of 21.8%. First half comps were driven by growth in basket and transaction count. Adjusted first half EBITDA was $19.4 million, an increase of $14.1 million to last year. EBITDA growth was driven by $50 million of incremental sales, 50 basis points of gross margin expansion, and 260 basis points of SG&A leverage.
And in the first half of the year we improved our EBITDA margin by 300 basis points to 4.4%. Now turning to the balance sheet, our initiatives to improve inventory efficiency continue to deliver returns. We generated 10.5% comp sales growth in the quarter with quarter-end total inventory up only 7.5% to last year. Our balance sheet remains strong with $55.9 million in cash at the end of the quarter, no debt, and no drawings on our $75 million revolver.
We continue to expect our year-end cash balance to be approximately flat to last year’s $66 million, and we expect to remain in a strong financial position throughout the year, affording us the flexibility to pursue strategic alternatives. Turning to our guidance, we are updating our outlook for fiscal 2026 to incorporate results of our second quarter while maintaining our outlook for the second half of the year. Our updated outlook for the full year is as follows.
We now expect comparable store sales growth of 9% to 11%, higher than previous outlook of 8% to 10%, with total sales now expected to grow 10% to 12%. Gross margin is expected to expand approximately 50 to 70 basis points compared to the 39.6% we delivered in fiscal 2025, consistent with previous outlook. As we discussed in our last earnings call, we are leveraging new systems and processes to drive improvements in both markdowns and shrink while managing the impact of higher freight expense due to the fuel surcharges I mentioned earlier.
We now expect adjusted SG&A leverage in the range of 160 to 180 basis points versus fiscal 2025, higher than previous outlook of 130 to 160 basis points of leverage due to the impact of higher sales plus continuation of our disciplined expense control. Adjusted EBITDA is now expected to be in the range of $38 to $42 million, an increase to our previous outlook of $35 to $40 million. At the midpoint, adjusted EBITDA margin is now expected to expand approximately 230 basis points over fiscal 2025.
Our outlook for new stores has been revised slightly to approximately 20 new stores in the year. The change from our previous outlook of 25 new stores is due to timing. We remain confident in our long-range plan for footprint growth and in our ability to execute our store opening strategy. Importantly, our plan to accelerate our store openings to 40 stores in fiscal 2027 remains unchanged. We will be shifting capital spend from new stores to expand our remodel program in 2026.
As a result, we now expect to remodel approximately 60 to 65 locations versus our prior outlook of 50 remodels, and we continue to expect to close approximately four locations in the year. Finally, our outlook for full-year capital expenditures remains unchanged at a range of $35 to $40 million. To close, our second quarter results validate the direction we set out of the year. Inventory efficiency, disciplined expense management, and return-focused investments are showing up in our financial results, and we expect that trend to continue.
I’m grateful to our teams for the continued hard work behind these results, and we look forward to updating you on our progress in our next earnings call. With that, I’ll hand the call back to Ken.
Ken Seiple, Chief Executive Officer
All right, thank you, Heather. As we look ahead, we’re firmly in the execute phase of our growth plan focused on delivering against our customer brand promise. Our customers are discerning. They understand that value is more than just price, and they’re willing to spend more when the style is right, the trend is relevant, and quality meets their expectations. In short, value is not just price. Our brand promise is very clear. Styles that see you, prices that amaze you, and trends that tell your story.
Our teams are focused every day on bringing that promise to life for our customers. To support this, we’ve established three clear priorities in ’26, which are consistent execution, strong sales flow-through to profit, and accelerated growth. First, consistent execution. With foundational practices now in place, we’ve identified clear product opportunities to sustain comparable store sales growth into the foreseeable future. Our product team has sharpened focus on trend identification, trend curation, and style development.
From opening price points to premium branded fashion, our merchant team translates these trends into compelling styles that deliver exceptional value to our customers. Each season we’re improving our product trend and style execution while delivering and leveraging AI to optimize allocation. This creates a long runway of growth as we continue to develop and refine our product execution. On the marketing front, we’re focused on expanding our social and influencer presence and ensuring our brand is authentically represented in everything we do.
This is not just about visibility; it’s about deepening relationships and reinforcing Citi Trends’ commitment to the communities that we proudly serve. Our second priority is ensuring strong sales flow to profit. Our plan for 2026 calls for 10% to 12% sales growth while more than doubling EBITDA, making this a very pivotal year in the evolution of our profit profile. Foundational to profit flow-through is leveraging our fixed cost structure and improving productivity of our teams.
In addition, we have several initiatives supporting this objective, including our AI-based allocation systems, enhanced store technology to reduce shrink, and ongoing supply chain improvements to increase capacity and efficiency. And as I’ve highlighted on prior calls, we continue to leverage KPI dashboards across all functions to ensure disciplined execution. A benefit of our improved execution is our ability to absorb macroeconomic challenges like increased fuel surcharges into our business model while still achieving improvements, as noted for our outlook in the year.
Our third priority is growth, which will be disciplined, return-focused, and strategic. This year we’re making a deliberate investment in owning our customer relationship and building a sustainable, data-driven growth engine that compounds over time. The objective is to invest early to build customer relationships, and as the CRM system learns and scales, it becomes a meaningful contributor to long-term shareholder value. The Insiders Club transforms Citi Trends from a transaction-based retailer into a relationship-driven brand.
It allows us to know our customer, reward our customer, and grow with our customer while reinforcing the treasure-hunt excitement that makes shopping with us a unique and rewarding experience. In 2026 we expect to open 20 new stores, as Heather mentioned, remodel approximately 60 to 65 locations, while preparing to accelerate expansion in ’27. Our approach is grounded in data-driven site selection, local market expertise, and disciplined financial criteria.
Next, an important priority is ensuring our entire team has embraced the concepts of personal accountability for results and the ownership of continuous skill development. Citi Trends is evolving into a learning organization. We are a company that facilitates the continuous learning and development of all employees to transform, adapt to changes, and improve performance, positioning us to maximize growth opportunities as they arise. And as a part of this initiative, we are focusing on succession planning for our key leadership roles to ensure continuity of our transformation plan while strengthening our bench of talent.
Finally, our strong, debt-free balance sheet provides us with flexibility to pursue growth beyond our current organic plan. We continue to evaluate acquisition opportunities that are strategically aligned, financially compelling, and capable of enhancing long-term shareholder value. Any potential transaction will be held to the same disciplined financial standards that have guided our turnaround. To further enhance that flexibility, our board has approved the implementation of a $100 million shelf registration.
We view this as a prudent corporate finance measure that provides additional capital capacity should we identify new opportunities to accelerate profitable growth, including potential strategic investments or acquisitions. Importantly, we expect our existing liquidity and operating cash flow to fully support our current business and our organic growth plans. The shelf does not reflect a current financing need or an intention to raise immediate capital.
Rather, it provides us with additional flexibility to efficiently access the capital markets if and when we identify an opportunity where doing so would create compelling long-term shareholder value. Our existing share repurchase authorization remains in place with $40 million of authorization on the outstanding agreement. Together, our balance sheet, the shelf registration, and our repurchase authorization provide us with a flexible set of capital management tools.
We will deploy or return capital based on the opportunities available to us, market conditions, and ultimately where we believe we can generate the greatest long-term value for our shareholders. So in closing, progress at Citi Trends is well underway. Our track record of consistent comparable store sales shows that our strategy is working. Our execution is more consistent and our customer connection is stronger than ever. We are debt free, disciplined and positioned for growth. We have a clear path to profitable expansion, stronger earnings and lasting shareholder value. We’re clearly focused on our customer, the foundation is stronger and the opportunity ahead of us is significant. But we still have processes to refine, categories to optimize and systems to build. We’re more than just a retailer.
We’re a neighborhood destination for Black families delivering style, trend, value and trust that no one else can deliver. I’m confident in our strategy and our team’s ability to execute. The foundation we built positions us well for continued growth throughout the rest of this year and well beyond. I’d like to thank you for your continued support. And now if I could turn it over to Rob for Q and A, please.
OPERATOR
Thank you. We’ll now be conducting a question and answer session. We ask you if you’d limit yourself to one question and one follow up. If you’d like to ask a question at this time, please press star 1 on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment please for our first question. Thank you. Thank you. And the first question is from the line of Jeremy Hamblin with Craig-Hallum. Please proceed with your question.
Jeremy Hamblin, Analyst at Craig-Hallum
Thanks, and congratulations on the results and the sustained momentum. I wanted to see if I could get a little bit more granular on the same store sales. And in terms of what you saw in Q2, what portion of that 10% plus comp in the quarter was driven by more transactions versus, and then kind of the breakdown on your average ticket of UPTs versus average unit retail?
Heather Plutino, Chief Financial Officer
Yeah, for sure, Jeremy. Hi, Jeremy, thank you for the question. In terms of our same store sales growth in the quarter—and it’s been fairly consistent for the last several quarters—actually about half of our growth is coming through increased transaction count, and we view that as a very positive sign, obviously, for the business. And as I mentioned in the call, that was also through a non-peak period, which I think is noteworthy at a point where the consumer really didn’t have a compelling reason to come in.
We still maintained nice strong traffic, and so we’re quite pleased with that. Now, we haven’t publicly released all the details around average unit retail and average transaction—but if you think about it this way, or excuse me, AUR and units per transaction—but if you think about it this way, about half of the growth is really transaction count and the other half are the components of the shopping basket.
Jeremy Hamblin, Analyst at Craig-Hallum
Fair enough. And then just in terms of, it sounds like you’ve seen a little bit of an acceleration here to start Q3 and you’re lapping your toughest compares of the year, so quite impressive. Wanted to just understand in terms of category performance where you’re seeing that uptick. I know that you’ve talked quite positively about footwear, men’s, juniors. Wanted to see if that’s potentially the uptick being a result of maybe women’s business picking up or any additional color you might share on the momentum.
Ken Seiple, Chief Executive Officer
Yeah, for sure. Thank you, Jeremy. Good catch. We have seen increased momentum in the quarter. As I mentioned, we’re looking at about a 25% two-year stack at this stage, which is good. And we’ve got a lot of quarter to go, so more ahead yet. But the early results are good for back to school for sure. Again, the momentum that almost all of our categories experienced in Q2 literally has continued into Q3. And that’s noteworthy because, again, going from a non-peak to a peak period to kind of maintain that growth momentum is quite impressive.
And the teams that I called out—our men’s team, our kids team and family basics—are very consistent performers. And that has been the case here as well. I would highlight on your question, we did see a nice step change in our women’s business. This is the first quarter that our women’s team has been able to deliver trend modules into the stores on a fairly consistent basis, and so we were getting some strong reaction there. And it’s a little bit more of a balanced assortment.
We’re enjoying growth in our missy categories and really across the board there. So it’s been gratifying to see a nice step change in our women’s business as a result of the trend effort.
Jeremy Hamblin, Analyst at Craig-Hallum
Great. I’ll hop out of the queue and let others ask questions. Thank you. Congratulations.
Ken Seiple, Chief Executive Officer
Thanks, Jeremy. Appreciate it.
OPERATOR
Thank you. At this time, we turn the floor back to management for further remarks.
Ken Seiple, Chief Executive Officer
All right, well, I’d like to just thank everybody for your time and attention today and your interest in our brand, and we look forward to updating you on Q3 results as we continue here. So thank you very much.
OPERATOR
Thank you. This will conclude today’s conference. You may disconnect your lines at this time. We thank you for your participation and have a wonderful day.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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