Greetings, and welcome to the Citi Trends First Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Nitza McKee, Senior Associate at ICR. Thank you. You may begin.

Thank you, and good morning, everyone. Thank you for joining us on Citi Trends First Quarter 2025 Earnings Call. On our call today is Chief Executive Officer, Ken Seipel; 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's available on the company's website under the Investor Relations section at www.cititrends.com. You should be aware that prepared remarks today made during this call may contain 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 within 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 Seipel. Ken?

Thank you, and good morning, everyone. Thanks for joining us today for our first quarter earnings call. I'm happy to report at Citi Trends we're gaining traction on our strategic transformation. I'm pleased to report that our first quarter progress in which total sales grew $15.4 million or 8.3% over the prior year and our adjusted EBITDA increased $6.2 million, representing a sales to profit flowthrough of 40%. Our strong profit flowthrough was driven by gross margin expansion of 90 basis points and meaningful operating expense leverage of 220 basis points, demonstrating our ability to leverage the cost structure as we grow the top line. A highlight of our first quarter performance was our comparable store sales growth of 9.9% over the prior year, which is a 2 year stack of 13%. These metrics demonstrate that we're clearly gaining market share. Before I provide a comprehensive review of our first quarter wins as well as areas in which we see opportunity to improve, I'd also like to take a moment to recap the 3 strategic phases of our business journey. This is the framework on which we are building a high-performance company positioned for long-term sustainable and profit growth. So Phase 1 is a repair phase. In this phase, we focused on reestablishing fundamental practices and foundational improvements. So this includes implementing the 3-tiered product plan with opening price points, core value products and familiar brands, while also developing our extreme value product capabilities, which enables us to offer well-known brands at amazing prices. The repair phase also includes building and improving foundational retail processes across the organization from merchandise allocation planning, along with standardization of our reporting and our metrics. So in Phase 2, the execute phase, we're focused on developing consistent execution capabilities and best practices. During this…

Thank you, Ken, and good morning, everyone. I'm excited to have the opportunity to walk you through our first quarter results and how we're thinking about the balance of the year. Before I dive in, let me set the stage by stating that we remain encouraged by the broad positive trends we are seeing across the business as we gain market share, thanks to the strategic and foundational improvements implemented over the last few quarters by our Citi Trends teams. Now the details of the first quarter. Starting with the top line, Q1 sales were $201.7 million, up $15.4 million or 8.3% compared to Q1 2024. Comparable store sales grew 9.9%, our third quarter of sequential comp improvement, and we delivered a 2 year stack of 13%. Comp store sales were positive each month of the quarter, starting with low single-digit comps in February, impacted by weather and delayed tax refunds, then significantly improving to low double-digit comps in March and April as tax refunds caught up and the Easter selling season kicked in. Importantly, improvement to last year was fairly consistent across climate zones and store volumes with broad-based strength across most product categories. We delivered strong results across our retail metrics in the quarter with increased traffic, mid single-digit transaction count growth and strong and improved conversion rates. We also saw an increase in basket as customers showed a willingness to add units while trading into higher ticket extreme value product procured as part of our strategy shift. Gross margin was 39.6% in the quarter, a 90 basis point expansion compared to last year. The primary drivers of the year-over-year increase were higher initial markups and lower freight, partially offset by higher markdowns as we followed our updated approach to take more in-season markdowns, keeping our inventory fresh.…

Thanks, Heather. Before we open the call for questions, I do want to take a minute and express my sincere gratitude to our entire Citi Trends team for their exceptional hard work during this quarter. I'm particularly impressed by the willingness to embrace our strategic initiatives and execute them in a clear, focused and consistent manner. The progress we're seeing today is a direct result of their dedication and commitment to our transformation journey. And also speaking on behalf of our entire team, we are very pleased with the meaningful progress we've made. But collectively, we remain humbly aware of the need for continual business improvement. We understand that we're still in early stages of the turnaround with significant opportunity ahead of us as we continue to strengthen our foundation and build toward our long-term objectives. Our strategic plan remains crystal clear: maintain an unwavering focus on our core African-American customer, deliver compelling product and value proposition that features trendy fashions, great brands and extreme value treasures that our customers can't find anywhere else, execute our business model with consistency and precision, drive attractive profit flowthrough as we leverage our cost structure and position ourselves for long-term square footage expansion as we capitalize on the substantial opportunities ahead of us. The combination of our highly differentiated market position, our strengthened operational capabilities and our healthy balance sheet positions Citi Trends to generate meaningful free cash flow and drive significant shareholder returns. We have a clear line of sight to our targeted EBITDA range of $40 million to $50 million, and we are excited about the upside potential as we continue to execute our strategy. So I'd like to thank everyone for your continued interest and support of Citi Trends. And with that, I'd like to turn it over to the operator to open up the lines for questions. Operator?

[Operator Instructions] Our first question comes from the line of Michael Baker with D.A. Davidson.

Okay. Can you hear me okay?

Yes, we got you, Mike.

Great. Awesome. I wanted to focus on the merchandising and the closeout aspect, if I could. Can you just remind us where you are in that process? I think in the past, you did some level of closeouts, more end of season. And as I understand that this is more in-season sort of treasure hunt type stuff. So can you just articulate the change in your closeout strategy? And then to the extent that you can, quantify what closeouts were in the past, what they are now in season versus end of season, what it could be over time? Just a little bit more context and color on that whole closeout opportunity would be great.

Yes. For sure, Mike. Good question. I think probably best to kind of dimensionalize the word off-price, which gets tossed around quite a bit and really does mean a lot of different things to different retailers. So very specifically, when you think about off-price as it relates to Citi Trends, it really falls in a couple of different buckets. So there is an end-of-season closeout opportunity, as you described, which the company over the years had participated in from time to time. So there were certain points of it. I actually don't have a specific number of what the company had done historically. There was some of that in the assortment in many of our categories. So that's that typical end of season buy a good deal and you can bring it in type of closeout. Then the other side of this, which has been where we have been focusing in addition to is adding what I call what I've tabbed extreme value product. And that is a little different in as much as it quite often is either current or just past season product, but the qualification on this is a little bit different. It has to have a high brand cache, meaning well-known brand, and we have to buy it at a significantly discounted rate. The goal here would be to have a brand that's offered at least 50% off and in many cases, in the 70% off the manufacturers suggested retail. It's a little different discipline to buy. These deals sometimes are a little bit messy. They're oftentimes have to require a lot of levels of negotiation to get to and the processing is a little bit more difficult. But the markup, the value and the resonation with the consumer is very strong. So that portion is what I would say we're trying to bring a renewed emphasis on in Citi Trends. And I think I've stated perhaps in one of my -- I think actually in January, I rolled this out. But long term, our goal would be to make this extreme value portion of the off-price segment, incremental about 10% top line. And that's going to take us a little bit of time to grow into that. We're not quite there yet. We're still testing and learning as we go. But as we go forward, I see incremental 10% relative to that particular portion of the business. And we will continue to do end of season closeouts. We still are actually, and that's a key part of what our merchants do on a regular basis. So I hope that helps dimensionalize what's in our core history versus where we're headed in terms of the future.

Yes, sure. It absolutely does. If I could ask, I suppose, a related follow-up. All seems like it's going well. I suppose it's maybe an obvious question and the answer is probably just being conservative. But just comped up 9.9%. Current quarter, at least a month through is mid to upper single-digits. Your full year guidance is below that. Is that tougher comparisons just being conservative? Or is there something else that we should know about as to why comp trends would decelerate so much in the back half of the year implicit in that outlook?

Yes. A couple of things happening there, Mike. Thank you again for that question. We are -- as you know, in the back half of the year, we had a 5.3%, I think it was in Q3 and a little over 6% in Q4. So we are going up against more difficult compares in the back half. We're looking at our business probably more collectively on a 2 year stack comp basis. And we're coming off of a very strong 13, 2 year stack. We have a double-digit stack planned for Q2. And then we're bringing that 2 year stack down to upper single-digits as we go into the back half. So I don't know if it's conservative or not, but as I mentioned earlier, there's enough uncertainty in the macro world right now around product flow and things of that nature. So we wanted to make sure that we don't get our forecasting too aggressive to the point where we invest too much expenses or anything in the business. So maybe there's a slight amount of conservatism in it, but I think the better way to look at our comp base going forward would be on a 2 year stack basis, and that's how we're thinking about it.

Our next question comes from the line of Jeremy Hamblin with Craig-Hallum Capital Group.

This is Will on for Jeremy. Congrats on the strong results. I just wanted to follow-up here on sales trends. Maybe specifically, if you could share any more color on specific category performance and maybe what you're seeing quarter-to-date. It sounds like plus size and footwear were strong. I guess, are you seeing these trends continue in Q2? And then maybe which categories you'd like to see the most improvement?

Yes, I'm happy to comment on that and certainly, Heather can add some additional detail if I miss. As I said in my remarks, and it absolutely is true, literally every single category had a tremendous Q1 really across the board. We had many of them into mid-single, upper single-digits. We had 5 or 6 categories that got into low double-digit growth. So very strong. And it's hard to kind of distinguish if there was one category that drove the business. It was really a combination of all of our categories working well together, which is why we didn't really talk about it. But in our market basket, we saw our consumers actually adding to the units per transaction, which just means they're finding a better selection to shop, right? And so a big credit to the merchant team across the board. And I mentioned that our accessory business was a little bit off plan. But for them, they were still pretty much flat to [ OY ] and performing okay. So there's really no standouts one way or the other. Truly, the tide is rising when you think about category growth. And that kind of continues going forward. And I'm quite pleased with that actually because it just means that all of our teams are really working hard to deliver a better product value equation, and our customers are finding a much more balanced shopping experience inside of our stores, and we're not over reliant on one category or the other. Now to your question about how we're emphasizing going forward, and also, as I called out, there are some categories that we believe we've underserved our customer, plus sizes and Big Men's are a couple that are obvious. And there's the assortments need to be broadened a little…

No. Honestly, I would double down on it, Ken, and say, well, one of my favorite things of the many great stats of this quarter is the broad-based improvement, right? So apparel was up significantly to last year. Non-apparel was up significantly to last year. Our stores were up across the board by region, by volume, by the market in which they sit. I mean it was like all boats rise. And that, I think, is the strongest statement we can make about the quarter. It was broad-based. So are there areas where we're leaning in? Yes, Ken has walked you through that, right, plus Big Men's, young men's, juniors, making sure our trend is right and that we're showing up in the sizes that our customer is looking for. But it's working across the board. And that, to me, is the most exciting part.

If I may just add one additional thought to that, too, because we're talking about categories, but it's also important to understand that across our store fleet, Heather made this comment in her remarks, literally every single region, every single zone is actually improving at about the same rate whether regardless of demography. So we are happy to see that this thing is really resonating across all lines and all customers in all markets right now.

Great. That is super helpful. And then I guess just a follow-up there, shifting over to the remodels. So 36 year-to-date. I guess I'm wondering if you're able to quantify what you've seen in terms of performance uplift from the recently remodeled units?

It's early yet, Will. I mean we did our first round of remodels in February. So we've only had a couple of months under our belt. But I will tell you that we're happy with the performance, and it's not inconsistent with prior classes of remodeled stores.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Seipel for any final comments.

All right. Well, again, thank you, everybody. We do appreciate your continued interest in our business, and we look forward to updating you on more results on our next call. Thank you very much.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.