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Citi Trends Inc (CTRN)·Q2 2026 Earnings Summary

Executive Summary

  • Q2 2026 (quarter ended August 2, 2025) delivered 8.0% revenue growth to $190.8M, comparable store sales +9.2%, and gross margin rate up 890 bps to 40.0%; adjusted EBITDA improved by $14.6M YoY to a loss of $2.6M .
  • Actual vs consensus: Revenue modestly beat ($190.75M vs $188.20M*) and Primary EPS (S&P) was less negative than expected (-$0.658* vs -$1.015*), a clean “beat” versus a low estimate count (2) driven by margin expansion and broad-based comp strength [GetEstimates*].
  • Guidance raised: FY25 comps to mid–high-single digits (from mid-single), gross margin expansion to ~210–230 bps, SG&A leverage to 60–90 bps, EBITDA to $7–$11M, and capex to $22–$25M; store plan now 3 openings/3 closures and ~60 remodels .
  • Catalysts: Sustained transaction-led comps into back-to-school, clear execution on AI-based allocation rollout by mid-September, shrink/freight tailwinds, and remodels plus emerging new store pipeline targeting 25–40 openings in 2026 .

What Went Well and What Went Wrong

  • What Went Well

    • Broad-based strength across categories and regions; comps +9.2% with traffic, basket, and conversion all up; comps extended into back-to-school and mark the 13th consecutive month of comp growth .
    • Gross margin rate hit 40.0%, highest Q2 since 2021, on reduced markdowns, improved shrink, more full-price sell-through, and lower freight; supply chain routing changes and inventory freshness helped .
    • Strategic initiatives advancing: AI-based allocation to all categories by mid-September; developing AI-based merchandise planning for early 2026; trend director hired to sharpen fashion curation; CRM/loyalty design underway .
    • Quote: “Test results for our new AI based allocation system have been well above expectations…increased sales and improved inventory turns” .
    • Quote: “Gross margin dollars have increased meaningfully…faster sell throughs of regular priced product, reduced markdowns and improved…shrinkage and transportation rates” .

  • What Went Wrong

    • Adjusted EBITDA remained negative in Q2 (-$2.6M), reflecting incentive comp reinstatement and seasonal cadence; SG&A rate delevered due to bonus accruals .
    • Non-operational gain masked GAAP profitability: $10.96M gain on sale of Savannah office boosted GAAP EPS to $0.46; adjusted net loss was $6.84M, highlighting ongoing margin/expense recovery trajectory .
    • Distribution center and supply chain improvements are still in “early stages”; management cited more work needed on receiving, ticketing, and processing despite progress (UPS routing, AI allocation) .
    • Analyst concern: SG&A run-rate modeling—management guided ~$78M per quarter with Q4 ~3% higher vs Q3; flow-through normalization expected at 20–25% as bonus/no-bonus comps lap .

Financial Results

MetricQ4 2025 (oldest)Q1 2026Q2 2026 (newest)
Revenue ($USD Millions)$211.2 $201.7 $190.8
Comparable Store Sales (%)+6.4% +9.9% +9.2%
Gross Margin Rate (%)39.7% 39.6% 40.0%
Adjusted EBITDA ($USD Millions)$7.10 $5.40 $(2.59)
Diluted EPS (GAAP, $)$(1.71) $0.11 $0.46
Adjusted Net Income ($USD Millions)$(12.77) N/A$(6.84)

Actual vs Consensus (Q2 2026):

MetricConsensusActual
Revenue ($USD)$188,197,000*$190,750,000
Primary EPS ($)$(1.015)*$(0.658)*
# of EstimatesRevenue: 2*EPS: 2*

KPIs and Balance Sheet (Q2 2026):

KPIQ2 2026
Inventory ($USD Millions)$117.6; down 12.9% YoY
Avg In-Store Inventory (%)Down 5.7% YoY
Cash ($USD Millions)$50.4; no debt, no revolver draw
Store Fleet590 stores; 19 remodeled, 1 closed in Q2
SG&A (Adjusted, $USD Millions)$78.87
SG&A Rate (%)41.3% (adjusted), +50 bps YoY; excluding incentive comp, SG&A levered ~150 bps

Notes:

  • GAAP net income includes ~$10.96M office sale gain; adjusted metrics exclude this non-operational item .
  • First half comps +9.6% and adjusted EBITDA $2.8M vs $(18.0)M LY on 480 bps GM expansion and ~90 bps SG&A leverage .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Comparable Store Sales GrowthFY 2025Mid-single digits (Q4 outlook); updated to mid-single at high end (Q1) Mid to high-single digits Raised
Gross Margin Expansion vs 2024 (bps)FY 2025Minimum +220 bps ; ~200 bps (Q1 update) ~210–230 bps Raised (vs Q1), Slightly above prior
SG&A Leverage vs 2024 (bps)FY 2025+30–50 bps +60–80 bps (Q1 update) Raised (Q1)
SG&A Leverage vs 2024 (bps)FY 2025+60–80 bps (Q1) +60–90 bps Raised (upper bound)
EBITDA ($USD Millions)FY 2025$5–$9 $6–$10 (Q1 update) Raised (Q1)
EBITDA ($USD Millions)FY 2025$6–$10 (Q1) $7–$11 Raised
Effective Tax RateFY 2025~0% ~0% Maintained
New Stores / ClosuresFY 2025Up to 5 / up to 5 3 / 3 Updated
RemodelsFY 2025~50 ~60 Raised
Capital Expenditures ($USD Millions)FY 2025$18–$22 $22–$25 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2025, Q1 2026)Current Period (Q2 2026)Trend
AI/Technology InitiativesAI-based allocation test exceeded expectations; chain rollout planned post BTS, pre-holiday AI-based allocations implemented to all categories by mid-September; AI merchandise planning under development for early 2026 Accelerating
Supply Chain Speed/ProcessDC performance below expectations; personnel/process changes; routing changes; inventory freshness Faster DC-to-store via UPS; focus on receiving/ticketing/processing; AI allocation to save ~1.5–2 days; broader optimization in Q3–Q4 Improving, early-stage
Tariffs/MacroOff-price positioning reduces exposure; opportunistic branded deal flow “Successfully navigating the ever changing tariff landscape”; robust deal environment Supportive tailwind
Product PerformanceBroad-based category strength; plus size and footwear emphasized; extreme value strategy building Broad-based across apparel/non-apparel; women’s plus, big men strong; True Religion cited; trend director to refine curation Strengthening breadth
Regional/Store OpsNeat/clean/organized stores; new signage; remodel program 28% fleet updated; 19 remodels; 590 stores; improved presentation/navigation Continued execution
Expansion StrategyData-driven MSA targeting; backfill + new markets; 50 remodels in 2025 Preparing for mid-single-digit square footage growth; line of sight to 25–40 new stores in 2026 Building pipeline

Management Commentary

  • Strategic message: “Our transformation remains guided by a clear three phase framework…Repair, Execute…Optimize…to deliver sustainable profitable growth” .
  • Customer focus: “Our turnaround is rooted in a clear and unwavering focus on the needs of our African American customer, who is at the center of everything we do” .
  • Margin drivers: “We produced a 40% gross margin…highest Q2 rate since fiscal 2021…reduced markdowns…decreased shrink…higher selling margins and favorable mix…lower cost of freight” .
  • Inventory discipline: “Support a 9.2% comp growth while operating with 5.7% less in store inventory than last year” .
  • Long-term target: “Long range, our goal…is to achieve $40,000,000 or more of EBITDA in 2027” .

Q&A Highlights

  • SG&A modeling: ~$78M per quarter in H2 with Q4 ~3% higher than Q3; details for 2026 to follow; reinforces cadence for holiday .
  • Profit flow-through: Target 20–25% EBITDA flow-through on incremental sales as bonus/no-bonus laps; normalization expected in back half .
  • Merchandise curation: Trend director filtering consumer signals into focused trends; early success evident in mens and broader assortment .
  • Momentum drivers: Back-to-school supported by better pre-season planning, disciplined category growth stakes, branded deals (e.g., True Religion), and improved store/DC execution .
  • Remodel economics: ~$85k–$130k per store, averaging ~$100k on remaining 2025 remodels; performance lift varies but returns remain solid; also fleet refresh strategy .
  • New store growth: 2026 line of sight to 25–40 new stores; ROI rigor across site selection, demographics, center attractiveness, and four-wall flow-through .

Estimates Context

  • Revenue beat: $190.75M actual vs $188.20M* consensus; reflects broad-based comps and margin improvements [GetEstimates*].
  • EPS beat (S&P Primary): Actual -$0.658* vs -$1.015* consensus; difference to GAAP EPS ($0.46) driven by non-operational gain on building sale and adjustments; adjusted net loss of $6.84M highlights underlying performance [GetEstimates*].
  • Low estimate count (two) suggests limited coverage; as cadence normalizes and guidance raised, expect estimates to move up on revenue and margin trajectory.
  • Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Comps and margin are inflecting sustainably; transaction-led growth, full-price sell-through, lower shrink, and freight tailwinds underpin improved gross margin mix .
  • Raised guidance across comps, margins, EBITDA, and capex signals confidence; execution on AI-based allocation by mid-September is a near-term operational catalyst .
  • Watch SG&A cadence: Incentive comp reinstatement drives near-term rate optics, but underlying leverage is improving; model ~$78M per Q in H2 with Q4 seasonality .
  • Balance sheet optionality (no debt, $50.4M cash, lower inventories) supports opportunistic off-price/branded deal flow and remodel/new store plan .
  • 2026–2027 growth algorithm: mid-single digit square footage expansion, sustained single-digit sales growth, gross margin dollar expansion, SG&A leverage; management targets ≥$40M EBITDA by 2027 .
  • Trading setup: Near-term beats tied to AI allocation impact, back-to-school/holiday execution, and continued shrink/freight benefits; guidance raises are positive sentiment catalysts .
  • Medium-term thesis: Differentiated neighborhood positioning for African American families, expanding branded extreme value assortment, and data-driven real estate strategy can drive share gains and EBITDA normalization .

S&P Global disclaimer: Asterisked values are retrieved from S&P Global (analyst consensus/actuals) and may reflect differing EPS definitions versus company-reported GAAP or adjusted metrics.*