Citi Trends Inc. (CTRN) reported robust third-quarter results, which led to a significant 15.47% increase in its stock price. The company achieved total sales of $179.1 million, with a comparable store sales growth of 5.7%. This performance was bolstered by improvements in gross margin and strategic focus on core demographics, despite anticipating a decline in fourth-quarter sales.
Key Takeaways
- Citi Trends' stock jumped 15.47% following strong Q3 sales and improved margins.
- Q3 total sales reached $179.1 million, with a 5.7% increase in comparable store sales.
- The company anticipates a mid-single digit decline in Q4 sales due to a 53rd week last year.
Company Performance
Citi Trends demonstrated solid performance in the third quarter, showing resilience in a challenging retail environment. The company reported total sales of $179.1 million, marking a notable increase in comparable store sales by 5.7%. This growth is attributed to strategic initiatives that improved product offerings and customer engagement, particularly among its core African American demographic.
Financial Highlights
- Total (EPA:TTEF) Sales: $179.1 million
- Comparable Store Sales: +5.7%
- Gross Margin: 39.8%, a 160 basis point expansion
- Gross Margin Dollars: $71.2 million, a 3.9% increase year-over-year
Market Reaction
Citi Trends' stock surged by 15.47%, closing at $23.97, significantly up from its previous close of $20.76. This movement reflects investor confidence in the company's strategic direction and operational improvements. The stock remains within its 52-week range, with a high of $32.9 and a low of $13.66.
Company Outlook
Looking ahead, Citi Trends expects a mid-single digit decline in fourth-quarter sales, primarily due to the absence of a 53rd week that benefited the previous year. The company projects second-half comparable store sales growth in the low to mid-single digits and anticipates Q4 EBITDA between $5 million and $7 million. Long-term, Citi Trends aims to achieve an EBITDA margin of 5-6% and plans store remodels and potential new openings in 2025-2026.
Executive Commentary
Ken Siefel, CEO, emphasized the company's strategic focus, stating, "Our Q3 results are an indicator of the work that we've done to create a solid foundation." Heather Plutino, CFO, highlighted efforts to reduce shrink, saying, "We are attacking all levels." Siefel also expressed optimism about the company's growth potential, asserting, "We will return to being a growth company."
Q&A
During the earnings call, analysts inquired about the company's strategies for managing shrink and sales performance. Executives noted that shrink currently impacts margins by 50-70 basis points and highlighted strong November sales with high single-digit comparable growth. The company also discussed expected quarterly SG&A expenses around $73 million and the potential for significant leverage as sales increase.
Risks and Challenges
- Potential sales decline in Q4 due to the absence of a 53rd week.
- Ongoing shrinkage issues affecting margins.
- Macroeconomic pressures and consumer spending trends.
- Supply chain disruptions impacting inventory management.
- Competition from other discount retailers targeting similar demographics.
Citi Trends' strong Q3 performance and stock surge reflect successful execution of strategic initiatives, though challenges remain as the company navigates a competitive retail landscape.
Full transcript - Citi Trends Inc (CTRN) Q3 2025:
Conference Operator: As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Cody McAllister with ICR.
Thank you. You may begin.
Tony, Investor Relations, ICR: Thank you, and good morning, everyone. Thank you for joining us on City Trend's Q3 2024 earnings call. On our call today is Chief Executive Officer, Ken Siefel and Chief Financial Officer, Heather Plutino. Our earnings release was sent out this morning at 6:45 am 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.sydietrends.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 ks 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 Sipol. Ken?
Ken Siefel, Chief Executive Officer, City Trends: Thank you, Tony. Well, good morning, everyone, and thank you for joining our Q3 earnings call today. Since we last spoke, as most of you have seen, I've been honored to accept the permanent role of CEO here at CityDrends. And I'm really pleased to continue leading the company in this capacity, which will allow us to continue to implement the strategies that we outlined back in last summer that have been aimed at driving business improvement and ultimately increased shareholder value. I also want to acknowledge the Board of Directors for providing a unique equity compensation structure that ensures my alignment with shareholder interest.
And City Trends is really unique and exciting growth opportunity. We have nearly 600 stores serving our African American customers directly within their neighborhoods. Our brand familiarity, customer loyalty, neighborhood store locations are really difficult to duplicate, which gives us a defensible mode against our competition. With this solid foundation of differentiation, our future is well within our control and not dependent on external factors. Implementation and consistent execution of our redefined business strategy, which includes an acute focus on our core African American customer, a strong product value proposition with a balanced offering of good, better and best products, more extreme value treasure or treasure hunt experience for our customers, disciplined expense management and compelling growth plans will effectively be the driving force for creating significant shareholder value.
Our business results in Q3 are really an early indicator that our customers are responsive to our renewed focus and the resulting corrective measures in the business. And notably, we've seen that momentum continue into the 4th quarter with high single digit comp sales performance today. The strong customer response and the growing transaction count momentum give me optimism that we're really on the right path and the success that will continue to compound as we more fully execute our strategies. Let me take a few highlights of our Q3 results. Starting with our top line performance, as previously announced, we delivered strong 3rd quarter sales of $179,100,000 achieving positive comparable sales growth of 5 point 7%.
We saw growing strength throughout the period with comparable sales improving each month, culminating in high single digit growth in October. This performance was broad based, driven by increased customer traffic, single digit transaction growth and a larger basket size. Shifting to category performance, we saw positive trends across both our apparel and non apparel categories. Pilgrim's apparel was particularly strong this quarter benefiting from a combination of our enhanced product assortment and improved allocation tactics, which allow us to capitalize not only in the peak back to school selling period, but also post peak period when we strategically allocated inventory into stores with sales demand to fuel the growth throughout the entire selling season. Our non apparel categories also performed very well, led by continued strength in our home and lifestyle categories, driven by strategic inventory investments and strength in our Family Basics and sleepwear, fueled by our commitment for better in stocks of Family Basics, like socks and underwear.
These are all areas that also benefited from execution of our allocation tactics anchored on placing inventory in stores based on local demand. During our call in June, I mentioned we were planning to focus on improving product allocation. And after spending some time reviewing the product allocation methods and systems, it became clear that there were just simply too many variables for an average allocator to manage, including an overwhelming complexity of allocation methods, coupled with a large amount of store choices. In short, we made it very difficult for our allocation team to be successful. We since reduced the complexity by limiting our store clusters to 3 groups, simply high, average and low volume stores, our allocation accuracy steadily improved during the quarter.
And I'd like to acknowledge our allocation team and leadership for their hard work and commitment to improvement. Now that we have established the basics of allocation, we're turning our attention to more advanced tech leads, which will include future system enhancements down the road. I expect our work and allocation to have a meaningful impact on our operating results well into 2025 beyond. As I mentioned last quarter, we are intently focused on foundational and fundamental internal process improvements. Our success this quarter is a testament to these efforts as our data driven approach has improved inventory efficiency.
I'd like to acknowledge the work of our finance team for developing methods to track the retail industry standard metric gross margin return on investment, commonly known as Jim Ryan, down to the category level for our own internal use. I was pleased with our merchants team's willingness to embrace the metric and make better product decisions to improve not only our gross margin dollars, but also include the cost of handling and the cost of the overall inventory investment in the overall evaluation process. Again, we're just in the early stages here. We have more work to do, but this benefit will keep ongoing in the future. And speaking of foundational improvements, our supply chain team has found ways to improve both the transportation and distribution center efficiency, which has resulted in nearly a 2 week reduction of time from vendor to store.
This is a really big first step in helping us build capacity to quickly chase sales, demand trends and improve our inventory turnover. I also want to emphasize the strong momentum we saw in our full price selling performance during the quarter. Although we did not see sales benefit for the remaining clearance units early on, tied to the strategic markdowns we took in Q2, our full price selling trend sequentially improved as the quarter progressed, which has continued into Q4 and it reflects growing resonance of our product offering and our customers' willingness to pay full price for the increasingly compelling merchandise that we're able to offer. Another key highlight in the Q3 was gross margin expansion of 160 basis points, along with solid gross profit dollar growth that outpaced our top line expansion. The primary drivers are 2 fold.
1st, we expanded initial markets through improved product cost negotiations, a muscle that we're further developing combined with growing sales penetration of our higher margin categories. 2nd, we registered improved shrinkage rates on stores inventory in the quarter. With a consulting partner in the quarter, we identified several favorable shrink opportunities that have implemented specific administrative and process actions that are enable us to better monitor and manage both internal and external fact. We expect these new tactics to have a meaningful improvement in our strength measures going forward. Turning to the drivers of SG and A in the period, we also mentioned our November 18 pre announcement.
We encourage strategic costs related to a number of efforts aimed at driving future top line expansion and enhanced profitability. So first, we initiated a comprehensive customer insight study to gain quantitative and ethnographic insights into the drivers of purchase decisions. The study has delivered a host of new insights that's going to fuel decision making processes and product and positioning our store experience in 2025 and beyond. 2nd, we incurred cost to improve operational processes, including new shrink improvement measures that are driving notable improvement along with the enhancements related to the effectiveness of our Island Pacific operation system and development of KPIs to drive the business and exceptional reporting to increase focus on facts that are critical to our business. And third, we engaged consultants to help evaluate customer shopping patterns in our store with a goal of developing improvements in the shopping experience for our customers and to drive new decision making that will inform both our merchandising and store remodel strategy in the future.
In total, we estimate there were approximately about 1 point $6,000,000 in ancillary expenses incurred in Q3. I consider these costs as one time in nature and important to stabilizing our foundational operational practices in preparation for long range growth. Before passing the call over to Heather to review our financial results in more detail, as well as our upwardly revised outlook, I'd like to take a moment to reiterate the pillars of the foundation that we've laid out for the future and also express how we are executing with their vision and passion around the organization. So first, we have redefined our company's focus to our core African American customer who represents the majority of our trade area in around 90% of our stores. This renewed focus will enable our merchandising teams to secure a more refined product assortment that resonates most adeptly with our core demographic.
We're beginning to see the results of these efforts and I'm really encouraged by our early outcomes. 2nd, we are reinforcing our product value proposition with a balanced assortment of better and best product categories across all of our categories. For our lower income customers that are on a tight budget, we're shifting a strategy to offer increased selection of goods priced under $5 with visible signage to emphasize our value proposition. This is driving both traffic and basket size, which were key drivers of our 3rd quarter results. 3rd, we are offering more treasure by securing branded deals from various sources that represent extreme values.
We have recently strengthened our buying team with an experienced off price specialist who is actively identifying compelling opportunities in the market. Plus our entire buying team is now actively sourcing opportunistic deals in the marketplace. Our buyers have secured numerous compelling deals, including a new private branded footwear buy that's just now hitting the shelves. It is resonating well with our customers today. It's driving viral word-of-mouth marketing and positioning us well for the remainder of this important holiday season.
We've already seen strong and growing trends in November. Adding to our confidence in our actions, longer term, we expect this off price treasury segment to become a significant growth area for the company and eventually contributing 10% or more of our sales mix at above average margins. And 4th, we are focused on consistent execution across all areas of the business from product procurement to logistics to store execution. While consistency is defined over time, I am pleased with the internal enhancements we've made to date that will allow for more consistent execution of our model in the quarters and years ahead. And lastly, we'll continue to diligently manage expenses, which will provide for good flow through of sales to profit as we execute our core strategies.
Now I'll turn the call over to Heather to review financial points from Q3 as well as a few comments related to Q4. Heather?
Heather Plutino, Chief Financial Officer, City Trends: Thank you, Ken, and good morning, everyone. First, let me add my congratulations to the many teams across the organization for the hard work that drove our Q3 results. I am encouraged by the positive trends that are beginning to develop across the business, particularly the mid single digit comp store sales growth in the quarter and the 160 basis points of gross margin expansion. We continue to implement the strategies Ken laid out, creating new opportunities for top line expansion by quickly executing a refreshed inventory assortment with high demand brands and a more balanced good, better, best approach. While there is still much work ahead, our initiatives, along with our strong balance sheet, are positioning City Trends to return to profitable growth.
Turning now to the specifics of our 3rd quarter results. Total sales in the quarter were $179,100,000 with comp sales increasing 5.7% compared to the prior year period. The comp increase was driven largely by improved customer traffic and mid single digit transaction growth as we introduced our new, more strategic product selection and employed better allocation methods. Importantly, comparable store sales gained momentum as the quarter progressed, delivering sequential improvement month over month, and that momentum has continued through Q4 to date, positioning us well for the holiday season. The markdowns taken in the Q2 certainly helped our Q3 sales results, particularly in September August, contributing about 2 points of comp sales growth in Q3.
That said, it's important to note that full price sales were up versus last year in each month of the quarter, and we delivered our best comp performance in October as we exited our clearance event and delivered freshness to the stores. By the end of the Q3, the markdown product was significantly sold through. As discussed in earlier calls, we've updated our processes to support more in season markdowns, ensuring that our inventory aging is well managed. In fact, inventory aged 7 months or older made up only 3% of Q3 end of period inventory, a significant decline from prior quarters. During Q3, we closed 4 stores as part of our ongoing fleet optimization efforts, bringing our quarter end store count to 593 with CTS (NYSE:CTS) stores representing approximately 23 percent of our fleet.
Gross margin dollars were $71,200,000 representing an increase of 3.9% compared to the prior year period. Gross margin rate was 39.8%, a 160 basis point expansion compared to Q3 last year. The primary drivers of this year over year margin expansion were higher initial markup and lower shrink levels. As a reminder, we implemented several shrink mitigating tactics in Q1 and Q2, including upgraded store talent, updated equipment, revised policies, increased leverage of exception reporting to quickly identify issues and a third party restitution program. And as Ken noted, we are addressing other opportunities called out by a consulting partner.
While we're happy to see some improvement in Q3, we remain focused on improving shrink and driving toward a baseline rate that is more in line with our historic performance. As we've said before, this journey will take time. Moving to SG and A. Adjusted SG and A expenses totaled $74,600,000 in the quarter, an increase of $3,700,000 versus last year. About $2,000,000 of that is from the store and corporate merit increases we put in place in Q1.
The balance of the increase to last year as well as the increase to prior quarters was driven by a number of strategic costs aimed at driving future growth, which Ken detailed in his remarks. To be clear, although considered one time in nature, those expenses are included in reported SG and A and were not adjusted out. We expect these work streams and their related expenses to be completed in the Q4. Now turning to the balance sheet. We continue to maintain a healthy financial position with a strong balance sheet, including no debt at the end of the quarter, no drawings on our $75,000,000 revolver and $39,000,000 in cash.
With liquidity of approximately $114,000,000 we can more than sufficiently fund our business initiatives. Our Board of Directors has recently approved the resumption of our share repurchase program, leveraging our existing $50,000,000 authorization. We expect to begin repurchasing shares in the 4th quarter, utilizing a modest amount of our cash on hand to do so. Share repurchases will be part of our overall capital made up of a refreshed assortment with new and exciting offerings. The market for quality product remains strong and our teams are able to source off price and regular products that excite our core customers and drive traffic.
Many of our newest treasures are arriving in stores now just in time for the peak holiday selling weeks ahead and they're already creating quite a buzz with our associates and with our customers. Now turning to our outlook. We are increasing our expectations for the second half of the year as follows. We now expect second half comparable store sales to be up low to mid single digits year over year compared to our previous guidance of flat to up low single digits. Total sales for the second half are expected to be flat to down slightly due to the 53rd week last year and store closures.
2nd half gross margin is expected to be approximately 39% consistent with our prior outlook. 2nd half EBITDA is expected to be in the range of $1,500,000 to $4,000,000 above our prior outlook of $500,000 to $2,500,000 We expect to end fiscal 2024 with approximately 5.90 stores consistent with our prior outlook. Finally, we expect to end the year with $60,000,000 to $65,000,000 of cash within our prior outlook. Our updated year end cash includes capital expenditures in the range of $14,000,000 to $18,000,000 slightly higher than prior outlook on the pull forward of certain investments to drive 2025 improvement. While we don't provide quarterly guidance, given the significant changes in our business model, the dynamic nature of our growth pattern, plus where we are in the fiscal year, we want to offer some thoughts on our expectations for the Q4.
Q4 costs are expected to be up lowtomidsingledigits with total sales down midsingledigits due to the 53rd week last year and closed stores. Q4 gross margin is expected to be in the range of 39% to 40%. SG and A in the quarter is expected to be approximately $76,000,000 including the final leg of the strategic expenses described earlier, plus store payroll to support higher sales and longer operating hours during the holiday season. Q4 EBITDA is expected to be in the range of $5,000,000 to $7,000,000 Before I turn the call back to Ken, I want to reiterate how encouraged I am by the positive results we delivered in the Q3. There's a renewed sense of focus and energy at City Trends as we follow Ken's leadership to make foundational improvements across the organization, addressing processes and creating disciplines as needed to pivot the business and position City Trends for improved financial performance.
As I said earlier, we still have a lot of work to do. We will continue to push forward with our refined strategy, and we look forward to updating you on our progress in upcoming calls. With that, I'll turn the call back to Ken. Ken?
Ken Siefel, Chief Executive Officer, City Trends: Thank you, Heather. Well, in closing, I remain energized and optimistic about the future of CityTrans. Our Q3 results are an indicator of the work that we've done to create solid foundation and set the company up for long term success. In my time here, I've really enjoyed working with our talented and highly engaged employees, and I look forward to further progress together as we pave a path and improve business performance and significantly increase shareholder value. With our acute focus on the core African American customer, intense leverage of competitive advantages, disciplined focus on operational improvements and strategic investment in growth initiatives, I am confident that we can build on our positive momentum and deliver a strong finish to fiscal 2024 and well beyond.
Our holiday season is off to a great start. And I want to extend my thanks to the City Train's team for planning and executing such a great start for the holiday period. I want to wish all of our team members and our shareholders a very happy holiday season and I look forward to updating you on our Q4 results in the New Year. With that, I'll turn the call over to our operator, Melissa, to facilitate questions.
Conference Operator: Thank Our first question comes from the line of Jeremy Hamblin with Craig Hallum Capital Group. Please proceed with your question.
Tony, Investor Relations, ICR: Congratulations, Ken, on the appointment and congratulations to the team on the improved results. I wanted to start by just coming back to the improved sales trends. So I think that I heard that the start of Q4 here in November was up high single digits on comps. So I wanted to understand just in terms of the guidance for the quarter, if there's an element of conservatism in the low single to mid single digit guide for the quarter or if there are some aspects to what you're going to lap in December and January that kind of lead to a bit more conservatism?
Ken Siefel, Chief Executive Officer, City Trends: Thank you, Jeremy. I'll answer a little bit from high level and certainly not other Fellini details. Yes, first off, November was really exceptional compared to what we were expecting as we put new product and fresh product out, I mean, certainly, the business took off and we're just really pleased with customer response in November. Now to your point around the conservatism or the potential of that, there's a lot of holiday season ahead yet. And certainly through December, you might remember, the company had a reasonably good December last year in terms of comp performance.
And so we also are against a little bit tougher comp, as well as we also appreciate the calendar shifts that are ahead. So we're being a little bit more cautious about what December might bring, but still very optimistic around the overall Q4 numbers. Heather, would you add anything to that?
Heather Plutino, Chief Financial Officer, City Trends: I think you nailed it, Ken. Jeremy, we will not be mad if that winds up being a conservative guide. I don't think you would be either, right? But to Ken's point, November was exceptional. Nothing really to comment on for the compare throughout the quarter.
December, again, to Ken's point, was decent last year. The only thing I would say is that there's probably more opportunity for us than usual in January on a comparison standpoint. The comp last year was particularly soft as we came into a softer than expected tax refund season. So we're set up and will be set up to take advantage of all sales opportunities. But we're pleased with the way we started, lot of days
Tony, Investor Relations, ICR: ahead. Great color. And just to clarify a little bit more color on December, what portion of your Q4 sales comes in December, is that roughly 40% of the quarter or maybe even slightly more?
Heather Plutino, Chief Financial Officer, City Trends: It's slightly more, Jeremy. It's about I'd give it about 50%.
Tony, Investor Relations, ICR: Yes. Okay. Fantastic. And then just want to come back to the investments that you're making and maybe hone in a little bit more on the shrink portion of those investments as well. So it sounds like you've got a plan in place.
You're getting a little bit of help from a third party on some strategy to improve that. Where is shrink in terms of kind of the impact or the drag on your margin today versus, let's say, where it might have been 5 years ago? What's that gap that we're looking to close? Is it 50 basis points? Is it something more like 100 basis points?
Any color you might be able to share on that? And then the second part is just kind of the timeline that you think is reasonable to get it back to what you'd consider a normalized level?
Heather Plutino, Chief Financial Officer, City Trends: Yes. Thanks for the question. I'll start and then Ken you can fill in where I may miss here. On your question about what's the headwind, on a full year basis, I'd probably assign it somewhere between 50 70 basis points of drag compared to historical levels. On a quarterly basis, it's a little less than Q4, more like a compared to last year, it was a 40% drag.
I don't think I'm saying that right, Jeremy. Hold on. No, it was actually an improvement to last year, sorry. So it depends on quarter to quarter. So but on the full year, again, a little less than a point.
I think the fact that we are mentioning as many initiatives as we are on these calls and have for quarters tells you how maniacal we are on attacking this issue, right? We are leaving no stone unturned. We have teams within the company who have been looking for every opportunity to improve shrink. And then the addition of this consulting firm is really just to make sure that we aren't missing something. So we are attacking all levels, whether it's like I mentioned Teams, is it using the systems that we have like our Agilent (NYSE:A) system, which is the exception reporting that we use to be able to identify trends very quickly and address them very quickly?
In store signage, right, to backdoor access protocol. So we're really into the weeds and it's appropriate because this particular issue, shrink, is going to take being in the weeds to be able to tackle it. When we expect to see improvement, we're modeling improvement into 2025 early days yet, not ready to reveal 2025, but it will be gradual throughout the year because this again, this is a journey. I can tell you if I think about I'm going to keep going, Ken, if you don't mind. If I think about Q3, part of our improvement in Q3 was because of the 211 physical inventory counts that we did in the quarter.
And included in that were a number of stores that we were recounting because of higher than acceptable shrink rates earlier in the year. Of those stores, a portion of them continued to have higher than acceptable shrink rates. So we're pleased with the progress, but there's still opportunity. That's why I call that out. There's still opportunity to make sure that we are addressing shrink at every level within the organization.
It's a challenge.
Tony, Investor Relations, ICR: That's great color. Let me shift gears here and talk about your store fleet. And Ken, as you've had a chance to really dive into the details a bit more, you had some closures here in Q4. You've still got some conversions to CTX formats that are going to happen over coming years. How should we be thinking about kind of the store fleet on a go forward basis?
Is this kind of a do we expect the store fleet to continue to shrink until we feel confident that we've kind of scuttled all the maybe underperforming locations? Or is there a time where you've got some momentum in the business and we think about kind of reopening the growth path for this story and potentially ads locations going forward. How are you thinking about the fleet?
Ken Siefel, Chief Executive Officer, City Trends: Yes, for sure. Good question. As we go forward, Jeremy, I'm really thinking about really the fleet in 2 ways. 1, that is in the refresh and the remodel. We've got about, I think about a third of our stores roughly not quite remodeled into the new format, but we still have significant number of our higher volume stories that need to be remodeled.
And so as we go into 2025, you can expect us to come out with a fairly aggressive remodeling refresh program, bringing our fleet up to standard across. And where we've done so, we've achieved higher than average comparable sales. So we're confident in the results and our customers' response to a fleet refresh. So that will be a big part of our repertoire going forward initially. Simultaneous to that, we are actually behind the scenes right now doing some studies in various markets and we will be returning to new store growth.
Part of those parcels, we had to fix our business model and get it to be a little bit more reliable, which is beginning to take shape. And now we're taking a look at really going into various key markets and making sure that we can actually command market share where we deserve it. And some of those are existing markets and some of those will be net new markets for us. But you can expect, particularly in 2020 6 and beyond, but even a little bit in 2025, you can expect us to see a return to a growth pattern. And in regards to closures, basically cleaning and closing and relocating stores is kind of a normal part of keeping a fleet healthy.
There'll be a little bit of that, but it's certainly not a target. We'll do lease maintenance where it's required and we'll move out of bad locations and move into better locations and so forth. That'll certainly happen. But I just want to make sure that you appreciate that we do have a very aggressive growth thought in mind right now and as we are stabilizing our business model, you can expect us to get to being a growth company.
Tony, Investor Relations, ICR: Yes, that's great color. Thank you. Just one clarifying question. On the remodels, what's kind of the range of cost in remodeling into the CTX format of store and what's the average?
Heather Plutino, Chief Financial Officer, City Trends: Yes, the range of cost, you'll recall, Jeremy, that we recently reduced our CCX remodel costs by about half. So when we first started the program, the remodel was about $250,000 on average. And in 2023, we through the latter part, we developed a new remodel package, which the range is about 85,000 to 130,000. So I'd say the average, you can call it maybe 110.
Conference Operator: Our next question comes from the line of Michael Baker with D. A. Davidson. Please proceed with your question.
Michael Baker, Analyst, D.A. Davidson: A lot of initiatives. I can ask specifically about where you think SG and A is going to go, etcetera. But maybe I'll encompass it all in one question. What is the right long term EBITDA margin for this business? Prior to COVID, it was 2017, 2018, 2019 between 5% and 6%.
We won't think about the COVID years and post COVID years, probably not relevant, but obviously much lower than that now. Ken, where do you see long term EBITDA margin for this business?
Ken Siefel, Chief Executive Officer, City Trends: Good question, Mike. I think as I join the business to start to kind of think about setting forth a long range plan, which we're beginning to work through with our Board here shortly, One of the primary goals that we have is to return our EBITDA back to those historical levels that you mentioned. And frankly, we see a little bit of a path even beyond that. But certainly, you could be thinking with historical levels, 5% to 6% range for sure are in our sites and will be a part of our active near term plans.
Michael Baker, Analyst, D.A. Davidson: Okay. To follow-up on that and as part of that looking at the SG and A, specifically, if you pull out the one time, the $1,600,000 that they talked about, one timers, I think you were at about $73,000,000 this quarter. And next quarter, you think you'll be about $76,000,000 dollars In the past, the quarterly SG and A was usually around $70,000,000 or so. I get why it might be permanently higher because of inflation, etcetera. But is that $73,000,000 It sounds like it's probably somewhere between that $76,000,000 but what do you think the long term quarterly SG and A should be for this company?
Heather Plutino, Chief Financial Officer, City Trends: Yes, Mike, I'll take that one. So 70 was our run rate in 2023. Recall that in our Q4 call, we talked about the fact that we were increasing that rate to enact merit increases in stores and corporate. That brought it up to the 72%, 73% range. So if I think about the go forward, I would say 73% per quarter is feeling like a good earmark and then flexing up accordingly to account for sales flows quarter to quarter?
Michael Baker, Analyst, D.A. Davidson: Yes. Okay.
Ken Siefel, Chief Executive Officer, City Trends: Mike, I might add to that. I think you know this about the business already. But one thing about the SG and A base is it's highly fixed, which means that as we start to accelerate our sales and start to grow, we should see some significant leverage. So just appreciate that it's the number that Heather mentioned is directly correct, but just appreciate there's a good leverage on that as we continue to grow our top line.
Michael Baker, Analyst, D.A. Davidson: Yes. No, that's the whole idea. Just trying to figure out what that fixed cost number is and then we can figure out the leverage. And so I guess to that end, just one, I guess I'll ask this one. Let's ask this.
Ken, can you you've had a lot of turnaround experience in a lot of different places. I guess just bigger picture, can you compare this to some of the other turnarounds you've led? What's different? What's easier? What's harder?
What have you learned from past turnarounds that you're applying here? I know that's a big question that you could probably take an hour to answer, but a couple of bullet points on how you see this turnaround versus others?
Ken Siefel, Chief Executive Officer, City Trends: Yes, for sure. Yes, I'll give you the clip notes for that. So what's common here is that getting the company refocused on the core customer and really truly understanding the customer coming through the door and doing a better job of adjusting the assortment, including some of the good, better, best things that I've talked about and then treasury on the treasury rent, all those things are really about redefining and getting our assortment to match the core consumer. And then it started with us first understanding who that customer is. So that's very much a common theme when you get into companies and turn around, oftentimes they lose track of that.
And so we're getting refocused on that. What's unique here from places 2 things I'd say are unique. 1, we did have a number of operational, fundamental and foundational practices that were broken or disconnected, more so than I've seen. We spent a lot of time. In Q3, we kind of understated really how much work has gone into this, getting things fixed and repaired, including shrinkage and some of those other things we mentioned.
But the team has done marvelous work in terms of really getting their arms around the things that we need to do to run a solid and consistently executable business model. So that's unique here as much as work has been required to get that done. And the other thing that's been a positive surprise is the quick response from customers and the changes we've made. Oftentimes, customer traffic is one of the more difficult things to change in a business. It takes time and reputation.
But because of our neighborhood locations and the love affair that our customer has with this brand, as we're starting to get things right, we're seeing pretty quick reaction. So that's why I'm a little bit euphoric about our November. We really delivered a good step forward into our strategies there and the customer responded quickly. So that's it. I could go on like you said for an hour, but those are probably the 3 big differences that I see here.
One common thing with the customer, very unique in customer response positively, and then the opportunity for us to be operational solid. We have work to be done there.
Conference Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Seippel for any final comments.
Ken Siefel, Chief Executive Officer, City Trends: All right. Well, thank you, everyone. We appreciate your time and interest in Study Trans today and certainly wish everyone a very happy holiday season. Thank you and goodbye.
Conference Operator: Thank you. This concludes today's conference call. You may disconnect your lines. At this time, thank you for your participation.
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