Citi Trends, Inc.

Greetings and welcome to the first quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Thursday, May 28, 2020. I would now like to turn the conference over to Nitsa McKee, Senior Associate. Please go ahead.

Thank you, Dina, and good morning, everyone. Thank you for joining us on City Trends' first quarter 2020 earnings call. On our call today is our Chief Executive Officer, David McKeown, and our Vice President of Finance, Jason Moschner. 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.citytrends.com. You should be aware that prepared remarks 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 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, David McEwen. David?

Thank you, Nitsa, and good morning, everyone. As the new CEO of City Trends, it is a pleasure to be speaking with you this morning, and I hope you are all safe and well. We are in unprecedented times in COVID-19, have had a tremendous human impact and an impact on our economy and the retailing landscape. Throughout this crisis, our top priority has been and continues to be the health and safety of our associates, our customers, and the communities we serve. We, like many others, have made some difficult but prudent decisions throughout this pandemic to ensure that City Trends remains in a strong financial position and is poised to exit this crisis well-positioned for a safe recovery and long-term growth. I would like to take a moment to thank our leadership team and associates for their unwavering dedication to the business and our communities throughout this crisis. Our people are the heart and soul of City Trends and alongside many other priorities in their own personal lives, they rose to the challenge of balancing life needs with the needs of the business. I am so incredibly proud of their efforts and all that we have collectively accomplished during this time. Moving on to the topics to be discussed during today's call, I will first discuss how we are safely and prudently navigating through COVID-19. I will review our reopening strategy, which is well underway, and I will provide an update on the early results we are seeing quarter to date. Next, I will turn it over to Jason Moschner, our Vice President of Finance, who will briefly review our first quarter results. Finally, before opening the call to your questions, I will summarize how we are viewing our previously stated strategic initiatives. First, let me recap the highlights of actions we have taken to ensure the safety of our associates and customers. Preserved Capital, and Bolster Our Financial Liquidity. In response to the growing pandemic in New York City, we closed our corporate office on March 13th and instituted work from home policies. On March 20th, due to stay at home and shelter in place orders and based on guidance from federal, state, and local authorities, we temporarily closed all 574 of our stores across 33 states. On March 27th, we temporarily closed our two distribution centers and our corporate office in Savannah, Georgia. We made the difficult decision to furlough substantially all of our store and distribution center personnel and about 40% of our corporate staff. We temporarily reduced cash compensation for the chief executive officer, senior executives, and board members by 15% to 25%. We created a COVID-19 response team focused on business continuity that developed new protocols and action plans to limit and reduce operating expenses, address forward-looking safety requirements, and prepare the business for reopening. We partnered with vendors and extended payment terms. We partnered with landlords to negotiate store rent for the weeks of our closure We announced that we do not intend to repurchase any shares for the time being under our previously announced share repurchase program. We proactively drew down $43.7 million under our revolving credit facility and extended the term of our credit facility to August of 2021. We temporarily suspended our quarterly cash dividend beginning in the second quarter. and we appropriately reduced our inventory receipts. It is important to highlight that the health of our balance sheet pre-COVID-19 helped us prepare for this uncertain and unpredictable period. We entered the 2020 fiscal year in a healthy financial position with no debt and cash investments of roughly $63 million. Our prudent management of inventories, our largest payable, included the cancellation of spring goods, resulting in a quarter-end inventory decrease of 7.1% compared to the end of the first quarter last year. I am confident that the actions we have taken, combined with the stringent management of the business, will keep City Trends in a strong financial position as we complete the reopening of our stores and shift our focus back to growth. As the first quarter of fiscal 2020 began to unfold, our comparable store sales increased 3.1% through March 7, and we were on track to have a stellar start to the year until the impacts of the COVID-19 pandemic began to affect our country in unprecedented ways. What unfolded next was a series of extraordinary actions taken by management, grounded in their passion, leadership, and attention to detail to guide the company through the COVID-19 pandemic. We quite literally hunkered down in our homes and leveraged technology to continue working together. Our leaders met multiple times a day and ultimately devised a plan to slowly reopen stores when we could safely do so. We began reopening stores on April 24th and by May 9th, more than 300 of our stores were reopened. and as of May 28th, more than 3,000 of our furloughed associates were back at work in 498 stores. Seeing our dedicated associates and loyal customers in stores for the first time in several weeks brought many smiles and in some cases, tears of happiness. Moving to the topic of store reopenings, let me first spend a moment discussing some specific in-store protocols we have in place to protect the health and safety of our associates and customers, while also adhering to social distancing guidelines. Face masks, hand sanitizer, CDC recommended cleaning procedures, reduced hours, social distancing signage, closure of fitting rooms, and Suspension of our Return Policy became standards in our stores and where appropriate in our distribution centers. Once our corporate offices reopen, we will institute necessary safeguards to protect our employees. Now, moving on to early results we are seeing in the stores we have reopened to date. As of today, we have reopened 498 stores across 26 of 33 states. Our performance quarter to date, while still very early, is quite strong as our customers in the communities we serve have enjoyed returning to a favorite pastime, shopping for the family. I am pleased to report that just shy of four weeks into our fiscal second quarter, reopened stores are registering comparable store sales growth that has substantially exceeded our expectations and plan, benefiting from a combination of the strength of the company's brand, its value proposition, and the federal government stimulus to consumers that began in early April. The increase is driven by healthy transaction trends and an increase in the average number of items per transaction. Throughout our early stages of recovery, I'm impressed with our buying team. and how they have used data-driven insights to identify four notable patterns in customer behavior. These patterns help us to wisely navigate and develop plans for the balance of the quarter and remainder of the year. Let me take a few minutes to elaborate on these customer patterns. The first pattern, we'll call it Welcome Home.