Citi Trends, Inc.

Greetings and welcome to the City Trends 2Q21 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll 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 Tuesday, August 24, 2021. I would now like to turn the conference over to Nitza Miki, Senior Associate. Please go ahead.

Thank you, Malika, and good morning, everyone. Thank you for joining us on CityTrend's second quarter 2021 earnings call. On our call today is our Chief Executive Officer, David McKeown, Chief Financial Officer, Pam Edwards, and 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 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 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 McKeown. David?

Thank you, Nitsa, and good morning, everyone, and thanks for joining us today on our second quarter fiscal 2021 earnings call. This morning, I will review our continued transformation of our business model, highlight our strong financial and operational results for the second quarter, discuss our confidence in the business for the remainder of the year. Now we'll update you on our progress related to the evolution of our city master plan and activity in support of our strategic growth initiatives. In addition, Pam Edwards, our CFO, will elaborate on our financial results and provide details about our guidance for the remainder of the year. I would be remiss if I did not take a moment to once again emphasize my true gratitude to our dedicated teams across our organization. Our industry has faced many challenges since the pandemic emerged, and our teams have never wavered on their passion and dedication to serve our customers and communities. The CityTrends culture is becoming stronger every day, and the root of our culture is our people. Thank you, especially to our internal teams and vendor partners for making CityTrends the sought-after brand experience for our loyal and growing African-American and Latinx families' apparel, accessories, and home lifestyle needs at prices that will never break the bank. Our journey has just begun, and we have a long runway ahead of us as we gear up to expand the CityTrends experience to so many more communities, associates, and business partners. Now, let me discuss the key highlights of our second quarter performance compared to the second quarter of 2019. Total sales increased positive 29.8% versus Q2 2019, supported by an increase in comp sales of positive 25.6% versus Q2 2019. Our strong top-line increase was a result of growth in our average basket size, driven by spending, as we have seen for the last five quarters, from longtime loyalists, lapsed comebacks, and many new customers. In fact, our customers are in better financial position, which we expect will continue as employment levels rise and the economy continues to improve. We are once again very encouraged by the broad-based strengths across our cities or categories. In fact, we registered strong double-digit growth versus 2019 across five of our six cities, including ladies, men, kids, beauty and accessories, and home lifestyle. Our buying, planning, and allocation teams are truly trend masters, showing amazing skills in developing proprietary assortments building relationships with sought-after brands, and scouring the landscape for great values. Our momentum points to the underlying improvement and transformation in our base business when it comes to consistent flow of improved on-trend assortments, fresh receipts at excellent values, and the evolution of our supply chain capabilities. Central to our performance and momentum is our unwavering confidence in the power of our physical stores in underserved communities that really need us. Throughout the quarter, we paid close attention to enhancing our unique specialty value store experience by putting our customers at the center of decision-making, tailored to their needs and desires. As Pam will describe in greater detail, we registered strong results in the middle of the P&L, resulting in significant growth in our gross and operating margins, as well as continued expense leverage. We achieved these results despite macro freight and labor headwinds heading into the quarter. The fact that our operating margin expanded nearly 700 basis points in the second quarter compared to Q2 2019 showcases the diversity and adaptability of our operating model. Earnings per diluted share of $1.36 far exceeded our beginning of period internal expectations. This was another well-executed high performance quarter for CityTrends. And the momentum from Q2 has carried into August with a great start to our back to school and back to dorm seasons. As we look forward to the remainder of 2021, I am pleased to report that based on our strong first half performance, the momentum we are seeing in the third quarter, and confidence in our ability to capitalize on the opportunities that lie ahead, we have increased our full-year total sales and EPS outlook above the high end of previously provided ranges. Our revised outlook now calls for midpoint total sales of $1 billion, which will have us reaching our previously shared long-range top-line target more than a year earlier than planned. Importantly, the base foundation of our business has improved, fueled by improved and expanded trend right assortments, resulting in higher spend per customer, which we believe is sustainable over time. The city trends transformation is on a clear path for many years of meaningful growth. With that, I'll turn to Pam, our CFO, who will provide more details. Pam?

Thank you, David, and good morning, everyone. As David mentioned, this was another well-executed quarter. We are very pleased with our first-half results and the continued momentum we are experiencing thus far in the third quarter. I would also like to echo David's comments in expressing appreciation to our incredible team. In what has remained a fluid environment, we delivered a stellar first-half result, and we could not have done so without the hard work and dedication of our associates. Our accelerated growth rate has challenged our teams, but all have risen to the occasion and have continued to excel in their performance. As mentioned in the press release, the company is reporting operating results for 2021 relative to Q2 2019 to provide a more normalized comparison of performance since Q2 of 2020 included significant favorable one-time expense reductions, such as furloughs, reduced store hours and closures, abated rents, and other COVID-19 cost credits. Before I get into the details of the financials, though, let me address the topic of supply chain, which is under our move operational pillar between our buy and sell pillars. As we mentioned on our last call, with our outsized performance, we ran into some bottlenecks getting plenty of available products through our DCs and into our stores fast enough in Q1 to meet customer demand. We moved quickly to address those bottlenecks and ramped up our dropship capabilities to meaningfully expand our ability to move goods to stores. By tackling the expected supply chain headwinds and implementing strategies to mitigate cost while more efficiently flowing our products, I'm pleased to report that our freight costs came in better than we expected in the second quarter. The availability of high-quality goods remains plentiful, and our ability to move the goods throughout our network has meaningfully improved positioning as well for the fall and holiday selling season. Now, let me turn to the review of our results. Total sales in the second quarter were $237.3 million and increased 29.8% compared to 2019. Comp sales grew 25.6% on a two-year basis. Growth in the quarter was driven primarily by a healthy increase in the average unit retail selling price, as well as higher units per transaction, resulting in strong growth in the average basket size. Sales were consistently strong throughout the quarter. We achieved gross margins in a quarter of 40.8%, an increase of 350 basis points compared to 37.3%. in the second quarter of 2019. The increase in our quarterly gross margin rate continued to be primarily the result of strong full price selling and fewer markdowns. SG&A leveraged 270 basis points versus 2019 to 31.8% due to strong sales growth and disciplined expense control. Operating income of 16.4 million compared to $0.2 million of operating income in the second quarter of 2019. Our net income was $12.5 million for the quarter compared to net income of $0.4 million in the second quarter of 2019. Earnings per diluted share was $1.36 compared to 3 cents per share in the second quarter of 2019. Turning to inventory, Compared to the second quarter of 2019, total ending inventory decreased 14.3% on a total sales increase of 29.8%. We experienced improved inventory turns for the second quarter and our inventory freshness increased to record levels. Lastly, the company repurchased approximately 215,000 shares of its common stock at an aggregate cost of approximately 18.9 million in the second quarter. We ended the quarter with approximately 20.9 million remaining on the buyback authorization announced on June 2, 2021. In addition, today we announced in our press release that our Board of Directors has authorized an additional 30 million share repurchase. Turning to our fiscal 2021 outlook. We feel great by the momentum in our business, including a strong start to our back to school and back to dorm season. As we continue to operate at a high level of growth, we are confident in our ability to capitalize on the opportunities that lie ahead in the second half of the fiscal year and are therefore raising our guidance. Specifically, we now expect to generate total sales of $990 million to $1.0 billion. a midpoint increase of approximately 28% compared to fiscal 2019. This would result in expected earnings per diluted share in the range of $6.30 to $6.50, or a midpoint increase of 354% compared to 2019. Within this guidance, we expect that our gross margin will be in the high 30s to low 40s, consistent with previous guidance. I will now turn the call back to David for closing comments.

Thanks, Pam. As a result of our accomplishments and momentum, we are hard at work evolving our City Master Plan, a plan that will build on what we have shared in the past, firmly positioning city trends as a purpose-led growth plan and a vital one-stop trend shot for underserved African American and Latinx communities. We will provide more specific targets in conjunction with the unveiling of our revised city master plan at the ICR conference in January of 2022. Also, we will continue to partner with our board of directors in the process of building out our go forward capital allocation plan and look forward to updating you on our progress. Rest assured, the entire city trends leadership team, along with each and every city team member, is full of passion and has the expertise to build our future one brick at a time. I will now briefly reiterate and update you on our four very active strategic growth initiatives that will drive continued accelerated sales and earnings growth. As a reminder, they are, number one, growing our fleet and expanding our customer base. Number two, optimizing our product mix. Number three, reinvesting in our infrastructure. And number four, making a difference within the communities we serve. First up, growing our fleet and expanding our customer base. Our site remains set on a fleet potential of 1,000 stores, 70% growth from where we are today. We see a tremendous opportunity to grow both within existing DMAs and entering new DMAs over time. Our growth will remain focused on three distinct types of neighborhoods, African-American-centric neighborhoods, Melting Pot for a mix of African American Latinx populations and Latinx centric. A key driver of free growth will be the rollout of our new CTX customer experience in 2022. As mentioned during our Q1 call, we launched two lab stores designed to represent a testing ground that amplifies and takes our intimate specialty value store experience to the next level. We added two more lab stores during the early portion of Q2, and after rigorous testing and analysis, we are extremely pleased with the results thus far. Customer and associate feedback has been outstanding, and we look forward to scaling CTX in 2022. It's so exciting to bring a life in more compelling ways than ever before. Our exclusive trends sought after brands and head-to-toe looks making it a more special shopping experience for our existing and new customers. Lastly, we remain on track to approximately open 30 new stores and 20 remodels in 2021. Our forward plan calls for opening at least 100 new stores and remodeling at least 150 stores from 2021 through 2023. We are confident we can meet and possibly exceed these goals. Next up, optimizing our product mix. At the root of our transformation at CityTrends is our constant optimization of the basics, fashion, and trends that allow our customer to show up and be seen while not breaking the bank. This transformation is anchored on our new construct of six cities or categories with each senior buyer assuming the role of mayor of their respective city and being responsible for bringing that city to life. Ongoing product mix optimization speaks to our responsibility to our customers to calibrate existing assortments tailored to their needs while adding new incremental businesses into our highly fungible store model. With our unit inventory down considerably, it has presented opportunities to clean up the selling floor, remove fixtures, and free up space to further optimize our offerings to our customers. Our city mayors are staying close to their respective customers, partnering with resourceful vendors to provide unique assortments that are on trend. We are utilizing data analytics to test, learn, and build new opportunities to further grow our sales productivity, try to improve inventory terms, and maintain healthy gross margins. Third, reinvesting in our infrastructure. As I have addressed in the past, we are keenly focused on utilizing a portion of our free cash flow to strategically reinvest in our infrastructure and systems across our buy, move, and sell pillars of our operation. In light of the supply chain challenges mentioned earlier, we are embarking on some investment to improve our move process and capabilities. We have more good work in front of us, but we are moving in the right direction. We are also on track in our planning of investments for our buy and sell pillars Grounded in implementing solutions that will leverage powerful data to produce enhanced insights and actions, I am confident that prudent investments in these areas will contribute directly to the continued transformation of our business model. We will provide more detail as this develops. Lastly, making a difference within the communities we serve. More than ever, our presence of our stores serve as an informal neighborhood hub where store managers and team members know customers by name and take a genuine interest in not only styling our customers, but also listening to their stories and being part of the fabric of the local culture. Our City Cares Council, along with our Board of Directors, are committed to establishing additional footholds in our communities through the lens of DEI and corporate social responsibility, which includes ESG. A great example of how we made a difference during Q2 was through our first annual Black History Makers program to honor Black entrepreneurs who are making an impact in their communities. We announced the winners of 10 $5,000 grants on June 16th, coupled with the launch of our CityCare Small Business Academy in collaboration with CIFAS, a leading national law firm. Together, we are offering valuable curriculum to help all applicants in our Black History Makers program. Getting to meet the winners was exciting as it was inspirational. It's our hope that these grants will support them in pursuing their dreams and aspirations. We look forward to sharing more with you in the months ahead as we seek to celebrate and activate the legacy of our diverse and inclusive team and culture. This is another well-executed quarter for CityTrends. Our transformation remains well underway, and our updated guidance is a clear indication that we are confident and the momentum we are seeing in the business, as well as our outlook for the balance of the year. We remain committed to expanding the CityTrends brand reach and see a long runway of profitable growth ahead of us as we look to continue to fuel market share gains and build shareholder value over time. I will end with a shout-out to our employees and leadership team for their hard work and unwavering dedication to all things cities. We are thankful for our loyal and growing customer base. We will continue to mask up in stores and take great care in prioritizing the health and safety of our associates and customers. Thanks for joining us today. We really appreciate your interest in this exciting close story. We are now ready to take your questions.

Thank you. Ladies and gentlemen on the phone lines, if you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. Once again, ladies and gentlemen, it is 1-4 if you have a question. Our first question is from the line of Chuck Grom with Gordon Haskett. Please go ahead. Your line is open.

Hey, guys. Good morning. Nice results here. You know, Dave, the bigger picture, your sales per square foot this year are going to be around $150 if you hit the $1 billion in sales target that you outlined today, which is obviously a great improvement from 2020, but it's still below a lot of your peers, your off-price peers in particular. When you think about the model and the opportunity on this front, I'm just wondering if you could help us think about where you think that sales per square foot can grow over the coming years.

Hey, Chuck. Thanks a lot for the kind words and the good question. Sure. Let me take a stab. I'd start with our average sales per store has grown considerably versus 2019, up from about roughly 1.4 to 1.5. just we'll do a kind of a one seven number for fiscal 2021. And that points to the improved sales per square foot relative to our model where we plan on kind of pushing is how do we get the most productivity out of each box? And so I think relative to how we price our goods at a value price and the velocity of units that goes through our box, we anticipate going north of that number you quoted and, I think it's all going to come down to, in part, rolling out our CTX experience that I mentioned, where we've done that in the lab stores. It's really been our testing ground to see how high is high, kind of directly related to your question. And what we're seeing are some nice lifts, not only for the box, but we're learning a lot about the individual cities and based on where they're positioned in the store and how we merchandise them, we're seeing some incredible sales per square foot by city go in the right direction. So, Over the next few months and remainder of the year, we're kind of continually tweaking that formula, that lab store formula, and that's what we'll begin to roll out next year. So I think as we remodel and open new stores at higher productivity rates, we'll go north of that number you quoted. And I think it should be really accretive to the overall business. And as you and I have spoken in the past, the opportunity to have a lot of flow through from those additional businesses Top line sales and higher sales per square foot is pretty large since we don't have to add a lot of staff to our stores to service that additional sales. Does that make sense?

Yeah, it does. I guess it's probably a little too early to get some of that color on GTX, I presume, in terms of what the lift is or what the productivity is within this handful of stores that you've done so far.

Yeah, it's a little early. But, you know, what I would say is, you know, travel and safety withstanding, love to show it to you and walk folks through that experience. We've got a couple that are reachable in the northeast, a couple down south. And I think what we're going to do is just continue to read it. And during our Q3 call, we'll give you another update.

Okay, that's great. And then some of your larger off-price peers have spoken about taking retails up over the past week, looking ahead to the fourth quarter and into 2022, given some of the supply chain constraints and less promotional activity out there. Just curious your views on this strategy and if you guys would also look to take prices up in certain areas if need be.

Yeah, that's a good question, Chuck. A highlight there is we remain steadfast at offering the same value that we've always been known for. So in a broad sort of macro context, we are not aggressively raising prices. I think what we discovered a little bit in our business over the last six months is if we add more value and quality and it's not like for like goods, we're able to command some higher retails in specific cities and And I think that bodes well. Our customer has shown us that she and he will definitely pay for high-quality, trend-right goods that aren't available anywhere else. So it's less about raising prices in most of the cases. It's actually more about bringing in assortments that are improved and enhanced versus prior years that have better fabrications, a better hand, better fits. And we're finding that our customer will we'll pay a fair value for those goods. So like for like product, we're not raising prices, but we're definitely continually hunting down right trends and that right sort of trend value quotient that enables us to charge a fair price, and it's helping our AUR inch upwards, which is a good thing contributing towards our higher basket and higher sales. That's great.

And this last one for me would just be for Pam. You talked about how some of the supply chain bottlenecks were pretty significant in the second quarter, and it seems like the outlook for the back half is improving a little bit. I don't want to put words in your mouth, but maybe if you could just sort of flush that out for us. What's improved? What's the outlook on that front? Thanks.

Yeah, good question, Chuck. You know, as we mentioned in the first quarter call, we saw The headwinds begin in the last month of the first quarter and then continue for the rest of the year is the impact. And as mentioned on our last call, we had expected that to be pretty significant, but we weren't accepting that. And we were looking for ways to mitigate that cost. One of the ways that we were able to jump right on immediately was increasing our drop ship program. And by ramping that up, that's not only a play for cost but a play for speed and you know with speed the product gets to the store sooner and it gets to the floor sooner meaning the customers have access to it immediately to the most recent trends and so that all around has been a win for us not just from a freight headwind perspective and we expect that that will continue for the rest of the year as we we continue to look at at ramping that up even more, but also looking at other ways to mitigate the external macro headwinds that we're seeing.

Got it. Thanks a lot, guys. Good luck. Thanks, Chuck.

Thank you. Our next question is from the line of Dana Telsey with Telsey Advisory Group. Please go ahead. Your line is open.

Congratulations, everyone, on the terrific performance. couple things. As you think about the complexion of the comp, how did the basket do? How did the transactions do? And did you see anything post-child tax credit as compared to pre?

Yeah, I mean, so overall, the primary increase in our sales came from the basket side. So we're seeing a very healthy balance of both the AUR and the UPTs increase overall. And so from that perspective, we think that that will continue into the fall. That's something we've been seeing consistently from the first quarter.

Got it. And I think, Pam, you had talked about the freight impact on the gross margin would be around 170 to 190 basis points. Are you still seeing that, or is there any adjustment to that?

Yeah, no, we've certainly seen that moderate, and as I mentioned in the answer to Chuck's question, we were able to claw back some of that in the second quarter based on implementation and ramping up of our dropship program. So, absolutely, we're seeing the $170,000 to $190,000 moderate down. We're not being specific on the exact amount, but it's, you know, probably I'll say 50 to 70 basis points better than what we expected in the 170 to 190. Great.

And then, David, with the new CTX format, what are the learnings from that so far? And as you continue to remodel stores, any adjustments that you see being made? Is it category? Is it with sales associate engagement, data that you're getting to enhance your go-forward game plan?

Thanks, Dana. Thanks for the kind words at the beginning as well. Yeah, I think CTX is showing us some incredible things about the brand. A couple of them are, first off, the change in the vibe and the general tenor in the store is dramatic. We start with an entirely new palette of colors. We allow the merchandise to, frankly, be more front and center against a more muted palette of background colors. We've changed the entire floor layout, so it's really kind of a nice play on changing adjacencies, allowing the customer to do a bit more ping-ponging around the store, meaning they can kind of bounce from an apparel to a non-apparel item. They can even meet up with an unexpected home item within the apparel section and so on. So it's really, I have to tell you, a reimagination of a CityTrend store. And what's resulted is the associates feel really proud to go to work every day. They feel empowered to put outfits together because we've created fixtures that frankly make it kind of more fun to put together a top and a bottom and a handbag. They feel frankly more of an owner in a store that's been kind of reimagined. And so the unexpected surprise, I think, or maybe greater than we expected is was this associate adoption of the experience. And then of course, as you heard me stay in the call, they're just such a big local supporter of the community. You know, they're from the community. They know people who come through the doors, almost every one of them. And so they're now so proud to show off the store. The customer then starts having the cell phone moment and starts calling people. So we're just seeing this great energy come out of it, frankly, um, all the way, all the way through to a new music selection. Um, so it's been really a top to bottom, you know, front to back door, uh, reimagination of the experience. And so as we look forward to the second portion of your question, um, very much a part of our remodel plans. I mean, there's no question. So as we enter and do deals, which you can imagine we're doing now for 2022 for both new stores and remodeled stores, You know, we're ordering stuff, we're relaying stores out, and we're figuring out how to roll it out. And it's an exciting time at City Trends. And so I think that's part of our kind of a momentum comment and confidence comment as we look forward, because I think we've got something pretty good here with this reimagined experience.

Got it. And then anything for holiday that we should note, planning this year as compared to last year in terms of how different it will be or what we should be thinking about?

You know, I think a great question about Q4, one of my favorite seasons. CityTrend started reinventing how they approached holiday, effective with Q4 of 19, and it represented a really good quarter. And as you know, we had a great quarter last year by really amping up the gift quotient within our stores. And this year is going to be bigger and better than ever. So I would underline the word gift quotient. You know, we are gifted, so to speak, this year for Q4, ready and geared up to have a great, joyous festive season. Our customer is extremely generous and giving in nature to their above average size family and loved ones. And we're just thrilled. We can't wait for it. So we're feeling good. But you'll see, you know, bright, shiny, fluffy customers. smell good gifts throughout the front of the store, and we'll make sure the associates are ready to serve with no doubt will be a nice influx of holiday shoppers.

Congratulations. Thank you.

Thanks, Dana. Have a great one.

Thank you. Ladies and gentlemen, once again, as a reminder, it is 1-4 if you have a question. Once again, that is 1-4. Our next question is from Jeremy Hamblin with Craig Hillen. Please go ahead. Your line is open.

Thanks, and I'll add my congratulations on the impressive performance. I wanted to see if we could get a little more granular on the gross margins. Pam, you noted about 350 basis points of improvement versus 2019 levels. I was hoping that you could put some context around that. the component parts in breaking down your product margin improvement, occupancy leverage, and then maybe offset by how freight compared in Q2 versus 2019. Sure.

Hi, Jeremy, and thank you for your comments. So we don't include occupancy in our gross margin number that we're reporting. So the main drivers of the benefit here were the initial markup, the markdowns, and a little bit of shrink offset by the freight headwinds that we've talked about. And so when I look at the majority of that, I think about the lower inventory levels, which are driving lower markdowns and a lower shrink number. But certainly we're seeing good initial markups. as we continue to increase our AUR from just having better trends, as David mentioned, better product mix overall, and seeing that the selling rate go up. So I think overall, those are the main components of the gross profit increase.

Okay. And then I'm hoping that you might be able to provide a little more granularity around, you know, recent trends in terms of whether or not you've seen a positive impact since the child tax credit advance payment hit in mid-July. You know, have you seen a recent improvement in trends over the last, let's call it four weeks? Any additional color that you might be able to share on that?

Sure. I think, you know, in the days, you know, immediately following the first CTC in July, we did see an uptick. But what we also saw during that time period was a later back to school. And so when you dissect that, the additional, you know, food stamps, dollars, the CTC and The optimized product mix notwithstanding, it's hard to figure out what is what in that. So what I will say, it wasn't as material as I think some of the other stimulus programs have been, but we certainly did see some uptick, but hard to dissect exactly what that was worth.

Right, and I think the increased SNAP benefits doesn't start until October 1, so that could be interesting in development, too. I also wanted to understand some of the regional performance. I think a lot of the growth towards 1,000 units is going to come in less developed markets, whether it's California or particularly in the Northeast as well, where it seems like there's some tremendous opportunity. I know there's previously been a little skepticism about, you know, how those markets might perform. So I was hoping that you could, you know, provide a little more color, David, on, you know, your markets in the Northeast or California, how the AUVs are performing overall relative to the, you know, your base.

Hey, Jeremy. Yeah, good. Thank you. Good question. So First off, from a new store growth perspective, we are going to, in the foreseeable future, let's call that the next 18 months, be focused on both densifying current markets as well as entering very sparsely or not yet populated by the city-trend store markets. To your point, New Jersey, the boroughs of New York and so forth would be a sparsely one. And in California, we have about six stores that we can grow significantly But the next 18 months will be a mix of densifying and some new entries. In terms of the performance within those more, as you pointed out, densely populated, leaning more towards urban, closer rings to bigger city markets, we're working hard and fast on that. What I can share with you is our performance over the last couple of quarters has been fairly outsized through all of our geographies. But what's interesting is the California market, which I can cite better than New York since we don't have a lot of stores in New York, is they've come on really, really strong. And what's really encouraging about that is a lot of those stores are Latinx in nature. Those are Latinx-centric stores. And we've seen an incredible new customer capture in those stores. So I think it's one of those examples, Jeremy, where and I mentioned this when I first joined the company, there's an incredible brand awareness opportunity with City Trends. Even though we've been around for 75 years, 20 years, as the City Trends name plate, there's awareness abound out there to gain and market share to pick up. And we're seeing that happen right before our eyes in California. And I think what we're developing is a bit of a template to use as we enter the other fertile marketplaces throughout the U.S. And I'm excited about that. You know, we're undergoing some really neat learnings in the markets where we've launched a lab store, for example, and we're seeing the general market actually pick up a little bit around the lab store, which is kind of cool. And that, to me, is a sign of building awareness, which then influences traffic and conversion, and away we go. So some good things in the tea leaves there. Does that help?

Yeah, it sure does. And then the last one for me here is you noted your guidance puts you on track for AUVs and kind of that 1.7 million range, really very impressive. And that includes Q1 where you had some pretty extraordinary results. Obviously, we're not going to, or at least I don't think we're going to have the same type of stimulus money available in Q1 next year. You know, in terms of that $1.7 million AUV mark, would you expect at this point to see that grow in 2022 now that you're kind of hitting the three-year marks early in terms of your sales and profitability?

Good insights with your question. You know, look, I think we look at it this way, Jeremy, without referring to any specific 2022 detail, which we're not able to share at this rate. As we look at things today, we as a team say to ourselves, we've got to comp the comp, if you will. That's the number one job, right? The second thing is that we have really good indicators through surveys that we've done over the last couple of months that that suggests we've captured an extraordinary amount of new customers and a bunch of lapsed comebacks, people that are formerly attrited that have come back to the brand. And it's our job to maintain their loyalty and visitation rate and purchase rate to our stores and in our stores. So I think it comes down to keeping the relationship moving with those folks. It's been a really big focus of ours to make sure our store managers and our teams in the field are paying attention to the newbies that are coming through their doors or folks they hadn't seen in a while. And it's our job to keep them in the fold, right? So I think that's what we're really focused on is developing, as I mentioned in the talk today, this kind of purpose-led brand culture and drive to execute really, really well. Here's our belief. Our belief is if we continue to deliver improved and enhanced on-trend assortments at great values, those new customers and lapsed comeback customers will stay in the fold. And that's our job ultimately. So, you know, we'll continue to update you. And as I said, we'll bring forth some of the additional details at the January ICR conference. But for the time being, we're focused on building right assortments and rolling out that CTX experience in many, many markets through either the new store or a remodeled store. And we believe that will mean good things to continue a positive run rate in our average sales per store.

Thanks for the color. Best wishes.

Thanks, Jeremy. Have a great day.

Thanks, Jeremy. Thank you. Our next question is from the line of John Lawrence with Benchmark. Please go ahead. Your line is open.

Yeah, thank you. Congratulations, David. Thank you, John. Good to hear you. Yeah, thanks. Just a couple of questions and sort of bigger picture questions that some have previously asked. But can you go back? And when you started and came to City Trends, You looked at the assortment palette. You looked at all of the growth opportunities, and you devised and worked on this assortment that has really generated a lot of sell-through for a lot of vendors. Can you talk a little bit about how that process has changed? I mean, we've had the pandemic, but at the end results, at the end of the day, you mean a lot more to a lot more vendors than probably before your arrival. Can you talk about that process and what the pandemic has done to those relationships as you try to sort of convert new vendors onto the floor?

Great question, John, about our evolution of our assortment, which one could argue matters the most, right? Our job is to work back from the customer and deliver trends and assortments within all of our cities that resonate with them and and do it in a way that we continue to offer newness and freshness. So I would tell you the journey from last April to now has been really eye-opening for our team. So I'll give a shout-out to our BUY team. And Lisa and her team have really done an amazing job at not only strengthening relationships with current vendor partners, but also opening up many, many new ones. And it's been all about really figuring out Hey, I'm the, for example, mayor of the men's city. How can I understand my guy? What does that guy really want based on his size, his life stage, his age, adult, millennial, parent, non-parent, all of the above. And we really rounded out our sort of ecosystem of vendors that can serve all those different in my example in the men's world. And we've done that really in all of our cities in the box. And it's been great to watch. As you know, you got to stay on your toes and keep on moving and never rest on your laurels. And I think we have a humble and an action-oriented team that tests and learn their way to the right solutions for our customer. And that's what it's all about. So, you know, As I said in the call, thanking our vendor partners is something we do all the time. We wouldn't be here without them, and they've really rung the bell. And I think their business and our business has grown, and we're excited to see it grow in the months and years ahead.

Great. Thanks for that insight. And when you talk about the cities, how much difference, as you continue to acquire information and data about this customer, is a New Jersey store versus a California store in terms of assortment?

It's a good question, John, in terms of geographical differences. You know, today, I would tell you that the percentage of the box is very similar, and that makes the business a little easier to operate, and it works. It's been working, and we don't continue to We won't step off that pedal at all. However, I think the opportunity looking forward is to just continue to curate and figure out, to your point, the differences between a Newark, New Jersey customer and a Hawthorne outside of L.A. customer. And there will be differences, 100%. And that's where those, as I've showcased a little bit in our previous materials, that's where those three tranches of customers come into play. You know, is the store African-American centric? What percent of the box should be a little tweaked for them? Is the store a melting pot store? Same answer. How do we tweak that for a combo of Latinx and African-American customers? And then lastly, the Latinx-centric store, how do we dial it up for their tastes and preferences? So that's something that we're going to evolve to over time. As you know, we have lots of successful stores in each of those buckets that But, you know, our aim is to continue to make them more productive through the right product assortments, deliver their tastes and preferences.

Great. Thanks for the insight. Congrats and good luck.

Thanks, John. Have a great day.

Thank you. And there are no further questions on the phone lines. I'll pass it back to our speakers.

Thanks, everybody, for tuning in today. We'll see you at the next call. Stay safe and healthy. Bye-bye.

Thank you, ladies and gentlemen. That does conclude today's call. We thank you for your participation and ask that you please disconnect your lines. Have a good day.