Citi Trends, Inc.

Greetings and welcome to the CityTrends second quarter 2022 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. Wednesday, August 24th, 2022. I would now like to turn the conference over to Nitsamaki, Senior Associate. Please go ahead.

Thanks, Rita, and good morning, everyone. Thank you for joining us on CityTrend's second quarter 2022 earnings call. On our call today is our Chief Executive Officer, David McEwen, and Chief Financial Officer, Heather Ploutino. 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 performances. 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. Good morning, everyone. and thanks for joining us today on our second quarter fiscal 2022 earnings call. Before I provide an overview of our second quarter performance and the strategic direction we are taking the business in the near term as a result of the current challenging macro environment, it's important that we provide you with a high-level view of our customer base. After that, Heather Platino, our Chief Financial Officer, will then elaborate on our financial results and a few other items related to our outlook. To begin, let me be fully transparent. Our customers are facing one of the most challenging economic environments in history. Inflationary pressures across their household necessities, including rent, utilities, food, and gas, are outpacing their wage growth. Our lowest income household bracket those with an annual household income of $25,000 and below, accounting for approximately 50% of our customer base have been hardest hit from these extreme macro pressures. I have personally visited many neighborhoods and talked to many customers and associates to learn just how much pressure they are feeling. Even though tough times persist, what's most important to share is that our customers believe that our store experience is more engaging than ever, and our city crew delivers on our purpose each and every day by welcoming their existing and new customers like a friend, helping them show up for whatever comes their way. With this backdrop acknowledged, what we are clearly seeing is a decline in the number of discretionary shopping visits. But when they do visit CityTrend stores, our conversion rates are extremely strong, and have been consistent week to week since the beginning of the year. Plus, our average basket size is holding up nicely compared to last year's record stimulus-aided spending levels. Given these trends, we are confident that our customers remain loyal to the City Trends brand and our assortments for the entire family continue to resonate. Having said this, we are committed to doing better. and controlling what we can to meet the needs of the valued customer, which our model does quite well. Our buy team, in particular, is on their toes chasing extreme value trends across our six cities or categories. Hard at work, they have identified opportunities to capture more market share, particularly in our ladies and footwear cities, by adapting to changing consumer trends. Additionally, We continue to play offense by introducing new or expanded assortments that I had mentioned previously, including the continued rollout of our queue line, adding more everyday essentials to the mix, building a ladies' missy sizing assortment, and capitalizing on the strength of our casual men's business. Overall, we remain hyper-focused on driving healthy sales, managing inventories, and maximize our margin to improve our operating profit. On the expense side, our number one priority is to lower our SG&A expenses to align with a lower sales expectation. As the second quarter unfolded, we couldn't adjust expenses overnight, but we aggressively created a plan and have already taken action to right-size our expense structure and build efficiencies across our business functions assuming a lower sales base brought on by primarily macro conditions. Let me assure you, we are taking swift and aggressive actions on approximately $10 million in expense savings for the second half of 2022, or about 7% of total SG&A expense, including a 10% staff reduction. We wish the very best the associates impacted by this difficult decision and truly appreciate their contributions. Overall, we are controlling what we can control and we are on track to significantly reduce SG&A due leverage versus both 2021 and 2019 during the second half. Before I turn it over to Heather, I want to highlight a few metrics about our business during the second quarter and year-to-date. Comparable transactions versus the prior year sequentially improved 510 basis points from Q1 to Q2. Our average basket contracted only slightly by 5% against last year's outsized growth of 35% compared to Q2 of 2019. We maintained a high gross margin at 38.1% for the quarter. and 38.6% for the first half. Our inventory remained in excellent shape, with an average in-store dollar decline of 13% compared to 2019, and a 26% decline on a unit basis. We ended the quarter with no debt, $28 million in cash, and $103 million in liquidity. With that, I'll turn the call over to Heather our new CFO, who I am extremely pleased to have a member of our leadership team. She will discuss our second quarter results in detail, as well as our updated guidance for the balance of the year. Heather?