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Item 9A. Controls and Procedures

2021-04-14 compared with 2020-05-14 · 260 added, 366 removed, 401 unchanged (61% of the section changed)

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We carried out an evaluation under the supervision and with the participation of management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report pursuant to Rules 13a-15 and 15d-15 of the Exchange Act.

Based on that evaluation, the principal executive officer and the principal financial officer each concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information has been accumulated and communicated to our management, including the officers who certify our financial reports, as appropriate, to allow timely decisions regarding the required disclosures.

Our disclosure controls and procedures are designed to provide reasonable assurance that the controls and procedures will meet their objectives.

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Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended February 1, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

on page F-2 of this Report and “Report of Independent Registered Public Accounting Firm”

on page F-4 of this Report.

OTHER INFORMATION

On May 12, 2020, the Company entered into a Second Amendment to Credit Agreement and Waiver (the “Second Amendment”) among the Company, as Borrower, the Company’s wholly-owned subsidiary, Citi Trends Marketing Solutions, Inc., as Guarantor, and Bank of America, N.A., as Lender.

The Second Amendment amends that certain Credit Agreement, dated as of October 27, 2011, among the Company, the Guarantor and the Lender, as amended by that certain First Amendment to Credit Agreement dated as of August 18, 2015, (as amended, the “Credit Facility”) to, among other things, extend the maturity date (which had been set to expire August 18, 2020) to August 18, 2021, increase the pricing for the loans by 1.0% (which rate varies depending on availability under the Credit Facility), waive certain events of default that occurred on May 1, 2020 related to delivery of our audited financials and the related compliance certificate, and modify certain covenant and reporting terms.

The foregoing description of the Credit Facility, including the Second Amendment, is only a summary of, and does not purport to be a complete statement of, the Credit Facility and the rights and obligations of the parties thereunder, and is qualified in its entirety by reference to the full text of the Credit Facility, including the Second Amendment, which are filed as exhibits to this Report and incorporated herein by this reference.

There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

For the Report of Management on Internal Control over Financial Reporting and the report of our independent registered public accounting firm on Internal Control over Financial Reporting, see “Management’s Annual Report on Internal Control Over Financial Reporting” on page F-2 of this Report and “Report of Independent Registered Public Accounting Firm” on page F-5 of this Report.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

“Executive Officers,”

and “Section 16(a) Beneficial Ownership Reporting Compliance”

in our definitive proxy statement (to be filed hereafter) in connection with our 2020 Annual Meeting of Stockholders and possibly elsewhere in the proxy statement (or will be filed by amendment to this Report).

The information required by this Item with respect to our executive officers and directors, compliance by our directors, executive officers and certain beneficial owners of our common stock with Section 16(a) of the Exchange Act, the committees of our board of directors, our audit committee financial expert and our code of ethics is incorporated herein by reference to information under the captions entitled “Board of Directors and Committees of the Board of Directors,” “Executive Officers,” and “Delinquent Section 16(a) Reports” in our definitive proxy statement (to be filed hereafter) in connection with our 2021 Annual Meeting of Stockholders (or will be filed by amendment to this Report).

EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to information under the captions entitled “Executive Compensation,”

“Board of Directors and Committees of the Board of Directors”

and “Compensation Committee Report”

The information required by this Item is incorporated herein by reference to information under the captions entitled “Executive Compensation,” “Board of Directors and Committees of the Board of Directors” and “Compensation Committee Report” in our definitive proxy statement (to be filed hereafter) in connection with our 2021 Annual Meeting of Stockholders (or will be filed by amendment to this Report).

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item with respect to ownership of our common stock is incorporated herein by reference to the information under the caption entitled “Security Ownership of Certain Beneficial Owners and Management”

Equity Compensation Plan Information .

The following table represents those securities authorized for issuance as of February 1, 2020 under our existing equity compensation plans.

Number of securities

remaining available for

Number of securities to

Weighted average

future issuance under

be issued upon exercise

exercise price of

equity compensation

of outstanding options,

outstanding options,

plans (excluding

warrants and rights (1)

warrants and rights (2)

securities reflected in

Plan category

column (a)) (3) (c)

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

The Citi Trends, Inc.

2012 Incentive Plan (the “2012 Plan”) became effective in May 2012 as a successor to the 2005 Plan.

The 2012 Plan provides for the issuance of up to 1,600,000 shares of common stock, plus a number of additional shares (not to exceed 300,000) underlying awards outstanding under prior plans that later terminate or expire unexercised.

Such shares will be issued upon the exercise of stock options or as awards of nonvested restricted stock and other performance awards vest.

Does not include nonvested restricted stock grants issued under the 2012 Plan totaling 171,979 shares.

No options were outstanding as of February 1, 2020.

The weighted average exercise price is for options only and does not include nonvested restricted stock.

Consists of shares available for awards of options, restricted stock and other performance awards under the 2012 Plan.

The information required by this Item is incorporated herein by reference to the information under the captions entitled “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation – Equity Compensation Plan Information” in our definitive proxy statement (to be filed hereafter) in connection with our 2021 Annual Meeting of Stockholders (or will be filed by amendment to this Report).

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated herein by reference to the information under the captions entitled “Certain Relationships and Related Party Transactions”

and “Board of Directors and Committees of the Board of Directors”

The information required by this Item is incorporated herein by reference to the information under the captions entitled “Certain Relationships and Related Party Transactions” and “Board of Directors and Committees of the Board of Directors” in our definitive proxy statement (to be filed hereafter) in connection with our 2021 Annual Meeting of Stockholders (or will be filed by amendment to this Report).

PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is incorporated herein by reference to the information under the caption entitled “Ratification of Independent Registered Public Accounting Firm”

The information required by this Item is incorporated herein by reference to the information under the caption entitled “Ratification of Independent Registered Public Accounting Firm” in our definitive proxy statement (to be filed hereafter) in connection with our 2021 Annual Meeting of Stockholders (or will be filed by amendment to this Report).

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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Exhibit Index

Third Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2018)

Third Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2018)

Third Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2018)

Third Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 7, 2018)

Specimen certificate for shares of common stock, $.01 par value (incorporated by reference to Exhibit 4.1 to Amendment No.

2 to the Company’s Registration Statement on Form S-1 (File No.

333-123028) filed with the SEC on April 29, 2005)

Description of Registrant’s Securities

Credit Agreement, dated October 27, 2011 among Citi Trends, Inc., as Borrower, its wholly owned subsidiary, as Guarantor, and Bank of America, N.A., as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 29, 2011)

First Amendment to Credit Agreement, dated as of August 18, 2015, by and among Citi Trends, Inc., as Borrower, Citi Trends Marketing Solutions, Inc., as Guarantor, and Bank of America, N.A., as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 19, 2015)

Citi Trends, Inc.

Annual Incentive Bonus Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2009)

Description of Registrant’s Securities (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K filed with the SEC on May 14, 2020)

Second Amendment to Credit Agreement and Waiver, dated as of May 12, 2020, by and among Citi Trends, Inc., as Borrower, Citi Trends Marketing Solutions, Inc., as Guarantor, and Bank of America, N.A., as Lender (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K filed with the SEC on May 14, 2020)

Citi Trends, Inc.

2012 Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 28, 2012)

2012 Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 29, 2012 )

Form of Restricted Stock Award Agreement for Employees under the Citi Trends, Inc.

2012 Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 29, 2017)

2012 Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 30, 2017 )

Form of Restricted Stock Award Agreement for Directors under the Citi Trends, Inc.

2012 Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 28, 2012)

2012 Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 29, 2012)

Form of Restricted Stock Unit Award Agreement for Employees under the Citi Trends, Inc.

2012 Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 29, 2017)

2012 Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 30, 2017)

Amendment to the Citi Trends, Inc.

2012 Incentive Plan, effective as of February 7, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 29, 2017)

2012 Incentive Plan, effective as of February 7, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 30, 2017)

Form of Restricted Stock Unit Award Agreement for Employees under the Citi Trends, Inc.

2012 Incentive Plan (Performance Based Vesting –

Average Stock Price) (incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K filed with the SEC on April 17, 2019)

2012 Incentive Plan (Performance Based Vesting – Average Stock Price) (incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K filed with the SEC on April 17, 2019)

Form of Restricted Stock Unit Award Agreement for Employees under the Citi Trends, Inc.

2012 Incentive Plan (Performance Based Vesting –

EBITDA Target) (incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed with the SEC on April 17, 2019)

Employment Non-Compete, Non-Solicit and Confidentiality Agreement between the Company and Stuart C.

Clifford dated March 15, 2018 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2018)

Severance Agreement between the Company and Stuart C.

Clifford dated March 15, 2018 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2018)

2012 Incentive Plan (Performance Based Vesting – EBITDA Target) (incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed with the SEC on April 17, 2019)

Form of Restricted Stock Unit Award Agreement for Employees under the Citi Trends, Inc.

2012 Incentive Plan (Performance Based Vesting – EBIT Target) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on June 11, 2020)

Employment Non-Compete, Non-Solicit and Confidentiality Agreement between the Company and Ivy D.

Council dated March 26, 2018 (incorporated by reference to Exhibit 10.5 to Amendment No.

1 to the Company’s Quarterly Report on Form 10-Q/A filed with the SEC on March 15, 2019)

Severance Agreement between the Company and Ivy D.

Council dated March 26, 2018 (incorporated by reference to Exhibit 10.6 to Amendment No.

1 to the Company’s Quarterly Report on Form 10-Q/A filed with the SEC on March 15, 2019)

Employment Non-Compete, Non-Solicit and Confidentiality Agreement between the Company and James A.

Dunn dated March 27, 2018 (incorporated by reference to Exhibit 10.7 to Amendment No.

1 to the Company’s Quarterly Report on Form 10-Q/A filed with the SEC on March 15, 2019)

Severance Agreement between the Company and James A.

Dunn dated March 27, 2018 (incorporated by reference to Exhibit 10.8 to Amendment No.

1 to the Company’s Quarterly Report on Form 10-Q/A filed with the SEC on March 15, 2019)

Employment Non-Compete, Non-Solicit and Confidentiality Agreement between the Company and Christina Short dated April 6, 2018 (incorporated by reference to Exhibit 10.13 to Amendment No.

1 to the Company’s Quarterly Report on Form 10-Q/A filed with the SEC on March 15, 2019)

Severance Agreement between the Company and Christina Short dated April 6, 2018 (incorporated by reference to Exhibit 10.14 to Amendment No.

1 to the Company’s Quarterly Report on Form 10-Q/A filed with the SEC on March 15, 2019)

Separation Agreement between the Company and Bruce D.

Smith dated June 11, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 11, 2019)

Employment Non-Compete, Non-Solicit and Confidentiality Agreement between the Company and Lisa Powell dated August 16, 2019

Severance Agreement between the Company and Lisa Powell dated August 16, 2019

Employment Non-Compete, Non-Solicit and Confidentiality Agreement between the Company and Charles Hynes dated October 25, 2019

Severance Agreement between the Company and Charles Hynes dated October 25, 2019

1 to the Company’s Quarterly Report on Form 10-Q/A filed with the SEC on March 15, 2019)

Employment Non-Compete, Non-Solicit and Confidentiality Agreement between the Company and Lisa Powell dated August 16, 2019 (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K filed with the SEC on May 14, 2020)

Severance Agreement between the Company and Lisa Powell dated August 16, 2019 (incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed with the SEC on May 14, 2020)

Employment Non-Compete, Non-Solicit and Confidentiality Agreement between the Company and Charles Hynes dated October 25, 2019 (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed with the SEC on May 14, 2020)

Severance Agreement between the Company and Charles Hynes dated October 25, 2019 (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K filed with the SEC on May 14, 2020)

Employment Non-Compete, Non-Solicit and Confidentiality Agreement between the Company and Jason Moschner dated January 13, 2020

Severance Agreement between the Company and Jason Moschner dated January 13, 2020

Employment Non-Compete, Non-Solicit and Confidentiality Agreement between the Company and David N.

Makuen dated February 17, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 21, 2020)

Severance Agreement between the Company and David N.

Makuen dated February 17, 2020 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 21, 2020)

Agreement by and among the Company, Macellum SPV III, LP, Macellum Management, LP, Macellum Advisors GP, LLC, and Jonathan Duskin dated April 11, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 11, 2019)

Makuen dated February 17, 2020 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 21, 2020)

Employment Non-Compete, Non-Solicit and Confidentiality Agreement between the Company and Pamela J.

Edwards dated October 26, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 28, 2020)

Severance Agreement between the Company and Pamela J.

Edwards dated October 26, 2020 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 28, 2020)

Subsidiary of the Registrant

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The following financial statements from Citi Trends, Inc.’s Annual Report on Form 10-K for the year ended February 1, 2020, formatted in XBRL (eXtensible Business Reporting Language):

(i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Stockholders’

Equity and (v) Notes to Consolidated Financial Statements.

Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K

Inline XBRL for the cover page of this Annual Report on Form 10-K, included in the Exhibit 101 Inline XBRL Document Set

Filed herewith

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CITI TRENDS, INC.

April 14, 2021

Chief Executive Officer

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Chief Executive Officer

April 14, 2021

(Principal Executive Officer) and Director

Vice President of Finance

(Principal Financial and Accounting Officer)

/s/ Pamela J.

Chief Financial Officer

April 14, 2021

(Principal Financial Officer)

Vice President, Finance

April 14, 2021

(Principal Accounting Officer)

Executive Chairman of the Board of Directors

April 14, 2021

/s/ Jonathan Duskin

April 14, 2021

Jonathan Duskin

/s/ Laurens M.

April 14, 2021

/s/ Margaret L.

April 14, 2021

/s/ Kenneth D.

April 14, 2021

Citi Trends, Inc.

Index to Consolidated Financial Statements

Management’s Annual Report on Internal Control Over Financial Reporting

Reports of Independent Registered Public Accounting Firm

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Consolidated Statements of Cash Flows

Consolidated Statements of Stockholders’

Consolidated Statements of Stockholders’ Equity

Notes to Consolidated Financial Statements

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended.

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● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are made only in accordance with authorizations of management and directors of the Company;

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of February 1, 2020, based on the criteria described in Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on this assessment, our management concluded that our internal control over financial reporting was effective based on those criteria as of February 1, 2020.

Our independent registered public accounting firm, KPMG LLP, audited the effectiveness of our internal control over financial reporting as of February 1, 2020, as stated in their report which is included herein.

Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of January 30, 2021, based on the criteria described in Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on this assessment, our management concluded that our internal control over financial reporting was effective based on those criteria as of January 30, 2021.

Our independent registered public accounting firm, KPMG LLP, audited the effectiveness of our internal control over financial reporting as of January 30, 2021, as stated in their report which is included herein.

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Citi Trends, Inc.

and subsidiary (the Company) as of February 1, 2020 and February 2, 2019, the related consolidated statements of operations, stockholders’

equity, and cash flows for each of the years ended February 1, 2020, February 2, 2019, and February 3, 2018, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February 1, 2020 and February 2, 2019, and the results of its operations and its cash flows for each of the years ended February 1, 2020, February 2, 2019, and February 3, 2018, in conformity with U.S.

and subsidiary (the Company) as of January 30, 2021 and February 1, 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years ended January 30, 2021, February 1, 2020, and February 2, 2019, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 30, 2021 and February 1, 2020, and the results of its operations and its cash flows for each of the years ended January 30, 2021, February 1, 2020, and February 2, 2019, in conformity with U.S.

generally accepted accounting principles.

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated May 14, 2020 an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 14, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2(q) to the consolidated financial statements, the Company has changed its method of accounting for leases as of February 3, 2019 due to the adoption of Accounting Standards Update No.

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of February 3, 2019 due to the adoption of Accounting Standards Update No.

2016-02, Leases (Topic 842), as amended.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2002.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Identification and recording of operating lease renewals and lease modifications

As discussed in Note 8 to the consolidated financial statements, the Company’s operating lease right of use assets and operating lease liabilities as of January 30, 2021 totaled $179,673,000 and $192,811,000, respectively.

The Company routinely exercises lease renewals and negotiates modifications to existing leases.

The volume of lease modifications increased in fiscal 2020 as a result of periods of store closures during the pandemic.

The typical Company store lease has a five-year lease term with options to extend the lease term for one or more five-year periods.

We identified the evaluation of the Company’s identification and recording of operating lease renewals and lease modifications as a critical audit matter.

A higher degree of auditor judgment was required to assess the accounting for these lease modifications due to the extent of management judgment and complexity of the process.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s lease process, including controls related to the identification and recording of operating lease renewals and lease modifications.

We obtained underlying documentation for lease renewals and lease modifications during the year and compared to those recorded in the accounting system.

For a selection of lease renewals and lease modifications during the year, we (1) inspected the approval of the lease renewal or lease modification,

(2) compared the relevant terms in the underlying renewed or modified lease contract to the information in the Company’s lease accounting system, and (3) recalculated the Company's operating lease right-of-use asset and operating lease liability for the renewed or modified lease based on the information in the Company’s lease accounting system.

We obtained a rollforward of lease activity subsequent to the fiscal year-end and, for a selection of lease modifications recorded in that period, we inspected underlying documentation and evaluated the timing of recognition.

We have served as the Company’s auditor since 2002.

Jacksonville, Florida

April 14, 2021

Report of Independent Registered Public Accounting Firm

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We have audited Citi Trends, Inc.

and subsidiary’s (the Company) internal control over financial reporting as of February 1, 2020, based on criteria established in Internal Control –

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 1, 2020, based on criteria established in Internal Control –

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

equity, and cash flows for each of the years ended February 1, 2020, February 2, 2019, and February 3, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated May 14, 2020 expressed an unqualified opinion on those consolidated financial statements.

and subsidiary’s (the Company) internal control over financial reporting as of January 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 30, 2021 and February 1, 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years ended January 30, 2021, February 1, 2020, and February 2, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated April 14 , 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Jacksonville, Florida

April 14, 2021

Citi Trends, Inc.

Consolidated Balance Sheets

February 1, 2020 and February 2, 2019

(in thousands, except share data)

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Long-term investment securities

Deferred tax asset

Liabilities and Stockholders’

Deferred income taxes

Liabilities and Stockholders’ Equity

Current liabilities:

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Total liabilities

Stockholders’

Stockholders’ equity:

Common stock, $ 0.01 par value.

Authorized 32,000,000 shares;

15,907,666 shares issued as of February 1, 2020 and 15,827,713 shares issued as of February 2, 2019;

10,834,134 shares outstanding as of February 1, 2020 and 12,158,237 shares outstanding as of February 2, 2019

15,981,394 shares issued as of January 30, 2021 and 15,907,666 shares issued as of February 1, 2020;

9,876,901 shares outstanding as of January 30, 2021 and 10,834,134 shares outstanding as of February 1, 2020

Paid in capital

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Treasury stock, at cost;

5,073,532 shares held as of February 1, 2020 and 3,669,476 shares held as of February 2, 2019

Total stockholders’

6,104,493 shares held as of January 30, 2021 and 5,073,532 shares held as of February 1, 2020

Total stockholders’ equity

Commitments and contingencies (Note 7)

Total liabilities and stockholders’

Total liabilities and stockholders’ equity

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Operations

Years Ended February 1, 2020, February 2, 2019, and February 3, 2018

(in thousands, except per share data)

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Consolidated Statements of Cash Flows

Years Ended February 1, 2020, February 2, 2019, and February 3, 2018

(in thousands)

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Insurance proceeds related to investing activities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Financing activities:

Borrowings under revolving credit facility

Repayments of revolving credit facility

Cash used to settle withholding taxes on the vesting of nonvested restricted stock

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Citi Trends, Inc.

Consolidated Statements of Stockholders’

Years Ended February 1, 2020, February 2, 2019, and February 3, 2018

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

Treasury Stock

Balances —January 28, 2017

Vesting of nonvested shares and restricted stock units

Issuance of nonvested shares to employees and directors under incentive plan

Forfeiture of nonvested shares by employees and directors

Balances — February 3, 2018

Vesting of nonvested shares

Issuance of nonvested shares under incentive plan

Stock-based compensation expense

Net share settlement of nonvested shares

Net share settlement of nonvested shares and restricted stock units

Repurchase of common stock

Dividends paid to stockholders

Balances —February 3, 2018

Dividends paid to stockholders ( $ 0.08 per common share)

Balances — February 2, 2019

Adoption of lease accounting standard

Vesting of nonvested shares

Issuance of nonvested shares to employees and directors under incentive plan

Issuance of nonvested shares under incentive plan

Forfeiture of nonvested shares

Stock-based compensation expense

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Repurchase of common stock

Dividends paid to stockholders

Balances —February 2, 2019

Adoption of lease accounting standard (See Note 10)

Dividends paid to stockholders ( $ 0.08 per common share)

Balances — February 1, 2020

Vesting of nonvested restricted stock units

Issuance of nonvested shares to employees and directors under incentive plan

Forfeiture of nonvested shares by employees and directors

Issuance of nonvested shares under incentive plan

Forfeiture of nonvested shares

Stock-based compensation expense

Net share settlement of nonvested shares and restricted stock units

Net share settlement of nonvested shares

Repurchase of common stock

Dividends paid to stockholders

Balances—February 1, 2020

Dividends paid to stockholders ( $ 0.08 per common share)

Balances — January 30, 2021

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

February 1, 2020, February 2, 2019 and February 3, 2018

Organization and Business

Citi Trends, Inc.

and its subsidiary (the “Company”) operate as a value-priced retailer of fashion apparel, accessories and home goods for the entire family.

As of February 1, 2020, the Company operated 571 stores in 33 states.

and its subsidiary (the “Company”) is a growing specialty value retailer of apparel, accessories and home trends primarily for African American and Latinx families.

As of January 30, 2021, the Company operated 585 stores in urban, suburban and rural markets in 33 states.

In March 2020, the World Health Organization declared the spread of the coronavirus (“COVID-19”) a global pandemic.

As a result, the Company temporarily closed all of its retail store locations and distribution centers effective March 20, 2020.

At the end of April 2020, the Company started to reopen stores in select states in accordance with government guidelines.

As of July 18, 2020, the Company safely reopened all of its stores.

The Company took numerous actions beginning in the first quarter of fiscal 2020 in light of the uncertainties resulting from the pandemic, including:

(i) the drawdown of $ 43.7 million in principal amount under the revolving credit facility on March 20, 2020, which was fully repaid on September 11, 2020;

(ii) an amendment to the revolving credit facility to extend the term to August 2021;

(iii) temporary furloughs of substantially all store and distribution center personnel and a significant portion of the corporate staff, with employee benefits for eligible employees continued through the temporary furloughs;

(iv) temporary tiered salary reductions for management level corporate employees and a reduction to the cash portion of non-employee director fees;

(v) extensions of payment terms with vendors and suppliers;

(vi) the suspension of share repurchases;

(vii) negotiations of rent concessions with landlords, some of which are ongoing;

and (viii) a substantial reduction in operating expenses, store occupancy costs, capital expenditures and other costs.

The COVID-19 pandemic has resulted in a period of disruption, including the temporary closure of stores and limited store operating hours, reduced customer traffic and consumer spending, and delays in the manufacturing and shipping of products.

During this period, the Company continues to prioritize the health of its associates, customers and communities it serves.

The impacts of the pandemic have had, and may continue to have, an adverse impact on the Company’s financial condition, results of operations and liquidity.

The Company expects continued uncertainty in its business and the global economy due to the duration and intensity of the COVID-19 pandemic, the duration and extent of economic stimulus, timing and effectiveness of vaccines, and volatility in employment trends and consumer confidence.

Summary of Significant Accounting Policies

(a) Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary.

All intercompany transactions and balances have been eliminated in consolidation.

(b) Fiscal Year

The Company’s fiscal year ends on the Saturday closest to January 31 of each year.

The years ended February 1, 2020, February 2, 2019 and February 3, 2018 are referred to as fiscal 2019, fiscal 2018 and fiscal 2017, respectively, in the accompanying consolidated financial statements.

Fiscal years 2019 and 2018 are each comprised of 52 weeks, while fiscal 2017 is comprised of 53 weeks.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) requires management to make estimates and use assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company’s fiscal year ends on the Saturday closest to January 31 of each year.

The years ended January 30, 2021, February 1, 2020 and February 2, 2019 are referred to as fiscal 2020, fiscal 2019 and fiscal 2018, respectively, in the accompanying consolidated financial statements.

Fiscal 2020, 2019 and 2018 are all comprised of 52 weeks.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.

Actual results could differ from those estimates.

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Appropriate adjustments, if any, to the estimates used are made prospectively based on such periodic evaluations.

(d) Cash and Cash Equivalents/Concentration of Credit Risk

Cash and Cash Equivalents/Concentration of Credit Risk

For purposes of the consolidated balance sheets and consolidated statements of cash flows, the Company considers all highly liquid investments with maturities at date of purchase of three months or less to be cash equivalents.

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The Company maintains cash accounts that exceed federally insured limits.

(e) Inventory

Inventory is stated at the lower of cost (first-in, first-out basis) or net realizable value as determined by the retail inventory method for store inventory and the average cost method for distribution center inventory.

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Merchandise markdowns are reflected in the inventory valuation when the retail price of an item is lowered in the stores.

Inventory is recorded net of an allowance for shrinkage based on the most recent physical inventory counts.

(f) Property and Equipment, net

Inventory is recorded net of an allowance for shrinkage based on the most recent physical inventory counts and other assumptions for shrinkage activity.

Property and Equipment, net

Property and equipment, net are stated at cost less accumulated depreciation.

Depreciation is computed using the straight-line method over the lesser of the estimated useful lives (primarily three to five years for computer equipment and furniture, fixtures and

equipment, five years for leasehold improvements, seven years for major purchased software systems, and fifteen to twenty years for buildings and building improvements) of the related assets or the relevant lease term.

(g) Impairment of Long-Lived Assets

Depreciation is computed using the straight-line method over the lesser of the estimated useful lives (primarily three to five years for computer equipment and furniture, fixtures and equipment, five years for leasehold improvements, seven years for major purchased software systems, and fifteen to twenty years for buildings and building improvements) of the related assets or the relevant lease term.

Impairment of Long-Lived Assets

If facts and circumstances indicate that a long-lived asset may be impaired, the carrying value is reviewed.

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Non-cash impairment expense related primarily to leasehold improvements and fixtures and equipment at underperforming stores totaled $ 0.3 million, $ 0.5 million and $ 1.3 million in fiscal 2020, 2019 and 2018, respectively.

(h) Insurance Liabilities

The Company is largely self-insured for workers’

compensation costs and employee medical claims.

The Company’s self-insured retention or deductible, as applicable, for each claim involving workers’

compensation and employee medical is limited to $250,000 and $100,000, respectively.

Insurance Liabilities

The Company is largely self-insured for workers’ compensation costs, general liability claims and employee medical claims.

The Company’s self-insured retention or deductible, as applicable, for each claim involving workers’ compensation and employee medical is limited to $ 250,000 and $ 100,000 , respectively.

Self-insurance liabilities are based on the total estimated costs of claims filed and estimates of claims incurred but not reported, less amounts paid against such claims.

Current and historical claims data, together with information from actuarial studies, are used in developing the estimates.

The insurance liabilities that are recorded are primarily influenced by the frequency and severity of claims and the Company’s growth.

If the underlying facts and circumstances related to the claims change, then the Company may be required to record more or less expense which could be material in relation to results of operations.

(i) Stock-Based Compensation

Stock-Based Compensation

The Company recognizes compensation expense associated with all nonvested restricted stock and restricted stock units based on an estimate of the grant-date fair value of each equity award.

Grants of time-based and earnings target-based nonvested restricted stock are valued based on the closing stock price on the grant date, while grants of stock price performance-based restricted stock units are valued at an estimate of fair market value using a lattice model.

See Note 8 for additional information on the Company’s stock-based compensation plans.

(j) Revenue Recognition

The Company’s primary source of revenue is derived from the sale of clothing and accessories to its customers with the Company’s performance obligations satisfied at the point of sale when the customer pays for their purchase and receives the merchandise.

See Note 6 for additional information on the Company’s stock-based compensation plans.

Revenue Recognition

Sales taxes collected by the Company from customers are excluded from revenue.

Revenue from layaway sales is recognized at the point in time when the merchandise is paid for and control of the goods is transferred to the customer, thereby satisfying the Company’s performance obligation.

The Company defers revenue from the sale of gift cards and recognizes the associated revenue upon the redemption of the cards by customers to purchase merchandise.

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Expected refunds to customers are recorded based on estimated margin using historical return information.

The refund liability for merchandise returns is included in the line item “Accrued expenses”

on the consolidated balance sheet and totaled $0.3 million as of both February 1, 2020 and February 2, 2019.

The corresponding asset for the recoverable cost of expected refunds is included in “Prepaid and other current assets”

and totaled $0.1 million and $0.2 million as of February 1, 2020 and February 2, 2019 respectively.

The refund liability for merchandise returns is included in the line item “Accrued expenses” on the consolidated balance sheet and totaled $ 0.3 million as of both January 30, 2021 and February 1, 2020.

The corresponding asset for the recoverable cost of expected refunds is included in “Prepaid and other current assets” and totaled $ 0.1 million as of both January 30, 2021 and February 1, 2020.

Disaggregation of Revenue

The Company’s retail operations represent a single operating segment based on the way the Company manages its business.

In the following table, the Company’s revenue is disaggregated by major product line.

The percentage of net sales related to each classification of its merchandise assortment for fiscal 2019, 2018 and 2017 was as follows:

Percentage of Net Sales

Children’s

Ladies’

(k) Cost of Sales

In the following table, the Company’s revenue is disaggregated by “Citi” or major category.

The following table provides the percentage of net sales for each Citi within the merchandise assortment:

Accessories & Beauty

Home & Lifestyle

Cost of Sales

Cost of sales includes the cost of inventory sold during the period and transportation costs, including inbound freight related to inventory sold and freight from the distribution centers to the stores, net of discounts and allowances.

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Distribution center costs (exclusive of depreciation) for fiscal 2020, 2019 and 2018 were $ 20.3 million, $ 20.8 million and $ 17.6 million, respectively.

(l) Earnings per Share

Earnings per Share

Basic earnings per common share amounts are calculated using the weighted average number of common shares outstanding for the period.

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During loss periods, diluted loss per share amounts are based on the weighted average number of common shares outstanding because the inclusion of common stock equivalents would be antidilutive.

The following table provides a reconciliation of the number of average common shares outstanding used to calculate basic earnings per share to the number of common shares and common stock equivalents outstanding used in calculating diluted earnings per share for fiscal 2019, 2018 and 2017:

Weighted average number of common shares outstanding

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The Company includes as assumed proceeds the amount of compensation costs attributed to future services and not yet recognized.

For fiscal 2019, 2018 and 2017, respectively, there were 128,000, 124,000 and 125,000 shares of nonvested restricted stock, respectively, excluded from the calculation of diluted earnings per share because of antidilution.

(m) Advertising

For fiscal 2020, 2019 and 2018, respectively, there were 131,000 , 128,000 and 124,000 shares of nonvested restricted stock excluded from the calculation of diluted earnings per share because of antidilution.

The Company expenses advertising as incurred.

Advertising expense for fiscal 2020, 2019 and 2018 was $ 1.6 million, $ 1.8 million and $ 1.7 million, respectively.

(n) Operating Leases

Operating Leases

The Company leases all of its retail store locations and certain office space and equipment.

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In determining the present value of lease payments, the Company uses an incremental borrowing rate that approximates the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term.

The Company’s lessors do not provide an implicit rate, nor is one readily available, therefore the incremental borrowing rate is determined based on a buildup approach which utilizes rates and terms from the Company’s existing borrowing facility with adjustments to bridge for impacts to the rate due to differences in collateral, terms and payments.

The Company records operating lease cost over the estimated term of the lease, which includes options to extend lease terms that are reasonably certain of being exercised, starting when possession of the property is taken from the landlord.

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In addition, certain leases provide for contingent rents that are not measurable at inception.

These contingent rents

are primarily based on a percentage of net sales that are in excess of a predetermined level.

These contingent rents are primarily based on a percentage of net sales that are in excess of a predetermined level.

These amounts are excluded from minimum rent and are included in the determination of total rent expense when it is probable that the expense has been incurred and the amount can be reasonably estimated.

If an operating lease asset is impaired, the remaining operating lease asset will be amortized on a straight-line basis over the remaining lease term.

(o) Income Taxes

Income taxes are accounted for under the asset and liability method.

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The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(p) Business Reporting Segments

The Company is a value-priced retailer of fashion apparel, accessories and home goods for the entire family.

Business Operating Segment

The Company is a specialty value retailer of fashion apparel, accessories and home goods for the entire family.

The retail operations represent a single operating segment based on the way the Company manages its business.

Operating decisions and resource allocation decisions are made at the Company level in order to maintain a consistent retail store presentation.

The Company’s retail stores sell similar products, use similar processes to sell those products, and sell their products to similar classes of customers.

All sales and assets are located within the United States.

(q) Recent Accounting Pronouncements

Recent Accounting Pronouncements

Changes to U.S.

GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (ASC).

The Company considers the applicability and impact of all ASUs.

ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on the Company’s consolidated financial statements.

Recently Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842), as amended.

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Operating lease ROU assets and lease liabilities are recognized based on the present value of lease payments over the lease term.

The present value of lease payments was determined using the Company’s incremental borrowing rate.

Our lessors do not provide an implicit rate, nor is one readily available, therefore we determined an incremental borrowing rate based on a buildup approach which utilizes rates and terms from the Company’s existing borrowing facility with adjustments to bridge for impacts to the rate due to differences in collateral, terms and payments.

The present value of lease payments was determined using the Company’s incremental borrowing rate.

Adoption of the new standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities of approximately $ 133.6 million and $ 141.0 million, respectively, as of February 3, 2019.

The difference between the lease assets and lease liabilities was primarily due to reclassification of lease incentives, as well as impairment of operating lease right-of-use assets for stores previously impaired as of the effective date.

Lease impairment, net of the related deferred taxes, totaled approximately $2.1 million and is reflected as an adjustment to retained earnings at the transition date.

In May 2014, the FASB issued ASU No.

2014-09, Revenue from Contracts with Customers, to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S.

GAAP and International Financial Reporting Standards.

The Company adopted ASU 2014-09 on February 4, 2018 using the modified retrospective approach.

The Company’s primary source of revenue is derived from the sale of clothing and accessories to its customers with the Company’s performance obligations satisfied immediately when the customer pays for their purchase and receives the merchandise.

As such, adoption of the new standard did not have a material impact on the Company’s consolidated balance sheet, results of operations or cash flows.

Additionally, the adoption of the ASU did not result in significant changes to the Company’s business processes, controls or systems.

Lease impairment, net of the related deferred taxes, totaled approximately $ 2.1 million as of February 3, 2019 and is reflected as an adjustment to retained earnings at the transition date.

Property and Equipment, net

The components of property and equipment as of February 1, 2020 and February 2, 2019 are as follows (in thousands):

Property and equipment, net, consists of the following (in thousands):

Leasehold improvements

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Accumulated depreciation

(4) Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market at the measurement date.

Fair value is established according to a hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Unadjusted quoted prices in active markets that are accessible at the measurement date for assets or liabilities.

The fair value hierarchy gives the highest priority to Level 1 inputs.

Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Unobservable inputs are used when little or no market data is available.

Level 3 inputs are given the lowest priority in the fair value hierarchy.

As of February 1, 2020, the Company’s investment securities are classified as held-to-maturity since the Company has the intent and ability to hold the investments to maturity.

Such securities are carried at amortized cost plus accrued interest and consist of the following (in thousands):

Obligations of the U.S.

Treasury and U.S.

government agencies (Level 1)

Bank certificates of deposit (Level 2)

Obligations of the U.S.

Treasury and U.S.

government agencies (Level 1)

Bank certificates of deposit (Level 2)

The amortized cost and fair market value of investment securities as of February 1, 2020 by contractual maturity are as follows (in thousands):

Mature in one year or less

Mature after one year through five years

As of February 2, 2019, the Company’s investment securities were classified as held-to-maturity and consisted of the following (in thousands):

Obligations of the U.S.

Treasury and U.S.

government agencies (Level 1)

Obligations of states and municipalities (Level 2)

Bank certificates of deposit (Level 2)

Obligations of the U.S.

Treasury (Level 1)

Bank certificates of deposit (Level 2)

The amortized cost and fair market value of investment securities as of February 2, 2019 by contractual maturity were as follows (in thousands):

Mature in one year or less

Mature after one year through five years

There were no changes among the levels in the two fiscal years ended February 1, 2020.

Fair market values of Level 2 investments are determined by management with the assistance of a third party pricing service.

Since quoted prices in active markets for identical assets are not available, these prices are determined by the third party pricing service using observable market information such as quotes from less active markets and quoted prices of similar securities.

Revolving Line of Credit

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The facility was amended on August 18, 2015, extending the maturity date to August 18, 2020.

The facility was amended again on May 12, 2020, extending the maturity date to August 18, 2021.

The facility provides a $ 50 million credit commitment and a $ 25 million uncommitted “accordion” feature that under certain circumstances could allow the Company to increase the size of the facility to $ 75 million.

The facility is secured by the Company’s inventory, accounts receivable and related assets, but not its real estate, fixtures and equipment, and it contains one financial covenant, a fixed charge coverage ratio, which is applicable and tested only in certain circumstances.

The facility has an unused commitment fee of 0.25 % and permits the payment of cash dividends subject to certain limitations.

Borrowings under the facility bear interest (a) for Eurodollar Loans, at a rate equal to LIBOR plus either 2.25 % or 2.5 % , or (b) for Base Rate Loans, at a rate equal to the highest of (i) the prime rate, (ii) the Federal Funds Rate plus 0.5 % , or (iii) LIBOR for a period of one month plus 1.0 % , plus, in each case either 1.25 % or 1.5 % , based in any such case on the average daily availability for borrowings under the facility.

On March 20, 2020, in response to the COVID-19 pandemic, the Company borrowed $ 43.7 million on the credit facility to enhance its liquidity position.

On September 11, 2020, the Company repaid the full amount outstanding under the credit facility.

Such borrowings accrued interest ranging from 1.625 % to 3.5 % .

On May 12, 2020, the Company entered into a Second Amendment to Credit Agreement and Waiver (the “Second Amendment”) with Bank of America and the Company’s wholly-owned subsidiary, Citi Trends Marketing Solutions, Inc., as guarantor (the “Second Amendment”) to amend the credit facility (as amended, the “Revolving Credit Facility”) as described below.

The Revolving Credit Facility provides a $50 million credit commitment and a $25 million uncommitted “accordion”

feature that under certain circumstances could allow the Company to increase the size of the facility to $75 million.

The Revolving Credit Facility is secured by the Company’s inventory, accounts receivable and related assets, but not its real estate, fixtures and equipment, and it contains one financial covenant, a fixed charge coverage ratio, which is applicable and tested only in certain circumstances.

The facility has an unused commitment fee of 0.25% and permits the payment of cash dividends subject to certain limitations, including a requirement that there were no borrowings outstanding in the 30 days prior to the dividend payment and no borrowings are expected in the 30 days subsequent to the payment.

The Second Amendment amends the Revolving Credit Facility to, among other things, extend the maturity date (which had been set to expire August 18, 2020) to August 18, 2021, increase the pricing for the loans and modify certain covenant and reporting terms.

Following the effective date of the Second Amendment, borrowings under the Revolving Credit Facility will bear interest (a) for Eurodollar Loans, at a rate equal to LIBOR plus either 2.25% or 2.5%, or (b) for Base Rate Loans, at a rate equal to the highest of (i) the prime rate, (ii) the Federal Funds Rate plus 0.5%, or (iii) LIBOR for a period of one month plus 1.0%, plus, in each case either 1.25% or 1.5%, based in any such case on the average daily availability for borrowings under the facility.

(6) Income Taxes

Income tax expense for fiscal 2019, 2018 and 2017 consists of the following (in thousands):

Income tax expense consists of the following (in thousands):

Total current

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Total income tax expense

Income tax expense computed using the federal statutory rate is reconciled to the reported income tax expense as follows for fiscal 2019, 2018 and 2017 (in thousands):

Income tax expense computed using the federal statutory rate is reconciled to the reported income tax expense as follows (in thousands):

Statutory rate applied to income before income taxes

Revaluation of net deferred tax assets due to the Tax Cuts and Jobs Act

State income taxes, net of federal benefit

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Income tax expense

The components of deferred tax assets and deferred tax liabilities as of February 1, 2020 and February 2, 2019 are as follows (in thousands):

Deferred tax assets and deferred tax liabilities consist of the following (in thousands):

Deferred tax assets:

Deferred rent amortization

Inventory capitalization

Book and tax depreciation differences

Vacation liability

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Stock compensation

Deferral of FICA tax

Legal expense reserve

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The Company files income tax returns in U.S.

federal and state jurisdictions where it does business and is subject to examinations by the Internal Revenue Service (“IRS”) and other taxing authorities.

With a few exceptions, the Company is no longer subject to U.S.

federal and state income tax examinations by tax authorities for years prior to fiscal 2015.

The Company reviews and assesses uncertain tax positions, if any, with recognition and measurement of tax benefit based on a “more-likely-than-not”

standard with respect to the ultimate outcome, regardless of whether this assessment is favorable or unfavorable.

As of February 1, 2020, there were no benefits taken on the Company’s income tax returns that do not qualify for financial statement recognition.

The Company reviews and assesses uncertain tax positions, if any, with recognition and measurement of tax benefit based on a “more-likely-than-not” standard with respect to the ultimate outcome, regardless of whether this assessment is favorable or unfavorable.

As of January 30, 2021, there were no benefits taken on the Company’s income tax returns that do not qualify for financial statement recognition.

If a tax position does not meet the minimum statutory threshold to avoid payment of penalties and interest, a company is required to recognize an expense for the amount of the interest and penalty in the period in which the company claims or expects to claim the position on its tax return.

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Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible and income tax credits may be utilized, management believes it is more likely than not that the Company will realize the benefits of these deductible differences with the exception of certain tax credits available in one state.

Beginning in 2011, the Company concluded that its ability to utilize a portion of such state’s tax credits was no longer more likely than not.

Such recognition resulted in the establishment of a valuation allowance which necessitated a charge to income tax expense and a reduction in deferred tax assets.

Subsequent to 2011, the Company has continued to earn such state credits and has further adjusted the related valuation allowance.

At February 1, 2020, the valuation allowance, net of federal tax benefit, totaled $2.1 million.

At January 30, 2021, the valuation allowance, net of federal tax benefit, totaled $ 1.7 million.

The effective income tax rate for fiscal 2020, 2019 and 2018 included the recognition of benefits arising from various federal and state tax credits.

Under current IRS and state income tax regulations, these credits may be carried back for one year or carried forward for periods up to 20 years .

The income tax benefit included $1.7 million related to such credits in fiscal 2019, $1.7 million related to such credits in fiscal 2018 and $1.3 million related to such credits in fiscal 2017.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act tax reform legislation.

The legislation was effective January 1, 2018 and made significant changes to U.S.

tax law including a reduction in the corporate income tax rate, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax.

The legislation reduced the federal statutory tax rate from 35% to 21% and required corporations with fiscal years spanning periods before and after the effective date to use a blended federal tax rate for fiscal years which include January 1, 2018.

As a result of the provision requiring a blended rate, the Company’s federal statutory rate was reduced from 35% to 33.7% with a commensurate reduction in income tax expense of $0.3 million for fiscal 2017.

In addition, the Company was required to revalue its deferred tax assets and liabilities to reflect the reduced federal income tax rate expected to be in effect at the time of future reversals.

Such revaluation resulted in the reduction of net deferred tax assets and a charge to income tax expense in the fourth quarter of 2017 of $1.9 million.

The other provisions of the Tax Cuts and Jobs Act did not have a material impact on the fiscal 2017 consolidated financial statements.

In 2018 and 2019, the Company’s effective income tax rate was significantly lower than previous years due to the reduction in the federal statutory tax rate.

(7) Other Long-Term Liabilities

The components of other long-term liabilities as of February 1, 2020 and February 2, 2019 are as follows (in thousands):

Deferred rent (1)

Tenant improvement allowances (1)

(1) Commencing February 3, 2019, deferred rent and tenant improvement allowances are included as part of the Company’s operating lease right of use assets (see Note 10 regarding the Company’s adoption of the lease accounting standard).

(8) Stockholders’

The income tax benefit included $ 1.7 million related to such credits in each of fiscal 2020, 2019 and 2018.

Stockholders’ Equity

Repurchases of common stock

In November 2018, the Company’s board of directors approved a program that authorized the repurchase of up to $25.0 million in shares of the Company’s common stock.

In November 2018, the Company’s board of directors approved a program that authorized the repurchase of up to $ 25.0 million in shares of the Company’s common stock.

Under this program in fiscal 2018, the Company repurchased 768,558 shares of its common stock in the open market at an aggregate cost of $ 15.4 million.

During the first three quarters of fiscal 2019, the Company repurchased 562,813 shares of its common stock in the open market at an aggregate cost of $ 9.6 million.

In November 2019, the Company’s board of directors approved a new program that authorized the purchase of up to $25.0 million in shares of the Company’s common stock.

During the thirteen weeks ended February 1, 2020, the Company repurchased 841,243 shares of its common stock in the open market at an aggregate cost of $18.8 million.

At February 1, 2020, $6.2 million of shares remained available for purchase under this program.

In fiscal 2019, the Company paid four quarterly dividends of $0.08 per common share on March 19, 2019, June 18, 2019, September 17, 2019 and December 24, 2019.

On February 18, 2020, the Company’s board of directors declared a dividend of $0.08 per common share, which was paid on March 17, 2020 to stockholders of record as of March 3, 2020.

Any determination to declare and pay cash dividends for future quarters will be made by the Company’s board of directors.

The Company announced on April 28, 2020, the suspension of future cash dividends.

In November 2019, the Company’s board of directors approved a new program that authorized the purchase of up to $ 25.0 million in shares of the Company’s common stock.

Under this program in the fourth quarter of fiscal 2019, the Company repurchased 841,243 shares of its common stock in the open market at an aggregate cost of $ 18.8 million.

During February of fiscal 2020, the Company repurchased 260,254 shares of its common stock at an aggregate cost of $ 6.3 million.

In March 2020, the Company’s board of directors approved a $ 30.0 million stock repurchase program.

Due to the uncertainty stemming from the COVID-19 pandemic, on March 23, 2020, the Company temporarily suspended any repurchases.

On September 14, 2020, the Company announced the reinstatement of this program.

On December 22, 2020, the Company announced that its board of directors approved an additional $ 30.0 million stock repurchase program.

Under these programs in fiscal 2020, the Company repurchased 770,707 shares of its common stock at an aggregate cost of $ 26.6 million.

On March 17, 2020, the Company paid a dividend of $ 0.08 per common share.

On April 28, 2020, the Company announced the suspension of future cash dividends.

In 2019, the Company paid a quarterly dividend of $ 0.08 per common share on March 19, 2019, June 18, 2019, September 17, 2019 and December 24, 2019.

Any determination to declare and pay cash dividends for future quarters will be made by the Company’s board of directors.

Stock-Based Compensation

On April 6, 2012, the Company adopted the Citi Trends, Inc.

2012 Incentive Plan (the “2012 Plan”), which became effective upon approval by the Company’s stockholders on May 23, 2012.

The 2012 Plan is a successor plan to the 2005 Citi Trends, Inc.

Long-Term Incentive Plan (the “2005 Plan”), which became effective upon the consummation of the Company’s initial public offering in May 2005.

The 2005 Plan provided for the grant of incentive and nonqualified options, nonvested restricted stock and other forms of stock-based compensation to key employees and directors.

2012 Incentive Plan (the “2012 Plan”), which became effective upon approval by the Company’s stockholders on May 23, 2012.

The 2012 Plan provides for the grant of incentive and nonqualified options, nonvested restricted stock and other forms of stock-based and cash-based compensation to key employees and directors.

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The Company expects to recognize $ 2.7 million in future compensation expense from the grants of time-based restricted stock over the requisite service period of up to three years .

Compensation costs for grants of stock price performance-based restricted stock units (“RSUs”) are recorded in full on the date of grant using a lattice model to estimate fair market value.

In March 2019, the Company granted 51,490 RSUs to 19 employees.

The RSUs had performance vesting criteria which were based upon the Company achieving adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $63.0 million for the Company’s fiscal year ending January 29, 2022.

The number of units earned and vested will be increased by 20% if the Company’s EBITDA for the same period equals or exceeds $69.0 million.

The award will be forfeited upon the termination of employment by the recipient prior to January 29, 2022.

During 2019, no expense was attributable to the grants.

During fiscal 2019, 2018 and 2017, compensation expense arising from nonvested restricted stock grants and performance-based RSUs totaled $2.1 million, $2.2 million and $1.6 million, respectively.

A summary of activity related to time-based nonvested restricted stock grants during fiscal 2019 is as follows:

The RSUs have performance vesting criteria which were based upon the Company achieving adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $ 63.0 million for the Company’s fiscal year ending January 29, 2022.

The number of units earned and vested will increase by 20 % if the Company achieves EBITDA of $ 69.0 million for the same period.

In the event that actual performance is below threshold, no award will be made.

In addition, the award will be forfeited upon the termination of employment by the recipient prior to January 29, 2022.

During 2020, the Company recorded $ 397,000 of expense related to these RSU grants.

In March 2020, the Company granted 103,767 RSUs to 18 employees.

The RSUs have performance vesting criteria based upon the Company achieving certain thresholds of adjusted earnings before interest and taxes (“EBIT”) for the fiscal year ending February 4, 2023.

The number of units earned and vested may range from 50 % (at threshold performance) to no more than 200 % of the target award.

In the event that actual performance is below threshold, no award will be made.

In addition, the award will be forfeited upon the termination of employment by the recipient prior to February 4, 2023.

During 2020, the Company recorded $ 863,000 of expense related to these RSU grants.

During fiscal 2020, 2019 and 2018, compensation expense arising from nonvested restricted stock grants and RSUs totaled $ 2.9 million, $ 2.1 million and $ 2.2 million, respectively.

The following table summarizes activity related to time-based nonvested restricted stock grants during fiscal 2020:

Weighted Average

Outstanding as of February 1, 2020

In March 2018, the Company granted 8,400 RSUs to one employee.

The RSUs had performance vesting criteria which were based upon the closing price of the Company’s stock achieving certain thresholds.

The shares vest one-third upon achieving an average closing stock price for a 20 consecutive day period of $30.44;

and $40.26, respectively.

The awards expire three years from the date of grant or upon the termination of employment of the recipient.

On the date of grant, the Company expensed $137,000 which was the estimated fair market value.

One of these thresholds was achieved in 2018.

No vesting targets were achieved in 2019 and the grant expired January 31, 2020, the date the recipient left the Company.

In March 2018, the Company granted 8,401 RSUs to one employee.

The RSUs had performance vesting criteria which were based upon the Company achieving certain thresholds of adjusted EBITDA.

The shares vest one-third upon achieving trailing 12-month adjusted EBITDA levels of $51.4 million, $59.1 million, and $67.9 million, respectively.

The awards expire three years from the date of grant or upon the termination of employment of the recipient.

During 2018, the Company expensed $78,000 which was the estimated fair market value.

None of these thresholds were achieved in 2018 or in 2019 and the grant expired January 31, 2020, the date the recipient left the Company.

No expense was incurred in 2019 related to this grant.

In March 2017, the Company granted 23,551 RSUs to two employees.

The RSUs had performance vesting criteria which were based upon the closing price of the Company’s stock achieving certain thresholds.

The shares vest one-fourth upon achieving a closing stock price for a 20 consecutive day period of $19.10;

and $26.90, respectively.

The awards expire three years from the date of grant or upon the termination of employment of the recipient.

On the date of grant, the Company expensed $306,000 which was the estimated fair market value.

One of the two employees resigned after the date of grant and forfeited his shares prior to vesting.

For one recipient, three of these thresholds were achieved in 2017 and the final threshold was achieved in 2018.

Income tax benefits or deficiencies arising from the fair market value of restricted stock shares at vesting versus the cumulative compensation cost of such shares are recorded as a component of income tax expense in the Company’s consolidated statement of operations.

Outstanding as of January 30, 2021

In March 2018, the Company granted 8,400 RSUs to one employee for which vesting was based upon the Company’s stock achieving certain thresholds.

On the date of grant, the Company expensed $ 137,000 based upon the estimated fair market value.

One threshold for vesting was achieved in 2018.

No thresholds were achieved in 2019 and the grant expired on January 31, 2020 when the recipient left the Company.

In March 2018, the Company granted 8,401 RSUs to one employee for which vesting was based upon achieving certain thresholds of adjusted EBITDA.

During 2018, the Company expensed $ 78,000 based upon the estimated fair market value.

No thresholds were achieved in 2018 or 2019 and the grant expired January 31, 2020 when the recipient left the Company.

Such income tax expense (benefits) totaled $ 58,000 , $ 83,000 and ($ 140,000 ) in fiscal 2020, 2019 and 2018, respectively.

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Leases for store locations are typically for a term of five years with options to extend for one or more five-year periods.

Total lease cost is comprised of operating lease costs, short-term lease costs and variable lease costs, which include rent paid as a percentage of sales, common area maintenance, real estate taxes and insurance for the Company’s real estate leases.

Lease expense for the fiscal year ended February 1, 2020 is as follows (in thousands):

Lease cost consists of the following (in thousands):

Operating lease cost

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Total lease cost

Future minimum lease payments as of February 1, 2020 are as follows (in thousands):

In response to the impact of the COVID-19 pandemic on the Company’s operations, the Company suspended certain lease payments under its existing lease agreements.

During the suspension of payments, the Company continued to recognize expenses and liabilities for lease obligations and corresponding right-of-use assets on the balance sheet in accordance with the applicable accounting guidance.

The Company is engaging in ongoing discussions with certain landlords regarding the potential restructuring of lease payments and rent concessions.

In fiscal 2020, the Company negotiated contractual rent concessions on certain leases in the form of early renewals, rent deferrals and rent abatements.

The Company elected to account for qualifying COVID-19 related rent concessions as if they were part of the enforceable rights and obligations under the existing lease agreements, as permitted by the updated guidance provided by the FASB in April 2020.

As a result of this election, the Company recognized rent abatement credits of approximately $ 1.0 million in fiscal 2020.

Future minimum lease payments as of January 30, 2021 are as follows (in thousands):

Total future minimum lease payments

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(2) Includes short-term and long-term operating leases.

Adoption of the lease accounting standard (Topic 842) using the effective transition method requires the Company to provide relevant disclosures in accordance with ASC Topic 840, Leases for all prior periods presented.

Future minimum lease payments as of February 2, 2019 were as follows (in thousands):

Total future minimum lease payments

Certain operating leases provide for fixed monthly rents, while others provide for contingent rents computed as a percentage of net sales and others provide for a combination of both fixed monthly rents and contingent rents computed as a percentage of net sales.

Supplemental cash flow and other information related to operating leases for the fiscal year ended February 1, 2020 is as follows (in thousands, except for weighted average amounts):

Supplemental cash flow and other information related to operating leases are as follows (in thousands, except for weighted average amounts):

Cash paid for operating leases

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Allowance for

Balance as of January 28, 2017

Additions charged to costs and expenses

Impact of tax reform

Balance as of February 3, 2018

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Balance as of February 1, 2020

Additions charged to costs and expenses

Balance as of January 30, 2021

For the allowance for inventory shrinkage, additions charged to costs and expenses are the result of estimated inventory shrinkage, while deductions represent actual inventory shrinkage incurred from physical inventories taken during the fiscal year.

For the deferred tax asset valuation allowance, additions charged to costs and expenses represent the establishment of a valuation allowance when management determines that its ability to utilize certain tax credits included in deferred tax assets is no longer more likely than not.

In fiscal 2017, the Company revalued its deferred tax assets and liabilities to reflect the reduced federal income tax rate expected to be in effect at the time of future reversals including the future utilization of tax credits.

Such reduction was the result of the Tax Cuts and Jobs Act tax reform legislation enacted in December 2017 which reduced the federal statutory rate from 35% to 21%.

The revaluation necessitated an increase in the valuation allowance related to the future realization of state income tax credits due to the reduction of the associated federal income tax benefit.

Unaudited Quarterly Results of Operations

Quarter Ended

(in thousands, except per share and share amounts)

(in thousands, except per share amounts)

Statement of Operations Data:

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As a result, the total of net income (loss) per share for the four quarters may not equal the annual amount .

(13) Subsequent Events

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a pandemic and recommended containment and mitigation measures.

In response, federal, state and local governments and private entities have implemented travel restrictions, restrictions on public gatherings, stay at home orders and quarantining of people exposed to the virus.

The Company temporarily closed all of its store locations and distribution centers effective March 20, 2020.

Other measures taken to mitigate the operating and financial impact of the pandemic include (i) furloughing substantially all store and distribution center personnel and a significant portion of the corporate staff;

(ii) implementing temporary tiered salary reductions for management level corporate employees and reducing the cash portion of non-employee director fees;

(iii) extending payment terms with vendors and suppliers;

(iv) abating payments of rent as appropriate;

(v) executing substantial reductions in operating expenses, store occupancy costs, capital expenditures and other costs, including through reduced inventory purchases and eliminating the 401(k) plan match;

and (vi) suspending repurchases of shares and payment of dividends.

In March 2020, the Company drew down $43.7 million on its revolving credit facility as a proactive measure taken by the Company to increase its cash position and preserve financial flexibility in light of current uncertainties resulting from COVID-19.

The interest rate for such borrowings accrued interest ranging from 1.625% to 3.5%.

The proceeds from such borrowing may in the future be used for working capital, general corporate purposes or other purposes permitted by the credit facility.

On May 12, 2020, the Company entered into a Second Amendment to Credit Agreement and Waiver (the “Second Amendment”), with Bank of America and the Company’s wholly-owned subsidiary, Citi Trends Marketing Solutions, Inc., as guarantor (the “Second Amendment”) to amend the credit facility (as amended, the “Revolving Credit Facility”) to, among other things, extend the maturity date (which had been set to expire August 18, 2020) to August 18, 2021, increase the pricing for the loans by 1.0% (which rate varies depending on availability under the Revolving Credit Facility), waive certain events of default that occurred on May 1, 2020 related to delivery of our audited financials and the related compliance certificate, and modify certain covenant and reporting terms.

The Company continues to monitor developments, including government requirements and recommendations at the federal, state and local level to evaluate when it will reopen its stores, offices and facilities.

On April 28, 2020, the Company announced that it has started to reopen stores in some markets in accordance with state and local guidelines.

Given the unprecedented uncertainty of this situation and the unknown impact on consumer demand, the Company cannot reasonably estimate the full impact of this pandemic on its business.

However, the Company expects the impact from the pandemic and the related economic disruption will have a material adverse effect on its financial condition, results of operations and liquidity in fiscal 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures