What changed in this filing

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Item 9A. Controls and Procedures

2022-04-14 compared with 2021-04-14 · 88 added, 570 removed, 91 unchanged (88% of the section changed)

5 unchanged sentences

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Changes in Internal Control Over Financial Reporting

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.

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.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

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 January 29, 2022, 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 29, 2022.

Our independent registered public accounting firm, Deloitte & Touche LLP, audited the effectiveness of our internal control over financial reporting as of January 29, 2022, as stated in their report which is included herein.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fourth quarter of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Citi Trends, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Citi Trends, Inc.

and subsidiary (the “Company”) as of January 29, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 29, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended January 29, 2022, of the Company and our report dated April 14, 2022, expressed an unqualified opinion on those 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 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.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

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.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Atlanta, Georgia

April 14, 2022

OTHER INFORMATION

As previously announced, Pamela J.

Edwards, Executive Vice President, Chief Financial Officer and Principal Financial Officer of the Company retired effective as of April 1, 2022.

On April 8, 2022, the Company appointed Jason B.

Moschner, the Company’s current Vice President, Finance and Principal Accounting Officer, to serve as the Company’s Principal Financial Officer, effective as of April 8, 2022, until the Board appoints a Chief Financial Officer.

Moschner, age 39, has served as the Vice President, Finance of the Company since January 2020 and Principal Accounting Officer since March 2020.

From March 2020 through January 2021, he also served as Principal Financial Officer of the Company.

Prior to January 2020, he served as Director of Finance of the Company from June 2018 and as Director of Internal Audit and Loss Prevention of the Company from June 2017 to June 2018.

Prior to joining the Company, he served in a variety of finance and accounting roles at TMX Finance LLC from 2010 to 2017, including Director of Financial Reporting and Internal Audit.

Moschner is a Certified Public Accountant and received his degree in Master of Accountancy from the University of Missouri.

There is no arrangement or understanding between Mr.

Moschner and any other person pursuant to which Mr.

Moschner was appointed as an officer of the Company.

There are no transactions in which Mr.

Moschner has an interest requiring disclosure under Item 404(a) of Regulation S-K.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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).

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 for our 2022 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” 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).

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 for our 2022 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 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).

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 for our 2022 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” 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).

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 for our 2022 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” 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).

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 for our 2022 Annual Meeting of Stockholders (or will be filed by amendment to this Report).

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following information required under this item is filed as part of this report:

(a) Financial Statements.

See accompanying Financial Statements beginning on page F-1.

(a)(2) Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, are inapplicable or the information is included in the Financial Statements, and therefore, have been omitted.

(a)(3) Exhibits

Exhibit Index

See Part II, Item 8.

(b) Financial Statement Schedules.

Other schedules are omitted as they are not applicable or the information is included elsewhere in this Report.

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)

7 unchanged sentences

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)

Third Amendment to Credit Agreement, dated as of April 15, 2021, by and among the Company, 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 April 15, 2021)

Citi Trends, Inc.

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 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 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 filed with the SEC on May 30, 2017)

Citi Trends, Inc.

2021 Incentive Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 16, 2021)

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 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)

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

2021 Incentive Plan

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

2021 Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on September 8, 2021)

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

2 unchanged sentences

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)

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 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on June 9, 2021)

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 filed with the SEC on August 29, 2012)

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

10 unchanged sentences

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)

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)

2 unchanged sentences

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 Jason Moschner dated January 13, 2020 (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed with the SEC on April 14, 2021)

Severance Agreement between the Company and Jason Moschner dated January 13, 2020 (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K filed with the SEC on April 14, 2021)

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

6 unchanged sentences

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)

Employment Non-Compete, Non-Solicit and Confidentiality Agreement, dated as of April 6, 2021, between Citi Trends, Inc.

and Jessica G.

Berkowitz (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on June 9, 2021)

Severance Agreement, dated as of April 6, 2021, between Citi Trends, Inc.

and Jessica G.

Berkowitz (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on June 9, 2021)

Subsidiary of the Registrant

Consent of Deloitte & Touche LLP

Consent of KPMG LLP

19 unchanged sentences

(Principal Executive Officer) and Director

/s/ Pamela J.

Chief Financial Officer

April 14, 2021

(Principal Financial Officer)

Vice President, Finance

April 14, 2022

(Principal Accounting Officer)

(Principal Financial and Accounting Officer)

Executive Chairman of the Board of Directors

4 unchanged sentences

Jonathan Duskin

/s/ Christina Francis

April 14, 2022

Christina Francis

/s/ Laurens M.

2 unchanged sentences

April 14, 2022

/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

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Cash Flows

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.

Internal control over financial reporting includes those policies and procedures that:

● pertain to maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

● 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.

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 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

To the Stockholders and Board of Directors

Citi Trends, Inc.:

Opinion on the Consolidated Financial Statements

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

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.

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 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.

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.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

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

/s/ Cara Sabin

April 14, 2022

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Citi Trends, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Citi Trends, Inc.

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.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

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

Jacksonville, Florida

/s/ Kenneth D.

April 14, 2022

Citi Trends, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

Current assets:

Cash and cash equivalents

Short-term investment securities

Prepaid and other current assets

Income tax receivable

Total current assets

Property and equipment, net of accumulated depreciation

Operating lease right of use assets

Long-term investment securities

Deferred income taxes

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

Operating lease liabilities

Accrued expenses

Accrued compensation

Income tax payable

Layaway deposits

Total current liabilities

Noncurrent operating lease liabilities

Other long-term liabilities

Total liabilities

Stockholders’ equity:

Common stock, $ 0.01 par value.

Authorized 32,000,000 shares;

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

Retained earnings

Treasury stock, at cost;

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’ equity

See accompanying notes to consolidated financial statements.

Citi Trends, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

Cost of sales (exclusive of depreciation shown separately below)

Selling, general and administrative expenses

Asset impairment

Income from operations

Interest income

Interest expense

Income before income taxes

Income tax expense

Basic net income per common share

Diluted net income per common share

Weighted average number of shares outstanding

See accompanying notes to consolidated financial statements.

Citi Trends, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Non-cash operating lease costs

Asset impairment

Loss on disposal of property and equipment

Deferred income taxes

Insurance proceeds related to operating activities

Non-cash stock-based compensation expense

Changes in assets and liabilities:

Prepaid and other current assets

Accounts payable

Accrued expenses and other long-term liabilities

Accrued compensation

Income tax payable/receivable

Layaway deposits

Net cash provided by operating activities

Investing activities:

Sales/redemptions of investment securities

Purchases of investment securities

Purchases of property and equipment

Insurance proceeds related to 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

Dividends paid to stockholders

Repurchase of common stock

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents:

Beginning of year

Supplemental disclosures of cash flow information:

Cash paid for interest

Cash payments of income taxes

Supplemental disclosures of non-cash investing activities:

Accrual for purchases of property and equipment

See accompanying notes to consolidated financial statements.

Citi Trends, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

Treasury Stock

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 and restricted stock units

Repurchase of common stock

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 under incentive plan

Forfeiture of nonvested shares

Stock-based compensation expense

Net share settlement of nonvested shares and restricted stock units

Repurchase of common stock

Dividends paid to stockholders ( $ 0.08 per common share)

Balances — February 1, 2020

Vesting of nonvested restricted stock units

Issuance of nonvested shares under incentive plan

Forfeiture of nonvested shares

Stock-based compensation expense

Net share settlement of nonvested shares

Repurchase of common stock

Dividends paid to stockholders ( $ 0.08 per common share)

Balances — January 30, 2021

See accompanying notes to consolidated financial statements.

Citi Trends, Inc.

Notes to Consolidated Financial Statements

Organization and Business

Citi Trends, Inc.

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

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.

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.

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.

Actual results could differ from those estimates.

The most significant estimates made by management include those used in the valuation of inventory, property and equipment, self-insurance liabilities, leases and income taxes.

Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness.

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

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.

Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents.

The Company places its cash and cash equivalents in what it believes to be high credit quality banks and institutional money market funds.

The Company maintains cash accounts that exceed federally insured limits.

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.

Under the retail inventory method, the cost of inventory is determined by calculating a cost-to-retail ratio and applying it to the retail value of inventory.

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 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.

Impairment of Long-Lived Assets

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

If this review indicates that the carrying value of the asset will not be recovered as determined based on projected undiscounted cash flows related to the asset over its remaining life, the carrying value of the asset is reduced to its estimated fair value.

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.

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.

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

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.

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.

Breakage on gift cards is minimal as the cards are generally subject to escheat regulations of the state in which the gift card subsidiary is located.

Sales Returns

The Company allows customers to return merchandise for up to thirty days after the date of sale.

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 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

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.

Distribution center costs, store occupancy expenses and advertising expenses are not considered components of cost of sales and are included as part of selling, general and administrative expenses.

Depreciation is also not considered a component of cost of sales and is included as a separate line item in the consolidated statements of operations.

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

Earnings per Share

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

Diluted earnings per common share amounts are calculated using the weighted average number of common shares outstanding plus the additional dilution for all potentially dilutive securities, such as nonvested restricted stock.

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:

Weighted average number of common shares outstanding

Incremental shares from assumed vesting of nonvested restricted stock

Average number of common shares and common stock equivalents outstanding

The dilutive effect of stock-based compensation arrangements is accounted for using the treasury stock method.

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

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.

Operating Leases

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

All leases are classified as operating leases.

The Company records right-of-use assets and lease liabilities based on the present value of future minimum lease payments over the lease term.

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.

Lease expense for fixed lease payments is recognized on a straight-line basis over the lease term.

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 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.

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

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

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.

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.

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 FASB issued ASU No.

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

The new standard established a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.

The Company adopted ASU 2016-02 on February 3, 2019 using the optional transition method, which allows for the prospective application of the standard.

In addition, the Company elected the package of practical expedients for transition, which permitted it to not reassess prior conclusions regarding lease classification, identification or initial direct costs.

Further, the Company elected a short-term lease exception policy which permitted it to not apply the recognition requirements of the new standard to short-term leases (leases with terms of 12 months or less).

The Company also elected an accounting policy to account for lease and non-lease components as a single component for certain classes of assets.

The Company did not elect an optional hindsight practical expedient.

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.

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 as of February 3, 2019 and is reflected as an adjustment to retained earnings at the transition date.

Property and Equipment, net

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

Leasehold improvements

Furniture, fixtures and equipment

Computer equipment

Construction in progress

Accumulated depreciation

Revolving Line of Credit

On October 27, 2011, the Company entered into a five-year , $ 50 million credit facility with Bank of America.

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 % .

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

Total current

Total deferred

Total income tax expense

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

State income taxes, net of federal benefit

State tax credits

State tax credits - valuation allowance (net of federal benefit)

Tax exempt interest

General business credits

(Deficit) Excess tax benefits from stock-based compensation

Income tax expense

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

Deferred tax assets:

Inventory capitalization

Vacation liability

Operating lease liabilities

State tax credits

Stock compensation

Deferral of FICA tax

Legal expense reserve

Insurance liabilities

Subtotal deferred tax assets

State tax credits valuation allowance - net

Total deferred tax assets

Deferred tax liabilities:

Right of use asset

Book and tax depreciation differences

Prepaid expenses

Total deferred tax liabilities

Net deferred tax asset

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 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.

For financial statement purposes, companies are allowed to elect whether to classify such charges as either income tax expense or another expense classification.

Should such expense be incurred in the future, the Company will classify such interest as a component of interest expense and penalties as a component of income tax expense.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

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 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 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.

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.

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 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.

Shares of time-based nonvested restricted stock granted to employees vest in equal installments over three years from the date of grant.

Shares issued to directors vest one year from the date of grant.

The Company records compensation expense for grants of time-based nonvested restricted stock on a straight line basis over the requisite service period of the stock recipients which is equal to the vesting period of the stock.

Total compensation cost for such stock is calculated based on the closing market price on the date of grant multiplied by the number of shares granted.

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 .

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

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

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.

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.

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

Commitments and Contingencies

The Company from time to time is involved in various legal proceedings incidental to the conduct of its business, including claims by customers, employees or former employees.

Once it becomes probable that the Company will incur costs in connection with a legal proceeding and such costs can be reasonably estimated, it establishes appropriate reserves.

While legal proceedings are subject to uncertainties and the outcome of any such matter is not predictable, the Company is not aware of any legal proceedings pending or threatened against it that it expects to have a material adverse effect on its financial condition, results of operations or liquidity.

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

The Company analyzes all leases at inception to determine if a right-of-use asset and lease liability should be recognized.

Leases with an initial term of 12 months or less and leases with mutual termination clauses are not included on the consolidated balance sheet.

The lease liability is measured at the present value of future lease payments as of the lease commencement date, or as of the date of adoption of ASU 2016-02 for leases existing at the adoption date.

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 cost consists of the following (in thousands):

Operating lease cost

Variable lease cost

Short term lease cost

Total lease cost

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

imputed interest

Total present value of lease liabilities

(1) Calculated using the discount rate for each lease.

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

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 are as follows (in thousands, except for weighted average amounts):

Cash paid for operating leases

Right of use assets obtained in exchange for new operating lease liabilities

Weighted average remaining lease term (years) - operating leases

Weighted average discount rate - operating leases

Valuation and Qualifying Accounts

The following table summarizes the allowances for inventory shrinkage and deferred tax assets (in thousands):

Allowance for

Balance as of February 3, 2018

Additions charged to costs and expenses

Balance as of February 2, 2019

Additions charged to costs and expenses

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.

Unaudited Quarterly Results of Operations

(in thousands, except per share amounts)

Statement of Operations Data:

Cost of sales (exclusive of depreciation shown separately below)

Selling, general and administrative expenses

Asset impairment

Income (loss) from operations

Interest, net

Income (loss) before income taxes

Income tax (expense) benefit

Net income (loss)

Net income (loss) per common share:

Weighted average shares used to compute net income (loss) per common share:

(1) Net income (loss) per share is computed independently for each period presented.

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

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