Citi Trends Inc 10-Q

Item 1. Financial Statements. ​ Citi Trends, Inc. Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ October 28, January 28, ​ 2023 2023 Assets ​ ​ ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 59,726 ​ $ 103,495 ​ ​ Inventory ​ 129,727 ​ 105,794 ​ ​ Prepaid and other current assets ​ 11,266 ​ 12,977 ​ ​ Income tax receivable ​ 3,306 ​ 615 ​ ​ Total current assets ​ 204,025 ​ 222,881 ​ ​ Property and equipment, net of accumulated depreciation of $ 272,238 and $ 262,525 as of October 28, 2023 and January 28, 2023, respectively ​ 56,658 ​ 60,106 ​ ​ Operating lease right of use assets ​ ​ 239,282 ​ ​ 257,195 ​ ​ Deferred income taxes ​ 7,197 ​ 2,893 ​ ​ Other assets ​ 1,050 ​ 1,183 ​ ​ Total assets ​ $ 508,212 ​ $ 544,258 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders’ Equity ​ ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 83,393 ​ $ 80,670 ​ ​ Operating lease liabilities ​ ​ 46,511 ​ ​ 52,661 ​ ​ Accrued expenses ​ 15,983 ​ 16,055 ​ ​ Accrued compensation ​ 9,002 ​ 10,823 ​ ​ Layaway deposits ​ 1,269 ​ 344 ​ ​ Total current liabilities ​ 156,158 ​ 160,553 ​ ​ Noncurrent operating lease liabilities ​ 196,856 ​ 214,939 ​ ​ Other long-term liabilities ​ 2,132 ​ 2,322 ​ ​ Total liabilities ​ 355,146 ​ 377,814 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ ​ ​ Common stock, $ 0.01 par value. Authorized 32,000,000 shares; 16,348,358 shares issued as of October 28, 2023 and 16,158,494 shares issued as of January 28, 2023; 8,544,345 shares outstanding as of October 28, 2023 and 8,354,481 shares outstanding as of January 28, 2023 ​ 160 ​ 160 ​ ​ Paid in capital ​ 104,597 ​ 102,445 ​ ​ Retained earnings ​ 315,520 ​ 331,050 ​ ​ Treasury stock, at cost; 7,804,013 shares held as of October 28, 2023 and January 28, 2023 ​ ( 267,211 ) ​ ( 267,211 ) ​ ​ Total stockholders’ equity ​ 153,066 ​ 166,444 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (Note 7) ​ ​ ​ ​ ​ ​ ​ ​ Total liabilities and stockholders’ equity ​ $ 508,212 ​ $ 544,258 ​ ​ ​ ​ See accompanying notes to the condensed consolidated financial statements (unaudited). ​ ​ 3 Table of Contents Citi Trends, Inc. Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended ​ ​ ​ October 28, ​ October 29, ​ ​ 2023 2022 Net sales ​ $ 179,520 ​ $ 192,323 ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of sales (exclusive of depreciation) ​ ​ ( 110,942 ) ​ ​ ( 115,741 ) ​ Selling, general and administrative expenses ​ ​ ( 69,654 ) ​ ​ ( 69,092 ) ​ Depreciation ​ ​ ( 4,749 ) ​ ​ ( 5,076 ) ​ Asset impairment ​ ​ ( 178 ) ​ ​ — ​ Gain on sale-leaseback ​ ​ — ​ ​ 29,168 ​ (Loss) income from operations ​ ​ ( 6,003 ) ​ ​ 31,582 ​ Interest income ​ ​ 894 ​ ​ 202 ​ Interest expense ​ ​ ( 76 ) ​ ​ ( 76 ) ​ (Loss) income before income taxes ​ ​ ( 5,185 ) ​ ​ 31,708 ​ Income tax benefit (expense) ​ ​ 1,322 ​ ​ ( 7,120 ) ​ Net (loss) income ​ $ ( 3,863 ) ​ $ 24,588 ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic net (loss) income per common share ​ $ ( 0.47 ) ​ $ 3.02 ​ Diluted net (loss) income per common share ​ $ ( 0.47 ) ​ $ 3.02 ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of shares outstanding ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 8,238 ​ ​ 8,145 ​ Diluted ​ ​ 8,238 ​ ​ 8,145 ​ ​ Citi Trends, Inc. Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirty-Nine Weeks Ended ​ ​ October 28, ​ October 29, ​ 2023 2022 Net sales ​ $ 532,762 ​ $ 585,550 ​ ​ ​ ​ ​ ​ ​ Cost of sales (exclusive of depreciation) ​ ​ ( 331,827 ) ​ ​ ( 357,341 ) Selling, general and administrative expenses ​ ​ ( 210,004 ) ​ ​ ( 208,599 ) Depreciation ​ ​ ( 14,138 ) ​ ​ ( 15,793 ) Asset impairment ​ ​ ( 178 ) ​ ​ — Gain on sale-leasebacks ​ ​ — ​ ​ 64,088 (Loss) Income from operations ​ ​ ( 23,385 ) ​ ​ 67,905 Interest income ​ ​ 2,804 ​ ​ 204 Interest expense ​ ​ ( 228 ) ​ ​ ( 230 ) (Loss) Income before income taxes ​ ​ ( 20,809 ) ​ ​ 67,879 Income tax benefit (expense) ​ ​ 5,279 ​ ​ ( 15,624 ) Net (loss) income ​ $ ( 15,530 ) ​ $ 52,255 ​ ​ ​ ​ ​ ​ ​ Basic net (loss) income per common share ​ $ ( 1.89 ) ​ $ 6.34 Diluted net (loss) income per common share ​ $ ( 1.89 ) ​ $ 6.34 ​ ​ ​ ​ ​ ​ ​ Weighted average number of shares outstanding ​ ​ ​ ​ ​ ​ Basic ​ ​ 8,215 ​ ​ 8,237 Diluted ​ ​ 8,215 ​ ​ 8,237 ​ ​ ​ See accompanying notes to the condensed consolidated financial statements (unaudited). ​ 4 Table of Contents Citi Trends, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirty-Nine Weeks Ended ​ ​ ​ October 28, ​ October 29, ​ ​ 2023 2022 Operating activities: ​ ​ ​ ​ ​ ​ ​ Net (loss) income ​ $ ( 15,530 ) ​ $ 52,255 ​ Adjustments to reconcile net (loss) income to net cash used in operating activities: ​ ​ ​ ​ ​ ​ ​ Depreciation ​ ​ 14,138 ​ ​ 15,793 ​ Asset impairment ​ ​ 178 ​ ​ — ​ Non-cash operating lease costs ​ ​ 38,494 ​ ​ 38,474 ​ Loss on disposal of property and equipment ​ ​ 23 ​ ​ 10 ​ Deferred income taxes ​ ​ ( 4,304 ) ​ ​ 2,119 ​ Insurance proceeds related to operating activities ​ ​ 3,482 ​ ​ 1,575 ​ Non-cash stock-based compensation expense ​ ​ 3,002 ​ ​ 2,271 ​ Gain on sale-leaseback ​ ​ — ​ ​ ( 64,088 ) ​ Gain on insurance related to operating activities ​ ​ ( 3,482 ) ​ ​ — ​ Changes in assets and liabilities: ​ ​ ​ ​ ​ ​ ​ Inventory ​ ​ ( 23,933 ) ​ ​ ( 5,891 ) ​ Prepaid and other current assets ​ ​ 1,711 ​ ​ 1,734 ​ Other assets ​ ​ 133 ​ ​ 99 ​ Accounts payable ​ ​ 2,322 ​ ​ ( 15,572 ) ​ Accrued expenses and other long-term liabilities ​ ​ ( 45,515 ) ​ ​ ( 44,643 ) ​ Accrued compensation ​ ​ ( 1,821 ) ​ ​ ( 15,216 ) ​ Income tax receivable/payable ​ ​ ( 2,691 ) ​ ​ 6,899 ​ Layaway deposits ​ ​ 925 ​ ​ 1,122 ​ Net cash used in operating activities ​ ​ ( 32,868 ) ​ ​ ( 23,059 ) ​ Investing activities: ​ ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ​ ( 11,568 ) ​ ​ ( 19,218 ) ​ Insurance proceeds related to investing activities ​ ​ 1,518 ​ ​ 1,370 ​ Proceeds from sale-leasebacks ​ ​ — ​ ​ 81,098 ​ Net cash (used in) provided by investing activities ​ ​ ( 10,050 ) ​ ​ 63,250 ​ Financing activities: ​ ​ ​ ​ ​ ​ ​ Cash used to settle withholding taxes on the vesting of nonvested restricted stock ​ ​ ( 851 ) ​ ​ ( 2,208 ) ​ Repurchases of common stock ​ ​ — ​ ​ ( 10,000 ) ​ Net cash used in financing activities ​ ​ ( 851 ) ​ ​ ( 12,208 ) ​ Net (decrease) increase in cash and cash equivalents ​ ​ ( 43,769 ) ​ ​ 27,983 ​ Cash and cash equivalents: ​ ​ ​ ​ ​ ​ ​ Beginning of period ​ ​ 103,495 ​ ​ 49,788 ​ End of period ​ $ 59,726 ​ $ 77,771 ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosures of cash flow information: ​ ​ ​ ​ ​ ​ ​ Cash paid for interest ​ $ 119 ​ $ 119 ​ Cash payments of income taxes ​ $ 1,545 ​ $ 6,606 ​ Supplemental disclosures of non-cash investing activities: ​ ​ ​ ​ ​ ​ ​ Accrual for purchases of property and equipment ​ $ 841 ​ $ 595 ​ ​ ​ See accompanying notes to the condensed consolidated financial statements (unaudited). ​ ​ ​ 5 Table of Contents Citi Trends, Inc. Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) (in thousands, except share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Paid in ​ Retained ​ Treasury Stock ​ ​ ​ ​ ​ Shares ​ Amount ​ Capital ​ Earnings ​ Shares ​ Amount ​ Total Balances — January 28, 2023 16,158,494 ​ $ 160 ​ $ 102,445 ​ $ 331,050 7,804,013 ​ $ ( 267,211 ) ​ $ 166,444 Vesting of nonvested shares ​ — ​ ​ 1 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 1 Issuance of nonvested shares 1,500 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Forfeiture of nonvested shares ( 9,647 ) ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Stock-based compensation expense ​ — ​ ​ — ​ ​ 935 ​ ​ — ​ — ​ ​ — ​ ​ 935 Net share settlement of nonvested shares ( 33,432 ) ​ ​ ( 1 ) ​ ​ ( 782 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 783 ) Net loss ​ — ​ ​ — ​ ​ — ​ ​ ( 6,635 ) ​ — ​ ​ — ​ ​ ( 6,635 ) Balances — April 29, 2023 16,116,915 ​ $ 160 ​ $ 102,598 ​ $ 324,415 7,804,013 ​ $ ( 267,211 ) ​ $ 159,962 Issuance of nonvested shares 259,136 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Forfeiture of nonvested shares ( 6,581 ) ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Stock-based compensation expense ​ — ​ ​ — ​ ​ 1,049 ​ ​ — ​ — ​ ​ — ​ ​ 1,049 Net share settlement of nonvested shares ( 1,400 ) ​ ​ — ​ ​ ( 26 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 26 ) Net loss ​ — ​ ​ — ​ ​ — ​ ​ ( 5,032 ) ​ — ​ ​ — ​ ​ ( 5,032 ) Balances — July 29, 2023 16,368,070 ​ $ 160 ​ $ 103,621 ​ $ 319,383 7,804,013 ​ $ ( 267,211 ) ​ $ 155,953 Forfeiture of nonvested shares ( 17,787 ) ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Stock-based compensation expense ​ — ​ ​ — ​ ​ 1,018 ​ ​ — ​ — ​ ​ — ​ ​ 1,018 Net share settlement of nonvested shares ( 1,925 ) ​ ​ — ​ ​ ( 42 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 42 ) Net loss ​ — ​ ​ — ​ ​ — ​ ​ ( 3,863 ) ​ — ​ ​ — ​ ​ ( 3,863 ) Balances — October 28, 2023 16,348,358 ​ $ 160 ​ $ 104,597 ​ $ 315,520 7,804,013 ​ $ ( 267,211 ) ​ $ 153,066 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Paid in ​ Retained ​ Treasury Stock ​ ​ ​ ​ ​ Shares ​ Amount ​ Capital ​ Earnings ​ Shares ​ Amount ​ Total Balances — January 29, 2022 16,090,365 ​ $ 159 ​ $ 101,037 ​ $ 272,158 7,473,155 ​ $ ( 257,211 ) ​ $ 116,143 Vesting of nonvested shares ​ — ​ ​ 1 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 1 Issuance of nonvested shares ​ 109,157 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Issuance of common stock under incentive plan, net of shares withheld for taxes 15,977 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Forfeiture of nonvested shares ( 15,761 ) ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Stock-based compensation expense ​ — ​ ​ — ​ ​ 2,277 ​ ​ — ​ — ​ ​ — ​ ​ 2,277 Net share settlement of nonvested shares ( 40,345 ) ​ ​ ( 1 ) ​ ​ ( 2,127 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 2,128 ) Repurchase of common stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ 170,436 ​ ​ ( 5,317 ) ​ ​ ( 5,317 ) Net income ​ — ​ ​ — ​ ​ — ​ ​ 30,203 ​ — ​ ​ — ​ ​ 30,203 Balances — April 30, 2022 16,159,393 ​ $ 159 ​ $ 101,187 ​ $ 302,361 7,643,591 ​ $ ( 262,528 ) ​ $ 141,179 Issuance of nonvested shares 29,938 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Forfeiture of nonvested shares ( 5,379 ) ​ ​ — ​ ​ — ​ ​ ​ ​ — ​ ​ — ​ ​ — Stock-based compensation expense ​ — ​ ​ — ​ ​ ( 338 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 338 ) Net share settlement of nonvested shares ( 527 ) ​ ​ — ​ ​ ( 12 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 12 ) Repurchase of common stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ 160,422 ​ ​ ( 4,683 ) ​ ​ ( 4,683 ) Net loss ​ — ​ ​ — ​ ​ — ​ ​ ( 2,536 ) ​ — ​ ​ — ​ ​ ( 2,536 ) Balances — July 30, 2022 16,183,425 ​ $ 159 ​ $ 100,837 ​ $ 299,825 7,804,013 ​ $ ( 267,211 ) ​ $ 133,610 Vesting of nonvested shares ​ — ​ ​ 1 ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 1 Issuance of nonvested shares 1,226 ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Forfeiture of nonvested shares ( 20,448 ) ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ — Stock-based compensation expense ​ — ​ ​ — ​ ​ 332 ​ ​ — ​ — ​ ​ — ​ ​ 332 Net share settlement of nonvested shares ( 3,936 ) ​ ​ — ​ ​ ( 69 ) ​ ​ — ​ — ​ ​ — ​ ​ ( 69 ) Net income ​ — ​ ​ — ​ ​ — ​ ​ 24,588 ​ — ​ ​ — ​ ​ 24,588 Balances — October 29, 2022 16,160,267 ​ $ 160 ​ $ 101,100 ​ $ 324,413 7,804,013 ​ $ ( 267,211 ) ​ $ 158,462 ​ ​ See accompanying notes to the condensed consolidated financial statements (unaudited). 6 Table of Contents Citi Trends, Inc. Notes to the Condensed Consolidated Financial Statements (unaudited) October 28, 2023 ​ 1. Significant Accounting Policies Basis of Presentation Citi Trends, Inc. and its subsidiary (the “Company”) is a leading specialty value retailer of apparel, accessories and home trends for way less spend primarily for African American and multicultural families. As of October 28, 2023, the Company operated 606 stores in urban, suburban and rural markets in 33 states. ​ The condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim reporting and are unaudited. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The condensed consolidated balance sheet as of January 28, 2023 is derived from the audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023 (the “2022 Form 10-K”). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2022 Form 10-K. Operating results for the third quarter of 2023 are not necessarily indicative of the results that may be expected for the fiscal year as a result of the seasonality of the business and the current economic uncertainty. Fiscal Year The following contains references to fiscal years 2023 and 2022, which represent fiscal years ending or ended on February 3, 2024 and January 28, 2023, respectively. Fiscal 2023 has a 53 -week accounting period, and fiscal 2022 had a 52 -week accounting period. ​ 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 apply judgments that affect the reported amounts. Actual results could differ from those estimates. ​ The most significant estimates 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. ​ 2. Cash and Cash Equivalents/Concentration of Credit Risk For purposes of the condensed consolidated balance sheets and condensed 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. ​ 3. 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 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 cost attributed to future services and not yet recognized. For the third quarter of 2023 and 2022, there were 318,000 and 220,000 shares of nonvested restricted stock, respectively, excluded from the calculation of diluted earnings per share because of antidilution. For the thirty-nine weeks ended October 28, 2023 and October 29, 2022, there were 259,000 and 226,000 shares of nonvested restricted stock, respectively, excluded from the calculation of diluted earnings per share because of antidilution. ​ 7 Table of Contents The following table provides a reconciliation of the weighted average number of 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: ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended ​ October 28, 2023 October 29, 2022 Weighted average number of common shares outstanding ​ 8,237,729 ​ 8,145,318 Incremental shares from assumed vesting of nonvested restricted stock ​ — ​ — Weighted average number of common shares and common stock equivalents outstanding ​ 8,237,729 ​ 8,145,318 ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirty-Nine Weeks Ended ​ October 28, 2023 October 29, 2022 Weighted average number of common shares outstanding ​ 8,214,907 ​ 8,236,836 Incremental shares from assumed vesting of nonvested restricted stock ​ — ​ — Weighted average number of common shares and common stock equivalents outstanding ​ 8,214,907 ​ 8,236,836 ​ ​ ​ ​ ​ ​ 4. Revolving Credit Facility In October 2011, the Company entered into a five-year , $ 50 million credit facility with Bank of America. The facility was amended in August 2015 and May 2020 to extend the maturity dates. The facility was further amended in April 2021 to modify terms and extend the maturity date to April 15, 2026. In May 2023, the facility was amended to replace the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”). The amended facility provides a $ 75 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 $ 100 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 0.20 % and permits the payment of cash dividends subject to certain limitations. Borrowings under the credit facility bear interest (a) for SOFR Loans, at a rate equal to the SOFR Rate plus a SOFR adjustment equal to 0.10 % plus either 1.25 % , 1.50 % or 1.75 % , 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) the Eurodollar Rate plus 1.0 % , plus, in each case either 0.25 % , 0.50 % or 0.75 % , based in any such case on the average daily availability for borrowings under the facility. ​ As of October 28, 2023, the Company had no borrowings under the credit facility and $ 0.6 million of letters of credit outstanding. ​ 5. Impairment of Assets If facts and circumstances indicate that a long-lived asset or operating lease right-of-use 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. In the third quarter of 2023, non-cash impairment expense related to underperforming stores totaled $ 0.2 million. ​ 6. Income Taxes 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. 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. If there is a change in tax rates, the Company would recognize the impact of such change in income in the period that includes the enactment date. The Company has historically used the annual effective tax rate method to calculate income taxes. For the first thirty-nine weeks of 2023, the Company used the discrete effective tax rate method to determine its tax expense based upon interim results. The Company determined that since small changes in estimated ordinary income would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the first thirty-nine weeks of 2023. 8 Table of Contents 7. 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, landlords, 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, the Company establishes appropriate reserves. In January 2023, the Company experienced a disruption of its back office and distribution center IT systems, which was due to what is known as Hive ransomware (the “January 2023 cyber disruption”). In connection with this incident, third party consultants and forensic experts were engaged to assist with the restoration and remediation of the Company’s systems and, with the assistance of law enforcement, to investigate the incident. The Company does not retain sensitive customer data on its systems. In connection with the January 2023 cyber disruption, four putative class action lawsuits have been filed against the Company in the United States District Court for the Southern District of Georgia. These matters, Matousek et al v. Citi Trends, Inc.; Sienna Thomas v. Citi Trends, Inc.; Yeimy Sambrano v. Citi Trends, Inc.; and Sabrina Green-Fogg v. Citi Trends, Inc., were filed on September 26, 2023, June 27, 2023, July 7, 2023 and July 14, 2023, respectively. The plaintiffs allege harm in connection with the January 2023 cyber disruption and assert a variety of claims seeking unspecified monetary damages and other related relief. The Company is vigorously defending these lawsuits. In addition, the Attorneys General of Alabama, Connecticut, Indiana and Texas have sent inquiry letters to the Company regarding the January 2023 cyber disruption, which the Company is answering. At October 28, 2023, the Company had an accrual of $ 0.8 million for estimated losses in connection with these matters recorded in Accrued expenses. The ultimate loss to the Company for these matters could be materially different from the amount the Company has accrued. The Company cannot predict or estimate the duration or ultimate outcome of these matters. The Company is unable to predict whether it may be subject to other lawsuits, claims or inquiries. While legal proceedings are subject to uncertainties and the outcome of any such matter is not predictable and it is possible that we could incur losses associated with these proceedings, the Company does not believe, based on the information available to it at the time of this filing, that any legal proceedings pending or threatened against it will have a material adverse effect on its financial condition, results of operations or liquidity. 8. Stock Repurchases Repurchases of Common Stock The Company periodically repurchases shares of its common stock under board-authorized repurchase programs. Such repurchases may be made in the open market, through block trades or through other negotiated transactions. Share repurchases were as follows (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended ​ Thirty-Nine Weeks Ended ​ October 28, 2023 October 29, 2022 ​ October 28, 2023 October 29, 2022 Total number of shares purchased ​ — ​ ​ — ​ ​ — ​ ​ 331 Average price paid per share (including commissions) $ — ​ $ — ​ $ — ​ $ 30.22 Total investment $ — ​ $ — ​ $ — ​ $ 10,000 ​ At October 28, 2023, $ 50.0 million remained available under the Company’s stock repurchase authorization. 9 Table of Contents 9. Revenue 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 immediately 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. ​ Sales Returns The Company allows customers to return merchandise for up to 30 days after the date of sale. Expected refunds to customers are recorded based on estimated margin using historical return information. ​ Disaggregation of Revenue The Company’s 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. ​ In the following table, the Company’s revenue from contracts with customers is disaggregated by “CITI” or major merchandise category. The percentage of net sales for each CITI with the merchandise assortment was approximately: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended ​ Thirty-Nine Weeks Ended ​ ​ October 28, October 29, October 28, October 29, ​ ​ 2023 2022 2023 2022 ​ Ladies 26 % ​ 26 % ​ 27 % ​ 27 % ​ Kids 24 % ​ 25 % ​ 22 % ​ 22 % ​ Accessories & Beauty 17 % ​ 17 % ​ 18 % ​ 17 % ​ Mens 17 % ​ 17 % ​ 17 % ​ 18 % ​ Footwear 9 % ​ 7 % ​ 8 % ​ 8 % ​ Home & Lifestyle 7 % ​ 8 % ​ 8 % ​ 8 % ​ ​ ​ 10. Leases The Company leases its retail store locations, distribution centers, and certain office space and equipment. Leases for store locations are typically for a term of five years with options to extend for one or more five-year periods. In April 2022, the Company completed a sale-leaseback of its distribution center in Darlington, South Carolina that resulted in a gain of $ 34.9 million and a 20-year lease term with the option to extend for six additional periods of five years each. In September 2022, the Company completed a sale-leaseback of its distribution center in Roland, Oklahoma that resulted in a gain of $ 29.2 million and a 15-year lease term with the option to extend for six additional periods of five years each. 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 condensed consolidated balance sheets. The lease liability is measured at the present value of future lease payments as of the lease commencement date. 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 costs consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirteen Weeks Ended ​ Thirty-Nine Weeks Ended ​ ​ October 28, 2023 ​ October 29, 2022 ​ October 28, 2023 ​ October 29, 2022 Operating lease cost ​ $ 15,521 ​ $ 15,443 ​ $ 46,930 ​ $ 44,326 Variable lease cost ​ 2,628 ​ 2,510 ​ 8,406 ​ 7,423 Short term lease cost ​ 393 ​ 343 ​ 1,171 ​ 1,062 Total lease cost ​ $ 18,542 ​ $ 18,296 ​ $ 56,507 ​ $ 52,811 ​ 10 Table of Contents Future minimum lease payments as of October 28, 2023 are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ Fiscal Year Lease Costs Remainder of 2023 $ 10,896 ​ ​ 2024 ​ ​ 61,555 ​ ​ 2025 ​ 51,678 ​ ​ 2026 ​ 40,248 ​ ​ 2027 ​ 29,574 ​ ​ Thereafter ​ 124,026 ​ ​ Total future minimum lease payments ​ ​ 317,977 ​ ​ Less: imputed interest ​ ​ ( 74,610 ) (1) ​ Total present value of lease liabilities ​ $ 243,367 (2) ​ ​ (1) Calculated using the discount rate for each lease. (2) Includes short-term and long-term portions of operating lease liabilities. ​ ​ Supplemental cash flows and other information related to operating leases are as follows (in thousands, except for weighted average amounts): ​ ​ ​ ​ ​ ​ ​ ​ ​ Thirty-Nine Weeks Ended ​ ​ October 28, 2023 ​ October 29, 2022 Cash paid for operating leases $ 52,734 ​ $ 44,754 Right of use assets obtained in exchange for new operating lease liabilities ​ $ 22,322 ​ $ 95,809 ​ ​ ​ ​ ​ Weighted average remaining lease term (years) - operating leases ​ 7.60 ​ 8.11 Weighted average discount rate - operating leases ​ ​ 4.90 % ​ ​ 4.38 % ​ ​