What changed in this filing

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Item 1. Financial Statements

2024-06-12 compared with 2023-12-06 · 199 added, 144 removed, 175 unchanged (66% of the section changed)

8 unchanged sentences

Total current assets

Property and equipment, net of accumulated depreciation of $ 272,238 and $ 262,525 as of October 28, 2023 and January 28, 2023, respectively

Property and equipment, net of accumulated depreciation of $ 288,437 and $ 276,446 as of May 4, 2024 and February 3, 2024, respectively

Operating lease right of use assets

14 unchanged sentences

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

16,340,729 shares issued as of May 4, 2024 and 16,354,714 shares issued as of February 3, 2024;

8,536,716 shares outstanding as of May 4, 2024 and 8,550,701 shares outstanding as of February 3, 2024

Paid in capital

1 unchanged sentence

Treasury stock, at cost;

7,804,013 shares held as of October 28, 2023 and January 28, 2023

7,804,013 shares held as of May 4, 2024 and February 3, 2024

Total stockholders ’ equity

8 unchanged sentences

Selling, general and administrative expenses

Asset impairment

Gain on sale-leaseback

(Loss) income from operations

Interest income

Interest expense

(Loss) income before income taxes

Income tax benefit (expense)

Net (loss) income

Basic net (loss) income per common share

Diluted net (loss) income per common share

Weighted average number of shares outstanding

Citi Trends, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

Thirty-Nine Weeks Ended

Cost of sales (exclusive of depreciation)

Selling, general and administrative expenses

Asset impairment

Gain on sale-leasebacks

(Loss) Income from operations

Loss from operations

Interest income

Interest expense

(Loss) Income before income taxes

Income tax benefit (expense)

Net (loss) income

Basic net (loss) income per common share

Diluted net (loss) income per common share

Loss before income taxes

Income tax benefit

Basic net loss per common share

Diluted net loss per common share

Weighted average number of shares outstanding

3 unchanged sentences

(in thousands)

Thirty-Nine Weeks Ended

Thirteen Weeks Ended

Operating activities:

Net (loss) income

Adjustments to reconcile net (loss) income to net cash used in operating activities:

Asset impairment

Adjustments to reconcile net loss to net cash used in operating activities:

Non-cash operating lease costs

1 unchanged sentence

Deferred income taxes

Insurance proceeds related to operating activities

Non-cash stock-based compensation expense

Gain on sale-leaseback

Gain on insurance related to operating activities

Changes in assets and liabilities:

8 unchanged sentences

Purchases of property and equipment

Insurance proceeds related to investing activities

Proceeds from sale-leasebacks

Net cash (used in) provided by investing activities

Net cash used in investing activities

Financing activities:

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

Repurchases of common stock

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents:

3 unchanged sentences

Cash paid for interest

Cash payments of income taxes

Cash (refunds) payments of income taxes

Supplemental disclosures of non-cash investing activities:

5 unchanged sentences

Treasury Stock

Balances — January 28, 2023

Balances — February 3, 2024

Vesting of nonvested shares

3 unchanged sentences

Net share settlement of nonvested shares

Balances — April 29, 2023

Issuance of nonvested shares

Forfeiture of nonvested shares

Stock-based compensation expense

Net share settlement of nonvested shares

Balances — July 29, 2023

Forfeiture of nonvested shares

Stock-based compensation expense

Net share settlement of nonvested shares

Balances — October 28, 2023

Balances — May 4, 2024

Treasury Stock

2 unchanged sentences

Issuance of nonvested shares

Issuance of common stock under incentive plan, net of shares withheld for taxes

Forfeiture of nonvested shares

1 unchanged sentence

Net share settlement of nonvested shares

Repurchase of common stock

Balances — April 29, 2023

Issuance of nonvested shares

Forfeiture of nonvested shares

Stock-based compensation expense

Net share settlement of nonvested shares

Repurchase of common stock

Balances — July 30, 2022

Vesting of nonvested shares

Issuance of nonvested shares

Forfeiture of nonvested shares

Stock-based compensation expense

Net share settlement of nonvested shares

Balances — October 29, 2022

See accompanying notes to the condensed consolidated financial statements (unaudited).

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements (unaudited)

October 28, 2023

Significant Accounting Policies

2 unchanged sentences

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.

As of May 4, 2024, the Company operated 599 stores in urban, suburban and rural markets in 33 states.

The condensed consolidated financial statements are prepared in accordance with U.S.

2 unchanged sentences

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”).

The condensed consolidated balance sheet as of February 3, 2024 is derived from the audited financial statements in the Company ’ s Annual Report on Form 10-K for the fiscal year ended February 3, 2024 (the “ 2023 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 2023 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.

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.

Operating results for the first quarter of 2024 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.

The following contains references to fiscal years 2024 and 2023, which represent fiscal years ending or ended on February 1, 2025 and February 3, 2024, respectively.

Fiscal 2024 has a 52 -week accounting period, and fiscal 2023 had a 53 -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.

Cash and Cash Equivalents/Concentration of Credit Risk

9 unchanged sentences

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.

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:

For the first quarter of 2024 and 2023, there were 272,000 and 102,000 shares of nonvested restricted stock, respectively, excluded from the calculation of diluted earnings per share because of antidilution.

The following table provides 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

Incremental shares from assumed vesting of nonvested restricted stock

Weighted average number of common shares and common stock equivalents outstanding

Thirty-Nine Weeks Ended

October 28, 2023

October 29, 2022

Weighted average number of common shares outstanding

April 29, 2023

Weighted average number of common shares outstanding (basic)

Incremental shares from assumed vesting of nonvested restricted stock

Weighted average number of common shares and common stock equivalents outstanding

Weighted average number of common shares and common stock equivalents outstanding (diluted)

Revolving Credit Facility

7 unchanged sentences

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.

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.

As of May 4, 2024, the Company had no borrowings under the credit facility and $ 1.4 million of letters of credit outstanding.

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

4 unchanged sentences

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.

For the first quarter of 2024, the Company utilized the annual effective tax rate method to calculate income taxes.

For the first quarter of 2023, the Company used the discrete effective tax rate method to determine its tax expense based upon interim period 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 annual effective tax rate method would not have provided a reliable estimate for the first quarter of 2023.

Commitments and Contingencies

1 unchanged sentence

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.

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.

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

Average price paid per share (including commissions)

Total investment

At October 28, 2023, $ 50.0 million remained available under the Company’s stock repurchase authorization.

There were no stock repurchases in the first quarter of fiscal 2024 or the first quarter of fiscal 2023.

At May 4, 2024, $ 50.0 million remained available under the Company ’ s stock repurchase authorization.

Revenue Recognition

13 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Accessories & Beauty

2 unchanged sentences

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.

4 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

October 28, 2023

October 29, 2022

October 28, 2023

October 29, 2022

April 29, 2023

Operating lease cost

2 unchanged sentences

Total lease cost

Future minimum lease payments as of October 28, 2023 are as follows (in thousands):

Future minimum lease payments as of May 4, 2024 are as follows (in thousands):

Remainder of 2024

4 unchanged sentences

(2) Includes short-term and long-term portions of operating lease liabilities.

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 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

Thirteen Weeks Ended

April 29, 2023

Cash paid for operating leases

2 unchanged sentences

Weighted average discount rate - operating leases

Subsequent Events

As previously disclosed in the Company ’ s Form 8-K filed on May 7, 2024, the Company and Equiniti Trust Company, LLC (the “ Rights Agent ” ) entered into the Second Amendment to the Stockholder Protection Rights Agreement, dated as of May 7, 2024 (the “ Amendment ” ), which amended the Stockholder Protection Rights Agreement, dated as of December 6, 2023, by and between the Company and the Rights Agent, as amended by that certain Amendment to the Stockholder Protection Rights Agreement, dated as of February 28, 2024 (as amended, the “ Rights Agreement ” ).

The Amendment terminated the Rights Agreement by accelerating the expiration time of the Company ’ s preferred share purchase rights (each, a “ Right ” and, collectively, the “ Rights ” ) to 5:00 P.M., New York City time, on May 7, 2024.

At the time of the termination of the Rights Agreement, all of the Rights, which were previously distributed to holders of the Company ’ s issued and outstanding common stock, par value $ 0.01 , pursuant to the Rights Agreement, expired.

In deciding to accelerate the expiration time to May 7, 2024, the Company's Board of Directors determined that an active Rights Agreement is no longer needed to protect stockholder value.

As previously disclosed in the Company ’ s Form 8-K filed on May 31, 2024, the Company ’ s Board of Directors appointed Kenneth D.

Seipel as interim Chief Executive Officer ( “ CEO ” ), effective June 2, 2024.

In connection with the appointment, David Makuen has stepped down as CEO and a member of the Company ’ s Board of Directors.

The Board ’ s independent members will commence a search for a new permanent Chief Executive Officer and plan to retain a nationally recognized executive search firm to support the process.

The Board will consider external candidates, as well as Mr.

Seipel, in the search.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Except for specific historical information, many of the matters discussed in this Form 10-Q may express or imply projections of revenues or expenditures, statements of plans and objectives for future operations, growth or initiatives, statements of future economic performance, capital allocation expectations or statements regarding the outcome or impact of pending or threatened litigation.

These, and similar statements, are forward-looking statements concerning matters that involve risks, uncertainties and other factors that may cause the actual performance of the Company to differ materially from those expressed or implied by these statements.

All forward-looking information should be evaluated in the context of these risks, uncertainties and other factors.

The words “ believe, ” “ anticipate, ” “ project, ” “ plan, ” “ expect, ” “ estimate, ” “ objective, ” “ forecast, ” “ goal, ” “ intend, ” “ could, ” “ will likely result, ” or “ will continue ” and similar words and expressions generally identify forward-looking statements, although not all forward-looking statements contain such language.

The Company believes the assumptions underlying these forward-looking statements are reasonable;

however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in the forward-looking statements.

The factors that may result in actual results differing from such forward-looking information include, but are not limited to:

uncertainties relating to general economic conditions, including inflation, energy and fuel costs, unemployment levels, and any deterioration whether caused by acts of war, terrorism, political or social unrest (including any resulting store closures, damage or loss of inventory) or other factors;

changes in market interest rates and market levels of wages;

natural disasters such as hurricanes;

uncertainty and economic impact of pandemics, epidemics or other public health emergencies;

transportation and distribution delays or interruptions;

changes in freight rates;

the Company ’ s ability to attract and retain workers;

the Company ’ s ability to negotiate effectively the cost and purchase of merchandise;

inventory risks due to shifts in market demand;

the Company ’ s ability to gauge fashion trends and changing consumer preferences;

changes in consumer confidence and consumer spending patterns;

competition within the industry;

competition in our markets;

the duration and extent of any economic stimulus programs;

changes in product mix;

interruptions in suppliers ’ businesses;

the impact of the cyber disruption we identified on January 14, 2023, including legal, reputational, financial and contractual risks resulting from the disruption, and other risks related to cybersecurity, data privacy and intellectual property;

the results of pending or threatened litigation;

temporary changes in demand due to weather patterns;

seasonality of the Company ’ s business;

delays associated with building, opening, remodeling and operating new stores;

delays associated with building, opening or expanding new or existing distribution centers;

and other factors described in the section titled “ Item 1A.

Risk Factors ” and elsewhere in the Company ’ s Annual Report on Form 10-K for the fiscal year ended February 3, 2024 and in Part II, “ Item 1A.

Risk Factors ” and elsewhere in the Company ’ s Quarterly Reports on Form 10-Q and any amendments thereto and in the other documents the Company files with the SEC, including reports on Form 8-K.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q.

Except as may be required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements contained herein to reflect events or circumstances occurring after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

Readers are advised, however, to read any further disclosures the Company may make on related subjects in its public disclosures or documents filed with the SEC, including reports on Form 8-K.

Executive Overview

We are a leading specialty value retailer of apparel, accessories and home trends for way less spend primarily for African American and multicultural families.

Our high-quality and trend-right merchandise offerings at everyday low prices are designed to appeal to the fashion and trend preferences of value-conscious customers.

As of May 4, 2024, we operated 599 stores in urban, suburban and rural markets in 33 states.

Uncertainties and Challenges

General Economic Conditions

We expect that our operations in the short-term will continue to be influenced by general economic conditions, including on-going inflationary pressures, which are particularly impactful to the communities we serve.

Given the macro-economic environment, we expect low-income families to remain under pressure and to tightly manage their discretionary spend through the majority of fiscal 2024.

In addition, we continue to monitor the impacts on our business of unemployment levels, wage inflation, interest rates, inflation rates, housing costs, energy costs, consumer confidence, consumer perception of economic conditions, costs to source our merchandise and supply chain disruptions.

Seasonality and Weather Patterns

The nature of our business is seasonal.

Historically, sales in the first and fourth quarters have been higher than sales achieved in the second and third quarters of the fiscal year.

In addition, sales of clothing are directly impacted by the timing of the seasons to which the clothing relates.

While we have expanded our product offerings to become a one-stop-shop, traffic to our stores is still influenced by weather patterns to some extent.

Cyber Disruption (January 2023)

As previously disclosed, in January 2023, we experienced a disruption of our back office and distribution center IT systems, (the “ January 2023 cyber disruption ” ).

In the first quarter of fiscal 2023, cyber disruption related costs net of an expected insurance receivable totaled $1.6 million, comprised of incremental inventory processing costs, third-party consulting services and legal counsel.

Several putative class action lawsuits have been filed against the Company and several inquiries have been made to the Company with respect to the January 2023 cyber disruption.

As of May 4, 2024, we had an accrual of $0.7 million for estimated losses in connection with these matters recorded in Accrued expenses on our Balance Sheet.

For additional information regarding these lawsuits, see Note 7 of the Annual Report on Form 10-K for the fiscal year ended February 3, 2024 .

Basis of Presentation

Net sales consist of store sales and layaway fees, net of returns by customers.

Cost of sales consists of the cost of products we sell and associated freight costs.

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

Selling, general and administrative expenses are comprised of store costs, including payroll and occupancy costs, corporate and distribution center costs and advertising costs.

The following discussion contains references to fiscal years 2024 and 2023, which represent fiscal years ending or ended on February 1, 2025 and February 3, 2024, respectively.

Fiscal 2024 has a 52-week accounting period and fiscal 2023 had a 53-week accounting period.

This discussion and analysis should be read with the unaudited condensed consolidated financial statements and the notes thereto contained in Part I, Item 1 of this Report.

Results of Operations

The following discussion of the Company ’ s financial performance is based on the unaudited condensed consolidated financial statements set forth herein.

Expenses and, to a greater extent, operating income, vary by quarter.

Results of a period shorter than a full year may not be indicative of results expected for the entire year as a result of the seasonality of our business and the current economic uncertainty.

Key Operating Statistics

We measure performance using key operating statistics.

One of the main performance measures we use is comparable store sales growth.

For 2024, we are updating our definition of a comparable store.

We now define a comparable store as a store that has been open for at least 14 full consecutive months without closure for more than seven days within the same fiscal month.

Remodeled or relocated stores are considered a comparable store if the selling square footage is not changed significantly, the store is not closed for more than 5 days in any fiscal month and the store remains in the same trade area.

This change aligns more with industry standards in regard to measuring “ comp store ” sales performance.

This change is effective for fiscal year 2024 and go forward.

For fiscal year 2024, the definition change results in 6 stores becoming

comparable stores in 2024, which would not have become a comparable store until 2025 under the prior definition.

The revised definition would result in no change to the full year 2023 comparable store sales results of 5.3%.

We also use other operating statistics, most notably average sales per store, to measure our performance.

As we typically occupy existing space in established shopping centers rather than sites built specifically for our stores, store square footage (and therefore sales per square foot) varies by store.

We focus on overall store sales volume as the critical driver of profitability.

In addition to sales, we measure cost of sales as a percentage of sales and store operating expenses, with a particular focus on labor, as a percentage of sales.

These results translate into store level contribution, which we use to evaluate overall performance of each individual store.

Finally, we monitor corporate and distribution center expenses against budgeted amounts.

Thirteen Weeks Ended May 4, 2024 and April 29, 2023

Net sales increased $6.6 million, or 3.7%, to $186.3 million in the first quarter of 2024 from $179.7 million in the first quarter of 2023.

The increase in sales was due to a 3.1% increase in comparable store sales.

Cost of Sales (exclusive of depreciation).

Cost of sales (exclusive of depreciation) increased $0.6 million, or 0.5%, to $114.3 million in the first quarter of 2024 from $113.7 million in the first quarter of 2023.

Cost of sales as a percentage of sales decreased to 61.3% in the first quarter of 2024 from 63.3% in the first quarter of 2023.

The change was due to a decrease in freight costs, along with a decrease in markdowns, offset by an increase in shrink expense.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses increased $3.4 million, or 4.8%, to $74.2 million in the first quarter of 2024 from $70.8 million in the first quarter of 2023.

The increase was primarily due to a $1.9 million increase in corporate payroll related expense, a $0.7 million increase in store marketing and advertising expense and a $0.9 million increase in store selling expenses.

As a percentage of sales, selling, general and administrative expenses increased to 39.8% in the first quarter of 2024 from 39.4% in the first quarter of 2023.

Depreciation.

Depreciation expense increased $0.1 million, or 2.4%, to $4.8 million in the first quarter of 2024 from $4.7 million in the first quarter of 2023.

Income Tax Benefit/Expense.

Income tax benefit was $2.8 million in the first quarter of 2024 compared to a benefit of $1.9 million in the first quarter of 2023.

For the first quarter of 2024, we used the annual effective tax rate to determine income tax expense, and for the first quarter of 2023 we used the discrete effective tax rate method to determine income tax expense based upon interim period results.

Net Income/Loss.

Net loss was $3.4 million in the first quarter of 2024 compared to net loss of $6.6 million in the first quarter of 2023 due to the factors discussed above.

Liquidity and Capital Resources

Capital Allocation

Our capital allocation strategy is to maintain adequate liquidity to prioritize investments in opportunities to profitably grow our business and maintain current operations, then to return excess cash to shareholders through our repurchase programs.

Our quarter-end cash and cash equivalents balance was $58.2 million compared to $88.7 million at the end of the first quarter of 2023.

Until required for other purposes, we maintain cash and cash equivalents in deposit or money market accounts.

Our principal sources of liquidity consist of:

(i) cash and cash equivalents on hand;

(ii) short-term trade credit arising from customary payment terms and trade practices with our vendors;

(iii) cash generated from operations on an ongoing basis;

and (iv) a revolving credit facility with a $75 million credit commitment.

Our quarter-end inventory balance was $119.0 million, compared with $114.3 million at the end of the first quarter of 2023.

The increase was primarily due to a strategic increase in our average in-store inventory.

Capital Expenditures

Capital expenditures in the first quarter of 2024 were $1.6 million, an increase of $0.6 million from the first quarter of 2023 as we invest in more existing store remodels.

We anticipate capital expenditures in fiscal 2024 of approximately $20 million, primarily for opening up to five new stores and remodeling approximately 40 stores, combined with ongoing investments in our systems.

Share Repurchases

We did not repurchase any shares of our common stock in the first quarter of fiscal 2024 or fiscal 2023.

See Part II, Item 2 of this Report and Note 7 to the Financial Statements for more information.

Revolving Credit Facility

We have a revolving credit facility that matures in April 2026 and provides a $75 million credit commitment and a $25 million uncommitted “ accordion ” feature.

Additional details of the credit facility are in Note 4 to the Financial Statements .

At the end of the first quarter of 2024, we had no borrowings under the credit facility and $0.6 million in letters of credit outstanding.

Cash Flows From Operating Activities .

Net cash used in operating activities was $19.6 million in the first quarter of 2024 compared to cash used of $13.1 million in the first quarter of 2023.

Sources of cash in the first quarter of 2024 resulted from a net loss adjusted for non-cash expenses totaling $11.5 million (compared to a net loss adjusted for non-cash items of $10.5 million in the first quarter of 2023), and a decrease of $11.4 million in inventory (compared to an increase of $8.5 million in 2023).

Significant uses of cash during the first quarter of 2024 included (1) a $28.1 million decrease in accounts payable (compared to an increase of $9.1 million in the first quarter of 2023) due primarily to timing of vendor payments;

and (2) a decrease of $14.5 million in accrued expenses and other long-term liabilities (compared to a decrease of $20.0 million in the first quarter of 2023) due primarily to payments of operating lease liabilities.

Cash Flows From Investing Activities.

Cash used by investing activities was $1.6 million in the first quarter of 2024 compared to $1.0 million in the first quarter of 2023.

Cash used in the first quarter of 2024 and 2023 consisted of purchases of property and equipment.

Cash Flows From Financing Activities.

Cash used in financing activities was $0.3 million in the first quarter of 2024 compared to $0.8 million in the first quarter of 2023.

Cash used in the first quarter of 2024 and 2023 was to settle withholding taxes on the vesting of restricted stock.

Cash Requirements and Commitments

Our principal cash requirements consist of (1) inventory purchases;

(2) capital expenditures to invest in our infrastructure;

and (3) operational needs, including salaries, occupancy costs, taxes and other operating costs.

We may also use cash to fund any share repurchases, make any required debt payments and satisfy other contractual obligations.

Historically, we have met these cash requirements using cash flow from operations and short-term trade credit.

As of May 4, 2024, our contractual commitments for operating leases totaled $229.9 million (with $41.1 million due within 12 months).

See Note 9 to the Financial Statements for more information regarding lease commitments.

Critical Accounting Policies

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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.

There have been no material changes to the Critical Accounting Policies outlined in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our market risk during the thirteen weeks ended May 4, 2024 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

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-Q

Item 1. Financial Statements