Citi Trends Inc - Quarter Report: 2012 July (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 28, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-51315
CITI TRENDS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE |
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52-2150697 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification No.) |
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104 Coleman Boulevard |
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Savannah, Georgia |
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31408 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code (912) 236-1561
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer o |
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Accelerated Filer x |
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Non-Accelerated Filer o |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
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Class |
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Outstanding as of August 13, 2012 |
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Common Stock, $.01 par value |
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15,154,055 shares |
CITI TRENDS, INC.
FORM 10-Q
PART I - FINANCIAL INFORMATION
Citi Trends, Inc.
Condensed Consolidated Balance Sheets
July 28, 2012 and January 28, 2012
(Unaudited)
(in thousands, except share data)
|
|
|
July 28, |
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January 28, |
| ||
|
|
|
2012 |
|
2012 |
| ||
|
Assets |
|
|
|
|
| ||
|
Current assets: |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
51,730 |
|
$ |
41,986 |
|
|
Short-term investment securities |
|
3,311 |
|
902 |
| ||
|
Inventory |
|
133,773 |
|
131,526 |
| ||
|
Prepaid and other current assets |
|
10,131 |
|
10,522 |
| ||
|
Income tax receivable |
|
6,309 |
|
11,195 |
| ||
|
Deferred tax asset |
|
5,990 |
|
5,829 |
| ||
|
Assets held for sale |
|
1,415 |
|
1,415 |
| ||
|
Total current assets |
|
212,659 |
|
203,375 |
| ||
|
Property and equipment, net of accumulated depreciation and amortization of $131,048 and $118,875 as of July 28, 2012 and January 28, 2012, respectively |
|
80,990 |
|
90,541 |
| ||
|
Long-term investment securities |
|
16,397 |
|
18,840 |
| ||
|
Deferred tax asset |
|
1,914 |
|
1,223 |
| ||
|
Other assets |
|
774 |
|
798 |
| ||
|
Total assets |
|
$ |
312,734 |
|
$ |
314,777 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
| ||
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Accounts payable |
|
$ |
71,959 |
|
$ |
78,941 |
|
|
Accrued expenses |
|
17,151 |
|
15,729 |
| ||
|
Accrued compensation |
|
10,792 |
|
10,345 |
| ||
|
Layaway deposits |
|
1,995 |
|
603 |
| ||
|
Total current liabilities |
|
101,897 |
|
105,618 |
| ||
|
Other long-term liabilities |
|
11,815 |
|
12,756 |
| ||
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Total liabilities |
|
113,712 |
|
118,374 |
| ||
|
Stockholders’ equity: |
|
|
|
|
| ||
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Common stock, $0.01 par value. Authorized 32,000,000 shares; 15,320,435 shares issued as of July 28, 2012 and 15,062,300 shares issued as of January 28, 2012; 15,154,685 shares outstanding as of July 28, 2012 and 14,896,550 outstanding as of January 28, 2012 |
|
148 |
|
148 |
| ||
|
Paid-in-capital |
|
79,028 |
|
78,588 |
| ||
|
Retained earnings |
|
120,011 |
|
117,832 |
| ||
|
Treasury stock, at cost; 165,750 shares as of July 28, 2012 and January 28, 2012 |
|
(165 |
) |
(165 |
) | ||
|
Total stockholders’ equity |
|
199,022 |
|
196,403 |
| ||
|
Commitments and contingencies (note 9) |
|
|
|
|
| ||
|
Total liabilities and stockholders’ equity |
|
$ |
312,734 |
|
$ |
314,777 |
|
See accompanying notes to the condensed consolidated financial statements (unaudited).
Citi Trends, Inc.
Condensed Consolidated Statements of Operations
Twenty-Six Weeks Ended July 28, 2012 and July 30, 2011
(Unaudited)
(in thousands, except per share data)
|
|
|
Twenty-Six Weeks Ended |
| ||||
|
|
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July 28, |
|
July 30, |
| ||
|
|
|
2012 |
|
2011 |
| ||
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Net sales |
|
$ |
330,012 |
|
$ |
319,401 |
|
|
Cost of sales |
|
210,931 |
|
200,880 |
| ||
|
Gross profit |
|
119,081 |
|
118,521 |
| ||
|
Selling, general and administrative expenses |
|
103,601 |
|
101,760 |
| ||
|
Depreciation and amortization |
|
12,183 |
|
11,935 |
| ||
|
Asset impairment |
|
— |
|
1,609 |
| ||
|
Income from operations |
|
3,297 |
|
3,217 |
| ||
|
Interest income |
|
128 |
|
119 |
| ||
|
Interest expense |
|
(113 |
) |
(10 |
) | ||
|
Income before income tax expense |
|
3,312 |
|
3,326 |
| ||
|
Income tax expense |
|
1,133 |
|
1,264 |
| ||
|
Net income |
|
$ |
2,179 |
|
$ |
2,062 |
|
|
|
|
|
|
|
| ||
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Basic net income per common share |
|
$ |
0.15 |
|
$ |
0.14 |
|
|
Diluted net income per common share |
|
$ |
0.15 |
|
$ |
0.14 |
|
|
|
|
|
|
|
| ||
|
Weighted average number of shares outstanding |
|
|
|
|
| ||
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Basic |
|
14,654 |
|
14,575 |
| ||
|
Diluted |
|
14,656 |
|
14,585 |
| ||
Citi Trends, Inc.
Condensed Consolidated Statements of Operations
Thirteen Weeks Ended July 28, 2012 and July 30, 2011
(Unaudited)
(in thousands, except per share data)
|
|
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Thirteen Weeks Ended |
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|
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July 28, |
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July 30, |
| ||
|
|
|
2012 |
|
2011 |
| ||
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Net sales |
|
$ |
132,318 |
|
$ |
130,233 |
|
|
Cost of sales |
|
87,903 |
|
86,781 |
| ||
|
Gross profit |
|
44,415 |
|
43,452 |
| ||
|
Selling, general and administrative expenses |
|
50,932 |
|
50,688 |
| ||
|
Depreciation and amortization |
|
6,038 |
|
6,351 |
| ||
|
Asset impairment |
|
— |
|
1,609 |
| ||
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Loss from operations |
|
(12,555 |
) |
(15,196 |
) | ||
|
Interest income |
|
66 |
|
65 |
| ||
|
Interest expense |
|
(64 |
) |
(6 |
) | ||
|
Loss before income tax benefit |
|
(12,553 |
) |
(15,137 |
) | ||
|
Income tax benefit |
|
(4,628 |
) |
(5,106 |
) | ||
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Net loss |
|
$ |
(7,925 |
) |
$ |
(10,031 |
) |
|
|
|
|
|
|
| ||
|
Basic net loss per common share |
|
$ |
(0.54 |
) |
$ |
(0.69 |
) |
|
Diluted net loss per common share |
|
$ |
(0.54 |
) |
$ |
(0.69 |
) |
|
|
|
|
|
|
| ||
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Weighted average number of shares outstanding |
|
|
|
|
| ||
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Basic |
|
14,673 |
|
14,596 |
| ||
|
Diluted |
|
14,673 |
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14,596 |
| ||
See accompanying notes to the condensed consolidated financial statements (unaudited).
Citi Trends, Inc.
Condensed Consolidated Statements of Cash Flows
Twenty-Six Weeks Ended July 28, 2012 and July 30, 2011
(Unaudited)
(in thousands)
|
|
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Twenty-Six Weeks Ended |
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|
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July 28, |
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July 30, |
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|
|
|
2012 |
|
2011 |
| ||
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Operating activities: |
|
|
|
|
| ||
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Net income |
|
$ |
2,179 |
|
$ |
2,062 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
|
Depreciation and amortization |
|
12,183 |
|
11,935 |
| ||
|
Asset impairment |
|
— |
|
1,609 |
| ||
|
Loss on disposal of property and equipment |
|
10 |
|
216 |
| ||
|
Deferred income taxes |
|
(852 |
) |
79 |
| ||
|
Noncash stock-based compensation expense |
|
1,227 |
|
1,638 |
| ||
|
Excess tax benefits from stock-based payment arrangements |
|
432 |
|
(847 |
) | ||
|
Changes in assets and liabilities: |
|
|
|
|
| ||
|
Inventory |
|
(2,247 |
) |
(881 |
) | ||
|
Prepaid and other current assets |
|
391 |
|
1,798 |
| ||
|
Other assets |
|
24 |
|
(21 |
) | ||
|
Accounts payable |
|
(6,982 |
) |
(6,379 |
) | ||
|
Accrued expenses and other long-term liabilities |
|
1,365 |
|
3,135 |
| ||
|
Accrued compensation |
|
447 |
|
780 |
| ||
|
Income tax receivable/payable |
|
4,454 |
|
(2,877 |
) | ||
|
Layaway deposits |
|
1,392 |
|
1,225 |
| ||
|
Net cash provided by operating activities |
|
14,023 |
|
13,472 |
| ||
|
Investing activities: |
|
|
|
|
| ||
|
Sales/redemptions of investment securities |
|
34 |
|
835 |
| ||
|
Purchases of investment securities |
|
— |
|
(11,012 |
) | ||
|
Purchases of property and equipment |
|
(3,526 |
) |
(23,214 |
) | ||
|
Net cash used in investing activities |
|
(3,492 |
) |
(33,391 |
) | ||
|
Financing activities: |
|
|
|
|
| ||
|
Excess tax benefits from stock-based payment arrangements |
|
(432 |
) |
847 |
| ||
|
Proceeds from the exercise of stock options |
|
— |
|
22 |
| ||
|
Shares acquired to settle withholding taxes on the vesting of nonvested restricted stock |
|
(355 |
) |
(685 |
) | ||
|
Net cash (used in) provided by financing activities |
|
(787 |
) |
184 |
| ||
|
Net increase (decrease) in cash and cash equivalents |
|
9,744 |
|
(19,735 |
) | ||
|
Cash and cash equivalents: |
|
|
|
|
| ||
|
Beginning of period |
|
41,986 |
|
69,231 |
| ||
|
End of period |
|
$ |
51,730 |
|
$ |
49,496 |
|
|
|
|
|
|
|
| ||
|
Supplemental disclosures of cash flow information: |
|
|
|
|
| ||
|
Cash paid for interest |
|
$ |
77 |
|
$ |
— |
|
|
Cash (refunds) payments of income taxes |
|
$ |
(2,469 |
) |
$ |
4,062 |
|
|
Supplemental disclosures of noncash investing activities: |
|
|
|
|
| ||
|
(Decrease) increase in accrual for purchases of property and equipment |
|
$ |
(884 |
) |
$ |
794 |
|
See accompanying notes to the condensed consolidated financial statements (unaudited).
Citi Trends, Inc.
Notes to the Condensed Consolidated Financial Statements (unaudited)
July 28, 2012
1. Basis of Presentation
Citi Trends, Inc. and its subsidiary (the “Company”) operate as a value-priced retailer of urban fashion apparel and accessories for the entire family. As of July 28, 2012, the Company operated 512 stores in 29 states.
The condensed consolidated balance sheet as of July 28, 2012, the condensed consolidated statements of operations for the twenty-six and thirteen week periods ended July 28, 2012 and July 30, 2011 and the condensed consolidated statements of cash flows for the twenty-six week periods ended July 28, 2012 and July 30, 2011 have been prepared by the Company without audit. The condensed consolidated balance sheet as of January 28, 2012 has been derived from the audited financial statements as of that date, but does not include all required year-end disclosures. In the opinion of management, such statements include all adjustments considered necessary to present fairly the Company’s financial position as of July 28, 2012 and January 28, 2012, and its results of operations and cash flows for all periods presented. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended January 28, 2012.
The accompanying unaudited condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by U.S. GAAP for complete financial statements. Operating results for the interim periods ended July 28, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending February 2, 2013.
The following contains references to years 2012 and 2011, which represent fiscal years ending or ended on February 2, 2013 and January 28, 2012, respectively. Fiscal 2012 has a 53-week accounting period and fiscal 2011 has a 52-week accounting period.
2. Use of Estimates
The preparation of financial statements in conformity with 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.
3. 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.
4. 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 and stock options. 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. This method assumes that the proceeds the Company receives from the exercise of stock options are used to repurchase common shares in the market. The Company includes as assumed proceeds the amount of compensation cost attributed to future services and not yet recognized, and the amount of tax benefits, if any, that would be credited to additional paid-in capital assuming exercise of outstanding options and vesting of nonvested restricted stock. For the twenty-six weeks ended July 28, 2012 and July 30, 2011, there were 45,000 and 49,000 stock options, respectively, and 351,000 and 369,000 shares of nonvested restricted stock, respectively, excluded from the calculation of diluted earnings per share because of antidilution. For the thirteen weeks ended July 28, 2012 and July 30, 2011, there were 40,000 and 49,000 stock options, respectively, and 414,000 and 388,000 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 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 twenty-six and thirteen week periods ended July 28, 2012 and July 30, 2011:
|
|
|
Twenty-Six Weeks Ended |
| ||
|
|
|
July 28, 2012 |
|
July 30, 2011 |
|
|
Average number of common shares outstanding |
|
14,654,456 |
|
14,574,935 |
|
|
Incremental shares from assumed exercises of stock options |
|
1,548 |
|
9,699 |
|
|
Incremental shares from assumed vesting of nonvested restricted stock |
|
— |
|
— |
|
|
Average number of common shares and common stock equivalents outstanding |
|
14,656,004 |
|
14,584,634 |
|
|
|
|
Thirteen Weeks Ended |
| ||
|
|
|
July 28, 2012 |
|
July 30, 2011 |
|
|
Average number of common shares outstanding |
|
14,673,403 |
|
14,595,985 |
|
|
Incremental shares from assumed exercises of stock options |
|
— |
|
— |
|
|
Incremental shares from assumed vesting of nonvested restricted stock |
|
— |
|
— |
|
|
Average number of common shares and common stock equivalents outstanding |
|
14,673,403 |
|
14,595,985 |
|
5. Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market at the measurement date. Fair value is established according to a hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. Level 3 inputs are given the lowest priority in the fair value hierarchy.
As of July 28, 2012, the Company’s investment securities are classified as held-to-maturity since the Company has the intent and ability to hold the investments to maturity. Such securities are carried at amortized cost plus accrued interest and consist of the following (in thousands):
|
|
|
Amortized |
|
Gross |
|
Gross |
|
Fair Market |
| ||||
|
Short-term: |
|
|
|
|
|
|
|
|
| ||||
|
Obligations of states and municipalities (Level 2) |
|
$ |
259 |
|
$ |
1 |
|
$ |
— |
|
$ |
260 |
|
|
Bank certificates of deposit (Level 2) |
|
3,052 |
|
3 |
|
— |
|
3,055 |
| ||||
|
|
|
$ |
3,311 |
|
$ |
4 |
|
$ |
— |
|
$ |
3,315 |
|
|
Long-term: |
|
|
|
|
|
|
|
|
| ||||
|
Obligations of the U. S. Treasury (Level 1) |
|
$ |
4,989 |
|
$ |
56 |
|
$ |
— |
|
$ |
5,045 |
|
|
Obligations of states and municipalities (Level 2) |
|
1,511 |
|
12 |
|
— |
|
1,523 |
| ||||
|
Bank certificates of deposit (Level 2) |
|
9,897 |
|
4 |
|
— |
|
9,901 |
| ||||
|
|
|
$ |
16,397 |
|
$ |
72 |
|
$ |
— |
|
$ |
16,469 |
|
The amortized cost and fair market value of investment securities as of July 28, 2012 by contractual maturity are as follows (in thousands):
|
|
|
Amortized |
|
Fair |
| ||
|
Mature in one year or less |
|
$ |
3,311 |
|
$ |
3,315 |
|
|
Mature after one year through five years |
|
16,397 |
|
16,469 |
| ||
|
|
|
$ |
19,708 |
|
$ |
19,784 |
|
As of January 28, 2012, the Company’s investment securities were classified as held-to-maturity and consisted of the following (in thousands):
|
|
|
Amortized |
|
Gross |
|
Gross |
|
Fair |
| ||||
|
Short-term: |
|
|
|
|
|
|
|
|
| ||||
|
Bank certificates of deposit (Level 2) |
|
$ |
902 |
|
$ |
1 |
|
$ |
— |
|
$ |
903 |
|
|
Long-term: |
|
|
|
|
|
|
|
|
| ||||
|
Obligations of the U. S. Treasury (Level 1) |
|
$ |
4,986 |
|
$ |
77 |
|
$ |
— |
|
$ |
5,063 |
|
|
Obligations of states and municipalities (Level 2) |
|
1,809 |
|
19 |
|
— |
|
1,828 |
| ||||
|
Bank certificates of deposit (Level 2) |
|
12,045 |
|
— |
|
1 |
|
12,044 |
| ||||
|
|
|
$ |
18,840 |
|
$ |
96 |
|
$ |
1 |
|
$ |
18,935 |
|
The amortized cost and fair market value of investment securities as of January 28, 2012 by contractual maturity were as follows (in thousands):
|
|
|
Amortized |
|
Fair |
| ||
|
Mature in one year or less |
|
$ |
902 |
|
$ |
903 |
|
|
Mature after one year through five years |
|
18,840 |
|
18,935 |
| ||
|
|
|
$ |
19,742 |
|
$ |
19,838 |
|
There were no changes among the levels in the twenty-six weeks ended July 28, 2012.
Fair market values of Level 2 investments are determined by management with the assistance of a third party pricing service. Since quoted prices in active markets for identical assets are not available, these prices are determined by the third party pricing service using observable market information such as quotes from less active markets and quoted prices of similar securities.
6. Revolving Line of Credit
On October 27, 2011, the Company entered into a five-year, $50 million credit facility with Bank of America to replace its prior $20 million credit facility. The facility includes a $25 million uncommitted “accordion” feature that under certain circumstances could allow the Company to increase the size of the facility to $75 million. Borrowings, if any, under the facility will bear interest (a) for LIBOR Rate Loans, at LIBOR plus 1.5%, or (b) for Base Rate Loans, at a rate equal to the highest of (i) the prime rate plus 0.5%, (ii) the Federal Funds Rate plus 1.0%, or (iii) LIBOR plus 1.5%. 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, including a requirement that there were no borrowings outstanding in the 30 days prior to the dividend payment and no borrowings are expected in the 30 days subsequent to the payment. The Company has had no borrowings under either the existing or prior facility.
7. 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. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized.
The Company’s effective income tax rate of 34.2% for the twenty-six weeks ended July 28, 2012 was lower than the 38.0% rate for the twenty-six weeks ended July 30, 2011, because a valuation allowance of $0.7 million was established in the second quarter of fiscal 2011 when the Company concluded that its ability to utilize certain tax credits in one state was no longer more likely than not. The effect of the fiscal 2011 valuation allowance on the tax rate comparison between years was partially offset by the effect on fiscal 2012 of the expiration of the Work Opportunity Tax Credit (WOTC). It is possible that Congress will retroactively reinstate the WOTC back to the beginning of 2012; however, due to the uncertainty involved, no WOTC benefits were recorded in the twenty-six weeks ended July 28, 2012. Such benefits would be recorded if and when the legislation is enacted.
8. Other Long-Term Liabilities
The components of other long-term liabilities as of July 28, 2012 and January 28, 2012 are as follows (in thousands):
|
|
|
July 28, |
|
January 28, |
| ||
|
Deferred rent |
|
$ |
3,900 |
|
$ |
4,433 |
|
|
Tenant improvement allowances |
|
6,458 |
|
7,158 |
| ||
|
Other |
|
1,457 |
|
1,165 |
| ||
|
|
|
$ |
11,815 |
|
$ |
12,756 |
|
9. Commitments and Contingencies
On August 12, 2011, the Company received a letter of determination from the U.S. Equal Employment Opportunity Commission (the “EEOC”) commencing a conciliation process regarding alleged discrimination against males by the Company in its hiring and promotion practices during the years 2004 through 2006. In its letter of determination, the EEOC sought recovery in the amount of $0.2 million on behalf of a former male employee and in the additional amount of $3.8 million in a settlement fund for a class of unidentified males who sought or considered seeking manager or assistant manager positions in the Company’s stores. The EEOC also seeks certain undertakings by the Company with regard to its employment policies and procedures and a reporting obligation to the EEOC with respect to the Company’s compliance with these undertakings.
The Company has not received full documentation or information from the EEOC in support of its letter of determination, but has undertaken its own internal analysis of the EEOC’s claims and defenses to such claims and has had discussions with the EEOC in that regard. Following discussions with the EEOC regarding possible settlement, the EEOC has proposed a settlement amount of up to $2.5 million and requested certain additional information. In the interest of reaching a satisfactory conciliation agreement with the EEOC, the Company has proposed a total economic settlement offer of up to $1.6 million. The Company is currently in discussions with the EEOC regarding these offers for settlement and options for resolution of the matter. The Company is also evaluating other aspects of the conciliation process established by the EEOC.
On February 24, 2012, a suit was filed in the United States District Court for the Northern District of Alabama, Middle Division, by certain individuals as a purported collective action on behalf of current and former employees of the Company holding store managerial positions. The plaintiffs allege that store managers have been improperly classified as exempt from the obligation to pay overtime in violation of the Fair Labor Standards Act. The Company intends to vigorously defend the claims that have been asserted in this lawsuit. Because of the early stage of this action and the fact that no discovery has been conducted to date, the Company is unable to determine the probability of outcome and it is not reasonably possible to estimate a range of loss with respect to this matter. Accordingly, no accrual for costs has been recorded, and the potential impact of this matter on the Company’s financial position, results of operations and cash flows cannot be determined at this time.
The Company from time to time is also involved in various other 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 other 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.
Item 2. 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, 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,” “will likely result,” or “will continue” and similar words and expressions generally identify forward-looking statements. 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: transportation and distribution delays or interruptions; changes in freight rates; 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 spending on apparel; changes in product mix; interruptions in suppliers’ businesses; a deterioration in general economic conditions caused by acts of war or terrorism or other factors; temporary changes in demand due to weather patterns; seasonality of the Company’s business; delays associated with building, opening 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 January 28, 2012 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.
Overview
We are a value-priced retailer of urban fashion apparel and accessories for the entire family. Our merchandise offerings are designed to appeal to the preferences of fashion conscious consumers, particularly African-Americans. We operated 512 stores in both urban and rural markets in 29 states as of July 28, 2012.
We measure performance using key operating statistics. One of the main performance measures we use is comparable store sales growth. We define a comparable store as a store that has been opened for an entire fiscal year. Therefore, a store will not be considered a comparable store until its 13th month of operation at the earliest or until its 24th month at the latest. As an example, stores opened in fiscal 2011 and fiscal 2012 are not considered comparable stores in fiscal 2012. Relocated and expanded stores are included in the comparable store sales results. 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. The average sales per store has increased over the years, as we have increased comparable store sales and opened new stores that are generally larger than our historical store base. Average sales per store have increased from $0.8 million in fiscal 2000 to $1.3 million in fiscal 2011.
In addition to sales, we measure gross profit 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 expenses against budgeted amounts. All of the statistics discussed above are critical components of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA (comprised of EBITDA plus non-cash asset impairment expense), which are considered our most important operating statistics. Although EBITDA and Adjusted EBITDA provide useful information on an operating cash flow basis, they are limited measures in that they exclude the impact of cash requirements for capital expenditures, income taxes and interest expense. Therefore, EBITDA and Adjusted EBITDA should be used as supplements to results of operations and cash flows as reported under U.S. GAAP and should not be used as a singular measure of operating performance or as a substitute for U.S. GAAP results. Provided below is a reconciliation of net income (loss) to EBITDA and to Adjusted EBITDA for the twenty-six and thirteen week periods ended July 28, 2012, and July 30, 2011:
|
|
|
Twenty-Six Weeks Ended |
|
Thirteen Weeks Ended |
| ||||||||
|
|
|
July 28, 2012 |
|
July 30, 2011 |
|
July 28, 2012 |
|
July 30, 2011 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income (loss) |
|
$ |
2,179 |
|
$ |
2,062 |
|
$ |
(7,925 |
) |
$ |
(10,031 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Plus: |
|
|
|
|
|
|
|
|
| ||||
|
Interest expense |
|
113 |
|
10 |
|
64 |
|
6 |
| ||||
|
Income tax expense |
|
1,133 |
|
1,264 |
|
— |
|
— |
| ||||
|
Depreciation and amortization |
|
12,183 |
|
11,935 |
|
6,038 |
|
6,351 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Less: |
|
|
|
|
|
|
|
|
| ||||
|
Interest income |
|
(128 |
) |
(119 |
) |
(66 |
) |
(65 |
) | ||||
|
Income tax benefit |
|
— |
|
— |
|
(4,628 |
) |
(5,106 |
) | ||||
|
EBITDA |
|
15,480 |
|
15,152 |
|
(6,517 |
) |
(8,845 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Asset impairment |
|
— |
|
1,609 |
|
— |
|
1,609 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Adjusted EBITDA |
|
$ |
15,480 |
|
$ |
16,761 |
|
$ |
(6,517 |
) |
$ |
(7,236 |
) |
Accounting Periods
The following discussion contains references to fiscal years 2012 and 2011, which represent fiscal years ending or ended on February 2, 2013 and January 28, 2012, respectively. Fiscal 2012 has a 53-week accounting period and fiscal 2011 has a 52-week accounting period. This discussion and analysis should be read with the unaudited condensed consolidated financial statements and the notes thereto.
Results of Operations
The following discussion of the Company’s financial performance is based on the unaudited condensed consolidated financial statements set forth herein. The nature of the Company’s 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. 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. Furthermore, the seasonal nature of the Company’s business may affect comparisons between periods.
Twenty-Six Weeks Ended July 28, 2012 and July 30, 2011
Net Sales. Net sales increased $10.6 million, or 3.3%, to $330.0 million in the first half of 2012 from $319.4 million in the first half of 2011. The increase in net sales was due primarily to the opening of 34 new stores since last year’s second quarter, partially offset by a 4.6% decrease in comparable store sales and the effect of closing four stores since last year’s second quarter. Comparable stores include locations that have been relocated or expanded. There were six stores relocated or expanded since last year’s second quarter, all of which impacted comparable store sales. Sales in comparable relocated and expanded stores increased 1.5% in the first half of 2012, while sales in all other comparable stores decreased 4.8%. The 4.6% overall decrease in comparable store sales was reflected entirely in a decline in the average ticket, as the number of customer transactions was up 0.4% from last year. Comparable store sales changes by major merchandise class were as follows in the first half of 2012: Accessories +5%; Men’s -1%; Children’s -4%; Home -4%; and Women’s -12%.
The new stores opened in 2011 and 2012, net of closed stores, accounted for an increase of $24.7 million in total sales, while the 4.6% sales decrease in the 454 comparable stores totaled $14.1 million.
Gross Profit. Gross profit increased $0.6 million, or 0.5%, to $119.1 million in the first half of 2012 from $118.5 million in last year’s first half. The increase in gross profit is a result of the increase in sales discussed above, partially offset by a decline in the gross margin to 36.1% from 37.1% in last year’s first half. The lower gross margin was due primarily to a decline in the core merchandise margin (initial mark-up, net of markdowns) of 60 basis points, all of which occurred in the first quarter due to the need to be more price competitive in the challenging sales environment. Additionally, shrinkage and freight expense increased 30 basis points and 10 basis points, respectively.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $1.8 million, or 1.8%, to $103.6 million in the first half of 2012 from $101.8 million in last year’s first half. The increase in these expenses was due primarily to additional store level, distribution and corporate costs arising from the opening of 34 new stores since last year’s first half, partially offset by the effect of a reduction-in-force that eliminated 40 positions in our corporate office, distribution centers and store organization. As a percentage of sales, selling, general and administrative expenses decreased to 31.4% in the first half of fiscal 2012 from 31.9% in the first half of fiscal 2011, due primarily to the decrease in expense related to the reduction-in-force.
Depreciation and Amortization. Depreciation and amortization expense increased $0.3 million, or 2.1%, to $12.2 million in the first half of 2012 from $11.9 million in the first half of 2011 due primarily to the new distribution center in Roland, Oklahoma which became fully operational in April 2011.
Asset Impairment. Impairment charges for property and equipment at certain underperforming stores totaled $1.6 million in the first half of 2011. No such charges were required in the first half of 2012.
Income Tax Expense. Income tax expense decreased $0.2 million, or 10.4%, to $1.1 million in this year’s first half from $1.3 million in the first half of 2011 due primarily to a decrease in the effective income tax rate to 34.2% from 38.0%. The income tax rate for the first half of 2012 was lower than the rate for last year’s first half, because a valuation allowance of $0.7 million was established in the second quarter of 2011 when the Company concluded that its ability to utilize certain tax credits in one state was no longer more likely than not. The effect of the 2011 valuation allowance on the tax rate comparison between years was partially offset by the effect on 2012 of the expiration of the Work Opportunity Tax Credit (WOTC). It is possible that Congress will retroactively reinstate the WOTC back to the beginning of 2012; however, due to the uncertainty involved, no WOTC benefits were recorded in the first half of 2012. Such benefits would be recorded if and when the legislation is enacted. If the WOTC had been extended as of the beginning of 2012, the effective income tax rate would have been 9.1% in the first half of 2012.
Net Income. Net income increased 5.7% to $2.2 million in the first half of 2012 from $2.1 million in the first half of 2011 due to the factors discussed above.
Thirteen Weeks Ended July 28, 2012 and July 30, 2011
Net Sales. Net sales increased $2.1 million, or 1.6%, to $132.3 million in the second quarter of 2012 from $130.2 million in the second quarter of 2011. The increase in net sales was due primarily to the opening of 34 new stores since last year’s second quarter, partially offset by a 4.0% decrease in comparable store sales and the effect of closing four stores since last year’s second quarter. Comparable stores include locations that have been relocated or expanded. There were six stores relocated or expanded since last year’s second quarter, all of which impacted comparable store sales. Sales in comparable relocated and expanded stores decreased 5.3% in the second quarter of 2012, while sales in all other comparable stores decreased 3.9%. The 4.0% overall decrease in comparable store sales was reflected entirely in a decline in the average ticket, as the number of customer transactions was up 1.2% from last year. Comparable store sales changes by major merchandise class were as follows in the second quarter of 2012: Accessories +8%; Men’s +3%; Children’s -3%; Home -7%; and Women’s -13%.
The new stores opened in 2011 and 2012, net of closed stores, accounted for an increase of $6.9 million in total sales, while the 4.0% sales decrease in the 454 comparable stores totaled $4.8 million.
Gross Profit. Gross profit increased $0.9 million, or 2.2%, to $44.4 million in the second quarter of 2012 from $43.5 million in last year’s second quarter. The increase in gross profit is a result of the increase in sales discussed above and an increase in the gross margin to 33.6% from 33.4% in last year’s second quarter. The higher gross margin was due to an increase in the core merchandise margin (initial mark-up, net of markdowns) of 60 basis points resulting from a greater need for clearance markdowns in the second quarter of fiscal 2011 when comparable store sales declined 12%. An increase in shrinkage expense of 40 basis points partially offset the improvement in the core merchandise margin.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $0.2 million, or 0.5%, to $50.9 million in the second quarter of 2012 from $50.7 million in last year’s second quarter. The increase in these expenses was due primarily to additional store level, distribution and corporate costs arising from the opening of 34 new stores since last year’s second quarter, partially offset by the effect of a reduction-in-force that eliminated 40 positions in our corporate office, distribution centers and store organization. As a percentage of sales, selling, general and administrative expenses decreased to 38.5% in the second quarter of fiscal 2012 from 38.9% in the second quarter of fiscal 2011, due primarily to the decrease in expense related to the reduction-in-force.
Depreciation and Amortization. Depreciation and amortization expense decreased $0.4 million, or 4.9%, to $6.0 million in the second quarter of 2012 from $6.4 million in the second quarter of 2011, due to the slowing of our store opening pace in 2012.
Asset Impairment. Impairment charges for property and equipment at certain underperforming stores totaled $1.6 million in the second quarter of 2011. No such charges were required in the second quarter of 2012.
Income Tax Benefit. Income tax benefit decreased $0.5 million, or 9.4%, to $4.6 million in this year’s second quarter from $5.1 million in the second quarter of 2011 due to a decrease in pretax loss, partially offset by an increase in the effective income tax rate to 36.9% from 33.7%. The effective income tax benefit rate for the second quarter of fiscal 2012 was higher than the rate for last year’s second quarter, because there was a reduction in income tax benefit of $0.7 million in the second quarter of fiscal 2011 related to the establishment of a valuation allowance for certain state tax credits that are no longer more likely than not to be utilized. The impact of the valuation allowance on the income tax rate comparison between years was partially offset by the expiration of the WOTC in fiscal 2012. It is possible that Congress will retroactively reinstate the WOTC back to the beginning of 2012; however, due to the uncertainty involved, no WOTC benefits were recorded in the second quarter of fiscal 2012. Such benefits would be recorded if and when the legislation is enacted. If the WOTC had been extended as of the beginning of 2012, the effective income tax rate would have been 9.1% in the second quarter of fiscal 2012.
Net Loss. Net loss decreased 21.0% to $7.9 million in the second quarter of 2012 from $10.0 million in the second quarter of 2011 due to the factors discussed above.
Liquidity and Capital Resources
Our cash requirements are primarily for working capital, opening of new stores, remodeling of our existing stores and the improvement of our information systems. In recent years, we have met these cash requirements using cash flow from operations and short-term trade credit. We expect to be able to meet future cash requirements with cash flow from operations, short-term trade credit, existing balances of cash and investment securities and, if necessary, borrowings under our revolving credit facility.
Current Financial Condition. As of July 28, 2012, we had total cash and cash equivalents of $51.7 million compared to $42.0 million as of January 28, 2012. Additionally, we had $3.3 million and $16.4 million of short-term and long-term investment securities, respectively, as of July 28, 2012, compared with $0.9 million and $18.8 million, respectively, as of January 28, 2012. These securities are comprised of bank certificates of deposit and obligations of the U.S. Treasury, states and municipalities. Inventory represented 42.8% of our total assets as of July 28, 2012. Management’s ability to manage our inventory can have a significant impact on our cash flows from operations during a given interim period or fiscal year. In addition, inventory purchases can be seasonal in nature, such as the purchase of warm-weather or Christmas-related merchandise.
Cash Flows From Operating Activities. Net cash provided by operating activities was $14.0 million in the first half of 2012 compared to $13.5 million in the same period of 2011. The main source of cash provided during the first half of 2012 was net income adjusted for noncash expenses such as depreciation and amortization, loss on disposal of property and equipment, deferred income taxes and stock-based compensation expense, totaling $14.7 million (compared to $17.5 million in the first half of 2011). Other significant sources of cash in the first half of 2012 were (1) a $4.5 million change in the income tax receivable/payable (compared to a use of cash of $2.9 million in the first half of 2011), which is comprised of income tax refunds, net of payments, totaling $2.5 million, together with the current portion of the income tax provision of $2.0 million in the first half of 2012; (2) a $1.4 million increase in layaway deposits (compared to $1.2 million in the first half of 2011) due to the seasonality of layaway transactions, which are low at the end of our fiscal year because all balances have to be redeemed by customers or they are cancelled by the middle of December each year; and (3) a $1.4 million increase in accrued expenses and other long-term liabilities (compared to $3.1 million in the first half of 2011) due to fluctuations in the timing of payments. Significant uses of cash consisted primarily of a $7.0 million decrease in accounts payable (compared to $6.4 million in the first half of 2011) as the result of a shift in our merchandising strategy more towards opportunistic buying which includes a greater level of purchases at heavy discounts at the end of a season to be held for shipment to the stores at the beginning of that same season the following year. Since these next-season-buys are held in our distribution centers for several months, they are paid for prior to being offered for sale in our stores, thus reducing accounts payable as a percentage of inventory. Other uses of cash included a $2.2 million increase in inventory (compared to $0.9 million in the first half of 2011), which amounted to 1.7% and is, therefore, not considered significant or unusual.
Cash Flows From Investing Activities. Cash used in investing activities was $3.5 million in the first half of 2012 compared to $33.4 million in the first half of 2011. Cash used for purchases of property and equipment totaled $3.5 million and $23.2 million in the first half of 2012 and 2011, respectively, with the decrease resulting from opening three stores in the first half of fiscal 2012 compared to 24 in the first half of last year. In addition, the equipping of the new distribution center in Roland, Oklahoma occurred in the first quarter of fiscal 2011. Other uses of cash in the first half of 2011 consisted of purchases, net of sales/redemptions, of investment securities totaling $10.2 million.
Cash Flows From Financing Activities. Cash flows from financing activities were insignificant in the first half of both 2012 and 2011.
Cash Requirements
Our principal sources of liquidity consist of: (i) cash and cash equivalents (which equaled $51.7 million as of July 28, 2012); (ii) short-term and long-term investment securities (which equaled $3.3 million and $16.4 million, respectively, as of July 28, 2012); (iii) short-term trade credit; (iv) cash generated from operations on an ongoing basis as we sell our merchandise inventory; and (v) a $50 million revolving credit facility. Trade credit represents a significant source of financing for inventory purchases and arises from customary payment terms and trade practices with our vendors. Historically, our principal liquidity requirements have been for working capital and capital expenditure needs.
We believe that our existing sources of liquidity will be sufficient to fund our operations and anticipated capital expenditures for at least the next 12 months.
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 the Company’s Annual Report on Form 10-K for the year ended January 28, 2012.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in our market risk during the twenty-six weeks ended July 28, 2012 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the year ended January 28, 2012.
Item 4. Controls and Procedures.
We have carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of July 28, 2012 pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer each concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information has been accumulated and communicated to our management, including the officers who certify our financial reports, as appropriate, to allow timely decisions regarding the required disclosures.
Our disclosure controls and procedures are designed to provide reasonable assurance that the controls and procedures will meet their objectives. 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.
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended July 28, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On August 12, 2011, we received a letter of determination from the U.S. Equal Employment Opportunity Commission (the “EEOC”) commencing a conciliation process regarding alleged discrimination against males by us in our hiring and promotion practices during the years 2004 through 2006. In its letter of determination, the EEOC sought recovery in the amount of $0.2 million on behalf of a former male employee and in the additional amount of $3.8 million in a settlement fund for a class of unidentified males who sought or considered seeking manager or assistant manager positions in our stores. The EEOC also seeks certain undertakings by us with regard to our employment policies and procedures and a reporting obligation to the EEOC with respect to our compliance with these undertakings.
We have not received full documentation or information from the EEOC in support of its letter of determination, but have undertaken our own internal analysis of the EEOC’s claims and defenses to such claims and have had discussions with the EEOC in that regard. Following discussions with the EEOC regarding possible settlement, the EEOC has proposed a settlement amount of up to $2.5 million and requested certain additional information. In the interest of reaching a satisfactory conciliation agreement with the EEOC, we have proposed a total economic settlement offer of up to $1.6 million. We are currently in discussions with the EEOC regarding these offers for settlement and options for resolution of the matter. We are also evaluating other aspects of the conciliation process established by the EEOC.
On February 24, 2012, a suit was filed in the United States District Court for the Northern District of Alabama, Middle Division, by certain individuals as a purported collective action on behalf of current and former employees of the Company holding store managerial positions. The plaintiffs allege that store managers have been improperly classified as exempt from the obligation to pay overtime in violation of the Fair Labor Standards Act. We intend to vigorously defend the claims that have been asserted in this lawsuit. Because of the early stage of this action and the fact that no discovery has been conducted to date, the Company is unable to determine the probability of outcome and it is not reasonably possible to estimate a range of loss with respect to this matter. Accordingly, no accrual for costs has been recorded, and the potential impact of this matter on our financial position, results of operations and cash flows cannot be determined at this time.
We are from time to time also involved in various other legal proceedings incidental to the conduct of our business, including claims by customers, employees or former employees. Once it becomes probable that we will incur costs in connection with a legal proceeding and such costs can be reasonably estimated, we establish appropriate reserves. While legal proceedings are subject to uncertainties and the outcome of any such matter is not predictable, we are not aware of any other legal proceedings pending or threatened against us that we expect to have a material adverse effect on our financial condition, results of operations or liquidity.
There are no material changes to the Risk Factors described under the section “ITEM 1A. RISK FACTORS” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information. At the Company’s 2012 annual meeting of stockholders held on May 23, 2012 (the “Annual Meeting”), the holders of the Company’s common stock approved the Citi Trends, Inc. 2012 Incentive Plan (the “2012 Plan”). A description of the material terms of the 2012 Plan, including the number of shares reserved and available for issuance thereunder, was included in the Company’s definitive proxy statement relating to the Annual Meeting as filed with the SEC on April 20, 2012, and is incorporated herein by reference. A copy of the 2012 Plan is filed as an exhibit hereto.
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10.1 |
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Citi Trends, Inc. 2012 Incentive Plan.* |
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10.2 |
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Form of Restricted Stock Award Agreement for Employees under the Citi Trends, Inc. 2012 Incentive Plan.* |
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10.3 |
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Form of Restricted Stock Award Agreement for Directors under the Citi Trends, Inc. 2012 Incentive Plan.* |
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31.1 |
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Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
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31.2 |
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Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
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32.1 |
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Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* † |
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101 |
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The following financial information from Citi Trends, Inc.’s Quarterly Report on Form 10-Q for the quarter ended July 28, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets as of July 28, 2012 and January 28, 2012, (ii) the Condensed Consolidated Statements of Operations for the twenty-six and thirteen week periods ended July 28, 2012 and July 30, 2011, (iii) the Condensed Consolidated Statements of Cash Flows for the twenty-six week periods ended July 28, 2012 and July 30, 2011, and (iv) Notes to the Condensed Consolidated Financial Statements.^ |
* Filed herewith.
† Pursuant to Securities and Exchange Commission Release No. 33-8238, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of Section 18 of the Securities Exchange Act of 1934 and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.
^ In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, and the undersigned also has signed this report in his capacity as the Registrant’s Chief Financial Officer (Principal Financial Officer).
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CITI TRENDS, INC. | |
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Date: August 29, 2012 |
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By: |
/s/ Bruce D. Smith |
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Name: |
Bruce D. Smith |
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Title: |
Executive Vice President, Chief Financial Officer and Secretary |