Citi Trends, Inc. has a market cap of $211.6 million; its shares were traded at around $14.07 with and P/S ratio of 0.3.
Highlight of Business Operations: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 thirty-nine weeks ended October 27, 2012 and October 29, 2011, there were 46,000 and 52,000 stock options, respectively, and 393,000 and 367,000 shares of nonvested restricted stock, respectively, excluded from the calculation of diluted earnings per share because of antidilution. For the thirteen weeks ended October 27, 2012 and October 29, 2011, there were 48,000 and 57,000 stock options, respectively, and 476,000 and 361,000 shares of nonvested restricted stock, respectively, excluded from the calculation of diluted earnings per share because of antidilution.
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.
Gross Profit. Gross profit increased $3.0 million, or 6.3%, to $51.2 million in the third quarter of 2012 from $48.2 million in last years third quarter. The increase in gross profit is a result of the increase in sales discussed above and an increase in the gross margin to 34.4% from 33.7% in last years third quarter. The higher gross margin was due to an increase in the core merchandise margin (initial mark-up, net of markdowns) of 140 basis points resulting from a greater need for clearance markdowns in the third quarter of fiscal 2011 when comparable store sales declined 9.3%. An increase in freight and shrinkage expense of 50 basis points and 20 basis points, respectively, partially offset the improvement in the core merchandise margin. The higher freight costs were attributable primarily to freight incurred on shipments of merchandise from the distribution centers to the stores in connection with raising inventory levels this year.
Cash Flows From Investing Activities. Cash used in investing activities was $5.7 million in the first thirty-nine weeks of 2012 compared to $43.7 million in the first thirty-nine weeks of 2011. Cash used for purchases of property and equipment totaled $5.8 million and $33.8 million in the first thirty-nine weeks of 2012 and 2011, respectively, with the decrease resulting from opening three stores in the first thirty-nine weeks of fiscal 2012 compared to 50 in the first thirty-nine weeks 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 thirty-nine weeks of 2011 consisted of purchases, net of sales/redemptions, of investment securities totaling $9.9 million.
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