Tripp Sullivan Bruce D. Smith - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Secretary R. Edward Anderson - Executive Chairman and Chief Executive Officer Jason T. Mazzola - Chief Merchandising Officer and Executive Vice President

Patrick McKeever - MKM Partners LLC, Research Division Carter Newbold

Ladies and gentlemen, thank you for standing by. Welcome to the Citi Trends Fourth Quarter 2012 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Friday, March 15, 2013. I will now turn the conference over to Tripp Sullivan of Corporate Communications. Please go ahead, sir.

Thank you. Our earnings release was sent out this morning at 6:45 a.m. Eastern Time. If you have not received a copy of the release, it's available on the company website under the Investor Relations section at www.cititrends.com. You should be aware that the prepared remarks made during the call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance; therefore, undue reliance should not be placed upon them. We refer you to the company's most recent report on Form 10-K, filed with the Securities and Exchange Commission, for a more detailed discussion of the factors that could cause actual results to differ materially from those described in the forward-looking statements. I'd now like to turn the call over to Bruce Smith, Chief Financial Officer. Bruce, please go ahead. Bruce D. Smith: Thanks, Tripp. Good morning, everybody, and thank you for joining us today. Also on the call are Ed Anderson, Chairman and CEO; and Jason Mazzola, Executive Vice President and Chief Merchandising Officer. First, I will provide you with details related to the fourth quarter and the full year results, and then Ed will discuss further the results and our business outlook, after which we will address any questions you might have. Total sales in the 14-week fourth quarter decreased 1.5% to $176 million from $178 million in last year's 13-week fourth quarter. The fourth quarter and the full year of 2012 benefited from an extra week of sales, totaling almost $9 million. Comparable store sales on a 14-versus-14-week basis declined 11.8%. By merchandise category, sales in the fourth quarter in comparable stores were as follows: Accessories were up 12% on top of a 6% increase in last year's fourth quarter; the Home division was up 6% this year and up 28% last year; Children's sales were down 12% this year and down 10% last year; the Men's department was down 16% this year after being down 12% last year and Women's was down 24% this year and down 12% last year. Sales of nationally recognized urban brands represented 42% of total sales in the quarter compared with 44% in the same 14 weeks last year. For the full year, total sales were up 2% to $655 million and comparable store sales were down 5.6% on a 53-versus-53-week basis. The decline in comp store sales was reflected entirely in a lower average unit sale as customer transactions and the average number of items per transaction were both up approximately 1%. Gross margin in the quarter was up 250 basis points, the 32.7% this year due to significantly fewer clearance markdowns compared with the year ago. For the year, gross margin was up 40 basis points to 34.8% compared with 34.4% last year. SG&A expenses were well controlled in the quarter and the full year. In the fourth quarter, expenses were up less than $500,000 or 1% despite an extra week, which included approximately $3 million of expenses. As a percent of sales, expenses were up 70 basis points to 30% in the quarter due to the deleveraging effect on expenses as a percent of sales that occurs with a comp store sales decline of 11.8%. However for the year, SG&A expenses were 60 basis points lower than last year even with the deleverage from the comp store sales decline for the full year of 5.6%. Depreciation expense was lower by $800,000 in this year's fourth quarter and down $1 million for the year due to the company's pullback in store growth in 2012. Asset impairment expense, which is a noncash charge, was $500,000 in the fourth quarter this year compared with $4.2 million in 2011's fourth quarter, with last year's charge including $2.8 million of impairment on the fixed assets of underperforming stores, as well as a one-time full impairment of a $14 million goodwill asset balance. For the full year, we recorded $1.2 million of impairment expense in 2012 compared with $6.5 million last year. In 2012's fourth quarter, we had a net loss of $700,000 or $0.05 per share down from $5.3 million or $0.36 per share last year. For the full year, the net loss dropped to $2.2 million or $0.15 per share from a net loss of $10 million or $0.69 per share in 2011. Our balance sheet position remains strong. Cash, together with short-term and long-term investment securities totaled $56 million at year-end and $81 million currently, and we continue to have no debt. In looking at 2013, one thing that we should walk through is the effect on sales of having 1 fewer week then we had in 2012 and from the fiscal calendar starting 1 week later in 2013. On an annual basis, the week that is lost in 2013 versus the prior year is the first week of 2012, which totaled $21 million in sales. However, there will be varying effects on each quarter because each quarter starts a week later and ends a week later than the same quarter in 2012. For instance, in the first quarter, we lose what was last year's $21 million first week and we pick up what was last year's $11 million week 14. As for the comparison of the other 2013 quarters to last year, the shift in the weeks helps Q2 by $5 million and negatively impacts the third and fourth quarter comparisons by $3 million and $13 million respectively. Now I'll turn the call over to Ed. R. Edward Anderson: Good morning. We continue to make progress in the turnaround of Citi Trends, although the rate of progress has been slower than I expected. The financial results for the fourth quarter were much better than last year's fourth quarter. Comp store sales were down 11.8% for the full 14 weeks of the quarter, but as we reported earlier, the last 2 weeks of the quarter were dramatically impacted by the shift in tax refunds. Before the last 2 weeks, the quarter was running down about 4% in comp store sales. In the fourth quarter, gross margin improved and expenses were well controlled. While we reported a loss -- a net loss of $0.05 per share, we believe as much as $0.35 per share was lost due to the tax refund shift. This is a large improvement over last year's fourth quarter loss of $0.36 per share. The big merchandising success in the fourth quarter was the Accessories area. We have seen profitable growth across Men's, Women's and Children's Accessories, especially in footwear. In the fourth quarter, we had double-digit sales gains and gross margin rate increases in this category and expect to see continued gains from the footwear area. We had 2 sales issues as we entered 2012: one value and the other, fashion. As it relates to value, we had lost our competitive edge. We were not as sharply priced as we needed to be. We have solved that problem. After a lot of hard work and focused effort by our team, we believe our prices and values are as good as anyone in specialty retail. But we have not yet solved the fashion issue in ladies apparel. For years, urban brands were so strong that they were effectively a proxy profession. That is no longer true in our ladies' business. Our customers still want fashion, but now fashion as the driver, not brands. As a result, we've changed our buying strategy to deliver the fashion our customer's telling us she wants, and we've moved to this -- and we've moved to this fashion-driven strategy. We're starting to see small successes. However, we recognized that we have quite a ways to go to get our overall ladies' business to the level that we need. Turning to trends to date in the first quarter. Let me provide you with a brief update. Sales through the first 5 weeks of the first quarter have totaled $87 million, a decrease of about 4% from last year's comparable weeks. Given that later tax refunds had a $15 million to $16 million negative impact on the last 2 weeks of 2012, we expected better sales results at the beginning of 2013's first quarter. We can't point to any particular new merchandising issue in our sales results. The Women's business continues to be difficult as we expected. Our customer undoubtedly is still feeling the effects of a tough economy. The 2% payroll tax increase, high gas prices, high unemployment for African Americans and later tax refunds have likely worsened the financial situation of our target customer. We're hopeful the economic environment for our customers improves as we work our way through 2013. Having said all that, I continue to be very positive about the turnaround at Citi Trends. We have made a lot of progress. We have a chief merchant, he has now been here 1 year. We added a large number of highly skilled merchants to our buying team. We have a more focused buying strategy. We have the financial resources and the team in place to complete this turnaround. We are very excited about our future. And now, operator, we'll take their questions.

. [Operator Instructions] Mr. Anderson, there are no further questions at this time. I'll now turn the call back to you -- pardon me, we just got a question. We have a question from the line of Patrick McKeever with MKM Partners. Patrick McKeever - MKM Partners LLC, Research Division: Just on the -- I think that you said through the -- through first 5 weeks of the first quarter, that total sales were down 4% from last year. Is that correct or was that same-store sales? R. Edward Anderson: That's correct. That's total. [indiscernible] Well, given that we had so few stores opened last year -- we only opened 4 stores last year on a 513-store base, comp sales for 2013 in total sales were about the same. Patrick McKeever - MKM Partners LLC, Research Division: Okay. Right. And that incorporates, for the comp, that incorporates the shift in the weeks. R. Edward Anderson: Yes. Patrick McKeever - MKM Partners LLC, Research Division: So it's the same 5 weeks this year versus the 5 weeks last year? R. Edward Anderson: Yes. Patrick McKeever - MKM Partners LLC, Research Division: Okay. So I mean, the -- so the trend has certainly improved, but it's not quite where you would hope it to be. Is that a fair way of putting what you said? R. Edward Anderson: That's right. Yes, I -- absolutely. We were, as I had mentioned in my earlier comments, we were clearly expecting the beginning of the first quarter of 2013 to start off better than actually it has, given that we had the tax refunds were so late and we expected the tax refunds to impact positively the beginning of the first quarter. And so to start off with a decrease, frankly was unexpected. But particularly, in light of the fact that we had very slight single-digit sales decreases through most of the fourth quarter and actually, a slight positive in the third quarter, to drop like this is really a sharp move away from what our trends have been. And so that's really why I called out the economic environment of our customer and I called out the payroll tax increase, the gas prices, the later tax refunds. There's another piece here, which I don't normally talk about, Patrick, but I will on this call because it is important to this time of the year, and that's weather. As you know, the weather is important at the start of each season, the start of fall and winter or the start of spring. And last spring was unseasonally warm, in fact, March was the warmest March ever. This year, as we all know, it's been a very, very cool spring. And so weather is impacting our business. And we expect it -- we know the economic environment is likely impacting our business. We know the weather will change. We're not sure about the economic environment. But does that help you understand a little bit about our perspective on what's happened so far the first quarter? Patrick McKeever - MKM Partners LLC, Research Division: Yes. No, absolutely. And how about just if you look at the distribution of tax refunds. I think they're down, at least as of the last week, they were about $20 billion lower than they were a year ago, distributions to individuals. So do you think there's still some timing issue -- there are some timing issues out there that are still impacting your -- the sales that might have been driven by tax refund spending? R. Edward Anderson: I -- there's no way for us to know for sure. My sense is because of the other significant delay in this year's versus last year's debt, there ought to be some more tax refunds out there. My sense is that we are still seeing a little bit of tax-refund driven sales here at Citi Trends. Actually, we're hopeful that there's some tax refunds out in front of us but, Patrick, we can't quantify that. I didn't read your reports that called out the fact that there's a lot of -- there's less tax refunds than last year. We're hopeful that's timing as opposed to just lower tax refunds in general. Patrick McKeever - MKM Partners LLC, Research Division: Got it. And I think Bruce mentioned the current cash and investment positions -- position was $81 million. I was just wondering if you could elaborate on that. R. Edward Anderson: Bruce, do you want to elaborate on the cash position? Bruce D. Smith: Yes, Patrick, February and March are always very strong periods of time for us because of the tax refund business, as well as the opening of the spring season. And so it's always a heavy positive cash flow period of time. So our cash has grown from $56 million at the end of the year to roughly $81 million right now, and that's largely attributable to the seasonality of the business. R. Edward Anderson: And you said the big depth of inventory has gone down since, what you'd -- we would expect our cash to position improve, as Bruce said, at this time. [indiscernible] Patrick McKeever - MKM Partners LLC, Research Division: Any thoughts on a share buyback? R. Edward Anderson: No, Patrick. It's early for us to be thinking about that. We're still, as we suggested here, very, very much in a turnaround mode. Our business has not yet delivered predictable results consistently, and I think until we have some predictable, consistent, positive sales results, we can't yet turn our attention to things like share buybacks and dividends.

[Operator Instructions] Our next question comes from the line of Carter Newbold with Rutabaga Capital.

Did you all talk about the store plans, either new stores or remodels, for the current year? R. Edward Anderson: Yes, Carter. The question that you missed was just an elaboration on sales activity so far, through the first quarter. And also the question about the cash balance at this point in time. As far as new store plans, we're going to continue with only a very modest new store approved program and we've opened 1 store this year. And we have budgeted for up to 5 stores but we actually had no other stores approved at this point. We did open our third store in Las Vegas about a month ago, very successfully. But we're really holding back on significant capital expenditures this year. We expect our total CapEx, Bruce, to be somewhere in the $10 million to $12 million neighborhood for the year, and we're going to use that money to remodel 225 of our existing stores, probably do 4 to 5 major expansions, maybe up to 4, 5 new stores, but spend most of our money on doing improvements to that affect all stores as opposed to investing in new stores at this point. Again, because we are still in a turnaround mode and we think it's a prudent to stay very conservative with our capital expenditures.

Okay. Just a follow-up at the store level. If you look either across geography or by performance cohort, is there a group that you identify as kind of a problem store site that lends itself to a particular operating approach or the issues that you guys are facing kind of affecting you across the whole fleet? R. Edward Anderson: It's -- there are no problem pockets of stores. There's no geography or state issue across our 513 stores. And so the issues we have affect all Citi Trend stores. The better -- the more compelling our merchandise assortment, the better store sales will be in all stores. This is really not a climate or a geography issue.

Okay. I have one last question just related to hitting the fashion mark. As you change the way you attempt to do that, what does that do to your sourcing approach? And if you're going away from maybe 5 or 10 really key national brand vendors and trying to develop some smaller relationships, could you just talk about how you get that product in the stores and then decide whether it's working or not? Then what that does to your sort of inventory per store? R. Edward Anderson: Sure. Carter, thanks for the question. I'm going to ask Jason Mazzola, our chief merchant to talk about how this fashion strategy versus a brand strategy, we're attempting to execute it. Jason T. Mazzola: Sure. We are embarking on a major strategic shift in the ladies' business, really from brands at great value to fashion at great value. Currently, we have a very strong team of off-price fashion-oriented merchants to make this happen and additionally, we have opened a West Coast buying office in the heart of the fashion district in Los Angeles. So currently, we have offices both on the East Coast and the West Coast that are both focused on developing that great fashion. And we are seeing signs of success, as Ed has mentioned. For the first quarter, we are driving a slight comp increase in our ladies' fashion businesses in both juniors and plus. It was not enough and is not enough right now to offset the decrease in urban brands in ladies but we are getting better at that -- this piece of business every single day. And as that West Coast office gets really up and running and is at full steam, we think we're going to see some great things happen from there. R. Edward Anderson: Did that answer your question for you, Carter?

Yes, I think it does. Just one more on that same point. If things work to plan, is the gross margin profile similar, given the fashion strategy versus the brand strategy? R. Edward Anderson: That's really a good question. The answer would be, the fashion a strategy actually has the potential to deliver fairly slightly higher gross margins than the brand strategy. If you go back over time, our gross margin off of the nationally recognized brands, always ran 2 points to 3 points lower than our gross margin in our fashion area. So transitioning to fashion has the potential to be a higher-gross-margin strategy over time. Obviously right now, we're focusing on sales first, the gross margin, second. The -- over time, this strategy does have -- has the potential to be slightly more profitable.

And Mr. Anderson, there are no further questions at this time. I'll turn the call back to you. Please continue with your presentation or closing remarks. R. Edward Anderson: Okay. Thank you very much, operator. We appreciate of you joining the call today, and have a good day. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.