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

James Fronda - Sidoti & Company, LLC Patrick McKeever - MKM Partners LLC, Research Division Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division

Ladies and gentlemen, thank you for standing by. Welcome to the Citi Trends First Quarter 2013 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, May 22, 2013. I will now like to 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 on 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 can 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'll provide you with details related to the quarterly results and then Ed will discuss further the results and our business outlook, after which we will address any questions you may have. Total sales in the first quarter decreased 8% to $182 million, including a 4% decline in comparable store sales on a comparable weeks basis. This decline in comp store sales was reflected in an average unit sale that was 13% lower, partially offset by a 6% increase in the average number of items per transaction and a 3% increase in the number of customer transactions. By merchandise category, sales in the first quarter and comparable stores were as follows. The Home division was up 20% after being down 2% in last year's first quarter. Accessories were up 14% on top of a 2% increase last year. Children's sales were down 3% this year and down 4% in last year's first quarter. Men's sales were down 7% after being down 4% last year, and the ladies division was down 16% this year and down 11% in last year's first quarter. Sales of nationally recognized urban brands represented 38% of total sales in the quarter compared with 43% last year. Comparable store sales by month in the first quarter were down 7% in February and down 8% in March before increasing 9% in April. As we have entered May, comp store sales were up 2% in the first 2 weeks. There was a shift this year on the timing of Easter Sunday, which is the day our stores are closed. The shift hurt March's comparable store sales by 2 percentage points and helped April's by 3 points. Gross margin in the quarter was 37%, down 80 basis points from last year's first quarter. The decline in the margin was spread fairly evenly between the core merchandise margin, freight expense and shrinkage. SG&A expenses decreased $800,000 or 1.4% from last year's first quarter as we continue to tightly manage costs in this challenging sales environment. The 8% decrease in total sales pressured our ability to leverage the fix portion of our expenses as evidenced by expenses as a percent of sales increasing to 28.5% from 26.6% last year. Depreciation expense was lower by $550,000 due to our pullback in new store growth. First quarter net income in 2013 was $6.2 million or $0.42 per share compared to $10.1 million or $0.69 per share last year. Our balance sheet position remains strong. Cash together with short-term and long-term investments securities totaled $82 million at quarter end. Inventory was down almost 6% from the end of last year's first quarter, and we continue to have no debt. Now I'll turn the call over to Ed. R. Edward Anderson: Good morning, everyone. We continue to make good progress in the turnaround of Citi Trends. The earnings for the first quarter were not as good as we had hoped for, but we ended the quarter on a strong note and have begun the second quarter in a positive manner as well. As Bruce said, comparable store sales in April increased 9% and for the first 2 weeks of May, comparable store sales were up 2%. The big positive news is that we're seeing improvements in our ladies' business, while not yet positive, the sales decreases for the last 6 weeks in the ladies' business are in single digits. This is a large improvement over the double-digit decreases of the last several quarters. Our unbranded fashion merchandise is clearly resonating with our customers. We started to pivot to a much more fashion versus branded approach late in the fourth quarter, and we're now seeing the results of the change. We still are fairly early in this transition, but results for the last 6 weeks or so clearly support the move that we'd made. Additionally, we've reduced inventory levels as we entered the second quarter. Total inventory was $109 million versus $115 million a year ago. We believe we owned too much inventory last year in the lower-selling second and third quarters. We believe we can deliver positive comparable store sales with somewhat less inventory. From a real estate and store growth perspective, we are staying very conservative in 2013. We have opened just one store so far. We have budgeted for 5 new stores but at this point, we have no other new store deals in place for this year. We have completed 24 minor store remodels, which is the number we have planned for the year. We also will expand or relocate about 5 stores in the year. Additionally, we've closed 6 stores in the first quarter and 2 others after the end of the quarter. Two were due to lease issues and the others were underperforming stores. We have another 5 or 6 stores that we are watching very closely as potential closings. In conclusion, we are starting to feel better about our sales prospects. The ladies' business is starting to improve and that feels very good. We're making good, steady progress in our turnaround. Our strategy to improve sales and profitability is starting to work. We have a team of dedicated employees and the financial resources to complete this turnaround. And now, operator, we'll take any questions.

[Operator Instructions] And our first question comes from the line of Tom Filandro with SIG.

This is Reshuk Apta [ph] for Tom Filandro. I have 3 questions for you. Are any urban brands trending positively? What impact, if any, has the West Coast office had on the business? And are you adjusting your buying in light of recent went-up in cotton? And how should we think about IMU for second quarter and the balance of the year? R. Edward Anderson: I think I got the first 2 questions regarding urban brands comping positively and the impact of our new West Coast buying office. And the third question had to do with cotton, I think, at markup, but I didn't hear it. Would you repeat it, please?

Yes, are you adjusting your buying in light of the recent went-up in cotton, and how should we think about IMU for second quarter and the balance of the year? R. Edward Anderson: Okay, all right. I'm going to ask our Chief Merchandising -- Jason Mazzola to address the question. I have 4 questions here. The first one is, Jason, regarding urban brands, are we seeing any positive sales in the urban brands? And then the second one, on the West Coast buying office. Jason T. Mazzola: Sure. Overall, the landscape for ladies' urban brands is poor, while the landscape for men's urban brands is actually healthy. This flows directly into the Children's area as well. Urban brands in boys are much stronger than urban brands in girls. Value and fashion is the key to driving sales in urban brands for both genders. In ladies', we are really building our fashion competency to rely less on these brands, and I'll speak to the CDO in a minute. We have made a similar shift in the girls business as the girls brands have ebbed off as well. Men's and boys’ brands are in a much healthier position and are resonating well with our customers, and we have several brands that are performing very well. That being said, we are also building our fashion competency in men's and boys’. We've seen a dramatic impact from the California buying office. We now have a full team out on the West Coast and a full team out on the East Coast, and we are really building our fashion competency. As Ed mentioned, we're still at the beginning of this shift from brands to fashion, but we very much like what we're seeing so far. R. Edward Anderson: The third question he had asked was, have we done -- adjusted any of our purchasing in response to the most recent increase in cotton prices? Jason T. Mazzola: I would say overall, our business model lends itself well to handle this because we're negotiating every deal on a deal-by-deal basis. So -- and really assessing the right value to the product. So by the way that we buy, which is close to need in more deal-based versus 9 months in advance, we don't rely necessarily on the price of cotton to negotiate the IMU. So I don't see that as a major obstacle for us in the future. R. Edward Anderson: Okay. The last question that you asked had to do with what are our prospects for IMU for the rest of the year. I'm going to answer that question sort of in a broader basis from a perspective of gross margin. IMU is just one component of gross margin, and we'll talk about gross margin and our prospects for gross margin. As we've said in the past, we believe that we can eventually return our gross margin on an annual basis to around 37% to 38%. That presumes that we're running positive comparable store sales in that time frame. Last year's gross margin in 2012 for the year was just over 34%, we clearly expect to improve upon that in 2013 and we will move toward that 37% and 38% gross margin rate on an annual basis this year, but I don't think we'll quite get there. But I expect us to improve over last year for sure. Does that answer your questions?

Yes, it does.

And our next question comes from the line of James Fronda with Sidoti & Company. James Fronda - Sidoti & Company, LLC: I guess the sales growth that you saw towards the end of the quarter, do you think that's all tied in to weather, or was that more related to a different product mix, or is it just the different types of income for your customers? I guess could you elaborate on that a little bit? R. Edward Anderson: Sure. I believe that the business definitely turned as we walked out of March into April for 2 reasons. One, I absolutely believe there's a weather component as we reported to you earlier. The weather was very good last year in the spring, March being the warmest March on record. And this year, it was markedly colder. And we didn't really get great warm weather this year until we really got into April, but the warm weather definitely helped our business. But also very, very importantly, is we've seen a nice turn in our ladies' business. I mentioned that in my comments earlier, and I'm going to ask Jason to sort of expand on what we're seeing in our ladies' business currently. Jason T. Mazzola: Sure. As you remember on our last call, we talked about making that major strategic shift from brands to fashion. And as I just mentioned, we opened that West Coast buying office so we could drive great fashion buys on both the East and the West Coast. This decision is definitely working. As Ed mentioned, the ladies' comp sales decreases over the last 6 weeks have been in the single digits. Our increases in fashion this quarter were not enough to overcome the decreases in brands for the quarter, but we've made very nice progress in that direction. So we're real happy with our ladies' business and our ladies' fashion content moving forward. James Fronda - Sidoti & Company, LLC: Okay. And I guess, are there any uses of the cash you're having? And I know you're not going to expand stores, but have you thought of a dividend or anything? R. Edward Anderson: Bruce, why don't you take that question, please. Bruce D. Smith: Sure. That is something that we discuss regularly with the board, not just dividends but also stock repurchases and other uses of cash. But as long as we're in a turnaround phase, we're going to continue to be conservative with our cash, and we'll be that way until we consistently deliver predictable positive sales results. James Fronda - Sidoti & Company, LLC: All right. And I guess lastly, the underperforming stores, is that basically just primarily based on location or is there anything else going on that compares to the ones that are doing well? R. Edward Anderson: These 8 stores we closed, as I mentioned in the comments, 2 of them were lease issues. In other words, in one case, the city took over the location and we had no choice but to leave there, and in another locations, the landlord just asked for a rent that we weren't willing to pay for fairly marginal store. And the other 6 instances of closings, 5 of them were actually the very smallest volume stores in the company. These were very low volume stores that we had a difficult time making money in. And the last 1 was a store that has been marginal for the last 5 or 6 years. So the commonality were -- of these stores were, other than the 2 lease issues, were really smaller volume stores that haven't been profitable for a while, and we didn't really see any prospects returning them around. The point I would add is, and I think we've mentioned this in previous calls, is that we have probably on the order of 20 plus or minus, stores that we have on sort of a watch list. We've closed 8 of them. We have another 4 or 5 that we're looking at very closely for possible closings this year. But the key point here is we do not have a large number of stores that we need to close.

[Operator Instructions] Our next question comes from the line of Patrick McKeever with MKM Partners. Patrick McKeever - MKM Partners LLC, Research Division: Question on the whole tax refund dynamic, just wondering how you think that played out in the quarter if that -- you had a tough February, you had a tough March, I know the weather was a big factor during those months, but how do you think -- I mean, do you think that a lot of those refund dollars just went to other things and not to apparel? And as you look into next year, I mean, how do you plan around tax refund season just given its volatility? R. Edward Anderson: Well, we talked a little bit about this on the last call because we were pretty far into the season and really, my points of view on that issue really are similar to what they were then. I believe that there was a number of issues that really resulted in our customer spending less money on apparel this spring than in the past. Clearly, the later tax refunds allowed people to spend money on other things perhaps than clothings. Just a general nature, the economy is still tough after American unemployment still being high, the 2% tax payroll increase and at the time, by the way, back earlier in the quarter, I guess, prices were much higher. I think all those things played into the fact that our customers -- all customers were spending less money and particularly less money on apparel. I think all those things cause people to postpone purchases or maybe even cancel purchases, and I think that's how I kind of get there. Patrick McKeever - MKM Partners LLC, Research Division: Okay, and then a question for Jason. You've been with the company now for more than 1 year and you've spent some time with TJX before joining Citi Trends. So I'm just wondering about your view of -- I know it's been a difficult year plus but you're now seeing some change in the very important ladies' category and a better trend over the past 6 weeks and whatnot. More of a layered -- level playing field, I guess, as well versus last year, at least from a merchandise mix standpoint. So the question is really, what do you think of the longer-term opportunity for the company especially in light of your experience with TJX and knowing that AJWright has been closed down? Jason T. Mazzola: Yes. I think the longer-term opportunity at Citi Trends is very good. I'm very much encouraged by the fashion working in ladies that we're seeing right now and really making that pivot from brands to fashion. I think, as we have done that, we've really touched our ladies customer and she is the heart and soul of our company. And as we continue to build our competency in that regard, I see, hopefully, good things happening at Citi Trends. We still have a healthy men's and boys’ branded business, and we'll continue to watch that as we build up our fashion competencies there as well. But I'm very much encouraged with our strategy and our future prospects here.

Our next question comes from the line of Evren Kopelman with Wells Fargo. Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division: On the shift to unbranded fashion in the women's business, where are you in that shift? Meaning like if you look at the percent of your purchases in women's, that currently in branded versus -- or unbranded versus urban brands, do you feel like you're in only the first or second inning, will it continue to shift or you've already made a pretty drastic shift? Can you talk about that? Jason T. Mazzola: Sure. I think we're really in the probably the second inning of that shift and really the second inning of getting the team fully up to speed and understanding the direction that they're going. Right now, our ladies' penetration of urban brands is 28% versus last year, approximately 42%, and I see that continuing to decline as we build our fashion competency and as the team gets up and running in the West Coast office, gets up and running, because we only opened that office, I believe, in January. And so that team is really starting to feel good about the sales results that they're seeing and the East Coast and West Coast merchants are working very well together. So let's say we're in about the second inning with some terrific innings to come. Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division: Yes, that's great to hear. Another question, the other part of the business that's working, the accessories, footwear. Now where are we in terms of a percent of sales in those businesses? And maybe talk about what is working there? Is it certain brands, is it more of a fashion that's driving that strong accessories comp? And also, what's in the Home that had a good comp, too? R. Edward Anderson: Bruce, would you answer the question regarding the numbers on what percentage of businesses are in accessories and Home in most recent quarter? Bruce D. Smith: Yes, for the quarter, accessories were actually 25% of sales compared to 23% last year. And if you go back as far as 2009, accessories were only 14% of the business. So they've grown quite a bit in the past few years. R. Edward Anderson: But the big driver in accessories, the biggest driver in accessories has been the big expansion of our footwear business. So Jason, would you talk about kind of where we are versus where we've been in the accessories and Home businesses and where we're headed? Jason T. Mazzola: Sure. We see continued growth in all of these areas. Shoes, accessories and Home represent strong fashion mixes that are resonating well with our customer. And if I was to give you 1 word of what's working across these 3 areas, it is fashion. Our customer is a fashion shopper, and she is very excited about what we're delivering in these areas. So we actually have realigned our floor space to highlight these areas and give them room for continued growth, so we see continued growth there. If you were to ask me in Home, hey, what's the strongest pieces of that business? I would tell you that our beauty area, which is predominantly fragrance has been very strong. We see electronics as a very strong and growing area in that regard. In addition to that, the home decor that we're bringing in is very specific to our customer, it's unique. It offers terrific values. So we see opportunities there as well. And as Ed just mentioned, our shoes and our handbag areas are the strongest areas, really, as you look in Accessories, and that's really dominated by fashion. We've also beefed up our muscle in our Men's, in our kid's accessories departments, and we're seeing continued growth in those areas as well. So we're excited about that. Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division: Great. Then a question for Bruce, now when I look at the difference between the comp and the sales declines in Q1, the 4 points, is that entirely or almost entirely the shift of the calendar? And what should we expect the calendar impact to be in Q2? I believe it's positive, but can you put a little more color around that? Bruce D. Smith: Yes, with respect to your first question, that's exactly right. As we talked about on the last call, because every quarter this year is starting a week later than it did last year, there is a mismatch of sales because last year had that 53rd week in it. And as it relates to the second quarter, you're right, it is a positive benefit of about $5 million. The third quarter has a drag of $3 million. And then of course, once we get out to the fourth quarter, last year actually had 14 weeks versus 13 this year. So that's somewhere around a $13 million negative impact this year. Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division: Correct, okay. And now then my last question is on the average unit sale and the transactions component in Q1. What were the drivers behind -- was it mostly markdowns on the average unit sales decline? And what should we expect going forward now that your inventories are in good shape and the ladies' business is beginning to show some good signs? R. Edward Anderson: As Bruce pointed out in his comments, Evren, we did have a big decrease in the AUS again in the first quarter, but we were very happy to see continued increases in both units sold, as well as customer transactions as we had all during 2012. Jason will address the sort of the status and prospects for AUS. Jason T. Mazzola: Our AUS has declined from the first quarter of 2012 to 2013, and there are 2 primary reasons for the continued decline in AUS. First, we are buying less branded product in the company especially in ladies. And the fashion product does have a lower AUS. Second, we did have a value issue in the company. We have solved the value issue, and we now offer exceptional value on the brands and fashion we carry and we are very competitive with all of the folks we compete against, both in the off-price arena certainly, as well as in the fashion area. As we move through 2013, we will begin to anniversary our revised values and our AUS should begin to stabilize. And I think one other question you asked, was this a result of additional markdowns? It was not. The 2 reasons that I highlighted were the real reasons for the decline in AUS. It was really not a markdown issue.

There appears to be no further questions at this time. Mr. Anderson, I will turn it back to you for any closing remarks. R. Edward Anderson: Okay. Thank you, all, for joining the call this morning and have a good day. Thanks. Jason T. Mazzola: 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.