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 Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division David Namyoung Kwon Patrick McKeever - MKM Partners LLC, Research Division

Ladies and gentlemen, thank you for standing by. Welcome to the Citi Trends' Second Quarter 2013 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Wednesday, August 21, 2013. I would now like to turn the conference over to Tripp Sullivan of Corporate Comm. Please go ahead, sir.

Thank you. Our earnings release was sent out this morning at 6:45 a.m. Eastern. 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 will provide you with details related to the second quarter and year-to-date results. And then Ed will further discuss the results and our business outlook, after which we will address any questions you may have. Total sales in the second quarter increased 4% to $138 million, including a 1.7% increase in comparable store sales on a comparable weeks basis. The higher comp store sales reflected a 6% increase in the number of customer transactions and a 1% increase in the average number of items per transaction, partially offset by an average unit sale that was 5% lower. Comparable store sales by month in the second quarter were up 0.3% in May, up 2.1% in June and up 2.6% in July. As we have entered August, comp store sales have been up 2% for the first 2 weeks. By merchandise category, sales in the second quarter and comp stores were as follows. Accessories were up 17% on top of an 8% increase in 2012 second quarter. The Home division was up 9% after being down 7% last year. Kids' sales were up 1% this year and down 3% last year. Men's sales were down 5% after increasing 3% in the second quarter of last year. And the ladies' division was down 7% this year and down 13% in the second quarter of 2012. Sales of nationally recognized brands represented 29% of total sales in the quarter compared with 36% last year. For the year-to-date through the second quarter, total sales are down 3%, and comparable store sales are down 1.7%. Gross margin in the quarter was up 230 basis points from last year's second quarter, 35.9% this year and 33.6% last year, with the improvement primarily attributable to fewer markdowns being needed due to the improved sales performance and strong inventory control. For the year-to-date, gross margin is up to 36.6% from 36.1% in 2012's first half. SG&A expenses were well controlled in the quarter, with expenses as a percent of sales declining 80 basis points to 37.7% from 38.5% in the second quarter last year. The improvement in our expense ratio was due to leverage on the fixed portion of our expenses from the 4% sales increase, together with our continued efforts to conservatively manage costs. For the quarter, expense dollars increased 1.9% to $52 million from $51 million last year, while for the year-to-date, expense dollars increased 0.2% to $104 million. Year-to-date, SG&A expenses as a percent of sales have increased to 32.5% from 31.4% as a result of the deleveraging effect on the expense ratio related to the 3% decrease in total sales. The second quarter net loss in 2013 was $5.5 million or $0.37 per share compared to a loss of $7.9 million or $0.54 per share last year. Year-to-date, the company has net income of $700,000 or $0.05 per share versus $2.2 million or $0.15 per share in last year's first half. Our balance sheet position remains strong. Cash, together with short-term and long-term investment securities, totaled $85 million at the end of the quarter, a $14 million increase from the same time last year. Inventory was down 10% from the end of last year's second quarter, and we continue to have no debt. Now I'll turn the call over to Ed. R. Edward Anderson: Thank you, Bruce, and good morning, everyone. The second quarter results reflect the good, now consistent progress we're making in the turnaround of Citi Trends. The positive sales, gross margin improvement, well-controlled expenses, better-managed inventory and a stronger cash position are all strong indications that our strategy is working. We're all encouraged by the positive comparable store sales in the second quarter. Each of the months in the quarter had sales increases, and we've now had positive comps for 4 months in a row. We've also have started Q3 with positive comp store sales. The ladies' business improved in the second quarter, decreasing just 7% after several quarters of double-digit decreases. Sales of our nonbranded ladies' fashion business increased nicely, but it's still not enough to offset the large losses in urban brands. The pivot to nonbranded fashion is working, and we believe we're on the way to positive comps in the ladies' division. The best performer in merchandise has been the Accessories area, footwear in particular. This was the fourth straight quarter of double-digit comps in Accessories, again, with footwear being the driver. Importantly, we reset the sales floors of all of our stores in the second quarter. We added footwear fixtures to the floor and moved footwear and handbags closer to the front of our stores. To accommodate the moves, we've decreased slightly the selling square footage allocated to the ladies' division. We believe the additional fixtures and better visibility will help drive additional sales of both footwear and handbags. As I reported last quarter, we believe we can deliver positive comps and improved gross margin with lower levels of inventory. We plan to own somewhat less inventory than last year in the third and fourth quarters. During this turnaround, we've been very conservative with expenses and capital. We've opened just one store this year and remodeled about 20 stores. We expect to open a few more stores in 2014, but we will stay conservative with capital until we see more positive results. Our turnaround is showing slow but steady positive results. We believe that we have the right strategy and are confident that this turnaround is going to be successful. Now, operator, we'll take any questions.

[Operator Instructions] Our first question comes from the line of James Fronda with Sidoti & Company. James Fronda - Sidoti & Company, LLC: Are there any specific areas of the country you can talk about where there might be some store openings in 2014? R. Edward Anderson: We haven't identified any particular areas of new expansion. Our first choice is to go to places where we have stores already or we see markets where we would like to add new stores. The Upper Midwest has been a very successful area for us, and we'd like to add some stores there for sure. We're also looking at the West Coast, at the Los Angeles area for potential and other parts of the country too. But generally speaking, going to places where we already have stores will be first. James Fronda - Sidoti & Company, LLC: Okay, all right. And I guess how does the fashion-oriented apparel work exactly with the type of consumer you have? I mean, I guess it's all just based on the price as long as it's fair? Jason T. Mazzola: It's not just -- this is Jason. I don't think it's just the price. It's really a combination of really the fashion and the value that it represents, and price is sort of a component of that value equation. I think what we are trying to do is put the fashion on the floor that really resonates with our customer, that follows the trends that are happening in the market right now. So we pay very close to the trends that are happening in the junior market, and we translate that into also the plus. And we do the same thing really in men's and children's and our accessories and shoe department as well. James Fronda - Sidoti & Company, LLC: Okay. And I guess just on the ladies' segment, I mean, do you think that's kind of just a onetime thing during the quarter? Or do you think it might be longer term that things were down? R. Edward Anderson: Well, our ladies' business has been difficult for a number of quarters, and so we're actually happy to see a single-digit increase, which is improvement, still not a positive. But no, we see our ladies' business continuing to improve. Jason, you want to add to that... Jason T. Mazzola: Sure. I don't see us driving a positive comp store sales in the ladies' area really for the balance of 2013. I think we're going to make significant progress there. I see us moving towards smaller comp store sales decreases throughout the balance of the year, and I'm really looking forward to 2014 for the positive comp store sales increases in ladies'. James Fronda - Sidoti & Company, LLC: Okay. And I guess, long term, do you guys eventually see yourself completely getting away from the branded apparel? Or do you think that there'll always be that branded apparel there? R. Edward Anderson: We don't see ourselves getting away from brands. Brands come and go, and there've always been brands that have been important to Citi Trends. They just change. These urban brands were very, very important, as we know, for the last several years, and they are less important. But other brands have started to take their place. And so brands will be important, perhaps not as much so as it -- as more recently.

And our next question comes from the line of Evren Kopelman with Wells Fargo. Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division: Wanted to ask first about, I think, for back-to-school. And I guess early fall, you had talked about some of the merchandising initiatives. I remember you've talked about knit bottoms. Can you give us a little bit more color on -- if some of the choices you made in terms of the merchandising, if those had been trending well? Obviously, we know you mentioned the comp August-to-date. That looks great. But if you give us a little bit more color on if some of those areas are working, what's maybe not working, that would be great. Bruce D. Smith: Sure. Really, on the nonbranded fashion side, we have seen a lot of success really across the company. I would say the #1 trend out there is camo from really a fashion point of view. And camo has been strong at Citi Trends across men's, ladies', kids', accessories and shoes. So we're very happy about that trend in general and in our positioning there. And specifically to ladies', as you've just talked about, definitely, we are in more of a nondenim bottom cycle, making that move into skirts, and nondenim bottoms, be it millennium fabrications or Molton [ph], have been terrific. So we have been happy about our nonbranded positioning, and those things continue to trend well. And in ladies', as we have discussed, brands continue to take a backseat to the nonbranded fashion. Our penetration in ladies' sportswear was 15% this quarter versus 32% last year. And we keep moving those dollars to fund the nonbranded fashion as we have continued success there. Jason T. Mazzola: Evren, I would add to what Jason just said about the fashion. There's things that are working for us that -- we're talking about back-to-school, and back-to-school, the last week of July and, I think, these first 2 weeks of August, I believe, are the biggest weeks until we get to Christmas for the company. So these are pretty big weeks. But one of the things that I would add to you is that this is not a great fashion time of the year. This is really back-to-school, and so it's a lot -- there are a lot of basics and school uniform-oriented products. And the company has done a -- just a very, very nice job in optimizing those businesses across kids' and men's and women's. So our business has been driven by fashion as well as being just very, very good at back-to-school-oriented products. Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division: Okay. That makes sense. And then in women's, I'm not sure where it is as a percent of sales today. Maybe if you could talk about that. And where do you think it kind of stabilizes? Where would you like to see it as the accessories continue to grow? R. Edward Anderson: Let's see. I believe -- Bruce, help me with the number exactly, but the ladies' business now as a percentage of total is in the low 30s. What is it? What's the number? Bruce D. Smith: A little bit lower? Jason T. Mazzola: Yes. R. Edward Anderson: What is the number? Bruce D. Smith: High 20s. R. Edward Anderson: High 20s, okay. Even lower than low 30s, say, 28%, 29% of total. That number has drifted down in the last 3 or 4 or 5 years from probably mid-30s, Bruce, to high 30s, all the way down to, yes, just about 30%, maybe even slightly under 30%. Clearly, we'd like to see the ladies' business be a stronger driver of our business than it has been. We don't have a particular right target for the ladies' business in total because a healthy number probably is about where it's at. Somewhere in the high 20s is probably a good healthy number for us. One of the things that we have seen happen is that our accessories businesses has been so good, again, as I called out earlier, driven by footwear. I think, penetration-wise, the accessory business in this quarter was 25% of our business, and last year's second quarter, it was 20% of the business. So we like the accessory business because it's, again, it's a good add-on product, and we have some high unit retails of things like handbags and footwear. But long answer to your question, probably about where it's at but not a lot less as percentage of the total. Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division: Great. That's very helpful. And then maybe a similar question on the accessories side. That continues to comp double digits. Do you kind of keep going? It sounds like you redid the sales floor, and if that's maybe kind of the next step to accelerating that business. You did mention that. But do you have some number in mind? Or that continues to grow, and kind of we'll see where it goes kind of thought? R. Edward Anderson: Again, as far as a specific number in mind, we didn't expect it to get this big this quickly. And we're actually happy that it has because we think it does make us feel more balanced, having a healthy kids' business, a healthy men's business, a ladies' business and a very healthy accessories business, we like this. We did reset the sales floor to drive down even more accessory business. The result of the floor set, by putting handbags at the very front and pushing footwear closer to the front, gives these 2 high unit retails, in addition to the jewelry, which is a very fashionable category for us, up front and center space and more space. So we do intend to drive more -- we like, obviously, categories that are double-digit comping for us, and we want to see -- and we like the unit retails. And so we're all going to get more space. We have given more space. We -- and we are giving more inventory. And we expect to see our accessories -- these 2 -- these -- all accessories areas, but in particular, handbags and footwear, to continue to grow. We're not going to put a limit on them. I don't think we're going to let them become 50% of the store. But I think I'd be comfortable with them becoming 30% of the store for sure. Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division: Okay, that's great. And then lastly for me, a little more color on footwear. Can you remind us where you are in terms of what's your footwear merchandise? Men's, women's, mixed. I know it's more dress, I think, but would you increase the athletics? Seems like there's some good trends on that side. If you could share some thoughts there, that would be great. Bruce D. Smith: Sure. We have 3 very strong businesses, as you've just mentioned. We have a strong ladies' business, and that's consists of really a dress business, a boot business. We also have a very nice casual business. That would be like a ladies' oxford, a ballet, a slip-on shoe. So a very nice casual business is going on there. Also, in the second quarter, we'll have a strong sandal business. As you look to men's and kids', we also have those similar businesses in men's. So in men's, we have a -- well, we have a strong athletic business in ladies', but in men's, it's a very strong athletic business. We have just added really a dress and casual piece. That's where a lot of the new growth is coming from right now. And sandals were very strong in the second quarter as well. And then as you move over to kids', we do similar things in kids', strong athletic business. We have sort of a dress and casual as well as sort of a back-to-school uniform shoe business. And then we're actually even doing very nicely in scrub shoes. So overall, the shoe business is very strong, and we see continued growth in really all of these areas. Did that help?

[Operator Instructions] We'll go to Pam Quintiliano of SunTrust.

This is David filling in for Pam. Could you talk about where you are now in terms of upfront versus in-season buys? And could you provide an update on next season buys as well? Jason T. Mazzola: Sure. We're -- we would -- I would tell you that from a close-up perspective, we are over 60% in buying, close to need over 50%. I wouldn't want to get more specific than that, but we have a very healthy business between taking advantage of in-season opportunities and positioning the store with the correct product that we know is specific to our customer. We are also continuing our next season buys where we look for terrific opportunities where we can hold them until the next season. And we don't really have a cap on that. We sort of flow with that based on the opportunities that arise at the time.

Could you also provide an update on the West Coast buying office in terms of what type of deals you're seeing and the impact of women's products? Jason T. Mazzola: Sure. We very much like how the West Coast buying office is progressing. Since the opening of the West Coast office earlier this year, we have opened over 60 nonbranded fashion resources, and many of those look like they're going to be very strong in the future for Citi Trends. They really offer the best on-point fashion that's being delivered in the fashion market in the U.S. And they also -- many of these resources produced domestically so that we can get very quick turnarounds. So we're very pleased with that. Each day, I think, we get a little bit smarter in refining our strategy and finding new vendors that can help us drive sales.

Great. How do you think about the buying team and vendor base going forward as you continue to shift to a more nonbranded approach on women's as well as footwear and accessories? Jason T. Mazzola: Could you repeat that question for me just so I make sure I get it right?

Going forward, how do you think about the buying team and vendor base as you continue to shift to a more nonbranded product on women's? Jason T. Mazzola: Great. Yes, I will talk about the buying team. I'm very happy with our merchant team right now. We have a very, very strong merchant team in ladies', both on the East Coast and the West Coast. They're working very well together as a team. As we sort of look at the new fashion landscape, they're doing a great job shopping competitors and understanding what the market is and shopping the vendor base and understanding who's strong, where the best fashion is coming from, what vendors, what price points are working. And so we're further refining that every single day. And we're adding new vendors to the mix every single day to really find that right combination that delivers positive comp store sales. So I feel very good about the direction that we're going, the team that we have in place and sort of the vendor market that's available to us on the nonbranded side in ladies'.

Our next question comes from the line of Patrick McKeever with MKM Partners. Patrick McKeever - MKM Partners LLC, Research Division: Okay, great. Hate to be the one that asks the weather question, but it was a very cool -- or it has been a cooler-than-last-year sort of summer in many of your markets, much wetter than last year. So I was just wondering -- and you mentioned that same-store sales were positive each month of the quarter. So I was wondering if you could just talk through the weather impact, if there was one, or how you viewed the weather during the quarter, that sort of thing. R. Edward Anderson: The -- this is an easy question. Fortunate for us, we don't believe the weather had a consequential impact on our second quarter. I called out on the first quarter call that we had seen some -- finally some warm weather at the end of the first quarter. But our point of view, for us at Citi Trends, is that the weather impacts are generally at the beginning of a season, at the beginning of spring, summer and then the beginning of fall, winter. And once we're into the season, yes, we read the same things. And we -- obviously, we've seen the rain in the -- particularly that southeastern part of the country. It's been a very, very wet summer. But no, we don't have any call-outs at all in weather in our second quarter. Patrick McKeever - MKM Partners LLC, Research Division: How about the overall environment for your core customer? How are you feeling about that these days? R. Edward Anderson: I'd say, Patrick, it's the same. I think we -- I appreciate you bringing it up because it is an overlay. It is something that we are thinking about, retail business and retail sales and trying to drive sales in any environment and trying to drive sales in a turnaround environment. Looking at the overall macros is definitely a big piece of it. I think things are about the same. I think things are kind of sloppy, and to the extent that they're better, it's only very, very slightly incrementally better. So I think things are better but in slivers, not materially. Patrick McKeever - MKM Partners LLC, Research Division: Okay, and then last one. Just looking out to the holiday season and the fourth quarter when you are up against close to a negative 12% same-store sales comparison, I know you're not giving any guidance, but any just general thoughts on this year versus last year, what you might do differently in the fourth quarter, what -- I mean, we -- it doesn't seem like we'll have the fiscal cliff, whatever, the overhang there. So maybe things are better just from a -- from that standpoint, but just any thoughts on the fourth quarter would be appreciated. R. Edward Anderson: Okay. What -- the first -- fourth quarter was 12%, and a lot of that 12% happened at the end with taxes moving -- the tax money moving away from us, and it looked like it actually into oblivion eventually. Last year -- just cut back to weather again, probably one comment that people would have about the fourth quarter as you look at it is it was the second warm -- last year was the second year in a row of a very warm fall and winter. We're obviously hopeful that it's not as warm as last year as we work our way through fall and winter. That -- it would be nice to have some cool weather. That would help everybody's business, including our business, but we're not counting on it being materially better. We're managing our business, expecting it to be about the same as last year. We're hopeful to have sales increases in the fourth quarter. That's what we're planning for this quarter, and hopefully, next quarter, we hope to have some slight sales increases in the fourth quarter. Again, we don't give guidance. As far as environmentally, for us, weather could have an impact. We'd like to speak it would be a positive impact. We are going to run with less inventory than we owned last year to some extent, like we've called out before. We think that, that actually is a healthy move, not a negative move. And as you pointed out, we can't believe that the environment for tax refunds is all that at the end -- at the very end of the fourth quarter, which could affect the end of January and then, certainly, the beginning of February. We can't believe it would be any worse, right? We believe that everything has been settled in that regard and things should be normalized. So hope that things should be healthy for the fourth quarter. That's our perspective.

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: Thank you, everyone, for joining the call today, and have a nice day. Thanks.

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.