In order to cushion their portfolio, it is important for investors to exit underperforming stocks, which may dent their portfolio returns. Well, Citi Trends, Inc. CTRN seems to be one such underachiever that needs to be plucked out of investors’ stock garden immediately.
This Zacks Rank #5 (Strong Sell) stock, which closed at $18.69 on the last trading day, has slumped 12.1% on a year-to-date basis and 13% in the last five days. Additionally, it has underperformed the Zacks Categorized Retail–Apparel/Shoe industry. Let’s delve deeper to find out what’s weighing upon investor sentiment.
What’s Wrong with CTRN?
Citi Trends has been witnessing downward estimate revisions since it released dismal results for the third quarter of fiscal 2016. The company posted a loss of 6 cents per share, as against earnings of 4 cents per share in the year-ago period and the Zacks Consensus Estimate of 3 cents. Also, the company’s top line lagged estimates. Notably, Citi Trends has underperformed our estimate by an average of nearly 63% in the trailing four quarters.
The dismal year-over-year earnings comparison in the quarter is partly attributable to a one-time expense benefit realized in the same period last year, which was absent this time.
Also, comparable store sales (comps) dipped 1% in the quarter, attributable to a drop in average units sold, somewhat offset by a rise in the average number of items per transaction and the number of customer transactions. Further, comps were hurt by external factors like Hurricane Matthew that led to store closures, coupled with unseasonably warm weather that weighed upon demand for fall products.
Additionally, owing to the soft sales trend, Citi Trends now anticipates gross margin to be 38.5% for fiscal 2016, down 50 basis points from the old projection. Following Citi Trends’ muted performance, estimates for fiscal 2016 and fiscal 2017 witnessed a downtrend over the last seven days, as analysts turned less constructive on the company’s future performance. Evidently, the Zacks Consensus Estimate for fiscal 2016 and fiscal 2017 has declined 9% to 91 cents per share and 6.9% to $1.21 per share, respectively.
Apart from this, Citi Trends remains prone to macroeconomic headwinds like increased payroll taxes, fluctuating fuel prices, risk of unemployment and delayed tax refunds. Also, its business is heavily dependent on the tastes and preferences of consumers that keep changing with time. Hence, the failure to identify consumer needs and act accordingly may reduce demand for its products and weigh on its financial performance.
Stocks to Consider
Better-ranked stocks in the same industry include The Children's Place, Inc. PLCE, with a Zacks Rank #1 (Strong Buy), Chico's FAS Inc. CHS and Nordstrom Inc. JWN, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Children's Place has an average positive earnings surprise of 36.3% in the trailing four quarters. The stock, with a long-term growth rate of 10.3%, has seen positive estimate revisions in the last 30 days.
Chico's FAS has topped earnings consecutively in the last two quarters. Moreover, the company’s positive estimate revisions for the current fiscal over the past seven days bode well.
Nordstrom’s long-term EPS growth rate of 9.7% and solid positive estimate revisions for the current fiscal over the past 30 days help it stand strong in the industry. Moreover, the company has delivered back-to-back earnings beat in the last two quarters.
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