Citi Trends (CTRN) In Danger: What's Wrong With The Stock?

Similar to making prudent buying decisions, one needs to keep an eye on the losers as well. Dropping certain stocks at the appropriate time helps maximize portfolio returns, especially at a juncture where both their share price and estimates are falling.

Citi Trends, Inc. (NASDAQ:CTRN) is one such company, which has seen its stock price slump 18.6% year to date and 35.8% year over year. Let’s explore why.

Citi Trends’ business is seasonal in nature and typically generates stronger sales during the first and fourth quarters, which are characterized by the spring and holiday seasons. As a result, the company is exposed to significant risks if the seasons fail to deliver the expected operating performance. In fact, this is exactly what was witnessed recently, when the company reported dismal first-quarter fiscal 2016 results on May 18.

In the first quarter of fiscal 2016, both Citi Trends’ top and bottom lines lagged estimates and declined year over year. Further, this marked the third straight quarter of both sales and earnings miss, highlighting the company’s unimpressive history.

While the bottom line in the quarter was hurt by soft sales, the top line felt the pinch of a delayed start to the tax refund season. This also resulted in a decline in comparable store sales, which dropped 2.7%, trailing the company’s expectations. Apart from this, management expects average units sold to remain pressurized in fiscal 2016, and be down in the low to mid-single digits, thus posing a concern.

Following the muted performance and bleak outlook, estimates for this Zacks Rank #5 (Strong Sell) stock for fiscal 2016 and fiscal 2017 witnessed a downtrend over the last 60 days, as analysts turned less constructive on Citi Trends’ future performance. Evidently, the Zacks Consensus Estimate for fiscal 2016 and fiscal 2017 has dropped 22.7% to 92 cents per share and 1.5% to $1.29 per share, respectively.

Apart from this, Citi Trends remains prone to macroeconomic headwinds such as 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

While Citi Trends seems to be in the danger zone currently, one can take a look at other apparel stocks like Delta Apparel Inc. (NYSE:DLA) , with a Zacks Rank #1 (Strong Buy), The Children's Place, Inc. (NASDAQ:PLCE) and Perry Ellis International Inc. (NASDAQ:PERY) , with a Zacks Rank #2 (Buy) each. We believe that these stocks hold promise, given their favorable Zacks Rank, positive estimate revisions and impressive earnings history.

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