On Wednesday, Craig-Hallum maintained a Hold rating on Citi Trends (NASDAQ:CTRN) but raised its price target on the stock to $20.00, up from the previous $14.00.
The adjustment follows Citi Trends' recent report of a strong third quarter, which surpassed expectations in both sales and profitability, largely attributed to increased customer traffic and a more attractive product selection.
The company's fourth-quarter guidance also outperformed forecasts, with same-store sales (SSS) sustaining at a high single-digit rate in November. New CEO Ken Seipel's initiatives, including streamlined operations and enhanced product allocation, have been credited for the improved performance of top locations. Seipel's strategy to deepen the inventory of off-price deals has also been noted to generate greater customer excitement around the merchandise.
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Improvements in supply chain and store execution under Seipel's leadership have led to better margins as the company shifts its focus to gross margin (GM) dollar growth. Analysts have expressed optimism about Citi Trends' future, especially with the initial plans for fiscal years 2025 and 2026, which indicate a return to store expansion.
Despite the positive developments, the turnaround is expected to be gradual, with a return to mid-single-digit EBITDA margins contingent on sales reaching approximately $850 million, a 14% increase from the projected figures for fiscal year 2024. The market is watching for further success in merchandising strategies and margin enhancements.
The raised price target reflects a renewed confidence in the potential for a turnaround, although the analyst suggests that the stock's valuation could increase further if the company continues to progress towards a growth-oriented profile. .
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