Citi Trends Inc — Call Transcript 2026

Greetings. Welcome to Citi Trends' first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Nitza McKee, Senior Associate at ICR. Thank you. You may begin. Thank you, and good morning, everyone. Thank you for joining us on Citi Trends' first quarter 2026 earnings call. On our call today is Chief Executive Officer, Ken Seipel, and Chief Financial Officer, Heather Plutino. 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's website under the investor section at www.cititrends.com. You should be aware that prepared remarks made today during this call may contain non-GAAP information and 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, you should not place undue reliance on these statements. We refer you to the company's most recent report on Form 10-K and other subsequent filings within 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 will now turn the call over to our Chief Executive Officer, Ken Seipel. Ken? Thank you, Nitza. Well, good morning, everyone, and thank you for joining us today for our first quarter 2026 earnings call. Simply stated, we had an excellent quarter. Building on the powerful momentum from 2025, nearly every metric accelerated during Q1 2026, and we're seeing strong momentum early in Q2 as well, with quarter to date comps in the high single digits, which is validating that our strategy is working and our execution is becoming increasingly consistent. As noted in our pre-release last week, in Q1, we generated $13.9 million of EBITDA, which is more than doubling last year's $6.4 million. Our profit improvement was driven by exceptional comparable store sales growth of 13.9%, representing a two-year stack of 23.8% and also marking 21 consecutive months of sales growth for the company. Our performance was broad-based. Sales increases across all product divisions and all store climate zones. While a portion of the quarter benefited from tax refund timing, I would like to highlight that our sales trends before and after the tax refund period on a two-year basis is in the upper teens, consistent with the momentum we delivered in Q3 and Q4 of 2025, and in the two-year upper teens growth trend has continued now in Q2. Our sales growth is being driven by refinements of trend, style, and value of our core merchandising assortment. Plus, we also utilize extreme value deals periodically to add excitement to the treasure hunt for our customers. The strong performance of our core merchandising strategy gives us confidence in the durability and sustainability of our top-line performance. Our gross margin rate expanded by 40 basis points, driven by improved merchandise margin rate, partially offset by increased fuel surcharge expense in the freight line. SG&A was well controlled and leveraged by 250 basis points versus last year. I was particularly encouraged by our transaction growth. Consistent with 2025 performance, nearly one half of our sales increase was driven by increased customer traffic, the key indicator that our product and brand are resonating. At the same time, we saw some meaningful improvement in our basket size, which demonstrating that our customers are responding to the strength of our assortment and the compelling value that we're delivering. From a merchandise perspective, we saw disciplined execution across the business. Family footwear continued its momentum from Q4, with customers responding enthusiastically to expanded branded offerings at exceptional value across all genders. In footwear, off-price and extreme value strategy continues to gain momentum, driving both traffic and basket growth. Men's also delivered a very strong quarter, driven by increased relevance in streetwear trends for young men. Our updated strategy successfully balances trend-forward product for the younger customer while continuing to serve the style and preferences of our core male customer with updated styling, compelling values, and improved in-stocks. Children's had another strong quarter, benefiting from improved in-stock levels and attention to detail in product selection, which creates stronger value positioning. As I mentioned on the Q4 call, our children's business has become both a cornerstone of our company and a model of consistent, disciplined execution. The team continues to deliver highly desired styles, consistent value, and improved inventory and stock positioning. Women's accessories also posted meaningful gains, which is reflecting early success in our assortment adjustments to a more branded, trend-right product. We were encouraged by customer response to improvements of our women's apparel business, especially in Missy. Women's apparel represents a significant opportunity as we continue to reposition our women's business to fully capture the style, trend, and sizing opportunities that we do see in the market. This product momentum is a result of continued refinement of our three-tiered good, better, and best strategy across all merchandising divisions. What's important to note here is that we're serving customers across a wide range of income levels, including a meaningful portion of middle and higher income consumers. This creates a significant opportunity for us to expand our offering of recognizable brands at compelling prices that align with their style and trend expectations. At the opening price point, we continue to deliver strong value through our Citi Score offering for budget conscious customers. The foundation of our business remains the better tier, which is typically priced between $7 and $12, where we provide a broad assortment of trend right product that drives consistency and loyalty. At the top end, we're continuing to expand our best tier through both fashion forward product and branded extreme value opportunities, often with extreme discounts up to 75% off MSRP. These product strategies, combined with improved discipline in our open to buy process and continued benefits from our AI-driven allocation systems, are driving stronger inventory productivity and improved margin performance. In marketing, our objective is to really deepen the connection with our customers and reinforce the role in communities that we serve. In Q1, we extended the momentum from our highly successful holiday Joy Looks Good On You campaign by inviting customers to help modernize the Citi Trends jingle. Engagement exceeded expectations, generating strong social reach and viral moments, while also driving incremental store traffic. By quarter end, we had received a meaningful volume of customer submissions, and in Q2, we will select a finalist from the submissions, with the winning jingle expected to be deployed in the second half of the year. Turning to operations. The SG&A leverage we delivered in the quarter reflects more consistent execution across the organization. As we improve execution, we're able to better leverage the fixed portion of our cost structure without adding commensurate expense as the business grows. I'm pleased with the progress across our stores, headquarters, and our distribution centers in controlling costs and improving overall operating disciplines. From a store growth point of view, we opened two new stores during the quarter, one in St. Louis and one in Baltimore. These two locations, along with the three new stores from last fall, are serving as test stores for us as we refine our processes and prepare for accelerating store growth. I'm very pleased to report that our new stores are all performing above expectations. As a reminder here in stores, one of our primary points of differentiation is our neighborhood store locations, which are embedded in communities where we built trust over many, many years. The combination of these convenient proximity and strong word-of-mouth recommendations creates sustainable, powerful traffic drivers. Now I'll turn the call over to Heather to walk through the Q1 financial results in more detail, as well as our updated 2026 outlook, and then I'll return after her remarks to discuss our priorities for the remainder of 2026. Heather? Thanks, Ken. Good morning, everyone. I'm pleased to walk you through our first quarter results and our updated and improved outlook for 2026. We delivered a strong first quarter driven by top line growth, gross margin expansion, and disciplined expense management, resulting in adjusted EBITDA of $13.9 million, a $7.5 million increase over last year's Q1 adjusted EBITDA of $6.4 million. These results reflect the continued progress of our strategic transformation and the strength of our operating model. Total sales for the first quarter were $230.9 million, a 14.4% increase to Q1 2025. Comparable store sales increased 13.9% ahead of our expectations, driven by both increased transactions and higher average basket. On a two-year stack basis, comps increased 23.8%. Q1 2026 marks our seventh consecutive quarter and 21st straight month of comp sales growth. As Ken mentioned, our comp sales growth trend on a two-year basis before and after the tax refund season has been consistently in the upper teens, including Q2 performance to date. In the quarter, gross margin increased 40 basis points versus last year to 40%, driven by improved merchandise margins, fueled by our strategic investments in allocation and loss prevention systems and updated processes. These tailwinds were partially offset by higher freight expense. Freight in the quarter was higher than planned due to rising fuel surcharges. We expect that headwind to continue throughout the year, and we've incorporated its impact into the updated outlook I'll walk you through shortly. First quarter adjusted SG&A expenses totaled $78.3 million compared to $73.4 million a year ago. The increase to last year was mainly driven by expenses to support higher sales. In addition, we had higher store and corporate bonus accruals from improved performance. As a rate of sales, adjusted SG&A for the quarter was 33.9%, leveraging 250 basis points versus last year, demonstrating our ability to leverage our cost structure with higher sales. As I mentioned earlier, Q1 adjusted EBITDA grew $7.5 million over last year to $13.9 million, with adjusted EBITDA margin, EBITDA as a rate of sales, expanding 280 basis points to 6%. During the quarter, we opened two stores and closed one location, ending the quarter with 591 stores. We remodeled 25 stores, completing a significant portion of our full year program in time for the important Q1 tax refund season, or Taxmas, as we call it. In early Q2, we remodeled an additional 26 locations, completing our remodel program. Now turning to the balance sheet. I'm pleased to say that we drove our 13.9% Q1 comp with quarter end total inventory up only 4.8% to last year, reflecting our ongoing inventory efficiency initiative. Our balance sheet remains healthy, with $81.1 million in cash at the end of the quarter, no debt, and no drawings on our $75 million revolver. As we've said in several prior investor presentations, we expect our year-end cash balance to be approximately flat to last year's $66 million, reflecting investments in inventory and capital projects, particularly new stores and remodels, over the balance of the year. Throughout the year, we expect to remain in a strong financial position, affording us the flexibility to pursue strategic alternatives. Turning to our guidance. With the results of our first quarter, we are updating our outlook for fiscal 2026 as follows. We expect comparable store sales growth of 8%-10% for the year. With our Q1 comp results, this implies high single digit comps for the balance of the year. Total sales are expected to grow in a range of 9%-11%. Gross margin is expected to expand approximately 50-70 basis points compared to 39.6% in fiscal 2025, as we continue to leverage new systems and processes to drive improvements in markdowns and shrink, partially offset by higher freight expense due to the fuel surcharges I mentioned earlier. Our revised expectation for freight expense drove the decrease from our prior outlook of 100 basis points of margin rate expansion. We now expect adjusted SG&A leverage in the range of 140-160 basis points versus fiscal 2025, higher than previous outlook of 70-100 basis points of leverage due to the impact of higher sales as well as ongoing disciplined expense control. Adjusted EBITDA is expected to be in the range of $35 million-$40 million, with adjusted EBITDA margin expected to expand approximately 200 basis points over fiscal 2025. Our real estate plans are unchanged from previous outlook, with plans to open approximately 25 new stores, to close four locations, and to remodel approximately 50 locations. Finally, full year capital expenditures are expected to be in the range of $35 million-$40 million, consistent with previous outlook. In closing, Q1 represents a strong start to 2026, reflecting the operational foundation we built last year and the continued execution of our strategic priorities. We remain focused on driving sustainable, profitable growth through disciplined inventory management, operational efficiency, and targeted investments in our business. We are confident in our long-term trajectory and our ability to deliver meaningful value for our shareholders. I want to thank our teams across the organization for their continued dedication and hard work, which is enabling this transformation. We look forward to updating you, our investors, on our progress next quarter. With that, I'll hand the call back over to Ken. Ken? All right. Well, thank you, Heather Plutino. As we look ahead to the balance of 2026, we are firmly in the execute phase of our growth plan, focused on delivering against our customer brand promise. Our customers are discerning. They understand that value is more than just price, and they're willing to spend more when the style is right, the trend is relevant, and quality meets their expectations. In short, value is not just price. Our brand promise is very clear. Styles that see you, prices that amaze you, and trends that tell your story. Our teams are focused every day on bringing that promise to life for our customers. To support this, we've established three clear priorities in 2026. Consistent Execution, Strong Sales Flow-Growth to Profit, and Accelerated Growth. First, Consistent Execution. As I mentioned earlier, our sales growth is being driven by refinements in trend, style, and value of our everyday core merchandising assortment. Consistent execution of our merchandise strategy gives us confidence in achieving upper single digit comparable store sales growth this year and in the foreseeable future. A key focus will be repositioning our women's business to fully capture the style, trend, and sizing opportunities in the market across juniors, plus, and Missy. We're updating our product offerings to ensure trend-right merchandise is front and center for all female customers. This represents a meaningful opportunity to drive both traffic and sales. Throughout 2026, we'll maintain our disciplined focus on improved style, trend, and value across all product categories, and we'll continue to apply the learnings from our strongest performing categories, like men's and children's, to elevate execution company-wide. Our product team has sharpened focus on trend identification, brand curation, and style development. From opening price points to premium branded fashion, our merchant team translates these trends into compelling styles that deliver exceptional value to our customers and meaningful margin to the business. Each season, we're improving our product trend and style execution while leveraging AI to optimize product allocation to the correct store. This creates a long runway of growth as we continue to develop and refine product execution. We've also had continued opportunity to expand off-price and extreme value buying capabilities, ensuring a steady flow of compelling brands and products at exceptional value. Extreme value product is driving both traffic and basket growth while supporting margin performance. The off-price market remains robust, allowing us to be highly selective, which is a key advantage for our model and core to our competitive advantage. We've already secured several strong deals that will support continued momentum into the back half of the year. On the marketing front, we're focused on consistent execution throughout the year. This includes expanding our social and influencer presence, deepening community engagement, and ensuring that our brand is authentically represented in everything we do. As I said earlier, this is not just about visibility. It's about deepening relationships and reinforcing Citi Trends to the communities we proudly serve. Our second priority is ensuring strong sales growth through flow-through to profit. Incremental sales have got to translate into accelerated profit growth. Our plan in 2026 calls for about a 10% sales growth while more than doubling EBITDA, making this a pivotal year in the evolution of our profit profile. Foundational to profit flow-through is leveraging our highly fixed expense base as we grow. Best practices implemented during the repair phase in operational areas of the business are beginning to have a positive impact on our cost structure, enabling us to grow sales more efficiently. In addition, we have several tangible initiatives supporting this objective, including our AI-based allocation systems, enhanced store technologies to reduce shrink, and our ongoing supply chain improvements to increase capacity and efficiency. As I've highlighted on prior calls, we continue to leverage KPI dashboards across all functions to ensure we have disciplined execution. A benefit of our improved execution is our ability to absorb macroeconomic challenges, like increased fuel charges into our business, while still achieving our profit flow-through objectives. Our third priority is accelerated growth, which will be disciplined, return-focused, and strategic. First, beginning in July, we're going to launch our customer relationship management platform that we're calling the Insiders Club. The Insiders Club turns traffic into loyalty into frequency, and frequency into EBITDA. We're making a deliberate investment in owning our customer relationship and building a sustainable, data-driven growth engine that compounds over time. The objective is to invest early to build customer relationships, and then as the CRM system learns and scales, it becomes a meaningful contributor to long-term shareholder value. The Insiders Club transforms Citi Trends from a transaction-based retailer into a relationship-driven brand. It allows us to know our customer, reward our customer, and grow with our customer while reinforcing the treasure hunt excitement that makes shopping with us an experience. We'll begin activation of the Insiders Club this July and expect the program to build momentum rapidly. We also remain on track with our store growth plans. As Heather mentioned, we've completed 51 remodels so far this year, and we expect to open a total of 25 new stores the remainder of the year while preparing to accelerate our expansion in 2027. Our approach is grounded on data-driven site selection, local market expertise, and disciplined financial criteria. Using AI tools, we've analyzed three years of actual transaction data from every store location, combined with comprehensive geolocation studies to understand the specific customer and market characteristics that drive success. This AI data-driven approach has demonstrated approximately a 90% accuracy in sales prediction, helping us to identify and replicate our most successful store profiles while minimizing risk as we expand our footprint. Beyond the analytics, we're applying strict financial criteria to every new store, decisioning targeting mature store averages of approximately $1.5 million in sales and mid-teens four-wall contribution margins. Our early results from our newest stores are exceeding expectations, giving us the confidence in accelerating to approximately 40 new stores in 2027. Equally important to our growth initiatives is the growth of our people. We're a company that facilitates the continuous learning and development of all employees to transform, adapt to changes, and improve performance, positioning us to maximize growth opportunities as they arise. As a part of that initiative, we're focusing on succession planning for our key leadership roles to ensure continuity of the transformation plan while strengthening our bench talent. Our strong, debt-free balance sheet enables us to explore multiple avenues of growth beyond our current three-year plan. Our strategy is to build a strong organic growth foundation, accelerate expansion where the economics are compelling, and selectively pursue transformational opportunities. We're beginning to evaluate synergistic acquisition opportunities that align with and complement our strategic priorities. We're committed to applying the same disciplined approach to our customer focus, product execution, and financial returns that has driven our turnaround so far and has generated significant shareholder value creation. In closing, progress at Citi Trends is well underway. Our track record of consistent comparable store sales increases shows our strategy is working, our execution is more consistent, and our customer connection is stronger than ever. We're debt-free, disciplined, and positioned for growth. We have a clear path to profitable expansion, stronger earnings, and lasting shareholder value. We are clearly focused on our customer. The foundation is stronger and the opportunity ahead is significant. We still have a lot of processes to refine, product categories to optimize, systems to build, and growth opportunities to maximize. We're more than a retailer. We are a neighborhood destination for Black families, delivering style, trend, value, and trust that no one else can deliver. I'm confident in our strategy and our team's ability to execute. The foundation we've built positions us well for growth throughout 2026 and beyond. Thank you all for your continued support. I'll turn it to the operator now for any questions. Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question and one follow-up question. One moment while we poll for questions. Our first question is from Michael Baker with DA Davidson. Please proceed. Okay. Thanks, guys. You kind of alluded to the impact of tax refunds. It sounds like it probably helped, but certainly more to it than that. You talked about the period before and after. What do you consider the tax refund period? Maybe some other way to ask is, can you just tell us your monthly trends? Mike, probably the best way to think about the tax refund trend for us is really from about mid-February up to, in this year, kind of right up to Easter period. For the most part, about six to seven weeks there is what we would account for the majority of the tax refunds that flowed into the market. When we talk about sales trends prior, that includes a little bit of the January performance as well. Going into February 15 and then coming out after Easter, and even into really even through last week, our trends have remained very consistent with what we experienced, as I mentioned, in Q3 and Q4. We've been very encouraged about the overall underlying health of the business. As we noted in Q1, obviously our sales spiked up to 23.8% on a two-year, which is better than we had been performing. We believe that gap between our baseline and that upside is probably attributed dominantly to the tax refunds in that period. Very encouraged about the health on either side. Yeah. Okay. That makes sense. I guess I'll keep it to one question and one follow-up, and this does follow up on that. I think, Ken, I heard you say high single digits for the quote, "foreseeable future." Did I hear that right? What to you is foreseeable future? You actually did. That's a pretty good nuance in the script, Michael. That's a good catch. Yes, we did say that. What we're talking about in the foreseeable future right now is our merchandising plans that we have in place all the way through the balance of this year through 2026. We're taking a hard look at 2027 right now, and that may moderate a little bit and get into more of the mid-singles as we go forward. The point here is that we see a long runway of continued increases. I'm often asked by investors, can we continue to comp the comp, right? We have a great deal of confidence in that. There are so many merchandising opportunities that we have on the table. We can kind of go store by store, category by category, and take a look at various ways that we can continue to get better executing our three-tiered assortment and delivering better value to the consumer. We see a big ramp-up this year, and that'll continue, and then we do see continued success beyond. Yeah, to be more clear, I was speaking very specifically about the foreseeable future being through the end of this year. Perfect. Appreciate the color. I'll turn it over to someone else. Our next question is from Jeremy Hamblin with Craig-Hallum Capital Group. Please proceed. Thanks, and congrats on the strength of the business. As a follow-up question in terms of you noted men's category, very strong, children's very strong, women's accessories, footwear. In terms of thinking about where you see the biggest opportunities, not just the remainder of 2026, but as we get into 2027, what are the categories where you feel that you can really attack and improve? What are the drivers of that? Is it more consistency of the merchandise? Is it more national brands or kind of closeout off-price deals? Any color you might be able to share in terms of the merchandising strategy. Yeah, for sure. We have done a good deal of analytics to really kind of think about what is a long-term opportunity for store productivity and which categories inside of our box really have an opportunity to provide outsized growth along that continuum. You can kind of go through literally department by department and find significant opportunity across the board. For example, I called out our shoe department, who has done a nice job the last two quarters. Very pleased with their results. They're at the very beginning. I think if you were to get the team around the table, they'd say, "We're just getting started." We actually see a path there to probably more than double that department over time, and we've got quite a bit of work to do to get that done. There's certainly significant growth there. I can kind of go around the store and do that same sort of thing. I would also step back and say that the other area of growth that's probably the most significant is just more broadly appealing to our higher income consumers. They've been responding extremely well. As we continue to reposition fashion and trend, we were getting good response. You might remember in Q4 last year, we launched Young Men's Trend, highly successful, and it's continued into today, and we're just beginning to kind of understand how large that business could be. There's a significant opportunity there just to continue to mature what is a fairly new business for us. The same is true in our women's division. As I mentioned briefly on the call, we're just launching some trend I'm very excited about. The team's work for Q3, we've looked at it. The styles are right on, the trends are right on. We're making some different investments there, and there'll be a little bit of a breaking out moment, I think, for our women's fashion team. Complementary to that, right behind that, we're just exploring the implementation and now ultimately the expansion of Missy category of product. I don't mean to take up the entire call going through here, but the point here is that there's a lot of significant opportunity just getting better, doing what we're doing in our three-tiered strategy, good, better, best around the store. I speak from time to time about extreme value, and I like to talk about it because it's fun to talk about. The reality is it's actually the icing on the cake for us. That's the stuff that drives the excitement, the treasure hunt, and is really kind of compelling. It will drive traffic for us, but we're not reliant on that as our growth engine. That's complementary to our overall core merchandising strategy. Got it. Switching gears to talk about unit growth. You're starting to really exercise that muscle, accelerating to mid-single digit and potentially beyond as we get into 2027. I wanted to understand the cadence of openings. You opened two in Q1. How should we be thinking about the remainder of the year? As you get into a more consistent unit growth algorithm, how should we be thinking about the timing of unit openings throughout the year? Yeah, perfect. I want to talk a little bit about the last part of your question, and I'll ask Heather to kind of fill in on the balance of 2026 for you. How we're thinking about unit growth going forward, we're going to put our new store cycle on three cycles a year. Our goal here is to kind of open new stores up into peak periods so that we have our best foot forward in merchandising. We can invite new customers in and really kind of get the new stores off to a good start. In our model, that would mean we're going to open up a block of stores in February in advance of the Taxmas period. We're going to open up a block of stores in the summer, mostly mid-July, in advance of back to school. We're going to open up again another block of stores in October in advance of going into holiday. Those three opening cycles will allow us to, A, number one, improve our execution and discipline of opening new stores. Secondarily, it will allow us to make sure that when we open up a store, that we have our very best foot forward on new product going into a peak season, and that we believe that we can use that as a springboard then to mature those stores at a much more rapid rate. In 2026, we're just getting started, obviously. Our opening cadence is a little bit irregular in 2026. I would not use that as a proxy. 2027 will be and beyond is what I just described. Heather, would you be able to fill in the blanks there for Jeremy relative to the remainder of the year opening cadence? For sure. We did the two in February in time for Taxmas. We're thinking three to five in July period, the balance in October this year. Again, that speaks to Ken's 2026 is not what we consider kind of a quote, unquote, "normal" for go forward periods, that's us getting our legs under us. Great. That's helpful. If I could just sneak one more in, just on some of the margin color. You noted the fuel surcharges that we're seeing across the industry. Can you speak a little bit to your inventory shrink performance? Given the really strong comps you're doing and comping the comp, can you give us some color on incentive compensation and whether or not accrual for that also went up for the year given the strong performance? Yeah. Ken, I'll grab the mic, if you don't mind. Two things. I'll start with the gross margin question. No doubt, fuel surcharges were not in our initial guide. Certainly an industry issue. We're not alone. That caused our change in our outlook for gross margin from an expansion of 100 basis points to our updated guide. That is entirely due to those fuel surcharges. Okay, we're seeing positive movement, as expected, from both markdowns and shrink. Those are the tailwinds I spoke about in my script. Then the offset is these fuel surcharges. Shrink is getting better, markdown's getting better because of the investments that we've made. You've heard us speak about quite a bit in these calls about AI-based allocation systems, AI-based camera systems. Both of those are driving goodness in the gross margin line. Fuel surcharges are real, and as I said, we expect that to continue for the balance of the year, and it's all incorporated in the guide. Your second question, Jeremy, I'm sorry. On incentive comp, given the strong comp performance and profitability. Yeah, we did something a little bit different this year, and we adjusted the incentive comp accrual in quarter one. You'll recall last year we were chasing quite a bit throughout the year, and it caused catch-up accrual adjustments. We decided we were going to take a hard look at it in the first quarter, which is much earlier than usual. Yes, we did adjust up the incentive comp accrual. We were at 100% when we started the year. Right now, we're at about 128%. Not mad about that, and I'm sure the whole team is pretty happy about that too. No doubt well earned as well. Thanks so much for taking the questions, and best wishes. Thanks, Jeremy. Thank you. There are no further questions at this time. I would like to turn the floor back over to Ken for closing remarks. All right. Well, thank you again, everyone, for joining us for our call. We appreciate your continued support of our brand. Look forward to talking to you next quarter. Thank you. Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.

Speaker 6: Greetings. Welcome to Citi Trends' first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Nitza McKee, Senior Associate at ICR. Thank you. You may begin. Greetings. greetings Welcome to Citi Trends' first quarter 2026 earnings conference call. welcome to citi trends' first quarter 2026 earnings conference call At this time, all participants are in a listen-only mode. at this time all participants are in a listen-only mode A question and answer session will follow the formal presentation. a question and answer session will follow the formal presentation If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. if anyone should require operator assistance during the conference please press star zero on your telephone keypad Please note this conference is being recorded. please note this conference is being recorded I will now turn the conference over to Nitza McKee, Senior Associate at ICR. i will now turn the conference over to nitza mckee senior associate at icr Thank you. thank you You may begin. you may begin

Speaker 5: Thank you, and good morning, everyone. Thank you for joining us on Citi Trends' first quarter 2026 earnings call. On our call today is Chief Executive Officer, Ken Seipel, and Chief Financial Officer, Heather Plutino. 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's website under the investor section at www.cititrends.com. You should be aware that prepared remarks made today during this call may contain non-GAAP information and 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, you should not place undue reliance on these statements. Thank you, and good morning, everyone. thank you and good morning everyone Thank you for joining us on Citi Trends' first quarter 2026 earnings call. thank you for joining us on citi trends' first quarter 2026 earnings call On our call today is Chief Executive Officer, Ken Seipel, and Chief Financial Officer, Heather Plutino. on our call today is chief executive officer ken seipel and chief financial officer heather plutino Our earnings release was sent out this morning at 6:45 A.M. our earnings release was sent out this morning at 6:45 a.m Eastern Time. eastern time If you have not received a copy of the release, it's available on the company's website under the investor section at www.cititrends.com. if you have not received a copy of the release it's available on the company's website under the investor section at www.cititrends.com You should be aware that prepared remarks made today during this call may contain non-GAAP information and forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. you should be aware that prepared remarks made today during this call may contain non-gaap information and 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. management may make additional forward-looking statements in response to your questions These statements do not guarantee future performance, therefore, you should not place undue reliance on these statements. these statements do not guarantee future performance therefore you should not place undue reliance on these statements We refer you to the company's most recent report on Form 10-K and other subsequent filings within 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 will now turn the call over to our Chief Executive Officer, Ken Seipel. Ken? We refer you to the company's most recent report on Form 10-K and other subsequent filings within 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. we refer you to the company's most recent report on form 10-k and other subsequent filings within 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 will now turn the call over to our Chief Executive Officer, Ken Seipel. i will now turn the call over to our chief executive officer ken seipel Ken? ken

Speaker 3: Thank you, Nitza. Well, good morning, everyone, and thank you for joining us today for our first quarter 2026 earnings call. Simply stated, we had an excellent quarter. Building on the powerful momentum from 2025, nearly every metric accelerated during Q1 2026, and we're seeing strong momentum early in Q2 as well, with quarter to date comps in the high single digits, which is validating that our strategy is working and our execution is becoming increasingly consistent. As noted in our pre-release last week, in Q1, we generated $13.9 million of EBITDA, which is more than doubling last year's $6.4 million. Our profit improvement was driven by exceptional comparable store sales growth of 13.9%, representing a two-year stack of 23.8% and also marking 21 consecutive months of sales growth for the company. Our performance was broad-based. Thank you, Nitza. thank you nitza Well, good morning, everyone, and thank you for joining us today for our first quarter 2026 earnings call. well good morning everyone and thank you for joining us today for our first quarter 2026 earnings call Simply stated, we had an excellent quarter. simply stated we had an excellent quarter Building on the powerful momentum from 2025, nearly every metric accelerated during Q1 2026, and we're seeing strong momentum early in Q2 as well, with quarter to date comps in the high single digits, which is validating that our strategy is working and our execution is becoming increasingly consistent. building on the powerful momentum from 2025 nearly every metric accelerated during q1 2026 and we're seeing strong momentum early in q2 as well with quarter to date comps in the high single digits which is validating that our strategy is working and our execution is becoming increasingly consistent As noted in our pre-release last week, in Q1, we generated $13.9 million of EBITDA, which is more than doubling last year's $6.4 million. as noted in our pre-release last week in q1 we generated $13.9 million of ebitda which is more than doubling last year's $6.4 million Our profit improvement was driven by exceptional comparable store sales growth of 13.9%, representing a two-year stack of 23.8% and also marking 21 consecutive months of sales growth for the company. our profit improvement was driven by exceptional comparable store sales growth of 13.9% representing a two-year stack of 23.8% and also marking 21 consecutive months of sales growth for the company Our performance was broad-based. our performance was broad-based Sales increases across all product divisions and all store climate zones. While a portion of the quarter benefited from tax refund timing, I would like to highlight that our sales trends before and after the tax refund period on a two-year basis is in the upper teens, consistent with the momentum we delivered in Q3 and Q4 of 2025, and in the two-year upper teens growth trend has continued now in Q2. Our sales growth is being driven by refinements of trend, style, and value of our core merchandising assortment. Plus, we also utilize extreme value deals periodically to add excitement to the treasure hunt for our customers. The strong performance of our core merchandising strategy gives us confidence in the durability and sustainability of our top-line performance. Sales increases across all product divisions and all store climate zones. sales increases across all product divisions and all store climate zones While a portion of the quarter benefited from tax refund timing, I would like to highlight that our sales trends before and after the tax refund period on a two-year basis is in the upper teens, consistent with the momentum we delivered in Q3 and Q4 of 2025, and in the two-year upper teens growth trend has continued now in Q2. while a portion of the quarter benefited from tax refund timing i would like to highlight that our sales trends before and after the tax refund period on a two-year basis is in the upper teens consistent with the momentum we delivered in q3 and q4 of 2025 and in the two-year upper teens growth trend has continued now in q2 Our sales growth is being driven by refinements of trend, style, and value of our core merchandising assortment. our sales growth is being driven by refinements of trend style and value of our core merchandising assortment Plus, we also utilize extreme value deals periodically to add excitement to the treasure hunt for our customers. plus we also utilize extreme value deals periodically to add excitement to the treasure hunt for our customers The strong performance of our core merchandising strategy gives us confidence in the durability and sustainability of our top-line performance. the strong performance of our core merchandising strategy gives us confidence in the durability and sustainability of our top-line performance Our gross margin rate expanded by 40 basis points, driven by improved merchandise margin rate, partially offset by increased fuel surcharge expense in the freight line. SG&A was well controlled and leveraged by 250 basis points versus last year. I was particularly encouraged by our transaction growth. Consistent with 2025 performance, nearly one half of our sales increase was driven by increased customer traffic, the key indicator that our product and brand are resonating. At the same time, we saw some meaningful improvement in our basket size, which demonstrating that our customers are responding to the strength of our assortment and the compelling value that we're delivering. From a merchandise perspective, we saw disciplined execution across the business. Family footwear continued its momentum from Q4, with customers responding enthusiastically to expanded branded offerings at exceptional value across all genders. Our gross margin rate expanded by 40 basis points, driven by improved merchandise margin rate, partially offset by increased fuel surcharge expense in the freight line. our gross margin rate expanded by 40 basis points driven by improved merchandise margin rate partially offset by increased fuel surcharge expense in the freight line SG&A was well controlled and leveraged by 250 basis points versus last year. sg&a was well controlled and leveraged by 250 basis points versus last year I was particularly encouraged by our transaction growth. i was particularly encouraged by our transaction growth Consistent with 2025 performance, nearly one half of our sales increase was driven by increased customer traffic, the key indicator that our product and brand are resonating. consistent with 2025 performance nearly one half of our sales increase was driven by increased customer traffic the key indicator that our product and brand are resonating At the same time, we saw some meaningful improvement in our basket size, which demonstrating that our customers are responding to the strength of our assortment and the compelling value that we're delivering. at the same time we saw some meaningful improvement in our basket size which demonstrating that our customers are responding to the strength of our assortment and the compelling value that we're delivering From a merchandise perspective, we saw disciplined execution across the business. from a merchandise perspective we saw disciplined execution across the business Family footwear continued its momentum from Q4, with customers responding enthusiastically to expanded branded offerings at exceptional value across all genders. family footwear continued its momentum from q4 with customers responding enthusiastically to expanded branded offerings at exceptional value across all genders In footwear, off-price and extreme value strategy continues to gain momentum, driving both traffic and basket growth. Men's also delivered a very strong quarter, driven by increased relevance in streetwear trends for young men. Our updated strategy successfully balances trend-forward product for the younger customer while continuing to serve the style and preferences of our core male customer with updated styling, compelling values, and improved in-stocks. Children's had another strong quarter, benefiting from improved in-stock levels and attention to detail in product selection, which creates stronger value positioning. As I mentioned on the Q4 call, our children's business has become both a cornerstone of our company and a model of consistent, disciplined execution. The team continues to deliver highly desired styles, consistent value, and improved inventory and stock positioning. In footwear, off-price and extreme value strategy continues to gain momentum, driving both traffic and basket growth. in footwear off-price and extreme value strategy continues to gain momentum driving both traffic and basket growth Men's also delivered a very strong quarter, driven by increased relevance in streetwear trends for young men. men's also delivered a very strong quarter driven by increased relevance in streetwear trends for young men Our updated strategy successfully balances trend-forward product for the younger customer while continuing to serve the style and preferences of our core male customer with updated styling, compelling values, and improved in-stocks. our updated strategy successfully balances trend-forward product for the younger customer while continuing to serve the style and preferences of our core male customer with updated styling compelling values and improved in-stocks Children's had another strong quarter, benefiting from improved in-stock levels and attention to detail in product selection, which creates stronger value positioning. children's had another strong quarter benefiting from improved in-stock levels and attention to detail in product selection which creates stronger value positioning As I mentioned on the Q4 call, our children's business has become both a cornerstone of our company and a model of consistent, disciplined execution. as i mentioned on the q4 call our children's business has become both a cornerstone of our company and a model of consistent disciplined execution The team continues to deliver highly desired styles, consistent value, and improved inventory and stock positioning. the team continues to deliver highly desired styles consistent value and improved inventory and stock positioning Women's accessories also posted meaningful gains, which is reflecting early success in our assortment adjustments to a more branded, trend-right product. We were encouraged by customer response to improvements of our women's apparel business, especially in Missy. Women's apparel represents a significant opportunity as we continue to reposition our women's business to fully capture the style, trend, and sizing opportunities that we do see in the market. This product momentum is a result of continued refinement of our three-tiered good, better, and best strategy across all merchandising divisions. What's important to note here is that we're serving customers across a wide range of income levels, including a meaningful portion of middle and higher income consumers. This creates a significant opportunity for us to expand our offering of recognizable brands at compelling prices that align with their style and trend expectations. Women's accessories also posted meaningful gains, which is reflecting early success in our assortment adjustments to a more branded, trend-right product. women's accessories also posted meaningful gains which is reflecting early success in our assortment adjustments to a more branded trend-right product We were encouraged by customer response to improvements of our women's apparel business, especially in Missy. we were encouraged by customer response to improvements of our women's apparel business especially in missy Women's apparel represents a significant opportunity as we continue to reposition our women's business to fully capture the style, trend, and sizing opportunities that we do see in the market. women's apparel represents a significant opportunity as we continue to reposition our women's business to fully capture the style trend and sizing opportunities that we do see in the market This product momentum is a result of continued refinement of our three-tiered good, better, and best strategy across all merchandising divisions. What's important to note here is that we're serving customers across a wide range of income levels, including a meaningful portion of middle and higher income consumers. this product momentum is a result of continued refinement of our three-tiered good better and best strategy across all merchandising divisions. what's important to note here is that we're serving customers across a wide range of income levels including a meaningful portion of middle and higher income consumers This creates a significant opportunity for us to expand our offering of recognizable brands at compelling prices that align with their style and trend expectations. this creates a significant opportunity for us to expand our offering of recognizable brands at compelling prices that align with their style and trend expectations At the opening price point, we continue to deliver strong value through our Citi Score offering for budget conscious customers. The foundation of our business remains the better tier, which is typically priced between $7 and $12, where we provide a broad assortment of trend right product that drives consistency and loyalty. At the top end, we're continuing to expand our best tier through both fashion forward product and branded extreme value opportunities, often with extreme discounts up to 75% off MSRP. These product strategies, combined with improved discipline in our open to buy process and continued benefits from our AI-driven allocation systems, are driving stronger inventory productivity and improved margin performance. In marketing, our objective is to really deepen the connection with our customers and reinforce the role in communities that we serve. At the opening price point, we continue to deliver strong value through our Citi Score offering for budget conscious customers. at the opening price point we continue to deliver strong value through our citi score offering for budget conscious customers The foundation of our business remains the better tier, which is typically priced between $7 and $12, where we provide a broad assortment of trend right product that drives consistency and loyalty. the foundation of our business remains the better tier which is typically priced between $7 and $12 where we provide a broad assortment of trend right product that drives consistency and loyalty At the top end, we're continuing to expand our best tier through both fashion forward product and branded extreme value opportunities, often with extreme discounts up to 75% off MSRP. at the top end we're continuing to expand our best tier through both fashion forward product and branded extreme value opportunities often with extreme discounts up to 75% off msrp These product strategies, combined with improved discipline in our open to buy process and continued benefits from our AI-driven allocation systems, are driving stronger inventory productivity and improved margin performance. these product strategies combined with improved discipline in our open to buy process and continued benefits from our ai-driven allocation systems are driving stronger inventory productivity and improved margin performance In marketing, our objective is to really deepen the connection with our customers and reinforce the role in communities that we serve. in marketing our objective is to really deepen the connection with our customers and reinforce the role in communities that we serve In Q1, we extended the momentum from our highly successful holiday Joy Looks Good On You campaign by inviting customers to help modernize the Citi Trends jingle. Engagement exceeded expectations, generating strong social reach and viral moments, while also driving incremental store traffic. By quarter end, we had received a meaningful volume of customer submissions, and in Q2, we will select a finalist from the submissions, with the winning jingle expected to be deployed in the second half of the year. Turning to operations. The SG&A leverage we delivered in the quarter reflects more consistent execution across the organization. As we improve execution, we're able to better leverage the fixed portion of our cost structure without adding commensurate expense as the business grows. I'm pleased with the progress across our stores, headquarters, and our distribution centers in controlling costs and improving overall operating disciplines. In Q1, we extended the momentum from our highly successful holiday Joy Looks Good On You campaign by inviting customers to help modernize the Citi Trends jingle. in q1 we extended the momentum from our highly successful holiday joy looks good on you campaign by inviting customers to help modernize the citi trends jingle Engagement exceeded expectations, generating strong social reach and viral moments, while also driving incremental store traffic. engagement exceeded expectations generating strong social reach and viral moments while also driving incremental store traffic By quarter end, we had received a meaningful volume of customer submissions, and in Q2, we will select a finalist from the submissions, with the winning jingle expected to be deployed in the second half of the year. by quarter end we had received a meaningful volume of customer submissions and in q2 we will select a finalist from the submissions with the winning jingle expected to be deployed in the second half of the year Turning to operations. turning to operations The SG&A leverage we delivered in the quarter reflects more consistent execution across the organization. the sg&a leverage we delivered in the quarter reflects more consistent execution across the organization As we improve execution, we're able to better leverage the fixed portion of our cost structure without adding commensurate expense as the business grows. as we improve execution we're able to better leverage the fixed portion of our cost structure without adding commensurate expense as the business grows I'm pleased with the progress across our stores, headquarters, and our distribution centers in controlling costs and improving overall operating disciplines. i'm pleased with the progress across our stores headquarters and our distribution centers in controlling costs and improving overall operating disciplines From a store growth point of view, we opened two new stores during the quarter, one in St. Louis and one in Baltimore. These two locations, along with the three new stores from last fall, are serving as test stores for us as we refine our processes and prepare for accelerating store growth. I'm very pleased to report that our new stores are all performing above expectations. As a reminder here in stores, one of our primary points of differentiation is our neighborhood store locations, which are embedded in communities where we built trust over many, many years. The combination of these convenient proximity and strong word-of-mouth recommendations creates sustainable, powerful traffic drivers. From a store growth point of view, we opened two new stores during the quarter, one in St. Louis and one in Baltimore. from a store growth point of view we opened two new stores during the quarter one in st louis and one in baltimore These two locations, along with the three new stores from last fall, are serving as test stores for us as we refine our processes and prepare for accelerating store growth. these two locations along with the three new stores from last fall are serving as test stores for us as we refine our processes and prepare for accelerating store growth I'm very pleased to report that our new stores are all performing above expectations. i'm very pleased to report that our new stores are all performing above expectations As a reminder here in stores, one of our primary points of differentiation is our neighborhood store locations, which are embedded in communities where we built trust over many, many years. as a reminder here in stores one of our primary points of differentiation is our neighborhood store locations which are embedded in communities where we built trust over many many years The combination of these convenient proximity and strong word-of-mouth recommendations creates sustainable, powerful traffic drivers. the combination of these convenient proximity and strong word-of-mouth recommendations creates sustainable powerful traffic drivers Now I'll turn the call over to Heather to walk through the Q1 financial results in more detail, as well as our updated 2026 outlook, and then I'll return after her remarks to discuss our priorities for the remainder of 2026. Heather? Now I'll turn the call over to Heather to walk through the Q1 financial results in more detail, as well as our updated 2026 outlook, and then I'll return after her remarks to discuss our priorities for the remainder of 2026. now i'll turn the call over to heather to walk through the q1 financial results in more detail as well as our updated 2026 outlook and then i'll return after her remarks to discuss our priorities for the remainder of 2026 Heather? heather

Speaker 1: Thanks, Ken. Good morning, everyone. I'm pleased to walk you through our first quarter results and our updated and improved outlook for 2026. We delivered a strong first quarter driven by top line growth, gross margin expansion, and disciplined expense management, resulting in adjusted EBITDA of $13.9 million, a $7.5 million increase over last year's Q1 adjusted EBITDA of $6.4 million. These results reflect the continued progress of our strategic transformation and the strength of our operating model. Total sales for the first quarter were $230.9 million, a 14.4% increase to Q1 2025. Comparable store sales increased 13.9% ahead of our expectations, driven by both increased transactions and higher average basket. On a two-year stack basis, comps increased 23.8%. Q1 2026 marks our seventh consecutive quarter and 21st straight month of comp sales growth. Thanks, Ken. thanks ken Good morning, everyone. good morning everyone I'm pleased to walk you through our first quarter results and our updated and improved outlook for 2026. i'm pleased to walk you through our first quarter results and our updated and improved outlook for 2026 We delivered a strong first quarter driven by top line growth, gross margin expansion, and disciplined expense management, resulting in adjusted EBITDA of $13.9 million, a $7.5 million increase over last year's Q1 adjusted EBITDA of $6.4 million. we delivered a strong first quarter driven by top line growth gross margin expansion and disciplined expense management resulting in adjusted ebitda of $13.9 million a $7.5 million increase over last year's q1 adjusted ebitda of $6.4 million These results reflect the continued progress of our strategic transformation and the strength of our operating model. these results reflect the continued progress of our strategic transformation and the strength of our operating model Total sales for the first quarter were $230.9 million, a 14.4% increase to Q1 2025. total sales for the first quarter were $230.9 million a 14.4% increase to q1 2025 Comparable store sales increased 13.9% ahead of our expectations, driven by both increased transactions and higher average basket. comparable store sales increased 13.9% ahead of our expectations driven by both increased transactions and higher average basket On a two-year stack basis, comps increased 23.8%. on a two-year stack basis comps increased 23.8% Q1 2026 marks our seventh consecutive quarter and 21st straight month of comp sales growth. q1 2026 marks our seventh consecutive quarter and 21st straight month of comp sales growth As Ken mentioned, our comp sales growth trend on a two-year basis before and after the tax refund season has been consistently in the upper teens, including Q2 performance to date. In the quarter, gross margin increased 40 basis points versus last year to 40%, driven by improved merchandise margins, fueled by our strategic investments in allocation and loss prevention systems and updated processes. These tailwinds were partially offset by higher freight expense. Freight in the quarter was higher than planned due to rising fuel surcharges. We expect that headwind to continue throughout the year, and we've incorporated its impact into the updated outlook I'll walk you through shortly. First quarter adjusted SG&A expenses totaled $78.3 million compared to $73.4 million a year ago. The increase to last year was mainly driven by expenses to support higher sales. As Ken mentioned, our comp sales growth trend on a two-year basis before and after the tax refund season has been consistently in the upper teens, including Q2 performance to date. as ken mentioned our comp sales growth trend on a two-year basis before and after the tax refund season has been consistently in the upper teens including q2 performance to date In the quarter, gross margin increased 40 basis points versus last year to 40%, driven by improved merchandise margins, fueled by our strategic investments in allocation and loss prevention systems and updated processes. in the quarter gross margin increased 40 basis points versus last year to 40% driven by improved merchandise margins fueled by our strategic investments in allocation and loss prevention systems and updated processes These tailwinds were partially offset by higher freight expense. these tailwinds were partially offset by higher freight expense Freight in the quarter was higher than planned due to rising fuel surcharges. freight in the quarter was higher than planned due to rising fuel surcharges We expect that headwind to continue throughout the year, and we've incorporated its impact into the updated outlook I'll walk you through shortly. we expect that headwind to continue throughout the year and we've incorporated its impact into the updated outlook i'll walk you through shortly First quarter adjusted SG&A expenses totaled $78.3 million compared to $73.4 million a year ago. first quarter adjusted sg&a expenses totaled $78.3 million compared to $73.4 million a year ago The increase to last year was mainly driven by expenses to support higher sales. the increase to last year was mainly driven by expenses to support higher sales In addition, we had higher store and corporate bonus accruals from improved performance. As a rate of sales, adjusted SG&A for the quarter was 33.9%, leveraging 250 basis points versus last year, demonstrating our ability to leverage our cost structure with higher sales. As I mentioned earlier, Q1 adjusted EBITDA grew $7.5 million over last year to $13.9 million, with adjusted EBITDA margin, EBITDA as a rate of sales, expanding 280 basis points to 6%. During the quarter, we opened two stores and closed one location, ending the quarter with 591 stores. We remodeled 25 stores, completing a significant portion of our full year program in time for the important Q1 tax refund season, or Taxmas, as we call it. In early Q2, we remodeled an additional 26 locations, completing our remodel program. Now turning to the balance sheet. In addition, we had higher store and corporate bonus accruals from improved performance. in addition we had higher store and corporate bonus accruals from improved performance As a rate of sales, adjusted SG&A for the quarter was 33.9%, leveraging 250 basis points versus last year, demonstrating our ability to leverage our cost structure with higher sales. as a rate of sales adjusted sg&a for the quarter was 33.9% leveraging 250 basis points versus last year demonstrating our ability to leverage our cost structure with higher sales As I mentioned earlier, Q1 adjusted EBITDA grew $7.5 million over last year to $13.9 million, with adjusted EBITDA margin, EBITDA as a rate of sales, expanding 280 basis points to 6%. as i mentioned earlier q1 adjusted ebitda grew $7.5 million over last year to $13.9 million with adjusted ebitda margin ebitda as a rate of sales expanding 280 basis points to 6% During the quarter, we opened two stores and closed one location, ending the quarter with 591 stores. during the quarter we opened two stores and closed one location ending the quarter with 591 stores We remodeled 25 stores, completing a significant portion of our full year program in time for the important Q1 tax refund season, or Taxmas, as we call it. we remodeled 25 stores completing a significant portion of our full year program in time for the important q1 tax refund season or taxmas as we call it In early Q2, we remodeled an additional 26 locations, completing our remodel program. in early q2 we remodeled an additional 26 locations completing our remodel program Now turning to the balance sheet. now turning to the balance sheet I'm pleased to say that we drove our 13.9% Q1 comp with quarter end total inventory up only 4.8% to last year, reflecting our ongoing inventory efficiency initiative. Our balance sheet remains healthy, with $81.1 million in cash at the end of the quarter, no debt, and no drawings on our $75 million revolver. As we've said in several prior investor presentations, we expect our year-end cash balance to be approximately flat to last year's $66 million, reflecting investments in inventory and capital projects, particularly new stores and remodels, over the balance of the year. Throughout the year, we expect to remain in a strong financial position, affording us the flexibility to pursue strategic alternatives. Turning to our guidance. With the results of our first quarter, we are updating our outlook for fiscal 2026 as follows. We expect comparable store sales growth of 8%-10% for the year. I'm pleased to say that we drove our 13.9% Q1 comp with quarter end total inventory up only 4.8% to last year, reflecting our ongoing inventory efficiency initiative. i'm pleased to say that we drove our 13.9% q1 comp with quarter end total inventory up only 4.8% to last year reflecting our ongoing inventory efficiency initiative Our balance sheet remains healthy, with $81.1 million in cash at the end of the quarter, no debt, and no drawings on our $75 million revolver. our balance sheet remains healthy with $81.1 million in cash at the end of the quarter no debt and no drawings on our $75 million revolver As we've said in several prior investor presentations, we expect our year-end cash balance to be approximately flat to last year's $66 million, reflecting investments in inventory and capital projects, particularly new stores and remodels, over the balance of the year. as we've said in several prior investor presentations we expect our year-end cash balance to be approximately flat to last year's $66 million reflecting investments in inventory and capital projects particularly new stores and remodels over the balance of the year Throughout the year, we expect to remain in a strong financial position, affording us the flexibility to pursue strategic alternatives. throughout the year we expect to remain in a strong financial position affording us the flexibility to pursue strategic alternatives Turning to our guidance. turning to our guidance With the results of our first quarter, we are updating our outlook for fiscal 2026 as follows. with the results of our first quarter we are updating our outlook for fiscal 2026 as follows We expect comparable store sales growth of 8%-10% for the year. we expect comparable store sales growth of 8%-10% for the year With our Q1 comp results, this implies high single digit comps for the balance of the year. Total sales are expected to grow in a range of 9%-11%. Gross margin is expected to expand approximately 50-70 basis points compared to 39.6% in fiscal 2025, as we continue to leverage new systems and processes to drive improvements in markdowns and shrink, partially offset by higher freight expense due to the fuel surcharges I mentioned earlier. Our revised expectation for freight expense drove the decrease from our prior outlook of 100 basis points of margin rate expansion. We now expect adjusted SG&A leverage in the range of 140-160 basis points versus fiscal 2025, higher than previous outlook of 70-100 basis points of leverage due to the impact of higher sales as well as ongoing disciplined expense control. With our Q1 comp results, this implies high single digit comps for the balance of the year. with our q1 comp results this implies high single digit comps for the balance of the year Total sales are expected to grow in a range of 9%-11%. total sales are expected to grow in a range of 9%-11% Gross margin is expected to expand approximately 50-70 basis points compared to 39.6% in fiscal 2025, as we continue to leverage new systems and processes to drive improvements in markdowns and shrink, partially offset by higher freight expense due to the fuel surcharges I mentioned earlier. gross margin is expected to expand approximately 50-70 basis points compared to 39.6% in fiscal 2025 as we continue to leverage new systems and processes to drive improvements in markdowns and shrink partially offset by higher freight expense due to the fuel surcharges i mentioned earlier Our revised expectation for freight expense drove the decrease from our prior outlook of 100 basis points of margin rate expansion. our revised expectation for freight expense drove the decrease from our prior outlook of 100 basis points of margin rate expansion We now expect adjusted SG&A leverage in the range of 140-160 basis points versus fiscal 2025, higher than previous outlook of 70-100 basis points of leverage due to the impact of higher sales as well as ongoing disciplined expense control. we now expect adjusted sg&a leverage in the range of 140-160 basis points versus fiscal 2025 higher than previous outlook of 70-100 basis points of leverage due to the impact of higher sales as well as ongoing disciplined expense control Adjusted EBITDA is expected to be in the range of $35 million-$40 million, with adjusted EBITDA margin expected to expand approximately 200 basis points over fiscal 2025. Our real estate plans are unchanged from previous outlook, with plans to open approximately 25 new stores, to close four locations, and to remodel approximately 50 locations. Finally, full year capital expenditures are expected to be in the range of $35 million-$40 million, consistent with previous outlook. In closing, Q1 represents a strong start to 2026, reflecting the operational foundation we built last year and the continued execution of our strategic priorities. We remain focused on driving sustainable, profitable growth through disciplined inventory management, operational efficiency, and targeted investments in our business. We are confident in our long-term trajectory and our ability to deliver meaningful value for our shareholders. Adjusted EBITDA is expected to be in the range of $35 million-$40 million, with adjusted EBITDA margin expected to expand approximately 200 basis points over fiscal 2025. adjusted ebitda is expected to be in the range of $35 million-$40 million with adjusted ebitda margin expected to expand approximately 200 basis points over fiscal 2025 Our real estate plans are unchanged from previous outlook, with plans to open approximately 25 new stores, to close four locations, and to remodel approximately 50 locations. our real estate plans are unchanged from previous outlook with plans to open approximately 25 new stores to close four locations and to remodel approximately 50 locations Finally, full year capital expenditures are expected to be in the range of $35 million-$40 million, consistent with previous outlook. finally full year capital expenditures are expected to be in the range of $35 million-$40 million consistent with previous outlook In closing, Q1 represents a strong start to 2026, reflecting the operational foundation we built last year and the continued execution of our strategic priorities. in closing q1 represents a strong start to 2026 reflecting the operational foundation we built last year and the continued execution of our strategic priorities We remain focused on driving sustainable, profitable growth through disciplined inventory management, operational efficiency, and targeted investments in our business. we remain focused on driving sustainable profitable growth through disciplined inventory management operational efficiency and targeted investments in our business We are confident in our long-term trajectory and our ability to deliver meaningful value for our shareholders. we are confident in our long-term trajectory and our ability to deliver meaningful value for our shareholders I want to thank our teams across the organization for their continued dedication and hard work, which is enabling this transformation. We look forward to updating you, our investors, on our progress next quarter. With that, I'll hand the call back over to Ken. Ken? I want to thank our teams across the organization for their continued dedication and hard work, which is enabling this transformation. i want to thank our teams across the organization for their continued dedication and hard work which is enabling this transformation We look forward to updating you, our investors, on our progress next quarter. we look forward to updating you our investors on our progress next quarter With that, I'll hand the call back over to Ken. with that i'll hand the call back over to ken Ken? ken

Speaker 3: All right. Well, thank you, Heather Plutino. As we look ahead to the balance of 2026, we are firmly in the execute phase of our growth plan, focused on delivering against our customer brand promise. Our customers are discerning. They understand that value is more than just price, and they're willing to spend more when the style is right, the trend is relevant, and quality meets their expectations. In short, value is not just price. Our brand promise is very clear. Styles that see you, prices that amaze you, and trends that tell your story. Our teams are focused every day on bringing that promise to life for our customers. To support this, we've established three clear priorities in 2026. Consistent Execution, Strong Sales Flow-Growth to Profit, and Accelerated Growth. First, Consistent Execution. All right. all right Well, thank you, Heather Plutino. well thank you heather plutino As we look ahead to the balance of 2026, we are firmly in the execute phase of our growth plan, focused on delivering against our customer brand promise. as we look ahead to the balance of 2026 we are firmly in the execute phase of our growth plan focused on delivering against our customer brand promise Our customers are discerning. our customers are discerning They understand that value is more than just price, and they're willing to spend more when the style is right, the trend is relevant, and quality meets their expectations. they understand that value is more than just price and they're willing to spend more when the style is right the trend is relevant and quality meets their expectations In short, value is not just price. in short value is not just price Our brand promise is very clear. our brand promise is very clear Styles that see you, prices that amaze you, and trends that tell your story. styles that see you prices that amaze you and trends that tell your story Our teams are focused every day on bringing that promise to life for our customers. our teams are focused every day on bringing that promise to life for our customers To support this, we've established three clear priorities in 2026. to support this we've established three clear priorities in 2026 Consistent Execution, Strong Sales Flow- Growth to Profit, and Accelerated Growth. consistent execution strong sales flow- growth to profit and accelerated growth First, Consistent Execution. first consistent execution As I mentioned earlier, our sales growth is being driven by refinements in trend, style, and value of our everyday core merchandising assortment. Consistent execution of our merchandise strategy gives us confidence in achieving upper single digit comparable store sales growth this year and in the foreseeable future. A key focus will be repositioning our women's business to fully capture the style, trend, and sizing opportunities in the market across juniors, plus, and Missy. We're updating our product offerings to ensure trend-right merchandise is front and center for all female customers. This represents a meaningful opportunity to drive both traffic and sales. Throughout 2026, we'll maintain our disciplined focus on improved style, trend, and value across all product categories, and we'll continue to apply the learnings from our strongest performing categories, like men's and children's, to elevate execution company-wide. As I mentioned earlier, our sales growth is being driven by refinements in trend, style, and value of our everyday core merchandising assortment. as i mentioned earlier our sales growth is being driven by refinements in trend style and value of our everyday core merchandising assortment Consistent execution of our merchandise strategy gives us confidence in achieving upper single digit comparable store sales growth this year and in the foreseeable future. consistent execution of our merchandise strategy gives us confidence in achieving upper single digit comparable store sales growth this year and in the foreseeable future A key focus will be repositioning our women's business to fully capture the style, trend, and sizing opportunities in the market across juniors, plus, and Missy. a key focus will be repositioning our women's business to fully capture the style trend and sizing opportunities in the market across juniors plus and missy We're updating our product offerings to ensure trend-right merchandise is front and center for all female customers. we're updating our product offerings to ensure trend-right merchandise is front and center for all female customers This represents a meaningful opportunity to drive both traffic and sales. this represents a meaningful opportunity to drive both traffic and sales Throughout 2026, we'll maintain our disciplined focus on improved style, trend, and value across all product categories, and we'll continue to apply the learnings from our strongest performing categories, like men's and children's, to elevate execution company-wide. throughout 2026 we'll maintain our disciplined focus on improved style trend and value across all product categories and we'll continue to apply the learnings from our strongest performing categories like men's and children's to elevate execution company-wide Our product team has sharpened focus on trend identification, brand curation, and style development. From opening price points to premium branded fashion, our merchant team translates these trends into compelling styles that deliver exceptional value to our customers and meaningful margin to the business. Each season, we're improving our product trend and style execution while leveraging AI to optimize product allocation to the correct store. This creates a long runway of growth as we continue to develop and refine product execution. We've also had continued opportunity to expand off-price and extreme value buying capabilities, ensuring a steady flow of compelling brands and products at exceptional value. Extreme value product is driving both traffic and basket growth while supporting margin performance. The off-price market remains robust, allowing us to be highly selective, which is a key advantage for our model and core to our competitive advantage. Our product team has sharpened focus on trend identification, brand curation, and style development. our product team has sharpened focus on trend identification brand curation and style development From opening price points to premium branded fashion, our merchant team translates these trends into compelling styles that deliver exceptional value to our customers and meaningful margin to the business. Each season, we're improving our product trend and style execution while leveraging AI to optimize product allocation to the correct store. from opening price points to premium branded fashion our merchant team translates these trends into compelling styles that deliver exceptional value to our customers and meaningful margin to the business. each season we're improving our product trend and style execution while leveraging ai to optimize product allocation to the correct store This creates a long runway of growth as we continue to develop and refine product execution. this creates a long runway of growth as we continue to develop and refine product execution We've also had continued opportunity to expand off-price and extreme value buying capabilities, ensuring a steady flow of compelling brands and products at exceptional value. we've also had continued opportunity to expand off-price and extreme value buying capabilities ensuring a steady flow of compelling brands and products at exceptional value Extreme value product is driving both traffic and basket growth while supporting margin performance. extreme value product is driving both traffic and basket growth while supporting margin performance The off-price market remains robust, allowing us to be highly selective, which is a key advantage for our model and core to our competitive advantage. the off-price market remains robust allowing us to be highly selective which is a key advantage for our model and core to our competitive advantage We've already secured several strong deals that will support continued momentum into the back half of the year. On the marketing front, we're focused on consistent execution throughout the year. This includes expanding our social and influencer presence, deepening community engagement, and ensuring that our brand is authentically represented in everything we do. As I said earlier, this is not just about visibility. It's about deepening relationships and reinforcing Citi Trends to the communities we proudly serve. Our second priority is ensuring strong sales growth through flow-through to profit. Incremental sales have got to translate into accelerated profit growth. Our plan in 2026 calls for about a 10% sales growth while more than doubling EBITDA, making this a pivotal year in the evolution of our profit profile. Foundational to profit flow-through is leveraging our highly fixed expense base as we grow. We've already secured several strong deals that will support continued momentum into the back half of the year. we've already secured several strong deals that will support continued momentum into the back half of the year On the marketing front, we're focused on consistent execution throughout the year. on the marketing front we're focused on consistent execution throughout the year This includes expanding our social and influencer presence, deepening community engagement, and ensuring that our brand is authentically represented in everything we do. this includes expanding our social and influencer presence deepening community engagement and ensuring that our brand is authentically represented in everything we do As I said earlier, this is not just about visibility. as i said earlier this is not just about visibility It's about deepening relationships and reinforcing Citi Trends to the communities we proudly serve. it's about deepening relationships and reinforcing citi trends to the communities we proudly serve Our second priority is ensuring strong sales growth through flow-through to profit. our second priority is ensuring strong sales growth through flow-through to profit Incremental sales have got to translate into accelerated profit growth. incremental sales have got to translate into accelerated profit growth Our plan in 2026 calls for about a 10% sales growth while more than doubling EBITDA, making this a pivotal year in the evolution of our profit profile. our plan in 2026 calls for about a 10% sales growth while more than doubling ebitda making this a pivotal year in the evolution of our profit profile Foundational to profit flow-through is leveraging our highly fixed expense base as we grow. foundational to profit flow-through is leveraging our highly fixed expense base as we grow Best practices implemented during the repair phase in operational areas of the business are beginning to have a positive impact on our cost structure, enabling us to grow sales more efficiently. In addition, we have several tangible initiatives supporting this objective, including our AI-based allocation systems, enhanced store technologies to reduce shrink, and our ongoing supply chain improvements to increase capacity and efficiency. As I've highlighted on prior calls, we continue to leverage KPI dashboards across all functions to ensure we have disciplined execution. A benefit of our improved execution is our ability to absorb macroeconomic challenges, like increased fuel charges into our business, while still achieving our profit flow-through objectives. Our third priority is accelerated growth, which will be disciplined, return-focused, and strategic. First, beginning in July, we're going to launch our customer relationship management platform that we're calling the Insiders Club. Best practices implemented during the repair phase in operational areas of the business are beginning to have a positive impact on our cost structure, enabling us to grow sales more efficiently. best practices implemented during the repair phase in operational areas of the business are beginning to have a positive impact on our cost structure enabling us to grow sales more efficiently In addition, we have several tangible initiatives supporting this objective, including our AI-based allocation systems, enhanced store technologies to reduce shrink, and our ongoing supply chain improvements to increase capacity and efficiency. in addition we have several tangible initiatives supporting this objective including our ai-based allocation systems enhanced store technologies to reduce shrink and our ongoing supply chain improvements to increase capacity and efficiency As I've highlighted on prior calls, we continue to leverage KPI dashboards across all functions to ensure we have disciplined execution. as i've highlighted on prior calls we continue to leverage kpi dashboards across all functions to ensure we have disciplined execution A benefit of our improved execution is our ability to absorb macroeconomic challenges, like increased fuel charges into our business, while still achieving our profit flow-through objectives. a benefit of our improved execution is our ability to absorb macroeconomic challenges like increased fuel charges into our business while still achieving our profit flow-through objectives Our third priority is accelerated growth, which will be disciplined, return-focused, and strategic. our third priority is accelerated growth which will be disciplined return-focused and strategic First, beginning in July, we're going to launch our customer relationship management platform that we're calling the Insiders Club. first beginning in july we're going to launch our customer relationship management platform that we're calling the insiders club The Insiders Club turns traffic into loyalty into frequency, and frequency into EBITDA. We're making a deliberate investment in owning our customer relationship and building a sustainable, data-driven growth engine that compounds over time. The objective is to invest early to build customer relationships, and then as the CRM system learns and scales, it becomes a meaningful contributor to long-term shareholder value. The Insiders Club transforms Citi Trends from a transaction-based retailer into a relationship-driven brand. It allows us to know our customer, reward our customer, and grow with our customer while reinforcing the treasure hunt excitement that makes shopping with us an experience. We'll begin activation of the Insiders Club this July and expect the program to build momentum rapidly. We also remain on track with our store growth plans. The Insiders Club turns traffic into loyalty into frequency, and frequency into EBITDA. the insiders club turns traffic into loyalty into frequency and frequency into ebitda We're making a deliberate investment in owning our customer relationship and building a sustainable, data-driven growth engine that compounds over time. we're making a deliberate investment in owning our customer relationship and building a sustainable data-driven growth engine that compounds over time The objective is to invest early to build customer relationships, and then as the CRM system learns and scales, it becomes a meaningful contributor to long-term shareholder value. the objective is to invest early to build customer relationships and then as the crm system learns and scales it becomes a meaningful contributor to long-term shareholder value The Insiders Club transforms Citi Trends from a transaction-based retailer into a relationship-driven brand. the insiders club transforms citi trends from a transaction-based retailer into a relationship-driven brand It allows us to know our customer, reward our customer, and grow with our customer while reinforcing the treasure hunt excitement that makes shopping with us an experience. it allows us to know our customer reward our customer and grow with our customer while reinforcing the treasure hunt excitement that makes shopping with us an experience We'll begin activation of the Insiders Club this July and expect the program to build momentum rapidly. we'll begin activation of the insiders club this july and expect the program to build momentum rapidly We also remain on track with our store growth plans. we also remain on track with our store growth plans As Heather mentioned, we've completed 51 remodels so far this year, and we expect to open a total of 25 new stores the remainder of the year while preparing to accelerate our expansion in 2027. Our approach is grounded on data-driven site selection, local market expertise, and disciplined financial criteria. Using AI tools, we've analyzed three years of actual transaction data from every store location, combined with comprehensive geolocation studies to understand the specific customer and market characteristics that drive success. This AI data-driven approach has demonstrated approximately a 90% accuracy in sales prediction, helping us to identify and replicate our most successful store profiles while minimizing risk as we expand our footprint. Beyond the analytics, we're applying strict financial criteria to every new store, decisioning targeting mature store averages of approximately $1.5 million in sales and mid-teens four-wall contribution margins. As Heather mentioned, we've completed 51 remodels so far this year, and we expect to open a total of 25 new stores the remainder of the year while preparing to accelerate our expansion in 2027. as heather mentioned we've completed 51 remodels so far this year and we expect to open a total of 25 new stores the remainder of the year while preparing to accelerate our expansion in 2027 Our approach is grounded on data-driven site selection, local market expertise, and disciplined financial criteria. our approach is grounded on data-driven site selection local market expertise and disciplined financial criteria Using AI tools, we've analyzed three years of actual transaction data from every store location, combined with comprehensive geolocation studies to understand the specific customer and market characteristics that drive success. using ai tools we've analyzed three years of actual transaction data from every store location combined with comprehensive geolocation studies to understand the specific customer and market characteristics that drive success This AI data-driven approach has demonstrated approximately a 90% accuracy in sales prediction, helping us to identify and replicate our most successful store profiles while minimizing risk as we expand our footprint. this ai data-driven approach has demonstrated approximately a 90% accuracy in sales prediction helping us to identify and replicate our most successful store profiles while minimizing risk as we expand our footprint Beyond the analytics, we're applying strict financial criteria to every new store, decisioning targeting mature store averages of approximately $1.5 million in sales and mid-teens four-wall contribution margins. beyond the analytics we're applying strict financial criteria to every new store decisioning targeting mature store averages of approximately $1.5 million in sales and mid-teens four-wall contribution margins Our early results from our newest stores are exceeding expectations, giving us the confidence in accelerating to approximately 40 new stores in 2027. Equally important to our growth initiatives is the growth of our people. We're a company that facilitates the continuous learning and development of all employees to transform, adapt to changes, and improve performance, positioning us to maximize growth opportunities as they arise. As a part of that initiative, we're focusing on succession planning for our key leadership roles to ensure continuity of the transformation plan while strengthening our bench talent. Our strong, debt-free balance sheet enables us to explore multiple avenues of growth beyond our current three-year plan. Our strategy is to build a strong organic growth foundation, accelerate expansion where the economics are compelling, and selectively pursue transformational opportunities. We're beginning to evaluate synergistic acquisition opportunities that align with and complement our strategic priorities. Our early results from our newest stores are exceeding expectations, giving us the confidence in accelerating to approximately 40 new stores in 2027. our early results from our newest stores are exceeding expectations giving us the confidence in accelerating to approximately 40 new stores in 2027 Equally important to our growth initiatives is the growth of our people. equally important to our growth initiatives is the growth of our people We're a company that facilitates the continuous learning and development of all employees to transform, adapt to changes, and improve performance, positioning us to maximize growth opportunities as they arise. we're a company that facilitates the continuous learning and development of all employees to transform adapt to changes and improve performance positioning us to maximize growth opportunities as they arise As a part of that initiative, we're focusing on succession planning for our key leadership roles to ensure continuity of the transformation plan while strengthening our bench talent. as a part of that initiative we're focusing on succession planning for our key leadership roles to ensure continuity of the transformation plan while strengthening our bench talent Our strong, debt-free balance sheet enables us to explore multiple avenues of growth beyond our current three-year plan. our strong debt-free balance sheet enables us to explore multiple avenues of growth beyond our current three-year plan Our strategy is to build a strong organic growth foundation, accelerate expansion where the economics are compelling, and selectively pursue transformational opportunities. our strategy is to build a strong organic growth foundation accelerate expansion where the economics are compelling and selectively pursue transformational opportunities We're beginning to evaluate synergistic acquisition opportunities that align with and complement our strategic priorities. we're beginning to evaluate synergistic acquisition opportunities that align with and complement our strategic priorities We're committed to applying the same disciplined approach to our customer focus, product execution, and financial returns that has driven our turnaround so far and has generated significant shareholder value creation. In closing, progress at Citi Trends is well underway. Our track record of consistent comparable store sales increases shows our strategy is working, our execution is more consistent, and our customer connection is stronger than ever. We're debt-free, disciplined, and positioned for growth. We have a clear path to profitable expansion, stronger earnings, and lasting shareholder value. We are clearly focused on our customer. The foundation is stronger and the opportunity ahead is significant. We still have a lot of processes to refine, product categories to optimize, systems to build, and growth opportunities to maximize. We're more than a retailer. We're committed to applying the same disciplined approach to our customer focus, product execution, and financial returns that has driven our turnaround so far and has generated significant shareholder value creation. we're committed to applying the same disciplined approach to our customer focus product execution and financial returns that has driven our turnaround so far and has generated significant shareholder value creation In closing, progress at Citi Trends is well underway. in closing progress at citi trends is well underway Our track record of consistent comparable store sales increases shows our strategy is working, our execution is more consistent, and our customer connection is stronger than ever. our track record of consistent comparable store sales increases shows our strategy is working our execution is more consistent and our customer connection is stronger than ever We're debt-free, disciplined, and positioned for growth. we're debt-free disciplined and positioned for growth We have a clear path to profitable expansion, stronger earnings, and lasting shareholder value. we have a clear path to profitable expansion stronger earnings and lasting shareholder value We are clearly focused on our customer. we are clearly focused on our customer The foundation is stronger and the opportunity ahead is significant. the foundation is stronger and the opportunity ahead is significant We still have a lot of processes to refine, product categories to optimize, systems to build, and growth opportunities to maximize. we still have a lot of processes to refine product categories to optimize systems to build and growth opportunities to maximize We're more than a retailer. we're more than a retailer We are a neighborhood destination for Black families, delivering style, trend, value, and trust that no one else can deliver. I'm confident in our strategy and our team's ability to execute. The foundation we've built positions us well for growth throughout 2026 and beyond. Thank you all for your continued support. I'll turn it to the operator now for any questions. We are a neighborhood destination for Black families, delivering style, trend, value, and trust that no one else can deliver. we are a neighborhood destination for black families delivering style trend value and trust that no one else can deliver I'm confident in our strategy and our team's ability to execute. i'm confident in our strategy and our team's ability to execute The foundation we've built positions us well for growth throughout 2026 and beyond. the foundation we've built positions us well for growth throughout 2026 and beyond Thank you all for your continued support. thank you all for your continued support I'll turn it to the operator now for any questions. i'll turn it to the operator now for any questions

Speaker 6: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question and one follow-up question. One moment while we poll for questions. Our first question is from Michael Baker with DA Davidson. Please proceed. Thank you. thank you If you would like to ask a question, please press star one on your telephone keypad. if you would like to ask a question please press star one on your telephone keypad A confirmation tone will indicate your line is in the question queue. a confirmation tone will indicate your line is in the question queue You may press star two if you would like to remove your question from the queue. you may press star two if you would like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. for participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys We ask that you please limit to one question and one follow-up question. we ask that you please limit to one question and one follow-up question One moment while we poll for questions. one moment while we poll for questions Our first question is from Michael Baker with DA Davidson. our first question is from michael baker with da davidson Please proceed. please proceed

Speaker 4: Okay. Thanks, guys. You kind of alluded to the impact of tax refunds. It sounds like it probably helped, but certainly more to it than that. You talked about the period before and after. What do you consider the tax refund period? Maybe some other way to ask is, can you just tell us your monthly trends? Okay. okay Thanks, guys. thanks guys You kind of alluded to the impact of tax refunds. you kind of alluded to the impact of tax refunds It sounds like it probably helped, but certainly more to it than that. it sounds like it probably helped but certainly more to it than that You talked about the period before and after. you talked about the period before and after What do you consider the tax refund period? what do you consider the tax refund period Maybe some other way to ask is, can you just tell us your monthly trends? maybe some other way to ask is can you just tell us your monthly trends

Speaker 3: Mike, probably the best way to think about the tax refund trend for us is really from about mid-February up to, in this year, kind of right up to Easter period. For the most part, about six to seven weeks there is what we would account for the majority of the tax refunds that flowed into the market. When we talk about sales trends prior, that includes a little bit of the January performance as well. Going into February 15 and then coming out after Easter, and even into really even through last week, our trends have remained very consistent with what we experienced, as I mentioned, in Q3 and Q4. We've been very encouraged about the overall underlying health of the business. Mike, probably the best way to think about the tax refund trend for us is really from about mid-February up to, in this year, kind of right up to Easter period. mike probably the best way to think about the tax refund trend for us is really from about mid-february up to in this year kind of right up to easter period For the most part, about six to seven weeks there is what we would account for the majority of the tax refunds that flowed into the market. for the most part about six to seven weeks there is what we would account for the majority of the tax refunds that flowed into the market When we talk about sales trends prior, that includes a little bit of the January performance as well. when we talk about sales trends prior that includes a little bit of the january performance as well Going into February 15 and then coming out after Easter, and even into really even through last week, our trends have remained very consistent with what we experienced, as I mentioned, in Q3 and Q4. going into february 15 and then coming out after easter and even into really even through last week our trends have remained very consistent with what we experienced as i mentioned in q3 and q4 We've been very encouraged about the overall underlying health of the business. we've been very encouraged about the overall underlying health of the business As we noted in Q1, obviously our sales spiked up to 23.8% on a two-year, which is better than we had been performing. We believe that gap between our baseline and that upside is probably attributed dominantly to the tax refunds in that period. Very encouraged about the health on either side. As we noted in Q1, obviously our sales spiked up to 23.8% on a two-year, which is better than we had been performing. as we noted in q1 obviously our sales spiked up to 23.8% on a two-year which is better than we had been performing We believe that gap between our baseline and that upside is probably attributed dominantly to the tax refunds in that period. we believe that gap between our baseline and that upside is probably attributed dominantly to the tax refunds in that period Very encouraged about the health on either side. very encouraged about the health on either side

Speaker 4: Yeah. Okay. That makes sense. I guess I'll keep it to one question and one follow-up, and this does follow up on that. I think, Ken, I heard you say high single digits for the quote, "foreseeable future." Did I hear that right? What to you is foreseeable future? Yeah. yeah Okay. okay That makes sense. that makes sense I guess I'll keep it to one question and one follow-up, and this does follow up on that. i guess i'll keep it to one question and one follow-up and this does follow up on that I think, Ken, I heard you say high single digits for the quote, "foreseeable future." Did I hear that right? i think ken i heard you say high single digits for the quote "foreseeable future." did i hear that right What to you is foreseeable future? what to you is foreseeable future

Speaker 3: You actually did. That's a pretty good nuance in the script, Michael. That's a good catch. Yes, we did say that. What we're talking about in the foreseeable future right now is our merchandising plans that we have in place all the way through the balance of this year through 2026. We're taking a hard look at 2027 right now, and that may moderate a little bit and get into more of the mid-singles as we go forward. The point here is that we see a long runway of continued increases. I'm often asked by investors, can we continue to comp the comp, right? We have a great deal of confidence in that. There are so many merchandising opportunities that we have on the table. You actually did. you actually did That's a pretty good nuance in the script, Michael. that's a pretty good nuance in the script michael That's a good catch. that's a good catch Yes, we did say that. yes we did say that What we're talking about in the foreseeable future right now is our merchandising plans that we have in place all the way through the balance of this year through 2026. what we're talking about in the foreseeable future right now is our merchandising plans that we have in place all the way through the balance of this year through 2026 We're taking a hard look at 2027 right now, and that may moderate a little bit and get into more of the mid-singles as we go forward. we're taking a hard look at 2027 right now and that may moderate a little bit and get into more of the mid-singles as we go forward The point here is that we see a long runway of continued increases. the point here is that we see a long runway of continued increases I'm often asked by investors, can we continue to comp the comp, right? i'm often asked by investors can we continue to comp the comp right We have a great deal of confidence in that. we have a great deal of confidence in that There are so many merchandising opportunities that we have on the table. there are so many merchandising opportunities that we have on the table We can kind of go store by store, category by category, and take a look at various ways that we can continue to get better executing our three-tiered assortment and delivering better value to the consumer. We see a big ramp-up this year, and that'll continue, and then we do see continued success beyond. Yeah, to be more clear, I was speaking very specifically about the foreseeable future being through the end of this year. We can kind of go store by store, category by category, and take a look at various ways that we can continue to get better executing our three-tiered assortment and delivering better value to the consumer. we can kind of go store by store category by category and take a look at various ways that we can continue to get better executing our three-tiered assortment and delivering better value to the consumer We see a big ramp-up this year, and that'll continue, and then we do see continued success beyond. we see a big ramp-up this year and that'll continue and then we do see continued success beyond Yeah, to be more clear, I was speaking very specifically about the foreseeable future being through the end of this year. yeah to be more clear i was speaking very specifically about the foreseeable future being through the end of this year

Speaker 4: Perfect. Appreciate the color. I'll turn it over to someone else. Perfect. perfect Appreciate the color. appreciate the color I'll turn it over to someone else. i'll turn it over to someone else

Speaker 6: Our next question is from Jeremy Hamblin with Craig-Hallum Capital Group. Please proceed. Our next question is from Jeremy Hamblin with Craig-Hallum Capital Group. our next question is from jeremy hamblin with craig-hallum capital group Please proceed. please proceed

Speaker 2: Thanks, and congrats on the strength of the business. As a follow-up question in terms of you noted men's category, very strong, children's very strong, women's accessories, footwear. In terms of thinking about where you see the biggest opportunities, not just the remainder of 2026, but as we get into 2027, what are the categories where you feel that you can really attack and improve? What are the drivers of that? Is it more consistency of the merchandise? Is it more national brands or kind of closeout off-price deals? Any color you might be able to share in terms of the merchandising strategy. Thanks, and congrats on the strength of the business. thanks and congrats on the strength of the business As a follow-up question in terms of you noted men's category, very strong, children's very strong, women's accessories, footwear. as a follow-up question in terms of you noted men's category very strong children's very strong women's accessories footwear In terms of thinking about where you see the biggest opportunities, not just the remainder of 2026, but as we get into 2027, what are the categories where you feel that you can really attack and improve? in terms of thinking about where you see the biggest opportunities not just the remainder of 2026 but as we get into 2027 what are the categories where you feel that you can really attack and improve What are the drivers of that? what are the drivers of that Is it more consistency of the merchandise? is it more consistency of the merchandise Is it more national brands or kind of closeout off-price deals? is it more national brands or kind of closeout off-price deals Any color you might be able to share in terms of the merchandising strategy. any color you might be able to share in terms of the merchandising strategy

Speaker 3: Yeah, for sure. We have done a good deal of analytics to really kind of think about what is a long-term opportunity for store productivity and which categories inside of our box really have an opportunity to provide outsized growth along that continuum. You can kind of go through literally department by department and find significant opportunity across the board. For example, I called out our shoe department, who has done a nice job the last two quarters. Very pleased with their results. They're at the very beginning. I think if you were to get the team around the table, they'd say, "We're just getting started." We actually see a path there to probably more than double that department over time, and we've got quite a bit of work to do to get that done. There's certainly significant growth there. Yeah, for sure. yeah for sure We have done a good deal of analytics to really kind of think about what is a long-term opportunity for store productivity and which categories inside of our box really have an opportunity to provide outsized growth along that continuum. we have done a good deal of analytics to really kind of think about what is a long-term opportunity for store productivity and which categories inside of our box really have an opportunity to provide outsized growth along that continuum You can kind of go through literally department by department and find significant opportunity across the board. you can kind of go through literally department by department and find significant opportunity across the board For example, I called out our shoe department, who has done a nice job the last two quarters. for example, i called out our shoe department who has done a nice job the last two quarters Very pleased with their results. very pleased with their results They're at the very beginning. they're at the very beginning I think if you were to get the team around the table, they'd say, "We're just getting started." We actually see a path there to probably more than double that department over time, and we've got quite a bit of work to do to get that done. i think if you were to get the team around the table they'd say "we're just getting started." we actually see a path there to probably more than double that department over time and we've got quite a bit of work to do to get that done There's certainly significant growth there. there's certainly significant growth there I can kind of go around the store and do that same sort of thing. I would also step back and say that the other area of growth that's probably the most significant is just more broadly appealing to our higher income consumers. They've been responding extremely well. As we continue to reposition fashion and trend, we were getting good response. You might remember in Q4 last year, we launched Young Men's Trend, highly successful, and it's continued into today, and we're just beginning to kind of understand how large that business could be. There's a significant opportunity there just to continue to mature what is a fairly new business for us. The same is true in our women's division. As I mentioned briefly on the call, we're just launching some trend I'm very excited about. The team's work for Q3, we've looked at it. I can kind of go around the store and do that same sort of thing. i can kind of go around the store and do that same sort of thing I would also step back and say that the other area of growth that's probably the most significant is just more broadly appealing to our higher income consumers. i would also step back and say that the other area of growth that's probably the most significant is just more broadly appealing to our higher income consumers They've been responding extremely well. they've been responding extremely well As we continue to reposition fashion and trend, we were getting good response. as we continue to reposition fashion and trend we were getting good response You might remember in Q4 last year, we launched Young Men's Trend, highly successful, and it's continued into today, and we're just beginning to kind of understand how large that business could be. you might remember in q4 last year we launched young men's trend highly successful and it's continued into today and we're just beginning to kind of understand how large that business could be There's a significant opportunity there just to continue to mature what is a fairly new business for us. there's a significant opportunity there just to continue to mature what is a fairly new business for us The same is true in our women's division. the same is true in our women's division As I mentioned briefly on the call, we're just launching some trend I'm very excited about. as i mentioned briefly on the call we're just launching some trend i'm very excited about The team's work for Q3, we've looked at it. the team's work for q3 we've looked at it The styles are right on, the trends are right on. We're making some different investments there, and there'll be a little bit of a breaking out moment, I think, for our women's fashion team. Complementary to that, right behind that, we're just exploring the implementation and now ultimately the expansion of Missy category of product. I don't mean to take up the entire call going through here, but the point here is that there's a lot of significant opportunity just getting better, doing what we're doing in our three-tiered strategy, good, better, best around the store. I speak from time to time about extreme value, and I like to talk about it because it's fun to talk about. The reality is it's actually the icing on the cake for us. The styles are right on, the trends are right on. the styles are right on the trends are right on We're making some different investments there, and there'll be a little bit of a breaking out moment, I think, for our women's fashion team. we're making some different investments there and there'll be a little bit of a breaking out moment i think for our women's fashion team Complementary to that, right behind that, we're just exploring the implementation and now ultimately the expansion of Missy category of product. complementary to that right behind that we're just exploring the implementation and now ultimately the expansion of missy category of product I don't mean to take up the entire call going through here, but the point here is that there's a lot of significant opportunity just getting better, doing what we're doing in our three-tiered strategy, good, better, best around the store. i don't mean to take up the entire call going through here but the point here is that there's a lot of significant opportunity just getting better doing what we're doing in our three-tiered strategy good better best around the store I speak from time to time about extreme value, and I like to talk about it because it's fun to talk about. i speak from time to time about extreme value and i like to talk about it because it's fun to talk about The reality is it's actually the icing on the cake for us. the reality is it's actually the icing on the cake for us That's the stuff that drives the excitement, the treasure hunt, and is really kind of compelling. It will drive traffic for us, but we're not reliant on that as our growth engine. That's complementary to our overall core merchandising strategy. That's the stuff that drives the excitement, the treasure hunt, and is really kind of compelling. that's the stuff that drives the excitement the treasure hunt and is really kind of compelling It will drive traffic for us, but we're not reliant on that as our growth engine. it will drive traffic for us but we're not reliant on that as our growth engine That's complementary to our overall core merchandising strategy. that's complementary to our overall core merchandising strategy

Speaker 2: Got it. Switching gears to talk about unit growth. You're starting to really exercise that muscle, accelerating to mid-single digit and potentially beyond as we get into 2027. I wanted to understand the cadence of openings. You opened two in Q1. How should we be thinking about the remainder of the year? As you get into a more consistent unit growth algorithm, how should we be thinking about the timing of unit openings throughout the year? Got it. got it Switching gears to talk about unit growth. switching gears to talk about unit growth You're starting to really exercise that muscle, accelerating to mid-single digit and potentially beyond as we get into 2027. you're starting to really exercise that muscle accelerating to mid-single digit and potentially beyond as we get into 2027 I wanted to understand the cadence of openings. i wanted to understand the cadence of openings You opened two in Q1. you opened two in q1 How should we be thinking about the remainder of the year? how should we be thinking about the remainder of the year As you get into a more consistent unit growth algorithm, how should we be thinking about the timing of unit openings throughout the year? as you get into a more consistent unit growth algorithm how should we be thinking about the timing of unit openings throughout the year

Speaker 3: Yeah, perfect. I want to talk a little bit about the last part of your question, and I'll ask Heather to kind of fill in on the balance of 2026 for you. How we're thinking about unit growth going forward, we're going to put our new store cycle on three cycles a year. Our goal here is to kind of open new stores up into peak periods so that we have our best foot forward in merchandising. We can invite new customers in and really kind of get the new stores off to a good start. In our model, that would mean we're going to open up a block of stores in February in advance of the Taxmas period. We're going to open up a block of stores in the summer, mostly mid-July, in advance of back to school. Yeah, perfect. yeah perfect I want to talk a little bit about the last part of your question, and I'll ask Heather to kind of fill in on the balance of 2026 for you. i want to talk a little bit about the last part of your question and i'll ask heather to kind of fill in on the balance of 2026 for you How we're thinking about unit growth going forward, we're going to put our new store cycle on three cycles a year. how we're thinking about unit growth going forward we're going to put our new store cycle on three cycles a year Our goal here is to kind of open new stores up into peak periods so that we have our best foot forward in merchandising. our goal here is to kind of open new stores up into peak periods so that we have our best foot forward in merchandising We can invite new customers in and really kind of get the new stores off to a good start. we can invite new customers in and really kind of get the new stores off to a good start In our model, that would mean we're going to open up a block of stores in February in advance of the Taxmas period. in our model that would mean we're going to open up a block of stores in february in advance of the taxmas period We're going to open up a block of stores in the summer, mostly mid-July, in advance of back to school. we're going to open up a block of stores in the summer mostly mid-july in advance of back to school We're going to open up again another block of stores in October in advance of going into holiday. Those three opening cycles will allow us to, A, number one, improve our execution and discipline of opening new stores. Secondarily, it will allow us to make sure that when we open up a store, that we have our very best foot forward on new product going into a peak season, and that we believe that we can use that as a springboard then to mature those stores at a much more rapid rate. In 2026, we're just getting started, obviously. Our opening cadence is a little bit irregular in 2026. I would not use that as a proxy. 2027 will be and beyond is what I just described. We're going to open up again another block of stores in October in advance of going into holiday. we're going to open up again another block of stores in october in advance of going into holiday Those three opening cycles will allow us to, A, number one, improve our execution and discipline of opening new stores. those three opening cycles will allow us to a number one improve our execution and discipline of opening new stores Secondarily, it will allow us to make sure that when we open up a store, that we have our very best foot forward on new product going into a peak season, and that we believe that we can use that as a springboard then to mature those stores at a much more rapid rate. secondarily it will allow us to make sure that when we open up a store that we have our very best foot forward on new product going into a peak season and that we believe that we can use that as a springboard then to mature those stores at a much more rapid rate In 2026, we're just getting started, obviously. in 2026 we're just getting started obviously Our opening cadence is a little bit irregular in 2026. our opening cadence is a little bit irregular in 2026 I would not use that as a proxy. 2027 will be and beyond is what I just described. i would not use that as a proxy 2027 will be and beyond is what i just described Heather, would you be able to fill in the blanks there for Jeremy relative to the remainder of the year opening cadence? Heather, would you be able to fill in the blanks there for Jeremy relative to the remainder of the year opening cadence? heather would you be able to fill in the blanks there for jeremy relative to the remainder of the year opening cadence

Speaker 1: For sure. We did the two in February in time for Taxmas. We're thinking three to five in July period, the balance in October this year. Again, that speaks to Ken's 2026 is not what we consider kind of a quote, unquote, "normal" for go forward periods, that's us getting our legs under us. For sure. for sure We did the two in February in time for Tax mas. we did the two in february in time for tax mas We're thinking three to five in July period, the balance in October this year. we're thinking three to five in july period the balance in october this year Again, that speaks to Ken's 2026 is not what we consider kind of a quote, unquote, "normal" for go forward periods, that's us getting our legs under us. again that speaks to ken's 2026 is not what we consider kind of a quote unquote "normal" for go forward periods that's us getting our legs under us

Speaker 2: Great. That's helpful. If I could just sneak one more in, just on some of the margin color. You noted the fuel surcharges that we're seeing across the industry. Can you speak a little bit to your inventory shrink performance? Given the really strong comps you're doing and comping the comp, can you give us some color on incentive compensation and whether or not accrual for that also went up for the year given the strong performance? Great. great That's helpful. that's helpful If I could just sneak one more in, just on some of the margin color. if i could just sneak one more in just on some of the margin color You noted the fuel surcharges that we're seeing across the industry. you noted the fuel surcharges that we're seeing across the industry Can you speak a little bit to your inventory shrink performance? can you speak a little bit to your inventory shrink performance Given the really strong comps you're doing and comping the comp, can you give us some color on incentive compensation and whether or not accrual for that also went up for the year given the strong performance? given the really strong comps you're doing and comping the comp can you give us some color on incentive compensation and whether or not accrual for that also went up for the year given the strong performance

Speaker 1: Yeah. Ken, I'll grab the mic, if you don't mind. Two things. I'll start with the gross margin question. No doubt, fuel surcharges were not in our initial guide. Certainly an industry issue. We're not alone. That caused our change in our outlook for gross margin from an expansion of 100 basis points to our updated guide. That is entirely due to those fuel surcharges. Okay, we're seeing positive movement, as expected, from both markdowns and shrink. Those are the tailwinds I spoke about in my script. Then the offset is these fuel surcharges. Shrink is getting better, markdown's getting better because of the investments that we've made. You've heard us speak about quite a bit in these calls about AI-based allocation systems, AI-based camera systems. Both of those are driving goodness in the gross margin line. Yeah. yeah Ken, I'll grab the mic, if you don't mind. ken i'll grab the mic if you don't mind Two things. two things I'll start with the gross margin question. i'll start with the gross margin question No doubt, fuel surcharges were not in our initial guide. no doubt fuel surcharges were not in our initial guide Certainly an industry issue. certainly an industry issue We're not alone. we're not alone That caused our change in our outlook for gross margin from an expansion of 100 basis points to our updated guide. that caused our change in our outlook for gross margin from an expansion of 100 basis points to our updated guide That is entirely due to those fuel surcharges. that is entirely due to those fuel surcharges Okay, we're seeing positive movement, as expected, from both markdowns and shrink. okay we're seeing positive movement as expected from both markdowns and shrink Those are the tailwinds I spoke about in my script. those are the tailwinds i spoke about in my script Then the offset is these fuel surcharges. then the offset is these fuel surcharges Shrink is getting better, markdown's getting better because of the investments that we've made. shrink is getting better markdown's getting better because of the investments that we've made You've heard us speak about quite a bit in these calls about AI-based allocation systems, AI-based camera systems. you've heard us speak about quite a bit in these calls about ai-based allocation systems ai-based camera systems Both of those are driving goodness in the gross margin line. both of those are driving goodness in the gross margin line Fuel surcharges are real, and as I said, we expect that to continue for the balance of the year, and it's all incorporated in the guide. Your second question, Jeremy, I'm sorry. Fuel surcharges are real, and as I said, we expect that to continue for the balance of the year, and it's all incorporated in the guide. fuel surcharges are real and as i said we expect that to continue for the balance of the year and it's all incorporated in the guide Your second question, Jeremy, I'm sorry. your second question jeremy i'm sorry

Speaker 2: On incentive comp, given the strong comp performance and profitability. On incentive comp, given the strong comp performance and profitability. on incentive comp given the strong comp performance and profitability

Speaker 1: Yeah, we did something a little bit different this year, and we adjusted the incentive comp accrual in quarter one. You'll recall last year we were chasing quite a bit throughout the year, and it caused catch-up accrual adjustments. We decided we were going to take a hard look at it in the first quarter, which is much earlier than usual. Yes, we did adjust up the incentive comp accrual. We were at 100% when we started the year. Right now, we're at about 128%. Not mad about that, and I'm sure the whole team is pretty happy about that too. Yeah, we did something a little bit different this year, and we adjusted the incentive comp accrual in quarter one. yeah we did something a little bit different this year and we adjusted the incentive comp accrual in quarter one You'll recall last year we were chasing quite a bit throughout the year, and it caused catch-up accrual adjustments. you'll recall last year we were chasing quite a bit throughout the year and it caused catch-up accrual adjustments We decided we were going to take a hard look at it in the first quarter, which is much earlier than usual. we decided we were going to take a hard look at it in the first quarter which is much earlier than usual Yes, we did adjust up the incentive comp accrual. yes we did adjust up the incentive comp accrual We were at 100% when we started the year. we were at 100% when we started the year Right now, we're at about 128%. right now we're at about 128% Not mad about that, and I'm sure the whole team is pretty happy about that too. not mad about that and i'm sure the whole team is pretty happy about that too

Speaker 2: No doubt well earned as well. Thanks so much for taking the questions, and best wishes. No doubt well earned as well. no doubt well earned as well Thanks so much for taking the questions, and best wishes. thanks so much for taking the questions and best wishes

Speaker 1: Thanks, Jeremy. Thanks, Jeremy. thanks jeremy

Speaker 3: Thank you. Thank you. thank you

Speaker 6: There are no further questions at this time. I would like to turn the floor back over to Ken for closing remarks. There are no further questions at this time. there are no further questions at this time I would like to turn the floor back over to Ken for closing remarks. i would like to turn the floor back over to ken for closing remarks

Speaker 3: All right. Well, thank you again, everyone, for joining us for our call. We appreciate your continued support of our brand. Look forward to talking to you next quarter. Thank you. All right. all right Well, thank you again, everyone, for joining us for our call. well thank you again everyone for joining us for our call We appreciate your continued support of our brand. we appreciate your continued support of our brand Look forward to talking to you next quarter. look forward to talking to you next quarter Thank you. thank you

Speaker 6: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation. Thank you. thank you This will conclude today's conference. this will conclude today's conference You may disconnect at this time, and thank you for your participation. you may disconnect at this time and thank you for your participation