Greetings, and welcome to the Citi Trends 1Q 2022 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we’ll conduct a question-and-answer session. As a reminder, this conference is being recorded, Tuesday, May 24, 2022. I would now like to turn the conference over to Nitza McKee, Senior Associate. Please go ahead.

Thanks Malika and good morning, everyone. Thank you for joining us on Citi Trends first quarter 2022 earnings call. On our call today is Chief Executive Officer, David Makuen; and Vice President of Finance, Jason Moschner. 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 Relations section at www.cititrends.com. You should be aware that prepared remarks today made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance. Therefore, you should not place undue reliance on these statements. We refer to you to the company's most recent report on Form 10-K and other subsequent filings with the Securities and Exchange Commission for a more detailed discussion of the factors that can cause actual results to differ materially from those described in the forward-looking statements. I will now turn the call over to our Chief Executive Officer, David Makuen. David?

Thank you, Nitza. Good morning, everyone. And thanks for joining us today on our first quarter fiscal 2022 earnings call. This morning, I will begin by reviewing the ongoing transformation of our business and highlight our financial and operational results for the first quarter fiscal 2022 before updating you on our focus on our highest priority, providing for our customers and associates during tough times and how we are doubling down on helping them show up for whatever comes their way. Then Jason Moschner, our VP of Finance and Principal Financial and Accounting Officer, will elaborate on our financial results and a few other items related to our outlook. Before turning to our results, I want to recognize that the macro environment has been difficult for our customers, given a number of factors, including ultra-high inflation that is driving high food prices, rents, and gas prices. These factors coupled with geopolitical instability and lapping the stimulus from last year disproportionately impact our core customers and also our associates who work tirelessly to operate our 600-plus store fleets. While it hasn't been easy for them, they are resilient, strong, and able to weather this storm just like they have for so many other storms during the last 20 years. Importantly, Citi Trends will always be dedicated to our neighborhoods and will always be there for our loyal and new customers. Our unique ability to listen to the African American and Latinx families we serve and respond with the right trends, fashion, and essentials at the right time in the right store has never been stronger. No matter the headwinds, it's our responsibility to keep it fresh and fun for the family each and every day. I want to thank our associates throughout all functions and stores that keep Citi Trends purpose driven and running the best way possible for our customers each and every day. Now, turning to our results. Our first quarter top line results were in line with expectations and our bottom line performance was better than our previously provided guidance. The difficult economic backdrop coupled with third-party data suggesting shifts in discretionary shopping behavior is negatively impacting traffic to our stores. However, our core customer metrics are holding up well as we continue to see strong and consistent conversion and basket spend with baskets well above 2019 and very close to 2021 levels. I have shared the stability of our conversion and basket trends now in three consecutive calls with you, and I want to underline the following point. Our content is resonating and our agile BUY team is reading, reacting, and executing at a high level. Our team is more nimble than ever, and in particular, we are chasing ample available trends that will scoop up and offer at prices that don't break the bank. Looking back in the quarter, we successfully managed inventory levels and had newness and freshness arriving in stores weekly. The classic extreme value chase is definitely on. With the soft store traffic setup, our store management teams have been intensely focusing on conversion while styling customers from head to toe in our specialty store experience to drive UPTs and healthy baskets. We commenced the early phases of further optimizing our product mix with the gradual rollout of multiple incremental projects, multiple incremental product initiatives across our six cities or categories. We remodeled 20 legacy Citi Trends stores in our new CTx format, and they are off to a great start as customers engage with their revitalized neighborhood trend spot. We continue to navigate and manage the challenging supply chain backdrop and labor challenges while diligently managing expenses. We completed the previously announced sale leaseback transaction of our distribution center located in Darlington, South Carolina. We are making substantial progress on our infrastructure initiatives to improve our BUY and MOVE teams' ability to procure and move goods. And lastly, we are making great progress on our search for a new CFO. As we look to the remainder of 2022, we expect the macro factors to continue to impact our customer and the broader discretionary shopping landscape. It's therefore prudent that we plan conservatively and thus, we are revising our growth targets for the rest of the year, while still comparing primarily to pre-pandemic 2019 as a baseline. Additionally, we believe the right step is to take a conservative approach to opening new stores. And therefore, we now intend to open approximately 20 stores during fiscal 2022. With that, I'll turn the call over to Jason to discuss our first quarter results in detail, as well as our updated guidance for the balance of the year. Jason?

Thanks David, and good morning, everyone. For the first quarter of fiscal 2022, the operating environment remained difficult with headwinds of extreme inflation, freight pressures, and lapping government stimulus to name a few. Despite this, we delivered total sales in line with our expectations, achieved gross margin well above the levels in 2019 and prior, and applied rigorous discipline to controlling our expenses resulting in earnings per share that exceeded the top end of our prior guidance. We ended the quarter with a strong cash balance and a clean inventory position leaving us poised, as David said, to chase trends within our six cities or categories, keeping our powder dry so we can appropriately respond to our customers' needs based on the time of year and occasion. Now, let's turn to the specifics of our Q1 financial results. As mentioned in our earnings release, we are comparing select operating results for Q1 of 2022 relative to Q1 of 2019 in order to provide a more normalized comparison of performance. In addition, certain results are adjusted with 2022 figures adjusted to exclude the gain from selling our distribution center in 2019 adjusted to exclude expenses related to a proxy contest. Please see our earnings release for reconciliation of these adjustments. Total sales for the first quarter were $208 million, an increase of 1.6% compared to Q1 of 2019. Comparable store sales declined 29% versus 2021 on top of a 35% increase last year versus 2019, representing a stack of 5.8%. Our conversion in basket remains strong, which tells us our content is resonating. Earnings per share was $3.59 compared to $0.65, or as adjusted $0.42 compared to $0.72. Gross margin was 39%, 150 basis points higher than the first quarter of 2019. Our continued improvement in quarterly gross margin rates versus 2019 and prior is primarily a result of disciplined inventory management starting with higher markups, stronger full-price sell-through, fewer markdowns, and lower shrink rates, partially offset by 125 points of deleverage and freight costs due to the current supply chain headwinds. Navigating the supply chain environment remains fluid. We have worked to increase the efficiency of our internal operations while also negotiating rates with our shipping partners to mitigate the elevated transportation costs. Adjusted SG&A for the quarter was 34.1% of sales, up from 30.9% in the first quarter of 2019. On a dollars basis, adjusted SG&A was 13.8% higher. Adjusted operating income was $4.7 million versus $9.8 million or on an adjusted basis the margin was 2.3% compared to 4.8%. GAAP net income was $30.2 million compared to $7.8 million in the first quarter of 2019, or as adjusted $3.6 million compared to $8.7 million. Now turning to our balance sheet. Total inventory at the end of the quarter was lower by 1.2% compared to the end of Q1, 2019. Excluding our packaway inventory, inventory was down 13.9%. And our average in-store inventory was 32.5% lower than 2019, which reflects our continued focus on freshness and improved store terms. During the quarter, we completed the sale-leaseback of our distribution center in Darlington, South Carolina, resulting in gross proceeds of $46 million and a pre-tax gain of $35 million. The impact to rent expense in fiscal 2022 is expected to be approximately 40 basis points. As it relates to our buyback program, we repurchased approximately 170,000 shares at an aggregate cost of $5.3 million, leaving $54.7 million remaining. We ended the quarter in a strong capital position with $61.7 million of cash and no debt. As we stated in the past, capital allocation is a primary focus of our Board, and we will prudently balance our use of cash between buybacks, investments in our growth strategy, and ensuring adequate liquidity in this challenging environment. Now turning to our guidance for the balance of the year. With the expectation that macro factors continue to pressure our customers, we believe it is prudent to plan conservatively. We have revised our outlook as follows: Full year sales of $860 million to $880 million and comparable sales decrease of 14% to 16% on top of a 22% increase last year versus fiscal 2019. At the midpoint of this range, this implies a comp stack of positive 7%. Full year operating income of $58.8 million to $65.3 million or as adjusted $23.8 million to $30.6 million. At the midpoint of this adjusted range, this implies a 32% increase compared to fiscal 2019. Full year diluted EPS ranging from $5.59 to $6.09 on a GAAP basis or as adjusted $2.25 to $2.75. At the midpoint of this adjusted range, this represents an increase of 60% over adjusted EPS in fiscal 2019. I'll note that our full year guidance includes $2.3 million of incremental non-cash SG&A expense related to the conversion of certain cash settled awards to restricted stock, which negatively impacts diluted EPS by approximately $0.22 in our guidance. These converted awards will be fully vested during Q1 of 2023, and therefore, they will no longer result in the incremental expense after the first quarter of 2023. Finally, given our revised plans for opening 20 new stores during the year, we project capital expenditures of approximately $32 million. To wrap up, our teams are executing disciplined cost controls, optimizing our operations, and diligently managing the balance sheet. We recognize the challenging environment, and therefore, we are laser-focused on controlling the controllables, while we work to maximize our top-line sales and amaze our customers each and every day. With that, I'll turn the call back to David for closing comments.

Thanks, Jason. Before we take your questions, I want to provide some additional beliefs in our customers and business model that give us the confidence to navigate current unpredictable times and make the ongoing improvements to our model to maximize profitability in the years ahead. First about our customers. Our associates make it personal and often know their customers on a first-name basis and even what's happening in their lives. Across our fleet, we play a central role in the neighborhood where we quite literally help bring opportunities to life by suggesting value outfits for her and him and the kids for both work and play, suggesting value toys and accessories for the little ones, suggesting new value beauty items tailored towards black and Latinx women and so much more. At the crux of this relationship is a high level of loyalty and dedication our customers and associates have with our brand. It's a special bond that is not easily eroded by tough times. Our customers know tough times and they're equipped to muscle through. This characteristic is also an indelible strand of our DNA that we will leverage to help solve for the current times while laying the groundwork for future growth. Regarding our business model. When I take a step back and look at how we manage the business through an incredibly challenging period, we are definitely behaving like a 75-year-old startup. The modernization of the Citi Trends brand is unfolding as planned and can be felt in our people, our culture, and our operations. Our 75-year history is critical to understanding how durable our model is from where we uniquely sit in the neighborhood to the curated assortment we offer to the unique associate team that takes respect all to a new level. If you walk away with one thing today, it's the power and underlying foundational strength of a legacy value brand built by and for the neighborhoods it has served for many decades in the past and for many decades in the future. I am humbled to be a member of a team that shares my passion for growing and building something really special for the customers and associates that care deeply about the success of Citi Trends. For this year and beyond, as you've heard before, we remain focused on four strategic priorities; number one, growing our fleet and expanding our customer base; number two, optimizing our product mix; number three, reinvesting in our infrastructure; and number four, making a difference within the communities we serve. In closing, I want to, again, thank the entire Citi Trends team for their dedication and all their efforts for making a difference in the communities we serve, their passion to live our purpose. Life is best when you live bold, live proud, and respect all is definitely shining bright. With that, we are now ready to take your questions. Malika?

Thank you. Our first phone question is from the line of Dana Telsey with Telsey Advisory Group. Please go ahead. Your line is open.

Good morning, everyone. Hello, David and Jason. As you think about the current environment and the state of the consumer with inflationary headwinds with your customer, how are you managing on price? How much pricing are you passing on to them? What have you seen be accepted, not be accepted by category? And how are you managing the inflationary headwinds internally in terms of labor costs? And then lastly, any update on how the CTx stores are performing versus the base and the 20 new stores versus the prior guide for 35, do those push off into 2023? Is some of that because it's just hard to get the goods for the stores, whether it's HVAC equipment or other things? Thank you.

Hi, Dana. Good morning. It’s great to connect with you, and I appreciate your insightful questions. Let me address those points starting with pricing. Our position remains consistent with what we've communicated previously, even back to 2021. We believe we can increase prices when we enhance value, features, or benefits, and this approach has been effective up until now, and we anticipate it will continue throughout this year and beyond. We've held the price steady on essential items in our stores, such as underwear and socks, which are more basic and less trend-driven, without passing any cost increases onto customers. Regarding new offerings, while we’re not focusing on every individual product, we’ve effectively managed pricing in ensuring we introduce trending items at lower inventory levels compared to 2019. This strategy has allowed us to capitalize on trends, selling through quickly and moving on to the next. Overall, we’re successfully managing pricing and product assortment, and we intend to maintain this strategy. On the labor front, our approach is similar to our pricing strategy. We plan to remain consistent. As I’ve mentioned before, we haven’t implemented drastic wage hikes but have instead opted for strategic and targeted increases where needed. We are committed to treating our employees well from both a cultural and benefits standpoint, and this comprehensive approach is working effectively for us. We see strong loyalty from our teams in distribution centers, stores, and at our headquarters, reflecting a dedicated workforce ready to assist customers in all capacities. From the perspective of CTx, we are very pleased with our results to date. We’re witnessing improvements that surpass what we saw in 2019 with earlier remodels. We’ve indicated that we expect high-single-digit increases, and we’re on target with the initial class. It’s exciting that we will have 20 stores open by tomorrow, and we plan to add close to 30 by the end of Q2. We are enthusiastic about the direction this initiative is headed. Now, could you remind me of your last question?

On the number of store openings going to 20 from 35, is that because it pushes into 2023 or is it the headwinds of getting supplies to get a store open?

It's not necessarily one or the other right now. To address your first question, we expect to grow our store count and reach our target of a thousand stores, and we are confident in that number we’ve previously shared. However, we are slightly slowing the pace this year. We anticipate returning to a faster pace in 2023 and 2024 and beyond, so we will definitely achieve that 15 target. In fact, most of the deals are already in progress or finalized, and we will move those into 2023. As for lowering the target, it is a more cautious approach on our part. We want to ensure that we can allocate our resources effectively across the company, not only to manage the current business but also to ensure new stores launch successfully, handle remodels efficiently, and run our core business during these challenging times. This encapsulates our thought process, and we have numerous deals in the pipeline. We are excited about increasing the number in 2023 and further growing it in 2024 and beyond.

Got it. One last thing, cadence of the quarter, what did you see in terms of cadence of the quarter, whether it's lapping stimulus or tax refunds? And how is the exit rate, and what's happening so far Q2 to date? Thank you.

Sure. Good question. The cadence to the quarter, the short answer is it got better by month. So, from Feb through April, we saw sequential improvement in our transaction counts. We saw a consistent and strong conversion level and a consistent and strong basket. So that was encouraging throughout the quarter. And then, as we've entered the early parts of Q2, we've seen a continued improvement off of the improvements we saw month-to-month in Q1, and I'll stick a quick plug-in for some of our incremental initiatives that we've talked about. The last couple of calls are taking hold. They're in sort of test learn, some are in rollout gradually over Q2 and Q3, but we're liking the traction we're seeing and that's contributing to the improved momentum.

Thank you.

You're welcome. Have a great day.

Thank you. Our next question is from the line of Jeremy Hamblin with Craig-Hallum Capital Group. Please go ahead. Your line is open.

Thanks. I want to start by following up on the last question, and it’s great to hear about the improved sequential results. I wanted to clarify that historically, Q1 has been significantly stronger than Q2 and Q3 in terms of absolute dollar value. Can you provide more insights on the expectations for Q2, considering that tax refunds did not follow the usual pattern? Are you anticipating Q2 sales to surpass Q1?

Jeremy, thank you for your questions. While we are not providing specific guidance for each quarter this year, I can confirm that our projections for Q2 to Q4 are consistent with what we have previously indicated, showing an improvement as we progress through the quarters, ultimately aligning with our current guidance. Although we aren't detailing the relationship between each individual quarter, the sequential growth gives us confidence in achieving our targets from one quarter to the next. We anticipate a strong remainder of the summer, especially around July 4, which is significant for our brand. Following that, we expect to return to a more typical back-to-school season, which has been consistent over the past three years. We are well-prepared to support this season from both a current inventory and packing standpoint. Additionally, we are focusing our efforts on succeeding in the gifting season in Q4. This provides some insight into how we view the rest of the year.

What I’d like to understand is, you've reduced the full year guidance by about $60 million, but Q1 results were in line with your expectations. Is this $60 million reduction expected to be distributed evenly over the remaining three quarters? Do you have a slightly lower outlook for Q4, or is the adjustment primarily in the near term, where we previously anticipated a stronger performance in Q2 and Q3? Now it seems we expect things to unfold more typically for this season. I know you're focusing on the summer season, though.

Yes, that's a good question. We can provide some insights into the ongoing inflationary pressures, which are expected to persist longer than we hoped. You can note that the $60 million decline is more pronounced in Q2 compared to Q3 and Q4. That's a reasonable takeaway. As you can imagine, we have made adjustments across all quarters to respond appropriately to inflation and related pressures.

That's helpful. I wanted to discuss inventory. Your packaway inventory levels are up about 27% year-over-year, which was slightly higher than I expected, but aligns with what many retailers have reported recently about higher inventory levels for various reasons. Regarding your gross margins, they likely came in close to what you anticipated for Q1. Moving forward, do you have any concerns about the risk of higher markdown rates? I'm interested in whether your inventory levels were as you expected two to three months ago. Additionally, given that many competitors also have higher-than-expected inventory levels, are you experiencing any additional pressure from slightly increased promotions? Do you think clearance rates will rise compared to last year?

Good questions, Jeremy. First off, we are very pleased about our inventory situation. I’d like to provide some insights beyond what we shared in our script and release. We discussed comparisons to 2019, but we do have 2021 data as well. It's important to remember that our business model involves significant effort in capturing forward season buys from roughly November 2021 through late March 2022, and we store those goods for eventual sales mainly in back-to-school and beyond. So, when assessing our end-of-quarter inventory levels compared to last year, up in the mid-20s, we really need to consider the forward season buys included in those figures. When you adjust for those, our inventory is up about 5% as that forward season buy is stored in our distribution centers. We began pulling it out starting in back-to-school and continued through the holiday season, effectively depleting it, which has maintained good margins and offered exceptional deals. That's an important context. Additionally, our average store inventory compared to last year is only up a couple of points. This is noteworthy because we were extremely low last year during the stimulus-driven first quarter. So, to be just up 6% in average store inventory reflects what we have on hand, demonstrating our team's careful management of inventory levels across all locations. In summary, we’re not overly concerned, but we are very diligent about keeping it that way. Regarding your concerns about markdowns and margins, we have accounted for those factors in our projections. We spent considerable time modeling that and feel confident with what we shared today.

Great. Next one for me.

Thank you.

Yeah. Absolutely. Thanks. That's great color. Last one for me is just around the SG&A understanding also, the $2.3 million non-cash stock charge. So, presumably that's going to be spread over the next few quarters. I wasn't sure if it was all hitting in Q2 or not. But then in terms of your absolute spend in Q1, that’s just $71 million, down from where you were in Q2 and Q3 of last year, so managing that really well. And my guess is it sounds like that's kind of like a sustainable level. But I wanted to just kind of get a little more detail around that SG&A spend. And then also specific to that $2.3 million award, if that was hitting all in one quarter or if that was spread over multiple quarters here throughout 2022? Thanks.

Sure. Yeah. You bet. I'll take the part one and then Jason can chime in on part two. But on part one relative to the $2.3 million kind of one-time event that will impact and deem our EPS about $0.22 for this year, it is spread across the year. It's probably more like 30% in Q1, and then the rest of it is spread by quarter. And as Jason pointed out, it runs out as of the end of Q1 of 2023 and no longer becomes "non-cash charge" to the EPS number. So that's a good thing. I'll give you a high level on SG&A. I think we do feel confident about it in terms of how we've forecasted and how we're managing it. But I'll turn it over to Jason for one minute or two on that one.

To clarify on those awards, we converted certain cash settled awards for our mid-level managers into restricted stock in the fourth quarter of 2021, which we disclosed in the footnotes of our 10-K. The accounting rules dictate that they take on the fair market value at the conversion price, which was higher than the initial grant date price. This price is locked in and the expense is recognized on a straight-line basis until they vest, with full vesting occurring in March 2023. Going forward, we will not have cash settled awards, so there will be no mark-to-market fluctuations in our equity awards, and all future equity awards will be expensed on a straight-line basis based on the grant fair value. Regarding SG&A expense for the remainder of the year, we are confident in our expense management and expect to maintain levels similar to Q1 of 2022, with some expected fluctuations. We generally incur higher SG&A expenses from Q2 through Q4 due to variable expenses linked to our sales, especially in Q4. We anticipate following a similar trajectory as in 2021 and 2019, maintaining levels in line with our starting point from Q1 of 2022.

Great. Thanks for that context and color. Best wishes.

Thanks, Jeremy. Have a great day.

Thank you. Our next question is from the line of Chuck Grom with Gordon Haskett. Please go ahead. Your line is open.

Hi. Thanks a lot. Good morning. Just wondered if you guys could speak to how you arrived at the comp guidance down 14% to 16%. You guys were fortunate enough to come in line with the 1Q view that you provided. And if I run the three-year stacks out over the next few quarters, it does imply a pretty big uptick sequentially throughout the year. So, I just was wondering if you could just unpack how you got to that number for us. And if you'd be willing to give us a little bit of help on the second quarter.

Hey, Chuck. It's great to hear from you. Let me give you some insight into how the year is shaping up. We expect steady improvement from Q2 to Q3 to Q4, primarily influenced by seasonal trends like back-to-school and holiday sales, as well as the gradual introduction of additional volume initiatives across several cities. As I mentioned before, we’re adding a missy size range and rolling out a more intensive Q line just before checkout, along with continued progress on our CTx remodels which will affect our comparable sales. All these elements are considered in our model. However, we have adjusted the expected growth due to ongoing inflation pressures affecting our lower-income customers. There has been sequential improvement, supported by these new relationships. I’d also like to share some insight into our current product trends. We're noticing positive shifts in consumer habits in several cities, particularly a rise in wear-to-work clothing that is beneficial for us. Our sales in this category have increased significantly compared to last year, particularly with simple black and white pieces that align with current trends. On the other hand, there’s still a strong demand for casual, comfortable clothing suitable for remote workers and caretakers, leading to a surge in sales of lounge and streetwear. Both of these segments are outperforming our expectations and we are adjusting our inventory accordingly. These foundational trends, along with some incremental improvements, bolster our confidence in our quarterly performance throughout the year. Regarding Q2, I can’t share too much beyond what I've mentioned before, but I want to emphasize our confidence in our basket size and conversion metrics. We're monitoring conversion and traffic in over 100 stores, and we have observed a consistently high conversion rate unaffected by inflation. This indicates that consumers who have spending ability continue to shop in our stores. Interestingly, our basket sizes resemble those of 2021 and are significantly higher than 2019 levels. For Q2 specifically, we're optimistic; sales for Memorial Day goods are strong, sports merchandise looks promising, and we're already experiencing good traction in back-to-school items thanks to our store locations. Overall, we feel very positive about how Q2 is progressing.

Okay. That's very helpful. And then, just to build off that. I was hoping you could talk about the evolution of your basket since 2019 in terms of the overall dollar size, UPT? And I guess, like what's actually changed within the basket? How much more discretionary that basket has become, or has it stayed mainly in the apparel area?

Great questions. Let me share some overall insights on that. First, the increase is driven by both UPT gains compared to 2019 and AUR improvement. We have observed that customers are accepting better quality value at slightly higher price points without significant pullback. The combination of higher UPTs—about evenly split—is contributing to a significant increase in the basket size, which is now approximately $8 to $10 higher than in 2019. Compared to 2021, the basket size is nearly flat, which is encouraging given the market conditions during that time. The composition of the basket hasn’t changed much, as we remain a trend-driven brand. The balance between needs and wants has remained consistent. The only noticeable positive change is the Q line impact, which is contributing to higher UPTs. Overall, apparel and non-apparel categories are performing similarly to how they did in 2019. This is promising and indicates that our merchants are staying relevant to both needs and wants, particularly with the incremental activities related to the Q line.

That helped. That's actually really great. Thank you. My last question is just to understand better. You mentioned that business improved each month of the quarter and continued to do so into May. While you're more cautious regarding the consumer, I'm curious about the work you've done internally to grasp the concerns your consumers have regarding food, rent, and gas inflation. What's changed? Has there been an increase in concern? If so, why do you think your business has still managed to improve a bit? I'm just looking for more details about your current understanding of your consumer.

We've primarily conducted internal focus groups led by the field to get direct feedback from our associates, who often reflect our customer base. We regularly communicate with them in our local area. We're receiving significant feedback regarding the pressure on gas prices, with customers expressing that filling up their tank takes a considerable portion of their paycheck, which impacts their driving habits and forces them to stay local. This situation might be benefiting our foot traffic as they are staying closer to home, where we are conveniently located. We're also hearing concerns related to rent, as our customer base tends to be renters who are experiencing increases in rents and utilities, which are being passed on to them. Some are facing severe challenges, including evictions, particularly among those with lower incomes. Although food concerns are present, they are not as prominent as gas and rent. We're closely monitoring these trends and regularly engaging with our associates, who are in touch with customers, to stay informed. A major aspect of our strategy is our commitment to the local community, as over half of our volume comes from customers within a three-mile radius of our stores. There aren't many shopping options in the area, which reinforces our business model and enhances our sales and customer loyalty. Customers who can't visit us frequently feel disappointed but are managing their limited disposable income and when they do shop, they do so enthusiastically. As we move forward, we plan to conduct more quantitative research to better understand any gaps in our knowledge. Ultimately, we're sticking to our core mission of providing a selection of trends, basics, and fashion to our audience, and I believe this will guide us through any challenges ahead.

Got it. Thanks a lot.

Thanks, Chuck. Have a good day.

Thank you. Our last question is from the line of John Lawrence with Benchmark. Please go ahead. Your line is open.

Yeah. Good morning, guys.

Good morning, John.

Hi, David, would you sort of take Chuck's last question just one step further. When you look at those pressures on your customer base, historically, when you are in these inflation periods, and I guess, you somewhat answered that, but just the one step further about, what is that trade effect or the trade down effect for some of your customers as they see this pressure around them and then maybe some customers find you then that in that neighborhood for back-to-school or for July 4 that were maybe shopping a little upstream or whatever? What have you seen in years past there?

That's a great question, John. Looking back at historical trends, we have consistently demonstrated resilience and strength coming out of recessionary periods, as was evident in 2008 and 2009 for the brand. However, the current situation has some different characteristics compared to what we've faced before. I would emphasize the idea of shopping local, as we noticed back in 2021, customers were venturing a bit beyond their immediate trading area, traveling to regional shopping centers and spending their budgets there. They were engaging in both local and regional shopping. Nowadays, we are observing a decline in trips to those regional hubs. Instead, customers are focusing on local options, including us, local grocers, discount stores, and beauty shops, which seems to support the brand and aligns with our current trends and expectations for the rest of the year. We believe this local shopping is an affordable choice. Regarding your question about trade down, it seems like customers are opting for value within their local areas, saving on gas and staying closer to home. While this insight is somewhat qualitative, it aligns well with our metrics. We are committed to this approach, offering outstanding value through promotions and deals that are budget-friendly. For instance, this week, we're introducing three exceptional value programs that we believe will resonate with our customers, showcasing our commitment to providing great new value. We have always prioritized this, and it defines who we are as a brand; our customers appreciate it.

Great.

Great.

Thanks for that. And you mentioned the new stores. I might have missed it, but did you comment on how many more remodels you are going to do?

I did not specifically, because there was no change. We still have, on the books, a total of 50 remodels. And I did mention that we're going to zero in on completing approximately 30 by the end of Q2. So, we're on pace to what we've disclosed prior, meaning well over half within the first half of the year.

And no real difference between the performance of a remodel and a new store as far as the lift?

We assess that in a slightly different way. For the new stores and remodels, we are comparing them to a control group of comparable stores. We are encouraged by the results we are observing, and we are supplying each of these groups with the right fresh goods to support sales, and everything is progressing as expected.

Great. Last question for me is we've heard some other companies talk about the availability of merchandise is pretty robust out there. Can you comment on that? And what do you see as far as maybe deals in the pipeline?

Sure. As I mentioned earlier, the pursuit of our business model is actively underway. Unfortunately, this is a challenging time for the industry, but it's advantageous for us. We are currently receiving daily shipments of excellent values in both branded and private label goods due to cancellations from other brands that no longer need them, which allows us to acquire them at attractive prices. This creates a very favorable environment that Citi Trends aims to leverage strategically. As I pointed out, our focus is on strengthening our fall and holiday inventory by taking advantage of these buying opportunities, following our usual approach of being proactive. We are dedicated to ensuring that the products we select are suitable for our African American and Latinx families, rather than pursuing any random deals.

Great. Thanks for the color. Good luck.

Thanks John. Have a great day.

Thank you. And there are no further questions at this moment on the phone lines.

Thank you, Malika. Thanks everybody for joining the Citi Trends first quarter 2022 earnings call. Have a great week and an upcoming Memorial Day. Bye-bye.

Thank you. Ladies and gentlemen, that does conclude today's call. We thank you for your participation and ask that you please disconnect your lines. Have a good day.