Citi Trends, Inc.
PART I
Some statements in, or incorporated by reference into, this Annual Report on Form 10-K (this “Report”) of Citi Trends, Inc. (“CITITRENDS”, “we”, “us”, or the “Company”) may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than historical facts contained in this Report, including statements regarding our future financial results and position, business policy and plans, objectives and expectations of management for future operations and capital allocation expectations, are forward-looking statements. The words “believe,” “anticipate,” “project,” “plan,” “expect,” “trend,” “estimate,” “objective,” “forecast,” “upcoming,” “goal,” “intend,” “may,” “could,” “will likely result,” or “will continue” and similar expressions, as they relate to us, are intended to identify forward-looking statements, although not all forward-looking statements contain such language. We have based these forward-looking statements largely on our current expectations and projections about future events, including, among other things: general economic conditions, including inflation, energy and fuel costs, unemployment levels, and any deterioration whether caused by acts of war, terrorism, political or social unrest (including any resulting store closures, damage or loss of inventory) or other factors; changes in market interest rates and market levels of wages; the imposition of new taxes on imports, new tariffs and changes in existing tariff rates; the imposition of new trade restrictions and changes in existing trade restrictions or trade relationships; impacts of natural disasters such as hurricanes; uncertainty and economic impact of pandemics, epidemics or other public health emergencies; transportation and distribution delays or interruptions; changes in freight rates; the Company’s ability to attract and retain workers; the Company’s ability to negotiate effectively the cost and purchase of merchandise inventory risks due to shifts in market demand and to manage inventory shrink; the Company’s ability to gauge fashion trends and changing consumer preferences; consumer confidence and changes in consumer spending patterns; competition within the industry; competition in our markets; the duration and extent of any economic stimulus programs; changes in product mix; interruptions in suppliers’ businesses; risks related to cybersecurity, data privacy and intellectual property; temporary changes in demand due to weather patterns; seasonality of the Company’s business; the results of pending or threatened litigation; delays associated with building, remodeling, opening and operating new stores; and delays associated with building, opening or expanding new or existing distribution centers.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Item 1A. Risk Factors and elsewhere in this Report and the other documents we file with the Securities and Exchange Commission (“SEC”), including our reports on Form 8-K and Form 10-Q, and any amendments thereto. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. These forward-looking statements speak only as of the date of such statements. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we do not plan to publicly update or revise any forward-looking statements contained in this Report, whether as a result of any new information, future events or otherwise.
Information is provided herein with respect to our operations related to our fiscal years ended on January 31, 2026 (“fiscal 2025”), February 1, 2025 (“fiscal 2024”) and February 3, 2024 (“fiscal 2023”).
ITEM 1.BUSINESS
Overview
Citi Trends, Inc. (“CITITRENDS” or the “Company”) is a highly differentiated off-price value retailer known for trendy fashions, great brands and amazing prices. We are the leading off-price retailer specifically focused on Black customers, delivering the styles, brands, and trends at amazing prices that resonate with our primary and secondary customers. Our product offering is Women’s, Men’s and Children’s apparel, family footwear, accessories and products for the home, with a three-tiered mix of product. At the opening price point, we offer value-focused basics for our most budget-conscious customers. The core of our business is our ‘better’ tier- quality products with breadth of selection and fresh styles. At the top end, we’re expanding our ‘best’ tier with two distinct approaches. First, we’re adding more trend-relevant product at prices well below specialty retail. Second, we’re building our extreme value capabilities, offering well-known branded product at 50% to 75% off MSRP. Our research shows this treasure hunt element resonates particularly well with our core customer, who views shopping as both a practical necessity and an enjoyable activity, fostering deep customer loyalty and high shopping frequency in the communities in which we operate.
Our customers are discerning. They understand that value is more than price and are willing to spend more when the style is for them, the fashion is on trend and the quality is right. In short, value is not just price. Our brand promise is clear: Styles that see you, prices that amaze you and trends that tell your story.
3
Our stores are strategically located in vibrant Black communities with product offerings for the entire family. Our stores average approximately 11,000 square feet of selling space and are typically found in outdoor community shopping centers across a variety of urban, suburban and rural markets. As of January 31, 2026, we operated 590 stores in 33 states.
We believe the combination of product curated for the Black consumer at amazing prices, and the large scale of our 590 community stores is extremely hard to duplicate which gives us a defensible moat against competition.
Competitive Strengths and Strategies
CITITRENDS is the leading off-price retailer specifically focused on Black customers. With 590 stores located in the communities we serve, our customers rely on us as their off-price value retailer of apparel, accessories and home trends. Because of our long-term presence in the Black community, our customers are highly engaged and loyal to CITITRENDS. We strive to provide an engaging and exciting shopping experience supported by fresh product and a friendly, welcoming staff. We believe the following business strengths differentiate us from our competitors and are important to our success.
Community Store Locations are a key point of differentiation. We locate our stores in high-traffic outdoor community shopping centers that are convenient to Black families. Our location strategy allows us to be an integral part of the communities we serve while providing convenience for our customers. We believe that these community locations are difficult to duplicate, creating a competitive moat for our brand. We generally utilize previously occupied store sites in locations where we are often the brightest and cleanest store in the shopping center, which enables us to obtain attractive rents while establishing ourselves as community cornerstones. When opening new stores, we seek to partner with landlords that contribute to buildout costs, which helps maintain lower startup and fixturing investment.
Focus on Fashion and Trend Mix. We curate our merchandise assortment to be trend right styles at amazing prices, recognizing that our customers use style as a form of personal expression. Our creative department is focused on identifying emerging trends and ensuring that our wide assortment of apparel and non-apparel merchandise is curated to appeal to the preferences of Black customers. Our buying team actively manages a dynamic blend of essentials, fashion-forward pieces, trending items and recognized brands, all at strong value prices to keep the assortment fresh, relevant and culturally attuned.
Superior Value Proposition. We seek to offer high quality, fashionable merchandise. Value is more than price. We know that our customers are willing to spend more when the fashion is on trend, the brand is right, and the price-value proposition is strong. The majority of our product is sold at ticketed price with compare at pricing to demonstrate our pricing superiority against competition. We do not employ high-low or point of sale discounting pricing strategies; instead, our everyday ticketed low price points offer superior value, enabling our customers to purchase multiple items per visit. We focus on a balanced three-tiered assortment along with an increasing selection of off-price ‘treasures’ – nationally known brands at incredible values. We rely on regular in-store deliveries of the latest trends at great prices which drives word-of-mouth awareness and excitement in the communities we serve, which in turn creates customer visit frequency.
Fashions for the Entire Family. We offer Women’s, Men’s and Children’s apparel, family footwear, accessories and products for the home which makes us a family destination in our communities. We offer a trendy assortment of culturally relevant fashions, core products and opening price products, making us appealing to wide range of income and style taste levels. We believe that our approximately 11,000 square feet store formats, combined with a neat, clean and organized in-store experience, friendly customer service where we often know our customers’ names, and breadth of merchandise, distinguishes our stores from many competitors and creates an exciting and welcoming environment that encourages high frequency repeat visits from the local community.
Strong and Flexible Sourcing Relationships. We maintain strong, long-standing sourcing relationships with a large group of suppliers while continually opening new relationships with both well-known and up-and-coming brands. We believe that our access to the Black customer drives vendor interest. Our buying team plans, develops and creates curated assortments by (i) purchasing goods developed specifically for our customer, (ii) selecting products for our customers from vendor product lines, (iii) buying opportunistically available excess inventory from reliable vendors, with the majority of our merchandise purchased for the current season and a lesser quantity held for sale in future seasons and (iv) buying extreme value, off-price deals to offer exciting national brands at significantly reduced prices. Our vendor partnerships enable us to deliver fresh items weekly to our stores. This fresh assortment, coupled with exciting and surprising off-price deals, creates a shopping experience that can’t be easily replicated in an on-line environment, positioning us as an “instant gratification store”, allowing our customers to “buy now, wear now”, avoiding shipping fees and the wait for their potential online orders. This approach allows us to offer exceptional value that goes beyond mere price – it’s the thrill of discovering fresh styles that fosters a deep, in-person connection with our customers.
4
Dynamic Experience in a Friendly, Neat, Clean and Organized Environment. We seek to provide a fashion-focused shopping environment that is easy to navigate, encouraging shopping across divisions with a well-laid-out floor plan and exciting product displays throughout the space. We use a combination of style groupings, outfit suggestions and by-size displays to balance ease of shopping with suggestive selling. In each department, we showcase opening price-point offerings to enhance our strong value statement. Our stores are neat, clean and organized, offering a friendly environment where customers are encouraged to linger, explore and visit often. We are focused on refreshing and remodeling our store base to keep our stores current and continually refine our store format to ensure that we meet the needs of our customers and our store associates.
Friendly and Helpful Store Associates. Our store associates are trained to provide friendly and helpful customer service to deliver a positive shopping experience. Many of our store associates live in the communities where our stores are located and frequently shop our stores themselves. We have a long heritage of a diverse and inclusive workplace; 74% of our store associates are Black, and more than 90% of our store management positions are filled by women. As a result, our store associates cultivate a unique culture in our stores that creates a high level of connectivity with our customers. We strive to make our stores a destination where everyone is welcome, and our store associates foster that vision every day through enriched customer engagement.
Highly Talented and Motivated Leadership Team. Our senior management team, led by Ken Seipel, our Chief Executive Officer, has extensive retail experience across a broad range of disciplines, including merchandising, real estate, finance, store operations, supply chain management, human resources and information technology. Our management team plans and drives our growth strategy, which is based on our constant focus on providing trend-driven merchandise anchored in value to the Black customer. We believe our management team is integral to our success and positions us well for long-term growth.
Business Strategy
With our focus on culturally-relevant fashion, exciting brands, and accessible pricing in each of our community locations, we believe that CITITRENDS is in a unique position to serve our loyal customer base, with a long runway for comp sales growth, store unit growth, profit margin expansion and a strong leadership team supported by a healthy, debt free balance sheet.
We have identified the following areas of focus to continue to improve the Company’s financial performance and to maximize long-term growth:
Offer Compelling Value Proposition. Our customers understand that value is more than price and are willing to spend more when the style is for them, the fashion is on trend and the quality is right. Our brand promise is clear: Styles that see you, prices that amaze you and trends that tell your story. We offer a balanced assortment of good, better, and best products that resonates with our customer base across income levels, all focused on the wants and needs of our Black customers. This approach differentiates our model while driving customer loyalty and repeat visits. We are known for delivering newness and freshness, resulting in high customer frequency. We highlight our opening price point offerings consistently across departments, ensuring our budget-conscious customers can easily identify these options. Our core value product is the bedrock of our business, and we are focused on ensuring quality-for-price in this important tier. Our research confirms that our customers have good disposable income and respond positively to recognizable brands with a willingness to trade up. This insight has guided our branded merchandise strategy which will become a larger part of our product assortment. We are expanding our offering of “treasures,” or extreme value product offerings, enabling us to offer well-known brands at a significant discount to the market. Our product strategy is supported by our open-to-buy process which allows us to be flexible and responsive to emerging trends. We practice rigorous inventory management, prioritizing choice and breadth over depth, improving our speed to market and driving faster turns.
Focus on the Black Customer. We are one of the largest national retailers focused on Black customers. Our customers are at the core of what we do, central to our business and critical to our success. Our customers are fashion conscious and prioritize style as an expression of self. Recent extensive customer research revealed that about one third of our customers visit our stores weekly or bi-weekly and have incomes in the $75k to $150k range. The next largest tier visits monthly with incomes in the range of $50k to $75k. We also serve a base of less frequent, lower income customers who are more budget conscious. We are serving customers across all income levels with our three-tiered product strategy.
5
Consistent Operational Excellence. Our objective is to be fast, consistent and efficient. We believe that our ability to produce strong, consistent and sustainable financial results depends on the development of fundamental retail practices and consistent execution. We have taken fast action to improve access to information and to develop consistent key performance indicators to drive business results. We have refined our product allocation methodology and are investing in artificial intelligence (“AI”)-based technology to drive more effective and efficient product allocation processes. We have made improvements to our supply chain speed and we are driving additional improvements to further improve product speed to store as well as to reduce our working capital needs. We have implemented improved product planning practices focused on pre-season strategy and open-to-buy to support growing categories. Each of these improvements is supported by having the right talent in place. We believe that these foundational improvements will drive near-term financial results while positioning us for future, accelerated growth.
Growth. We believe that our 590 stores located in the heart of Black communities is a key differentiator of our business that gives us a defensible moat around our business and store base. To improve the financial performance of the company, we are focused on improving productivity in our existing stores by sharpening our focus on our Black customers and strategically investing in product categories identified for intensification through our customer insights studies, both with a goal of driving increased foot traffic and basket. Finally, we believe that an integral part of our sales growth is the continued refinement of our store format, incorporating customer feedback and insights from operational results to improve the in-store experience and enhance profitability. We are remodeling existing stores to the updated format, and all new stores will open in the revised format.
Looking forward, we are positioning CITITRENDS for strategic new store growth, including through potential assumptions of leases or subleases. Our expansion strategy focuses on backfilling existing markets where we have brand awareness and proven performance and selectively entering new markets with strong demographic alignment to our customer base. This new store expansion is guided by a disciplined approach leveraging AI tools and extensive data analysis designed to predict sales with approximately 90% accuracy. We are also applying financial criteria to every new store decision and rely on local-market expertise from our real estate team. We believe this approach positions us to expand intelligently while maximizing return on investments.
People. We believe that our people are a key differentiator for our business and are key to the continued transformation of our company. Our buying team is trained to understand our customers, what motivates them to shop at CITITRENDS and what creates an emotional connection to the brand. Our buyers also cultivate strong relationships with the vendor community to gain access to the exciting, trend-right product that our customers rely on us to provide. We believe that our store associates, many of whom come from the communities we serve, are another key component of the in-store experience. They create an exciting and welcoming shopping experience for our customers and serve as a valuable source of insights on our core customers’ needs and preferences. Our leadership team is made up of functional experts who are adept at leading through change. Under the direction of Ken Seipel, our Chief Executive Officer, we believe that our people are key to the Company’s success.
We strongly believe that our business strategy centered around these five areas will restore our financial performance and accelerate our long-term sales and earnings growth.
Product and Value
Our merchandising strategy focuses on delivering fresh, fashionable and trend-right apparel, accessories and home products at exceptional value for Black families. As the go-to family store in the community, we are committed to maintaining a diverse, seasonally relevant assortment that reflects the bold style and preferences of our customers. Our product offerings include a balanced mix of privately developed brands and nationally recognized labels, ensuring both quality and affordability.
Our merchandise is represented by six distinct divisions within the store:
| ● | Women’s: |
Loading financial statements...
Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
| Line item |
|---|
| Period ending |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Except for specific historical information, many of the matters discussed in this Form 10-Q may express or imply projections of revenues or expenditures, statements of plans and objectives for future operations, growth or initiatives, statements of future economic performance, capital allocation expectations or statements regarding the outcome or impact of pending or threatened litigation. These, and similar statements, are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, concerning matters that involve risks, uncertainties and other factors that may cause the actual performance of the Company to differ materially from those expressed or implied by these statements. All forward-looking information should be evaluated in the context of these risks, uncertainties and other factors. The words “believe,” “anticipate,” “project,” “plan,” “expect,” “estimate,” “objective,” “forecast,” “goal,” “intend,” “could,” “will likely result,” or “will continue” and similar words and expressions generally identify forward-looking statements, although not all forward-looking statements contain such language. The Company believes the assumptions underlying these forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in the forward-looking statements.
The factors that may result in actual results differing from such forward-looking information include, but are not limited to: uncertainties relating to general economic conditions, including inflation, energy and fuel costs, unemployment levels, and any deterioration whether caused by acts of war, terrorism, political or social unrest (including any resulting store closures, damage or loss of inventory) or other factors; changes in market interest rates and market levels of wages; the imposition of new taxes on imports, new tariffs and changes in existing tariff rates; the imposition of new trade restrictions and changes in existing trade restrictions; impact of natural disasters such as hurricanes; uncertainty and economic impact of pandemics, epidemics or other public health emergencies; transportation and distribution delays or interruptions; changes in freight rates; the Company’s ability to attract and retain workers; the Company’s ability to negotiate effectively the cost and purchase of merchandise; inventory risks due to shifts in market demand; the Company’s ability to gauge fashion trends and changing consumer preferences; consumer confidence and changes in consumer spending patterns; competition within the industry; competition in our markets; the duration and extent of any economic stimulus programs; changes in product mix; interruptions in suppliers’ businesses; risks related to cybersecurity, data privacy and intellectual property; temporary changes in demand due to weather patterns; seasonality of the Company’s business; the results of pending or threatened litigation; delays and costs associated with building, opening, remodeling, assuming leases and operating new stores; delays and costs associated with building, opening or expanding new or existing distribution centers; changes in regulatory requirements or stackholder’s expectations on environmental, social and sustainability related topics, challenges effectively managing the use of artificial intelligence; strategic transactions that could negatively impact our liquidity, increase our expenses, or present significant distractions to management; debt and equity market conditions, including the ability to access capital markets on favorable terms or at all; and other factors described in the section titled “Item 1A. Risk Factors” and elsewhere in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2026 and in Part II, “Item 1A. Risk Factors” and elsewhere in the Company’s Quarterly Reports on Form 10-Q and any amendments thereto and in the other documents the Company files with the SEC, including reports on Form 8-K.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-Q. Except as may be required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements contained herein to reflect events or circumstances occurring after the date of this Form 10-Q or to reflect the occurrence of unanticipated events. Readers are advised, however, to read any further disclosures the Company may make on related subjects in its public disclosures or documents filed with the SEC, including reports on Form 8-K.
Executive Overview
We are a leading off-price value retailer of apparel, accessories and home trends primarily for Black families in the United States. Our high quality and trend-right merchandise offerings at everyday low prices are designed to appeal to the fashion and trend preferences of value-concious customers.
As of August 1, 2026, we operated 594 stores in urban, suburban and rural markets in 33 states.
14
Uncertainties and Challenges
General Economic Conditions
We are monitoring trends in general economic conditions including inflation, tariffs and changes in consumer sentiment. We also regularly monitor the impacts on our business of unemployment levels, wage inflation, interest rates, inflation rates, housing costs, energy costs, gas prices, consumer confidence, consumer perception of economic conditions, costs to source our merchandise and supply chain disruptions.
Seasonality and Weather Patterns
The nature of our business is seasonal. Historically, sales in the first and fourth quarters have been higher than sales achieved in the second and third quarters of the fiscal year. In addition, sales of clothing are directly impacted by the timing of the seasons to which the clothing relates. While we have expanded our product offerings to balance discretionary with non-discretionary product, traffic to our stores is still influenced by weather patterns to some extent.
Basis of Presentation
Net sales consist of store sales and layaway fees, net of returns by customers. Cost of sales consists of the cost of products we sell and associated freight costs. Depreciation is not considered a component of cost of sales and is included as a separate line item in the consolidated statements of operations. Selling, general and administrative expenses are comprised of store costs, including payroll and occupancy costs, corporate and distribution center costs, and advertising costs.
The following discussion contains references to fiscal years 2026 and 2025, which represent fiscal years ending or ended on January 30, 2027 and January 31, 2026, respectively. Fiscal 2026 and fiscal 2025 both have 52-week accounting periods. This discussion and analysis should be read with the unaudited condensed consolidated financial statements and the notes thereto contained in Part I, Item 1 of this Report.
Results of Operations
The following discussion of the Company’s financial performance is based on the unaudited condensed consolidated financial statements set forth herein. Expenses and, to a greater extent, operating income, vary by quarter. Results of a period shorter than a full year may not be indicative of results expected for the entire year as a result of the seasonality of our business, and the current economic uncertainty.
Key Operating Statistics
We measure performance using key operating statistics. One of the main performance measures we use is comparable store sales growth. We define a comparable store as a store that has been open for at least 14 full consecutive months without closure for more than seven days within the same fiscal month. Remodeled and relocated stores are included in the comparable store sales results if the selling square footage is not changed significantly, the store is not closed for more than five days in any fiscal month and the store remains in the same trade area.
We also use other operating statistics, most notably average sales per store, to measure our performance. As we typically occupy existing space in established shopping centers rather than sites built specifically for our stores, store square footage (and therefore sales per square foot) varies by store. We focus on overall store sales volume as the critical driver of profitability. In addition to sales, we measure cost of sales as a percentage of sales and store operating expenses, with a particular focus on labor, as a percentage of sales. These results translate into store level contribution, which we use to evaluate the overall performance of each individual store. Finally, we monitor corporate and distribution center expenses against budgeted amounts.
15
Thirteen Weeks Ended August 1, 2026 and August 2, 2025
Net Sales. Net sales increased $20.9 million, or 10.9%, to $211.6 million in the second quarter of 2026 from $190.8 million in the second quarter of 2025. Comparable store sales increased 10.5%, resulting in an increase of $19.8 million in sales. Net store opening and closing activity resulted in a net increase of $1.0 million in sales.
Cost of Sales (exclusive of depreciation). Cost of sales (exclusive of depreciation) increased $11.3 million, or 9.8%, to $125.7 million in the second quarter of 2026 from $114.5 million in the second quarter of 2025. Cost of sales as a percentage of sales was 59.4% in the second quarter of 2026 and 60.0% in the second quarter of 2025. The change was due to higher merchandise margin and lower shrink, partially offset by higher freight expense.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $3.4 million, or 4.3%, to $82.3 million in the second quarter of 2026 from $78.9 million in the second quarter of 2025. The increase was primarily driven by certain store expenses to support additional sales. As a percentage of sales, selling, general and administrative expenses decreased to 38.9% in the second quarter of 2026 from 41.4% in the second quarter of 2025, primarily driven by the aforementioned items.
Depreciation. Depreciation expense increased $1.0 million, or 19.7%, to $5.4 million in the second quarter of 2026 from $4.5 million in the second quarter of 2025.
Impairment. There were no non-cash impairment expenses related to underperforming stores in the second quarter of 2026 compared to $0.2 million in the second quarter of 2025, comprised of leasehold improvements and fixtures and equipment.
Gain on Sale of Building. Gain on sale of the corporate office building was $11.0 million in the second quarter of 2025.
Income Tax Benefit. Income tax benefit of $.3 million was recognized in the second quarter of 2026. No income tax benefit was recognized in the second quarter of 2025. We used the annual effective tax rate to determine income tax benefit based upon interim period results.
Net Income (Loss). Net loss was $0.9 million in the second quarter of 2026 compared to net income of $3.8 million in the second quarter of 2025 due to the factors discussed above.
Twenty-Six Weeks Ended August 1, 2026 and August 2, 2025
Net Sales. Net sales increased $50.0 million, or 12.7%, to $442.5 million in the first twenty-six weeks of 2026 from $392.5 million in the same period of 2025. Comparable store sales increased 12.2%, resulting in an increase of $47.5 million in sales. Net store opening and closing activity resulted in a net increase of $2.5 million in sales.
Cost of Sales (exclusive of depreciation). Cost of sales (exclusive of depreciation) increased $28.0 million, or 11.8%, to $264.4 million in the first twenty-six weeks of 2026 from $236.4 million in the same period of 2025. Cost of sales as a percentage of sales decreased to 59.7% in the first twenty-six weeks of 2026 from 60.2% in the same period of 2025. The change was due to higher merchandise margin and lower shrink, partially offset by higher freight expense.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $8.2 million, or 5.4%, to $162.0 million in the first twenty-six weeks of 2026 from $153.8 million in the same period of 2025. The increase was primarily driven by certain store expense to support additional sales. As a percentage of sales, Selling, general and administrative expenses decreased to 36.6% in the first twenty-six weeks of 2026 from 39.2% in the same period of 2025, due to the aforementioned items.
Depreciation. Depreciation expense increased $1.7 million, or 18.3%, to $10.6 million in the first twenty-six weeks of 2026 from $8.9 million in the same period of 2025 primarily due to increase in property and equipment.
Impairment. There were no non-cash impairment expenses related to underperforming stores in the first twenty-six weeks of 2026 compared to $0.3 million in the first twenty-six weeks of 2025, comprised of leasehold improvements and fixtures and equipment.
16
Gain on Sale of Building. Gain on sale of the corporate office building was $11.0 million in the second quarter of 2025.
Income Tax Benefit. Income tax benefit of $.14 million was recognized in the first twenty-six weeks of 2026. No income tax benefit was recognized in the first twenty-six weeks of 2025. We used the annual effective tax rate to determine income tax benefit based upon interim period results.
Net Income (Loss). Net income was $6.8 million in the first twenty-six weeks of 2026 compared to net income of $4.7 million in the same period of 2025 due to the factors discussed above.
Liquidity and Capital Resources
Capital Allocation
Our capital allocation strategy is to maintain adequate liquidity to prioritize investments in opportunities to profitably grow our business and maintain current operations. Our existing share repurchase authorization also remains in place with $40 million of authorization outstanding. We will deploy or return capital based on the opportunities available to us, market conditions, and ultimately, where we believe we can generate the greatest long term value for our shareholders. Our quarter-end cash and cash equivalents balance was $55.9 million compared to $50.4 million at the end of the second quarter last year. Until required for other purposes, we maintain cash and cash equivalents in deposit or money market accounts.
Our principal sources of liquidity consist of: (i) cash and cash equivalents on hand; (ii) short-term trade credit arising from customary payment terms and trade practices with our vendors; (iii) cash generated from operations on an ongoing basis; and (iv) a revolving credit facility with a $75 million credit commitment.
On August 25, 2026, the Company filed a registration statement on Form S-3 relating to the potential offer and sale from time to time of up to $100 million of its common stock. Once effective, the registration statement will provide the Company with additional flexibility to access the capital markets and support potential future capital needs. The Company currently has no definitive plans to issue securities under the registration statement, and no securities have been issued thereunder as of the date of this report.
Inventory
Our quarter-end inventory balance was $126.4 million, a 7.5% increase compared to $117.6 million at the end of the second quarter last year. The increase was primarily driven by inventory investments to support strong customer demand.
Capital Expenditures
Capital expenditures in the first twenty-six weeks of 2026 were $15.6 million, an increase of $7.9 million over the first twenty-six weeks of 2025, as we increased our investments in new stores and remodels. We anticipate capital expenditures in fiscal 2026 to be in the range of $35 million to $40 million, primarily for new stores and remodeling of existing stores.
17
Share Repurchases
No shares were repurchased in the first tweny-six weeks of fiscal 2026. In the first twenty-six weeks of fiscal 2025, we returned $6.3 million to stockholders through share repurchases. See Part II, Item 2 of this Report and Note 8 to the Financial Statements for more information.
Revolving Credit Facility
We have a revolving credit facility that matures in April 2030 and provides a $75 million credit commitment and a $25 million uncommitted “accordion” feature. Additional details of the credit facility are in Note 4 to the Financial Statements. At the end of the second quarter of 2026, we had no borrowings under the credit facility and $2.2 million in letters of credit outstanding.
Cash Flows
Cash Flows From Operating Activities. Net cash provided by operating activities was $6.7 million in the first twenty-six weeks of 2026 compared to net cash used in operating activities of $7.1 million in the same period of 2025. Significant sources of cash for the first twenty-six weeks of 2026 included net income adjusted for non-cash items totaling $45.0 million compared to net income adjusted for non-cash items of $29.9 million in the first twenty-six weeks of 2025.
Significant uses of cash from operating activities in the first twenty-six weeks of 2026 included (1) a $21.8 million decrease in accrued expenses and other long-term liabilities (compared to a $29.6 million decrease in the first twenty-six weeks of 2025) due primarily to payments of operating lease liabilities; (2) a $7.9 million increase in prepaid and other current assets compared to a $9.4 million dollar increase in the first twenty-six weeks of 2025; (3) a $12.9 million increase in inventory in the first twenty-six weeks of 2026 compared to a $5.1 million decrease in inventory for the same period in 2025 and (4) a $2.8 million decrease in accrued compensation in the first twenty-six weeks of 2026 compared to a $2.0 increase in the same period last year.
Cash Flows From Investing Activities. Cash used in investing activities was $15.6 million in the first twenty-six weeks of 2026 compared to $3.5 million provided in the same period last year. Cash used of $15.6 million in the first twenty-six weeks of fiscal 2026 consisted of purchases of property and equipment. The cash provided of $3.5 million in the first twenty-six weeks of 2025 was from the sale of a building for $11.2 million, offset by $7.7 million used for the purchases of property and equipment.
Cash Flows From Financing Activities. Cash used in financing activities was $1.3 million in the first twenty-six weeks of 2026 compared to $7.1 million in the same period last year. Cash used in the first twenty-six weeks of fiscal 2026 was $1.3 million to settle withholding taxes on the vesting of restricted stock, compared to $0.8 million used to settle withholding taxes on the vesting of restricted stock and $6.3 million for share repurchases in the first twenty-six weeks of fiscal 2025.
Cash Requirements and Commitments
Our principal cash requirements consist of (1) inventory purchases; (2) capital expenditures to invest in our infrastructure; and (3) operational needs, including salaries, occupancy costs, taxes and other operating costs. We may also use cash to fund any share repurchases, make any required debt payments and satisfy other contractual obligations. Historically, we have met these cash requirements using cash flow from operations and short-term trade credit. As of August 1, 2026, our contractual commitments for operating leases totaled $224.8 million (with $64.9 million due within 12 months). See Note 11 to the Financial Statements for more information regarding lease commitments.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
18
Recent insider activity
| Date | Insider | Role | Action | Shares | Price | Value |
|---|---|---|---|---|---|---|
| 2026-09-04 | Powell Lisa A. | EVP and Chief Merch Officer | Sell | -10,000 | $70.10 | -$701,000 |
| 2026-07-08 | George Katrina | VP of Human Resources | Sell | -126 | $56.42 | -$7,109 |
Source: SEC Form 4 filings.
Next expected filings
- ~2026-12-09 10-Q expected by 2026-12-10 (in 77 days)
- ~2027-06-09 10-Q expected by 2027-06-10 (in 259 days)
- ~2027-09-08 10-Q expected by 2027-09-09 (in 350 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-09-11 8-K Officer/Director Change
- 2026-09-09 10-Q Quarterly Report
- 2026-08-25 8-K Earnings Release; Financial Statements and Exhibits
- 2026-08-25 S-3 Registration Statement
- 2026-08-10 8-K Earnings Release; Financial Statements and Exhibits
- 2026-06-10 10-Q Quarterly Report
- 2026-06-02 8-K Earnings Release; Financial Statements and Exhibits
- 2026-05-27 8-K Earnings Release; Financial Statements and Exhibits
- 2026-05-01 DEF 14A Proxy Statement
- 2026-04-15 10-K Annual Report
- 2026-03-17 8-K Earnings Release; Financial Statements and Exhibits
- 2026-02-20 8-K Officer/Director Change; Financial Statements and Exhibits
- 2025-12-10 10-Q Quarterly Report
- 2025-12-02 8-K Earnings Release; Financial Statements and Exhibits
- 2025-09-10 10-Q Quarterly Report