Citi Trends is a rapidly growing, value-priced retailer of urban fashion apparel and accessories for men, women, and children, including products from nationally recognized brands, as well as private-label products and a limited assortment of home d cor items. Through strong relationships with its suppliers, Citi Trends seeks to provide nationally recognized branded merchandise at 20% to 60% discounts to department and specialty store prices. The company was founded in 1946 and grew to become a chain of family apparel stores, operating in the Southeast under the Allied Department Stores name. In 1999, the chain of 85 stores was acquired by Hampshire Equity Partners, a private equity firm. The company's management team implemented several strategies including an aggressive new store expansion, remodeling efforts, and a focus on urban fashions for the entire family.
The company currently operates 311 stores in both urban and rural markets in 19 states. Originally, Citi Trends' stores were located in the Southeast, and the company has recently expanded into the Mid-Atlantic, Midwest region and Texas. Their stores average approximately 8,700 square feet of selling space, and stores opened since the beginning of fiscal year 2003 average approximately 10,350 square feet of selling space. Citi Trends' stores are typically located in neighborhood strip malls that are convenient to low and moderate income consumers. CTRN shares began trading on May 18, 2005, after the company completed its initial public offering.
We reiterate our Buy rating on CTRN. Our bullish view of the stock stems from the company's appealing market niche, growth potential, and attractive valuation.
Citi Trends operates specialty retail stores in an appealing market niche: value-priced urban fashion apparel. This company has been successful in this niche because of its strong merchandising efforts. The company takes advantage of the popularity of nationally recognized urban apparel that is associated with forward-fashion hip hop and rap musicians. These brands are growing faster than many other fashion brands and should remain popular for some time. Building on these popular trends, the company focuses on timely and fashionable urban apparel at value prices for the entire family. Each store offers a wide variety of products for men and women, as well as infants, toddlers, boys, and girls. CTRN stores feature sportswear, dresses, plus-sized apparel, outerwear, footwear, and accessories, as well as a limited assortment of home d cor items. The company believes that the breadth of its merchandise distinguishes its stores from many competitors that offer urban apparel primarily for women, while reducing exposure to fashion trends and demand cycles in any single category. Moreover, Citi Trends provides customers with a distinct value proposition. The company offers high quality, fashionable merchandise at attractive prices, selling nationally recognized brands at 20% to 60% discounts to department stores and specialty retailers. The company also offers products under proprietary brands such as Citi Steps, Diva Blue, and Urban Sophistication. These private labels enable the company to expand its product selection, offer fashion merchandise at lower prices, and enhance product offerings. Management mitigates the fashion risk of its business by not trying to dictate trends, but identifying emerging trends. It's merchandising staff tests new merchandise and actively manages the mix of brands to keep the company's offerings fresh and minimize markdowns.
In addition, Citi Trends has pursued an aggressive growth strategy. In the last three fiscal years, the company opened 39, 34, and 42 stores, respectively. The company entered the Houston, Norfolk, Baltimore, and Washington, D.C. markets. In fiscal 2007, the company is on track to open 42 new stores, increasing its total square footage by 20% including its first store in Chicago. Approximately 90% of the new stores are expected to be located in states where Citi Trends has stores. Given the company's relative small number of stores and limited geographical footprint, there is enormous potential for future store expansion, as the company could easily double its store base.
While the store growth has driven overall sales growth, the company is prepared to take a pause with its store openings and wait for the consumer environment to improve. Given the difficult retail conditions, it makes sense to slow the rate of store openings because consumers have scaled back spending. The opportunity to resume store expansion will still be there in the future. This is an important point because Citi Trends' profitable store model remains one of the long-term positives associated with the company. And by not sacrificing future profit margins for top-line growth, the company should enable the company to continue to grow profitably over the long term. The company designs stores that are inviting and easy to shop, while limiting start up and operating costs. The company focuses on strip mall sites within low to moderate income neighborhoods, and it generally utilizes previously occupied store sites rather than newly constructed sites. As a result, the company is usually able to secure sites with substantial customer traffic at attractive lease terms.