City Trends (CTRN) Q3 2025: Comp Sales Jump 10.8% as Off-Price Model Drives Turnaround Momentum

2025-12-02 | By EarningsIQ Research

City Trends delivered its fifth straight quarter of double-digit comp growth, fueled by disciplined execution and a sharpened focus on its core African-American customer. Gross margin steadied despite a tactical freight pull-forward, and management raised full-year EBITDA guidance as operational improvements and store remodels positioned the business for sustainable expansion. With new tech investments and a growing extreme value offering, City Trends is building a foundation for multi-year profitable growth.

Summary

• Category Expansion Accelerates: Strategic merchandising reset and new branded deals are broadening sales drivers.
• Operational Discipline Yields Leverage: Inventory efficiency, AI allocation, and SG&A control underpin margin improvement.
• Growth Platform Set: Store remodels, CRM rollout, and data-driven new store pipeline support long-term scaling.

Performance Analysis

City Trends posted total sales of $197.1 million, up 10.1% year-over-year, with comparable store sales up 10.8%, marking a fifth consecutive quarter of double-digit comp growth. This broad-based improvement was fueled by increased customer traffic and robust performance across all product categories, geographies, and store volume groups. Notably, the company achieved these gains while maintaining inventory discipline, ending the quarter with 3% less total inventory but 4.5% higher average in-store inventory to support holiday sales.

Gross margin landed at 38.9%, 90 basis points below the prior year, but in line with expectations given last year’s artificially low markdowns following a strategic inventory reset and a purposeful Q3 freight expense pull-forward. SG&A expense leveraged by 130 basis points despite higher incentive compensation, reflecting improved expense control and operational consistency. Adjusted EBITDA loss narrowed to $2.9 million, with year-to-date EBITDA nearly breakeven, an improvement of $21 million from last year. The company’s balance sheet remains strong, with $51 million in cash, no debt, and no revolver draws, providing ample flexibility for ongoing transformation investments.

• Traffic and Basket Strength: Transaction growth of 6% year-to-date underscores customer loyalty and the resonance of the revised assortment strategy.
• Inventory and Supply Chain Efficiency: AI-based allocation and improved supply chain speed allowed for higher turns and fresher in-store assortments.
• Expense Leverage Despite Incentives: SG&A control was maintained even as performance bonuses were reinstated and set to maximum payout levels.

Performance was consistent throughout the quarter, with strong back-to-school and late fall fashion demand, and no material impact from government benefit changes or macro disruptions.

Executive Commentary

Strategic Positioning

1. Core Customer Focus and Neighborhood Advantage

City Trends is doubling down on its positioning as the only off-price retailer specifically targeting the African-American consumer, leveraging deep cultural relevance, trend curation, and neighborhood-based locations. This focus drives high-frequency traffic and basket growth, creating a defensible niche within off-price retail and supporting both loyalty and word-of-mouth marketing.

2. Three-Tiered Product Strategy and Extreme Value Expansion

The company’s product framework—City Score value basics, Better on-trend core, and Best tier branded deals—serves a broad income spectrum. Extreme value branded deals (e.g., UGG, HOKA, Timberland, Jordan) currently represent 2-3% of sales and are targeted to reach 10%, with robust deal flow and selective adoption. This segment is expected to drive incremental traffic, basket size, and margin accretion as it scales.

3. Technology-Driven Operations and Loss Prevention

AI-based allocation tools have improved inventory turns and in-stock positions, while new AI-enabled camera systems support shrink mitigation, traffic counting, and customer behavior analysis. Loss prevention enhancements are expected to further reduce shrink rates below the current 1.5% of sales, adding millions in potential margin recovery over the next two years.

4. Store Remodels and Data-Driven Expansion

The company remodeled 24 stores in Q3 (62 year-to-date), now with 30% of the fleet in updated formats, and opened three new stores as part of a pilot backfill strategy. Advanced analytics and geolocation studies are informing new store openings, with 25 planned for 2026 and at least 40 annually from 2027 onward, targeting 650 stores by 2027. Mature new stores are expected to average $1.5 million in sales with mid-teen four-wall contribution.

5. Digital Engagement and CRM Rollout

City Trends is launching a new CRM and loyalty platform (“Insiders Club”) in Q1 2026, aimed at deepening engagement with high-frequency customers and providing early access to branded deals. This initiative is expected to drive incremental traffic, basket growth, and long-term customer value, while building a robust first-party data asset for targeted marketing and digital convenience features.

Key Considerations

City Trends’ Q3 results reflect a business in the midst of an operational and strategic transformation, with clear momentum but also meaningful executional demands ahead as it scales new initiatives.

Key Considerations:

• Extreme Value Growth Path: Scaling branded deal penetration from 2-3% to 10% of sales will require supply chain agility and continued consumer acceptance.
• Store Expansion Discipline: Data-driven site selection is reducing risk, but new store productivity and return on invested capital must be monitored as the pace accelerates.
• CRM and Loyalty Execution: The “Insiders Club” rollout is a major lever for traffic and engagement, but success depends on seamless tech integration and compelling value for members.
• Shrink Mitigation Impact: AI-enabled loss prevention is expected to reduce shrink dollars meaningfully, but actual results will be a key margin driver to watch in 2026 and beyond.

Risks

City Trends faces execution risk as it scales store openings, remodels, and new technology initiatives in parallel, with potential for operational strain if processes do not keep pace. Margin improvement is partially dependent on shrink reduction and supply chain efficiency, both of which could be challenged by external theft trends or macro disruption. The company’s concentrated customer base, while a strength, also heightens exposure to demographic or local economic shifts.

Forward Outlook

For Q4, City Trends guided to:

• High single digit comparable store sales growth, with a mid-teens two-year stack.
• Gross margin of 40% to 41%, up year-over-year.
• SG&A expense of approximately $82 million.
• EBITDA of $10 to $12 million for the quarter.

For full-year 2025, management raised guidance:

• High single digit comp growth (top end of prior range).
• 230 basis points of gross margin expansion versus 2024.
• 90 basis points of SG&A leverage.
• EBITDA of $10 to $12 million (up from $7 to $11 million prior).

Management highlighted ongoing investment in technology, continued store remodels, and disciplined expense control as key drivers for sustained improvement. Q4 holiday momentum is off to a strong start, supporting confidence in guidance.

• CRM Phase 1 launch targeted for Q1 2026, with further rollout in fall 2026.
• Store expansion cadence to increase, with 25 openings in 2026 and 40+ annually from 2027.

Takeaways

City Trends is executing a disciplined turnaround with broad-based comp growth, operational leverage, and a clear roadmap to $900 million in sales and $45 million EBITDA by 2027.

• Turnaround Momentum: Five consecutive quarters of double-digit comp growth and strong traffic/basket metrics validate the transformation strategy and merchandising reset.
• Strategic Levers in Play: Expansion of extreme value deals, store remodels, and AI-driven operations are building a scalable platform for profitable growth.
• Watch for Execution on Tech and Expansion: Success will hinge on CRM rollout, shrink reduction, and maintaining new store productivity as the footprint grows.

Conclusion

City Trends’ Q3 results confirm the early success of its transformation, with sustained comp growth, margin discipline, and a robust outlook for 2026-27. The company’s unique customer focus, operational improvements, and tech investments position it for continued share gains and margin recovery, but execution will be critical as growth initiatives scale.

Industry Read-Through

City Trends’ performance underscores the resilience of the off-price retail model and the power of targeted demographic focus in driving traffic and loyalty, even in a mixed macro environment. The shift toward branded extreme value deals and data-driven store expansion offers a playbook for other value retailers seeking to differentiate and scale. AI-driven inventory allocation, shrink mitigation, and digital engagement are emerging as must-have capabilities for operators aiming to improve margin and customer stickiness in highly competitive discount retail sectors. The results also highlight the importance of operational flexibility and local market knowledge as off-price chains look to expand their footprints and deepen community ties.

CTRN Consumer Discretionary Retail Off-Price Store Expansion Extreme Value CRM AI