Citi Trends (CTRN) Q4 2024 Earnings Call Transcript

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Citi Trends (NASDAQ: CTRN)
Q4 2024 Earnings Call
Mar 18, 2025, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to Citi Trends' fourth-quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

[Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Nitza McKee, senior associate, ICR. Thank you. You may begin.

Nitza McKee -- Investor Relations

Thank you, and good morning, everyone. Thank you for joining us on Citi Trends' fourth quarter and fiscal year 2024 earnings call. On our call today is Chief Executive Officer Ken Seipel, and Chief Financial Officer Heather Plutino. Our earnings release was sent out this morning at 6:45 AM 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.

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Therefore, you should not place undue reliance on these statements. We refer you to the company's most recent report on Form 10-K and other subsequent filings within the Securities and Exchange Commission for a more detailed discussion of the factors that can cause actual results to differ materially from those described in the forward-looking statements. I will now turn the call over to our chief executive officer, Ken Seipel. Ken?

Ken Seipel -- Interim Chief Executive Officer

Hello. Good morning, everyone, and thank you for joining us today for our fourth-quarter earnings call. At Citi Trends, we continue to make significant progress on our strategic journey. We delivered fourth-quarter comparable store sales growth of 6.4%, a sequential improvement from the third quarter and strong acceleration on a two-year basis.

This performance reflects the strength of our highly differentiated position in the marketplace as an off-price value retailer focused on our African American customer which, in combination with the 591 neighborhood-based stores, creates a defensible moat against competition. This strategic advantage, combined with our renewed focus on delivering trendy fashions, great brands, and amazing prices, has resonated strongly with our customers, who have shown remarkable loyalty and responsive to our improved product offerings. We leveraged recent extensive customer research to sharpen our focus on understanding both the demographics and ethnography of our African American customer base. We now have a much better understanding of customer income profiles and, as a result, we have learned that we have a significant group of average- and higher-income customers, creating a tremendous opportunity for expanding our product assortment to meet their fashion and style needs.

As I shared at the ICR Conference in January, our business journey is structured around three distinct phases that prepare us to become a strong growth company. First is the repair phase, where we focus on reestablishing fundamental practices and foundational improvements. This includes implementing a three-tiered product plan with opening price points, core value products, and familiar brands, while also developing our extreme value product capabilities that offer us -- that enable us, excuse me, to offer well-known brands at 50% to 70% below competitive pricing. The repair phase also included building on improving foundational retail processes across the organization from merchandise allegation and planning to standardizing reporting and metrics.

We're still in early stages of all of these improvements with significant opportunity ahead. As we enter 2025, we are a much stronger company, and we're ready to move into the execute phase with the majority of our business initiatives. In the execute phase of our turnaround, we're focused on developing consistent execution capabilities and best practices. During this phase, we expect our core product selection and value equation to improve and our supply chain speed to increase, which will measurably reduce our working capital requirements and improve inventory turns.

We'll do this while leveraging SG&A expenses across all areas of the business to ensure sufficient flow-through from sales to profit. The final stage is the optimization phase, which prepares us for business acceleration. This means creating systems and processes that allow sales to flow through efficiently to EBITDA while simultaneously developing our new store expansion capabilities. The combination of these three phases, repair, execute, and optimize, creates the foundation for accelerated growth, and it positions Citi Trends to capitalize on the significant market opportunity ahead of us as we expand into both existing and new markets.

Now, turning to fourth-quarter results. We delivered total sales of approximately 211 million. As I mentioned, we registered comparable store sales growth of 6.4%. This top-line growth was driven by strong customer traffic, transaction growth, and an encouraging increase in basket size.

Our strategic good, better, best product initiatives and compelling off-price offerings helped us to deliver gross margin rate of 39.7%, a 60-basis-point expansion as compared to Q4 2024. And importantly, we ended the period with inventories down 6% compared to the prior year. Our inventory is significantly fresher than last year as we remain committed to liquidating aged inventory quickly. With the help of our inventory positioned strong, we're turning faster and preserving a significantly higher level of liquidity to react to in-season opportunities.

For the quarter, we're pleased with the results of our off-price extreme value product test, which feature well-known brands at 50% to 70% off suggested retails. This exciting product drove foot traffic in the quarter and created buzz with our store associates and with customers. We achieved sales increases in nearly all product categories. In non-apparel, our top performers were giftables, stocking stuffers, family basics and sleepwear, and the home categories.

On the apparel side, we achieved continued growth in children's, and our men's division experienced a strong sales trend improvement over the prior quarter. Our only significant miss was in plus-size apparel, which was driven by internally controlled execution issues, which have been repaired, and we expect to see an improving trend in plus-size by Q2 of this year. We registered high single-digit growth in our footwear business due to strong customer acceptance of an extreme off-value price branded buy. Going forward, we have significant room for expansion of the footwear category, and the team is working hard to advance and enhance the offering of both core goods as well as branded market buys.

As we look ahead, we strategically identified key product intensification areas for 2025, which include big men's, women's plus size, family footwear, consumables, and extreme value off-price deals, all categories with substantial growth potential where we can better serve our customer. Our comprehensive free-tiered product strategy is gaining traction, creating a consistent balanced assortment that resonates with our customer base across income levels. We know it's important to have a selection of opening price point good product categories for our customers who might be on a limited income. In the coming months, each department will have opening price point products positioned at the back of the departments with visible signage, ensuring that our value-conscious customers can easily identify these value options.

While we remain committed to price accessibility for customers with limited budgets, our research confirms that our core customers have good disposable income, and our higher-income customers have responded very positively to recognizable brands with a willingness to trade up as we validated with our product test in Q4. This insight has guided our branded merchandise strategy at amazing prices. We will continue -- which we expect, by the way, to more than double in 2025, eventually reaching approximately 20% to 30% of our merchandise mix. To be clear, strategically adding well-known brands is an additional opportunity to complement the already successful product we are already known for.

In addition, our skilled buyers have demonstrated their ability to negotiate extreme value deals with retail pricing that's at least 50% or more below MSRP, while maintaining higher-than-average gross margin rates. Customer response to these extreme value branded additions has been incredibly strong, driving both increased traffic and transaction size. As we execute this strategy, we anticipate an upward movement in our average unit retail mix through these better brands and improved quality, further enhancing our margin profile, while delivering the compelling value our customers expect. We're also excited about the opportunity to expand our home and lifestyle categories, particularly in the consumable space with our pantry and snack offerings.

This category is currently underpenetrated compared to the industry averages, presenting a significant growth avenue. Our strategy involves adding well-known snack foods, utilizing our off-price deal capabilities to secure compelling value on recognizable brands like Cheez-It, beef jerky, Oreos, and other similar snack products. These items are showing good early results with our customers, driving frequency by providing them another reason to shop with us while reinforcing our value message. This category expansion aligns perfectly with our three-tiered product strategy, ensuring that they meet all the needs of all of our customer segments from our value-conscious customers shoppers seeking opening price points to those customers with higher disposable incomes who respond well to branded offers.

We expect the pantry and snack category to become an increasingly important driver on our go-forward growth strategies. From an operational perspective, one of our most promising initiatives involves the testing and implementation of artificial intelligence-based product allocation system. In our repair phase, this past fall, we made significant strides in our manual product allocation methodologies by reducing complexity and consolidating store clusters into three straightforward groups: high, average, and low. This foundational improvement has already yielded measurable results, but we're now moving beyond these basics toward a more advanced technique.

The new AI system enhances our ability to accurately place product based on localized demand, driving sales, while simultaneously reducing markdowns. Early test results are encouraging, with the system demonstrating superior accuracy in predicting store-level demand. We expect this technology to impact our business in 2025 and beyond, creating what we believe will be game-changing improvement in inventory efficiency. This initiative, combined with our supply chain enhancements, will significantly reduce time from vendor to store and position us to respond more quickly to sales trends, while improving our inventory turns and working capital efficiency.

Turning to our real estate strategy, we're making good progress in our remodel program and are planning to remodel at least 50 stores in 2025 to continue bringing our fleet up to our current standards. In fact, we've already remodeled 18 stores since the start of 2025. In total, this investment is showing solid returns, and we're seeing strong customer response to refreshed environments. Looking at our longer-term growth, we're conducting detailed market studies to identify priority MSAs for expansion.

Our strategy will include both backfilling existing markets with new locations, alongside remodels of current stores to maximize market share, as well as entering new select markets. We expect to ramp up new store growth in 2026 and beyond. I'd like to highlight our strong financial position, which provides us significant flexibility to execute our strategic initiatives. As of quarter-end, Citi Trends maintains a healthy balance sheet with 61 million of cash, no debt and no drawings on our $75 million revolver.

This debt-free structure with ample liquidity allows us to take advantage of opportunities in the marketplace while navigating any potential macro disruptions. In fiscal 2025, we are focusing on working capital improvements, particularly in the area of inventory efficiency. For the first time in recent history, we are anticipating positive free cash flow generation in the upcoming year, which is a critical milestone in our financial transformation. As we announced last quarter, our board approved the resumption of our $50 million share repurchase program.

Since mid-December, we have invested $10 million in share repurchases, which includes 395,793 shares at an average price point of $25.23. Share repurchase will remain an option in our overall balanced capital allocation strategy. Going forward, our primary objective with capital allocation will be in strategic investments to drive growth. Turning to the first-quarter sales performance.

I am pleased to report that midway through our first quarter, we are achieving mid-single-digit comp performance. And although we've had our share of temporary store closures due to the weather and so forth, in addition to delayed tax refunds and other macro uncertainties, our customers have continued to validate our strategy. As you all know, the new administration has introduced many potential changes in tariffs, taxes, and government programs that create a good deal of uncertainty for the economy. At this time, it's hard to gauge the specific impact or non-impact to our business and our customers.

But to address the changing environment, we are closely monitoring and anticipating changes we need to make to ensure that we hit our financial objectives. In regards to tariffs, our off-price business model limits our exposure to the impact of tariffs. However, we're also actively working with our vendors to monitor the situation, and we're finding ways to make sure that we keep cost changes on product to a minimum. In addition, I see the improved operational process that I've outlined earlier as another avenue for helping us achieve our gross margin targets this year.

Plus, the addition of off-price to our business model gives us significant opportunity to make high-margin deals on surplus product brought on by this disrupted macro environment. This year, at Citi Trends, we plan to stay aggressive and flexible. We are aggressively driving sales, leveraging our cost base, and maintaining a healthy open to buy for flexibility. As I mentioned earlier, we're fortunate to have a healthy balance sheet that allows us to stay aggressively driving sales and gives us the flexibility we need to react.

Our customers are showing resiliency, our strategies are resonating and, as I mentioned earlier, we are pleased that we're maintaining solid mid-single-digit comp sales quarter to date. With that, I'll turn it over to Heather for a review of our fourth-quarter and full-year results along with our outlook for fiscal 2025. Heather?

Heather Plutino -- Chief Financial Officer

Thank you, Ken, and good morning, everyone. First, I'd like to echo Ken's comments about the recent positive momentum building at Citi Trends. Our refined strategy and focus have resulted in a fundamental shift in our business that led to another quarter of positive results, building on our success in the third quarter. The fourth quarter featured sales momentum with 6.4% comparable store sales growth coupled with gross margin expansion to last year.

While we still have a lot of work ahead of us, our strategic initiatives, supported by our healthy balance sheet have positioned Citi Trends for continued improvement as we head into fiscal 2025. Turning now to the specifics of our fourth-quarter results. Our product assortment updates were more pronounced in the quarter as we focused on delivering exciting products at great value for the holiday season. The resulting 6.4% comp represents the second quarter of sequential improvement.

Importantly, top-line momentum was driven by broad-based improvement across our retail metrics with strong gains in traffic and conversion along with basket growth. We also saw a positive inflection in AUR as customers showed a willingness to trade up into higher-ticket extreme value product procured as part of our strategy shift. From a cadence perspective, comp store sales were positive each month of the quarter with the strongest performance during the nine-week holiday period in which comps were up 7.1%. We estimate that weather disruption in January had a 250-basis-point headwind to comp sales for the month.

Adjusting for that impact, January was only slightly behind holiday sales performance. During the quarter, we closed two stores as part of our ongoing fleet optimization efforts, bringing our quarter-end store count to 591. Gross margin in the quarter was 39.7%, a 60-basis-point expansion compared to last year. The primary driver of the year-over-year margin expansion was lower freight, partially offset by higher markdowns as we follow our updated approach to take more in-season markdowns, keeping our inventory fresh.

Gross margin was also helped by continued improvement in shrink due largely to improved results from the physical inventory counts taken in the quarter. As we've discussed in many of these calls, we remain intensely focused on improving our shrink results and driving toward a baseline rate that is more in-line with our historic performance. Moving to SG&A. Adjusted SG&A expenses totaled 76.7 million in the quarter, an increase of 2.6 million during last -- versus last year.

During last quarter's earnings call, we cited a number of strategic investments and one-time items aimed at driving future growth that impacted Q3 with some anticipated spillover into the fourth quarter. To be clear, these expenses are included in reported SG&A and were not adjusted out. And in the fourth quarter, these one-time items totaled $1.5 million. Adjusted EBITDA for the quarter was 7.1 million compared to 10 million in Q4 2023.

When normalizing each year's results for one-time strategic SG&A costs and certain accounting adjustments, the comparison is 7.4 million this year versus 7.6 million last year. Tax expense in the quarter was $15.8 million, including a non-cash valuation allowance of approximately 15.5 million. This valuation allowance relates to deferred tax assets, primarily associated with net operating loss carry-forwards generated in fiscal years 2023 and 2024. The valuation allowance was recorded due to uncertainty about our ability to fully utilize these tax benefits in the near-term, a test that is performed on a quarterly basis.

Going forward, we will continue our quarterly testing to determine the ongoing need for this allowance and will make adjustments as warranted. And, as long as the valuation allowance exists, most of our tax expense or tax benefit will flow through the balance sheet rather than the P&L via adjustments to the allowance. Importantly, these are non-cash accounting adjustments and do not impact our ability to utilize these tax assets for future tax filing. Turning to the full year, fiscal 2024 was a tale of two halves for the company.

While Q1 and Q2 were sluggish with a combined comp of 0.7%, our new strategies began to be implemented in Q3, driving significant improvement in both traffic and basket, resulting in second-half comps of 6.1%. The details of our full-year results are as follows: Total fiscal 2024 sales were 753.1 million, an increase of 0.7% versus the 53-weeks of 2023. Comparable store sales calculated on a 52-week to 52-week basis increased 3.4%. Adjusted gross margin was 37.5% for the year, and adjusted EBITDA was a loss of $14.2 million.

Both of these metrics were negatively impacted by items considered one-time in nature, including markdowns from our large strategic inventory reset in Q2 plus shrink results, both impacting gross margin. EBITDA also includes strategic expenses, including consulting to fuel our transformation initiatives. In total, these one-time items represent a $16.5 million drag on EBITDA for the year. During the year, we opened one new store and closed a total of 12 as part of our ongoing fleet optimization efforts.

We also remodeled 35 stores. Now, turning to the year-end balance sheet. We continue to maintain a healthy financial position with a strong balance sheet, including no debt at the end of the quarter, no drawings on our $75 million revolver, and approximately 61 million in cash. With liquidity of approximately 136 million, we believe that we can more than sufficiently fund our business initiatives.

As we mentioned last quarter and as Ken touched on in his remarks, our board of directors recently approved the resumption of our share repurchase program. In the fourth quarter, we repurchased approximately 145,000 shares for a total spend of 3.8 million. And we continued our share repurchase activity into the first quarter of 2025, repurchasing an additional 250,000 shares, spending 6.2 million. In total, to date, we've used 10 million to repurchase about 396,000 shares, leaving about 40 million remaining on our authorization.

As Ken mentioned in his remarks, looking ahead, we'll continue to assess share repurchase versus other investment opportunities, but our primary focus will remain on investments that will drive accelerated profit improvement and growth for the company. Total inventory dollars at quarter-end decreased 6%, inclusive of a 17% increase in our opportunistic pack and hold buys to fuel future sales. Average in-store inventory at quarter-end was down 6.7% to last year. Importantly, inventory aging has improved greatly as we focus on in-season markdowns to keep our assortment fresh for our customers.

We are pleased with our inventory position, composition, and freshness ahead of the first quarter selling season. Now, turning to our 2025 outlook. As Ken mentioned in his remarks, in 2025, we will transition from the repair phase to the execute phase of our transformation. We will continue making strides on our product assortment strategy with keen focus on our African American customer to drive top-line growth.

We will also continue our work on gross margin improvement while leveraging SG&A to support improved EBITDA flow-through. The details of our 2025 outlook are as follows: expecting full-year comp sales growth of low- to mid-single digits; full-year gross margin expected to expand a minimum of 220 basis points versus 2024, consistent with our stated goal of gross margin dollar growth outpacing sales growth; SG&A is expected to leverage in the range of 30 basis points to 50 basis points versus 2024 in spite of inflationary pressures and the reset of incentive compensation accruals with the new fiscal year; full-year EBITDA is expected to be in the range of $5 million to $9 million, a $19 million to $23 million improvement versus fiscal 2024; effective tax rate in 2025 is expected to be approximately 0% as any tax expense or tax benefit in the year will result in adjustments to our valuation allowance as described earlier; we plan to open up to five new stores and close up to five stores; we plan to remodel approximately 50 locations in the year, and as Ken noted, have already remodeled 18 stores in the beginning of fiscal 2025; finally, full year capex is expected to be in the range of $18 million to $22 million. Before I turn the call back to Ken, let me reiterate how pleased we are with the improvement we've seen in the business throughout the back half of fiscal 2024. Ken's leadership, strategies and the resulting foundational improvements have reinvigorated Citi Trends and positions the company for continued improvement into 2025.

While there is much work and much uncertainty ahead of us, I am confident that the continued execution of our refined strategy will serve us and you, our shareholders, well in the months and years ahead. With that, I'll turn the call back to Ken. Ken?

Ken Seipel -- Interim Chief Executive Officer

Thank you, Heather. Before we open the call for questions, I wanted to take a moment to express my sincere gratitude to our dedicated team members across the organization. Your tireless efforts in implementing our renewed strategy have just been instrumental in the progress that we're seeing today. I'm particularly impressed by how quickly our teams have embraced the fundamental changes we introduced from our improved allocation practices to enhanced merchandising strategies.

With our focus on the African American customer, our strength in product value proposition, our expanding branded assortment, and our operational excellence initiatives, we have a very clear path to restoring EBITDA into the $40 million to $50 million range long term. We have a line of sight to achieving these targets and we're excited about the substantial upside potential. The combination of these strategies position Citi Trends to generate meaningful free cash flow and drive significant shareholder returns. And with that, I'd like to turn it over to the operator to open the lines for questions.

Questions & Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator instructions] Please limit to one question and one follow-up question. One moment while we poll for questions.

Our first question is from Jeremy Hamblin with Craig-Hallum Capital Group. Please proceed.

Jeremy Hamblin -- Analyst

Thanks, and congratulations on the impressive momentum here. I wanted to start by talking about sales trends. You guys, on a two-year stack basis, you've seen about 2,000 basis points of improvement over the last year on your two-year stack trends. And I wanted to just get a little bit more color on what you see as Citi Trends doing different from the industry that's allowing you to kind of sustain that momentum here into 2025, while you've seen a lot of other retailers reporting softening results.

Ken Seipel -- Interim Chief Executive Officer

Thanks, Jeremy. Appreciate your questions. A couple of things I'd say about what we're doing a little bit differently. First, as you know and probably have heard me talk a lot about because I do speak about it quite often, the addition of off-price to our business model and really sharpening up the overall price value equation across the board in our core product has been really one of the key unlocks for the business.

And our customers really have resonated quite well. And I believe that we are -- well, in fact, there's no question, we're gaining market share as a result of this sharper improved assortment pricing strategies. And the other piece that I believe and I mentioned at the very beginning of the call, our competitive position in the marketplace, we have 591 stores, very strategically positioned in neighborhoods and literally around our customers. And so, we become kind of their first alternative.

And, once we get it right, they are clearly responding. So, there's more work ahead for sure. We're just really in early innings of this, but I think it's pretty crystal clear that our positioning in neighborhoods along with our price value equation being sharper is really resonating and will be an opportunity for us to continue to get shareholder -- excuse me, market share advances for sure.

Jeremy Hamblin -- Analyst

Great. And as a follow-up to that, on the off-price portion of the business you noted as a key driver, where was off-price, let's say, a year ago? Where is it today? And where do you expect off-price as a kind of portion of your inventory, let's say, maybe a year from now or at some point in 2026?

Ken Seipel -- Interim Chief Executive Officer

Yeah. I'm trying not to cut this with too fine with a scalpel, Jeremy, because off-price is a large term that has been used in a lot of different ways. Like for example, sometimes it's referred to as end-of-season closeouts. And in that regard, the company has always participated in end-of-season closeouts.

What we're doing now, when I'm defining off-price is really looking at more in-season, pretty aggressive deals in fact, where we're getting extreme value. And right now, we're doing about between 1% and 2% of our business in these extreme value items. We're really just getting started. It's adding a lot of energy to the business and a lot of energy to our customer base for sure.

I see long-term, that growing to around 10% of what we do, and that will be all additive. That's not a replacement business, so just this one extreme value portion. Then, on top of that, the other portion that I mentioned earlier, which is end-of-season type deals, which the company has historically done, our entire merchant team is more acutely aware of those opportunities and are getting sharper at their negotiations. And we expect that in addition to the end of the growth avenue.

I don't really have a firm number on that, but it's pretty clear that, that will be the two ways that we attack off-price, extreme value and then end-of-season closeout type deals, both of which will be additive to the overall business.

Jeremy Hamblin -- Analyst

Great. And I want to follow up. You're also pursuing a bit more kind of brand name deals, which is a strong motivator for your customer. I think probably looking at maybe footwear and apparel is two areas to attack.

And any color you might be able to share on the types of brands that you might be looking at? I think you had some new brands in stores in Q4, but any color you can share there?

Ken Seipel -- Interim Chief Executive Officer

For sure. Yeah. Because of other relationships that we're developing with some of these larger brands, I'm prohibited to really speak directly about the brand names externally. But I would say this, that we are paying very close attention to your favorite brands, the brands that you would know, as top of mind across the board, whether it's in shoes or outerwear or denim or what have you.

Think about your top-selling brands. Those are the brands that we're focusing on. And in many cases, we have deals either in the pipeline or in store or about to head to stores, that would be a composite of those particular brands. And what makes them unique and special for us is the fact that they're often done at extreme pricing, that is very unique to the marketplace.

Because of our size of company, we have the ability to access these deals, and we're a little bit more nimble, and we can get some pretty good preferential opportunities that way. But from a from a brand portfolio, we're fairly flexible, but just know that we're only going after the big names, and we're only going after the great deals. We're pretty selective. We frankly probably pass on more than we can even look at right now.

There's so many out there. But certainly, that is the focus is to be really, really high-aware brands.

Jeremy Hamblin -- Analyst

Great. Last one for me. So, you noted this kind of longer-term adjusted EBITDA target $40 million to $50 million. That's obviously pretty significant uptick from where you're looking at in '25.

Wanted to get a sense to get even to the low end of that range, the 40 million, what's the sales level that you need to achieve you think to kind of get the business up toward that, let's say, $40 million range on EBITDA?

Ken Seipel -- Interim Chief Executive Officer

Yeah. We're working through our long-range plan right now, Jeremy, to get more specificity of that, and I've got that in front of the board for their approval. So, I'll speak a little bit more generically. But if you can think about it this way, the EBITDA margin of our business is really below industry standard right now.

And I'm thinking about getting it north of 5% in that 5% to 7% EBITDA margin range, and that kind of would be essentially the top-line sales, if you can kind of think about it in that regard. That's generally the range that we're going to. And obviously, we have to go beyond that, but that's step one, is to restore that 40 million -- 40 to 50 million, and I want to do that at a rate that's in that 5% to 7% margin rate initially.

Jeremy Hamblin -- Analyst

Great. Thanks so much for the color, and best wishes on the continued success.

Ken Seipel -- Interim Chief Executive Officer

Thanks, Jeremy. Appreciate it.

Operator

Our next question is from Michael Baker with D.A. Davidson. Please proceed.

Mike Baker -- D.A. Davidson -- Analyst

OK. Thank you. I'll ask one question and one follow-up. Question is, can you just walk us through the building blocks of the EBITDA increase of 19 million to 23 million? I mean, you get 15 million just by showing up because of cycling the one-time issues and low- to mid-single-digit comp, let's say, that's going to add $25 million, $30 million in sales.

So, what's the flow-through of that incremental sales? And are there any sort of givebacks or investments such that the $15 million one-timers, the flow-through from the sales increase minus something? Thank you.

Ken Seipel -- Interim Chief Executive Officer

Yeah. I'll give you a little bit of a high level, Mike, on how we're approaching this in terms of turnaround, then I'll let Heather fill in some of the specific numbers that you're asking about there where we can. A couple of things that we've taken a look at this year to kind of get started is we set up an operating budget that's fairly low base of -- cost for a low base of sales, cost for a low base of expenses. And that really is really just truly a foundational number that we have, basically bare-bones operate the business.

And then, from there, we've put together a sales plan that we believe is higher than that, which actually is higher than that that will generate something in the neighborhood of about a 25%-ish flow-through once we hit those numbers. And then, we have a stretch plan that's above that even that has a much higher flow-through rate. So, the point here, as you've heard us talk a lot about is that the handicap of the business, maybe in this case, it'll be our advantage now because we have a fixed cost base. And so, as we are starting to grow the business, we can get pretty substantial flow-through.

And so, part of the math kind of works that way. It's really a generation of the top line. And I'll turn it over to Heather to fill in any facts there.

Heather Plutino -- Chief Financial Officer

Yeah. The only thing I would say, Mike, is, yes, sales growth, margin expansion, let's not forget that too, right? We'll continue to drive improvement there with a minimum of 220 basis points in the guide. So, that flow-through strength, as you mentioned, is there. And then, to Ken's point, as is included in our guide, we'll continue to leverage our SG&A base being very careful about that in 2025 to make sure that that flow-through is at the levels that he mentioned.

So, that's it. No other secret sauce, just all the hard work embedded in doing those three things: driving sales, expanding margin, and leveraging SG&A.

Mike Baker -- D.A. Davidson -- Analyst

OK, great. Well, I guess the perfect follow-up then, I'll just hit on that. So, that low base of sales, low base of SG&A, is that the comp guidance that you gave of low- to mid-single digit? Is that the sort of baseline? And then, the sales above that 25% flow-through, is that needed to comp above that low to mid? Or does that sort of added sales and then the stress plan, is that within the low- to mid-single digits, if that makes sense?

Ken Seipel -- Interim Chief Executive Officer

It kind of does. Let me tell you how I'm going to think about that, and then, again, I want Heather to fill in anything there that I may have missed. But in terms of the guidance that you have out there, we're seeing low- to mid-single, and that really kind of encompasses that portion that I mentioned earlier, we're seeing a fairly low sales base to make sure that we can achieve that number. We don't get our expenses overboard.

That's really kind of the point is we've got a point here where we have a business SG&A base that can handle that minimum sales. And then we have a little bit of that range that we have in EBITDA is based upon, the flow-through, right? It's not all of it, but that's how you go from low to kind of a high on our range is just simply looking at that second tier of sales that I mentioned earlier. And then, we have available to us another tier of sales above that. And I don't want to get too over our skis yet.

I mean, it's early stages. The business is looking really, really good. But as we talked about earlier, there's some uncertainties. So, I'll have more confidence as we go -- as the year progresses, but we are hopeful that we'll see that range for sure that we've put out there and then there's a potential that we could outperform that if business continues to move at its current pace.

Mike Baker -- D.A. Davidson -- Analyst

Got it. Thank you.

Ken Seipel -- Interim Chief Executive Officer

Thanks, Mike.

Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Ken for closing remarks.

Ken Seipel -- Interim Chief Executive Officer

Well, I just want to simply say thank you, everybody. We really appreciate your continued interest and support of Citi Trends. We look forward to talking with you next quarter. Bye-bye.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Nitza McKee -- Investor Relations

Ken Seipel -- Interim Chief Executive Officer

Heather Plutino -- Chief Financial Officer

Jeremy Hamblin -- Analyst

Mike Baker -- D.A. Davidson -- Analyst

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