April 29, 2005
VIA EDGAR AND U.S. MAIL
Securities and Exchange Commission
Division of Corporate Finance
450 Fifth Street, N.W.
Mail Stop 0308
Washington, D.C. 20549
Attn: H. Christopher Owings, Assistant Director
RE: CITI TRENDS, INC.
AMENDMENT NO. 1 TO REGISTRATION STATEMENT ON FORM S-1
FILED APRIL 7, 2005
FILE NO. 333-123028
Dear Mr. Owings:
On behalf of Citi Trends, Inc., a Delaware corporation
(the "Company"), we hereby submit three copies of the
Company's responses to the Staff's comments conveyed in a
letter to the Company dated April 15, 2005 in connection
with the Staff's review of the Company's Amendment No. 1 to
the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission (the "Commission") on
April 7, 2005 (the "Registration Statement").
This letter is submitted along with four copies of
Amendment No. 2 to the Registration Statement ("Amendment
No. 2"). All such copies have been marked to show changes
from Amendment No.1 to the Registration Statement. Amendment
No. 2 was transmitted for filing with the Commission as of
the date hereof.
Capitalized terms used herein and not otherwise
defined have the meanings specified in the Registration
Statement. For your convenience, we have repeated each of
the Staff's comments in bold prior to the Company's
response. Unless otherwise indicated, all page number
references in the responses below are to the internal pages
of Amendment No. 2.
April 29, 2005
Page 2
General
1. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 3. IN THE SUPPLEMENTAL
INFORMATION YOU PROVIDED, YOU STATE THAT YOU OFFER 20% TO 60%
DISCOUNTS ON THE SAME MERCHANDISE AS DEPARTMENT AND SPECIALTY STORES
BECAUSE DEPARTMENT AND SPECIALTY STORES OFFER THEIR MERCHANDISE AT
THE MANUFACTURER'S SUGGESTED RETAIL PRICE. THEREFORE, PLEASE PROVIDE
A BASIS FOR YOUR BELIEF THAT SPECIALTY AND DEPARTMENT STORES OFFER
THEIR PRODUCTS FOR THE MANUFACTURER'S SUGGESTED RETAIL PRICE, OR
CONSIDER REVISING YOUR DOCUMENT TO STATE THAT YOU OFFER NATIONALLY
RECOGNIZED BRANDED MERCHANDISE AT 20% TO 60% DISCOUNTS OFF THE
MANUFACTURER'S SUGGESTED RETAIL PRICE.
The Company supplementally informs the Staff that based on the
Company's frequent comparative shopping of specialty and department
stores, the Company's management believes that specialty and
department stores regularly offer their products for the
manufacturer's suggested retail price.
Risk Factors, page 6
2. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 7. IN YOUR THIRD RISK
FACTOR ON PAGE 7 AND YOUR FIRST FULL RISK FACTOR ON PAGE 9, PLEASE
CONSIDER EITHER REMOVING THE BULLET POINT ELEMENTS OF THESE
SUBSECTIONS OR DISCUSSING HOW EACH OF THESE ELEMENTS IS A RISK TO
YOUR BUSINESS.
The Company has complied with the Staff's comment by revising the
risk factors on pages 7 and 9 of the prospectus.
We depend on the experience and expertise of our senior management team..., page
11
3. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 10. PLEASE CONSIDER
SEPARATING THIS RISK FACTOR INTO TWO RISK FACTORS. ONE RISK FACTOR
SHOULD DISCUSS YOUR DEPENDENCE ON YOUR TWO KEY EMPLOYEES, R. EDWARD
ANDERSON AND GEORGE BELLINO, AND THE OTHER FACTOR SHOULD DISCUSS THE
RISKS RELATING TO YOUR HIGH EMPLOYEE TURNOVER RATES.
The Company has complied with the Staff's comment by revising the
disclosure on page 11 of the prospectus.
Use of Proceeds, page 17
4. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 13. PLEASE ESTIMATE YOUR
OUTSTANDING INDEBTEDNESS UNDER YOUR REVOLVING LINES OF CREDIT THAT
YOU WILL HAVE TO PAY THE BANK OF AMERICA AND CONGRESS FINANCIAL. IF
YOU ARE UNABLE TO ESTIMATE THE AMOUNTS YOU OWE ON YOUR REVOLVING
LINES OF
April 29, 2005
Page 3
CREDIT, PLEASE DISCLOSE THIS IN YOUR DOCUMENT. FURTHER, PLEASE TELL
US IF YOUR $1.6 MILLION DEBT TO THE NATIONAL BANK OF COMMERCE WAS
INCURRED WITHIN THE LAST YEAR. IF SO, PLEASE DESCRIBE THE USE OF THE
PROCEEDS OF THIS INDEBTEDNESS FOR ANYTHING OTHER THAN SHORT-TERM
BORROWINGS USED FOR WORKING CAPITAL. SEE INSTRUCTION 4 TO ITEM 504
OF REGULATION S-K.
The Company has complied with the Staff's comment by revising the
disclosure on page 17 of the prospectus. The Company supplementally
advises the Staff that there are currently no outstanding balances
under, and prior to the consummation of the offering the Company
does not expect to incur any indebtedness under, the Bank of America
or Congress Financial revolving lines of credit, and, therefore,
such repayment will not be a use of the net proceeds from the
offering.
The Company supplementally informs the Staff that the $1.6 million
debt to the National Bank of Commerce was not incurred within the
last year.
Selected Financial and Operating Data, page 20
5. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 16. PLEASE INCLUDE YOUR
"NET INCOME PER COMMON SHARE" AND "WEIGHTED AVERAGE SHARE" IN THIS
SECTION.
The Company has complied with the Staff's comment by revising the
disclosure on page 20 of the prospectus to include the net income
per common share and the weighted average share data.
6. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 17. HOWEVER, IT DOES NOT
APPEAR THAT YOU SHOW MANDATORILY REDEEMABLE PREFERRED STOCK AS A
LIABILITY IN THE YEARS PRIOR TO THE RECLASSIFICATION. PLEASE REVISE
OR ADVISE.
The Company has complied with the Staff's comment by revising the
disclosure on page 20 of the prospectus so that the mandatorily
redeemable preferred stock is shown as a liability in the years
prior to the reclassification.
7. PLEASE EXPAND YOUR DISCLOSURES RELATING TO STORE OPERATING PROFIT TO
INDICATE THE NATURE OF THE EXPENSES INCLUDED IN STORE OPERATING
EXPENSES.
The Company has complied with the Staff's comment by revising the
disclosure on page 21 of the prospectus to indicate the nature of
the expenses included in store operating expenses.
April 29, 2005
Page 4
Overview, page 22
8. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 23. PLEASE DISCLOSE THE
INJUNCTIVE ORDER IMPOSED BY THE U.S. COURT OF INTERNATIONAL TRADE
STOPPING THE U.S. GOVERNMENT FROM INSTITUTING SAFEGUARD MEASURES ON
TWELVE CATEGORIES OF TEXTILES AND APPAREL.
The Company has complied with the Staff's comment by revising the
disclosure on page 22 of the prospectus to disclose the injunctive
order imposed by the U.S. Court of International Trade stopping the
U.S. government from instituting safeguard measures on twelve
categories of textiles and apparel.
Quarterly Results of Operations, page 26
9. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 25. PLEASE ADD PER SHARE
DATA TO YOUR QUARTERLY RESULTS OF OPERATIONS AS REQUIRED BY ITEM
302(A)(1) OF REGULATION S-K.
The Company has complied with the Staff's comment by revising the
disclosure on page 27 of the prospectus to include the per share
data to the Company's quarterly results of operations.
Liquidity and Capital Resources, page 27
10. IN YOUR DESCRIPTION OF THE CHANGE IN NET CASH PROVIDED BY OPERATING
ACTIVITIES FOR FISCAL 2004 AS COMPARED TO FISCAL 2003, PLEASE
DISCUSS ALL MATERIAL FACTORS CONTRIBUTING TO THE INCREASE. FOR
EXAMPLE, WE NOTE THAT YOU DISCUSS THE INCREASE IN NET INCOME AS A
PRIMARY FACTOR, BUT ALSO DISCUSS OTHER SIGNIFICANT FACTORS SUCH AS
THE CHANGE IN INVENTORY, CHANGE IN ACCOUNTS PAYABLE, AND CHANGE IN
ACCRUED EXPENSES AND ACCRUED COMPENSATION.
The Company has complied with the Staff's comment by revising the
disclosure on page 28 of the prospectus to discuss all material
factors contributing to the increase.
Growth Strategy, page 35
11. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 32. PLEASE INCLUDE THE
DEFINITIONS IN YOUR RESPONSE TO US IN YOUR REGISTRATION STATEMENT.
April 29, 2005
Page 5
The Company has complied with the Staff's comment by revising the
disclosure on page 36 of the prospectus to include the Company's
response to prior comment #32.
Legal Proceedings, page 41
12. WE NOTE YOUR RESPONSE TO PRIOR COMMENT 40. PLEASE IDENTIFY THE
PARTIES TO THE LITIGATION. SEE ITEM 103 OF REGULATION S-K.
The Company has complied with the Staff's comment by revising the
disclosure on page 42 of the prospectus. The Company supplementally
informs the Staff that the other litigation previously disclosed
brought by the former manager-in-training has been settled for a de
minimus amount, and the Company has revised the prospectus
accordingly.
Executive Officers and Directors, page 42
13. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 42. PLEASE DISCLOSE THE
POSITIONS HELD BY MR. GOFF AS AN EMPLOYEE OF HAMPSHIRE. SEE ITEM
401(E) OF REGULATION S-K.
The Company has complied with the Staff's comment by revising the
disclosure on page 44 of the prospectus to disclose the positions
held by Mr. Goff as an employee of Hampshire.
Board of Directors Composition After the Offering, page 43
14. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 44. PLEASE DISCLOSE IN
YOUR REGISTRATION STATEMENT THAT YOUR THREE INDEPENDENT DIRECTORS
WILL BE JOHN LUPO, TRACY NOLL, AND THE DIRECTOR NOMINEE.
The Company has complied with the Staff's comment by revising the
disclosure on page 44 of the prospectus to disclose that the
independent directors will be John Lupo and Tracy Noll. The Company
has also disclosed that the vacant board position will be filled by
an independent director.
Director Compensation, page 46
15. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 45. PLEASE DISCLOSE THE
AMOUNT OF OPTIONS AND THE EXERCISE PRICE YOU ANTICIPATE GIVING YOUR
INDEPENDENT DIRECTORS IN THE FUTURE. SEE ITEM 402(G) OF REGULATION
S-K.
The Company has complied with the Staff's comment by revising page
47 of the prospectus to disclose the amount of options and the
exercise price the Company anticipates giving its independent
directors in the future.
April 29, 2005
Page 6
Lock-Up Agreements, page 62
16. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 49. PLEASE INCLUDE YOUR
RESPONSE TO US IN YOUR REGISTRATION STATEMENT.
The Company has complied with the Staff's comment by revising the
disclosure on page 65 of the prospectus to include the Company's
response to prior comment #49.
FINANCIAL STATEMENTS
Note 2, Summary of Significant Accounting Policies, page F-7
17. WE NOTE YOUR RESPONSE TO OUR PRIOR COMMENT 54. IT DOES NOT APPEAR
THAT YOU REVISED YOUR MANAGEMENT'S DISCUSSION AND ANALYSIS SECTION
CONCERNING HANDLING AND DISTRIBUTION COSTS AS INDICATED IN YOUR
RESPONSE. ALSO, IN YOUR MANAGEMENT'S DISCUSSION AND ANALYSIS
SECTION, PLEASE DISCLOSE THAT YOUR GROSS MARGINS MAY NOT BE
COMPARABLE TO OTHERS SINCE SOME ENTITIES INCLUDE THE COSTS RELATED
TO THEIR DISTRIBUTION NETWORK IN COST OF GOODS SOLD, AND OTHERS,
LIKE YOU, EXCLUDE ALL OR A PORTION OF THEM FROM GROSS MARGIN,
INCLUDING THEM INSTEAD IN A LINE ITEM SUCH AS SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES. FURTHER, AS PREVIOUSLY REQUESTED, PLEASE
DISCLOSE THE AMOUNTS EXCLUDED FROM COST OF SALES FOR EACH PERIOD
PRESENTED.
The Company respectfully submits that the Company did revise its
Management's Discussion and Analysis of Financial Condition and
Results of Operations for prior comment #54 in Amendment No. 1 to
the Registration Statement. Please see the "Basis of the
Presentation" section on page 23 of the prospectus. We noted that
"Selling, general and administrative expense is comprised of store
costs, including salaries and store occupancy costs, handling costs,
corporate and distribution center costs and advertising costs."
The Company has complied with the Staff's comment by revising the
disclosure on page 24 of the prospectus to disclose that the
Company's gross margins may not be comparable to other retailers.
The Company respectfully submits that disclosing the handling and
distribution costs excluded from cost of sales for each period
presented will not be useful to investors and could potentially be
misleading. As discussed in the Staff's comment, the cost of sales
line item is not uniform among retailers, and different retailers
include occupancy, buying labor, and advertising costs (or some
permutation of these costs) in costs of sales, in addition to
handling
April 29, 2005
Page 7
and distribution center costs. Therefore, disclosing the
aforementioned amounts will not facilitate a greater understanding
of our gross margins.
Note 8, Stockholders' Equity, page F-15
18. PLEASE EXPAND YOUR DISCLOSURE TO INCLUDE, FOR EACH GRANT DATE, THE
NUMBER OF OPTIONS OR SHARES GRANTED, THE EXERCISE PRICE, THE FAIR
VALUE OF THE COMMON STOCK, AND THE INTRINSIC VALUE, IF ANY, PER
OPTION. PLEASE INDICATE WHETHER THE VALUATION YOU USED TO DETERMINE
THE FAIR VALUE WAS CONTEMPORANEOUS OR RESPECTIVE. IN ADDITION,
PLEASE EXPAND YOUR MANAGEMENT'S DISCUSSION AND ANALYSIS SECTION TO
DISCLOSE THE INTRINSIC VALUE OF OUTSTANDING OPTIONS, VESTED AND
UNVESTED, BASED ON THE ESTIMATED INITIAL PUBLIC OFFERING PRICE.
FURTHER, PLEASE DISCUSS THE FACTORS, ASSUMPTIONS, AND METHODOLOGIES
YOU USED IN DETERMINING FAIR VALUE AND THE FACTORS CONTRIBUTING TO
THE DIFFERENCE BETWEEN THE FAIR VALUE AS OF THE DATE OF EACH GRANT
AND THE ESTIMATED INITIAL PUBLIC OFFERING PRICE. PLEASE INDICATE THE
REASON MANAGEMENT CHOSE NOT TO OBTAIN A CONTEMPORANEOUS VALUATION BY
AN UNRELATED VALUATION SPECIALIST.
The Company has complied with the Staff's comment by revising the
disclosure on page F-16 to include the dates of grants and the
intrinsic values. The fair market values equal the exercise price of
the grants except for one grant issued in December 2001, as noted in
the disclosure. The fair values were determined for the quarters
immediately preceding the dates of the grants.
The Company has complied with the Staff's comment by expanding its
Management's Discussion and Analysis section to disclose the
intrinsic value of outstanding options based on the estimated
initial public offering price. In addition, the Company has
disclosed the assumptions and factors used in determining the fair
values as of the date of the grants and why this differs from the
estimated initial public offering price. In addition, the Company
disclosed the reason for not obtaining a contemporaneous valuation
at each grant date. The Company has revised the disclosure on page
31 of the prospectus to include these statements.
* * * * * *
We would greatly appreciate your prompt attention in resolving any
remaining open issues. If you have any questions regarding the responses to the
Staff's comments, please do not hesitate to contact the undersigned at (212)
318-6400.
April 29, 2005
Page 8
Kindly acknowledge receipt of the foregoing responses by stamping the
enclosed additional copy of this letter and returning the same to the
undersigned.
Sincerely,
/s/ William F. Schwitter
for PAUL, HASTINGS, JANOFSKY & WALKER LLP
cc: R. Edward Anderson
John Fieldsend, Staff Attorney