I am Mike Baker, one of the consumer analysts from D.A. Davidson. Very happy to introduce the management team of Citi Trends. We have Kenneth Seipel, who was named the permanent CEO just, well, in November. He's been interim CEO since June. Very extensive retail background, which I'm sure he'll go into. We also have the CFO, Heather, down here. Also very extensive retail background. She's been with the company since 2022. I'm not going to steal their thunder, but I think this is one of the more interesting small-cap turnaround stories in retail. I'll give just two data points. The third-quarter comp that they reported about a month ago was 5.7%, the best comp the company's put up since non-COVID comp, I should say, since 2012. That was the third quarter, and then they upped it this morning with a holiday comp of 7.1%.
So he's been there six months, and it's already working. So with that, I'll turn it over to Kenneth. Feel free to applaud. By the way, I think Kenneth's going to take the full 25 minutes or so. So for Q&A, meet us at the breakouts, I think would be the best thing to do.
Thanks, Mike. Appreciate it. Morning, everyone. Welcome to Citi Trends. Really glad to have you today. And thank you for joining us today to kind of discuss my favorite topic, the growth of Citi Trends. Today, I'm going to give you a little description of myself, talk a little bit about our company, in case you're not familiar, tell you what's going on today, and then, more importantly, the exciting growth plans we have going forward. So before I begin, I kind of want to remind you, here's the forward-looking disclaimer, of course. I know you all know this by memory, so I won't read it, but just know it guides our presentation today. So the majority of my 40-year professional career has been really spent in value apparel retailing.
During my time in the Fortune 100 companies, kind of phase one, I held a number of executive roles in company buying functions and merchandising operations and so forth. Started with J.C. Penney, back in the day, and through Target in the 1990s during their big growth. Managed Old Navy, actually, during their explosive growth in the 2000s. And so really had a good time with the big companies, but really wanted to step back and kind of get my second phase going, which is actually the entrepreneurial side of the business, which I really, really like. So then I jumped into private equity, and I started kind of working in different roles where I assumed the role of CEO and also co-investor in every single engagement. And I personally found that owning a stake in these companies really created really strong shareholder alignment.
It also kind of helped reinforce a real acute focus on creating shareholder value. As co-owner, entrepreneur, and leader, I was able to generate three successful turnarounds, which resulted in three times earnings for shareholders and, in one case, six times. It became kind of clear to me in spending some time with Citi Trends that this is one of the few public retailers with a significant shareholder growth potential. Because of its value, we're such a good value retailer serving kind of an underserved customer. I kind of backed my excitement for Citi Trends this summer with a significant ownership stake and then took on the role as CEO. My incentive comp, by the way, is based strictly on stock price. The stock goes up 20% increments. I get paid. If it doesn't, I don't get paid. It's kind of that simple.
But I do believe my personal investment and incentive comp plan does create very strong alignment with shareholders. So my experience has kind of been both public and privately held companies have kind of told me there's just a few critical things that you have to focus on to restore profit: a balanced focus on the core customer, compelling value proposition, strong operational excellence, clear growth avenues, and highly engaged people. All of this kind of creates a bit of an unstoppable momentum. And by the way, you got to go fast. So back up a little bit here and tell you about Citi Trends if you're not familiar with it. The roots of the company kind of go back to its founding in 1946 as the Savannah Wholesale Company. It eventually evolved to a name called the Allied Stores.
Under new ownership in 2001, they developed the name Citi Trends, and then it went public in 2005. It really became kind of a quick, leading, expanding retailer there in the African-American community with brands like FUBU, Southpole, Baby Phat, Red Monkey. All these were just kind of moving onto the scene at the time. So this heritage of big brands really kind of created a strong emotional connection with our customer that actually still exists today. Citi Trends itself is a highly differentiated, off-price retailer known for trendy fashions, great brands, and amazing prices. Top line 2024, this year, our sales are expected to be around $750 million. Gross margins are going to be around 39%. That's excluding some one-time items. We do execute a three-tiered product strategy of opening prices, core value product, and familiar brands.
At Citi Trends, we actually develop many of these brands ourselves, very specifically for our customer, which means we offer trendy styles available only at Citi Trends. In addition, this fall, we became opportunistic in the off-price market. And we know that we offer well-known brands at exceptional prices, which is new to our company. Initial response so far from our customers has been very, very strong. And I'll speak about that here in just a minute. So today, we have about 590 store locations, and we're actually one of the largest national retailers focused on the African-American customer. Our average store size is about 12,000 sq ft. We're located predominantly in neighborhood strip centers. And our remodel program right now is generating about a 5% sales lift over the base.
The company, as most of you know, is based in Savannah, Georgia, where we have buying offices in New York, and distribution centers are located in mid-South Carolina and eastern Oklahoma, and as you can see here on this map, there are plenty of areas available for growth and expansion. Our company is really rooted in the strength we have in the African-American community, which to this day accounts for the majority of our success. We also serve ancillary groups of multicultural Hispanic customers that are located in and around our trade areas, but this past fall, we completed extensive research in both quantitative and qualitative characteristics of our customer. We're in the early stages of analyzing the data, and we're beginning to kind of understand, and we're gaining a much sharper focus on this customer and who they are and really what motivates them to shop with Citi Trends.
So on the quantitative side, the average age of our customer is about 40, often with families and kids, sometimes grandparents as the caretaker in the family. We have a penetration of male customers, which is almost twice the retail average, which kind of speaks to the fashion sensibility of the customer. And because of our long-term neighborhood presence, our customers are highly engaged and loyal to Citi Trends. And about a third of our customers actually visit our stores weekly or biweekly and have incomes in the $75,000-$150,000 range. The next biggest tier of our customers visit stores monthly and typically have incomes of $50,000-$75,000. And we serve a base of less frequent, lower-income customers who are more budget-conscious.
So the income capacity of our top two tiers of customers has probably been the most significant unlock for our business in the last bit of research, which updates a past paradigm that we had that we were serving all customers with low income. Our updated three-tiered merchandising strategies are geared now to meet the needs of all of our customers, regardless of income. But the reality is, you have to kind of look beyond the demography of our customer to really kind of understand why Citi Trends is well-loved and can continue to grow. Early this past fall, we engaged a leading customer ethnographer to kind of help us more clearly understand customer attitudes, emotions, and drivers of the purchase decision. The work revealed rich insights, and we're using this to adjust our store, product, and experience strategies.
Here's a bit of a small sample of the key insights we had. So our customers are fashion-friendly, are fashion-conscious, and are willing to spend more when the fashion is on trend, the brand is right, and the price-value proposition is strong. They define themselves in many, many ways, but budget conscious is not one of them. They're aspirational, committed to continual progress. They know how to do a lot with a little in life. Settling just simply isn't in her vocabulary. Style is a very top priority and expression of their consistent pursuit of progress. They want to be seen and understood as people beyond stereotypes. Black culture has become mainstream culture, and mainstream culture is Black culture. And our customers are on a journey from surviving to thriving.
So you can imagine the combination of the demographics and the ethnography that I just mentioned for our customer is very tremendous for our business model. It gives us great confidence in expanding our product assortment to meet their fashion style needs. So this is the place in the presentation that most companies are going to show you a five-year graph of consistent sales and EBITDA performance. However, that's actually not the case for Citi Trends. Historically, the company has done about $780 million on the top line and usually runs EBITDA margins in mid-single digits. But the past couple of years, the company did lose focus on the primary customer, and the product value equation just simply wasn't competitive. The apparel assortment became generic. It became really average product at average prices, missing where the great brands at compelling prices, missing opening price points for value-conscious customers.
And really, over time, the selection of product just became aged, and there were fewer and fewer deliveries of new styles. In addition, there were operational disconnects due to high employee turnover and the lack of best practices. All of that kind of resulted in a diminished EBITDA. I guess really, to kind of sum it up, Citi Trends lost its focus on value. But the good news is the majority of all of these challenges are well within our control to fix. In case you missed it, and Mike mentioned it a moment ago, actually, we just announced our Q4 quarter-to-date sales today of a 7.1 comp. This was on top of our 5.7 comp performance in Q3. And as you can see in the data here on the screen, the initial corrective measures this fall have resulted in significantly improved sales.
Coming off a challenging first half, we were able to generate a +4% back-to-school period. Post-peak sales in September remained strong at a +6%. October accelerated to a +8%, leading to a +9% in November and a +6% in December. The combination, of course, was the +7.1% I mentioned earlier. We're excited about the steady increase of customer traffic each sequential month this fall. I've been really pleased with how quickly our customers have responded to our strategy adjustments. To be honest with you, it's pretty rare to see this kind of improvement. Our recent customer service surveys tell us that they do love Citi Trends, and they're just simply waiting on us to get this right. You can see this is one of the many reasons that I'm pretty excited and optimistic about where we're headed as a company.
I'm often asked, what is driving the results and how much of the results is due to the strategy changes? Well, I think the best question is best answered by unpacking key actions taKenneth since last June and beginning with a renewed focus on our African-American core customer. This focus allowed us to create a more relevant fashion style. Next, in late Q2, we marked down over $26 million of aged inventory. And for the most part, it was stale product. It really didn't have a compelling value. This is a critical step in our improvement because it created open to buy for fresh new styles, and it opened up presentation space on our selling floor. It also gave us a great benefit to improve regular price selling.
So with our high customer frequency, you can imagine how critical it is to have fresh product rolling all the time. Operationally, we focused on the basics of retail, which included improving fundamental practices and consistently executing the business model. And we developed capability to add extreme value product in off-price to the deals. So let me expand just a minute on the retail fundamentals. There were many basic practices just simply not in place or in use. This was due to new system integration. Things just simply didn't go as planned with the system. Information technology disruptions, turnover of key talent, all of these things led to missing or incomplete information. But over the past six months, we've been systematically repairing, replacing, and installing new practices, equally, if not more important than those, ensuring that we have the right talent in place.
We are getting better every single day, but there's still much work ahead, and I expect that we're going to have a few more months ahead to restore all the fundamentals. Our foundational practices are required to ensure that we can consistently execute. At the center of the foundational improvements is significantly improving our product allocation practices. Past practices were just simply way too complex. So we simplified allocation methodologies, which includes focusing on putting more product in higher-producing stores to drive sales and reducing inventory in our lower-volume stores. We've also implemented improved product planning practices, which allowed us to ensure that our buyers now have adequate open to buy to drive sales, and we've reduced open to buy in some product categories that are not performing as well. With better practices in place, we're now working on consistently executing our business.
I've really been pleased with how quickly our teams have grabbed hold of the message. They're embracing the fundamental and foundational changes, and it's beginning to have a real impact on our business. Another important addition to the strategy has been the addition of extreme value product. We built capacity and the talent, of course, to negotiate product opportunities at exceptional prices. For the first time this fall, we executed a seven-figure deal that featured a very well-known athletic shoe brand. Our skilled buyers were able to negotiate retail pricing that was 50%-70% below the price in competition at higher-than-average gross margin rates. Our teams also found similar extreme values on a well-known branded apparel line and some toys and different things like that. The response has just simply been incredible.
Quotes from our store managers here on the screen kind of give you an idea of their excitement. I like to think about our business journey right now in three phases, which kind of prepares us to be a strong growth company. In the repair phase, we focused on the combination of fundamental practices and foundational improvements, implementation of a three-tiered product plan, extreme value product that I spoke about earlier. And as I mentioned, we're kind of in the early stages and have a lot of opportunity for these improvements. Next, this spring, we'll be entering into the execute phase of the turnaround, which, as the name implies, is really just about developing and learning how to execute consistently. In the execute phase, I expect our core product value equation to improve and our supply chain speed to improve as well.
This will have a measurable impact on reducing our working capital and improving our inventory turns. We'll also work on improving our payroll productivity in all areas of the business, which will allow sufficient flow-through from sales to profit. The optimization phase of our plan is ready for business acceleration, which means that when strong sales happen, our profit will flow through nicely. Plus, we are also working on new store expansion. The results of the repair, execute, and optimize creates really an ability for us to accelerate growth. So this is kind of where we are. Now, let's talk a little bit about growth and the road ahead. So the path to shareholder value creation begins with our customer. We've narrowed our company's focus on the African-American customer. Our African-American customers are central to our business and critical to our success.
This targeted focus will allow us to deliver more precise assortments. Our merchandise teams have indicated that this laser focus on our primary customer is helping them curate a more refined and focused assortment. Our early results indicate also our assortment is resonating pretty well in the Hispanic market as well. We're using this information to ensure that we have information around the consumer insight studies around the purchase drivers, make sure that we're connected well with our customer. And then also, we're taking a look at making sure there are updates to our stores. We want to offer a neat, clean, and organized store environment. Plus, we are beginning to add a customer loyalty program so that we can more efficiently communicate with our customers. Next is trend-right product assortments.
Our customers are fashion-conscious and have demonstrated they're willing to trade up when the fashion is right, the brand is recognizable, and the price-value proposition is strong. We plan to improve the flow of new product in trend-right fashions in our apparel areas, and we always want to offer a balanced assortment here of good, better, and best products. For our low-income customers, we're going to be offering opening price point product that'll be around $5. We're going to have visible in-store signing to make sure that the value really stands out. Our core better product is the bedrock of our business, and this is where we're going to focus on improving the value for the price, quality for price. And there's also significant opportunity ahead in growing, expanding branded products.
But in a short period of time, we've opened up direct relationships with a large number of well-known brands, and we've identified category growth areas in the extended sizes, family shoes, and snacks. These categories with the greatest potential for growth in our business. We're making adjustments right now to make sure that we maximize these areas. And also within the home division, we plan to increase the offering of consumable product. This is by adding well-known snack foods. Our buyers are using their off-price deal capabilities right now to do market deals with Cheez-It, Beef Jerky, Oreos, and so forth. Our intent is to give the customers another reason to shop with us and send a strong best-in-price market message. Here, we're going to increase the penetration, which in home as well, which we believe is well below industry average.
As I mentioned a moment ago, we've developed internal capacity to add more treasure to the treasure hunt by securing branded deals from various sources. Extreme value deal-making capabilities capitalizes on surplus product, which is created by a disrupted supply chain. Extreme value deal-making really helps us to offer a great value to our customers and a surprise treasure hunt experience. In the ever-changing landscape of apparel retailers, vendors, and macroeconomics that we all know about, there is just seemingly an endless supply of deal opportunities. So we've added a highly regarded off-price buyer to our team to open up new relationships and create deal flow. Extreme value deals are a key differentiator from bigger competition in this space who really just don't have the capacity or the infrastructure to process this type of product.
In the future, I expect that this segment will grow to be 10% or more of our sales at higher than average margin rates. As I mentioned earlier, we are working to improve our ability to consistently execute the model by implementing best practices. We are currently testing an AI-based allocation system that shows early promise. It's more accurately placing product to drive sales, reducing markdowns, and capitalizing on missed sales. In our supply chain, we're working to increase speed of product delivery from vendor to store while reducing the cost. Our objective is to shorten the number of product days in the supply chain, which enables us to quickly meet customer demands and reallocate working capital to fuel our sales. Operational consistency will enable our top-line growth to flow efficiently to bottom-line profits.
This year, we're focusing on remodeling our very best stores to make sure our brand is current and relevant. Going forward, I expect remodels to be a part of our overall market strategy and market share growth. We are currently analyzing MSAs to determine our priority markets for growth. In existing markets, we'll look for backfill locations and couple that with existing store remodels to maximize our total market share in priority MSAs, and as I noted earlier, we have plenty of white space for new market expansion as well. Citi Trends plans to accelerate square footage expansion in the range of 6%-10% in 2026 and beyond, so kind of recapping the value plan I just walked through, Citi Trends is positioned in the very best-performing sector of retail, off-price. As I outlined, the company has a significant growth potential.
Citi Trends has a large 590 sq ft, 190-store square footage footprint in African American neighborhoods that's incredibly difficult to duplicate. It really does give us a defensible moat around our competition. Next, we have an extremely loyal customer. Shopping frequency of our customer base is unmatched in retail. Our customers want us to thrive and are quick to respond when we get it right. Next, there is a clear path to significant value creation, and our financial performance is well within our own control. Finally, Citi Trends has a strong debt-free balance sheet with ample liquidity. This gives us a chance to take advantage of all these opportunities I mentioned. We are currently working with our board of directors to finalize our long-range plans and will be communicating more detailed direction later on this spring.
But in the meantime, I'd like to invite each of you to think about us. I really appreciate you showing up today to look at the session, and we want to ask you to join us in being a shareholder of Citi Trends. Thank you for attending the session. And as Mike mentioned, we'll be around for questions a little bit later. We'll be at the table, I think.