Please join me in welcoming Ken.
All right, thank you [Mitch] I think we had to get our slides queued up here. Two seconds. There we go. All right, good morning everyone. We'll get started here. Thank you for joining us today. I appreciate your interest in our brand. I am Ken Seipel, CEO and Chairman of Citi Trends. Joining today is Heather Plutino, our Chief Financial Officer. Wave, Heather, thank you. Since taking the helm about 16 months ago, Citi Trends has delivered four consecutive quarters of industry-leading comp sales growth, driven largely by transaction increases, broad-based product strength, and discipline execution across all of our business. Our transformation strategy is starting to gain some momentum. Our operational capabilities are advancing, and our customer connection is strengthening. We're really not done. We still have a lot of processes to refine, we have some categories to optimize, and some more systems to build.
Today I want to share the progress that we've made, outlining our path forward, a clear, disciplined growth plan designed to deliver sustainable growth for our shareholders. Before I begin, I want to remind you of the forward-looking statement. As you all know this by memory, I won't go through that, but just appreciate that it guides our conversation today. I am really pleased today to present the hard work and progress of our talented management team at Citi Trends and our recently refreshed Board of Directors. Over the past 40 years, my career has been dedicated to value retailing with leadership roles beginning at JC Penney back in the day in the 1980s, helped drive Target's brand development in the 1990s, instrumental in Old Navy's big growth in the 2000s.
Since about 2010, I've been focused on private equity, very much where I've been involved as both CEO and a co-investor. That ownership structure helped create strong alignment with shareholders and really has enabled me to successfully lead several turnarounds, all of those resulting in either three times or even up to six times return for the investor. I bring that same level of commitment today here to Citi Trends, where I'm also the second largest investor in the company. At Citi Trends, our mission is clear: to unlock significant sustainable value creation for our shareholders. If you don't know anything about our business or maybe you have heard about it but just need to know a little bit more, we are headquartered in Savannah, Georgia. We have buying offices here in New York, and we are an off-price retailer specializing in family apparel, accessories, and home categories.
We have annual sales around $800 million, and we operate 590 stores in 33 states. Our stores are about 12,000 square feet, and we do have a really strong penetration in the Southeast. We are strategically positioned inside of our customers' neighborhoods. We're at the early stages of a compelling transformation. We have a clear line of sight to achieve about $45 million of EBITDA in 2027, which represents a $60 million increase from 2024. This growth will be driven by consistent comp sales, gross margin expansion, operating expense leverage, and, of course, strategic new store expansion. I'll get into each of these a little bit later in the presentation. Citi Trends has really built a differentiated competitive position in this high-performing off-price retail sector.
We're really the only off-price retailer specifically focused on the African American consumer, delivering styles, brands, and trends at compelling prices that resonate with this really underserved demographic. The focus has created a uniquely loyal, high-frequency customer base and has enabled us to build over 600 store locations in neighborhood shopping centers where the customers live and shop. Our stores are embedded in communities we've been in for years, and proximity and word-of-mouth serve as huge, powerful traffic drivers. We operate a debt-free balance sheet, exiting second quarter with $50 million in cash, no borrowings on our $75 million revolver, and about $125 million in total liquidity. This financial strength gives us flexibility to invest in growth initiatives while maintaining operational stability. We've developed a very clear, tangible, and internally controllable path to accelerate shareholder value. The off-price model, as you know, has really demonstrated consistent, strong fundamentals.
Off-price retailers have historically grown faster than traditional retailers and really by maintaining higher operating margins driven by lower occupancy costs and leaner inventory positions and opportunistic buying. This model works by capitalizing on the supply chain inefficiencies and vendor overstocks. Our merchant teams source quality products at significant discounts when manufacturers face surplus inventory or delivery timing issues. We turn this inventory quickly with frequent product newness, creating what we call the treasure hunt experience. Unlike traditional retailers with static assortments, our stores offer discovery. Customers really don't know exactly what they're going to find in each visit, so scarcity creates urgency to purchase and drives higher visit frequency. Our research shows this treasure hunt element resonates particularly well with our core customer, who view shopping both as a practical necessity but also an enjoyable activity.
Our approach is pretty straightforward: everyday low pricing on exceptional product values, no promotions, no complex markdowns. A short buying window gives us flexibility to react to emerging trends and changing market conditions. Importantly, the current tariff environment has really created increased deal flow for us. Supply chain disruptions and uncertainty are generating more off-price deals than ever, and we're well positioned with strong liquidity and experienced merchants to capitalize. Our product strategy centers on a three-tiered approach designed to serve customers across all income levels. At the opening price point, we offer value-focused basics, clearly signed in our stores as Citi's core for the most budget-conscious consumer. The core of our business is our better tier. That's products that are with a breadth of selection. We offer a broad selection there, fresh styles. Typically, we're in the $7- $12 price range with this product.
This category really drives the loyalty, consistent performance across all of our lines: women's, men's, kids', footwear, and in-home. At the very top end of our assortment, we're expanding our best tier. These are with two really distinct approaches. First, we're adding more trend-relevant product. These are fashionable styles at prices well below specialty retail to address the fashion sensibilities of our core customer. Also, we're adding extreme value capabilities. Well-known brands purchase at steep discounts. Often, we're up to 75% off MSRP with some of this product. These deals capitalize on the supply chain disruptions I mentioned a moment ago and the surplus inventory that's out in the market. Our goal is to grow this extreme value segment to represent an incremental 10% of total sales.
These branded treasures drive both traffic and basket growth for us, and while we deliver really strong margin, our strategy really is built around a clear and unwavering focus on the style, price, and trend sensibilities of the African American customer, who's really at the center of everything we do. The average age is about 40, often families with children or multi-generational households. Our neighborhood locations create proximity and convenience that really drive engagement. More than 1/3 of our customers shop with us each week, and sometimes biweekly. These are our most frequent shoppers who have household incomes $75,000- $150,000 in range. Our next tier visits monthly, typically incomes from about $50,000- $75,000. Of course, we do serve 1/3 segment of less frequent, more budget-conscious consumers with lower household incomes.
I think what's really important to understand here is that we're serving customers across all the income levels. Our three-tiered product strategy, with a significant portion of average and higher-income customers, creates tremendous opportunity for our assortment for recognizable brands at exceptional prices that align with their style and trend preferences. Our customers so far have responded very positively to this shift, with many of our trendy products becoming really quickly our best sellers. Citi Trends cultural relevance is a true competitive advantage. African American consumers have historically been trendsetters and early adopters in fashion, music, and culture. Understanding this dynamic allows us to curate assortments with both immediate appeal to the core customer, and it also has a broader market relevance to our secondary customers. Our customers are discerning.
They understand that value is more than price and are willing to spend more when the style is for them, the fashion is on trend, and the quality is right. In short, value is not just price. Our value promise is clear: styles that see you, prices that amaze you, and trends that tell your story. Tell your story. Our stores are really at the heart of the neighborhoods. They're more than just retail locations, community anchors in many cases, where customers know they're going to find good value and belonging. Our store managers and associates are often friends, families, and neighbors, creating a genuine trust and connection that extends well beyond the transaction. The community connection is a competitive advantage that drives measurable results. Transaction growth has consistently accounted for the majority of our comparable sales increases over the past four quarters.
Word of mouth remains the most powerful traffic driver in these neighborhoods, fueled by relationships our teams have built over the years in these communities. Our neighborhood positioning also creates a defendable market position. Our stores have been embedded in these neighborhoods for years, and in many of these communities, we are the primary, if not often the only, value retailer, making Citi Trends both essential and irreplaceable for the families that we serve. This year, we're refreshing 60 of our high-volume stores, averaging about $1.9 million in annual sales, and we spend about $100,000 on our remodel. These remodels transform the look and feel of our stores with updated fixtures, improving wayfinding signage, better lighting, enhanced presentation standards, and just make it a little bit more easy and enjoyable to shop with us. Our early results show sales lift that we're generating from these investments.
The impact goes well beyond the sales, though. This refreshed store inspires our teams, they elevate our brand perception in the community, and we really send a strong signal that we're investing in the local community within the neighborhoods. Looking ahead, we're going to be remodeling about 50 stores per year as part of our ongoing fleet maintenance and market investment strategies. This disciplined approach allows us to progressively and thoughtfully upgrade our store base while achieving the planned returns on our invested capital. Looking forward, we're positioning Citi Trends for strategic new store growth. In 2026, we plan to open about 25 new stores, and from 2027 onward, we're going to expect to continue opening at least 40 stores per year, which will take our store count to around 650 stores by the end of 2027. This expansion strategy focuses on two approaches.
One, we're going to be backfilling in existing markets where our brand awareness and proven performance are really well known, and selectively entering into some new markets where there is strong demographic alignment to our consumer base. We are piloting a market backfill approach this fall in Jacksonville, Florida, and in Columbia, South Carolina, where we're opening up new stores in conjunction with remodeling the existing market. Our objective here is to really increase market share by strengthening our store presence and reinvigorating the brand inside of these markets. These markets are going to serve as a test and learning model, and we will use that as a model to go forward. Our new store expansion is guided by a disciplined approach that combines analytics, market expertise, and financial metrics.
Using AI tools, we have analyzed three years of actual transaction data from every single store location, combined that with comprehensive geolocation studies inside of all of our stores to understand the specific customer and market characteristics that drive our success. The AI data-driven approach has demonstrated about 90% accuracy in predicting sales. This is going to help us identify and replicate our most successful store profiles while minimizing risk as we grow our footprint. Beyond the analytics, we're applying strict financial criteria to every new store decision, targeting mature store averages of about $1.5 million and mid-teens four-wall contribution margins. This three-part approach, advanced AI-driven analytics, local market expertise from our real estate team, and disciplined financial hurdles positions us to expand intelligently while maximizing return on investments. Our balance sheet really provides significant strategic flexibility.
As I mentioned, we operate debt-free, and we're projecting about $60 million in cash generation in each of the next three years, no borrowings, and about $135 million in total liquidity. This financial position allows us to invest in growth initiatives while maintaining our operational stability. Over the next three years, we're going to invest in capital projects with demonstrated return on investments, primarily new store remodels, new store openings, and technology infrastructure, including some of the AI systems that we're using. Total capital spend is expected to be about $25 million this year in 2025 and about $45 million in 2026 and 2027.
Our disciplined approach to capital allocation prioritizes reinvesting operational cash flow first to support our growth plan, ensuring that we're investing in growth from a position of financial strength while delivering sustainable value creation for shareholders and maintaining flexibility to capitalize on strategic opportunities as they arise. Citi Trends does have a clear and tangible path to creating shareholder value, one that's grounded in discipline, detail, and execution. Our strategy is not aspirational. It's actionable, backed by a specific set of initiatives designed to deliver measurable results.
As compared to 2024, we're targeting annual total sales growth of about $150 million, achieving a $900 million level in about 2027, gross profit rate expansion of 400 basis points up to 42%, leveraging our SG&A by 200 basis points to 37% or less, resulting in planned EBITDA increase of over $60 million, achieving approximately $45 million in 2027 at a profit margin rate of around 5%. These are not really distant goals. These are very achievable outcomes driven by the actions we're actively executing. So far, we're off to a pretty good start. Our customers have really responded to our improvements, and we're delivering consistent comp store performance as a result. Through the first half of the year, our sales have increased 9.6%. As we said in our last earnings forecast, we expect sales increases to continue on top of prior year's strong performance.
Our transformation is guided by a three-phased framework designed to deliver sustainable, profitable growth. In the repair phase, we focused on restoring fundamental and foundational business practices to ensure that we have a strong foundation for growth. This has included a sharper, more refined clarity of the African American consumer, three-tiered product assortment to appeal to all income styles, levels, and sensibilities, implementation of AI-based software for product allocation to improve our in-stocks, reduce markdowns, and faster inventory turns, and many more practices beyond that that enable consistency in our business model. In the execute phase, we are focused on implementing best practices in all areas of the business to improve productivity, thus enabling SG&A leverage. We're focused on increasing the speed of our supply chain and reducing the cost of working capital with capital used in the product pipeline.
We now have our teams all focused on driving results by developing KPIs to monitor our progress, and our compensation programs are now linked to incent performance and continuous improvement. Although we're really proud of our progress, we know we're still in the very, very early stages here. We just have a lot of significant work ahead. Looking ahead, we are expecting consistent store sale growth in 6%- 8% annually, resulting in sales of over $900 million. At the core of this strategy is continued refinement and execution of our three-tiered product assortments I mentioned earlier. To accelerate our growth in better trend product, we've recently added a highly regarded trend director to assist our merchants in developing and procuring emerging trend product for our customer, where we see opportunity to really expand in this upper end.
Plus, we will improve store productivity by intensifying our efforts in key categories with double-digit growth potential, such as footwear, plus-size, big men's, young men's, and missy, while continuing consistent growth in our kids' area, family basics, and core categories. Incremental to our plan, we built the internal capacity to fully capitalize on the fast world of deal-making. Extreme value deals are more than just transactions. They create excitement. They deepen our price perception and set us really apart as a retailer who brings style, brands, and amazing prices that nobody else can deliver. Our gross profit rate is on track to expand to 42% in 2027. To achieve this growth, we're leveraging technology and innovation. Our newly implemented AI-based planning and allocation system I spoke of earlier will transform how we manage inventory, improving efficiency, reducing markdowns, and aligning product assortments with customer demand at the individual store level.
This means fueling growth where opportunity is strongest while minimizing excess inventory in our lower volume locations. Plus, in the near future, we're implementing markdown optimization to further optimize profitability. Additionally, we see opportunity to improve margin through reduced shrink and lower freight costs. Shrink rates are expected to improve as we adopt enhanced practices, which includes the implementation of stronger data accuracy measures and new investments we've recently made in facial recognition surveillance systems. On the supply chain side, the ongoing efficiency work is expected to generate improvements in our freight rates as well. Our plan is going to deliver strong profit flow-through as we grow, as sales grow, fueled by margin rate expansion and disciplined cost controls. We anticipate over 200 basis points of SG&A leverage, which will create meaningful operating leverage.
All of this really adds up to a significant step change in EBITDA to $45 million or so by the end of 2027. Importantly, this is not just aspiration. It's a tangible, detailed roadmap of initiatives prioritized by their ability to generate real shareholder value. Progress at Citi Trends is underway. As I noted today, we're in the early, early stages of significant opportunity ahead. We still have a lot of processes to refine. We have categories to optimize. We have systems to build. Our track record of consistent comparable store sales increases prove our strategy is working. Our execution is more consistent, and our customer connection is stronger than ever. We are debt-free. We are disciplined and positioned for growth. We have a clear path to profitable expansion, stronger earnings, and lasting shareholder value. We're more than just a retailer.
We're a neighborhood destination for African American families, delivering style, trend, value, and trust that nobody else can deliver. Citi Trends is executing with discipline, growing with purpose, and unlocking sustainable growth momentum. The future is ours, and we're just getting started. I thank you all for your time today. Thank you.
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