Why Market Is Bullish On City Chic Collective?

  • Jul 05, 2019 AEST
  • Team Kalkine
Why Market Is Bullish On City Chic Collective?

City Chic Collective Limited (ASX: CCX), formerly known as Specialty Fashion Group, is a multi-channel retailer, primarily involved in the retailing of women's fashion in Australia and New Zealand. With 375,000 active customers globally, the company has maintained its leadership position in plus size women’s apparel market.

In the past six months, the company’s share price has risen by 97.20%, demonstrating the investors’ confidence in the company’s long-term growth. The main reason behind this positive investor sentiment is the company’s past operational and financial performance. Along with this, the company has great potential to flourish more in the women’s apparel market.

In Australian and New Zealand, women’s plus size apparel market is estimated to be around $1 billion, of which, City Chic Collective already has around 10% share. The company currently has a major growth opportunity in online business, which is one of the most profitable channel.

The financial year 2018 was a great success for the company. During the year, the company witnessed strong results across all of its channels, with strong growth in online sales in both Australia and the USA and positive growth in its store portfolio in ANZ.

The company reported revenues of $132 million and EBITDA of $19.9 million in FY18. The company’s underlying EBITDA margins expanded to 15.1% as a result of strong online sales and an increased focus on costs. During the year, the company’s gross profit margin increased to 59% due to strong buying and promotional discipline, coupled with benefits from investments in our logistics and supply chain capabilities.

During the year, City Chic successfully executed a number of initiatives to set the business up for future growth, including a new e-commerce platform in Australia, a new warehouse solution in the USA, as well as the launch of the first larger format store and a meaningful presence in Germany through a partnership with Zalando. An expanded offering, particularly through online exclusives, further supported strong growth in volumes.

The business has refocused on its profitable and fast-growing channels, regions and exiting subscale operations in the Republic of South Africa and its stores in the USA.

In February 2008, City Chic was one of the first traditional retailers to go online in Australia. Since then, the company has been ahead of the curve in omni-channel retailing, driving market leading online penetration rates while continuing to deliver sales growth in-store. During 2018, the company successfully executed various initiatives to enhance its omni-channel offering, including moving to a new e-commerce site in Australia, which aligned its platform worldwide.

Following the successful 2018, the company also produced strong results in the first half of FY19. During the first half, the company reported revenues from continuing operations of $75.4 million, which was 7.1% higher than the previous corresponding period (pcp). Further, the company reported underlying EBITDA from continuing operations of $15.8 million. During the period, the company earned a profit after tax of $10.1 million, which was 226.7% higher than pcp. Basic earnings per share was 5.3 cents in the first half.

Half year results (Source: Company reports)

On 2nd July 2018, the group divested five of its brands to Noni B Limited for a consideration of $31.0 million (prior to completion adjustments) and retained the City Chic brand. The divestment transformed the company’s financial position with debt fully repaid and kicked off the 2019 financial year with a net cash position of approximately $25 million.

In relation to the divestment of brands, the company engaged independent experts to determine the quantum of the completion adjustment.

Recently, on 24th June 2019, the company advised that it has received the determination from independent experts, and it is in City Chic’s favor. It has been decided that the completion adjustment as well as other non-recurring expenses associated with the divestment will be finalised as part of the year end FY19 net profit after tax from discontinued operations.

As a consequence, the company now expects its FY19 full year underlying EBITDA from continuing operations to be in the range of $24 million to $25million, which is in line with the analyst consensus.

Further, the company declared an interim ordinary dividend of 2.5 cents and a special dividend of 2.5 cents per fully paid ordinary share.

In the first half of FY19, the company opened five stores and agreed to open additional sites in the second half.

In order to further improve its performance, the company intends to implement a new email platform, which will enhance how the company communicates with its customers. Further, the company is launching new CRM to enhance customer insights and predictive modelling.

The company is currently focused on exploring optimal growth avenues with a focus on owning the customer. The company has identified significant opportunity in North America and Europe, where there is a $50 billion women’s plus size apparel market.

ANZ and US Website contributes greater than 1/3 of total sales and is the fastest growing channel. The company’s priority is to grow the City Chic website in the US.

For further growth, the company is exploring new disruptive retail models and collaboration opportunities.

City Chic has consistently been the company’s best performing and most profitable business unit driven by its market leadership of the plus size apparel segment, exceptional customer led focus and innovative digital strategy. The main factor in City Chic’s success has been its incredible team who have a unique connection with their customer. To ensure that the company retain and appropriately incentivise its senior management team, many of whom have been with City Chic for many years, the company has put in place a remuneration structure, which aligns their interests with those of shareholders.

Board Changes: With the company now focused on a single brand, it has appointed a management team who understands the City Chic business extremely well.

Last year, City Chic’s longstanding General Manager, Phil Ryan was replaced by highly experienced Daniel Bracken as CEO. Daniel made a significant contribution to SFG, delivering a transformative transaction and overseeing the subsequent separation and transition process.

In October 2018, the company also welcomed Michael Kay to the Board, bringing extensive commercial and governance experience as a Non-Executive Director and as an Executive across a range of industries.

In May 2019, the company announced the appointment of highly experienced Mark Ohlsson to the role of Company Secretary. In his 30 years of experience, Mark Ohlsson held various secretarial roles for public companies. His appointment is a significant addition to the company’s Board.

With its strong and experienced management team, the company is well positioned to achieve further growth in its business.

Share Performance: On the stock performance front, in the past one year, the company’s stock has provided a return of 93.17% as on 4th July 2019. Its 52 weeks high price stands at $2.000 and 52 weeks low stands at $0.884, with an average volume of ~309,238.

At market close on 5th July 2019, the company’s stock was trading at $1.920, up 3.226% during the day’s trade, with a daily volume of 3,949,388 and market capitalisation of circa $357.56 million. City Chic Collective Limited’s stock has an annual dividend yield of 1.34% (as per ASX).


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