Most Talked About Retail Stocks: City Chic, Kogan.com

  • Jul 29, 2020 AEST
  • Team Kalkine
Most Talked About Retail Stocks: City Chic, Kogan.com

Summary

  • Retail stocks were down extremely in March, and wage subsidies in ANZ lifted the mood of investors drastically. Now, most of the domestic region is up and running while households continue embracing re-openings.
  • City Chic has delivered strong total sales growth of 31% in FY20. The retailer is raising capital and is in contention to acquire e-commerce assets of an old and iconic plus-size brand in the US.
  • Shares of Kogan.com continue trading near lifetime highs but have seen selling over the recent days. Kogan.com noted that monthly performance for June was better than April and May.

Equity market witnessed a bear market after a long time in one of the quickest successions, and the damage perhaps broke multi-decade records and sparked extreme volatility with prices touching multi-year lows.

Retail stocks were also neglected by markets as store closures intensified across the world, and many languishing retail companies are proceeding with bankruptcy. However, this crisis may have triggered structural changes in the system with digital capacity expansion on the agenda.

Do Read: COVID-19 Striking Again: 5 Reasons Shares May Witness a Rise

Businesses that were already embracing the digitisation wave and investing in supply chain capabilities have performed strongly. A number of retailers have reported plans of closing stores, largely where acceptable rental agreements were not reached.

Large retail businesses are actively investing in large-scale automated distribution facilities. At the moment, emphasis will likely remain on factors like liquidity management, promotions, value-driven merchandise and inorganic growth opportunities.   

Must Read: Significant Shift Towards e-retailing, Is Brick-and-Mortar Model at Perpetual Risk?

City Chic Collective Limited (ASX:CCX)

City Chic has completed a fully underwritten placement valued at $80 million and is offering a non-underwritten Share Purchase Plan to raise ~$10 million. Since its last update on 25 May, the retailer has seen trading conditions continuing to improve, as the majority of stores are operating and Avenue website has contributed strongly.

As per unaudited accounts, CCX has recorded revenue of $194.5 million in FY20 with total sales growth of 31% and comparable sale growth of 0.4% over the previous year. Excluding AASB16 and share-based payments, underlying EBITDA was noted at $26.5 million.

Full-year sales in Australia and New Zealand were lower due to restrictions in the second half, but online businesses contributed to sales, primarily driven by Avenue. Due to Melbourne lockdown, CCX has temporary closed 20 stores, while four continue to operate in regional Victoria.

CCX noted that remaining stores continued to trade strongly this month in ANZ, and its online channel continued to deliver products at homes, including in Melbourne. In light of COVID 19, the retailer has been using promotions, driving margins lower and was trading profitably.

City Chic maintained a lean inventory position and ended the year with a cash balance of $21.4 million and $17.5 million of debt. City Chic was eligible for subsidies in ANZ, receiving $3.7 million in FY20. CCX is also undertaking an external audit of payroll systems to remediate any potential anomalies.

Potential Acquisition of Catherines’ Ecommerce Assets - In line with its strategic growth initiatives, City Chic has announced potential acquisition of e-commerce assets of Catherines, a US-based plus-size retailer. Catherines is a well-known brand in the US with a rich history.

In October last year, CCX also acquired e-commerce assets of Avenue in the US market. The new target reflects the retailer’s intentions to grow across geographies and plus-size segments. Fresh capital would be used for the acquisition.

Similar to Avenue’s acquisition, City Chic has been selected as a bidder in the bankruptcy procedures of Ascena Retail, owner of Catherines. If selected, City Chic would pay a cash consideration of US$16 million along with inventory adjustment.

Source: CCX Capital raising Presentation

Catherines has a significant online customer base with revenue of US$67 million over the year to April 2020, equating to around one-third of its total sales. City Chick expects online sales to be lower, given that Catherines’ stores would be closed and from the bankruptcy processes.  

Related: Stocks Showing Interesting Development on Charts- City Chic, Prospa Group, Independence Group

According to the agreement, City Chic Collective should be the highest bidder at the auction, and the transaction must be approved by the court. If successful, the retailer anticipates completing the transaction by the end of this year. In this market environment, CCX is looking for opportunities to expand its brands, grow customer base and enter new geographies.  

On 29 July 2020 (AEST 01:22 PM), CCX was trading at $3.250, down by 4.412% from the previous close.

Kogan.com Limited (ASX:KGN)

Kogan.com has been flirting with lifetime highs. As a digital company, it has emerged as a winner in the COVID 19 world. In the recent past, Kogan added a large number of new customers and sellers on its website, acquired a furniture retailer, and raised capital.

Since Kogan is not just retailing household goods but expanding into other verticals like insurance, super, cars, energy, internet, credit card and furniture, it may be appropriate to call Kogan.com a digital business.

In June, Kogan witnessed a further acceleration in gross sales, gross profit and adjusted-EBITDA, surpassing the performance of April and May. It also completed four years on ASX earlier this month, marking four years of sales and earnings growth.

CEO Ruslan Kogan noted that the business is booming and more customers are embracing digital shift, thereby operating in a competitive and transparent industry. Over 2 million people shopped on Kogan over the last twelve months. He seeks to grow business on customer-centric terms.

In June, the company delivered gross sales of over $94 million, gross profit of over $17 million, adjusted EBITDA of over $7.9 million. At the end of the month, Kogan had a cash balance of $147 million with undrawn debt facility and pending receipt of $20 million from SPP.

Earlier this month, the Federal Court upheld allegations on the company pertaining to violations of the Australian Consumer Law by the ACCC. The incident took place in June 2018 when Kogan offered customers a 10% bargain at checkout.

It was highlighted that the ruling would not have any impact on promotional activities. Kogan intended to offer customers lower prices than prices without coupon or promotion. The company would provide further detail on the matter after review of the ruling, and a hearing is due for concerning penalty in the matter.

On 29 July 2020 (AEST 01:23 PM), KGN was trading at $16.210, down by 2.232% from the previous close.

 


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