City Chic Collective Limited (ASX:CCX): US strategy accelerated

October 3, 2019

 

City Chic Collective is a specialty retailer of women’s fashion products, focusing on plus-size women’s apparel, accessories and footwear products. The company operates in Australia, New Zealand, Europe and the US. The company recently announced a potential acquisition of a U.S. plus size e-commerce business, in line with its business strategy. The details of the acquisition are yet to be announced and will be subject to confirmation of the transaction. Let’s have a general look at the company. We will then discuss our views on the potential acquisition.

 

According to FY19 results:

 

  • Revenue of $148.4 million, up 12.55%

  • Comparable sales growth rate of 12.2%

  • Gross margin 57.8%, down from 59.0%

  • Underlying EBITDA of $24.9 million, up 25%

  • Underlying EBITDA margin 16.8%, up from 15.1%

  • EPS before significant items 7.4 cents

 

The company has 104 stores in Australia and New Zealand, an online platform, and a growing partner business in North America and Europe. Despite the accelerating store rollout in Australia and New Zealand, the main growth driver is from the online platform. Online sales grew by 36% and now represent 44% of sales, up from 36%. City Chic has expanded to the U.S. and Europe through online platforms. About half of the online sales come from the U.S. and Europe. It has a lower gross margin because of higher fulfilment costs. At the same time, the online channel has low fixed costs and is the most profitable channel in this company. The women’s plus size apparel market in North America and Europe is more than 50 times the size of Australia and New Zealand. Therefore, online sales are the main growth driver.

 

The company creates online growth through driving customers to City Chic website, lifestyle extensions and broader product range through online exclusives. City Chic has also expanded into new segments within plus-size and has enhanced the customer experience by upgrading the global website platform. The company acquired the online plus-size intimates retailer Hips & Curves which has a large customer base in the US. On 27 September 2019, the company announced another potential acquisition, called Avenue Stores. Avenue is a US-based specialty retailer of plus size apparel, targeting value-conscious women aged 25 to 55. The acquisition focuses solely on the e-commerce assets. The acquisition price is estimated to be US$10 million. Avenue online sales in FY19 were US$27 million. This potential acquisition allows City Chic to expand into a potentially lucrative market. City Chic’s products are priced higher at around US$39.5 per unit. Avenue’s products are priced at US$17.3 per unit. We are delighted that the company is actively finding suitable acquisitions at an attractive price.

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