City Chic Collective Ltd (ASX: CCX) has announced a potential acquisition, is it the best ASX small cap to buy?
City Chic is a retailer specialising in plus-size clothing, accessories and footwear for women. City Chic has 104 retail stores across Australia and New Zealand, websites for Australasia & the USA, marketplace and wholesale partnerships with large US retailers like Macys and Nordstrom, and a wholesale business with European partners such as ASOS and Zalando.
City Chic’s Potential US Acquisition
City Chic has announced that it has been nominated as the ‘stalking horse bidder’ for the e-commerce assets of Avenue Stores which will be sold through an auction in early October.
As stalking horse bidder, City Chic has entered into an asset purchase agreement that is subject to City Chic being the highest bidder at the auction and approval by the US bankruptcy court in Delaware, so there’s no guarantee City Chic will win.
Avenue was established over three decades ago, it’s a US-based retailer of plus size clothes targeting value-conscious women who are aged between 25 to 55.
Avenue entered into Chapter 11 bankruptcy in August 2019 and has been closing its physical stores, so City Chic is trying to buy its e-commerce assets.
City Chic said that if it can acquire Avenue’s e-commerce assets it would give access to the significant value segment of the US plus size market.
For January to May 2019 Avenue reported sales of US$75.3 million and negative EBITDA (click here to learn what EBITDA means) of $0.9 million. E-commerce sales contributed 36% of the sales.
City Chic’s bid is US$10 million, which will be funded through cash and debt – completion is expected by mid October 2019.
City Chic continues to conduct operational due diligence and assess the opportunity in light of the impact of the bankruptcy process and store closures on the e-commerce business.
City Chic could be one of the most exciting small caps to own, which is why it’s one of WAM Microcap Limited’s (ASX: WMI) largest positions.
In FY19 City Chic grew sales by 12.6% with comparable sales growth of 12.2% and online sales being 44% of the total. Underlying EBITDA increased by 25% to $24.9 million thanks to the sales growth and profit margin improvement.
City Chic, and the small cap growth shares in the free report below, could be some of the best performers over the next few years.
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Disclosure: Jaz owns shares of WAM Microcap at the time of writing, but this could change at any time.
