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Why The City Chic (ASX:CCX) Share Price Is Going Nuts

This morning, shares in City Chic Collective Ltd (ASX: CCX) were placed in a trading halt pending an announcement. The City Chic share price raced out of this halt at around lunchtime today and is currently up more than 12%.

About City Chic

City Chic is a clothing retailer which was previously known as Specialty Fashion Group. In 2018, the company sold five of its brands including Millers, Katies and Rivers to fellow ASX listed retailer Noni B Limited (ASX: NBL). As a result of the sale, the only brand remaining was City Chic.

City Chic specialises in plus-size clothing, accessories and footwear for women. The company has 104 retail stores across Australia and New Zealand, websites for Australasia & the USA, marketplace and wholesale partnerships with large US retailers like Macy’s and Nordstrom, and a wholesale business with European partners such as ASOS and Zalando.

What’s Happened?

Last Friday, City Chic announced that had been nominated as the stalking horse bidder for the e-commerce assets of Avenue Stores, LLC, a plus-size retail store chain in the US.

A stalking horse bid refers to the initial bid on the assets of a bankrupt company. After being established more than 30 years ago, Avenue filed for bankruptcy in August this year and is closing down its 222 brick and mortar store network.

Today, City Chic announced it was the winning bidder at the auction with an offer price of US$16.5 million. The transaction will be financed from its existing cash balance of $23 million as at 30 June 2019, as well as from new and existing credit facilities.

The acquisition of Avenue’s e-commerce assets includes a well-established customer database and inventory. According to City Chic, this will provide the company with access to a significant value segment of the US plus-sized market.

What Now?

City Chic’s winning bid is subject to approval by the US Bankruptcy Court on 7 October 2019. Subject to this approval, the transaction is expected to close in mid-October.

City Chic has been rapidly expanding into the US through wholesale partnerships with big-name US retailers such as Nordstom and Macy’s. The acquisition of Avenue’s e-commerce assets should give City Chic a greater foothold in the lucrative US market.

Although this is promising, City Chic operates in a space that is especially susceptible to fluctuations in the macroeconomy.  As a result, I’d rather invest in the companies profiled in the free report below.

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