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Why the City Chic (ASX:CCX) share price is sinking

The City Chic Collective Ltd (ASX: CCX) share price is down around 10% in early trading after the company wasn’t successful with an attempted acquisition.

City Chic describes itself as a global omni-channel retailer specialising in plus-size women’s apparel, footwear and accessories. It has several brands including City Chic, Avenue, CCX, Hips & Curves and Fox & Royal.

What happened to City Chic?

City Chic said that it had not been successful in winning the court-run auction for the eCommerce assets of Catherines which are being sold by Ascena Retail as part of a bankruptcy process.

On 24 July 2020 City Chic told the ASX it had been nominated as the stalking horse bidder, but it still had to go through an auction process.

That auction took place on 16 September 2020 and City Chic wasn’t the highest bidder.

City Chic said that despite the strategic merits of the transaction, the winning bid of US$40.8 million was above City Chic’s assessment of the value of those assets. The board said it maintains a disciplined approach to ‘inorganic’ growth, ensuring capital is deployed in line with its growth strategy and which enhances value for shareholders.

Phil Ryan, CEO and Managing Director of City Chic, said: “Although it was disappointing not to win the assets at auction, we have a very good understanding of the plus size market and the value of the assets, we did not want to overpay…Given market conditions, we continue to see opportunities to add brands to our collective and more aggressively take market share organically.”

Summary

City Chic is a good business. It would be disappointing for shareholders not to win, the company raised capital and now doesn’t have an immediate target to use it – which means earnings dilution. However, if management identify a new opportunity quickly then today’s fall may be too negative.

At today’s share price, I think City Chic could be worth buying for the long-term. But other global ASX growth shares could also be good like Pushpay Holdings Ltd (ASX: PPH) and Bubs Australia Ltd (ASX: BUB).

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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