City Chic Collective Ltd (ASX: CCX) has given a trading update for the first quarter of FY21. Are City Chic shares worth buying?
City Chic is holding its annual general meeting (AGM) today.
It reminded shareholders of its performance in FY20 where it generated $194 million of global sales, 0.4% comparable sales growth, 31% overall revenue growth and 6.6% growth of underlying EBITDA (EBITDA explained).
During COVID-19, City Chic said that it traded profitably, largely thanks to its large digital presence. In FY20 it sold 65% of its products online.
City Chic already had a relatively low fixed cost base before COVID-19, and early action helped lower costs further including rental reductions including better working capital management.
The company also reminded investors of its acquisition and integration of Avenue, which exceeded sales and profit expectations.
City Chic also demonstrated whilst it has a presence in some of the categories of fashin/youth, ‘conservative’ and intimates across ANZ, North America and Europe, there are opportunities to expand. It could enter/acquire the market of ‘conservative’ brands in ANZ and Europe. It could also enter/acquire opportunities in Europe relating to youth/fashion and intimates.
FY21 trading update
City Chic revealed that it has seen positive comparable sales growth in the first 20 weeks of FY21 with 18.7% growth excluding temporary Victorian store closures, or 7.9% including temporary store closures in Victoria. It has seen positive like for like store sales growth, excluding online and Victorian stores.
There has been strong momentum for online sales in Australia and New Zealand in FY21.
City Chic said that Avenue continues to trade well. It’s included in comparable sales from mid-October 2020. It has positive comparable sales for the 4 weeks leading up to the AGM.
The City Chic website in the US continues to improve but it’s still down compared to last year. The City Chic product sales on the Avenue website is delivering growth for the City Chic brand in the US.
Marketplace and wholesale partner sales in the US have been significantly impacted because of COVID-19. The plan is to reinstate key partners by the second half of FY21.
City Chic’s gross margins have improved significantly since the peak of COVID-19 disruption, but still slightly lower than the corresponding period last year.
This seemed like a solid update from City Chic, although there were a couple of disappointing points such as the lower gross margin.
It may take a bit of time before widespread momentum returns for City Chic, but an upcoming COVID-19 vaccine could really help things. Based on that, I think City Chic could be a buy today for its international growth and strong local operations.