The City Chic Collective Ltd (ASX: CCX) share price is on watch after an acquisition and trading update.
City Chic is a global retailer of plus-size clothing, accessories and footwear for women in multiple countries including Australia, New Zealand, the UK and the US.
City Chic’s acquisition
The ASX retailer has announced it’s going to buy European plus-size e-commerce retailer Navabi for $9.6 million.
Navabi was established in 2009 as an online marketplace selling hundreds of third-party women’s plus-size brands. Navabi has also developed its own exclusive brands which have grown to become a majority of sales in recent years.
The customer base is predominately in Germany. Its websites had 5.8 million customer visits in 2020, generating $16.6 million of sales revenue. Traffic was impacted in 2020 due to COVID-19, with prior years exceeding 10 million visits.
The business has traded profitably in 2021, but traffic and revenue have not recovered to pre-COVID levels.
City Chic has bought all assets and liabilities, which includes €2.1 million of cash, net of tax liabilities. The inventory was depleted during COVID and will be rebuilt to commercial levels of the next six months. City Chic expects trading and profitability to improve from 2022.
City Chic’s going to fund this from its existing cash balance, which was $71.5 million at 27 June 2021.
Management comments
City Chic CEO Phil Ryan said: “Navabi is an exciting strategic opportunity, giving us a great foothold in the €40 billion European plus-size market, which is the next key geography in driving towards our vision to lead a world of curves. Over the past decade we have followed Navabi as it has built a strong online marketplace for plus-size brands…The acquisition is in line with our tried and tested strategy of increasing our global digital customer base and driving profitable revenue growth.”
Trading update
City Chic revealed that in FY21, it saw sales revenue of $258 million, an increase of 32.9% on FY20 and comparable sales growth of 31.6%.
Underlying EBITDA (EBITDA explained) in FY21 is expected to be in the range of $42 million to $42.5 million, representing an increase of between 58% to 60% on FY20.
Trading in FY22 has “exceeded budget” with a strong performance in the US and UK outweighing the impacts of temporary store closures due to lockdowns in Australia.
Summary thoughts on City Chic and the share price
City Chic seems to be one of the best retail shares on the ASX. It has global growth aspirations and it’s using an acquisition strategy to expand its geographical footprint.
However, the City Chic share price heavily reflects its growth potential. It will have to keep growing strongly to justify this high price and keep rising. But I think it’s certainly one of the ASX growth shares to keep an eye on.
