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City Chic (ASX:CCX) share price jumps on trading update

The City Chic Collective Ltd (ASX: CCX) share price is rising after providing investors with a trading update for the 26 weeks to 26 December 2021.

City Chic’s mixed trading update

The retailer of clothing, accessories and footwear for women revealed an increase of 49.8% of sales to $173.8 million.

Comparable sales were up 44%. These comparable sales excludes wholesale, online marketplace, Evans, Navabi and periods of extended store closures due to lockdowns.

Of the total sales, Australia and New Zealand sales were up 14% to $80.8 million despite lockdowns. Americas sales jumped 62% to $77.2 million and EMEA revenue was $20.3 million.

Active customers rose 23% during the period to 1.32 million.

Profitability

Management said that they were pleased with the EBITDA result (EBITDA explained). Underlying EBITDA is expected to come in between $22.5 million to $23.5 million, which is in line with the prior corresponding period.

This year’s EBITDA included a $4 million EBITDA impact from store closures, the impact of acquisitions and COVID-19 related marketing and cost reduction measures taken in the prior corresponding period. Marketing costs were $14.5 million in the second half of FY21 compared to $6.9 million in the first half – this has continued into the first half of FY22.

Global supply chain pressures continue, driven by freight capacity shortages and delivery delays. To combat this, City Chic has higher stock levels at 26 December 2021 and will continue to build in the second half of FY22 to secure stock for the northern hemisphere summer season and key sales periods, utilising more cash.

City Chic had $40.5 million of cash at 26 December 2021, with no drawn debt.

Acquisition

The ASX retail share has completed the asset acquisition of USA plus-size marketplace CoEdition’s customer lists, brand and URL, which will be integrated into its City Chic USA platform in January.

City Chic previously traded on CoEdition as a marketplace partner. CoEdition had approximately 55,000 active customers in the 12 months to September 2021 and City Chic paid US$0.64 million for the assets.

My thoughts on this update and the City Chic share price

Aside from the profitability, I thought this was a solid update. The Americas is showing impressive growth which is important because it’s a huge addressable market.

Over time, I think City Chic can become a much bigger business as it grows organically and undoubtedly makes more bolt-on acquisitions. Increasing scale should help profit margins.

Any short-term weakness of the City Chic share price is an opportunity in my opinion. I expect it will be a much bigger business by 2030.

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

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