SOURCE - AFR
City Chic is on track to report a 30 per cent fall in sales this year, dragging the women’s specialty fashion retailer’s bottom line deep into the red, internal documents show.
Shares in the ASX-listed company have been suspended for days as the company seeks an emergency $27.5 million equity injection and sells Avenue, a North American brand, for $14.5 million. The Australian Financial Review’s Street Talk column reported this week that FullBeauty Brands is purchasing Avenue from City Chic.
But internal documents viewed by the Financial Review show that much of the $27.5 million being raised by the company will be used to repay its lender, National Australia Bank. Another $13 million will be set aside as working capital.
Phil Ryan is the chief executive of City Chic Collective and was one of the company’s founders.
“Trading conditions have remained challenging”, and sales for this financial year including at Avenue will be down 30 per cent, the document reads.
Across Australia and New Zealand, sales are estimated to have tumbled 31 per cent to 32 per cent to between $97 million and $98 million this year. Sales in the Americas are tipped to fall about 30 per cent to some $90 million.
In February, City Chic chief executive Phil Ryan said he expected to trade profitably in the second half of the financial year with new season product to deliver higher margins and cost-cutting also helping despite the uncertain conditions.
But the company has outlined to investors this year that adjusted earnings from continuing operations will likely come in at a loss of $9.3 million, even after including $8.8 million of cost savings. Another $11.5 million in savings are expected next year following the sale of Avenue. Its reported bottom line for this financial year is estimated to be deep in the red at $91.5 million. The pro forma adjusted loss will be more than $30 million.
The announcement to investors has not been received well. The equity raising will be at a double-digit discount, investors are being told. Canaccord Genuity is lead manager on the capital raising and began wall-crossing listed-equities investors on Tuesday.
Investors have watched City Chic’s share price drop from a high of $6.70 in October 2021 to 30¢, where it last closed. That has pushed its market capitalisation from around $1.6 billion to less than $70 million last week, when shares went into a trading halt.
Brett Blundy, the billionaire retailer behind Lovisa, has emerged as a major shareholder in City Chic, and now owns around 11 per cent of the company. The retailer’s biggest shareholder is Spheria Asset Management at nearly 17 per cent, while Pinnacle Investment Management controls 7.9 per cent, and has also been buying.
City Chic has sought to cut costs including headcount, better store rostering and warehouse renegotiations as it grappled with too much inventory and a slowing consumer backdrop. Its problems date back several years. In 2022, it had more than three times the stock it should and had to heavily discount to move it.
However, Wilsons Advisory analyst John Hynd told clients that the deep discounting could have a detrimental impact on the brands and would make it difficult to dramatically improve revenue over time. Earlier this year, he said he believed a private equity buyer would pay up to $142.6 million for City Chic under a leveraged buyout.
I Guess I can say goodbye to my investment.It is what it is.No point crying over spilled milk as they say.
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