CCX Commentary

CITY CHIC COLLECTIVE
Fashion Retailer

RADAR RATING SPEC BUY ^ (UPGRADE FROM HOLD)
ASX CODE CCX
CURRENT PRICE $1.24 (MARKET CAP $293)
DIVIDEND YIELD 1.6%*

NET CASH $38.7M

City Chic Collective has gone from a management-based premium to a discount,
falling just over 80% in the past 12 months due to a combination of factors,
mainly a build up of inventory that is now being unwound. The group now aims for
inventory of $125-135m at the end of FY23 versus $196m at 30 June 2022.
The bottom line, however, is that the sky has not fallen in for this global retailer
of plus sized fashion. Moreover, its turnaround represents a buying opportunity.
The stock now trades on a one year forward PE ratio of 8 times and we forecast a
rising dividend yield, anticipating 2 cents* in FY23 and 4 cents the following year.
The key is that the sales line remains robust. We anticipate just over $400m
in FY23, which is almost 10% above last year, producing operating earnings
(EBITDA) of just over $53m. This implies an improvement in profit margins from
FY22’s 12.8% to 13.3%, still a far cry from the JobKeeper boosted FY21’s 16.4%.
Because of leverage at the bottom line, EPS is forecast to grow on average of
28% a year over the next three years. Dividends of 2 cents a share is not a stretch
when the company is forecast to make EPS of almost 13 cents.
Growth is underpinned by the retailer’s expanding market penetration across
geographies and channels, which include the giant markets of Europe and North
America. CCX is now one of the plus sized category leaders (it claims to “Lead
the World of Curves”) and has invested in distribution infrastructure to support
its focus on online sales. Moreover, the company’s annual report, released this
month, cited sales momentum with Australian stores trading above expectations,
and the US website gaining sales as socialising rebounds and women once again
look for outfits.
Boosting growth is also the purchase of the Navabi and Evans businesses in
Europe, which became EBITDA positive in the second half of FY22.
The company is unwinding inventory, which will place pressure on sales and
margins. There is the possibility of a profit downgrade. Overriding this in our view
is that this stock is very good value at these levels. Moreover, if it does in fact
downgrade, this would be a good buying opportunity.

RADAR RATING: Trading on a single digit PE multiple and paying
dividends, City Chic has been oversold and is poised to surprise. Looking
to benefit from rising consumer activity as the world opens up. Has
affordable brands in a growing market. SPEC BUY.