Plus sized apparel chain City Chic Collective has called on the services of McGrath Nicol to restructure its debt after excess inventory helped to push the company into loss making territory.
The retailer made an update to the market on January 20, alerting investors to an underlying loss of $2.5m to $4m on an earnings before interest, tax, depreciation and amortisation basis.
McGrath Nicol is one of the highest profile insolvency firms in Australia that handles major company collapses, but it also carries out a considerable amount of advisory and restructuring work and offers assistance to companies in an effort to prevent them moving into administration or receivership.
Sources in the market say that City Chic is not close to collapse, but its lender, the NAB, has been monitoring the retailer.
In an update to the market last month, City Chic said it had amended its debt facility “in line with our changing business needs” and it is understood that McGrath Nicol offered the assistance.
It is understood City Chic had a $60m debt facility with the NAB and had drawn down about $40m.
But trouble is known to have been looming for the Australian listed apparel chain with over 200 stores globally.
There have been fears that high inventory levels would be the undoing of the apparel chain amid slowing economic conditions and a period of rising interest rates.
City Chic’s market value is now $160m with its share price at 64c after shares were trading at more than $5.50 a year ago.
In its update last month, City Chic said revenue for the six months to December was down 8 per cent to $168.6m from the previous corresponding period.
The company at the time said that demand had continued to be volatile.
Its inventory was expected to be between $163m to $164m, which was lower than it guided at its annual general meeting, and is on track to deliver an inventory balance of $125m to $135m at the end of the financial year.
Before the announcement, retail billionaire Brett Blundy threw his support behind the company, buying a 7.3 per cent stake in the business, while Australian Super and MUFJ have reduced their holdings.
Meanwhile, Spheria Asset Management has been amassing shares, gaining a 13.56 per cent interest.
City Chic’s strategy had been to source additional apparel to achieve greater supply chain diversity due to volatility and disruption caused by geopolitical and pandemic-related issues, and avoiding supply chain inflation.
But this concerned analysts, with many fearing the retailer would be stuck with excess stock and eventually be forced to sell it at cut down prices that would destroy its profit margins.
Other retailers globally have been impacted after their inventory levels have crept too high during the global pandemic, including global appliance manufacturers like De’Longhi and Whilpool.
But supply chains were now loosening, offering companies confidence to clear stock at discounted prices.
CCX Price at posting:
62.0¢ Sentiment: None Disclosure: Held
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