Australia | Jan 20 2022
This story features CITY CHIC COLLECTIVE LIMITED. For more info SHARE ANALYSIS: CCX
The story below was originally published on 19 January 2020. It has been republished with the correct acquisition price paid for Co-Edition.
City Chic's first-half trading update revealed strong top-line growth and, while covid eroded margins and earnings, brokers see blue sky – and let's not forget the latest US acquisition.
-Strong top-line growth but covid erodes margins and earnings
-Co-Edition the latest acquisition
-Brokers see blue sky through covid cloud
By Sarah Mills
Plus-sized fashion retailer City Chic Collective ((CCX)) is back on the acquisition path, acquiring United States plus-sized online retailer Co-Edition for $639,000.
The news comes as the company published a December-half trading update to mixed reviews from brokers, underlying earnings missing several estimates, despite the company recording strong top-line growth.
Revenue rose nearly 50% to $178.3m, despite store closures. A&NZ delivered growth of roughly 40%.
Covid proved the main fly in the ointment, hitting trading days (down -27%) and inventories, as supply-chain constraints come home to roost.
Higher marketing costs also eroded margins and earnings.
Unaudited underlying earnings (EBITDA) ranged between $22.5m and $23.5m, in line with the previous corresponding period, which management considered pleasing in light of lockdown-driven store closures, covid and acquisitions.
Overall though, sales remain strong and most brokers believe City Chic’s investment thesis is solid and expect markets will look through temporary covid weakness to a return to earnings growth.
Most brokers retain a Buy or equivalent recommendation but cut EPS estimates to account for the near-term weakness.
Jarden says the trading update’s main point of concern was a softer cash-flow metric but sheets this back to an inventory build designed to circumvent supply chain issues.
The broker perceives this to be a strategic investment given global supply chain pressures are expected to continue.
Morgan Stanley notes net cash finished December 31 at $41m, down from $72m at June 30.
Brokers generally expect continued investment in supply chain-buttressing in the second half.
But this week's trading update provided plenty of positives.
Top line growth was strong in Australia and New Zealand, and US regions in the December half.
Macquarie notes management has guided to a second-half FY22 earnings skew as acquisitions gather pace and covid imposts ease.
Meanwhile, it’s full steam ahead on the acquisition path.
Wilsons reminds investors City Chic is digesting three acquisitions in three different countries, Co-Edition being the latest purchase.
The business hosted roughly 55,000 active customers in the year to September 30, 2021, and City Chic previously sold its wares on Co-Edition as a marketplace partner.
Citi notes that Co-Edition’s website traffic appears weak, adding City Chic does not plan to maintain the website. City Chic says it will integrate the business onto its website this month.
Wilsons upgrades earnings estimates to account for acquisitions and is keeping an eye to progress on the integration of Evans and Navabi in Europe, considering this to be a potential catalyst.
Bell Potter expects strength in the US will offset short-term logistics problems in the UK.
Broker Views: Post-Event Overview
Overall, FNArena is aware of eight stockbrokers actively covering the stock. With Ord Minnett upgrading to Buy from Accumulate and Wilsons downgrading to Market Weight from Overweight post this week's release, all but Wilsons rate the stock as Buy or an equivalent of Buy.
Reduced near-term forecasts have had a downward impact on valuations and price targets, as expected. Combining all updated price targets, the average comes out as $6.48 or more than 20% above where the shares are trading.
FNArena's consensus price target, which in this context only includes Ord Minnett, Morgan Stanley, Macquarie and UBS, sits at $6.09.
Below are the finer details behind updated Broker views:
Cannacord Genuity retains a buy rating. Target price falls to $7.30 from $7.50.
Jarden retains a Buy rating. Target price inches up to $6.73 from $6.72.
Ord Minnett upgrades to Buy from Accumulate. Target price falls to $6.30 from $6.70.
Morgan Stanley retains an Overweight rating. Target price falls to $5.75 from $6.65.
Macquarie retains an Outperform rating. Target price falls to $7.10 from $7.50.
UBS retains a Buy rating. Target price steady at $6.
Bell Potter retains a Buy rating. Target price rises to $7.40 from $7.05.
Wilsons downgrades to Market Weight from Overweight. Target price rises to $5.30 from $4.40.
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