City Chic shares plummet almost 30pc on earnings miss

City Chic has rung up profit growth but it was still a miss for analysts, with shares in the fashion chain owner plummeting.

Shares in women’s plus-size fashion chain City Chic Collective saw almost 20 per cent of their value erased on Thursday after the retailer missed consensus forecasts.

City Chic posted a 39 per cent rise in full-year revenue to $369.2m as net profit rose 11.3 per cent to $47.1m, with its earnings as much as 5 per cent below what analysts had pencilled in for the retailer.

Shares in City Chic plummeted to a low of $1.76, down 28 per cent, before closing down 19.3 per cent at $1.98. The stock has lost 65 per cent of its value since the start of calendar 2022.

In February when City Chic reported its half-year results the stock sank 33 per cent after it revealed it had spent heavily on building up its inventory of clothing and accessories to be in a strong position for a retail recovery — but it panicked investors it was making too huge a bet on ­future retail conditions.

On Thursday City Chic said it was unwinding its heavy inventory position, aiming for inventory of $125m to $135m at the end of fiscal 2023 against $196m at the end of fiscal 2022.

The retailer is forecasting to deliver ongoing profit growth in fiscal 2023 notwithstanding ongoing global economic and geopolitical uncertainty, underpinned by City Chic’s expanded market penetration across geographies and channels, such as Europe and North America, category leadership globally and investment in its distribution infrastructure.

Trading in the first seven weeks of fiscal 2023 was in line with the same period last year, although there had been positive momentum in its performance through August as its Australian stores traded above expectations, its US website gaining sales as socialising rebounded and women began looking for outfits again and there was continued growth for its business in Britain.

Online sales in Australia for the first two weeks of July were below the corresponding period last year however, but had started to improve since.

City Chic chief executive Phil Ryan said in 2022 the retailer had made considerable progress in delivering on its strategy to “Lead a World of Curves” as it continues to build a truly global plus-size apparel business.

“We have continued to pursue our ambitious growth plans supported by an amazing group of people, and have adapted our business to overcome the challenges presented by the pandemic.

“We have entered new markets, secured several new partnerships, embedded new brands into the Collective, and expanded our customer base organically and inorganically including the acquisitions of Navabi and CoEdition. All in the pursuit of our goal to provide the best assortment of plus-size product to our customers all around the world.”

City Chic sales in Australia rose 11 per cent.

Turning to its 2022 results, the retailer said changes in its geographic spread and sales channel mix, while delivering margin growth had a negative impact on gross margins.

These changes were in part a consequence of strategic investments in Europe, led by acquisitions, expansion of strategic partnerships and due to the growth in online revenue. The government directed store closures, had an approximately $4m impact on EBITDA in the current period. Gross Margin was also impacted by higher inbound logistics costs which were in part offset by lower product costs as a result of strategic changes implemented by the business.

Sales in Australia rose 11 per cent to $161.8m, revenue from North America jumped 53.9 per cent to $162.4m. Europe also did well with sales up 53.9 per cent to $162.4m.

Underlying EBITDA rose 11.3 per cent to $47.1m with an EBITDA margin of 12.8 per cent. That compares to 16 per cent in 2021, which benefited from $10m in austerity measures and around $4m was lost due to Covid-19 related mandated store closures in the first half.

The purchase of the Navabi and Evans businesses in Europe generated revenue of $43.9m and became EBITDA positive in the second half of the year.

Mr Ryan said City Chic expected to deliver another year of profitable growth notwithstanding ongoing global economic and geopolitical uncertainty.

“This is underpinned by City Chic’s expanded market penetration across geographies and channels, category leadership globally and investment in its distribution infrastructure.”

No dividends were declared.