City Chic shares have fallen another 22pc after diving 33pc on Friday as poor sales dents its profitability

City Chic sales tank amid bloated inventory, with the plus-sized fashion retailer facing sliding earnings and a spiralling share price, down 86.5 per cent since January.

Fashion retailer City Chic is being crunched by a toxic mix of bloated inventories, a pullback in consumer spending and forced discounting to clear excess stock, with the company slapped with multiple earnings downgrades and a collapsing share price.

On Monday, City Chic shares plummeted another 26 per cent to take its decline since January nearly 90 per cent, highlighting the dangers of holding too much inventory at a time of declining consumer confidence and spending. On Friday, shares in the plus-size women’s fashion chain sank 30 per cent after it said it had been forced to slash prices.

City Chic, which has stores across Australia, Europe and North America, said competition was particularly intense in the US, where promotional activity typically reserved for Black Friday sales was happening earlier than usual, depressing margins. Competition was also tough in parts of Europe, while Australia was flat.

In a trading update in conjunction with its annual general meeting on Friday, chief executive Phil Ryan delivered the bad news on sales outlook, margins and competition that sent the shares into a tailspin.

Now multiple earnings downgrades from analysts have seen more falls on the market. On Monday, City Chic shares were down 25.5c, or 25.6 per cent, to 74c – touching lows not seen since mid-2018.

UBS has dramatically lowered its 12-month price target for City Chic from $2 to $1.10 and slashed its expected earning for 2023 and 2024 by 72 per cent and 49 per cent, respectively. UBS analyst Shaun Cousins said a 2 per cent decline in sales to the end of October included cycling periods last year when its Australian and New Zealand stores were closed. The rising cost of living and pressures on household budgets were particularly damaging to City Chic’s sales trajectory.

“A key reason is many City Chic customers are low to middle income earners and hence are more exposed to a higher cost of living, which has increased rapidly. In response, City Chic has needed to be more promotional online to generate sales globally, which is occurring as competitor discounting has been elevated especially in the USA, weighing on gross margins, which are down around 400 basis points.”

Mr Cousins said fulfilment costs have also increased by roughly 500bps, mostly skewed to the northern hemisphere, due partially to increased product returns.

“More broadly, City Chic requires competitor discounting to ease and the macro environment to improve such that promotions are less required to generate sales, with this difficult to predict,” he said.

Macquarie Research has downgraded its recommendation on City Chic to neutral from outperform.