City Chic tumbles on earnings miss

City Chic (ASX: CCX) shareholders received a reminder of what happens to stocks delivering full year results that fail to impress, with the share price down -26% at the open after posting FY22 earnings (EBITDA) of $47.1m, which while up 11.3% on the previous year, failed to meet consensus expectations of $51.5m.

For the 53 weeks ended 3 July 2022, the plus-size women’s fashion retailer reported a 14.5% jump in underlying net profit (NPAT) to $28.5m on sales revenue of $369.2m, up 39% on the previous year, while comparable sales growth was up 25.5%.

What clearly also irked the market today was management’s decision not to declare a dividend for FY22, nor did the company provide any real guidance on FY23 earnings.

Strong sales

At face value, today’s result was by no means the train wreck that the share price fall would suggest.

The company experienced strong sales revenue growth across all regions and expanded its customer base and category market share, after leveraging its global footprint across the online, marketplace and store channels.

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

Margin hit

However, management notes while changes in its geographic spread and sales channel mix delivered margin growth, it negatively impacted gross margins.

The contraction in gross trading margin (excluding fulfilment costs) was from 62.8% to 59.9%.

“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,” management noted.

While the government-directed store closures impacted earnings (EBITDA) by around $4m, gross margins were also affected by higher inbound logistics costs.

However, these were in part offset by lower product costs due to strategic changes implemented by the business.

Growth in the face of disruption

Commenting on today’s result, CEO Phil Ryan reminded investors of the company’s considerable progress delivering on the strategy to provide the best assortment of plus-size product to customers around the world.

“Our revenue CAGR in the 3 years from FY19 to FY22 was 35.2% and 23.7% for EBITDA, demonstrating how we have continued to grow strongly through a period of significant business disruption and uncertainty,” noted Ryan.

“During this time we strengthened our geographic and channel diversity, and this year the Northern Hemisphere contributed to more than half of our total revenue for the first time.”

Highlights within today’s full year FY22 result included:

• Statutory net profit after tax up 4.7% to $22.3m

• Global customer base up 30% vs FY21 to 1.4m active customers

• Global customer website traffic growth of 35% YoY

• Online comparable sales growth of 33.8%

• ANZ: Revenue was $161.8m, up 11%

• Americas: Revenue was $162.4m, up 53.9%

• EMEA: delivered sales of $45.1m and was profitable in second half

• Net debt position $4m with $14m drawn under the $60m debt facility

Looking forward

In light of expanded market penetration across geographies and channels, category leadership globally and investment in its distribution infrastructure, management told investors to expect another year of profitable growth in FY23.

In the first seven weeks of fiscal 2023 trading was broadly in line with the prior corresponding period.

Management also expects inventory to normalise and is targeting $125-135m at the end of FY23, with strong cash generation delivering a positive net cash position in the second half.

City Chic share price over one year.