This retailer's share price just rocketed 12% on its FY18 report

The Specialty Fashion Group Ltd (ASX:SFH) share price is 12.4% higher on its report.

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The Specialty Fashion Group Ltd (ASX: SFH) share price is up 12.4% so far today in response to its FY18 result for the 12 months to 1 July 2018.

During the year the company took the large step of divesting most of its retail brands including Millers, Crossroads, Katies, Autograph and Rivers to Noni B Limited (ASX: NBL) for $31 million, effective 2 July 2018.

The remaining City Chic business is the only continuing part of the business. It had a strong year with revenue growing by 5.4% to $131.9 million. Comparable same store sales growth, excluding wholesale, was 12.9%. Online sales increased to 36% of total sales from 29% in FY17.

The City Chic gross margin improved to 59% from 57.6% and gross profit increased by 8% to $77.8 million.

City Chic underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 79% to $19.9 million and the EBITDA margin grew to 15.1% from 8.9% in FY17.

The overall business, including the discontinued divested brands, reported a net profit after tax (NPAT) loss of $9.3 million due to adjustments related to the divestment. The divested brands had a challenging FY17.

At the end of the year Specialty Fashion had net cash of $16.8 million, a $24.4 million improvement from the $8.3 million net debt at the end of last year. This was before receiving the proceeds from the divestment transaction.

Although no dividend was announced for this result, the Board decided that going forward it will pay a minimum of 50% of NPAT to shareholders as dividends in FY19.

Outlook

The company will continue to grow City Chic by rolling out standalone stores and reducing the number of concession stores. The company has exited stores in the USA and operations in South Africa. The company's focus in the USA is the 'high growth' online channel.

In FY19 City Chic will spend $7 million on capital expenditure relating to transitioning off legacy systems and onto its own standalone IT platform, it will also invest in its store numbers and e-commerce platform. In subsequent years capital expenditure will reduce to $4 million to $5 million. The online channel is less capital intensive.

Foolish takeaway

This was a solid performance by the City Chic brand and I can see why investors are getting excited about the company. Speciality Fashion is trading at 14x FY18's continuing earnings, which is cheap for a business that's growing and has international growth plans.

I wouldn't be surprised to see the Specialty Fashion share price be a strong performer over the next 13 months, I'd be happy to buy a parcel at today's price.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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