The retail industry is under strain with the spread of coronavirus reducing consumer confidence and impacting sales. Multiple retailers have been forced to withdraw guidance in the face of these headwinds. The recent market maelstrom has seen significant falls in the share prices of many ASX retail shares. But has the sell-off been overdone?
Director buys can be a sign that those with the most insight into a company view its shares as undervalued. Here we take a look at 2 ASX retail fashion shares with multiple recent director buys.
What is insider buying?
Insider buying is the purchase of shares in a company by an officer or executive of that company, such as a director. Insiders usually have exclusive insights into the companies they manage and are likely to purchase shares when they view them as undervalued.
Insiders must only buy based on publicly available information and must inform the ASX of the trade by lodging an Appendix 3Y. Depending on the circumstances, the purchase by an insider of shares can be seen as a vote of confidence in a business. Buys by multiple insiders can act as a stronger signal, as can larger, rather than smaller, share purchases.
Which ASX shares have had director buys?
Here are 2 ASX fashion retail shares with multiple recent insider buys.
Accent Group Ltd (ASX: AX1)
Three Accent Group directors have acquired an aggregate of 1,206,163 shares in the company over the last fortnight. Accent Group is Australia's largest footwear retailer, with about 20% of the market. Accent Group brands include The Athlete's Foot, Hype DC, Sketchers, Vans, Dr Martens, and Timberland.
Shares in Accent Group have fallen over 60% from a high of $2.13 in February and are currently trading at 77 cents. Last week, the company reported the spread of coronavirus has had a significant impact on consumer demand. Since the middle of February, like-for-like store sales have deteriorated with a significant decline on last year in the first two weeks of March.
When Accent Group announced its first half results of 19 February, it reported low like-for-like growth in sales for the first 7 weeks of the second half. Based on this, the company predicted profit growth in the second half of FY20.
Last week, Accent Group advised like-for-like retail sales for the first 11 weeks of the second half were now down 1.2%. It also flagged concerns about the ongoing impact of coronavirus on consumer demand and the company's trading over the next few months. As a result, Accent Group advised it no longer expected to achieve profit growth in the FY20 financial year.
Nonetheless, Accent Group advised its inventory levels are well positioned and whilst there are some delays to deliveries, suppliers have advised they are not expecting any material impacts. The business is leveraging the customer access it has through its large email database and 18 websites. Costs are being managed prudently including rents with landlords to ensure the business is well set up to accelerate when conditions normalise.
City Chic Collective Ltd (ASX: CCX)
A City Chic director has bought a total of 100,000 shares in the company over the last few weeks. City Chic is a plus-size affordable fashion retailer selling garments across Australia, New Zealand, the United Kingdom and the United States.
Shares in City Chic have plunged more than 60% from a high of $3.58 in February and are currently trading at $1.30. When it released its half year results in February, City Chic warned that some of its factory base is in the Hubei province, which was closed due to the coronavirus outbreak in China.
City Chic advised at the time that it was working with its long term supply partners and did not expect the disruption to impact sales and inventory. Last week City Chic advised that it had successfully re-established a stable supply from China.
In the early part of the second half, City Chic continued to deliver positive comparable sales growth and remained on track to achieve positive comparable sales growth for FY20. Last week City Chic advised comparable sales for the year to date were strong at 8.6%. The company advised, however, that the ongoing spread of coronavirus and escalation of government containment measures are now affecting consumer spending.
City Chic advised that the impact of the slowdown in consumer spending is uncertain at this stage. Nonetheless, it says its reactive and flexible supply chain positions the business well to manage its working capital through this period. City Chic recently finalised the refinancing of its existing $17.5 million debt facility with a new 3-year, $35 million facility, further strengthening its financial position.
Since the acquisition of Avenue, approximately two-thirds of City Chic's global sales have been via the online channel. This attracts relatively low capital requirements, has low fixed costs, and provides flexibility in the cost base.
City Chic is monitoring the evolving situation with coronavirus and its impact on trading. In its most recent market announcement, chief executive officer Phil Ryan said, "City Chic is an agile organisation and contingency plans are in place to ensure we can effectively operate our business."
With a large proportion of online sales and associated lower costs, City Chic says it can deal with a protracted reduction in economic activity and disruption to operations. Ryan said, "during this time, our focus will remain on delivering the right product at the right price through the right channel to our customers around the world."
Foolish takeaway
Retail shares have been punished in the recent market downturn. The downturn is based on fears over the spread of coronavirus and its economic impacts. The selldowns, however, may have been overdone – director buys can provide a good indication that those best placed to know consider shares good value.
