ASX share City Chic Collective Ltd (ASX: CCX) is an attractive business according to one particular fund manager.
What does City Chic do?
City Chic describes itself as a global omni-channel retailer that specialises in plus-size women's apparel, footwear and accessories. It has a number of brands including City Chic, Avenue, CCX, Hips & Curves and Fox & Royal. It has a network of 96 stores across Australia and New Zealand, websites operating in Australia, New Zealand and the US, marketplace and wholesale partnerships with major US retailers such as Macys and Nordstrom, and a wholesale business with European and UK partners such as ASOS and Zalando.
Avenue targets value-conscious women with a long history and significant online customer following in the US. Hips & Curves and Fox & Royal are online intimates brands in the US and ANZ respectively.
A recent acquisition
Before I get to the fund manager's views, City Chic announced an acquisition today.
City Chic is going to acquire UK plus-size brand Evans from the Arcadia group. Evans has a long history, having operated for 90 years as a high street retailer.
The ASX share is buying Evans' e-commerce and wholesale businesses, which generated £26 million (A$46 million) of sales for the financial year to August 2020. The Evans website had 19 million visits in that time.
However, this acquisition doesn't include the store network of more than 100 locations in the UK. The administrators are entitled to trade from the existing Evans stores until the end of March 2021, in order to liquidate existing stock in the stores. The franchise business, based primarily in Middle East, is also excluded from the acquisition.
The Evans group (online, wholesale, stores and franchise) generated over £60 million of annual sales prior to COVID-19. City Chic said that Evans has high online penetration with almost half of direct-to-consumer sales (stores and website) being through the digital channel.
The store portfolio has been shrinking for a number of years with customers changing to the digital channel, which City Chic thinks will minimise any e-commerce sales leakage as a result of the administration-led store liquidation. The acquisition will be funded from City Chic's existing cash balance, which was A$121 million before the acquisition. Its $40 million debt facility will remain undrawn.
City Chic said that this acquisition will give it a platform to launch into a new market worth £5 billion annually in the UK, or $9 billion in Australian dollar terms.
What makes City Chic an interesting option?
Fund manager Chris Prunty from QVG Capital thinks that the e-commerce theme will continue to grow after COVID-19 has passed. For a business like City Chic, the fashion ASX share's ability to sell products online underlines its ability to build itself into a market-leading position.
Mr Prunty also said that City Chic's management is a great example of what can be done in a crisis, not worrying about failure and instead focusing on innovating, leading to outperformance.
In FY20, City Chic's online penetration of total sales was 65%, compared to 44% in FY19. Online website sales growth was 113.5% in the last financial year.
After today's movement where the City Chic share price went up 11%, it's now valued at 24x FY23's estimated earnings.
