The City Chick Collective Ltd (ASX: CCX) share price is tumbling after the release of the company's earnings for the first half of financial year 2022.
At the time of writing, the City Chic share price is $3.49, 30.89% lower than its previous close.
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City Chic share price plunges on new inventory approach
- Sales revenue of $178.3 million – 49% more than the first half of financial year 2021
- Underlying earnings before interest, tax, depreciation, and amortisation (EBITDA), adjusted for certain expenses of $23.5 million – 1% higher
- Statutory net profit after tax (NPAT) of $12.3 million – 6% lower
- Cost of doing business increased to $81.5 million – 45.7% more than the prior comparable period
- Operating cash flow came to a loss of $19.4 million – down from positive $21.3 million
- No dividend declared
Over the half year just been, the women's clothing retailer's global customer base increased 64% to 1.32 million active customers. Additionally, 55% of City Chic's revenue came from outside the Australia and New Zealand region.
The Australia and New Zealand region brought in $80.7 million of sales – a 14% increase.
In the Americas, the company received $77.2 million of sales, 62% more than the prior comparable period.
Meanwhile, in Europe, the Middle East, and Africa, the company received $20.3 million of sales to breakeven at the EBITDA level.
Its website traffic grew 71% and its online comparable sales increased 52.5% with 83% online penetration.
Such growth came despite COVID-19 impacts including labour shortages, supply chain and logistics challenges, and store closures that saw 27% of trading days lost.
Store closures cost the company around $4 million last half while it strategically invested in its inventory to manage supply chain risks.
City Chic increased lead times for its existing factories and added additional lead times for new supply partners.
As a result, the company had higher inventory levels at the end of the half and will see a further build up over the rest of the financial year.
By doing so, it hopes to secure stock for the Northern Hemisphere's summer and key sales periods, but it will need to use more cash.
Due to COVID-19 uncertainty, investment in inventory, a decline in operating cash flows, and acquisition opportunities, the company hasn't paid a dividend this half.
It didn't pay a dividend for financial year 2021 either.
It ended the period with $38.7 million of cash – down 45.9% – and no borrowings.
What else happened in the half?
Over the first half, City Chic acquired European plus-size online marketplace Navabi.
The company paid $4.3 million for the acquisition in July.
On the back of the news, the City Chic share price launched 6% higher.
Additionally, it opened 8 new stores, closed 3, and relocated 8 to larger sites.
It now has 7 larger format stores with an average footprint of 220 square metres and 21 stores in its 'gold' design with footprints of 150 square metres.
At the end of the half, City Chic operated 94 stores.
What did management say?
City Chic CEO and managing director, Phil Ryan commented on the company's earnings for the first half, saying:
Our revenue growth of 49.8% is very pleasing as we stayed focused on our three strategic pillars of plus size, digital, and global customer acquisition. We did this through expanding the customer base both organically and inorganically while accelerating our digital growth.
The revenue growth demonstrates that our product range and lifestyle mix across all of our assortment has global appeal.
Michael Kay, City Chic chair, commented on the company's outlook for financial year 2022 and financial year 2023:
The COVID-19 pandemic continues to have an impact both locally and globally. The directors continue to monitor COVID-19 related developments and are working closely with management to assess and navigate the potential implications for team members, suppliers, customers, and operations.
While the environment remains uncertain, the performance of the business to date demonstrates the management team's ability to manage volatile market conditions. We are confident we are well positioned to continue to grow our business and to lead a world of curves.
What's next?
City Chic hasn't provided new guidance for the second half of financial year 2022.
However, it did put out a trading update on the first 8 weeks of 2022.
The company has continued to deliver growth, but online sales growth rates in key markets have been more subdued than the prior half.
In the United States, the company's growth has continued with strong sales on both the City Chic and Avenue website.
Sales from CoEditon – acquired by the company in January – have started strong.
Sales in the United Kingdom and Europe look to be recovering and the company's partner businesses are showing growth.
City Chic is looking to continue its partnership as it seeks new alliances in financial years 2022 and 2023.
In the second half, it will be focusing on managing its supply chain and inventory.
City Chic share price snapshot
The City Chic share price has fallen 36% year to date.
It's also 16% lower than it was this time last year.
