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Plus-size fashion company City Chic Collective (ASX: CCX) has narrowly avoided a second strike against its remuneration report at today's annual general meeting (AGM), but shares fell by a quarter as profitability scrapes through the lower end of guidance and low cash reserves show the indispensability of a recent capital raise and asset sale.
City Chic raised $17.5 million and sold US-based fashion label Avenue for $18 million between June and July, yet despite this $35.5 million liquidity injection the group's cash position is now sitting at just $10 million, alongside an equal amount in an undrawn bank facility.
The negative shareholder reaction could have come from any number of factors, including how close the company came to its second strike against its remuneration report with 24.36 per cent of shareholdings voting against it.
A second strike would have prompted a motion to spill the board, although a conditional vote on this matter showed the majority of shareholders would be against this drastic measure at 71.17 per cent.
Curiously, a higher percentage of shareholders - at 28.46 percent - were in favour of overhauling the board compared to the percentage of shares that were against the remuneration report.
Chairman Michael Kay described a "visceral" understanding that the board and management were on notice, and that if the company did not return to profitability in FY25 then action would need to be taken in terms of "some or all of us who have leadership positions at City Chic".
He was frank about the difficult conditions the company has witnessed, with an impact on demand from cost of living pressures that was "more significant than in the global financial crisis", especially in Australia.
"Notwithstanding the difficult economic environment, our market research tells us our customers still love the brand and the product, but that interest rates and inflation have materially reduced their ability to spend on discretionary items," he said.
"In this context and following on from the previous financial year, we have continued to implement measures to ensure the company can trade through these inflationary times and return to profitability," he said, with such measures including a $20.3 million in cost-outs, two divestments of Avenue and Evans, reducing inventory to normalised levels, and materially reducing the complexity and cost of logistics.
"We are currently operating within but towards the lower end of our guidance and of course we have the key periods of Cyber Monday, Black Friday and Christmas coming up. In view of the uncertainty, we will continue to keep the market informed."
He said the cost of doing business had gone down from $132 million in FY23 to an annualised run rate of $73 million during FY25, but amidst this cost conservativism he also flagged a new US project that may have raised some eyebrows.
The USA represents 26 per cent of City Chic's revenue, but Kay highlighted there were still no physical stores for the brand in that market.
He described a low-cost, low-risk "test and trial" in the USA in the 2025 calendar year, which CEO Phil Ryan clarified would involve a low-capital pop-up store.
"A store presence is essential to driving a meaningful customer relationship and there are ways to trial stores without large capital commitment," Ryan said.
"Our USA team will drive this with third party ‘pop up store’ companies that can provide operational support, limiting our risk on leases and employees
"With over half of product searches in the USA originating on Amazon, this partnership needs to anchor the USA strategy to drive further revenue and brand awareness. We have had a successful partnership with Amazon and it has grown quickly."
Ryan said the way the company was managing Amazon was not optimising the listings on the site.
"To improve the sell through of our product we have contracted an Amazon expert that has intimate knowledge of how to make sales on Amazon. We see this as a big step forward and a large building block in our USA strategy," he said.
The US market is challenging enough to navigate in predictable times, let alone with the threat of potential tariffs under a Trump presidency and what they might mean for a company like City Chic, which manufactures its clothes in China, Bangladesh and India. Neither tariffs nor the incoming US President were mentioned in the chairman or CEO's speech notes.
Shares closed down 26.67 per cent today at 9.9 cents per share, which is less than two-thirds of the 15 cents per share price of a capital raise that took place in June and July. The current share price is thus less than 40 per cent of mid-July levels.
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