Struggling fashion retailer City Chic posts $27m loss, shares fall 11pc

Plus-size retailer City Chic (ASX: CCX) has posted a $27.2 million loss for the first half of the financial year as international shoppers cut back on spending at the struggling fashion chain.

The Sydney-based retailer also revealed a loss of $3.4 million in underlying earnings, which was exacerbated to $23.1 million after including a provisional inventory loss in the Europe, Middle East and Africa (EMEA) region.

City Chic noted promotional activity was required to drive demand – particularly in the Americas and EMEA - as global sales revenue fell by eight per cent to hit $168.6 million.

Sales in the Americas dipped by 14 per cent to $68.9 million for the half, meanwhile revenue in EMEA fell by four per cent to $20.2 million and dipped 3.1 per cent in Australia and New Zealand to generate $79.5 million.

Off the back of today’s news, shares dived 11.6 per cent to 52 cents each this morning.

“City Chic has had a challenging first half across our key markets as consumer demand contracted, particularly in the USA and Europe. In Australia, revenue was down slightly as lower online sales more than offset strong growth in stores as customers returned to in-store shopping,” City Chic CEO and managing director Phil Ryan said.

“Margins were impacted by promotional activity and input logistics and fulfilment costs from reduced basket sizes and inflation-driven cost increases. We are targeting getting the business back to historical margins and combatting cost inflation, while right-sizing our operational footprint to support future growth.

“We are confident these initiatives will get us back to a position of delivering sustainable, profitable growth over the medium term.”

City Chic’s online sales fell 21.4 per cent to $115.4 million while store sales rose 27 per cent to $35.9 million for the half. Despite the decline in online sales, the group also saw a seven per cent increase in global customer website traffic to reach 76.7 million visitors for the period. 

Fulfilment costs also increased by five per cent of revenue in the half due to inflationary pressures resulting in rate card increases from third-party logistics providers, increased storage costs with elevated levels of inventory, and its complex global network of warehouses requiring multi-handling and higher return rates.

In a bid to reduce costs, City Chic is looking to consolidate its warehouses and reduce supply chain complexity, including rationalising third-party logistics facilities from 12 to four. In addition, the group is launching a new automated facility and has reduced last-mile freight costs with partners in the USA from next month.

Other plans include driving partnership opportunities in the EMEA region, and capitalising on the growth seen on eBay and The Iconic in Australia and New Zealand.

“The connection we have with our loyal customers is as strong as ever, with returning customer numbers improving and total customer numbers steady over the last 12 months,” Ryan said.

“I remain confident in our unique offering across our brands. We made good progress on our planned inventory reduction program and remain on track to being net cash positive by the financial year-end.”

In the latest update, the company has cleared its inventory by $32.7 million to $163 million and confirmed it is on track for inventory to be between $105 million and $115 million by the end of the financial year.

City Chic also noted that operating conditions remain uncertain, with trading in the first seven weeks in the second half 17 per cent below the prior corresponding period.

Formerly known as Speciality Fashion Group (SFG), City Chic was one of six companies under the group’s portfolio prior to the sale of Autograph, Crossroads, Katies, Millers and Rivers to rival Noni B in July 2018.

After the acquisition was completed, SFG rebranded to City Chic Collective in November 2018.