Troubled retailer City Chic sells US brand Avenue for $18 million, launches capital raise

Troubled retailer City Chic sells US brand Avenue for $18 million, launches capital raise

As it prepares to launch a $23 million capital raise, struggling plus-size fashion retailer City Chic (ASX: CCX) also revealed it is offloading US-based fashion label Avenue to Fullbeauty Brands in a deal worth $18 million.

In an update to the ASX, the company confirmed group sales are down 30 per cent year-on-year, generating $187 million in FY24. The group also said adjusted earnings from continuing operations will likely come in at a loss of $9.3 million.

The sale of Avenue comes 10 months after City Chic sold its UK brand Evans to AK Retail for $15.5 millionas part of its strategy to exit Europe, where sales had deteriorated significantly. Based in New York, Fullbeauty Brands owns a portfolio of online retail brands that focus on plus-size women's clothing and tall men’s apparel, including brands like Woman Within, Roaman’s, Jessica London and CUUP.

New shares under the equity raising will be priced at 15 cents per share (cps), representing a 50 per cent discount to the last trading price of 30cps on 17 June. 

“A huge amount of work has gone into ensuring our business can return to a position of strength," City Chic CEO Phil Ryan said. 

"Through listening to our customers, we have implemented strategic marketing and product initiatives which have resulted in positive momentum going into FY25F in the key measures of gross margin and sell price.

"With the sale of Avenue, we are focusing on our core City Chic customer in ANZ and the US where we have grown the customer base to over 500,000, up 32 per cent from 2019."

City Chic noted it has undergone a significant business transformation during FY24, including a brand refresh as part of its product and marketing initiatives and right-sizing its cost base to streamline operations under a single brand in Australia, New Zealand and the US. 

"Total planned annualised cost savings from actions already undertaken to right-size the business and additional cost savings that will occur following the sale of Avenue total $20.3 million," the company said in an update to shareholders today. 

While sales are down, the company said it is experiencing positive trends in average price sales (ASP) supported by its new seasonal product and marketing initiatives.

City Chic said this has resulted in margin improvement across the board, with overall gross margins in the fourth quarter up 15 per cent year-on-year, heading back to FY22 levels. The company also said inventory, excluding Avenue, is back to a normalised level. 

"Active customers excluding Avenue are up 32 per cent from 2019 levels, although average annual spend has been impacted by ongoing cost-of-living pressures," City Chic said. 

"The group’s focus on its higher value aspirational customer is expected to deliver further ASP and gross margin improvements in FY25F with its marketing program focused on enhancing brand engagement in ANZ and increasing its target customer base in the USA."

This is not the first time the Sydney-based fashion chain has run into problems, having posted a $27 million loss for the first half of FY23 as international shoppers cut back on spending. The company also struggled to offload a huge build-up of inventories that concerned investors back in August 2022.  

City Chic’s shares have tumbled from a high of $6.70 in October 2021 to 30 cps. This has seen the company’s market capitalisation go from $1.6 billion to less than $70 million in recent weeks.

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.

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