My experience is that a company only refers to their NPS (Net Promoter Score) when it is good. And excellent is anything above 70. Banks, for argument sake, are always in negative territory.

Even legendary retailers struggle: Costco 35, Ralph Lauren 25 & Neiman Marcus 23  (source: customguage.com)

Briefly NPS, pretty much a world-wide KPI, indicates how happy a customer is to recommend that business. It’s based on a survey of just one question – How likely are you to recommend us to a friend? It’s marked out of 10, with scores of 9 or 10 known as ‘promoters’ and scores of 0 to 6 known as ‘detractors’. The middle scores are known as ‘passives’.

The NPS is determined by the deducting the percentage of detractors from the percentage of promoters – so clearly the score ranges from -100 to +100.

I believe it is an important business health indicator (particularly for consumer facing businesses, like retail) because of these 2 important stats:

·        80% of customers will forgive a company for a mistake after receiving excellent customer service

·       94% say a positive experience makes them more likely to purchase again.

One company which has been in the out-house of the dog-house in recent times (for very good reason) is City Chic (CCX). It’s an investors horror story with a fall from over $6 to just under 10c.

 But at 10c this is worth a gander! Here’s why:

 So, imagine the improvement which is happening at the consumer level when CCX bobs up with a most recent NPS score of 72…and the company ‘sold’ this news appallingly. It is something to crow about.

 I’m thinking a rare ‘breath of fresh air’ is brewing in the out-house of the dog-house.

 And when you read the recent AGM blurb…it’s all there…but appallingly laid out in a dense, turgid 23-page summary.

 But first an important caveat: This management team has taken this company into a near fatal cardiac arrest, but the days of ICU are now done with and condition in the ward is ‘on watch, but somewhat stable’  

 So, here’s how I view CCX, a relatively simple business model involving few moving parts.

 The simple maths are:

(a) more of the right kind of customer (and they are approaching the more upmarket customer and paying little attention to the bargain hunters)

(b) having the right stock which the customer wants & there are good signs that the merchandising is now on track

(c)   Improving the gross margin – and this is happening

(d) That good quality customer increasing their average dollar spend – and this is on an upward trajectory notwithstanding macro headwinds (currently $226 but it was $340 in 2019).

(e) Open more profitable outlets & avenues for the customer to buy (they have closed 4 unprofitable stores in FY25 to date, but have aspirations of building their 72 ANZ stores to 120 over 3 to 5 years. – PLUS - the AusNZ online seems to have lifted AND a big push is now on for the USA (online only) with plans to partner with Amazon and others.

(f)   Reduce costs of doing business – good evidence of this occurring

 Their FY25 guidance estimates of $142-$160m revenue and $11-$18m in EBITDA reflect the elasticity of EBITDA as demand increases. (Note % improvements over revenue growth 7.7% @ $142m & 11.2% @ $160m)

 For FY25 I believe their NPAT (no physical tax because of tax losses) will be between $1m profit & a $5m loss. That said, they are now on watch unless they deliver a FY25 profit but, they will wiggle out of this by watering down the definition of profit.  

 But for FY26 with a revenue of $180m+ I can see $25m and a NPAT of around $7m to $10m (eps of between 1.8c and 2.6c) On a 18x multiplier (which is the current average of the speciality retailers like CCX) this values CCX at 32.4c and 47c – once it proves its upward trajectory is permanent.

 Just as an aside (and to illustrate I have too much time on my hands), I sat outside a City Chic store on the Gold Coast yesterday for an hour (with a coffee to hide my shabby amateur detective work) and counted the number of people walking in – and past! Conclusions: agreeably surprised with the number of store walk ins, but only two sales bags going out (but at average sale of $226, okay, I guess). Stunned, and I do mean stunned, by the size of the potential market for CCX – the larger ‘she’.

CAVEAT: I am a self confessed riverboat gambler on this one. Its not my normal investment style - more, my personal observation of people & their habits. It worked well for me with Shaver Shop when I acquired at less than 35c years ago because I saw the craze for fuzz, 5 o'clock shadows and male vanity! I suspect the 'No means No' movement means the boys will need to be even classier to get that YES.

City Chix (CCX) was a market darling, till it wasn’t - a share price fall from $5.43 to just a tad under 10c certainly says so. Management was 100% to blame – via a massive overstock gamble during Covid and worse still, overstocking on crap merchandise. And the CEO, who is still there, came from a merchandising background. This still troubles me, but he does have the confidence of one of Australia’s premier retailers in Brett Blundy who owns a tad lss than 8% at an average price well higher than the current SP of 13.5c

The result of this fiasco: stock ultimately flogged at almost cost, a lost two years whilst the global ''over reach'' was righted, and massive damage to the brand.

 But the underlying business model is still intact. They sell fashionista to ’SHE” - that’s what they call her, the larger lady, and if it’s not politically incorrect to say, I don’t think there is any significant trend to a slimmer ‘SHE’.  But SHE is conscious of wanting to look good in modern styles and SHE is prepared to pay to look stylish.

I took a riverboat gamble at around 40c about a year ago and things looked grim and still are. But, the ugly duckling is showing distinctive signs of a marvellous makeover, so I’ve taken a big punt on SHE at 12c. I do think this will be close to a binary outcome – I will either be sporting ‘’two pennies on the eyes or I will get a two or three bagger. Here’s why I thinking/praying for the latter:

Early indications are that the turnaround has begun. The business model is intact, merchandising has improved, margins are improving big time, wasteful overreached and ‘over there” stores & brands have been sold off (at massive write offs as you can imagine). The focus now is the ANZ market & the recently released FY24 AR quotes as follows:

“In the first 8 weeks of FY25, the positive momentum we saw in the second half of ‘24 has continued as the strategy delivers a further uplift in gross margin dollars and average sell price. Our focus on new product that the customer is demanding and strong marketing campaigns with a refreshed tone of voice are working.

Total gross margin dollars are up 28%, with trading margin above 61%, a huge 17.7 percentage points up on last year. Revenue is down 9%, as the first eight weeks of FY23 was a period of high discounting to clear stock that drove unit volume and revenue, but not profitability.

At a gross margin level, comparative stores are up around 13% with total stores gross margin up 8%, even with the 11 closures.

Whilst they admit there is still a way to go to return to acceptable per store sales there are two factors which should be considered:

Firstly, cost of living pressure is affecting all retailers, but we may well be on the cusp of an up cycle, particularly if we get interest rate cuts. I suspect SHE will be champing at the bit to refresh the wardrobe.

Secondly, Mosaic (MOZ) from whom CCX was spun off a number of years ago is in dire straits and is literally struggling to survive. Personally, I don’t think they will make it, nor do they deserve to. Recently they announced the closure of a number of brands and stores which will take away significant choice for SHE. Can CCX snaffle this opportunity?

MOZ are shuttering the following:

Rockmans (150 stores 4.46m members) – not an exact fit with the CCX brands but its appeal is to the older SHE and so one can expect some extra biz for CCX

Autograph (49 stores 1.55m members) embracing “curves” so a good fit.

All up they are shuttering some 231 stores, but the real interest will be who can capture their online businesses which they are closing as well (BeMe and Crossroads with a combined membership of 3.7m). Definitely CCX has sharpened up its online presence so I’m thinking they are across the potential here.

 But, I’m not a smarty-pants loner in sniffing out the opportunities here. I was intrigued by Spheria’s strategy in investing in CCX. They now hold 19.8%. What’s more, another junk yard dog – Regal Funds - which has a habit of smelling opportunity has moved in with 7.7% as has Pinnacle with 9.55%. Brett Blundy is sitting quietly with a 7.3% holding.

I’m not sure Uncle Warren will be buying this one, but I’ll be cheering along all the size 16+ SHE’s of Australia & NZ to get out there and get a new frock!  

Todays announcement suggests it could be 'game on'. The statement below isn't a denial, more a confirmation that things are happening and the company is aware of its disclosure obligations.

"City Chic is regularly involved in exploratory discussions with different parties regarding initiatives that could createvalue for its shareholders. However, there is no certainty that any of these opportunities, including any potentialsale of City Chic's North American business, proceed to a binding transaction. Luminis Partners has been a long-standing adviser to City Chic on various projects. City Chic will keep shareholders informed of any materialdevelopments in accordance with its continuous disclosure obligations."

If this was war, I'd have my soldiers on high alert, the airforce scrambled and the navy heading out of port.

I am hoping this will be a happy ending to what has been one of the biggest management blunders in recent history.