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!
