Straws are discrete research notes that relate to a particular aspect of the company. Grouped under #hashtags, they are ranked by votes.
A good Straw offers a clear and concise perspective on the company and its prospects.
Please visit the forums tab for general discussion.
At PortfolioPlus Scoonie found your analysis of City Chic (ASX:CCX ) the “Plus Size” women’s clothing chain, intriguing. I was particularly impressed by your seeking first-hand customer knowledge by unobtrusively hanging around your local Gold Coast City Chic store to observe store patronage. Modestly described by yourself as undertaking: “shabby amateur detective work." Well done.
An hour or so observing foot traffic is a great way to gain a first hand understanding of a retail business. Retail is one of the few businesses where an ordinary investor you can quickly get some sort of a feel for the business just by visiting a store. Years ago, I bought into JB Hi Fi on the same basis. Being impressed after visiting a local store where I observed it packed with young people along with energetic and helpful staff.
So Scoonie also went to the local City Chic outlet (described by City Chic as a “World of Curves”) at Westfield Kotara and did some of my own investigation. Similar to PortfolioPlus I waited at a non-suspicious distance outside and just watched.
For the 30 minutes I was outside, I observed the following:
I very rarely go to shopping centers and like PortfolioPlus I too was stunned by the observed size of the potential market - what CCX management call the larger ‘she’.
Dissatisfied with the usefulness of the above detective work, I decided to enter the store under the pretext of intending to buy a Christmas dress for my wife. The idea being, in the process I would engage the staff member with questions on store performance, staff turnover and all things business. This was a big step for Scoonie. Firstly I have never been in a dress shop before in my life, and secondly my wife is a svelte size 10. I reasoned to myself: if a wily Plus saleslady did somehow corner me into making a purchase, then I could have someone cut down the plus-sized dress and with the material make three (or perhaps more) normal sized garments. So all would not be lost.
As I waited a distance outside the City Chic outlet, the very thought of the deception I was planning was making me nauseous. The feeling was something like the time as a thirteen year old Scoonie used to pretend to look at the car magazines at the local newsagent. Instead my tiny retina muscles were straining to the side, ogling the front covers of the adjacent magazines in their little plastic bags. Fortunately at the time the whole situation was so stressful my other tiny muscle did not also become strained, so saving me any further embarrassment.
After a break in the shopping mall foot traffic and wearing a baseball cap and heavy-set reading glasses I quickly darted into the store. What confronted me was so many tent dresses it could have been the Port Macquarie caravan park at Easter. Row after billowing row of them. A Plus sized shop assistant with a Plus sized smile approached me and asked if she could help. I felt extremely embarrassed. I was just rooted on the spot. I couldn’t get any words out. It was like being back in high school, trying to build up the courage to phone the hot chick and ask her out. And I did, and when she picked up the phone I just hung up. Or like the time I arrived at school with my fly down, and for once the hot chicks took notice of me - only this time they were all laughing at me. Or at least a part of me.
The Plus lady was now directly in front of me, smiling. What could I do but just pretended to smile back. And then pretend my phone was ringing and put it up to high on my head to cover as much of my red and throbbing face as I could. Then for real put my head down. Then for real ran as fast as I could out of the shop. School Chicks or City Chics it only proves my life-long interactions with females are a complete cluster.
I am back home now, and when this morning I went to get the mail one of the neighbours looked at me a little strange and didn’t say anything. I know she works at the local Westfield. Instead of me investigating the local City Chic “World of Curves” for serious business intent, maybe now I am being investigated as some sort of a sick lead actor in a “World of Pervs”.
With my wife working and I having no visible means of support and being a naturally introverted and quiet sort of fellow I am already something of a Village Oddity. And after what just happened I risk being becoming known as the Village Weirdo. Myself, I would be content with just being known as an ordinary every- day Village Idiot.
Andrew can you please start up some kind of a Strawman Roster of members to undertake these real life investigations? To kind-of equitably spread around the psychological punishment. I don’t think at my age, and my now fragile mental condition I can handle another humiliation like this one.
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!
Guiding to a signifcant turnaround for FY25 with increase in revenue and dramatic increase in EBITDA
Intriguing they used Trading Gross Margins as THE indication that FY25 has started well. Trading gross margins "represents the difference between product sell price and product cost and is before accounting and other adjustments"
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.
I'm finding the FY23 results particularly difficult to read given they have decided to report on only the part of the company that remains (following the post EOFY decision to divest the EMEA assets and exit that part of the market).
Please correct me if I'm wrong but it looks like they have divested $40.3m worth of sales in EMEA (308.7-268.4) as well as $40.5m worth of costs (200.6-160.1). That seems like a good idea to me.
Any accountants out there who understand how the asset impairment of 29.4m impacts them moving forward and any other losses from the divestment of the EMEA business and how they might show up in FY24 numbers. That deal only closed 3 August 2023 according to ASX announcement so I'm not sure how to interpret the accounting moving forward.
DISC: Held IRL and in Strawman
I haven’t seen Brett Blundy back a loser. Currently he is selling cattle stations and buying City Chic, now holding 7.3% of the company. I reckon you could do a lot worse than to follow in Brett Blundy’s footsteps! See the excerpt from this mornings AFR article below on The Blundy Effect.
Disc: I haven’t researched City Chic (yet) and I don’t currently hold
(photo from AFR)
”The Blundy effect has finally arrived at womenswear retailer City Chic Collective!
Bombed out and in need of a billionaire buddy, Blundy’s long-awaited arrival on City Chic’s share register sent the shares up 25 per cent during Wednesday’s match and fuelled expectations of more buying in the weeks ahead.
While Blundy’s substantial shareholder notice - revealing he owned a 7.3 per cent stake - sent the shares flying, the smart money had been expecting it for weeks.”
City Chic Collective Limited Interim FY21 Results
Results Highlights
15-Feb-2021: I have been watching Friday's "The Call" (from Ausbiz) today, and Ben Clark from TMS Capital (who I rate highly) and Adam Dawes from Shaw and Partners (not so much) both like CCX here, and had good things to say about them. They both rate CCX as a "Buy" so it's now gone into "The Call" portfolio. The commentary on CCX starts at the 35:30 mark.
Ben also added (right at the end) that some of the best small cap fund managers in Australia are on the CCX share register. I've just had a look at that and only Spheria Asset Management are still on the substantial holders list with 5.96% of CCX (and they've been reducing their exposure lately). AustralianSuper are also on there with 7.2% but that's far more a reflection of their "Member Direct" option that allows their thousands of members to choose their own stocks. AustralianSuper is now Australia's largest superannuation fund, so they are popping up on a LOT of share registries. Pendal and QVG Capital have both sold down now to below 5% (and possibly sold out, we don't know). WAM Funds used to tout CCX as a "Strong Buy" but CCX are no longer showing as a top 20 position in any of WAM Funds' LICs, so I'm not sure who Ben is referring to there - other than Spheria. It looks like most of them have locked in their profits already by either selling down or selling out of CCX. Not exactly a huge surprise there really - because CCX has had a brilliant run.
Back in May last year, Wilsons (the broking firm, who are not connected with WAM Funds) had an "Overweight" call on CCX with a 12-month PT of $3.25. CCX closed at $4.22 this afternoon, so I don't think Wilsons still rate CCX as a buy up here, being +29.8% higher than Wilson's May 2021 Price Target (of $3.25).
Arden Jennings from Ausbill said in July last year on a LivewireMarkets Buy-Hold-Sell segment that CCX was a high conviction position for Ausbill, and that CCX was in both their Ausbil Small Cap Fund and their Ausbill Microcap Fund. CCX closed at $3.27 that day. They are +29% higher now and have just announced a large overseas acquisition. Not sure if Ausbill are still bullish on CCX, but they are certainly not substantial shareholders and it looks like they never were, so even when they were very bullish they never owned as much as 5% of CCX. They could well be there with less than 5%, as could a number of other small company specialist fund managers, but I'd like to know who they are if they are still there. More details please Ben!!
If anybody knows of any other small cap fundies who are still rating CCX as a "Buy" up here, please share.
30-July-2020: In this LivewireMarkets Buy-Hold-Sell segment, Vishal Teckchandani discusses CCX (City Chic Collective), TPW (Temple & Webster) and UWL (Uniti Group, formerly Uniti Wireless Group) with Tobias Yao from Wilsons (Wilson Asset Management Group) and Arden Jennings from Ausbill.
Tobias and Arden both rate CCX, TPW and UWL as BUYS, and Arden said that both UWL and CCX were high conviction positions for Ausbill, with CCX in both their Ausbil Small Cap Fund and their Ausbill Microcap Fund. However, both WAM Funds (Wilsons) and Ausbill clearly hold all 3 companies in their respective funds.
Tobias also likes IFM (Infomedia) and Arden likes LIC (Lifestyle Communities).
Warning: Vishal's puns could elicit the odd groan...
25-May-2020: COVID-19 Update
City Chic Collective Limited (CCX, formerly Specialty Fashion Group Limited) is up over +16% so far today on the back of this positive update.
31-March-2020: Wilsons: City Chic Collective (CCX): “Third chances”
Wilsons have maintained their “Overweight” call on CCX.
Really?! I would have thought “Plus-Sized” would have been more PC.
Excerpts:
In response to the escalation of COVID-19 in Australia and New Zealand City Chic has closed all of its Australian and New Zealand stores. This follows a trading update on 19 March 2020. We have accounted for the store closures in our forecasts which decline materially. However, we retain an OVERWEIGHT recommendation given; (i) strong and growing online business in Australia and North America; (ii) attractive multi-billion dollar end market; and (iii) potential early recovery story amongst listed peers.
Key points
Valuation: TP of $2.00/share reflects a downgrade of 33.2% (vs. prev.) and is based on a DCF methodology. CCX is trading on FY21e PE of 10.8x vs peers on 14.8x and the XSO on 9.9x.
Model changes: Material changes to forecasts. Our EBITDA forecasts decline 15.2% and 9.9% to $30.2m and $39.2m in FY20e and FY21e respectively. FY20e forecasts reflect 2H20e EBIT of $11.2m (+40.8% yoy) and conservatively assume six weeks of store closures in Australia and New Zealand. Operational cost reductions only provide a small offset (not standing down staff).
Store closures: CCX closed its New Zealand stores (11 stores) on 25 March 2020 and its Australian stores on 29 March 2020. We assume all stores are closed for a period of six weeks in our revised forecasts, which negatively impact 2H20e revenue by $8.6m. CCX has small wholesale operations in North America and we forecast some impact in that business too.
Online model: CCX has the most diverse, robust and high growth online business in our consumer coverage universe. Underlying revenue increased 52.2% yoy to $54.4m in 1H20a (51.9% of group sales), with the full benefit of the Avenue and Hips & Curves acquisitions yet to be realised. Our revised forecasts reflect Australian and North American online stores an alternative channel for store inventory and also the likely channel to experience faster growth once macro conditions stabilise.
Capital event: As at 1H20a CCX had net debt of $2.3m. We forecast this to increase to $8.9m in 2H20e due to softer sales and the acquisition of Avenue. While we also expect working capital to increase in 2H20e, CCX is a cash generative company and unlikely to require equity in the near-term.
Risks and catalysts
Key risks: 1) Poor Spring trading period; 2) aggressive discounting by peers; and 3) headwinds from US wholesale customers.
Key catalysts: 1) Stronger-than-expected LFL sales growth; 2) MOZ trading…
[click on the link at the top of this straw for more]