Shedding loss-making assets helps City Chic boost revenue, net profit

City Chic Collective (ASX: CCX) has grown sales revenue and net profit for the first six months of the 2019 financial year, prompting the company to issue a dividend to shareholders.

Releasing its interim half-year financial results to the market today, the fashion retailer revealed a 7% increase in sales revenue of $75.4 million, while its underlying earnings before interest, taxation and amortisation (EBITDA) was $15.8 million.

Net profit after tax tipped in at $10.1 million for the half-year to the end of December 2018, up from $3.1 million on the previous corresponding period.

The positive results have left the company with a strong cash position of $35.5 million and no debt.

The financials reflect a period of significant change for the company, formerly known as Specialty Fashion Group, with City Chic pocketing $31 million in early July 2018 after it divested some of its underperforming brands, including Millers and Crossroads.

Underpinned by earnings momentum and a solid cash flow, the City Chic board has declared a fully franked interim ordinary dividend of $0.025 per share in addition to a $0.025 per share special dividend, payable on March 19.

Newly appointed City Chic managing director Phil Ryan said the company had delivered excellent top-line growth globally, and at higher margins.

“We are extremely pleased with City Chic’s performance in the first-half across all geographies and channels,” he added.

“Through improved buying discipline, category mix and allocation of stock to appropriate channels, we have been able to reduce discounting to achieve higher sell prices.”

Mr Ryan, who took on the managing director role earlier this week, has been with the business since its inception in 2006 and stepped up as chief executive officer in October 2018.

Financial drivers

The company, which specialises in plus-size woman’s apparel, highlighted the performance of its online platform – now its most profitable division with growth arising in Australia and the US.

“We have now reached 40% online penetration across our business,” Mr Ryan said.

Elsewhere, a successful transition to standalone IT infrastructure following the sell-off has enabled City Chic to focus solely on driving its growth strategy, with expansion plans occurring across Australia and New Zealand.

During the period, the company opened five new standalone stores in Australia but still managed to reduce its underlying cost of doing business to 39.5% of sales.

This was driven by a combination of tighter cost controls across the board, a greater contribution from the low-cost online platform and closing loss making assets in South Africa and Australia.

The company has left its guidance for FY19 capital expenditure unchanged at $7 million.

On at activity level, the company is exploring new disruptive retail models and collaboration partnerships and is also assessing opportunities in North America and Europe.

City Chic’s shares skyrocketed 37.1% on the results to $1.44 in afternoon trade.