The City Chic Collective Ltd (ASX: CCX) share price tumbled even after the plus size women apparel retailer issued a positive update to market this morning.
The CCX share price dropped 3.6% to $1.76 during lunch time trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is down 0.2%.
Full year earnings guidance
City Chic said that independent experts hired to calculate the working capital adjustment relating to the sale of a number of its brands, including Rivers and Millers, to Noni B have found in City Chic’s favour.
The adjustment, along with other non-recurring expenses associated with the divestment (back when City Chic was called Specialty Fashion), will be reflected in the group’s full year results in August under net profit from discontinued operations.
More significantly, management said that full year underlying earnings before interest, tax, depreciation and amortisation (EBITDA) from the businesses it still owns will range between $24 million and $25 million, which is in-line with consensus forecasts.
This perhaps explains why the stock is underperforming the sector today. Given that the City Chic share price has surged over 80% since the start of the year – far outstripping the 2%-odd gains by Premier and Noni B – investors might have been hoping for an upside surprise.
Why City Chic is out of fashion today
Having a bigger than expected profit is important as the stock is currently trading on a FY20 consensus price-earnings (P/E) multiple of over 18 times even after today’s fall.
That’s a little rich in my view, particularly given the volatile consumer spending environment that we are stuck in.
I am generally avoiding retail stocks, particularly those who pay for inventory in US dollars given the weak outlook for the Aussie dollar.
The exception is Premier Investments given the strong track record of management and the traction from its Smiggles stationary business. Even then, PMV shares are trading at a discount to City Chic’s stock.
But there is another group of stocks that the experts at the Motley Fool are banking on to outperform in FY20.
Follow the free link below to find out what these stocks are.
The $700 billion “war on cash” is on… and even The New York Times is calling it “a goldmine of staggering proportions”…
That’s why The Motley Fool has just released a brand-new research report: “Leave Your Wallet at Home: 2 Stocks for the Digital Payments Revolution.” Inside, you’ll find 2 expert-picked ASX shares poised to profit from this sweeping tech revolution.
Heck, stock #1 is already up 204% in just the last two years. While Stock #2 has climbed an eye-watering 954% since 2015 alone…
Yet we’re convinced the sheer biggest returns could be still ahead, with 10X or more potential profits still on the table. Simply click the link below now and we’ll show you how to snap up this timely (and potentially highly profitable) new research for FREE.
Click here to snap up your copy of “Leave Your Wallet at Home: 2 Stocks for the Digital Payments Revolution.”
The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.