Retail continues to be a challenging sector for ASX share selection as businesses face a tough trading environment.
These challenging circumstances were reflected recently when department store giant David Jones reported a profit plunge and announced plans to axe its smaller stores.
Despite the challenging circumstances, there are still ASX retail shares that offer great long-term value. To provide shareholder value, retail shares must offer growth through the various cycles of the retail environment, have a growing online presence and be leveraged for global expansion.
City Chic Collective Ltd (ASX: CCX) is a company that fits this profile and could potentially be the best retail share on the ASX.
What does City Chic do?
City Chic is a multichannel retailer that specialises in catering for plus size women. The company is a collective of customer-led brands that offer fashion-forward women a range of clothing, accessory and footwear options.
City Chic also boasts a multichannel business model that allows the retailer to operate a network of over 100 physical stores in Australia and New Zealand.
The company has a strong online presence with multiple websites in Australia and the US. Avenue and Hips & Curves are two online brands owned by City Chic that have a significant following in the US.
City Chic also has marketplace and wholesale partnerships with quality brands like Macy’s and Nordstrom in the US and ASOS in Europe.
How has City Chic performed?
City Chic recently reported its results for the first half of FY20. The retailer highlighted a 39% growth in top-line sales to $104.8 million for the first half, with same-store sales growing 11.3%. Online sales doubled for the first half, contributing to 53% of total sales.
City Chic also highlighted a 21% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) for the first half of $19.1 million which beat market expectations. In addition, the company saw profits increase 6.3% to $10.5 million for the first half of FY20.
Sales were fuelled by the US$16.5 million acquisition of online assets from US-based women’s retailer Avenue Stores. According to analysts, the new acquisition contributed $15 million to $20 million to sales for the first half. City Chic also saw 7 new bricks and mortar stores open in the first half.
City Chic’s balance sheet revealed $15 million in cash, however, the retailer withheld paying a dividend in the first half, opting instead to retain capital and reinvest in growth opportunities.
Recently, analysts from Wilsons Advisory and Stockbroking Limited released a note highlighting the growth of City Chic. According to analysts, City Chic’s attractive growth rates indicate that the company’s recent acquisitions were well-timed and strategically effective.
Analysts cited City Chic as having an attractive product offering with great international growth prospects and an experienced executive team. However, it was also noted that the retailer’s robust expansion plans carry an element of risk if earning synergies are not realised.
Should you buy?
The City Chic share price has more than doubled in the past 12 months and at the time of writing, is trading at all-time highs. The retailer’s recent financial report indicates a good understanding of its customer base and the growth opportunities in the market.
In the near-term, City Chic plans to build customer loyalty by building a customer-centric operating model and adopting a more efficient supply chain.
In the short-term, the coronavirus outbreak poses a potential concern for City Chic. The retailer sources all of its inventory from China and has a factory in the Hubei province which is the epicentre of the virus. As a result, a severe disruption in supplies could translate into stock constraints that impacts the company’s full-year performance.
Nevertheless, City Chic has the potential to become the best retail share on the ASX and is one to watch in 2020 and beyond.
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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.