ASX fashion shares are under the microscope as consumer spending data from the past few months shows fashion retail spend plummeting. Spending on clothing, footwear, and personal accessories was down over 50% in April. Turnover in this market rallied in May but remained 20% down from May 2019.
According to the most recent Australian Bureau of Statistics employment data, unemployment has risen to 7.1%, its highest level since 2001. Another 13% of workers want more hours. Rates of unemployment are highest among young people and women, who often work in the retail sector. Some retailers who shut stores during the lockdown have vowed not to reopen them.
With this in mind, we take a look at how ASX fashion shares are faring.
Lovisa Holdings Ltd (ASX: LOV)
The Lovisa share price has climbed 165% from its March low of $2.35 and is currently trading at $6.24. The Lovisa share price saw a dramatic spike of 18% on Monday, after the accessories retailer released a trading update, but has since dropped back slightly.
In the trading update, Lovisa reported that stores have re-opened although the closures in Q4 resulted in a significant reduction in sales during the period. This led to full year sales revenue of $237 million, compared to $249 million in FY19. Comparable sales for the period since re-opening have been down 32.5% on the prior year. With many consumers still spending more time at home, demand for jewellers and accessories has been somewhat subdued.
Lovisa also announced it has decided to withdraw from the Spanish market. The roll out of Spanish stores was previously put on hold as a result of performance below expectations. Due to a lack of support from Spanish landlords during the COVID-19 shutdown, Lovisa has elected not to reopen stores in Spain.
Positively, Lovisa reports that its balance sheet remains strong and inventory levels are well managed. The company had net cash at financial year end of $22 million, up from $13 million in December 2019 and $11 million in June 2019. This leaves the company well placed to invest in future growth opportunities as the global economy recovers.
City Chic Collective Ltd (ASX: CCX)
The City Chic Collective share price has climbed a massive 292% since its March low of 80 cents and is currently trading at $3.14. The rise in the share price saw City Chic join the S&P/ASX 300 (ASX: XKO) in the latest quarterly rebalance.
The plus size fashion retailer temporarily closed stores in March and reopened in May. Being an omni-channel retailer, online sales already accounted for two thirds of City Chic’s global sales. The company reported strong online sales growth of 57% during the store closure period compared to the same period last year.
On 5 July, the Australian Financial Review (AFR) reported that City Chic is considering buying a second US-based business this year, following the acquisition of Avenue Stores last year. In response to the media speculation, City Chic confirmed its strategy includes growing its international plus size business and that it is exploring potential acquisition opportunities globally. Nonetheless, no agreement has been reached on any potential acquisition currently. Should an agreement be reached, City Chic advised it will consider funding options, which may include cash, debt, or an equity capital raise.
City Chic reports it is in a strong financial position with minimal net debt and significant headroom in its $40 million debt facility. To further bolster balance sheet funding the company executed the $5 million accordion agreed as part of the $35 million facility established in February 2020.
Accent Group Ltd (ASX: AX1)
The Accent Group share price is up 128% from its March low of 56 cents with the footwear retailer reporting strong online sales. During the period stores were closed, Accent’s online sales quadrupled, rising from $250,000 a day to between $800,000 and $1.1 million per day.
In its most recent business update, Accent CEO Daniel Agostinelli commented: “after years of investment by Accent Group in our digital team and technology, I am delighted with the growth in our digital sales.”
Agostinelli believes there has been a seismic and likely enduring shift in consumer behaviour away from traditional shopping centres to online.
Even though it has reopened stores, Accent Group expects a significant ongoing impact on revenue and profitability of stores. This is a result of decreased foot traffic, reduced tourism, and increased levels of unemployment. The group is negotiating with landlords for lease agreements to reflect market conditions.
The company has announced it will close stores where ‘sustainable and fair’ rental deals cannot be agreed with landlords. Accent Group has given notice with one major landlord to exit 28 store leases at expiry over the next 6 months, and says it may be forced to take similar action for more stores in future.
Premier Investments Limited (ASX: PMV)
The Premier Investments share price is up 86% from its March low of $9.49 and is currently trading at $15.99. Premier Investments is behind brands including Peter Alexander, Smiggle, Just Jeans, Portmans, Jacque E, Dotti, and Jay Jays. The company closed stores in March and reopened in May.
The store closures significantly impacted global sales, with total sales down 74% for the 6 weeks to 6 May 2020. Nonetheless, online sales surged by 99%. Premier’s largest online brand, Peter Alexander, saw online sales increase by 295%. The company has made major investments in online technology over the past decade which paid off during the shutdown period.
Premier Investments took a hard line with landlords during the coronavirus crisis, vowing to pay rent in arrears as a percentage of gross sales during the recovery period. In Australia and New Zealand, close to 70% of stores are in holdover or have leases expiring in 2020.
As stores reopened, Premier Investments reported trading activity remained uncertain and unpredictable. Inventory levels and product assortments will be imbalanced until potentially December 2020. The retailer advised that sales and margins would be uncertain and dictated by the manner in which consumers respond to the return of instore shopping in local communities.
Premier Investments reports it is in a position of financial strength with consolidated cash of $256.2 million. It also maintains access to undrawn facilities of $91.8 million which leaves the company well placed to begin recovery.
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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia has recommended Accent Group. 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.
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