City Chic Collective Ltd (ASX: CCX) shares are in a trading halt with the apparel retailer announcing a capital raising and potential acquisition. City Chic is seeking to raise $90 million via a placement and share purchase plan. Funds will be used to fund the potential acquisition, strengthen the balance sheet, and provide financial flexibility to accelerate growth.
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What does City Chic Collective do?
City Chic is a multi-channel womenswear retailer focused on the plus size market. With over 200 locations globally, City Chic generated revenue of $104.8 million in 1H FY20, with digital sales accounting for 53% of total sales.
With the onset of COVID-19, City Chic temporarily closed stores, but saw online sales continue to climb, building on already high online penetration. Online sales grew 57% versus the same period the prior year, which meant City Chic was able to trade profitably through the store closure period.
Trade has continued to improve as stores have reopened, with City Chic recording FY20 sales revenue of $194.5 million (unaudited).
Why is City Chic raising capital?
At the end of 1H FY20, City Chic had $17.5 million of debt and $14.9 million cash, giving a net debt position of $2.6 million. The company is now seeking to acquire the ecommerce assets of Catherines, a US plus-sized brand which has filed for bankruptcy. City Chic has bid US$16 million for the brand, subject to inventory adjustments. If successful, the transaction is expected to complete in the third or fourth quarter of 2020.
To fund the acquisition, as well as strengthen the balance sheet and provide financial flexibility, City Chic is seeking to raise an additional $90 million in equity capital. A placement to sophisticated and institutional investors will raise $80 million with up to a further $10 million raised via a share purchase plan.
What is the outlook for City Chic?
The City Chic share price has recovered strongly from the March downturn, gaining 300% to trade at $3.20. The proposed acquisition is consistent with the company's strategy of scaling its business across geographies and plus-size segments. It would be City Chic's third strategic acquisition of digital assets in the $50 billion global plus-size apparel market.
In 2019, City Chic acquired Avenue and Hips & Curves, which are now fully integrated and trading profitably. City Chic has advised it intends to continue to assess opportunities to expand its customer base in key product streams and drive digital presence across geographies.
