Plus-size women's clothing retailer City Chic Collective Ltd (ASX: CCX) has emerged as a surprising success story.
Despite retail being one of the hardest hit sectors during COVID-19 lockdowns in Australia and New Zealand, City Chic has remained profitable by pivoting to e-commerce sales channels.
How has the City Chic share price fared?
In a May COVID-19 trading update, City Chic reported a 57% increase in online sales versus the same period last year, with online sales now making up two thirds of the company's total global sales.
Prudent cost-cutting – such as working capital efficiencies and lower rental agreements negotiated across its retail stores – means the company is emerging from this crisis with a solid foundation for future growth.
This is reflected in the City Chic share price. After crashing to a low of around $0.80 back in March, the City Chic share price has skyrocketed 320% to $3.31 at the time of writing. The company has also successfully completed an $80 million institutional placement and announced the potential acquisition of US-based plus-size women's brand Catherines.
Can the growth story continue?
By pivoting away from traditional brick and mortar retailing and embracing online sales channels, City Chic has laid the foundation for a more resilient long-term business model. Other companies in the consumer discretionary space, like health and beauty specialist McPherson's Ltd (ASX: MCP), have adopted a similar strategy.
City Chic reported unaudited sales revenues for FY20 of $194.5 million, an increase of 31% year-on-year. Underlying unaudited earnings before interest, tax, depreciation and amortisation expenses (EBITDA) has come in at $26.5 million. These are strong results for a company operating in challenging retail conditions.
Should you invest?
Despite the recent rally in the City Chic share price, I think the company still offers some great long-term growth potential. The company's market cap is still only around $760 million, which is about the same as struggling outdoor clothing brand Kathmandu Holdings Ltd (ASX: KMD).
But City Chic is still a small player in a big industry: it estimates the value of the global plus-size women's clothing market to be more than $50 billion annually.
I think there is much to recommend about City Chic. It has shown it can remain profitable in difficult market conditions. It has a large addressable international market. And it has flagged its intentions to continue to expand internationally.
In addition, after its $80 million institutional placement, City Chic has a significant war chest to spend on growth initiatives and acquisitions.
