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Here’s why I think the City Chic share price will keep climbing

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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.

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Motley Fool contributor Rhys Brock 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.

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