Up 116% in a year, is the City Chic (ASX:CCX) share price good value?

After its huge rise, is the City Chic share price at a good price?

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The City Chic Collective Ltd (ASX: CCX) share price has soared more than 116% in just 12 months.

Could City Chic shares still be good value after the plus-size clothing business has seen such a meteoric rise?

What has been driving the City Chic share price?

You'd need to ask all the buyers and sellers over the past year about their real reasons for transacting, but share prices often follow the direction of earnings over time.

Despite suffering from store closures, City Chic reported a lot of growth in FY21. It has also made some key strategic moves.

FY21 profit growth

City Chic saw sales revenue growth of 32.9% to $258.5 million. The global customer base grew by 61% year on year to 1.07 million active customers, whilst website traffic grew 68% year on year to 58.1 million visits. Online sales increased 49.3% and represented 73% of total sales.

But it wasn't just revenue growing at a fast double digit rate, profitability also increased at the various profit lines, meaning profit margins also increased.

City Chic's underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased 59.8% to $42.4 million. The underlying net profit after tax (NPAT) increased 80.6% to $24.9 million. Statutory profit rose 135.3% to $21.6 million.

At the end of the FY21, it finished with $71.5 million of cash, with no debt.

City Chic says that it's well capitalised to deliver on its "strong" organic growth pipeline and well positioned for future inorganic opportunities to expand the global customer base. Keeping capital for those opportunities is partly why City Chic decided not to pay a dividend last financial year.

Another element that can affect the City Chic share price is the trading update and outlook. It said that in the first eight weeks of FY22, it had continued to deliver "strong" positive top-line and comparable sales growth.

Key strategic moves

City Chic is certainly no longer just a business focused on Australia and New Zealand.

It said it has negotiated new partnerships with multiple retailers including Debenhams, Walmart, Amazon, David Jones, The Iconic, Next, Curvissa, Zalando, Target and eBay.

City Chic has also launched the Avenue brand into the Australia and New Zealand market.

The biggest moves during last 12 months have been acquisitions.

One acquisition was the Evans brand, as well as the e-commerce and wholesale businesses, for around $40 million. Evans is the plus-size leader in the UK. Management said this provided it with an excellent foundation in a new geography and is part of the strategy to expand its global digital customer base. Acquired on 23 December 2020, it was profitable in the second half of FY21 with website sales of $13.5 million since acquisition, despite inventory being materially below commercial levels throughout the majority of FY21, lockdowns and disruption from moving website and warehouse.

In July 2021, it also announced it had signed and completed a deal to buy Navabi for almost $10 million. It's a European, predominately Germany-based, business offering hundreds of plus-size brands for women. Navabi also has developed its own brands, which have grown to become the majority of sales.

Is the City Chic share price good value?

Brokers seem to think so. Morgan Stanley rates City Chic as a buy and thinks the business can continue to increase its market share. The broker also points to Torrid (a plus-size peer in the US) as a reason to be positive on City Chic's US prospects.

According to Morgan Stanley, the City Chic share price is valued at 36x FY23's estimated earnings.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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