2 ASX shares that may be worth researching this weekend

City Chic and Reject Shop could be two good ASX shares to think about.

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The weekend could be a good time to start thinking about ASX shares that may be able to benefit from the reopening play in Australia’s two biggest cities.

Some businesses have had their store profit impacted for a number of months. But they could change in the coming weeks with both NSW and Victoria expected to lessen restrictions.

The below two ASX shares could be opportunities to consider:

City Chic Collective Ltd (ASX: CCX)

City Chic is a retailer of plus-size clothing, footwear and accessories. It has a store network across Australia and New Zealand, but it also has businesses and partnerships in the northern hemisphere as well.

It’s currently rated as a buy by the broker Morgan Stanley. The price target is $6.65, that suggests the City Chic share price could increase by around 5% over the next 12 months, if the broker is right. Morgan Stanley is encouraged by the recent performance of Torrid, one of City Chic’s rivals in the US.

Despite all of the impacts of COVID-19 during FY21, it reported double digit growth. Sales revenue rose 32.9% to $258.5 million. The various profit levels grew faster – underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose 59.8% to $42.4 million whilst underlying net profit rose 80.6% to $24.9 million.

A key move by the ASX share during the year was buying the Evans online and wholesale business in the UK. That has made City Chic the market leader in the country. Management said the first six months of trading were pleasing, with operations profitable over the period. The integration is now complete and inventory levels are back to a commercial level.

It also bought Navabi, a European plus-size business that predominately operates in Germany.

The first eight weeks of FY22 saw continued “strong” positive top line and comparable sales growth.

Morgan Stanley puts the City Chic share price at 35x FY23’s estimated earnings.

Reject Shop Ltd (ASX: TRS)

The Reject Shop is a business with a national network of discount stores.

Morgan Stanley also believes that Reject Shop shares are a buy, with a price target of $10.

The broker believes that once restrictions lift, the ASX share will be able to perform better over the next couple of years.

Morgan Stanley liked the FY21 result.

Despite sales falling by 5.1% to $778.7 million, profitability across the business increased significantly. During the year, Reject Shop reduced its cost of doing business (CODB) by approximately $22.5 million. Of that total, $8.8 million came from administrative expenses and $13.7 million from store expenses.

Some of the savings achieved by the ASX share will be re-invested to improve technology and systems across the business as it prepares for growth. At a store level, Reject Shop said that the simplification and standardisation of in-store processes during the year were main drivers of store labour reducing to 13.9% of sales, compared to 14.5% in the prior corresponding period.

Reject Shop’s underlying earnings before interest and tax (EBIT) increased 110% to $9.4 million, whilst underlying net profit jumped 134% to $6.4 million.

During FY21, the company opened 10 new stores and closed three years. In FY22 it’s expecting to open a further 20 stores, whilst closing five unprofitable or underperforming stores.

However, the international supply chain continues to result in higher shipping costs.

The Reject Shop share price is valued at 14x FY23 estimated earnings.

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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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