Why did the City Chic (ASX:CCX) share price just drop then pop 13%?

City Chic’s shares are on the move today…

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Key Points

  • City Chic’s sales grew 49.8% during the first half
  • Revenue growth has been supported by the strategic investment in inventory
  • But softer margins mean earnings will be flat
  • City Chic’s shares fell 4% in early trade before rebounding 13% higher

The City Chic Collective Ltd (ASX: CCX) share price has recovered from an early decline and is racing higher.

At the time of writing, the plus-sized fashion retailer’s shares are up 13% to $5.05.

This compares to a 4% decline in early trade to $4.28.

Why is the City Chic share price so volatile?

The City Chic share price has been bouncing around on Friday following the release of a trading update.

According to the release, during the first half of FY 2022, City Chic delivered unaudited sales revenue growth of 49.8% to $178.3 million. This represents 44% growth on a comparable store basis.

City Chic’s sales growth was underpinned by positive performances across all markets. ANZ revenue rose 14% to $80.8 million and Americas revenue rose 62% to $77.2 million. The EMEA segment contributed $20.3 million of total revenue as a result of acquisitions. The company’s online business played a key role in this positive form. Website traffic increased 22% to 70.6 million visits during the half.

Things weren’t quite as positive for its earnings, which appears to have been what put pressure on the CIty Chic share price in early trade.

Due to the impact of store closures, acquisitions, and COVID-related cost savings a year earlier, the company’s margins were materially weaker year on year. As a result, underlying EBITDA is only expected in the range of $22.5 million to $23.5 million. This is in line with the prior corresponding period.

Though, judging by the City Chic share price currently, it appears as though investors are focusing more on its top line result and less on the one-off impacts to its earnings during the half.

Management commentary

City Chic’s Chief Executive Officer and Managing Director, Phil Ryan, said: “I am pleased with our trading results for the first half, with strong revenue growth in all regions despite well publicised labour shortages and impacts to global logistics and supply chains, and government directed lockdowns related to the pandemic.”

“We are continuing to drive growth across all our regions while adapting our business to address the ongoing challenges. While we acknowledge the environment remains uncertain, the performance of the business to date demonstrates the team’s ability to navigate volatile market conditions.”

Mr Ryan was particularly pleased with the performance of City Chic’s US business and remains very positive on its prospects in the key market.

He concluded: “The particularly strong performance in the USA demonstrates our potential to capture and grow our share of international markets. The global opportunity for City Chic is stronger than ever and we continue to experience growing customer demand across our multi-channel offering.”

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Motley Fool contributor James Mickleboro 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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