City Chic share price plummets 13% as cash flow sinks in FY22

Shares in the retailer shot 13% lower at the open today. Here is what you need to know.

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The City Chic Collective Ltd (ASX: CCX) share price took a deep dive this morning on the back of a challenging set of full-year results for FY22.

The City Chic share price closed at $2.46 per share yesterday and plummeted 13.4% to a low of $2.13 at the open today. After regaining some ground this morning, shares in the company are now trading 11.3% lower at $2.18.

Let's dive into the FY22 results for the ASX-listed plus-sized apparel global retailer.

What did City Chic report for FY22?

Here are the key highlights from the City Chic FY22 results.

  • Revenue grew 39% to $369.2 million relative to FY21
  • Net profit after tax increased slightly from $21.6 million to $22.3 million
  • The inventory balance nearly tripled from $67 million to $196 million
  • Operating cash flow plummeted from $15.2 million to negative $51.9 million

In Australia and New Zealand, revenue rose by 11% despite the adverse impact of mandated COVID-19 store closures. Online growth sales of 27.5% helped with offsetting the store closures.

Americas contributed a significant 53.9% jump in revenue, mainly due to solid website traffic growth of 31% and 42% growth in customer numbers.

Europe, the Middle East and Africa regions recorded $45.1 million in sales but reeled in lower gross margin and earnings before interest, taxation and amortisation (EBITDA) margin. This was down to supply chain and logistics issues, in particular across the second half of FY22.

City Chic ramped up its inventory levels heavily to mitigate the impact of supply chain issues in FY23. As a result, the current inventory balance sits at $195.9 million.

This would appear the biggest reason why operating cash flow reversed dramatically as management anticipates greater macroeconomic and consumer spending uncertainty. Given the challenging environment ahead, management decided not to declare a dividend for FY22.

City Chic's balance sheet appears stable, with a net debt position of $4 million.

FY23 update

Management advises the first seven weeks of trading in FY23 have been consistent with FY22, with some positive momentum in August.

Both physical stores and online are performing above expectations in Australia. In the United States, the City Chic website outperforms last year, while the Avenue website is trading below over the same period. However, there are signs of week-on-week improvement.

Cyclical issues are still present in the UK, but the region continues to signs of growth.

Management commentary

City Chic CEO and managing director Phil Ryan said management was focused on delivering free cash flow in FY23. He said:

To support this growth and ensure sustained growth into the future, we established a
sophisticated global distribution network through our own websites and a global partner
network. This included diversifying our global supply chain into new sourcing regions and
investing in inventory ahead of the curve.

This investment will unwind in FY23 as accelerated inbounding reduces and we leverage new supply chain relationships. This will deliver strong free cash flows into FY23 which, along with our expanded debt facility, provides good funding flexibility to execute on our growth plans.

City Chic outlook

Management appears confident in producing another year of profitable growth. However, this is dependent on the level of geopolitical uncertainty.

To counter the risk of margin reductions, management has flagged it will raise retail prices where appropriate and aim to grow market share simultaneously.

The plus-size retailer also indicated inventory levels will return to a more normal level, targeting $125 million to $135 million in FY23. Management hopes to generate a positive net cash position in the second half.

City Chic share price snapshot

The ASX hasn't been kind to the City Chic share price in the last year, plummeting by 60%, but there are signs of recovery as it rallied 3% higher in the past month.

The S&P/ASX 200 Index (ASX: XJO) suffered a drop of 7% and is rebounding in tandem with the City Chic share price, lifting by 3% in the last month.

Based on the current share price, City Chic has a market capitalisation of around $535 million.

In terms of valuation, City Chic is trading at a price-to-earnings multiple of 27x.

Motley Fool contributor Raymond Jang has no positions 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 Scott Phillips.

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