The City Chic Collective Ltd (ASX: CCX) share price has soared 25% to 60 cents after the All Ordinaries Index (ASX: XAO) share announced it was selling its UK business Evans, and exiting Europe.
City Chic is best known for selling apparel, footwear and accessories in ANZ and the US.
UK exit
The ASX All Ords share has divested its Evans business and the inventory for Europe, the Middle East and Africa (EMEA) to AK Retail Holdings.
As part of the company's strategic review to simplify and streamline the business, the company decided in light of the current economic conditions, the investment required to deliver profitable growth in EMEA would be better allocated to other parts of the business.
Under the agreement, AK Retail will pay City Chic a total cash consideration of £8 million. Net of transaction costs, which includes the closure of City Chic's UK warehouse. The consideration is around £6.4 million, or around $12 million in Australian dollar terms.
While City Chic has sold Evans, it can still sell under City Chic, Avenue and other non-Evans brands in EMEA in the future.
The closure of the UK warehouse which also supports the European operations means that the Navabi business will cease trading.
What will this do for City Chic?
There are three immediate benefits that the company pointed to.
First, it will strengthen the company's balance sheet.
Second, it will accelerate the reduction of its debt facility.
Third, it will further reduce the ASX All Ords share's inventory to "allow for a clean inventory position sooner than planned."
Giving further details, City Chic explained that the proceeds are being used for "working capital purposes" and to pay the remaining $1.5 million acquisition facility.
The company said its debt facility limit has been reduced to $20 million (from $30 million) and it will reduce by a further $5 million at the end of June 2024, which will reduce its funding costs.
CEO comments
The City Chic managing director and CEO Phil Ryan said:
The focus of the strategic review has been on our online and international businesses to determine the most efficient way of returning to profitable growth. We have seen a significant deterioration in the EMEA market over the past two years which has hampered our ability to sell our expanded product range, compounded by global supply chain constraints.
We are continuing with the rationalisation of our product offering, streamlining our supply chain and focusing on cost management. I am confident that we can return to a more agile operation that quickly responds to her changing needs and puts us in a much stronger position for when market conditions improve.
Upcoming FY23 result
City Chic said these steps are the outcomes of the strategic review that was announced in May 2023.
A further update on the strategic review will be outlined with its FY23 results on 30 August 2023.
The EMEA business will be treated as a discontinued operation in FY23, while the assets held for sale at the end of FY23 will incur an impairment of between $29 million to $31 million including closure and transaction costs.
City Chic share price snapshot
Since the start of 2023, the ASX All Ords share has risen by 30%, as we can see on the chart below.
