Why is this ASX share crashing 60% on Monday?

Shareholders of this stock may need a stiff drink today.

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The City Chic Collective Ltd (ASX: CCX) share price is sinking like a very heavy stone on Monday.

In late trade, the ASX retail share is down 60% to 12 cents.

Why is this ASX share crashing 60%?

Investors have been selling the plus sized women's fashion retailer's shares for a couple of reasons today.

The first is the release of a very disappointing trading update that was announced last week. That update revealed that its group sales for FY 2024 are expected to be down ~30% to $187 million.

Things are worse for its forecast pro forma adjusted EBITDA from continuing operations. That is expected to be a loss of $9.3 million for the 12 months.

City Chic's earnings guidance excludes the Avenue and Evans businesses. The US based Avenue business is being sold to Fullbeauty Brands for US$12 million (~A$18 million), subject to working capital adjustments at completion. This compares to its purchase price in 2019 of US$16.5 million

Whereas the Evans business was sold earlier in the financial year. Once again, at a significantly lower price than what management paid to acquire it.

Management notes that these divestments align with the company's strategy of focusing on the core City Chic customer in ANZ and the US. Completion of the Avenue sale is scheduled to occur in July 2024.

What else?

Despite its abject trading performance and acquisition record, the ASX share has been able to raise money from investors through a capital raising.

However, unsurprisingly given the state of the company, it was forced to do so at a huge discount to the prevailing share price.

This morning, City Chic announced the successful completion of its institutional placement and the institutional component of its entitlement offer. In total, raised proceeds of $14.6 million (before costs) at a 50% discount of 15 cents per new share.

The release notes that the placement and institutional entitlement offer attracted strong demand from existing institutional shareholders of City Chic. In addition, it introduced a number of new investors to its institutional shareholder base.

The company's CEO, Phil Ryan, commented:

We are delighted with the exceptional level of support received from our existing institutional shareholders and very pleased to obtain the support of some new institutions. Their collective support positions us to build on the positive momentum our recent initiatives are generating going into FY25.

City Chic's shares are now down approximately 98% since the start of 2022.

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 Scott Phillips.

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