After losing 90% of its value, can this Australian retailer rebound?

How it’s going: Today, City Chic’s main operations continue to be its City Chic stores in Australia and New Zealand, alongside a bevy of online retail sites. While these performed well during the pandemic, performance slumped last year.

“The competitive landscape, especially in the northern hemisphere, has intensified as all businesses promote aggressively to capture the limited dollars [customers are] prepared to spend,” boss Phil Ryan said at the company’s annual general meeting last year.

A trading update from the company just before Christmas warned investors that overall demand for its products had been below expectations and global revenues were down 7 per cent on the same time last year. Following the news, shares went as low as 41 cents.

Ryan told investors last year that, despite the turbulence, the business has a strong customer base and the company can deliver once conditions stabilise.

Industry: Retail
Main products: Plus-size women’s clothing
Key figures: Chief executive Phil Ryan, chair Michael Kay

The bull case: All analysts acknowledge City Chic has a tough path ahead of it, but those that are most upbeat about the company note that the business will make its way through these challenges and stabilise its balance sheet in the second half of this year. Canaccord’s team has a buy on the stock with a target price of $1.05, close to double where it is trading this week.

“We maintain a buy valuation given the relative value on offer,” analyst Owen Humphries said in a note last month.

“City Chic’s ability to stabilise its inventory and thus its balance sheet position in the [second half of 2023] coupled with a more normal consumer discretionary environment should reduce investor fears of a liquidity issue.”

Wilsons analysts also moved their rating on the stock from “underweight” to “market weight”, observing that after the sell-off of the stock, “value has begun to emerge”.

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The bear case: The broader spending environment is the biggest worry among other analysts, with predictions that the spending crunch will get worse before it gets better.

Macquarie analysts noted earlier this month that weaker spending demand and more sales activity across the business will create challenges. “We remain cautious given the lower quality of sales promotions represent,” its equities team said last week.

Goldman Sachs’ team points out that while conditions are tough overseas, performance across the company’s local stores is also a worry, with the pre-Christmas trading update showing local revenue is flat year-on-year.

“The key region that has disappointed vs. our expectations is ANZ, which has seen a material
decline in trading conditions over the past four weeks,” analyst Sophie Carran said just before Christmas.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions

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