City Chic Collective Limited has divested its Evans business for £8m (~AUD$15.5m) and sold off its Europe, Middle East and Asia (EMEA) inventory via an asset sale and purchase agreement.
AK Retail Holdings Limited, based in the United Kingdom, has acquired the Evans brand, its intellectual property and its customer base under the agreement that was signed and closed on August 3.
The agreement also includes the sale of all the inventory in City Chic’s EMEA business.
As part of its ongoing strategic review to simplify and streamline the business, the City Chic board determined that the investment required to deliver profitable trading in EMEA would be better allocated to other parts of the group, in light of “prevailing economic conditions”.
City Chic noted that the sale of Evans includes immediate benefits such as a strengthened balance sheet, accelerated reduction in its debt facility, and bringing down its inventory to a more stable position.
“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,” City Chic CEO and MD Phil Ryan said.
“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.”
Under the Agreement, AK Retail Holdings 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 (~AUD$12m).
City Chic has agreed with its 3PL provider to close its UK warehouse which also supports its European operations. As a result, the plus-size retailer’s Navabi business will cease trading.
City Chic retains the right to trade under the City Chic, Avenue and other non-Evans brands in EMEA in the future.
There will be a transition period for AK Retail Holdings to sell all non-Evans branded product and for City Chic to sell its remaining Evans-branded product in ANZ and North America.
The proceeds from the sale of Evans will be used for working capital purposes, City Chic noted, and to pay the group’s remaining $1.5 million acquisition facility. Due to this, City Chic’s debt facility limit has been reduced by $10 million to $20 million and is expected to reduce by a further $5 million at the end of June 2024.
These steps form part of the outcomes of the strategic review first announced on 22 May 2023.
A further update on the outcome of the strategic review will be outlined with City Chic’s FY23 results on August 30, 2023.
While the accounting treatment is yet to be finalised, it is expected that the EMEA business will be treated as a discontinued operation in FY23.
The assets held for sale at the end of FY23 will incur an impairment of between $29 million to $31 million, including closure and transactions costs.