City Chic Collective CEO Phil Ryan has confirmed that the recent sale of its Avenue business will drive further restructuring actions ahead, resulting in a “focused single brand and simplified operating model.”
This week, the group signed a definitive agreement to divest its US-based Avenue business to FullBeauty Brands for US$12 million (~A$18 million) as part of a broader business transformation.
At the same time, the plus-size fashion business has launched a $23 million equity raising comprising an accelerated non-renounceable entitlement offer and institutional placement.
Ryan said following the sale of Avenue, City Chic will focus on its core City Chic customers in Australia and New Zealand and in the United States, where the customer base has reportedly grown to over 500,000 - or up 32 per cent from 2019.
Throughout FY24, City Chic has undergone a brand refresh as part of its product and marketing initiatives and right-sized its cost base to establish operations under a single brand through its stores, websites and partnership agreements.
This incorporates the divestment of Evans in the United Kingdom last year and Avenue, alongside a major cost reduction program, debt restructuring and equity raising.
“We have aligned our cost base to the current economic environment and with our revised debt arrangements, equity raising and return to more normalised inventory patterns, I am confident we have the right platform in place to return to profitable and sustainable trading,” Ryan said.
City Chic has reportedly saved $20.3 million in annualised costs following the Avenue sale and the right-sizing initiatives.
This includes $8.8 million in cost savings already achieved and included in the FY24 earnings before interest, tax, depreciation and amortisation (EBITDA), which is expected to deliver additional incremental savings of $4.3 million in FY25F, and $7.2 million related to the sale of Avenue and the move to a new fulfilment provider under a variable cost base contract.
Total additional cost savings in FY25F are expected to be $11.5 million.
The restructuring efforts come as City Chic braces for a 30 per cent fall in group sales (including Avenue) to $187 million in FY24 compared to FY23.
However, the group reported positive trends in average sell price (ASP) supported by its new seasonal product and marketing initiatives. This has resulted in margin improvement across the board, with overall Q4 gross margins up 15 per cent compared to the same time last year, which are now heading back to FY22 levels as reported by City Chic.
Despite active customers lifting by 32 per cent compared to 2019 levels, the average annual spend has been impacted by ongoing cost-of-living pressures.
The group is now focusing on its higher-value aspirational customer, which it expects to deliver further ASP and gross margin improvements in FY25F with its marketing program focused on boosting brand engagement in AU/NZ and increasing its target customer base in the USA.
City Chic Collective’s omni-channel model comprises a network of 77 stores across Australia and New Zealand, and websites operating in AU/NZ, the USA, and third-party marketplace and wholesale partners in Australia, New Zealand and the USA.