Plus-size fashion retailer City Chic is crossing fingers for a cash rate cut to buoy its company turnaround over the last two years, which included two separate divestments from overseas businesses and the axing of staff.
But recent market movements suggest that the next rate cut may be more likely in 2025.
In its FY24 annual report, the company’s chairman Michael Kay and CEO and managing director Phil Ryan shared in a letter that the recent period was “undeniably difficult” for its customers, its teams and shareholders.
“Customers have seen inflation eat away their real incomes which, in turn, has seen City Chic impacted by reduced demand and basket sizes,” the pair wrote.
“As a consequence the business has had to be right-sized which has resulted in the loss of many hard-working and valued team members. Shareholders have suffered a catastrophic reduction in the value of the company.”
Through the company’s turnaround, revenue has continued to creep up in the new financial year alongside a recent surge in gross margin.
City Chic’s total gross margin dollars were up 28 per cent in the first eight weeks of FY25, with trading margin above 61 per cent, a double-digit 17.7 percentage point lift on last year.
Revenue for the recent period was down 9 per cent, “as the first eight weeks of FY23 was a period of high discounting to clear stock that drove unit volume and revenue, but not profitability,” Kay and Ryan reported.
At a gross margin level, comparative stores are up around 13 per cent with total stores gross margin up 8 per cent, even with 11 closures over the last financial year.
“We're focused on stores and getting their recovery, and we're seeing material improvements in the per store revenue,” Kay and Ryan shared. “However, they still have a way to go to return to what I would say is acceptable per store sales.”
It was also revealed that both City Chic’s AU/NZ online business and its US online business were both up 68 per cent in gross margin in the first eight weeks, with revenue for both down 13 per cent.
“Traffic in the first eight weeks is up 25 per cent as we implement our brand refresh,” Kay and Ryan added.
“New tone of voice and focused marketing efforts on the high value customer. Conversion is more challenging due to cost-of-living pressures, however this will come back.”
Will the RBA cut rates next month?
The RBA is expected to hand down its next decision on interest rate changes on November 5, with recent indicators in the labour market suggesting that rates may not go down.
During a press conference immediately following the last decision in late September, RBA governor Michele Bullock said the board is maintaining a narrow path to bring down inflation without resulting in a large increase in the unemployment rate.
“The labour market is still easing but it remains relatively tight and we saw again last week solid growth in jobs,” Bullock said. “I know some people are worried about a faster deterioration in the jobs market so we are keeping a close eye on this.
“But based on the most recent data, employment continues to grow and the rate of lay-offs remains very low and while forward indicators have eased, some such as jobs vacancies have remained elevated.
“We’re still hearing stories from our liaison that the availability of labour remains a bit of a constraint on some businesses.”
A recent release from the Australian Bureau of Statistics showed that the unemployment rate was steady at 4.1 per cent in September.
ABS head of labour statistics Bjorn Jarvis said employment rose by around 64,000 people and the number of unemployed fell by around 9,000, which kept the unemployment rate at 4.1 per cent - where it has generally been over the past six months.
Despite the slight fall in the number of unemployed people, the strong rise in employment saw the participation rate rise by 0.1 percentage point to a record high of 67.2 per cent.
“Employment has risen by 3.1 per cent in the past year, growing faster than the civilian population growth of 2.5 per cent,” Jarvis said. “This has contributed to the increase in the employment-to-population ratio by 0.1 percentage point, and 0.4 percentage points over the past year, to a new historical high of 64.4 per cent.
“The record employment-to-population ratio and participation rate shows that there are still large numbers of people entering the labour force and finding work in a range of industries, as job vacancies continue to remain above pre-pandemic levels.
“While the number of unemployed people fell slightly to 616,000 in September, overall the number of unemployed people has risen by around 90,000 people since September 2023. Despite this rise over the last year, there are still around 93,000 fewer unemployed people than there were just before the start of the COVID-19 pandemic, when the unemployment rate was at 5.2 per cent.”
Alongside the tight labour market, inflation is still above the RBA’s target range of 2-3 per cent and it’s proving to be sticky, according to Bullock.
Meanwhile, wages growth is past its peak but it remains high relative to productivity growth which has been weak for some time. Housing prices continue to grow, and recent GDP growth is very subdued at 0.2 per cent in the June quarter.
“What does this all mean?” Bullock asked. “Well, the recent data I think you would agree have been a little mixed, but overall they reinforce the need to maintain a restrictive monetary policy stance and remain vigilant to the upside risks of inflation.
“The board needs to be confident that inflation is moving sustainably toward the target before any decision about reduction in interest rates.
“We really need to see progress in underlying inflation coming back down toward the target.”