Analysts at investment bank Citi are not holding too much hope for City Chic (ASX:CCX) to meet its full-year guidance by July this year.
At the plus-size retailer’s AGM late last year, CEO Phil Ryan set the sales target to be between $142 and $160 million, with earnings before interest, tax, depreciation and amortisation (EBITDA) between $11 to $18 million.
According to Citi analysts, the company would have to grow sales by around 20 per cent year-on-year in the second half of FY25 to meet both targets, “which is difficult to do if the consumer environment doesn’t improve.”
There is the possibility of a cash rate cut in the second-half – a key factor Ryan wished for in his AGM speech – which could bolster City Chic results, but the Reserve Bank has not shared any indication it could slash the rate in the near term despite some economists projecting that the bank could do so as early as February next month.
At the last monetary policy meeting, the RBA drummed down its top priority of sustainably returning inflation to target in a reasonable timeframe, and added that while headline inflation has declined substantially, underlying inflation still remains too high.
“The November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint.”
And with interest rates remaining elevated, many consumers will continue to keep their purse strings tight.
Meanwhile, both City Chic’s unaudited first-half sales and EBITDA results were “less than half that of lower-end of management guidance”, according to Citi analysts, with the retailer’s first half usually being the bigger one.
That said, the company is in a turnaround phase, which the analysts said should give some upside to second half results. And sales have also been increasing over the last few quarters, with City Chic’s Australian market in positive sales growth, offset by declines in the group’s US market - albeit on a trajectory towards positive growth.
In Australia/New Zealand, City Chic sales were up 2.8 per cent in the first half, which jumped to 9 per cent in final five weeks of 2024. Meanwhile, its Americas market was down 22.4 per cent, which rose to negative 15.1 per cent in the final five weeks. Total sales for the group was also up 3.2 per cent in the final five weeks.
“CCX will have to trade very well during 2H25 across all geographies,” Citi’s note to investors read. “Inventory position looks favourable at $32.1 million, down from $39.5 million a year ago. This limits the extent of promotions during 2H25. We have a Buy/High Risk rating on CCX.”
Analyst hopes aside, the City Chic boss holds a lot more hope for the second half. In the latest trading update, he confirmed there is a team in place to drive further recovery in AU/NZ, and unlocking opportunities in the USA will be his top priority.
"While US online performed largely in line with last year, the improvement in the US Partner business fell short of our expectations," Ryan said. "However, the 25 per cent growth in City Chic branded products through our websites and partners at materially higher gross margins highlights the opportunity for our brand in the market.
"With an enhanced summer range and broader City Chic assortment in market, we expect this momentum to continue. Realising the full potential of the USA business is now my top priority in the second half of FY25 and into FY26.”