City Chic Collective to raise $90m for Catherines acquisition

24 July 2020, Written by David Simmons

City Chic Collective to raise $90m for Catherines acquisition

Omni-channel retailer City Chic Collective (ASX: CCX) is raising $90 million for the potential acquisition of the e-commerce assets of a US plus-sized fashion brand.

The company has been selected as a bidder for the acquisition of the e-commerce assets of Catherines, a US-based retailer that has recently filed for Chapter 11 Bankruptcy.

The deal worth $16 million is not set in stone, but City Chic CEO and managing director Phil Ryan says the acquisition would set the company up for continued expansion.

"We are excited about the opportunity to acquire the e-commerce assets of Catherines, a well-known plus-size brand with a deep history and strong customer following in the US market," says Ryan.

"The potential acquisition of Catherines meets our strategic objectives of scaling our business across geographies and plus-size segments.

"The acquisition of the e-commerce assets of US plus-size retailer Avenue in October 2019 provides us with a blueprint for expansion and an understanding of the benefits of deploying our lean, customer-centric operating model to drive revenue growth and cost efficiencies."

Established in 1960, Catherines has a loyal online customer base that generated online sales revenue of US$67 million in the 12 months to April 2020, representing approximately one third of Catherines total sales.

However, City Chic says it expects a material reduction in e-commerce sales from the closure of the Catherines store network (300 stores) as well as from the bankruptcy process.

There is no guarantee that City Chic will be successful in its bid to acquire the e-commerce assets of Catherines.

The remaining funds from an $80 million fully underwritten placement and a $10 million share purchase plan will go toward the company's future growth opportunities and financial flexibility.

"The equity raising also allows us to strengthen our balance sheet and pursue other opportunities that may arise given the current economic environment," says Ryan.

"Any future activity would have to reflect our strategic focus on plus-size brands and online retailing."

The placement will be conducted at $3.05 per new share, representing a 4.7 per cent discount to the last closing price of $3.20 on Thursday 23 July.

Approximately 26.2 million new shares will be issued, representing approximately 13.1 per cent of City Chic's existing issued capital.

City Chic trading improves as COVID-19 restrictions ease

The company has also provided a trading update today, showing an increase to FY20 sales revenue of 31 per cent to $194.5 million in the period.

However, sales for FY20 fell by 4.8 per cent in FY20 in the Australian and New Zealand markets.

The company says it has seen an improvement in trading in June as compared to April and May in the Southern Hemisphere driven by the reopening of stores from late May, but sales were still down 26 per cent in June compared to the prior year.

US online websites (City Chic USA, Avenue and Hips and Curves) contributed sales of $65.2 million in FY20, compared to $10.7 million in FY19, largely driven by the expanded customer base from the Avenue acquisition.

Recently imposed lockdown restrictions in Melbourne has forced City Chic to close 20 stores in Victoria, with just four regional stores remaining open.

The company received $3.7 million in JobKeeper payments, with more than half of the payments to team members paid to due store closures and top-up amounts above actual hours worked.

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Author: David Simmons

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