City Chic Collective (CCX) is a plus-size women’s apparel retailer in Australia. Its target market is the younger fashion-forward females with good income. City Chic was the crown jewel of the former troubled business Specialty Fashion Group (SFH).

We had known about this brand for about ten years, but never knew about its financials as it was hidden within the wider Specialty Fashion Group. We purchased CCX in May 2018 after SFH announced the outcome of a strategic review, which involved selling 80% of the revenue that was breaking even at best, but to maintain the 20% which was City Chic, a highly profitable niche retailer.

What attracted us was the quality of the City Chic business. Plus-size women’s apparel was an underserved segment of the Australian market, characterised by high customer loyalty, limited competition and high margin. The best feedback we heard from our background research was how profitable some of the other plus-size apparel retailers were in Australia.

The main growth driver for City Chic is its online channel. Once a customer finds the right fit, she often comes back again for the same size. When the fitting is not an issue, the most comfortable channel for the target customer group to shop is online. This drives online to account for 40% of the group revenue and growing at a double-digit rate. More importantly, the online channel is the most profitable channel.

Another growth driver is the US market. City Chic has entered the US for some years and learnt some lessons about the market. We believe the company has found a low capex way to grow its business in the US, as suggested by the high revenue growth rate from the US segment. While we acknowledge the US market is a more competitive market, even to scratch the surface will provide a material upside to the company.

With all these quality factors and growth potentials, we were buying CCX at about 11x FY18 PE with no debt. Since our purchase at $0.60, the wider market has re-rated the stock significantly to $1.75. 

We continue to like the stock as we believe the same management team that has delivered its success in the past ten years will finally have the focus and capital to accelerate its growth for the coming years.