City Chic Collective Limited

 
Double-Digit Growth Aided by Higher Product Penetration:City Chic Collective Limited (ASX: CCX) operates in women’s apparel, accessories and footwear market with a presence across Australia and New Zealand, Germany and the UK. The company has a network of 104 stores across Australia and New Zealand with websites operating in Australasia and the USA.
 
FY19 Financial Highlights:City Chic Collective Limited announced its financial results for FY19 wherein, sales revenue came in at $148.4 million, up 12.6% y-o-y while NPAT came in at $16 million. Top-line growth was driven by new store openings, larger format store conversions, wholesale and marketplace growth. During the year, CCX reported underlying EBITDA at $24.9 million, up 25% on y-o-y basis, on account of higher online penetration at 44% of total sales. Underlying EBITDA margin stood at 16.8% as compared to 15.1% in FY18, driven by growth in online, efficient cost management and exiting from less profitable segments. Underlying PBT during the year came in at $14.4 million as compared to $11.5 million in FY18, driven by relatively low capital requirements from 44.1% to 41.3%. The Company opened 9 new stores and made 3 larger format conversions during FY19 followed by the successful acquisition of Hips & Curves in the USA market. The company focused on enhancements of customer experience, including the launch of 24-hour live chat, improved packaging, and fulfillment capabilities. The Board of Directors declared a fully franked final dividend of 1.5 cents per share, which will be paid on September 30, 2019.
 

FY19 Financial Highlights (Source: Company Reports)
 
Outlook:The Management expects the business is likely to drive profitable growth in the US by driving expansion of customer base, new partnerships and tailoring operations for the US market. CCX expects a significant growth runway across Australia and New Zealand on account of ongoing expansion across the product offering and store network.  As per the Management guidance, the company is expecting 15 conversions in the next 2-3 years.
 
Stock Recommendation:The stock of CCX is trading at $2.150 along with a market capitalization of $415.23 million. The 52-week trading range of the stock stands at $0.884 to $2.350 and currently, the stock is trading close to the upper band of its 52-week trading range. The stock has delivered a positive return of 14.59% and 39.35% in the last three-months and six-months, respectively. The stock is available at a price to earnings multiple of 26.020x as compared to the industry median of 12.7x. On TTM basis, enterprise value to sales multiple for the stock stands at 2.6x as compared to the industry median of 1.2x. The stock has gained 20% in the last one month on account of positive management guidance. Looking at the recent price movement and valuations metrics, we have a watch stance on the stock at the current market price of $2.150, down 0.463% as on 19 September 2019 and suggest investors to wait for better entry levels. 
 

Baby Bunting Group Limited

Stellar Growth Across All the Segments Driven by 46% Online Growth:Baby Bunting Group Limited (ASX: BBN) operates in retailing of baby goods, which caters to parents with children from newborn to three years of age and parents-to-be. BBN’s principal product categories include prams, cots and nursery furniture, car safety, toys, babywear, feeding, nappies, etc. Recently, BBN informed that IOOF Holdings Limited has reduced its voting power from 9.041% to 8.023%.

FY19 Performance Highlights:BBN announced its FY19 financial results wherein the company posted total sales of $362.3 million, 19% higher on y-o-y and NPAT at $15.1 million, grew 58.2% from FY18. Gross profit came in at $126.7 million, up 25.6% y-o-y. Gross margin for FY19 expanded to 34.6% from 33.1% in FY18, underpinned by increases in scale, supply chain improvements, improved sourcing, development of private label and exclusive products. Pro-forma EBITDA stood at $27.1 million, up 45.9% on FY18. The Company reported strong comparable store sales growth of 8.7% during the year, followed by addition of 6 new stores opened and 1 relocated.  Online sales growth stood robust at 46%, deriving 11.8% of total sales. Capital expenditure during the year stood at $11.8 million, including new stores of $5.4 million. Private label and exclusive sales represented ~37% of the top 250 product sales in the second half of FY19. Website visits reached 20 million, converting into $42.3 million of online sales and driving significant store foot traffic during the year. Click and collect sales posted a growth of 55% y-o-y.

The company paid a fully franked dividend of AUD 0.05100000 for each ordinary share held. At CMP of $3.430, annualised dividend yield for the stock stands at 2.46%.
 

FY19 Financial Highlights (Source: Company Reports)

Outlook:A per FY20 guidance, the Management is expecting Pro forma EBITDA to be within the range of $34 million to $37 million, representing a growth of 25% to 36% while Pro forma NPAT is expected to be within the range of $20 million to $22 million. The management predicts comparable store sales growth at mid-single digits for the year. The management cited higher gross profit margin of 36% in FY20 on account of addition of 5 new stores. The company will launch 4 baby brand refresh plus with new mid-tier private label brands in FY20. The company is expanding its footprints across car seat fitting and hire offer through the acquisition of some of 3rd party car seat installer businesses.

Stock Recommendation:The stock of BBN is quoting at $3.430 with a market capitalization of ~$432.43 million.  The stock is trading close to the upper band of its 52-week trading range of $1.950 to $3.645. The stock has generated stellar returns of 52% and 45.53% in the last three-months and six-months, respectively. The stock is available at an enterprise value to sales multiple of 1.1x on TTM basis as compared to its industry median of 2.3x. Investments in new in-store technology to enhance customer experience by the business, followed by the development of private label and exclusive products provide strategic differentiation from competitors with higher stability in pricing. Looking at the aforesaid factors and current trading levels, we recommend a ‘Hold’ rating on the stock at the current market price of $3.430, up 0.292% as on 19 September 2019.

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