City Chic Collective Limited (CCX) Earnings Call Transcript

Okay. Well, I noticed the time, ladies and gentlemen. So good afternoon. My name is Michael Kay, and I'm the Chairman of City Chic Collective Limited. On behalf of the Board, I welcome you to the 2025 Annual General Meeting, and I'm pleased to see our shareholders joining us here today. For those who've not been able to join us, the meeting is being recorded and the audio webcast is available to listen to live and will be accessible after the meeting concludes by following the link on our Investor Relations website. I note there's a quorum present, and I declare the meeting open. I'd like to introduce the directors and other officers of the company. On my right, Phil Ryan, the company's Managing Director and Chief Executive Officer; and the independent nonexecutive directors, Natalie McLean, on the end of the table and Neil Thompson. James Plummer, our Chief Financial Officer, is also with us today as is Jackie Shanahan, our Company Secretary. Also with us today is David Friend representing the company's auditors, RSM, who will be prepared to answer any questions about the conduct of the audit and also representatives of MUFG, our share registrar, who are acting as returning officer for the purposes of the meeting. Now before moving to the formal business of the meeting, I'll take the opportunity to give you a brief overview of the year, and I'll then invite our CEO and Managing Director, to provide more detail on our operational performance in FY '25, an update on trade for the year to date and plans for the future of the company. I'll now deliver my address. Ladies and gentlemen, since our last AGM just 12 months ago, the external forces impacting retail demand have continued dramatically to ebb and flow. While there's been some interest rate relief here and in the U.S.A., this has been countermanded by sticky inflation that has embedded itself in material cost of living increases. Inevitably, this finds its way into discretionary purchases and retail demand generally. On top of this, we've had to deal with the on again, off again tariffs on goods imported into the U.S. Unsurprisingly, uncertainty of demand drives intense competition with a number of retailers unable to survive. Shareholders may have seen the articles recently about the ultra low-cost online brands like Temu and Shein and their growth, despite some of the controversial aspects of their value chain, has added to the intense competition for demand. Now in anticipation of an in answer to these ongoing pressures, shareholders will recall, we evolved our strategy and significantly restructured the business. I'll come back to this shortly and Phil will provide further detail in his speech. But I'm pleased to say that these changes are now beginning to bear fruit, and your company is not in a materially improved financial and competitive position. Our financial performance in FY '25 did improve significantly, delivering a $14.8 million underlying EBITDA turnaround that is moving from a loss of $8.4 million in '24 to a profit of $6.4 million in '25. In what has been a challenging retail environment, this reflects, I think, the disciplined execution of the strategy and the resilience of Phil and his team. Group revenue grew by 2.3% year-on-year, driven by strong second half momentum, particularly in the ANZ business, which delivered 15.2% revenue growth in the second half with strong performances across both store and online. Our USA business underwent an operational transformation to a lower and more variable cost base. And as a result, it contributed profitably in FY '25 and this notwithstanding the reduction in revenue driven by the sale of the Avenue business and stock reductions due to the tariff uncertainty. Phil will give further detail around trading in the current financial year, but let me say we plan to have no drawn debt as at 31 December and to be cash free cash flow positive for the '26 year. As per recent trading update, as at 31 October, we had $9.5 million in total cash and $5 million undrawn from our banking facility. Now turning to the strategic update. 2 years ago, we did established a clear set of strategic pillars to guide the execution of our strategy and our turnaround, and these remain the foundation of our progress. The first was amplifying our focus on her, our valued customer. Increased investment in targeted marketing has delivered pleasing returns, particularly in ANZ, where we've grown our total customer base and improve the proportion of high-value customers. Our Net Promoter Score now stands at 71, which is a strong indicator that we are meeting or exceeding expectations and deepening customer engagement. The second was revitalizing our product assortment with a keen emphasis on higher-value product. And customer feedback on our improved ranges has been consistently positive, and our sell-through performance has shown great improvement, up 18% on the prior comparable period. The third pillar was simplifying our business operations and driving down costs. We've successfully delivered $22.3 million in annualized cost reductions over the past 2 years and identified a further $1 million in savings, which are targeted for this financial year. It's this clarity of what we believe will make us successful and our relentless commitment to executing it that has driven the progress we are now not before time seeing. Our recovery has been led by continuing to improve our product, more compelling ranges and a laser focus on fabric quality and fit. And we're encouraged by our customers' favorable response to our new collections. What is clear from our research is that our customer trust City Chic to understand her and the customer wants us to succeed. We are the fashion destination for curve. It's all we do. And we know how to deliver on what matters most to her, which is fit, fashion and fabrication. We understand our customer is under economic pressure, but we also know she will buy fashionable, well-made apparel that fits her curves in all the right places. We believe the lower cost producers and the broader apparel retailers do not have the focus to execute at this level. And some of the more recent key metrics tell the story with gross trading margin up 350 basis points and average sell price up by 14%. Our customer numbers have grown to around 0.5 million, and we're deeply grateful for their continued loyalty. While we know there is still much more to do, the momentum is encouraging after a tough couple of years, and we are heading in the right direction. Looking ahead, well, as all of you will know, there are so many economic and geopolitical uncertainties in the world right now, it's difficult, if not impossible, to predict the future. However, as shareholders can see, we have restructured the business as we said we would, so that it can operate profitably in times of challenged demand. Importantly, our brand continues to enjoy the loyalty of passionate customers who are embracing the evolution of our product strategy. We also remain confident in the significant untapped potential in the United States market. As shareholders will recall, we deliberately scaled back our planned sales in the U.S.A. in response to the ongoing uncertainty surrounding tariffs. However, we are cautiously optimistic that the United States and China will reach a more stable and constructive arrangement, which will then enable us to increase our presence in America. Phil will talk more about that, but our planning is well progressed, and we are ready to move swiftly as the conditions allow. Finally, let me turn to the share price. Given the improvements in the structure and the performance of the business, it's obviously very disappointing to see the share price remain at its current levels. Obviously, most of the retail sector has been under pressure and most investors are underweight in the sector. Additionally, in speaking to shareholders and prospective shareholders, we are aware that on top of the sector uncertainty, there has been concern over our balance sheet and the ability of the business to generate sufficient cash to sustain itself and grow. I hope today that we will have at least gone some way in dispelling that perception. And we look forward to a continuation of the improvement of performance in FY '26 and beyond and getting back to what we used to do so well, namely the creation of value for shareholders through an unrelenting focus on delighting our customers. It's now my great pleasure to introduce our CEO, Phil Ryan, to present his review of '25 and his thoughts about the current financial year and future.

Thank you, Michael, and good afternoon, everyone. I'd like to add my welcome to you all to the 2025 Annual General Meeting. Our $15 million EBITDA turnaround in FY '25 going from a loss of $8.5 million to a profit of $6.5 million is very pleasing and was driven by our relentless focus from all of our team on our strategy, and that is to deliver elevated product to a higher value customer and to realign our cost base. This year was a big step forward for City Chic. We have a platform for revenue recovery at sustainable gross margins through continuing to drive improvements in fit and quality of product and focusing on that high-value customer. As Michael already touched on, we are in unprecedented times for retailers. low-cost online retailers, Shein and Temu are rapidly expanding and capturing material market share. To put this in perspective, Shein now offers over 10,000-plus sized products at exceptionally low prices, an offer that was not nearly as strong 3 years ago. I see this as an opportunity, an opportunity to us -- for us, sorry, to refocus on what's always set us apart. This means creating great products that fit our shape make her feel confident and reflect the fit and quality that City Chic shack is known for. It also means delivering a store experience that builds genuine loyalty to our brand. Consistent with our strategy, the product development process has been comprehensively overhauled in the last 12 months, and we've implemented greater rigor across our design and quality control. This initially resulted in slower than planned intake of ANZ Summer product that has impacted revenue as we take our factories on the journey with us. As this product has arrived in stores and online, we are seeing strong sell-through, as Michael mentioned. It's all meeting or exceeding our key performance indicators. Our customer is voting for the elevated newness. I've just been to China and myself to drive these changes in our supply chain. We are setting up a structure to manage our production lines and looking for factories that can deliver on our heightened expectations. I see this as a key part of my role in the next 12 to 24 months. In this challenging retail environment, with significant business change, we've managed to show strong momentum in our Australia and New Zealand business with sales up 15.2% in the second half of FY '25 and 8.3% for the year. And this momentum has continued into FY '26 with the first 18 weeks sales growing 10% on the prior corresponding period. We also delivered in FY '25, a 26% increase in website traffic into Australia and New Zealand, outlining the success of our strategic brand refresh and the way we are talking to customers. In what has been an unpredictable political and economic environment, the U.S.A. business is profitable. And this is due to the strategic actions that we have taken, which has delivered a lower and largely variable cost base that leverages our Australian operation to deliver the product to market. I've been pleasantly surprised by our customers' resilience with sales continually exceeding our expectations as we strategically limited our inventory intake due to tariff volatility and risk. Sales of City Chic product was up 25% in FY '25 in the U.S., outlining what I see as the opportunity in the market. Our own website grew 17%, driven by material average sell price increases through both starting price increases and reductions in discounting with City Chic partner growing 29%. As the U.S.A. is profitable, we are taking cautious optimism into the second half and in the summer period, where we'll return to normal purchasing cycles. We are working with suppliers to mitigate the impact of current tariffs and we anticipate a 5% to 8% cost increase. We have seen retail prices raised by almost all competitors in the market from 20% to 30%. And to offset the cost increase, we will follow this trend. In FY '25, our trading gross margin dollars were up 9.1%, driven by the higher average selling price, up 14.2%. Across the 2 key metrics, we have delivered improvements in all markets and in all channels. We've achieved our cost-out target of $22.3% million in FY '25 and identified a further $1 million in FY '26. And as I have previously stated, we will continue to rightsize the business to align with wherever the revenue is. We are now focused on driving revenue through our strategic actions. We've stabilized the balance sheet with $9.5 million in cash and $5 million undrawn in our facility, and we have the liquidity the business requires. We have now met all banking covenants for FY '26. And as at December 31, we'll have no drawn debt. Our inventory controls and improved buying processes have delivered with 12% less inventory at the end of FY '25 while still driving sales growth. We're expecting to be cash flow positive in FY '26, and we have the liquidity to execute our growth plans. Our strategy has been consistent for 2 years now and is what's driven the turnaround in profitability. Put simply, the strategy is to focus on our high-value customer segment through elevating the product assortment while simplifying the business to drive down costs. We've executed on our plans and have seen strong results in all the key metrics with momentum expected to continue in the product and customer pillars. I know we still have work to do, but we have a clear path to cash flow positive. In the customer pillar, we've driven the average sell price increases we are targeting and pleasingly, over half the customers are now high value. From a product view, trading gross margin was up 350 basis points to 59.7%, making strong progress towards our goal of 62%. It takes time to make product changes. With the new team now having a full season behind them, they're crystallizing the learnings, and we are seeing the results. Our core and repaid assortments are now delivering over 50% of our revenue. Our goal knows what fits our body and wants consistency and predictability in our range, and we are delivering on those shapes and fabrication she loves. Our customer base is growing at 502,000 people, 54% of which are high value. We are now focused on increasing our annual spend through greater frequency. And to drive this in the second half of FY '26, we'll be implementing a new and aspirational loyalty program. I'll outline more about this at the February results. We only need to return annual spend to level seen a few years ago to drive material revenue growth. She has stayed with us and will spend up when she's feeling more confident. In Australia and New Zealand, online revenue continues to be the largest and fastest recovering part of our business at 52% of our sales. The per store revenue is our biggest opportunity and with 8.4% comps in FY '25, we have strong momentum. We are still delivering 22% of our revenue from the U.S.A. and due to our strategic actions. and now, obviously, it's now profitable with a low and variable cost base. If I look at this slide, retail has evolved. Each touch point needs to represent who the brand is and be clear to customers on what to expect, the product, the team and the store environment need to deliver on what the brand promises. Stores need to be an experience to be open, refined and easy to shop with predictability in the lifestyles that are delivered to market. This page shows our new concept store, and the customer response has been overwhelmingly positive. The lineups of some of the openings have been truly inspirational and shows me how much our customer is committed to our business. This concept contemporizes our store and align City Chic with best-in-class retailers. We've opened 4 so far this year, Wollongong, Mount Gravatt in Brisbane and High Point and Knox in Melbourne. We've continued to receive positive reviews in our range improvements from our customers, and we are now getting this kind of feedback regularly and it's showing in the range sell-through. The most pleasing aspect of this is that we learn more and more what she wants, the learnings compound and we increase revenue. The quote that best outlines the success of our strategy is from an influencer Chloe Vick, the middle one on the right. She said, I'm wearing City Chic. They've had a massive rebrand and whoever their design is, I'm obsessed. She has been on the journey with us, and this represents a shift in the perception of our brand due to the execution of both our product and our customer strategies. This slide shows the continual evolution in our product and the extensions in our lifestyle mix. With over 300 styles launched monthly, we are covering so many lifestyles and this is just a small cross-section of them. In stores, we present contemporary in feminine lifestyles with our trend, lingerie, denim with graphic tees and our occasion dresses. In our new stores, we have predictable places where they sit so that the customer knows what to expect when she comes. Online gives our brand the opportunity to offer extended lifestyles to our customer. One example you can see shown here is our wide fit footwear category that returned again in the second half of FY '25 and has been exceeding our sales expectations. We've delivered on the $22.3 million cost out and have reshaped our business. The entire team has done an amazing job, and I'm very, very grateful. On the FY '25 cost of doing business, there's a further $700,000 in savings based on the annualization of the $2 million savings from FY '25 and an additional $1 million we've already achieved for the FY '26. As I previously stated, we'll continue to review and align our cost base to the revenue levels and take all required actions. Moving to the trading update and outlook. Our focus is to deliver profitable and sustainable long-term growth. We will achieve this through the continued execution of our product and customer strategies. The momentum in our ANZ business has strengthened over the past 10 weeks. FY '26 year-to-date sales were up 10% in ANZ. This is up from the 8.9% in the first 8 weeks. The product is resonating with our customers, and this is consistent feedback is what gives me the confidence that this momentum will continue. The U.S.A. business continues to be profitable due to the variable cost base. As communicated, due to the political and economic uncertainty, we expect a reduction in the U.S.A. revenue in FY '26 and accordingly reduced the inventory investment. Our direct channels are down 9.8% and better than we expected. In winter, we have delivered fewer styles than we did last year. Without newness, our wholesale partner, Amazon, has decreased materially on the prior corresponding period. However, they are still purchasing with us and then we put up for them. The U.S.A. business provides the group with greater operating leverage, and we can profitably withstand the tariff-induced sales volatility and be ready for future growth. Our gross margin percentage remains in line with expectations, and we have achieved a further $1 million in cost-outs. Our focus is now on driving revenue recovery, especially in Australia and New Zealand. To achieve this, we have multiple building blocks that will get us there. The first block is comparative sales in Australia and New Zealand as our strategic actions around product and customer get more momentum. Increased customer frequency will be delivered through lifestyle and category improvements and new customers through focused advertising and reengaging our lapsed customers. The second block is new stores with 6 to 8 expected in FY '26, and we've already opened 4 of them in the first half. We'll also annualize the 6 stores that opened in the second half of FY '25, and we still see an opportunity for up to 120 stores in the Australian and New Zealand markets. The third block is very exciting and something our customers taking to really, really well. We implemented store to door across our retail network. This allows in-store customers to purchase from our full online assortment directly through our point of sale. Our store teams are incentivized to drive it and they ship it to the customer for free. In only a few months, it's driven the equivalent of around 5 stores volume on a weekly basis. That is incremental to in-store sales with no additional cost. To me, this is a huge opportunity to drive growth as we make progress and train the team to execute and learn what works. The fourth block is our Australian partners. We launched on the Myer Marketplace in August, and we expect this to drive similar sales than our current Australia and New Zealand partner of the Iconic, and Iconic will annualize last year's growth. Finally, we are launching on the belt marketplace in the U.S., and we have secured the partnership and are targeting a Q3 launch. As these initiatives annualize, I know we can deliver compounding increases in revenue, and we will also be able to identify further building blocks as we gain momentum. It's just great to be back on the revenue-driving opportunities again. We stabilized liquidity with $9.5 million in cash and $5 million undrawn in our facility that's in place until the end of December 26. And the covenant has been made now for FY '26. And as I said earlier, we'll have no drawn debt as the 31st of December 25. With the revenue building blocks and cost-out initiatives, the business is on track to deliver positive operating cash flow in FY '26. I'd like to thank the team for their work in driving the turnaround. It's been so good for us to have some wins and to see the success of the strategy. To the Board, I'd like to say thank you for your ongoing support for the team in FY '25. And to our customers, we're doing everything we can to make you feel our best in our product, both in-store and online and making the products even better for you. And finally, to shareholders, I'd like to thank you for your support over what was a year of consolidation and strategic improvements. I'll now hand back to Michael.

Well, thank you, Phil. Now moving to the formalities. As the notice has been circulated to our shareholders, I propose to take the notice convening the meeting and the items of business as read. Shareholders will be given the opportunity to ask questions in relation to the business of the meeting during the course of the meeting and before any vote is conducted. At the end of the meeting, shareholders will also be given the opportunity to ask general questions about the business and the operations of City Chic that are not specifically related to the items of business. If you have questions that don't relate to an item of business, we ask that you save those questions until the question time at the end of the meeting. Now you've all been issued with attendance or voting cards. And when I call for questions, those with yellow or blue cards are able to ask questions. And if you'd like to ask a question, please raise your yellow or blue card, wait for the attendant to bring a microphone, then please stand, state your name, so we know who you are, and then you proceed to ask your question. If you happen to be holding a red attendance card, that means you are a visitor and not a shareholder. And as a result, you don't have the right to ask questions or make comments. For shareholders and proxies, I will ask you to confine your questions to matters relevant to the particular resolution that's being considered, and I'll do my best to answer them or direct them to the auditor or a member of the Board or executive team as appropriate. After questions, when there is a resolution to be put to the meeting for a vote, I direct that a poll will be held. And now I open the poll on each of the resolutions 1 through 5. A representative from MUFG will act as returning officer and scrutineer for the poll. If you are here today, both as a shareholder and a proxy, you will need to use separate voting cards in relation to your own shares and shares you are voting as a proxy. The blue cards are nonvoting cards, which are issued to shareholders who have already voted by proxy and to joint holders who can speak or ask questions at the meeting. If you hold a yellow card, this is for voting as a shareholder or proxyholder, including as represented by a corporate representative, attorney or proxy where the vote is at the proxy's discretion. Today, you will be asked to vote on the resolutions to consider, firstly, the adoption of the remuneration report; secondly, my reelection. At which time I'll hand over the chair to Neil Thompson. Thirdly, the grant of performance rights to Phil Ryan. Fourthly, the renewal of the proportional takeover provisions. And finally, the appointment of RSM as auditors of the company. All the resolutions are ordinary resolutions, except the renewal of the proportional takeover provisions, which is a special resolution. The ordinary resolutions will be passed by a simple majority of the members present and voting in person or by proxy. This special resolution will require the approval of 75% or more members present and voting in person or by proxy. For those of you holding yellow cards, to fill these out, you will find instructions and all the resolutions are printed on the front of the voting cards. To vote, simply place a mark in one of the 4 against or abstained boxes for each resolution. And if you mark the abstain box, your votes will not be counted. If you need to leave for whatever reason before the end of the meeting, please make sure you put the completed voting form in the poll box at the registration desk by the door. And I encourage shareholders and their representatives to complete the yellow voting cards after each resolution has been discussed. At the conclusion of the meeting, please ensure that you have marked your cards for the respective resolutions and a representative of MUFG will collect the voting cards after all resolutions have been discussed. If you need assistance at any time, please signal to any one of the representatives of MUFG. Now moving to the ordinary business of the meeting. Item 1 is the annual report. The first item is to put before the meeting, the annual report of the company and its controlled entities for 2025 financial year, including the financial statements and reports of the directors and the auditor. These documents have been made available to shareholders, and they're also available via the ASX and the company's investor website. There is no vote required on this item of business. I now invite any questions in relation to those reports, including any questions of the company's auditor, relevant to the conduct of the audit, the preparation and conduct of the auditor's report, the accounting policies adopted by the company in relation to the preparation of the financial statements and the independence of the auditor in relation to the conduct of the audit. If you have a question relating to the resolution, please wait and ask your question when we consider that resolution. Are there any questions regarding the reports or for the auditor? As there are no questions, we will then move on to the second item of business, which is resolution 1, the adoption of the remuneration report. And that is included in the directors' report and the annual report. In accordance with the Corporations Act, the vote on this resolution is advisory only, and the outcome is not binding on the Board. That, of course, is not to say the Board does not take these sorts of resolutions very seriously indeed. And the Board will consider the outcome of the vote and feedback from shareholders at this meeting when considering the company's remuneration policies and practices. In the remuneration report, we've endeavored to provide shareholders with detailed disclosure regarding the terms and rationale behind the company's remuneration framework. We believe that City Chic's approach provides a good alignment between business objectives, shareholder value and executive remuneration, which motivates and retains talented executives. As outlined in the remuneration report, shareholders will have noted that all of the nonexecutive directors' reduction in remuneration agreed in FY '23 and continued in FY '24 and again in '25. The CEO, Phil Ryan, also agreed to a reduction in his FY '24 fixed remuneration, and this remained in place in FY '25 and remains in place today. Are there any questions relating to this resolution? No questions. Thank you. Well, noting that each director has a personal interest in their own remuneration from the company as set out in the remuneration report, shareholders are asked to adopt the remuneration report and vote in favor of resolution 1. The proxies received in relation to this resolution prior to the meeting are now shown on the screen. For proxies open at the Chairman's discretion, I intend to vote in favor of the resolution. And we will now pause for a moment to give you the opportunity to complete your yellow voting card. [Voting]

Okay. Moving then to resolution 2, which is my reelection as director proposed reelection, I'll now hand over to Neil Thompson to take the Chair.

Thank you, Michael. The next item on the agenda is resolution 2, the reelection of Michael Kay, the company's Chairman, as an independent non-executive director of the company. Biographical information about Michael is available in the notice of meeting. Michael joined the company in October 2018 and subsequently assumed the position as Chair in November 2018. Michael is an independent Non-Executive Director and a member of the People, Culture and Remuneration Committee and a member of the Audit and Risk Committee. Michael has significant listed company experience. and brings a broad range of commercial experience to the board. Michael is currently a Non-Executive Director of Guild Group Holdings Limited and was previously Chair and Non-executive Director of ASX-listed entities, Lovisa Holdings Omni Bridgeway and Apply Direct. Michael was also the Chief Executive Officer and Managing Director of McMillan Shakespeare for 6 years and previously held a number of senior executive roles, including at AAMI, where he was the Chief Executive Officer. Michael has also spent 12 years in private legal practice specializing in commercial law. The reelection of Michael Kay is unanimously recommended by the Board with Michael abstaining, Michael's leadership and experience is a great asset to the company, and he has most recently led the company through more recently difficult times. Are there any questions relating to this resolution? There being no questions. Thank you. I'll move to the proxies. The proxies received in relation to this resolution prior to the meeting are now shown on the screen. For proxies open at the Chair's discretion, I intend to vote in favor of the resolution. We will now pause for a moment to give you an opportunity to complete your yellow voting cards for resolution 2. [Voting]