What is driving the City Chic share price 21% lower on Friday?

Close up of a sad young woman reading about declining share price on her phone.

Close up of a sad young woman reading about declining share price on her phone.

The City Chic Collective Ltd (ASX: CCX) share price is having a day to forget.

In morning trade, the plus sized fashion retailer’s shares are down 24% to a 52-week low of $1.05.

Why is the City Chic share price crashing?

Investors have been hitting the sell button in a hurry this morning after the retailer released a trading update at its annual general meeting.

According to the release, City Chic’s revenue is down 2% financial year to date to $128.6 million. While ANZ sales are up 10%, this has been offset by a worrying decline in Americas sales. The latter segment posted a 12% decline in revenue despite the significant weakness in the Australian dollar over the last 12 months.

Management commented:

Demand has been volatile, and the consumer is looking for promotion as a reason to buy. The competitive landscape, especially in the Northern Hemisphere, has intensified as all businesses promote aggressively to capture the limited dollars she is prepared to spend.

At a regional level there have been very contrasting results. The Southern Hemisphere, with stores open has shown growth and the Northern Hemisphere, which is facing much greater economic pressures, delivered a decline in revenue.

What else?

Another area of concern that could be weighing on the City Chic share price is the company’s inventory position.

Management expects its inventory to be in the range of $168 million to $174 million at the end of the first half. As a comparison, City Chic currently has a market capitalisation of just over $250 million. This appears to indicate that investors have major doubts that the company will be able to successfully shift these items.

Another negative from today’s update was management’s commentary on margins. While no details were provided on its profits, its margin commentary appears to indicate that City Chic’s earnings could be down sharply during the first half. It said:

The real issue for us to deal with in FY2023 is temporary margin compression driven by competition for reduced demand, together with transitory logistics costs in the Northern Hemisphere.

Given this bleak outlook, you may not be surprised to learn that the City Chic share price is now down over 80% since the start of the year.

The post What is driving the City Chic share price 21% lower on Friday? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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