City Chic Collective Ltd

ASX:CCX

Q2-2026 Earnings Call

[Operator]

Thank you for standing by, and welcome to the City Chic Collective Limited HY 2026 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Phil Ryan, Managing Director and CEO. Please go ahead.

[Philip Ryan, executive]

Thank you, and good morning, everyone, and thanks for joining us. I'm Phil Ryan, the CEO and Managing Director of City Chic Collective, and I'm joined today by James Plummer, our CFO. This morning, I'll run through the presentation, starting with the business and strategic update.

I'll then ask James to do a review of the half's financials, and I will then discuss the trading update before opening up to questions. Moving to Slide 2. Our EBITDA delivered an 86% improvement in the first half, increasing from a profit of $3.5 million to $6.5 million. This performance was underpinned by our strategic actions across customer and product, along with the disciplined execution of our cost-out program.

The ongoing growth is another positive step forward for City Chic. Our simplified business model gives us a platform we can leverage to drive profitability as we look to return to stronger revenue growth at sustainable expanded gross margins. We will achieve this through continuing to implement improvements in our fit and quality of product to deliver on our Cut for Curves promise and focusing on our target high-value customers.

As I said at the AGM, aligned with our strategy, we have comprehensively overhauled the product development process, including greater rigor across design and quality control. This initially resulted in a slower-than-planned intake of Australia and New Zealand summer product, which impacted revenue in the first half as we bought our factories on the journey with us.

Despite this deliberate shift, Australia and New Zealand still achieved a 10.1% increase in trading gross margin dollars, driven by a higher average sell price, which was up 6.1%. The performance of summer product in Australia shows the progress we have made in our assortment as we execute our strategy and deliver on the Cut for Curves promise. We realize there is still a long way to go, and we are evolving our assortment with the learnings we are taking from her.

And from this, we expect stronger sell-through in the Australia and New Zealand winter. U.S.A. with very limited inventory investment due to the tariff environment, as we've previously communicated, has performed above expectations and continue to deliver profit at a contribution level. We are now investing in inventory for summer '26.

And given the performance of our summer range in Australia and New Zealand, we expect this to drive an improved performance. We delivered $10.1 million in positive operating cash flow for the first half, reflecting disciplined working capital management. We've achieved the clean down covenants for FY '26 and extended our facility until March 2028.

In the first 8 weeks of the third quarter, Australia and New Zealand trading gross margin dollars were up 17% on the prior corresponding period, driven by the continued strength in full price sell-through, improved product mix and the sustained benefits of a tighter promotional discipline. Moving to Slide 5. Revenue was $69.2 million, flat with the prior corresponding period with Australia up 7.4%.

Our cash position is $5.4 million with an undrawn $10 million bank facility. Our inventory reduced 21%, reflecting our decision to strategically pause purchases in the U.S.A. given the tariff volatility. Our customer base is stable at 503,000, 58% of which are our target high-value customers. To drive revenue growth, our focus is on increasing annual spend through greater purchase frequency.

This metric has shown improvement, but remains well below our historical levels. She's remained a loyal CC customer and when the economic environment is more positive, I know she will increase her spend with us.

In terms of things we can control to drive our frequency, in Australia and New Zealand, we can achieve the improvements through new lifestyles, and increase in our CCX casual diffusion range with differential ranging and endless aisle in stores and by expanding our new lifestyles and categories online.

In the U.S.A., we need to retain and build our customer base, which we are confident will come as we get our new product into the market. Moving to Slide 6. Our website traffic has grown. It's up 9%, and our Net Promoter Score has increased to 74. These results have come from the strategic communication improvements we've made across all of our touch points from stores and websites to our social and digital advertising.

But most importantly, this comes from the positive feedback we've received on our product improvements as we deliver on our Cut for Curves promise. Our trading gross margin was up 220 basis points to 62.2%, exceeding our target of 62%. We now need to leverage this as we drive volume growth.

At a cost level, we've delivered all of our cost-out programs and achieved a cost of doing business of 51%, down 3 percentage points from 54% in the prior corresponding period. Moving to Slide 8. This shows the 3 strategic pillars that will drive EBITDA growth, and these haven't changed for some time, putting us first, our customer, delivering on our Cut for Curves promise with our product and continually looking at efficiencies to drive down costs in a simplified business.

At a customer level, putting her first means making sure we build and protect the emotional connection that's kept the CC customer loyal over so many years. She now has so many more options, especially online than she's had historically, and we need to talk to her in a way that ensures we maintain this connection.

We do this through being more authentic in our social presence, making e-mails more personalized to her behavior and continuing to listen through our monthly customer survey. It's actually quite unique to our brand that each month, over 3,000 of our customers give us feedback through the survey. It's invaluable in deepening our connection as we listen to her, and it really demonstrates how invested she is in City Chic.

At a product level, our brand promise is to be Cut for Curves always. And we exist to solve her curves, fit and fashion frustrations. Internally, this is more than a slogan. It's our reason for being. It informs every decision we make. We need to understand her frustrations and deliver her solutions. We design with our curves in mind, and we fit with flex from adjustable waste to fabric weight for structure and drape.

Our designs are intentional, and we make her feel incredible. Driving efficiencies to ensure that our cost base aligns with revenue is embedded in our business. We understand that if revenue growth does not meet our expectations, we need to continually refine our operating model and deliver more cost out.

Moving to Slide 9. At 62% online and partners, our business is truly an omnichannel and is set for the digital future of retail. There are not many retail businesses in Australia with around 80 stores that deliver this online penetration. Moving to Slide 10. We've achieved so much in the last 2 years. We've rightsized the business and evolved our product mix, and we've targeted our high-value customer and achieved results in that.

Our focus is now on driving revenue to deliver leverage on our cost base. With stronger gross margins, all revenue increases will deliver material profit growth. In Australia and New Zealand, there are some of the key actions. Firstly, we're increasing our CCX diffusion range, which is more casual in nature to increase the lifestyle options for her at a more value price point, and we will still be maintaining our margins in this area.

While our stores have always served the mix of customers, as we've elevated the range, those differences in customer preferences have become more pronounced. In response, we moved to differential ranging. Historically, all stores carried largely the same assortment and relied on replenishment to adjust the sales volumes.

Now with a broader online range, we have greater assortment depth and can tailor the initial allocation to better suit each store's customer. For example, some locations performed strongly in our occasion and high-end product, while others see stronger demand in casual and everyday wear. It really is in the center, and we're evolving our business to follow that more.

We've also listened to our customer and for that matter, our team. And what they told us that as they've seen the improvement in our assortment, we've created a demand for Cut for Curves product that solves fit and fashion frustrations for ladies that are size 10 and 12. As such, in selected stores and online, we are currently trialing an increase in our size range to include a 10 and 12 with some good initial results.

This is capturing a new customer that we can help solve her frustrations and also catering to customers that are on a weight loss journey that still require that curvy fit. In our online business, we've seen a stronger customer response to expanded lifestyle and category assortments such as footwear and swing. We're continuing these expansions.

And following a successful sleepwear trial in the first half, we're going to roll out this category more broadly in the second half and beyond. In the U.S.A., the primary driver of our growth will be the reinvestment in inventory, which will start to flow in, in March really, and that's despite what we did in the first half with very limited purchasing, sales have remained above our expectations and the consumer has held up well, which really is very positive for the summer period in the U.S.A.

If we look at the U.S.A. market, it has a materially greater addressable market than what Australia has. With the success we've seen of our digital high-value customer acquisition and reactivation strategies in Australia and New Zealand, we have a playbook to drive high-value customer acquisition in the U.S.A. through the fourth quarter and into FY '27. Really, in America, we just need to take a small part of what is a very, very big market.

To enhance our credibility in this market, we're talking to numerous partners about a pop-up physical presence or some way of or putting something down in the U.S. that shows that we're really committed to the market. And then focusing on other markets such as Canada, the U.K. and Mexico, we're implementing international shipping, excuse me, through Global-E.

We've had a presence in these markets, and we can directly reengage with some of our customers who are already familiar with the brand. Moving to Slide 11. This slide shows a very -- shows really a little snip of our new range and some of the comments from our customer. Our Cut for Curves promise, as I said earlier, aims to deliver on fit and fashion ability for our customer.

And it's great to hear them saying in one of the quotes, keeping up with fashion and love the fit. Really, for me, that means we're delivering on this promise and is our platform for growth. Moving to Slide 12. AI is changing the way business is done. Right now, companies are focused on how we can reduce costs. We've been on that journey for a few years and have implemented numerous AI-led initiatives across the business that I'll talk to in a minute.

But really, what's more exciting for us is how AI can help us optimize product decisions through leveraging data in our design and buying process. To achieve this, we partnered with a cutting-edge Australian retail AI start-up named SeeStone. Founded by a retail and digital commerce leader and a specialist AI and engineering team, the platform is purpose-built for fashion retail and integrates AI and predictive machine learning into our design, buy and allocation process.

What SeeStone enables us to do right now is to assess our new designs from a picture, sketch or pad computer-aided design and provide the team with the probability of success. It estimates the expected sales using all of our historic performance and broader market data to give us a probability of how we think that sell-through will be. It's an amazing tool and helps both planning and design teams make more effective decisions.

It also enhances our ranging by store, region and channel and supports the differential ranging strategy that I talked about earlier. What's SeeStone built for us is a machine learning platform with 3 years of our SKU and location level sales data that is updated daily to consistently refine our learnings. It also reviews data from the Internet on what other brands are selling as an indicator of our success.

Further to this and as a byproduct, it will help us automate what is currently very manual repetitive processes to improve scalability and free our teams to focus on higher-value decisions. Some of the other areas we're achieving AI more cost-enabled efficiencies are below. We've used Jasper to create and optimize our marketing content.

Jasper is a marketing-specific AI agent that over the last 4 years, we trained in the City Chic tone of voice and customer personas. What it gives us is brand-appropriate written content to all of our websites and all of our partners. On our websites, we use AI-driven product recommendations and on-site customer journeys that materially improve the customer experience.

We're using our AI to optimize our digital marketing execution and driving an improved return on advertising spend. And to secure our digital networks, we're using AI to actively hunt cybersecurity threats through Sophos. These are just some of the examples of how AI is increasingly being embedded in our operations.

I'll now throw to James to discuss the financial slides.

[James Plummer, executive]

Thanks, Phil, and good morning, everyone. As Phil mentioned earlier, we're pleased with the continued improvements in profitability from the prior year. Underlying EBITDA of $6.5 million represents a $3 million improvement on the prior period, rewarding the disciplined execution of our strategy. While group sales were broadly in line with the prior period, the results reflect 2 very different regional performances and demonstrate a continued overall improvement in sales quality.

In ANZ, revenue grew 7.4% on the prior corresponding period, with trading gross margin dollars up 10.1%. Our trading margin improved 1.3 percentage points on half year '25 and 6.4 percentage points on half year '24. This demonstrates the continued development of our product ranges, higher sell-through of full-price product and a more disciplined promotional approach.

In the U.S.A., revenue was down 31% to $9.7 million. This largely corresponds to our deliberate reduction in purchasing, which was in response to the tariff-related volatility. The impact is most evident in the partner channel that relies heavily on new product launches. Even with the lower sales and fewer new products, the U.S.A. followed the Group's disciplined promotional strategy, driving a gross margin increase of more than 4 percentage points compared to the prior period.

This, along with our local variable cost base is what allowed the U.S. business to still make a profitable contribution to the Group even with these lower sales. The overall cost of doing business fell by $2 million on the prior period, benefiting from last year's annualized cost savings, which have largely balanced out the inflationary pressures.

We continue to closely manage costs and take appropriate action to ensure the costs aligned with the trading results and the business can remain profitable. Turning to the balance sheet on Slide 15, and this has been a real area of focus during the period. Pleasingly, we have generated $10 million in operating cash flow for the half, reflecting our disciplined working capital management and improved operating efficiency.

Inventory as planned, driven by the deliberate reduction in purchases in the U.S.A. In ANZ, inventory remains in good shape with the improved stock turns and a healthy mix of new and seasonably relevant product. Trade payables have moved in line with normal purchasing cycles, reflecting the timing of new inventory arrivals in ANZ ahead of Chinese New Year. This is consistent with normal trading patterns.

From a capital structure perspective, we fully repaid all drawn debt during the period and extended our debt facility through to 31 March 2028. All cleaned down covenants have already been met for FY '26. While cash flow discipline remains a clear focus for the business, we're very pleased to have extended the debt facility under the same terms, which provides both stability and flexibility and positions us well to continue to execute our strategy.

I will now hand back to Phil to talk through the trading update.

[Philip Ryan, executive]

Okay. Thank you, James. Moving to Slide 17 and the trading update. In the first 8 weeks, we've maintained our trading momentum. Australia and New Zealand gross margin trading is up 17% and the revenue is up 9%, reflecting the continued strength in the full price sell-through and our improved product mix and the sustained benefits of the tighter promotional discipline.

Delivering continued year-on-year growth in Australia and New Zealand is another pleasing step forward. However, the performance continues to be impacted by economic pressures and softer consumer sentiment. This impacts demand as interest rates are rising. Recognizing these pressures, we are maintaining a disciplined focus on costs, inventory and execution.

In the U.S.A., we've invested in product to relaunch into the summer season, as we've mentioned many times, and we know this will drive profitable growth in the fourth quarter and beyond. The evolving developments regarding tariffs as it currently stands, we estimate will result in a 5% reduction in duty for our goods entering into the U.S.A. from China. We're monitoring the situation closely.

And for now, it doesn't impact our current plans or timelines. We've strategically shifted Amazon from a wholesale partner to a marketplace relationship. This allows us more control over the range, price and trading of the business. While this will cause short-term revenue challenge, it will deliver longer-term profitable growth that we can have greater control on. It is now all about leveraging our cost base to deliver profitable revenue growth.

I'll now hand over for questions.

[Operator]

[Operator Instructions] The first question comes from Jasper Struwig with Canaccord.

[Jasper Struwig, analyst]

Can you hear me all right? Congrats on the results. I know a lot of the numbers have been released, but really good to see the operating momentum, especially in the trading update, and it's good to see, I guess, your core region in ANZ really sort of starting to reaccelerate growth.

But could you potentially touch on how things are tracking over in the U.S.? I understand you guys are obviously reinvesting in inventory over there. But just keen to understand how things are tracking.

[Philip Ryan, executive]

Look, yes. Thanks, Jasper. Thanks for the question. Look, the U.S.A. is really a large focus of mine. I think for those of you that were around last year, you'll remember, we were prior to all the tariff stuff, we were really pinning our hopes on getting meaningful market share through there.

And what we decided was to really pause our strategy, and we didn't purchase anything into the second half -- well, the first half of the financial year, second half of calendar '25. And the way she held up was way better than I expected. Even right now, she's doing a lot better than what we thought.

We have delivered very minimal to basically no newness. We see there's some coming into March as summer launches over there and then really April, May, June as we get into the season. It's always been a much stronger season over there for us now, and we're confident that, that will continue.

I mean we still have around that sort of -- we still have almost 50,000 active customers over there, and it has been a lot more than that in the past, and we can reactivate and retarget that.

And what we want to do is use our playbook on what we did in Australia over the last 12 months to take the learnings and implement them at a digital marketing and communications level to reengage and reactivate not only the customer we've got, but then to get more of the high-value target customers in what is a much more customer-rich environment.

[Jasper Struwig, analyst]

Perfect. And then maybe just quickly touching on the shift in the Amazon operating model. You mentioned on the call that you're sort of expecting near-term revenue, I guess, headwinds. Can you maybe expand on that?

[Philip Ryan, executive]

Sorry, can you say that again, Jasper? Can you say that again, please?

[Jasper Struwig, analyst]

Just a question on the shift in the Amazon operating model. Yes. You just mentioned on the call that you're expecting some short-term revenue headwinds. Could you potentially sort of expand on that what the headwind might be, how long it might last that sort of thing? Just your thoughts.

[Philip Ryan, executive]

Very good question. You can see in the first half, our partner revenue was the thing that took the biggest hit through the U.S. I think yes, I think it's over 30% total drop in the market and the partner business had an even bigger drop than that 32% on a constant currency basis.

What we've done is Amazon used to order directly through our website and take it into their logistics on a wholesale level, and it was very sporadic, and we couldn't understand what they were doing. We've since worked with the company to drive sales with Amazon.

And what we realized is we need to actually control what inventory they are getting in order to really drive it. What it means is really through this first half, we haven't seen a lot of Amazon sales in quarter 3 so far, and we're expecting to ramp it up into quarter 4 in the U.S. The impact will be on the partners' line in the U.S. in the second half.

[Operator]

[Operator Instructions] There are no further questions at this time. I will now hand it back to Mr. Ryan for closing remarks. Please go ahead.

[Philip Ryan, executive]

Thank you, everyone, and I'd like to extend a thanks to everyone for joining today. It's really pleasing to be continuing our ANZ revenue growth, getting double-digit margin growth in a challenging environment shows how much work we've put into product and how much the team here has done to make that happen and focus on our target high-value customer and execute on our strategy, and I want to thank the team.

Then to be back in the U.S.A. and trading is exciting for us. We've had a business over there since 2010. And I know that once we get product into market that we will be able to deliver on our Cut for Curves promise in what is a materially larger addressable market. With our simplified business model now in place, really, as I've said a few times, it's all about focus on driving revenue to deliver that profitable growth. Thank you.

[Operator]

That does conclude our conference call for today. Thank you for participating, and you may now disconnect.