City Chic’s leaner model powers a sharp FY26 profit improvement

Profitability improves while headline revenue retreats

City Chic Collective Limited (ASX:CCX) has made further progress in its turnaround, but the numbers still contain a sizeable qualification: underlying EBITDA climbed 92% to $12.3 million in FY26 while group revenue fell 3.1% to $130.5 million and the statutory loss after tax widened to $6.6 million.

The improvement came from a more profitable mix rather than broad-based sales growth. Gross margin rose to 59.9%, compared with 58.8% a year earlier, while cost of doing business fell by approximately $8.0 million. City Chic said labour, marketing and operating efficiencies, alongside earlier cost-saving measures, drove the reduction. Across three years, the group says it has removed more than $30 million of costs.

That operating progress largely matches the figures outlined in the FY26 EBITDA recovery, which reported the same 92% underlying EBITDA increase and highlighted the clean inventory position entering FY27. The annual report adds the important statutory detail: the prior year benefited from a $4.2 million foreign-currency translation reserve gain linked to discontinued operations, making the comparison below the operating result less straightforward.

ANZ growth contrasts with a sharply smaller USA business

ANZ was the engine of the year, with revenue up 7.6% and margins improving. The USA operation, by contrast, recorded a 42.2% revenue decline, or 28.1% excluding the closed wholesale business. City Chic attributed the fall to a deliberate reduction in inventory purchases while it navigated uncertainty around US tariff policy. The company said the USA business remained profitable despite the reduced stock availability.

Inventory closed at $24.1 million, which management described as controlled and appropriately aligned with demand. Purchasing activity has since normalised, and the company said customer reaction to its summer range had been encouraging. That remains an early trading observation rather than evidence of a completed US recovery.

Cash buffer gives the recovery room to continue

City Chic finished FY26 with $5.2 million in net cash and no borrowings under its $10 million banking facility, which has been extended to March 2028 on unchanged terms. Active customers reached a record 517,000, net promoter score rose to 76 and online channels accounted for 51% of sales on a trailing 12-month basis.

The balance sheet is useful, but not luxurious. The group remains exposed to discretionary spending pressure, exchange rates, tariffs and supply-chain disruption, while its annual report also identifies cybersecurity, ethical sourcing and an unresolved dispute with NSW workers compensation insurer iCare as ongoing risks. The iCare matter is not quantified in the report.

Early FY27 trading shifts the focus from repair to growth

The first seven weeks of FY27 provide a more constructive opening. Total ANZ sales were flat, comparable physical store sales rose 11.4% and online sales declined 8%, which City Chic linked to deliberately lower promotional activity ahead of the summer season. The company expects strong first-half growth, while USA inventory availability improves.

Management is now tying its next phase to customer frequency, engagement, store-network optimisation, marketplace partnerships and technology investment. A new long-term incentive plan gives senior executives performance rights linked to EBITDA margin over three years, with 30% vesting at a 10% margin and 100% at 18%. That sets a demanding test for whether the turnaround can become a durable growth story rather than simply a successful cost reset.