14 May How Specialty Fashion won a plus-size market boost
For a while there it seemed like anyone who mentioned Speciality Fashion Group was legally required to use the word “struggling” before its name.
But after Monday’s deal, which will see the group sell most of itself to fellow women’s fashion retailer Noni B, the days of hearing about the “struggling Speciality Fashion” may be all but over.
It’s just two months since concerned investors, led most publicly by Sandon Capital’s Gabriel Radzyminski, intervened in the board’s strategic review process and urged it not to sell Speciality’s assets too cheaply.
Sandon was particularly concerned the board would be tempted by offers of around $100 million for its booming plus-size women’s fashion chain, City Chic. Sandon said the board should even consider hitting beaten-down investors with a capital raising before selling any assets.
The board, led by Anne McDonald, has heeded that advice – with a twist.
It will then use the proceeds – $31 million in cold hard cash – to support City Chic’s growth.
There will be no need for a capital raising, and everyone’s (relatively) happy.
Specialty shares zoomed up by 56 per cent on Monday, with its market value now above $114 million.
McDonald says some in the market believed the board felt itself under fire-sale like pressure to get a deal done, but this wasn’t the case. While the review process took some time, this was only to ensure all options were scrutinised.
“I think people just assumed that we may react a little too quickly without getting the right answer,” McDonald said on Monday.
“The reality was we had to explore every angle of this and make sure that the way we unlocked value was in the best interests of shareholders.”
Former Myer executive Daniel Bracken, who was bought in as Speciality chief executive in February to help deliver a deal, said it was clear that the chains being sold to Noni B faced a “long journey and a very capital intensive journey to get them back on track”.
“We haven’t had the capital to invest in them. Just go out and have a look at the store portfolio and you can see that challenge,” he says.
By comparison, City Chic, which has a strong business selling online in the United States, and into Britain and Europe via wholesalers, could be a global brand in Bracken’s view.
He said the chain, which makes 37 per cent of its sales online, has “certainly got the best online business of any retailer in Australia that I am aware of”.
Radzyminski, who wrote a public letter to McDonald in March to push for the retention of City Chic, said he was “quietly pleased” with the deal – even if the hard-nosed team at Alceon isn’t known for over-paying for assets.
He’s upbeat about the prospects for City Chic, which Specialty now says will deliver as much as $20 million in underlying earnings before interest, tax, depreciation and amortisation in 2017-18, up by as much as 40 per cent on the prior year.
Radzyminski wants City Chic, which will remain under the control of existing boss Phil Ryan, to deliver on its growth prospects as a solo operation for a bit. But he says there’s a live question as to whether it might eventually be part of a bigger deal as it hunts for scale.
Bracken, who will leave the business in November after completing the Noni B sale, sees if differently, and says City Chic’s ability to generate cash and its profitability can fund its growth plans. This is particularly the case given Speciality won’t pursue a big store rollout overseas, and will instead rely on a cheaper online-led expansion.
At any rate, City Chic’s next deal is problem for the future.
For now at least Speciality’s board should bask in getting off Struggle Street – and muse on the prospect it might even use some of its big bank of franking credits by actually paying dividends.
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Published: May 14, 2018
Source: The Australian Financial Review