Reclining sales
1H23 RESULT
Need To Know
- Furniture orders slowing rapidly
- Inventory well managed
- Interim div 40cps fully franked, payment date 28 March
Nick Scali’s interim result was sound enough, but the forward order book is slowing noticeably. Sales remain ahead of pre-COVID, but growth is treading water.
Sales. Including Plush, group written sales orders for the period were +3.4% compared to a post-COVID boosted 1H22. Growth in January 2023 sales, typically the strongest month, was better than the company expected but have landed in between the pre and post COVID markers. NCK has not provided full year guidance but expects to open four new stores in 2H23 adding to the two opened in 1H23.
Earnings. Record orders on hand at the start of the period led to group sales of $283.9m, up 57.4% on the pcp but does include a full 6 months contribution from Plush which has now been fully integrated to NCK’s systems. Gross Profit margin improved slightly as NCK kept inventory levels under control. NCK extracted around $20m in cost synergies from Plush leading to a lower group cost of doing business at 32.3%. Underlying net profit of $60.6m allowed the Board to declare a 40cps fully franked interim dividend.
Investment View
The exuberance of last year’s post-COVID sales boom has been replaced with this year’s curtailment of discretionary spending as interest rates rise and consumers tighten belts. NCK has performed well to this point, but the lack of full year earnings guidance belies the uncertainty it faces on the slowdown in sales this year.
Margins and inventories are not the issue for NCK from this point. It will be managing a pullback in consumer spending. The push to expand the store network is part of a broader medium term target to reach 176-186 stores, but perhaps the timing of this year’s additions may cause some indigestion.
NCK is still a tidily run business. The broader retail industry is seeing price inflation now peaking and so too is profitability.
NCK’s net dividend yield at 6% has some appeal and a FY23f PE ratio at 10x is not a stretch. But earnings momentum is against the stock now.
Stock Overview
Share Price
Company Overview
NCK is an Australian furniture manufacturer and retailer. NCK acquired Plush-Think Sofas in Nov21.
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