The share price of Nick Scali Limited (ASX: NCK) is swiftly down around 20% after the company announced a negative trading update.
Nick Scali is one of Australia’s largest retailers and importers of furniture. It was founded over 50 years ago and still has Scali family as management. Each year Nick Scali imports over 5,000 containers of furniture.
Nick Scali’s Disappointing FY20 Trading Update
Nick Scali has warned that the difficult trading conditions that the company referred to in August 2019 have continued in August and September, with a similar pattern in October so far as well.
How much pain are we talking? Well, Nick Scali said that monthly store traffic is down 10% to 15% in the first few months of FY20 and this, as you’d expect, has had a significant impact on like for like store sales – which are down 8% in the financial year to date compared to the first few months of FY19.
Management believe this is linked to lower general retail demand associated with the recent slowing in housing sales and renovations and a cautious consumer attitude.
But, lower interest rates and recent signs of improvement in the number of housing transactions could lift sales in the second half of FY20.
What About Nick Scali’s FY20 Profit Guidance?
As a result of these trading conditions, net profit expectations for the December 2019 half year will be in the range of $17 million to $19 million, down from $25 million in the December 2018 half year. In percentage terms, that means net profit could fall 24% to 32%.
Is The Nick Scali Share Price A Buy?
Despite these conditions, Nick Scali said it’s still generating positive cashflows, it has a strong balance sheet and it’s expanding its store network – which is helping sales and profit. It’s also looking at potential growth opportunities.
But it’s hard with Nick Scali. The rebound in Sydney and Melbourne house prices could mean Nick Scali benefits, but sometimes earnings downgrades come in twos and threes – so there could also be more pain to come. It’s not the type of ‘bet’ I’d want to make, I prefer more reliable businesses like the ones in the free report below.
[ls_content_block id=”14945″ para=”paragraphs”]
[ls_content_block id=”18380″ para=”paragraphs”]
