Nick Scali (ASX: NCK) has reported impressive growth in a business update, is it time to buy shares?
What is Nick Scali?
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.
What was in the update?
Nick Scali said that its written order sales had grown by 20.4% in the fourth quarter to 14 June 2020. In the FY20 half-year to date written order sales had risen by 7%.
The second half of FY20 is expected to show net profit growth of between 15% to 20% compared to the second half of FY19.
FY20 revenue is expected to be in the range of $260 million to $263 million whilst underlying profit is expected to be in the range of $39 million to $40 million.
The underlying net profit excludes the impact of the gain on sale of property and the impact of the adoption of AASB 16, which is new accounting measures.
The significant decline in sales orders during the second half of March and the first half of April when stores were closed meant that $9 million to $11 million of sales couldn’t be made in FY20. However, reductions in costs meant, together with government assistance, profit will be higher for this half. Sale orders in May and June are expected to be up 54% on last year.
Sales revenue in the first quarter is expected to be up 30%, which will drive profit growth in HY21.
The sales order growth has been so good that the Board has felt confident enough to bring forward the deferred $0.25 per share dividend to 29 June 2020.
It will be interesting to see if sales growth can continue into the second half of FY21. If it can, then Nick Scali could be a decent buy. Investors seem to think so, the Nick Scali share price is up 15.6%.
Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned.