Nick Scali Limited (ASX: NCK) shares are on watch today after the retailer updated its profit guidance for the FY21 half year.
Nick Scali is one of the largest higher-end furniture retailers in the country.
Profit update
The company revealed that net profit after tax for the six months to 31 December 2020 is expected to be $40.5 million, which is up approximately 100% compared to the prior corresponding period.
There was better than expected container availability during the months of November and December, leading to increased delivery volumes.
In the first quarter of FY21, total written sales orders grew by 45%. This compares to the second quarter growth of 58%, which was driven by the reopening of the Melbourne metro stores as well as a successful ‘Black November’ campaign across both the online and in-store channels.
Total written sales orders for the six months to 31 December 2020 exceeded delivered sales by approximately $20 million because of “exceptional” growth in written sales orders during the second quarter.
Due to the above, the sales order book was at an all-time high at 31 December 2020 and this is expected to translate to material revenue and profit growth in the second half of the financial year, as long as there is no more disruption to the store network or supply chain.
Store openings
Nick Scali also revealed that it opened new stores at Wairau Park in Auckland and Bennetts Green in New South Wales which have both performed strongly and are expected to contribute to profit in the second half of FY21 as written sales orders convert to revenue.
Online sales
The furniture retailer also revealed today that despite the entire store network being reopened at the end of October, sales made through digital channels continued to grow during the second quarter of FY21.
Summary thoughts
Nick Scali has done very well in 2020. Who’d have thought an upmarket furniture retailer would be one of the beneficiaries?
In terms of the actual business operations, Nick Scali is high quality. For me, the hard part is guessing what the demand is going to be like over the next 12 months and beyond. Growth of 100% is not normal at all. But will it be close to 0% (or negative) in FY22? Or can it keep growing?
There is too much potential variable for me to invest in it. But the HY21 result is going to be astounding nonetheless. Nick Scali is a more resilient business than I gave it credit for.
In the retail space, there are other ASX growth shares I’d rather buy like City Chic Collective Ltd (ASX: CCX) which have global growth aspirations.
