The Nick Scali Limited (ASX: NCK) share price is up 1.9% despite announcing that it’s returning JobKeeper.
Nick Scali is one of Australia’s largest retailers of furniture. It was founded over 50 years ago and still has Scali family as management.
Nick Scali returns JobKeeper
Nick Scali has been under public pressure to return its JobKeeper payments because it has generated strong profit growth and grew the HY21 dividend, yet still received the government payment in the first half of FY21.
Yesterday, the company confirmed that it will be returning $3.6 million of JobKeeper payments to the government for the half year ended 31 December 2020.
In the ASX announcement, Nick Scali said it is very appreciative of the JobKeeper policy, however, it recognises that it has benefited from increased consumer confidence which resulted in record sales and net profit after tax.
Recent HY21 result
The furniture business reported in its FY21 half-year result that its sales revenue had gone up by 24.4% to $171.1 million. Written sales orders for the period was $191.1 million, representing growth of 52%.
During the period, two new stores were opened. It’s expecting to open two more in the second half of FY21. It’s targeting at least 85 stores across Australia and New Zealand.
To help investors see the true performance of the business, Nick Scali reported its underlying profit results, which exclude the impact of changes in accounting for leases under AASB 16 and the one-off gain on the sale of properties in the FY20 first half result.
Underlying EBITDA (EBITDA explained) rose by 94.2% to $60.2 million and underlying EBIT grew by 100.3% to $57.7 million.
The gross profit margin improved from 62.2% to 64%. The EBITDA margin increased from 22.5% to 35.2% and the EBIT margin increased from 20.9% to 33.6%.
HY21 underlying net profit after tax (NPAT) grew 99.5% to $40.5 million and operating cash flow before interest and tax rose by 222.3% to $53.5 million.
Summary thoughts
Nick Scali has done incredibly well through COVID and paying back its JobKeeper payments is morally the right thing to do by management.
Many businesses in the retail discretionary spending space have seen record breaking profit in these strange times, Nick Scali included.
It remains to be seen how these businesses will fair going forward, even maintaining the current profit levels would be impressive and the stronger the current result is the harder it becomes to beat in the next financial year.
Before COVID, Nick Scali had been delivering consistent growth over the last few years. It has been a solid retailer with quality management. It is hard to see through the noise of 2020 to figure out if Nick Scali’s impressive returns are here to stay.
There are too many potential variables for me and I am uncertain that this level of customer demand can be maintained for Nick Scali. When it comes to the retail space there are other ASX growth shares that I have my eye on such as City Chic Collective Ltd (ASX: CCX).
