The Nick Scali Limited (ASX: NCK) share price is in focus after announcing its HY22 result, including $35.6 million of net profit after tax.
Nick Scali is one of the biggest furniture retailers in Australia. It also recently bought the Plush-Think Sofas business.
Nick Scali’s HY22 report
The business reported that revenue increased by 5.4% to $180.3 million. Overall, total written sales orders were $203.4 million, up 6.4%. Second quarter written sales orders were up 44% with all Nick Scali stores opened by mid-November and Plush contributing significantly in November and December. But the lockdowns did impact the Nick Scali store revenue.
Some profitability measures did drop with impacts from store closures and disruptions to the supply chain. However, Nick Scali did open one new store, in Hastings – New Zealand’s first regional store.
The gross profit margin (including Plush) fell 80 basis points (0.80%) to 63.2%. However, the Nick Scali gross profit margin grew 30 basis points (0.30%) to 64.3%.
HY22 EBITDA (EBITDA explained) only went up 0.4% to $73 million. EBIT actually fell 3.7% to $55.1 million.
Whilst the cost of doing business (as a percentage of revenue) improved 240 basis points (2.40%) to 35.2%, the EBIT margin dropped 280 basis points (2.80%) to 30.6%.
The net profit after tax (NPAT) fell 6.6% to $35.6 million. But this was growth of 75% compared to the first half of FY20. Net profit can have a large impact on the Nick Scali share price.
Online
For me, one of the most interesting things about the Nick Scali business is the high EBIT margin that it achieves on its online sales.
In the half-year, it had $19 million of overall written sales orders – including $2.4 million for Plush. Revenue for Nick Scali online reached $13.7 million, generating an EBIT contribution of $8 million.
Dividend
Nick Scali is one of those businesses that like to pay a big dividend to investors. This half-year, it increased its dividend payout ratio from 80% net profit to 85%.
The interim dividend payment is going to be $0.35 per share, a decrease of 12.5%.
Outlook
The outlook can have an important impact on the Nick Scali share price.
Management said that trading during January in Nick Scali stores was down 6% due to a 25% decline in store traffic and difficulties caused by the Omicron variant of COVID. However, it saw a “marked improvement” in traffic and sales orders towards the end of the month as consumers adjusted to managing the pandemic.
Plush’s sales orders in January were in-line with the previous year.
Overall, the outstanding order bank at the end of January 2022 was 70% higher than the previous year.
The group’s suppliers have re-instated normal lead times and this should help revenue growth over the coming months. However, Nick Scali said that shipping costs and the availability of containers remains uncertain and will be a major obstacle in the delivery of the order bank.
Revenue growth is expected in the second half, but the costs of shipping “could well” impact profitability.
Final thoughts on the Nick Scali share price
I thought this result was pretty solid, considering the circumstances. The global supply chain issues are well known and that shouldn’t be a surprise either.
The Plush acquisition looks as though it will be a smart deal over time. I’m particularly interested to see if Nick Scali can keep growing its online sales because it comes with a very nice margin.
It’s one of the ASX dividend shares I’d consider during a decline for the retail sector, though I’m not jumping at today’s price.
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