The Nick Scali Limited (ASX: NCK) share price is in focus after the furniture retailer revealed a strong result in its FY23 first half report.
Nick Scali sells furniture through its Nick Scali stores and Plush stores.
Nick Scali’s HY23 result
Here are some of the highlights from the impressive report:
- Revenue rose 57.4% to $283.9 million
- EBIT (EBIT explained) climbed by 65.5% to $91.2 million
- EBIT margin improved 150 basis points (1.50%) to 32.1%
- Earnings per share (EPS) rose 70% to $0.748
- Net profit after tax (NPAT) jumped 70.2% to $60.6 million
- Dividend per share rose 14.3% to $0.40
Nick Scali that the large outstanding order bank at 30 June 2022 helped push revenue higher in this result, as well as the contribution of six months of revenue from Plush-Think Sofas.
Gross written sales orders for the period were $210.3 million, representing growth on the prior corresponding period. However, Nick Scali brand written sales orders declined 3%, cycling off strong demand in the FY22 first half after lockdowns lifted.
The group gross profit margin of 62% improved 2.5% compared to the second half of FY22 of 59.5% thanks to the improving margin at Plush as acquisitions “continued to be realised” through group product sourcing. The Nick Scali-branded division’s gross margin of 62.5% was consistent with FY22.
It’s also achieving cost synergies as well, which is why the cost of doing business (CODB) ratio decreased from 35.2% to 32.3%.
HY23 Nick Scali brand online sales orders were $12 million, down from $16.6 million last year, though FY22 benefited from temporary store closures. January 2023 Nick Scali brand online written sales orders were 13% higher than January 2022.
The contribution to profit from Nick Scali online was $14.1 million of revenue and a 57.5% margin on revenue.
Outlook
In the second half of FY23, the business plans to refurbish over 40 Plush stores to appeal to customers.
Second half earnings will benefit from the one new Nick Scali store and one new Plush store being opened in the first half in Queensland.
Management noted that January is usually the strongest trading month. It was better than expected. A slowdown compared to the COVID-19 boom was expected, yet trading remains better than pre-COVID despite rising interest rates.
Nick Scali brand written sales orders were 12.1% down year on year, but up 22.9% on January 2020.
It expects to open another four new stores in the second half of FY23.
Final thoughts on the Nick Scali share price
I thought this was a very promising update, under the circumstances. The integration with Plush is going well, it’s still reporting good revenue numbers, the online division remains very profitable, more stores are planned and it has announced a big dividend.
However, we may well see a deterioration of the economy over the rest of 2023 as higher interest rates bite. If I were looking to produce good investment outperformance, I don’t think today is the right time to invest.
If the Nick Scali share price were to drop to under $10 in 2023, I think it could be a good idea, it seems to be a very good business. But, national furniture demand is not going to be consistent year to year, so I think there could be a better time to buy.
