The furniture retailer closed at near 12-month highs yesterday on the back of a strong 1H report as retailers continue to defy the doom and gloom out there from an economic perspective. The much-talked-about spending cliff hasn’t eventuated, or at least not to the same degree as anticipated, and even the RBA has conceded their efforts to take some heat out of the economy are taking longer than expected.
The leverage to consumer spending for Nick Scali is likely to be greater than most, given the larger ticket category furniture falls into. Revenue was down -3.6% in the half, just shy of consensus, but the company managed to offset the top line slip with a big jump in margins (up +237bps vs 1H23) to post a 5% beat at the profit line with $43m. The back end of the half was very strong, given guidance presented at the AGM in October pointed to a profit of $40-42m in the first 6-months. It doesn’t stop there either, with January sales up +2.6% on a like-for-like basis, a run rate that was ahead of expectations.
This prompts the obvious question: Has Nick Scali shown that retail is set to under-promise and over-deliver this reporting period? Retail sales have been choppy in the 2H of the calendar year, most notably a 1.6% rise MoM in November only to fall -2.7% in December, while December saw a small +0.8% gain in the YoY print. Despite that, sales dipped for NCK. Margins were the big win here, and while the company didn’t provide commentary around the brand breakdown, their acquisition of Plush in 2021 was likely the main driver. They have invested in the acquired brand, giving a facelift to many of the 52 stores acquired in the deal over the last few years, with the money now seeing a return.
- We expect cost control will be a key driver of earnings this reporting season for the Consumer Discretionary sector, and others may not as easily replicate this good result by NCK.
MM is neutral to positive NCK
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