100% agree. Just listening to the episode now. There is a lot of rubbish spouted on these shows - you really do have to exercise the grey matter to pick through it.

It would be a brave discretionary consumer CEO that gave guidance with rising interest rates and all the fixed term rates rolling over to variable. But that’s not the same as saying the sector is a sell.

Dics. Hold SUL and ADH in RL; ADH on SM

Agreed. An easy narrative to put forward on a podcast. If only investing was that simple.

Hi @CamSmedts34 yeh I am aware of how the company makes to order although I've never bought from there (too expensive for my cheap nature). Does the customer pay upfront or when they receive the couch? I thought they paid upfront, but I could be wrong. If you do then I don't see how the management team could know how many couches will be sold in the next few months. And even if it's paid on delivery, then the only possible guidance they could give with any accuracy would be 2months out right? I don't own stock or follow the company closely, so I don't have a hard view. Just don't think it's necessary for management to give guidance especially considering it would just be a guess (even an educated one). And further for investors to rely on that as a basis for holding or not holding the company unless you're a short term trader.

You pay up front. I purchased once. Saw a lovely office armchair for $2000 on 8 week delivery. Just about to buy. Then glanced around and saw an even nicer (more comfortable) on floor stock, discounted 50% to $950. Paid. Delivered to my office next day. Sweet.

Disc: Never held but on watch list.

If you pay for an item, the company gets the cash, surely that counts as revenue. Even if it's upfront. Unsure what you mean here.

Just to be clear if you pay for something with cash, that doesn't automatically count as revenue. I'm too lazy to get the exact wording from the accounting standard but effectively control of the asset needs to move from the seller to the buyer. In the case of Nick Scali's business model that is significant because they usually take an order before shipping it.

So what does that mean for Nick Scali? It means orders made not delivered are a significant as a future predictor of revenue. The initial entry is DR Cash CR Deferred revenue (on the Balance Sheet). It's not taken off the balance sheet until control gets transferred. The exact point at which control gets transferred is often a point of contention companies have with their auditors but in my experience it's never before the goods land in the country.

One thing to watch is Deferred Revenue (Cash taken, order not delivered) and it's a knock I have on the NCK result because it is so significantly down. Timing plays a role so I wouldn't wholly lean on it but it's worthy of consideration.

[Not held]

Thanks for the explanation Noddy! That's very interesting.

That concept is coming back from when I last learnt this 2 years ago in one of my accounting subjects. Basically the cash advance/deposit is like a liability for Nick Scali. So it can only be counted as revenue once the good is delivered to the customer and then the cash is added back to the balance sheet

Every dog has its day, and then every day has its dog! What is rare is when both dogs are the same! Today I’m left scratching my head and wondering if I’ve learned anything about investing over the past 40 years! ;)

Also have to remember about companies selling gift vouchers.

Gift vouchers also count as unearned or deferred revenue, even if someone pays for them in cash.

I haven't seen any for Nick Scali but most likely they would exist.

And I believe one company got in trouble for booking vouchers as revenue. Can't remember who.

Another fun fact: Postage stamps is also deferred or unearned revenue. The large amount of deferred revenue from Auspost stamps is possibly one of the reasons why Auspost is underperforming financially at the moment as we don't know the full number of stamps minted. Even more disturbing is the number of collectors buying up sheets of postage stamps in the 80s and 90s not knowing about how much was actually printed and their children and relatives suddenly realising how hard it is to offload the collection.

Over the past 9ish months the conversation has been very macro in terms of retail - 'people are stuck at home, cashed up and "retail" has benefited'. It's very level 1 thinking. When we did go to the next level down it was only to differentiate into online, bricks and mortar and omnichannel. That worked fine because everyone was getting a lick of the ice cream. I suspect as we open up that level of thinking will hurt returns. For retail COVID=good, no COVID=bad is too macro. There may eventually be a hangover for all retail but I suspect it won't be on the same timeframe for all.  
Companies like James Hardie, CSR, Brickworks are smashing it right now and I think there are retail names -I'm hoping NCK might be one - whose cyclical cycle will follow a similar trajectory. 
Making money over the past 12 months has been Uber easy. It's about to get a lot tougher