Nick Scali has upgraded guidance for the first half of FY21, saying it expects underlying profit to come in double that of the previous first half (!) -- due to increased delivery volumes and continued strong sales.
It appears sales accelerated in the second quarter; increasing from 45% in Q1 to 58% in Q2, thanks to the reopening of the Melbourne store and successful sales campaign.
Importantly, written sales exceeded delivered sales by $20m at the end of calendar 2020 -- which means investors can expect a very stroing second half (you cant book sales until delivery is made).
New Store opening and ongoing success with the online channel and will further help.
It has to be said, Nick Scali is one of the best managed companies on the ASX. Remember, this is a furniture retailer (!!) but it consistently has a return on equity >40% (huge, albeit off a levered balance sheet), per share sales and earnings have grown at ~12% and ~20% (respectively) since 2011. Dividends have also grown at around 20% per year, on average, over the period. Even stronger in the past 5 years.
Over that time, the company has raised no fresh capital, with the share count remaining completely unchanged.
At present, shares are on a PE of ~13 and offer a yield of 4.5%.
Managing Director Anothony Scali (son of founder Nick) owns 13% of the company.
(interesting side note, the family sold down a large stake a few years back -- something that has cost them millions and a good reminder that insider selling isnt always a bearish signal)
I've previously worried that such high rates of growth could not be sustained, and that performance was very much tied to housing construction. That may (or may not be) true -- but these guys are clearly doing something very right!!
ASX announcement here
5 January 2021
Update to Profit Guidance Nick Scali Limited (“NCK” or “the Company”) today wishes to issue the following update to profit guidance for H1 FY21. Unaudited Net Profit After Tax for the six months to 31 December 2020 is expected to be $40.5m, up approximately 100% on the underlying profit for the prior corresponding period, following better than previously anticipated container availability during the months of November and December leading to increased delivery volumes.
As announced in the Company’s Trading Update on 26 October 2020, total written sales orders for the first quarter of FY21 grew by 45%. This compares to second quarter growth of 58%, which was driven by the reopening of the Melbourne metropolitan stores as well as a successful Black November campaign across both the online and in store channels.
19-June-2020: Update on COVID-19, Trading, Dividend & Outlook
Market likes! NCK up +21% at 1:30pm Sydney time.
Response to COVID-19, Trading Update, Dividend Update and Outlook
Nick Scali Limited (ASX:NCK) today wishes to provide the following update on its operational and financial performance since temporarily closing its showrooms on 30 March 2020.
*1: 4Q20 QTD is the period from 1 April 2020 to 14 June 2020, 2H20 HTD is the period from 1 January 2020 to 14 June 2020
*2: Underlying NPAT excludes the impact of the gain on sale of property, and the impact of the adoption of AASB 16.
Response to COVID-19
In response to the COVID-19 pandemic, Nick Scali implemented a range of measures across its showrooms to ensure a safe environment for staff, customers, and the community. Selected showrooms within the network began reopening on a test basis in April, and all showrooms within Nick Scali’s retail network were reopened by the end of April with the support of our landlord partners. Since reopening, all showrooms have traded strongly and recorded positive sales order growth.
Nick Scali’s New Zealand operations were impacted by government restrictions, which forced both the retail and distribution networks to temporarily close. Trading and deliveries have now resumed at all locations with solid operating performance recorded since reopening.
Nick Scali responded to showroom closures by launching its digital offering, allowing customers the opportunity to purchase the entire range of Nick Scali products via digital channels. Whilst this initiative remains in the early stages of development, the Company is pleased with the growth it is demonstrating and sees further scope to invest in this capability.
The significant decline in sales orders during the second half of March and the first half of April when the showroom network was affected by closures, meant that approximately $9m11m of sales were unable to be recorded in the current financial year. However, due to the successful implementation of a range of cost reduction initiatives across marketing, employment and property, together with government assistance, profit for the second half will be up 15% to 20% on last year.
Nick Scali has experienced a significant rebound in customer activity during May and the first half of June. Given the strong trading, the Company expects sales orders for the months of May and June to be up 54% on prior corresponding period, driven by the easing of government restrictions and a reallocation of discretionary consumer spending toward furnishings and homewares.
On 23 March 2020 the Board decided to defer the payment of the 25c interim dividend until 2 October 2020. In light of strong recent trading and a significant increase in the sales order bank, the Board have decided to bring forward the payment of the previously deferred interim dividend to 29 June 2020.
Given the nature of Nick Scali’s business model and the significant increase in sales orders during May and June, the Company anticipates sales revenue for Q1 FY21 to be approximately 30% up. This is expected to underwrite profit growth for the first half of FY21.
Management and the Board would particularly like to thank our staff for the flexibility and support they demonstrated during this difficult time. Nick Scali’s strong performance during the period of uncertainty was a testament to the hard work and commitment of our people.
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Disclosure: Unfortunately, I do NOT hold NCK shares. I sold them on October 15th last year when they downgraded their profit guidance. I had been a little worried about the Scali family selling half of their stake in NCK (in March 2018) to a major Chinese supplier of theirs - and then that same Chinese supplier - Jason Furniture (Hangzhou) Co Ltd - better known as Kuka - who had become NCK's largest shareholder - selling all of those shares (through UBS in Aug/Sept 2019) for $6.85/share, being slightly less than the $7/share that they had paid for the shares in March 2018. Kuka had paid $77m for the stake, then sold it for $75m around eighteen months later. The guidance downgrade one month after Kuka sold their entire stake in NCK was enough to make me uncomfortable to keep holding the shares. So I sold - at $5.78/share. NCK closed at $5.75 yesterday, but they're up over +20% today, and were trading at $6.95 at 1:50pm Sydney time this afternoon. You can't pat ALL the fluffy dogs...