Here are my notes from Nick Scali's FY23 results. Thought these might be useful given I'm positive (hold IRL and SM) but less positive than recent vibe on SM. I've done well given I bought in avg price of $9.92, prompted by @Rick's past SM posts (thanks Rick for your advocacy and insights!), but with recent share price increase it's now in my Hold range.

• Mgmt quality is unquestionably exceptional with recent ROE > 50%, with Scali family owning 14%.
• Company is in great health, with essentially zero net debt.
• FY23 rev is extremely unlikely to be repeated in FY24. It cam off a Covid high, with massive Covid demand combined with supply chain delays that pushed a lot of order fulfilment into FY23. Compared to FY23 rev of $508m, new sales orders over last year were $437m. For me, this is the base case revenue for FY24 given the economic headwinds.
• It's likely that FY24 will break the long history of increasing dividends, unless payout ratio nears 100%. Assuming FY revenue of $440m, gross margin of 60%, operating expenses of $180m, we get a NPAT around $60m, far lower than the $101m in FY23. Even with a 100% payout ratio, that's only around 75c dividend, same as FY23.
• I have concerns about growth. FY23 sales orders were 14% lower than FY23 revenue, because of the Covid backlog of sales that fulfilled in FY23. With economic headwinds, I'm not confident there will be much or any growth from this "underlying" revenue in FY24. Also, store growth was just 3 stores from 104 to 107 in FY23. Another 4 are planned for H1FY24. Not bad, but not awesome. Historical growth prior to covid as about 13% pa. My base case is 5 yr CAGR of 6% (dip in FY24 then returning to around 10% with small ongoing decline).
• Perhaps it's the nature of the large heavy goods they sell, but Nick Scali hasn't cracked online sales. They are tiny at $26m, down from $29m in FY22.
• Despite my muted optimism, the sky isn't falling. Even with my scenario above of 14% decline in rev for FY24, assuming current operating expenses and steady gross margin, NPAT will still be around $60m, which would be 4.3% fully franked yield based on 70% payout and current share price of $12.12, growing around 10% pa.