Kiwi foray pays off for Nick Scali

nickscaliFurniture retailer Nick Scali has reported a 15 per cent rise in net profit after tax of $23.5 million for the half-year.

The retailer said the result was largely driven by an 8.1 per cent increase in sales revenue to $128m, as a result of ongoing store network expansion during FY17 and FY18 in addition to first half FY18 same store sales growth of over 2.6 per cent for Nick Scali Furniture stores.

Gross margins strengthened by 90 bps to 62.6 per cent and operating expenses decreased as a percentage of sales to 35.2 per cent, attributed to the “continued economies of scale achieved as the store network expands.”

Nick Scali managing director Anthony Scali said the six new stores opened in first half FY18 have performed above its expectations, with three of the new stores located in the Home-Co centres previously occupied by Masters.

“These centres are generating excellent traffic,” he said. “We expect to open a number of new stores in other Home-Co centres.”

The retailer’s directors declared a fully franked interim dividend of 16 cents per share, compared with the 14 cents paid in the previous corresponding period.

The furniture chain also opened its first store in New Zealand during the period in Auckland, which Scali said was the best performing new store for January in terms of sales orders.

“Positive feedback from consumers is encouraging and suggests, as expected, the Nick Scali brand will fill a void in the New Zealand furniture industry segment,” he said.

Additional stores in New Zealand will be opened towards the end of the second half FY18 and early in the first half FY19.

Meanwhile Nick Scali is moving to exit its struggling custom furniture brand Sofas2Go, with Scali telling shareholders today that there’s “no future” for the brand.

The retailer has already converted one of the four S2G locations into a Nick Scali outlet store and will close another in Melbourne next month.

“[There’s] no future for the remaining three stores, they were a small drag on earnings,” Scali said.

“We will close these stores.”

Losses from the venture have increased in recent months as the business has wound down ahead of closure, driving down company-wide like-for-like sales by .6 per cent in 1H18.

The retailer said recent trading from existing stores had been volatile with December providing positive same store sales order growth, while January was negative.

“For FY18, two of the six new stores will make a reasonable contribution to second half profit”whereas the other four will provide only a small contribution due to start-up costs,” the company stated in its trading update.

After cycling off two consecutive years of double digit same store sales growth, Nick Scali expects net profit after tax for the full year to June 2018 to be 5-10 per cent higher than the previous corresponding period.

The retailer also announced the appointment of Stephen Goddard as an independent non- executive director of the company. Goddard has held a broad range of senior executive positions in the industry and currently serves as a non-executive director of JB Hi-fi , previously serving as finance director and chief financial officer of David Jones for eleven years until October 2012.

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