The Nick Scali Limited (ASX: NCK) share price continued on from its 11% surge yesterday, climbing a further 3.75% today. This comes after the furniture retailer delivered better than expected results for H1 FY20 yesterday morning.
Net profit after tax (NPAT) came in at $21.6 million, which included a $1.3 million gain on the sale of property. After adjusting for the property gain, underlying NPAT was $20.3 million, above the $17 million-$19 million guidance provided in the company’s October trading update.
Sales down but improvements noted
Nick Scali recently told the Australian Financial Review (AFR), “we are definitely seeing improving sales and orders compared to what it was – the first quarter was very difficult trading and store traffic was down significantly.”
Sales for 1HFY20 was down 2.5% from the prior corresponding period (pcp), with revenue of $137.5 million reported compared to $141.1 million in 1HFY19. Same store sales growth was also negative, down 7.5% for the period.
Nick Scali has 58 stores, 3 more than a year ago. One new store was opened during the half – the company’s third store in New Zealand.
Earnings before interest, tax, depreciation, and amortisation (EBITDA) was $31 million, down 18.8% from $38.2 million in the pcp. Additionally, the retailer was largely able to maintain gross margins which were 62.2% compared to 62.8% in 1HFY19. Operating expenses, however, increased to 40.2% of sales, up from 36.1% of sales in the pcp.
The Nick Scali share price has outperformed this year, up nearly 22% since the start of January, and more than 35% from a low of $6.11 in November 2019.
The coronavirus outbreak is, however, having an impact on the retailer, with supplies delayed as Chinese suppliers close to help stop the spread of the virus.
According to the Sydney Morning Herald, Managing Director Anthony Scali said that the company sources 40% of its stock from China, down from 80% a year ago. Nonetheless, Scali advised the impact would be limited unless delays became much longer, in which case it would look to increase sourcing from other countries including Malaysia and Vietnam.
Looking to the future
Nick Scali plans to open three new stores in the second half of the financial year, one in New Zealand and two in Australia. Long term, the company is aiming for a store network of 80 to 85 stores across Australia and New Zealand.
Nick Scali has noted recent improvements in sales and store traffic, but warned that uncertainty remains around the current level of consumer confidence which has been exacerbated by the coronavirus outbreak. Given these factors, the company refrained from providing guidance on full-year results.
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