Nick Scali Reinstates Deferred FY20 Interim Dividend | KOSEC

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Nick Scali Reinstates Deferred FY20 Interim Dividend

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC - Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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Prominent furniture retailer, Nick Scali Limited has emerged out of the pandemic relatively unscathed. This is evident in its recent trading update, released on 19 June which reflected outstanding results. More notably, the company’s exceptional performance did not occur overnight. Instead, its sales, earnings and revenues have been on a steady increase for more than seven consecutive years now. Therefore, the resilience of the business is evident through its ability to deliver solid results despite broader macroeconomic turbulence.

Nick Scali operates both in Australia and New Zealand. As a result, it was unable to escape from restrictions put in place by respective governments. Specifically, Nick Scali’s New Zealand operations were severely affected as restrictions have forced both the temporary shut down of retail and distribution networks. In the company’s trading update in March, stores in Australia were closed from 30 March 2020 up till an initial period of 1 May 2020.

During this period, Nick Scali experienced a massive decline in orders that represented $9-$11 million of lost revenue. Yet, selected showroom resumed operations on a test basis back in April 2020, and fortunately, all showrooms within the firm’s retail network opened their doors once again by the end of April 2020. Since then, showrooms and deliveries have traded actively and recorded decent growth.

As the firm operates through its physical stores, the closure of shops further translates into a huge blow. However, Nick Scali responded swiftly by turning the threat into an opportunity. The company launched its digital channel, which therefore opened up a platform for customers to browse and subsequently purchase its products online. While the initiative is in its early phases of development, Nick Scali is satisfied with the growth the channel is presenting and views it to be an aspect that has further room for potential.

Additionally, to help cushion the blow of the pandemic, Nick Scali introduced a series of cost reduction measures ranging across divisions such as marketing, property and employment. Along with assistance provided from the government, Nick Scali, therefore, expects profit for the second half of the year to climb by 15 to 20 per cent relative to the prior corresponding period. Collectively, it expects underlying profits for FY20 to fall in the range of $39 to $40 million.

The strong rebound in customer activity from May through till the first two weeks of June has allowed the Company to anticipate a 54 per cent rise in sales order on the prior corresponding period. The surge is attributed both by the easing of government restrictions and consumers’ transition of allocating spending towards furniture and homewares. Consequently, Nick Scali forecasts FY20 revenue to come in between $260 to $263 million. More importantly for investors, the deferral of 25 cents interim dividend till 02 October 2020 will no longer hold. As a result of the robust trading and a surge in sales order, the Board have decided to bring forward the payment to that of 29 June 2020.

By Caroline Wong 

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