Nick Scali Releases Trading Update and Revises Guidance
- NCK increases guidance to AUD40.5 million, up 100 per cent.
- Opening of new brick and mortar stores in Auckland and NSW.
- Approximate 7 per cent rise in share price on announcement.
On the 5th of January 2021, Nick Scali Limited (ASX: NCK) released an update upgrading the expected profit guidance for H1 FY21. This comes as no surprise, with a history of strong performance tracking back through 2020 despite the macroeconomic environment influenced by COVID-19.
Unaudited Net Profit After Tax (NPAT) is expected to increase to AUD40.5 million, which is an approximate 100 per cent increase in the underlying profit from the prior corresponding period (pcp) up to the 31st of December. In contrast, back during August for this period, there was an expectation of a 50 to 60 per cent increase in NPAT.
On the 26th of October 2020, total written sales orders for 1Q21 grew by 45 per cent, which was only compounded in 2Q21 with a 58 per cent growth, largely attributed to Melbourne coming out of lockdown and the Black November campaign experiencing success both in-store and online.
The company has benefited from a boom in discretionary consumer spending on the home which has some correlation to working from home and other lockdown effects. The average size of purchases a customer makes is more than AUD1800, with coffee tables, dining tables and bedroom furniture comprising of 80 per cent of total sales which represent the highest profit margin products for NCK.
Now, total written sales for the six months to the 31st of December 2020 have exceeded delivered sales by around AUD20 million, with massive growth in orders during Q2. Thus, revenue and profitability are expected to be positively influenced should there be no further disruptions in-network or supply chain.
Despite brick-and-mortar stores reopening, there has been a trend in Q2 FY21 of increased digital sales. New stores have been opened in Wairau Park in Auckland NZ, and Bennetts Green in NSW Australia and have contributed to this success in H2 FY21.
Looking at how the market has responded; there has been an approximate 7 per cent rise in share price on the day of this announcement. When looking back on a larger timeframe, the price has recovered significantly from COVID-19 impacts. NCK has experienced a steady bullish run from April; a testament to the increase in orders and a Board which has successfully managed risk and utilised distribution channels effectively.
The success of the company has been passed along to shareholders in FY20 with a fully franked final dividend of 22.5 cents being paid on the 6th of August which brought the entire year’s payout to be 47.5 cents fully franked. This represents an impressive 90 per cent payout ratio, which is reflective of prior payout ratios implemented.
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