Furniture retailer Nick Scali Limited (ASX: NCK) says it expects to see a net profit after tax for the first half of the 2017 financial year (FY17) to be in a range of a 30% to 35% increase over the previous year.
That's an astonishing jump, considering the company reported a 53% increase in net profit for the 2016 full financial year, strong competition, weak consumer confidence, and a low Australian dollar.
For the same period last year, Nick Scali reported a 40.7% increase in net profit to $14.1 million. For the first half of FY17, that suggests a minimum net profit of $18.3 million.
However, existing long-term shareholders are unlikely to be surprised. The upmarket furniture retailer has been consistent over the past five years – one reason why the share price is up 252% since November 2011.
At the current price of around $5.65, Nick Scali is trading on a trailing P/E of ~18x and paying a fully franked dividend of over 4.0%. Given the forecast increase in net profit, that appears a cheap price to pay for a high quality retailer. And when I say high quality, one factor I consider is how the company has managed to slash its cost of doing business each year over the past five years.
Comparing Nick Scali to other retails, Beacon Lighting Group Ltd (ASX: BLX) is trading on a trailing P/E of 17.0x, with a dividend yield of 3.3%, Fantastic Holdings Limited (ASX: FAN) is on a P/E of 31.4x – although the company has received a takeover offer, and Harvey Norman Holdings Ltd (ASX: HVN) is trading on a P/E of 14.5x – but offering much lower growth than Nick Scali.
Even at today's share price of $6.36 after a rise of 11.6%, Nick Scali could well be one retailer to add to your watchlist.
