Nick Scali Limited shares surge on bumper profit result: Is is still a buy?

Shares of furniture retailer, Nick Scali Limited (ASX: NCK), have surged more than 12% today after the company released better than expected 2016 financial (FY16) results.

The company delivered a whopping 53.1% increase in net profit after tax (NPAT) to $26.2 million, beating its own earlier guidance of NPAT between $24-26 million.

Other highlights from the result included:

  • Revenue increased by 30.4% to $203 million.
  • Expenses to sales ratio decreased from 44.3% to 41.3%
  • Earnings before interest and tax (EBIT) increased 55.9% to $37.1 million.
  • EBIT margin increased from 15.3% to 18.3%.
  • Basic earnings per share (EPS) increased 53.1% to 32.3 cents.
  • Declared a final dividend of 14 cents per share and a special dividend of 3 cents per share to take the full year dividend to 26 cents per share – a 73.3% increase from FY15.
  • Net cash position of $15.9 million.
  • Number of stores increased by 1 to 47 stores.

Overall, this was an excellent result especially when you consider the company was able to maintain its gross margins above 60% even though it had to contend with a significantly lower Australian dollar for most of FY16 compared to FY15.

Sales growth was driven primarily by a full contribution of 7 new stores opened in FY15 and strong like-for-like sales growth of 11.1%. Market conditions were mostly favourable across Australia, with the strong property markets in most capital cities helping to underpin the demand for furniture. The company’s entry into the Western Australian market has also proven to be successful with four stores now open.

As the chart below highlights, Nick Scali’s FY16 results have continued to build on a strong platform, with the company’s key financial metrics trending in the right direction over the last five years.

Nick Scali growth

Source: Nick Scali


Nick Scali has noted that market conditions have remained strong in July, although the company expects modest sales growth and profit growth in FY17. While some investors would have hoped for a more optimistic outlook, it is important to note that FY16 like-for-like sales growth will be nearly impossible to replicate again and that the company will not be aggressively expanding its store footprint throughout this year.

Interestingly, Nick Scali has plans to launch the brand in New Zealand with three to four stores to open in FY18.


Based on EPS of 32.3 cents, the shares are currently trading on a price-to-earnings ratio of 16.7x. I think this is quite an attractive valuation considering the capable management team in place and the strong likelihood of further growth over the next few years. Investors will also benefit from an attractive dividend yield that currently stands at 4.9%.

Foolish takeaway

This was a strong result from one of the best retailers on the ASX and I have no doubts that Nick Scali should be on the radar of both growth and income investors.

 If you are interested in another quality dividend share, then I would recommend this top dividend share as well. A strong yield and potential share price gains make this a great investment idea in my opinion.

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a fat fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool contributor Christopher Georges has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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