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Why the Nick Scali Limited share price could be set to hit another record high

The share price of Nick Scali Limited (ASX: NCK) could be set to jump higher this morning after the furniture retailer posted yet another impressive result.

Key highlights from the first-half include:

  • Half-year revenues from ordinary activities up 15.5% on the prior corresponding period to $118.4 million.
  • Half-year profit after tax up 44.7% to $20.5 million.
  • Operating expenses decreased to 36.4% of sales, compared to 39.5% in the first-half of FY 2016.
  • Earnings per share of 25.2 cents.
  • Interim dividend of 14 cents per share fully franked.
  • Three new stores opened during the half.

It’s hard not to be impressed by this stunning result. In November the company provided guidance of half-year net profit after tax growth in the range of 30% to 35% on the prior corresponding period.

But it has absolutely smashed that guidance out of the park with its growth of 44.7% and I feel management should be commended.

Furthermore, the first metric I look for with retailers is same-store sales growth. Nick Scali has not disappointed on that front, posting same-store sales growth of 10.1% during the period.

Pleasingly the second-half looks like it could be even stronger. In the first four weeks of the new year the company has confirmed double-digit growth in both total sales orders and comparable stores sales orders.

Is it a buy?

At 16x trailing earnings I think Nick Scali’s shares looks remarkably cheap considering it delivered profit growth of almost 45% during the half.

Whilst I have concerns over how a weakening Australian dollar may impact its imports in the future, at present the currency is being reasonably resilient.

Because of this I think Nick Scali is up there with Premier Investments Limited (ASX: PMV) and RCG Corporation Ltd (ASX: RCG) as retail shares to buy today.

But I would recommend investors keep a close eye on the state of the housing market and its margins if the Australian dollar sinks significantly lower.

Finally, I would suggest investors make space in their portfolio for Nick Scali by removing these three rotten ASX shares. Each could act as a major drag on your portfolio this year in my opinion.

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Motley Fool contributor James Mickleboro 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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