Nick Scali Limited (ASX: NCK) is one of Australia's largest furniture retailers and importers. Today, the company released its half-year result to 31 December 2017.
Result
Here are some of the highlights compared to the prior corresponding period of 31 December 2016:
- Revenue up 8.1% to $128 million
- Gross margin increased 0.9% to 62.6%
- Earnings before interest, tax, depreciation and amortisation (EBITDA) up 16.7% to $35.6 million
- EBITDA margin up 2.1% to 27.8%
- Earnings per share (EPS) up 15% to 29 cents
- Dividend per share up 14.3% to 16 cents
I have been impressed by Nick Scali's results each year because it seems to be able to generate good growth in fairly benign conditions. Indeed, according to the ABS, retail sales fell 0.5% seasonally adjusted in December.
The 15% profit growth is a strong result considering it is on the back of several years of good results.
Nick Scali disclosed that same store sales growth was 2.6%, which means that the stores are generating decent organic growth and it's not just opening new stores to create more revenue. Nick Scali had 46 stores at the end of FY17 and had 52 stores at the end of December 2017. It is aiming to open a further two stores in the second half of FY18 and has a long-term goal of 75.
Nick Scali's fixed assets increased by $24.5 million compared to June 2017, which mainly relates to the $23 million purchase of a store in Auburn in December 2017. Overall, net assets increased by $7.4 million to finish the half-year at $77.8 million.
It's always worth looking at the operating cashflow of any company to see if profit is being made but the cash isn't being paid. Operating cash increased by $2 million, or 10.9%.
Outlook
Management said that the new Auckland store was the best performing store for January in respect of sales orders. Additional New Zealand stores will be opened towards the end of FY18 and the start of FY19.
The company said that store trading had been volatile and challenging after cycling off two consecutive years of double digit growth. January showed negative same store sales order growth according to management.
Management expect that FY18 profit will be 5% to 10% higher than FY17, which suggests the upcoming half could be difficult. FY19 should benefit from the increase in the store network.
Foolish takeaway
Nick Scali shareholders should be reasonably happy with the result today, I was expecting that the retail slowdown would affect Nick Scali earlier than it has.
I don't think Nick Scali is a buy at today's price because sales could drop by a decent amount over the next couple of years, which would obviously decrease the profit too.
