Nick Scali Limited (ASX: NCK) made a very important announcement about its share ownership late on Wednesday.
The company said that the Managing Director, Anthony Scali, advised the Board yesterday that he has entered into an agreement with Jason Furniture (Hangzhou) Co. Ltd (KUKA) to sell 11.04 million shares to a subsidiary of that company.
The transaction will mean that Mr Scali will hold 11.04 million Nick Scali shares after the sale. This represents around 13.63% of the company.
The Nick Scali release said that KUKA is a Chinese company listed on the Shanghai Stock Exchange with a market capitalisation of around $6 billion. It is involved with the design and manufacture of soft furniture products sold to 700 customers in 120 countries. It had annual sales of $1.4 billion in 2017. It has been a Nick Scali supplier for over a decade.
The transaction results in creating a strategic shareholder for the company with the objective to assist the company to realise its growth strategies over time. The transaction will need to be approved by the relevant Chinese Government departments before it can be completed.
Mr Scali said "Nick Scali Limited has been an important part of me for all my working life and I believe it continues to have great prospects. I am as committed to the company as ever and I will be maintaining my remaining shareholding. I am looking forward to developing even stronger relationships with suppliers and to pursuing the growth opportunities for the benefit of all stakeholders."
The Nick Scali Board also re-iterated in the market release that profit guidance for FY18 is expected to be between 5% to 10% above FY17.
Foolish takeaway
Bringing on a major supplier seems like a good move for Nick Scali. But, I wouldn't be surprised if some shareholders are wondering about the timing of this move. Many market commentators are saying household debt, rising interest rates and high energy prices could cause households to rein in their discretionary spending on things like furniture, which could harm Nick Scali somewhat.
I'm generally not a fan of retail shares and I'd probably have done the same thing in Mr Scali's position if I owned shares. I wouldn't buy Nick Scali shares at the moment because this could be the top of the cycle.
