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ASX stock of the day: Nick Scali share price leaps 21% on sales numbers

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The Nick Scali Limited (ASX: NCK) share price leapt 21% this morning following stronger than expected sales. Despite the closure of stores during lockdown, sales orders have grown 7% over the second half to date and 20.4% over the quarter to date.

As a result of continued strong sales despite the coronavirus pandemic, the Nick Scali share price has more than doubled from its March low of $3.08 and is now trading at $7. 

What does Nick Scali do? 

Nick Scali is a furniture retailer which has been trading in Australia for over 50 years. Expanding into New Zealand in 2017, Nick Scali imports over 5,000 containers of furniture per year. Prior to the pandemic, the company sold predominantly through physical stores, but has launched an enhanced digital offering as a result of the lockdown. 

What did Nick Scali report?

Nick Scali forecast strong profit growth in the second half, with net profit after tax (NPAT) expected to be up 15% to 20% on 2H FY19. Full year revenue is expected to be in the range of $260 million to $263 million. The retailer is expecting full year underlying NPAT of $39 million to $40 million. 

The retailer closed showrooms on 30 March 2020, and began reopening in April, with all stores open by the end of the month. Since reopening, all showrooms have traded strongly with positive sales order growth. Nick Scali responded to store closures by improving its digital offering, allowing customers to purchase its entire range of products online. 

What is the outlook for Nick Scali?

Nick Scali experienced a significant decline in sales orders during the period of store closures. This means that around $9 million to $11 million of sales were unable to be recorded in the current half of the financial year. Nonetheless, profits are set to increase in 2H FY20 compared to 2H FY19. This is thanks to a range of cost reduction initiatives across marketing, employment, and property, alongside government assistance. 

The company saw a significant rebound in customer activity in May and the first half of June. Sales orders over May and June are expected to be up 54% on the prior corresponding period. This surge has been driven by the easing of government restrictions and a reallocation of consumer spending toward furnishings and homewares. 

Nick Scali has benefitted from people spending more time at home. As a result, many consumers are choosing to upgrade their domestic environments with new furniture and accessories. Given the current increase in sales orders, Nick Scali expects sales growth of 30% in Q1 FY21, which will underwrite profit growth for 1H FY21. 

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Motley Fool contributor Kate O'Brien has no position in any of the 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 Scott Phillips.

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