Could the Nick Scali Limited (ASX: NCK) share price be an opportunity for investors after its FY22 half-year result. Are investors now comfortable about saying it's a buy?
Nick Scali is an ASX retail share that specialises in selling furniture. It recently intensified its focus on furniture with the acquisition of Plush-Think Sofas for an enterprise value of $103 million.
Before we get to expert thoughts on the Nick Scali share price, let's look at how the business performed in the first six months of FY22.
FY22 half-year result
Whilst revenue increased by 5.4% to $180.3 million, the net profit after tax (NPAT) declined by 6.6% to $35.6 million. This came after a decrease in the profit margins. The earnings before interest and tax (EBIT) margin declined 280 basis points to 30.6%.
However, the gross profit margin increased by 30 basis points to 64.3%.
This result covered a period that included months of lockdowns in Melbourne and Sydney, where it had to close over 55% of the store network, whilst managing widespread disruption to the supply chain.
However, the business saw a much improved performance in the second quarter with written sales orders increasing by 44% with all stores reopened by mid-November and the Plush stores contributed "significantly" in November and December.
Growth continued to be strong going into January, with written sales orders for the group up 31% on the previous year. However, Nick Scali's store trading was down 6% after a 25% decline in-store traffic. However, there was a marked improvement in traffic and sales orders towards the end of the month. Plush sales orders were in line with the previous year.
Overall, the outstanding order bank at the end of January 2022 was higher than the previous year. The Nick Scali's suppliers have recently reinstated normal lead times, and management are expecting this to help revenue growth in the coming months. However, shipping costs and the availability of containers remains uncertain, which could hurt profitability in the second half of FY22.
What do analysts make of the result and the Nick Scali share price?
The broker Citi was impressed by the Nick Scali result, with a large order book expected to help the ongoing performance. However, it recognised the supply chain impacts that Nick Scali is facing.
Based on the profit projections, the Nick Scali share price is valued at 12x FY22's estimated earnings with a grossed-up dividend yield of 7.6%.
Nick Scali share price snapshot
Over the last six months the Nick Scali share price has risen 12% over the past six months and 23% over the last year.
