I believe that the ASX retail stock Nick Scali Limited (ASX: NCK) has a promising future and has the potential to generate shareholder returns of at least 100% by 2030.
A shareholder return includes dividends, and I believe Nick Scali can deliver both good dividends and impressive capital growth over time.
It operates two different businesses in Australia – Nick Scali and Plush. A recent expansion push into the UK is an exciting move by the company to grow significantly in the future.
Significant store rollout potential in ANZ and UK
At December 2023, the business had 59 Nick Scali stores in Australia and five in New Zealand. It also had 44 Plush stores in Australia. This means it has 108 stores across the two brands and two countries.
It's already one of the biggest furniture retailers in the country – in the first half of FY24, it generated $226.6 million in revenue and made $43 million in net profit after tax (NPAT).
The ASX retail stock has revealed very promising long-term targets for how large its ANZ store network can become.
The Nick Scali brand is aiming for 86 stores across Australia and New Zealand. There could be significant expansion of the Plush brand, with management aiming for between 90 to 100 stores.
In total, the ASX retail stock is aiming for between 176 to 186 stores across the two businesses, which would be an increase of between 68 and 78.
Nick Scali also recently acquired Fabb Furniture in the UK. The ASX share is planning to grow its store network in the country. The acquisition came with 21 stores, all located in out-of-town retail parks and predominantly large-format. The company is planning to "expand the store network across the UK."
The ASX retail stock said this acquisition is a "significant opportunity to drive profitable growth in the medium-term in the UK".
According to Nick Scali, the UK furniture market is $24.5 billion, compared to $12.4 billion in Australia. The UK population is much larger, at 67.6 million, compared to 26.8 million in Australia.
If Nick Scali can get this right, its UK store network can at least match the size of the Australian network and achieve similar margins (if not higher). The UK segment can leverage the existing supply chain and logistics network. The company's increased scale could mean better buying power and lead to various other margin improvement benefits.
Nick Scali share price valuation
The forecast on Commsec suggests the ASX retail stock could generate earnings per share (EPS) of $1.08 in FY26. That implies the current Nick Scali share price is valued at around 13x FY26's estimated earnings, and forecast to pay a grossed-up dividend yield of approximately 7%.
I think those are appealing financial numbers for a business that has the opportunity to at least double in size in the coming years while paying a good dividend.
