Nick Scali issues profit warning, points to higher freight costs

An unexpected spike in freight costs has punctured furniture chain Nick Scali’s typically robust and market-leading profit margins to see the retailer issue a profit warning at its AGM.

Nick Scali CEO Anthony Scali. Picture: Chris Pavlich

Furniture retailer Nick Scali has become one of the first retailer’s to issue a profit warning this annual general meeting season as an unexpected spike in freight rates punctured its normally sector-leading margins to materially deflate the company’s first-half profits.

In a trading update provided to shareholders before the furniture chain’s AGM on Monday, chief executive Anthony Scali revealed the company’s historically high profit margins and track record of year-on-year growth had skidded to a stop with gross profit margins expected to be down by 240 basis points for the first half and sales limp.

Nick Scali, which this year acquired a British furniture chain to launch into that country and funded the deal with $54.8m in new equity, has warned of deteriorating profitability in the first half of 2025 and has highlighted rising shipping and freight costs as a key culprit in its weaker earnings margins.

In August, Mr Scali warned that freight rates were ballooning, driven partly by huge demand for shipping containers from Chinese producers of electronic vehicles that were flooding the US with as many EV’s as they could land in American ports before a new tariff regime on Chinese EV’s were slapped on their cars.

An unexpected spike in freight costs has punctured furniture chain Nick Scali’s typically robust and market-leading profit margins. Picture David Clark

On Monday, Mr Scali again highlighted the impact of rising freight costs on his furniture business.

In his address to shareholders, released to the ASX before the AGM, Mr Scali warned that higher freight rates will hit its gross profit margins, particularly in the second quarter, with gross margin in the first half to slide 240 basis points against 2024 and net profit to be weighed down to be $30m to $33m.

This is against a first half profit of $43m in the first half of 2024.

The typically high-growth Nick Scali warned it had been hit by “materially higher unexpected freight rates” which has eroded its profitability.

The company said written sales orders for the four months June to September were up 3 per cent against 2023 with August and September written sales higher than 2023. This sales growth was against written sales order growth for June and July combined of negative 1.2 per cent.

In the AGM trading update, the retailer, which recently opened a branch of stores in Britain, said it expected to deliver sales revenue for the first half to for Australia and New Zealand to be between $217m to $222m. This is compared to first half sales in 2024 of $226m.

Earlier this year, Nick Scali made its widely anticipated push offshore and into the British market after a deal to purchase specialist UK home furniture retailer Anglia Home Furnishings.

Founded in 1979, the loss-making Anglia trades as Fabb Furniture and has a long-established presence in the UK home furnishings market from where it operates a 21-store network all located in out-of-town retail parks and predominantly in large-scale format.

At the AGM shareholders were told Nick Scali has acquired 20 showrooms in Britain with refurbishments commenced and Nick Scali’s sofa range beginning to fill the stores to be followed by a dining range in November.

He said written sales orders have been impacted due to the disruption caused as it transforms and restructures the business.

“We have seen margins on recent written sales orders improve to be 300 basis points higher than the margin on delivered revenue, Mr Scali told shareholders.

“We expect the gross profit margin to continue to improve as more of the Nick Scali product is rolled out to stores.”

He said written sales orders for the UK in first quarter are $12.5m. First quarter UK delivered sales of $17.8m benefited from an opening order bank elevated by the supply chain disruptions.

“We anticipate second quarter UK delivered sales to reduce to closer to the volume of written sales orders in the first quarter,” he said.

Nick Scali expected gross margin in the first half for the UK to be in the range of 42-44 per cent. Gross margin improvement due to delivered sales of the new product range changes is not expected to be significant until the second half.

The retailer expects to incur $1.8m to $2.2m in one-off costs in the first half relating to staff restructure and system integration costs.

Originally published as Nick Scali issues profit warning, points to higher freight costs