Nick Scali beats market expectations to send its shares racing

Nick Scali has issued a weaker profit and slashed its dividend, but the result still beat market expectations to send shares in the furniture retailer soaring.

Anthony Scali, CEO of Nick Scali. Picture: Hollie Adams/The Australian

Furniture chain Nick Scali has suffered a one-third slide in its first-half profit and sliced its dividend, which normally would trigger an exit of investors.

However, the half-year profit beat market expectations by 15 per cent to send shares in the company racing more than 17 per cent higher to an all-time high.

Boosting the interim result and profit margins was also freight and transport costs that were not as bad as initially feared and speculation that these freight charges would continue to fall in 2025 after a spike through the Covid-19 pandemic, while in Britain its newly acquired furniture chain was continuing to report losses but stores rebranded as Nick Scali were performing very strongly.

On Friday Nick Scali, the $1.5bn retailer which has 65 Nick Scali stores across Australia and New Zealand, 44 Plush sofa stores and 20 furniture shops in Britain, posted its December-half results to kick off reporting season for the retail sector.

The company announced a 10.8 per cent lift in half-year revenue to $251.07m.

Profit fell 30.2 per cent to $30.04m, with its Australia and New Zealand stores trading better than expected but its newly bought business in Britain struggling, although showing signs of improvement.

It also cut its interim dividend. Nick Scali posted an interim dividend of 30c per share, down from 35c, payable on March 26.

The half-year result was, however, about 15 per cent ahead of consensus forecasts, sending the shares to an all-time high of $19.12.

Nick Scali warned of volatile trading conditions in Australia and New Zealand and the losses flowing from its British chain Fabb which weighed on earnings.

Nick Scali said its losses and poorer sales at the Fabb Furniture chain were mostly driven by disruption caused by store closures as it refurbishes the stores in preparation for rebranding to the Nick Scali logo, while stock clearances to empty warehouses of Fabb branded furniture also impacted the result.

At its UK arm it reported an underlying net loss of $2.8m, lower than the $3.3m to $3.8m loss guidance provided at AGM.

The statutory UK net loss after tax was $4.1m, lower than the $5.1m to $5.9m loss guidance also provided at the AGM.

But the company was seeing some immediate improvements from the British business as Fabb stores transitioned to Nick Scali, with four stores refurbished and rebranded as Nick Scali in the first half, reopening on Boxing Day, with expected gross profit margin on the Nick Scali product to be 57 per cent to 59 per cent compared to the Fabb gross margin of 41 per cent at acquisition.

That store refurbishment program would continue into the second half as customers warmed to the Nick Scali brand in Britain.

“Re-branded Nick Scali UK stores were the top three performing UK stores in January 2025 for written sales orders, only one of which was in the top five under Fabb,” said Nick Scali managing director Anthony Scali.

“Our aim is to complete the refurbishment and rebranding of a further eight stores by 30th June 2025.

“The top-selling Nick Scali sofa in Australia and New Zealand is now the top-selling sofa in our UK Stores. This supports our belief that the Nick Scali product range will appeal to UK customers.”

In terms of outlook, Nick Scali said in Australia and New Zealand sales orders in January were up 8.5 per cent and up by 5 per cent in the first week of February, against sales growth of 4.2 per cent in December.

“The trading update for January clearly highlights how volatile the consumer environment is at the moment,” said Mr Koch. “Should interest rate cuts eventuate in Australia, we believe that this will be a tailwind for their Australian business.”

Shares in Nick Scali ended up 11 per cent at $18..

Originally published as Nick Scali beats market expectations to send its shares racing