Coronavirus to have impact, warns Nick Scali

Nick Scali has became the first major retailer to warn of an impact on sales from the coronavirus.

Nick Scali CEO Anthony Scali Picture: Chris Pavlich.

Furniture seller Nick Scali concedes its crucial supply chain from China has been disrupted by the coronavirus outbreak, with orders delayed by up to two weeks, and concerns growing that other retailers could soon discover the same issues plaguing their supply networks.

It came as the chain became the first major retailer to warn of an impact on sales from the virus, which has added to the uncertainty that has already rattled consumers and shaken confidence.

Nick Scali managing director Anthony Scali told investors that despite delays from factories in China, the impact should be cushioned by the fact it had reduced its exposure to China to 40 per cent of production, from 80 per cent, with some furniture output shifted to Vietnam and Malaysia.

Nick Scali is the first major retailer to admit that its supply chain will be constricted by the coronavirus outbreak in China

“We have been in contact with our suppliers. Their expectations was (lead times would be) one to two weeks (longer),’’ Mr Scali said.

Nick Scali was contacting customers but he did not expect to be forced to offer discounts or free shipping to make up for the delays, which would hit margins.

The company was considering its options, including shifting more production to Vietnam if the coronavirus outbreak worsened and forced Chinese factories and ports to close.

“If the impact became very significant and the delays became much, much longer, we would be moving more of our sourcing to other countries.’’

The comments came as Nick Scali revealed a slump in store sales had shaved first-half profitability although a change in ­momentum towards Christmas helped the retailer beat its earnings guidance for the first half of 2020.

Unveiling a 2.5 per cent fall in first-half revenue to $137.5m as profit dived 15 per cent to $21.6m, the retailer warned that consumer confidence was brittle and the coronavirus would probably hurt performance.

The uncertainty meant Nick Scali would not provide full-year guidance.

“Despite seeing a recent improvement in sales and store traffic, there is still uncertainty around the current level of consumer confidence, which has been exacerbated by the coronavirus outbreak and other factors,” Mr Scali said.

“Consequently it is very difficult to provide guidance as to the profitability for the full year to June 2020.”

The interim profit was bolstered by a $1.3m post-tax gain on the sale of a property.

Investors appeared unworried by the fall in sales and coronavirus warning and welcomed the underlying profit of $20.1m as Nick Scali shares rallied 10.9 per cent to $8.

Nick Scali has been one of the best performers in the retail sector recently, with double-digit sales growth.