Nick Scali buys rival Plush-Think Sofas for $103m, strengthening its stronghold on the furniture market

Furniture retailer Nick Scali will almost double its showrooms with the acquisition of Plush-Think Sofas, amid a furniture boom during the pandemic.

Nick Scali boss Anthony Scali says the furniture retailer’s acquisition of Plus-Think Sofas for $103m will be earnings accretive in the first full year of ownership. Photo: Adam Ward

Nick Scali chief executive Anthony Scali believes Plush-Think Sofas will greatly broaden his $980m furniture empire’s exposure to the mid-market sofa sector, with the opportunity to also roll out as many as 100 new Plush stores in the next few years.

Furniture retailer Nick Scali on Monday announced it had agreed to buy Plush for $103m, with the deal to almost double its current portfolio of showrooms across Australia and New Zealand to more than 100 and deepen its exposure to furniture and home furnishings, one of the hottest sectors in the economy through the Covid-19 pandemic.

It will also rocket Nick Scali up the ladder of the nation’s leading furniture retailers, especially in the key categories of sofas and couches where it will sit in second place to national retail chain Harvey Norman.

Mr Scali said the Plush business would be complementary to Nick Scali in terms of products and customers, while there was also plenty of growth in the business.

“Our markets overlap a bit, I think their demographics are different to ours as well, it is a different demographic in terms of the customer and also they have a lot of growth opportunities and we think we can roll out 90 to 100 stores,” Mr Scali said.

“The Plush business demographic is more mid market, they are 1000 sqm stores and that is easier to do, it just does sofas which is easier to manage.

“It will also give us much more volume when added to our business (Nick Scali).”

At Nick Scali around 70 per cent of its business is drawn from sofa sales whereas for Plush it is 100 per cent, Mr Scali added.

It had been speculated for a number of months that Nick Scali was in the market for an acquisition, with its elevated share price a handy warchest to scoop up a deal. The retailer was rumoured to be on the short list to buy Coco Republic, with a price tag of around $100m, as well as Amart and Focus on Furniture.

Plush is a leading Australian specialist sofa retailer with 46 showrooms across Australia and fiscal 2021 revenue of $160m, with underlying EBITDA of $27m. In the 2020 financial year Plush posted revenue of $111m, and underlying EBITDA of $10m.

The acquisition strengthens Nick Scali’s position as a leading sofa retailer across Australia and New Zealand, with the combined group representing 108 showrooms across Australia and New Zealand and fiscal 2021 pro forma revenue of $533m, and underlying EBITDA of $153m.

The deal will be funded through a combination of cash on hand and new bank facilities and is slated to be earnings per share accretive in the first full year of ownership, before realisation of potential synergies expected following integration.

Founded in 1999 and originally operating as Plush Leather, Plush has subsequently grown into a network of 46 showrooms across Australia. Plush is positioned as a mid-market, made to order sofa retailer with a focus on the aspirational customer demographic.

“The acquisition is a strategic opportunity for Nick Scali and will allow us to leverage the increased scale of the combined group whilst providing a platform to significantly grow the store network,” Mr Scali added.

The slated ramping up of the Plush-Think Sofas chain and potential 100 new stores Nick Scali will add to the chain comes after years of underinvestment by its distressed owner, South Africa’s Steinhoff International. Steinhoff though its local offshoot Greenlit Brands has undergone a sale process of its various furniture, furnishings and homewares businesses which has seen it recently also dispose of Harris Scarfe and Best & Less.

The furniture and home furnishings sector has proved incredibly resilient and profitable through the pandemic as consumers stuck at home, working from home and unable to travel have directed an increasing amount of discretionary income into their home interiors.

In August Nick Scali testified to that strength, reporting its full-year results that showed profits doubled as it cashed in on the shopping bonanza. Nick Scali posted a full-year net profit of $84.241m, up 100.2 per cent. The profit was easily above guidance heading into the reporting season of $78m to $80m issued in May. Sales revenue for the year grew by 42.1 per cent to $373.m, with same-store sales revenue growth of 34 per cent.

Meanwhile, Michael Ford, executive chairman and CEO of Greenlit Brands said the business was “very pleased” to have negotiated the sale of Plush to Nick Scali.

“For Plush, this outcome crystallises the opportunity for the business to grow to the next stage of its development, with commensurate opportunities for employees, under the ownership of a deeply experienced and high calibre retail group, Nick Scali.”

“For Greenlit Brands, this transaction realises an asset on behalf of our parent company, Steinhoff International, in an orderly fashion and for fair value,” he said.

Mr Ford said Greenlit Brands remains fully committed to continuing to invest in people, businesses and our brands will continue to carefully evaluate strategic options and opportunities.

“The financial and operational strength of Greenlit Brands, underpinned by our solid balance sheet and our suite of iconic brands – all of which are profitable – puts us in a strong position to continue to build remarkable retail businesses and to create value.”

Shares in Nick Scali rose $1.14, or 10.38 per cent on Monday, to close at $12.12.