Nick Scali CEO says customers getting used to ‘new normal’ of higher rates and cost of living

Nick Scali boss Anthony Scali says despite a drop in first quarter sales his furniture retailer is doing better than the market with his customers now used to the ‘new normal’ of steeper interest rates.

Nick Scali chief executive Anthony Scali. Picture: Chris Pavlich

The boss of furniture retailer Nick Scali says it will grow its store network for its key retail brands Nick Scali and Plush, but has warned of slowing sales growth in the first quarter as visits to its stores shrink with its half-year profit expected to drop by as much as one third.

Despite falling sales growth at its stores for the quarter, the furniture chain was doing better than the market and its customer base was now adjusting to the ‘new normal’ of higher interest rates and cost of living pressures.

Addressing shareholders at the company’s annual general meeting in Sydney, chief executive Anthony Scali delivered a trading update that showed sales orders for the first quarter were down 5.4 per cent compared to the same period last year.

Mr Scali said on a comparable store basis group written sales orders were down 6.7 per cent, while store traffic was down 10 per cent to 15 per cent in the first quarter but store conversion rates improved driven by our better value product offer for both brands.

He said net profit after tax for the first half would depend on actual deliveries achieved before the end of December but based on current delivery levels he expected net profit after tax for the first half of 2024 to be in the range of $40m to $42m.

This would be down considerably from the half-year net profit of $60.6m recorded for 2023.

After the AGM Mr Scali told The Australian that despite the retreat in sales for the first quarter the company was doing better than expected and better than many of its competitors.

“We were expecting to do worse than this I think, and it’s not too bad and it seems to be a lot more stable. Written orders down by around 5 per cent, well I think the market might be more than that.

“We think it is a lot more stable and not as volatile. I would say our customer is more accustomed to the higher interest rates and cost of living pressures.”

Mr Scali said Nick Scali had a long dated hedge program in place that was protecting it from the weaker Australian dollar.

Citi analyst Sam Teeger has a ‘buy’ recommendation on Nick Scali and said guidance for first-half profit was 4 per cent to 9 per cent ahead of the $38.6m profit reflected by market consensus estimates.

“Trading, while still challenging, has improved with first quarter orders down 5.4 per cent vs down 8.1 per cent in July 2023. We estimate this implies orders for August and September were down 4.1 per cent.

“The improvement is also consistent with several key housing indicators which we track. Nick Scali has joined Beacon Lighting as housing retailers reporting improving trading momentum and both are our top picks in small cap retail.”

Mr Scali told shareholders at the AGM the retailer was continuing to open new stores and that during the year, two new Nick Scali showrooms were opened in Helensvale, Queensland and Shepparton, Victoria.

One new Plush showroom was opened in Capalaba, Queensland.

“Also in the year, seven Plush showrooms were refurbished with a significantly improved showroom look and feel and new visual merchandising guidelines to support consistent ranging of product across Plush showrooms.

“This program of refurbishment of Plush showrooms is continuing in the current year. The company had a combined store network of 107 stores at the end of June 2023, and will continue to grow the store network for both brands.”