$40m profit, but Nick Scali keeps $3.5m JobKeeper cash

COVID-fuelled demand for new furniture has sent this national retailer’s profit soaring to $40.61 million, yet its chief executive has defended the decision to keep $3.55 million in JobKeeper payments and wages subsidies.

Stephanie Bellm and Nick Scali Assistant Store Manager Kevin Parkinson at the company’s Fortitude Valley store in Brisbane. Picture: Liam Kidston.

Nick Scali chief executive Anthony Scali says he struggled over whether to return $3.55 million in JobKeeper payments and wages subsidies in light of the retailer’s profit boom and near doubling of its dividend, but argued his business contributed to Treasury coffers by paying double the amount of tax in the December half.

Unveiling the furniture chain’s first-half result on Thursday which showed net profit rising 89.9 per cent to $40.61m which helped ratchet the interim dividend to 40 cents per share from 25 cents last year, Mr Scali said the issue was a “hard one”.

“It is hard one because yes our stores did close and we did use that to pay the bills, but the business boomed and we paid the government double the tax we paid them last year, in this half, and we are giving it back to the government more that twice back in taxes,” Mr Scali told The Australian.

Nick Scali paid more than $17m in taxes in the first half, up $8m.

Retailers that took in JobKeeper from the federal government and wages subsidies from New Zealand are coming under increased pressure as they unveil their results this earnings season, with swollen profits and higher dividends feeding the argument from some that JobKeeper payments should be handed back. Retailers such as billionaire Solomon Lew’s Premier Investments have reported strong earnings and declined to give wages subsidies back, while some other companies like Super Retail Group and Domino’s Pizza have sent back the funds.

Mr Scali said his staff had benefited from the payments, including the payment of bonuses.

“We were able to pay all our staff bonuses, JobKeeper was for the people in the end, the employees, and we gave it all, … our sales people earned record commissions and so the view is the JobKeeper was like a stimulus and we did pay taxes, have paid taxes for 60 years.”

The JobKeeper issue has now become political, and on Thursday Andrew Leigh, Shadow Assistant Minister for Treasury, called on the furniture retailer to return the wages funds.

“Will they follow the lead of Super Retail Group, Toyota Australia, Domino’s and Iluka by handing back JobKeeper they didn’t need? Or will they enjoy a near-doubling in profits, and simply funnel taxpayer support through to their shareholders?,” Mr Leigh said.

“With a million people unemployed, a million underemployed, and a trillion in government debt, taxpayers can’t afford to be padding the pockets of Nick Scali’s shareholders. There’s only one right thing for them to do: pay their JobKeeper back.”

Meanwhile, turning to operations, Mr Scali said the retailer was facing a consistent delay in shipments of products from China with it becoming increasingly difficult, and costly, to source empty shipping containers to carry goods from factories to his customers in Australia and New Zealand.

“We are probably around five weeks behind, and it isn’t our factories but container availability, there is a shortage and 90,000 empty containers sitting in Australia. And you have to pay five more times for a container if you want the goods, but then there are still shortages.”

Such is the problem that Nick Scali has had to hire warehouses to hold furniture and other goods as they wait to find a shipping container.

This is reflected in its sales for the half. On a same-store basis, sales orders (customers placing orders) increased 58 per cent on the prior comparable period. However the sales increase of 24 per cent (furniture actually arriving) to $171.1m was less than the rate of sales order growth primarily due to supply chain and shipping delays.

The national furniture chain is the first major retailer to issue its results at the start of reporting season and has reconfirmed its earnings guidance issued in early January that has seen consumers rush to full up their homes with new coffee tables, lounges, couches and TV units as they endured months of home lockdowns and social distancing restrictions.

It augurs well for other retailers, particularly in the sectors driven by housing prices and home decorating and refurbishment, as people spend more time in their homes and look to update their interiors.

Nick Scali on Thursday reported underlying EBITDA of $60.2m and its net profit was in line with recent guidance on January 5.

The supercharged growth represents profit growth of approximately 100 per cent on an underlying basis. Written sales orders for the period were $191.1m, representing growth of 52 per cent on the prior corresponding period.

The closing order bank at December 31 reached an all time high.

Nick Scali declared a fully franked interim dividend of 40 cents per share, up from 25 cents in 2020, with a record date of March 9 and a payment date of March 30.

In terms of outlook, sales order growth for the group in January 2021 was up 47 per cent compared to the same period last year, representing the largest month of written sales orders in the company’s history.

Shares in Nick Scali ended down 0.9 per cent at $10.51.

Nick Scali CEO Anthony Scali. Picture: Chris Pavlich