Strong results for Nick Scali and Adairs as retailers rebound

The nation’s retailers are experiencing a renewed sales boost as stores reopen after weeks of shutdowns.

A Nick Scali store in Cairns.

The nation’s retailers are experiencing a renewed sales boost as stores reopen after weeks of shutdowns caused by the coronavirus pandemic and consumers eagerly head back to the shopping centres.

A spate of retailers including Supercheap Auto, Rebel, City Chic, Kmart, JB Hi-Fi and Harvey Norman have reported strong sales momentum in April or May and extending through to June, injecting much needed confidence into the $320bn retail sector.

On Friday, furniture retailer Nick Scali and home furnishings chain Adairs posted trading updates, which revealed they too had benefited from a rising tide of robust retail sales heading into June.

Nick Scali said it had witnessed a strong rebound in its sales over May and June following a dive in the early months of the coronavirus pandemic.

To reward investors it has decided to reinstate its deferred interim dividend, which it will pay by the end of the month.

Nick Scali’s trading update projected the revival of its sales momentum since May would help the retailer post a 15-20 per cent increase in its second-half profit.

In February, Nick Scali was one of the first retailers to report that the then-emerging coronavirus health crisis in China had disrupted its supply chain out of the region. Soon after the virus hit Australia, escalating the health and economic crisis, many ASX companies decided to defer or cancel paying out their interim dividends.

 

On March 23, Nick Scali’s board decided to defer the payment of the 25c interim dividend until October 2 but in light of strong recent trading and a significant increase in sales, the board decided to bring forward the payment to June 29.

The furniture chain said written sales order growth for the fourth quarter to date was 20.4 per cent, second-half written sales order growth was 7 per cent and second-half net profit was expected to be up 15-20 per cent on the previous corresponding period.

Nick Scali said fiscal 2020 revenue was expected to be in the range of $260m to $263m and full-year underlying net profit was expected to be $39m-$40m.

The significant decline in sales orders during the second half of March and the first half of April, when the showroom network was affected by closures, meant that about $9m-$11m of sales were unable to be recorded in the current financial year, Nick Scali said.

“However, due to the successful implementation of a range of cost-reduction initiatives across marketing, employment and property, together with government assistance, profit for the second half will be up 15 per cent to 20 per cent on last year,” the retailer said. “Nick Scali has experienced a significant rebound in customer activity during May and the first half of June.

“Given the strong trading, the company expects sales orders for the months of May and June to be up 54 per cent on the previous corresponding period, driven by the easing of government restrictions and a reallocation of discretionary consumer spending toward furnishings and homewares.”

Given the nature of Nick Scali’s business model and the significant increase in sales orders during May and June, the retailer anticipates sales revenue for the first quarter of 2021 to be up by about 30 per cent.

This is expected to underwrite profit growth for the first half of fiscal 2021. Shares in Nick Scali ended up $1.13 at $6.88.

In its trading update Adairs said its stores had reopened in May, and with strong sales the company was now expecting full-year company sales of $385m to $390m.

Of this, $358m to $362m was generated by Adairs and $27m to $28m by its online retail business Mocka.

It said like-for-like sales for the 50 weeks to June 14 were up 3.5 per cent for Adairs, against 5.3 per cent for the 24 weeks to June 14, while Adairs online channel grew sales for the 50 weeks to June 14 by 15.7 per cent, from 27.4 per cent for the 24 weeks to June 14.

Shares in Adairs closed up 22c at $2.31.