The Nick Scali Limited (ASX: NCK) share price has gone up after revealing a strong FY23 report and generous dividend.
Nick Scali is a furniture retailer that owns Nick Scali and Plush-Think Sofas.
FY23 report
Here are some of the highlights from the 12 months to June 2023:
- Revenue rose 15.1% to $507.7 million
- EBITDA (EBITDA explained) increased 20.8% to $197.1 million
- EBIT grew 23.8% to $154.3 million
- Net profit after tax (NPAT) jumped 26.1% to $101.1 million
- Final dividend per share of $0.35, same as last year
- Total FY23 dividends per share of $0.75, up 7.1%
Other highlights
Nick Scali said that revenue was helped by increased deliveries and the reduction of the aging of the order bank as lead times returned to pre-COVID levels. The 2023 financial year also included a full 12-month contribution from Plush-Think Sofas – it was bought in November 2021.
The ASX retail share was able to increase its gross profit margin thanks to margin improvement at Plush and synergies, enabling stronger product sourcing and reduced freight costs. The gross profit margin improved from 61% to 63.5%. This could be somewhat supportive for the Nick Scali share price and profit if sales fall in FY23.
Group written sales orders for FY23 were $437 million, representing a reduction of 7.8% year on year. If it weren’t for the improvement in lead times, the FY23 result may not have looked as good, but those delayed orders needed to be included somewhere, and FY23 was the financial year that benefited.
While Nick Scali brand online written sales orders of $12 million in the FY23 first half were down 27.7% (cycling against COVID lockdowns and store closures), the FY23 second half saw online written sales of $14.5 million, an increase of 14.5%. Growth of online sales is good, because it comes with a good operating profit margin.
In FY23, two Nick Scali stores and one new Plush store were opened. Another Plush store was opened in August. However, it did also close three Plush stores.
Balance sheet improvement
It generated $89.8 million of operating cash flow, up 12.7% year on year. The annual dividend only represented 60% of net profit. It invested $12.9 million during the year to buy land for a new Queensland distribution centre.
Cash on the balance sheet finished June 2023 at $89.3 million, up from $74.6 million at June. 2022.
In August 2023, Nick Scali repaid $20 million of its debt. It now only owes $28 million of the $65 million debt it took out to help buy Plush.
Outlook for the Nick Scali share price
Nick Scali plans to open three new Plush stores and one new Nick Scali store in the first half of FY24.
At June 2023, it had 64 Nick Scali stores and 43 Plush stores. It has a long-term target of 86 Nick Scali stores and between 90 to 100 Plush stores.
July 2023, being the first month of FY24, saw orders of $39.7 million, down 8.1%, which was cycling against a strong July 2022. Despite all of the impacts of higher interest rates and inflation, these numbers seem pretty strong.
While profit is likely to fall in FY24, I think it’s one of the best retailers on the ASX to own for the next three to five years.