Would you buy a sofa priced to the tunes of $5,000? Probably…not. But many Australians are more than willing to, as is evidenced by furniture retailer Nick Scali’s (ASX: NCK) sales of $441 million across FY22.
Despite the 18.2% increase in sales compared to last year, net profit after tax fell marginally by 4.9% to $80.2 million with the furniture company citing freight costs and inflationary pressures for the drop off.
Owing to reduced margin, incremental cost of doing business and lockdowns in China, where many of their products are manufactured, the retailer’s gross margin on sales fell to 61%, down from 63.5% last year.
Along with that, over 55% of the Company’s store network closed for three months in the first half of the year. It also suffered widespread disruption to its supply chain in the second half of the year.
Pointing to the turbulent year, the Company’s managing director, Anthony Scali, commented, “FY22 was a particularly challenging period, with store network closures and lockdowns in sourcing countries impacting the business at various stages throughout the year.
“Despite these challenges, the Group was still able to deliver a strong result and end the year with a significant order bank which will translate to revenue in FY23. We continue to be pleased with the Plush acquisition and have seen increased scope for synergies as the integration of the business has progressed.”
Throughout the past two years, Nick Scali has tapped into the increased discretionary consumer spending to deliver significant sales growth. To add to that, it recently acquired sofa tycoon Plush-Think Sofas Pty Ltd (“Plush”), which is in a strong position to deliver further growth, with an elevated outstanding order bank at 30 June 2022.
In November 2021 the Company acquired Plush for $102.5m from Greenlit Brands Household Goods. This was funded through a combination of debt and existing cash reserves. The Plush business has proven quite successful for Nick Scali, supporting its profit growth. It is expected to continue doing so in the coming years. Since being acquired, Plush has contributed $88.8 million to the Company’s revenue.
Furthermore, through the Plush acquisition, the Company was able to add 46 showrooms to its network. In FY22, a new Nick Scali store was opened in Hastings, the Group’s first store in regional New Zealand, bringing the total store network to 108 stores.
The Company continues to work towards its long-term target of setting up at least 85 Nick Scali stores and 90-100 Plush stores. In fact, it is expected to open four and six net new stores in the coming year, in a bid to offset the recent closure of the Plush showroom in Penrith, NSW.
When it came to its online channels, Nick Scali continued to experience profits, with written sales orders of $37.6 million, an increase of more than 100% on FY21. Not accounting for Plush, written sales orders for Nick Scali Online were up 70% compared to FY21.
Just last month, the Company witnessed positive trading, with total written sales orders amounting to $43.2 million, up over 64% on July 2021.
Despite ongoing growth, the Company is skeptical about the coming 12 to 24 months. Pointing to the current global economic environment, it expects to face challenges in terms of potentially rising freight costs and inflationary pressure on operating costs.
Due to the current economic uncertainty, the Company is unable to provide any additional guidance for the FY23 financial year.
Over the past six months, the Company’s share price has fallen from $12.32 in February to $10.33 as of August 22.
Alinda is a Business Reporter for The Sentiment
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