Nick Scali Limited’s half-year results reveal a 30.2% decline in statutory profit, impacted by UK acquisition losses and restructuring costs, yet the company maintains shareholder returns with a fully franked interim dividend.
- Statutory profit after tax down 30.2% to $30 million
- Underlying profit declined 22.6% excluding restructuring and freight disruption costs
- UK operations contributed to revenue growth but posted a $4.1 million statutory loss
- Fully franked interim dividend declared at 30 cents per share
- ANZ segment outperformed profit guidance despite supply chain challenges
Half-Year Financial Overview
Nick Scali Limited has reported a significant contraction in its half-year profit for the period ending 31 December 2024. Statutory net profit after tax fell by 30.2% to $30.0 million, down from $43.0 million in the prior corresponding period. This decline primarily reflects the first full period inclusion of the UK business acquired in May 2024, which has yet to reach profitability, alongside restructuring and unforeseen freight disruption costs.
Despite the profit setback, total revenue increased 10.8% to $251.1 million, boosted by the UK acquisition. However, the gross margin contracted by 3.3 percentage points to 62.3%, influenced by higher freight costs and integration expenses.
Segment Performance: ANZ and UK
The Australia and New Zealand (ANZ) segment delivered underlying net profit after tax of $36.0 million, surpassing the $30-33 million guidance provided at the October 2024 AGM. This performance was achieved despite a one-off $2.8 million expense related to the collapse of a key freight forwarder, which caused container access delays and increased demurrage fees. ANZ revenue was slightly down 1.8% to $222.5 million, with online sales growing 17% to $18.6 million, signaling a positive digital shift.
Conversely, the UK segment reported a statutory net loss after tax of $4.1 million, better than the previously guided $5.1-5.9 million loss. The underlying loss was $2.8 million after excluding $1.3 million in restructuring and integration costs. The UK business faced operational disruptions due to store refurbishments and inventory clearance of the legacy Fabb product range. Notably, the UK gross margin improved to 45.1% from 41.9% pre-acquisition, reflecting early benefits from the Nick Scali product range.
Strategic Initiatives and Store Network
Nick Scali has embarked on an extensive refurbishment and rebranding program in the UK, converting four stores to the Nick Scali brand during the half-year, with eight more planned by June 2025. This transition aims to replicate the ANZ model, where the Nick Scali sofa is the top-selling product. The UK online store launched in January 2025, supported by radio and TV marketing campaigns, with early sales encouraging management.
In ANZ, the company opened a new store in Artarmon, NSW, and upgraded two Plush stores to larger formats. The UK store network saw the closure of the Peterborough location due to lease expiry and site unsuitability, with plans to reopen pending site identification.
Financial Position and Dividends
The group ended the half with $87.6 million in cash and net cash of $15.9 million, reflecting solid operating cash flows of $44.1 million from ANZ operations. Capital expenditure of $5.8 million included UK showroom fit-outs and new store openings. Anthony Scali, CEO and Managing Director, participated in a $3.8 million equity raise to support the UK acquisition and ongoing investment.
Shareholders will receive a fully franked interim dividend of 30.0 cents per share, declared on 7 February 2025, slightly down from the 33.0 cents final dividend paid in October 2024.
Outlook and Market Dynamics
Looking ahead, the ANZ segment faces continued volatility with January sales orders down 8.5%, though recent promotional activity has shown signs of recovery. The UK business is expected to incur higher operating losses in the second half due to ongoing store refurbishments and rebranding disruptions. New store openings in ANZ are planned but some have been deferred to FY26.
Nick Scali’s strategic focus remains on integrating the UK operations effectively while maintaining strong performance in ANZ. The company’s ability to manage supply chain challenges and execute its UK turnaround will be critical to restoring profit growth.
Bottom Line?
Nick Scali’s UK expansion weighs on profits, but disciplined execution and ANZ resilience offer cautious optimism.
Questions in the middle?
- How quickly can the UK operations return to profitability amid ongoing refurbishments?
- What impact will rising freight and employment costs have on future ANZ margins?
- Will the UK online launch and marketing campaigns translate into sustainable sales growth?