Nick Scali Limited reported a robust 1H FY25 with revenue growth and profits exceeding guidance, despite ongoing UK market disruptions and restructuring costs.
- Group revenue up 10.8% to $251.1 million
- Underlying profit after tax of $36.0 million beats guidance
- UK operations report $4.1 million statutory loss amid transition
- Interim fully franked dividend declared at 30 cents per share
- UK store rebranding and product transition underway with short-term sales impact
Strong Revenue Growth and Profit Outperformance
Nick Scali Limited has delivered a solid first half for fiscal year 2025, reporting group revenue of $251.1 million, a 10.8% increase compared to the prior corresponding period. The company’s underlying profit after tax reached $36.0 million, comfortably exceeding the October 2024 AGM guidance range of $30-33 million. This performance was primarily driven by the ANZ Group, which generated $222.5 million in revenue with a gross profit margin of 64.4%, despite a slight 1.8% dip in revenue compared to 1H FY24.
UK Operations Face Transitional Headwinds
The UK segment, acquired through the Fabb furniture business in May 2024, reported revenue of $28.6 million but recorded a statutory loss after tax of $4.1 million. This loss was exacerbated by the application of AASB16 accounting standards, which increased the loss by $1.2 million without impacting cash flow. The UK business is undergoing significant restructuring, including store refurbishments and a transition to the Nick Scali product range, which is expected to deliver higher gross margins of 57-59% compared to the 41% margin at acquisition. However, these changes have caused short-term disruption to sales and contributed to the underlying loss of $2.8 million after tax.
Operational and Strategic Initiatives
Nick Scali has made progress integrating the UK operations, aligning business processes, and implementing a group ERP system. The company has achieved approximately $2 million in annual run-rate cost savings through restructuring and expects further efficiencies. Marketing efforts have ramped up with targeted radio and TV campaigns in key UK regions, supporting the rebranding of four stores with plans to refurbish eight more by mid-2025. The transition to Nick Scali’s product range is underway, with the UK online platform launched in January 2025 and new store opportunities under review.
Balance Sheet and Cash Flow Highlights
Nick Scali ended the half with a healthy cash and bank deposit balance of $87.6 million and net cash of $15.9 million after accounting for borrowings of $71.7 million. Operating cash flow remained positive at $29.0 million net of lease liabilities and tax payments. The company declared a fully franked interim dividend of 30 cents per share, reflecting confidence in ongoing cash generation despite the UK transition costs and freight forwarder business failure expenses impacting the ANZ segment.
Outlook and Market Conditions
Looking ahead, trading conditions in the ANZ region remain volatile with a reported 8.5% decline in written sales orders in January 2025, though late January sales showed encouraging signs of recovery. The UK market is expected to face further short-term disruption due to ongoing store refurbishments and product transitions, likely increasing losses in the second half. However, the strategic repositioning aims to unlock higher margins and growth potential in the medium term. New store openings in both regions are planned, albeit with some delays pushing certain expansions into FY26.
Bottom Line?
Nick Scali’s strong Australian base cushions UK restructuring pains, but the next six months will test the success of its UK turnaround strategy.
Questions in the middle?
- How quickly will the UK operations return to profitability post-rebranding and product transition?
- What impact will ongoing freight forwarder disruptions have on ANZ segment margins and costs?
- Can new UK store openings and online sales offset refurbishment-related sales disruptions?