Election, housing slump slow growth at Nick Scali

Australian furniture retailer Nick Scali has posted a profit increase for the seventh consecutive year, though its rate of growth was slower than in than previous years, due to a slowing housing market and a post-election bump that never quite materialised.

Net profit for the furniture retailer grew just 2.8 per cent to $42.1 million in FY19, compared to a 10.1 per cent increase in the prior year

Sales grew 6.8 per cent in the year to $268 million, though same-store sales fell 1.1 per cent due to underperformance in the second half, which was marked by the federal election and RBA cuts in Australia.

“We didn’t see much improvement after the election at all,” chief executive and managing director Anthoy Scali said.

According to Scali, store staff have told head office that traffic is down, conversions are more difficult and the customer is more cautious. 

“Australia has experienced a significant slowdown in dwelling sales and the consumer has seen the value of their homes fall with the negative wealth effect resulting in a very cautious consumer,” Scali said.

The business was helped by a 20bps increase in gross margin to 62.9 per cent in FY19 – a figure it is looking to maintain through better prices from suppliers. 

The retailer has reduced the amount of stock held in its distribution centres through operating efficiencies in its warehouses, as well as the success of five clearance stores, said chief financial officer Christopher Malley. 

These five stores are not counted in Nick Scali’s total store count, which sits at 57 stores, and aims to reach 80-85 throughout Australia and New Zealand – though Scali didn’t put a time frame on this target. 

“A dangerous game”

Despite cautious consumer spending, Scali said the business has no intention of becoming discount hungry.

“It’s a dangerous game to chase volume with lower margins,” he said. 

Instead, in an effort to retain its strong gross margins, the business is looking at ways to help its sales team close, and to give customers more incentive to buy, without cutting into profit. 

One method posited by Scali is to continue increasing the business’s range of bedroom furniture, from 8 ranges to 12, while reducing its range of mattresses to create a point of difference with competitors.

While Nick Scali is looking to increase its footprint in New Zealand, where it recently opened its second store, the retailer has no plans to expand into other overseas markets in the short term.

Instead, it expects to open two more stores in New Zealand in FY20, and believes they will “make a significant contribution to profit growth in the medium term.”

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