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As shares in Sydney-based furniture retailer Nick Scali (ASX: NCK) trade at record levels, the company has revealed the extent of losses from its new UK operations acquired last year with a $33.9 million hit to written sales orders amidst store refurbishments.
The group had always forecast that losses would temporarily increase in FY25 amidst the transition, and today this has been confirmed as an 8x worsening of the bottom line on the previous financial year with a reported underlying net loss of $11.2 million in the UK.
This underlying result does not include $2.4 million in restructuring and integration costs relating to the acquisition of Fabb Furniture in the UK.
Nick Scali reports significant impacts to written orders in the market as stores were closed for refurbishment for long periods, while there has been a continuous clearance of the old Fabb product range being sold from showrooms and warehouse inventory.
Nick Scali's managing director Anthony Scali says 12 of the 21 stores acquired are now refurbished and rebranded, including eight that were completed in the June half. One of the stores acquired, in Peterborough in eastern England, was deemed not suitable to rebrand and was closed at the end of its lease.
The group expects the rebranding transition to be completed by the end of this calendar year.
"Trading performance in the rebranded Nick Scali stores for May and June is now achieving a gross profit margin of 58 per cent, compared to 42 per cent at acquisition," says Scali.
"I look forward to completing the store refurbishment and rebranding program during the first half of FY26."
Looking at the UK stores overall, gross margins for FY25 stood at 47.1 per cent.
On the Australia-New Zealand front, which accounts for the majority of Nick Scali's sales, revenue fell slightly by 1.4 per cent to $453.5 million while underlying net profit after tax fell by 12.3 per cent to $73.2 million.
More than half the underlying earnings decline in ANZ can be attributed to a $6.1 million increase in operating expenses, with the majority due to higher employment expenses. On a statutory basis, the group booked $2.8 million in costs stemming from the failure of a freight forwarder that went into liquidation.
The ANZ result belies an improvement in the second half with a 7.3 per cent year-on-year increase in written sales, while like-for-like written sales were up 6.5 per cent in the June half.
"I am pleased to report a strong second half trading result in ANZ with written sales order growth of 7.3 per cent, resulting in full year written sales order growth of almost 3 per cent, whilst maintaining a strong gross profit margin of 65 per cent," the managing director adds.
The company's online business in ANZ saw a 21.8 per cent uptick to $42.4 million, putting it roughly on par with all sales in the UK.
NCK shares are up 8.66 per cent at $20.83 in early trading, representing a 31.5 per cent premium to their level before the Fabb Furniture acquisition in the UK was announced in April last year.
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