Nick Scali scalped on miss despite profit jump; board suggests pain ahead

Nick Scali Ltd (ASX:NCK) has shown once again that in earnings season, it’s not what you say that matters. It’s what analysts price you at ahead of a report. So it was the Nick Scali fell nearly -20% on Friday despite profits after tax (NPAT) being 30% higher than 1HFY25 at $46.6M (versus $36M pcp).

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To be fair to the sellers, U.K. operations leave something to be desired. In the ANZ region, revenue increased 13% vs pcp; ongoing works to jazz up the company’s U.K. operations remain on track, though, still loss-making – NCK’s U.K. division posted a net loss of -$5.6M, higher than the -$2.8M loss in 1HFY25.

Other points of concern motivated sellers: The Oz company has kicked off the year with a slow start below expectations, and most critically of all, management said there might be difficulties matching full-year targets.

The big thing for Nick Scali? An eye on the RBA – the company expects rising interest rates to make things more difficult. The company’s boosted marketing spend in 1HFY26 could be about to get bigger.

In fact, not even Nick Scali raising its dividend by 9c to 39cps – a 30% increase – was enough to spare the sell-off. You don’t meet the target, and you’re out. That’s not necessarily unusual.

It may also be unbecoming for some investors that margin growth has travelled sideways since 1HFY25, with the ANZ group’s gross profit margin at 66% – which isn’t bad at all.

But it hasn’t gotten bigger. That can be a problem for consumer stocks because it suggests peak saturation – consider Nike, which, if you ignore COVID, has a share price that hasn’t really done anything for a decade.

All in all, though, Nick Scali’s results really tell us more about the economy than they do about the company itself. Ignore the U.K., focus in on ANZ, what have you got? Australians are still buying furniture.

Nick Scali’s costs of operating in ANZ did climb by $5M in 1HFY26 vs pcp, which was driven by marketing spend and staff bonuses.

So that suggests there may be a push to keep people fearing their furniture isn’t photogenic enough.

NCK last traded at $19.37/sh.

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