NCK FY25 RESULT---Is the bottom in?

 

NCK FY25 RESULT

The numbers were poor with revenues 5% below my estimates and NPAT 25% below. Most of that was clearing out of the UK. ANZ revenues were -1% vrs +1% expected and PBT a bit lower. So while the numbers were poor they were predominantly UK related due to store refurb and stock clearance and retrenchments etc. Disappointing not disastrous.

ANZ saw strong 7% LFL into July and 5 store openings are planned, that could signal a change for ANZ after 4 years of PBT/per store declines since C19. Which is potentially very positive.

UK refurbed stores margin substantially increasing. Product is working in the UK, need to optimise sales teams. Some work needed in Uk to make progress towards profitability and good returns. NCK is looking at new store sites which is encouraging.

The charts below show the volatility of coming out of C19 and the initial strain of the UK investment. Over the next few years both ANZ and UK are expected to improve and is a critical to see both operational improving.

Assuming success in the Uk and ANZ resuming historical growth levels the stock is a buy at $19, assuming 22% 5Y eps growth and an exit multiple of 13X.

Anthony Scali   MD, CEO & Executive Director

The FY '25 highlights, ANZ Group second half written sales orders up 7.3% with the full year up almost 3%. Second half revenue was $231 million, and the full year revenue was $454 million. That's slightly stronger in the second half. The second half gross profit margin was 65.6%, up 1.2% on the first half gross margin, and the full year was 65%. Underlying profit after tax of $73.2 million. We exclude the one-off freight forwarder's containers that were held 1 month to a freight forwarder that was taken into the first half.

U.K. revenue was $42 million. The second half gross profit margin was 51.8%, up from the first half of 45.1% and pre-acquisition level of 41%. The margin for the full year was 47.1%. 12 stores have been refurbished and rebranded as Nick Scali as at August '25, and the underlying loss after tax was $11.2 million.

U.K. written orders is $33.9 million, which is down considerably due to the disruption of the refurbs, which were stores are closed for up to 6 days, clearance of Fabb products. There's enormous amount of disruption as flagged in the first half that this would occur.

The group's written sales orders is $493.8 million, up 8.4% from FY '24.

Looking at revenue. It was $453.5 million, down 1.4%. The U.K. revenue was $41.8 million, which -- that's for the full year, and you can see in the second half, really in line -- really falling off to the disruption cause.

In the U.K., there's a strong improvement in the U.K. gross margin over the period with deliveries of Nick Scali range commencing in the second half and transitions to ANZ delivery remodel. The second half gross margin, we mentioned is 51.8% versus 45.1% first half. U.K. revenue is reported net of interest free subsidy costs, which reduces the gross margin to 2.9% over the year.

I'll now ask Kylie Archer, our CFO, to take you through the group cash flow and balance sheet.

Kylie Archer   CFO & Joint Company Secretary

The equity raise for the U.K. acquisition was completed in FY '25, bringing total final proceeds from the equity raise to $58.6 million.

Borrowings remain unchanged in the period at $71.7 million, with $43.7 million related to property loans secured at less than a 30% loan-to-value ratio.

Anthony Scali   MD, CEO & Executive Director

On Page 7, you'll see the ANZ Group online written orders, so the online was $42.4 million, which is up 21.8% and continued to grow year after year.

Turning to the U.K. summary. Firstly, in respect to written sales orders, there's been a considerable amount of disruption due to trading in the stores being refurbished are closed for a 4- to 5-week period.

The Fabb branded stores have traded particularly poorly as old product ranges is cleared and have really operated the clearance stores whilst waiting for the refurbishment.

The new Nick Scali branded store has seen mixed results during February to May when compared to the prior year. June written orders were up on the prior year and flat for July.

Second half margin, as we've mentioned, was 51.8% for both Nick Scali and Fabb stores. If we look at May and June, the gross margin for the rebranded stores -- the rebranded Nick Scali stores is 58% net of interest free subsidy. So we're starting to see the margin uplift as more stores are refurbished and operating with the Nick Scali product. The margin is improving dramatically, really.

In terms of distribution, we've made progress in restructuring the customer delivery model to reduce margin leakage. We've moved to a 3PL furniture specialist. We've exited our warehouse, sold delivery vehicles, and redundancies were implemented for all distribution employees.

In respect to leadership, as you know, Rodney Orrock was seconded for a 12- to 18-month period only on a temporary basis, whilst we look for a suitable leader, which we appointed in May. He's experienced in local. U.K. retail, and he acts as Chair Manager of the U.K. business.

The focus for the leadership on retail and in stores, that needs improvement. That's very critical for our sales growth. And also the other focus is on evaluating and seeking new store opportunities.

With respect to the product, we have continued belief that the product is right for the U.K. There are small adjustments to our product range and are ongoing as we've expected.

So the pathway to profitability, we need to refurb the remaining stores by first half of '26. On completion of all the store refurbishments and rebranding and based on 58% margin, which from the literature, we are going to achieve now. The revenue target to breakeven is AUD 53 million or GBP 25.4 million. Based on the recent average sales for the Nick Scali store, each store would need to increase sales by AUD 10,000 a week or GBP 4,800. Based on average transaction value, this equates to 2.5 additional orders per week, which is not a lot, but also very critical if we're going to get on our way to profitability. Increased marketing spend focused on establishing the Nick Scali brand in the U.K. and quality sales team are critical to achieve this uplift in sales.

Page 10, you can see the store network. There was 1 new Nick Scali showroom opened and 1 Plush showroom opened, and 2 new Plush stores were opened in larger location in Newcastle and Prospect. These were existing locations, which were converted to clearance stores. The U.K. Peterborough store was closed as at the end of lease, as it was not suitable to rebrand to Nick Scali as part of the ongoing optimization of the U.K. store network. As at June, 11 U.K. stores have been converted. As of today, they are 12.

In respect to the outlook, the written sales for the month of July increased by 7.7%. Like-for-like was up 7.2%. Sales revenue for the first quarter is expected to be up on prior year given the strong second half and the momentum continuing into July.

We have a further 5 stores that are confirmed for opening during this year with additional opportunities currently being reviewed. Of the 5, 3 are Nick Scali, 2 are Plush.

In respect to the U.K., losses are expected to continue until the remaining stores are refurbished and individual store sales improve.

Q&A

 

UK

Yes. The product is performing well. It's more about the mix because, I guess, the quality of the sales team in store that we have. And with the change, there's -- there are certain sales people which have left the business that are being replaced. So more the impact where the stores are doing well, not so much the product. It's about sales team in the store.

And the problem has been the second half that when you're refurbishing -- you're shutting 8 stores down and trying to get more refurbished within a short period, there was actually not a lot of point to spend money on marketing. So our view was let's just wait until we get some more scale, Nick Scali stores open, so we can start spending some marketing. And -- yes, and that's been a bit of the issue in terms of written orders because we're just not spending any money at the moment. But we're starting -- we're going to spend a bit more in August. We're just ramping up the marketing as more and more stores get completed, which is important because we do need -- the brand recall is weak at the moment, and marketing is there to address that and drive sales. But that's what's happened so far.

Look, we've got to be careful because we want to remain competitive. We're constantly watching the market there to make sure we're competitive. And yes, the problem with interest free, it's a cost, and it is really part and parcels of the business in the U.K. So look, the opportunity on the margin for us, there is -- we have leakage on delivery fees at the moment because we're subsidizing some of the deliveries to the outer areas given the distribution -- given the location of distribution center. So there's an opportunity there in the future by adding a second distribution center to that to -- which we've gotten plans to do. And it won't be additional cost because in 3PL, we just use less capacity in the existing DC and have a second one in an area closer to a group of stores. That means the delivery leakage is less. Sorry, it's a bit complicated, but that's -- there's an opportunity there.

Look, as a brand, the other point, yes, maybe as the brand gets stronger and stronger, you will be less reliant on interest free and maybe shorter terms rather than 4 years, 36 months, 3 years, reducing that offer. And obviously, the margin leakage is less then. So yes, I think that there is potential -- in a nutshell, there's a potential to get it up further. Sorry, I don't want to commit FY '26 on that, but certainly, the following years, for sure, there's a chance you could get to 60% (GM).

Well, let's go back to the beginning, yes. So some stores are trading above, and some are not. And I would say the ones that aren't, it's more the problem with the sales teams, and that's what we're addressing now. That's more the issue because we can see a number of stores are up from -- and we've had people leave the business. We had salespeople who didn't like our disciplines and have left the business. So I'm confident with the right sales team, we're going to get the uplift in sales because I'm very confident in the product. And at the margin, the other point, too, you're at an 18% higher margin.

Secondly, we're comparing written sales orders last year with Fabb, where they're writing orders with no deposits. You got to go back to that. And a lot of those orders would be a loss in the end. So it's very hard to even say what we're comparing it. So ignoring all that, I'm sort of not really so focused on the like-for-like to what the Fabb stores we're doing because we're giving it away with a 41% margin. How can you compare to that?

What I'm trying to spell out is that we don't need to lift our sales by much. It's 2.5 lounges per week per store and we get to at least breakeven once all the stores are refurbished.

Then we've got to spend -- the other thing to point out there is we haven't spent any money on marketing. So the brand is not really known at all at that point. So the point is you get the stores refurbished. We're not far away already from getting a couple more lounges sale per store per week sold, and we spend marketing and then we're going to get better sales then. And your sales can be up a lot, and that's where we've got to get to.

The business is great but it does not run on remote control. It's the people -- sales people in stores is really important for the store performance because we spend an enormous amount of efforts in making sure that we've got good quality sales.

So we're basically saying once we get all the stores established as Nick Scali, we'll be obviously increasing the marketing to similar levels of Australia where it might be somewhere between 5% and 8% of sales, depending on our margin. That's what we want to get to.

 

ANZ

In particularly, no, but it's just our store traffic is up in most states, not all states, and were converting to sales as a result.

Yes. New Zealand has improved a lot, particularly in quarter 4. Off a low base this last year in New Zealand, around that May, June period was very -- was down, but it's coming back very strongly.

Just why is the traffic up? Is the marketing being better? Maybe. Or the -- there's bit more confidence with lower interest rates. That's the question. It's hard to tell. We haven't spent more marketing. We've had some different things in marketing in terms of our marketing, which we're doing. So my view is I think the consumer is a bit more confident maybe.

No. I haven't seen competition from the amalgamation of Amart and Freedom , no. Not at this point, no. We -- look, there's always competition. But with landlords, particularly the larger landlords, like, Nick Scali is a good cotenant and a long-term -- no, we haven't seen it.

 

Supply chain

No. It's quite opposite. The challenge is easy. They've got excess capacity because they need volume. So it would be -- the challenge would be if there was not excess capacity, then that's when you would have a challenge on pricing. But at the moment, and it's probably not going to change for quite a while, there is excess capacity because the factory -- a lot of our suppliers have factories in Vietnam supplying the U.S. So -- and that's been present for the last 3 years. That's happened 3 years ago. So there's been capacity in the China factories for quite a number of years now, to be honest, and even Europe. Whilst the sales, Europe is not buying at all. It doesn't sell very much.

Anthony Scali   MD, CEO & Executive Director

Thank you for attending the Nick Scali results presentation, and look forward to delivering a good result in the next half. Thank you.