It is hard not to like a company that continues to under promise and over deliver. You tend to find companies that do so have a large percentage of their share being held by management and Nick Scali Limited (ASX:NCK) is no different.
Here’s how the good new was announced to investors.
For long term shareholders of Nick Scali this upgrade will come as no surprise with the last four years (and from the latest trading update it looks set to be five) Nick Scali has achieved record profits.
History
As mentioned above the last 4 years have seen record results. Last financial year (15/16) saw sales revenue increase by 30.4% to $203 million, and incredible same store sales growth of 11.1%.
These excellent numbers came through continue selective store openings and increased investment in a targeted marketing. 2016 also saw the establishment of its Western Australian operations. While overall cost of sales increased, operating expenses decreased as a percentage of sales from 44.3% to 41.3%.
Such cost efficiency arose from favourable lease renewals along with economies of scale as the company grew. Importantly for the company and investors gross margin remained at a health 60.8% despite the decline in the Australian Dollar through the period.
Comments
It is hard to be critical of a company that continues to produce outstanding results. While other retailers have struggled in the slowing Western Australian economy Nick Scali’s new stores have continued to perform above expectations. It is not hard to believe that its proposed expansion plans into New Zealand for 2018 will be anything less than a success.
Points for New investors
While Nick Scali has performed incredibly over the last four years this does not mean it can or will continue on forever. As the US returns its interest rates to more normal levels this will present challenges to Nick Scali for the cost of their furniture which is produced over seas. Also as Nick Scali grow economies of scale it is now enjoying will start to diminish.
Having said all of that it would be a brave investor to bet against the retailing skill of the Scali family.