Why is this ASX 300 retail share soaring 13% today?

An ASX investor relaxes on her couch as the Harvey Norman share price drops due to the shares trading ex-dividend from today.An ASX investor relaxes on her couch as the Harvey Norman share price drops due to the shares trading ex-dividend from today.

The Nick Scali Limited (ASX: NCK) share price is screaming higher today after a positive trading update.

The ASX 200 retail share is currently up 10.6% to $10.33. It is vastly outperforming the S&P/ASX 300 Index (ASX: XKO), which is up 0.3%.

The Nick Scali share price hit an intraday high of $10.54, representing a 12.8% bump on yesterday’s close.

The furniture retailer held its annual general meeting (AGM) today. The managing director, Anthony Scali, presented a snapshot of trading conditions for FY23 so far. Clearly, it’s got investors excited.

The highlight is an expectation of a 57% to 66% increase in net profits in 1H FY23 compared to 1H FY22.

Let’s take a look.

Nick Scali share price soars on trading update

Scali said trading in FY23 so far has been “robust”. While supply chain issues had eased, he noted uncertainty as to how rising inflation and interest rates would affect customer demand in the near term.

Scali reported sales revenue of $194 million for the four months to the end of October. This is a 74% increase over the same timeframe in FY22.

He said group written sales orders were $148 million for the period, which was 55% above last year.

Scali said:

Based on current delivery levels we expect net profit after tax for the first half of FY23 to be in the range of $56 to $59 million, 57% to 66% above the first half FY22 of $35.6 million.

Is Plush delivering for Nick Scali shareholders?

The acquisition of Plush — Think Sofas was Nick Scali’s first major acquisition ever.

The $103 million deal was done in November 2021. Plush continues to trade under its existing brand name. Its integration into the network was “substantially completed” by the end of FY22, says Scali.

He noted that written sales orders from the Plush network pushed the company’s group total written sales orders for FY22 to a record $474 million.

As noted earlier, in the first four months of FY23, group written sales orders are 55% above the same period in FY22. Scali reported a 21.7% bump in Nick Scali-brand written orders for the period.

This suggests that a fair-sized chunk of the overall group increase of 55% reflects the impact of Plush, as well as the impact of lockdowns last year.

On track to reach gross margin target for Plush

Scali said:

Group margin for the four months improved 180 basis points to 61.3% versus the 59.5% reported for the second half of FY22, following the Plush acquisition in November 2021.

We expect gross margin to continue to improve over FY23 with further realisation of the Plush synergies.

Under the Group’s ownership we have achieved an improvement of 240 basis points in the gross margin of Plush to 54.8%, whilst also achieving cost synergies.

Our gross margin target for Plush is 59% and we expect to reach this run rate before the end of FY23.

What’s next for Nick Scali?

Scali said the company has a long-term target of at least 85 Nick Scali stores and 90 to 100 Plush stores.

The network currently has a combined 108 stores across Australia and New Zealand.

They intend to open a minimum of two new Nick Scali stores and four new Plush stores in FY23.

The first Nick Scali store will be in Helensvale on the Gold Coast in Queensland. Two new Plush stores will be opened as well — one in Capalaba in Redland City, QLD and one in Campbelltown in southwest Sydney.

Scali said:

We are continuing our strategy of owning more of our retail stores and in FY22 we acquired
a multi-purpose site in Townsville to relocate our existing Nick Scali showroom and to
provide a new distribution centre to support growth of both brands in regional Queensland.

Scali said he would provide another trading update in February 2023.

Nick Scali share price snapshot

This ASX 300 retail share has had a tough time in 2022.

The Nick Scali share price is currently down 33% in the year to date.

Nick Scali is trading on a price-to-earnings (P/E) ratio of 10.06, according to the ASX website.

The post Why is this ASX 300 retail share soaring 13% today? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has positions in Nick Scali Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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