Chair and MD 2024 AGM addresses with Trading Update

• Nick Scali Limited reported underlying profits of $83.5 million from its Australia and New Zealand business for the 2024 financial year.
• The company's share price increased by 51% during the 2024 financial year.
• In May 2024, Nick Scali acquired a UK furniture retail business (Fabb Furniture) for an undisclosed sum.
• To fund the UK acquisition, the company raised $54.8 million in new equity.
• Overall sales revenue decreased by 7.8% to $468.2 million in FY24, primarily due to reduced lead times compared to the prior year.
• The gross margin for Australia and New Zealand increased by 250 basis points to 66.0%.
• Underlying operating expenses increased by $3.1 million, largely due to inflation.
• The company incurred $1.5 million in one-off costs related to the UK acquisition.
• Statutory net profit after tax was $80.6 million, while underlying net profit after tax for Australia and New Zealand was $83.5 million.
• The company opened a new Nick Scali showroom and three new Plush showrooms, while closing two Plush showrooms.
• The company acquired 20 showrooms in the UK.
• The company paid a fully franked final dividend of 33 cents per share, bringing the total dividends for the year to 68 cents per share.
• The company expects first-half delivered sales revenue for Australia and New Zealand to be between $217 million and $222 million.
• The company expects the gross profit margin for the first half of FY25 for Australia and New Zealand to be down 240 basis points or more compared to FY24.
• The company expects NPAT for Australia and New Zealand in the first half of FY25 to be in the range of $30-33 million.
• The company expects to open two Nick Scali stores and three to five Plush stores in FY25.
• The company expects first-quarter UK written sales orders to be GBP 6.4 million (A$12.5 million).
• The company expects first-quarter UK delivered sales to be GBP 9.1 million (A$17.8 million).
• The company expects gross margin in the first half for the UK to be in the range of 42-44%.
• The company expects to incur GBP 0.9 to 1.1 million (A$1.8 to A$2.2 million) in one-off costs in the first half relating to staff restructure and system integration costs.
• The company expects losses in the first half for its UK operations to be in the range of GBP 1.7 to 1.9 million (A$3.3 million to A$3.7 million) before one-off integration costs, and GBP 2.6 to 3.0 million (A$5.1 million to $5.9 million) after including these costs.

Score: 6

Explanation: The overall sentiment is mixed. While the Australian and New Zealand business performed well, the UK acquisition presents challenges and is expected to result in losses. The share price increase is positive, but the overall revenue decrease and future uncertainties temper the positive aspects.

• Underlying profits from Australia and New Zealand were $83.5 million.
• Share price increased by 51% in FY24.
• Gross margin for Australia and New Zealand increased to 66.0%.
• A fully franked final dividend of 33 cents per share was paid, bringing the total to 68 cents.
• Written sales orders for the four months June to September 2024 have increased 3.0% compared to 2023.
• Both August and September written sales orders were higher than 2023.
• Margins on recent UK written sales orders improved by 300 basis points compared to delivered revenue.
• Expected cost savings from UK staff restructure is circa GBP1.0 million (A$2.0 million) per annum.

• Sales revenue decreased by 7.8% to $468.2 million.
• Underlying operating expenses increased by $3.1 million.
• One-off costs for UK acquisition were $1.5 million.
• First-half gross profit margin for Australia and New Zealand is expected to be down 240 basis points or more compared to FY24.
• First-half losses for the UK are expected to be GBP 1.7 to 1.9 million (A$3.3 million to A$3.7 million) before one-off costs, and GBP 2.6 to 3.0 million (A$5.1 million to $5.9 million) after one-off costs.

• Unexpectedly higher freight rates are expected to impact gross profit margin.
• Unforeseen shipping delays could further impact profitability.
• UK operations are expected to incur losses in the first half of FY25.
• Integration of the UK business may face challenges.
• The success of the UK expansion strategy is uncertain.

The company expects to open two Nick Scali stores and three to five Plush stores in FY25, with the majority opening in the second half. They anticipate losses in the first half of FY25 for their UK operations, but expect margin improvement in the second half due to the rollout of the Nick Scali product range. They also expect cost savings from the UK staff restructure to begin in the second half of FY25.

• 'I am pleased to report that Nick Scali Limited delivered underlying profits from the Australia and New Zealand business of $83.5 million.'
• 'I am also pleased to report the performance of the business and the acquired UK growth opportunity led to a share price increase of 51% over the 2024 financial year.'
• 'I am pleased to report that Nick Scali Limited performed strongly in the year, with revenue and gross profit stabilising post covid.'
• 'Our strategy is to transform the business to the Nick Scali business model and leverage group capabilities for efficiency and scale before focusing on expansion of the UK showroom network.'

The announcement reflects the challenges and opportunities in the global furniture retail sector. While Nick Scali experienced success in its core ANZ market, its UK acquisition highlights the increasing interest in international expansion, but also the potential risks associated with integrating a new business and navigating different market conditions. The impact of inflation and freight costs are also common themes across the industry.

• Continue integrating Fabb Furniture into the Nick Scali business model.
• Expand the UK store network (opportunistically).
• Launch Nick Scali (UK) online with sofa and dining ranges.
• Open two Nick Scali stores and three to five Plush stores in FY25.
• Identify additional Non-Executive Directors.

• May 2024: Acquisition of UK furniture retail business (Fabb Furniture).
• June 2024: End of FY24. Company had 128 showrooms.
• June-July 2024: Written sales order growth for June and July combined was -1.2% compared to the prior year.
• August 2024: Full year results announcement.
• October 2024: Annual General Meeting (AGM) held. Final dividend paid.
• November 2024: Expected to add part of the dining range to UK stores.
• June-September 2024: Written sales orders increased 3.0% compared to 2023.