Nick Scali: One of the ASX's most unexpected growth stories
Nick Scali shares have surged 5,975% since 2004 by achieving what's deemed impossible: 60%+ margins in furniture retail.
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Mentioned
KEY POINTS
- Nick Scali has compounded at 21.5% annually since listing in 2004, delivering total returns of 5,975% over 21 years through disciplined margins and growth.
- The company maintains gross margins above 60%, significantly outperforming competitors like Adairs (low 50s%) and US-listed RH (mid 40s%).
- The UK expansion via Fabb Furniture acquisition is rapidly replicating the Australian success, with gross margins improving from 47.1% in FY25 to 58.3% in Q1 FY26, already approaching the 58-60% target range.
When I think furniture – I think of a fiercely competitive sector, with price conscious consumers having plenty of options and bargaining power. It's a sector I wouldn't touch with a ten foot pole.
That is, until I took a closer look at Nick Scali (ASX: NCK).
The stock has quietly compounded at a CAGR of approximately 21.5% since listing in 2004 (in other words, the stock (including dividends) has gained 5,975% in the last 21 years).
At a glance
At a glance, its revenue and earnings growth have been rather lacklustre relative to its share price performance. The CAGR between FY16-25 is 10.4% for revenue, 9.2% for NPAT and 10.3% for dividends.
FY25 | FY24 | FY23 | FY22 | FY21 | FY20 | FY19 | FY18 | FY17 | FY16 | |
|---|---|---|---|---|---|---|---|---|---|---|
Revenue ($m) | 495 | 468.19 | 508 | 441 | 373 | 262 | 268 | 250 | 233 | 203 |
NPAT ($m) | 57.6 | 80.6 | 101.0 | 74.9 | 84.2 | 42.1 | 42.1 | 41 | 37.2 | 26.1 |
Adjusted EPS (cents) | 67.5 | 98.7 | 124.8 | 92.5 | 104 | 52 | 52 | 50.6 | 46 | 32 |
DPS (cents) | 63 | 68 | 75 | 70 | 65 | 47.5 | 45 | 40 | 34 | 26 |
Source: Market Index, Morningstar
All about margins
Margins have been a focal point for Nick Scali's formidable run and compounding journey. The company has achieved financial metrics deemed impossible for the furniture industry; return on equity consistently above 40%, gross margins above 60% and payback on new stores in under six months.
A blog titled Masters Invest highlighted a conversation with the CFO with how they achieve this: "The CEO starts with the 60%+ margins and works backwards. That's the goal. A two hundred dollar chair is a two hundred dollar chair. Price it at two-hundred and fifty dollars and you won't sell any."
"The CEO does the buying (how many other furniture store CEO's do?). The CEO works with the suppliers to deliver that chair at a price that allows a 60%+ margin. It might mean removing the number of buttons, changing the fabric or redesigning the chair a little to get that outcome. It's not about dropping the price."
Nick Scali gross margin % (Source: Macquarie Research)
For perspective, Adairs' subsidiary Focus on Furniture has seen gross margins sit around the low 50s for the past five years. While US-listed furniture company RH (US$3.1bn market cap) has gross margins around the mid 40s (fluctuating between 38-52%) since 2018.
UK expansion
Nick Scali entered the UK market in May 2024 via the acquisition of Anglia Home Furnishings, which trades as Fabb Furniture. The key transaction details include:
Nick Scali paid a very small upfront purchase price of £2 but the real cost exposure comes from assuming debt (~A$6.7m), distribution centre exit cost (~A$1m) and a committed £6.0 million (~A$11.5m) working capital injection
The existing 21-store UK network (all in out-of-town retail parks) will be re-branded from “Fabb Furniture” to the “Nick Scali” brand
The stores will be refurbished and the product offering will be switched to Nick Scali’s lounge and dining ranges (leveraging the company's supplier network, buying power and supply chain)
The UK business reported $41.8 million revenue in FY25, representing 8.4% of Group revenues, and gross margins of 47.1%.
What's impressive is just how fast gross margins are improving. The company's AGM (29-Oct) noted UK gross margins of 51.8% in the second half of FY25 and 58.3% in the first quarter of FY26 (which is already within Uk targets of 58-60% and Macquarie expectations of 55% in the first half of FY26).
The bottom line
Since FY15, Nick Scali has issued full-or-half-year NPAT guidance 16 times. Across those 16 occasions, the company has exceeded its guidance 15 times, by an average of 7.2%. I've also noticed that in the last four reporting seasons (FY24 to 1H25), the stock has rallied an average 10.2% on results day.
I don't think I'd ever change my view on Nick Scali and the furniture sector. But this might serve as a reminder as to the serious gains a high-margin business can post and its ability to replicate that success via bolt-on acquisitions and international expansion.
