Shipping costs eat into Nick Scali margins

Nick Scali (ASX: NCK) delivered a relatively stock-standard result for the first-half of FY22, citing consistent challenges faced by most retailers such as margin compression and supply chain disruptions.

The company's stock fell -2.7% as the market opened.

First-half highlights include: 

• Revenues rose 5.4% to $180.3m 

• Net profit fell -6.6% to $35.6m

• Gross margin fell from 64.0% to 63.2%

• Interim dividend down -12.5% to 35 cents 

The $35.6m profit came ahead of the $29.1m expected by Bell Potter and Citi. 

Nick Scali shares will go ex-dividend on Friday, 4 March.

Sales building momentum, costs weigh

Nick Scali sales gathered momentum in the December quarter with written sales orders up 44% compared to last year.

This was in-line with the reopening of most stores by mid-November and consumers adjusting to the pandemic.

The impact of international lockdowns on key suppliers, notably Vietnam, has built up $174.7m of outstanding orders as at 31 December, up 69.4% compared to last year. 

Nick Scali said that its suppliers have recently reinstated normal lead times, which should translate to revenue growth over the coming months.

However, the company flagged that shipping costs and the availability of containers remain uncertain, and could disrupt the delivery of its outstanding order bank. 

The theme of higher revenues but weaker profits could continue, with the business saying that “costs of shipping could well impact profitability during the period”.