Strong Momentum Underpins Nick Scali’s FY26

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A strong second-half performance in A&NZ and improving gross margins in the UK have propelled Nick Scali shares to new heights.

-Nick Scali’s FY25 results exceed expectations
-A strong 2H for A&NZ, UK gross margin gains 
-Successful measures to improve cost base
-Ord Minnett expects UK profits in FY28

By Mark Woodruff

(Re-published to correct Wilsons’ rating for the shares towards the bottom of this story).

Despite a lower FY25 profit, weighed down by UK integration costs, furniture retailer Nick Scali’s ((NCK)) underlying results have impressed investors, pushing shares to record highs.

Margins remained robust, the final dividend exceeded expectations, and July sales showed solid momentum.

While the UK business underperformed, with revenue falling well short of consensus and losses exceeding forecasts, management at the furniture retailer maintains confidence in the turnaround strategy, citing improving gross margins from refurbished stores.

FY25 underlying profit of $62m (down -24% on FY24) and a 63.5% gross margin percentage beat consensus forecasts by 4% and 100 basis points, respectively.

Underlying profit in A&NZ was $73.2m, while the UK recorded an underlying net loss after tax of -$11.2m.

Encouragingly, the company registered a strong second half performance in A&NZ and ongoing UK gross margin gains, with improved outlooks for both group gross margin and A&NZ sales.

Citi expects the retailer to benefit in A&NZ from a sales turnaround driven by an improving housing cycle, with the resulting operating leverage potentially supporting UK expansion in the near term until breakeven is reached.

Wilsons believes the FY25 results underscore the strength of Nick Scali’s well-managed A&NZ core operation, supported by accelerating growth in written sales orders, resilient gross margins, and disciplined cost control.

In this broker’s view, a supportive macroeconomic backdrop, including the prospect of interest rate cuts, further bolsters the outlook for the A&NZ region, which remains the company’s primary profit engine.

Founded over 60 years ago, Nick Scali sells a range of contemporary furniture items. Nick Scali and Plush (sofas and related accessories) largely target the 35 to 55-year demographic in the mid-to upper-income brackets, who are usually second-home buyers.

M&A has been a growth lever for Nick Scali, enabling it to accelerate expansion and achieve scale benefits. The 2021 Plush acquisition (46 stores) strengthened its dominance in Australia and delivered purchasing synergies. Similarly, the 2024 Fabb Furniture acquisition (including 21 stores across the UK) is expected to provide scale in procurement, helping boost margins across the group.

The aim is to rebrand these stores under the Nick Scali name, refurbish them, and transition to the Nick Scali product range, leveraging the company’s existing supply chain and buying power.

As of June 2025, the retailer was operating 65 Nick Scali stores, 45 Plush stores, and 20 UK stores, with management targeting 86 Nick Scali stores and 90-100 Plush stores in A&NZ longer-term.

Five new stores are confirmed for opening over FY26, comprising three Nick Scali and two Plush, but the long-term opportunity of growth for the UK store network is yet to be confirmed.

The UK expansion continues to progress with 12 stores now refurbished and rebranded.

Management plans to increase marketing in the UK, with a new campaign launching this month targeting the areas of the 12 refurbished stores.

Promisingly, the trading performance in the rebranded Nick Scali stores for May and June is now achieving a gross profit margin of 58%, compared to 42% at acquisition.

The improving cost base

At its AGM in October last year, Nick Scali issued a profit warning for the first half of FY25, citing “materially higher” freight costs.

A month later, management warned a freight forwarder collapse had delayed a significant number of shipping containers, jeopardising already-reduced first-half profit guidance.

Thankfully, interim results in February surprised to the upside, outpacing downgraded guidance. While group profit was down versus the prior year, the A&NZ segment delivered above the $30–33m guidance range and UK losses were smaller than expected.

Evident in the latest result, management has improved the predictability of costs, particularly in freight, by negotiating directly with shipping companies, explains Ord Minnett. This approach should deliver faster, more reliable delivery times and greater stability in pricing.

The company has a dedicated team to manage freight and established relationships directly with suppliers, combining both A&NZ and the UK, points out Macquarie.

Nick Scali has moved to a third-party logistics furniture specialist, explains the broker, exiting the Fabb warehouse and implementing redundancies for all distribution employees.

The cash position on June 30 improved slightly to $87.6m from $87.1m the prior year, with a net cash position of $15.9m.

Given this strong net cash position, and with the prospect of ongoing falls in Australian interest rates, the analysts at Citi would like to see management resume buying retail sites.

The board declared a fully franked final dividend of 33cps, representing a payout ratio of 87% for FY25 versus 69% in FY24.

More on margins

A&NZ group revenue for the period was $453.5m with a second half gross margin of 65.6% compared to 64.4% in the first half.

For FY25, the A&NZ group margin was 65%, which compares to the 47.1% achieved in the UK.

The UK gross margin improved throughout the period, noted management, with deliveries of Nick Scali product commencing in the second half.

The second half gross margin in the UK was 51.8% versus 45.1% in the first half and 41% pre-acquisition.

June-quarter sales were strong, Ord Minnett comments, as was written order growth, while gross margins bettered the broker’s expectations.

Now that gross margins have been successfully reshaped, Wilsons believes sustained growth in written sales orders is now the key to scaling the business.

Order momentum

A&NZ written sales orders for the period rose 2.8% year-on-year to $459.9m, while UK written sales orders of $33.9m were heavily affected by prolonged store closures for refurbishments and the continued clearance of legacy Fabb inventory from both showrooms and warehouses.

Encouragingly, Jarden suggests order momentum in June and July should set the company up for a strong FY26 in A&NZ.

Written sales orders in A&NZ for July increased by 7.7% compared to the prior year, with like-for-like written sales orders up by 7.2%. Management expects sales revenue for the first quarter of FY26 to be up on the prior year.

A further five stores in A&NZ are confirmed for opening during the year, with additional opportunities currently under review.

Jarden sees increasing tailwinds across FY26-27, supported by potential interest rate cuts and freight rate declines.

The UK business

Jarden notes the UK turnaround is progressing more slowly than expected, with sales about -50% below consensus due to refurbishment disruptions and some stores failing to achieve anticipated uplifts from staffing shortfalls.

Reassuringly, the gross profit margin reached around 52% in the second half, around 400bps above consensus. Management’s target is 60% from FY27.

Ord Minnett highlights an uneven store performance, but stronger results from better-performing sites support confidence in improving weaker locations. Increased marketing spend is expected to enhance brand recognition and drive more shoppers into stores.

According to management, the refurbishment and rebranding of the remaining stores will be completed by the end of the first half of FY26. Until then, and with improvement in individual store sales, UK losses are expected to continue.

Ord Minnett expects the UK business to return to profit in FY28.

Outlook

Wilsons lifts its price target to $20.40 from $19.20, based on FY26 earnings and a 22 times multiple (forward-looking), above the historical average of 14 times. The premium reflects 5 times uplift from broader peer re-rating and a further 3 times attributed to the UK business, implying a UK valuation of around $235m.

Jarden raises its target to $20.68 from $17.71 and upgrades to Overweight from Neutral. Ord Minnett also raises its target to $18.00 from $16.00 and upgrades to Lighten from Sell.

Macquarie (Outperform) has shifted to a new analyst who has increased this broker’s target to $21.90 from $19.90. Citi (Buy) is the high-marker having increased its price target to $24.40 from $20.64.

For the three brokers monitored daily by FNArena that research Nick Scali (Citi, Macquarie and Ord Minnett), there are now two Buy or equivalent ratings and Ord Minnett’s Lighten, which sits midway between a Hold and Sell rating.

Following FY25 results, the consensus target has increased to $21.43 from $18.35, implying 4.5% upside to yesterday’s $20.53 closing share price (with Ord Minnett the low-marker).

Outside of daily coverage, Jarden now sits at Overweight, (between Buy and Hold) with a $20.68 target and Wilsons is at the equivalent of a Neutral/Hold and a $20.40 target.

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