Nick Scali (ASX:NCK) Plunges Despite 36% Profit Jump- Buying Opportunity or Warning Sign?

Nick Scali profit jumps, but the stock slides

Nick Scali (ASX: NCK) fell 22% to A$18.48 on Friday, even after delivering one of its best half-year results in years. Group statutory net profit rose 36% to AUD 41 million, ANZ revenue increased 13% to AUD 251.7 million, and the interim dividend lifted 30% to a fully franked 39 cents per share.

So why is the market selling a stock that just beat expectations? Part of the answer is the UK, where a loss of AUD 5.6 million is worrying investors. But the bigger concern is January, where ANZ’s written sales grew just 3.1%, well below the 11% that analysts at Citi had expected. After a half of 10.5% order growth, that slowdown raised questions about momentum heading into the second half.

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ANZ Business Fires on All Cylinders

The first-half numbers show a local business performing strongly. Written sales orders grew 10.5%, with like-for-like orders up 10.1%, meaning growth is coming from current stores, not just new ones. ANZ statutory profit rose to AUD 46.6 million, up almost 37%, while underlying profit reached AUD 40 million, up 29%.

The ANZ gross margin expanded to 65.9%, up 1.5 percentage points on the prior year, showing the company is growing without discounting. Management confirmed six new stores for FY26, with a long-term plan of 180 to 200 ANZ stores, compared with 110 today. In our view, the half-year result is excellent. The concern is forward-looking; that softer January suggests the second half may not match the first, and the market is pricing that in.

The UK Question Mark Adding to Nerves

The UK segment posted an AUD 5.6 million loss, in line with the forecast, but still a drag on profitability. Revenue fell nearly 40% to AUD 17.6 million due to store closures during refurbishment.

There are encouraging signs beneath the headline loss, though. UK gross margins surged from 45.1% to 59.2%, approaching Australian levels far faster than expected. Rebranded stores showed 32% like-for-like sales growth in January, and 16 of 21 stores had been converted by December.

The challenge is scale. Breakeven requires roughly GBP 51 million in revenue, and the UK is still well short. With plans to grow to 60 to 70 UK stores, the opportunity is large, but so is the investment needed. We believe the margin trajectory is promising, but this segment will likely burn cash for at least another year before contributing to profits.

The Investor’s Takeaway for Nick Scali

After the sharp fall, the valuation now looks different. Nick Scali trades at about 27 times trailing earnings, down from more than 34 times at the previous close. That is still not cheap for a retailer, but clearly less demanding than where the stock sat before.

The positive view depends on ANZ funding UK growth, where the long-term goal is 240 to 270 stores, more than double the current 129. If UK margins hold and sales grow, there is plenty of room for expansion. The 39-cent fully franked interim dividend, combined with the 33-cent final from FY25, puts the yield at around 3.9% at the current price, providing a solid income cushion for those willing to wait.

The risk is that January’s slowdown is more than a one-month blip, and the UK keeps burning cash longer than expected. In our view, the ANZ business is strong enough that this selloff looks overdone. For investors willing to wait two years and accept near-term uncertainty, the current price is starting to look attractive.