Nick Scali Surges 10% on Profit Upgrade: Buy, Hold, or Take Profits?

Nick Scali Jumps as Demand Lifts

Nick Scali (ASX: NCK) surged 10% on Monday after the furniture retailer upgraded its first-half profit guidance for the second time in two months. The company now expects ANZ revenue growth of 10-12%, up from the 7-9% forecast at its October AGM. Group net profit after tax is projected at AUD 37-39 million, compared to earlier guidance of AUD 33-35 million. For investors who have already enjoyed a 70% gain this year, the key question is whether there is still upside or if it is time to take profits near all-time highs.

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What Changed in Latest Trading Update

The upgraded guidance shows genuine momentum in the core Australian and New Zealand business. First-half statutory NPAT for ANZ is now expected at AUD 39-40 million, up from AUD 34 million a year ago. In our view, this 18% earnings jump suggests Nick Scali is winning market share while competitors struggle with cost-of-living pressures.

The UK expansion is also making progress. Losses are expected at AUD 5-6 million for the first half, roughly half the AUD 11 million loss in FY25. The UK gross margin has improved to 58.3%, up from 41% when Nick Scali bought Fabb Furniture in May 2024. While still loss-making, we believe this trajectory shows the annualised breakeven target is within reach as more stores complete their rebranding.

Why Analysts Remain Bullish Despite the Rally

Bell Potter recently started coverage with a Buy rating and AUD 27 target, implying 15% upside. Macquarie has an Outperform rating with an AUD 28.20 target. We think the bullish case rests on three factors that set Nick Scali apart from typical retailers.

First, gross margins consistently exceed 65% in ANZ, well ahead of competitors. This reflects a business model that rivals have struggled to copy. Second, Executive Chair and CEO Anthony Scali holds about 9% of the company with a long-term track record of smart capital decisions, including the successful Plush acquisition in 2021.

Third, the UK expansion offers meaningful long-term upside. Bell Potter sees potential for 60 stores in the UK, roughly triple the current 21-store network. If management can repeat its ANZ success, this could significantly re-rate the stock over the next five to seven years.

The Bear Case: Risks Worth Watching

Despite strong momentum, we see risks that deserve attention. At around 26 times forward earnings, the stock is priced for continued strong execution. Any stumble in UK progress or softening in consumer spending could trigger a sharp pullback.

The UK business is still losing money, and overseas retail expansions have historically been tough for Australian companies. Perhaps most importantly, the stock trades roughly 10% below its all-time high of AUD 25.98.  In our view, this leaves little margin of safety for new buyers.

The Investor’s Takeaway

For growth investors with a multi-year view, we believe Nick Scali offers an attractive mix of domestic strength and international potential. The rate-cutting cycle should support furniture demand, and the UK opportunity could prove transformational.

For value-focused investors, the current valuation leaves little room for error. Waiting for a pullback to the AUD 20-21 range would offer a better entry point, though the stock may not revisit those levels if momentum holds.

For income seekers, the 2.7% fully franked dividend yield provides steady returns backed by strong cash flow.