Expanding ANZ Stores And UK Turnaround Will Empower Retail Evolution

Key Takeaways

• Expansion in Australia, New Zealand, and the U.K., combined with new store openings and refurbishments, supports sustainable revenue and earnings growth.
  
• Strengthening profit margins and rising online sales, boosted by supply chain efficiencies and digital investment, position the company for long-term profitability.
  
• The company faces margin pressures from costly UK expansion, higher operating expenses, Asia sourcing risks, and execution challenges tied to new markets and acquisitions.

Catalysts

Engages in sourcing and retailing of household furniture and related accessories in Australia, the United Kingdom, and New Zealand.

• Solid ongoing sales growth in Australia and New Zealand, underpinned by increased store traffic, continued store expansion, and favourable demographic tailwinds such as population growth and urbanisation, positions Nick Scali for sustainable revenue and earnings expansion.
  
• Strong improvement in gross profit margins, with ANZ margins consistently at ~65% due to supply chain flexibilities and the ability to source favourable pricing from Asian suppliers, provides resilience and opportunities for further net margin improvement.
  
• Acceleration in online sales with 21.8% growth in ANZ online orders, alongside continued investment in digital platforms, points to long-term revenue and EBIT margin upside as consumer preferences shift towards multi-channel and e-commerce furniture purchases.
  
• Execution of the U.K. turnaround-refurbishing and rebranding of stores, optimisation of logistics, and increased marketing spend once scale is achieved-creates a clear pathway toward breakeven and profitability, representing significant potential uplift to group earnings as the international footprint grows.
  
• Continued store refurbishments and strategic new store openings (with at least 5 confirmed in the current year) are expected to improve operational leverage and capitalise on the increasing consumer focus on home design and premium branded furniture, driving both top-line growth and net profit.

Nick Scali Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nick Scali's revenue will grow by 9.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.6% today to 15.7% in 3 years time.
• Analysts expect earnings to reach A$101.5 million (and earnings per share of A$1.18) by about August 2028, up from A$57.7 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as A$112 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.0x on those 2028 earnings, down from 33.0x today. This future PE is about the same as the current PE for the AU Specialty Retail industry at 23.0x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.01%, as per the Simply Wall St company report.

Nick Scali Future Earnings Per Share Growth

Risks

• The loss-making UK business faces ongoing store refurbishment costs, continued operational disruption, and uncertain sales uplift per store, posing a risk to group profitability and potentially diluting overall earnings if the required per-store sales uplift does not materialize.
  
• Brand awareness in the UK is currently weak, requiring significantly increased marketing spend that may not convert quickly into sales, creating prolonged pressure on net margins and overall returns from the UK expansion.
  
• Higher operating expenses, particularly through rising employee costs and the need for competitive remuneration to attract quality sales teams, may limit future margin expansion and compress net margins across both ANZ and international operations.
  
• Dependence on sourcing from Asia, especially China and Vietnam, exposes the company to ongoing geopolitical, tariff, and supply chain risks; any disruption or increased costs could erode gross and net margins, especially if current excess manufacturing capacity contracts.
  
• Expansion into new markets and continued reliance on acquisition-driven growth (e.g., Plush, UK Fabb stores) increases execution risk and the potential for brand dilution, which could impact customer perception, compressing average transaction value and ultimately reducing long-term revenue growth.

Valuation

• The analysts have a consensus price target of A$21.585 for Nick Scali based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$24.4, and the most bearish reporting a price target of just A$18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$646.3 million, earnings will come to A$101.5 million, and it would be trading on a PE ratio of 23.0x, assuming you use a discount rate of 8.0%.
• Given the current share price of A$22.23, the analyst price target of A$21.58 is 3.0% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.