Welcome to the half year result for FY24, Nick Scali. Turning to page two of our result presentation, we have the FY24 half year summary. Written sales orders of AUD 212.7 million, up 1.1% on FY23 half. Like-for-like, written sales orders flat. The revenue of AUD 226.6 million, compared to AUD 283.9 million in the previous half last year. The first half, FY 2023, benefited from increased deliveries due to the elevated order bank at June 2022. Profitability, group gross profit margin of 65.6%, up 2.1% on FY23, and consistent with the second half of FY23, gross profit margin of 65.4%.
Profit after tax of AUD 43 million, above the AUD 40 million-AUD 42 million guidance provided at the October 2023 AGM. Cash and deposits of AUD 68.3 million as at the end of December. AUD 20 million was repaid on corporate acquisition debt, and FY23 dividend paid of AUD 28.4 million in the first half FY24. An interim dividend then of AUD 0.35 per share, fully franked. Turning to page three, revenue and written sales orders. The first half of FY24 written revenue is consistent with written sales order levels and typical delivery lead times. The first half, FY23, did benefit from increased deliveries from the elevated order bank, which was reduced while lead times were returning to pre-COVID levels.
Written sales orders, as mentioned, were up 1.1% on the half, in particular, the Q2 , where written sales orders were 8% higher than the corresponding quarter in FY23, with both Nick Scali and Plush contributing to the increase. In quarter one, written sales orders were 5.4% lower than the quarter one FY23, as reported at the AGM. Therefore, the overall written sales order for the half was flat compared to that previous half. I'll hand over to Sheila Lines, our Chief Financial Officer, to carry out Slide 4.
Thank you, Anthony. So turning to slide 4, our financial performance. Anthony has just spoken about the sales revenue performance, and as he mentioned, our group got gross profit margin for the first half of the financial year 2024, was 65.6%, compared to 62% for the first half of financial year 2023, and was similar to the 65.4% in the second half of financial year 2023. Operating costs were AUD 4.8 million lower than the prior period. The first half of financial 2023 included additional logistics expenses of AUD 4 million to support the peak volumes delivered. Combined depreciation and interest expense on property leases was AUD 24.2 million for the half, an increase of AUD 1.7 million compared to the prior period. Other income includes interest income on cash and deposits, excluding the AASB 16 interest expense on lease liabilities.
Net bank interest expense was AUD 0.5 million, slightly lower than the net bank interest expense of AUD 0.7 million in the prior period. Turning to slide 5, cash flow. Cash of AUD 43.6 million was generated from operating activities, and that is after deducting operating lease, principal and interest payments. This operating cash generation of AUD 43.6 million was increased from AUD 35.1 million in the prior period. AUD 8.5 million was utilized in the half for the build of our new Queensland distribution center, which we expect to complete in the Q3 , for a total construction cost of AUD 16.2 million, in addition to the land purchase in FY 2023 of AUD 7.8 million.
Other capital expenditure in the half totaled AUD 5.5 million, and as Anthony mentioned earlier, AUD 20 million was repaid in August on the corporate acquisition debt, reducing the amount outstanding to AUD 28 million. Moving to Slide 6, balance sheet. I'm sorry. Included in borrowings are AUD 43.7 million of loans against owned property at less than 50% loan-to-value, and the amount outstanding on property debt is unchanged for the period. AUD 28.4 million was returned to shareholders via payment of the FY 2023 final dividend, and closing cash on hand at December of AUD 68.3 million. Now moving to Slide 6, balance sheet. Included in property at net book value are the construction in progress costs and land purchase for the Queensland Distribution Center-...
The AUD 20 million reduction in borrowings and corresponding reduction in cash and deposits reflects the August corporate acquisition loan repayment referred to in the prior slide. I'll now pass back to Anthony.
Thanks, Sheila. Nick, the Nick Scali brand online, for the first half FY24, online written sales orders were AUD 14.7 million, up 22.5%, driven by the enhancements in the e-commerce user experience, which was really drove the growth. Turning to the store network, Nick Scali opened a new and larger showroom in Payneham, South Australia, with the existing store converted to a clearance store. Two new Plush stores opened in Helensvale, Queensland, and Payneham, South Australia. One Plush showroom was closed in the ongoing optimization of the acquired Plush network. A further 11 Plush showrooms were updated to the new concept for Plush, launched in December 2022.
20 Plush showrooms now reflect the new concept, and the net change in stores was only 1 additional store, but which at the moment stands at 108, with a long-term target of 176-186. We turn to page 9, Recent Trading. January 2024, written sales orders were AUD 58.9 million, up 3.6% on the corresponding January in January 2023, with like-for-like up 2.6%, which is continuing the positive momentum of quarter 2 FY24. So that's the completion of our result presentation, and we're now happy to take questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Peter Marks with Barrenjoey. Please go ahead.
Morning, Anthony. Morning, Sheila. Just wanted to touch on any differences in performance across Plush and Nick Scali in the period. I think you've now refurbed 20 Plush stores. So, just wondering if you could comment on the difference in sales growth between the new Plush concept and the old Plush concept.
Yeah, look, as we mentioned, both brands grew in the period, particularly in quarter two, and in January, and I... Look, they both, the growth was very similar. Probably, in January, we saw Plush perform a little bit better than Nick Scali.
And the new concept in Plush?
Well, it's not a new concept, it's just that, well, it's a new store look with a, which allows us to merchandise the product better, and those stores, yes, performed well.
Okay, great. And then maybe just on the changes you've made to the store operating model, it looks like you've taken some labor hours out of the stores in the half. How confident are you that that's sustainable and it hasn't impacted service levels? And then is there any more to do on, I guess, on that into FY25?
Well, yeah, the employment costs are down for twofold. Firstly, in the previous year, we, you know, given the revenue and the elevated revenue due to the delayed shipments, and there was that catch-up, so there was a lot of additional labor in warehouses is the main driver of that employment. Yes, stores, it's-- they're a little bit understaffed, but yes, it's not, you know, clearly we prefer not to be understaffed, but that's been challenging recently, as for all businesses.
Okay, great. Thanks, guys.
Thank you. Your next question comes from Ed Woodgate with Jarden. Please go ahead.
Oh, hi, guys. Great result. I guess evidence of you being one of the high-quality retailers on the ASX, the market obviously likes it. I'll just ask a couple of quick questions on the result, then talk to freight, if that's okay. So you're just providing some color on the performance of Plush versus the core Scali brand. Can you talk to GP? Did, 'cause I think you were up 20 basis points, half and half. Did Plush improve more than Scali's, or was that kind of, you know.
Yeah, look, the Plush gross profit is now aligned to Nick Scali.
Yeah. Okay.
It should be. Yeah. Yeah.
Great. And, as far as during the period, so it sounds like you had some great tailwinds, and you've talked about passing those on to consumers in the past. Can you give us a sense about what happened to average sale price and how much price decrease you put through during the period?
Yeah, look, the sales growth in the quarter two in January was really driven more—well, it was driven by more volume, given that our, as the freight prices have meant that the freight rates drop, we pass it on with lower prices to, to enhance volume, which did happen. But prices across the board, the average unit sales probably dropped about 6%-7%.
6, 7. Okay, that's, that's very helpful.
Yeah.
And then just some. I mean, it's a cracking result, and so I guess The market is inherently forward-looking. With freight rates going up, and that's our research is that they're going up to Australia as well from China, and Greenlit was in the press on Sunday saying similar things. I mean, do you mind commenting on the freight rates you're seeing and what percentage of COGS that is, and I guess your ability to manage that through passing on price increases through your brand, strong brand, et cetera?
Well, I think the freight's a pretty complicated situation, which is now less complicated because we had, you know, DP World, which I think handles 40% of the incoming freight, with the port industrial action, was not anywhere near its capacity, caused delays. It also caused shipping lines to send less ships to Australia, because why would they do that when they have to sit out to sea waiting to be unloaded? So it remains to be seen, but I think now that with the industrial action resolved, I don't think the freight will be such a big issue going forward. I could be wrong, but just my sense is that that won't happen. We thought it was.
Yeah. Okay. Have you seen any recent spikes due to the Suez, the Red Sea prices, or less? That's less of an issue, you think?
Yeah, not really. I think, I mean, we buy from Asia, so it's the Asian route that counts for us.
Yeah.
Not from Europe. So it's more about what the shipping line supply, how many shipping lines are going to enter this Asian route? And we know we... and with the DP World situation, of course, there were less boats, less ships, and that what pushed price up, because supply wasn't there. So yeah, I think it'll be, it'll stabilize soon, and I don't think it's going to be anywhere near COVID levels, so in respect, it won't have a material impact.
Okay, got it. And then can you just maybe talk to—last question here. Talk to how you feel about the 61%-62% GP margin target, just given ongoing strength there. Yes, you're in a tough consumer environment, clearly performing well. It looks like you might have hit the bottom of that. But do you... What's the kind of timeline to getting back towards that 61-62?
Well, there's no timeline. Good enough. Well, look, I think the point is, I think with the synergies, the buying synergies from the acquisition Plush have definitely, have definitely made a difference to the margin. By integrating Plush, where we're buying product out of the same factories, shipping the same containers, is deriving a lot of benefit in the margin that you're seeing. How it is top, you know, it's certainly top. It's, it's pretty high compared historically, but we'll see how that goes forward. Look, at the moment, I think our buying strategy has actually driven a lot of these better margins with the more, with the more volume that we've achieved through Plush, and, hopefully within, it certainly should be above what it has been in prior years.
Okay, great. Thanks very much, and, I'll jump back in the queue.
Thank you. Your next question comes from Rachel Harwood with Macquarie. Please go ahead.
Hey, good morning, Anthony and Sheila. Thanks for taking my questions. First question is just on conversion rates. I know you previously noted, conversion rates were tracking a bit higher despite some lower foot traffic. How did this look throughout the half, and are you still seeing elevated conversion rates into January?
Yeah. Look, there was. It varied a bit about traffic was up in most of the states, not in all the states. So the conversion was in line with the traffic increase. But we were, we are slightly understaffed in stores, and I've probably possibly could have been better. That's what our—I mean, if there's one thing we are working on is improving conversion in stores and being, having rosters optimized and enough people to serve customers at the peak volumes, and that's been a bit challenging in this low unemployment environment.
Yeah, understood. And just in January, some good written sales growth there. You noticed you pass on some of the benefits into price, but was there any kind of changes in terms of length or depth of discount versus previous years in January?
No, pretty much similar, you know, at not more discount.
Okay, that's great. And just a quick one on New Zealand. I mean, how are you seeing this performing? Is there any differences between trading within Australia versus New Zealand?
No, New Zealand was positive. I think that's a good result, given I think their economy is a little bit tougher than Australia. We've got positive growth there as well, like-for-like and total.
That's great. Thanks for taking my questions.
Thank you. Your next question comes from Mark Wade with CLSA. Please go ahead.
Morning, guys. New orders returned to growth in that Q2 . Can we just drill into what, what drove some of that, Anthony? I mean, is it merely just the economic conditions improved? Is it that weaker prior period that you're coming off, or is it something more to do with the offer that led to that pickup in that Q2 ?
Oh, look, I think it's a combination of more factors. Look, it's, it's hard to know whether that, that was market share we gained. I mean, November was good for most retailers. It's growing year on year, November. But to our... You know, pleasing for us was December was still grew despite that, and January. So I think what contributed to that was, I think our marketing was good, the offer was good, and I think a lot of new product has done very well. We've done really, done a good job on, on the product, new product launches that have all sold very well. And that helps because clearly if you launch a new product, doesn't sell, that's not good. So yeah, I think it's a combination of that.
Okay. And when you look out for over the coming year, what do you think in terms of rollout and refurbs? Where could you get that to?
Yeah, look, we're not happy with the rollouts. We need to accelerate more new stores. I think Plush is easier. We'll have a good rollout of Plush, particularly in the first half of the next financial year. And Nick Scali, we need to accelerate the store rollout growth. And it's, and we're working hard on that at the moment. Yeah, I think on the consumer side, difficult always to predict, but I guess with interest rates, the, you know, people tend to think, yeah, interest rates won't increase any further, and that has stabilized. I think that consumer sentiments may be getting better.
Yeah, well, you think so. I mean, the sentiment's been lousy for years and years, and yet here we are with the prospect of getting some tax cuts and, you know, rate cuts down the track and, you know, immigration. I think there's a few things to get excited about the year ahead, so, all the best for that time period. Thanks, guys.
Thanks. Thanks, Mark.
Thank you. Your next question comes from Tom Bignell with Wilsons. Please go ahead.
Morning, Anthony and Sheila. Thanks for taking my question. Maybe just a quick question on the online business. Just if we could get a bit more color on what's driving the growth there. Is that still predominantly flat pack product fueling the growth, or do you still see signs, or are you starting to see some signs from easing purchase anxiety from consumers at the higher price points that you have?
Oh, no. Look, the growth online has been attributable to more sofas being bought online, and so in the split between case goods and sofas, if we look back a year ago, it was 70% case goods, 30% sofas. It's now 50% sofas, 50% case goods. That's clearly, you know, where the upticks come from, which is pleasing, and that, that's been driven by the enhancements on the website and the people being able to configure more easily or find the configuration that suits them and the color. But look, there, there's still a, a percentage of people buying online that have been in the stores.
Yeah. So that's so far that customers are buying online. Is that the average selling price of that so far still materially below your in-store purchase? Is there a big difference there still?
It is lower. You're right. The average unit sale still is lower. What we do see online, a lot of our lounges in our stock program are being bought, so the online buyer seems to be the person that wants, you know, wants a quick delivery. That's the differential. But on the case goods side, we've seen the average unit sale increase, in fact. And a lot bigger purchases, you know, they're buying a combination of case goods and lounges. We've seen more of that.
Great. Thank you. And then just a quick follow-up from me on CapEx going forward. So just given the comments on the Plush store rollout, like, you've got quite a bit of runway there. Do you see these being predominantly leased deals, or do we need to think about further land acquisitions and CapEx in terms of the Plush rollout?
Look, in terms of Plush rollout, no, most will be leased. And if we look in terms of acquiring retail sites, majority probably will be Nick Scali, because they're big sites. And the reason we buy sites, retail sites, we like to buy retail sites, is two reasons. One, it allows us to expand in an area we might not be able to have due to, in terms of leasing, just not available. And secondly, the long-term hedge against, you know, rents continuing to elevate. On the Plush side, look, if there are opportunities to buy sites for the Plush business, you know, Plush stores as well. Yeah, it's a mix. It depends the opportunity and the timing.
Great. Thanks. That's a great call.
Thank you. Your next question comes from Sam Teeger with Citi. Please go ahead.
Oh, hi, Anthony. Hi, Sheila. What's the current thinking around M&A? Are you close to doing anything? There's been a lot of talk previously about the UK and other opportunities.
Yeah, I wouldn't say we're close to anything at the moment. We're certainly actively, you know, looking at opportunities continuously.
Got it. When you talk about, you know, rollout being a bit softer than you would like, is the bigger constraint the lack of appropriate sites, or is it the rents that landlords are asking? I know you're probably going to say both, but what's the bigger factor?
Look, on the Nick Scali side, it's more the site availabilities. On the Plush side, yeah, it's more on the rent side that we may not be happy with. But I think the Plush one will accelerate pretty soon, since there are opportunities, particularly in the first half of next year, that we're in progress with. So yeah, it's on the Nick Scali side, just about being that size, a template.
Got it.
But yeah, we need a bigger rollout, and we need to add more resources, which we're doing now, to see if it... 'Cause there's a number of areas where we might have missed out on opportunities because we were under-resourced.
Got it. And how do we think about net new stores for each banner in the second half?
I didn't understand that question. So, Sam, can you- Can you repeat that? Repeat it?
Yeah, just on rollout, in the first half, there was one net new Plush store net, and then there's one Nick Scali store. When we're thinking about the second half, you know, as it sits right now, you know, what's a likely outcome?
Yeah, look, there's definitely going to be one Nick Scali store in the Sydney metropolitan area on the north side, and there's going to be probably two Plush stores for this half.
Are you done with the Plush closures or?
Yes. Yes.
Got it. Great. And just last question.
Sorry, just on the Plush stores, at some time there will be a position where we might have to close a store and wait a period in the same similar location for the bigger store. It might be being built or the tenancy we've managed to lease might, existing tenant mightn't be moving for a few months. So that's, that's been happening, like, we're repositioning some of the stores because we want some of the stores in the Plush network, the stores vary too much in size. Some are way too small, and that's not an optimal outcome for an, you know, when you're in a particular location, you know, where the range is not big enough. So that's really where that, where we're closing stores, we'd probably go back and reopen them. That's happened in Perth recently.
We've closed the store because it was 300 square meters, not 1,000 meters, but we've got an opportunity in 8 months to reopen that area with the bigger store, for example.
Got it. And just last question, can you confirm whether the January sale went for an additional week or around that this year?
No.
Compared to last year.
Same number of weeks.
Thanks.
Thank you. Your next question comes from Shaun Cousins with UBS. Please go ahead.
Thanks. Good morning, Anthony. Just a question on competitive intensity. Can you just talk a little bit about any sort of changes in competitors, any sort of going out of business, just conscious that when that happens, that can generate irrational pricing? And maybe just sort of, I think you made some earlier comments just around promotions, just around, the depth of discounting, any players sort of being aggressive or is competition quite sort of rational?
Yeah, there's always a mix. The answer to that, that's always a mixed bag, you know?
Yeah.
It's very highly fragmented furniture. So, yeah, you know, the small operators, when it gets tough, they will discount more. And we've seen—look, I've seen even a number of competitors, particularly prior to Christmas, really discount, and they were discounting because they were overstocked or and probably wanting to cash in their stock. So yeah, we've seen that. Yeah, but it's always there.
And maybe then, aware again of the fragmented nature of the industry, but you know, where would you see sort of industry stock levels? Are they in reasonable shape, or are there still players out there and a meaningful number of players out there that have got too much stock?
Look, it's hard for me to give you that, to answer that, to be honest with you. I can't see the inventory levels, you know, only ... So, I don't know is the answer to that.
That's fine. Fantastic. Thanks, Anthony.
Okay.
Thank you. That's all the time we have for questions at this moment, and that does conclude our conference for today. Thank you for participating. You may now disconnect.