Morning, welcome to the Nick Scali FY21 results presentation. Running through our FY21 highlights. Sales revenue was AUD 373 million, 42% up on the prior year. Gross margin 63.5%, up from 62.7% FY20. Underlying NPAT, net profit after tax of AUD 84.2 million, 100% up on FY20. Operating cash flow was AUD 137.9 million compared to AUD 76.5 million in FY20. Total dividends for the year were AUD 0.65. Our store network is currently 61 showrooms, 57 in Australia. Sorry, currently is incorrect. As at June, FY21 was 61 showrooms, Australia 57, New Zealand four. There's one additional showroom that has opened in July in New Zealand. As mentioned, revenue was up 42% with comparable store sales growth at 34%.
The AUD 110 million growth in revenue was made up of AUD 87 million from comparable stores, approximately AUD 1.9 million from new stores opened in 2019 and 2020, AUD 5.1 million from stores opened in FY 2021, and AUD 14.4 million online and AUD 1.4 million from the clearance stores. The new stores opened in FY 2021, their revenue contribution, based on the fact they were open at different times in the year, were all the three new stores with an average of 2.5 months contribution only. We look forward next year to a full 12-month contribution from those three stores. Sales orders. Total written sales orders was AUD 401 million, representing growth of 37% on FY 2020. The written sales orders from New Zealand were 95% up on FY 2020.
Total written sales orders for Nick Scali Online were AUD 18.3 million, up AUD 15.3 million on the previous year. Three new showrooms that were open throughout the year have performed strongly. They contributed AUD 10.7 million in sales orders. That averaging at 5.5 months. The closing order bank is up 35% on June 2020, which does reflect the continued strength of our trading throughout FY 2021. When we look at the financial performance, underlying profit of AUD 84.2 million, as mentioned, is 100% on the prior year. Clearly, the result was driven by the sales growth. Operating expenses were up. The majority of those expenses were from new stores of AUD 2.6 million and commission and bonuses at elevated levels, given the result of AUD 4.1 million offset by savings in marketing. In respect of cash flow and the balance sheet, I'll let our CFO, Chris Malley, run through this.
Thank you, Anthony. The strong trading has resulted in a strong operating cash flow result. There were no significant or unexpected cash items during the year. Our operating cash flow was AUD 11 million more than our EBITDA due to working capital improvements, an AUD 12 million increase in customer deposits on the back of our increased order bank, which was offset by increased inventory holdings in our distribution centers and showrooms. We used around AUD 15.5 million of the generated cash on CapEx projects, primarily the purchase of the Adelaide flagship showroom in Keswick, South Australia, new store fit-outs and store refurbishments. After tax, interest, and dividend payments, the net cash inflow was AUD 44 million for the year. Moving on to the balance sheet. Our cash balance increased by AUD 44 million, as just mentioned, and our inventories increased in total by around AUD 10.5 million.
AUD 4 million of the inventory increase relates to in-transit inventories, which is a result of the elevated level of trading and is offset by the increase in the payables balance at the 30th of June. Aside from the in-transit inventory, the increase in inventory has been driven in the DCs and showrooms with a AUD 5 million increase in the inventory, supporting additional AUD 110 million of revenue, which reflects the efficiency across our DC and store network. Our property balance increased due to the purchase of the Keswick showroom, which is our ninth property. It was fully paid in cash, and there was no change to the overall level of borrowings, which remained at AUD 33.7 million, which are all secured against our existing property portfolio. With that, I'll hand back to Anthony now to talk about our New Zealand business.
The New Zealand business continues to perform very well. We have starting to grow the network of stores, which will continue. We can see that the total growth in terms of written orders for the year was 95% on the prior year, with comparable store growth of 40%. We opened a new showroom in November in Wairau Park, which is doing very well. In fact, it's our number one store. We'll realize the full benefit of that store in terms of sales revenue during FY 2022. We just opened our fifth showroom in Hastings in July, which is in, obviously, this financial year, and that has also performed well year to date. Nick Scali Online had reported written sales orders of AUD 18.3 million, which was the first full year of operation, and obviously a six-fold increase on FY 2020.
The Nick Scali Online written sales orders of AUD 5.5 million in the quarter four of FY 2021 was an increase of 84% from the same quarter the prior year. The full-year revenue was AUD 15.3 million, with an EBIT contribution of AUD 8.8 million. The lounge visualization tool was launched in July, certainly we've seen an improvement in lounge sales online. The e-commerce will be launched in August across both Australia and New Zealand. Looking at our store network. We have 61 stores. At June we had 57 stores, four stores in New Zealand, we have a total of 61. The target for Australia is 73, New Zealand is 13, bringing a total target of 86 stores. As Chris talked about in our property, there was an additional property that was purchased in South Australia. With a photo, we now have nine showrooms, properties that we own.
That's a strategy the company will continue to expand the number of stores we own. In terms of the outlook, our growth is primarily driven by the continuation of our new store rollout and increasing our online penetration. Trading during July was impacted by the government-mandated lockdowns in Greater Sydney, Victoria, and South Australia, with written sales orders down 27% compared to July 2020, but up 24% in July 2019, despite Greater Sydney being locked down for the whole month. Victoria and South Australia traded exceptionally well since coming out of lockdown towards the end of the month. New Zealand continues to perform well with written sales orders up 91% in July. Online growth continued with written sales orders up 80% compared to July 2020.
Despite the buoyant trading condition, there is a high degree of uncertainty in the current retail environment due to potential future lockdowns, supply chain challenges caused by lockdowns in sourcing countries, and the continuing escalation of global shipping costs. Given the uncertainty, it is not possible at this point to provide profit guidance for the company for the first half of FY22. I'm happy now. That's the end of our presentation. We're open to any 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 on a speaker phone, please pick-up your handset to ask a question. Your first question comes from Mark Wade from CLSA. Please go ahead. Great. Thank you.
Good morning, team. Thanks for taking my question. Look, I guess the last 12, 18 months has been a real rollercoaster ride for you guys and the entire retail sector. What do you think is going through the heads of the typical Nick Scali customer at the moment?
I don't know. That's a lot of customers. Having looked at what's happened recently with Melbourne and Adelaide coming out of lockdown, it certainly came out strongly with people buying. My expectation, the customers are still wanting to worry about the lounge they fit in and the dining they have and the propensity to spend, particularly given you're in lockdown and that's what I think how the customer psyche continues to be, and particularly while we can't travel.
Okay, sure. Looking ahead, is your sense that these lockdowns are just simply postponing purchases, yeah? You're not seeing any kind of demand that's been crimped permanently yet?
Sorry, I didn't understand. Can you repeat that?
Yeah. I was just trying to elaborate on your point around the lockdowns, I guess the question investors are probably asking is it just a matter of the customers just postponing their purchases when you're coming out of the lockdown, or do you think there's been some demand erosion?
Yeah, look, that's difficult. Probably there was, yes. There are people they, during maybe this period Sydney's been locked down, that they were intending to come and buy a lounge because they've finished their renovation or were just moving house. Yes, obviously you get the uptick when you reopen. The elevated levels seem to continue throughout this period, while we're in this COVID situation where we can't travel.
Mm-hmm. Okay, I'll leave it there. Thanks, guys.
Thank you. Your next question comes from Marni Lysaght from Macquarie. Please go ahead.
Good morning. Thanks for taking my questions. I just have a question around your strategy. You've said here your future growth will primarily be driven by the continuation of store rollout and increasing online penetration. Can you talk to maybe your scope to potentially acquire another business and how we should be thinking about that at the current juncture?
Yeah. Look, we're always open to acquisitions if it works, if it makes sense for our business. As you know, we made an announcement on the 19th of July about that we were currently in due diligence for another business, but how it is no certainty that will occur. There may be other opportunities if this doesn't proceed. Irrespective of acquisitions, we're very motivated to continue our store rollout and really grow our online.
Just a question on the outlook comments. You've said here online's been up 88%. Is that for the group or New Zealand?
Group.
Correct. That's the whole group. That's the whole group.
Yeah. That's clear. Well, those are all my questions for now. Thanks for answering them.
Thank you.
Thank you. Your next question comes from Sam Teeger from Citi. Please go ahead.
Oh, hi, Anthony. Good morning.
Morning, Sam.
Just wanting to elaborate on that recent announcement for Plush. Can you confirm, are you still in the due diligence process?
Yes, we are.
Is Plush the only business that you're involved in non-exclusive discussions with? Are you considering other targets?
Not at this point.
Got it. All right. How many stores?
There are opportunities. There's lots of opportunities at the moment, Sam, that we're looking at. We're looking at, but we're not in due diligence.
Okay. Great. How many stores are you planning to open in FY22? Can you just provide a bit of color in terms of that, how many are going to be first half or second half, and the split between Australia and New Zealand?
Our plan is to open, excuse me, 3-4 stores at the minimum.
Three to four, you said?
Yes, in FY22. That's what we would target. We've opened already one in New Zealand, and hopefully the balance will be across New Zealand and Australia, where there's a number of opportunities we're looking at now. There's some we're very close to executing soon.
Right. You've done one so far. Of the other 2-3 that you're going to do, is that going to be first half or second half?
Oh, sorry. Yes. I think hopefully at least 2- 3 will be first half. The balance second half. It depends. There's a few balls in the air yet on the new stores. It's always not easy to predict when it can open. The other issue is about the lead times on our furniture. We basically specifically always order from our suppliers new stock for the showrooms, and the lead time's a bit longer, so we've got to deal with that as well in terms of respective openings. That's why it's a bit of a moving target.
Got it. All right, cool. What's driven the lower second half gross margins compared to the first half's?
I think the first half was just exceptionally high. It's just the movement in the freight, bit of freight in the second half was a little bit high, freight content.
All right, cool. All right. Thanks, Anthony.
Thank you. Your next question comes from John Hynd from Wilsons. Please go ahead.
Good morning, Anthony and Chris. Thanks for your presentation, and congratulations on such a strong result.
Thanks.
I've got a couple of questions. If we could start with New Zealand. Obviously, a really strong result. Could you perhaps give us a reminder of the strategy there and 40% sales growth? Is that or like for like sales growth? Is that, I think, evidence of the strategy taking place and how do you think about the profile for that region going forward?
Yeah, look, I think the brand awareness is building in New Zealand. We opened with one and two stores and three stores, and obviously our marketing spend has to be proportioned and controlled to our sales revenue. As the store network has grown, we've been able to spend more on marketing and therefore the brand awareness is improving. That's helping. Obviously, there's the COVID impact helping with the like for like. The stores that have opened have performed really well. The brand uptake is really good and we're very happy with the result.
Forgive me, I haven't had a chance to do the back of the envelope math, but do the stores typically trade in line with an Australian store? I mean, the rule of thumb for you guys is sort of AUD 4.5 million of revenue per store annually and at a 25% sort of tight margin. Is that how you think about New Zealand?
Yeah. Look, New Zealand probably performing a tick up on that, to be honest with you. They're doing well, yeah. Yes, more or less, yeah.
Okay. What about early on, retail was very strong and housing was very strong in New Zealand at the beginning, when you started rolling out in New Zealand. Given you're sort of, I guess, clipping off more stores at a faster rate now, has that changed? Is it easier to find the right sites or have you changed strategy or have you got a good partner now?
Yeah, no. Well, I think the answer is no, it's not that easy to get good stores because our template is 2,000- 2,500 meters. That's not easy to get a site that size. That really always limits our store availability of the store because of the size. We've pinpointed locations we want to go to areas, but we always look at the position. We're careful about the position in those areas we want to open stores. That's why it takes a little bit longer than we'd like sometimes. I guess the answer.
Yeah.
No. It's not about partnering with anyone. It's just about having access to sites and we've always got the ability also to buy sites, as you know, and develop our own stores if we have to, or at least so that we've got either way, either direction to go there. The limitation on the speed of getting new stores is always basically the size of our stores. Isn't it? It's a strong discipline we have to ensure that we don't compromise on that.
Okay, great. That makes sense. Just while we're on stores, I'm still a touch confused about the rollout profile. You talked about 3- 4 stores for FY22 and 2- 3 in the first half. Does that include the one already opened in New Zealand?
Yes.
So essentially a further two-
No
probably in the first half and 1 in the second.
No. For the year, it's 3-4 . We've already opened one.
Yeah.
There's another three. We hope to open the second or third in the first half. That's what we would like to do.
Got it. Okay. Finally from me, online obviously still doing well. I am just interested in just optically about the split you have got. Your written orders were up 18.1% and then revenue is 15%. I understood that majority of the volume coming through the online was more of your flat pack type offering. I am just surprised in the sort of delay there given I think you did bring in a lot of inventory pre-COVID. Is that a profile we can expect to remain with that online business or is it just a timing and digestion issue as you get more familiar with how the business works?
Yeah. Well, firstly, the written orders were more than the revenue because a portion of our online orders are lounges and they have to be delivered, right? There's always that lead time.
June.
Sorry?
Also June.
Yeah. Correct. In the June period. Yeah. Irrespective of that, I think what you're asking is that what we've seen why the volume goes up is we've learned a lot about different marketing initiatives that are working, that we've input it. We've introduced a lounge visualization tool, which has brought us better penetration in lounges. It's always been challenging to sell a lounge above AUD 2,000 online without someone having gone and sat on it. I think there's all of that and we've just got better execution. The average unit sells AUD 1,900. We see growth by just executing better, bringing more categories.
We've got a launch of a new e-commerce tool that will be launched in August, and so we're very confident with the growth.
Great. I heard Chris whispering June in the background there. Was June strong? What was your monthly run rate then versus what the print is on an average basis for the year?
Yeah. June is always a bigger month, and it's a bigger month for online too. Those sales aren't delivered yet.
I think Chris is trying to explain why the order is a lot more than the revenue as at end of June. June's an elevated month in terms of orders, traditionally, seasonally. It's a seasonal month for us.
Okay, cool. You were happy with how you exited FY 2021 with online?
Yes.
Great. Thanks, guys. I'll go back in the queue.
Thank you. Your next question comes from Aryan Norozi from Barrenjoey. Please go ahead.
Hi, team. Hope you're well. Just first one from me, just around the trading update and just how you're seeing the consumer. If you look at it ex the lockdown states, are you noticing a big impact in terms of confidence or visitation?
Yeah. Sorry, it wasn't clear. I couldn't understand clearly your question. There was a bit of an interference. Could you repeat it? Sorry.
Yeah. Is that better? Can you hear me better?
Yeah, that's better.
Yeah. First one, just in terms of states that are not in lockdown at the moment, are you noticing any material change in terms of their purchasing pattern or footfall in your stores?
No. As mentioned, it's pretty elevated. The foot traffic is up. No, there's no difference in patterns. It's very similar to what happens continually when you come out of lockdown. There seems to be a bit of pent-up demand. Sales are elevated, and then it lowers down, but still at elevated levels.
Yeah. Perfect. Just in terms of the gross margin, keen to explore that a bit more. It was down about 25 basis points in the second half, and it was up 180 in the first half. I know you mentioned there's a bit of normalization and freight. How do you think about the impact from rising freight in FY22, and how do you think about managing that as well from a pricing perspective?
Yeah. It's a challenge. I think we've got traditionally October to December is the peak season for freight normally, and freight traditionally goes up this period. There will be further impact on freight. I think the currency has been helping us because we've come off our lower hedges and onto higher currency for a while, so that will offset that first half. I think the freight situation slowly will stabilize, and I think the rates are at peak rates now, and it's unsustainable, I think. I don't think the shipping lines are going to be able to keep at this level in the long term. Yeah, it's a difficult area to manage at the moment.
Can you manage it through pricing? I think last time you put prices up was in March, April 2020. Have you put any price increases through yet, and is that something you're thinking about doing?
Correct. At the end of the day, if the freight continues this level, prices have to go up.
Just next one, just in terms of the dividend, I think that was a bit below what others were expecting. Is that just giving yourself a bit more wiggle room around M&A?
Look, I think it's more around just the degree uncertainty at the moment in terms of lockdowns particularly. We've got lockdowns from countries where we source from. Like Vietnam at the moment is completely locked down. Malaysia is completely locked down. China's continuing. There's just this uncertainty and concern about supply chain. We thought it's good. We can always address the dividend in the next year, the next financial year, or this year, FY22, if things stabilize.
Yep. Just last one. Just thinking medium to longer term, how has COVID, if it has at all, changed the way you're thinking about your cost base? Is there any line items within the cost base that you're structurally lowering as a result of COVID and you see yourself as a higher margin business exiting COVID?
I think what we've certainly learned, the capacity we've got in our distribution network, which has been very pleasing. The distribution network and the management of our distribution network have done an exceptional job. Basically delivered the sales revenue growth of extra AUD 100 million without incurring additional costs. Just pure leverage, and learned a lot about how to manage higher volumes in a very efficient way. We've had some incredible initiatives we've implemented, which we'll continue to improve on. The other thing is I think we've learned a little bit on the marketing side, through initiatives and savings on that part. They're the big two lessons for us, has been marketing and distribution.
Sorry, just a last one. Just in terms of your comparable written sales orders, apologies if I missed this, but I don't think you guys called that out in the present. You said it was up 58% in the first half. What was the comparable written order growth in FY21, please?
Sorry, what was your question? I didn't get it.
Oh, yeah. It's just-
Yeah. We didn't mention that within the presentation.
Okay.
The revenue growth was 34%.
Okay, cool. Thank you. Thanks, guys.
Thank you. Your next question comes from Keegan Booysen from Jarden. Please go ahead.
Good morning, Anthony Scali and team. First one from me. I'm just interested to see if you've seen anything change from a promotional intensity standpoint. You can see some of the discretionary categories out there having promotions return pretty quickly. Just if you've seen any of that in your category.
No, not really, no.
Okay. Maybe just following on from that, just trying to think about your gross margin a little bit more, is it still the case that the online growth should be gross margin accretive, just given the mix online there?
Yes, you're right. That's correct. The majority, well, it's different to our stores. In our stores, it's more or less 68% lounges, the balance casegoods, and it's almost the reverse online. Having said that though, the lounge penetration is better now online, so it is starting to move down a bit in terms of casegoods as a larger percentage. Yes, if you talk about last financial year, the margin was helped by online because the majority, 68% was casegoods, which has had a high margin.
Yep. Maybe just given online has been so successful since you've launched it, is the team thinking of introducing any other sort of adjacent categories? If so, could you talk us through any that make sense for the brand? I guess, what categories would be easy from a supply chain perspective as well?
Yeah, look, we are looking at the other categories. Well, there's two things. Firstly, it's about giving more depth to your existing ranges, meaning you can, for an example, is in a range where we sell a dining buffet coffee table, lamp table. We can introduce a lot more choice in those ranges, smaller buffets, big buffets, bigger, smaller tables. We can broaden the depth of that range, I think through online. Secondly, yeah, the other categories that we've identified those and we're yet to execute.
Maybe just the last one from me. Just looking from sort of a CapEx investment perspective from a supply chain side. Do you suspect that given you are adding more categories on or do you think there does need to be a step up in CapEx outside of what you are spending in stores or maybe from a data or online capability standpoint?
No, look. The CapEx is immaterial. We don't need any CapEx in the distribution network. We put CapEx towards online development and in tools. It's very immaterial.
It sounds then like the majority of the CapEx going forward is primarily just going to be within the store network, growing the store network and nothing on the back-end side.
Correct.
Fantastic. Thanks, guys.
Thank you. Your next question comes from Shane Bannan from PAC Partners. Please go ahead.
Hi. Good morning, Anthony. I want to miss it elsewhere in the stuff you put out today, just some commentary around the dividend, why it's bouncing around so much? The fact the payout ratio has dropped away as much as it has, yet the prognosis remains quite positive, particularly given the state of that balance sheet of yours.
Well, the dividend is up. The payout ratio is lower. I think, as I've said before, at the moment, we're a little bit concerned about the lockdowns of the countries where we source from and how that might potentially impact our cash flow. We're just being conservative. Irrespective, the dividend yield is above 5%, and the payout ratio is still fairly high. Not as high as it traditionally has been, but we just think it's prudent at this point in time to leave a little bit of additional cash.
Okay. Thank you. Sorry, just on that then. Through the cycle or through this little period when we come out of it, is there some sort of a payout ratio you are aiming to deliver over time? Give me a rough band.
Yeah, look. That's a matter for the board. If you look back at the history of our payout ratio, you can see it's been relatively high. In normal circumstances, yes, I think it could be higher than it is, but it's really an ongoing capital management plan.
Okay. Thank you.
Thank you. Your next question comes from Peter Storer, shareholder. Please go ahead.
Hello, Anthony and Chris. Congratulations on a great year. A very happy shareholder here. Very happy with that conservative approach that you just mentioned. My question relates to the online growth and the online penetration. Do you think the online is existing loyal customers who are confident enough to buy from Nick Scali Online? To what extent do you think we're reaching new customers?
Yes. Look, I think the business as a whole is always reaching new customers because there are loyal customers, but people tend to buy furniture only once every five years or even up to 10 years. As the company's grown, we've obviously got new customers. The majority of our sales are still new customers as we've grown and taken market share. Online, I think yes, certainly. We've seen the demographic. We've probably been able to attach a younger demographic online than we might have in the past due to that.
Great. Thank you.
Thank you. Your next question comes from Oliver Stevens, private investor. Please go ahead.
Oh, it's okay. My question's been answered. Thank you, guys.
Okay.
Thank you. Once again, if you wish to ask a question please press star one on your telephone and wait for your name to be announced. Your next question comes from Tom Szabo from Family Wealth Management. Please go ahead.
Hi. My name's Tom. I just wanted to hear again your views on casegoods and where do you see the casegoods heading in the next 12 months?
Casegoods? Yes. Well, it continues to be a very important part of our business. I think it's just as normal, we continue to improve our casegoods range and the online has given us an opportunity to broaden that by adding more depth, as I said, to the ranges, and also bring additional categories that may not be able to be displayed in store.
Thank you.
Thank you. Your next question comes from Ben Rodney from Morgans. Please go ahead.
Good morning, guys. Just a question on your supply chains. You've called out that you do have concerns there. Do you think that you've reached peak lead or delivery time for your key range, or do you think that's going to blow out further? If you could dovetail into, I guess, your order bank at 97 days, do you see that normalizing back to historical norm or yeah? If you could just give us a bit of color around that. I guess also, does it start to affect consumer behavior when lead times blow out as much as they have?
Yeah, I think the impact of the lead times is caused by the lockdowns in other countries that we source from. Unfortunately, we can't control that. For example, our custom-made lounge orders and the lead times are dependent upon that. Casegoods, we have been increasing our stock levels. I think we'll continue to do that because of always the issue of lockdowns. You need to be overstocked, I think, at this point because of lockdowns. Particularly, as I said before about the lounges, they're custom-made orders. Customers will probably, depending on lockdowns, may have to wait longer. If the lockdowns improve, the lead times will shorten. Go back to as they were.
Great. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We'll now pause a moment for any further questions to come through.