Highlights

• FY26 statutory net profit after tax rose 31.2 per cent to A$75.7 million, with gross Margin widening to 65.6 per cent.

• ANZ written sales orders fell 15 per cent in the first quarter of FY27, with store traffic down about 10 per cent.

• Underlying group net profit guidance for the first half of FY27 is A$28 million to A$32 million, against A$41.0 million a year earlier.

• The UK Business continues to improve, with first-quarter written sales orders up 29 per cent.

How did Nick Scali (ASX:NCK) go from one of its stronger years to a profit warning in about ten weeks? The answer lies in a sharp slowdown in Australian and New Zealand furniture Demand after June. On 7 August 2026, the furniture retailer reported a 31.2 per cent rise in statutory net profit for FY26. By 21 October, it was guiding to a first-half FY27 Underlying Profit well below the prior year as showroom traffic fell.

The contrast matters because it tests how far the company's high gross margins can protect Earnings when household spending on big-ticket items weakens.

What Nick Scali sells and how it makes money

Nick Scali designs, sources and sells furniture, mainly sofas, dining and bedroom ranges, through showrooms and online. It operates the Nick Scali and Plush brands in Australia and New Zealand, which produce most of its sales. It also has a UK business that it has been converting to the Nick Scali format.

The company sources most of its products from overseas manufacturers and sells them through its own stores. That model has allowed it to earn unusually high gross margins for a retailer. After the Bendigo and Bunbury openings shortly after 30 June, the network totalled 132 showrooms.

A key metric is written sales orders, which measures orders taken in the period. Revenue is recognised when furniture is delivered, often weeks later, so orders give an early read on future revenue.

An encouraging FY26 result

For the year to 30 June 2026, revenue rose 4.3 per cent to A$516.7 million and statutory net profit after tax rose 31.2 per cent to A$75.7 million. Gross margin widened by 210 basis points to 65.6 per cent. The company credited pricing, sourcing and inventory management for that improvement.

In Australia and New Zealand, written sales orders grew 2.7 per cent to A$472.5 million and revenue rose 5.1 per cent to A$476.7 million. Segment net profit was A$80.5 million. However, executive chair Anthony Scali told the annual meeting that trading softened in the second half as pressure on discretionary spending continued.

The UK business improved. Written sales orders rose 31.4 per cent to A$45.0 million, gross margin rose from 47.1 per cent to 60.3 per cent and the net loss narrowed from A$13.6 million to A$4.8 million. Sixteen UK showrooms had been converted to the Nick Scali format by December 2025.

Operating cash flow after rent and occupancy costs rose to A$117.9 million. The company held net cash of A$34.9 million at 30 June 2026. Total FY26 dividends were 78 cents a share, fully franked, including a final Dividend of 39 cents paid on 22 October.

The October trading update

The mood changed on 21 October. In a trading update, Nick Scali said ANZ written sales orders in the first quarter of FY27 were 15 per cent lower than a year earlier, with store traffic down about 10 per cent. A year earlier, first-quarter orders had grown 11 per cent, so the comparison was demanding.

It expects ANZ revenue for the six months to 31 December 2026 to be 11 to 14 per cent below the prior corresponding period. It guided to underlying group net profit after tax of A$28 million to A$32 million for the half, based on trading to date and the current order bank. Underlying profit in the first half of FY26 was A$41.0 million, so the guidance implies a fall of roughly 22 to 32 per cent.

The company also disclosed a cyber security incident in August that made its ERP systems unavailable for about three weeks. Stores kept trading and processed orders manually. Direct costs of about A$980,000 for consultants and legal advisers will be reported as non-underlying items.

In contrast, the UK remains a bright spot. First-quarter written sales orders rose 29 per cent and like-for-like orders rose 14 per cent, although the comparison is flattered by refurbishment closures in the prior period. Anthony Scali said "the UK business continues to improve".

Sector conditions and competitive position

Furniture is a discretionary, often deferrable purchase. That makes it sensitive to interest rates, housing activity and consumer confidence. It does not expect the slowdown to be as severe as the 2023-24 downturn.

Nick Scali competes with department stores, specialist furniture chains and online sellers. Its strengths are its vertically integrated sourcing, its own showroom network and an encouraging balance sheet. These have supported gross margins that are high for a retailer. The October update said the company remained focused on maintaining gross margins.

Risks and what to watch

The main near-term risk is that ANZ demand stays weak for longer than expected. Lower sales would spread the fixed costs of showrooms over less revenue, and could pressure margins if competitors discount heavily.

Other risks include currency movements affecting imported stock costs, delivery of UK profitability and any residual effects of the cyber incident.

The company plans two more ANZ showroom openings and a new UK showroom in Bristol in late December. Its half-year results, expected around February 2027, will show whether profit landed within the A$28 million to A$32 million range. They will also show whether gross margins held up and whether the UK has moved closer to break-even.