Ann: Nick Scali Ltd H1-18 Appendix 4D, page-4

Hi @madamswer

Good post.  As always, really appreciate your thoughts.  My comments were about the interim result being good, your comments seem more directed to the potential challenges in the near/medium term.  From previous exchanges, we agree that NCK's operating leverage is a double-edged sword, and we haven't seen the downside play out for quite some time ... but surely we will.

What's pleasing is how relatively well prepared NCK seems to be for the downturn.  These interims further evidence that.  eg,
- the continued reduction in operating costs,
- the improved margins (including the GMs, I could not make the conference call, but suspect that mgmt did try to recycle much of the currency benefit back into prices, so at least some of the GM improvement may be sustainable),
- the push to own more sites,
- the smart HomeCo initiative, and
- the expansion into NZ which while very early seems encouraging and offers some diversification benefit.  

I was surprised by the size of the dividend increase too.  It does look a little at odds with the 2H FY18 outlook guidance.  That said, I'm not sure how much of the weak H2 guidance is due to mgmt's view of sales order volatility/weakness in H2, and how much is due to the costs from new stores with limited offsetting sales benefit.  The latter seems to be mainly a timing issue (temporary), while the former might suggest a slowing on consumer spending (a little more concerning).  Did the conference call throw any light on that?  Mgmt's optimism re: FY19 suggests the latter - ie, the timing of new stores openings factor.

I agree it's not obvious where they would expand too geographically after NZ.  An alternative with lower risk, and perhaps more upside, is to consider range/product expansion thru the existing network, rather than entering new geographies.   Another reason to welcome large dividend increases - less cash sloshing around that mgmt feel the need to "invest"!  GLAH