Bedroom Furniture, page-2

I think they are very smart at knowing what their customers like, but I'm concerned that when consumer wallets shut tight, which it feels increasingly like it is doing, the inherent operating leverage in the business will more than offset whatever smart merchandising strategy is deployed.

As can be seen from the history of annual changes in Operating Profits, when times are good, this operating leverage is a great boost to earnings, but when they are not, the leverage also works the other way, as can be seen in the chart:



My concern is that NCK has been over-earning in recent years, courtesy - in part - of the property market induced wealth effect, which now looks to be certainly stalling and, possibly, reversing.

I note that the EBIT growth trend, in half-year terms, has been an already-slowing one, even before the effects of the slowing property market have really begun to be felt:

Half-Yearly EBIT growth on pcp:
JH2015: 13%
DH2015: 43%
JH2016:  71%
DH2016: 44%
JH2017: 40%
DH2017: 17%
JH2018: 6%

I think that a negative EBIT growth outcome in coming reporting periods is within the realms of possibility, and I'm not sure the stock is priced for that, despite its easing over the past few months.