Ann: Nick Scali Ltd H1-16 Results Announcement, page-4

Another straight forward, very easy to understand set of results by NCK.

Revenue increased by 32% and NPAT increased by 40.7%. EBIT margin expanded from 18% to 19.5%.

NCK is currently building its owned store property portfolio, by selectively buying the properties of its stores when they become available. During this half, it bought another 2 properties. This is a very smart move to reduce the effects of future rent increases by landlords.

NCK is looking to open another 4-6 stores in the next 12 months, with a new target of 75 stores.

Sofas2Go is mentioned less and less in the reports, with its store numbers stuck at 5 for the past 4 years. I expect this brand to go in the next 2-3 years, just like Chateau D'Ax a few years ago.

To be honest, I don't mind management experimenting with new things even if it doesn't work out, as long as they go about it in a measured way. This shows they are willing to try new things and not get stuck in their old traditional way of doing things.

Operating cash flows in the first half is always relatively low. It usually reverses in the second half. Because NCK sells made-to-order furniture and the customers have to pay upfront before NCK delivers the goods a few weeks or a few months later, NCK has a negative working capital business model.

This combined with the high margin products that they sell, enables NCK to keep producing this excellent set of financial results.

The key to their success is to be able read changes in customers' taste and preference in furniture. So far, the Scali family seems to know how to do this very well.

Now is the time to put aside my file on NCK for another 6 months, to be opened again in August 2016 when the full year results are released.