Ann: Nick Scali Ltd H1-18 Appendix 4D, page-6

My comments were about the interim result being good, your comments seem more directed to the potential challenges in the near/medium term.

Sure, the interim result was another good, clean, high-quality result from NCK.

But that's largely what was already expected, anyway.

Besides, it is history now, and to make money out of investing (or, to avoid losing it) requires not looking at what happened, but forming a view of what the future might look like.

Because, if the operating leverage works against the company at some stage in the future, as an investor it will be way to late to do anything about it once it manifests itself in reported financial results, because the market will have anticipated it well beforehand.


"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."

The CEO and CFO were a bit coy on the determinants of the guidance.
Understandably so, I think, given some of the competitive sensitivities involved.

Personally, I don't put too much emphasis on the soft January because it is almost statistically irrelevant in the context of commentary on the call about the December month that was strong, as well as a strong first week of February. Seemingly, it was just the first week of January that was unusually quiet; for the rest of the month, trade across the store network was back to normal.

It's the kind of "noise" that stockbroking analysts might love to discuss at length for hours, but like I say, statistically it is almost meaningless.

I just think they are being their usual conservative selves.


Mgmt's optimism re: FY19 suggests the latter - ie, the timing of new stores openings factor."

I think that one has to accept that, despite them operating daily at the retail coal face (if you'll pardon the poor mix of analogies), they have very little visibility into how the consumer may be feeling/behaving over the next 6 months, let alone in 12 to 18 months' time when those new stores open for business.

That's not a criticism of anyone involved in the business; rather, it's just the nature of the retail beast. When it comes to discretionary spending, the consumer is notoriously fickle, and can whip out his/her wallet just as quick and unexpectedly as he/she can snap it shut.

By its nature, this is a bit of a "build-it-and-the-customers-will-come" business model.
(The customers might not come when you expect or hope for it, but they will come at some stage.)