Nick Scali slashes profit guidance amid housing market slump

Major furniture retailer Nick Scali has warned investors it's expecting a slump in sales as economic conditions crimp discretionary consumer spending.

In a late-night market update on Wednesday, the $1.2 billion retailer provided a trading outlook for the first half of FY27 providing the "nasty" news. The company now expects its underlying first-half group net profit to land between $28 million and $32 million. According to Canavan Capital Partners founder and Portfolio Manager Greg Canavan, the guidance missed market consensus figures, which had hovered around $39 million. The revised profit range also represents a steep drop from the $41 million recorded in the same period a year ago, as reported by Capital Brief.

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The company said trading conditions in Australia and New Zealand "remained challenged during the first quarter". During the first quarter, written sales orders fell 15 per cent and store traffic dropped roughly 10 per cent, contrasting sharply with the positive 11 per cent growth recorded during the comparative period a year earlier. Consequently, ANZ revenue for the first half is expected to finish approximately 11 per cent to 14 per cent below the prior corresponding period, according to the company's update. Market reaction was swift. Shares in Nick Scali (ASX:NCK) plunged 23 per cent upon the opening of the ASX on Thursday, compounding a brutal period that has seen the stock decline more than 40 per cent since January.

Capital Brief reported that the contraction was driven by higher borrowing costs, weaker buyer sentiment, and restrictive property tax changes introduced in the May federal budget. These pressures mirror wider trends in the property sector, such as listed property group Mirvac flagging a near one-third slide in residential sales during the opening three months of the financial year. Furniture retailers remain acutely sensitive to housing cycles, as relocations and new home purchases drive demand for lounge suites, dining sets, and bedroom furniture.

Compounding the operational headwinds, Nick Scali disclosed lingering financial fallout from a cyber security incident that struck in August. Unauthorised access to company systems exposed customer order details, including names, email addresses, delivery addresses, and phone numbers. The cyber attack forced enterprise resource planning systems offline for approximately three weeks. Although stores continued trading and processed sales orders manually during the outage, the company incurred a $980,000 bill for consultants and legal advisers. Management noted this expense will be excluded from net profit projections and reported separately as a non-underlying item.

Despite the domestic slowdown and cyber security costs, the company continues its international expansion. Nick Scali's UK operations, acquired and rebranded over the past year, have shown encouraging margin improvement. Gross margins in the UK business lifted sharply to around 59 per cent from roughly 45 per cent in the prior year following store refurbishments and brand repositioning. However, The Bull noted that the refurbishment programme caused short-term disruption, elevated costs, and lower store throughput that weighed on group profitability. Domestically, the retailer maintains a network of 132 stores worldwide and plans to open two new ANZ locations in late December.

According to Deloitte Access Economics' most recent quarterly Retail Forecasts report released in September, retail turnover growth is expected to slow from 2.8 per cent in 2025/26 to 1.5 per cent in 2026/27. While not as severe as the retail recession of previous years, the current dynamic involves inflation eroding consumer spending power alongside a reactive central bank. Deloitte Access Economics partner David Rumbens warned that parts of the retail sector should brace for continued difficulties, noting that some retailers could go under with little or no employment growth in retail.

Looking ahead, market participants will monitor the trajectory of Australia's housing market, upcoming interest rate decisions, and the normalisation of store traffic across both domestic and newly refurbished international locations. With interest rates remaining elevated and consumer resilience tested, the timing of a cyclical bottom for discretionary retail stocks remains uncertain.