Nick Scali’s AGM trading update revealed improving written sales order trends but highlighted the disconnect to recorded sales with 1H25e revenue for ANZ guided down 3%. Sea freight rate exposure has dented gross margins in the near term pushing 1H25e ANZ EBIT margins down to FY19 levels. The UK is set to reach profitability in 2H26e and saw gross margin improvement as new product is introduced to stores.

Premier Investments reported FY24 Retail EBIT down 9% to $326 million. Gross margins finished higher with a second-half increase of 94bp. Cost management during FY24 helped offset the operational leverage of lower sales. The delayed strategic review allows the board to focus on the Myer merger proposal. 

Nick Scali reported an EBIT result of $130 million for FY24, down 16%. Gross margin of 65.5% for the group and 66.0% the Australia and New Zealand (ANZ) division was a standout and record. For FY25e we expect to see modest store openings, an improvement in per store sales growth momentum from ANZ and moderate cost growth. A catalyst to the upside would be a lower sea freight rate environment and progress in the UK.

Myer’s proposed merger with Premier’s Apparel Brands is a convenient solution for two ex-growth businesses. For Premier, the inferred multiple is only 4.1x EV/EBIT, which is low. Premier shareholders could receive 8.2 Myer shares, with upside through an estimated $55 million in synergies. The majority of the synergies will come from adding Premier to Myer stores in concession space and improved terms on sourcing product. The merger raises the prospect that a further Strategic Review for Premier is unlikely to crystallise much value.

Nick Scali is a furniture retailer that has exhibited consistent growth over the long term. We see the store network growing to 153 over the next four years to FY27e, a compound annual growth rate of 9%. New stores will come in both existing markets and the newly entered UK market. The opportunistic, low-cost entry into the UK sets a base from which to expand the Nick Scali brand into the UK.