Are you missing out on the resilient furniture and homeware business?

  • May 09, 2020 AEST
  • Team Kalkine
Are you missing out on the resilient furniture and homeware business?

Since there has been a strong demand for household goods in the recent past, it is imminent to look at some of the related companies listed on the ASX. Even at the peak of COVID-19 outbreak and forced store closures, the businesses under discussion did not tap investors for additional capital, which amongst other things, speaks volume of capital management prowess of the teams heading these businesses.

The National Cabinet has revealed a three-stage plan to reopen the country. PM Morrison is expecting Australia to resume mostly by July. States and territories would take further actions on easing the people movement.

Every three week, the National Cabinet would be reviewing the progress of restrictions while social distancing and clean hygiene are expected from the citizens. Interstate travel is expected to be resumed in the third stage.

Now we shall discuss three business in the furniture and homeware segment.

Nick Scali Limited (ASX:NCK)

In March, Nick Scali, a furniture retailer, was forced to close its stores due to the COVID-19 pandemic, but it was continuing to deliver existing sales orders. NCK also stood down employees and encouraged to take annual leaves.

Nick Scali implemented cost-cutting measures by reducing marketing expenses, delaying store opening and discretionary capital expenditure, cutting non-essential operating expenditure, and engaged with the landlords for rental reliefs.

The Company also operates through online channels, which might have generated additional sales during the store closures. It was noted that distribution stores of the business would continue to function during April and May.

Earlier on 23 March, it was reported that Nick Scali’s suppliers were beginning to return to normal working conditions, enabling the Company to complete the delivery of orders on time.

During the initial two months of 2020, the written sales orders growth was 3% on comparable stores basis. The Company said that store traffic has decreased and expected to witness lower revenues over the upcoming months.

The Company withdrew its FY20 full year guidance and deferred the interim dividend payment of 25 cents per share until 2 October 2020.  NCK noted that cash in hand was $39 million and gross debt was $34 million, which was secured against its owned properties.

NCK asserted that it always seeks to operate with a conservative balance sheet to be in a better position in the event of any prolonged downturn in the retail environment.

The website of the Company suggests that selected showrooms are now trading with limited trading hours. Besides, the Governments are starting to ease restrictions on people movement, which bodes well for the business going forward.

NCK shares last traded at $4.890 on 08 May 2020, up by 5.844% from the previous close.

Adairs Limited (ASX:ADH)

In March, Adairs, engaged in the retailing of homewares and Manchester, announced its plans to close stores, withdrew FY20 guidance and cancelled interim dividend. The Company also emphasised on reducing costs and operating through online channels for its brands.

Adairs stood down its employees and the board, and senior executives accepted remuneration cuts. ADH has applied for the JobKeeper Scheme as well as for Wage Subsidy in NZ for all its team members.

The Company has been in negotiations with its landlords for rental reliefs. Also, the supply chain remains intact, and inventory management is robust to navigate through the softer retail conditions as recovery kicks in, while Adairs’ products suppliers have provided strong support.

Despite stores being closed, the business has experienced strong demand through online channels. In the 9-month period to March 2020, Adairs online sales constituted 20% of the total sales. Since stores were closed, its online sales grew 221% during the five weeks over the previous corresponding period.

It was noted that the Adairs witnessed an increase in new customers on its online channels as around one-third of the online growth was attributed to new online customers. Mocka Australian also experienced strong demand during the period while NZ business was closed, which resumed trading on 28 April with strong demand.

With substantial headroom in its banking covenants, ADH said balance sheet and liquidity remain resilient.  As a result of strong sales, focus on costs, and Government subsidies improving liquidity, the Company does not intend to raise capital.

As of 4 May, it was holding cash of $41 million with net debt of $43 billion. While April rent was yet to be paid, it had undrawn debt facilities of $12.5 million. However, due to the uncertain environment currently, the Company believes that the operating environment could change rapidly.

Starting from 7 May, the Company has been reopening its stores and would continue to open stores over the next few months consistently with the Government orders. Adairs is committed to implementing safety measures in the store.

ADH shares last traded at $1.625 on 8 May 2020, up by 6.209% from the previous close.

Temple & Webster Group Ltd (ASX:TPW)

In late April, TPW, an online retailer in homewares and new window, provided an update on its operation. Since the beginning of March, almost all of the workforce of the business has been operating remotely. The Company has also implemented initiatives to minimise the risk of infection at the point of deliveries for logistics partners.  

It was said that over the recent past, the demand has shifted to into the mainstream furniture and homeware category. In April, the online business experienced strong demand from new customers as well as repeat customers. Between 1 January 2020 and 24 April 2020, the revenue increased by 74% over the pcp.

TPW has multiple suppliers in different countries giving flexibility to its supply chain. It has been vigilant of the supply from other countries, and the delays from china had been resolved.

It was affirmed that the business remains in a strong financial position and is profitable as well as cash flow positive. TPW has a debt-free balance sheet and capex light business model with cash of around $20 million.

Although Q4 demand has been promising, the group noted uncertainty in the current macroeconomic environment. Therefore, TPW is emphasising on the short-term strategy for the business rather than investing in long term opportunities to increase operating leverage.

At the same time, the Company is well placed to capitalise on the long-term opportunity of the shift to online channels backed by changing customer preferences and demographics.

TPW shares last traded at $3.680 on 8 May 2020, down by 3.412% from the previous close.

 

There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.

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