Consumer Discretionary Topping the Charts with Substantial Gains: Nick Scali, Adairs, Baby Bunting

  • Jun 19, 2020 AEST
  • Team Kalkine
Consumer Discretionary Topping the Charts with Substantial Gains: Nick Scali, Adairs, Baby Bunting

Summary

  • Consumer Discretionary index showed significant improvement in its level by the end of the trading session, influenced by increased sales figure of players within the industry.
  • Nick Scali reported strong financials on the back of impressive sales via digital channels.
  • RE-opening of stores since May beginning helped Adairs generate like-for-like sales growth of over 27% in 2H FY2020.
  • Baby Bunting bucked the trend with a sales growth of 13.2% since the turn of the year, aided by strong online sales and “Helping Hand” phone supported shopping facility.

The Consumer Discretionary index was one of the best performing indices on the ASX on 19 June 2020, ending 1.75% higher at 2,448.7. From 1 May 2020 till 19 June 2020, the index improved by ~18%. Numerous companies within the industry have performed well, reporting impressive top-line numbers.

Several players from the sector reciprocated the positive sentiment around the Consumer Discretionary space with a substantial increase in their respective share price. In this article, we would be looking at some of these companies with significant growth in their share price and cover their recent business updates.

Nick Scali Limited (ASX:NCK)

Furniture retailing Company, Nick Scali Limited, on 19 June 2020, provided an update on its operational and financial performance since the temporary closure of the showrooms on 30 March 2020.

The Company had noted a significant drop in the sales order during the second half of March 2020 and the first half of April 2020. The showroom network was affected by the closure, which meant that around A$9 million to A$11 million of sales could not be recorded in the existing financial year. However, due to implementation of a range of cost reduction initiatives across marketing, employment, and property, along with government support, the profit in the second half is predicted to increase by 15% to 20% compared to the previous year.

In May 2020, the Company noted a significant rebound in customer activity which continued in the first half of June 2020. With strong trading in this time frame, the Company projects its sales order for May and June to be up by 54% as compared to the previous corresponding period. The impressive trading was due to ease in government restrictions. Key highlights from the update include:

  • From 1 April 2020 to 14 June 2020 of FY2020, the written sales order growth was 20.4% and was 7% in the second half of FY2020.
  • NCK expects its revenue to be in between A$260 million to A$263 million.
  • FY2020 underlying NPAT is projected to be in the range of A$39 million to A$40 million.
  • NCK launched its digital sales channel.

 

Earlier, on 23 March 2020, NCK’s board decided to defer the interim dividend of 25 cents until 02 October 2020. However, based on strong trading and substantial increase in the sales order bank, the Company has decided to bring forward the deferred payment to 29 June 2020.

Outlook:

Based on NCK’s business model, and a substantial increase in sales order during May and June 2020, the Company expects its revenue in Q1 FY2021 to be up by ~30%.

Stock Performance:

By the market closure on 19 June 2020, NCK shares settled at A$6.880, up 19.652% from the previous close.

Adairs Limited (ASX:ADH)

Adairs Limited is a locally owned public Company that generates revenue by selling homewares and home furniture.

On 19 June 2020, the Company provided its trading update and the group sales guidance for FY2020.

In May 2020, all the stores of Adairs re-opened with enhanced measures of safety in place for its people and customers. It has been at least two weeks where all the stores have now been opened and the total LFL sales growth for 24 weeks to 14 June 2020 was 27.4%.

 

Image Source: ADH's report

 

FY2020 Group sales guidance:

The Company expects Group sales for FY2020 to range from A$385 million to A$390 million. From Adairs, the sales guidance would be in between A$358 million to A$362 million and through Mocka (30 weeks contribution), the sales are expected to be in the range A$27 million to A$28 million.

Stock Performance:

By the market closure on 19 June 2020, ADH shares settled at A$2.310, up 10.526% from the previous close.

Baby Bunting Group Limited (ASX:BBN)

Baby Bunting Group Limited is the largest speciality retailer of baby goods. The Company primarily caters to those parents with kids from newborn to three years.

On 19 May 2020, Baby Bunting Group provided its business update. From 30 December 2019 to 17 May 2020, the Company noted a total sales growth of 13.2%. The comparable sales growth was 8.1%. Of the total sales, 17.3% were through the online mode, demonstrating growth of ~66% on pcp.

The online channel did well, and the online sales increased from 12.4% of all sales earlier to 23 March 2020 to 22.4% of sales through the following 2-month period to 17 May 2020. It reflects a rise in online sales for that duration of 121% YoY.

Since the last business update released by the Company during March 2020, BBN undertook various initiatives to assist the new and expected parents. These includes:

  • Commissioning of a new online fulfilment hub at Casula (NSW) & turning on the capability for online fulfilment across another seven stores all over VIC, NSW, Qld, and SA.
  • Initiating the “Helping Hand” phone supported shopping facility.
  • Building on dedication to offer value to the client, every day, each visit.
  • Working to adapt BBN’s online offering to enable cross-border transactions.

 

Outlook:

Because of the increasing uncertainty surrounding COVID-19, on 23 March 2020, the Company had decided to withdraw its guidance.

During the entire period, all the stores of Baby Bunting remained open, noting the essential nature of the goods and services provided by the Company. As the Company entered the final part of the financial year, it was difficult for it to expect customer behaviour in the existing atmosphere and the related impact on sales, gross margin & the cost of doing business. Hence, BBN decided not to provide guidance for FY2020. 

Stock Performance:

By the market closure on 19 June 2020, BBN shares settled at A$3.280, up 11.945% from the previous close.

 


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