A sharp rise in freight costs is behind the deteriorating profitability of Nick Scali, the furniture retailer said in a trading update to shareholders today.
The profit warning came ahead of the company’s annual general meeting (AGM), during which CEO Anthony Scali warned shareholders of the negative impact of the higher costs on the company’s gross profit margins.
Freight rates, which have spiked unexpectedly, are set to reduce the company’s gross profit margins by 240 basis points in the first half of 2025.
The retailer's typically strong margins have been significantly eroded, with the company's net profit expected to fall to between A$30 million and A$33 million, down from A$43 million in the same period last year.
Nick Scali, which recently expanded into the UK market following its acquisition of Anglia Home Furnishings, has been hit particularly hard by rising shipping costs.
Scali noted that increasing global demand for shipping containers, particularly from Chinese electric vehicle manufacturers, had driven up freight rates. These costs are expected to weigh on profitability, particularly in the second quarter of the fiscal year.
Despite the pressure on margins, the company reported a 3% increase in written sales orders for the four months to September, compared to the same period in 2023. However, first-half sales revenue is forecast to drop slightly to between A$217 million and A$222 million, compared to A$226 million in 2024.
Nick Scali continues to focus on integrating its UK operations, with product rollouts and store refurbishments underway.