No one would quite think of Nick Scali Limited (ASX: NCK) as Australia's answer to Amzon.com, Inc (NASDAQ: AMZN) – that is unless you are a shareholder.
The share price of the traditional bricks-and-mortar furniture retailer has certainly given the online retail tech titan a run for its money as Nick Scali has delivered a whopping 1,126% uplift in its share price over the last nine years, which is only a tad behind Amazon's stellar 1,388% surge.
There is little doubt that Nick Scali's management has done an excellent job in delivering growth despite lacking the "blue-sky disruptor" angle to its story. But is the stock running out of puff after enjoying such a long and sharp uptrend?
Nick Scali's Amazonian feat
Source: Google Finance
The analysts at Citigroup certainly believes so and are predicting that Nick Scali is entering "the final stages of the upgrade cycle", which could very well mark the end of the retailer's double-digit like-for-like (LFL) growth.
LFL growth is sometimes also referred to as "same store sales", and it compares growth rates between stores that have been opened a year or more.
Nick Scali has beaten market expectations at the last four results and I won't be surprised if management delivers another higher than consensus profit at next month's reporting season. The company has been aggressively rolling out new stores and sales have been underpinned by a robust housing market.
Don't underestimate the tailwinds from these two factors. Retailers tend to get a big boost to growth when they are opening new stores as the cost to run each new outlet tends to drop. Meanwhile, Nick Scali's top-line is given a big uplift due to new household formation. Whenever someone moves into a new home, they will need furniture.
However, the housing cycle is turning at a time when the rollout of new stores in Australia is slowing. This has prompted Citigroup to question if LFL sales growth could moderate in FY18, if not beyond.
But there might be a few other growth levers management could still pull to offset the potential headwinds. For one, it is expanding to New Zealand, although investors should watch closely on whether it can replicate the success it enjoyed here.
Nick Scali also has a strong balance sheet and share price. This gives it the firepower to undertake an acquisition or three. Citigroup estimates that the retailer could easily spend up to $120 million on earnings accretive acquisitions.
The stock may not be cheap, but given Nick Scali's track record, I won't be surprised to see management pull another growth rabbit out of a hat.
