Why is the Nick Scali (ASX:NCK) share price falling today?

The Nick Scali Limited (ASX: NCK) share price has fallen more than 4% following the release of a Q1 FY21 trading update.

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It hasn't been a great day for Nick Scali Limited (ASX: NCK) shareholders, despite the company releasing a positive trading update.

On release, the Nick Scali share price shot to an intra-day high of $9.26, after trading lower during the morning. However, its shares have since retreated following a broader market fall. At the time of writing, shares in the furniture retailer are down 4.25% to $8.57.

Falling asx share price represented by man in chinos falling suspended in mid-air

Image source: Getty Images

What does Nick Scali do?

Nick Scali is an Australian retailer that focuses on selling furniture such as lounges, dining tables, chairs and entertainment units. The company imports more than 5,000 containers of furniture per year, with showrooms and distributions centres across Australia.

Nick Scali also operates in New Zealand on a smaller scale.

How did Nick Scali perform for Q1 FY21

The household furniture company reported a robust result for the quarter ending 30 September.

Written sales orders were materially higher over the previous year, in spite of COVID-19 store shutdowns. Retail trading remains ceased in Melbourne, and Auckland was affected for 4 weeks in August.

Total sales orders increased by 45% on the previous corresponding period, which is continuing to trend throughout October for Q2. Nick Scali advised that not including the closed stores, comparable store sales order grew by 59% in the 3 months of FY21.

Furthermore, online orders jumped 47% over the last quarter in FY20, as consumer spending habits shift. The company anticipates earnings before interest and tax (EBIT) to be higher than previously forecasted for FY21.

The strong demand in sales has led to a revised net profit after tax (NPAT) guidance for H1 FY21. Earlier estimates indicated NPAT would lift between 50% to 60% over the prior year. However, taking into consideration possible supply chain disruptions caused by the reduction in available shipping containers, NPAT was re-calculated. New projections suggest that the first half of FY21 will be 70% to 80% greater in NPAT than FY20.

Nick Scali said that any delays in receiving orders will flow on to the second half of FY21 as revenue.

Nick Scali share price summary

The Nick Scali share price has performed well since hitting an all-time low of $2.65 in March, rebounding to an all-time of $9.68 in August.

Nick Scali has a market capitalisation of $695 million and P/E ratio of 16.5 at the time of writing.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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