Article on NCK by Roger Montgomery, page-11

Importantly, while the like-for-like sales number was flat for the first six months of the financial year, that number was said to be up two per cent in the first quarter, which means the second quarter saw like-for-like sales decline by about the same amount or a little more.

A flat or declining same stores sales growth is certainly a potential problem for any retailer. Hopefully the new bedding range introduced in 28 of the larger stores will assist in dampening the effects. During the conference call, it was mentioned that in these early days, bedding range already represented 4% of total sales in those stores who have them.

Management also hinted that there are other categories that NCK can potentially enter in the future.

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The company’s numbers have also benefited from a one-fifth reduction in lead times – an improvement quantum that may be difficult to repeat.

I believe this is the result of closer coordination with KUKA (major supplier and major shareholder of NCK). This improvement in lead times was first flagged by NCK during FY2018 result conference call.

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Back in 2005 and 2008 the company reported like-for-like sales declines of as much as seven or eight per cent and the share price fell almost 40 per cent in 2005 and 83 per cent in 2008 (GFC influenced).

Back in FY2005, NCK was mainly a NSW/VIC focused furniture retailer. At that time, it had just entered SA with 4 stores. It had a small presence in QLD, but that's about it. It had little geography diversification.

By FY2008, NCK had opened a few more stores in NSW/VIC/QLD, but it still didn't have any property investments. 

The experience of previous downturn in 2008 shapes the current property strategy of NCK. NCK now owns some of its most important sites, such as Auburn (NSW), Caringbah (NSW), Alexandria (NSW), Nunawading (VIC), Fyshwick (ACT) and Joondalup (WA). It's currently in the middle of constructing a new store in Manly Vale (NSW).

Now in FY2019, the company is even more diversified in terms of geography, having entered WA, TAS and NZ. It owns a growing property portfolio and it's still being managed conservatively.

Therefore, in my opinion, assuming that NCK will suffer as much as it did in the previous downturns is too simplistic.

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Having said all of the above, I'm under no illusion that the retail market is currently very tough. This will definitely affect NCK as well. However, I believe that the company will come out relatively stronger when the cycle eventually turns.