SCS Group: Why furniture retailer is still sitting pretty in cyclical market

If furniture firm SCS Group's (LON: SCS) first-half financials and sales data are anything to by, the company is currently sitting pretty, no pun intended. In a challenging cyclical climate, much to the delight of its shareholders, its first half like-for-like order intake growth came in at 2.2% over the 26 weeks to 27 January 2018.

That's despite a 6.4% decline from its concessions at 27 House of Fraser stores in the wake of its retail partner's own high street woes. Overall, SCS Group's gross profit for the stated period rose 3.2% to £75.3m as the gross margin improved to 44.7% from 43.9%. Headline gross sales grew 1.5% to £168.4m, of which £4.3m came from five new stores it opened over the period.  

ReachX market commentators reckon had weather conditions not been averse over key trading months, the company's performance could have been even better. This was reflected in SCS Group's wider order intake for the 33 weeks to 17 March, which came in at 0.9%.

Chief Executive David Knight admits the market will "remain challenging" but believes the company can deliver "profitable growth."

And while SCS Group's share price has had its ups and downs with a 52-week trading range of 150p to 237p, measuring it over the year to date offers comfort to investors. From a level of 219p at the start of the trading year on 2 January, the current price is still lurking around the said level (at 216p on 23 July). 

Whether it breaks higher (or not) would be contingent on the direction of trading with rivals such as DFS Furniture, Barker & Stonehouse and West Wing breathing down on SCS Group. Yet, the company has been pretty good at keeping investors onside.

Being a dividend yielding stock certainly helps, more so, given that SCS Group recently lifted its interim dividend by 8.2% to 5.3p per share, ahead of a final dividend due in November.

Furthermore, since 2015, the total annual dividend has been on a rising trajectory. It came in at 14p in 2015, 14.5p in 2016, and 14.7p in 2017; and most investors would be hoping for another uptick from the maker of ‘La-Z-Boy’ sofas and chairs and ‘G Plan’ furniture.

There is very little the company can do about the impact of the weather on trading and consumer confidence levels when it comes to purchasing big ticket items that it sells in the main. But with over 100 store locations, and 10 distribution centres across the UK, away from the group head office in Sunderland - the company feels reasonably confident it can take on anything the competition throws at it.

That the competition feels similarly inclined would make for an interesting trading year, as aggressive discounting to woo cosumers could dent margins across the board.