Australia's Nick Scali shares sink to near 3-year low as weak housing market hits profit view

Oct 22 (Reuters) - Shares of Nick Scali NCK.AX tumbled to a near three-year low on Thursday, after the furniture retailer forecast a steep drop in first-half profit as a weak housing market cut store traffic in Australia and New Zealand.

The company expects underlying net profit after tax of A$28 million to A$32 million ($19.65 million to $22.45 million) for the six months ending December 31, down from A$41 million a year earlier, it said after market close on Wednesday.

The forecast was 20% below the Visible Alpha estimate at the midpoint, according to Citi.

The stock fell as much as 23.1% to A$10.93 earlier in the session, hitting its lowest since December 8, 2023. It was last down about 16%.

"With upside risks to interest rates and a slower-than-expected recovery in discretionary spending, we are increasingly concerned the cycle will remain weaker for longer," analysts at Citi said in a note.

Four interest rate hikes in Australia since February this year and rising costs have squeezed consumer spending on items such as on home furnishings.

The government has cooled the housing market further by trimming capital gains tax breaks for existing home sellers and tightened negative-gearing rules for landlords. The resulting housing slump has rippled beyond real estate agents and mortgage lenders to other businesses that rely on properties changing hands.

Nick Scali reported a 15% decline in written sales orders in Australia and New Zealand for the first quarter, citing challenging trading conditions, while store traffic fell 10%.

Its UK performance was a bright spot, with written sales orders for the first quarter rising 29%, but Citi analysts said the momentum was not big enough to offset weakness in Australia and New Zealand.

($1 = 1.4251 Australian dollars)