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Investors have savaged online furniture retailer Temple & Webster's (ASX: TPW) shares after the company posted a 46.7 per cent slump in FY23 first-half profits to $3.87 million.
The value of Temple & Webster shares tumbled 24 per cent by the lunch-time session despite underlying profit improving in the second quarter thanks to margin improvements and cost-saving strategies.
Temple & Webester, a pure play online retailer for furniture and homewares, says comparisons to the previous corresponding half were always going to be difficult as the results this time last year were skewed by strong growth led by COVID-19 lockdowns at the end of 2021.
The company says although revenue fell 12 per cent to $207.1 million year on year, revenue trended in a positive direction throughout the half with December recording positive growth compared with the previous year.
“We’re pleased with the progress made during the half, with a return to year-on-year profit growth in Q2 as we benefited from our focus on margin optimisation and cost management, despite revenue being down year-on-year, which highlights the flexibility of the business model,” says CEO Mark Coulter.
“While we dialed back spend in the half, we continued investing in our digital capabilities, product range and target verticals, with our Trade and Commercial and Home Improvement businesses growing 17 per cent and 12 per cent respectively.”
Investors were likely spooked by the company’s sales update for the first five weeks of this calendar year, which revealed sales were 7 per cent lower from 1 January to 5 February.
Temple & Webster notes that the previous corresponding period was “significantly impacted from strong ecommerce demand during the Omicron outbreak”.
“We note that December 2022 sales were up slightly versus December 2021, a trading period that was not impacted by Omicron,” says the company.
Coulter points out that pricing “remains a key differentiator for the business, growing our gross margin through strategic pricing initiatives and better sourcing”.
“Similarly, with 72 per cent drop ship that carries no inventory risk and 28 per cent private label inventory, through our supply chain model we further improved flexibility and our product range, placing us in a strong position to continue growing market share,” he says.
Temple & Webster opened its new headquarters at St Peters in Sydney’s inner west during the half, which Coulter says was key to helping the company attract and retain staff.
The company diverted its marketing spend during the half year to a “higher level of promotional activity to drive higher conversion”. Repeat customers now account for 57 per cent of sales.
“We remain committed to our profitable growth strategy and will continue our focus on margin optimisation and cost management to ensure we end the year within our 3-5 per cent EBITDA range,” says Coulter.
"We believe our business model, customer metrics, brand and new growth horizons position us well to navigate any trading conditions and return to a high growth business.”
Coulter also notes that Temple & Webster has more than $100 million in cash to expand its “roadmap of sales initiatives and pursue inorganic opportunities to support sustainable growth”.
“Longer-term, e-commerce in the Australian furniture and homewares category remains highly under-penetrated, and we have a much larger addressable market to go after in our new target verticals,” he says.
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