Record sales fire up Temple & Webster’s shares as online momentum builds

Online furniture and homeware retailer Temple & Webster (ASX: TPW) achieved record revenue of $426.3 million during FY22 despite a challenging year, and although the company posted a lower net profit, investors pushed the shares more than 20 per cent higher on the news.

Temple & Webster’s net profit of $11.97 million for FY22 was 14.2 per cent down on the previous year, but the result was impacted by the $1.7 million spent on its new home improvement site, The Build.

While the shares continue to languish as two-year lows, investors were today buoyed by the company’s expectations of a return to double-digit growth during FY23 after putting last year’s quasi-nationwide lockdowns behind it.

The record revenue for FY22 represented an increase of 30.6 per cent on the previous year. EBITDA of $16.2 million was supported by a 3.8 per cent profit margin which was almost twice as high as the lower end of guidance.

“Despite some significant domestic and global challenges, Temple & Webster has once again bucked the trend to deliver a great set of numbers,” Temple & Webster CEO Mark Coulter says.

“Due to careful margin and cost base management, we were able to drive an EBITDA margin result at the top end of our 2-4 per cent guidance, even in these challenging retail conditions, and after our investment into The Build.

“We believe our flexible business model, our proposition around a great quality range at affordable prices, and our commitment to customer satisfaction and happiness will resonate even more strongly with customers during these tougher times.”

The annual furniture and homewares market in Australia is worth roughly $16-17 billion. However, only 15-17 per cent has moved online, which is well behind other markets like the US, where online penetration has reached around 30 per cent.

The Temple & Webster board believes there are significant growth opportunities to capture and remain committed to its current strategy, which is based on a drop-shipping model whereby products are sent directly to customers by suppliers allowing for a more extensive product range.

With more than 200,000 products available for sale from hundreds of suppliers, the approach allows for faster delivery times and reduces the need to hold inventory.

The company’s new home improvement category performed strongly in its first few months of operation, growing 61 per cent year on year, albeit from a small base.

Although this market lags behind furniture and homewares in terms of retail penetration, the Sydney-based business believes it will follow the same market trajectory as shoppers shift to online shopping when renovating their homes.  

The launch of The Build, the company’s new online-only store for home renovators, brought an initial range of more than 20,000 products across 40 categories to the market.

Temple & Webster also expanded its private label range, which is sourced directly from more than 100 overseas suppliers and provides higher margins and represented 27 per cent of total sales during FY22.

Customer metrics remained steady, with active customers growing by 21 per cent during the year to 940,000 and revenue per active customer increasing by 6 per cent. Orders from repeat customers have risen to 55 per cent of orders, which require significantly less spend to acquire.

Temple & Webster finished the year with a cash balance of $101 million and remains debt free, allowing it the flexibility to invest and providing it with the financial strength to navigate potentially challenging macro environments.

“Importantly, the ongoing shift from offline to online is one driven by demographic and consumer behaviour changes which are independent of any cyclical macroeconomic factors,” Coulter says.

“Although FY23 year-on-year growth will be volatile as we finish lapping COVID impacted numbers in FY22, our strategy remains consistent.

“Through our growth initiatives, we aim to maximise growth as well as to improve profit margins. This will be done through our ongoing program of margin improvement and cost-base management, and phasing of longer-term investments.”

Given some of the FY23 cyclical headwinds, Temple & Webster has accelerated some of its margin optimisation and cost management programs resulting in the upgrade of its EBITDA margin guidance from 2-4 per cent to a 3-5 per cent range.

To help increase market share, it plans to expand its digital capabilities and grow brand awareness from 61 per cent to 80 per cent through digital and non-digital channels.