Investors Log Off from Temple & Webster




Shares in online furniture and homewares retailer Temple & Webster fell at the opening yesterday, losing more than 5% as investors took a first glance at a third quarter trading update and gave it a quick thumbs down.

But then they looked again and changed tack so by midday the shares were up 1.4% at $10.91.

It is hard to understand the early sell off - perhaps after being used to bullish figures investors though a 10.6% rise in customer numbers in the quarter wasn’t enough, or perhaps the 110% year on year lift in quarterly revenue was also less than expected.

The company pointed out that the March quarter last year was the first to see the impact of Covid on online retail sales, so the rise in revenue was better than it first looked.

On a more positive note, while the company’s growth has moderated so far in the fourth quarter, its revenue is still higher than the prior corresponding period.

During April, Temple & Webster said it saw a 20% increase in revenue over the prior corresponding period. This is particularly impressive given that April 2020 was the fastest growing month last year due to the nationwide lockdowns.

Some investors were concerned that having achieved momentum and size, Temple & Webster will now look to boost revenue in preference to maintaining or trying to boost margins and earnings.

The company confirmed (once again) that it wants to capitalise on the growth in sales, cash flow and earnings in the past year through a series of investments in the business, including more mainstream advertising, increased promotions, and a broadening of the retailer’s product range including further private label expansion.

Business-to-business sales will also be expanded as demand begins to return as the impact of Covid lessens.

The company believes that COVID-19 has permanently accelerated online adoption in the Australian furniture and homewares market.

It explained: “… we estimate more than 20% of furniture & homewares was bought online in the US during 2020, and we believe Australia is following the same trajectory. We estimate that in 2020, ~9% of Australian furniture & homewares were bought online, an almost doubling of the ~5% bought in 2019. Online penetration in both markets is expected to continue to increase significantly.”

In light of the above and its online market leadership position, the company reaffirmed its growth strategy.

This will see it building strong brand awareness to achieve a national brand status, using “tactical” pricing and promotions to increase conversion, investing in 3D and artificial intelligence capabilities, differentiating its range through new category additions and private label expansion, and growing its B2B sales teams.

This will of course come at a cost. As a result, management intends to focus on delivering strong double digit revenue growth with EBITDA margins in the 2% to 4% range.

The company cautioned that these investments will see the business’s earnings temper somewhat compared to their growth during the pandemic, which worried some investors - but not all given the recovery from the opening losses.

Temple & Webster CEO & Co-Founder, Mark Coulter, said “You only need to look at the US to see how the e-commerce market is playing out, and why we remain bullish about the shift from offline to online. We are at the start of this once in a generation shift, and now is the time to put our foot down to secure market leadership and ensure we are the brand for the next generation of furniture shopper.”