Retailer hails ‘once in a generation’ shift

Temple & Webster has warned that profit margins will fall to pre-COVID-19 levels as it invests heavily to take advantage of a ‘‘once-in-a-generation’’ shift to online shopping for furniture and homewares.

Trading continued to exceed expectations, despite the fact sales in the yearago period had soared amid a boom in homewares spending triggered by COVID-19 lockdowns, Temple & Webster said in a trading update yesterday.

Sales growth slowed to 20 per cent in April, from 112 per cent in the March quarter, as it started to cycle the surge in demand for sofas and dining suites, carpets, kitchenware, lighting and wall art.

Sales rose 130 per cent in April to June 2020, lifting June-half revenue 96 per cent, and sales remained elevated in the December half, rising 118 per cent.

Chief executive Mark Coulter said recent trading suggested COVID-19 had permanently accelerated the adoption of online shopping in the furniture and homewares market.

He reiterated plans to take advantage of the permanent shift in consumer shopping behaviour by doubling down on company investments in products, technology, marketing and staffing.

As a result of this investment, Temple & Webster expected EBITDA (earnings before interest, tax, depreciation and amortisation) margins to fall to between 2 per cent and 4 per cent, similar to those pre-COVID-19.

This compared with an EBITDA margin of 9.2 per cent in the December half 2021 – when EBITDA rose sixfold to $14.8 million – and 5.3 per cent in the full year 2020.

‘‘We are committed to remaining profitable even during this scale-up phase and have set our target EBITDA levels accordingly,’’ Mr Coulter said.

‘‘Longer term, as we enter our optimisation phase, we expect higher levels of profitability than have been previously demonstrated due to greater scale benefits.’’

More repeat customers would enable the company to reduce marketing costs, investment in fixed costs would slow, supplier terms would improve and the retailer expected to sell more exclusive products with higher gross margins.

‘‘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,’’ Mr Coulter said. ‘‘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.’’

In February, Mr Coulter reassured investors, saying the company would continue to deliver strong sales and profit growth despite stepping up investment in technology such as artificial intelligence, visual search and 3D catalogues, data analytics, staff and brand awareness.

After raising $40 million in new capital last July, the company, which sells about 210,000 products from more than 500 suppliers across 211 categories, is cashed up to the tune of $86 million and is eyeing bolt-on acquisitions and partnerships.

Temple & Webster estimated that about 9 per cent of Australian furniture and homewares was bought online last year, almost double the level of sales in 2019.

The number of active customers reached about 750,000 at March 31, up from 678,000 at the end of December and 480,000 at the end of June.

Temple & Webster has been one of the strongest performers on the market in the past year.

The shares are trading at $10.76, compared with $14.05 last October and $3.18 a year ago.

RBC Capital Markets analyst Tim Piper said revenue growth was in line with expectations but indicated EBITDA margins were below his forecasts.

‘‘We expect the reinvestment to benefit the company as Temple & Webster cements its market leadership with the growth in online penetration in the category,’’ Mr Piper said.