The Temple & Webster Group Ltd
(ASX: TPW) share price is on watch today after reporting its FY21 first half result.
Temple & Webster’s FY21 half year result
For the half year to 31 December 2020, Temple & Webster reported that its revenue increased by 118% to $161.6 million. This was helped by an 102% increase of active customers to 687,000. Revenue per active customer increased by 6% to $401 because of higher repeat buying.
The trade and commercial (business to business) saw an increase of revenue of 89%.
The gross profit margin improved to 45.5%, up from 44.2% last year. Meanwhile, the ‘delivered profit margin’, which is the gross margin and distribution costs, increased to 33%, up from 29.7%. Finally, the contribution margin (which includes marketing, customer service expenses and merchant fees) improved from 15.3% to 17%.
This revenue growth and margin improvements led to EBITDA growth of 556% to $14.8 million (EBITDA explained). The EBITDA margin increased to 9.2%, an increase from 3.1% in the prior corresponding period.
Fixed costs as a percentage of revenue improved from 11.6% last year, down to 7.5% in this result.
The investment into private label products is helping margins be higher than its target. In HY20 private label sales made up 18% of total sales. In this result it was 25%. It’s using data to expand its range and fill price and product gaps. The company continues to invest to grow this private label segment.
The company said it it had a cashflow positive half, ending with $85.7 million of cash (including proceeds of a $40 million capital raising).
Management comments
Temple & Webster CEO Mark Coulter said: “It is great to see our revenue growth translating into operating leverage and significant profit growth. This allows us to accelerate our investment into areas such as data, technology, private label and brand awareness to further differentiate our proposition.
“Our strategy of being a category specialist, with a clear customer offering built around the biggest and best range of furniture and homewares in the country, combined with the most inspirational content and services and a great delivery experience and customer service, is working.”
Outlook
Temple & Webster said that the second half has started strongly with January revenue growth tracking at more than 100%. It thinks there’s more growth to come from the adoption of online shopping, increased discretionary income and a recovery of the housing market and unemployment levels.
It said it will continue to re-invest into the business, ensuring that it cements its online market leadership and drive market share.
Summary thoughts
Temple & Webster is an attractive business. It’s doing all the right things as an (online) retailer, particularly the increase in private label range and sales. The rapidly growing EBITDA margin is a good sign.
However, does the valuation make sense? It depends how long the revenue can continue to grow at such a fast pace. Many years of growth could make today’s price seem cheap. But it could also end up being expensive when you compare it against normal retailers.
There are other ASX growth shares I think look better value such as Pushpay Holdings Ltd (ASX: PPH).
Instead of Temple & Webster, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
