The Temple & Webster Group Ltd (ASX: TPW) share price is up today after revealing its FY21 third quarter.
Temple & Webster FY21 third quarter
The business reported that it is still seeing strong trading despite everything that’s happened and still happening.
In the third quarter of FY21, it saw revenue go up 112%. That’s a strong period of growth considering it includes March 2021 where COVID impacts were being felt.
Active customers reached approximately 750,000 at the end of the third quarter.
April 2021 revenue is up more than 20%, management noted that this month is comparing against April 2020 which was the fastest growing month last year due to the nationwide lockdowns implemented during March 2020.
COVID-19 cohorts of customers continue to perform better than historical cohorts.
A changed world
Temple & Webster believes that this trading suggests COVID-19 has permanently accelerated online adoption in the Australian furniture and homewares market.
The online furniture company said that it estimates that more than 20% of furniture and homewares were bought online in the US during 2020 and management believe Australia is following the sale trajectory.
Temple & Webster estimates that in 2020, around 9% of Australian furniture and 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.
Continued investment
Due to the strength of this quarter, management believe the right thing to do is to keep increasing in its operational capability, its customer experience, data, growth of its product ranges and growing its business to business sales.
This will result in a financial profile similar to the pre-COVID-19 period where there was strong double digit revenue growth and an EBITDA margin (EBITDA explained) of between 2% to 4%. It’s committed to remain profitable during this growth period and set the target EBITDA levels accordingly. It’ll be interesting to see how this affects the Temple & Webster share price.
It’s expecting longer term profit margins to be higher than many offline peers.
Temple & Webster CEO 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 to ensure we are the brand for the next generation of furniture shopper.”
Summary thoughts
This is a strong update from Temple & Webster in my opinion. The furniture and homewares segment is a huge opportunity. If it can just capture more market share, it can generate much higher profit and higher margins in the future. Long term growth is more important that one year of profit.
Temple & Webster is an interesting one. Is it a high growth tech share? Or should the Temple & Webster share price be valued like a business such as Adairs Ltd (ASX: ADH)?
It’s one of the ASX growth shares to keep an eye on in my opinion.
