The Temple & Webster Group Ltd (ASX: TPW) share price is up 12% after the online retail ASX share reported its FY22 result.
Temple & Webster is the biggest Australian business that purely sells furniture and homewares online.
Temple & Webster’s strong start to FY22
The ASX e-commerce stock announced how it performed in the six months to 31 December 2021. Here are some of the highlights from another strong period for the business:
- Revenue jumped 46% to $235.4 million
- Trade and commercial revenue rose 49%
- Active customers increased 34% to 906,000
- The EBITDA margin was 5.1%, ahead of the guided target range of 2% to 4%
- Cash balance of $105 million (and no debt)
- FY22 second-half revenue up 26% year on year to 6 February 2022
Temple & Webster is currently in that ‘fast growth’ phase, so management is focused on growing customers, customer satisfaction and revenue at this stage. However, the operating model means that increasing scale can come with strong profit margins.
Revenue growth
There are a couple of key elements to the company’s revenue performance: how many customers the retailer has, and how much each of those customers spends.
The active customers jumped by a third to just over 900,000.
The revenue per active customer grew by 10%, which was the sixth consecutive quarter of growth. This was the result of customers shopping more often and spending more when they do. I think this could be a key driver of the Temple & Webster share price in the coming years.
There were also some other pleasing numbers. It continues to be a growing force in the commercial world for trade customers. The number of repeat orders is growing strongly from this business segment.
Private label sales continue to grow. New segments include ‘baby and kids’ and ‘cookware’. The private label share percentage of total sales increased from 25% to 26%. Private labels sales are higher margin than the products that are from (and shipped by) other suppliers. So growth here is good for margins.
Temple & Webster also told investors about its ‘home improvement’ category, which it sees as a $16 billion addressable market. This segment saw revenue growth of 95% in HY22, but it only represented 4% of revenue. This includes things like tools & equipment, garden & landscaping, paint and supplies, flooring, plumbing and window furnishings.
EBITDA margin
The stronger-than-expected EBITDA margin came about because of strong revenue growth.
However, the business does continue to invest heavily in areas such as technology, logistics, customer care, ‘3D’/augmented reality, AI and data teams. It’s also investing in marketing to grow sales and increase brand awareness.
The business wants customers to be able to ‘see’ the products better and imagine them in their homes.
A stronger EBITDA margin in the coming years will help drive profitability higher as well the Temple & Webster share price and overall company valuation.
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Supply chain problems?
Potential problems with the supply chain was one of the things I was keeping an eye on with this result.
Temple & Webster said that customer satisfaction has been impacted by local logistics problems, caused by COVID impacts. Increased demand for home delivery as well as staff shortages has impacted its operations.
But, the company said it’s tracking back towards its net promoter score (NPS – customer satisfaction) of 65%.
The business also said that the diversity within its supply chain is helping navigate the challenges.
Growth plans
Temple & Webster wants to keep taking advantage of the shift to online shopping, leveraging both organic and acquisition opportunities.
Increased scale will help efficiencies and profit margins, as well as help grow brand awareness and enable better supplier terms. A bigger size will also mean slowing the investment in fixed costs and taking advantage of the operating leverage in the business model.
Temple & Webster also said that it will be disciplined in its investment in the next horizon growth businesses (“eg international expansion”).
Summary thoughts on the Temple & Webster share price and the result
I think this result was solid from the company. The revenue growth of 26% at the start of the second half is very promising because this came after the lockdowns have finished. Re-investing for growth is having strong results.
Expanding in home improvement makes a lot of sense, giving customers (particularly tradies) more reasons to shop on its website.
At the current Temple & Webster share price, I think it represents compelling long-term value. There are a number of growth avenues for it to pursue, particularly in new categories and international expansion too. It’s one of the ASX growth shares on my watchlist.
