The Temple & Webster Group Ltd (ASX: TPW) share price has jumped after the online retailer revealed a trading update at its AGM.
This business sells over 200,000 products from hundreds of suppliers. The company also has its own private label range from overseas suppliers.
FY23 trading update
The company noted that the first half of FY23 was going to be a tough period for year-over-year comparisons because of the timing of lockdowns in FY22.
It has seen overall revenue fall by 14% for the period of between 1 July 2022 to 27 November 2022.
But, it has now started seeing a return to growth. The FY23 second quarter – 1 October to 27 November – only saw revenue drop by 3% compared to the prior year. November has run “slightly ahead” of November last year. Management said that this is a good sign because November is normally the busiest month because of Black Friday, “suggesting a return to double-digit growth during the financial year.”
Temple & Webster said that inventory levels remain “strong” across its suppliers and own private label range. There are “deflationary signs” appearing on both factory and container costs.
Focus on profitability
The business said that returning to year-on-year growth is important. But, “equally important in this environment” is making profit and the company’s unit economics.
Temple & Webster is guiding for, and targeting, an EBITDA (EBITDA explained) profit margin of between 3% to 5% for the full 2023 financial year.
It has cash of more than $100 million, allowing the business to invest in accelerating organic growth and/or making acquisitions to drive both revenue and boost profit / earnings per share (EPS).
Long-term optimism for the Temple & Webster share price
The ASX share pointed out that it’s the online market leader in the furniture and homewares market, where only around 12% or 15% is currently done through e-commerce.
Management think that online market penetration can grow to more than 50% over time, as in other retail categories. The company is also expecting that investments in complementary markets such as home improvement, and trade and commercial, will help diversify its revenue streams.
I think that the business has plenty of growth potential, though it’s not as cheap as it was before today. But, it’s still down over 50% for the year.
