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Temple & Webster Group Ltd (ASX:TPW) has dwarfed the YTD returns of many retailers, as the shares of the company skyrocketed after an update on the half-year results on 4 February 2020, indicating a 50 per cent increase in revenues.
Meanwhile, its fellow furniture retailer Nick Scali Limited (ASX:NCK) was up 1.8 per cent, and home furnishings special retailer Adairs Limited (ASX:ADH) was unchanged.
Intriguingly, Temple & Webster has not mentioned anything about the impact of bushfires on sales, which gives the impression that online-based (e-retailers) retailers might be immune to the blues of bushfires.
About Temple & Webster Group Ltd
Founded in 2011, Temple & Webster was incorporated by senior executives from eBay Australia and Newscorp. It is named after Willian Temple, who was a carpenter and John Webster, who was a carver and gilder.
In 1820, Temple and Webster were commissioned by Governor Lachlan Macquarie to make large ornamental chairs, and their works have survived to date, says the company’s website.
Temple & Webster’s Revenues up 50 per cent
In a market announcement on 4 February 2020, the online furniture & homeware retailer has released results for the half year ended 31 December 2019.
It was noted that the half-year revenue of $74.1 million was up 50 per cent over the previous corresponding period, and the business had seen an increase in active customers; over 330k Australians shopped with the brand in the past 12-month.
EBITDA for the period was $2.3 million as against $1 million in the pcp. Also, the company delivered a cash flow positive half with an ending cash balance of $15.7 million and no debt.
CEO of Temple & Webster, Mark Coulter said:
He also noted that the Trade and Commercial division posted a growth of 75 per cent on a year-on-year basis, indicating that the company’s long-term growth opportunities are materialising.
Also, the company remains constructive to service the prospective clients in the Trade and Commercial division, on the back of its disruptive proposition based on price, range and turnkey solutions.
Half Year Review - T&W As ‘Affordable Beauty’
During H1 FY20, the housing market had been recovering, and the business saw record weekend driven by Black Friday and the shift of retail spending in November. A demographic change in the country is driving the move to online-based furniture retailers.
According to the half-year presentation, T&W is placed as ‘affordable beauty’ for value-conscious shoppers in the Furniture & Homeware market, which has a size of $13.9 billion, excluding appliances and DIY.
Due to the business’ high-growth trajectory, it has strengthened partnerships with its suppliers as well as fast-tracked the investments in distinctive capabilities like technology and experience.
Its business model, which doesn’t require holding inventories for around 80 per cent of sales, has helped for cash flow positive state. In H1 FY20, the company increased range to more than 180k live products and also rolled out the first beta mobile application.
Moreover, the company established a data team to optimise data application and closed the Melbourne pop up store to emphasise on online retailing.
It is believed that demographic and structural change would drive strong market growth for years to come, as the millennials are entering the age group that spends the most on the homewares and furniture.
And, the business would be favourably impacted by the penetration of faster internet and mobile data speed from NBN and 5G, new market players accelerating online shopping take-up, and offline exits/store closures.
T&W has taken initiatives to drive customer satisfaction through taking more control over the delivery experience, enforcing quality standards across the supplier base, and category experts within the customer care team.
Trade and Commercial division (B2B) – Offering Customer Proposition
The company offers B2B customers with a range of proposition. Its program includes exclusive trade discounts, which provide additional discounts to exclusive members in addition to competitive pricing.
B2B customer program also has trade-exclusive products, which provide insider access to exclusive collections and customise products that are only available to Trade and Commercial clients.
Further, there are no minimum purchase or volume requirements to avail the discounts. It provides access to the company’s design team for design and procurement services.
On requests, the company has a premium delivery service, which offers unpacking, assembly, rubbish removal as well as styling options.
Strategy & Capex Light Business Model
In the short-term, the business is targeting for high growth and capturing market share. The online retailing is enabling the business to achieve high growth with an increase in the market share.
It has a focus on improving contribution dollars through price, promotions, marketing to deliver high growth. T&W intends to invest in longer-term growth capabilities like B2B business and mobile application.
Also, it has plans to invest in capabilities that build strategic moats around the business, including technology, brand awareness, delivery experience, size of the catalogue, private label range, data and personalisation.
T&W’s business model delivered positive EBITDA, resulting in a closing cash balance of $15.7 million for the half year period. H1 FY20 was a cash flow positive period of +$22 million for the company.
The cash flow positive state was driven by its cash flow positive business model and positive EBITDA results, which were offset by investments into Private Label inventory. It was also reported that balance sheet position remains strong with no debt, and audited results would be released later.
Revenue Up 50% in First Month of Second Half
In the second half, the company achieved revenue growth of over 50 per cent on a year-on-year basis for the first month (to 31 January 2020).
TPW is committed to a high growth strategy in a bid to capitalise on the opportunity of the structural shift towards online. Nevertheless, the company has been observing the macroeconomic and competitive environment.
The company intends to maintain profitability while reinvesting short term operating leverage on strategies like technology, data, mobile app, trade and commercial, private label and logistics.
On 4 January 2020, TPW ended the session with an increase of 23.32 per cent at $3.49, equating to a market capitalisation of approximately $395.83 million at total outstanding shares of around 113.42 million.
