Most companies wouldn’t wish for Covid’s return, seeing how it wrecked their sales plans and profits. But online furniture retailer Temple & Webster (ASX: TPW) is not one of them. The Company had a good run with Covid as more people shopped online. Better sales, greater engagement—it was all going well until the world reopened physically.
Then, as Temple & Webster had expected, its sales took a hit.
In 1H FY23, the Company reported revenue of $207.1 million, a 12% decline on 1H FY22. Strong e-commerce demand due to lockdowns underlined FY22, unlike this period. Its EBITDA margin of 3.5% remained within its forecasted range of 3-5%. But its profit fell nearly 50% from $7.2 million in 1H FY22 to $3.8 million in 1H FY23.
The second half is looking no better. In the first five weeks of 2H FY23, from January 1 to February 5, sales were down 7%.
Temple & Webster has undertaken cost management and margin improvement programs to address this, with Q2 FY23 EBITDA up 11.8% vs Q2 FY22.
For starters, it will reign in the spending. Like most companies right now, the Company will undertake layoffs—a 9% reduction in headcount through natural attrition. It will reduce marketing spend by 24% due to improved efficiency & ROI. And it will reduce investment into its home improvement startup, The Build, by 40% as it takes a longer view of the significant market opportunity.
Temple & Webster CEO, Mark Coulter, said, “While we dialed back spend in the half, we continued investing in our digital capabilities, product range and target verticals, with our Trade and Commercial and Home Improvement businesses growing 17% and 12% respectively. We have the flexibility to phase longer term investments as we leverage our previous step up in people and platforms, and a highlight during the half was opening our new headquarters in St Peters, an important part of our proposition to attract and retain talent.”
Temple & Webster offers dropshipping—directly connecting the customer and supplier—and private label products. Over 75% of what the Company sells is either white-labelled or sold under a Private Label, creating scope for differentiation.
In Australia, furniture and homeware is an $18 billion market, primarily driven by millennials for Temple & Webster. As work from home took over during the pandemic, more people invested in their home offices and furniture. However, as the pandemic boom fades, the Company has had to reimagine its strategy.
Coulter added, “Pricing remains a key differentiator for the business, growing our gross margin through strategic pricing initiatives and better sourcing. Similarly, with 72% drop ship that carries no inventory risk and 28% private label inventory, through our supply chain model we further improved flexibility and our product range, placing us in a strong position to continue growing market share.”
The Company reported a closing cash balance of $102.4 million with no debt, helping it achieve better sales and sustainable growth.
He concluded, “Longer-term, ecommerce in the Australian furniture & homewares category remains highly under-penetrated, and we have a much larger addressable market to go after in our new target verticals.”
As people return to physical storefronts, will Temple & Webster’s virtual showrooms be enough?
Alinda is a Business Reporter for The Sentiment
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