As we monitor the behavior of the Australian consumer, it’s crucial to acknowledge that consumption constitutes approximately 50 per cent of Australia’s GDP, significantly influencing decisions related to interest rates. The robust trading update presented during the annual general meeting (AGM) by Temple & Webster Group (ASX: TPW), an online retailer specialising in furniture and homewares, prompts thoughtful consideration.
The $19 billion furniture and homewares market has shown signs of growth despite periods of high interest rates, high inflation, and housing market declines. The Australian market lags international peers in online penetration, but is due to grow from 18 to 28 per cent as millennials become the largest spending cohort in the category.
Temple & Webster is a leading player within this space and the company just announced a notable surge in its revenue growth, perhaps reflecting a shift in the retail landscape. The company’s 1H24 year to date revenue has impressively outpaced previous estimates, recording a rate of growth comfortably exceeding current consensus estimates for the first half of the 2024 financial year. This remarkable growth, particularly evident in October and November, indicates a significant acceleration in sales.
The first half of 2024 saw a 23 per cent increase in sales year-to-date, with a substantial spike from September through November. This was partly due to the earlier commencement of promotions and a successful Black Friday campaign. Excluding Black Friday, sales were up 19 per cent.
Temple & Webster continues to target an earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of between 1-3 per cent for FY24/25, and despite spending above the 14-15 per cent marketing range, much of the promotional activity has been supported by suppliers.
Despite a 10-15 per cent cut in FY24 earnings per share (EPS) forecasts, analysts anticipate continued robust sales growth, though with a cautious note on near-term earnings due to increased marketing expenses.
Analysts also question the impact of Temple & Webster’s promotional strategies, particularly the earlier timing of their campaigns, which may have pulled forward sales from the crucial Christmas/December period. Amid the current malaise in retailing – thanks to the cost-of-living crisis – analysts are understandably nervous about pull-forward sales and that Temple & Webster’s promotional strategy, while effective in the short term, could potentially distort the long-term sales trajectory.