The Temple & Webster Group Ltd (ASX: TPW) share price is an interesting consideration with all of these Australian lockdowns.
What’s going on?
Most of the country is in, or going into, lockdown. It’s tough for everyone with what’s going on.
But there are a few online retailers that may see some demand growth like they did in the national lockdown in the last few months of FY20.
Temple & Webster was one of the businesses that saw very strong growth a year ago. In FY20 it saw full year revenue of $176.3 million. FY20 second half revenue rose 96% and fourth quarter revenue increased 130%.
But the thing to remember with Temple & Webster is that its growth has continued after the lockdowns ended.
A couple of months ago the company gave a trading update that showed continuing growth – COVID-19 wasn’t just a one-off boost.
FY21 third quarter revenue was up 112%, with April 2021 revenue up more than 20%. April 2021 was being compared against April 2020 which was the fastest growing month last year due to the nationwide lockdowns. It reached around 750,000 active customers at the end of the third quarter.
Will Temple & Webster see another sales boost?
It’s going to be interesting to see what happens this time around.
With these lockdowns, there aren’t elevated levels of government stimulus like COVID payments, higher jobseeker or jobkeeper. ‘Homebuilder’ isn’t being repeated either.
But the business may still see higher sales with its bigger customer base.
However, whatever happens with these lockdowns, it’s likely to be only a short-term thing.
What matters is the longer-term.
Temple & Webster is planning to invest significantly to drive its future growth. During the investment period, it’s expecting strong double digit revenue growth and EBITDA margins (EBITDA explained) of between 2% to 4%. But the company is committed to remaining profitable even during the scale-up phase.
Management say that with scale will come operating leverage and higher levels of profitability. In the longer-term, as it enters its optimisation phase, it expects higher levels of profitability than have been previously seen with those scale benefits.
Some benefits includes: improved supplier terms, more repeat customers which will reduce marketing expenses, a slowing of investment in fixed costs and a higher percentage of exclusive products with higher gross margins.
Summary thoughts on Temple & Webster and the share price
Temple & Webster is a very interesting business with a big market opportunity. It’ll be interesting to see how much growth it sees in the next few weeks.
It’s definitely one to keep on the watchlist. It has a strong operating model and a good plan. I’m just not sure what a fair price for it is, particularly when you compare it to a business like Adairs Ltd (ASX: ADH) which also has high levels of online sales.
But it’s one of the ASX growth shares I’ve got my eyes on.
