The Temple & Webster Group Ltd (ASX: TPW) share price sank 18% after a business update disappointed the market.
This business is an online retailer of furniture and homewares. It also has relatively small but growing trade & commercial and home improvement divisions.
Temple & Webster sales update
The e-commerce business said trading remained strong over the half, with sales between 1 January to 5 May up 30% year on year. Growth is being driven by both repeat and first-time customers.
It revealed that products exclusive to Temple & Webster are now generating 41% of revenue and make up 70% of its top 500 selling products.
Perhaps unsurprisingly in the current economic environment, lower discretionary categories such as bedroom furniture, sofa and outdoor furniture continue to outperform higher discretionary categories.
The company reported its suite of internal AI solutions are delivering conversion rate increases of more than 10% and are now handling around 40% of all customer interactions. This technological change could help the Temple & Webster share price if it leads to a better cost profile.
The trade & commercials and home improvement growth initiatives have both delivered growth in the half to date of more than 30%.
The full-year EBITDA margin guidance range of between 1% to 3% was confirmed.
Its balance sheet remains in a good position, with the business reporting it had cash of more than $100 million and no debt.
Management commentary
The Temple & Webster CEO Mark Coulter said:
Temple & Webster continues to deliver on its customer promise of delivering beautiful products at outstanding value. This proposition is clearly resonating with shoppers who continue to take advantage of the value that online shopping can deliver. While the overall furniture and homewares market is down 4% HTD (half to date) due to cost-of-living pressures, our strong growth highlights the significant market share gains we are making.
We reiterate our EBITDA guidance of 1-3%, targeting the mid-point of the range as we continue to invest in growing our market share and delivering on our key growth pillars.
Final thoughts on the Temple & Webster share price
The online retailer continues to do very well at maximising its market share and growing sales, while remaining slightly profitable.
The market was clearly expecting even more after a rise of 60% over the past six months and around 170% in the last year. It had probably gotten a bit too far ahead of itself in the short-term.
In five years, I think the business is likely to be generating much stronger revenue – it wasn’t a bad update at all. In-fact, I’d say 30% growth was very good considering some retailers are struggling to generate any growth right now.
But, due to the current valuation, I’d rather invest in other ASX growth shares.
