Which ASX furniture share has the edge?

The Australian furniture industry was facing challenges even prior to COVID-19. Declining discretionary income and negative consumer sentiment meant Ibisworld predicted the market would fall to $6.6 billion this year. And only a weak recovery is predicted as the economy gradually emerges from lockdown. The industry is a competitive one, with nearly 6,000 businesses operating in the space. This includes ASX listed furniture retailers Temple & Webster Group Ltd (ASX: TPW), Nick Scali Limited (ASX: NCK), and Adairs Ltd (ASX: ADH). Let’s take a look at which of these ASX furniture shares has the edge. 

Nick Scali 

Nick Scali closed stores during the first lockdown but sales climbed nonetheless as consumers stuck at home looked to upgrade their home environments. Sales orders grew 7% over the second half to mid June, with sales accelerating post store re-openings. Sales in the fourth quarter to mid June were up 20.4%. The retailer has forecast strong profit growth in the second half, with net profit after tax expected to increase 15% to 20% on 2H FY19. Full year revenue is expected to be in the range of $260 million to $263 million with full year NPAT of $39 – $40 million. 

Temple & Webster 

Temple & Webster is an online-only furniture and homewares retailer which has benefitted from the shift to eCommerce caused by the pandemic. The business traded strongly in 2H FY20 with revenue growing 90% compared to the prior corresponding period. Over the financial year to 31 May, revenue increased 68% to $151.7 million. Active customer numbers also increased 68% to 440,257. The company is bullish about the longer term shift to online in the furniture retailing space driven by shifting demographics. It remains enviably placed to take advantage of this change, which has been accelerated by COVID-19. 

Adairs

Adairs is an omni-channel homewares retailer which also dabbles in the furniture sector, selling bedroom and children’s furniture. Adairs also shut stores during the first lockdown, but strong online growth made up for this. Online sales increased 92.6% in the second half to 14 June 2020. This led to total sales growth across stores and online of 27.4%. Consumers bunkered down at home sought to upgrade their furnishings, leading to higher demand. FY20 guidance is for sales of $385 – $390 million. 

Who has the edge?

Adairs has the highest sales of the trio, benefitting from its physical stores as well as strong online presence. Temple & Webster is seeing the strongest growth, however, and benefits from cost savings due to its lack of a physical footprint. But there will always be customers who want to see furniture in person to purchase, or require customisation – this is where Nick Scali shines.

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Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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