Why the Temple & Webster (ASX:TPW) share price is sinking 5% lower today

In morning trade on Tuesday, the Temple & Webster Group Ltd (ASX: TPW) share price is sinking lower.

At the time writing, the online furniture and homewares retailer’s shares are down 5% to $10.44.

Why is the Temple & Webster share price sinking lower?

Investors have been buying Temple & Webster shares following the release of its half year results this morning.

According to the release, the company delivered a 118% increase in revenue over the prior corresponding period to $161.6 million.

This was driven by the doubling of its active customers from 335,000 to 678,000 and a 6% increase in the average spend per active customer to $401.

And thanks to operating leverage, Temple & Webster’s earnings grew even quicker. Management notes that its fixed cost as a percentage of sales decreased from 11.6% to 7.5% over the last 12 months.

This led to its earnings before interest, tax, depreciation and amortisation (EBITDA) jumping a massive 556% to $14.8 million.

Also heading in the right direction was its contribution margin, which increased from 15.3% at the end of FY 2020 to 17%. This margin growth was driven partly by an increase in private label sales, which is now 25% of revenue. Management has a mid term target of 30%

No figures were provided for its net profit (or loss) after tax. However, management advised that it was cash flow positive for the half and ended the period with a cash balance of $85.7 million. This includes the proceeds of a $40 million placement during the period.

Temple & Webster’s CEO, Mark Coulter, was very pleased with the half.

He commented: “I am pleased to present a great set of results for the first half of FY21. While 2020 remained a challenge for the country, we are proud that many Australians continued to turn to Temple & Webster for their furniture and homewares needs. It is great to see our revenue growth translating into operating leverage and significant profit growth. This allows us to accelerate our investment into areas such as data, technology, private label and brand awareness to further differentiate our proposition.”

How does this compare to expectations?

Temple & Webster’s result has fallen short of Goldman Sachs’ expectations for the half.

According to a recent note, its analysts were forecasting revenue of $171.1 million and EBITDA of $17.6 million for the half.

This compares to its actual result of $161.6 million and $14.8 million, respectively.

Outlook

Management advised that the second half has started strongly, with January’s revenue growth tracking in excess of 100%.

It also revealed that it continues to experience strong tailwinds. These include the ongoing adoption of online shopping due to structural and demographic shifts, an acceleration of these trends due to COVID-19, an increase in discretionary income due to travel restrictions, and the continued recovery of the housing market and unemployment levels.

The company intends to continue its reinvestment strategy by investing into growth areas of the business to cement its online market leadership and drive market share.

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James Mickleboro 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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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