Temple & Webster’s share price could be one to look at after strong FY21 growth.
The post Why the Temple & Webster (ASX:TPW) share price could be a buy after the FY21 result appeared first on The Motley Fool Australia. –
This business is a leading online retailer of furniture and homewares. It has over 200,000 products on sale from hundreds of different suppliers. Temple & Webster runs a drop shipping model where products are sent directly to customers by suppliers. This helps with delivery times and reduces the need to hold inventory. That means it can offer a larger product range.
Temple & Webster also has a private label range of products that are sourced directly by the company from overseas suppliers.
There were a few things that may make the Temple & Webster share price a good one to think about:
Continued top line growth
The company reported another strong year for growth, despite the lockdown e-commerce boom occurring in some of FY20.
Full year revenue in FY21 went up for 85% to $326.3 million. That included a high growth rate of 26% in the fourth quarter of FY21 (which was being compared against the fourth quarter of FY20 where revenue had increased 130% year on year).
The trade and commercial division saw revenue growth of 110%, which is becoming a more sizeable part of the business.
Temple & Webster’s strong revenue growth has continued into the first month of FY22. For the period of 1 July 2021 to 24 July 2021, revenue has increased by 39% year on year.
Private label is also seeing growth. As a percentage of sales, private label went from 19% in FY20 to 26% in FY21. This comes with benefits such as diversification of supply (with less dependency on its drop-ship network), improved margins, stock assurance and speed of dispatch.
Customer loyalty and increased spending
Total customers increased by 62% year on year to 778,000. More active customers means a bigger group of people it can market to. It also means there’s potential for those customers to return again.
Indeed, Temple & Webster said that in FY21 revenue per active customer increased 12% year on year due to customers repeat buying more often and spending more when they do.
The company doesn’t have to spend as much on marketing to bring these customers back again. Its 12-month marketing return on investment (ROI) remained “healthy” at 2.3x, even with significant TV investment to build brand awareness.
Temple & Webster’s conversion rate continues to improve, with a high customer satisfaction rate. The company is looking to expand its scope of augmented reality offer, provide 3D room visualisations, and offer a virtual designer (AI led) and visual search (on an app).
Other things that company is looking to provide is an after hours and weekend delivery service, data integration for self-service and it’s working with logistics partners on peak periods.
The company is looking to grow its revenue by strong double digits during a period of high investment. This could help the Temple & Webster share price rise further
It’s expecting an ongoing adoption of online shopping due to structural and demographic shift. The business is looking to grow its online market leadership position with the ultimate goal of becoming the largest retailer (online and offline) for furniture and homewares in its home market.
After this period of investment, it’s expecting to be able to leverage its scale and strategic moats to grow its contribution profit margin in percentage terms whilst benefiting from better supplier terms and higher brand awareness. Being larger should also help slow investment in fixed costs.
The business is also thinking about its next investment horizon, such as international expansion.
Should you invest $1,000 in Temple & Webster right now?
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended 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.