Temple & Webster is eyeing the $50 billion home improvement market as a new source of expansion, as Australia’s largest pure-play online homewares retailer moves from turnaround phase to growth.
The online player plans to add home improvement products such as flooring, window coverings, sinks, taps and baths to its existing range – which could prompt home improvement market leader Bunnings, an e-commerce laggard, to sell more of its products online.
“Home improvement is a big category – a bigger category than furniture and homewares,” chief executive Mark Coulter told The Australian Financial Review after releasing the company’s best results since listing two years ago.
“We won’t go into selling timber and building materials – that’s not our game – but what we will be looking at is categories that make sense and are a natural extension to making a home beautiful.
“You may go to Bunnings for your building materials, but if you’re looking for inspiration you come to us – we think there is an opportunity there.”
Temple & Webster expects to make a maiden profit in 2019 after reducing bottom-line losses to just $21,000 in 2018 from $7.76 million in 2017 and a whopping $44.9 million in 2016.
The company earned $300,000 before interest, tax, amortisation and depreciation in the June-half – in line with its promise to reach profitability during 2018 – reducing its annual EBITDA loss from $6.8 million to $600,000.
Revenues rose 12.6 per cent to $72.6 million in the year and by 25 per cent in the June half, underpinned by 24 per cent growth in active customers to 198,000 and 31 per cent growth in first-time customers to about 42,000. The strong momentum continued in July, with sales up 34 per cent.
Gross margins improved from 42.7 per cent to 44.2 per cent as marketing and staff costs were controlled and acquisition costs for first-time customers fell to $54 compared with $89 in 2017 and $100 in 2016.
The company, which finished the year with a cash balance of $9.9 million, is also testing the market in New Zealand, setting up shop on TradeMe before possibly establishing a dedicated website and app.
It also plans to open a small-format design store in Sydney and is eyeing other new categories.
The Australian furniture and homewares market is worth about $14 billion, according to Euromonitor International, but online penetration is about 4 per cent – well below the 10 per cent penetration rate in the United States and 13 per cent in Britain. Temple & Webster expects sales to shift online at a faster rate as Millennials aged 22 to 35 start spending money in this category.
After rising three-fold to 76¢ over the past 12 months, the shares gained another 8 per cent to 82¢ on Tuesday, buoyed by the strong start to 2019. The shares were issued in October 2015 at $1.10.
“We believe Temple & Webster has entered 2019 with strong momentum and believe 2019 is on track to being [the company’s] first full financial year of profit,” said Bell Potter analyst Sam Haddad.