Temple & Webster delivered strong growth in annual profit and revenue, lifted by its home improvement business, while the online furniture retailer sounded a note of caution over recent signs of a pickup in consumer sentiment.
Revenue rose by 21 per cent to $601 million for the year to June 30, with the company highlighting home improvement as a “standout performer”. Net profit jumped from $1.8 million to $11.3 million.
Temple & Webster’s share price rose 7 per cent to $27.90 by early afternoon trading on Tuesday. The surge extends a run that has seen the price more than double over the past 12 months.
The company’s bullish update comes after a long period of sluggish growth among other big retailers, as consumers spent more on their mortgages and less on other purchases.
Conditions have improved in recent months amid interest rate cuts from the Reserve Bank of Australia and cooling inflation. However, Temple & Webster chief executive Mark Coulter said it was too early to tell if the recent uptick in consumer spending would be sustained, despite financial market predictions of further rate reductions later this year.
“It’s just very early to draw any firm conclusions. We have to wait another six months to confirm that Australians … have turned a corner, and they’re feeling more comfortable, and therefore they are happy to spend more.”
Demand for bedroom and living room furniture had been particularly strong, Coulter said. “That makes sense as people feel like they have a bit less cash, things are a bit tighter, so they’re making sure to buy the things they need. Whereas the smaller items, like decorative items, can be deferred until another period.”
Despite the caution, Coulter highlighted the strong performance in home improvement, which includes everything from bathroom vanities to tapware and ceiling fans.
Bunnings, which is owned by Wesfarmers, dominates the segment with its giant warehouse stores, but Coulter said there was still a large untapped market in the online space.
RBC Capital Markets analyst Wei-Weng Chen told clients that the online retailer’s profit was 5 per cent ahead of market expectations, while Wilson Asset Management portfolio manager Tobias Yao said Temple & Webster is well positioned due to the eventual housing recovery and interest rate cuts.
“With disposable incomes stabilising, the prospect of further interest rate cuts, and an eventual recovery in the housing market, Temple & Webster is well positioned to benefit from improving conditions in discretionary retail,” Yao said.
UBS analyst Tim Piper was less convinced, maintaining a “sell” rating on the company after the company’s second-half margins were softer than he expected.
The company will maintain its on-market share buyback program worth up to $30 million. However, it does not intend to pay a dividend.
Licensed by Copyright Agency. You must not copy this work without permission.
