INVESTORS GIVE TEMPLE & WEBSTER A SHELLACKING
Written on the 25 February 2016
SHARES in Temple & Webster (ASX:TPW) plummeted as much as 69 per cent today, after the online furniture retailer unveiled a widening loss from its operations.
The Sydney-based business is yet to make a profit since it was established in 2011, with investors questioning its business model based on the perception that consumers like to try before they buy.
Temple & Webster posted a half-year loss of $17.7 million in its maiden interim result as a listed company, which is a sixfold increase from a $3 million loss a year earlier.
Revenue was up 47 per cent to $21.3 million in the first half, however the result doesn't reflect the full six months of trading from two acquisitions during the period. On a pro forma basis, revenue has been calculated at $32.1 million.
Wayfair Australia was acquired last July before subsequently being rebranded to ZIZO, while Milan Direct was purchased in December ahead of its IPO accounting for three weeks until the end of the first half of FY16.
Despite the increase in revenue, Temple & Webster has put a downside risk estimate of up to 10 per cent on the full-year prospectus guidance of $76.2 million. A downside risk of up to $5.5 million has also been announced on its initial EBITDA forecast of $8.5 million.
Shares in the business have taken a tumble following the news. After floating at 90c apiece on December 10 and hovering at the 60c mark in recent months, they fell as low as 20c today.
Temple & Webster CEO Brian Shanahan says the board remains confident of the company's progress towards becoming a dominant player in the home shopping sector.
"Our offering is striking a chord with our customers and they are spending more than ever before," Shanahan says.
"However the return on our investment in marketing is taking longer than expected.
"The initial campaign and sales outcome has taught us a lot and we will be fine tuning our marketing spend, customer acquisition channels and product mix during the second half to improve new customer and sales performance."
The increase in marketing spend is expected to lift its online conversion rate of securing visitors to the website as members.
Revenue per active customer is up 8 per cent to $335, with users responding to a wider product range of big-ticket furniture rather than buying lower price point items such as soft furnishings or decorations.
The business will also explore a multi-channel retail approach, with the opening of a Milan Direct showroom in Melbourne next week.
The bricks-and-mortar space will be launched in a bid to capture first-time customers who like to 'touch and feel' furniture, before completing the transaction online.
Performance at the Richmond showroom will be monitored over the next three to six months, before opening a dedicated Temple & Webster location.
Shanahan says company's low inventory model places it in a strong position to challenge the $12 billion furniture and homewares market in Australia.
The Temple & Webster brand curates more than 10,000 items each month from 400 suppliers, and orders directly after processing a customer's transaction.
"We are pleased with the progress we have made in building the integrated business, and are now absolutely focused on building better customer acquisition, sales and retention performance," he says.
"We remain the largest player in a high growth segment and are well capitalised with circa $27 million in cash and no debt.
"We are well positioned to capture the scale benefits and operating leverage that comes from being the leading player in our category, and are confident of being run-rate EBITDA positive in FY18."