Citi says buy Temple & Webster, retailer flags overseas expansion ambitions

Online furniture retailer Temple & Webster (ASX: TPW) is prepared to launch an international brand expansion if it finds the right opportunities, as management aims to grow the business and deploy a ballooning $139 million balance sheet cash pile.  

The retailer more than doubled net profit to $9 million on sales up 23.6% to $313.7 million for the six months to December 31. Chief executive Mark Coulter said it grew market share and profit margins over the half, with its cash balance and debt free status providing the firepower to expand overseas if it chooses. 

"Having the balance sheet is amazing and means we have flexibility to invest in both organic and inorganic opportunities that come across our desk," Mr Coulter told Livewire. "We’re not necessarily averse to M&A if the right target comes along and meets our stringent criteria around strategic and operational fit.

"It’s not necessarily another Australian online retailer. I feel we’ve got the brand in Temple & Webster....so down the track [it could be] international if we start our growth outside Australia."

Citi says Buy

On Monday, broker Citi put a buy rating and $21.10 price target on the stock based on its forecasts for the retailer to deliver growing sales and profit margins into the future. Elsewhere, UBS increased its share price target to $15.50, but downgraded the stock to sell on valuation grounds. 

For the six months to December 31, Temple & Webster grew its EBITDA (operating income) margin to 4.2%, versus 2.9% in the prior corresponding half and Citi said it's now more confident the online retailer can reach its long-term EBITDA margin target of 15%. 

"We remain positive on Temple & Webster heading into a consumer environment likely supported by multiple rate cuts," Citi added. "Positive observations around top-line growth and margin expansion in the long-run overshadow the weaker-than-expected trading update."

 

Artificial intelligence cuts costs, grows sales

Mr Coulter said the retailer's investments in artificial intelligence are already helping it cut operating costs and grow sales, with potential for the technology to boost free cashflow ahead.  

"About 60 per cent of all [customer] enquiries are handled by AI now," he said. "The next  [AI development] stage is more about [customer] conversion and revenue, so we’re exploring using gen AI and AI to inform personalisation on the website. So, the Temple & Webster website you'll see, will be different to the Temple & Webster I see." 

For the period January 1 to February 10, group same-store sales jumped 16 per cent year-on-year, with the homewares group expected to benefit from an easing of mortgage rates in 2025, as the Reserve Bank lowers benchmark borrowing rates. 

Since the retailer posted earnings on February 12, the stock has surged 25 per cent and traded near a record high of $18.11 on Monday morning. Management said its existing share buy-back program will remain in place until June 2025.