Along with e-commerce company Kogan.com Ltd (ASX: KGN) and plus-size women’s clothing retailer City Chic Collective Limited (ASX: CCX), Temple & Webster became a retail market darling of the COVID-19 economy, boosting sales and increasing its market penetration. While traditional brick-and-mortar retailers like troubled department store Myer Holdings Limited (ASX: MYR) watched their share prices tank during lockdowns, this new generation of digital-focussed retailers saw their profits (and share prices) zoom higher last year.
From a low of just $1.52 during the March market crash, Temple & Webster shares surged a whopping 824% to a record high of $14.05 by late October. However, since then the company’s shares have lagged, edging back down to below $10 throughout most of November and December as investors waited to see how the company would perform as brick-and-mortar retail, particularly in Victoria, reopened after harsh lockdowns.
Has this business momentum carried over into FY21?
As my Fool colleague James Mickleboro reported last week, Temple & Webster recently released its first-half FY21 results to the market. The company reported half-year revenues of $161.6 million, a year-on-year increase of 118%, and earnings before interest, tax, depreciation and amortisation (EBITDA) of $14.8 million, a hefty 556% uplift. However, this still fell short of analysts’ expectations over at Goldman Sachs, who had forecast revenue of $171.1 million and EBITDA of $17.6 million.
The market response to the results was muted. Overall, Temple & Webster shares have remained flat at $11 or thereabouts for most of the week (they are trading at $11.19 as at the time of writing).
How does this compare to its competitors?
One of Temple & Webster’s key competitors is furniture retailer Nick Scali Limited (ASX: NCK), which operates more than 50 showrooms across Australia.
Nick Scali also reported strong first half FY21 results last week. Sales revenue jumped more than 24% versus first half FY20 to $171.1 million while underlying EBITDA surged more than 90% higher to $60.2 million. Underlying net profit after tax was $40.5 million, an increase of almost 100%.
Interestingly, while Nick Scali didn’t see the same sort of explosive share price growth of companies like Temple & Webster last year, it didn’t experience the same level of volatility throughout November or December either. Instead, its share price has climbed consistently higher, from a low of $2.65 back in March all the way up to $11.32 as at the time of writing. The Nick Scali share price is currently trading just short of the record high price of $11.61 posted at the beginning of January.
The battle between these two competitors will be interesting over the year ahead. Nick Scali arguably has a stronger pedigree and will benefit more from easing COVID-19 restrictions than its online rival. However, at this growth rate, Temple & Webster could surpass Nick Scali in terms of annual revenues by the end of FY21.
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Rhys Brock owns shares of Kogan.com ltd and Temple & Webster Group Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia owns shares of and has recommended Kogan.com 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.
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