Temple & Webster share price tumbles despite launching into $26bn home improvement market

Temple & Webster shares are on the slide on Wednesday…

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Key points

  • Temple & Webster's shares are falling on Wednesday
  • This morning the company announced the launch of its home improvement online retail business 
  • This new business is expected to be loss-making until FY 2026

The Temple & Webster Group Ltd (ASX: TPW) share price is on the slide on Wednesday.

In morning trade, the online furniture and homewares retailer’s shares are down 4.5% to a 52-week low of $5.16.

Why is the Temple & Webster share price falling?

Investors have been selling down the Temple & Webster share price this morning after the ecommerce company released a trading update and announced the launch of its new online business.

In respect to the latter, the company has now officially launched its The Build business and website. This will see Temple & Webster go head-to-head with Bunnings and Mitre 10 online in the $26 billion home improvement market

Temple & Webster is launching The Build with an initial range of more than 20,000 products across 39 categories. These include bathroom fixtures, kitchen fixtures, indoor and outdoor lighting fixtures, ceiling fans, blinds & curtains, and wallpaper.

New categories such as flooring and tiling, outdoor living and landscaping, tools and building/renovation equipment will be added in the coming months.

Management notes that home improvement spending online is significantly lower than other markets. It estimates that only 4% is online in Australia at present, whereas the UK has an online penetration rate of 25%.

Though, it will be some time until the business is profitable, which could be what is weighing on the Temple & Webster share price today.

Management is targeting The Build to make a material revenue contribution and be EBITDA positive in FY 2026. In the meantime, an initial investment across FY 2022 and FY 2023 of ~$10 million will be made to support marketing, people and working capital.

Trading update

Temple & Webster revealed that its second half performance has been in line with management’s expectations.

It revealed that revenue for the period 1 January to the 30 of April was up 23% on the prior corresponding period. This is slightly lower than the 26% growth that was previously reported for 1 January to 6 February.

In addition, it advised that it continues to expect an EBITDA margin of 3% for FY 2022, which is in line with its 2% to 4% guidance range. Though, this guidance excludes The Build business.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Temple & Webster Group 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 Scott Phillips.

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