Temple & Webster share price sinks 12% despite sales recovery in FY23 result

The e-commerce company revealed growth plans and a strong start to FY24.

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The Temple & Webster Group Ltd (ASX: TPW) share price has fallen hard on Tuesday morning after the homewares and furniture e-commerce company released its full-year result.

The report is for the 12 months to 30 June 2023.

The company's share price opened down 13% and it's currently in the red by 12%.

Let's check the highlights of the report:

Temple & Webster share price plunges

The business said it returned to revenue growth in the fourth quarter of FY23, thanks to both repeat and first-time customers.

For the whole of FY23, revenue per active customer increased by 6% and orders from repeat customers made up 54% of total orders. Customer satisfaction, measured by the net promoter score (NPS), improved to 62%.

The trade and commercial division (B2B) saw revenue growth of 9%, and it represented 10% of total revenue.

The home improvement segment delivered $23 million of revenue in its first full year of operation.

What else happened in FY23?

Temple & Webster said it generated $17 million of free cash flow before its share buyback and investment in visual artificial intelligence creator Renovai.

The share buyback can help support the Temple & Webster share price, all things being equal, because it means the value of the business is being spread across fewer shares. Theoretically, this makes each share worth more. To date, the company had bought back 2.7 million shares for $12.3 million.

Temple & Webster boasted its marketing return on investment (ROI) is holding at around two times, despite inflation effects, which "provides headroom to increase" brand spend in FY24 and FY25.

The company also said that all pre-sale product enquiry live chats, representing more than 20% of all customer enquiries, are now powered by generative artificial intelligence (AI).  

What did Temple & Webster management say?

Temple & Webster CEO Mark Coulter said:

As the leading online-only furniture & homewares retailer, the market's transition from offline to online presents a once in a generation opportunity to become the top-of-mind brand in our category. Increasing scale will drive better financial returns, cost efficiencies and bigger budgets for marketing, people and technology, especially as we leverage our data and early adoption of AI.

Our focus over the next three to five years is to accelerate our growth plans and build scale. Our strong cash generation and healthy balance sheet provides us with an opportunity to gain market share, potentially even more efficiently given current economic conditions.

What's next?

The business will continue its $30 million share buyback in the absence of "more accretive opportunities".

It remains committed to its longer-term goal of becoming Australia's largest retailer of furniture and homewares.

The company said it's going to aggressively go after market share in the near term and deliver "substantial" longer-term benefits, doing so in a "disciplined way" and "remaining profitable at all times".

It's targeting annual sales of at least $1 billion within three to five years while generating a majority of revenue from exclusive products. It's also aiming to lower its fixed costs as a percentage of revenue and build scale benefits.

Revenue in FY24 up to 13 August 2023 had grown by 16% year over year, driven by growth in both repeat and first-time customers.

Temple & Webster share price snapshot

Despite today's negative reaction, the Temple & Webster share price is up by 25% in 2023 to date. That compares to a 5% rise for the S&P/ASX 200 Index (ASX: XJO).

Motley Fool contributor Tristan Harrison 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. The Motley Fool Australia has recommended Temple & Webster Group. 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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