Two ASX furniture retailers, Nick Scali Ltd (ASX: NCK) and Temple & Webster Group Ltd (ASX: TPW), have delivered remarkable returns of over the past five years.
Whereas Temple & Webster has lifted from $2.11 in March 2020 and now sells at $16.73 before the open on Monday, Nick Scali has run from $3.08 to $16.41 apiece.
Brokers at investment bank Macquarie are bullish on both stocks, naming them buys in its March 2025 small to mid cap (SMID) list of picks. Let's dive in and see what's the outlook for each.
ASX furniture retailers outperform
Macquarie analysts have rated Nick Scali a buy with a price target price of $19.90 apiece. It noted the ASX furniture retailer's gross margins were ahead of forecasts in H1 FY25 even as freight rates shifted higher.
It now expects gross margins to "return to a 65-66% range from FY26".
The UK market has contributed Nick Scali's growth as well. Gross margins in its UK business improved by 4.1% over the year to 45%.
Macquarie expects this to increase further to 57-59% as the ASX furniture retailer rolls out new products roll into UK stores and opens new stores, with the total gross margin tipped to reach 49% by 2H25.
Significant store roll-out opportunities in both ANZ and the UK, despite near-term difficulty sourcing locations. The ANZ region is only 60% through the long-term target of 176-186 stores. Plush network optimisation continues, with 2 smaller stores closed in 1H25, relocated to larger, new concept stores, expected to drive better conversion.
Several new UK stores "are currently being reviewed". This would provide further upside vs expectations, as we do not forecast a UK store roll-out.
AI creeping into Temple & Webster offerings
Temple & Webster is another ASX furniture retailer in the spotlight in Macquarie's March picks. The broker rates it a buy with a target price of $17.60.
It notes the company's 24% sales growth in H1 FY25, underscored by a 22% growth in active customer growth and 7% growth in conversion rates.
Artificial intelligence (AI) looks to have been some what of a game-changer for Temple & Webster.
In the first half, Macquarie notes that 60% of the company's customer interactions were handled by AI, cutting customer care costs by 50%.
This AI-driven approach has boosted revenue per visit by 3% and "increased shipping price accuracy by ~17%, supporting margin improvements."
Looking ahead, the broker sees continued revenue growth and operating margin growth thanks to AI.
1H25 EBITDA margin was above the top-end of guidance of 4.2%, with FY25e margin guidance of 1-3% reiterated. We expect the strong margin in 1H25 to allow flexibility in 2H25e for additional marketing. We forecast TPW to reach the longer-term EBITDA target of >15% in FY31.
Foolish takeaway
Both these ASX furniture retailers are well-positioned for growth this year according to this top broker. This comes after a challenging period in Australian retail.
Whether or not the broker's opinions will come true is a matter of time and fate. Until then, Temple & Webster is up 34% in the past year, and Nick Scali is up 10%.
