The S&P/ASX 200 Index (ASX: XJO) share Temple & Webster Group Ltd (ASX: TPW) has delivered very impressive returns already. Over the last five years, the company's share price has risen more than 240%, as the chart below shows.
I don't know what the future performance of the share price will be, but the online furniture and homewares retailing business is delivering excellent revenue growth. The business is in a prime position to benefit from multiple trends that could help the company's top line (and bottom line). Let me explain how it's playing out.
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Adoption of online shopping
The business reported that its market share reached 2.9% in the first-half of FY25. Temple & Webster said the category is undergoing a 'once in a generation' shift from offline to online.
The business believes now is the time to accelerate its market share growth, with the goal of becoming the largest retailer of furniture and homewares in Australia. It's already the largest online retailer in the category.
Management believe the business is winning market share due to having a "great range, at great value" compared to competitors, as well as a high customer satisfaction level and a much-loved brand. The company also pointed to market-leading content, data and AI capabilities.
The business is aiming for at least $1 billion of annual sales in the medium-term.
Benefiting from AI
When a business sells hundreds of millions of dollars' worth of products each year, the margin on those sales is crucial.
Its underlying margins are already benefiting from increasing scale, while its model of a majority of products being sent directly from suppliers means it's an asset-light business.
Its investments in artificial intelligence could help the ASX 200 share's margins because of how it could drive conversion and deliver cost-based efficiencies.
In the first half of FY25, at least 60% of customer pre-sales and post-sales support interactions were handled by AI and technology, which resulted in a reduction of customer care costs by more than 50% since the FY23 first half.
Temple & Webster also revealed that AI-calculated shipping prices improved revenue per customer visit by around 3% and also increased shipping price accuracy by approximately 17% leading to 'delivered margin' improvements.
On the cost side, fixed costs as a percentage of revenue declined to 10.5% in the FY25 first half, as the business progresses towards its target of less than 6% over the long-term.
Key drivers of its fixed cost leverage include automation and reduction in manual tasks, moderation of headcount growth over time and improved productivity.
Final thoughts on the ASX 200 growth share
The business is growing at a very fast pace – between 1 March to 5 May 2025, revenue grew 23% year-over-year.
I think the business is on a very good trajectory in the next three to five years. Through a combination of revenue growth and cost reductions, it's very promising. It's certainly not cheap, but strong businesses tend to keep winning, in my view.
