Temple and Webster (ASX:TPW): Here’s why there’s still more growth to come from this ecommerce furniture outlet

Temple and Webster (ASX:TPW) was one of several homewares and furniture companies to benefit from the pandemic as locked-down consumers spiced up their homes.

Shares retreated as the country re-opened in 2022 and rising interest rates caused high-growth companies to be shunned by investors. But unlike many of its peers, Temple and Webster has undergone substantial growth of late, and is nearly back to its pandemic peak.

This is no accident…it is because the company has continued to grow its sales and customer numbers even as the world has re-opened. In fact, its Active Customer Numbers are roughly thrice as high as pre-pandemic. And it has aspirations to become the largest furniture and homewares retailer in Australia and for $1bn+ in annual sales over the next 3-5 years.

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Who is Temple and Webster?

Temple & Webster (ASX:TPW) is an Australian company that operates as an online furniture and homewares destination. Its mission is to ‘make the world more beautiful, one room at a time’.

The company began in 2011, and initially operated as a members-only website offering limited-time sales on high-end furniture and home décor. The company eventually opened its doors to all, expanding its product offering both organically and through strategic acquisitions, most notably Milan Direct in 2016 as well as the Australian operations of Wayfair.

When the company listed, which happened in 2015, it had a market capitalisation of $117m, forecasted revenue of $60m for the following 12 months and 190,000 active customers. Today it has a market capitalisation of $1.5bn, over $600m in revenue and over 1.27m active customers!

Growth in personalised furniture

In FY25, the company delivered $601m in revenue, up 21% from the year before. Its EBITDA was $18.8m, up 43% and representing a margin of 3.1%, while its free cash flow was $38m and NPAT was $11.3m (up more than five-fold in 12 months). It closed the period with $144m and no debt. An EBITDA guidance of 3-5% for FY26 was given. It closed the period with a 2.7% market share and is aiming for 4.2% over the medium term.

What makes it stand apart from its peers? Above all else, its own collection of home furnishings and décor, that aim to reflect customers’ personal style. Among other things are its emphasis on sustainability and ethical production, its AI-powered tools such as The Studio that helps customers visualise how products would look in their own home using augmented reality technology, and its division aimed at professional and trades customers.

It has 94% of products in stock and ready to ship, enabling fast dispatch. Its asset light model helps its margins. Customer satisfaction has consistently been above 60% over the last 3 years. And it is generating good results from AI with a 3% conversion rate in FY25.

Is there really any growth left?

Yes. Investors might be forgiven for thinking there is no growth left in the industry. We acknowledge it may never become a ‘majority eCommerce’ industry, but we still think there is room for growth based on the facts that penetration is higher in other countries, particularly the UK and USA where penetration is nearly 30% as opposed to under 20% here. This is projected to happen as millennials gradually become the largest spending cohort.

Notwithstanding the common stereotypes that they lack the money of previous generations, they are lucrative for a number of reasons. Firstly, this demographic is highly comfortable with online shopping, having grown up during the digital age. Secondly, millennials tend to move more frequently, whether for jobs, seeking new experiences, or adapting to their growing families. This lifestyle makes them more inclined to purchase furniture online that meets their evolving needs and tastes.

Thirdly, they are drawn to brands that offer sustainable, stylish, and cost-effective solutions, aligning with their preferences for environmental consciousness and financial savvy. Fourth, they value personalisation and unique experiences that Temple and Webster can offer. And finally, they are entering their prime furniture-buying years.

TPW also has overseas aspirations commencing in New Zealand where there is a $3bn market that exists. The company began operations last October and made $100k in orders in the first 6 weeks.

Big goals! But big expectations

Temple and Webster aims to grow its revenue to $1bn+ over the medium term and purports to be on track to achieve it. This would represent high growth, 20-36% CAGR, and is a big claim to make. But if it can achieve this, there would be significant opportunity for shareholder value would be created.

We cannot shy away from the fact that shares are down 50% from all time highs and need to address this. It is not the case that TPW is not growing anymore as such a decline would suggest. But things are changing.

For much of its listed life, TPW was priced like a classic high-growth technology-style stock in a niche Australian retail sector, with investors willing to pay a high premium on future earnings because revenue growth looked powerful and consistent. As it approached record highs last year, implied valuation multiples — like price-to-earnings — became very stretched relative to traditional retail peers, reflecting that growth narrative being priced into the stock.

The company reported its revenue was up 18% year on year for the first 5 months of the year. This was below the 23% consensus estimates and down from earlier in the period where growth was closed to 28%. That deceleration — in the context of a stock trading at rich multiples — spooked investors who had been betting on continued double-digit growth acceleration. And one could argue interest rates rising could hurt the company’s cause.

Even with the drop, the company’s P/E is 94.7x for FY26 and 54.4x for FY27, even with the growth modelled by analysts. For FY26, they call for $720.9m revenue, $28.8m EBITDA and $0.13 EPS or a $15.6m profit. Then for FY27, $861.5m revenue, $45.6m EBITDA and a $26.3m profit. FY28 is expected to be the year the company surpasses $1bn revenue slightly and achieved $64.4m EBITDA and a $38.3m profit.

But the mean target price is $21.13, a 71% premium to the current share price.

Conclusion

All things considered, we think there are plenty of reasons to consider  Temple and Webster. It has:

• A customer base that is sticky, growing, high-margin and constantly coming back,
• An income statement in positive territory profitable
• Already been deriving benefits from AI
• Proven itself resilient to adverse economic conditions
• Exposure to a market that remains nascent and is set to grow in the years ahead.

This stock is one to keep your eye on.