Declining sales have not impacted all areas of the retail landscape equally. Retail trade in Australia is predicted to grow at a measly 1.1% per annum between 2017 and 2022, however, the outlook is brighter within certain subsectors. Revenue in the homewares and furniture category is forecast to grow at 9.1% per annum between 2020 and 2024.
With every challenge comes opportunity and some ASX homewares retailers are leveraging opportunities better than others. Here we take a look at how three ASX homewares shares are performing.
Temple & Webster Group Ltd (ASX: TPW)
The shift to online shopping has been slow to occur in the homewares and furniture space where just 4% of sales were made online last year. This figure, however, is expected to nearly double by 2022 when it is predicted some 7% of sales will be made online. Temple & Webster is primed to take advantage of this shift with the homewares retailer selling online only.
Temple & Webster leverages data and digital to engage customers, targeting the millennial generation who are comfortable purchasing online. These customers are now moving into the prime furniture buying age range. In the UK and US, the proportion of online furniture shoppers is close to 15%, a trend the retailer hopes will take hold here.
The online strategy allows Temple & Webster to save on leasing costs with an absence of storefronts. The company also saves on warehouse costs with approximately 80% of sales not requiring the retailer to hold inventory. Despite the lack of inventory, Temple & Webster has a range of over 180,000 products.
Thus far, Temple & Webster's online-only model has paid dividends, with the retailer reporting a 50% increase in revenue in the most recent half-year. Revenue of $74.1 million was reported, up from $49.4 million in 1H19.
The online retailer positions itself as offering 'affordable beauty' appealing to the value-conscious shopper. Temple & Webster reported 45% growth in active customers for the most recent half-year, alongside a record weekend in November driven by Black Friday.
Earnings before interest, tax, depreciation and amortisation (EBITDA) of $2.3 million was reported, up from $1 million in the prior corresponding period (pcp). High growth has allowed the retailer to forge closer relationships with suppliers and invest in key differentiating areas such as technology and the online experience.
Temple & Webster's focus on online reach has resulted in the company recording some 2.1 million email subscribers and 335,000 active customers. The retailer connects with 610,000 users via social media and recorded 1.8 million website users in November.
Temple & Webster reported profit for the first half of $2.9 million. The second half started strongly with year-on-year revenue growth of 55% in the period to 17 February, 2020. The retailer is committed to a high growth strategy to take advantage of the structural shift towards online, so short term operating leverage is being reinvested into growth initiatives.
Nick Scali Limited (ASX: NCK)
Nick Scali is a furniture retailer that sells predominantly through shopfronts. During the first quarter, Nick Scali experienced difficult trading conditions with a significant drop in foot traffic. Comparable store sales growth declined 8.3%. During the second quarter, however, trading improved with written orders up 3.5% on a comparable store basis.
Sales revenue for the half fell 2.5% to $137.5 million from $141.1 million in 1H19. Managing Director Anthony Scali called the trading environment "very tough" and commented that consumer confidence remains fragile. In January, normally the company's biggest trading month, written orders actually declined 1.7%.
Nick Scali was able to maintain solid profit margins throughout the period with gross margin for the half of 62.2% compared to 62.8% in the pcp. EBITDA, however, declined 18.8% to $31 million from $38.2 million in 1H19.
Underlying net profit after tax (NPAT) of $20.1 million was achieved, above October guidance that NPAT would be in the range of $17 million – $19 million. A fully franked dividend of 25 cents per share was declared, on par with the pcp, representing a payout ratio of 94.7%.
One new store was opened during the half, which was the company's third store in New Zealand. This brought the store network to 58 stores, with a long term target of 80 – 85 stores across Australia and New Zealand. Three further stores are expected to be opened in the second half including one in New Zealand.
Adairs Ltd (ASX: ADH)
Adairs retails homewares and home furnishings both in-store and online across Australia and New Zealand. The company employs a vertically integrated model with 90% of its range sold under its own private brands. Adairs has more than 160 physical stores across Australia and New Zealand as well as a fast-growing online store.
In the first half, Adairs reported record sales and profitability. Sales increased 8.6% to $178.9 million, with like for like sales growth of 6.9%. Online sales increased 31.6% while sales in physical stores increased 2.4%. Five new stores were opened during the half with gross lettable area increasing by 5.5%.
Gross profit increased 9% during the half to $109.3 million while gross margin improved 20 basis points to 61.1%. NPAT was up 4% to $15.7 million. An interim dividend of 7 cents per share was declared (fully franked), up from 6.5 cents per share in 1H19.
During the half, Adairs acquired online home and living products retailer Mocka. Operating in Australia and New Zealand, Mocka has a history of strong sales growth and high levels of profitability. The acquisition creates a larger, more diversified business with increased exposure to the online channel.
In the first seven weeks of the second half, Adairs generated like for like sales growth of 2.3%. While this represents slowing sales growth, it is part of an ongoing program to reduce discounting and the length of time the business is on sale. Adairs expects to open 1-2 new stores during the half. Full-year guidance was unchanged with sales of $385 million to $400 million anticipated (including the Mocka contribution).
