The Temple & Webster Group Ltd (ASX: TPW) share price is back on form again on Wednesday after dropping lower yesterday following its half year update.
In morning trade, the online furniture and homewares retailer's shares are up 5% to $11.10.
What happened in the first half?
As I covered here yesterday, Temple & Webster delivered very strong growth during the first half of FY 2021.
The company reported a 118% increase in revenue to $161.6 million and a 556% jump in earnings before interest, tax, depreciation and amortisation (EBITDA) to $14.8 million.
This was driven by the doubling of its active customers to 678,000, higher repeat use, a 6% increase in the average spend per active customer, and operating leverage. In respect to the latter, over the last 12 months the company's fixed costs as a percentage of sales decreased from 11.6% to 7.5%.
A chat with management
I spoke to management following the release and CEO, Mark Coulter, appeared very pleased with the half.
He pointed out that while the shift to online shopping during the pandemic has undoubtedly benefited the company, Temple & Webster was a high growth company before COVID and is expected to remain one post COVID.
This is due to the tailwinds the company is experiencing from the structural shift to online shopping and favourable changes in demographics. In respect to the latter, tech-savvy millennials are now entering its core demographic.
In addition to this, Mr Coulter took me through the company's private label business and the incredible amount of work that goes into it. Private label sales accounted for 25% of total sales during the half, up from 18% a year earlier. Management is now aiming to grow this to 30% of sales.
And finally, while customer acquisition costs are trending higher, this is being comfortably offset by the increasing revenue per user the company is generating thanks to a higher repeat customer rate.
Is the Temple & Webster share price in the buy zone?
According to a note out of Goldman Sachs, it believes the Temple & Webster share price is in the buy zone right now.
Although its half year result fell short of the broker's revenue and earnings expectations, it has started the second half stronger than the broker was expecting.
It explained: "We had anticipated a re-acceleration in growth in November and December, hence TPW's sales are lower than our estimates. However, we note that the company has indicated that January revenue growth is tracking in excess of 100% vs. GSe 2H21E of +38%."
"TPW's 1H21 result was below our forecasts, largely driven by a higher cost base than our assumptions. This results in downgrades to our forecasts but, in our view, the investment case for TPW remains largely unchanged," Goldman added.
Though, it has warned that uncertainty could make its shares volatile in the near term.
It said: "We acknowledge there will be elevated uncertainty as to how TPW cycles strong comparative bases through calendar 2021. This could drive a higher level of volatility in its share price over the very-near term."
Nevertheless, the broker remains positive on the investment opportunity here, commenting: "We remain attracted to the structural tailwind of online commerce penetration and note that TPW has a leading position within its category which itself has a significant room for further online commerce growth. This should deliver well above market revenue growth and solid operating leverage over our forecast period."
Goldman Sachs has a buy rating and $12.45 price target on its shares.
