Temple & Webster share price rockets 15% on 'good sign'

This online retailer's shares are having a very strong day…

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Key points

  • Temple & Webster shares are on fire on Wednesday
  • This follows the release of a trading update at its annual general meeting
  • The online retailer has had a tough first half but appears well-placed for a strong second half

The Temple & Webster Group Ltd (ASX: TPW) share price is on course to end the month on a very positive note.

In morning trade, the online furniture and homewares retailer's shares are up 15% to $5.33.

Why is the Temple & Webster share price shooting higher?

Investors have been bidding the Temple & Webster share price higher this morning following the release of a trading update at the company's annual general meeting.

According to the release, as previously flagged, the first half of FY 2023 has been a tough period for the company. This is because the prior corresponding period included lockdowns across parts of Australia, which boosted online sales.

As a result, Temple & Webster recorded a 14% decline in revenue financial year to date to 27 November.

So why are its shares racing higher?

The reason the Temple & Webster share price is rising strongly today is management's comments on its improving performance.

It revealed that second quarter sales were down 3% quarter to date as of 27 November, which is a big improvement on its first quarter performance.

But it gets better! For the period 1 November to 27 November, the company's revenue is running slightly ahead of the same period last year. Management believes this is a good sign for the remainder of FY 2023. It commented:

The pleasing news is that we have now begun the trajectory back to growth, and Q2 (QTD: 1st Oct to the 27th Nov) is only down 3% vs the same period last year and the month of November (1st Nov to the 27th Nov) is running slightly ahead of November last year. This is a good sign as this month is usually our busiest sales period due to Black Friday, suggesting a return to double-digit growth during the financial year.

In addition, the company revealed that its inventory levels remain strong across both its dropship network and its own private label range, and deflationary signs are appearing on both factory and container costs.

Finally, also giving the Temple & Webster share price a boost is management's comments on its margins for the year. Despite the tough economic environment, it has reiterated its margin guidance for FY 2023. It explained:

While a return to year-on-year growth is important, equally important in this environment is a focus on unit economics and bottom-line profitability. The Group reiterates its stated 3–5% EBITDA range for the full FY23.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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