There are a number of impressive ASX retail stocks available for Aussies to buy, including Temple & Webster Group Ltd (ASX: TPW) and JB Hi-Fi Ltd (ASX: JBH).
I view both of these companies as leaders in their respective fields, with Temple & Webster selling large amounts of homewares and furniture through its website, while JB Hi-Fi sells a wide array of consumer electronics and appliances.
Both businesses have delivered impressive returns in the past 12 months, with the JB Hi-Fi share price up 70% and the Temple & Webster share price up 55%, as the chart below shows.
Let's examine several different areas to decide which share to invest in.
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Revenue growth rate
In my view, both companies have delivered impressive revenue growth, considering the various economic impacts — think inflation and higher interest rates — and global disruptions of the last few years.
Good revenue growth is a key factor in influencing shareholder returns because everything flows from there, including profit and a company's scale.
Let's look at the most recent sales update from the two businesses.
In the first quarter of FY25, JB Hi-Fi said its JB Hi-Fi Australia division grew sales by 4.9%, and The Good Guys grew sales by 5.3%.
For Temple & Webster, in FY25 to 24 October 2024, its revenue increased by 21%.
Temple & Webster is the winner here, it seems.
Future profit growth
It's not just about sales, of course; long-term profit growth is extremely important.
Because of its digital nature, Temple & Webster has a lot of scope to increase its profit. That allows it to service the whole country with its website rather than needing a national store network. It can also interact with customers using AI, helping decrease costs and improve customer satisfaction and conversion.
Temple & Webster has the potential to leverage its fixed costs across increased customer activity, leading to rising profit margins. It's also useful that a significant majority of products sold to Temple & Webster customers are sent directly from suppliers, so Temple & Webster is capital-light and doesn't need a large inventory position or many warehouses to deliver on the scale of its revenue.
It's impressive how profitable JB Hi-Fi is, but the ASX retail stock's profit margins may not have as much upside due to its store network unless significantly more of its products are sold online.
Interestingly, according to estimates from UBS, Temple & Webster could earn 70 cents per share of earnings per share (EPS) in FY29, and JB Hi-Fi could earn $4.97. At the current share prices, both businesses are trading at approximately 20x FY29's forecast earnings.
Growth runway
With both ASX retail stocks apparently trading on a similar price/earnings (P/E) ratio, I think it's likely that Temple & Webster shares are the better long-term buy.
That's because there are a number of tailwinds that could help the furniture and homewares retailer more, such as increasing adoption of online retail, growing brand awareness and an expanding product range (such as home improvement products).
I believe Temple & Webster could continue growing revenue at a double-digit rate for a long time to come, so the further into the future we look, the more it makes sense to own Temple & Webster shares, particularly if profit margins improve better than expected.
