Temple & Webster is a millennial favourite, but can it go the distance?

If you’ve ever needed a couch, a hammock or a scratching post for your cat in the shape of a cactus delivered straight to your door, chances are Temple & Webster has crossed your radar.

The online-only furniture retailer launched by former colleagues at eBay and News Corp has now grown into a $600 million listed retailer, riding the wave of the pandemic to post share price gains of around 75 per cent since the start of 2020.

Mark Coulter is the chief executive of online furniture retailer Temple & Webster, a star performer during COVID-19 lockdowns.Credit: Aresna Villanueva

Temple & Webster has offered new millennial home-owners and style-conscious renters access to on-trend furniture in a more affordable way – and has become one of the major alternatives to IKEA flat-pack design furniture during the lockdown era.

While the business has found its feet and target market over the past couple of years, there’s no denying the pandemic-induced surge in online sales can’t last forever. Now that the bricks-and-mortar showrooms of furniture retailers have built back their momentum, can Temple & Webster stay in the race for growth?

How it started: Co-founders Mark Coulter, Adam McWhinney, Conrad Yiu and Brian Shanahan started the business in 2011, naming it after carpenter William Temple and carver John Webster, who made chairs for NSW governor Lachlan Macquarie back in 1820.

The group listed on the ASX almost seven years ago, with shares issued at $1.10 as part of an initial public offer.

How it’s going: The group’s shares went as low as 12 cents throughout 2016, but surged over the past two years to sit at $4.99 at the end of last week. It’s a gain of 1147.5 per cent in five years.

This run has been helped significantly by the COVID-19 pandemic, with millions of Australians heading online to deck out their home offices with new desks, chairs, and decor.

Industry: Online retail, furniture sales.

Main products: Homewares, furniture and DIY project supplies.

Key figures: Chief executive Mark Coulter, chair Stephen Heath.

The bull case: Coulter had good news to share with investors about the company’s outlook at the annual general meeting last week.

It was always going to be tough to compare sales over the past few months with last year, when much of the east coast was in lockdowns.

Between July and October, revenues were down 14 per cent, Coulter said – but the month of November was slightly ahead of 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.”

The company also reported that while the rest of the economy is worrying about inflation, it has actually seen deflationary signs in factory and container costs.

Temple & Webster’s homewares are a hit among the millennial crowd.Credit: Louise Wellingtin

Goldman Sachs analysts expect the company to return to solid revenue growth again from 2024 to 2025, forecasting that while homewares sales will decline over the next couple of years, Temple & Webster can gain enough new customers to offset this.

“We believe the market is underestimating the long-term potential of this business given near-term macro headwinds across the category,” analyst Sophie Carran said last week.

“Longer term, we expect both growing online penetration and a consolidation in market share towards Temple & Webster to drive a 10-year revenue compound annual growth rate of more than 13 per cent.”

UBS analyst Tim Piper said the company remains the preferred e-commerce pick within his team’s coverage, noting that Temple & Webster has been able to hold onto more COVID-driven growth than peers like Kogan.

The balance sheet “screens as the strongest out of this peer set with net cash of over $100 million”, Piper said in a note, which could provide a buffer if trading conditions worsen.

The bear case: The slowdown in overall online retail sales is not the only business risk causing analysts to be wary.

Sales of furniture and homewares in particular are being tipped to slow from next year as interest rates continue to rise and Australian consumers feel the full impacts of inflation and increased mortgage repayments on their household budgets.

Macquarie’s retail team notes that trading has been improving in the lead-up to Christmas, but is cautious about the appetite to spend into the next year.

“We expect the macroeconomic environment to continue to be tough over the short-medium term given higher interest rates, a shift back in-store and a COVID pull-forward of demand,” its analysts said in a note to clients. The group has a target price of $4.05 on the stock, well below its $4.99 closing price last week.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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