Temple & Webster to raise $40m to expand online retailing

Temple & Webster will raise $40m to try to capitalise on a rise in online sales of homewares and furniture during the pandemic.

Temple and Webster CEO Mark Coulter

Furniture and homewares retailer Temple & Webster has announced a $40m capital raising to shore up its balance sheet and fund an expansion of its online retailing capacity on the back of strong sales during the pandemic.

The raising follows strong sales growth amid growing demand for home furnishings during the coronavirus lockdown, with Temple & Webster revealing June gross sales were up 130 per cent year-on-year.

It anticipates full-year earnings before interest, tax, depreciation and amortisation of more than $8m, a more than 600 per cent lift on the $900,000 booked in the prior year.

The retailer told the ASX it would undertake an underwritten placement worth $40m at an offer price of $5.70 per share, a 9.7 per cent discount on the last close price of $6.31 a share.

The raising will result in the issuance of seven million fully paid ordinary shares, which equates to approximately 6.2 per cent of the company’s existing capital.

The raised capital will be used to provide “further financial flexibility” for the company to be able to capitalise on any further growth opportunities that will arise, “given the recent acceleration in the adoption of online purchasing, particularly with respect to the Australian homewares and furniture market”.

Temple & Webster said it will invest in an offshore start-up developing AI-powered interior design tools, and has struck a deal to bring the product to market.

Chief executive Mark Coulter said the company was excited about its “unique opportunity to capitalise on the structural shift from offline to online for furniture and homewares”.

“With the recent acceleration of this trend, we think it is financially prudent for the company to strengthen its balance sheet to provide us with flexibility to make additional investment into our growth, including our technology and product service offering,” he said.

The company revealed its gross revenue year to date, as at May 31, was $151.7m, up 60 per cent on the prior year’s $90.4m. The gains were spurred by an increase in gross margins from 40.4 per cent to 67.7 per cent.

Current cash reserves were $29.2m and the balance sheet held no debt.

RBC Capital Markets analyst Tim Piper on Wednesday gave the stock an “outperform” rating and a target price of $5.80 a share, noting that the planned investment in online services will compliment recent sales momentum.

“The raising provides additional capital to drive growth and invest further in the platform, while Temple & Webster is very focused on customer experience so we expect continued investment in areas such as customer service, distribution and the product range,” he said.

“While we see a strong structural tailwind as sales shift online, there is also material upside in our view as Temple & Webster drives greater brand awareness, repeat purchase behaviour and expands the product offering.

Temple & Webster’s annual results will be released at the end of July.

A splurge in homewares spending amid the coronavirus lockdown also has benefited other homewares retailers like Harvey Norman and JB Hi-Fi.

Both have predicted a lift in annual profit of around 20 per cent for the 2020 financial year.