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-Second half starts poorly
-Management outlook cautious
-Is it worth -27%?
Online furniture & homewares retailer
The company then struggled with supply constraints, and then with excess inventory, before lockdowns ended and everyone had bought whatever they were going to, switching spending to travel and entertainment in 2022. The share price fell -70% to June.
(Note: that falls trims the earlier 400% gain to a mere 120%)
The stock managed a small recovery up until yesterday, when it fell -27% following its first half FY23 earnings result release. It was a rather severe response, given brokers found
Different Story Ahead
But it was not the result that spooked the market. It was a decline in sales of -7% for the first five weeks of the second half, and a surprisingly cautious outlook from management.
It is of no great surprise the outlook for the Australian consumer is a lot more dire in 2023 following a total of 325 basis points of cash rate hikes from the RBA, translating into mortgage stress for many. Westpac's consumer confidence index has collapsed in February, with lower readings only ever seen in recessions. The measure of attitude towards major household purchases fell to the fourth lowest level in 48 years.
Whether or not a couch or wardrobe is considered a "major" purchase, a lot of couches and wardrobes were acquired in the near-zero rate environment of 2020-21. To that end, the company's "active customers" declined by -11% half on half in the period.
Yet revenue per active customer was up 7%, driven by average order value growth and growth in repeat orders. Repeat customers also increased to 57% versus 55% in FY22.
Other numbers that stood out for brokers were a cut in marketing expenditure in the first half to 11.8% of revenue compared to 13.6% a year ago. The headcount was reduced by -10%. And FY23 guidance for investment in "The Build" has been cut to
"The Build by
Management did retain earnings margin guidance of 3-5% for FY23, and continues to expect a return to double-digit sales growth, albeit no mention of when.
A Bit Harsh?
Goldman Sachs notes early 2023 laps the omicron outbreak of early 2022, when we weren't in official lockdown but many Australians chose to lock down anyway. Over the same five-week period
The broker retains a Neutral rating.
While the trading update was below Morgan Stanley's expectations, the broker retains Overweight, citing easier comparable numbers to cycle from a year ago, reiterated margin guidance and balance sheet optionality for either organic or M&A growth.
Brokers have generally acknowledged the company's strong balance sheet position, including
Macquarie weighs up the balance sheet against near-term macro headwinds for furniture retailers given rising rates and slowing housing turnover, and against yesterday's share price thumping. The result is an upgrade to Neutral from Underperform.
Barrenjoey believes
As does Credit Suisse, and
Given the negative short-term momentum in sales and uncertainty with respect to second half consumer spending generally, Credit Suisse does not think investors need to "rush into" the stock at this stage.
Perhaps the most telling is a consensus target price cut in the FNArena database to
Barrenjoey has cut its target to
To
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