Thank you for standing by. Welcome to the Temple & Webster Group Limited 2023 half year results investor conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Mark Coulter, Chief Executive Officer. Please go ahead. Thank you, Mel, and good morning, everyone. It gives me great pleasure to be presenting Temple & Webster's first half results for the financial year 2023. To begin, I'd like to acknowledge the traditional owners and custodians of country throughout Australia. We acknowledge the Gadigal and Wangal peoples, as well as other First Nation countries we operate across. We pay our respect to elders past, present, and to all Aboriginal and Torres Strait Islander peoples. Temple & Webster has made significant progress across the first half. This was always going to be one of the toughest periods for year-on-year comparison, as we alluded to, due to the timing of lockdowns in FY 2022. We delivered revenue of AUD 207 million, which is down 12% year-on-year for the half. Importantly, we saw our revenue year-on-year comparisons improve over the half, with Q2 down 6% versus PCP and the month of December finishing up on the previous year. While we continue to take advantage of the industry shift from offline to online, we are also committed to delivering profitable growth. We delivered an EBITDA result of $ 7.3 million, with a 3.5% margin, which is within our guidance. This result importantly includes our investment in our new in-home improvement site, The Build. We have a strong cash balance and remain debt-free, which gives us excellent flexibility to fund our ongoing organic growth, but also to pursue inorganic opportunities as some operators in our sector come under pressure. Longer term, we see huge opportunity with uplift from online penetration in the coming years due to substantial structural tailwinds behind us. We are Australia's leading online pure play retail and a category, and we are profitable with attractive customer unit economics and have a long growth runway. As you can see on page three, our results were even better in the second quarter. Since the end of the previous financial year, we've been focusing on accelerating cost-based initiatives and margin improvement programs. We believe this focus will ensure we win in any trading environment and position us as in a stronger, more profitable business. These programs included reducing our headcount through natural attrition, improving margins through strategic pricing and better sourcing, and focusing our marketing spend on our more proven ROI channels. We are also taking a longer term view of the opportunity in the home improvement, and as such, slowed our investment in The Build. These programs led to an improved second-quarter EBITDA result of $ 5.2 million versus $4.6 million in the prior corresponding period. This was despite revenue being down year-on-year, which highlights the flexibility of our business model. When stripping out the investment in The Build, our core EBITDA result actually improved $ 6.5 million for the quarter, representing a 6.1% EBITDA margin, up from a 4% margin in the previous corresponding period. Looking ahead, we are confident in returning to double-digit growth. While active customer numbers reflect the lapping of COVID impact comparison, repeat customers now make up the majority of orders, which goes to the quality of cohorts we've acquired over the last few years. We've also seen a 7% increase in revenue per customer, the tenth consecutive quarter of growth in this metric. Pleasingly, both of our longer-term growth plays, trade and commercial and home improvement, were up 17% and 12% respectively in the half. Our customer proposition around affordable beauty is well-suited to any further changes in the macro environment, and our business model allows us to pivot to less discretionary items such as bedroom furniture and focus on our value ranges, both of which have been outperforming. Pages five and six reiterate the longer-term investment case for TPW. The B2C furniture and homewares market is a big one, more than $ 18 billion, and e-commerce penetration is significantly lagging other markets such as the US and UK. The structural shift from offline to online is being driven by demographic trends independent of macroeconomic factors. Millennials are overtaking baby boomers as the largest population segment, and these are the first digital natives to enter their core furniture and homewares buying years. Internally, we are already seeing the millennial cohort as one of our fastest-growing segments. Given the consistency of our strategy, I'll skip to some of the highlights for the half. As you can see on page eight, one of these highlights is receiving the Canstar Blue Award for the furniture retailer with the most satisfied customers in 2022, based on an independent customer survey data. We were the only retailer to receive five stars across all customer satisfaction drivers, which included five stars for our overall customer satisfaction, value for money, customer service, checkout experience, product availability, and website experience. I always say starting an e-commerce company is easy, it's the scaling bit which is hard, and it's great to see that even as we've rapidly become a much larger business, we've been able to keep the vast majority of our customers very happy. While buzzwords such as AI or artificial intelligence and machine learning are no doubt gonna be popular this reporting season due to the global phenomenon of ChatGPT, we have been actively exploring the space for many years now. We've already rolled out multiple data projects to help us improve conversion rate and lower our cost of doing business. Some of our work in this space includes using AI-powered algorithms to better sort and display our products and drive cross-sell and upsells. We've been testing an AI-powered chatbot within our customer service center for quite a while now with good success. We're also using machine learning models in our demand forecasting to drive better inventory accuracy. Our major play in the space actually kicked off almost three years ago when we invested in an Israeli startup, which is building an AI-powered interior design engine. We're the exclusive partner for this technology in Australia, and there are a wide range of innovative use cases for this technology. We believe, like many other industries, AI has the power to disrupt the interiors industry, and we wanna be at the forefront of this trend. Pleasingly, our marketing metrics, including customer acquisition costs and our return on investment, are holding even as demand softens over the half. Yeah, we saw some CPC inflation. However, this was offset by further gains in our revenue per active customer. Our trade and commercial division performed well despite the tougher operating environment, with revenue up 17% year-on-year. B2B now represents around 9% of our total business, with considerable potential to grow as we target new customers in strategic sectors while focusing on margin improvement. We've been capitalizing on the boost in tourist numbers with the launch of furniture packages and commercial product offerings into the accommodation market. We've also launched a design and project team to focus on some of these large-scale projects. We're excited by the opportunity to gain market share in a multi-billion dollar market, which is B2B, which has attractive fundamentals. Our home improvement offering across TNW, Temple & Webster, and The Build has grown 12% year-on-year and represents 6% of the group, for representing an attractive growth horizon and complementary revenue stream with significant penetration upside. Given home improvement is a longer-term opportunity, the multi-year horizon, which we've always said, we've decided to phase our investment over a longer period. This involves slowing hiring and redeploying our marketing budget onto the home improvement section on Temple & Webster. While our initial revenue targets for this new venture have been lowered, we have reduced the initial level investment required to $6 million versus the $10 million previously disclosed. We feel this is a more prudent course of action given the volatility of general trading and the fact that as I said, the opportunity is a longer-term play. Note, we still remain very bullish about the home improvement opportunity, which is a natural complement to our furniture and homewares market and significantly increases our total addressable market. I'll now hand over to Mark Tayler to take you through the numbers in more detail. Thank you, Mark. Good morning, all. I'm going to start on page 15 of the deck, which highlights the group's results for the first half, which were in line with expectations and within our stated 3%-5% EBITDA target range. As foreshadowed, revenue for the half was down 12%, as Mark mentioned, as we cycle prior year periods impacted by lockdowns. As a result, we focused on improving unit economics, margins, and cost-based metrics while leveraging the investments we made over the last two years in our people and our platforms. A few of these are listed on slide 15, such as focusing on proven ROI marketing channels and just moderating the pace of our longer-term investments. This led to improved contribution margin levels of over 15% and a reduction in fixed cost growth, which helped deliver an EBITDA result, which was within our margin targets margin range. In terms of some housekeeping metrics to assist in modeling out TPW, I'll call out the following in respect of FY 2023. Group depreciation and amortization is expected to land between $ 5 million-$ 5.5 million. CapEx between $ 3 million-$ 3.5 million, which is a little bit higher than historical levels, but this is due to the final payments of our new head office fit-out, which is now being completed. An effective tax rate of closer to 30% for 2023 is also advisable. Page 16 focuses on Q2 performance. Pleasingly, our unit economics improved compared to the prior year, despite year-on-year revenue headwinds, leading to an EBITDA result of 6.1% if you exclude The Build investment. Our strong position with suppliers are helping with negotiating better margin outcomes, while optimizing marketing channels helped achieve a strong contribution margin result. Elevated supplier inventory levels are also providing an opportunity to help clear some of this stock, and we continue to see signs of pricing deflation, which should support margins for the remainder of this calendar year. It was also pleasing to see the positive trajectory throughout the half with revenue in the second quarter down just 6% for Q2 on Q2 FY 2022 versus being down 18% for the first quarter year-on-year. This improved further towards the end of the half, with December revenue being up on the prior year. Page 17 shows that our longer-term margin aspirations have not changed, and that we are targeting these through margin expansion initiatives and phasing investments in growth. In particular, we know that as we scale, we should continue to see benefits with suppliers and benefits of increases in private label sales. We will also see other benefits, such as a reduction in our marketing spend as a% of revenue, particularly as more of our orders come from repeat customers. As we know, it is a lot cheaper to re-engage a repeat customer than to acquire a new customer. Our fixed cost base will be a key area of operating leverage in the coming years. We know Temple & Webster can drive much larger revenue with existing resources. We can also leverage the significant investments we've made into the business over the recent years. Finally, page 18 highlights the cash flow generative nature of the business. We have a strong balance sheet with cash levels over $ 100 million, primarily driven from cash from operations and the benefits of the group's negative working capital model. These cash levels are strong, and ready and able to be deployed. Our capital-like business model does ensure that balance sheet risks are minimized. We're still the majority of our business structure which carries no inventory risk. During Q2, we completed the fit-out and move into our new headquarters here in St. Peters, which was a real highlight. This site consolidates multiple offices, studio spaces, and warehouses, means our entire Sydney team is now in one single building. We've negotiated a long lease on the site with options to expand our footprint and tenure as we grow. The takeaway for me from these results is we are managing what is in our control, we are being prudent in our financial management. We have an adaptable business model with attractive unit economics, for an e-commerce company that continues to generate good cash that can sustain our growth ambitions whilst maintaining a strong capital structure. This puts us in a very strong position to continue generating profitable growth irrespective of the market conditions. Thank you all. I'll now hand you back to Mark. I'll now turn to our strategy and outlook. Pages 20 and 21 set out the longer term case for TBW. As highlighted previously, the furniture and homewares market is stable and has shown resilience even through periods of macroeconomic headwinds. Importantly, even if the overall market is challenged, we still have the tailwinds of the structural shift from offline to online. This rate of adoption may actually increase as customers turn to the better value online channel, as we've seen in the past. We're also expecting market share gains as we exert our market leadership position and reap scale benefits. We continue to diversify our revenue mix by expanding activities into B2B, furniture and homewares, and the home improvement market, and this increases our total addressable market to more than $30 billion. I often hear online retail companies will never be profitable. I feel like that is a little like saying all offline retail companies will be. Of course, the answer is much more nuanced. It depends on the vertical company they're in, their assortment, their customer proposition, their margin profile, the cost of doing business, the level of competition, et cetera. Over a decade ago when my fellow co-founder and I first scoped Temple & Webster, along with the general level category, we did look at the fundamentals of furniture market. You know, while having higher average order value and better margins than many other categories is an obvious benefit, some of the other benefits are a bit more hidden. For example, over 3/4 of what Temple & Webster sells is either white labeled or sold under a private label. This allows for more of the catalog to be differentiated and exclusive to us, and it means there's a bigger opportunity for high-margin initiatives such as private label. The logistics around bulky goods is hard, both moving goods around and into the country. Air freight is prohibitively expensive for bulky deliveries. This reduces the level of competition, and there's a reason that Australia has some of the highest margin furniture retailers in the world. We believe these dynamics, along with others, will ensure the long-term sustainability and profitability of Temple & Webster. Given the consistency of our strategy, I'm gonna go straight to the trading update on page 24 to give more time for questions. Sales for the first five weeks were down, this half were down 7%, noting that the prior comparison period was significantly impacted from strong e-commerce demand during the Omicron outbreak. We note that December 2022 sales were up slightly versus December 2021, a trading period that was not impacted by Omicron. We remain committed to our profitable growth strategy and will continue our focus on margin optimization and cost management to ensure we end the year within our 3%-5% EBITDA margin range. We believe our business model, customer metrics, brand, and new growth horizons position us well to navigate any trading conditions and return to a high-growth business. For the more we have over $ 100 million of cash to expand our roadmap to sales initiatives, pursue inorganic opportunities to support sustainable growth. Longer-term, e-commerce in Australian furniture and homewares market category remains highly underpenetrated, and we have a much larger addressable market to go in after, with our new target verticals. In closing, I'd like to say a huge thank you to the Temple & Webster team for the dedication and commitment to delivering beautiful solutions to our customers. We will now take any questions you may have. Thanks, Mark. Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Sophie Carran with Goldman Sachs. Please go ahead. Hi, Mark and Mark. Thanks for taking my questions. Just the first one around inorganic growth. Can you talk a little bit about what sort of opportunities you're looking for, whether it's a technology advantage or to grow the customer base? Just as a sort of follow-up, just given the amount of cash you have on the balance sheet, if you don't find something to acquire, are you also considering other capital management opportunities such as a buyback or anything else? Hi, Sophie. It's Mark T. here. I think well, maybe M.T. and M.C. we'll call out just so you know who's talking. Look, yeah, look, we are definitely in a strong position when it comes to our balance sheet position, our capital position, and have been in that you know, we've been in a positive position now for a little while. I think if you go back to the COVID period, it was clearly a difficult period for us to be deploying some of that cash, as, you know, the primary focus was actually to maintain growth and ensure we have a consistent and strong customer experience. I think now we're, you know, we're definitely in a more of a mindset and headspace, and we have capacity now to be looking at this with more depth and more focus. Look, I think to answer your question, well, there's a few questions in there, but we're certainly taking M&A more seriously. We have resources on the ground now, and we have the cash to deploy. You know, I think for us. We aren't in the business of wasting shareholder funds, and I think hopefully everyone knows that by now. We will be very considered in our approach, and we're not gonna buy something just for the sake of buying something, irrespective if it's, if it's perceived as being, you know, very cheap out there. I think the areas that we've spoken to before, which are areas like trade and commercial B2B, where there's some attractive unit economics in that space, and, you know, there's no real household brand names and would be quite accretive and adds capability to our business that we don't currently have, I think makes a lot of sense. You know, you've seen our appetite from a technology perspective with the investment in Renovai, I think if there's further technologies out there that can replicate or do similar things in terms of being or producing disruptive technology, I think, you know, that's quite interesting to us. I think, you know, also from a third growth horizon, you know, the home improvement area as well is quite attractive as well. you know, being able to deploy some cash there to accelerate growth, prospects in some of these second-hand growth horizons, I think makes, you know, makes a lot of sense. you know, I think the overarching sentiment is we would prefer to put that cash to work, as opposed to, you know, other capital management strategies. we would obviously look at those if there was nowhere to put that cash or to deploy that cash in accretive acquisitions. certainly that is our preference. Great. Thanks, Mark. Just one more from me, just around the revenue environment. Have you noticed any sort of shift in trend outside of the Omicron impact, if you think from December to January? Are you still comfortable in returning the business to double-digit growth through the half? How do you balance that revenue growth with the pullback in marketing spend? I think, definitely we can see customers, the flight to value. You know, I've always said furniture and even the homewares bit of the business is less discretionary than people think. I know we're in an, you know, discretionary category as labeled in retail. However, if you think about your own decisions, you don't, you know, you don't impulse, say, impulse buy a dining table. It's usually a need that is generated for that item. The other thing is, you know, things break. You know, a large percentage of what we sell are people replacing single items or, you know, sheets that are worn out or towels, etc That kind of demand keeps going. Within our data, you can see the flight to value. Our furniture categories are doing well. Categories like bedroom furniture, mattresses, even sofas are doing well. Our sofas are actually outperforming some other categories. However, within those categories, people are looking for value. That's kind of we feel confident that we have, you know, we have the ability to weather macroeconomic headwinds because we can spin up our range to be more value-driven quite quickly. We already have the drop shippers there, which is 17% of our business. We can push the value ranges, promote the price points, which makes more sense. We've already started importing entry-level ranges. They land Q4. We're definitely expecting to be a more value-based retailer over the next 12 months, but that is the beauty of the Temple & Webster brand and business model, that we can change our assortment and, you know, price proposition quite quickly. Great. Thanks. Sorry, just the around revenue growth, balancing that with the marketing spend pullback. I think, I think the answer to that question is that, I mean, my view on where we are in the market is that the actual structural tailwind behind it, the shift to online, is going to do most of the heavy lifting, to be honest. You've seen that in the past where, even downturns, from a macro point of view, we've gone through housing market downturns before. We've gone through, you know, quasi, you know, economic downturns and, you know, it, we've still seen strong growth in the category and strong growth in TPW. That is a result of, you know, as I said before, millennials are still growing up and they're still having life stage and they're still moving out, et cetera, and they're turning to the channel of choice, which is online. We're doing better because we're exerting a market leadership proposition. I mean, obviously, we're lapping COVID, and there was a period of acceleration of the online adoption curve, and that's kind of sorting itself out. That adoption is going to keep going. We look ahead and we look at our growth in repeats and growth in revenue per active customer. We looked at how trading was in the end of the year what was the impact of Omicron. We're still pretty confident that we will return to growth just by doing what we're doing. Obviously, I said we're focusing on some more value ranges to take advantage of, you know, the ability to do that. However, we are quite confident that our business model will return to growth, without us having to do, you know, without us having to dial up marketing, more than it already is. What we're saying is that in this current environment, we think it's more prudent to make sure that we, you know, we're really match fit, our pricing's right, our cost of doing business is right. We're looking for cost savings where we can, so that no matter what happens, we're gonna stay profitable and can still show the operating leverage in the business model. I don't think it's a trade-off. I think we can do both. I think we can manage our margins, manage our cost base, and still return to growth and, you know, have our cake and eat it too. Great. Thanks very much, Mark. Thank you. Your next question comes from Rachael Harwood with Macquarie. Please go ahead. Hi. Good morning. Thanks for taking my questions. Just first one, just to follow up from the last one. I mean, I know you did reiterate your expectation to return to double-digit revenue growth. Just confirming the timing around this. Are you still expecting it to be in this financial year? I mean, look, we're deliberately. I mean, obviously, there's a lot of uncertainty there. I am looking at the year. I'll tell you, the FY 2022 comparisons, which just kind of gives you an indication of what we're expecting. Q1, very tough because of lockdowns versus FY 2023 versus FY 2022. It got easier as lockdowns came out. Work started looking more normal, and you can see that in our trading. Q2, you know, December actually finished up. Q3 was always gonna be the tough one because this time last year, you know, the country was dealing with literally tens and tens of thousands of new COVID cases a day. You know, foot traffic was subdued in stores. All the offline retailers were complaining about the sales down. Clearly, there would've been a bump to online sales during this period. That abates relatively quickly. Q4 is actually a relatively clean period. You know, we internally, we're definitely hoping it looks more like Q4, but we've taken the pressure off ourselves to put a firm line in the sand out there. Whether it's Q4 or the beginning of FY 2024, it's definitely gonna happen, but, you know, that's an indication of the timing we're thinking. Understood. Thank you. I mean, for other retailers, January is a key month for trading. How big is January for Temple & Webster just in terms of sales relative to other months? We have, I mean, it's definitely, it's a good month in terms of furniture sales. We follow, though, you know, there's various peaks throughout the year. We have a June peak, which is the end of financial year sale, the November peak, which is driven, you know, Cyber Monday and Black Friday period. January is a good month 'cause it's the start of the year. You know, it's a good month. It's not, definitely not our biggest month, so. Yeah, understood. Just looking at customer acquisition costs, looks like flat on FY 2022. Just looking at your percentage of marketing spend on new customers appears lower. Could you just maybe explain the rationale for this, and are you expecting to focus on existing customers for marketing spends versus kind of new customer acquisition? I think, I mean, the longer term goal for Temple & Webster is new customer acquisition. We're still at the very start. It's a nascent market. You know, people are still coming into the, into the sector. They may have, you know, experienced our category with, you know, something like buying towels or sheets or blah, blah, but yet to buy a piece of furniture. That movement is still playing out. New customer acquisition is definitely the longer term game. You know, while demand softened a bit, we did see there was increased competition in some of the main channels. You know, we basically run our performance marketing channels to an ROI. We scale back our marketing to, you know, in parallel with the softening of demand. We are constantly looking at to make sure we're optimizing each channel. This is a blended average, obviously. Each channel we look at to make sure that there is ROI. I, you know, I think the more obvious course which we've taken is to go, "Okay, well, we've got all these customers acquired. Let's make sure they repeat. Let's make sure they're more spending more money with us." Definitely re-engagement and driving repeats has been part of our strategy. Having said that, we have put on a new head of brand marketing. We are going to be trialing some, you know, new customer, new channels for customer acquisition over the next six months, but we're gonna do it in a very measured fashion. You know, we will take a single market, deploy some of our marketing budgets, measure, track the results, see what the cost of sale is over what period. Does it stack up? If it stacks up, clearly, you know, increase the budget. You know, definitely our goal is to make Temple & Webster a household name. You know, Yes, 63% of the country has heard of Temple & Webster when prompted. When you don't prompt them and you say, "Well, what brand would you go to?" You know, this it's still the household names which, you know, the offline retailers which customers revert to or front of mind. We wanna be that front of mind brand, and we wanna make sure that when you're thinking of furniture homes, you think of Temple & Webster, and other online retailers around the world have already got there in their, in their respective categories. How you do that, it's definitely not just through performance marketing, which is very much, you know, customers are looking for things. It is making sure you always have an always on budget and manage through other channels outside of digital ones. Obviously, we need to grow into that budget, so we're not going to, you know, we are prudent financial managers. We are not going to start, you know, a $50 million brand campaign. That is not, that is not the goal at all. It is to grow every year. We will find channels that work, the ROI stacks up, and we will spend a little bit more each year. Then over the coming years, that budget will get more and more sizable when, and as an always on presence, it will become more meaningful. So, yeah, I think it's a bit of both. I think, yes, we're focusing on repeats right now, but we do have definitely one eye on the future. The growth model is definitely based on getting more new customers in the door. Understood. If I could just squeeze one more in quickly. Can you just comment maybe on your customer acquisition for The Build? Are you seeing any cross-selling with Temple & Webster's existing customer base? Interestingly, a lot of the customers, well, by far the majority of customers, into The Build, and home improvement in general are new customers to the group. It does, the thesis is playing out. They're a bit more male. You know, there are different buying needs. There are different demographics in that audience. Also interesting, which is one of the reasons why we're kind of redeploying some of our marketing budget to home improvement on Temple & Webster. As we've improved our range and as we've improved, you know, our service model within home improvement in The Build, because we've deployed the same range and the same service model in Temple & Webster, we're also seeing the home improvement do well in Temple & Webster. The Temple & Webster home improvement customer is growing. Some of them, definitely a chunk of them are repeat customers. They have been customers of Temple & Webster, trust the Temple & Webster brand and therefore, you know, are okay buying home improvement objects or home improvement products on Temple & Webster. In terms of kind of more broader cross-sell, you know, we're using our email channel, et cetera. Really it's trying to, again, home improvement is a new customer acquisition strategy, so we're mostly focusing on trying to get the new customers in the group who are looking for home improvement. Understood. Thanks for taking my question. Thank you. Your next question comes from Ayan Noorazi with Barrenjoey. Please go ahead. Hi, guys. Hope you're well. Just first one for me, please. Is there a reason why the trading update was cut off on the 5th of February? I think usually it's a few days up until the day of the result. Just anything happened between 5th to now, or is it pretty similar, please? I mean, it's really, I mean, the timing of promos is quite, the promotional calendar. That period gives a cleaner read because the calendar, the promo calendar was a bit out from near the year. It's a more like for like comparison that way to the. Yeah. -comping similar promos. That's perfect. Just on the gross margin, it's up 70 basis points year-on-year, about 45.5%, 45.6%. How do we unpack that growth? Like, how much of it is temporary because of better supply funding? Because they're obviously trying to clear excess stock and will unwind in 12 months time. How much of it will you expect to hold on, please? Hey, Ayan. It's M.T. here. I think that it's, it is a little bit hard to unpack, to be fair. There's a few things that are kind of going on as there always is within gross margin and delivered margin. I think the majority of things that we're seeing that are sort of making up that, the composition should be permanent. Like one of the larger ones is actually a lot of the work that we're doing on the shipping recovery, for instance. You'll see the revenue per active customer and the margin benefits of us improving our shipping recovery, which there's a lot of work that's kind of gone into that. There was a lot of wastage, and there was a lot of unrecovery historically with our shipping. We're being a lot more tactical. We're being a lot smarter, to be fair, on how we're charging customers for shipping. It's increasing the shipping recovery without, you know, whilst minimizing, you know, any sort of conversion issues. There's a few things going on. You've got that. You've got, obviously, you've got some inflationary, you know, pressures that have gone into pricing over the past sort of couple of years that have kind of, you know, flown through into pricing, which would have an impact on the revenue per active customer and the gross margin. We are seeing some mix changes in our composition, if you like. We're certainly seeing a shift towards, you know, less discretionary items, i.e., furniture as opposed to homewares, which is, you know, probably more discretionary. That does improve the AOV and it does improve the margin profile because we certainly skew a lot more private label and furniture is just generally a higher margin category. On the flip side, you know, we are seeing some signs of customers despecing a bit as well. You know, Mark sort of pointed to this, and it certainly this is exactly how it played out back in 18, 19 when we saw the housing market come off, you know, 15%-20% off the back of quite substantial growth. Had impacts on the furniture and homewares industry, which essentially meant it flatlined, you know, during the nineteen year. We still grew very, very strongly throughout that period. What we saw was a bit of a flight towards value, you know. As an online retailer, online retail is a big value channel. Our pricing points relative to offliners is, you know, is very strong. It's very competitive. It's, to be fair, it is better pricing. You know, we're certainly seeing that sort of flight to online, but we're seeing that flight to value as well, which means that, you know, that average selling price does come down a little bit as well. There's quite a lot of things kind of going into the composition of that. You know, some would be more temporary than others, but a lot of the things that we are doing will be more permanent in nature as well. The only thing to add. The only thing to add to that is that actually, one of the bright spots on the horizon is that we're seeing shipping rates return to pre-COVID levels, and that was as every retailer in the world spoke to that was quite a impact during COVID. The other thing which we're kind of benefiting from is that the U.S. is moving demand away from China, which means the Chinese factories are, you know, definitely looking for business. We're expecting our COGS and line of costs to come down over the half year as that washes through. You know, there is a bright spot in terms of margin benefit. Perfect. Just last one on the around the cost. Your employees are down 9% through the half through natural attrition. A few parts of this question. Would, shall we expect your wage dollar cost to be down half on half as well? Given that and the fact that your gross margins are pretty strong and seems like a lot of it's permanent, would that make you rethink that 3%-5% margin? Shouldn't that be higher given those benefits now, please? Look, you know, we've said three to five and, you know, there's quite a range between those two points. I think we do need to see how things do play out. The deflationary impacts that we've spoken about, a lot of that won't actually play out in this financial year because you're gonna see those container cost reductions, you're gonna see those factory reductions come through in orders that are being placed now or being placed, you know, one or two months ago. There's a three to six-month lead time in those, in those orders, then you need to sell those orders as well. You're not gonna see immediate impacts of those come through. There's still, there's certainly a number of initiatives that we're running internally on top of those things that, you know, that should be driving margin higher than where we are at the moment. There's always natural sort of inflationary pressures that come through with wages in terms of wage increases from the prior year as well that will come through in the second half. We're certainly not saying, you know, what area within the 3%-5% we think we'll be in at the moment. I think we need to see how the next sort of few months play out. You know, I think as we get closer to the next trading update, that'll give us a bit more of an indication as where we kinda sit between that sort of three to five. The wage costs. I think Will that be down half on half or is that pretty, like the first half's a pretty good run rate for the full-year? I think the first half is probably a pretty good gauge. Like I said, there's more than likely there will be some of those wage increases that are coming through in the first half. They would naturally come through in the second half as they've always done. I think for us, you know, there's other levers, you know, that we can pull as well if we needed to pull certain levers in the fixed cost base. We'll pull those levers if we have to, only if we're seeing trading conditions not where we think they'll be. There's certainly no plans at this stage to be doing that. The other point to note is we view and we deliberately split it out in our, the P&L that we present our customer service costs as a variable cost. You know, the number of agents we need to handle our pre- and post-sale inquiries, we want to scale up and down as demand shifts. We treat it a variable and we, you know, manage it as a variable expense. That 9% of headcount reduction, a chunk of that was in our customer care line. You actually see it in the customer service line as opposed to necessarily the wages line. Now, most retailers would, you know, most businesses would lump it all into wages. We deliberately split it out. We manage the business to make sure it's a variable cost. You'll see some of the wage decrease in the customer service line as opposed to the wages line. I think. Right. I think that's right. Yeah, that's right, Mark. I think that's an important point, which is that is a variable cost, which that will flex. I suppose my comment was more related to the fixed costs, and I, you know, I think going back to your original question. I think to be fair, with some of the natural attrition that's come through, the first half is probably a pretty good proxy for where the full-year should end up. Great. Thanks, guys. Thank you. Your next question comes from Wilson Wong with Jarden. Please go ahead. Hi, guys. Just a question around over the past month and a half, how have average order values and conversion rates been tracking? Fairly in line with historicals. Sorry. We're still seeing an improvement in AOV. AOV is still up, and that's driven, as I said, by furniture, but in line with how I was tracking in the half. Conversion rate, I mean, I don't think we've released the point, but I mean, there's nothing kinda too dissimilar in terms of our conversion rate. Definitely, we're seeing the customers that are looking to buy will convert. I mean, partly it's a function also is as traffic goes down, conversion rate kinda holds as well 'cause you get a more qualified audience, but nothing out of the ordinary. Sure. Have you seen much impact so far from the slowing housing market, particularly in that trading update period? I mean, it's so hard to disentangle kinda macro from everything else that's going on, where it's a very noisy period, you know, You know, if we didn't have the lasting impact of lockdowns and Omicron outbreaks, et cetera, we'd have a probably cleaner read. You know, I think it's a bit hard to untangle. The only thing, as I said, the only thing we can see in our sales is people are definitely looking for more value. Now that's probably macro related, you know, as interest rates go up and as the market cools, people are definitely feeling a bit poorer. That we can see in the data. As I said, we do have the ability to become a more value-based retailer quite quickly. Okay, thanks. That's my last question, is just around just breaking down that 7% decline. How much of an offset was inflation for that period? As in prices, You're talking pricing? How much is price improvement? Pricing. Pricing, yes. I mean, the pricing hasn't. It's not like we've waxed up our prices. We've been consistently strategically pricing and recovering and moving our shipping recovery up. You know, there is our revenue per active customer and our AOV is still going up. Repeat customers are. It's really the takeaway from the start of the year is it's really, as I said, it's really the new customers are down versus last year, but repeats are still going well. Those customers are still coming, are still buying. You know, I don't think our revenue increase is, or it decline anyway, but it's not being offset by massive price increases, if that's what you're asking. More tactical price increases, I think. Okay. In fact, we've kind of run our, you know, the normal promotion calendar. January was on sale for half the month with our normal sale period. You know, if anything, if we, you know, we were operating in a deflationary environment 'cause it was on sale. Okay. Thanks a lot. Cheers. Thank you. Your next question comes from Tim Piper with UBS. Please go ahead. Morning, Mark. Thanks for taking the question. First one just around that sort of commentary around shifting to a more value conscious proposition. I mean, how material a shift in product range do you expect? Is it gonna be moving into those categories where there's more competition from sort of the marketplaces? Secondly, does that impact sort of revenue per active customer and average order value trends over the next six to 12 months, do you think? I think it's an interesting one. I mean, firstly, how we can do it is, it's relatively straightforward. As I said, because we have the drop shipping part of the catalog, we can start just promoting our, you know, more value ranges. Customers will search for the more value ranges themselves. In terms of a private label, we just dial up our entry-level imports. I don't think it's. We've done it before. It's not like the first time we've had to do it, you know, the sites are kind of a bit redder and, you know. It's just that is the retail game. When people are feeling a bit poorer, you give them more value, and when they're feeling, you know, richer, you know, you can sell your more premium ranges. I don't think it's anything out of the ordinary what we're doing. As I said, it's just that we have the flexibility to do it. It's not like we're locked into a single price proposition or customer proposition or range or assortment. We, you know, it's a very flexible business model, which is fantastic in times like this, to be honest. In terms of revenue per active customer, as I said, I think any, you know, average selling price, deflation, is being offset by a move to the bigger items. It's already being offset. I don't think we will see it impact our revenue per active customer. I mean, I'm hoping that we can still grow that, even with the shift of value as customers look for bigger items. As I said, we are, you know, working on more repeat and engagement strategy. I think we've still got room to grow that metric in terms of orders per active customer. Yeah, I don't think it should hit revenue per active customer. If anything, you know, if my thesis plays out, which is furniture, is a little bit less discretionary than people think, then actually what you should see is that, you know, if I need to buy a sofa, I will buy a sofa, but I will make sure it's I'm getting the most bang for my buck. Of course, if we have a great sofa at a great price, which is cheaper than, you know, offline peers, then maybe people will sacrifice the touch and feel element for getting more value. As I said, we're seeing actually our sofa category do quite well. Interestingly, an interesting point, actually also we've introduced a more premium range, well, in our world, it's not like premium range, but kind of a price point above our normal for sofas. That's actually doing quite well as well. That again suggests that even, you know, our customers who maybe have a bit more disposable income are still looking for value, but rather than go to a more expensive retailer, they're coming to an online channel. Still buying what they think is value. For us, it's a bit higher than our normal selling point. I think it's the same dynamic whether you are, you know, no matter what your household income and no matter what your position in life, you know, you'll still look for value, and if you're feeling a bit poorer, that equation becomes even more important. As I said, I think we should actually still be able to grow our revenue per active customer even as we shift the range to more value. Got it. Do you have a number to put on growth in AOV? You're just looking at revenue per active customer is up 7%. They clearly repeat orders on a year-on-year basis has way outperformed first time. The growth in that must be doing a lot of the heavy lifting in that revenue per active customer. Can you give us a sense on what the year-on-year AOV growth is? It's actually, it's the other way around. A lot of the revenue per active customer is actually driven by AOV increases. The orders per active customer has been relatively flat as we move through COVID. It's more of. Because a proportion of the business repeat customers. Well, repeat customers, I mean, like new customers, repeat customers have kind of struggled a bit in Q1 as we're lapping. Actually, their growth was quite strong during Q2. You know, the fact that the December's positive growth number was driven primarily by repeat growth. Okay. Did you break out a revenue number for The Build for the half? We didn't, but we are flagging it will be lower than the, than the number we were hoping for before, which was the 10+, because we've reduced our spend quite significantly. we've got. We're looking at home improvement. We're looking at it. We've always said The Build. I mean, The Build was an experiment, and we positioned it as an experiment. It is still an experiment, by the way, and like, we're still very bullish about home improvement. It was a way to quarantine resources, understand the market, understand the customers, you know, make sure we've got some focus on it, establish a management team which is looking nothing else and thinking about nothing else but home improvement. We always have seen home improvement as a group play. In fact, you know, when we did the incentive structure for the management team for The Build, they're actually incentivized from group home improvement targets. From day one, we were conscious of this is a group play. We're trying to steer people to think of home improvement as a Temple & Webster play, as opposed to necessarily just a Build play. You got it. In In the press release, you said across the group it's up 12%. Can I just clarify, you said for Temple & Webster in the half home improvement was up year-over-year within T&W? Yeah, it was. Okay, got it. Just one last question. Just on January, obviously there's a lot of focus around trading updates, et cetera. You sort of talked to seasonality across months. January is obviously a strong month for you guys. In absolute dollar terms, is January usually bigger than December, historically? January is usually bigger than December, yes. I think we lost you. Thank you. Your next question comes from Chami Ratnapala with Bell Potter Securities. Please go ahead. Thanks, Mark and Mark, for taking my question. Probably a follow-up from, Tim's question on, January versus December. Thinking about that value shift or rather, just going back to, your comments, has this been, a development from December to January? Could you just talk about the key differences in the demand environment, moving from December to January? Thank you. No, we've been seeing, and I think I highlighted at the AGM, that the value ranges, we can see the value, range is doing well. I mean, it, you know, the macro has been on people's mind for a little while now. Obviously, it's accelerating. You know, for us to be landing entry-level products in Q4, you know, we were, you know, making the decision on importing them months ago. It's not like a December or January decision. It was, it was before. I think, as I said, January is a very noisy period because we're lapping Omicron. It's very hard to get a read on is the macro accelerated between December and January. I think it's too noisy to be able to answer that question. Great. Finally from me, I mean, just on The Build, more in the near term with the moderation in that investment, would the expectation for the near term be slightly less as well for The Build platform? Yeah. Yes. I mean, that is the trade-off. By reducing the investment, particularly around marketing and going a bit slower, we are expecting a reduction in growth. As I said, my mind when we're talking about home improvement, we're talking about a cycle as long as Furniture & Homewares. You know, it's taken us 11 years to get to where we are now. Hopefully, we do it much faster because of everything we've learned. We're not talking about months or weeks or days, we're talking about years. You know, if we have a quarter or two of slightly lower than, you know, planned growth, then I don't think it will make much difference. It will mean the business is just, you know, in a better position financially to, you know, you know, be able to win in any trading environment. Perfect. Thanks for that. Thanks for taking my questions. Thank you. Your next question comes from Wei-Weng Chen with RBC. Please go ahead. Hi, guys. Thanks for taking my question, more questions. Just firstly, I think the 2Q sort of breakout was interesting insofar as it showed, you know, pretty market improvement in the past quarter. Profitability rose despite sort of sales falling. Just looking at that with sort of, you know, and sort of obviously, it seems like disinflation is starting to come through, which is positive. Just wondering with sort of the 2Q margins pushing the upper end of guidance, whether we should think about sort of second half margins potentially exceeding that range. Sort of over a full-year basis, we kind of fall in within that 3%-5%. Yeah. Hey, Wei. Look, I think, as always, there's gonna be a number of overs and unders that will play out. The result for the second half will also be contingent on what the top line looks like, right? That's really the unknown for us going into the second half. As Mark mentioned, you know, I think if you look at the comps, Q3 is a bit tricky, Q4 looks pretty good, you know. The blended average is kind of okay, but it will be the result between that 3% to 5% will be somewhat contingent on what that top line looks like as well. We're certainly controlling the things that we can control. I think from a cost-based point of view, we're really not going hard in terms of fixed cost investments or longer term investments at the moment. You can see in the marketing spend, you know, we'd expect that to sort of stay within those sort of levels that we're kind of sitting in at the moment in terms of marketing as a% of revenue. I think in terms of margin, there's probably more upside potential in the margin in% terms in the second half relative to the first half. You know, we need to see how that plays out. Look, you know, I think the answer is look, potentially, but are we saying it will be? Definitely not. I think it will be, Like I said, it will be somewhat dependent on what the top line looks like, you know. There's always gonna be some costs that kind of trickle through into the second half that, you know, you won't have a full annualized cost in the first half as well, which, you know, which may come through. You know, there's offsetting factors to those as well. Look, I think it's a bit of a wait and see. We're certainly saying at this stage we're 3.5%, you know, for the first half and, you know, we're confident that we'll be somewhere between 3% and 5% for the full-year. It's just a little bit too early at this stage to say where we think we'll land. Yeah. Okay, thanks. Just the next question, I guess one of the more concerning things I saw in the result was, I guess the decline in customer numbers. Can you maybe give some color around the loss? 11% drop in customer numbers, from the prior half. Should we think of customer losses as a leading indicator for the business? Also in your view, is the loss of customers related to the reduction in marketing spend? I think, I think the main driver of the decrease in customers is as we lap COVID in the prior impacted period. As I said before, the repeat customers did some of the heavy lifting last half. Really, so many new customers came into our market over the last couple of years that there was probably, you know, in hindsight, there was probably always gonna be a correction if the world, you know, opened up and went back to what normal kind of looked like. You definitely see we're seeing the new customers lapse in very big comps, but the decline year-on-year is reducing. I can see kind of the trend back to kind of a more normal, you know, growth period. The active customers is a function obviously, of how many customers you acquire in a period, and how many customers from previous periods repeat. That's kind of the two, you know, they're the unique customers in a period. You know, if our repeats are growing, that's fine, but if the new customers are down year-on-year because of that lapping effect, you'll see the active customers come down. If anything, active customer is a bit of a lagging indicator rather than a leading indicator because they represent the previous 12 months. Our goal, as I said, is, you know, to get new customers growing again, that the market structure, the tailwinds behind us will do a lot of that heavy lifting and as we accelerate our marketing again, then yes, that should help new customers growth. Look, there's also no point in going crazy in marketing and buying customers who are necessarily unprofitable, especially as I focus on cost management and margin optimization and the bottom line, you know, increased over the last, you know, a few quarters. I think, yes, we pulled back marketing a little bit, but we're also making sure, you know, our customers are profitable. We've tightened our ROI bands and targets for those customers. Could we have grown faster by spending more money in marketing? Probably would've led to a more profitable business. Not sure, to be honest. Yeah. Okay. Just wanted to revisit the M&A commentary. What would you be looking at buying, in terms of like, would you be buying growth like customers or capabilities, tech, supplier relationships? What's kind of the more sort of interesting angle for you guys from an M&A perspective? I think the answer in that depends. Sorry, I'm Tim. I'm gonna jump in, then you can. I think the answer to that depends on which part of the business you're looking at. I think if you think about the business in, you know, three different bits. You've got your B2C furniture and homewares, which is where we started, and then we have layered on a B2B business, furniture and homewares, and now we've layered on a new vertical, which is home improvement. Each of them has different parts of the cycle, different levels of maturity. They have different strategic defenses needs, you know, where an inorganic opportunity may help. I can't imagine on the B2C furniture, unless and if I go through the three parts, I can't imagine on the B2C furniture and homewares, we're necessarily just gonna be buying customers 'cause that would involve buying another online retailer which looks like for us, looks like us. You know, can we acquire those customers anyway with a better assortment or better pricing or, you know, more marketing, etc? It's probably cheaper to do it organically than inorganically. I think though, you get to things more at out, especially as we kind of become bigger and bigger and become, you know, a more important part of the market that, you know, are the things where actually strategically they're great defenses, and, you know, create further barriers to entry, in our market. That's when you get into things like maybe technology is quite interesting. If we can find technology, you know, that actually truly, you know, improves the shopping experience, leads to higher AOV, leads to higher conversion rates, leads to higher repeat rates, that could be a, quite a big differentiator, 'cause we're making more money for customers. We could potentially then spend more to acquire them. The kind of cycle keeps going. That's kinda if you think about the core, it's probably more likely, you know, things that strengthen the core as opposed to straight customers. When it gets to the other growth places, the B2B furniture, homewares, and home improvement, they're at a much more nascent part of their journey, so they're more immature. In those cases, potentially buying, you know, businesses that have established capabilities, established relationships, you know, whether it's, you know, for example, B2B business may have established design relationships or home improvement may already have an established brand in the sector. That becomes, you know, a little bit more, you could see it could be customers, it could be capabilities, it could be technology, something that will strengthen those propositions and ensure that we win in those markets like we are winning in the B2C furniture and homewares. I think it depends on which part of the business you're talking about. Yeah, cool. No, thanks. That's all from me. Thank you. Your next question comes from Bradley Beckett with Credit Suisse. Please go ahead. Good morning, team. Thanks for taking my question here. If I could maybe just confirm that, sort of your base case for the second half in terms of those fixed cost saving initiatives, it sounds like it's gonna be at a similar pace to what you saw in the first half. If I could just confirm that. Secondly, in terms of your trading update, can you add sort of a bit of color around how we got to that down 7% figure through the weeks? Was it sort of improving as we start to get into February? Thank you. Yeah. Look, I think I'll take the first one, MC, in terms of the cost base. Look, I think like I said, the majority of our fixed cost base is staff, it's wages. I think if you take the first half, it's a pretty decent proxy for where the fixed costs should, you know, should end up for the full-year. However, as we've mentioned, we will react accordingly, you know. If the trading conditions aren't where we think they'll be and if the business isn't performing to the level to which we're expecting, then, you know, there's levers that we can pull, you know, within those cost bases, that can ensure that we still meet, you know, our target EBITDA ranges. In terms of the variable costs above, they are variable costs, right? They will fluctuate based on revenue. I think the big thing there is, you can see that the marketing spend has certainly come down relative to, you know, to last year. There's been some moderation there. Essentially, we've shifted some of that into the margin. You know, when we look at our cost bases, we also incorporate margin into our thinking as well, and they're all levers that we can kind of push and pull in the business. If you take the fixed cost, you know, I think, you know, the first half is probably a pretty decent proxy for, you know, for the second half. You know, but there are levers we can pull within that cost base if we need to. In terms of the phasing of the weeks, throughout Jan, look, to be honest, we've never gotten into, you know, talking about those sorts of things in terms of how it sort of played out. You know, I'm not sure, Mark, if you wanna add any further context there, but generally, we don't talk to that. Oh, yeah. I was just gonna say it's because of the timing of promos and blah, blah. Week by week is probably not the best indicator. You know, there will be periods up, periods down throughout the five weeks. Yeah. Okay. No problem. Thanks, team. Thank you. Your next question comes from Scott Hudson with MST. Please go ahead. Good morning, gents Just one quick one from me. Just in terms of The Build, obviously your, I guess, investment's gone from Ten to six. I think if I'm correct, you're probably at about $4 million EBITDA last year to date. That means $2 million to come. Is that how I should be thinking about it? Hey, Scott. Yeah. It'd be within probably a little bit less than that, but, somewhere around that. Yeah. I think previously you talked about a break-even timeframe of sort of FY 2026. How does that change given the moderation in the investment? Oh, look, I don't think that changes, to be fair. You know, we are taking a much more longer-term view of this segment. As Mark said, we are looking at home improvement holistically, not just The Build as well. If you look at that specifically, well, you know, we've always said that we think it's a huge opportunity. The market opportunity is large. We've got the, you know, we've got the capabilities internally, we believe, from a technology standpoint, from a team standpoint, from a platform, from a brand standpoint, you know, to make it into a big business. You know, I think those longer-term aspirations remain unchanged. Okay. Just last one. You talk about, I guess investment in brand building into FY 2024. I guess that sort of gives us an indication if that's where you think the revenue environment will be a little bit more supportive of that investment. I think that's when we, you know, finish lapping the COVID impact that period. You know, we're more confident about FY 2024 being a true read of our underlying growth. Okay. That's all I had. Thank you very much. Thank you. That's all the time we have for our question and answer session. I'll now hand back to Mr. Coulter for some closing remarks. Thank you everyone for your time today. As you can see, you know, the flexibility of the TPW business has meant we've been able to increase our profit even in the face of revenue headwinds, while we continue to invest in our longer term growth plays. As I said before, we have the platform, the brand, the business model and market leadership to continue to take advantage of the structural tailwinds driving the shift to online retail. Furthermore, our balance sheet and unit economics will allow us to navigate any short-term macroeconomic headwinds. Thank you for your time. That does conclude our conference for today. Thank you for participating. You may now disconnect.