Thank you, and good morning, everyone, and thank you for joining us today. I'd like to begin by acknowledging the traditional owners and custodians of [the] country throughout Australia. I'm joined today by our CFO, Cameron Barnsley, and we'll be taking you through our FY 2025 results presentation, which has been uploaded to the ASX this morning. Now, starting with page 4, you can see Temple & Webster has delivered another exceptional set of results this year. Despite challenging retail conditions, we grew revenue by 21% year-on-year to a record AUS 601 million for FY 2025, driven by growth in both new and repeat customers. We ended the year in a strong position following the end of the financial year promotional period, with checkout revenue in June up 28% year-on-year.
This full-year performance has seen our share of the furniture and home goods market grow by 17% versus PCP to a record 2.7%, showing we're making great progress towards our goal of being the largest furniture and home goods retailer and the first place Australians turn to when shopping for their homes. Pleasingly, we were able to deliver this growth with an AUS 18.8 million EBITDA result, increasing 43% year-on-year and representing a margin of 3.1%, which was slightly above our FY 2025 guidance range. Our cost discipline and the ongoing integration of AI across the business have also enabled us to achieve further conversion rate and cost advantages. As Cameron will talk to you later, our asset-light negative working capital model continues to position us well, generating AUS 38 million in free cash flow for the year.
We had a closing cash balance of AUS 144 million with no debt, meaning we are fully funded to execute on our mid-term goal of achieving AUS 1 billion in annual sales. Now, turning to page 5, you'll see our key performance indicators. Active customers grew to almost 1.3 million, an increase of 16% on last year, while maintaining exceptional levels of customer satisfaction. Our continued integration of AI tools has supported further improvements in conversion rate, which hit 3% for the full year, up 5% year-on-year. For the full year, our 12-month marketing ROI was in line with our expectations. This reflects increased investment in both performance and brand-building channels, as we take advantage of our market-leading position. Importantly, our customers remain profitable on their first orders, and our bottom line is increasing even with this marketing investment.
Turning to page 6, we've continued to grow our share of our AUS 37 billion total addressable market, which remains highly underpenetrated and supported by positive market dynamics. On the chart on the left, you can see online penetration has reached 20% in the Australian furniture and home goods market, as shoppers increasingly shift online. There is still significant runway ahead, when you consider levels of online penetration in markets such as the U.S. have now reached 35% of all sales in our category are sold online. Additionally, the online segment of the Australian home improvement market is performing well. Like our furniture and home goods market in its early days, the home improvement category exhibits similar traits and is ripe for disruption. Page 7 highlights our market share gains over the last five years. The chart on the right shows that we continue to make solid headway.
Our share of the Australian furniture and home goods market has grown to 2.7%, up from 2.3% at the end of FY 2024, demonstrating that our strategy and disruptive proposition are on track. To achieve AUS 1 billion in annual sales implies reaching 4.2% market share, and our customer proposition is key to achieving this goal. It is centered around three key pillars. First is our price. Our online asset-light model enables a low cost base and delivered margin, allowing us to pass meaningful savings onto our customers. Second is our range. Our dropship model, enhanced by our private label sourcing capabilities, gives us a wide product selection, allowing us to meet many customer styles and price point preferences. Third is convenience. With over 90% of products in stock ready to ship, we can offer fast dispatch and avoid the long lead times that have historically characterized the furniture category.
Page 8 reiterates that we continue to track to our strategic plan, and this plan remains unchanged. On page 9, you can see we continue to build towards becoming the top-of-mind brand in our category. High awareness drives conversion, re-engagement, and greater marketing efficiency, ultimately reducing marketing spend as a percentage of revenue over time. In FY 2024 and FY 2025, we invested around AUS 22 million in brand marketing to test its impact, broaden our channel mix, and optimize our spend. These efforts are delivering results, with our unprompted brand awareness ranking improving from number 7 to number 6 in Australia, and we continue to be the number one online leading brand. Turning to page 10, exclusive products contributed approximately 45% of FY 2025 revenue, up from 43% in FY 2024.
This growth was largely driven by exclusive dropship products, which remained our fastest growing segment across all categories, representing 17% of revenue in FY 2025. Around 80% of our top 500 selling products in FY 2025 were exclusive to Temple & Webster. Over the year, we also added 925 proprietary designs to our range. We're focused on growth across private label and exclusives in key categories, such as bedroom, sofa, sofas, and outdoor, which all saw over 50% exclusive penetration in FY 2025. During the year, we commenced working with a dedicated sourcing team in China, which enables us to have greater visibility of manufacturing, quality, and compliance, and will help as we continue to grow our private label range. We've also recently opened a new 3PL warehouse in Western Australia, which will hold our private label stock, helping to reduce shipping costs and lead times for customers in the West.
This initiative should help us to improve our market share in WA, which remains below our national average. As said on page 11, we continue to harness data and AI to deliver initiatives and develop features that either drive revenue or reduce costs across the business. In FY 2025, 80% of customer pre- and post-sale support interactions were partially or fully handled by AI or other tech solutions. This has contributed to an over 60% reduction in customer care costs as a proportion of revenue since FY 2023. We also continue to benefit from operating leverage as the business scales, with fixed costs as a percentage of revenue declining to 10.6% in FY 2025. We expect further leverage as we progress towards our AUS 1 billion mid-term revenue target. One of the highlights this year, as you can see on page 12, has been the significant growth in our home improvement business.
As mentioned, this gives us access to a further AUS 18 billion market, with no online-only dominant player and significantly lower online penetration compared to our core furniture and home goods category. FY 2025 home improvement revenue of AUS 42 million was up 43% on the prior year, supported by growing customer awareness and demand from both new and repeat customers. This is particularly exciting given private label penetration of home improvement has increased markedly since 2023, with the continued success of Temple & Webster's collection of products. Our Trade & Commercial division achieved AUS 48 million revenue in FY 2025, representing 9% growth on the prior year, despite ongoing macro headwinds and subdued business investment. Encouragingly, forward order activity improved in the second half, driven by orders across the hospitality, living, and build-to-rent sectors. These orders will be recognized as revenue in FY 2026.
I'll now hand over to Cam to take you through the financial results in more detail.
Great, thanks, Mark, and good morning, everyone. It's good to be here today to present a strong set of financial results for our 2025 financial year. Firstly, let me start on page 14. This page provides a high-level overview of our results. As Mark mentioned, we delivered an impressive AUS 601 million in revenue for FY 2025, which was up 21% year-on-year. This is a record annual revenue result for the business, and we're particularly pleased with this growth, given the challenging retail environment and the market conditions through the year. This reinforces the strength and agility of our business model. Our delivered margin result of AUS 191 million also increased 21% on the prior year. This is an important metric to highlight, as a continued strong delivered margin gives us the flexibility to reinvest in the marketing programs, as well as other long-term strategic initiatives through the cycle.
Fixed costs as a percentage of revenue decreased to 10.6% in FY 2025 compared to 11.3% in FY 2024, reflecting ongoing cost discipline in our business. Our EBITDA margin of 3.1% was up 50 basis points year-on-year and slightly above our target 1%-3% range. We continue to see the benefits of our cash-generative model, with AUS 38 million of free cash flow for the year, up a significant 19% on the prior period. This meant that we ended FY 2025 with a cash balance of AUS 144 million. With this cash balance and no debt, we remain in a strong position to continue executing against our strategic objectives. Now, turning to page 15 to look at our profit and loss result in more detail. As mentioned, we saw revenue increase 21% in FY 2025, driven by growth in both new and repeat customers.
We had a particularly strong finish to the year, with checkout revenue growth of 28% for the month of June, some of which we recognized in July for accounting purposes. Delivered margin improved as a percentage of revenue by approximately 10 basis points to 31.7%. This remains towards the top end of our 30%-32% target range. This was supported by a shift towards higher margin categories, such as bedroom, dining, and living room furniture, along with lower warehousing expenses from a new contract in Sydney, which is now recognized in accordance with AASB 16. These benefits were partially offset by high promotional activity as we navigated market conditions through the year. This strong performance carried through to our contribution margin, which increased 19% year-on-year. This reflects continued efficiencies from our AI investments, particularly in customer service, offset by our increased marketing investment for FY 2025.
As I previously noted, we maintained discipline on the cost base, with our fixed cost ratio declining by 70 basis points to 10.6%. D&A increased by AUS 2.5 million this year as a result of the previously mentioned lease for our warehouse in Sydney. I'll also note that unrealized currency losses had a AUS 1.4 million negative impact on EBITDA for the year, and this primarily impacted cost of sales. Overall, despite our elevated marketing investment and tough conditions through the year, being able to grow our EBITDA by over 40% and show meaningful margin expansion is a pleasing outcome. Now on page 16, which highlights our strong financial position. Our balance sheet continues to strengthen, reflecting the cash-generative nature of our business, closing the year with a cash balance of AUS 144.3 million. Inventory levels increased by 10% year-on-year, despite materially higher revenue growth.
This reflects improved inventory turnover and greater penetration of exclusive dropship products. Our deferred revenue balance increased to AUS 28 million, which is up 31% from FY 2024, reflecting strong sales momentum towards the end of June, providing a positive start for accounting revenue FY 2026. Importantly, the group remains debt-free and fully funded to pursue both organic and inorganic growth opportunities. Turning to page 17, growth in our cash balance was underpinned by strong operating cash flow and the benefits of our asset-light negative working capital model. Operating cash flow increased to AUS 46 million, reflecting the strength of our underlying business and disciplined working capital management. The continued growth in free cash flow, combined with the low capital intensity of our model, provides us with meaningful flexibility and capability to execute on our growth strategy.
On the right-hand side of this page, we've outlined our capital management priorities, which remain the same as at the heart. Maximizing shareholder returns remains central to our longer-term strategy and is a consideration in every capital allocation decision we make. Now, turning to page 18, which sets out our FY 2026 and long-term financial profile. FY 2024 and 2025 were investment years, with higher marketing spend to accelerate growth and build brand awareness. From FY 2026, note that brand marketing will become a recurring part of our BAU costs rather than being called out separately. In FY 2026, we expect delivered margin to remain within our 30%-32% target range. Marketing costs are expected to reduce as a percentage of revenue, as we see efficiencies from past brand investment. We also expect further fixed cost leverage as we scale. Our EBITDA margin guidance for FY 2026 is 3%-5%, targeting the midpoint of the range.
Importantly, this range will allow us to continue to focus on revenue and market share growth, whilst maintaining flexibility to adjust our margin and marketing levers in response to conditions. Over the longer term, our margin aspirations remain unchanged. We expect to achieve these levels through supplier scale benefits, a greater mix of private label and exclusive products, improved logistics efficiency, and the long-term impact of brand investment in driving repeat customers. In addition, our ongoing investment in AI will continue to deliver revenue and cost-based efficiencies across the business. Finally, just some housekeeping metrics for FY 2026. At this stage, please expect the following: BAU, PP&E CapEx will be consistent with FY 2025 as a percentage of revenue. Intangible CapEx of between AUS 1 million -AUS 1.5 million. D&A expense of between AUS 12 million- AUS 14 million. This increase is largely driven by our Sydney warehouse lease moving to AASB 16.
Share-based payments expense of between AUS 5 million -AUS 6 million, and an effective tax rate closer to 30%. Thanks, everyone. I'll now hand you back to Mark.
Thanks, Cam. Turning to page 20, you can see that we remain on track to achieve our mid-term goal of over AUS 1 billion in annual sales, as first outlined at the end of FY 2023. This goal requires us to achieve market share of just over 4% versus our current position of 2.7%. We're on track to deliver this strong growth in both our core B2C furniture and home goods market and our growth plays, particularly in home improvement. Turning to page 21, pleasingly, the new financial year has started strongly, with revenue from July 1 to August 11 up 28% year-on-year. Home improvement continues to outperform. Looking ahead, with anticipated further interest rate reductions, coupled with stimulatory government policies relating to housing, we remain optimistic that conditions in FY 2026 should be favorable for the furniture, home goods, and home improvement categories.
Our on-market share buyback program remains in place, allowing us to improve shareholder returns in the absence of more creative opportunities. Finally, I'd like to recognize the outstanding efforts of our entire Temple & Webster team. Their dedication, drive, and adaptability make results like these possible. Every day, they help us deliver on our vision to make the world more beautiful, one room at a time. Thank you, everyone. We'll now open the line for questions.
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 are on a speakerphone, please pick up the handset to ask your question. We ask that you please limit yourself to two questions at a time, and if you have further follow-ups, you may re-enter the queue. Today's first question comes from Owen Humphries at Canaccord. Please go ahead.
Morning, thanks. Can you guys hear me?
Yes, we can hear you, Owen.
Done. Again, just leading and beating expectations. Just to touch on the exclusive range strategy, is that core to your business and does it create a bit of a moat for you guys over the long term? Just knowing that the percentage of revenue is flat, half on half, is this just due to the extended range within the product team?
[crosstalk]
You go.
Sorry, Mark, go ahead.
No, you go.
Yeah, two things to look at from the exclusive standpoint. There are two components. There's private label and exclusive dropship. The exclusive dropship piece has been growing very strongly, as you can see in the presentation. This is a really important piece for us because it gives you a lot of the benefits of a private label product being exclusive and sort of the moat around our business. Also, we don't have to hold the inventory as we do in private label. That's been a real focus for the team, getting that piece growing, and pleasingly, that's increasing as a percentage of revenue. Overall, we're trying to look at exclusives, both private label and exclusive dropship together, and growing that proportion of revenue over time.
Yeah, the only thing I'd add to that is, Owen, it takes time. To build out a private label range requires working with factories or designing your own products and putting it in production, that's the long lead time. Exclusive dropship products require scale, and scale will build over time. The scale benefits from half to half are not as apparent as scale benefits over years. You'll see that metric tick up over a longer period of time. We're not expecting it to get to that 70% in a 12-month time. The goal of the business is to get to 70% of the business, or 70% of the revenue in the business is exclusive to us, and that will take time. It is a strategic goal.
I guess you're going to get asked this question in every meeting over the next couple of weeks, but it's a big market, you're the leader. You've got a significant cash balance. Your economics year-on-year were favorable, particularly on the direct basis to performance marketing. Just to understand why we're still building cash, like the 3%-5% guidance range there, last year, this year was 3%, next year 4% kind of margin. Just interested in your view around cash generation versus reinvested growth.
Yeah, as we sort of outlined in the presentation, and we did at the heart as well, we do have a framework around capital management. We do have a series of investment initiatives that we're looking at for FY 2026, being organic. Even with those initiatives, things like, for example, we called out the Western Australia warehouse, we'll put inventory in that, and that will obviously be a capital investment. There are other things too. Despite those capital investments, we are still expecting to be cash generative. We have looked more at M&A opportunities in the past 6 or 12 months. Nothing has emerged that's within our strategy at this point.
We are looking at deploying that capital in different ways, and we're very conscious of the fact that we need to think about shareholder returns in that, and we'll always have a look at both organic and inorganic opportunities when we're thinking about expansion. That's definitely a priority for us.
Thank you. Our next question today comes from James Bales at Morgan Stanley. Please go ahead.
Hi guys, thanks for taking my questions. Firstly, on home improvements, the reinvestment that you see as being required there for scaling home improvements, including the build-out of private label, can you give us some idea on that? Maybe as a follow-on, how do you expect the gross margins in home improvements to compare to homewares and furniture in the long run?
Yeah, it's a good question. Primarily, I mean, I'm going to speak to the dollars because that, you know, we're buying to growth forecasts, and I'm not going to give you a back door into the growth forecast. Obviously, we are predicting high growth for home improvement. We want it to be high growth, so we are supporting the growth through increased investments in private label. The issue for home improvement versus furniture and homewares is it is an early part of the cycle, so most of the supply chain is oriented around offline. There's limited wholesalers in this market, so really cracking the home improvement category has required us to leverage our balance sheet, our sourcing capabilities, and our China sourcing office to really build out the range and have a range of great quality products at great prices.
Once you can see if, you know, once we start improving the range, you see the growth just flow because, you know, Australians are hungry for, you know, great quality products at great prices. I think in terms of margin profile, yes, a large part of the category is branded. However, a large part of it is not as well. You go into a Reiss, and it's, you know, Reiss has its own private label. You go into Bunnings, Bunnings has its own private label. Actually, private label suits this category because, I mean, other than the really top-end brands, I think people just want, you know, products that look good. Wherever there's a big opportunity for private label, usually there's high margins. We think there's a higher, a pretty big opportunity for private label in home improvement. There's less competition.
Australia, some of the Australian home improvement retailers are quite profitable. We actually, you know, it's early days and the thesis is yet to be proved, and the businesses are operating relatively similar margins now. I actually think longer-term home improvement could have a higher margin potential than furniture and homewares.
Okay, got it. That's interesting. I also wanted to ask about the way that you view the unit economics. Logically, marketing ROI could dip below 1x and still be meaningfully LTV accretive. How much more aggressive do you guys plan to get on brand and performance marketing? With brand having a longer payoff, how do you expect the shape of that ROI trend to move over the next couple of years?
Yeah, look, actually, counterintuitively, we actually think we're at the point now that we've spent enough to learn what works, what doesn't, the mix of marketing and how that's all working together, the impact and performance. We're at that point where all the models are telling us and all the analysis and the media mix modeling and everything else is that actually we should be spending more of our mix on non-performance channels. Brand, look, brand for us is, don't forget, is a code name, is a code word for anything that's non-performance. We talk about brand ads, include paid social, includes audio, includes out of home, includes TV. It's pretty much every channel which we're not buying on a straight performance basis. It's not necessarily just brand, but it's channels outside of our core performance.
Everything we're seeing and what we're being advised to is actually more of our mix should be on those other channels. What we're now seeing is because we've got to the point where we're spending enough, we've reinforced the brand, we're changing people's memory structures, you can see that we're improving our brand awareness ranking. What's happening is that the entire marketing mix is working more effectively, and actually our ROI on marketing spend as a whole is now improving. Weirdly, actually, if the models are right and what we're seeing is going to play out, then as we increase brand spend, our ROI should improve because the entire marketing stack is working better and the performance is working harder, the other channels. It's the full channel mix.
You see a TV ad, you then maybe read some sort of content, or you see a social ad, and then you're in Google and you click on the land. That whole thing has worked really well, and Temple & Webster is the go-to brand. We're seeing that now, and the overall ROI is improving. We're actually, I don't want to necessarily predict the marketing metrics, but if, as I said, if everything continues as it is, you should actually see that metric start improving even as we go further into brand marketing.
James, it's Cameron here. To your question around sort of how much more aggressive we would go on brand, you can see the step up between 2024- 2025. We spent AUS 10 million on what we classify as brand in 2024. That was AUS 12 million in 2025. You see there's incremental spends here. It's not huge step changes over time.
Thank you. Our next question today comes from Aryan Norozi with Ben & Joey. Please go ahead.
Hey guys, how's it going? Just a few ones from me. Apologies if they're accounting-based. Just around the deferred revenue piece, is the best way of just looking at that is it increased AUS 5 million half on half? The vast majority of that is what you would have booked as revenue in the month of June. You basically have revenues understated by AUS 5 million.
Yeah, look, deferred revenue is a feature of our model because we do have a cutoff date where we are unable to deliver our products to our customers, and in order for those revenues to be accounted for, it does need to be delivered. Given the strength of the end of financial year period, the growth rate in June, that was a slightly higher uptick than what we were expecting in deferred revenue. I think, Ary, your comment is valid.
Right. Just on the AASB 16 accounting, I guess the guidance is always 1%-3% EBITDA margins, but there's a pretty material movement in lease costs going out of EBITDA and into D&A. The 4%-5% margin, was that always part of the thinking around the lease costs falling away from it and giving a benefit to EBITDA, or is that a change? If you take the 4%-5% and you take out the benefit from lease accounting, it implies a much lower margin.
Firstly, 3%-5%, not 4%-5% on the guidance range.
Sorry, I'm sorry.
Targeting midpoint. Secondly, look, that's an accounting EBITDA guidance measure. We did get a, you know, call it 30-40 basis point sort of improvement from that lease moving out of our warehouse costs and into D&A being below EBITDA. There's a lot of things that go into, like FX, for example. We had an FX headwind to the June of about AUS 1.4 million for the full year, which is over 20 basis points. You net those two things out and we're still the top end of our guidance range. There are definitely things that move EBITDA, like FX and AASB 16, but it is an accounting EBITDA measure that we focus on.
Gotcha. Perfect. Thank you.
Thank you. Our next question today comes from Rachel Harwood at Macquarie. Please go ahead.
Hi, Mark and Cam. Thanks for taking my question. Just a quick one for me. You mentioned the WA 3PL that you're opening. Could you maybe just talk to the market share that you've got in WA at the moment and how big you see that market?
Yeah, so, I mean, as far as we can tell, and obviously the data is everything in here, but definitely we are underpenetrated in WA by, oh, it's probably around, I think it's around 20%-30% below our national average. The reason for that is pretty obvious. You know, our products are stored mostly in Melbourne and Sydney, and shipping times are longer, and, you know, most problematically, shipping costs are much higher. If you look, if you take our WA , basically we're at the scale where our sales follow population, so primarily Eastern Seaboard and in the metro areas. However, WA is a high-growth market. You know, it's one of the few high-growth markets in Australia. What we've done is, as I said, we set up a 3PL in WA , and we've had containers sent directly there that started to arrive.
We will also be looking at sending mixed containers across the country from our Sydney and Melbourne for having goods stored in WA . The goal, obviously, is that then we'll market to WA residents that we have goods that are quick ship and cheap to ship to you, with the goal of trying to get the WA back to kind of national market share averages.
That's great. Thanks for that.
Thank you. Our next question today comes from Chami Ratnapala with Bell Potter Securities. Please go ahead.
Thank you. Congratulations, team, Mark, Cam, and Mark. Again, another solid sort of execution. First question, just on, you know, fixed cost leverage and also AI, you talked a bit in detail. Given, once again, leading the group here. Perhaps talk to us, just give a bit more color on where because now the customer service cost line seems to be nearly fully executed. Out of that, into revenue and cost lines, including that marketing investment as well. Maybe talk to us through where this could lead to because the fixed cost line, in addition, also looks pretty promising over the next few years in getting to that 15% EBITDA margins. Thank you.
Yep, maybe I'll, it's Cameron here. Maybe I'll take the question on the operating leverage first. I think, look, it was a pleasing outcome for the year. We reduced that fixed cost ratio down from 11.3%- 10.6%. The key driver of that and the largest fixed cost in the business is our employment expense. That grew by 13% year-on-year versus revenue at 21%. There's obviously a very natural operating leverage there, and we hope that we continue to see that operating leverage as we go towards our long-term goal of 6% fixed cost to revenue. There are a bunch of different drivers in that operating cost, and I think you spoke to Chami around the customer service cost. That has continued to come down year-on-year as a result of our investment. About 60% reduction as a percentage of revenue over the past two years.
[audio distortion]
There you go.
You go.
Sorry, Mark, you go on the AI. Thank you.
Yeah, I was just going to say, in terms of AI, I mean, it's a big question, right? Where are we going to be using AI? I think it's safe to say we're at the start of the journey with AI. Yes, we have deployed into some of the more obvious first areas, such as our customer care interactions, but we're using it, as I said in other calls, across the site in terms of content, in terms of search, in terms of personalization. We're at the really start. The goal, our goal that we're working towards is really everything is personalized, whether it be the products that you see, your service levels you get, the marketing offers that you may receive. The experience will look very different from one Temple & Webster customer to another. To do that, you need AI at scale.
I think we're at the very start. I think cost-based, we're still working through enabling our teams to be more effective and have higher productivity using AI. We're now training pretty much the entire company on AI. We have an AI-dedicated team which comes up with the innovative out-of-the-box solutions. Plus, we have our engineering team, which is also being trained on AI. Where it goes, I think we're really at the start of the journey. I think there is, as you say, there's opportunities in every line of the P&L, whether it be fixed costs or marketing or even margin and pricing, there's opportunity for AI to have a huge impact.
Perfect. Thank you very much. If I may, just on the revenue and FY 2026 outlook, great to see 28% maintained in the month of July. I'll check out revenue-wise. I mean, rate cuts earlier this week and pumped in September, October, obviously much easier than after that seasonal period in November, December, quite harder or challenging. How do you view the uplift you get from the overall consumer sentiment benefit as well to your category?
Yeah, I mean, definitely we want there to be more rate cuts. That has a benefit for the business in a few ways. Obviously, the most obvious one is, you know, if customers have more disposable income, they're paying less on their mortgages, then great, you know, retail will benefit. There are secondary benefits, particularly for a furniture and home goods retailer, and that is against the housing market going. Really, we want these people moving because if you think about your own life, when are the times where you've bought the most furniture? It's usually a life event. You know, you've moved out of home or you've moved into your first apartment or you've moved into your, you bought your first house or a bigger house or, you know, kids come along or whatever kind of those life stages is.
Getting the housing market turning, getting people moving is great for the furniture industry. You can already see the rate cuts, you know, start leading to the housing market improvement. I think, you know, what happens from now, we'll see. Economies are as much psychology as, you know, financial fundamentals. The moment customers think, "Okay, we're safe, we don't have another rate rise around the corner, actually, we've got another rate cut coming," and that may be another cut. Once the psychology shifts into, "Okay, we can breathe now," then I think you'll see consumers open their wallets.
Thank you. Our next question comes from Ed Woodgate at Jarden. Please go ahead.
Hi guys, thanks for taking the question and what I've resolved. I just wanted to follow on from the warehouse question. You mentioned there's a 30%-40% benefit there, but can you just talk to whether there was any increase in warehouse capacity as part of the new lease agreement, and was it related to the WA contract?
No, this is in relation to our Sydney warehouse. We entered a new lease with our provider in Sydney. It was a slightly longer term, and we have more control over it than we previously did, and it meets the requirements now for AASB 16 accounting. No, the WA warehouse is a separate contract.
Has that started yet? When will it start?
Yes, that has started actually last month. We're now live in WA .
Okay, thanks. In relation to the 3%-5% EBITDA margin target, you take the midpoint at 4%. Just curious what cost, I mean, if we think about marketing spending flat, the performance marketing spend, and some modest growth in other cost bases, it seems like it implies a big step up in brand. You're suggesting that the step up is going to be incremental. Just trying to get my head around like where, you know, invest in that cost base.
Where is the question, Ed, where the operating leverage comes from to get from 3.1- 4?
No, I think it's going to. I can see that.
It's the other way around.
Yeah.
Okay. Look, I think it's a very simple message. You know, we are targeting 4%. You know, I think if you look at the last half of the last full year, you know, we were quite pleased with the operating leverage that's come through. We did have that elevated marketing investment, so sort of above 16% of revenue. At this point in our cycle and with our market share at 2.7%, you know, we don't need to go and add significant amounts of operating leverage if the growth is there and we can continue to grow. Growth is still our number one north star. The reason for the range is obviously so that we can be flexible around that.
If we see market conditions are really strong and we want to push a bit more on marketing and we want to push a bit more to try and achieve better growth in a strong market, then we'll do that. At this stage, I'm very much targeting 4%.
Thank you. Our next question today comes from [Weijiang Wang] with RBC Capital Markets. Please go ahead.
Hi. Just a question for me about U.S. tariff impacts. I think in May, you kind of came out with an announcement where you talked about reduced shipping rates. When I look at your table of delivered margin expectations on page 18, this benefit isn't really obvious. Can you explain kind of why at the midpoint delivered margins are expected to kind of fall year on year?
Maybe talking to the Trump tariff situation first. We did talk about a reduction in freight costs at the May trading update, which had just kicked in. That has only now been running for about a month or so, just over a month. We haven't yet seen any material changes in product cost out of the situation. I think there's still a lot of uncertainty around where tariffs land, and we haven't seen yet the same thing that we saw in 2018, which is some benefits from increased competition and potentially reduced demand in factories in China. We expect that may happen, but it still hasn't come through quite yet. That's still a watching brief, and obviously the situation is very, very fluid.
Okay, cool. Just one more broadly, I guess online retail is a notoriously difficult industry. Lately, we've seen Catch and MyDeal shut down. What do you think the key is to operating a sustainable online-only business?
That's a really tough question. What are we doing well versus the catch in my deal? I think you're probably asking. I think, look, I think what Temple & Webster does really well is that we are very, very focused on sticking to our knitting. We are a retailer for the home. We have a great range of furniture and homewares. Home improvement is definitely the sweet spot because it's a product for the home. We've built a brand which means something, which is, you know, if you're looking for high-quality products, you're looking for an aesthetic, you're looking for great prices, you come to Temple & Webster, and the service proposition matches. Running at mid to high 60s NPS is world-class. Retail is detail. It's a bit of a truism, but you have to kind of do everything really well.
You have to get your sourcing right, and you have to get your pricing right, and you have to get your promos right, and you have to get your site speed and technology and UX and UI and marketing, everything else right. Obviously, the products need to match what you're selling, and if there's any issues you need to fix it. All of that is a really complicated chain, and it's taken 15 years for us to not perfect, but to get it as good as it is today. We're not perfect. There's always room for it to be better. The retailers you mentioned, I've always said if you're a general merchandise retailer with an undifferentiated brand, your only proposition is price. It's a really tricky game because you can buy those same products on lots of sites.
There's a race to the bottom, and the winners will be the ones that actually can deliver products faster and better. You get the giants like Amazon emerge with those delivery capabilities. That's not our game. Our game is not undifferentiated branded general merchandise. Our game is primarily private label and white label furniture and homewares, which has an aesthetic which you can't get in other places, and people are coming to us because they trust us. That's a very, very different competitive positioning. It's like comparing apples and oranges, a marketplace general merchandise versus a Temple & Webster, which is a category-specific branded retailer with their own products and stance on it.
Thank you. Our next question today comes from Sam Teeger at Citi. Please go ahead.
Hey, morning guys. This looks to be an impressive result. Just on the deferred revenue at 30 June, how much of this still has to flow through post the trading update, or will it pretty much all be in the trading update?
The trading update importantly is also based on checkout revenue. The deferred revenue balance at 30 June does get delivered in July. It's not like it extends over many, many weeks. It's the sort of thing that can take a week or two to move through the system. You'll see that deferred revenue balance get recognized as revenue in the month of July. Important to note that our deferred revenue balance also includes other things like gift cards and store credits. Not the entire balance is relating to the hangover from 30 June to 1 July, but the majority is.
Cam, I just want to make sure that everyone's really, really clear. You're talking about the half results. That number, the trading update doesn't, deferred revenue is out of that. It's actually, it's a straight checkout revenue number. It's actual growth. It's got nothing to do with deferred revenue, the trading update.
Correct.
All right, that's clear. Just on the EBITDA margin guidance, it looks strong in the context of what you guided to last year. Just wondering, from where we are now compared to a year ago, do you think that 15% longer-term target might be achievable earlier than you thought?
The 15% is a very long-term number. Whether it's moved by a year or two in the future is not something that we necessarily think about too much. It gives us increased confidence that that 15% over the long term is achievable. Whether it's achievable slightly earlier, still TBD, but it does build our confidence in getting there over time.
Thank you. Our next question today comes from Sam Haddad with Petra Capital. Please go ahead.
Hi, Mark and Cameron, and congrats on the stronger result again. Just on the trading update, can you give further colors around, you know, changes seen around the level of promotional activities those last years and those recent months to drive sales in the context of recent rate cuts, and also, you know, just conversion rates and average order values and things like that? Thank you.
Yeah, I mean, look, the trading of the business is good across the board is the really short answer. We're seeing growth in our core markets, in our growth plays, across first-time repeat customers. Our core categories continue to do really well. There's no single point which is really driving the current growth. It's a story across the board. I think in terms of promotional activity, we're still in a high promotional activity period. You'll see pretty much all competitors will be on sale at at least part of their range. That really hasn't changed for quite a while now with the cost of living crisis. I think you have to look at kind of June and July together, and you see that growth rate has continued.
We had the end of financial year sales, but across the period of those couple of months, very similar promotional intensity as last year of end of financial year sales being the main driver. If anything, our competitors may have actually gone a bit earlier than us. They started the end of financial year sales in May. End of May, we were in June. I do expect as rates decrease, customers start spending more, that that promotional intensity will subside a bit, but we're not there yet.
Okay. In terms of marketing plans, I know you haven't separated your brand spend plans, but just in terms of your program, in terms of marketing bursts, last year you didn't get on TV ahead of Black Friday and so forth. What are your, can you just sort of give us a high-level thinking about time and in terms of brand marketing?
Yeah.
What channels? Will you start to advertise for home improvement? Thank you.
Actually, one of the takeaways from the media mix modeling was not to do brand bursts, which we had been historically doing. We had been pooling our marketing budget into more bursts to try and get higher reach and cut through in frequency during those burst periods. The media mix modeling said it is much better to be always on. We switched our marketing strategy to be always on. You'll always see, every month you'll see something. What that is, we constantly change, update, and optimize based on the learnings of the campaign and the modeling. You won't see, as I said, particularly periods where it's on and other periods off. It will just be much more consistent. That is why we started to move away from thinking about it and talking about it as brand versus performance. It's just marketing. Every month we'll optimize how we spend that budget.
Top of funnel, mid-funnel, bottom funnel, it's up to us to deliver the highest ROI. That is, I think, what you'll see. You should always be seeing Temple & Webster ads. If you're not, let me know. Regarding home improvement, we already have started, but rather than do top of funnel, like TV ads, and the TV ads are still furnishing homewares, we're doing much more mid-funnel marketing for home improvement. We have already started to take the lessons over the last 15 years and go, what could we have done differently? What would we have done differently if we'd had the money? One of the things that we would have done differently is we probably would have started the journey to move more mid-funnel or top of funnel marketing earlier. We now have the money for home improvement.
We're doing a lot more content ads, a lot more social media ads, specifically around home improvement. Before and after shots, for example. You'll start seeing, probably on social media, more likely to see it, but also things like Pinterest and YouTube. You'll start seeing more content-led marketing specifically around home improvement.
Thank you. Our next question today comes from Scott Hudson at MST. Please go ahead.
Yeah, morning gentlemen. Most of my questions have been answered. I just had a question on the Trade & Commercial division, obviously lagging the two other segments from a growth perspective. Can you just give a sense of sort of what the headwinds you're facing there are, and I guess when you may need to make a call as to whether or not that segment is worth the effort?
Yeah, look, it definitely has some headwinds in that sector. Business spending tends to follow, you know, consumer spending. Businesses have pulled back capital CapEx spends on things like fit-outs. Offices, you know, there's a structural decline in offices due to the work-from-home trend. It's in a tougher position. Still growing, 9% up year-on-year is not bad. It's still accretive. They're big orders. It's a relatively small part of the business in terms of team. It's not like there's a huge additional cost to get that revenue. I think it's not a sector we'll ever be pulling away from because it's completely, even more so now, it leverages the mothership. We've actually simplified one of the things that's going on in the background is we've simplified our proposition to market.
We're not offering very complicated services anymore for that very reason which you said, which is a focus, which, and you know, actually we've got these great bright spots, which are home improvement and furnishing homewares B2C. Let's be disciplined to focus our capital and time on the areas which are working really well. Having said that, B2B leverages our full catalog, our supply chain, our logistics model, our technology. If we can access all of that and leverage all of that to access different revenue pools, I don't think it's a waste of time. In fact, it's a chunk of the business. When those headwinds become tailwinds, I actually think the 9% will pop back up to more impressive growth. We're just in that cycle where we're running against those winds.
Scott, it's Cameron here. We have seen some positive shoots. It's a longer lead time part of the business. We do have more sort of forward orders, and we have seen some signs over the last sort of part of increased activity. We're feeling good about B2B.
Thank you. Our next question today comes from Tim Piper at UBS. Please go ahead.
Morning, Mark and Cam. I'll just ask one in the interest of time. Just on the marketing cost guidance for 2026, 15 to 16%, obviously coming down from current levels. I note that obviously brand has come into the mix there. Just when you model that out, your expectations on greater marketing efficiency, what's kind of the mechanics of that playing out? Are you expecting a reversal of CAC trends? Are you expecting greater repeat order activity and frequency, or is it going to be driven by conversion? What's the main mechanics of your expectation of that coming down?
Essentially, the ROI and marketing rate is the delivered margin we make from a customer. In the metric that we report, it's a 12-month margin we make from a customer. Whenever we talk about first order, obviously we're just talking about first order profit margin. That influence is going to be our average order value, our product mix, our delivered margin. There are really long-term trends in terms of pricing and everything else. The ROI is mostly influenced by the CAC. That's the biggest driver of its movement in the short term. That CAC, which is true first-time customers, so it's not just our total, our marketing costs divided by all our orders, all our customers. We identify the first time how much we're spending with first-time customers. That is going to be driven by the efficiency of the marketing spend, channel optimization, obviously things like conversion rate improves that.
If our conversion rate goes up, then we're getting more customers for the same spend. There's a lot that goes into that. What the data I'm seeing is I think that one of the biggest drivers is going to be just actually building the brand. The more we build the brand, the more we're changing memory structures, the more we're getting cut through in our marketing, the better the whole marketing stack and pile will work. Customers will click more and convert more because they have not only recognized the brand, but we've built their trust structure as well. I think what you'll see over time is actually the CAC come down as our marketing mix works harder, and therefore the ROI will revert its trend.
Thank you. That concludes our question and answer session. I'd like to turn the conference back over to Mr. Coulter for any closing remarks.
Thank you. Thanks everyone for your time today. As you can see, we continue to deliver impressive results. That's especially given the background of tough trading conditions. Our strategy of positioning Temple & Webster as the brand for the next generation of furniture shoppers is working. The key takeaway is that we have a long road of profitable growth ahead of us. Thanks, everyone.
Thank you. That does conclude our conference for today. We thank you for participating, and you may now disconnect your line.