Temple & Webster has overhauled its pricing and promotional strategy after warning investors that earnings will fall sharply below expectations as cautious shoppers rein in spending.

The online furniture and homewares retailer told the market on Wednesday that underlying earnings for the 2026 financial year are expected to land between $20 million and $22 million. Analysts had previously forecast around $30.2 million.

Projected revenue is also expected to miss expectations, with the company forecasting sales between $665 million and $675 million, roughly 6 per cent below consensus estimates.

Investors reacted negatively to the update, sending the company’s shares down about 7 per cent to $4.95 by late afternoon trade. Earlier in the session, the stock had fallen as much as 12 per cent. Temple & Webster shares were trading near $30 in August before a sharp decline driven by weaker trading conditions, underwhelming financial performance and investor concerns about the company’s direction.

Chief executive Mark Coulter said the retailer had adjusted its approach in response to worsening household confidence, choosing to place greater emphasis on profitability rather than rapid expansion.

Coulter said the business had spent the past two months reshaping its operations by changing promotional timing, increasing prices across its catalogue, securing stronger backing from suppliers, revising marketing activity and slowing growth in fixed expenses.

Consumer caution has intensified in recent months. The Westpac-Melbourne Institute Consumer Sentiment Index recorded its steepest monthly fall since the pandemic after escalating tensions in the Middle East pushed fuel prices higher and increased fears of prolonged economic weakness.

Temple & Webster

The decision marks a significant shift for Temple & Webster, particularly after management previously insisted it would continue pursuing aggressive promotional activity to maintain momentum against rivals, despite rising interest rates and pressure from shareholders.

Some investors had become increasingly uneasy that heavy discounting was damaging the retailer’s margins and undermining profitability.

The company has also faced criticism from industry rivals. Harvey Norman chairman Gerry Harvey last year dismissed Temple & Webster’s products as excessively expensive, while IKEA has recently experienced slower growth as online competitors gain traction.

Despite the downgrade, Temple & Webster pointed to some positive signs. The retailer said earnings before interest, tax, depreciation and amortisation for April reached about $2.5 million, making it the strongest April result in the company’s history.

Management also said recent profitability trends suggest underlying earnings in the 2027 financial year could climb to about $40 million, even if broader sales growth remains subdued.

Coulter argued the stronger margins demonstrated the flexibility of the company’s business model during difficult economic periods linked to geopolitical instability and weaker consumer demand.

Temple & Webster is continuing to target $1 billion in annual revenue by the 2028 financial year.

Citi analyst Sam Teeger said the revised strategy could help shield the business from a downturn, although he remained cautious following several recent shifts in leadership and corporate direction, including Coulter’s move to executive chairman from 1 July.

Former chief commercial and marketing officer Susie Sugden is set to return to the company as chief executive.

RBC analyst Wei-Weng Chen described the update as “very soft”, warning that weaker guidance would make the retailer’s $1 billion revenue ambition increasingly difficult to achieve.