Wayfair loses its way – WSJ


Investors in Wayfair W -25.68%

are hit with a double whammy.

The online furniture retailer was already facing a drop in sales as consumers shifted their focus from online shopping to in-person stores. Today, the company also has to contend with slowing general demand for furniture and other high-ticket items. In the first quarter, furniture sellers saw revenue increase 2.9% year-over-year, a substantial slowdown from the double-digit year-over-year growth rate seen in the the previous two quarters, according to the US Census Bureau. Big ticket items in general are harder to sell these days; stores selling electronics and appliances actually fell 3.3% in the first quarter, even as sales at supermarkets and clothing stores grew at healthy rates of 9.1% and 16.7% , respectively.

Given the difficult consumer environment, Wall Street analysts were anticipating bad news. Wayfair posted a 14% decline in first-quarter revenue, mostly in line with the expectations of analysts polled by Visible Alpha. Etsy,

which reported results on Wednesday, said sales in the home and living category fell slightly.

The biggest surprise was the drop in the number of active customers. They decreased by approximately 7% compared to the previous quarter; Wall Street expected a modest rise. This is the fourth consecutive quarter of decline in the number of active customers. It was also the third straight quarter of net losses for the company, with rising fuel costs and new hires hurting bottom line. Wayfair shares fell 19% after their earnings call on Thursday morning.

The outlook for demand is admittedly bleak. Wayfair chief executive Niraj Shah said on the earnings call that inflation and geopolitical uncertainty are causing consumers to shift spending toward non-discretionary purchases and experiences such as travel. The company also said it could not commit to being profitable on an earnings before interest, tax, depreciation and amortization basis for the full year.

The only positive for Wayfair compared to the competition is the easing of the bottleneck in the supply chain. Shah said on the call that delivery times improved by 10% for small parcels and 20% for large parcels in the first quarter compared to a year earlier. The tight supply situation has been particularly difficult for Wayfair, which does not take inventory risk. When supply is scarce, furniture producers tend to prefer directing inventory to retailers who will pay up front, Shah noted. Once suppliers start managing excess inventory, Wayfair should be in a better position to drive more business, potentially at cheaper prices, through its website.

After a 60% drop in its share price since the start of the year, Wayfair’s enterprise value is below 12-month sales, giving it a valuation closer to mature retailer Walmart than to its e-commerce peers. It was one thing to gain market share in a booming market. With a tough backdrop for e-commerce and furniture, Wayfair has a strong climb ahead.

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