Wayfair (W, Financial) saw its stock dip by 2% after reporting a significant Q4 earnings miss, coupled with a decline in active customers and stagnant orders per customer. The e-commerce home furnishings retailer posted its largest net loss since Q4 2021, reverting to losses after two quarters of net gains. Active customers decreased by 4.5% year-over-year, worsening from a 2.3% decline in Q3, with orders flat at 1.85 per active customer. Revenue was nearly unchanged, rising just 0.2% year-over-year to $3.12 billion.
The trends reflect a challenging housing market with high mortgage rates and persistent inflationary pressures. Wayfair's management is not predicting a bottom in the current cycle but is focused on leveraging the situation to benefit now and when the cycle improves.
- Wayfair aims to capture market share during this bearish cycle. Recently, the company exited the German market due to challenges in establishing a presence and gaining share. This allows Wayfair to concentrate on strengthening its position in the U.S., U.K., Canada, and Ireland through marketing, merchandising, supply chain, and technology. Despite pressures in the home furnishing category, Wayfair reported market share gains in Q4.
- The exit from Germany could signal potential future exits from other overseas markets, as demand in Europe has lagged behind the U.S., evidenced by a 5.7% drop in International net revenue in Q4.
- Despite disappointing EPS, Wayfair remains committed to sustainable profitability, achieving a 3% adjusted EBITDA margin for the third consecutive quarter. The company plans to drive adjusted EBITDA above CapEx, projecting growth in adjusted EBITDA dollars by 2025 through cost-cutting measures.
- In the short term, the housing market outlook remains bleak, with inflationary pressures affecting discretionary spending. Wayfair noted that Q1 revenue trends are slightly below flat year-over-year and expects the quarter to end similarly. The German market exit is expected to reduce growth by about 100 basis points in Q1. Wayfair has not seen sales growth above 4% since 2020, and it projects adjusted EBITDA margins of 2-4% in Q1.
Wayfair's stock has been trading within a narrow range over the past seven months, reflecting mixed investor sentiment. While some signs of housing market recovery exist, economic uncertainty persists. Wayfair's focus on profitability and customer experience positions it well for a potential demand surge once economic conditions improve.
