Online home goods retailer Wayfair (NYSE: W) reported results ahead of analyst expectations in the Q1 FY2023 quarter, with revenue down 7.32% year on year to $2.77 billion. Wayfair made a GAAP loss of $355 million, down on its loss of $319 million, in the same quarter last year.
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Wayfair (W) Q1 FY2023 Highlights:
- Revenue: $2.77 billion vs analyst estimates of $2.74 billion (1.22% beat)
- EPS (non-GAAP): -$1.13 vs analyst estimates of -$1.71
- Free cash flow was negative $234 million, compared to negative free cash flow of $19 million in previous quarter
- Gross Margin (GAAP): 29.6%, up from 26.8% same quarter last year
- Trailing 12 Months Active Customers: 21.7 million, down 3.7 million year on year
"Last August, we shared a roadmap laying out our path to profitability and we have been executing against that plan. Through a focus on our three core initiatives of driving customer and supplier loyalty, nailing the basics, and cost efficiency, we have made significant strides in improving our offering and customer experience, simultaneously reducing our cost structure while investing for future growth," said Niraj Shah CEO, co-founder and co-chairman, Wayfair.
Launched in 2002 by founder Niraj Shah, Wayfair (NYSE: W) is a leading online retailer for mass market home goods in the US, UK, Canada, and Germany.
Consumers ever rising demand for convenience, selection, and speed are secular engines underpinning ecommerce adoption. For years prior to Covid, ecommerce penetration as a percentage of overall retail would grow 1-2% annually, but in 2020 adoption accelerated by 5%, reaching 25%, as increased emphasis on convenience drove consumers to structurally buy more online. The surge in buying caused many online retailers to rapidly grow their logistics infrastructures, preparing them for further growth in the years ahead as consumer shopping habits continue to shift online.
Sales Growth
Wayfair's revenue growth over the last three years has been unremarkable, averaging 12.8% annually. This quarter, Wayfair reported a rather lacklustre 7.32% year on year revenue decline, in line with analyst estimates.
Ahead of the earnings results the analysts covering the company were estimating sales to grow 1.47% over the next twelve months.
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Usage Growth
As an online retailer, Wayfair generates revenue growth by growing both the number of buyers, and the average order size in dollars.
Wayfair has been struggling over the last two years as the number of active buyers, a key usage metric for the company, declined 11.9% annually to 21.7 million. This is one of the lowest levels of growth in the consumer internet sector.
In the number of active buyers decreased by 3.7 million, a 14.6% drop year on year.
Key Takeaways from Wayfair's Q1 Results
Since it has still been burning cash over the last twelve months it is worth keeping an eye on Wayfair’s balance sheet, but we note that with a market capitalization of $3.46 billion and more than $1.05 billion in cash, the company has the capacity to continue to prioritise growth over profitability.
Wayfair topped analysts’ revenue expectations this quarter, even if just narrowly. EPS also beat. The company nearly broke even on adjusted EBITDA, with management expecting to have positive Adjusted EBITDA in the second quarter. These features of these results really stood out as a positive. On the other hand, there was a decline in number of users and the revenue growth was quite weak. Overall, this quarter's results could have been better. The company is up 15.9% on the results and currently trades at $36.27 per share.
Wayfair may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.