Key points
- Wayfair offers consumers a seamless shopping and delivery experience with the click of a mouse instead of time-consuming trips to physical furniture stores.
- Wayfair gained market share in the furniture and home goods segment for the sixth consecutive quarter as competitor Home Goods closed its online store in October 2023.
- Wayfair has a short ratio of 17.4% and has had short squeezes in the past.
- 5 Stocks We Like Better Than Wayfair
Wayfair Inc. NYSE: W is an e-commerce platform specializing in furniture and household items. The components of its name, Way and Fair, imply a wide range of products at a fair price. The consumer discretionary company has launched a series of initiatives to gain an advantage over competitors, including IKEA, Amazon.com Inc. NASDAQ: AMZN, Overstock.com Inc. NASDAQ: OSTK, Haverty Furniture Co. New York Stock Exchange: HVT, Walmart Inc. New York Stock Exchange: WMT AND Target Co. New York Stock Exchange: TGT.
Easy access and convenience are crucial factors for performance
Wayfair makes furniture shopping convenient by giving consumers access to everything it offers with just a few keystrokes, saving shoppers the time-consuming task of physically walking through showrooms. It also allows consumers to filter by style, brand or item to find what they want. Wayfair often offers 72-hour Clearout sales with savings of up to 60%. The company has gone through a turning point and its financials continue to improve. Notably, it has a short interest of 17.86%, making it susceptible to short squeezes.
Online shopping creates tailwinds
High interest rates, high prices and a low supply of homes may have caused a slowdown in the housing market, but it can be a boon for home improvement and furnishings. Wayfair also benefits from tailwinds created by customers switching to buying furniture online and e-commerce rather than walking into a furniture store. This migration to Internet shopping is driving Wayfair’s outperformance relative to the home furnishings industry average. Free shipping, a loyalty program, and white glove delivery further attract customers to the platform.
Inflection of stronger financial data
Wayfair announced a fourth-quarter 2023 EPS loss of 11 cents, which was 4 cents better than consensus analysts’ estimates. The company’s net loss was $174 million and non-GAAP adjusted EBITDA was $92 million, up from last year’s loss of $71 million. Revenue increased 0.4% year over year to $3.11 billion, in line with consensus estimates. Wayfair ended 2023 with $1.4 billion in cash and cash equivalents.
The growth parameters are overall positive
Wayfair reported 0.9% growth in U.S. sales, while international sales fell 2.7%. Gross margins beat consensus estimates by 60 basis points to 30.4%. The number of active customers rose by 1.4 percent to 22.4 million. LTM net revenue per active customer was $537, a decrease of 3% year over year. Average order value was higher than expected at $276, down 2.5% year-over-year. Orders delivered in the fourth quarter of 2023 increased 2.7% year over year to 11.3 million. Cost-cutting initiatives resulted in the reduction of 3,400 jobs during the year. Competitors RH NYSE:RHformerly known as Restoration Hardware, e Williams-Sonoma Inc. New York Stock Exchange: WSM they saw sales declines of 14% and 16%, respectively.
The driving is mixed
Wayfair expects first-quarter 2024 revenues to increase in the mid-single-digit range, with gross margins expected between 30% and 31%. EBITDA margin is expected to be in the low single-digit percentage range. The company gained market share for the sixth consecutive quarter. Wayfair also deserves credit for its efficient operations as a competitor to Home Goods (owned by TJX Co. New York Stock Exchange: TJX) closed its e-commerce platform at the end of October 2023.
Analyst actions
Morgan Stanley defended its Overweight rating on Wayfair shares with an $80 price target. Analyst Simeon Gutman sees a cyclical recovery in home-oriented stocks, forecasting Wayfair to hit $900 million in adjusted EBITDA by 2025. March 19, 2024. Mizuho initiated a buy rating on Wayfair shares with a target of price of $72.
The daily candlestick chart on Wayfair illustrates an ascending triangle pattern. The lower ascending trendline formed at $47.32 on February 21, 2024. The upper flat-top resistance trendline formed at $66.63 after three breakout attempts, with the last one eventually he managed to overcome. The daily market structure low (MSL) triggered the breakout above $65.04. The daily relative strength index (RSI) is rising through the 65 band. Pullback support levels are at $62.55, $55.30, $51.83, and $47.32.
Wayfair Thrives Despite Challenging Environment
Wayfair CEO Niraj Shah attributed the company’s market share expansion to improved item availability, shipping speed, competitive pricing and increased active customers and customer loyalty.
“Even in a challenging macroeconomic environment, we generated an Adjusted EBITDA margin of 3% and recorded our third consecutive quarter of positive Adjusted EBITDA and Free Cash Flow. In fact, on a revenue base that largely mirrors that of 2022, our 2023 Free Cash Flow improved by more than $1 billion,” Shah said.
Shah expects the first quarter of 2024 to be the low point as the company expects EBITDA growth of 50% in 2024.
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