By Jinjoo Lee
Between weak furniture demand and consumers' return to bricks-and-mortar shopping, the postpandemic years haven't been easy for online furniture seller Wayfair. But with some painful cost cuts already behind it, and its first large-format store set to open soon, Wayfair's new foundation is starting to look pretty solid.
Wayfair on Thursday reported that revenue declined 1.6% in the first quarter compared with a year earlier, much better than Wall Street expectations for a 5% decline. Active customer count rose 2.8% on year after eight straight quarters of decline. The company's cost cuts seem to be bearing fruit: Despite the top-line decline, Wayfair's earnings before interest, taxes, depreciation and amortization -- adjusted for nonrecurring items and equity-based compensation -- turned positive to $75 million from a loss of $14 million a year earlier. Net loss narrowed to $248 million from $355 million a year earlier.
Wayfair's shares surged about 12% following its earnings call.
Revenue and profit peaked for Wayfair in 2020 as consumers rushed online to shop. But sales on the website have declined every subsequent year, resulting in more than $1 billion of cash burn in the last two years.
One question for Wayfair is whether it can return to the heady growth it saw as an upstart online furniture seller and, if so, what kind of advertising spend it would take to get there. The company's latest results don't address that question directly, but they do strongly suggest Wayfair can grow faster than the broader market once the furniture industry returns to growth. Wayfair's U.S. sales declined 1% on year, better than the furniture and home furnishings industry's 8.4% decline over the same period, according to data from the Census Bureau. This marks the fourth consecutive quarter where Wayfair's domestic on-year sales change outperformed the industry. Wayfair's share of the global furniture market is still relatively small at about 2%, according to Evercore analysts.
And Wayfair's store openings should help the company increase brand awareness without depending on advertising, which typically eats up 11.5% to 12.5% of revenue. It has five physical stores under the brand names AllModern and Joss & Main, and plans to open its first large-format, 150,000-square foot store in Illinois this month. The store promises an IKEA-like experience, with an on-site restaurant and a broad assortment that ranges from housewares to furniture.
This year likely won't be the turning point for the industry, between a sluggish housing market and fading prospects of interest rate cuts from the Fed that suggest higher-for-longer mortgage rates. But even if revenue stays flat for the full year, Wayfair figures it should be able to double its adjusted Ebitda compared with last year.
Wayfair investors have reason to feel a little more comfortable about the company.
Write to Jinjoo Lee at jinjoo.lee@wsj.com
(END) Dow Jones Newswires
May 02, 2024 10:57 ET (14:57 GMT)
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