Dive Brief:
-
Wayfair continues to struggle with profitability – in Q1 its net loss of $105 million barely narrowed from a year ago – but, with consumers keen on value, it’s also taking market share.
-
As of March 31, its number of active customers had reached 21.4 million, up more than 1% year on year. Gross margin declined by 70 basis points to 30%.
-
Total net revenue rose over 7% to $2.9 billion, the bulk of that in the U.S., which analysts deemed impressive given the category’s struggles.
Dive Insight:
Wayfair is managing to post sales and market share gains even with furniture and home goods retail mired in a post-pandemic slump.
Sales in the category declined in five of the last six months, and the boost in October was just 0.7%, according to numbers from the U.S. Department of Commerce. Wayfair estimates that in Q1 the home furnishings category declined in the low-single-digit range, and that the company outperformed the market by a high-single-digit spread, co-founder and CEO Niraj Shah told analysts Thursday morning.
The home category remains in a post-pandemic slump
The gross margin trajectory is somewhat concerning but “sales growth of 7.4% was particularly impressive against ongoing declines in the industry, underscoring Wayfair’s share gain potential, which should be structural over the long term,” William Blair analysts Phillip Blee and Olivia Witte said in a Thursday research note.
The share gains are expected to continue, Shah said. He pointed to the company’s loyalty program and physical stores as key to this. Wayfair plans to end the year with four stores and to open more than three next year.
It also helps that Wayfair provides value at a time when consumers are laser-focused on that, according to GlobalData Managing Director Neil Saunders.
“On this front, Wayfair is a magnet because of its extensive range and its strong price tiering,” he said in emailed comments.
The glaring issue for Wayfair continues to be profitability, a sore spot for most of its existence. The company reported non-GAAP adjusted EBITDA of $151 million, which Saunders called “certainly stronger” and deserving of credit.
“But the net loss is still substantial. The balance sheet has also shrunk,” he said. “Some of this is due to restructuring and debt extinguishment, but a lot more work is needed to drive the business into the black.”
The company’s emphasis on customer retention rather than acquisition “is an important step on the journey to profitability, but we believe that there is still a substantial distance to the destination,” Saunders also said.
