Last week, Wayfair (NYSE:W) announced that 2024 first-quarter revenue fell 1.6% year-over-year to $2.7 billion. This makes it 10 out of the last 12 quarters that the online home furnishings retailer has recorded lower sales. Despite the dreadful performance, Wayfair shares jumped 16% on the day of the earnings release (May 2) and continued to rally into the new week. After rebounding 88% in 2023, the mid-cap is up approximately 13% year-to-date (see below) due to a mix of positive developments.
Wayfair is a Boston-based e-commerce company specializing in furniture and home goods. It sells millions of items from more than 20,000 suppliers under a half dozen brand names, including Wayfair, AllModern, and Birch Lane.
Nearly 90% of Wayfair’s first-quarter sales came from its core U.S. business, which posted a modest 1.0% sales decline. The international side of the business dragged the top-line result down, with a 5.8% sales decrease. Wayfair can no longer blame difficult pandemic e-commerce boom comparisons for its sales declines. Instead, a challenging discretionary spending environment caused fewer orders and smaller order sizes in the first quarter compared to the prior year period.
There were several silver linings in the report related to customer, market share, and profitability metrics that allowed the market to look past the revenue drop. While I agree that these metrics point to underlying momentum in Wayfair’s business, the stock has more than doubled from its 2022 low. Therefore, a neutral stance seems more appropriate here.
In the first quarter earnings release, Wayfair CEO Niraj Shah stated, “The first quarter ended on an upswing.” That may be a good sign, considering that the retailer just wrapped up its three-day Way Day event. It remains to be seen whether this translates into positive second-quarter sales growth. Regardless, positive trends and hopes for a housing market recovery have the bulls in control of Wayfair stock.
Wayfair Is Grabbing Market Share
Among the bullish highlights in the May 2 release is the fact that Wayfair gained market share for the sixth straight quarter. This shows that consumers are increasingly discovering Wayfair’s website and mobile app as shopping destinations for a wide range of home goods. Although the company is known for its bargain prices, much of its merchandise is in the mid-range and luxury ends of the market.
Wayfair’s recent market share gains go hand in hand with its improving customer metrics. Its customer growth accelerated to 2.8% in the first quarter to bring its active customer base to 22.3 million. Yes, this pales in comparison to Amazon’s (NASDAQ:AMZN) 310 million active user base, but it represents significant spending power in a home goods market that is forecast to reach $800 billion this year.
It is also encouraging that repeat Wayfair customers placed more orders (7.7 million) and accounted for a greater share of total orders (80.5%) in the first quarter. This speaks to the company’s increasing customer loyalty and engagement.
While Wayfair’s top-line results have been underwhelming, profitability is trending in the right direction. The first quarter’s $75 million of non-GAAP adjusted EBITDA marked the fourth straight quarter of EBITDA profitability. The company is still operating at a net loss, but Wall Street is anticipating a full-year profit in 2024.
A Housing Market Rebound Is Another Source of Optimism
Wayfair’s fortunes are closely tied to the health of the domestic housing market. It isn’t helping that the average 30-year fixed mortgage has moved back above 7% in recent weeks. For the week ended May 1, 2024, U.S. mortgage applications declined by a worse-than-expected 2.7% from the previous week.
Still, Wayfair investors are pinning much of their hopes on lower mortgage rates in the back half of 2024 and 2025. Friday’s cooler-than-expected U.S. employment data has boosted hopes that the Federal Reserve will cut benchmark interest rates in September. More than one cut will likely be needed to convince homebuyers to return to the market, but it could be perceived as a bullish signal for furniture retail stocks like Wayfair.
Wayfair suppliers appear to be banking on a housing market comeback as well. CEO Shah noted that suppliers are “introducing large groups of new products” to build momentum for the next growth phase.
Is W Stock a Buy, According to Analysts?
Wall Street’s reactions to Wayfair’s first quarter update have been mixed. Since the May 2 release, four analysts have maintained Buy ratings, and four analysts have reiterated Hold ratings. Overall, the consensus rating on Wayfair stock is a Moderate Buy.
Revised analyst price targets in the wake of the first-quarter report range from $50.00 to $88. Including all price targets over the past three months, the consensus price target for Wayfair stock is $65.92, which implies 5.2% downside potential from Monday’s close.
The Bottom Line on W Stock
Wayfair continues to struggle to grow sales in a tough macro environment, but the market is giving it a pass. Positive customer growth, market share, and profitability metrics, along with hopes for a housing market recovery, have pushed Wayfair’s stock return into positive territory this year. Nonetheless, despite the momentum in the business, there may be a better entry point for prospective investors.
