The reports of Wayfair sales decline, the online home goods retailer for its fiscal second quarter. The company’s CEO, Niraj Shah, drew parallels between the current downturn in home goods and the financial crisis of 2008.
“Our credit card data indicates that the current correction in the home goods sector mirrors the scale of the decline seen during the Great Financial Crisis,” Shah stated in a press release. “Customers continue to exhibit restraint in their spending on home-related items.”
The company fell short of Wall Street’s expectations both in terms of earnings and revenue. Here’s a comparison of Wayfair’s second fiscal quarter performance with analyst forecasts from LSEG:
- Earnings per share: $0.47 (adjusted) vs. $0.49 (expected)
- Revenue: $3.12 billion vs. $3.18 billion (expected)
Wayfair reported a loss of $42 million, or 34 cents per share, for the three-month period ending June 30. This represents a slight improvement compared to the $46 million loss, or 41 cents per share, recorded in the same quarter the previous year. Sales fell to $3.12 billion, a decrease of approximately 2% from the $3.17 billion recorded a year ago. Notably, average order values increased from $313 to $307 during the quarter, despite the overall slowdown in sales and the opening of the company’s first large-format store.
Over the past year, home goods retailers, including Wayfair, have experienced a slowdown in demand for items such as sofas and dining sets, largely due to a stagnant housing market influenced by high interest rates. Fewer new home purchases translate to fewer reasons for buying new furniture. Additionally, persistent inflation has led consumers to be more selective with their discretionary spending, favoring alternatives like dining out, new clothing, and travel over home goods.
To attract customers, Wayfair has resorted to offering discounts but does not anticipate a revival in the home goods sector until interest rates are reduced and the housing market recovers. Wayfair’s finance chief, Kate Gulliver, remarked in an interview with CNBC, “The declines we are experiencing resemble those from the 2008 to 2010 period, suggesting the category is undergoing a significant correction, akin to what we’ve observed during GDP recessions.”
She added, “Although we are not officially in a GDP recession, this situation is somewhat unique to our category. We’ve seen a recession-like correction in home goods over the past few years.”
Relief may be forthcoming if Federal Reserve Chair Jerome Powell’s hints at potential interest rate cuts materialize, possibly as early as September, contingent on ongoing economic data. Despite implementing extensive layoffs to align its cost structure with its current business size, Wayfair has struggled to achieve profitability. However, Shah highlighted that the quarter marked the best performance for free cash flow and adjusted EBITDA in three years.
Wayfair achieved an adjusted EBITDA of $163 million during the quarter, slightly below Wall Street’s expectation of $168 million, according to Street Account. Shah concluded, “Our goal is to demonstrate significant profitability growth this year, even amidst a challenging top line. This will be our focus in the years to come.”
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