Online home goods company Wayfair saw sales fall in its second fiscal quarter as its CEO called the current downturn in the home goods category “unprecedented” and compared it to the 2008 financial crisis.
“Credit card data suggests the category's correction now reflects the magnitude of the decline the home decor sector experienced during the Great Financial Crisis,” Wayfair CEO Niraj Shah said in a press release. “Customers remain cautious about spending on the home.”
The e-tailer missed Wall Street expectations on both top and bottom lines. Shares opened down about 8% before paring losses. The stock was last down 1%.
Here's how Wayfair fared in its fiscal second quarter compared with what Wall Street expected, according to a survey of analysts by LSEG:
- Earnings per share: 47 cents adjusted versus 49 cents expected
- Revenue: $3.12 billion versus $3.18 billion forecast
The company reported a loss of $42 million, or 34 cents per share, in the three-month period ended June 30. That's slightly better than the loss of $46 million, or 41 cents per share, it posted during the same quarter a year earlier.
Sales fell to $3.12 billion, down 2% from $3.17 billion a year earlier. The sales slowdown came despite average order values rising in the quarter from $313 to $307 and after the company opened its first large-format store.
For the current quarter, Wayfair expects revenue to decline in the low single digits, compared with estimates of 1.7% growth, according to LSEG.
For more than a year, home goods companies like Wayfair have seen sluggish demand for items like new couches and dining room sets as the broader housing market stagnated due to high interest rates. Consumers are buying fewer new homes, meaning they have fewer reasons to buy new furniture. Plus, with inflation lingering, they’ve been more selective about where they spend their discretionary income — and with options like dining out, new clothes and travel, home goods haven’t been a priority.
Wayfair has had to lure customers with discounts to attract them and doesn't expect to see a resurgence in the category until interest rates decline and the housing market recovers.
“We're seeing declines that are similar to what we saw in the 2008 to 2010 period and I think that indicates that the category has been going through a massive correction, a correction that we've previously only seen during a GDP recession,” Wayfair CFO Kate Gulliver told CNBC in an interview.
“Obviously, we're not technically in a GDP recession as a country right now, so this is something unique in this category… we've seen that kind of recession-like correction in the category over the last few years.”
During a call with analysts, Shah called the slowdown in the home goods category “unprecedented” and said it is similar to what the sector experienced during the great financial crisis.
“Our credit card data suggests the category is down nearly 25% from the peak we saw in Q4 2021,” Shah said. “Importantly, this calculation is based on nominal dollars, and adjusting for inflation suggests we are now in the midst of a correction of over 35%, an unprecedented level of pullback in our sector.”
A respite could be coming soon after Federal Reserve Chairman Jerome Powell said interest rate cuts could come as soon as September, provided economic data continues on its current path.
“Given how deep we are in the cycle, it's fair to expect a turnaround soon, and Wayfair is well positioned to benefit,” Shah said.
Wayfair, which has implemented a series of massive layoffs to align its cost structure with the current size of its business, has struggled to reach profitability, but the quarter was its best in terms of free cash flow generation and adjusted EBITDA in three years, Shah said.
The company posted adjusted EBITDA of $163 million during the quarter, still below the $168 million that Wall Street had expected, according to StreetAccount.
“We are steering the business with the goal of demonstrating substantial growth in profitability this year, even as top line revenue remains challenging. And that will be our mindset every year going forward,” Shah said.
