Wayfair’s Pandemic Tailwind Is Gone

Wayfair Slips Into A Comfortable Position 

Wayfair NYSE: W was among the most perfectly positioned company’s when it comes to the pandemic. Not only is it a specialist in home furnishings and decor but it is a pure-play on eCommerce as well. The company saw a near-triple-digit increase in sales because of it but that boost is long over. Now the company is struggling with difficulties that make it hard to get the big picture and that is having an impact on share prices. The stock fell more than 5.0% in the wake of the weaker than expected Q3 report but we have this to say. The COVID bump may be over but the long-term outlook is still quite robust. The Q3 results are up more than 35% over 2019 and the outlook for forward growth is as good. This pullback to support looks like an entry point to us. 

“As various geographies reopened post-pandemic, consumers naturally shifted some spend towards travel and entertainment and from e-commerce towards brick and mortar. Demand and interest in the home remains resilient, but it will take a few more quarters for our growth – and e-commerce growth in general – to get back to normal,” said Niraj Shah, CEO, co-founder and co-chairman, Wayfair. “Our long-term vision is in sharp focus coming out of the pandemic period. The initiatives required to realize it are in flight, even as we work through near-term macro challenges like supply chain congestion and related inflation.

Wayfair Falls On Mixed Results 

Wayfair had a good quarter if one marred by several comparisons the market would like to have been better. The $3.12 billion in net revenue is down -18.7% versus last year and missed the consensus estimates by 370 basis points. The weakness is due to worldwide economic reopenings that have consumers turning their focus and dollars to other attractions. As bad as it is, the comp is against a 66.5% increase last year and is well above the pre-pandemic levels. Sales were weakest in the US where supply chain hurdles cut into deliveries while in the International segment positive FX translation halved the YOY decline to only -6%. 

Internally, the metrics are good and point to continued long-term growth. The number of active customers grew 1.5% over last year with a 7.3% increase in LTM revenue per customer. The bad news is that orders delivered fell by 31% on a decrease in orders but margins are holding up. The company reported a 150 basis point decline in gross margins but came in well above expectations. The GAAP loss of $0.75 beat the consensus by $0.10 while the adjusted $0.14 beat by $0.13. 

Wayfair Is Undervalued By The Market 

If the Marketbeat.com analysts consensus estimate is any guide, the market is grossly undervaluing Wayfair. Even with a string of recently lowered price targets, the consensus estimate is running near $311 or more than 23% upside from recent price action. The most recently reduced target comes from Wells Fargo, however, which has the stock trading closer to $250 or very close to the recent price action. 

The Technical Outlook: Wayfair Falls Back To Support

Shares of Wayfair fell in the wake of the report but are showing signs of support. Support is evident above the $240 level and should be able to keep the price there or edging higher over the near to short term. Longer-term, this stock may continue to consolidate at these levels for some time but we don’t think so. The comps will start to get easier as soon as the current quarter, a traditionally strong quarter of the year.