Wayfair misses expectations; CEO compared decline in home furnishings to the GFC
In the second quarter of 2024, Wayfair (W) delivered mixed financial results, missing analysts' expectations on several key metrics. The company reported adjusted earnings per share (EPS) of $0.47, slightly below the estimated $0.49, but a significant improvement from the $0.21 reported in the same period last year. Net revenue fell by 1.7% year-over-year to $3.12 billion, underperforming the expected $3.18 billion. Despite these shortfalls, the company showed growth in adjusted EBITDA, reporting $163 million, a 27% increase year-over-year, although it missed the estimate of $168.6 million.
Breaking down the results further, U.S. adjusted EBITDA stood at $199 million, up 24% year-over-year and slightly surpassing the estimate of $198.6 million. However, international performance continued to drag, with an adjusted EBITDA loss of $36 million, worse than the anticipated loss of $28.7 million but still an improvement of 9.1% year-over-year. Net revenue from the U.S. market was $2.73 billion, down 2% from last year and below the estimated $2.8 billion. Internationally, revenue grew marginally by 0.3% to $387 million, just above the $381 million expected.
Consumer behavior reflected a cautious approach to spending on home goods, a trend noted by CEO Niraj Shah. Shah highlighted that the home furnishing category has seen a significant downturn, comparable to the declines experienced during the Great Financial Crisis. This caution was evident in several metrics: the average revenue per customer over the trailing twelve months was $540, down 0.9% year-over-year, and the number of active customers remained flat at 22 million, missing the estimated 22.45 million. Additionally, orders delivered were stable at 10 million, against an expectation of 10.39 million.
Despite the challenging environment, Wayfair demonstrated resilience in operational efficiency. The adjusted free cash flow surged 43% year-over-year to $183 million, significantly exceeding the estimate of $133.5 million. The adjusted EBITDA margin was reported at 5.2%, slightly below the expected 5.32%. The average order size increased by 2% to $313, surpassing the anticipated $305.10, indicating some positive movement in customer spending patterns.
The company's focus on strict operating discipline and investment scrutiny was evident in the quarter's results. Shah emphasized that the measures taken have resulted in the best quarter for adjusted EBITDA and free cash flow generation in three years. This improvement underscores Wayfair's commitment to enhancing profitability even amid top-line pressures. The company's strategy moving forward includes maintaining this disciplined approach to ensure sustainable growth in profitability.
In summary, Wayfair's Q2 performance highlighted the ongoing challenges in the consumer market, with revenues and some key metrics falling short of expectations. However, the company's ability to improve profitability and cash flow amidst these headwinds showcases its operational resilience. The cautious consumer spending behavior remains a concern, but Wayfair's strategic focus on profitability and disciplined investment provides a solid foundation for future growth.