Wayfair‘s (NYSE:W) sales are down, but it isn’t done growing. The home furnishings giant last week announced a 10% revenue slump as compared to soaring results a year earlier when the pandemic’s early impact was at its peak.
Management expects the slump to be short-lived. In fact, in a conference call with Wall Street analysts, CEO Niraj Shah and his team outlined why they still see a clear path toward $100 billion of annual sales by 2030, even if the next few quarters might be bumpy.
Let’s look at the key highlights from that presentation.
1. Short-term noise
Wayfair’s core sales growth wasn’t quite as strong as management had predicted. Revenue declined by 10% rather than the 3% drop investors were expecting.
That gap is just short-term noise related to changing consumer spending patterns due to to the pandemic. People are currently prioritizing travel and other experiential categories right now, but Wayfair says there’s every reason to expect solid industry growth over the next few years.
These factors include a tilt toward online shopping and high demand for home upgrades. “Despite any short-term noise,” Shah said, “the underlying structural elements for continued long-term category demand and [market] share transform to e-commerce remain in place.”
2. Gross margin will keep rising
Wayfair outperformed in key financial metrics like cash flow and earnings, and most of that success was due to rising gross margin. Prices are up and customers are still spending on premium products like vanities. Advertising spending was unusually low this quarter.
Yet Wayfair should withstand a rebound there to continue posting strong profitability over time. “This is our third straight quarter of roughly 29% gross margins,” CFO Michael Fleisher said, “which we believe is a nice representation of the inherent unit profitability in our business and the forward upside we can unlock over time.”
3. Brace for volatility
Management said that the short-term outlook was unusually cloudy right now since this type of selling environment is so novel. The pandemic transition sometimes creates big volume swings from one week to another. Comparisons will be challenging through the second half of 2021, too, because of huge order spikes a year earlier.
The good news is Wayfair believes it is possible that sales decline moderately over the next two quarters compared to the latest 10% drop. “As the emerging-from-COVID summer experiences wind down and people return to more regular work and schooling routines,” Fleisher said, “we will see sequential improvement in revenue trends.”
Investors might see some major revisions to that outlook by the next quarterly report, since so much is up in the air about economic growth and consumer demand preferences heading into the holiday shopping season. Wayfair can reliably target a much bigger sales footprint this year than it had in 2019, but there’s a wide range of ways that the second half of 2021 can play out.
“The faster-than-expected reopening has pushed out our expectations for a return to so-called normal quarterly revenue flow,” Fleisher said. But, “we’re cautiously optimistic” about accelerating gains starting again by fiscal Q4.
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