Wayfair, an online home goods retailer, experienced a decline in sales during its fiscal second quarter, with CEO Niraj Shah describing the current downturn in the home goods sector as “unprecedented,” likening it to the 2008 financial crisis. Shah noted that the company’s credit card data indicates a correction in the home furnishings market comparable to the significant decline seen during the Great Recession. He remarked, “Customers remain cautious in their spending on the home.”
The company missed Wall Street expectations for both revenue and earnings. Wayfair’s shares fell by over 8% after the earnings report. The company posted adjusted earnings per share of 47 cents, slightly below the expected 49 cents, and revenue of $3.12 billion, falling short of the anticipated $3.18 billion. Despite the downturn, Wayfair’s loss of $42 million, or 34 cents per share, was a slight improvement from the $46 million loss, or 41 cents per share, reported in the same quarter the previous year.
Sales dropped by approximately 2% year-over-year, from $3.17 billion to $3.12 billion, even as the average order value decreased slightly from $313 to $307. The company also opened its first large-format store during the quarter. For the upcoming quarter, Wayfair expects revenue to decline in the low single digits, contrary to the 1.7% growth projected by analysts.
The sluggish demand for home goods has persisted for over a year, driven by a stagnant housing market and high interest rates, which have led consumers to prioritize discretionary spending elsewhere. Wayfair has resorted to discounts to attract customers and does not foresee a rebound until interest rates are reduced and the housing market recovers.
Wayfair CFO Kate Gulliver echoed Shah’s concerns, noting that the category’s decline mirrors the downturn seen during a GDP recession, although the broader economy is not currently in such a state. Shah emphasized that the home goods sector has seen a pullback of over 35% when adjusted for inflation, an unprecedented contraction.
Despite the challenges, Shah remains optimistic, citing potential interest rate cuts by the Federal Reserve as a possible catalyst for recovery. He highlighted that Wayfair achieved its best quarter for free cash flow generation and adjusted EBITDA in three years, with adjusted EBITDA reaching $163 million, though still below Wall Street’s expectation of $168 million.
“We are committed to demonstrating substantial growth in profitability this year, even as revenue growth remains challenging,” Shah concluded.
