Why Is Wayfair (W) Down 34.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Wayfair (W). Shares have lost about 34.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Wayfair due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Wayfair Q4 Loss Wider Than Anticipated

Wayfair Inc. reported non-GAAP loss of $2.80 per share in fourth-quarter 2019, wider than the Zacks Consensus Estimate of a loss of $2.65.

Total fourth-quarter revenues came in at $2.53 billion, up 26% year over year. However, the figure missed the Zacks Consensus Estimate by 0.1%.

Quarter in Detail

Direct retail net revenues — including sales generated primarily through Wayfair’s sites — were $2.5 billion in the fourth quarter, which increased 26.5% year over year.

U.S. net revenues were $413.1 million in the fourth quarter, up 23.9% year over year. International net revenues also grew 37.1% year over year to $106.4 million.

Active customers increased 34% from the prior-year quarter to 20.3 million. Also, LTM net revenues per active customer increased 1.1% year over year to $448 million.

Total number of orders delivered in the reported quarter was 11.2 million, up 27.1% year over year. In addition, orders per customer in the quarter were 1.86 million, reflecting an increase of 0.5% from the year-ago period. Further, repeat customers placed 7.7 million orders in the fourth quarter, up 31.3% year over year.

Operating Results

In the fourth quarter, Wayfair’s gross margin was 22.8%, down 130 basis points on a year-over-year basis.

Adjusted EBITDA margin was (7.1%) compared with (2.7%) in the year-ago quarter. This was led by increasing investments, mainly in international regions served.

The company’s operating expenses of $882.8 million increased 43.6% year over year. Operating loss was $305.4 million, wider than the prior-year loss of $129.6 million.

Balance Sheet & Cash Flow

At the end of the fourth quarter, cash, cash equivalents and short-term investments were $987 million, down from $1.3 billion in the comparable year-ago period. Accounts receivables were $99.7 million, up from $75.7 million in the third quarter.

Cash from operations was ($36.3) million and capital expenditure totaled $87.8 million. Free cash flow was ($158.5) million compared with ($180.9) million in the second quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Wayfair has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Wayfair has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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