Customers Desert Wayfair in Q2, Causing Financial Loss
Wayfair Experiences Decrease in Q2 Revenue Amid Home Goods Market Correction
E-commerce giant Wayfair reported a decline in its Q2 revenue, as demand for home goods continued to level off following a surge during the pandemic. Total net revenue for the period dipped 14.9% year over year to $3.3 billion, with U.S. net revenue down 9.7% to $2.8 billion and international revenue plummeting 35.7% to $488 million.
The drop in revenue was accompanied by a decrease in the company's active customer base, which shrank 24.1% to 23.6 million as of June 30, according to a company press release. The number of orders per customer also decreased, falling to 1.85 from 1.96 last year, with orders delivered dropping 28.2% to 10 million. However, the average order value increased 18.7% to $330, and in the trailing 12 months, gross margin reached 27.5%.
The company swung to a net loss of $378 million, compared to last year's net income of $131 million. Operating loss reached $372 million from last year's operating income of $146 million, while gross profit reached $896 million or 27.3% of total net revenue, down from $1.1 billion or 29.2% a year ago.
Declines at Wayfair may not be entirely unexpected given the eventual return to earth of stratospheric pandemic-related demand for its merchandise. However, with a lack of physical stores and shoppers returning to brick-and-mortar locations, the e-retailer is facing particular challenges.
GlobalData Managing Director Neil Saunders noted that the general decline in consumer strength has only exacerbated the situation. Although the furniture and home goods sector continues to see volumes decrease, inflation is pushing revenue numbers upward, according to GlobalData research.
Saunders warned that Wayfair may have lost significant market share and is headed in the wrong direction, as sales declines, customer numbers slump, and profitability remains elusive. On the other hand, William Blair analysts pointed out signs of strength, such as an improvement in margin and a late-quarter pickup in demand.
In total, Wayfair's losses over the past four quarters approach $1 billion, and its liabilities top its assets by $2.1 billion, up from $1.6 billion a year ago, according to GlobalData. Analysts remain curious to see whether the company will take action to address profitability concerns.
Similar to other retailers, Wayfair has been announcing layoffs in recent weeks, both in the e-commerce space and among corporate office employees. On Wednesday, retail giant Walmart also confirmed layoffs within its corporate department.
- Amid the market correction, Wayfair's Q2 revenue decline could be a consequence of the reduced demand for home goods post-pandemic, as well as the ongoing inflation.
- With profitability yet to be attained, global research indicates that Wayfair might have suffered significant market share loss, as evidenced by a shrinking customer base, sales declines, and slumping orders.
- Contrasting views are emerging from analysts, with some expressing concerns about Wayfair's direction, while others see signs of strength such as margin improvement and a late-quarter demand pickup.
- As Wayfair's losses over the past four quarters near $1 billion and liabilities top its assets by over $2 billion, analysts are eager to witness whether the company will take measures to address their profitability concerns, especially in the light of increasing competition from physical stores and technology advancements in the e-commerce sector.
