Wayfair (W) Bottom Line and Revenues Miss Estimates in Q3

Wayfair Inc. W reported adjusted third-quarter 2017 loss of 65 cents per share, greater than the Zacks Consensus Estimate loss of 44 cents.

Higher-than-expected operating expenses impacted the company’s bottom line.

During the quarter, management remained confident about growth in markets, namely, Canada, U.K. and Germany. The company made efforts to expand its house-brand offerings in these countries. Also, all important metrics, including LTM revenue per active customer, performed well in the quarter.

Since the third-quarter earnings release on Nov 2, the share price is down 4.1%. However, on a year-to-date basis, the company's shares have gained 72.2%, outperforming the industry’s growth of 61.5%.

Revenues

Wayfair reported total net revenues of $1.198 billion in the third quarter, reflecting an increase of 6.7% sequentially and 39.1% year over year. The increase was driven by strength in both the U.S. and international segments.

However, revenues missed the Zacks Consensus Estimate of $1.207 billion.

Revenue Segments

Beginning fourth-quarter 2016, Wayfair has been reporting revenues under two segments — U.S. and International.

U.S.: Revenues in this segment increased 33.4% year over year to $1.05 billion. It accounted for 88% of the third quarter revenues.

International: Revenues in the International segment increased 39.1% year over year to $147.6 million and contributed the remaining 12% of total revenues.

Important Metrics

Direct Retail net revenue, which includes sales generated primarily through Wayfair’s sites, were $1.2 billion in the third quarter, increasing 41.9% year over year.

Active Customers increased 39.2% to 10.3 million. Also, LTM net revenues per active customer increased 0.5% to $408 million.

Orders delivered in the quarter were 4.7 million, reflecting an increase of 38.1% from the year-ago quarter.

Repeat customers placed 61.0% of total third quarter orders compared with 56.9% in the year-ago quarter. They placed 2.9 million orders in the third quarter, up 48.2% year over year.

Operating Results

Gross margin was 23.4%, down 60 bps sequentially and flat year over year.

Wayfair’s operating expenses of $354.3 million increased 34.6% year over year. The operating margin was (6.2%) compared with (7.2%) in the year ago-quarter.

Wayfair’s net loss was $76.4 million or 88 cents per share, declining from the year-ago figure of $60.9 million or 72 cents.

Balance Sheet & Cash Flow

Wayfair exited the quarter with cash, cash equivalents and short-term investments of roughly $610.4 million, up from $255.9 million in the prior quarter. Accounts receivables were $27.5 million, up from $23.9 million in the last quarter.

Cash flow from operations was $24.8 million in the third quarter. The company spent $31.0 million on capex and $12.2 million on site and software development. Free cash flow was ($18.5) million compared with ($27.2) million in the previous quarter.

Wayfair Inc. Price, Consensus and EPS Surprise

 

Wayfair Inc. Price, Consensus and EPS Surprise | Wayfair Inc. Quote

Zacks Rank & Other Key Picks

Currently, Wayfair carries a Zacks Rank #4 (Sell). A few better-ranked stocks in the broader technology sector are NVIDIA Corporation NVDA and SMART Global Holdings, Inc. SGH, each sporting a Zacks Rank #1 (Strong Buy), while Applied Materials, Inc. AMAT, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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