Wayfair, the online home goods company, reported a decline in sales during its fiscal second quarter, which its CEO, Niraj Shah, attributed to a slowdown in the home goods category that he likened to the 2008 financial crisis. Shah stated that their credit card data indicated a significant decline in customer spending on home furnishings, and customers remain cautious in their spending on the home. The company fell short of Wall Street’s expectations for earnings per share and revenue.
Wayfair’s second fiscal quarter results showed a loss of $42 million, or 34 cents per share, which was slightly better than the loss they posted during the same quarter a year earlier. Sales dropped to $3.12 billion, down about 2% from the previous year. Despite the decline in sales, average order values rose in the quarter. Wayfair also recently opened its first large-format store.
The sluggish demand for home goods has been a trend in the industry for over a year. Factors like high interest rates and a stagnant housing market have led consumers to buy fewer new homes and, consequently, fewer new furniture items. Additionally, with inflation and limited discretionary income, consumers have been more selective in their spending choices, choosing options like restaurants, clothing, and travel over home goods.
Wayfair has been offering discounts to entice customers, but they do not expect a resurgence in the category until interest rates are cut and the housing market improves. Wayfair’s Chief Financial Officer, Kate Gulliver, stated that the decline in the home goods category is similar to what was seen during the 2008 financial crisis. She also mentioned that the category has been going through a massive correction, similar to what is usually seen during a GDP recession.
During a call with analysts, Shah described the slowdown in the home goods category as “unprecedented” and emphasized that it is similar to what was experienced during the great financial crisis. Wayfair’s Chief Financial Officer, Kate Gulliver, stated that the category has experienced a correction of more than 35%, indicating an unprecedented level of pullback.
However, there may be some relief on the horizon. Federal Reserve Chair Jerome Powell recently stated that interest rate cuts could come as soon as September if economic data continues on its current path. Shah believes that a turnaround could be imminent and that Wayfair is well positioned to benefit from it.
Despite its struggles to reach profitability, Wayfair saw its best quarter for free cash flow generation and adjusted EBITDA in three years. The company’s adjusted EBITDA for the quarter was $163 million, slightly below Wall Street’s expectations. Shah stated that Wayfair is running the business with the goal of demonstrating substantial growth in profitability this year, even in the face of challenging top-line performance.
