Wayfair (W) Q1 Loss Wider Than Anticipated, Revenues Beat

Wayfair Inc. (NYSE:W) reported first-quarter 2018 non-GAAP loss of 91 cents per share, wider than the Zacks Consensus Estimate loss of 86 cents. The company had incurred a loss of 48 cents a year ago and 58 cents in the preceding quarter.

Total revenues of $1.4 billion in the first quarter, increased 46.2% year over year but declined 2.7% on a sequential basis. The figure surpassed the Zacks Consensus Estimate of $1.35 billion.

The year-over-year increase was driven by strengthening direct retail business across the U.S. and international regions.

Following the company’s earnings release on May 2, its shares gained 8.2%. Moreover, Wayfair’s shares have returned 56.7% over a year, outperforming the industry’s rally of 48.5%.

Quarter in Detail

The company’s direct retail net revenues, which include sales generated primarily through Wayfair’s sites, were $1.4 billion in the first quarter, increasing 47.7% year over year.

Active customers increased 33.2% to 11.8 million. Also, LTM net revenues per active customer increased 9.6% to $432 million.

Wayfair’s total number of orders delivered in the reported quarter came in at 5.9 million, up 39.8% year over year. Orders per customer in the quarter were 1.79 million, reflecting an increase of 3.5% from the year-ago quarter. Further, repeat customers placed 3.8 million orders in the first quarter, up 48.9% year over year.

Also, the company witnessed strong growth in Canada with the launch of French language site and CastleGate facility.

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 40% year over year to $1.2 billion. It accounted for 85.6% of the total revenues. The year-over-year growth was attributed to robust direct retail business in the region which yielded $1.18 billion, up 41.6% from the prior-year quarter.

International: Revenues in the segment increased 97% year over year to $202.7 million and contributed 14.4% of total revenues. The impressive year-over-year growth was driven by continued strong performance of Wayfair’s direct retail business in Canada, Germany and the U.K.

Operating Results

For the first quarter, Wayfair’s gross margin was 23.1%, which was flat on a sequential basis but contracted 160 basis points (bps) from the year-ago quarter.

The year-over-year contraction was due to higher growth in cost of goods sold which came in $1.1 billion as compared with the growth in revenues. The figure surged 49.2% year over year.

Adjusted EBITDA margin was (3.6%) compared to (2.2%) in the year-ago quarter. This was a result of increasing investments, mainly in international regions.

Wayfair’s operating expenses of $426.9 million, which increased 45.6% year over year. The operating loss came in $103.1 million, which was wider than the loss of $56.2 million in the prior-year quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2018, cash, cash equivalents and short-term investments were $582.1 million, down from $620 million as of Dec 31, 2017. Accounts receivables were $31.9 million, declined from $37.9 million in the last reported quarter.

Cash used from operations was $13.1 million in the first quarter. The company’s capital expenditure was $35 million and $13 million was spent on site and software development. Free cash flow was ($47.6) million compared with $1.4 million in the previous quarter.

Guidance

For the second-quarter of 2018, Wayfair anticipates total revenues to lie in a range of $1.558-$1.592 billion. The Zacks Consensus Estimate for revenues is currently pegged at $1.5 billion.

The company expects direct retail revenues to lie in a range of $1.54-$1.57 billion, reflecting year-over-year growth of 40-43%. This includes expected growth in U.S. direct retail revenues of 35% to 37% and that in international segment between 80% and 90%.

Further, other revenues are expected between $13 million and $17 million.

Additionally, adjusted EBITDA margins are expected to be negative due to increasing ad spending. The guided range for it is 2.1-2.4%.

Zacks Rank and Stocks to Consider

Wayfair currently carries a Zacks Rank #4 (Sell)

A few better-ranked stocks in the broader technology sector are Micron Technology (NASDAQ:MU) , Nice (NASDAQ:NICE) and Agilent Technologies (NYSE:A) .

While Micron Technology and Nice sport a Zacks Rank #1 (Strong Buy), Agilent Technologies carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings growth rate for Micron Technology, Nice and Agilent Technologies is currently pegged at 10%, 12.5% and 10.75%, respectively.

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