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Wayfair Suffers Steep Slump in Active Customers

The first quarter was a rude awakening for Wayfair as online-focused sellers see sales level out from their initial Covid-19 pandemic-driven peak. To start 2022, the home furnishings retailer saw net revenue decline 13.9 percent year over year to $2.99 billion on a net loss of $319 million.

At least in the first half, the sales slide is expected to continue. On a period-to-date basis, Wayfair’s second quarter revenue is down in the mid-to-high teens year-over-year.

The performance sent Wayfair’s stock plummeting more than 25 percent on Thursday.

In a Nutshell: In the company’s first quarter earnings call, CEO Niraj Shah pointed out that Wayfair anticipates year-over-year revenue growth to progressively accelerate over the course of 2022, aided by improving product availability, delivery speed and normalized year-over-year comparisons. Shah touted the brand’s “most successful” Way Day ever on April 27-28, marking two of the four highest-performing sales days in Wayfair’s history.

Throughout the supply chain crisis, Wayfair has faced the ongoing challenge of freighting high-ticket, bulky goods to the end consumer, but Shah indicated “some of the biggest pain points from last year are dissipating” due to easing port congestion, even as rising energy prices boost shipping and fulfillment costs.

With the retailer seeing a “steady recovery in logistics,” Wayfair’s product availability has improved by approximately 10 percentage points since the trough. Delivery times have gradually shortened since this time last year, having improved by more than 10 percent for small parcels, and more than 20 percent for large parcels.

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“We think, frankly, our speed of delivery is set to continue to get better at an aggressive pace, even though it’s already gotten better by a good amount,” Shah told Wall Street analysts. “Our availability is to get better at an aggressive pace, even though it’s already gotten better.”

Shah said Wayfair’s ocean freight forwarding business, which is part of the company’s larger CastleGate Logistics division, has doubled ocean freight capacity from May 1, 2021.

Unlike many retailers, Wayfair hosts listings almost entirely from suppliers, helping the company carry minimal inventory. Shah said Wayfair’s business model falters once supply is scarce relative to demand, which was a major problem for the company last year because vendors will sell instead to retailers willing to pay to house the inventory up front.

“Some suppliers are having an excessive amount of inventory relative to what they want,” Shah said. “Our competitors have bought their inventory for the next few months already, and they bought it at a certain price. They’ve locked in that price. They’re now too low to discount, because that could put them in a bad cost position on retail relative to cost. But on our platform, the supplier is setting their price every day. That price is then driving the retail price every day.”

Gross margin for the retailer, which also owns the Joss & Main, AllModern, Birch Lane and Perigold brands, was 26.8 percent of total net revenue, with inflation weighing on the cost of sales, particularly on shipping and fulfillment as well as labor expenses.

For the digitally native company, which is opening three new stores under the AllModern and Joss & Main banners in 2022, the challenge is now figuring out how to retain customers and get more orders flowing. Both of these metrics significantly contributed to the declines in revenue and overall net losses.

Active customers reached 25.4 million as of March 31, 2022, a decrease of 23.4 percent year over year from last year’s 33.2 million.

This is Wayfair’s fourth straight quarter of active customer declines after topping out in the 2021 first quarter, and represents the lowest active shopper total since the 2020 first quarter, the final period prior to the pandemic’s acceleration of e-commerce sales.

And total orders delivered in the first quarter of 2022 plummeted 29 percent year over year to 10.4 million, down from 14.7 million in the year-ago period.

Net revenue per active customer over the last 12 months (LTM) was $520 to close the quarter, a year-over-year increase of 12.8 percent from the $461 recorded at the close of March 2021.

Orders per customer, measured as LTM orders divided by active customers, was 1.87 for the quarter, compared to 1.98 for the first quarter of 2021.

Repeat customers placed 77.7 percent of total orders in the first quarter, up from 74.5 percent in the year-ago period. Overall, their total purchases declined 26 percent to 8.1 million orders from last year’s 10.9 million.

Average order value (AOV) was $287 for the first quarter of 2022, a 21.1 percent boost over the $237 AOV seen in the 2021 first quarter.

Mobile ordering slowed slightly, dipping to 59.4 percent of total orders delivered from the year-ago quarter’s 60 percent.

Cash, cash equivalents and short-term investments totaled $1.99 billion as of March 31, 2022. Net cash flows for operating activities were negative $226 million, while adjusted free cash flow was negative $331 million.

In the call, the Boston-based online retailer said chief financial officer Michael Fleisher will retire in January, with Kate Gulliver being named as his replacement as both chief financial officer and chief administrative officer. Gulliver currently serves as vice president and chief people officer, but with the promotion she will be heading up Wayfair’s finance, legal, talent, real estate and corporate affairs teams.

Net Sales: Wayfair saw total net revenue decline 13.9 percent year over year to $2.99 billion from the 2021 first quarter’s $3.48 billion in revenue.

U.S. net revenue was $2.54 billion, down 9.9 percent from the prior year period’s $2.82 billion.

International net revenue of $451 million was down 31.4 percent from the 2021 quarter’s $657 million generated. On a constant currency basis, international net revenue declined 29.6 percent.

Net Earnings: Net loss for the online furniture retailer was $319 million, down significantly from last year’s $18 million in profit. Diluted loss per share was $3.04, down from the prior year quarter’s 16 cents per share.

Losses from operations totaled $310 million, compared to gains of $26 million in the metric in 2021.

Excluding one-time items, adjusted EBITDA came in at a $113 million loss, with adjusted diluted loss per share at $1.96.

CEO’s Take: When asked about the competitive landscape in home furnishings, Shah noted that Wayfair is still a home specialist that doesn’t do business at the opening price point—where he said Amazon, mass merchants and home improvement giants still often reside.

“You’re going to keep seeing us take share in a disproportionate way in home,” Shah said. “Because of our role in home, you’ll see all those folks continue to do well in e-commerce broadly. They’ll all share the lower tranche of the market.”