Online home goods company Wayfair Samsung Electronics saw sales decline in the second quarter of its fiscal year, with the company's CEO calling the current slowdown in the home goods category “unprecedented” – likening it to the 2008 financial crisis.
“Our credit card data suggests that the category correction now reflects the magnitude of the decline in home furnishings during the Great Financial Crisis,” Wayfair CEO Niraj Shah said in a press release. “Customers remain cautious in their home spending.”
The online retailer's earnings and net profit missed Wall Street expectations, with shares opening down about 8% before paring some losses.
Here's how Wayfair performed in the fiscal second quarter compared to what Wall Street was expecting, based on a survey of analysts conducted by LSEG:
Earnings per share: 47 cents adjusted vs. 49 cents expectedRevenue: $3.12 billion vs. $3.18 billion expected
The company reported a loss of $42 million, or 34 cents per share, for the three-month period ended June 30. That was slightly better than the loss of $46 million, or 41 cents per share, it reported during the same quarter a year earlier.
Sales fell to $3.12 billion, down about 2% from $3.17 billion a year earlier. The slowdown came even as average order values rose in the quarter to $307 from $313 and after the company opened its first major store.
For the current quarter, Wayfair expects revenue to decline to the low single digits, compared to estimates of 1.7% growth, according to LSEG.
For more than a year, home goods companies like Wayfair have seen demand for things like new sofas and dining sets slow as the housing market overall stagnates due to high interest rates. Consumers are buying fewer new homes, which means they have less reason to buy new furniture. Plus, with stubborn inflation, they’ve become more selective about where they spend their discretionary income, and with options like restaurants, new clothes, and travel, home goods haven’t been a priority.
Wayfair needed to lure customers with discounts to attract them, and it doesn't expect to see a recovery in the category until interest rates are lowered and the housing market recovers.
“We’re seeing declines similar to the declines we saw in 2008 to 2010, and I think what that suggests is that the category has been going through a massive correction, a correction that we’ve only seen during a GDP recession,” Kate Gulliver, Wayfair’s chief financial officer, told CNBC.
“We’re not technically in a recession as a country right now, obviously, so that’s somewhat unique for this category… We’ve seen this kind of recession-like correction in this category over the last few years.”
On a call with analysts, Shah described the slowdown in the home goods category as “unprecedented” and said it was similar to what the sector saw during the Great Financial Crisis.
“Our credit card data indicates that this category is down about 25% from the peak we saw in Q4 2021,” Shah said. “What’s important is that this calculation is based on nominal dollars, adjusted for inflation, which suggests we are now in the midst of a correction of over 35%, an unprecedented level of decline in our sector.”
Relief could be on its way soon after Federal Reserve Chairman Jerome Powell said interest rate cuts could come as soon as September as long as economic data continues on its current path.
“Given how deep this cycle is, it’s fair to expect a turnaround soon, and Wayfair is well positioned to benefit,” Shah said.
Wayfair, which has implemented a series of massive layoffs to bring its cost structure in line with the current size of its business, has struggled to reach profitability, but the quarter was its best in terms of free cash flow generation and adjusted earnings before interest, taxes, depreciation and amortization in three years, Shah said.
The company reported adjusted earnings before interest, taxes, depreciation and amortization of $163 million during the quarter, still below the $168 million Wall Street had expected, according to StreetAccount.
“We are managing the business with the goal of showing significant growth in profitability this year, even as we continue to face challenges in generating revenue. This will be our mindset every year going forward as well,” Shah said.
