Wayfair (NYSE: W), the largest U.S. online furniture retailer, is bucking its industry’s slump, helped by shrewd marketing and cost discipline.
The company, founded in 2002, posted an 8.1% revenue increase to $3.1 billion in the third quarter from a year earlier. It suffered a net loss of $99 million. But adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) soared to $208 million from $119 million. Wayfair’s adjusted EBITDA profit margin climbed to a five-year high of 6.7% in the latest quarter from 4.1 % last year.
The company’s loyalty program, new brick-and-mortar stores, and an online function highlighting top products produced those strong earnings numbers, Kate Gulliver, Wayfair’s chief financial officer, told Barron’s.
“All of that rests on a foundation of our core recipe — very competitive pricing, in-stock [items], good availability, and very fast ship speeds,” she said.
Investors have noticed. Wayfair’s stock price has skyrocketed 27% since it released earnings Oct. 27 and 155% year to date. That bests the performance of most of its competitors by far. Wayfair has a market capitalization of $15 billion.
Tariffs not seen hurting yet
It isn’t too concerned yet about the 25% U.S. furniture tariffs that went into effect last month. That’s because its vendors import the furniture bought on Wayfair’s web site, meaning that they pay the tariffs. Vendors also generally ship the furniture directly to consumers. So Wayfair operates on an “asset light” model with minimal inventories, saving on storage costs.
While existing home sales have stagnated over the past two years, limiting demand for furniture, home renting has climbed, boosting demand for furniture. The number of renter-occupied housing units hit at least a 25-year high in the second quarter – 46.4 million.
Wayfair has thrived particularly by appealing to young renters. They often are looking for low- and mid-priced single items from a variety of vendors, Barron’s points out.
“The company’s easy user interface and marketing prowess have positioned it as a leader in the category, as evidenced by the share gains it continues to grab,” wrote Morningstar analyst Jaime Katz.
“Its differentiation comes from its breadth of products and logistics network, which allows faster delivery with fewer touchpoints and less product damage than its peers.”
Artificial intelligence, future outlook
Wayfair also is thriving through its use of artificial intelligence. It deploys AI to improve the customer experience and streamline operations, such as automating tickets, improving search engine optimization and managing its extensive product catalog.
All that gives the company a leg up, however it doesn’t mean it will stay on top. “Such an effort may catapult Wayfair ahead of its peers in the near term, but we don’t see any barriers to entry for competitors adopting similar efforts over time,” Katz said. So she sees Wayfair’s long-term revenue growth at around 4%, matching the industry’s potential.
There’s no switching costs for consumers, Katz notes. And, “Wayfair competes with mass-market retailers, specialty retail, and low-cost providers, making it hard to stay top of mind.”
So it’s difficult to know whether Wayfair’s glass is half full or half empty.
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