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Wayfair (W -2%) fades an initial move higher today following a sizeable Q4 earnings miss, a modest decline in total active customers, and stagnant orders per customer. The e-commerce home furnishings retailer posted its widest net loss since 4Q21, returning to the red after delivering back-to-back quarters of net gains. Active customers contracted yr/yr for the second straight quarter, worsening to a 4.5% drop versus a 2.3% decline in Q3. Meanwhile, orders were essentially flat at 1.85 per active customer. As a result, revenue was virtually flat, ticking 0.2% higher yr/yr to $3.12 bln.

These trends reflect an unfavorable housing market as mortgage rates remain elevated alongside stubborn inflationary pressures. Management is not trying to call out a bottom in the current cycle either; instead, it is focusing on how it can benefit now and once the cycle turns around.

• Capturing market share has been central to Wayfair's strategy during the bearish cycle. Last month, the company exited the German market, citing headwinds surrounding establishing a presence and taking share. With the exit, Wayfair can shift its attention to fortifying its footprint in the U.S., U.K., Canada, and Ireland. The company has done this through marketing, merchandising, supply chain, and technology. In Q4, management mentioned that it continued to gain market share even though the home furnishing category was still under pressure.
  • Wayfair's departure from Germany may have served as an early sign of more exits from overseas markets in the future. Demand in Europe has struggled versus the U.S. lately, illuminated by a 5.7% drop in International net revs in Q4.
• While EPS disappointed, Wayfair is still firmly on its path to sustainable profitability, generating another quarter of 3% adjusted EBITDA margins, marking its third consecutive quarter of positive adjusted EBITDA. Wayfair reiterated its focus on driving adjusted EBITDA above CapEx, anticipating another year of growth in adjusted EBITDA dollars in 2025. The company expects to achieve this milestone through cost-cutting, furthering its progress over the past few years.
• Nevertheless, in the near term, housing market trends remain gloomy. Meanwhile, inflationary pressures continue to erode discretionary demand. Wayfair stated that revenue QTD in Q1 is trending just below flat growth yr/yr and expects the quarter to end similarly. It is worth noting that the German exit is clipping roughly 100 bps off growth in Q1. Still, for perspective on the prolonged unfavorable demand trends, Wayfair has not posted sales growth above 4% since 2020. For adjusted EBITDA margins, Wayfair projects around 2-4% in Q1.

Wayfair has been bouncing between a tight range over the past seven months, reflecting mixed investor sentiment as the housing market contains some signs of a recovery but is still surrounded by economic uncertainty. Still, we like Wayfair's game plan during the current economic cycle, focusing on profitability and customer experience that should set the groundwork for a swift acceleration once demand eventually turns around more meaningfully.