What Could Drive Wayfair’s Bottom Line

Analysts’ projections

Wayfair (W) is slated to announce its second-quarter results on August 2. Analysts expect the company’s adjusted EPS to improve YoY (year-over-year) to -$0.73 from -$0.26, and its gross margin to contract YoY to 23.3% from 24%. They expect its operating expenses to rise 47.9% to $430.5 million, expanding its adjusted operating loss YoY to $62.9 million from $21.6 million. Its adjusted EBITDA margin is projected to be -2.1%.

Higher costs from ongoing investments in logistics, hiring, and marketing could boost Wayfair’s profitability and bottom line. Whereas Wayfair hasn’t provided bottom-line guidance for Q2 2018, it expects an adjusted EBITDA margin of -2.1% to -2.4%. In the long term, the company expects its gross margin to expand to 25%–27% due to cost savings from logistics efficiency and economies of scale.

What Could Drive Wayfair’s Bottom Line

Recap of past performance

In the first quarter, Wayfair’s adjusted EPS fell YoY to -$0.91 from -$0.48, and to -$1.22 from -$0.66 on a reported basis. Its gross margin narrowed by 160 basis points to 23.1%, and its operating expenses rose 45.7% YoY. Its operating loss expanded YoY to $103.1 million from $56.2 million, and its adjusted EBITDA margin was -3.6%. In comparison, analysts expect RH’s (RH) adjusted EPS to more than double YoY from $0.65 to $1.75 in Q2 2018, and Williams-Sonoma’s (WSM) to grow 13.1% YoY to $0.69.