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Rising Costs Kept Wayfair’s Bottom Line Under Pressure in 2018

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Recent trends

In the trailing 11 quarters, Wayfair (W) has missed EPS estimates seven times and beaten estimates in the remaining quarters.

In fiscal 2018, Wayfair’s adjusted EPS missed analysts’ estimates in all three quarters. Also, on a year-over-year basis, its adjusted EPS deteriorated in all the quarters. Wayfair delivered first-quarter adjusted EPS of -$0.91, which was much wider than its EPS of -$0.48 in the first quarter of 2017. Its second-quarter adjusted EPS of -$0.77 were worse than the -$0.26 it posted in the second quarter of 2017. In the third quarter, adjusted EPS came in at -$1.28 versus EPS of -$0.65 in the same quarter last year.

Higher costs and muted profitability dragged down the company’s bottom line despite an increasing top line. In the first three quarters of 2018, Wayfair’s operating expenses rose 45.7%, 56.5%, and 51.9%, respectively. As a result, its operating loss has widened in all the quarters so far.

For the fourth quarter, analysts expect Wayfair to report adjusted EPS of -$1.28, versus adjusted EPS of -$0.58 in the fourth quarter of fiscal 2017. Wayfair hasn’t provided a bottom-line outlook for the holiday quarter.

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A look at EPS performance from other online retailers

On the other hand, Etsy (ETSY) has beaten analysts’ adjusted EPS estimates twice in the trailing three quarters. On a year-over-year basis, Etsy’s adjusted EPS have deteriorated in two of the three quarters of 2018. Its earnings saw a tougher year-over-year comparison due to a tax benefit related to employees’ stock benefit, which marred Etsy’s bottom-line performance.

Similarly, Overstock’s (OSTK) expenses are increasing and dragging on its bottom line. The company also missed analysts’ EPS estimates in all three quarters of 2018.

Wayfair’s EBITDA expectations

For the fourth quarter, Wayfair has forecast its adjusted EBITDA margin at -3.8% to -4.1%. The US adjusted EBITDA margin is projected at -1% to -1.5% due to ongoing investments to capture more market share.

Its international EBITDA could take a hit because the company remains focused on overseas expansion. The international adjusted EBITDA loss is estimated at ~$55 million–$60 million.

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