Wayfair’s Bottom-Line Numbers to Remain under Pressure in 2019



Margins numbers

For the first three quarters of 2018, Wayfair’s (W) gross margin contracted 90 basis points to 23.1% mainly due to the higher cost of goods sold as a percentage of revenue. Moreover, operating expenses have risen in 2018. For the first three quarters, operating expenses rose by 51.4% YoY to $1.11 billion. Customer service and merchant fee expenses rose 55.7%, while advertising expenses grew by 41.0%. The spurt in expenses was driven by the expansion of both US and international operations. As a percentage of revenue, the operating expense rate increased 120 basis points to 30.3%.

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For the first three quarters, the adjusted EBITDA loss was $161.2 million compared to the YoY adjusted EBITDA loss of $45.8 million. For the fourth quarter, Wayfair forecasts the adjusted EBITDA margin to be -3.8% to -4.1%. The US adjusted EBITDA margin is projected to be -1% to -1.5% due to ongoing investments. The international adjusted EBITDA loss is estimated at $55 million–$60 million. The international EBITDA could be negatively impacted because of the expansion in Germany, Canada, and the United Kingdom.

EPS numbers

Wayfair’s EPS for the first nine months of 2018 was -$4.04 versus EPS of -$1.98 reported for the three quarters of 2017. Increasing expenses are putting pressure on the bottom line. There is unlikely to be any respite in the near term as Wayfair remains in the investment phase.

For the fourth quarter, analysts expect Wayfair to report adjusted EPS of -$1.28, marking a deterioration over adjusted EPS of -$0.58 reported in the fourth quarter of 2017. For 2018, analysts expect Wayfair to deliver adjusted EPS of -$4.24, reflecting increases from -$1.97 reported YoY. Wayfair’s management hasn’t provided an EPS outlook for 2018. For 2019, analysts expect Wayfair’s adjusted EPS to be -$4.21.

Expectations for peers

For fiscal 2018, analysts forecast Williams-Sonoma’s (WSM) adjusted EPS growth to be 19.9% YoY to $4.33. For Home Depot’s (HD) fiscal 2018, analysts project adjusted EPS growth of 31.4% YoY to $9.80.


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