Online home furnishing retailer Wayfair (W) reported better-than-expected revenue for the second quarter of 2019 today. Wayfair’s revenue grew 41.5% to $2.34 billion in the second quarter, beating analysts’ forecast of $2.26 billion.
Direct retail net revenue, which reflects sales through Wayfair sites, grew 42.1% to $2.33 billion in the second quarter. Aside from its own sites, Wayfair also sells products through Joss & Main, AllModern, Birch Lane, and Perigold. US direct retail net revenue grew 42.3% while international direct revenue surged 40.5% in the second quarter.
The company’s adjusted loss per share of $1.35 was in with analysts’ expectations. However, its adjusted loss per share widened compared to an adjusted loss per share of $0.77 in the second quarter of 2018. Higher operating expenses and increased interest expenses dragged down the company’s bottom line.
Wayfair stock was down 1.2% on August 1. Despite strong revenue growth, investors were concerned about increased expenses and lower-than-anticipated third-quarter guidance.
Key growth drivers in Q2
A larger customer base drove revenue growth in the second quarter. The number of active customers on Wayfair sites grew 39.1% to 17.8 million in the second quarter. The company’s efforts to enhance customer shopping experience helped boost its repeat business. In the second quarter, orders from repeat customers grew 46.1% to 6.2 million.
Repeat customers accounted for 67.8% of the overall orders in 2019’s second quarter up from 66.0% in 2018’s second quarter.
Wayfair’s margins in Q2
Wayfair’s gross margin improved around 60 basis points to 23.9% in the second quarter due to strong sales growth. However, the company’s operating margin deteriorated to -7.3% in 2019’s second quarter from -5.8% in 2018’s second quarter.
The deterioration in Wayfair’s operating margin reflects higher expenses and investments to support the company’s growing business and future growth opportunities.
The company’s adjusted EBITDA margin was -3.0% in 2019’s second quarter compared to -2.1% in 2018’s second quarter.
Wayfair has been investing in advertising efforts and expanding warehouses as well as delivery facilities. The company has also been enhancing its product offerings in the home business.
Wayfair’s third-quarter outlook could be a concern
Wayfair expects its third-quarter net revenue in the range of $2.23 billion to $2.28 billion. The company fell short of analysts’ expectation of $2.31 billion. It expects direct retail net revenue between $2.22 billion to $2.27 billion. This guidance assumes 30% to 32% growth in the US direct retail revenue and 40% to 45% rise in international direct retail revenue.
As of August 1, Wayfair stock was up 43.9% on a year-to-date basis.