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Why Is Wayfair (W) Down 6.3% Since its Last Earnings Report?

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A month has gone by since the last earnings report for Wayfair Inc. (W - Free Report) . Shares have lost about 6.3% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is W due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Wayfair (W - Free Report) Bottom Line Miss Estimates in Q4; Revenues Beat

Wayfair Inc. (W - Free Report) reported adjusted fourth-quarter 2017 loss of 58 cents per share, greater than the Zacks Consensus Estimate loss of 51 cents.

Higher-than-expected operating expenses impacted the company’s bottom line.

Revenues

Wayfair reported total net revenues of $1.44 billion in the fourth quarter, reflecting an increase of 21% sequentially and 46% year over year. The increase was driven by strength in both the U.S. and international segments.

However, revenues exceeded the Zacks Consensus Estimate of $1.34 billion.

Important Metrics

Direct Retail net revenue, which includes sales generated primarily through Wayfair’s sites, were $4.6 billion in the fourth quarter, increasing 48% year over year.

Active Customers increased 33.2% to 11 million. Also, LTM net revenues per active customer increased 6.8% to $422 million.

Orders delivered in the quarter were 1.77 million, reflecting an increase of 4% from the year-ago quarter.

Repeat customers placed 62.4% of total fourth quarter orders compared with 58% in the year-ago quarter. They placed 3.9 million orders in the fourth quarter, up 41.3% year over year.

Operating Results

Gross margin was 23.1%, down 110 bps year over year.

Wayfair’s operating expenses of $399.9 million increased 41.6% year over year. The operating margin was (4.7%) compared with (4.4%) in the year ago-quarter.

Balance Sheet & Cash Flow

Wayfair exited the quarter with cash, cash equivalents and short-term investments of roughly $620.0 million, up from $610.4 million in the prior quarter. Accounts receivables were $37.9 million, up from $27.5 million in the last quarter.

Cash flow from operations was $36.9 million in the fourth quarter. The company spent $23.9 million on capex and $11.5 million on site and software development. Free cash flow was $1.4 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been seven revisions lower for the current quarter.

Wayfair Inc. Price and Consensus

 

Wayfair Inc. Price and Consensus | Wayfair Inc. Quote

VGM Scores

At this time, W has a nice Growth Score of B, however its Momentum is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise W has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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