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Wayfair (W) Up 10.4% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Wayfair (W - Free Report) . Shares have added about 10.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Wayfair due for a pullback? 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 catalysts.

Wayfair Q3 Loss Wider Than Anticipated, Revenues Beat

Wayfair Inc. reported non-GAAP loss of $1.28 per share in the third quarter of 2018, wider than the Zacks Consensus Estimate of $1.12. The company had incurred a loss of 77 cents in the last reported quarter.

Total revenues were $1.71 billion in the third quarter, up 42% year over year. The figure also outpaced the Zacks Consensus Estimate of $1.67 billion.

The year-over-year increase in revenues was driven by strengthening of the direct retail business across the United States and international regions.

Quarter in Detail

The company’s direct retail net revenues, which include sales generated primarily through Wayfair’s sites, were $1.7 billion in the third quarter, increasing 43.3% year over year.

Active customers increased 35% to 13.9 million. Also, LTM net revenues per active customer increased 8.6% year over year to $443 million.

Wayfair’s total number of orders delivered in the reported quarter came in at 6.9 million, up 47% year over year. Orders per customer in the quarter were 1.84 million, reflecting an increase of 5.1% from the year-ago quarter. Further, repeat customers placed 4.6 million orders in the third quarter, up 59.7% year over year.

Operating Results

In the third quarter, Wayfair’s gross margin was 23%, down 40 basis points on a year-over-year basis.

Adjusted EBITDA margin was (4.5%) million compared with (1.9%) in the year-ago quarter. This was led by increasing investments, mainly in the international regions.

Wayfair’s operating expenses of $538 million increased 51.9% year over year. Operating loss came in at $145.3 million, which was wider than the prior-year quarter’s $74 million.

Balance Sheet & Cash Flow

As of Sep 30, 2018, cash, cash equivalents and short-term investments were $518.7 million, down from $575.4 million in the second quarter. Accounts receivables were $41 million, up from $34.8 million in the last reported quarter.

Cash from operations was $7.8 million in the third quarter and capital expendituretotaled $49.4 million. Free cash flow was ($58.8) million compared with ($7.5) million in the last reported quarter.

Guidance

For the fourth quarter of 2018, Wayfair anticipates total revenues in the range of $1.92-$1.968 billion.

The company expects direct retail revenues in the range of $1.905-$1.950 billion, reflecting year-over-year growth of 34-37%. This includes expected growth in U.S. direct retail revenues of 32-35% and international segment sales between 50% and 55%.

Further, other revenues are expected between $15 million and $18 million.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -28.68% due to these changes.

VGM Scores

Currently, Wayfair has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

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

Outlook

Wayfair has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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