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Wayfair (W) Up 35.2% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Wayfair (W - Free Report) . Shares have added about 35.2% 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 drivers.

Wayfair Q4 Loss Narrower Than Expected, Revenues Beat

Wayfair reported non-GAAP loss of $1.12 per share in the fourth quarter of 2018, narrower than the Zacks Consensus Estimate of $1.24 and the year-ago figure of $1.28.

Total fourth-quarter revenues came in at $2.01 billion, up 39.9% year over year. The figure also outpaced the Zacks Consensus Estimate of $1.88 billion.

The year-over-year increase in revenues was driven by strengthening of the company’s direct retail business across international regions.

Following the earnings release, its shares increased more than 27%.

Quarter in Detail

The company’s direct retail net revenues, which include sales generated primarily through Wayfair’s sites, were $1.996 billion in the fourth quarter, increasing 40.6% year over year.

Active customers increased 37.9% from the prior-year quarter to 15.2 million. Also, LTM net revenues per active customer increased 5% year over year to $443 million.

Total number of orders delivered in the reported quarter was 8.8 million, up 42% year over year. Orders per customer in the quarter were 1.85 million, reflecting an increase of 4% from the year-ago period. Further, repeat customers placed 5.8 million orders in the fourth quarter, up 51.1% year over year.

Operating Results

In the fourth quarter, Wayfair’s gross margin was 24.1%, up 100 basis points on a year-over-year basis.

Adjusted EBITDA margin was (2.7%) million compared with (1.5%) in the year-ago quarter. This was led by increasing investments, mainly in the international regions.

The company’s operating expenses of $614.7 million increased 53.7% year over year. Operating loss came in at $142.8 million, which was wider than the prior-year quarter’s $73 million.

Balance Sheet & Cash Flow

At the end of fourth quarter, cash, cash equivalents and short-term investments were $963.7 million, up from $518.7 million in the comparable year-ago period. Accounts receivables were $50.6 million, up from $41 million in the third quarter.

Cash from operations was $42.5 million and capital expenditure totaled $48.7 million. Free cash flow was ($23.2) million compared with ($58.8) million in the third quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -29.21% due to these changes.

VGM Scores

Currently, Wayfair has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Wayfair has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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