What happened
Shares of Wayfair (W 8.09%) were tumbling today after the online home goods retailer reported a wider loss than expected in its fourth-quarter earnings report and issued weak first-quarter guidance, saying that it had experienced some supply chain disruptions from the coronavirus.
As a result, the growth stock was down 16.9% as of 11:21 a.m. EST, after falling as much as 25.2% earlier in the morning.
Image source: Getty Images.
So what
Revenue at Wayfair rose 25.8% to $2.53 billion, matching estimates. However, gross margin fell from 24.1% to 22.8%, a sign the company was forced to increase markdowns to move merchandise. Other operating expenses, including advertising, customer service, and overhead costs rose 43.6%, much faster than revenue, which led to its operating loss more than doubling in the quarter to $305.4 million.
On the bottom line, its adjusted loss per share expanded from $1.12 to $2.80, which was worse than the analyst consensus of $2.65. The loss comes after the company recently laid off hundreds of employees to help trim its costs.
Despite the challenges, CEO Niraj Shah remained bullish about the long-term opportunity, saying, "While already operating at a run rate in excess of $10 billion in annual net revenue, we have barely scratched the surface of our total addressable market and are only just beginning to reap the benefits of our large strategic investments across North America and Europe."
Now what
What really seemed to turn off investors was the company's first-quarter guidance. Wayfair, which imports about half of its product from China, said on the earnings call that it had seen some disruptions in its supply chain and forecast revenue of $2.24 billion to $2.28 billion for the first quarter, which was well below estimates at $2.47 billion. At the midpoint, that forecast implies revenue growth of just 17.4%, which would be its slowest revenue growth as a publicly traded company. It was unclear to what extent that lower forecast was caused by supply chain issues and the coronavirus as management said it had not factored in a significant impact from the virus.
Given the wide loss and slowing revenue growth, it's easy to see why the stock is tanking. Investors should be hopeful that growth rebounds once the supply chain returns to normal.
