Wayfair (W 5.00%) stock surged following the e-commerce specialist's first-quarter earnings report that revealed soaring sales growth. The home furnishings retailer was enjoying strong demand in January and February, but its expansion pace hit a higher gear as shelter-in-place mandates placed a premium on digital ordering.
The leader in its niche won more than its fair share of that extra business, and in a conference call with analysts, Wayfair CEO Niraj Shah and his team credited their competitive advantages for that success. While cautioning that sales gains will eventually slow back down, Wayfair executives see some good reasons to expect fundamentally strong growth from here.
Let's take a closer look.
Image source: Getty Images.
A clarifying experience
Though we are all eager for return to normal, we do believe that this unprecedented situation has highlighted the many differentiated advantages we have built as the e-commerce leader in home over the last two decades.
-- Shah
Wayfair gained millions of new shoppers over the last few weeks but has also seen its repeat order volume jump to over 70% of all purchases. Those impressive engagement metrics demonstrate its dominant position in a quickly growing industry. They also reflect competitive advantages that would be difficult for any rival to duplicate.
Those assets include Wayfair's proprietary delivery and fulfillment network, a huge selection of heavily reviewed products, and a customer service offering that puts shoppers at ease. Success here is showing up in faster sales growth, but also in consistently strong satisfaction scores and repeat business volume.
Growing through challenges
Time will tell how economic conditions affect future purchasing behavior and the size of the overall home market, but there is little doubt that the quality of experience we can offer to new and returning customers during this challenging time will serve us well in the future.
-- Shah
With at least a short-term recession on the way, executives saw some relevant lessons in looking back to Wayfair's experience during the Great Recession. The home furnishings market slumped by 30% from 2007 through 2009, and over 10,000 physical retailing stores closed for good. Yet Wayfair grew sales over that period and noticed an accelerated shift toward digital demand.
The company is entering the next stressful economic period with more formidable assets, including a larger base of shoppers, better supplier relationships, and well-known brands. Yet its cost burden is far higher, too, and that's helping produce continued net losses.
A huge volume surge
This momentum is widespread across almost all categories.
-- CFO Michael Fleisher
Wayfair only books revenue once a product is delivered, so any COVID-19-related growth boost will begin in the fiscal second quarter, which started on April 1. The trends for that month have been head-turning, with sales jumping 90% in recent weeks, equating to $800 million of incremental revenue.
Wayfair is seeing extra demand through most of its furnishings and home-improvement categories as well as across new and repeat customer orders. Executives aren't expecting these trends to continue for long, but they do see the crisis accelerating e-commerce growth, similar to their experience in the last recession.
As for finances, investors can expect to hear some great news on this score since Wayfair is on pace to post positive adjusted profit in Q2. Management set this target based on the company's prior growth rates of around 20%. But two factors -- soaring demand and declining digital advertising costs -- are combining to make the goal even easier to reach.
Without venturing specific guidance, Shah and his team suggested that the final earnings result might be significantly positive since any demand growth above 20% would trickle directly down to Wayfair's bottom line.
