What happened

Wayfair (W -2.29%) delivered better-than-expected earnings results for the second quarter, sending the stock surging 15.1% week to date, as of 3:33 p.m. EDT on Thursday.

The stock had been nosediving in recent weeks, so there were clearly low expectations heading into the earnings report. While revenue of $3.9 billion met the consensus analyst estimate, adjusted earnings per share (EPS) of $1.89 came in well above expectations of $1.16.

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So what

Wayfair posted a decline in revenue over the year-ago quarter, but investors were fully prepared for that. The leading online home goods seller is facing extremely difficult growth comparisons with the pandemic, when revenue accelerated to a rate of 83% in Q2 2020. 

What caught investors by surprise is Wayfair's steadily improving profitability. Adjusted EPS was also down year over year, but investors appreciate that the business still outperformed on the bottom line despite the 10% year-over-year decline in revenue. 

Two people moving a chair outside a home.

Image source: Getty Images.

Now what

Management believes further improvement in profitability should come over time, given it has a large base of repeat customers who generated 75% of Wayfair's total orders in the quarter, which should lessen the need for lots of marketing to drive sales growth. 

"We believe we are leaving the pandemic period with an even stronger repeat customer base than when we entered it, which should have long-lasting benefits given it cost us relatively less to drive repeat purchases than initial orders," CEO Niraj Shah said during the earnings call. 

Shah also reminded investors of the favorable tailwinds in online shopping for home goods that he believes will stick beyond the pandemic. "Consumer balance sheets are strong, and interest in the home is not going away post-pandemic, even if there is some shorter-term normalization," he said. 

Until Wayfair clears the difficult year-over-year comparisons with the pandemic-driven results in 2020, it's tough to guess where the stock will go in the near term. But investors should keep Wayfair on their radars, given the company's $840 billion market opportunity in just North America and Western Europe.