Wayfair (W 1.46%) is hoping to log at least $112 billion of annual sales within the next decade. The management team sees room to hit that ambitious target as more home furnishing shopping moves online and it expands into new international geographies.
But this past year didn't get the company any closer to that goal. Sales fell in 2021, in fact, to $13.7 billion from $14.1 billion in the prior year. The decline wasn't a surprise, considering Wayfair added $5 billion to its sales base in 2022 during the earlier phases of the pandemic. But the weaker growth and profit results have investors wondering whether Wayfair can quickly return to its past glory days.
Let's take a closer look.
Look out below
While it was sure to happen as the pandemic threat faded, Wayfair's worsening growth metrics were still jarring for investors to see. Sales fell 11% in the holiday quarter and were down 8% in the core U.S. market. Wayfair endured a 13% drop in active customers, and its remaining shoppers spent less money. Annual spending per customer dropped to $501, down 11%. The number of orders per shopper dropped as well.
The good news is that each of these metrics is well above the level that shareholders saw in 2019 before the pandemic struck. Wayfair also noted more repeat orders as a percentage of all orders, suggesting growing shopper loyalty in a tough market. CEO Niraj Shah said in a press release, "While consumer behavior has changed repeatedly through the pandemic, the primary elements for success in our category have not."
Investors hoping that Wayfair could remain consistently profitable in the wake of the pandemic were disappointed. The company posted a modest net loss for 2021 after having logged its first year of positive results by that measure in 2020.
The bigger picture is much brighter, though. As Shah explained in a shareholder letter, "We've grown our topline by more than 50% [since 2019] without increasing our headcount." But the company needs a much higher sales base to reach management's long-term goal of pushing selling expenses down to around 6% of sales. These costs were over 12% of sales in 2021.
Wait and see
It's still too early in Wayfair's growth story to expect sustainable profitability. The company is busy building a huge tech platform, along with its physical distribution network in established markets like the U.S. and Germany, even as it expands to new counties. Digital shopping is still just around 20% of home furnishing spending and has room to grow toward 50% in the coming decade, just as it has for other niches like consumer electronics.
Those factors imply that Wayfair still has a good shot at reaching that $100 billion annual selling goal. Yet it is also clear that sales gains in 2020 and early 2021 pulled forward some of its revenue opportunities from future quarters. Wayfair will have to work through that growth hangover, likely until at least late 2022, before the business starts looking like a successful growth stock again.