What happened
Shares of Wayfair (W +5.40%) were pulling back today as the online home-furnishings retailer got swept up in the broad market sell-off in response to a hotter-than-expected August inflation reading. As a struggling growth stock in a consumer discretionary industry, Wayfair is more vulnerable to inflation and the macroeconomic implications of it than most stocks.
As of 12:03 p.m. ET, the stock was down 10.9%. The Nasdaq was down nearly 4% at the same time.
NYSE: W
Key Data Points
So what
Year-over-year inflation in August came in at 8.3%, or up 0.1% from July, while core inflation, which excludes food and energy, was up 0.6% from July, or up 6.3% over the last year. Those numbers were higher than expected, making it more likely that the Federal Reserve will hike the benchmark interest rate by another 75 basis points at its meeting next week in order to bring down inflation and cool off the economy, increasing the risk of a recession.
As a home-goods e-commerce stock, Wayfair is sensitive to the economic climate, and the company is already struggling. It was a big winner during the pandemic as consumers turned to online channels to stock up on home furnishings to make it through the lockdown and remote-work period.
However, over the last year, that tailwind has faded, and Wayfair's sales growth has actually gone negative. In the second quarter, revenue was down 15% to $3.3 billion, and the company is back to operating at a loss after a brief pause during the pandemic. In the second quarter, it posted an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $108 million.
Now what
Wayfair stock has been volatile throughout the pandemic. Given its poor recent performance and weak position in the current economy, the company would likely get hit hard by a recession.
As the leader in home-furnishings e-commerce, Wayfair still looks well-positioned over the long term, at least if it can get back to profitability. The next few quarters, however, are likely to be challenging.
