Investors are beginning to believe in Wayfair (W 2.08%) again. Shares of the home furnishings retailer have handily beaten the market so far in 2023, nearly doubling through the first half of the year. Those gains aren't yet supported by any rebound in the business. In fact, Wayfair's last earnings update contained mostly bad news on both the sales and earnings fronts.
Yet investing is all about the future, and Wayfair has a potentially bright one ahead as it works to capitalize on its large market position in an expanding e-commerce niche. With that prospect in mind, let's look at what trends might impact the stock's path over the next year or so.
Latest results
Wayfair's last earnings report showed a business under significant stress as a result of a growth hangover that's still ongoing. Its active base of shoppers shrank by 15% through late March, reflecting just a small improvement from the prior quarter's 19% slump. Shoppers are ordering less frequently, too, as spending preferences shift away from home furnishings. Yet they're spending about the same per year due to rising prices. Overall Q1 revenue was down 7%.
The bright spots in Wayfair's early May announcement included rising gross profitability and market share in this temporarily contracting industry. Management's aggressive cost-cutting program is helping move the business back toward positive cash flow, too, although that turning point might still be a few quarters away. "We are pleased to be seeing consistent market share and a significant improvement in cost structure," CEO Niraj Shah said in a press release.
Low expectations
Investors don't have high expectations for Wayfair's upcoming announcement slated for early August. That report should show sales declines of around 6%, according to most Wall Street pros, with losses landing at roughly $0.75 per share.
The stock's rally implies that investors are expecting to see a further moderation of losses in key areas like the shopper pool and order frequency in Q2. Look for more concrete steps toward profitability, too. Management is projecting positive non-GAAP earnings this quarter for the first time in over a year. Positive net income might take a few more quarters to arrive, depending on wider economic growth trends.
Watch the stock
It's too early to have much confidence in Wayfair's full rebound today. Fiscal 2023 is likely to mark a third consecutive year of no real growth following the company's banner 2020 result, after all, and net losses are still significant.
On the bright side, the company still has an inside track at winning a big piece of the global home furnishings industry as more sales steadily tilt toward e-commerce over time. Yet its persistent customer losses, weak multi-year revenue trends, and current negative cash flow all count against the business right now.
It's true that the declining odds of a recession developing in the U.S. market mean good things for Wayfair's recovery potential. Still, most investors will want to watch this rebound story from the sidelines -- at least until the business can show stabilizing sales volumes in the context of rising profitability.
The earnings report in early August might simply show modest steps in those directions, potentially keeping pressure on this popular e-commerce stock over the next year.
