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Robert Stephens, CFA
Robert Stephens, CFA
Articles (302) 

Why Wayfair Has Recovery Potential

The company’s growth plans may improve its financial prospects

March 26, 2020 | About:

Wayfair Inc. (NYSE:W) has turnaround potential after its 63% decline over the past year.

The home furniture retailer is investing in its international growth opportunities, reducing its costs and improving its shipping services to boost its financial outlook.

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Shipping investment

The company expanded the size of its distribution centers by 33% in fiscal 2019, enabling it to reach a broader range of consumers in different geographic areas. It also reduces the amount of time it takes for the retailer to ship goods to customers. This may improve its customer satisfaction ratings and help to strengthen its market position.

Wayfair is planning to further increase the size of its distribution centers in 2020. In addition, it expects to invest in its shipping services to ensure more reliable and faster deliveries. The increasing number of orders could reduce its shipping costs per item delivered to customers, positively impacting its bottom line.

International opportunities

The business doubled the products it sells in Europe in 2019. This enabled it to increase its market share in lucrative home furniture markets such as the U.K. and Germany. Its increasing number of orders in international markets helped reduce the retailer’s reliance on the U.S., which could lower its overall risks.

Wayfair plans to further extend the range of goods it offers internationally in 2020, which could broaden its appeal to a wider range of consumers, while operating on a larger scale may improve its profitability.

Growth plans

The retailer partnered more closely with its suppliers in 2019 to create new brands across its product categories. This means a growing proportion of its products are unique, which could help to differentiate it from sector peers.

Additionally, the business continues to refine its product range within the vanities category. For example, it has increased the availability of customized finishes and materials within its products to make them unique. It has also worked with its suppliers to reduce instances of damage during shipping. This resulted in it reporting over 30% fewer damaged items in its vanities category in 2019, which could reduce its costs and improve its customer loyalty levels.

Potential difficulties

The coronavirus outbreak could negatively impact Wayfair’s financial performance in upcoming quarters. Even though it is an online-only retailer and will not have to close down its operations, consumers may decide to postpone their spending on home furniture until the economic outlook improves. This could lead to investors adopting an increasingly cautious stance toward the company’s stock, which causes it to produce negative returns in the near term.

The company’s cost reduction program could help it to overcome reduced sales due to the Covid-19 virus. For example, it made 550 of its employees redundant in 2019. This amounts to 3% of its workforce. In addition, it is reviewing its expenses across its operations to further improve its efficiency.

Wayfair has a cash-to-debt ratio of 0.42. This is a higher and more attractive figure than over 50% of its industry peer group. Its online-only business model means it faces lower fixed costs than many of its rivals. This may indicate it is in a better position to overcome present uncertainties its industry peers.

Outlook

Market analysts project the company will narrow its loss per share from $9 in 2020 to $7.60 in 2021. The lack of profitability may be a concern for some investors, but its growth plans could catalyze its financial performance and its stock price in the coming years.

Disclosure: The author has no positions in any stocks mentioned.

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Comments

Jeff
Jeff - 1 week ago    Report SPAM

Robert,

Did you spend even 20 minutes reading the 10K and caluclating their cash position?

You have CFA in your title. Analyze the company before you write a bunch of fluff.

The debt is all convertible. To that end your comment on their debt ratio is completely irrelevant.

Next, W is "financed" with an unbelivable AP/AR ratio. When sales slow (like probably now) this reverses and they hit the cash wall - probably in three months. To confirm this, examine their SG&A burn rate, marry it to the Gross Margin contribution (adjust for non-cash items). and then form a view on how quickly they need to raise capital. They will NOT be able to raise capital. Why? becasue in 12 or 20 years, they have never had a profitable QUARTER. This whole thing HAS BEEN CARRIED BY THREE "DEBT" OFFERINGS THAT ARE ACTUALLY JUST CALL OPTIONS. Read just ONE of the Notes? It will make you a better CFA. There is absolutely nothing to loan against with their financials being worse than nothing. Did you note that a well respect Board Member opted to not hang around for the rest of the wreck? Missed that?

Put some effort into your job.

You should write a revised analysis that employs some of your CFA skills. Use MATH - it matters.

Jeff
Jeff - 1 week ago    Report SPAM

I read your piece again.

Seriously - try this:

1) Read the 10-K

2) Listen to last two earnings calls;

a) 3rd Q 2019

b) Annual 2019

NOTE - a new "Format" is coming for Q1 2020 - that way they dodge stuff that has no good answer

3) Read at least ONE of the NOTES (aka disguised call option)

4) Analyze their fixed cost - what you may hypothesize as variable is NOT variable in time for them to survive. They say as much in the Annual call -paraphrased - "It will take time for all the stuff we fix to show its monetary contribution."

5) Commit that after you have modeled it out, you write a truthful, substantive piece.

aiming_high
Aiming_high - 1 week ago    Report SPAM

And also check out the insider sales

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