Wayfair Inc. (W, Financial) 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.
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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