Wayfair Inc. soared to a record high Tuesday after investors cheered the company’s profitability forecast and demand trends as the coronavirus pandemic drives more consumers to shop online.
Executives of the home-good retailer said on a conference call that the adjusted margin for earnings before interest, taxes, depreciation and amortization would turn positive this quarter compared with the negative 5.5% reported for the first quarter. In addition, they said quarter-to-date gross revenue growth is “trending at roughly 90%.” The shares surged as much as 35% to $181.39, the highest intraday level since the company went public in 2014.
Results will be driven by expanding gross margin, more efficient marketing and gaining a better hold on operating expenses “while still aggressively investing into the future,” said Chief Executive Officer Niraj Shah, noting this reflects only the current rate of quarterly revenue growth of around 20%. “All incremental revenue will be additive and we would expect it to create significant additional profitability this quarter.”
Wayfair began seeing a pickup in mid-March of both traffic and conversion, or visitors that actually make a purchase. The increase in online demand across categories has “continued to gain momentum” in April, and the company has seen “millions of new customers” over the past several weeks, Shah said. It’s also seeing “strong repeat trends” from long-term and new customers.
The stock has rebounded about 660% since March 19, when it reached an intraday low of $21.70, driven by fears of supply chain issues in China and lingering concerns over a fourth-quarter shortfall. Management’s comments Tuesday on demand trends seem to confirm more recent bullish moves by investors.
Despite today’s euphoria, one analyst has had enough. Stifel’s Scott Devitt downgraded the stock to sell from hold, saying the shares have moved “too far too fast.”
In the near to medium term, competitor stores will reopen, store bankruptcies and closures will drive excess supply, limiting pricing power, and Amazon.com will return to the category, Devitt said. The analyst predicted a “steady” deceleration in growth from current levels toward “better than historical but nowhere near the current trend on a two-year stacked basis sometime in 2021.”
Devitt’s price target on the stock is $135, up from $115. This compares to the average 12-month target of $112, according to data compiled by Bloomberg. Wayfair currently has 13 buys ratings, 12 holds and 7 sells, the data show.
Wayfair’s momentum carried over to another online retailer. Etsy Inc. shares climbed as much as 13% to a record high as investors bet that the digital retailer of unique, often handcrafted, items will provide as rosy an update when it reports first-quarter results Wednesday.
Boston-based Wayfair said it’s not sure how long these positive trends will last, and as such, management declined to provide a specific revenue forecast for the second quarter. Wall Street is predicting a 24% year-over-year advance, besting the 20% growth reported for the March quarter.
(Updates to include additional comments from the call and comments from Stifel)
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