Wayfair Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context and results
Wayfair operates online home-goods marketplaces in the U.S. and internationally. Management said Q2 sales declined as average order value normalized against inflation-driven 2022 comparisons, partly offset by year-over-year order-volume growth. At quarter-end, Wayfair had 22 million active customers; 80.1% of Q2 orders came from repeat buyers.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net revenue | $3,171 | $3,284 | $5,945 | $6,277 |
| Gross profit | $985 | $896 | $1,806 | $1,699 |
| Gross margin | 31.1% | 27.3% | 30.4% | 27.1% |
| Operating loss | $(142) | $(372) | $(489) | $(682) |
| Net loss | $(46) | $(378) | $(401) | $(697) |
| GAAP diluted loss per share | $(0.41) | $(3.59) | $(3.60) | $(6.62) |
| Adjusted EBITDA | $128 | $(108) | $114 | $(221) |
| Operating cash flow | $217 | $(115) | $70 | $(341) |
| Free cash flow | $128 | $(244) | $(106) | $(575) |
Q2 average order value was $307 versus $330 a year earlier; orders delivered were 10 million in both periods. LTM revenue per active customer was $545 versus $537.
- Revenue mix: Q2 U.S. revenue was $2,785, down 0.4%; International revenue was $386, down 20.9% (down 18.2% at constant currency). First-half declines were 2.6% in the U.S. and 20.7% internationally.
- Costs and margins: Q2 cost of goods sold fell 8.5% to $2,186 and was 68.9% of revenue versus 72.7%. Operating expenses declined 11.1% to $1,127. Savings and lower logistics costs improved gross margin; equity-based compensation remained a significant expense.
- Liquidity: Cash and cash equivalents were $1,249 and short-term investments $4, totaling $1,253 at June 30, versus $1,278 at year-end 2022. A $600 revolving facility had no loans drawn; $77 of letters of credit reduced available capacity.
- Debt: Carrying value of long-term debt was $3,205, versus $3,137 at year-end. Wayfair reported $3.2 billion principal amount outstanding and compliance with debt-agreement terms. Total liabilities were $6,080; stockholders’ deficit was $2,698.
Material changes and unusual items
- Wayfair issued $690 of 3.50% convertible notes due 2028. It used $514 of transaction proceeds to repurchase $83 principal amount of 2024 notes and $535 principal amount of 2025 notes, recognizing a $100 gain on extinguishment. The new notes increased debt while the repurchases reduced older obligations.
- Q2 net loss includes the $100 debt-extinguishment gain; without that item, reported net loss would have been higher. Adjusted EBITDA is a non-GAAP measure and excludes, among other items, equity compensation, depreciation and specified other charges.
- The January 2023 workforce reduction involved approximately 1,750 employees and resulted in $65 of first-half restructuring charges, primarily severance and benefits. Management did not expect further material charges related to this reduction.
- First-half operating cash flow improved by $411 year over year, reflecting non-cash adjustments and working-capital changes. First-half capital expenditures, including property and equipment and software development, were $176.
Outlook, commentary and risks
The filing provides no specific numerical revenue or earnings guidance. Management said existing cash, operating cash generation and Revolver availability should cover anticipated needs for the foreseeable future, while cautioning that liquidity assumptions could prove incorrect. Management continues to monitor inflation, interest rates and consumer behavior, and may limit or delay spending to preserve capital. It cited the long-term opportunity in online home shopping as unchanged.
Risks highlighted include weaker consumer spending and macroeconomic conditions, customer acquisition and retention costs, execution of restructuring and growth initiatives, competition, technology or cybersecurity disruptions, and legal or regulatory matters. Wayfair said it did not believe current legal matters would materially adversely affect results or financial condition, while noting litigation can be costly and distracting. It reported no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether order-volume growth can offset lower average order values and continued weakness in International revenue.
- How much of improved operating cash flow is sustainable versus working-capital timing, and the trajectory of free cash flow.
- Debt repayment, refinancing and potential cash-settlement needs for convertible notes; the filing notes conversions could adversely affect liquidity.
- The recurring impact of equity-based compensation and whether cost savings can support profitability without impairing customer growth or service.
- Ongoing effects of macroeconomic conditions, and any changes to management’s liquidity assumptions or planned investment levels.