Wayfair Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Wayfair operates an online home-goods marketplace through U.S. and international sites.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenue | $2.774 billion | $2.993 billion | Down 7.3% |
| Gross profit / margin | $821 million / 29.6% | $803 million / 26.8% | Margin up 2.8 percentage points |
| Operating loss | $347 million | $310 million | Loss widened |
| Net loss | $355 million | $319 million | Loss widened |
| GAAP diluted loss per share | $3.22 | $3.04 | Loss per share widened |
| Adjusted EBITDA | $(14) million | $(113) million | Improved |
| Operating cash flow | $(147) million | $(226) million | Outflow narrowed |
| Free cash flow | $(234) million | $(331) million | Outflow narrowed |
Revenue declined as orders delivered and order frequency fell amid macroeconomic pressure. U.S. revenue decreased 5.0% to $2.415 billion; international revenue decreased 20.4% to $359 million (14.4% decline on a constant-currency basis). LTM net revenue per active customer rose 6.2% to $552, partly reflecting higher average order value and inflationary pressures. Active customers were 21.7 million; 79.1% of Q1 orders came from repeat buyers.
Cost of goods sold fell 10.8%, faster than revenue, and declined to 70.4% of revenue from 73.2%, supporting gross-margin improvement. Operating expenses rose 4.9% to $1.168 billion, or 42.1% of revenue versus 37.1%, including $65 million of restructuring charges and $13 million of impairment-related charges. Advertising expense declined 2.7% in dollars but increased to 11.8% of revenue from 11.2%. Equity-based compensation and related taxes increased to $151 million from $112 million.
Cash and cash equivalents were $970 million and short-term investments were $78 million at quarter-end, for total liquidity of $1.048 billion, down from $1.278 billion at December 31, 2022. Long-term debt carrying value was $3.138 billion; no revolving-credit loans were outstanding. The $600 million revolver had approximately $77 million of letters of credit, reducing availability. Total liabilities were $5.957 billion and stockholders’ deficit was $2.745 billion. Capital expenditures, including site and software development, were $87 million.
Material changes and unusual items
- In January, Wayfair announced a workforce reduction of approximately 1,750 employees and recorded $65 million of primarily severance-related charges. It did not expect further material charges from this reduction; $11 million of severance was accrued for payment in Q2.
- The company recorded $5 million related to customer-service-center consolidation and $8 million for construction-in-progress asset impairment.
- Adjusted EBITDA improved substantially year over year, but remained negative. This non-GAAP measure excludes, among other items, equity compensation, restructuring and impairment charges.
- Wayfair issued $124 million of contractual software-license and freight commitments during the quarter.
Outlook, risks and contingencies
No specific numerical revenue or earnings guidance is provided in the filing text. Management said it believes cash, investments, operating cash generation and revolver availability should meet anticipated needs for at least the foreseeable future, while cautioning that liquidity assumptions could prove inaccurate. It expects the long-term opportunity in online home shopping to remain, but is monitoring inflation, interest rates, consumer behavior and the effects of the COVID-19 pandemic. Management described cost-efficiency actions and an ROI-focused approach to advertising.
Risks highlighted include weak consumer demand, customer acquisition and retention, execution of restructuring and expansion plans, supply-chain disruption, system capacity and cybersecurity, and legal and regulatory developments. The company had $3.2 billion of principal debt outstanding and was in compliance with debt-agreement terms. If convertible notes become convertible and holders elect conversion, cash settlement could affect liquidity. Management did not believe existing legal matters would materially adversely affect results or financial condition, while noting litigation can be costly and unpredictable.
Important facts for investors to verify
- Whether revenue and order-frequency trends stabilize, particularly in international markets, and whether higher revenue per customer persists.
- Whether cost reductions improve GAAP profitability and cash generation after restructuring charges, and the impact of ongoing equity-based compensation.
- Liquidity and debt-service capacity given negative operating and free cash flow, $3.2 billion of principal debt, and potential cash settlement of convertible notes.
- Whether the stated expectation of no further material charges from the January workforce reduction is borne out.
- Future customer, order, and advertising-return trends as macroeconomic conditions evolve.