Wayfair Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context and reporting period
Wayfair operates an online home-goods retail business through U.S. and international sites. Management attributed weaker sales to post-pandemic normalization in consumer behavior and macroeconomic pressure. The interim statements are unaudited.
Financial and operating results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $3,284 | $3,857 | $6,277 | $7,335 |
| Gross profit | $896 | $1,128 | $1,699 | $2,131 |
| Operating income (loss) | $(372) | $146 | $(682) | $172 |
| Net income (loss) | $(378) | $131 | $(697) | $149 |
| Adjusted EBITDA | $(108) | $311 | $(221) | $517 |
| Operating cash flow | $(115) | $275 | $(341) | $452 |
| Free cash flow | $(244) | $206 | $(575) | $319 |
- Q2 revenue fell 14.9% year over year; U.S. revenue declined 9.7% and international revenue 35.7%. For the first half, revenue declined 14.4% overall, with U.S. down 9.8% and international down 33.7%.
- Q2 gross margin was 27.3%, versus 29.2% a year earlier; first-half gross margin was 27.1%, versus 29.1%. Management cited product mix, lower operating efficiency at lower order volumes, and higher logistics costs.
- Q2 basic and diluted loss per share were both $3.59; first-half loss per share was $6.62. Adjusted diluted loss per share was $1.94 for Q2 and $3.90 for the first half.
- Active customers were 24 million, down from 31 million; orders delivered were 10 million versus 14 million in Q2 2021. Average order value increased to $330 from $278, while trailing-twelve-month revenue per active customer rose to $537 from $478.
- Operating expenses rose 29.1% in Q2 to $1,268 million. Selling, operations, technology, general and administrative expense increased 41.9%; equity-based compensation and related taxes were $133 million in Q2 and $245 million for the first half.
Liquidity, debt and cash flows
- At June 30, cash and cash equivalents were $1,094 million and short-term investments were $644 million, totaling approximately $1.7 billion, down from $2.4 billion at December 31, 2021. Working capital was $242 million, versus $795 million.
- Total debt was approximately $3.1 billion, including $3 million of 2022 Notes maturing September 1, 2022. No borrowings were outstanding under the $600 million revolving facility; approximately $65 million of letters of credit reduced availability. The company reported compliance with debt agreement terms during Q2.
- First-half operating cash outflow was $341 million, versus $452 million of inflow in the prior-year period. Capital expenditures, including property and equipment and site/software development, were $234 million. Cash and cash equivalents decreased by $612 million during the first half.
- Management stated existing cash, investments, operating cash generation and revolver availability should cover anticipated needs for the foreseeable future, while cautioning that liquidity assumptions could prove incorrect.
Changes, outlook, risks and unusual items
- Management linked declining revenue primarily to fewer orders and lower order frequency; higher average order value partly offset the decline. It cited inflation and broader macroeconomic conditions as pressures on consumers.
- Q2 included a $40 million impairment and other charge for a U.S. office location, primarily reflecting weaker sublease market conditions. The charge included $32 million of non-cash right-of-use asset impairment and $7 million of non-cash fixed-asset impairment.
- Management expected Q3 2022 capital expenditures of $110 million to $120 million, principally for technology and logistics network expansion. The filing provides no specific revenue or earnings guidance.
- During the first half, Wayfair entered into $255 million of future minimum lease payments for operating leases not yet commenced. It repurchased $75 million of stock in the first half; there were no Q2 repurchases.
- Risks highlighted include inflation, interest rates, housing-market and consumer-spending shifts, foreign exchange, supply-chain and logistics disruption, pandemic effects, competition, and the ability to attract and retain customers. Management said there were no material changes to previously disclosed risk factors and no ongoing legal matter was then expected to materially affect results or financial condition.
Key facts for investors to verify
- Whether revenue and order trends stabilize, particularly in the international business, and whether the lower active-customer count persists.
- Whether margins and operating expenses improve as order volumes, logistics costs, and personnel and technology spending change.
- The pace of cash use and capital spending, and whether liquidity remains adequate given approximately $3.1 billion of debt and the September 2022 note maturity.
- Whether the $255 million of future lease commitments and any further office or facility impairments affect cash needs or reported results.
- How much reported losses and adjusted measures are affected by equity compensation and other excluded items; non-GAAP measures are not substitutes for GAAP results or cash-flow analysis.