Wayfair Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Wayfair operates an e-commerce business selling home goods through U.S. and international sites. Results are unaudited; interim results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net revenue | $2.993 billion | $3.478 billion |
| Gross profit / gross margin | $803 million / 26.8% | $1.003 billion / 28.8% |
| Operating income (loss) | $(310) million | $26 million |
| Net income (loss) | $(319) million | $18 million |
| Diluted EPS | $(3.04) | $0.16 |
| Adjusted EBITDA (non-GAAP) | $(113) million | $206 million |
| Operating cash flow | $(226) million | $177 million |
| Free cash flow (non-GAAP) | $(331) million | $112 million |
Revenue fell 13.9% year over year: U.S. revenue declined 9.9% to $2.542 billion and international revenue declined 31.4% to $451 million. Active customers were 25 million versus 33 million; orders delivered were 10 million versus 15 million. Average order value rose to $287 from $237, while trailing-12-month revenue per active customer rose to $520 from $461.
Cost of goods sold was 73.2% of revenue, compared with 71.2% a year earlier, reflecting lower operating efficiencies and higher logistics costs. Operating expenses increased 13.9% to $1.113 billion, or 37.1% of revenue versus 28.1%. Selling, operations, technology, general and administrative expense rose 38.5%; the company attributed the increase primarily to higher personnel costs and, to a lesser extent, IT costs and depreciation. Equity-based compensation and related taxes were $112 million versus $87 million.
Liquidity, debt and capital allocation
At March 31, 2022, cash and cash equivalents were $1.200 billion and short-term investments were $787 million, totaling approximately $2.0 billion. Working capital was $481 million, down from $795 million at year-end 2021. Cash and cash equivalents decreased by $506 million during the quarter.
Long-term debt was $3.054 billion, primarily convertible notes. The $600 million revolving facility had no borrowings; approximately $62 million of letters of credit reduced availability. Wayfair reported compliance with its debt covenants. The 2022 Notes, with $3 million principal outstanding, mature September 1, 2022. The company said existing liquidity, operating cash generation and revolver availability should cover anticipated needs for the foreseeable future, while cautioning that its assumptions could prove incorrect.
Capital expenditures, including property and equipment and site and software development, totaled $105 million. Management expected Q2 2022 capital expenditures of $130 million to $140 million. The company repurchased $75 million of Class A shares in Q1 at an average price of $136.80 per share.
Material changes, outlook and risks
Management attributed weaker revenue primarily to lower order volume as consumer behavior normalized after the pandemic; higher order values partly offset the decline, with inflationary pressures contributing. Order frequency was lower, and international revenue contracted more sharply than U.S. revenue. Management also cited rising logistics costs and reduced efficiency at lower order volumes. Advertising spending declined in dollars as the company responded to market conditions, but increased as a percentage of revenue.
No specific full-year revenue or earnings guidance was provided in the filing. The Q2 capital expenditure range is the stated near-term outlook. Management described the long-term opportunity for online home shopping as unchanged, but noted uncertainty around the pandemic and consumer behavior. Other cited risks include inflation, interest rates, housing-market conditions, consumer spending, foreign exchange, competition, supply-chain and logistics constraints, and access to financing.
Wayfair recorded no customer-service-center impairment charges in Q1 2022, compared with $12 million in Q1 2021. It entered into $160 million of future minimum lease obligations for operating leases not yet commenced. Management did not believe ongoing legal matters would materially adversely affect results or financial condition, while noting litigation may be costly and time-consuming. The company reported no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Whether order volume, active customers and revenue stabilize after the post-pandemic normalization, particularly in international markets.
- Whether gross margin and operating expense ratios improve as logistics costs, order volumes and personnel costs evolve.
- Cash burn, working-capital needs and progress against the stated liquidity outlook; available revolver capacity is reduced by letters of credit.
- Debt maturities and potential cash requirements or dilution from convertible-note conversions, including the September 2022 maturity of the 2022 Notes.
- Execution and returns on planned technology, logistics and lease investments, including the Q2 capital expenditure range.