Wayfair Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with the three months ended March 31, 2023 unless noted. Wayfair operates an online home-goods marketplace through U.S. and International segments.
Financial and operating results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net revenue | $2.729 billion | $2.774 billion |
| Gross profit / gross margin | $819 million / 30.0% | $821 million / 29.6% |
| Operating loss | $235 million | $347 million |
| Net loss | $248 million | $355 million |
| GAAP diluted loss per share | $2.06 | $3.22 |
| Adjusted EBITDA (non-GAAP) | $75 million | $(14) million |
| Cash used in operating activities | $139 million | $147 million |
| Free cash flow (non-GAAP) | $(193) million | $(234) million |
Revenue declined 1.6%. U.S. revenue fell 1.0% to $2.391 billion and International revenue fell 5.8% to $338 million (7.5% lower at constant currency). Management attributed lower sales to normalization in average order value after inflation and category-related softness in order volume. Active customers were 22 million, orders delivered were 10 million, average order value was $285 versus $287, and 80.5% of orders came from repeat buyers.
Cost of goods sold declined 2.2% and was 70.0% of revenue versus 70.4%, reflecting mix, operating efficiencies and lower logistics costs. Operating expenses fell 9.8% to $1.054 billion, including $79 million of restructuring charges. Lower personnel costs and equity compensation contributed to lower expenses. The improvement in operating and net losses reflects lower operating costs; Adjusted EBITDA excludes equity compensation, restructuring and other items and is not a GAAP measure.
Financial position, liquidity and debt
- At March 31, 2024, cash and cash equivalents were $1.107 billion and short-term investments were $50 million, for reported liquidity of $1.157 billion, down from $1.351 billion at year-end 2023.
- Total assets were $3.240 billion; total liabilities were $6.065 billion and stockholders’ deficit was $2.825 billion. Total current liabilities of $2.025 billion exceeded current assets of $1.588 billion.
- Principal debt outstanding was $3.2 billion. The $600 million revolving facility had no loans drawn; $72 million of letters of credit reduced availability. The company reported compliance with debt covenants.
- The $117 million 2024 Notes mature November 1, 2024; the $38 million 2025 Accreting Notes mature April 1, 2025. The 2028 Notes became convertible in Q2 2024 following satisfaction of a stock-price condition. Conversion of notes could require cash settlement and affect liquidity.
- Capital expenditures, including property and equipment and site/software development, were $54 million. Cash decreased by $215 million during the quarter.
Material changes, outlook and risks
- Wayfair announced a January 2024 workforce reduction of approximately 1,650 employees and recorded $79 million of related charges. $34 million remained accrued at quarter-end and was expected to be paid in Q2.
- Management said 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. The filing provides no specific revenue or earnings guidance.
- Management is monitoring macroeconomic pressures, including inflation, interest rates and consumer spending, and may limit or delay expenditures to preserve liquidity. It said the long-term opportunity in online home shopping remains unchanged.
- The Canada Border Services Agency is reviewing import duties for 2021–2023. Estimated potential liability, net of possible recovery through appeals, is approximately $20 million. About $10 million was recorded in current liabilities; the estimate could change materially. Wayfair says it believes it has grounds to appeal.
- Management reported effective disclosure controls at the reasonable-assurance level. Wayfair transitioned to a new financial accounting system during Q1 and will continue evaluating related internal controls.
Important facts for investors to verify
- Whether revenue, order volume and average order value stabilize, particularly in the International segment.
- Whether cost reductions and positive Adjusted EBITDA translate into sustained GAAP profitability and improved operating cash flow.
- Cash use, liquidity and access to the Revolver, including the timing and settlement consequences of upcoming convertible-note maturities and conversions.
- The final amount and resolution of the CBSA duty review, and payment of accrued restructuring costs.
- Execution of the new accounting system and continued effectiveness of internal controls.