Wayfair Earnings: Profitability Continues to Expand Despite Limited Near-Term Top-Line Potential

Despite operating in an industry plagued by high interest rates and a stagnant housing turnover, no-moat Wayfair continues to deliver consistent baseline sales and improving profitability. While seasonally adjusted furniture and home furnishing sales declined an average of 6% in Wayfair's fourth quarter, the firm was able to chalk up flat sales ($3.1 billion), indicating that it is taking share. Moreover, even without sales growth, Wayfair's expense profile continues to improve. Efforts to reduce the workforce since mid-2022 helped lower the fourth quarter's operations, technology, and administrative, or SOTGA, ratio by roughly 200 basis points, to 19.2% of sales. But the ability to manipulate pricing to protect gross margin also helped Wayfair win, resulting in 150 basis points of upside, to 30.3%. As a result, Wayfair printed its third consecutive positive quarterly EBITDA margin, evidencing its ability to generate profitability even in weak macroeconomic conditions.