Wayfair Earnings: Encouraging Signs of Top-Line Stabilization and Profit Improvement; Shares Cheap

No-moat Wayfair’s fiscal 2024 first-quarter results emphasized continued traces of demand stabilization and ongoing improvements in its cost structure despite a housing market that continues to be characterized by lofty interest rates and a lackluster housing turnover. Critically, its operations, technology, and administrative, or SOTGA, expense leveraged 280 basis points to 22.5% of sales despite the soft sales growth (down 1.6%), aided by the firm’s workforce reductions since mid-2022. Consequently, adjusted EBITDA margin expanded a whopping 320 basis points to 2.7%, giving us confidence in our low-teens adjusted EBITDA margin forecast by fiscal 2033. Longer term, we see higher private-label penetration, higher volume, and lower expenses (both SOTGA and advertising) lifting the firm’s profitability as it enters a more mature business phase.