Wayfair Earnings: Apprehensive Consumers Portend Higher Marketing Spending, Pressuring EBITDA

We were encouraged by the continued stabilization no-moat Wayfair exhibited in its third-quarter results. A 2% decline in sales and 4% adjusted EBITDA margin, in line with second-quarter metrics (2% decline, 5% margin), imply the home furnishing retailer could be finding its new baseline for growth. Additionally, the gross margin showed resiliency, at 30.3%, staying within the 30%-31% range it has tracked over the last year. With an industry that has experienced an average monthly decline of 1.5% through the end of the third quarter, it appears Wayfair is holding its own in a languishing market. Customer metrics support this thesis, with revenue per active customer and orders per customer up 1%, average order value up 4%, and active customers down 3%. Moreover, Wayfair has printed its sixth consecutive quarter of positive EBITDA margin metrics, a function of prudent merchandising, smart marketing, and surgical cost-cuts.