Written by Phil Wahba
Wayfair defied the cynics on Wednesday by finally reporting a profit after years of losses, bolstered by a surge in shopping from homebound consumers—but analysts warn the growth might be unsustainable.
The online home furnishings retailer reported revenue in the second quarter spiked 84% to $4.3 billion. Americans focused on their homes during the coronavirus lockdowns, opting for online shopping, helped Wayfair report a profit of $273.9 million dollars after a long string of quarterly losses. In 2019, the company lost nearly $1 billion on revenue of $9.13 billion, raising questions about the longer term viability of its business model.
As concerns about the close quarters of physical stores grew, Wayfair capitalized on a big shift to online shopping for home goods. The company proved deft at marketing, something it has been criticized for spending too much on in the past, to attract new shoppers and get existing ones to shop more often. The number of active customers rose 46% to 26 million, as of the end of the quarter on June 30, 2020.
Wayfair’s stock has more than tripled this year on the strength of that spending surge since the pandemic broke out in March. The company’s blockbuster quarter was unimpeded by the bizarre online conspiracy started by an anonymous Reddit user claiming the e-commerce company was involved in child trafficking, in part because some of the cabinets it was selling shared names with missing children.
The company’s shares were down 5% in morning trading on Wednesday as some shareholders have sold to turn a profit and others are concerned about the sustainability of its performance.
With millions of Americans largely done setting up home offices for themselves and demand for other furniture unlikely to stay at the same levels, there are worries Wayfair’s results could be short lived.
“Without the favorable tailwinds that have blown more customers its way, Wayfair will start to revert to its old model of having to use extensive advertising and marketing to keep customers coming back,” Neil Saunders, managing director at GlobalData Retail, wrote in a research note. “This will drive down profitability and likely push the company back into the red.”
Still, Wayfair CEO Nirah Shah anticipates that shoppers will keep spending on beautifying their homes absent the ability to travel or go to concert as the COVID-19 crisis drags on. Shah says that plays to the company’s strengths—all the more if customers have a good experience.
“What we have seen thus far would suggest that even as economies reopen, our customers remain focused on the home and are extremely satisfied with Wayfair,” Shah told investors on a conference call.
Sourced from Fortune.