What Wayfair’s Weak Quarter Means For E-Commerce And Home Business

If Wayfair W is the canary in the e-commerce coal mine than maybe it’s time to break out the gas masks. The party may not be over but it certainly appears that it’s been taken down a few notches.

Wayfair, the big online home furnishings player that has been recording record numbers – and its first profits ever – since the start of the pandemic-induced boom in e-commerce sales of home merchandise, reported weak numbers this morning.

Top line revenue dropped 19% and it reported a net loss of $78 million, or 75 cents per diluted share. Many of its performance matrix on customer counts and order sizes were still in the plus column but nowhere near their outstanding levels of the past several quarters. That said, the quarter earnings topped analyst estimates.

Wall Street was not happy. The stock showed a 6% decline as of mid-day although its initial drop earlier in the morning was larger. Still the stock, trading at around $250 share, is more than five times higher than its low from the beginnings of the pandemic in March 2020, though well off its 52-week high of $369.

Wayfair defended its performance with CEO Niraj Shah saying in the earnings release, “Our long-term vision is in sharp focus coming out of the pandemic period. We are, as ever, focused on the long term, balancing strong growth and profitability over years not quarters, and solidifying our position as the definitive destination for the home.”

Wayfair certainly has been in the consumer products sweet spot for much of the past year, at the confluence of e-commerce and home furnishings, two sectors that have soared during the stay-at-home era. It recorded its first profits ever in its 10-year history as a public company with very strong performances in new customers, order sizes and ordering frequency.

Those in both online retailing and the home products sector have been tracking Wayfair closely, believing it is a good leading indicator of how both would perform as people began to emerge from their homes and return to traditional spending levels on travel, out-of-the-home entertainment and dining and vacations. And when they did shop, would it be in physical stores rather than online?

Wayfair’s decline in sales would seem to indicate that all of those things were in fact happening, although the company also cited the impact of supply chain problems and inflationary prices on its sales.

Shah said the growth in the home business isn’t going away, only be tempered by these other factors. “Demand and interest in home remains resilient, but it will take a few more quarters for our growth – and e-commerce growth in general – to get back to normal.”

But with both overall retailing and specifically the home products sector still operating in uncharted territory, what exactly “normal” is remains anyone’s guess. Wayfair is the second big player in the home space, after Bed Bath & Beyond BBBY , to report disappointing numbers as pandemic conditions start to lift. When other big national home retailers like Williams Sonoma WSM and RH RH report later this year we should get a better indication of exactly where the in is headed.

Until then, businesses in the sector are advised to keep their protection devices at the ready.