KeyBanc Initiates Coverage On Wayfair Amid Weakening Consumer Spending

KeyBanc analyst Bradley Thomas initiated coverage on Wayfair Inc W with a Sector Weight rating.
The analyst said Wayfair, and the furniture and home furnishings industry, significantly benefitted from a pull-forward in demand during the pandemic, limited competition in 2020, government stimulus, and increased home-related spending.
Looking to 2023, the analyst expects the furniture and home furnishings industries to remain weak and sees the risk of weakening consumer spending.
While the analyst’s top-down view of the industry is negative, there are datapoints that are encouraging from Wayfair’s perspective.
The analyst said that the company’s average ticket is lower than many competitors, suggesting less risk in a recession.
Additionally, the analyst said trends have been getting less bad, with Wayfair reporting a sequential improvement in consolidated and U.S. sales performance during 3Q and an increase in sales over the all-important Thanksgiving weekend vs. the same period in 2021.
Management is now focused on cost cuts to drive run-rate EBITDA positive in 2023.
Also Read: Wayfair Plans To Slash 1,750 Jobs
The analyst believes it is critical for W to show progress on its profitability as investors increasingly focus on businesses that generate positive EBITDA and Free Cash Flow.
While there are risks that cost cuts could harm growth, the analyst is optimistic about the company’s expense opportunity should the company stay the course.
Price Action: W shares are trading higher by 20.92% at $47.05 on the last check Friday.

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