Wayfair Inc (NYSE:W, NYSE:)'s financial outlook has taken a hit as Bank of America (BofA) downgraded the online home goods retailer from Buy to Neutral.
The online home goods company faces revenue and gross margin (GM) pressures that are likely to cap short-term earnings growth.
Its 2Q earnings report released Thursday morning revealed the company had narrowed its loss during the quarter but experienced an unexpected decline in sales as customers reduced spending on home furnishings.
Adjusted earnings were $0.47 a share, just shy of the $0.48 expected by analysts. Revenue fell to $3.12 billion from $3.17 billion, missing projections of $3.18 billion.
While Wayfair has been a robust margin story over the past two years due to significant cost discipline, current market conditions pose challenges, according to BofA analysts.
"Wayfair is primed for strong earnings leverage when furnishing returns to growth, but weak second-quarter results and the third-quarter guide now push that thesis more into 2025," analysts wrote.
Analysts also slashed Wayfair’s price objective (PO) to $58, down from $85.
The 3Q revenue guide of low single-digit declines aligns with investor expectations but does not suggest any improvement in the macroeconomic environment, a key overhang for the stock. Management's gross margin guidance of 30% to 31%, paired with volume deleverage and pricing initiatives, reflects continued pressure.
"While Wayfair has been one of the strongest margin stories of the past 2 years from significant cost discipline and takeout, we think relative near-term margin expansion could be capped," analysts noted.
BofA has adjusted its revenue and EBITDA estimates for Wayfair, lowering the 3Q forecast to $2.9 billion and $133 million, respectively, and 2024 projections to $11.8 billion and $522 million.