Wayfair tumbles as fulfillment, delivery expenses surge

Dive Brief:

Online furniture retailer Wayfair beat estimates for third quarter revenues, but mounting fulfillment and delivery expenses impacted profitability and sent shares down.
Revenue across Wayfair's five brands rose 52.7% year over year in Q3 from $545 million to $832.4 million, while total net revenue increased 45% to $861.5 million from $594 million in the same period last year, beating the FactSet expectation for $846.0 million.
But Wayfair’s shares fell as much as 17% after the company posted Q3 net losses of $60.9 million or 72 cents per share, a steep decline from year-ago losses of $15.5 million, or 18 cents per share. Adjusted earnings declined 54 cents per share, edging out the FactSet estimate for a loss of 59 cents per share.

Dive Insight:

The increasing cost and complexity of online fulfillment and delivery haunted Wayfair's Q3 results, much as they did for Amazon’s most recent quarter, which saw those expenses nearly erase its profits. Fulfillment of furniture orders is especially difficult because of the bulk and weight of the items, and the retailer not only offers free shipping with a minimum order on most items (including big ones like sofas), but also boasts a range of dynamically priced delivery options from curbside drop-off to full in-home delivery.

In a statement, Wayfair co-founder and CEO Niraj Shah didn’t address the mounting expenses, except to say the company is working to “further optimize our logistics network” and that it remains "very enthusiastic" about its long term growth and profit potential.

The sources of that optimism include a growing number of active customers, a metric that rose 60.4% year over year to 7.4 million. Repeat customers placed 1.9 million orders in the third quarter, an increase of 51.6% year over year, and accounted for 56.9% of total orders, up from 55.2% in the third quarter of 2015. In all, Wayfair delivered 3.4 million orders in Q3, an increase of 47.1% year over year.

"We are very pleased to report yet another strong quarter of rapid growth as we continue to gain significant market share,” Shah said. “Overall, our business grew Q3 net revenue by 45% year over year and our Direct Retail business was up 53% year over year."