Dive Brief:

• In speaking to analysts Tuesday about third quarter results, Wayfair CEO Niraj Shah said its annual sales holiday, Way Day, resulted in the biggest sales days in the company's history. The sales event, which is typically held in the spring, was postponed to late September due to the COVID-19 pandemic.

• The online home goods retailer reported third quarter direct retail net revenue shot up some 66% year over year to $3.8 billion, according to a company press release. The company recorded 28.8 million active customers, up from 19.1 million last year, and repeat customers placed some 11.3 million orders during the period, or 71.9% of total orders.

• Wayfair also reported a net income of $173.2 million from a net loss of $272 million in the year-ago period, marking the second consecutive quarter of profitability for the retailer.

Dive Insight:

Wayfair has emerged as one of the few winners of the pandemic that has battered much of the retail industry.

The home goods sector more broadly has gained in recent months as consumers began investing more into their homes, where many now spend the majority of their time. Other retailers in the space, including Bed Bath & Beyond and At Home, have reported strong results in their most recent quarters. In fact, according to GlobalData research, total spending on furniture and home furnishings increased 13.2% in the U.S. during the quarter.

"Though the initial shock of the arrival of COVID-19 is arguably behind us, consumer behavior in both North America and in Europe is undeniably changed as a result of the pandemic," Shah said on Tuesday.

But Wayfair, which operates largely online, may hold an advantage over its competitors as the potential for another lockdown looms heading into the winter months.

The retailer, as GlobalData Retail Managing Director Neil Saunders notes, has made some "very strong market share gains," evidenced by its 67% U.S. net revenue growth, which is partially due to its large online presence where more consumers are looking for goods right now, but it also comes "down to the extensive amount of advertising that Wayfair conducted — costing some $344 million over the quarter — this helped in [achieving] good mindshare among consumers."

But it's that large advertising spend that has hindered the retailer's profitability prospects in the past. Up until the second quarter of this fiscal year, Wayfair had failed to turn a profit every quarter since its public debut in 2014. Like many other digitally native brands, the company struggled with acquiring and retaining customers online, leading to high marketing spend quarter after quarter. 

While media costs came down at the start of the pandemic and remained lower than the year-ago period in Q3, CFO Michael Fleisher on the analyst call noted that costs relative to the second quarter increased. Advertising in the third quarter represented some 9% of total net revenue.

"To be clear, though we're pleased with the exceptional results, we wouldn't extrapolate Q3 as being indicative of a new run rate for advertising as a percent of net revenue," Fleisher said.

Executives remained confident in the company's financial position moving forward and Shah expects "home to be even more important than usual when it comes to celebrating the holidays this year."

However, while some trends were likely accelerated due to the pandemic, the categories in demand right now may not be permanent, according to Saunders. 

"Wayfair's future numbers will soften, and this runs the risk of putting it right back to where it was before the pandemic: a retailer that is unprofitable because of high operating costs and eye-wateringly high advertising spend relative to revenue," Saunders said.

"Wayfair deserves a lot of credit for the way in which it has operated during the pandemic," Saunders added. "However, it is our view that the current performance is something of an exception rather than the new normal."