Wayfair Earnings: Housing Market Stifles Home Furnishing Spending, Escalating Promotional Cadence

No-moat Wayfair fell around 5% on its second-quarter results, as consumers continue to cautiously spend on home furnishings. Given stubbornly high mortgage rates and low home turnover, Wayfair is facing demand headwinds that are out of its control. However, we think shares have overreacted to commentary around pricing investments, a tool that has been effective in stimulating purchase conversion in the category. Peer no-moat Williams-Sonoma has successfully toggled its spending between pricing and advertising to meet consumer purchase preferences, and we surmise that such a strategy will allow Wayfair to continue to outpace the category. While this means gross margin could be lower than optimal (the firm is targeting the low end of 30%-31% in the back half of 2024), we expect it to limit revenue declines to a low-single-digit percentage range, ahead of the 3.5% average decline seen in the furniture and home furnishings market through June (US Census).