Wayfair, Best Buy Outlooks Suggest Fading Of COVID Nesting Trend

The fourth-quarter earnings at two of the country’s largest sellers of home goods and electronics both benefited from the so-called COVID nesting trend, but the business outlooks given by Wayfair and Best Buy on Thursday (Feb. 25) suggest that an inevitable slowdown is coming. While Wayfair said its Q4 revenues rose roughly 45 percent to $3.67 billion, the figure was slightly below Wall Street analyst expectations, and was seen as a disappointment for investors who have bid up Wayfair’s stock by 250 percent over the past 12 months.

Wayfair’s U.S. sales, which account for over 80 percent of its business, rose 40 percent, while its smaller international segment posted a 70 percent increase in sales last quarter. On the profit front, Wayfair posted $263 million in adjusted Q4 earnings, comfortably ahead of expectations. However, the company’s lack of a firm outlook for the coming quarter and year is what caught the attention of many investors and analysts.

“In this environment, it is so tempting to fixate on the latest news headlines, web traffic updates, credit card data refresh, or the year-ago quarterly comps, but there are bigger things happening at Wayfair, and perhaps the pandemic has accentuated some of them,” Wayfair CEO, Co-founder and Co-chairman Niraj Shah said on the company’s earnings call. “The opportunity in what we’re building is so much greater than any single period. It seems more important than ever to think in years rather than quarters.”

Best Buy Also Trips on Guidance

At the same time, Best Buy also reported record Q4 results that were a hair less than expectations, with revenues rising 12 percent to $16.9 billion for the three months ending Jan. 30, as the company said its online sales grew almost 90 percent and accounted for 43 percent of total domestic revenues. On the earnings front, the Minneapolis-based operator of about 1,200 stores topped expectations with a 20 percent increase in adjusted earnings per share. That said, Best Buy’s “-2 percent to +1 percent” same-store sales outlook for this year was the focus of investor concern.

“Demand for technology remains at elevated levels as we start the year,” Best Buy CFO Matt Bilunas said on the company’s conference call. “However, there is a high level of uncertainty related to the impacts of the COVID-19 pandemic that makes it difficult to predict how sustainable these trends will be,” he added, noting the timing and administration of vaccines, the impact on customer demand and shopping patterns, and the potential for a third round of government stimulus checks.

Bilunas said the sales outlook reflects a scenario in which customers resume or accelerate spending in areas that were slowed during the pandemic, such as travel and dining out, with an expectation that growth will be positive in the first half of the year and then negative in the back half, as Best Buy faces tough year-on-year comparisons in Q3 and Q4.

Mixed Retail Outlooks

Whether it’s Walmart, TJX, Wayfair or Best Buy, retailers in general have been consistently cautious in addressing the inevitable slowing rate of growth they face as they rebound from the economic trough that started last March and April, leading into a steady, online-driven bounce over the next 10 months. There have also been repeated references to increased strain on supply chains, which have been struggling to balance out efforts to restock shelves while also trying to keep inventory levels as low and lean as possible.

At the same time, the issue of rising delivery costs has been a recurrent theme in the retail sector, due to both increases in minimum wage requirements as well as the result of high demand for, and tight supply of, the so-called “final-mile drivers” needed to fulfill sales. That said, there are continued pockets of retail optimism for the year to come, as expressed by the head of L’Oreal, who foresees a “roaring 20s rebound,” and the CEO of TJX, who said on Wednesday (Feb. 24) that he’s counting on spate of “revenge shoppers” once the pandemic has cleared.