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Best Idea Short: Wayfair (We Think $W Can Go Below $20)  - z way

W (Best Idea Short) With More Layoffs

Wayfair cutting another ~1000 employees, about 5% of its workforce, just ~6months after cutting 870.  Total headcount reduction of about 1750 or 10%.

It had to happen. The company has a serious cash burn problem and the cost structure needs to be right sized rapidly just to avoid running out of cash.  

The company says the actions are savings about $750mm in labor (with a little less than half done in summer). The company in 2022 is trending to about -$420mm in EBITDA and -$800mm in operating profit this year, while business remains under pressure and top line could be negative again in 2023. 

The SG&A base here (ex advertising and customer service) is nearly $2.2bn The company is guiding to $1.4bn in total cost savings, we’ll have to see how much of that gets offset from new investments, and how back revenue/gross margins can get in a consumer recession.

Rapid cost cuts aren’t going to be good for demand and driving growth.

The home category remains under pressure. We expect the consumer to continue to slow discretionary spending.  W needs cash, we wouldn’t be surprised to see an equity deal here. With $3bn in total debt and rapid cash burn the company won't be able to cut fast enough to get to profitability before the cash runs out.  

We suspect there will be more job cuts at W by the end of summer. We think this stock can head well below $20. Best Idea Short.