Wayfair stock climbs after investment conference comments
January 10, 2017,
ORLANDO, Fla. — Wayfair’s stock shot up Tuesday following comments by CEO Niraj Shah about the retailer’s profitably goals, expansion plans and the potential impact of Trump administration trade policies.
In a recording of the presentation, Shah began his answer by talking about the start of the business as CSN Stores in 2002, when he and co-founder Steve Conine were “bootstrapping it” and operating profitably and free cash flow were positive for a decade. He said the notion of being free cash positive was beneficial for a few reasons and good discipline for a company.
The periods when Wayfair lost money on a free cash flow basis in 2011 and 2012 and again in 2014, and 2015 “are really because there’s a huge opportunity that we want to invest against, but not really because we’re terribly comfortable keeping that nature of losing money as an ongoing thing,” he said.
Shah, told the audience that Wayfair is very interested in getting to free cash flow positive on a sustainable basis, “and we think we’re very close to that,” although he didn’t’ elaborate on a time frame. In his opening remarks during the session, he noted business for the five-day holiday period--from Thanksgiving Day through Cyber Monday--and the "overall holiday was quite strong."
He also talked about the e-commerce company’s growing international business and the doubling of a $250 billion U.S. market opportunity that it sees in Canada and Europe. Today and for a while, Europe means the United Kingdom and Germany to Wayfair, he said. But eventually, after those markets are developed, the company likely will move on to adjacent markets in Austria, Switzerland and Ireland, and then methodically pick up additional European countries one at a time, he said.
When asked about the possibility of a border-adjusted-tax policy--presented by Republican leaders--that effectively could place a tax on imports, Shah said it wouldn’t likely be a good move for the U.S. or the U.S. consumer, but the net effect on Wayfair would probably be “neutral to slight positive.”
Shah isn’t sure the tax would happen (partly because of the retribution that would come to large U.S. companies that export goods), but assuming it comes to pass as it has been described, he noted several ways Wayfair is protected.
For starters, it does not carry inventory and is not an importer of record, but rather buys from importers. Total cost of goods, he said, equated to about 75% of Wayfair’s revenue dollars, but by the time you whittle it down to just the imported goods, that percentage is much less, and a new tax would probably equate to about a 6% increase on those imported items.
That’s not enough to stimulate a move in production from foreign shores to the U.S., he said. But at the same time, it would have to be passed on to the consumer, increasing revenue on one hand but dinging it on the other with a decrease in demand.
Another possible positive for Wayfair Shah noted, was that consumer concerns about higher prices would probably stimulate online shopping as it did through the financial crisis of 2008 and 2009, when some consumers shed their fear and opened up to online exploration in search of value.
Some of Wayfair’s low-cost suppliers would do better than others, but that’s fine for Wayfair, he suggested, adding that’s “part of the beauty of not carrying inventory and having such a broad supply base.”