The Ratings Game: Wayfair says tariffs have raised prices and held back shoppers but analysts aren’t buying it

This post was originally published on this site

Online home goods seller Wayfair Inc. says import tariffs have raised prices for the merchandise it sells, and made shoppers more cautious about making the purchase.

“Since the beginning of the year more than 90% of our suppliers who are subject to China tariffs have raised wholesale prices, which have resulted in higher retail prices,” said Michael Fleisher, W, +1.81%  chief financial officer, on the earnings call, according to a FactSet transcript.

“As retail prices on the site fluctuate, we observe that our customer’s consideration cycle gets disrupted and is effectively lengthened.”

Chief Executive Niraj Shah said the volatility will last for the next several months.

“We believe this is temporary in nature since our machine learning algorithms will adjust to our site experience as customer preferences change, but it does inject near-term volatility,” he said.

President Trump has imposed tariffs on more than half of the $500 billion worth of U.S. imports from China and a further 15% tariff is due to go into effect on another $160 billion worth of imports from December 15.

Hasbro Inc. HAS, -0.89%   also said tariffs had an impact on the company’s results, though its chief rival, Mattel Inc. MAT, -0.42%   , said tariffs had no effect.

Read: Hasbro says tariffs are to blame for earnings miss

Also: Mattel, unlike Hasbro, says import tariffs only had a small impact on quarterly results

Wayfair reported a wider-than-expected loss in the third quarter, but revenue was a beat. Shares are down 29.1% for the week.

Not all analysts are buying the tariff explanation.

“Wayfair has a very powerful consumer offering, but profitability remains even more elusive,” wrote KeyBanc Capital Markets analysts led by Edward Yruma. “A slowdown in growth was attributed to the impact of tariffs, but we are increasingly concerned that growth may be entering a more mature phase.”

KeyBanc rates Wayfair stock sector weight.

JPMorgan isn’t buying it either. They say customer acquisition costs have increased, active orders per customer have been stagnant, and Wayfair is particularly sensitive to a slowdown in the home category.

“[S]ince peaking in 2015 (when sales outgrew advertising expense), the gap between sales and advertising growth had deteriorated each year with these rates the same in 2018 but advertising outgrowing sales growth in 2019,” analysts said.

See: Amazon eliminating the $14.99 fee for grocery delivery to Prime members

Advertising spend for the quarter was $282 million, a 35 basis-point increase year-over-year.

JPMorgan rates Wayfair stock neutral with a $96 price target, slashed from $151.

Wedbush thinks competition with Inc. AMZN, +0.83%   is also a factor. Analysts also note the increase in customer acquisition costs.

“Despite deeper penetration into emerging categories, orders per customer growth inflected negatively in the quarter, a yellow flag,” wrote analysts led by Seth Basham. “At the same time, new customer activations growth slowed, meaning the company’s ‘leaning in’ on advertising spend for customer acquisition in recent quarters may not be paying off.”

Orders per customer was 1.85 for the third quarter, nearly flat with 2018, which was 1.84.

Wedbush rates Wayfair stock neutral with a price target of $85, down from $130 previously.

Wayfair stock is down 12.8% over the last year while the Amplify Online Retail ETF IBUY, -0.08%   has gained 6.7% and the S&P 500 index SPX, +0.97%   is up 11.8%.