Why Wayfair Stock Was Down by Nearly 30% This Week

What happened

One of the worst-performing specialty retail stocks across the past few trading days has been Wayfair (NYSE: W).

The online furniture and home goods outlet’s shares were down in excess of 26% week to date as of early Friday morning, according to data provided by S&P Global Market Intelligence. But that’s what happens when a high-profile peer makes a deep cut to its guidance just after an analyst slices their price target on your stock.

So what

The peer currently in hot water is high-end furniture and furnishings specialist RH, formerly known as Restoration Hardware.

The company updated its full-year 2022 guidance Wednesday just after market close. It wasn’t the kind of update investors like; RH now believes its revenue for the year will fall by 2% to 5% over the 2021 figure. That’s quite a comedown from the previous guidance of flat to 2% growth. It also happens to be the second revenue forecast cut in less than a month.

RH also revised downward its non-GAAP (adjusted) operating margin, although not as drastically. This is now anticipated to come in at 21% to 22%, against the previous estimate of 23% to 24%.

With such a drastic change in top-line outlook, RH got hammered by the market the following day; its shares closed nearly 11% lower. In sympathy, Wayfair also plunged into the red, as investors likely found it guilty by association.

Now what

Investors were also clearly affected by Wednesday’s price target cut by Loop Capital analyst Laura Champine, who now feels Wayfair stock is worth $40 per share. That’s far down from the previous tag of $70. Champine is maintaining a sell recommendation on the stock.

In a new research note, Champine wrote, “A slow replacement cycle is a key feature of the furniture industry, and we think Covid was a massive driver of pull forward furniture demand.” Additionally, the analyst believes consumers spent their stimulus money on home offices and school spaces, at least some of which will be phased out when and if the pandemic eases.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends RH. The Motley Fool recommends Wayfair. The Motley Fool has a disclosure policy.

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