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The Ratings Game: Wayfair shares sink after customer data declines drive downgrade

Wedbush analysts note December challenges for both Wayfair and and Williams-Sonoma in the research group's latest notes Read More...

Wayfair Inc. shares sank 8.6% in Wednesday trading after Wedbush analysis of customer data drove a downgrade of the stock to neutral from outperform.

Wedbush slashed its price target to $160 from $290.

Analysts said there have long been “yellow flags” around metrics such as net customer additions and orders per customer, which have been trending below pre-pandemic levels.

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“While 4Q21 guidance suggested that these issues would persist, we believe pressure has intensified due not only to softer category sales trends in December (and despite consumers’ renewed reluctance to shop at stores due to Omicron), but also due to a less attractive value proposition and supply chain challenges,” analysts led by Seth Basham wrote.

“Based on our updated analysis, we believe that sales per customer in the 2020 pandemic cohort has reverted below the normalized 2019, while sales per customer in pre-pandemic cohorts also has weakened vs. the company’s commentary early in 2021 that it had stabilized.”

The data suggested that Wayfair W, +2.95% is having trouble attracting quality customers, which, along with other factors, could put pressure on quarterly results.

“Wayfair’s results in 2021 have been underwhelming,” the note said.

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Wedbush also cut Williams-Sonoma Inc.’s WSM, +2.46% price target to $190 from $250, though it maintained its outperform stock rating. The home retailer was removed from Wedbush’s “Best Ideas” list, replaced with Dick’s Sporting Goods Inc. DKS, +2.47% Williams-Sonoma shares sank 7.2% in Wednesday trading.

Analysts said the company’s same-store sales have slowed since the company last reported quarterly earnings and cited a New York Post report that the company laid off many seasonal customer service and logistics employees before Christmas, which is earlier than usual. They also noted higher promotions year-over-year in December.

Williams-Sonoma’s portfolio of brands includes the namesake chain, Pottery Barn and West Elm.

“While furniture and home furnishings category sales remained robust through November based on Census Bureau data, sales likely slowed in December due to the rise of the Omicron variant and as many shoppers pulled holiday buying forward due to news headlines warning of supply shortages,” analysts wrote.

“Williams-Sonoma should be advantaged by its strong brands and its omnichannel platform but is not immune to these category-wide pressures.”

Wayfair stock has fallen 27.2% over the last year. Williams-Sonoma has rallied 47.2%. And the benchmark S&P 500 index SPX, +0.26% has gained nearly 26% for the period.

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