Wayfair outlook revised to positive by S&P on EBITDA growth

Investing.com -- S&P Global Ratings has revised its outlook on Wayfair LLC to positive from stable, citing the online furniture retailer’s stronger-than-expected financial performance.

The rating agency maintained its ’B+’ issuer credit rating on Wayfair while assigning a ’BB-’ rating to the company’s new senior secured notes, which will be used to repay portions of its 2027 and 2028 convertible notes and for general corporate purposes.

Wayfair’s operating results in the second and third quarters of 2025 exceeded S&P’s expectations, with revenue increasing nearly 5% year-over-year and adjusted EBITDA rising 35%. The company’s EBITDA margin expanded by approximately 140 basis points.

S&P now forecasts Wayfair’s leverage will be 3.4x for 2025, significantly better than its previous forecast of 4.3x. The company’s last-twelve-months adjusted debt to EBITDA ratio was about 3.7x.

The rating agency attributed Wayfair’s outperformance to several factors, including its marketplace business model that keeps prices competitive despite inflation and tariff pressures. While Wayfair isn’t directly exposed to tariffs, most of its suppliers are located overseas and may eventually need to raise prices to offset tariff headwinds.

Wayfair’s diverse retail outlets with different branding for various price points have also benefited the company, as higher-income consumers continue spending while lower-income shoppers have reduced purchases amid economic softening.

The company’s online marketing strategy, with increased emphasis on social media platforms like TikTok and Instagram, along with GenAI platforms such as ChatGPT and Gemini, has boosted sales through improved customer conversion.

S&P believes Wayfair may have reached a tipping point in its operating model that will allow continued margin expansion alongside revenue growth. The company has invested significantly in logistics and digital infrastructure, creating an established distribution network and cloud-based tech platform that should enable it to maintain stable corporate-level expenses.

A rating upgrade depends on Wayfair maintaining its strong performance over the next 12 months amid ongoing uncertainty. S&P noted several risk factors, including the highly discretionary nature of furniture and home goods, potential inflation from tariffs affecting consumer confidence, and the category’s sensitivity to home sales, which have been slow due to higher interest rates.

The rating agency also highlighted increasing competition in newer marketing channels from larger retailers like Amazon and Walmart, which could raise Wayfair’s customer acquisition costs.

S&P could raise its rating if Wayfair develops a sustained track record of improving performance and maintains credit metrics including adjusted leverage below 4.0x. Conversely, the outlook could revert to stable if operating performance deteriorates or if adjusted leverage exceeds 4.0x.

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