As one of the latest companies to announce a big round of layoffs, Wayfair (NYSE:W) is making headlines today and investors are closely watching W stock. That’s because Wayfair layoffs have resulted in a surge in the company’s valuation, with W stock trading more than 20% higher on the news.
The furniture retailer will reportedly cut approximately 1,750 workers as part of a widespread cost-cutting plan. This restructuring plan appears to be Wayfair’s attempt to bolster its cost structure heading into what the company sees as a likely recession on the horizon.
The company’s CEO has noted that the company needs to right-size to become more efficient in this environment. Accordingly, investors are clearly taking a bullish view of this stance, bidding up shares in today’s session.
Additionally, this is the second round of layoffs for the company. Earlier last year, the company cut around 870 jobs, or roughly 5% of its workforce.
Let’s dive into what investors should make of these deeper cuts right now.
Wayfair Layoffs Lead to Soaring Valuation
Investors may have noticed a trend lately. Company X announces a round of layoffs, and its stock price surges. Implicitly, there’s an inherent “green light” for management teams and boards everywhere to become more cost-efficient.
Thus, while this news is certainly not welcome for the workers at Wayfair, it’s clearly good for business. Investors appear to be taking the view that a cautionary approach is needed, given the macro uncertainty right now.
That said, the fact that this is Wayfair’s second round of layoffs is something I wasn’t sure would be viewed so positively. Generally speaking, many investors want to see one round of layoffs, followed by a focus on execution and operational excellence. However, this plan also includes a more sweeping organizational restructuring, which may be necessary, given the increased uncertainty in the retail landscape.
Wayfair should see annualized savings of around $1.4 billion, despite taking a near-term charge for these layoffs. For a company that’s struggling to be profitable right now, that’s what investors clearly want to hear.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
