Vulcan Value Partners Sold Wayfair (W) Due to Uncertain Future Free Cash Flows

Investment management company Vulcan Value Partners recently released its second quarter 2022 investor letter. A copy of the same can be downloaded here. The firm carries five strategies and all these strategies trailed their benchmark index in the second quarter of 2022. The fund’s Large-Cap Composite returned -28.4% net of fees and expenses, Small Cap Composite returned net -25.8%, Focus Composite returned net -22.8%, Focus Plus composite returned net -22.9% and All Cap Composite returned net -29.1% during the quarter. You can check the top 5 holdings of the fund to know its best picks in 2022.

Vulcan Value Partners sold stocks like Wayfair Inc. (NYSE:W) in the second quarter. Headquartered in Boston, Massachusetts, Wayfair Inc. (NYSE:W) is an e-commerce company that operates worldwide. On August 23, 2022, Wayfair Inc. (NYSE:W) stock closed at $54.05 per share. One-month return of Wayfair Inc. (NYSE:W) rose to 10.84% and its shares lost 81.10% of their value over the last 52 weeks. Wayfair Inc. (NYSE:W) has a market capitalization of $5.74 billion.

Here is what Vulcan Value Partners specifically said about Wayfair Inc. (NYSE:W):

“We sold Wayfair Inc. (NYSE:W) during the quarter. It was a mistake. Wayfair Inc. is a leading e-commerce retailer for home goods and furnishings. Prior to our initial investment, we watched Wayfair build its business. As customers increased, revenue per customer expanded, and the company grew year over year. Wayfair invested heavily in its logistics network to handle big and bulky furniture from freight forwarding all the way to last mile delivery. We believed this created a positive flywheel. Wayfair became a more cost-effective distribution channel for suppliers, reduced delivery times to customers, and improved its customer shopping experience. Nonetheless, at the time, Wayfair did not produce free cash flow, and therefore it did not qualify for investment. During the pandemic, consumer behavior changed, and as a result, the company’s margins and free cash flow reached levels previously not expected for many years to come. We believed the competitive dynamics had changed for the long term in favor of Wayfair and the company qualified for investment. We initially purchased Wayfair in the fourth quarter of 2020. Although we knew Wayfair would face difficult comparisons post-COVID, we believed the company would continue to generate free cash flow and its value would continue to be stable. The recent combination of persistently high levels of inflation, a possible recession, and the company’s commitment to continue investing heavily for future growth has resulted in negative free cash flow. We believe sustainable free cash flow is the key ingredient to long-term value stability and the company’s future free cash flow is in question. Therefore, we followed our discipline and sold Wayfair.”

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Wayfair Inc. (NYSE:W) is not on the list of 30 Most Popular Stocks Among Hedge Funds. As per our database, Wayfair Inc. (NYSE:W) was held by 22 hedge fund portfolios at the end of the first quarter, which was 27 in the previous quarter.

We discussed Wayfair Inc. (NYSE:W) in another article and shared Alphyn Capital Management’s views on the company in the previous quarter. You can check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other prominent investors.

Disclosure: None. This article is originally published at Insider Monkey.