These 2 falling stocks are warning signs for the market

Thursday produced a complete about-face in market sentiment, as investors appeared to reverse their thinking process on the longer-term impact of Federal Reserve rate hikes. At the end of the day on Thursday, the Dow Jones Industrial Average (^ DJI -0.24%), S&P500 (^GSPC -0.19%)and Nasdaq Compound (^IXIC -0.39%) had all fallen more than their previous day’s gains, falling back to their worst levels of 2022.

Hint

Percent Daily Change

Daily point change

Dow

(3.12%)

(1,063)

S&P500

(3.56%)

(153)

Nasdaq

(4.99%)

(647)

Data source: Yahoo! Finance.

Many top tech stocks have had big hits, but investors have come to take for granted that these companies will be first on the chopping block on bad days for the broader market. However, the declines for Wayfair (W 1.35%) and Cabbage growers market (SFM 2.26%) the next earnings were a bit more troubling because their businesses focus on consumers.

The declines in these stocks suggest investors fear a recession will hurt people’s ability to buy not just discretionary items, but more expensive commodities as well. It could mean new problems for a part of the economy that so far looked pretty healthy.

Image source: Getty Images.

Wayfair faces steep declines

Shares of Wayfair fell more than 25% on Thursday. The online seller of furniture and other home accessories announced difficult financial results and also announced the transition of its chief financial officer.

Wayfair’s first quarter numbers weren’t pretty. Net revenue fell nearly 14% year over year to $2.99 ​​billion. US revenue fell 10%, and Wayfair’s international business fared even worse, posting a 31% decline.

Wayfair’s net income went from a modest gain the previous year to a substantial loss of $319 million, or $3.04 per share. Even after adjusting for some one-time factors, adjusted losses of $1.96 per share for the period were disappointing.

Wayfair saw deterioration in several key business metrics. The number of active customers plunged 23% to 25.4 million at the end of the quarter. Although net revenue per customer increased 13% to $520, orders per customer fell from 1.98 a year ago to 1.87 in the last period. Order shipments fell 29% to 10.4 million, with repeat orders falling 26% to 8.1 million.

Wayfair has seen explosive growth during the COVID-19 pandemic, but now the company appears to be readjusting to more normal conditions. Where the company will end up remains to be seen, but investors are not happy with the company’s trajectory so far.

Germs wither

Elsewhere, shares of Sprouts Farmers Market also fell sharply, losing 24%. The specialty grocer’s first quarter results posted small gains, but slowing growth disappointed many investors.

Sprouts was unable to generate too many increases in sales and profits. Net sales of $1.64 billion increased 4% year over year, driven in part by a 1.6% increase in same store sales compared to the same period last year .

Sprouts opened five net new stores in the past three months and now has a network of 379 stores in 23 states. Earnings were $0.79 per share, down from $0.70 per share a year earlier.

Worse still, CEO Chip Molloy has warned that customers are cutting back on purchases due to inflationary pressures, and the executive doesn’t see those pricing pressures abating in the near future. Molloy guided investors to the lower end of the range of advice Sprouts had provided recently, expecting comps to remain flat for the second quarter and earnings to fall between $0.49 and $0.53. per share.

Sprouts sells key items for shoppers, but they usually have the option of swapping them out with more traditional grocers. If that happens, it could mean more bad news for Sprouts in the long run.