Q4 2023 Wayfair Inc Earnings Call

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Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wayfair 4th Quarter 2023 Earnings Release and Conference Call. All lines have been placed on mute to prevent any background noise.

Good morning, My name is Rob and I will be your conference operator today at this time I would like to welcome everyone to the wafer fourth quarter 2023 earnings release and conference call.

<unk> had been placed on mute to prevent any background noise. After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again prestige star one.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. James Lamb, Head of Investor Relations and Treasury, you may begin your conference. Good morning, and thank you for joining us. Today, we will review our fourth quarter 2023 results. With me are Niraj Shah, co-founder, chief executive officer, and co-chairman. Steve Conine, Co-Founder and Co-Chairman, and Kate Gulliver, Chief Financial Officer and Chief Administrative Officer.

James Lam head of Investor Relations and Treasurer, you May begin your conference.

James Lam: Good morning, and thank you for joining US today, we will review our fourth quarter 2023 results.

James Lam: With me are nearing Shah cofounder, Chief Executive Officer, and co chairman.

James Lam: Steve Conine co founder and co chairman.

James Lam: And Kate Gulliver, Chief Financial Officer, and Chief administrative officer.

James Lamb: We will all be available for Q&A following today's prepared remarks. I would like to remind you that our call today will consist of forward-looking statements, including, but not limited to, those regarding our future prospects, business strategies, industry trends, and our financial performance, including guidance for the first quarter of 2020. All forward-looking statements made on today's call are based on information available to us as of today's date.

Speaker Change: We will all be available for Q&A following today's prepared remarks.

Speaker Change: I would like to remind you that our call today will consist of forward looking statements, including but not limited to those regarding our future prospects business strategies and industry trends.

Speaker Change: And our financial performance, including guidance for the first quarter of 2024.

Speaker Change: All forward looking statements made on today's call.

Speaker Change: Based on information available to us as of today's date.

James Lamb: We cannot guarantee that any forward-looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Our 10k for 2023 and our subsequent SEC filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. Except as required by law, we undertake no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events, or otherwise. Also, please note that during this call, we will discuss certain non-GAAP financial measures as we review the company's performance, including adjusted EBITDA, adjusted EBITDA margin, and free cash. These non-GAAP financial measures should not be considered replacements for, and should be read together with, GAAP results. Please refer to the Investor Relations section of our website to obtain a copy of our earnings release and investor presentation, which contain descriptions of our non- This call is being recorded, and a webcast will be available for replay on our IR website. I would now like to turn the call over to Niraj.

Speaker Change: We cannot guarantee that any forward looking statements will be accurate.

Speaker Change: Although we believe that we have been reasonable in our expectations and assumptions.

Our 10-K for 2023.

Speaker Change: And our subsequent SEC filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward looking statements made today.

Speaker Change: Except as required by law.

Speaker Change: We undertake no obligation to publicly update or revise any of these statements.

Speaker Change: Whether as a result of any new information future events or otherwise.

Speaker Change: Also please note that during this call we will discuss certain non-GAAP financial measures as we review the company's performance, including adjusted EBITDA, adjusted EBITDA margin and free cash flow.

Speaker Change: These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results.

Speaker Change: Please refer to the Investor Relations section of our website to obtain a copy of our earnings release and Investor presentation, which contains descriptions of our non-GAAP financial measures and reconciliations of any non-GAAP measures to the nearest comparable GAAP measures.

Speaker Change: This call is being recorded and a webcast will be available for replay on our IR website.

Nourish: I would now like to turn the call over to nourish. Thanks, James and good morning, everyone. We're excited to be with you today to discuss our fourth quarter results and recap 2023, Q4 was one more definitive step on our profitability journey as we generated a 3% adjusted EBITDA margin, even in a difficult macro environment.

Niraj S. Shah: Thanks, James, and good morning, everyone. We're excited to be with you today to discuss our fourth quarter results and recap 2023. Q4 was one more definitive step on our profitability journey, as we generated a 3% adjusted EBITDA margin, even in a difficult macro environment. This was our third consecutive quarter of positive adjusted EBITDA and free cash flow and a reflection of the immense progress we achieved across the entire year. In fact, on a revenue base that largely mirrored 2022, our free cash flow in 2023 improved by over $1 billion. As we exited 2022, we anchored ourselves around three core initiatives, nailing the basics, driving customer and supplier loyalty, and cost efficiency. Over the course of 2023, we systematically executed on all three fronts.

Nourish: This was our third consecutive quarter of positive adjusted EBITDA and free cash flow and a reflection of the immense progress we achieved across the entire year in fact on a revenue base that largely mirrored 2022, our free cash flow in 2023 improved by over $1 billion.

As we exited 2022, we anchored ourselves around three core initiatives nailing, the basics driving customer and supplier loyalty and cost efficiency.

Nourish: Over the course of 2023, we systematically executed on all three fronts.

Niraj S. Shah: Our efforts to nail the basics and drive customer and supplier loyalty led to a large improvement in our core recipe across availability, speed, and price competitiveness. The improvements across our offering were directly responsible for the step-up we saw in loyalty, which manifested in our robust share expansion over the last year and, by the fourth quarter, a return to year-over-year growth in our active customer count. That engagement was driven in part by our progress on the third initiative, a meaningful evolution in our cost structure with savings spanning labor operations and every other line of our P&L, which allowed us to reinvest in our customer experience. We've consistently shared that those same core initiatives would carry forward into 2024, and you've already seen the results of that play out.

Nourish: Our efforts to nail the basics and drive customer and supplier loyalty led to a large improvement in our core recipe across availability speed and price competitiveness.

Nourish: Improvements across our offering we are directly responsible for the step up we saw in loyalty, which manifested in a robust share expansion over the last year and by the fourth quarter, a return to year over year growth interactive customer cat.

Nourish: That engagement was driven in part by our progress on the third initiative a meaningful evolution in our cost structure with savings spanning labor operations in every other line of our P&L.

Nourish: Which allowed us to reinvest in our customer experience.

Nourish: We've consistently shared that the same core initiatives would carry forward into 2024 and you've already seen the results of that play out. If you haven't had the chance I encourage you to take a look at our shareholder letter that was published alongside our earnings results earlier this morning.

Niraj S. Shah: If you haven't had the chance, I'd encourage you to take a look at our shareholder letter that was published alongside our earnings results earlier this morning. Last year, we saw our team unlock large productivity gains as focused execution against our top ideas met reduced friction and less internal bureaucracy. As we look at the evolution and composition of our teams throughout 2023, it became increasingly clear to us that there was more that could be done to increase productivity. We realize that many of our teams are still over-indexed to middle and upper-level managers in proportion to the more execution-focused team members that are the foundation of each group. Late last year, we started an exercise involving a number of our senior leaders to look at each team across the organization and answer some simple questions. For example, how would we maximize the efficiency of this team? How many people would be on it?

Nourish: Last year, we saw our team unlock large productivity gains is focused execution against our top ideas met reduced friction and less internal bureaucracy.

Nourish: As we look at the evolution and composition of our teams throughout 2023, it became increasingly clear to us that there was more that could be done to increase productivity.

Nourish: We realize that many of our teams were still over indexed to middle and upper level managers in proportion to the more execution focused team members that are the foundation of each group.

Nourish: Late last year, we started an exercise involving a number of our senior leaders to look at each team across the organization and answer some simple questions. How would we maximize the efficiency of this team how many people would be on it what would the appropriate level and it looked like when we actually prioritize all of the activities the team does.

Niraj S. Shah: What would the appropriate leveling look like? Would we actually prioritize all the activities the team does? And then we answered as if we were starting from a blank slate. We took this work and used it in conjunction with the effort we started in the summer of 2022 to return to our lean and fit self by reorganizing around an ideal structure. While this is not the work anyone enjoys, being lean is a key part of our culture and partly why we think we've out-executed others over the last 20 years. The key here is that we're comfortable being frugal around headcount. We're excited to welcome a group of new college graduates this summer, and we'll allocate those hires to the key teams and efforts that will provide the biggest gains, all the while growing the foundational base of talent in the company who can rise through the ranks in the years to come.

Nourish: And then we answered as if we were starting from a blank slate.

Nourish: We took this work and use it in conjunction with the effort. We started in the summer of 2022 to return to our lean and fit self by reorganizing around an ideal structure.

Nourish: While this is not the work anyone enjoys being lean is a key part of our culture and partly why we think we've out executed others over the last 20 years.

The key here is that we're comfortable being frugal around head count.

We're excited to welcome a group of New College graduates this summer and will allocate those hires to the key teams and efforts that will provide the biggest gains all the while growing the foundational base of talent in the company, who could rise through the ranks in the years to come.

Niraj S. Shah: This enables us to move forward with an ambitious set of growth initiatives while, at the same time, seeing our team thrive in a workplace where they have fewer obstacles, fewer meetings, and fewer boxes to tick off to bring these initiatives to fruition. Many of you asked if the decision was made in reaction to what we're seeing from the macro, and the answer is no.

Nourish: This enables us to move forward against an ambitious set of growth initiatives, while at the same time see our team thrives in a workplace, where they have fewer obstacles fewer meetings and fewer boxes to tick off to bring these initiatives to fruition.

Nourish: Many of you asked if the decision was made in reaction to what we're seeing from the macro and the answer is no.

Niraj S. Shah: Our intent was to address the structure of our organization in a way that will unlock productivity gains, not just for one or two quarters but for years to come. However, as we shared in our press release from last month, our category does remain challenged with softness persisting through the start of the year. I was recently at the furniture market in Las Vegas and had the opportunity to speak with many of our suppliers. We heard that January was weak, though a short bout of extreme weather was clearly one factor.

Nourish: What's the address the structure of our award in a way that will unlock productivity gains not just for one or two quarters, but for years to come.

Nourish: However, as we shared in our press release from last month, our category does remain challenged with softness persisting through the start of the year.

Nourish: I was recently at the furniture market in Las Vegas, and had the opportunity to speak with many of our suppliers.

Nourish: We heard that January was weak those short bout of extreme weather was clearly one factor.

Niraj S. Shah: While uncertainty remains around the timing of a recovery, we are well positioned to see meaningful upside from a favorable climate around the home and housing rebound. And we continue to see our own growth well outpacing the category. It's important to call out that our success is not exclusively against smaller, home-focused competitors. We're also seeing share gains against some of the biggest retailers in the country. I mentioned earlier that we've been able to win through execution gains driven by a more nimble, focused team, and we've been encouraged to see that play out across the organization. One area that I'd like to highlight today is our UK business, where we've seen a noteworthy inflection and share over the past year. The UK is a key market for us with an addressable market estimated to be in the $60 billion range. While the competitive ecosystem has strong similarities to the U.S., with a mix of a few multinationals, a number of large multi-category retailers, several homeware specialists, and a long tail of smaller competitors in various niches within the category, the actual list of names looks almost entirely different.

Nourish: While uncertainty remains around the timing of a recovery, we are well positioned to see meaningful upside as the spending climate around the home and housing rebounds, and we continue to see our own growth well outpacing the category.

Nourish: It's important to call out that our success is not exclusively against smaller home focused competitors. We're also seeing share gains against some of the biggest retailers in the country.

Nourish: I mentioned earlier that we've been able to win through execution gains driven by a more nimble focused team and we've been encouraged to see that play out across the organization.

Nourish: One area that I'd like to highlight today is our UK business, where we've seen a noteworthy inflection in share over the past year.

Nourish: The UK is a key market for us with an addressable market estimated to be in the $60 billion range.

Nourish: While the competitive ecosystem has strong similarity to the U S with a mix of a few multinationals a number of large multi category retailers several homewares specialists and a long tail of smaller competitors in various niches within the category.

Nourish: The actual list of names looks it almost entirely different.

Niraj S. Shah: The market fragmentation works to our advantage, as we are one of the few skilled players that focuses exclusively on the home. Over the past year, we've driven healthy market share growth on the back of considerable availability improvements, double-digit percentage growth, and small parcel speed badging, and meaningfully more competitive prices. This was fueled by our operational efficiency initiatives that drove considerable savings dollars, some of which we were able to pass back to our customers. Our aided awareness in the UK is nearly as high as the US, and we've seen an encouraging increase in customer satisfaction scores since the same time last year. Just as we do in Canada and Germany, we take a country-specific approach to servicing customers in the United Kingdom.

Nourish: The market fragmentation works to our advantage as we are one of the few scaled players that focus is exclusively on the home.

Nourish: Over the past year, we've driven healthy market share growth on the back of considerable availability improvements double digit percentage growth in small parcels speed badging and meaningfully more competitive prices.

Nourish: This was fueled by our operational efficiency initiatives that drove considerable savings dollars some of which we were able to pass back to our customers.

Nourish: Our aided awareness in the U K is nearly as high as the U S and we've seen an encouraging increase in customer satisfaction scores since the same time last year.

Nourish: Yeah.

Nourish: Just as we do in Canada, and Germany, we take a country specific approach to servicing customers in the United Kingdom.

Niraj S. Shah: Our creative is specifically built to emphasize the UK tone of voice along with using UK homes in our television ads, which you can view on our UK-specific social channels. Leveraging our strength in logistics and our six UK Wayfair delivery terminals. We bring our U.K. customers a best-in-class fulfillment experience with services like scheduled delivery and white glove upgrades, while also opening up a wider selection from suppliers based in continental Europe. We find that UK competitors frequently have much lower levels of selection, which makes our endless aisle even more compelling and positions Wayfair as an unparalleled option in the market. Now, before I hand it over to Kate, I want to take a few minutes to address three of the topics around which we've heard the most interest. Let me start with the Red Sea and ocean cargo situation, which we've gotten many questions about over the past couple of months. Like many others, we've seen some supply chain disruptions, especially for our product being shipped to Europe through the Suez Canal. We've seen our carriers implement interim solutions, including routing shipments around the southern tip of Africa.

Nourish: Our creative is specifically built to emphasize UK tone of voice.

Nourish: Along with using UK homes in our television ads, which you can view on our UK specific social chance.

Nourish: Leveraging our strength in logistics, and our <unk> U K wafer delivery terminals.

Nourish: We bring our UK customers a best in class fulfillment experience with services like scheduled delivery and white glove upgrades, while also opening up a wider selection from suppliers based in Continental Europe.

Nourish: We find that U K competitors frequently have much lower levels of selection, which makes our endless aisle, even more compelling and positions wafer is an unparalleled option in the market now.

Speaker Change: Now before I hand, it over to Kate I want to take a few minutes to address three of the topics around which we've heard the most interest.

Kate Gulliver: Let me start first with the Red Sea and Ocean cargo situation, which we've gotten many questions about over the past couple of months.

Kate Gulliver: Like many others, we have seen some supply chain disruption.

Kate Gulliver: Especially for our product being shipped to Europe through the Suez Canal we've.

Kate Gulliver: We've seen our carriers implement interim solutions, including routing shipments around the southern tip of Africa.

Niraj S. Shah: It's important to keep in mind the minor scope of supply chain disruption this poses in contrast to the type of disruption we faced back in 2021. These new routes increase shipping time on a much more manageable basis than we faced in 2021, and availability across our catalog has seen no meaningful negative impact. Container prices have risen, but nowhere near the order of magnitude the industry faced a few years ago when rates reached $20,000 per container during the COVID crisis.

Kate Gulliver: It's important to keep in mind, the microscope of supply chain disruption. This poses in contrast to the type of disruption we faced back in 2021.

Kate Gulliver: These new routes increased shipping time on a much more manageable basis than we faced in 2021 and availability across our catalog has seen no meaningful negative impact.

Kate Gulliver: Container prices have risen, but nowhere near the order of magnitude the industry faced a few years ago when rates reached $20000 per container during the Covid crisis.

Niraj S. Shah: So the bottom line is that while rates have risen, it is something we're very capable of managing without issue, and we're ready to solve for that today. The second topic we've received questions on has been average order value. We know this has been tracked quite closely in recent quarters as inflationary pressures for many of those same supply chain challenges have now finally worked their way out of the inventory picture. Our AOV peaked in the second quarter of 2022, and by the end of that year, we began to see prices decline.

Kate Gulliver: So the net is that while rates have risen it is something we're very capable of managing without issue and we're ready solving for that today.

Kate Gulliver: The second topic, we've received questions on has been average order values.

Kate Gulliver: We know theres been tracked quite closely in recent quarters as the inflationary pressures for many of those same supply chain challenges have now finally work their way out of the inventory picture.

Kate Gulliver: Our <unk> peaked in the second quarter of 2022 and by the end of that year, we began to see prices decline.

Niraj S. Shah: We lapped those initial price drops in Q4 and saw that normalization process happening a bit more rapidly than we expected, due in part to makeshift. We still anticipate seeing some modest negative year-over-year comparisons during the front half of this year as we approach a fully normalized pricing state mid-year. The third topic we know investors are acutely focused on is the volatile macroeconomic backdrop, as the category quickly approaches a new record for a peak-to-trough correction. As we've said consistently, our focus is squarely on controlling the controllables.

Kate Gulliver: Wed lap those initial price drops this Q4 and saw that normalization process happening more rapidly than we expected.

Kate Gulliver: And part to mix shift.

Kate Gulliver: We still anticipate seeing some modest negative year over year comparisons during the front half of this year as we approach a fully normalized pricing state mid year. The third topic. We know investors are acutely focused on is a volatile macroeconomic backdrop as the category quickly approaches a new record for a peak to trough correction as.

Kate Gulliver: <unk> said consistently our focus is squarely on controlling the controllable.

Niraj S. Shah: You've seen the enormous progress we've made on our cost structure in the last 18 months. As part of our press release from January, we called out that we would expect to generate over $600 million of adjusted EBITDA this year on a hypothetical flat revenue scenario, which would translate to a margin north of 5%, putting us in a position to check the box on step two of our profitability ramp. And that only captures part of the substantial leverage we've unlocked in our model, with our true earnings profile further augmented by the reductions we've brought to bear on equity-based compensation and capital expenditure. With all the work we've done to optimize our fixed cost base, we'll see even further benefits to the bottom line when the category recovers, as the high margin on flow-through of each incremental dollar of revenue will drive up the margin rate quickly.

Kate Gulliver: You've seen the enormous progress we've made on our cost structure in the last 18 months as part of our press release from January we called out that we would expect to generate over $600 million of adjusted EBITDA. This year on a hypothetical flat revenue scenario, which would translate to a margin north of 5% putting us in a position to check the box on step two of.

Kate Gulliver: Profitability ramp.

Kate Gulliver: And then only captures part of the substantial leverage we've unlocked in our model with our true earnings profile further augmented by the reductions we brought to bear on equity based compensation and capital expenditures.

Kate Gulliver: With all the work we've done to optimize our fixed cost base, we'll see even further benefits to the bottom line when the category recovers as the high margin on flow through of each incremental dollar of revenue will drive up the margin rate quickly. It's important to reiterate that our work on cost savings Hasnt deterred, our focus on delivering a best in class shopping experience.

Niraj S. Shah: It's important to reiterate that our work on cost savings hasn't deterred our focus on delivering a best-in-class shopping experience. For example, we recently launched free white glove delivery on certain large parcel items, which we combined with deluxing, where our delivery agents unbox an item, inspect it for any flaws before the final delivery, and greatly enhance the customer experience by seamlessly setting the item up in the customer's home and making sure it's immediately ready for use. This is only possible to provide nationally with the scale and focus that Wayfair brings to the category.

Kate Gulliver: For example, we recently launched free White glove delivery on certain large parcel items, which we combined with <unk>, where our delivery agents unbox an item inspected for any flaws before the final delivery and greatly enhance the customer experience to seamlessly set the item up in the customer's home and make sure it's immediately ready for use.

Kate Gulliver: This is only possible to provide nationally with the scale and focus at wafer brings to the category and it's one of the many factors behind our returned to positive active customer year over year growth this quarter.

Niraj S. Shah: And it's one of the many factors behind a return to positive active customer year over year growth this quarter. We're eagerly looking forward to demonstrating the growth potential of our business as the category recovers. And I want to end by calling out some of the things I'm most excited for in 2024.

Kate Gulliver: We are eagerly looking forward to demonstrating the growth potential of our business as the category recovers and I want to end by calling out some of the things that I'm most excited for in 2024.

Niraj S. Shah: The first is the launch of our Wayfair-branded store this May. We're delighted to showcase the breadth and depth of our catalog in an entirely new way and can't wait for you to see it. The second is the launch of our new brand campaign, which will roll out in mid-March. We're bringing a vibrant refresh to the Wayfair brand with new merchandising, new marketing, and new ways to connect with our shop. The third is our plan to launch a tender-neutral loyalty program this fall, a new opportunity to create a differentiated shopping experience for our customers to keep them coming back time and time again. We have a lot of exciting things underway to help us keep driving compounding gain. With that, let me turn it over to Kate to walk you through our finances. Thanks Niraj and good morning everyone.

Kate Gulliver: The first is the launch of our wafer branded store this made with.

Kate Gulliver: We're delighted to showcase the breadth and depth of our catalog and an entirely new way and can't wait for you to see it.

Kate Gulliver: The second is the launch of our new brand campaign, which will roll out in mid March.

Kate Gulliver: We're bringing a vibrant refresh to the wafer brand with new merchandising, new marketing and new ways to connect with our shoppers.

Kate Gulliver: And the third is our plan to launch a tender neutral loyalty program. This fall a new opportunity to create a differentiated shopping experience for our customers to keep them coming back time and time again.

Kate Gulliver: We have a lot of exciting things underway to help us keep driving compounding gains.

Kate Gulliver: With that let me turn it over to Kate to walk you through our financials.

Kate Gulliver: And good morning, everyone, let's dive into our fourth quarter results beginning with revenue.

Kate Gulliver: Let's dive into our fourth quarter results beginning with revenue. Net revenue for the quarter came in at $3.1 billion, up 0.4% from the same period last year. Orders grew by 2.7% year over year, and we saw active customer growth return positive, up 1.4% year over year in the period. As Niraj discussed earlier, average order values came in higher than expected, down only 2.5% against the fourth quarter of last year, as we saw a boost from our performance in higher ticket classes during the holiday shopping season. I want to touch on the top line and macro context a bit before going further in the P&L.

Kate Gulliver: Net revenue for the quarter came in at $3 $1 billion.

Kate Gulliver: Europe, 4% from the same period last year.

Kate Gulliver: Orders grew by two 7% year over year, and we saw active customer growth returned positive up one 4% year over year in the period.

Kate Gulliver: As Noah discussed earlier average order values came in higher than expected down only two 5% against the fourth quarter of last year as we saw boost from our performance in higher ticket classes during the holiday shopping season.

Speaker Change: I wanted to touch on the topline and macro context, a bit before going further in the P&L.

Kate Gulliver: As Niraj shared in his remarks, our category broadly remains under pressure. Within this context, we are very encouraged by our ongoing share gains and our continued ability to outpace the category. We've started this year with the best share figures we've seen across all the data we have in our credit card panel back to 2018. As we've shared previously, the share capture can be attributed to the return and strength of our core recipe in Q4 of 22, as we improved availability, speed, and price, driving a best-in-class customer experience, all, of course, in the context of also aggressively managing our cost structure and driving profitability and free cash I'll now move further down the P&L.

Speaker Change: As <unk> shared in his remarks, our category broadly remains under pressure.

Speaker Change: Within this context, we are very encouraged by our ongoing share gains and our continued ability to outpace the category.

Speaker Change: We started this year with the best share figures, we've seen across all of the data we have in our credit card panel back in 2018.

Speaker Change: As we've shared previously the share capture can be attributed to the return in strength of our core recipe in Q4 of 'twenty two as we improved availability speed and price driving a best in class customer experience.

Speaker Change: All of course in the context of also aggressively managing our cost structure and driving profitability and free cash flow.

Speaker Change: I'll now move further down the P&L as I do please note that the remaining financials include depreciation and amortization, but exclude equity based compensation related taxes and other adjustments.

Kate Gulliver: As I do, please note that the remaining financials include depreciation and amortization but exclude equity-based compensation, related taxes, and other adjustments. I will use the same basis when discussing our outlook as well. Gross profit came in at 30.4% of net revenue, as we saw the typical effects of holiday seasonality play out in tandem with our own proactive reinvestment of some operational savings that we had achieved earlier in the year. Customer service and merchant fees were 4.2% of net revenue, and advertising was 12.2% of net revenue. Once again, there is a holiday effect here, which drove the sequential step-up in advertising dollars spent. Finally, Selling, Operations, Technology, General, and Administrative Costs, or SOTG&A, came in at $447 million for the fourth quarter.

Speaker Change: I will use the same basis, when discussing our outlook as well.

Speaker Change: Gross profit came in at 34% of net revenue as we saw the typical effects of holiday seasonality play out in tandem with our own proactive reinvestment is some operational savings that we had achieved earlier in the year.

Speaker Change: Customer service and merchant fees were four 2% of net revenue and advertising was 12, 2% of net revenue.

Speaker Change: Once again, there is a holiday effect here, which drove the sequential step up in advertising dollar spent.

Speaker Change: Finally, selling operations technology general and administrative costs for SRT G&A came in at $447 million for the fourth quarter.

Kate Gulliver: That was the impact of our work in 2022 and 2023 on driving fixed cost efficiency. We took SOTG&A down by over 13% in the full year 23 versus 2022. And that doesn't even capture the progress made on reducing capital expenditures and incremental dilution from equity-based compensation. Altogether, we had a third consecutive quarter of positive adjusted EBITDA at $92 million for the period, or a 3% margin on net revenue. Our US segment drove $131 million of adjusted EBITDA at a 4.8% margin on net revenue. Well, our international segment addressed a loss of $39 million, with less than half the loss we had in the same quarter a year ago. We ended the year with 1.4 billion of cash and equivalents and 1.9 billion of total liquidity when adding the capacity from our undrawn revolving credit. Net cash from operations was $158 million, which was offset by $96 million of capital expenditures for free cash flow of $62 million for the fourth quarter and our third quarter in a row of positive free cash.

Speaker Change: That was the impact of our work in 2022, and 2023 on driving fixed cost efficiency.

Speaker Change: He took SRT G&A down by over 13% in the full year 23 versus 2022 and that doesn't even capture the progress you made on reducing capital expenditures and incremental dilution from equity based compensation.

Speaker Change: Altogether, we had a third consecutive quarter of positive adjusted EBITDA and $92 million for the period or a 3% margin on net revenue.

Our U S segment drove a $131 million of adjusted EBITDA at a four 8% margin on net revenue, while our international segment adjusted EBITDA loss of $39 million with less than half the loss, we had in the same quarter a year ago.

Speaker Change: We ended the year with $1 4 billion of cash and equivalents and $1 9 billion of total liquidity when adding the capacity from our undrawn revolving credit facility.

Speaker Change: Net cash from operations was $158 million, which was offset by $96 million of capital expenditures for free cash flow of $62 million for the fourth quarter and our third quarter in a row of positive free cash flow.

Kate Gulliver: Now let's turn to guidance for the first quarter. Beginning with the top line, quarter to date, we are trending down in the mid single digits year over year, and we would expect the full quarter to end in a similar place. We are continuing to win share among consumers but see the weight of a category correction now rivaling the great financial crisis, dragging on top line growth. To put this in perspective, our analysis of various data sources shows the category declining year-over-year now for nine consecutive quarters, with the last six quarters exhibiting double-digit declines.

Speaker Change: Now, let's turn to guidance for the first quarter.

Speaker Change: Beginning with the top line quarter to date, we're trending down in the mid single digits year over year, and we would expect the full quarter to end in a similar place.

Speaker Change: We are continuing to win share among consumers, but see the weight of a category correction now rivaling the great financial crisis dragging on top line growth.

Speaker Change: To put this in perspective, our read of various data sources shows the category declining year over year now for nine consecutive quarters with the last six quarters exhibiting double digit contraction.

Kate Gulliver: Although the timing is inherently uncertain, when macro pressures on our category and interest rates eventually ease, we are set up to benefit meaningfully from revenue growth and profitability flows. Moving on to gross margins, we would continue to guide you to the 30 to 31 percent range as the appropriate place to model. As we've said for over a year now, we intend to be very tactical in our decisions around investing some of our gross margin back into the customer experience. In light of the volatile start to the year for the category, we anticipate that we will continue to prioritize those efforts. Customer service and merchant fees should be between 4% and 4.5% of net revenue, reflecting some of the cost takeout from the workforce realignment plan we enacted last month.

Speaker Change: So the timing is inherently uncertain when macro pressures on our category and interest rates. Eventually ease we are set up to benefit meaningfully on revenue growth and profitability flow through.

Speaker Change: Moving on to gross margin, we would continue to guide you to this 30% to 31% range is the appropriate place to model.

Speaker Change: As we said for over a year now we intend to be very tactical in our decisions around investing some of our gross margin back into the customer experience.

Speaker Change: In light of the volatile start to the year for the category. We anticipate that we will continue to prioritize those investments.

Speaker Change: Customer service and merchant fees should be between four and four 5% of net revenue, reflecting some of the cost take out from the workforce realignment plan. We enacted last month, we expect this to trend closer to the 4% Mark as a run rate the full savings by Q2.

Kate Gulliver: We expect this to trend closer to the 4% mark as we run rate the full savings by Q2, advertising should stay in an 11 and a half to 12 and a half percent range, and SOTG&A should be in a range of $410 to $420 million. Following this guidance through, we would expect adjusted EBITDA margins in the positive low single-digit range for Q1, which we would expect to be a low point both on a dollars and a margin basis for the full year. While we don't offer full-year guidance, I want to refer back to remarks we made on our third quarter call. It is critically important for us to deliver on our commitment to substantial adjusted EBITDA growth in 2025. We have multiple levers at our disposal to drive adjusted EBITDA independent of the top line.

Speaker Change: Advertising since day in an 11 five to 12, 5% range and S. O T G&A should be in a range of $410 million to $420 million.

Speaker Change: Following this guidance through we would expect adjusted EBITDA margins in the positive low single digit range for Q1 would.

Speaker Change: Where do we would expect to be a low point, both on a dollars and margin basis for the full year, while we don't offer full year guidance I want to refer back to remarks, we made on our third quarter call.

Speaker Change: It is critically important for us to deliver on our commitment of substantial adjusted EBITDA growth in 2024.

Speaker Change: We have multiple levers that are disposable to drive adjusted EBITDA independent of the top line.

Kate Gulliver: Even if the macro environment remains challenged across 2024, we have line of sight to full-year 2024 adjusted EBITDA growth north of 50% year over year. As you are modeling, it's worth bearing in mind that the first quarter is typically the period where we see an initial outflow of cash during the year, given our negative cash conversion cycle, which reverses as revenue builds in the spring. Now, let me touch on a few housekeeping items. You should expect equity-based compensation and related taxes of roughly $110 to $130 million, reflecting the healthy progress we've made on cost takeout. Depreciation and amortization of approximately $103 to $108 million, net interest expense of approximately $5 million, weighted average shares outstanding of approximately $120 million, and CapEx of approximately $80 to $90 million. As I wrap up, I want to spend a moment addressing the topic of capital structure planning as we look at the maturities coming due over the next couple of years.

Speaker Change: Even if the macro environment remains challenged across 2024, we have line of sight to full year 2024, adjusted EBITA growth north of 50% year over year.

Speaker Change: As you're modeling it's worth bearing in mind that the first quarter is typically the period, where we see an initial outflow of cash during the year, given our negative cash conversion cycle, which reverses as revenue builds into spring.

Speaker Change: Now, let me touch on a few housekeeping items.

You should expect equity based compensation and related taxes of roughly $110 million to $130 million, reflecting healthy progress you've made on cost take outs.

Speaker Change: Depreciation and amortization of approximately $103 million to $108 million net interest expense of approximately $5 million.

Speaker Change: Weighted average shares outstanding of approximately $120 million, and Capex, and an $80 million to $90 million range.

Speaker Change: As I wrap up I want to spend a moment addressing the topic of capital structure planning as we look out at the maturities coming due over the next couple of years.

Kate Gulliver: The meaningful improvement in our financial profile over 2023, in combination with the cost action we took last month, has given us broad optionality in managing the convertible notes that come due in the fall of this year and 2025. Looking at the macro and our own cash flow profile, we are prioritizing prudence. Our goal, as always, is to maximize value for Wayfair shareholders, and we are extensively evaluating the best timing and options to achieve that. Due to the hard work of the last year, we believe we've expanded our options. For example, the improvements in our pro forma financial profile enable us to pay down the notes in cash and remain opportunistic around any potential refinancing activity. Before moving into Q&A, I would like to return to what Niraj touched on earlier. 2023 truly was a year of meaningful progress for Wayfair.

Speaker Change: The meaningful improvement in our financial profile over 2023 in combination with the cost actions. We took last month has given us broad optionality in managing the convertible notes that come due in the fall of this year and 2025.

Speaker Change: Looking at the macro and our own cash flow profile. We are prioritizing prudency. Our goal as always is to maximize value to wafer shareholders and we are extensively evaluating the best timing and options to achieve this.

Speaker Change: Due to the hard work of the last year, we believe we've expanded our options at for example, the improvements in our pro forma financial profile enabled us to pay down the notes in cash and remain opportunistic around any potential refinancing activity.

Speaker Change: Before moving into Q&A I would like to return to what you just touched on earlier.

Speaker Change: 2023 truly was a year of meaningful progress for waste there.

Operator: Our market share gains and a return to active customer growth clearly show that we are the premier shopping destination for the home. This foundation positions us incredibly well to reaccelerate toward the growth algorithm we laid out at Investor Day once the category stabilizes. As importantly, we have made considerable improvements up and down the cost structure with a clearly demonstrated discipline that carries forward to 2024 and beyond. The combination of these elements, along with all of the exciting innovation we have in store, makes me more confident than ever about the bright future ahead for Wayfair. Thank you, and now Niraj, Steve, and I will be happy to take your questions. At this time, I would like to remind everyone that, in order to ask a question, press the star, then the number one on your telephone keypad.

Speaker Change: Our market share gains and a return to active customer growth clearly show that we are the premier shopping destination for the home.

Speaker Change: This foundation positions us incredibly well to reaccelerate towards the growth algorithm, we laid out at Investor day once the category stabilizes.

Speaker Change: As importantly, we have made considerable improvement up and down the cost structure with a clearly demonstrated discipline that carries forward to 2024 and beyond.

Speaker Change: The combination of these elements along with all of the exciting innovation, we Havent store makes me more confident than ever about the bright future ahead for wave there.

Speaker Change: Thank you and now Steve and I will be happy to take your questions.

Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. We ask that you. Please limit yourself to one question and one follow up your first question comes from the line of Simeon Gutman from Morgan Stanley. Your line is open.

Operator: We ask that you please limit yourself to one question and one follow-up. Your first question comes from a line called Simeon Gutman from Morgan Stanley. Your line is open. Hey, good morning, everyone.

Simeon Ari Gutman: Hey, good morning, everyone I wanted to ask first about the spread of your share gains vis vis the industry. If you can contextualize it all where I don't know E com or total industry is trending.

Niraj S. Shah: I wanted to ask first about the spread of your share gains vis-a-vis the industry. If you can contextualize it all, where I don't know, the ecom or total industry is trending, and then what gives you confidence that the spread holds throughout the year or could even expand? Thanks. Thanks, Sebastian. This is Niraj.

Simeon Ari Gutman: And then what gives you confidence that spread holds throughout the year or could even expand.

Thanks, Thanks, Simeon this is <unk>.

Niraj S. Shah: Um, sure. Let me answer that. First, on market share, obviously, there are a lot of ways to calculate market share. I'd say our main two ways we do that, or we have a credit card data set we get, which has close to 100 competitors on it, and that gives us really good granular data at the competitor level and in total. The second is we talk to our suppliers regularly, and they tell us how we're doing, and they'll share details relative to specific competitors. And while that's less of a quantitative read, that's a pretty dense, detailed read, and so we use those two.

Simeon Ari Gutman: Sure let me answer that.

Simeon Ari Gutman: No.

Speaker Change: First on <unk>.

Speaker Change: Market share, obviously, theres a lot of ways to calculate market share I would say our main two ways, we do that or we have a credit card dataset, we get which is close to 100 competitors on it and that gives us really good granular data at the competitor level and in total the second as we talk to our suppliers regularly and they share how we're doing and they they will.

Speaker Change: <unk> details relative to specific competitors and while that's less of a quantitative read thats a pretty dense detailed read and so we use those two but if you zoom out the easiest one is just to look at our revenue rate and if you zoom way out you see our revenue was up just under half a percent in the quarter year over year I think if you look at competitors.

Niraj S. Shah: But if you zoom out, the easiest one is just to look at our revenue. And if you zoom way out, you see that our revenue was up just under half a percent in the quarter year-over-year. I think if you look at competitors, depending on the category you pick, you're going to see numbers negative 10, negative 15. You're basically going to see numbers even, maybe higher than that. Some are going to be negative 20.

Speaker Change: Depending on the category you pick youre going to see numbers negative turn negative 15, youre going to basically see numbers.

Speaker Change: Even maybe higher than that some are going to be negative 20.

Speaker Change: That's where the category was year over year. So obviously that delta is the share that we took because obviously the revenue.

Niraj S. Shah: That's where the category was, year-over-year. So obviously, that delta is the share that we took because, obviously, revenue is customers voting with their dollars. That's market share. You know, the way to think about it is for five quarters now, so the fourth quarter of 22, we've been taking away market share. And that was basically on the back of availability, and price started to recover post-COVID in the summer of 22. By the fourth quarter of 22, we had that recipe back intact, so we very quickly started picking up the share, the low-hanging fruit of the share.

Speaker Change: As customers voting with their dollars at some market share so.

Speaker Change: We are.

Speaker Change: The way to think about it for five quarters now since the fourth quarter of 'twenty. Two we've been taken away taking share and that was basically on the back of availability and price started to recover post COVID-19 in December 'twenty two by the fourth quarter of 'twenty. Two we have that recipe back and tax will be very quickly started picking up the share of the low hanging fruit of the share, but then even though that got hard after that as we hit <unk>.

Niraj S. Shah: But then even though that got hard, after that, as we hit all-time highs, we've continued to take share. And so our all-time high, we keep hitting all-time highs in market share as the quarters go by. And so what we would expect to happen is that you're going to see the category for a period of time, you know, in the near term, be challenged. So, you know, the year-over-year numbers for the total category will be, you know, not great.

Speaker Change: Time highs, we've continued to take share and so our all time high we keep hitting all time highs in market share.

Speaker Change: The quarters go by and so what we would expect to happen is that youre going to see the category for a period of time in the near term be challenged so the year over year numbers. So total category will be.

Niraj S. Shah: And you're going to see us outpacing them significantly, thereby picking up incremental share and continuing to hit all-time highs. So I don't know if that helps with the context of what we expect, but, you know, that's sort of the way we see it. And then the only other comment I would make is that, obviously, we would expect the category to subsequently recover. You know, it's a cyclical category. And, you know, it was interesting.

Speaker Change: Not great and Youre going to see us outpacing them significantly, thereby picking up incremental share continued at all time high. So I don't know if that helps with the context of what we expect for that.

Speaker Change: That's sort of the way we see it and then the only other comment I would make is obviously, we would expect the category to subsequently recover cyclical category and.

Speaker Change: Interesting I was reading a note someone's put out about the home depot call. The other day.

Niraj S. Shah: I was reading a note someone put out about the Home Depot call the other day. You know, Home Depot is obviously a well-run company, but it's obviously in the home category as well. And, you know, they're talking about how certain segments are, you know, challenged right now, etc. But the note talked about how, from a cost and a revenue potential standpoint, they're really poised for huge gains once the category recovers. And what I will point out is that that's also how we feel we are.

Speaker Change: And hope develops a well run company, but obviously as in the home category as well.

Speaker Change: They're talking about how certain segments are challenged right now what have you but those.

Speaker Change: No talked about how from a cost and a revenue potential standpoint, there really poised for huge gains once the category recovers and what I would point out is like that's also how we feel we are so in other words, we're taking share while it's really hard to take share of the market is.

Niraj S. Shah: So in other words, we're taking share while it's really hard to take share as the market is, you know, shrinking; it's a challenging time to take share as the competitors don't want to give up share. But we've taken up $2 billion in cost, you know, close to it. We've got ourselves into a position where the unit economics are very strong. We've got customers really responding to what we're doing. You see that in the market share, you'll see in the active customer count, which has ticked up. And so as the market turns and demand comes back, I think you're going to see quite a nice acceleration in revenue and profits as well. So while the market's tough, you're going to see us continue to tick away just with the execution we're doing.

Speaker Change: It's shrinking it's a challenging time to take care of some competitors don't want to give up share.

Speaker Change: But we've taken out $2 billion in cost close to it.

Speaker Change: We've gotten ourselves with the unit economics are very strong we've got customers really responding to what we're doing you see that in the market share you will see on the active customer count, which has ticked up and so as far as the.

Speaker Change: The market turns and demand comes back I think youre going to see quite a nice acceleration in revenue and profits as well so while the market's tough youre going to see us continue to tick away just with the execution, we're doing and then youre only going to see that get a lot better as the market recovers.

Niraj S. Shah: And then you're only going to see that get a lot better as the market's tough. And to that point, and this will be the follow-up, as sales recover, what is the right way to think about incrementals for every point above zero? And then, alternatively, if it stays negative for the medium term, is there a way to think about decrements?

Speaker Change: And to that point and this will be the follow up.

Speaker Change: <unk> see.

Speaker Change: Sales recover what is the right way to think about Incrementals for every point above zero and then alternatively.

Speaker Change: If it stays negative for the medium term is there a way to think about decrementals.

Niraj S. Shah: Yeah, sure. So, I think the way to think about it is actually, one thing I'll just plug in for is that today, along with the earnings call materials, one of the things we released on the investor website is our annual shareholder report. And, you know, the title says annual. We only do that, obviously, once a year.

Speaker Change: Yes sure so.

Speaker Change: I think the way to think about so actually one thing I'll just put a plug in for us.

Today, along with obviously the earnings call materials, one of the things we released on the Investor website is our annual shareholder letter and.

Speaker Change: Title says annual we only do that obviously once a year. So it's an opportunity to look out to the future and for us to share our thinking on a bunch of topics and I really encourage everyone on the call to just take a few minutes download that and read it right on the IR web site because.

Niraj S. Shah: So it's an opportunity to look ahead to the future and for us to share our thinking on a bunch of topics. And I really encourage everyone on the call to just take a few minutes to download that and read it. It's right on the IR website.

Niraj S. Shah: Because there, we can really share some detailed thinking about what we're focused on, which is not so much a near-term focus as the call tends to be. But one of the things I do mention is how we think about how we're poised for future earnings. And I talk about how the next billion dollars of revenue would flow through in the mid- to high-teens on EBITDA. And, you know, that's basically the concept.

Speaker Change: Because there we can really share some details thinking about what we're focused on which is not so much narrower near term focus is to call density, but one of the things that you mentioned and as.

Speaker Change: How we think about how we are poised for future earnings, which I talked about how the next billion dollars of revenue would flow through in the mid to high teens.

Speaker Change: On EBITDA and that's basically the concept.

Niraj S. Shah: You know, we have fixed costs in the business, and we get to leverage those as we grow. So there's – you know, that's hopefully your point on kind of, you know, how much the incremental potential request is. Yeah, and hey, Simeon, it's Kate.

We have fixed costs in the business and we get to leverage those as we grow so there's.

Speaker Change: That's hopefully your point on kind of.

Speaker Change: Whats the incremental potential look like.

Speaker Change: Hey, good.

Kate Gulliver: Good morning. I guess what I would add to that, too, you know, you asked sort of going the other way. And in the prepared remarks, I referenced that comment that we made on the third quarter fall around substantial EBITDA growth. And I said, you know, somewhat irrespective of the top line, we expect to see 50% EBITDA growth as really a floor. So even with, you know, ongoing challenging macro conditions or, in your scenario, a potential contraction in progress, we would still expect pretty significant EBITDA growth in 2024 due to the cost actions that we've already taken. Thank you both.

Speaker Change: Good morning, I guess, what I would add to that.

Speaker Change: Sort of going the other way and in the prepared remarks, I reference that comment that we made on the third quarter call around substantial EBITDA.

Speaker Change: And I said, yes, somewhat irrespective of the top line, we expect to see 15% EBITDA growth, it's really a floor.

Speaker Change: Even with ongoing challenging macro in your scenario.

Speaker Change: The cash flow contraction and ongoing we would still expect pretty significant EBITDA growth in 2024 due to the cost actions that you've already taken.

Speaker Change: Thank you both.

Operator: Your next question comes from the line of Alexandra Steger from Goldman Sachs. Your line is open. Great, thank you so much.

Speaker Change: Your next question comes from the line of Alexandra <unk> from Goldman Sachs. Your line is open.

Alexandra: Great. Thank you so much so you've been very clear that reducing head counts over the past few months have been a driver of efficiency and productivity within the organization where are we in that journey do you think theres more room for efficiencies and when do you think it is actually the right time to start with hiring grow head count again.

Niraj S. Shah: So you've been very clear that reducing headcount over the past few months has been a driver of efficiency and productivity within the organization. Where are we on that journey? Do you think there's more room for efficiencies? And when do you think it's actually the right time to start growing headcount again? And then, my second question for Kate, could you just elaborate a little bit more on your Q1 revenue guide in terms of the drivers behind the outlook and the factors that are inside versus outside your control? Thank you.

Speaker Change: And then my second question for Kate could you just elaborate a little bit more on your Q1 revenue guide in terms of drivers behind the outlook and the factors that are inside versus outside your control. Thank you.

Alexandra: Yeah.

Alexandra: Yeah.

Speaker Change: Why don't I answer the first part of that and turn it over to Kate.

Niraj S. Shah: Why don't I answer the first part and then I'm going to turn it over to Kate for your second part there. On the productivity, efficiency gains, and headcount side, I think the way to think about it is that we obviously did reduce headcount over the last 18 months. But this last time, what we did, we did it with first and foremost an eye to what we thought a very efficient organizational model would be versus a cost savings target or something like that as the initial going-in goal. And so we think we've set up what will be a very efficient organization. There is some headcount we will add to that, but it's modest in the scheme of the headcount we have. And what it really does is it lets us really reformulate teams, including a lot of the more junior members of those teams, which during the COVID period we hadn't hired. And so we didn't have as many of those folks on the team as would make sense from a ratio standpoint.

Kate Gulliver: Your second your second part there.

Kate Gulliver: On the kind.

Kate Gulliver: Productivity efficiency gains head count side, I think the way to think about it as well.

Kate Gulliver: We obviously did reduce headcount our last 18 months, but this last time, what we did is we did it with first and foremost an eye to what we thought a very efficient organizational model would be.

Kate Gulliver: Versus our cost savings target or something like that is the initial going in goal and so we think we've set up what will be a very efficient organization. There is some head count we will add to that but it's modest in the scheme of the head count we have and what it really does it lets us really reformulate teams, including a lot of the more junior members of those teams, which during the Covid period, we hadn't hired and so.

Kate Gulliver: We didn't have as many of those folks on the team is would be makes sense from a ratio standpoint, and so with the college hires will join me and we will have them there, but that's from a from like an incremental head count cost standpoint, that's not a that's not a big number and what we think is that theres a lot of productivity gains to come and that comes from a few different things when it comes from with the.

Niraj S. Shah: And so what the college hires will join, we'll have them there. But that's from like an incremental headcount cost standpoint. That's not a big number.

Niraj S. Shah: And what we think is that there's a lot of productivity gains to come, and that comes from a few different things. One, it comes from the organizational model we set up. We think it enables folks to move faster and get more done. We're already seeing early signs.

Kate Gulliver: Mutational model, we set up we think it enables us to move faster and get more done we're already seeing early signs of that.

Niraj S. Shah: Second, we think then, you know, a lot of people are in new roles, so as they get settled in, as they're executing, we think there are compounding gains there. And then the last piece is that we've spent a lot of the last couple of years on a technology transformation and replatforming our core technology stack. And as we're nearing the later stages of that, we get a lot of gains when we build feature function on the new technology. It's much faster to build and much more flexible, and those gains will come in the future, but we're nearing that point.

Kate Gulliver: Second we think then.

People are in new roles. So then as they get settled in as they are executing we think theres compounding gains there and then the last piece is we've spent a lot of the last couple of years on our technology transformation in re platforming, our core technology stack and as we're nearing the late later stages of that we get a lot of gains from when we do.

Hello feature function on the new technology, it's much faster to build and much more flexible and those gains will come in the future, but we're nearing that point so we're quite.

Niraj S. Shah: So we feel quite good about how productivity will continue to compound as we go forward. Yeah, so Alexandra, on your revenue question, a few thoughts there. Obviously, you know, the macro context is the macro context; we don't drive that.

Kate Gulliver: We feel quite good about how productivity will continue to compound as we go forward.

Kate Gulliver: Yes, so alexandra on your revenue question.

Alexandra: Few thoughts there obviously the macro contact is the macro context, we don't drive that but we have been.

Kate Gulliver: But we have been focused for the past six quarters on controlling what we can control. And as it pertains to revenue, a key piece of that is the recipe. So price, availability, and speed. You heard Niraj speak about that. That's been driving our share gains. And we think we've done a really great job driving gains in what has been a challenging market. You know, as it particularly pertains to this quarter, we're obviously sitting on this call, you know, deep into the quarter at this point. And so I just point you to that, as you think about, you know, our quarter to date number and referencing that is generally what. Your next question comes from the line of Brian Nagel from Oppenheimer. Your line is open. Hey, good morning.

Alexandra: <unk> for the past six quarters on controlling what we can control and as it pertains to revenue of PTC is about is the rapid price availability and speed you heard me speak to that that's been driving our share gains and we think we've done a really great job driving gains in what has been a challenging market as it particularly pertaining to this quarter Ravi.

Ravi: Sitting on this call deep into the quarter at this point and so I just point you to that as you think about our quarter to date number and referencing that is generally what you expect for the quarter.

Speaker Change: Great. Thank you.

Speaker Change: Your next question comes from the line of Brian Nagel from Oppenheimer. Your line is open.

Brian Nagel: Hi, good morning.

Niraj S. Shah: Thanks, as always, for all the details. I've got a couple questions here. I know the first one's going to be a follow-up just on the guidance, the top line guidance you've given here for Q1. Should we, should we interpret that to mean that, you know, if you're down mid single digits, that the backdrop for Wayfair has actually gotten more difficult here, and I recognize there's a lot of seasonality and such, but as we've gone from Q3, Q4, and then And then my follow-up question, unrelated. Okay, thanks for all the details there on the balance sheet. I guess, maybe if you could help us understand better, you obviously repositioned the business extraordinarily well, you have a better you're in a better cash position, cash flow position, but how should we think about the timing of some of these actions on the balance? Okay, great, Brian.

Brian Nagel: Thanks as always for all the details.

Brian Nagel: So I have a couple of questions here. The first one is going to be a follow up just.

Brian Nagel: With regard to that guidance the top line guidance, you've given here for Q1.

Brian Nagel: Yes, you should we should we interpret that to mean that you're down mid single digits.

Brian Nagel: The backdrop for wafer has actually gotten more difficult here and I recognize there's a lot of seasonality and such but as we've gone from Q3 Q4, and then into Q1 as it has been as the backdrop actually got more difficult.

Speaker Change: My follow up question unrelated.

Hey, Rob Thanks for all the details with respect to the balance sheet, but I guess, maybe if you could help us understand better.

Rob: Obviously reposition the business extraordinarily well you have a better year and a better cash position cash flow position, but how should we think about the timing of some of these actions on.

Speaker Change: On the balance sheet.

Speaker Change: Okay, great. Thank Brian why don't I.

Niraj S. Shah: Why don't I... On the first part of your question, where you talk about the backdrop getting more difficult, I think what you're referring to there is, you know, has the macroeconomic climate gotten tougher? I think that's kind of where you're going with that. And we would say, yes, you know, we would say that, you know, the macroeconomic climate has gotten tougher. I think that, you know, is what we just read comments from a lot of other retailers that have made public comments. That's what I think you're hearing broadly. And, you know, we've seen that in the credit card data. And, you know, I was at the Vegas furniture market, which I referenced earlier, and January was particularly tough. Now, there was some bad weather in there that was temporal.

Rob: On your first part of your question, where you talked about.

Speaker Change: Backdrop getting more difficult I think what youre, referring to there.

Speaker Change: Has the macroeconomic climate gotten tougher I think thats kind of where youre going with that.

Speaker Change: I'd say, yes, we would say that.

Speaker Change: The macroeconomic climate has gotten tougher I think.

Speaker Change: That.

Speaker Change: Is what we just heard comments from a lot of other retailers that have made public comments that is what I think youre hearing broadly we've seen that in the credit card data and.

Speaker Change: I was at the Vegas furniture market, which I referenced earlier.

Speaker Change: January was particularly tough now there was some bad weather in there that was temporarily so.

Niraj S. Shah: So, you know, things have gotten a little better since, but the market is softer than you would have thought it would be if it was kind of like sequentially just kind of modestly seasonality adjusted flat. So, I'd say the macro has gotten tougher, but I will also point out the macro, the depth of the macro drawdown now is quite significant. So, it's kind of like, again, someone, I forget whose note it was, but they referred to demand bouncing along the bottom. And I say, that's kind of like, generally what we would think it roughly is, but you can't predict the macro. So that's why we focus more on the internal execution of the recipe.

Speaker Change: Things have gotten a little better sense, but the market is softer than you would have.

Speaker Change: Than you would've thought it would be if it was kind of like sequentially, just kind of modestly seasonality adjusted flat. So I would say the macro has gotten tougher, but I will also point on the macro the depth of the macro drawdown that was quite significant so it's kind of like.

Speaker Change: Again someone I forget who is notable as the date they referred to like demand bouncing along the bottom and assay. That's currently generally what we would think it roughly is but you can't predict the macro so that's why we focus more on the internal execution on the recipe.

Niraj S. Shah: We focus on, you know, the internal drivers that we know will let us take share, that will let us outcompete others and do well regardless of what the market size is. And we've, you know, just in this quarter, you know, to date, so not the fourth quarter, but the first quarter, our market share has continued to climb. So, you know, we're still hitting all-time highs.

Speaker Change: We focus on the internal drivers that we know will let us take share that will let us outcompete, others and do well regardless of what the.

Speaker Change: The market the market size is and we.

Speaker Change: Just in this quarter to.

Speaker Change: To date, so not the fourth quarter, but the first quarter.

Speaker Change: Our market share is continued declines.

Speaker Change: Phil hitting all time highs or continue with the meeting we're climbing we're hitting new all time highs.

Niraj S. Shah: We're continuing, meaning we're climbing, you know, we're hitting new all-time highs. Yes, thank you for the question on capital structure. You know, as you pointed out, we've made significant changes to the profitability and the free cash flow nature of the business, and that broadly gives us optionality around capital structure. So, as I said in the prepared remarks, one of those options is actually to pay the 2025s off in cash.

Speaker Change: Yes. Thank you for that question on capital structure.

Speaker Change: As you pointed out we've made significant changes in the profitability and the free cash flow nature of the business.

Speaker Change: And that broadly give that optionality around capital structure. So as I said in the prepared remarks, one of those options actually is to pay the 2025 and cash.

Kate Gulliver: And, you know, we think that is a good and viable option. That said, we're very focused on what is most economically efficient for our shareholders and best for the business. And we intend to be prudent and thoughtful. And so we continue to vet a wide range of options, from cash payments or refinancing to a combination.

Speaker Change: And we think that is a good and viable option that said, we're very focused on what is the most economically efficient for our shareholders and best for the business and we intend to be prudent and thoughtful and so we continue to that a wide range of options from cash payments of refinancing to a combination.

Kate Gulliver: With regard to your question on timing, you know, it's worth noting that each quarter that our financial profile continues to improve and our free cash flow generation improves, obviously, the cost of capital for us continues to come down. And so there is some benefit there to timing as well. Very helpful.

Speaker Change: With regards to your question on timing, it's worth noting that each quarter that our financial profile continues to improve and our free cash flow generation improves obviously the cost of capital for US continues to come down and so there is some benefit there to the timing as well.

Speaker Change: That's very helpful. I appreciate it thank you.

Operator: I appreciate it. Thank you. Your next question comes from the line of Anna Andreeva from Needham. Your line is open. And Anna, your line is open.

Speaker Change: Your next question comes from the line of Ana Andrew Eva from Needham Your line is open.

Speaker Change: Andrew Your line is open.

Speaker Change: Oh apologies good morning, guys. Thanks, so much can.

Niraj S. Shah: Can you talk about if you're seeing anything different with demand across various household incomes? Is it the lower-income consumer that's more pressured so far in 1Q? And also, curious about the performance of other high-margin brands in a portfolio outside of a core Wayfair banner? How did the specialty retail and the Wayfair professional perform, that's either in the fourth quarter or so far this quarter to date? Thank you so much

Speaker Change: Can you talk about if you're seeing anything different with demand across various household incomes is at the lower income consumer that's more pressure so far in <unk>.

Also curious on performance of other high margin brands in our portfolio outside of our core way fare banner, how did the specialty retail and our professional perform that.

Speaker Change: Either in the fourth quarter or so far.

Speaker Change: Thank you so much.

Niraj S. Shah: Thanks, thanks, Sam. So, a few thoughts on that. So, first, you do see demand get increasingly pressured as you move down the income levels. So, you know, obviously you would expect that, but we see that in our data. And we also see that in the macro data we get from, particularly some of the banks and the credit card companies. So I'd say that the trend is pretty clean and pretty obvious. And so, you know, I think there's nothing surprising about that, though.

Speaker Change: Hi.

Speaker Change: Thanks, Dan.

Speaker Change: A few thoughts on that so first you do see demand get increasingly pressured as you move down the income levels. So.

Speaker Change: You would expect that but we see that in our data and we also see that in the macro data we get from us.

Speaker Change: Some of the banks credit card companies. So I would say that trend is pretty clean and pretty obvious.

Speaker Change: So.

Speaker Change: I think there is nothing surprising to that though.

Niraj S. Shah: Then, in terms of our brands, when you talk about our brands, the specialty brands, which kind of play kind of above mass, and then the luxury platform Paragold, which plays above that, you're seeing that those higher-hiring ones are doing quite well. And, you know, Paragold, I mean, the luxury market is much less competitive, but it's growing it very significantly. And, you know, part of that is, you know, it's smaller than Wayfair, but we have a small market share everywhere. It's just, you know, that's a relatively young brand for us. It's executing very well.

Speaker Change: Then in terms of our brands when you talk about kind of our band of specialty brands, which kind of play kind of above mass and then luxury platform parallels which placed above that.

Speaker Change: You're seeing that those higher end ones are doing quite well and paragould luxury market is much less competitive, but it's growing at very significant rates and part of that is.

Speaker Change: It's smaller than way fair, but we have small market share everywhere. It's just.

Speaker Change: That's a relatively young brand for us executing very well and as we mentioned a minute ago that higher end market is less pressure. So it's in itself.

Niraj S. Shah: And as we mentioned a minute ago, that higher-end market is less pressured. So it's a much better place, but it's growing, you know, at a significant growth rate. Your next question comes from a line from Colin Sebastian from Baird. Your line is open. Thanks and good morning.

Speaker Change: Yes.

Speaker Change: Sir Cliff is growing.

Speaker Change: Significant growth rates.

Speaker Change: Your next question comes from the line of Colin Sebastian from Baird. Your line is now open.

Colin Alan Sebastian: Thanks, and good morning, I appreciate the opportunity maybe one quick follow up on the last question around customer segmentation I know theres a lot of curiosity around emerging competition in E Commerce.

Niraj S. Shah: I appreciate the opportunity. Maybe one quick follow-up on the last question around customer segmentation. I know there's a lot of curiosity around emerging competition in e-commerce from Asia, including expansion of the home category. Will that impact prices or customer acquisition costs, or is that more likely? The lower end.

Colin Alan Sebastian: From Asia, including expansion of the home category is that something that you foresee impacting prices or customer acquisition costs or is that more likely limited to to the lower end consumer segment.

Niraj S. Shah: And then maybe secondly, in the shareholder letter, I was intrigued by some of the comments on logistics, around additional services that you're building on top of that infrastructure. And just curious for maybe a little more color on... Is that adding new revenue opportunities or is that more about creating additional efficiency in terms of competitive differentiation? Thanks, Tom.

Colin Alan Sebastian: And then maybe secondly in the shareholder letter.

Colin Alan Sebastian: Intrigued by some of the comments on logistics around additional services.

Colin Alan Sebastian: That you are building on top of that infrastructure and just curious for for maybe a little more color on is that adding new revenue opportunity or is that more about creating additional efficiency obviously.

Colin Alan Sebastian: A competitive differentiation there is some interesting stuff happening there. Thank you.

Niraj S. Shah: So first, on the first part of your question around customer segmentation, and I think basically, your question is sort of like the kind of growth of Timu and Shein and TikTok Shop. And so what role do you see them playing from a competitive standpoint for us? What I would say is what we're really seeing is that where they compete is at the very low end of the market, both in terms of low-end quality-wise and kind of ticket size. And so that's where their volume is. That's what they're known for, kind of, with customers for. I think that's where you see, you know, Amazon obviously lowered their take rate at the low end of certain categories, I think, because it's kind of out of a holiday competition there with those folks for, and I think some of the other folks who sell kind of smaller odds and kind of, you know, referencing, we have not seen them really be a competitor in The question is, what do they really sell at home? What are the subcategories, and what tranches of them, you know, do they really play in?

Speaker Change: Thanks, Tom So first on your first part of your question around customer segmentation and I think basically your question is sort of like the kind of growth of tea move in Xi'an and tick top shop, and so what role do you see them playing from a competitive standpoint for us.

Speaker Change: I would say is what we've really seen is where they compete is that the very low end of the market, both low and high quality wise and kind of ticket size and so.

Speaker Change: It's where their volume and if thats, what they are known for kind of with customers for I think thats, where you see Amazon obviously lowered their take rate at the low end of certain categories. I think because it's kind of a holiday competition. There with those folks were in I think some of the other folks who sell kind of smaller odds and ends kind of.

Speaker Change: Referencing we have not seen them.

Speaker Change: Really be a competitor.

Speaker Change: The weaker focusing home many people have a home business. The question is what do they really selling homes, what are the subcategories and what tranches of them.

Speaker Change: Really plan and that's where you start seeing the venn diagram overlaps and not being necessarily a very large in certain places and they are much larger in other places so we.

Niraj S. Shah: And that's where you start seeing, you know, the diagram overlaps end up not being necessarily very large in certain places, and they are much larger in other places. So we have not seen these folks be competitors. Also, some of them are very large advertising spenders, and we have not seen them really be a player when we look at the share and who our competitive set is in certain of the lower funnel advertising, things like Google PLAs and Google Search or some of these things that are highly targeted and high intent. We don't see them being players there, and as you go up the funnel, things like display or things like television, these are vast markets where no one competitor or two So we haven't seen them be competitors.

Speaker Change: We have not seen these specialty competitors also some of them are very large advertising vendors and we have not seen them really be a player. When we look at the share and who are competitive citizen certain of the lower funnel advertising things like Google.

Speaker Change: And Google search or some of these things that are highly targeted and high intent, we don't see them being players there and as you go upper funnel things like display or things like TV. These are vast markets, where no one competitor or two competitors move that market and youre not necessarily competing with named specific competitors that those markets are more broad so we haven't seen them be competitors now.

Niraj S. Shah: Now, we obviously watch all our competitors and what they're doing and how things are evolving, but we feel very good about what we've built for differentiation in home around the shopability, around the delivery and logistics, around a set of things that, frankly, or, you know, unless you focus on these bigger, bulkier items and the home goods in particular that are prone to damage, I don't think you can necessarily tackle those things very easily. So we feel very good about that. And then to touch on the second part of your question on logistics, you know, and you said, hey, in the shareholder letter, I talked about logistics for a little bit, and you said, you know, do these create revenue opportunities or do these create cost efficiencies? Well, the answer is they can create both.

Speaker Change: We obviously watch all our competitors and what they're doing and how how things are evolving, but we feel very good about what we've built for differentiation and home around the shop ability around the delivery and logistics around the set of things that frankly.

Speaker Change: Or unless you focus on these bigger bulkier items and the Homegoods in particular that are prone to damage I don't think you can necessarily.

Speaker Change: Tackle those things very easily so we feel very good about that.

Speaker Change: And then to touch on the second part of your question on logistics and you said Hey.

Speaker Change: In the shareholder letter it talks about logistics for a little bit and you talked about do these create revenue opportunities reduce create cost efficiencies with the answers they can create both and.

Niraj S. Shah: And, you know, just one example I'll highlight, which is kind of a service offering that makes a lot of sense for us to provide, doesn't make a lot of sense if you don't focus on, like, our categories very deeply, would be something that's relatively new, but that we're, that we're, we've been working on, and we'll start to roll out, which is Consolidated Delivery. So Consolidated Delivery, it allows you, you know, whether you're moving houses, or you're doing a renovation, or you're an interior designer doing a project for a client, or, you know, if you want all the items for your bathroom remodeled for your contractor to show up at a given day, or you're helping your son move into an apartment, you can basically pick an order of a set of large and small items, pick a date in the future that you want them all to be delivered, and they can then be delivered at the same time on that date in the future.

Speaker Change: Just one example, I'll highlight which is kind of a service offering that makes a lot of sense for us to provide doesn't make a lot of sense. If you don't focus on like our categories very deeply would be something thats relatively new but that were there.

Speaker Change: We've been working on.

Speaker Change: We will start to roll out which is consolidated delivery.

Speaker Change: So consolidated delivery. It allows you whether youre moving houses or Youre doing a renovation or youre, an interior designer doing a project for a client.

Speaker Change: Sure.

Speaker Change: One of the items for your bathroom remodel for your contracts show up at a given day or you are helping your sudden move into an apartment and you can basically pick up order of a set of large and small items pick a date in the future that you want them all to be delivered and they can then be delivered at the same time on that date in the future.

Niraj S. Shah: So from a customer standpoint, you can see how in certain use cases, that's incredibly convenient. It would be very helpful for the customer for that to happen. And so you can imagine, then, the customer would be inclined to buy more of those items for that use case or that project from you because it's going to be easier. They'll all come together at the same time.

Speaker Change: So from a customer, saying what you can see how in certain use cases is incredibly convene.

Speaker Change: Convenient it would be very helpful for the customer for that to happen.

Niraj S. Shah: And so maybe you wouldn't have bought that coffee maker from us, but if it's going to be one of the many items you want delivered at the same time, you might as well just buy it from us instead of buying it somewhere else, even though it's more of, say, a commodity item or what have you. So you can see that growing revenue, but from a cost efficiency standpoint, as you can imagine, delivering things one at a time is less efficient than delivering a lot of things all at once. And so, when you have a logistics network where we have fulfillment centers, we pick up from suppliers, we have over-the-road transportation, moving goods down the chain towards where they're getting delivered from, we have these delivery terminals, given that we have that infrastructure, you can then, with software, you know, which you have to build, which is, you know, complicated, but as you have that, you can actually lower your cost of delivery while improving the So, you get these combined effects.

Niraj S. Shah: I picked one that happens to just be an easier one to explain, but there are a lot of other benefits to the various things we're doing. So, we think the logistics runway is a real one, it's significant, and it still has a lot of room for us to build a kind of good customer experience. Your next question comes from the line of Christopher Horvers from J.P. Morgan. Your line is open. Thanks. Good morning, everybody.

Speaker Change: It's a real one it's significant and it still has a lot of lot room for us to build that kind of good customer experiences there.

Speaker Change: Thanks energy.

Speaker Change: Your next question comes from the line of Christopher Harbors from J P. Morgan Your line is open.

Christopher Michael Horvers: Thanks, Good morning, everybody. So as you think about a couple of questions. So first did you think about the flat scenario and 600 billion plus of EBITDA can you help us think about how that plays out down the piano would you expect grew.

Kate Gulliver: So as you think about a couple of questions, first, as you think about the flat scenario and 600 billion plus of EBITDA, can you help us think about, you know, how that plays out down the P&L? How would you expect, for example, gross margin to expand in that scenario? If you go back to analyst day, a lot of the long-term margin potential is in the gross margin line, or is it simply, you know, more weighted to the lower cost on the SOTG&A line? Thanks. Yeah. Hey Chris. Good morning. It's Kate.

Christopher Michael Horvers: Gross margin to expand in that scenario. If you go back to the analysts say a lot of the longterm margin potential isn't the gross margin line or is it simply you know more weight into the the lower cost on ESO teaching in a line. Thanks.

Speaker Change: Yeah, Hey, Hey, Chris Good morning.

Kate Gulliver: I'll start with that. So, it really is more of the cost takeout that we took out in January and seeing that flow through. So, I would think about gross margin, you know, staying in that 30% to 31% range, which is where we've guided to and, obviously, where we averaged 23. Where you're going to see the cost savings from January hit on the P&L, though, are actually in two places. One is on customer service and merchant fees. We said of the $280 million total takeout, and again, that was net, so that included the hiring back. But of the $280 million total takeout, $150 million would hit, you know, down to the adjusted EBITDA line. Of that, $25 million was in that customer service and merchant fee line. And so, you know, when I guided, I said that would come in a little bit more going forward, and then $125 million of that was on that SOTG&A line. You actually saw that in the guide.

Speaker Change: I'll start with that uhm. So it really is more of the car take out that we took out in January and seeing that flows around so I would think about gross margin staying in that 30, or 31% range, which is always guided too and obviously, where we averaged four twenty-three where you're gonna see the cost savings from January hit on the fee and all those.

Speaker Change: Actually in two places one is on the customer service and emergencies. We said of the 280 million total take out and again that was net so that included the hiring back but if the 200 <unk> 280 million total take out 150 million would hit you know down to the adjusted EBITDA line of that.

Speaker Change: $25 million within that customer service emergency line and so you know it it when I got it I said that will come in a little bit more going forward and then 125 million a that was on that S. O T. J line, you actually saw that and a guy you know if you take the cue for S. A T. G. A number in the mid point of a guy and you'll see that $125.

Kate Gulliver: You know, if you take the Q4 SOTG&A number and the midpoint of the guide, you'll see that $125 million savings there. So really, where you see the pickups are on customer service and merchant fees. Gross margin AC&Rs say about where they average in 23 for that hypothetical, you know, $600 million on a flat revenue scenario. And is that because the long-term gross margin issues are more sales-dependent, you know, versus, you know, an opportunity to continue to take costs out? And that's just as a quick second follow-up to the, you know, worst case, plus 50% EBITDA in 24. Does that assume that the current trend of the business is down mid single digits sticks for the rest of the year? Thank you.

Speaker Change: <unk>, so really where do you see the pickups are on customer service emergency either an S. A T G and a gross margin anything or stay about where they average and twenty-three for that hypothetical you know 600 million on a flat revenue scenario.

Speaker Change: And is that because the the longterm gross margin nurses are more self dependent you know versus.

Speaker Change: <unk> you know an opportunity can be continued to take <unk> and is just as a quick second follow up the worst case plus 50%.

Speaker Change: In 24 is that does that assume that the current trend in the business of government single digit sticks to the rest of the year. Thank you.

Kate Gulliver: So let me answer the first part of your question first on gross margin savings. So first, we remain very confident in the gross margin opportunities. Obviously, we've talked about, you know, you know, getting in our analyst day. We've talked about getting to 35 plus on gross margin. That, of course, remains.

Speaker Change: So let me answer the first part of your question first on the gross margin day. So first we remain very confident in the gross margin opportunities. Obviously, we talked about you know you know getting into our analysts say, we talked about getting 235 slash on gross margin that of course remains well we were trying to providing that 600 million is the framework.

Kate Gulliver: What we were trying to provide in that $600 million is the framework for that flat revenue scenario, just from the cost savings for this year, how you can see that flow through. We continue to see ongoing operating efficiency in that gross margin line. And we always make the tradeoff of, you know, do we pass that through to the customer, or do we pocket it? And as we've spoken about in the past, that's an ongoing discussion around what is going to be optimal on a multi-quarter basis. And you obviously saw us reinvest some of that in the fourth quarter of this year.

Speaker Change: Like on that flat revenues scenario just from the cost savings for this year. How you can see that flow through we continue to see ongoing operating efficiency gross margin line and we always always make the trade off of you know do we pass that through to the customer or do we pocket that as we've spoken about in the past that's an ongoing discussion around what is gonna be opt in.

Speaker Change: <unk> on a multi quarter basis and you obviously saw his reinvest some of that in the fourth quarter of this year.

Kate Gulliver: So, ongoing opportunity there. Nothing has changed in our longer-term plan, and we expect to see that continue to pan out. On your question around the 50% address at Eva Doug Rhodes, I would think about that as a floor that we're trying to fill. So the top line scenario, we're obviously not guiding to the top line, but we wanted to help folks see the opportunity that we have on adjusted EBITDA, somewhat irrespective of the macro conditions, based on all these cost efforts and the levers that we have at our disposal. You and I actually just talked about two of them.

Speaker Change: So ongoing opportunity there nothing has changed our longer term plan and we expect to see that you can continue to pan out on your question around the 50% adjusted EBITDA growth I always think about that as a floor that we're trying to set so the top like Mario we're obviously not guiding to the top line, but we wanted to help folks.

Speaker Change: See the opportunity that we have on adjusted EBITDA somewhat irrespective of them appro condition based on all these cost efforts and levers that we have at our disposal you would actually just talking about you. Then so one would be you know the hiring and the S. A T. G&A that includes some hiring back throughout the year of that can be need <unk>, if necessary, depending on the macro and.

Kate Gulliver: So one would be, you know, the hiring and the SOTG&A, that includes some hiring back throughout the year that can be metered as necessary, depending on the macro. And the other one on that growth margin line, we, of course, always have ongoing operating and cost efficiency there that we're pushing on, and we can choose to pass that through or pocket that. And that gives us some optionality, and it's why we feel comfortable saying that we can have that substantial adjusted EBITDA growth, irrespective of where the top line goes. Thanks very much.

Speaker Change: The other one on that gross margin line. We of course always have ongoing operating cost efficiency. There that were pushing on and we can choose to pass after a pocket that and that gives us some optionality and it's why we feel comfortable saying that we can affect substantial adjusted EBITDA growth you respect it over the top line goes.

Speaker Change: Thanks very much.

Operator: Your next question comes from a line of Steven Forbes from Guggenheim Securities. Your line is open. Good morning.

Speaker Change: Your next question comes from the line of Steven Forbes from Guggenheim Securities. Your line is open.

Steven Paul Forbes: Good morning.

Niraj S. Shah: Niraj, I wanted to maybe expand on your curation comments in the letter, especially as we think about sort of how the assortment right or the vendor base can change or house brand penetration can change over the coming years. And then maybe you can sort of weave in how the curation strategy could or does sort of marry together with any mitigation strategy around tariffs.

Steven Paul Forbes: <unk> I wanted to maybe expand on your <unk> curation comments or a letter.

Steven Paul Forbes: Especially as we think about you sort of how the assortment right or the vendor base can change your house brand penetration can change over the coming years.

Speaker Change: Maybe if you can sort of within how the duration strategy could.

Speaker Change: Or does it sort of Mary together with like any any medication strategy around Paris.

Niraj S. Shah: So, um, what I would say is the curation strategy, which is about really building up the, you know, talk about the house brands and especially retail brands, but building up the selection of those with great items that we know customers will be thrilled with once they open the item and get it in their house and set it up. And putting that kind of stamp of approval on it, obviously making sure it's very well-priced, the logistics are under-optimized, you know, building that up and adding that value to that curation. So, I think what we've done so far is just the beginning of that. Now, what I would say is, obviously, we are then very thoughtful about which suppliers we're working with for those items. Like, where are we picking these items from?

Speaker Change: Oh, great. So so what I would say is the duration strategy, which is about really.

Speaker Change: Building up the drink.

Speaker Change: Sorry about the house brands, and especially retail brands with building up the selection and those with great items that we know customers will be thrilled with once they open the items get it in the seven up.

Speaker Change: And putting that kind of stamp of approval on it obviously made sure it's very well price. The logistics are under optimize uhm, we think we can keep.

Speaker Change: You know building that up and adding that value for that duration. So let me think what we've done so far is just the beginning of that now.

Speaker Change: <unk>, what I would say is obviously within our very thoughtful about with suppliers, where we're working with for those items like <unk> for picking these from items. So we know from suppliers that we know are reliable and ones that we can work with well and who have type relationship with obviously that then we can take many things into account and obviously like where item.

Niraj S. Shah: So, we're picking these from items that we know, from suppliers that we know are reliable and ones that we can work with well and who we have a tight relationship with. Obviously, then, you know, we can take many things into account. And obviously, like where items are produced.

Speaker Change: Or produce students tariff question really is about a source of production category I would point to that has had a lot of tariff complexity you over the last couple of years mattresses and you know there there's been multiple rounds were mattress sort of different countries have been assigned different kind of penalties associated with tariffs or it was really inhibited.

Niraj S. Shah: The tariff question really is about a source of production. You know, the category I would point to that's had a lot of tariff complexity over the last couple of years is match. And, you know, there have been multiple rounds where mattress sort of different countries have been assigned different kinds of penalties associated with tariffs or which really inhibited production in different places.

Speaker Change: Two different places and we've obviously been very cognizant of make sure that we have production that lets us have the quality items. We hadn't won at the prices that makes sense and are you sure that we maintain availability that we're not out of stock and chasing it. So that's the type of thing that we think about it as <unk> as we're building, our assortment and mattresses or shortness under brand.

Niraj S. Shah: And we've obviously been very cognizant of making sure that we have a production that lets us have the quality items we want at the prices that make sense and making sure that we maintain availability, that we're not out of stock and chasing it. So that's the type of thing that we think about as we build our assortment in mattresses, which is under brands like Nora or Wayfair Sleep.

Speaker Change: Like Nora or Wayfair sleep, and then obviously, the we work with Brandon folks as well so uhm. So hopefully that answers. Your question in terms of how we think about it in the context of geographic location and suppliers selection as part of how we think about it.

Niraj S. Shah: And then, obviously, we work with branded folks as well. So, hopefully, that answers your question in terms of how we think about it in the context of geographic location and supplier selection is part of how we think. Thank you. Maybe just a quick follow-up for you, Kate, the comments around sort of your ability to pull back on maybe the reinvestment plans for the back half, any way to help us contextualize the spread between gross and net, should we look at the first quarter STGA guidance compared to the fourth quarter and assume that's like two-thirds of the benefit, or any help on sort of just framing where the second quarter STGA numbers Yeah, so I guess I could help you with this.

Speaker Change: Maybe just a quick follow up free Kate the comments around to sort of your ability to pull back on maybe the reinvestment plan for the back half.

Speaker Change: Any way to help us contextualize the spread between gross and net.

Speaker Change: So what should we look at the first quarter S. A T J guidance compared to the fourth quarter and assume that's like two thirds of the benefit or any help I'm sort of just framing where where the second quarter S. A T G a number to put across.

Speaker Change: Yeah, So I guess that would help me with this.

Kate Gulliver: On the SOTG&A, if you pick the midpoint of that guide for Q1 and compare that to where the fourth quarter landed, you see the $125 million of net savings show up there, right? And so within that first quarter, you obviously had a month of comp for folks that left in that quarter, and that's sort of offsetting what we said would be some of the hiring back. So you actually end up at that net number in the first quarter, and that should stay, you know, based on the hiring plan, that should stay relatively constant throughout the year. Now, as I said, sure, it's a lever for us if we had to pull it, and you could see us pull that lever dependent on the macro, but it's important to note that, you know, we think these hires make sense.

Speaker Change: On the S. A T J if you pick the mid point of that Guy for Q1, and compare that though where the fourth quarter landed you see the $125 million net savings.

Speaker Change: Right and so within that first quarter, you, obviously had a month of comp for folks then exited in that quarter and that sort of upsetting what we said it would be some of the hiring back you actually end up at that that number in the first quarter and that should stay you know based on the hiring plan that should stay relatively constant throughout the year now.

Speaker Change: As I said sure is a lever for us if we have to call them and you could see his pull that lever dependent on the macro but it's important to note that we think these hires makes sense.

Kate Gulliver: It's part of rebuilding the pyramid structure that we think is appropriate for the ongoing growth and execution of the business. Niraj referenced some of the campus hires and how those flow in and the benefit there, but generally, the Q1 guide, you know; think about that as a sort of good point on SOTG&A throughout the year based on the current hiring. Thank you. Your next question comes from a line from Oli Wintermantle from Evercore ISI. Your line is open.

Speaker Change: Part of rebuilding the pyramid structure that we think is appropriate for the ongoing growth and execution of the business mirrors reference you know some of the cabinet tires, and how those flow and the benefit there, but generally the Q1 died you know you'd think about that as a sort of good point on S. O T. Jna throughout the year based on the car.

Speaker Change: Hiring plan.

Speaker Change: Thank you.

Ollie Wintermantel: Your next question comes from the line of only winter mental from Evercore ISI. Your line is open.

Niraj S. Shah: Yeah, hi guys. I had a question. Niraj, you mentioned three things that you're excited about in 2024. One was the new campaign in March and then the loyalty program. Maybe if you could spend a couple of minutes explaining what that entails. Sure. I mentioned three things I was excited about. One was the launch of the first Wayfair retail store, which opens in May just north of Chicago in Wilmette. Another one was the new marketing campaign for Wayfair, which debuts in mid-March. That's a campaign that, obviously, the most notable place you'll see it is on television, but it really carried through all the different channels.

Emily Wintermantel: Yeah, Hi, guys Uhm I have a question I knew what you mentioned three things that you're excited about in 2024 when was the new companion marching down the loyalty program. Maybe if you if you could spend a couple of minutes on explaining what what that entails.

Speaker Change: Sure Uhm, yeah, so alright, so yeah.

Speaker Change: I mentioned three things I was excited about one was the launch of the first Wayfair retail store in which opens in May just north of Chicago in Wilmette.

Speaker Change: Another one was the the new marketing campaign for wafer, which debuts in mid March so that that's the campaign.

Speaker Change: Obviously, the most notable place you'll see it on television, but it really carried through all the different channels. We're really excited about it you'll see it very shortly but with the whole goal is to continue to build brand loyalty for wayfair until the story to make sure our customers really understand the breadth and depth of what we offer and while I wait there should be the place to go to for opening phone and so.

Niraj S. Shah: We're really excited about it, and you'll see it very shortly, but the whole goal is to continue to build brand loyalty for Wayfair and tell the story to make sure customers really understand the breadth and depth of what we offer and why Wayfair should be the place to go for all things home. We think that this campaign can further that depth of understanding and continue to build real understanding and, ultimately, preference for what we offer. The third one, which you're asking about, is the tender-neutral loyalty program. The tender-neutral loyalty program, the way I think about it today, what we have for a loyalty program are all the benefits of the loyalty program associated with having a Wayfair credit card. You have to get a Wayfair credit card, either the MasterCard that's co-branded with Citibank or just the Wayfair-specific store-based credit card.

Speaker Change: We think that this campaign can further that depth of understanding and continue to kind of build a real understanding and then ultimately preference for what we offer.

Speaker Change: And the third one which you're asking about is the tender neutral loyalty program and the teller neutral loyalty program do you think about it today, what we have for loyalty program all the benefits of the live forever associated with having to wait for your credit card. So you would have to get a wafer credit card either the Mastercard that's co branded with Citibank will just to wait for a specific store base credit cards and then there's <unk>.

Niraj S. Shah: Then there are different rewards and benefits that are associated with that. We don't have a broad-based loyalty program that works regardless of how you choose to pay. We think that there's a real opportunity for that, which could also help us not just provide customers with enhanced benefits but help make us the more top-of-mind place for all things home. It creates significant incremental revenue and drives significant profits. We're going to launch that later this year. We've internally figured out the framework of what that is, but we need to build the technology to support it and the marketing plans for it.

Speaker Change: Rewards benefits that are associated with that but we don't have a broad base loyalty program that works, regardless of how you choose to pay <unk>.

Speaker Change: And we think that there's a real opportunity for that which could also help US you know not just for my customers with enhanced benefits, but uhm help make us the more top of mind place for all things home. It create significant incremental revenue N N drive significant profit. So we're gonna launch that later this year we've internally.

Speaker Change: Figure out the framework of what that is but we need to build a technology is supported in marketing plans for it to roll it out so that's coming but the reason I refer to it is we know that customers Love us.

Niraj S. Shah: That's coming, but the reason I refer to it is that we know that customers love us, and we think, A, there's an opportunity to deepen their understanding of what we do. That's where the marketing campaign comes in. We also think there's a lot of things we can do to just cause them to come to us far more often, and that's where the tender-neutral loyalty program plays out. Thanks very much and good luck.

Speaker Change: And we think a there's a opportunity to deepen their understanding of what we do that's where the marketing campaign comes in and and we also think there's a lot of things we could do to just cause them to come to us far more often than that that's where the tender mutual loyalty program plays a big role.

Speaker Change: Got it thanks very much good luck.

Operator: Thank you. Your final question comes from the line of Curtis Nagel from Bank of America. Your line is open. Good morning.

Speaker Change: Thank you.

Speaker Change: Your final question comes from the line of Curtis Nagle from Bank of America. Your line is open.

Kate Gulliver: Thanks for taking the question. Kate, just go back to 1Q and the guidance. Just curious if you could go through the range of outcomes within the mid-single, sorry, the low-single digit EBITDA. How much of that is based on the range of the gross margin? How much of that is revenue?

Brian Nagel: Good morning, Thank thanks for taking my question.

Brian Nagel: With grilled after 212 in the gardens, just curious if we go through.

Brian Nagel: It's kind of the range of outcomes within the <unk> I'm, sorry, they're low single digit.

Brian Nagel: EBITDA and how much is that.

Brian Nagel: Based on the raging over the gross margin and you know how much of that is revenue right.

Kate Gulliver: I think anticipation is it continues into mid-single. So if that got better, what would that mean? But just walking through the most important or the biggest things that could could, you know, drive variability, you know, within that low single would be really helpful.

Brian Nagel: Anticipation as it continues into a single so.

Brian Nagel: Single, so if it got better and what would that mean, but just walking through the most important toward the biggest.

Brian Nagel: Things that could could drive variability within that will single would be really helpful.

Kate Gulliver: Uh, yeah, so, you know, Kurt, obviously we're somewhat unique about the first quarter we're guiding, you know, somewhat seven weeks into the quarter. We said the trend on revenue is, quarter to date, that negative mid-singles. Obviously, if the trend on revenue improved, certainly you'd see more flow through, right? And that could be variability on the bottom line. But generally speaking, that's what we've seen so far, quarter to date. We've maintained that 30 to 31 guidance range on gross margin. You've seen us hit that very consistently over the last several quarters.

Speaker Change: Yeah. So you know cart, obviously were somewhat unique about the first quarter were guiding you know somewhat seven weeks into the quarter. We set the trend on revenue is.

Speaker Change: <unk> date that negative men's singles.

Speaker Change: Obviously, if China revenue and prove certainly you'd see more flooded through right and you know that could be variability on the bottom line, but generally speaking that's what we've seen so far for her to date.

Speaker Change: We've maintained that 30% to 31 guidance random on gross margin anything that hit hit that very consistently over the last several quarters and then obviously on the <unk> in the AD spend that'd be another line that you've seen as you know bring that into that 11 and at 12 and a half very consistently over the last several quarters.

Kate Gulliver: And then obviously on the ACNR and the ad spend being another line that you've seen us on, bring that into that 11 and a half, 12 and a half, very consistently over the last several quarters. Those being two of the more somewhat variable pieces there. Certainly, if revenue were to accelerate from here, would you see more flow through to that low single-digit number? Absolutely.

Speaker Change: Being two of the more somewhat variable pieces are certainly if revenue word you accelerate from here would you seem more flow through to that you know low single digit number absolutely, but I again point you to the fact that we're in the third week of February So we're into the quarter and we see.

Niraj S. Shah: But I again point you to the fact that we're in the third week of February, we're into the quarter, and we see negative mid-singles at this current time. Okay, that makes sense. And then, yeah, just a quick follow-up on the AOV. It sounds like it was, Packet, and certainly more than you expected from, I think you said next, but could we just dig a little bit more into what, you know, change could have such a radical change? Was it, you know, anything you did or, you know, anything like that from a customer perspective?

Speaker Change: Negative mid singles at this current time.

Speaker Change: Okay that makes sense.

Speaker Change: And.

Speaker Change: <unk> it sounds like it was.

Speaker Change: <unk> certainly more than you expected from I think you said mix, but could we just dig a little bit more to what can be changed crib troops, which a radical change was it.

Niraj Shah: Date or like as a customer perspective.

Niraj S. Shah: Yeah, so I think the thing about AOV, I think what I was trying to describe is actually the real phenomenon AOV over the last year and a half has actually been that all the ocean freight inflation has then reversed and has come back out. And as that's come back out, you've seen AOV drop. That's been the primary driver of AOV. But then, as you start anniversarying where it drops, so in other words, it started dropping in the fourth quarter of 22.

Speaker Change: Yeah. So I think thinking about it'll be I think what I was trying to describe is actually the real phenomenon a O V over last year and it has actually been that all the ocean freight inflation, then reversed and has come back out.

Niraj S. Shah: And is that come back out you see it will be dropped that's been the primary driver of it will be but then as you start anniversarying, where it drops so in other words it started dropping in the fourth quarter of 22. The subsequent dropped to the following year is not going to be as high because a lot of the drop it already happened right and so we're just.

Niraj S. Shah: The subsequent drop to the following year is not going to be as high because a lot of the drop has already happened, right? And so we're just in the latter stages of anniversarying that deflation coming out. So over the next couple of quarters, all that deflation will have come out a year ago.

Niraj S. Shah: The latter stages of Anniversarying that deflation coming out so over the next couple of quarters that all that deflation will come out a year ago and so then it'll be will not really be moving for that reason anymore and I. When I was trying to say is that it will be to move for many reasons ready can move for mix of our brands that can move for category Mexican move for next year's season <unk>.

Niraj S. Shah: And so then AOV will not really be moving for that reason anymore. And what I was trying to say is that AOV can move for many reasons, right? It can move for the mix of our brands. It can move for category mix. It can move for mix due to seasonality. And those are primarily the things that move AOV.

Niraj S. Shah: <unk>.

Niraj S. Shah: And those are primarily the things that move annual fee. It's just that the phenomena over the last few words come down a lot. It's due to the deflation and we're nearing the end of that and so you should expect a oveta not necessarily drop as much because we're now finishing the anniversary of of that it'll be so that that that was more just.

Niraj S. Shah: It's just that the phenomenon over the last year where it's come down a lot is due to deflation. And we're nearing the end of that. And so you should expect AOV to not necessarily drop as much because we're now finishing the anniversary of that deflation. So that was more just the question I was trying to answer earlier.

Kate Gulliver: Okay, I got it. Thanks very much. Thanks. And so I just want to thank everybody for joining the call. One more plug, just to encourage you to read our shareholder letter, which is on our investor relations website, which we think you'll enjoy. And obviously, we think we're poised for really great things, both in the tough macro while we can take share. And then as things recover, obviously, significant EBITDA gains are expected this year, regardless of the environment. And, you know, we're seeing great customer success. So, thank you very much for your interest in Wayfair. This concludes today's conference call. Thank you for your participation. You may now disconnect. The Ultimate Parody Site!

Niraj S. Shah: The question I was trying to answer.

Niraj S. Shah: <unk>.

Speaker Change: Okay got it thank you very much.

Kate Gulliver: Thanks, and so I just want to thank everybody for joining on the call 911 more plugged just encourage you to read our shareholder letter, which is on our Investor Relations website, which.

Kate Gulliver: We think you'll enjoy and obviously, we think we're poised for a really great things both in the <unk> macro while we can make sure and then as things recover obviously significant EBITDA gains to come this year, regardless of the environment and we're seeing great customer success. Okay. Thank you very much for your interest and Wayfair.

Kate Gulliver: This concludes today's conference call. Thank you for your participation you may now disconnect.

Kate Gulliver: [noise] [music].