Q1 2024 Wayfair Inc Earnings Call

Krista: Thank you for standing by. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Wayfair first quarter 2024 earnings release conference call. All lines have been placed on mute to prevent any background noise.

Thank you for standing by my name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the wafer first quarter 'twenty 'twenty four earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session if you'd like to ask.

Krista: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one.

A question during that time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw that question again press star one. Thank you I would now like to turn the conference over to James Wang Head of Investor Relations. James You May begin your conference.

Krista: Thank you. I would now like to turn the conference over to James Lamb, head of investor relations. James, you may begin your presentation. Good morning.

James Lamb: Good morning, and thank you for joining us. Today, we will review our first quarter 2024 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 Wang: Good morning, and thank you for joining us.

James Wang: Today, We will review our first quarter 2024 results.

James Wang: With me are nearer Shao co founder Chief Executive Officer, and co chairman.

James Wang: Steve Conine co founder and co Chairman and Kate Gulliver, Chief Financial Officer, and Chief administrative officer.

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

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 second quarter of 2020. All forward-looking statements made on today's call are based on information available to us as of today's date, and we cannot guarantee that any such forward-looking statements will be accurate.

James Wang: 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.

James Wang: Strategies industry trends, and our financial performance, including guidance for the second quarter of 2024.

James Wang: All forward looking statements made on today's call are based on information available to us as of today's date.

James Wang: We cannot guarantee that any forward looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions.

James Lamb: Although we believe that we have been reasonable in our expectations and assumptions, our 10-K for 2023, our 10-Q for this quarter, 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.

Our 10-K for 2023.

Our 10-Q for this quarter.

James Wang: 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.

James Wang: Except as required by law we.

James Wang: 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.

James Lamb: 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-GAAP financial measures and reconciliations of non-GAAP measures to the nearest comparable GAAP measures. 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.

James Wang: 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.

James Wang: Adjusted EBITDA margin and free cash flow.

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

James Wang: 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-GAAP financial measures and reconciliations of non-GAAP measures to the nearest comparable GAAP measures.

James Wang: This call is being recorded.

James Wang: And a webcast will be available for replay on our IR website.

James Wang: I would now like to turn the call over to Nick.

Niraj S. Shah: Thank you, James, and good morning, everyone. We're excited to reconnect to discuss our Q1 results. The first quarter ended on an upswing, as we saw the category show signs of improvement in late February and March following a challenging start to the year, with our own top line results also reflecting this improvement. However, our revenue was down just under 2% year over year for Q1, which marks our sixth straight quarter without performance and share gain within a category that was down in the low double digits over the same period.

Nick: Thank you James and good morning, everyone. We're excited to reconnect to discuss our Q1 results today.

Nick: First quarter ended on an upswing as we saw the category showed signs of improvement in late February and March following a challenging start to the year with our own topline results also reflecting this improvement.

Nick: Our revenue was down just under 2% year over year for Q1, which marks our sixth straight quarter without performance and share gains within a category that was down in the low double digits over the same period.

Niraj S. Shah: Shoppers are increasingly choosing Wayfair, with year over year active customer growth once again positive and accelerating compared to last quarter. Over the past several weeks, we've met with hundreds of our suppliers and at major industry events, and the feedback has been encouraging. Inventory levels have been in a very healthy place for a few quarters now, and our suppliers are largely past the period of elevated input costs and transportation prices that they faced in late 2022.

Nick: Shoppers are increasingly choosing wafer with year over year active customer growth once again positive and accelerated compared to last quarter.

Nick: Over the past several weeks, we met with hundreds of our suppliers at major industry events and the feedback has been encouraging inventory.

Nick: Inventory levels have been in a very healthy place for a few quarters now and our suppliers are largely passed the period of elevated input costs and transportation prices that they faced in late 2022.

Niraj S. Shah: For the first time since pre-COVID, we're seeing suppliers introducing large groups of new products into their catalogs as they look to build momentum for the next stage of growth. Across the board, we're hearing their enthusiasm to partner with Wayfair and their substantial interest to lean in behind our entire offer. Joining our curated brands, being featured in our promotional events, leveraging our fulfillment solutions, taking advantage of supplier advertising, and having shelf space in our store. You've heard this from us consistently for over a year now.

Nick: For the first time since pre Covid, we're seeing suppliers, introducing large groups of new products into their catalogs as they look to build momentum for the next stage of growth.

Nick: Across the board, we're hearing their enthusiasm to partner with wafer and substantial interest to lean in behind her entire offering join.

Nick: Joining our curated brands being featured in our promotional events leveraging our fulfillment solutions, taking advantage of supplier advertising and having shelf space in our stores.

Nick: You've heard this from us consistently for over a year now.

Niraj S. Shah: The sum of all our work is our core recipe further improving to the strongest place we've ever seen it. Availability and speed continue to set records, and we see our price levels as some of the most competitive in the industry. Our offering is responding to shoppers in a powerful way, driving continued momentum in year-over-year active customers. Years from now, we'll look back on the past 24 months as a pivotal moment in the evolution of Wayfair on two vectors. The first will undoubtedly be profitability, as we posted our fourth consecutive quarter of positive adjusted EBITDA.

Nick: The sum of all of our work is our core recipe further improving to the strongest place we've ever seen it avail.

Nick: Availability and speed continue to set records and we see our price levels at some of the most competitive in the industry.

Nick: Our offering is resonating with shoppers and powerful way.

Nick: Arriving continued momentum and year over year active customer growth.

Nick: Years from now we'll look back on the past 24 months is a pivotal moment in the evolution of wafer on two vectors.

First of all undoubtedly be profitability as we posted our fourth consecutive quarter of positive adjusted EBITDA.

Niraj S. Shah: The evolution of our cost structure has set us on a steady path towards the 10% plus adjusted EBITDA margin target we outlined at our Investor Day, and we're on track to deliver on that goal. The second vector will be market share and how years of compounding market share capture set us up for even greater success once the category returns to stability and growth. This has been our focus for many months, ensuring that when customers are ready to lean back into spending on their homes, their answer is Wayfair. At the end of our fourth-quarter call in February, I briefly mentioned three of the many ways we're mobilizing on this goal in 2024.

Nick: Evolution of our cost structure has set us on a steady path towards that 10% plus adjusted EBITDA margin target, we outlined at our Investor day, and we're on track to deliver on that goal.

The second vector will be market share and how years of compounding market share capture sets us up for even greater success once the category returns to stability and growth.

Nick: This has been our focus for many months ensuring that when customers are ready to lean back into spending on their homes their answer is way fair.

Nick: At the end of our fourth quarter call in February I briefly mentioned three of the many ways. We're mobilizing on this goal in 2024.

Niraj S. Shah: A new loyalty offering in the second half of the year, the launch of our first Wayfair branded store later this month, and a new brand campaign which began in March. While still new, I want to take a bit of time to talk through our brand refresh because this is the most substantial evolution to our brand strategy, creative expression, and marketing presence since 2018. Hopefully, by now, many of you have seen our new campaign across social media, television, and email and have explored the refreshed imagery on both the site and our app.

Nick: Our new loyalty offering in the second half of the year.

Nick: The launch of our first wafer branded store later this month.

Nick: Our new brand campaign, which began in March.

Nick: While still new I want to take a bit of time to talk through our brand refresh because this is the most substantial evolution to our brand strategy creative expression and marketing presence since 2018.

Nick: Hopefully by now many of you have seen our new campaign across social media television and email and have explored the refreshed imagery on both the site and our App.

Niraj S. Shah: As I mentioned, our operational goal here is to make Wayfair a habitual part of our customers' lives. When our customers decide they want to buy something new for their homes, be it a new coffee table for the living room as they get ready to host their family on Mother's Day, or a new patio set to replace the deck furniture they bought in 2020, they go directly to Wayfair. We know that no two homes are exactly the same. Shopping for a home is emotionally charged, with needs spanning across styles, spaces, and budgets. We know people have less time than ever.

Nick: As I mentioned are operative goal here is to make wafer a habitual part of our customers' lives.

Nick: When a customer decides they want to buy something new for their homes via the new coffee table for the living room as they get ready to host their family on mother's day.

Nick: Or new patio set to replace a deck furniture. They bought in 2020, they go directly to wafer.

Nick: We know that no two homes are exactly the same shopping for homeless emotive with need spanning across style spaces and budgets, we know people have less time than ever.

Niraj S. Shah: Wayfair is their solution for all things home in one seamless experience. Over more than a decade of operating under the Wayfair banner, we built a customer file exceeding 90 million shoppers and have millions of app users. In fact, last year, we drove over 20% year-over-year growth in app installs.

Nick: Wayfarers, there solution for all things home in one seamless experience.

Over more than a decade of operating under the wafer banner, we built the customer file exceeding 90 million shoppers and have millions of App users.

Nick: In fact last year, we drove over 20% year over year growth in App installs.

Niraj S. Shah: We have strong aided awareness across the US, Canada, and the UK, where Wayfair is a household brand name, and we continue to grow in Germany. The next step in cementing recurring customer behavior is growing our brand preference, which will be a key in unlocking greater share of wallet. We set out a plan for a more evolved vision of how Wayfair connects with consumers. This starts with our overall brand design system made up of a distinctive set of elements.

Nick: We have strong aided awareness across the U S, Canada, and the U K, where wafer as a household brand name and we continue to grow in Germany.

Nick: The next step in cementing recurring customer behavior is growing our brand preference, which will be a key and unlocking greater share of wallet.

Nick: We set out a plan for a more evolved vision of how wafer connects with consumers. This starts with our overall brand design system made up of a distinctive brand set of elements.

Niraj S. Shah: Our logo, color, font, and even our jingle. We've created a focused and distinctive set of assets that are being presented with consistency across all of our channels. Starting with our logo, where you'll see a more streamlined visual and a more vibrant shade of purple.

Nick: Our logo color funds and even our jingle.

Nick: We've created a focused and distinctive set of assets that are being presented with consistency across all of our channels.

Nick: Starting with our logo, where youll see a more streamlined visual and a more vibrant shade of purple.

Niraj S. Shah: Our logo has become the foundational brand element that defines our entirely new storytelling platform, The Waiver. I'm sure you can think of great advertising campaigns that use a consistent storytelling device that endures for many years. Our goal is to one day have the waverhood join that.

Nick: Our logo has become the foundational brand element that defines our entirely new storytelling platform.

Nick: <unk>.

Nick: I'm sure you can all take a great advertising campaigns that use a consistent storytelling device that endorse over many years.

Nick: Our goal is to one day have the waiver had joined Netlist.

Niraj S. Shah: At its center, the Waverhood embraces the notion of home as a place where everyone can express themselves and what they love, with Wayfair as the shopping destination to make that happen for every style and every home. The first thing you'll likely notice in our new Waverhood ads is the cast of characters we've brought together. We've curated a list of celebrities and influencers who each bring their unique fandoms, such as Shawn Johnson East, a former Olympian who's built an incredible audience of new mothers through her own parenting journey, as well as others, including reality TV star Lisa Vanderpump and social media influencer Doran Bradley.

Nick: At its center, the waiver, who embraces the notion of home is a place where everyone can express themselves and what they love.

Nick: With wafer as the shopping destination to make that happen for every style and every hall.

Nick: The first thing you'll likely notice in our new waiver Hood ads is the cast of characters we brought together.

Nick: We've curated a list of celebrities and Influencers, who each bring their unique fandoms, such as Sean Johnson East a former Olympian who has built an incredible audience of new mothers through her own parenting journey.

Nick: As well as others, including reality TV Star Liza vendor pump and social media Influencer Dorothy Bradley.

Niraj S. Shah: And, of course, everyone is brought together by our longstanding brand ambassador, Kelly Clark. Our goal is to ensure that wherever you come from and whoever you are, you'll see someone in the neighborhood that speaks to you in your unique expression. Every timeless brand evolves across a life cycle that begins with establishing an identity. This moves on to building out an experience, which is measured by engagement and audience development. This is where we currently sit on our brand journey. The next stage on our path is to be able to produce memorable, instantly recognizable brand content. For example, everyone recognizes the gecko that wants to sell you insurance.

Nick: Of course, everyone is brought together by our longstanding brand Ambassador Kelly Clarkson.

Nick: Our goal is to ensure that wherever you come from and whoever you are you'll see someone in the waiver Hood that speaks to you and your unique expression of home.

Nick: Every timeless brand evolves across a lifecycle that begins with establishing an identity.

Nick: This moves on to building out an experience, which is measured by engagement and audience development is where we currently sit on our brand journey.

Nick: Next stage on her path is to be able to produce memorable instantly recognizable brand content.

For example, everyone recognizes the gecko that wants to sell you insurance and Thats, what youre seeing as part of this launch.

Niraj S. Shah: And that's what you're seeing as part of this launch. This is what takes us from being a website people know and like on the internet to a brand presence with a fandom of its own. The debut of the Waverhood is the first step on this multi-year journey, and you'll continue to see it evolve in the future as we look to speak with shoppers in an entirely new way. Well, you may have seen some of our Waverhood ads on television as they debuted at the Oscars back in March. And you've likely also been seeing them across all the other screens in your life.

Nick: This is what takes us from being a website people know and like on the Internet to our brand presence with a fandom of itself.

Nick: The debut of the waiver of it is the first step on this multiyear journey and Youll continue to see it evolve in the future as we look to speak with shoppers in entirely new ways.

Nick: Well you may have seen some of our waiver had ads on television as they debuted at the Oscars back in March you would likely also been seen them across all the other screens in your life.

Niraj S. Shah: As part of this brand refresh, we've taken an expanded lens on our advertising channel portfolio, leaning in with renewed strength across many of the biggest channels on which our customers spend significant time. You'll find these new ads across Instagram, TikTok, YouTube TV, and Hulu, to name a few, and our intent is to drive engagement. To give you an example, historically, our Instagram posts were largely a tool to feature specific products or sale events. These were often met with limited attention and less robust discussion, which naturally results in less engagement.

Nick: As part of this brand refresh we've taken an expanded lengths of our advertising channel portfolio leaning in with renewed strength across many of the biggest channels in which our customer spend significant time.

Nick: You'll find these new ads across Instagram, TIK tuck Youtube TV and Hulu to name a few and our intent is to drive engagements to give you. An example, historically our Instagram posts were largely a tool to feature specific products or sale events.

Nick: These were often met with limited attention and less robust discussion, which naturally results in less engagement.

Niraj S. Shah: With the launch of this campaign, we're deliberately aiming to drive more conversation, and our early reads on results are quite positive, especially in ad recall, brand linkage, and social engagement. As I mentioned at the outset, this lives alongside our other initiatives like physical retail and loyalty, and you'll find the Waverhood motif woven throughout as those launch over the course of this year.

Nick: With the launch of this campaign, we are deliberately aiming to drive more conversation and our early reads on results is quite positive, especially in AD recall brand linkage and social engagement.

Nick: As I mentioned at the outset. This lives alongside our other initiatives like physical retail and loyalty.

Nick: You'll find the waiver hood motif woven throughout as those launch over the course of this year. We're thrilled for this next step in our evolution as a brand and a platform.

Niraj S. Shah: We're thrilled for this next step in our evolution as a brand and a platform. Crucially, all the investment we've put behind this launch lives in the existing spend envelopes that we've operated on for years. As many students of Wayfair know well, all our advertising spend is carefully managed to a set of payback targets by channel, and that discipline is not changing. Furthermore, we see considerable long-term benefits to making Wayfair a part of our customer shopping habit. Don't mistake this as an investment cycle where ROI only manifests further down the line.

Nick: Critically all the investment we put behind this launch lives in the existing spend envelopes that we've operated again three years.

Nick: As many students of wafer no well all of our advertising spend is carefully managed to a set of payback targets by channel and that discipline is not changing.

Nick: While we see considerable long term benefits to making way fair a part of our customer shopping habits don't misstate. This is an investment cycle, where ROI only manifests further down the line in.

Niraj S. Shah: In fact, we're continuing to target the same tight prescriptive payback windows across our portfolio with this launch, in large part driven by now scaling up what had been an under-indexed level of investment in these newer chains. Now, before I hand it over to Kate, as we've done for the past several quarters, I want to take a few moments to address some of the major questions that are top of mind for investors right now.

Nick: In fact, we're continuing to target the same tight prescriptive payback windows across our portfolio with this launch in large part driven by now scaling up what had been an under indexed level of investment in these newer chin now.

Nick: Now before I hand, it over to Kate as we've done for the past several quarters I want to take a few moments to address some of the major questions that are top of mind for investors right now.

Niraj S. Shah: The first question we've heard quite often is the threat from Asia-based competitors, as a handful have made fast forays into the U.S. and built a presence over the past year. While we continue to pay close attention to these players, we still find that there are considerable structural differences in their products and offerings compared to ours. From a size perspective, there are very few competitors in the space that can handle the parcel sizes that we manage daily, as our average small parcel order exceeds 30 pounds.

Nick: The first question, we've heard quite often is under threat from Asia based competitors is a handful of made fast forays into the U S and built a presence over the past year.

Kate Gulliver: While we continue to pay close attention to these players we still find that there are considerable structural differences in their products and offerings compared to ours.

Kate Gulliver: The size perspective, they're very few competitors in the space that can handle the parcel sizes that we manage daily as our average small parcel order exceeds 30 pounds.

Niraj S. Shah: The other major area of difference we see is product quality and confidence. Customers love the items they buy on Wayfair, in part because of the effort we take to ensure that they know what they are getting before they click on the buy button. To differentiate ourselves further, we're continuing to roll out more content, such as videos with Wayfair product experts showcasing actual items and bringing to light their dimensions, construction, and quality, all to help shoppers gain additional confidence that the item they've picked will be exactly what they're looking for, rather than taking a gamble on something because it has an attractively low price.

Kate Gulliver: The other major area of difference, we see is on product quality and confidence customers loved the items. They buy on wave here in part because of the effort we take to ensure that they know what they are getting before they click on the buyback.

Kate Gulliver: To differentiate ourselves further we're continuing to roll out more content, such as videos with wafer product experts showcasing actual items and bring them to like their dimensions construction and quality all the hub shoppers gain additional confidence that the item. They picked will be exactly what theyre looking for rather than taking a gamble on something because it hasn't.

Kate Gulliver: Practically low price.

Niraj S. Shah: The second big topic that's come up recently is terrorism. Our category was one of the first impacted back in 2018, with many of the goods we sell incurring a 25% duty that remains in place today. However, much has changed since then.

Kate Gulliver: The second big topic, that's come up recently is tariffs.

Kate Gulliver: Our category was one of the first impacted back in 2018 with many of the goods, we sell incurring a 25% duty that remains in place today.

Kate Gulliver: Much has changed since then.

Niraj S. Shah: While China remains a large center for manufacturing in our space, in the ensuing years, we've seen our suppliers diversify their production to other parts of Asia, including Vietnam and Malaysia. And we continue to expand our supplier base. In short, the industry has become more nimble following the 2018 tariff. Ultimately, we're confident that we'll be able to definitely navigate any incremental pressure, given the breadth of our supplier base, the changes in manufacturing we've seen, and the catalog that we offer to our shop.

Kate Gulliver: While China remains a large center for manufacturing in our space in the ensuing years, we've seen our suppliers diversify their production to other parts of Asia, including Vietnam, and Malaysia, and we've continued to expand our supplier base and short the industry has become more nimble following the 2018 tariffs.

Ultimately, we're confident that we'll be able to definitely navigate any incremental pressure given the breath of our supplier base. The changes in manufacturing, we've seen and the catalog that we offer to our shoppers.

Niraj S. Shah: To wrap up, Wayfair remains a durable share gainer, with multiple initiatives underway to fuel growth into the future. We're doing this at a fundamentally higher level of profitability, which will improve further from here, even with ongoing investments across the business. The power of this combination is something we're very eager to demonstrate as we continue to operate as a leaner, more focused organization. Lastly, let me encourage you to visit us this weekend. Just remember, WayDay offers the best deals of the year and is too good to miss. And with that, I will hand it over to Kate for a walkthrough of our financials for the year.

Kate Gulliver: To wrap up wafer remains a durable share gainer with multiple initiatives underway to fuel growth into the future.

Kate Gulliver: We're doing this at a fundamentally higher level of profitability, which will improve further from here, even with ongoing investments across the business the.

Kate Gulliver: The power of this combination is something we're very eager to demonstrate as we continue to execute as a leaner more focused organization.

Speaker Change: Lastly, let me encourage you to visit US. This weekend just remember <unk> offers the best deals of the year and is too good to Miss.

Speaker Change: And with that let me hand, it over to Kate for a walkthrough of our financials for the quarter.

Kate Gulliver: Thanks, Niraj, and good morning, everyone. Let's dive into our results for the first quarter. Net revenue for the quarter was down 1.6% year over year, driven by orders down 1% and AOV down by just under 1% versus the first quarter of last year. However, active customers grew by 2.8% against the year-ago period, showing continued strength.

Kate Gulliver: Thanks, Nir and good morning, everyone, let's dive into our results for the first quarter <unk>.

Kate Gulliver: Net revenue for the quarter was down one 6% year over year, driven by orders down, 1% and <unk> down by just under 1% versus the first quarter of last year.

Kate Gulliver: Active customers grew by two 8% against the year ago period, showing continued strength.

Kate Gulliver: As Niraj mentioned, this was our sixth consecutive quarter of significant outperformance versus the category, which in Q1 remained depressed in the low double digits range year over year. We know there is a lot of attention around when we will finally see some stability in spending on home furnishings. And while the timing of the inflection point is inherently uncertain, it's important to remember that this is a category where consumers have now structurally underspent compared to typical patterns prior to the pandemic. But we know that, eventually, the mean reverts as life goes on. People get married, they have kids, and kids move out.

Kate Gulliver: As Noah mentioned this was our sixth consecutive quarter of significant outperformance versus the category, which in Q1 remained depressed in the low double digits range year over year.

Kate Gulliver: We know there is a lot of attention around when we will finally see some stability in spending on home furnishing and while the timing of the inflection point is inherently uncertain. It is important to remember that this is a category where consumers have now structurally underspent compared to typical patterns prior to the pandemic.

Kate Gulliver: We know that eventually the mean revert as life goes on people get married they have kids kids without the need for home furnishing never goes away and over time, the category will rebound and returned to its typical pattern of growth.

Kate Gulliver: The need for home furnishings never goes away, and over time, the category will rebound and return to its typical pattern of growth. Within that context, as we approach a back half of 2024 that comps over a declining macro for the category in 2023, we are excited to be launching the Waiverhood campaign with a new voice to get in front of our customers. As our shoppers are ready to get out and update their homes, Wayfair will be top of mind.

Kate Gulliver: Within that context, as we approach the back half of 2020 for the comm silver a declining macro for a category. In 2023, we are excited to be launching the labor had campaign with a new voice did in front of our customers.

Kate Gulliver: As our shoppers are ready to get out and update their whole wafer will be top of mind.

Kate Gulliver: 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. I will use the same basis when discussing our outlook as well. Gross profit came in at 30.1% of net revenue. As discussed in Q4, we plan to continue to take a flexible approach to reinvesting our operational cost savings into a better customer experience in places where we see a strong multi-quarter payback on gross profit dollars while balancing this with our plans for EBITDA margin expansion.

Kate Gulliver: I'll now move further down the P&L.

Kate Gulliver: I do please note that the remaining financials include depreciation and amortization, but exclude equity based compensation related taxes and other adjustments.

Kate Gulliver: We'll use the same basis when discussing our outlook as well.

Kate Gulliver: Gross profit came in at 31% of net revenue.

Kate Gulliver: As we discussed in Q4, we plan to continue to take a flexible approach to reinvesting our operational cost savings into a better customer experience in places, where we see a strong multi quarter payback on gross profit dollars, while balancing this with our plans for EBITDA margin expansion.

Kate Gulliver: Additionally, we had some non-operating headwinds this quarter that caused drag on the gross margin line, one of which was the $6 million charge, or over 20 basis points, for the Canada Border Services Agency review related to duties from prior years. However, controlling for the non-operating costs would put us at the midpoint of our guidance range. Of course, we always see some variability quarter to quarter, but we expect Q1 will represent a low point on the growth margin for 2024.

Kate Gulliver: Additionally, we had some non operational headwinds this quarter that caused drag on the gross margin line, one of which was the $6 million charge or over 20 basis points for the Canada border Services Agency review related to duties from prior years.

Kate Gulliver: Controlling for the non operational costs would put us at the midpoint of our guidance range.

Kate Gulliver: Of course, we always see some variability quarter to quarter, but we expect Q1 will represent a low point on gross margin for 2024.

Kate Gulliver: Customer service and merchant fees were 4.1% of net revenue, showing efficiency as a result of our cost actions in January, while advertising held at 11.9%, even as we launched the biggest brand refresh since 2018. Finally, our Selling, Operations, Technology, General, and Administrative Expenses, or SOTG&A, came in at $416 million, down 14% year-over-year. The ongoing compression here is driven by the net impact of the cost actions we took in January with our workforce realignment plan.

Kate Gulliver: Customer service and merchant fees were four 1% of net revenue showing efficiency as a result of our cost actions in January while advertising held at 11, 9%, even as we launched the biggest brand refresh since 2018.

Kate Gulliver: Finally, our selling operations technology general and administrative expenses or S. O T. G&A came in at $416 million down 14% year over year.

Kate Gulliver: The ongoing compression here is driven by the net impact of the cost actions. We took in January with our workforce realignment plan.

Kate Gulliver: All together, we reported our fourth consecutive quarter of positive adjusted EBITDA at $75 million during the period, for a 2.7% margin on net revenue. Our U.S. segment had $121 million of adjusted EBITDA at a 5.1% margin, while our international segment adjusted EBITDA loss was $46 million. We ended the quarter with $1.2 billion of cash and equivalents and $1.7 billion of total liquidity when including our undrawn revolving credit facility. Net cash used in operations was $139 million, and capital expenditures were $54 million, lower than expected for the quarter due to timing. Pre-cash flow was a negative $193 million.

Kate Gulliver: Altogether, we reported our fourth consecutive quarter of positive adjusted EBITDA at $75 million during the period for a two 7% margin on net revenue.

Kate Gulliver: Our U S segment had $121 million of adjusted EBITDA at a five 1% margin, while our international segment adjusted EBITDA loss was $46 million.

Kate Gulliver: We ended the quarter with $1 2 billion of cash and equivalents and $1 7 billion of total liquidity, when including our Undrawn revolving credit facility.

Kate Gulliver: Net cash used in operations was $139 million and capital expenditures were $54 million lower than expected for the quarter due to timing.

Kate Gulliver: Free cash flow was a negative $193 million.

Kate Gulliver: As you know, Q1 is always a cash outflow quarter due to the nature of our working capital cycle, and free cash flow this past quarter showed an improvement of over $40 million compared to the first quarter of 2023. This is despite revenue declining sequentially by a greater degree than in the Q1 period a year ago, which is the biggest factor impacting net working capital.

Kate Gulliver: As you know Q1 is always a cash outflow quarter due to the nature of our working capital cycle and free cash flow. This past quarter showed an improvement of over $40 million compared to the first quarter of 2023.

Kate Gulliver: This is despite revenue declining sequentially by a greater degree than in the Q1 period, a year ago, which is the biggest factor impacting networking capital.

Kate Gulliver: Now let's turn to guidance for the second quarter. Beginning with the top line, controlling for the timing of way day, which took place in April last year, quarter to date, we are trending approximately flat year over year and expect to end the quarter flat to slightly positive. Moving on to growth margins, we would continue to guide you in a range of 30 to 31%. As I mentioned a moment ago, we would expect Q1 to be the low point for the year.

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

Speaker Change: Beginning with the top line controlling for the timing of way day, which took place in April last year quarter to date, we are trending approximately flat year over year and expect to end the quarter flat to slightly positive.

Speaker Change: Moving on to gross margins, we would continue to guide you in a range of 30% to 31% as I mentioned, a moment ago, we would expect Q1 to be the low point for the year Custer.

Kate Gulliver: Customer service and merchandise are expected to be around 4% of net revenue, while advertising is expected to be in the 11.5 to 12.5% range. As I mentioned earlier, even with the new brand campaign, we are maintaining tight control of our payback period, balancing our mix across the funnel as we scale up channels we've been testing for some time. We expect SOTG&A to be between $410 and $420 million. Just to put this in perspective, the midpoint here is over $150 million lower than where we were two years ago in Q222 when we began our cost action.

Speaker Change: Customer service and merchant fees are expected to be around 4% of net revenue while advertising is expected to be in the 11 five to 12, 5% range.

Speaker Change: As I mentioned earlier, even with the new brand campaign, we are maintaining tight control of our payback period balancing our mix across the funnel as we scale up channels you've been testing for some time.

We expect S O T G&A to be between $410 million to $420 million.

Speaker Change: Just to put this in perspective, the midpoint here is over $150 million lower than where we were two years ago. In Q2 2002, when we began our cost action plan.

Kate Gulliver: Following this guidance through, we would expect adjusted EBITDA margins to be solidly in the mid-single-digit range for the second quarter. As we've talked about for over a year now, this mid-single-digit adjusted EBITDA margin is the launching point for our journey to 10% plus margin. At our Investor Day last summer, we walked through the major drivers to get us to 10% plus, and several hundred basis points of gross margin appreciation. One to two hundred basis points from advertising leverage and two to four hundred basis points from SOTDNA.

Speaker Change: Following this guidance through we would expect adjusted EBITDA margin to be solidly in the mid single digit range for the second quarter.

Speaker Change: As we've talked about for over a year now this mid single digit adjusted EBITDA margin is a launching point for our journey to 10% plus margin.

Speaker Change: At our Investor Day last summer, we walk through the major drivers to get us to 10% plus.

Speaker Change: Several hundred basis points of gross margin appreciation, one to 200 basis points from advertising leverage and two to 400 basis points from S. O T DNA.

Kate Gulliver: This will be a multi-year journey as we balance a thoughtful approach to driving a top-line recovery in tandem with our profitability goals. In January, we outlined a framework for 2024, where flat revenue growth would equate to over $600 million of adjusted EBITDA, reflecting the impact of our cost actions. And this thought model remains appropriate now.

Speaker Change: This will be a multiyear journey as we balance a thoughtful approach to driving the top line recovery in tandem with our profitability goals.

Speaker Change: In January we outlined a framework for 2024 were flat revenue growth would equate to over $600 million of adjusted EBITDA, reflecting the impact of our cost actions and they start model remains appropriate now.

Kate Gulliver: Now let me touch on a few housekeeping items. You should expect equity-based compensation and related taxes of roughly $100 to $120 million. Depreciation and amortization of approximately $103 to $108 million. Debt interest expense of approximately $4 million. And weighted average shares outstanding of approximately $122 million.

Now, let me touch on a few housekeeping items.

Speaker Change: We expect equity based compensation and related taxes of roughly $100 million to $120 million.

Speaker Change: Aviation and amortization of approximately $103 million to $108 million net interest expense of approximately $4 million weighted average shares outstanding of approximately $122 million and capex in a $90 million to $100 million rage, reflecting some catch up in spend that originally had been anticipated in the first quarter.

Kate Gulliver: And CapEx in a $90 to $100 million range, reflecting some catch-up in spend that originally had been anticipated in the first quarter. In combination with our guide on adjusted EBITDA, we would expect considerable free cash flow generation in the second quarter, as is typical in a period with sequential revenue growth. The cost action we've taken over the past two years has set us up for a healthy year of free cash flow generation in 2024, which will be the foundation from which we can begin to de-lever our balance sheet as we look at our upcoming maturity.

Speaker Change: In combination with our guide on adjusted EBITDA, We would expect considerable free cash flow generation in the second quarter as is typical in a period with sequential revenue growth.

Speaker Change: The cost action, we've taken over the past two years has set us up for a healthy year of free cash flow generation in 2024, which will be the foundation from which we can begin to delever our balance sheet as we look at our upcoming maturities.

Kate Gulliver: Before moving into Q&A, I would like to highlight a few of the key takeaways from the first quarter. Against a persistently challenging backdrop within the category, Wayfair is outperforming as a function of its recipe health, durable market share gains, and tight execution. We've shifted to an offensive playbook across our numerous growth drivers, augmented by an exciting marketing refresh and the upcoming grand opening of the first Wayfair-branded fiscal retail store later this month, along with investments in long-cycle efforts such as our forthcoming Tender Neutral Loyalty Program.

Speaker Change: Before moving into Q&A I would like to underscore a few of the key takeaways from the first quarter.

Speaker Change: Against a persistently challenging backdrop within the category wayfarers outperforming as a function of our recipe health durable market share gains and tight execution, we've shifted to an authentic playbook across our numerous growth drivers augmented by an exciting marketing refresh and the upcoming Grand opening of the first wafer.

Speaker Change: Your branded physical retail store later this month.

Speaker Change: Along with investments in long cycle efforts, such as our forthcoming tender neutral loyalty program.

Kate Gulliver: Our profitability gains are solidly on track with our roadmap, and we are incredibly enthusiastic about the future vision of Wayfair that we are driving towards. Thank you, and now Niraj, Steve, and I will be happy to take your questions.

Speaker Change: Our profitability gains are solidly on track with our roadmap and we are incredibly enthusiastic about the future vision of way fair that we are driving towards.

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

Speaker Change: Thank you.

Operator: Thank you. If you would like to ask a question, please press star followed by the number one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw that question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: If you would like to ask a question. Please press star followed by the number one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw that question simply press Star. One again, if you are called upon to ask your question and our listening via loud speaker on your device. Please pick up your handset and ensure that your phone is not on mute when asking your.

Speaker Change: And please limit yourself to one question and one follow up.

Operator: And please limit yourself to one question in one follow-up. Your first question comes from the line of Christopher Horvers with J.P. Morgan. Please go ahead.

Speaker Change: First question comes line of Christopher <unk> with Jpmorgan. Please go ahead.

Christopher Michael Horvers: Thanks. Good morning, everybody.

Christopher: Thanks, Good morning, everybody I was curious on the top line can you talk about where you're seeing the sales inflection to flat to positive here in the second quarter was there any difference between what are sort of short cycle home decor versus longer cycle furniture and can you also share as you think.

Christopher: That quarter to date X way day, what's your view on what the.

Christopher: The category is doing over the past month.

Speaker Change: Sure. Thanks, Thanks, Chris.

Christopher Michael Horvers: I was curious on the top line, can you talk about where you're seeing the sales inflection to, you know, flat to positive here in the second quarter? Is there any difference between, you know, more sort of short cycle home decor versus longer cycle furniture? And can you also share, as you think about that quarter to date ex-wayday, what's your view on what the category is doing over the past month?

Speaker Change: Yes, so on the top line.

Speaker Change: Our business the wafer business index is <unk>.

Speaker Change: More to longer cycle than the whole Tam.

Speaker Change: And you see that in our <unk> right and so I think you've kind of known that and so for us when you look at our overall revenue growth.

Speaker Change: It has to reflect the broad set of categories because mathematically the short cycle stuff, which generally holds up better in a tough economy can't make up for <unk>.

Significant drags by the bigger stuff and so what we're seeing is that we are taking share in a durable way pretty much across the board.

Speaker Change: Because to your second part of your question I think the category remains weak. So you have kind of a weak category, but we havent even weak category is still a very large amount of dollars and those dollars are moving.

Speaker Change: Frankly, most retailers are sort of flat or down very few are really meaningfully gaining and we see the same data that we've seen since 2019. It ourselves it's Amazon countries more on the opening price point lower ticket items, and it's homegoods, which is brick and mortar.

Speaker Change: <unk> focused on it's got a subset of categories.

Speaker Change: Don't overlap up, particularly strong with where we play and Youre seeing the three of us continuing to take market share and in the panel of 80 folks we follow a lot of the other folks frankly are somewhere between challenge to very challenged and so.

Speaker Change: It's a market, where there's things happening even though the overall market has some malaise and youre.

Speaker Change: Youre seeing that that market shares was turning into the numbers youre seeing where we can be positive in a tough market.

Speaker Change: And then my follow up.

Speaker Change: For Kate and neurology as well on the gross margin can you talk about what some of these what all Deb alternative profit pools that the supplier services the advertising I mean, <unk> been trending down on comp.

Speaker Change: On sales growth for a period of time have those profit pool has been growing and contributing to gross margin and what is sort of the shape of the curve look like from a contribution perspective as you move to sales growth. Thank you.

Niraj S. Shah: Sure. Thanks. Thanks, Chris.

Speaker Change: Hey, Chris It's Kate I'll start good morning.

Niraj S. Shah: Um, yeah, so on the top line. You know, our business, the Wayfair business, indexes more to a longer cycle than the whole TAM. And you see that in our AOV, right? And so I think you've kind of known that.

Speaker Change: So.

Kate Gulliver: What I would point you to on as we think about there are multitude of factors that can help drive gross margin over time, one of which certainly is things like advertising and other sort of supplier services.

Kate Gulliver: And we do think that some of that growth independently of revenue. So if you think about advertising. We last spoke about that in depth at our Investor day in August and we said at that point that it was around 1% of revenue.

Kate Gulliver: Clearly theres a lot of opportunity there our focus over the last several quarters has been on sort of two fold one improving the supply we really wanted to test and make sure that we were positioning things in a way that was not detrimental to the customer experience.

Kate Gulliver: And so that meant it took us a little bit of time to work into what was the right amount of supply there and then two improving the supplier engagement with the tooling and making sure that that was working and effective for them. So we do think that some of these areas like advertising can grow even without topline growth. Obviously, if you add topline growth on top of that that helps that.

Kate Gulliver: But even more.

Niraj S. Shah: And so for us, when you look at our overall revenue growth, it has to reflect a broad set of categories because, mathematically, the short cycle stuff, which generally holds up better in a tough economy, can't make up for, you know, significant drags by the bigger stuff. And so what we're seeing is that we are taking share in a durable way pretty much across the board. Because to the second part of your question, I think the category remains weak.

Kate Gulliver: Your next question comes from the line of Maria risks with Canaccord Genuity. Please go ahead.

Niraj S. Shah: So you have kind of a weak category, but even a weak category is still a very large amount of money. And those dollars are moving. And frankly, most retailers are sort of flat or down; very few are really meaningfully gaining. And we see the same data that we've seen since 2019. It's us, it's Amazon, you know, which concentrates more on the opening price point, lower ticket items. And it's home goods, which is brick and mortar, you know, and focuses on this kind of subset of categories that don't overlap but are particularly strong with where we play.

Maria Ripps: Great Good morning, and thanks for taking my questions.

Maria Ripps: First it sounds like you.

Maria Ripps: You have been sort of.

Maria Ripps: A lot of success driving order growth with repeat customers, but it sounds like orders from new customers have been a bit soft last couple of quarters.

Maria Ripps: Is that largely sort of a function of category weakness and.

Maria Ripps: Is there anything that maybe you can share in terms of your efforts to re engage some of the lapsed buyers have bring kind of new buyers on board, especially as the category starts recovering.

Maria Ripps: Okay.

Niraj S. Shah: And you're seeing the three of us continue to take market share. And in the panel of AD folks, we follow a lot of the other folks, you know, frankly, are somewhere between challenged to very challenged. And so it's a market where things are happening, even though the overall market has some malaise. And you're seeing that that market share is what's turning into the numbers you're seeing where we can be positive in a tough market.

Speaker Change: Thanks, Brian.

Speaker Change: I guess, what I would say is I think we're seeing good momentum with both.

Christopher Michael Horvers: And then my follow up for Kate and Niraj as well, on the gross margin, can you talk about what some of these what I'll dub alternate profit pools, the supplier services, the advertising, I mean, you've been trending down on comp, on sales growth for a period of time, have those profit pools been growing and contributing to gross margin? And what is sort of the shape of the curve look like from a contribution perspective? As you move to sales growth?

Speaker Change: Now remember we have a lot of customers that we've engaged with over time and the way. Those metrics work is you can only be a new order once ever so that while the active customer number yugo fallout. If you don't buy in 12 months and then you can come back and do if you buy the new orders repeat orders you would have to be.

Kate Gulliver: Thank you. Hey Chris, it's Kate. I'll start.

Kate Gulliver: Hey Chris, it's Kate. I'll start. Good morning. So, what I would point you to as we think about that, there are a multitude of factors that can help drive growth margin over time. One of these certainly is things like advertising and, you know, other sort of supplier services. And we do think that some of that grows independently of revenue. So if you think about advertising, we last spoke about that in depth at our investor day in August, and we said at that point that it was around 1% of revenue. You know, clearly, there's a lot of opportunity there.

Speaker Change: Buying for literally the first time ever going back in our history.

Kate Gulliver: Our focus over the last several quarters has been on, you know, sort of twofold. One, improving the supply. We really wanted to test and make sure that we were positioning things in a way that was not detrimental to the customer experience. And so that meant that, you know, it took us a little bit of time to work out what was the right amount of supply there. And then two, improving supplier engagement with the tooling and making sure that that was working and effective for them.

Speaker Change: And so when we talk about I think earlier, we referenced.

Kate Gulliver: So we do think that, you know, some of these areas, like advertising, can grow even without top line growth. Obviously, if you add top line growth on top of that, that helps that contribute even more.

Speaker Change: The customer filed 90 million customers.

Speaker Change: For example, a bit of a feels like the reach and so what I would say is when you see I think.

Speaker Change: It's been roughly 2 million new orders a quarter, we think thats, a pretty strong number considering the state of the economy.

Speaker Change: And the fact that really one of the bigger opportunities for US is when you look at the breadth of the people we've encountered some time in the last year and 20 odd years. When you start thinking about their potential to become a habitual customer buying from us Many times a year why were excited about the loyalty program why we're excited about all the things we're doing that cause you to prefer us more and more that the all those orders.

Speaker Change: Whether you bought with us in the last year or not those would all be repeat orders and that's why that's an 80% plus number and so.

Speaker Change: Guess, what I would say is we feel quite strong about our performance in the tough macro that we're in right now on both the side of people who've been very engaged we are in the active customer number already.

Speaker Change: As well as folks who maybe haven't bought recently orbit truly new to us and lastly, I'll touch on is when you think about the brand campaign and some of the things we're doing.

Speaker Change: Those are meant to deepen relationships with existing customers, but also drawing new customers, obviously things like the loyalty program coming later this year would be something that allows folks to kind of engage with us and then drive frequency and so there's a lot of different things, we're working on that very excitement.

Speaker Change: Got it that's very helpful. And then secondly is there anything you can share that maybe could help us contextualize the potential contribution to sales from your large format wafer Stuart like later this year, maybe even next year I guess, how much does a comparable sized furniture store from other retailers typically generate an annual sales.

Speaker Change: And maybe how are you thinking about sort of measuring the halo effect and potential uplift to online sales.

Speaker Change: Yeah. Thanks, Matt. So we're excited about the launch of the first large format wafer store that actually opens later this month on May 23.

Speaker Change: Located just north of Chicago in Wilmette, which is sort of for those who know Chicago.

Speaker Change: Right in the center of a dense suburban area, which would be where we find a great population of our customers.

Speaker Change: 150000 square foot store.

Speaker Change: And so we think that size allows us to take the breadth and depth of what <unk> represents.

Speaker Change: Has it come to life and hopefully you all have a chance to visit sometime over the.

Speaker Change: Months as Youre in Chicago, We would encourage you to is about 10 miles north to encourage yet.

Speaker Change: Definitely check it out.

Speaker Change: We obviously are very excited to see what the sales performance is and how it plays out.

Speaker Change: To answer your question, what do others generate per square foot in size store of that size.

Speaker Change: There's a fairly wide range of answers to that actually because every retailers optimize in a different way different categories that youll difference dollars per square foot.

Speaker Change: And so one of the reasons, we've approached physical retail in this organized methodical way, we're really launching a couple of stores for each of our brands and then iterating to make sure that we really dial it in before we then scale is to make sure that the unit economics work the way, we expect that the customer loyalty that it and genders and creates which would be both online.

Speaker Change: Off line works the way that we would expect et cetera, and we don't necessarily expect that you get that right out of the gate you Brian to iterate and so that's why we're not opening 20 stores at once right. We're getting we're opening one now and we are doing in a very measured way.

Speaker Change: Do have ways to measure the halo that would be your take the trade the trade radius and that you see with.

Speaker Change: Pre post Lyft Lyft is with the lift is versus twin markets, where you haven't launched a store you attract customers who engage in one side with the joining us. So theres you triangulate in on it and so over over the quarters to come as we start to get data.

Speaker Change: Sure what we're finding but we're very excited about the launch of it yeah.

Speaker Change: Maria This is Kate I would add is we look at the store were focused on looking at the stores both on their Standalone four wall economics, the way a traditional retailer might look at that and looking at it with a halo impact and as George mentioned, we've been sort of Iterating on this for a little bit of time, we have a handful of our smaller format store.

Speaker Change: Or is open and we've been able to use those models to test out learnings about how to operate the store of course, but actually to test out how to think about halo any impact there.

Speaker Change: Great. Thank you so much for the color.

Maria Ripps: Your next question comes from the line of Maria Ripps with Canaccord Genuity. Please go ahead.

Speaker Change: Your next question comes from the line of Colin Sebastian from Baird. Please go ahead.

Maria Ripps: Great, good morning, and thanks for taking my questions. First, it seems like you have been sort of, you had a lot of success driving sort of order growth with repeat customers, but it seems like orders from new customers have been a little bit soft in the last couple of quarters. Is that largely sort of a function of category weakness? And is there anything that maybe you can share in terms of your efforts to re-engage some of the left-behind buyers or new buyers on board, especially as the category starts recovering?

Colin Alan Sebastian: And good morning.

Colin Alan Sebastian: I guess first off near the brand campaign is off to a good start it might also be helpful to understand how much of that spend is a reallocation from performance or direct response channels. If that's the right way to think about it in kind of gauging the impact on traffic or conversion from that change.

Niraj S. Shah: Thanks, Maria. I guess what I would say is I think we're seeing good momentum on both. Now, remember, you know, we have a lot of customers that we've engaged with over time, and the way those metrics work is you can only be a new order once, you know, ever. So while the active customer number, you fall out if you don't buy in 12 months, and then you can come back and do it if you buy new orders, repeat orders. You would have to be buying for literally the first time ever, right, going back and forth.

Colin Alan Sebastian: And then and then secondly, my follow up I guess would be your comment around App downloads was interesting I think last year, you highlighted the importance of the app and driving engagement.

Colin Alan Sebastian: And then also tools like <unk> and augmented reality. So I was hoping maybe for an update on your efforts there to drive those downloads and usage.

Colin Alan Sebastian: Realizing that some of the emerging competitors or more app focused as well. Thank you.

Colin Alan Sebastian: Yeah.

Niraj S. Shah: And so when we talk about, you know, I think earlier we referenced the customer file, 90 million customers, you know, so that gives you, you know, for example, a bit of a feel for the reach. And so what I would say is, when you see, you know, I think it's been roughly 2 million new orders a quarter. We think that's a pretty strong number considering the state of the economy.

Speaker Change: Thanks, Tom So on your first question, which was around the brand campaign in the advertising spend.

Speaker Change: What I would say is.

Niraj S. Shah: And the fact that really, one of the bigger opportunities for us is when we look at the breadth of the people we've encountered sometime in the last, you know, 20 odd years, when you start thinking about, you know, their potential to become a habitual customer buying from us many times a year, why we're excited about the loyalty program, why we're excited about all the things we're doing that cause you to prefer us more and more. That all those orders, whether you bought with us in the last year or not, would all be repeated. And that's why that's an 80% plus number.

Speaker Change: Over the years, you've seen that our top of funnel.

Speaker Change: <unk> has grown.

Speaker Change: We started television a decade ago and.

Speaker Change: Associate with that channel have grown over time.

Speaker Change: I think one of the things there are certain other channels around.

Speaker Change: Social and other.

Speaker Change: Other streaming formats that I'd say, we probably have under indexed in that we're increasing our spend in <unk>.

Speaker Change: So to your point, whether you think of that as a reallocation or a focus on the channels, but by being tight everywhere. The overall AD spend envelope stay the same.

Niraj S. Shah: And so I guess what I would say is, you know, we feel quite strong about our performance in the tough macro that we're in right now, on both the side of the people who've been very engaged or in the active customer number already, repeaters, as well as folks who maybe haven't bought recently or who are truly new to us. And the last thing I'd touch on is when you think about the brand campaign, some of the things we're doing, those are meant to deepen relationships with existing customers but also attract new customers.

Speaker Change: You could think about those different ways, but I wouldn't try to think of it as like some wholesale change.

Speaker Change: There is a shift but it's.

Speaker Change: We're making sure that mathematically, it's creating a payback and an overall.

Speaker Change: The return on the media mix basis that actually is very good for us.

Niraj S. Shah: Obviously, things like the loyalty program coming later this year would be something that allows folks to kind of engage with us and then drive frequency. And so there's a lot of different things we're working on that we are very excited about.

Speaker Change: And it's not so dramatically different than yesterday that youre not sure. What you are and what's going to happen right sounds like were just pull it all out of here we'd put it over there now we do see what happen happens and then I'd say the brake, giving we're very excited that what started but again the impact of these brand campaigns when they're very successful happens overtime thats quarters in years, and so we're super happy with how it's launched.

Speaker Change: I would say, it's very premature to say whether it will achieve what we have is very high goals for it but our advertising effectiveness is working very well and the vast majority of the dollars are ones that you can really track very tightly and so it is really not much.

Speaker Change: The room for that to be off is really not in others.

Speaker Change: The second part of your question or second question unrelated I guess.

Speaker Change: Mobile in apps.

Speaker Change: The engagement of your comment.

Speaker Change: A comment we made about app downloads and what are we doing how do we think about that.

Speaker Change: Well, it's been a trend that's going on for many years now which is that mobile is taking share relative to desktop.

Speaker Change: Whatever way you cut it mobile web is still a very big component and then obviously, we have a vested interest for that customer to download the app because that app that makes it much easier to keep them in the ecosystem and it's a much.

Speaker Change: As the state of who they are they just click and they're right in the middle of the experience. We can do app notifications and what we're seeing is that.

Speaker Change: We are worried about the mobile web experience and great and the atmosphere. It's great and then we're also doing things to encourage folks to download the app and use the app, which is make their life easier and allow them to deepen their connection to us and there's a whole series of things there whether it be some of.

Speaker Change: The things, we can do officially with the camera whether it be like App only sales, which we've done some of over time, whether it be other functionality, we put in the App and so theres a series of things. We have done there is more we're planning to do and what we're seeing is that customers are increasing.

Speaker Change: I understand the benefits of the App as well so you see them moving in that direction.

Speaker Change: And then in our case, we still worry about the desktop or large screen experience being very good you say why if it's moving towards yet one of the reasons in our category. If youre just app focus I think that works fine.

Speaker Change: Food delivery I think that works fine. If you are selling very low cost very kind of items that you don't worry about durability, but we saw a lot of things, which we will consider.

Speaker Change: Need to plan and to think about it they might be putting multiple items together they may.

Speaker Change: They may do this over a series of visits they sometimes use a shopping cart or other list functionality, we have to create large list and then winnow it down as I share. These with others, who then they're planning on these items.

Speaker Change: So there's a set of functionality that a large screen. When you talk about some very visual with a lot of content information is very useful for us. So I think our experience has honed for our categories and I think thats why we care about the whole spectrum of devices more and some others would worry maybe youre reordering pet food is a main use case and then I think that obviously the functionality and ease.

Speaker Change: Or an app as maybe all you need.

Speaker Change: Okay. Thanks, Eric.

Maria Ripps: Got it, that's very helpful. And then secondly, is there anything you can share that maybe could help us contextualize the potential contribution to sales from your large format Wayfair store later this year and maybe even next year? I guess, how much does a comparable-sized furniture store from other retailers typically generate in annual sales? And, and maybe how are you thinking about sort of measuring the halo effect and potential uplift to online sales?

Speaker Change: Your next question comes from the line of Peter Keith from Piper Sandler. Please go ahead.

Niraj S. Shah: Yeah, thanks. So we're excited about the launch of the first large format Wayfair store that opens later this month on May 23. It's located just north of Chicago in Wilmette, which is, for those who know Chicago, that's right in the center of a dense suburban area, which would be where we find a, you know, great population of our customers. It's a 150,000 square foot store. And so we think that size allows us to take the breadth and depth of what Wayfair represents and have it come to life. Hopefully, you'll have a chance to visit sometime, you know, over the coming months when you're in Chicago. We'd encourage you to go. It's about 10 miles north.

Niraj S. Shah: We encourage you to, you know, definitely check it out. We're obviously very excited to see what the sales performance is and how it plays out. You know, to answer your question, what do others generate per square foot, or is size sort of that size? There's a fairly wide range of answers to that, actually, because every retailer is optimized in a different way, different categories that yield different dollars per square foot.

Niraj S. Shah: And so one of the reasons we've approached physical retail in this organized and methodical way, where we're only opening, you know, a couple of stores for each of our brands and then iterating to make sure that we really dial it in before we then scale, is to make sure that the unit economics work the way we expect them to, with the customer loyalty that it engenders and creates. Which would be both online and offline, works the way that we would expect, etc. And we don't necessarily expect that you will get that right out of the gate. You probably have to iterate over some things.

Niraj S. Shah: And so that's why we're not opening 20 stores at once. Right? We're opening one now.

Peter Jacob Keith: Hey, good morning, everyone.

Niraj S. Shah: And, you know, we're doing this in a very measured way. We do have ways to measure the halo. That would be, you know, you take the trade, the trade radius, and then you see what the, you know, pre-post list lift is, what the lift is versus, you know, twin markets where you haven't launched a store. You track customers who engage with you on one side and what they do on the other side. So there's a you triangulated on it. And so in the quarters to come, you know, as we start to get data, we'll share what we're finding. But we're very excited about the launch of it. Yeah Maria

Peter Jacob Keith: You've talked on the 10% plus EBITDA margin target from the analyst day I was hoping you could also just refresh us back to the sales growth target, where I think you were calling for a sales CAGR of greater than 15%.

Kate Gulliver: Yeah, Maria, this is Kate. I would add, you know, as we look at the store, we're focused on looking at the stores both on their standalone four-wall economics, the way, you know, a traditional retailer might look at that, and looking at it, you know, with a halo impact. And as Neeraj mentioned, we've been sort of iterating on this for, you know, a little bit of time; we have a handful of our smaller format stores open, and we've been able to use those models to, you know, test out learnings about how to operate the store, of course, but actually to test out how to think about halo and the impact there.

Peter Jacob Keith: How are you feeling about that target today, and maybe it's a simple math that if the category is down negative low double digit and you get back to.

Operator: Great, thank you so much for the call out.

Peter Jacob Keith: So positive low single digit you are at your target, but maybe flesh that out for us and even some of those six drivers that you've highlighted within the target what's working for you right now.

Speaker Change: Yes, I think I think you're hitting on it really well, which is obviously, we through our history of growing at a very significant growth rate and we are still even at the $12 billion in revenue very small relative to the Tam we have obvious initiatives across various different segments of the Tam you mentioned someone mentioned the forthcoming retail store or we have to have a luxury platform in parallel.

Peter Jacob Keith: Gold ore, we have businesses outside of the United States, and Canada, and Germany, and the U K, we haven't b to B business and weaker professional net sizable so.

Peter Jacob Keith: Anything with the opportunity across each one right and then you add it up that's our total opportunity.

Peter Jacob Keith: The way to think about it.

Peter Jacob Keith: You talked.

Peter Jacob Keith: <unk> talked about really the best way to think about it which is where are we growing relative to where the market is and you talked about that excess share and then obviously in an upmarket it's easier to take share frankly than in a down market because it's an expanding pie, whereas the contracting pie and so you can see what we're doing now that you can think about how that would look as you said.

Peter Jacob Keith: This market, let's look at.

Peter Jacob Keith: Long term CAGR of the categories for the online piece as long term CAGR has been 12 ish.

Peter Jacob Keith: What's that baseline then you bridge from that baseline and you say well, what's the extra share we're taking through the initiatives that we are executing on what's the extra share. We could then take overtime with the initiatives that we're going to grow that we're working on in the early stages of what does that add up to that adds up to <unk>.

Peter Jacob Keith: <unk> double digit compounded growth number and you can kind of see that thats real just by looking at the bridge today from where we are towards the market and then doing some of the math I just I just talked about so I think that.

Peter Jacob Keith: Probably the best way to think about it.

Peter Jacob Keith: And one of the things we talked about is that we can do this well we scale earnings the way, we think about earnings I tend to think about earnings not in the way it looks like to think about earnings I'd like to think about earnings in a way that really gets at the true economic power of the business right, which is basically sure take EBITDA, but then subtract out capex and subtract out the equity comp.

Peter Jacob Keith: You folks right and so what is that cash that we're generating in the business from from the operations, we're doing and how can that grow and when we think about these opportunities how can that grow while we're investing in scaling these opportunities and I think that's what you're starting to see in our financials is that we can actually scaling the profitability of the business while investing.

Peter Jacob Keith: For growth and seeing that return in the <unk>.

Peter Jacob Keith: Excess growth rate relative to the market and Thats, what youre going to continue to see play out because a lot of things. We're investing in are not even showing up in that growth rate yet but will.

Speaker Change: Okay very interesting thank you.

Speaker Change: And I guess part of.

Speaker Change: The margin expansion and scaling what would be your supplier services I'm curious on coming off of high point you mentioned.

Speaker Change: A lot of conversations with suppliers, presumably profitability suppliers is better with the lower transportation cost et cetera, but the industry backdrop is really sluggish so what's the mood of the supplier community right now to lean in on on your services is there some hesitation or or are they kind of full systems go to help that.

Speaker Change: The sales trend up.

Speaker Change: I think suppliers see that the market landscape. As you said is sluggish, but I think suppliers also see that demand is getting concentrated in the hands of a small number of successful retailers and they're focused on that cohort of customers that they work with how do I get more share with those those folks whether that be a regional brick and mortar player whether abbvie.

Speaker Change: The way fair, whether that be whomever because they see that their future is tied to the ones who win not the broad set of customers, maybe who historically had more of a more of a peanut butter spread.

Speaker Change: The other thing we're seeing is that they are very forward looking now that the inventory overhang has been worked through their very forward looking at how do I build the business. So we saw the largest new introductions that we've seen in.

Speaker Change: Since COVID-19.

Speaker Change: And I would say larger on average than what they were doing each cycle pre COVID-19, so they're tough to extrapolate a little bit of catch up and being aggressive there.

Speaker Change: We're seeing that when you think about operating on our platform, whether youre thinking about participating or promotions or anything about how you price on our platform and you're thinking about how we integrate logistics you think of how user advertisers, we're seeing keen interest because again, they're saying hey wafer is one of the handful I think there is going to do very well, how do I do very well on that platform and then they'll go to their next significant customer.

Speaker Change: Wherever that is and maybe that's a <unk>.

Speaker Change: <unk> store brick and mortar channel.

Speaker Change: Okay. They are winning in that geography, how do I do more with them and they will go to the next.

Speaker Change: Thinking about a very small portion of their total customer base the thing about the ones that they can win with.

Speaker Change: And so I think now that the excess inventory has been worked through youre seeing supplier focus on investing in the right spots being very high.

Speaker Change: Yes.

Speaker Change: Very helpful. Thanks, so much.

Colin Alan Sebastian: Your next question comes from the line of Colin Sebastian from Baird. Please go ahead. Thanks.

Speaker Change: Your next question comes from the line of Jonathan <unk> from Jefferies. Please go ahead.

Speaker Change: Okay.

Colin Alan Sebastian: Thanks and good morning. I guess, first off, Niraj, the brand campaign is off to a good start. It might also be helpful to understand how much of that spend is a reallocation from performance or direct response channels, if that's the right way to think about it, and kind of gauging the impact on traffic or conversion from that change. And then, or my follow-up, I guess, would be, Niraj, your comment around app downloads was interesting.

Jonathan: Oh, great. Thanks for taking my questions first one was on international it looks like profitability because step back this quarter.

Jonathan: Whats the path ahead near term should we expect less worse drag as the year goes on and medium term how should we think about the path to initial quarterly breakeven EBITDA abroad.

Colin Alan Sebastian: I think last year you highlighted the importance of the app in driving engagement, and then also tools like Gen AI and augmented reality. So I was hoping maybe for an update on your efforts there to drive those downloads and usage, realizing that some of the emerging competitors are more app-focused as well. Thank you.

Speaker Change: Yes, Thanks, Ryan let me add a couple of comments and then let me turn it over to Kate to give some of the specific.

Niraj S. Shah: Thanks, Tom. So on your first question, which is around the brand campaign and advertising spend, what I would say is, you know, over the years, you've seen that our top of funnel ad spend has grown, right? You started, we started television, you know, a decade ago, and the dollars associated with that channel have grown over time. You know, I think one of the things there are certain other channels around, you know, social and other, you know, streaming formats that I'd say we probably have underindexed in that we're increasing our spending.

Niraj S. Shah: And so to your point, you know, whether you think of that as a reallocation or a focus on those channels, but by being tight everywhere, you know, the overall ad spend envelopes stay the same, I think you'd think about those in different ways. But I wouldn't try to think of it as like some wholesale change, you know, there's a shift, but we're making sure that mathematically, it's creating a payback and an overall return on the media mix basis that actually is very good for us. And it's not so dramatically different from yesterday that you're like, you're not sure what you're what's going to happen, right? It's not like we've just pulled it all out of here; we put it over there, and now we need to see what happens.

Speaker Change: Kind of.

Kate Gulliver: Financial outlook.

Kate Gulliver: Information you asked for.

Kate Gulliver: So as they do.

Kate Gulliver: And in the International segment, we've got Canada, the U K, we have Germany.

Speaker Change: And we have.

Speaker Change: Small business, Ireland, and what you see is that actually each one of those is performing quite well, we're actually now at a point, where we're taking market share in each of them and the unit economics in each of them has improved significantly as headed the right way.

Speaker Change: And so a lot of what we've done in cost over the 18 months that kind of started in December 'twenty, two got us to a great place across the board and so we're very excited with how that's playing out.

Niraj S. Shah: And then I'd say the brand campaign. We're very excited with how it started. But again, the impact of these brand campaigns, when they're very successful, happens over time, that is, quarters and years. And so we're super happy with how it's launched. But I would say it's very premature to say whether it'll achieve what we have are very high goals for it.

Speaker Change: I would say that there is some fixed cost so for prop for inherent segment to be profitable.

Speaker Change: An element of the growth needs to get to a certain level to overwhelm a certain degree of fixed costs and I would also say there is some accounting things about how our corporate overhead gets spread that isn't there in both of those will just play out over time. So we feel good about the trajectory, but maybe Kate can provide some more.

Niraj S. Shah: But you know, our advertising effectiveness is working very well, and the vast majority of the dollars are ones that, you know, you can really track very tightly. And so it is really not much, you know, Yeah, the room for that to be off is really not there. The second part of your question, or the second question, unrelated, I guess, was around mobile and apps and the engagement you told me about the comment we made about app downloads and what we are doing, and how do we think about that? What do we think about that? Well, it's been a trend that's been going on for many years now, which is that mobile is taking share relative to desktop.

Niraj S. Shah: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , They need a plan, they need to think about it. They might be putting multiple items together. They may do this over a series of visits. They sometimes use a shopping card or other list functionality we have to create large lists and then window it down.

Kate Gulliver: Jonathan just as a reminder, when you look at the segment breakout on international and the U S. Obviously, the corporate costs are allocated based on the revenue and so as that mix changes the amount of corporate cost that gets allocated can shift around a little bit.

Kate Gulliver: As we look at international as you said, we're encouraged by the signs that we're seeing there we're seeing things go according to the plan.

Kate Gulliver: And in particular, if you look at that EBITDA loss in the trailing 12 month period of losses, roughly half of what it was prior and I think that shows really the nice improvement that we're making there and the steady gains.

Niraj S. Shah: They sometimes share these with others who then apply them to these items. So there's a set of functionality that a large screen, when you talk about something very visual, with a lot of content information, is very useful for. So I think our experience is honed for our categories, and I think that's why we care about the whole spectrum of devices than some others would, where, you know, maybe you're reordering pet food as a main use case. And then I think that, obviously, the functionality and ease of an app is maybe all you need.

Peter Jacob Keith: Your next question comes from the line of Peter Keith from Piper Sandler. Please go ahead.

Speaker Change: That's helpful. Thanks for the color and then just to follow up on <unk> I know you usually this is.

Kate Gulliver: <unk> output.

Niraj S. Shah: The consumer ultimately.

Kate Gulliver: Decides this versus an input in your models, but.

Kate Gulliver: It was down very slightly this quarter less than 1% so.

Kate Gulliver: Howard how are you thinking internally about the trajectory for that is there anything you saw this quarter in units per transaction or trade down activity.

Peter Jacob Keith: Hey, good morning, everyone. So you talked about the 10% plus EBITDA margin target from analyst day. I was hoping you could also just refresh us on the sales growth target, where I think you were calling for a sales CAGR of greater than 15%. How do you feel about that target today? And maybe it's just simple math that if the category is down negative low double digit, you get back to positive low single digit, and you're at your target. But maybe flesh that out for us. And even some of those six drivers, Niraj, that you've highlighted within the target, what's working for you right now?

Niraj S. Shah: Yes, I think you're hitting on it really well, which is obviously, we have grown at a very significant growth rate, and we're still even at 12 billion in revenue, very small relative to TAM. We have obvious initiatives across various different segments of the TAM. You mentioned that someone mentioned the forthcoming retail store, or we have a luxury platform in Paragold, or we have businesses outside of the United States and Canada, in Germany, in the UK, you know. We have a B2B business, a Wayfair professional that's the size of the world. So you need to think about the opportunity across each one, right?

Howard: That would lead you to believe.

Howard: Laddish trends in <unk> for the second half could be potentially conservative.

Niraj S. Shah: And then you add it up, that's our total opportunity. The way to think about it, you know, I think you talked about really the best way to think about it, which is, where are we growing relative to where the market is, and you talk about that excess share. And then obviously, in an up market, it's easier to take share, frankly, than in a down market because it's an expanding pie versus a contracting pie.

Howard: Yeah, So what I would say, it's like the big thing that drove <unk> over the last few years with all the inflation that came in during the three types of product scarcity. During COVID-19, followed by supply chain congestion during Covid and then subsequently, particularly the ocean freight costs. It came back down all the deflation that ensued.

Howard: Given that that is largely behind us what youre back to is the dominant thing that will drive <unk> over.

Howard: Over time broadly is more of a seasonal cadence we have different category mix throughout the year and so <unk> was up and down based on that.

Niraj S. Shah: And then inside of our business there.

Niraj S. Shah: If <unk> grows faster than the rest of the business that would raise it will be because our luxury platform as <unk>. For example, so you could have some mix shift, but I think youre back to see a more normal pacing of <unk> like you would've seen pre Covid then those wild swings you saw during Covid I think you can think.

Niraj S. Shah: It is kind of normalized now.

Speaker Change: Great. Thanks, so much.

Niraj S. Shah: Your next question comes from Simeon Gutman with Morgan Stanley. Please go ahead.

Speaker Change: Thanks. Good morning. Thanks for the question. My first question, if we take the seasonality in orders from the first quarter and you take the seasonality in the Lv.

Niraj S. Shah: It would've suggested that by the second quarter, we should be maybe flat to slightly positive.

Niraj S. Shah: Then solidly positive in sales by the back half.

Speaker Change: I'm not asking about how conservative the guidance or I don't know if theres a guidance range, but is there any reason the seasonality process doesn't work for whatever reason it sounds like you have advertising campaign.

Niraj S. Shah: You have a new store coming so there should be maybe good guys, just thinking about seasonality not bad, but making sure that that logic right.

Niraj S. Shah: And so you can see what we're doing now, then you can think about how that would look if you said, you know, instead of this market, let's look at, you know, the, you know, long-term category, the categories for the online pieces, the long-term category has been, you know, 12 ish, what's that baseline, then you bridge from that baseline, and you say, well, what's the excess share What's the excess share we could then take over time with the initiatives that we're going to grow that we're working on the early stages of?

Speaker Change: Yeah, So what I would say.

Niraj S. Shah: What does that add up to? It adds up to, you know, a significant double-digit compounded growth number. And you can kind of see that it's real just by looking at the bridge today from where we are to where the market is and then doing some of the math I just talked about. So I think that that's probably the best way to think about it. And, you know, one of the things we talked about is that we can do this while we scale earnings. You know, I tend to think about earnings not in the way accountants like to think about earnings. I like to think about earnings in a way that really gets at the true economic power of the business, right?

Niraj S. Shah: So what I agree with us last year the category had significant deceleration.

Niraj S. Shah: There was deceleration that happened in the back half of last year as well as earlier in the year and so the slope of last year's this negative slope. So this year. If you do not see significant macro deceleration on a sequential basis the category compares.

Niraj S. Shah: Our compares that everyone's compares get much easier in the back half than they are now.

Niraj S. Shah: So I think thats, what youre pointing out mathematically to be true.

Speaker Change: We would we would totally agree with that I think the question is maybe you don't see as much macro deceleration this year as last year, but maybe you see some so maybe just rolling it forward, 100%, maybe maybe that may may or may not happen.

Niraj S. Shah: But as we said like we're flat year over year right now and we were negative 2% in the first quarter so to your.

Niraj S. Shah: The numbers you were talking about.

Niraj S. Shah: That's kind of what you said as well so we're pretty optimistic about how this plays out because you have the math of the category and how that should make compares easy and then frankly, we're continuing to take market share and we feel very good about the position we have and so there's obviously a lot of other variables that are out there and obviously the fed to their latest update yesterday.

Niraj S. Shah: What they choose to do affects.

Niraj S. Shah: Affects the overall macro economy could affect it would affect us.

Niraj S. Shah: So those things are hard to guess, but that's kind of that's kind of my answer, but maybe cate will give you some more detail by quarter or something.

Speaker Change: Youre not going to give detail by quarter as you Anthony in both now.

Niraj S. Shah: I mean, I think what I would say is that we are very focused on what we can control, which is that ongoing sharing A&P and so thinking about our own seasonality is a helpful way to look at it and thinking about how we continue to gain share I think is a helpful way to look at it predicting what the category does in the back half obviously in Europe.

Niraj S. Shah: The context from last year and predicting what that does in the back half I'm sure. There is a range of opinions on that and so our focus is really keep delivering on an excellent offering to the customer you're seeing that show up in our active customer growth continuing to improve in our flattish position right now and over time that will return us to the strong growth that we had previously.

Niraj S. Shah: Sure.

Niraj S. Shah: Which is basically, take EBITDA, but then subtract out CapEx and subtract out the equity comp we give folks, right? And so what is that, you know, cash that we're generating in the business from the operations we're doing? And how can that grow?

Speaker Change: That's helpful and then the follow up.

Niraj S. Shah: Maybe taking that one step further the relationship that was provided last year of $600 million of EBITDA on a flat revenue scenario.

Peter Jacob Keith: And when we think about these opportunities, how can that grow while we're investing in scaling these opportunities? And I think that's what you're starting to see in our financials, that we can actually be scaling the profitability of the business while investing for growth and seeing that return in the excess growth rate relative to the market. And that's what you're going to continue to see play out. Because a lot of things we're investing in are not even showing up in that growth rate yet, but they will.

Niraj S. Shah: There was some inherent if we get upside to flat revenue.

Niraj S. Shah: Okay, very interesting. Thank you.

Peter Jacob Keith: Whatever your prevailing assumption was on incremental margin.

Speaker Change: That change in any way are you thinking of spending in any different way on that upside or those those incremental margins should apply in the same way that it did.

Speaker Change: Gave us that framework.

Speaker Change: Yes, so as I said on the call that framework of flat and 600 <unk>.

Niraj S. Shah: And again that was not intended to be guidance, that's really a construct for how to think about the sum total of the cost savings over the last 18 months and how that would flow through the P&L in that hypothetical flat scenario.

Speaker Change: And then to your point on incremental margin, yes, we've spoken to that coming in in that mid to high teens range.

Speaker Change: Perfect. Thank you.

Niraj S. Shah: Your next question comes from the line of Ana <unk> with Needham. Please go ahead.

Peter Jacob Keith: And I guess part of the margin expansion and scaling would be your supplier services. I'm curious because coming off of high point, you mentioned having a lot of conversations with suppliers, presumably, the profitability of suppliers is better with the lower transportation costs, etc. But the industry backdrop is really sluggish. So what's the mood of the supplier community right now to lean in on your services? Is there some hesitation or, or are they kind of, you know, full systems go to help get the sales trend up?

Speaker Change: Great. Thanks, so much good morning, and congrats nice results.

Niraj S. Shah: I think suppliers see that the market landscape, as you said, is sluggish, but I think suppliers also see that demand is getting concentrated in the hands of a small number of successful retailers, and they're focused on that cohort of customers that they work with. How do I get more share with those folks, whether that be a regional brick and mortar player, whether that be Wayfair, whether that be whomever, because they see that their future is tied to the ones who win, not the broad set of customers, maybe who historically had more of a peanut butter spread?

Niraj S. Shah: Had a question on promotions neuro you had previously talked about only one third of sales. During these promotional events coming from items that is featured in the promo discount. So basically once the consumer is engaged they do convert at full price. So just wanted to follow up if that's still the key.

Speaker Change: Just any color on that would be super helpful. And then as a follow up so the brand campaign it sounds like it's off.

Niraj S. Shah: Strong start I was just curious how are you incorporating the learnings from that into the loyalty launch that I think is scheduled for this fall. Thanks, so much.

Niraj S. Shah: The other thing we're seeing is that they're very forward-looking. Now that the inventory overhang has been worked through, they're very forward-looking on how to build a business. So we saw the largest number of new introductions that we've seen since COVID, and I would say larger on average than what they were doing each cycle pre-COVID.

Speaker Change: Yes sure.

Niraj S. Shah: So they're just kind of playing a little bit of catch up and being aggressive there. We're seeing that when you think about operating on our platform, whether you're thinking about participating in our promotions, or you're thinking about how you price on our platform, you're thinking about how we integrate logistics, you're thinking about how you use our advertising services. We're seeing keen interest because, again, they're saying, hey, Wayfair is one of the handful who I think is going to do very well. How can I do very well on that platform?

Niraj S. Shah: And then they'll go to their next significant customer, whoever that is, and maybe that's a 20-store brick and mortar chain. Okay, they're winning in that geography. How do I do more with them? And they're thinking about a very small portion of their total customer base. They're thinking about the ones that they can win with. And so I think now that the excess inventory has been worked through, you're seeing supplier focus on investing in the right spots being very high.

Niraj S. Shah: I think the way to think about promotions is that promotions drive a lot of traffic to the site and what the customers.

Niraj S. Shah: They actually look at the items on promotion, but they also tend to then explore the Isle.

Niraj S. Shah: And they tend to buy the item that they like the most and that's kind of what we were referencing is that only a portion of those sales of the items that are feature in the promotion of the majority are the items that are actually in the aisle not necessarily.

Niraj S. Shah: <unk> items in the promotion so that dynamic remains.

Niraj S. Shah: Mains true and that that's sort of been the case for the entire time and Thats always been true.

Peter Jacob Keith: Very helpful. Thanks so much.

Niraj S. Shah: The brand campaign.

Peter Jacob Keith: So with about how the brand can paint can really help us deepen preference.

Peter Jacob Keith: For wafer with customers. Obviously the loyalty program is also something that can deepen preference in the sense that if you join a program and it has benefits and those benefits entice you to come back right and that would build that you're becoming more habitual. So these are both two of the things we're doing that I think.

Peter Jacob Keith: Certainly help each other and would help a series of other things we're doing to all in the effort of being your go to place for all things home.

Peter Jacob Keith: That's obviously our goal.

Peter Jacob Keith: Yeah.

Speaker Change: Alright helpful. Thanks, so much.

Niraj S. Shah: Thanks.

Jonathan Richard Matuszewski: Your next question comes from the line of Jonathan Matuszewski from Jefferies. Please go ahead.

Peter Jacob Keith: Your next question comes from the line of John Blackledge with TD Cowen. Please go ahead.

Jonathan Richard Matuszewski: Oh, great. Thanks for taking my questions. The first one was on international business. It looks like profitability took a step back this quarter. So, just you know, what's the path ahead? You know, near term? Should we expect a less worse drag as the year goes on and medium term? How should we think about the path to initial quarterly breakeven EBITDA abroad?

Jonathan Richard Matuszewski: Great. Thank you two questions.

Jonathan Richard Matuszewski: Kind of on the macro is there a potential replenishment cycle for pandemic purchases are hedged for the industry kind of as we move further away from it and then second Gen. III could you discuss the wafers.

Jonathan Richard Matuszewski: Wafers use of internally of Gen AI across various departments any color on productivity gains. Thank you.

Jonathan Richard Matuszewski: Yeah.

Niraj S. Shah: Yeah, thanks, Jonathan. Let me add a couple of comments. And then they turn over to Kate to give some of the specific kind of financial outlook, you know, information you asked for. So I would say that in the international segment, we've got Canada, we have the UK, we have Germany, and we have what's called small business Ireland. And what you see is that actually each one of those is performing quite well.

Speaker Change: Thanks, Thanks, John.

Niraj S. Shah: On the macro replenishment cycle concept.

Niraj S. Shah: There is a replacement cycle on the various because we sell absolutely varies by type of goods.

Kate Gulliver: I do think the easiest way to look at it is.

Niraj S. Shah: No matter what way you look at at the level were at relative to 2019, where were below 2019 in nominal terms way below in real or whether you do area under the curve and you take the pull forward, but you would see with Pat way past that were still off trend no matter way, we look at it you see that the category, which has kind of been a cyclical category forever is in a cycle that's down.

Niraj S. Shah: One which is always followed by a cycle that's up and so I think thats. There is no question about that I think the trick comes into when you want a time it precisely right, which is I think gets at your question because I do think things like interest rates and existing home sales and consumer sentiment all play roles in that the way we look at it is theres two ways to grow.

Niraj S. Shah: One way to grow is the market's growing and how do you take your excess share for the second way is regardless of what the market's growing how do you take your excess share right and so to go back to the concept of share taking and how do we take share by being the easier place to shop, the better place to shop, better offerings better value faster delivery more customized delivery better merchandising exclusive.

Niraj S. Shah: We're actually now at a point where we're taking market share in each of them, and the unit economics in each of them has improved significantly and is headed the right way. And so a lot of what we've done in cost over the 18 months that kind of started in the summer of 22 got us to a great place across the board. And so we're very excited with how that's playing out.

Niraj S. Shah: Products.

Niraj S. Shah: And so that's kind of what we're focused on now and obviously the macro moved from negative to neutral and then neutral or positive you're going to see that boy our sales dramatically.

Speaker Change: Yes, I can talk to the journey.

Niraj S. Shah: A topic area that I get focused on the lines of business.

Niraj S. Shah: I think there is areas like technology developed productivity or sales tools.

Niraj S. Shah: Sales and service team uses that we're integrating with.

Niraj S. Shah: Business slowed as you would expect.

Niraj S. Shah: Broadly if you look at us.

Niraj S. Shah: In our history in technology, I mean, the <unk>.

Niraj S. Shah: Business has done well by us staying kind of at the forefront of tech innovation and so Jenny.

Niraj S. Shah: I would really that business is something that we've got all the different business leasing companies are focused on thinking about what's supposed to applicable, we're seeing where theyre wins, obviously staying efficient and ste.

Niraj S. Shah: No.

Niraj S. Shah: With cutting edge technology is something that is going to continue to help us grow and do well going forward.

Niraj S. Shah: I would say that there are some fixed costs. So for the prop for the inherent segment to be profitable, there's an element of growth needs to get to a certain level to overwhelm a certain degree of fixed costs. And I would also say there are some accounting things about how our corporate overhead gets spread that are in there. And both of those will just play out over time. So we feel good about the trajectory. But maybe Kate can provide some more.

Kate Gulliver: Jonathan, just as a reminder, you know, when you look at the segment breakout on international and US, obviously, the corporate costs are allocated based on revenue. And so as that mixture changes, the amount of corporate costs that get allocated can shift around a little bit. I think, you know, as we look at the international scene, as Neeraj said, we're encouraged by the signs that we're seeing there; we're seeing things, you know, go according to the plan.

Speaker Change: Could I just ask one follow up there could it be a tailwind to margins over the long term with potential productivity gains.

Kate Gulliver: And in particular, if you look at that EBITDA loss, for the trailing 12 month period, the loss is roughly half of what it was prior. And I think that, you know, shows the really nice improvement that we're making there and the steady gain.

Speaker Change: Hey, there.

Kate Gulliver: Definitely a lot of benefits to it and I think.

Kate Gulliver: Yes between running the shop more efficiently obviously in retail, it's a business of being efficient and.

Kate Gulliver: Certainly that's going to help us over time. It's also I think this is really getting things on the digital side. So I think on the merchandising side. This is a really exciting tools, we've actually launched publicly.

Kate Gulliver: We're just starting to get into that I think could be meaningful for the consumer experience, yes, John I think the way to think about it over a very long period of time the way I think to think about it is.

Jonathan Richard Matuszewski: That's helpful. Thanks for the color.

Niraj S. Shah: And then just to follow up on AOB, I know you usually this is an output, you know, the consumer, you know, ultimately, you know, decides this versus an input in your models, but, you know, it was down very slightly this quarter, less than 1%. So how are how are you thinking internally about the trajectory for that? You know, is there anything you saw this quarter in units per transaction or trade down activity that would lead you to believe, you know, flattish trends in AOB for the second half could be potentially conservative? Thanks. Yeah.

Jonathan Richard Matuszewski: I think a lot of these categories that have been much more fragmented are going to be much less fragmented and the scale players are going to be able to do many more things for customers.

Niraj S. Shah: Yeah, so what I would say is like the big thing that drove AOV over the last few years was all the inflation that came in during the because of product scarcity during COVID followed by supply chain congestion during COVID. And then subsequently, as the, particularly the ocean freight costs that came back down, all the deflation that then ensued.

Niraj S. Shah: Given that that is largely behind us, what you're back to is the dominant thing that will drive AOV over time, broadly speaking, is more the seasonal cadence where you have different category mix throughout the year. And so AOV goes up and down based on that. And then inside our business, you know, if Paragold grows faster than the rest of the business, that would raise AOV because our luxury platform has a higher AOV, for example.

Niraj S. Shah: So you could have some mix shift, but I think you're back to seeing a more normal pacing of AOV like you would have seen pre-COVID. Then those wild swings you saw during COVID, I think you can think of it as kind of normalized.

Simeon Ari Gutman: Your next question comes from Simeon Gutman with Morgan Stanley. Please go ahead.

Simeon Ari Gutman: Thanks. Good morning. Thanks for the question.

Niraj S. Shah: My first question: if we take the seasonality and orders from the first quarter, and you take the seasonality and the AOV, it would suggest that by the second quarter, we should be maybe flat to slightly positive and then solidly positive in sales by the back half. I'm not asking about how conservative the guidance is, or I don't know if there's a guidance range, but is there any reason the seasonality process doesn't work for whatever reason? It sounds like you have a advertising campaign. You have a new store coming, so there should be maybe some good guys just thinking about seasonality, not bad, but making sure that that logic's right.

Niraj S. Shah: Yes, so, what I was saying is... And so, what I agree with is last year, the category had significant deceleration, and there was deceleration that happened in the back half of last year, as well as earlier in the year. And so the slope of last year is this negative slope. So this year, if you do not see significant macro deceleration on a sequential basis, the category compares, our compares, everyone's compares should get much easier in the back half than they are now.

Niraj S. Shah: And so I think that's what you're pointing out mathematically to be true, and we would totally agree with that. I think the question is, you know, maybe you don't see as much macro deceleration this year as last year, but maybe you do. So maybe just rolling forward 100%, maybe that may or may not happen. But you know, as we said, like, we're, you know, we're flat year over year right now. And you know, we were negative 2% in the first quarter.

Niraj S. Shah: So to your point, you know, the numbers you were talking about, that's kind of what you said as well. So we're pretty optimistic about how this plays out, because you have the math of the category and how that should make comparisons easy. And then, frankly, we're continuing to take market share. And we feel very good about the position we have.

Niraj S. Shah: And so there's obviously a lot of other variables that are out there. You know, obviously, the Fed gave their latest update yesterday, and what they choose to do affects the overall macro economy could affect us. So those things are hard to guess. But that's kind of my answer. But maybe Kate will give you some more detail by quarter.

Niraj S. Shah: And then non scale players will be able to do and thats going to cause concentration historically to access selection you had to visit many folks and they had to be fragmented. The idea that you could access selection from one retailer has only become possible with the advent of the Internet. So then when you think about a scale player. What can you do with logistics, we've talked a lot about that right.

Kate Gulliver: I'm not going to give detail by quarter, as you and Simeon both know, but, Simeon, I think, you know, what I would say is that we are, you know, very focused on what we can control, which is that ongoing share gain. And so thinking about, you know, our own seasonality is a helpful way to look at it. Thinking about how we continue to gain share is, I think, a helpful way to look at it. You know, predicting what the category does in the back half, obviously, Niraj provided the context from last year and predicted what that does in the back half. I'm sure there are a range of opinions on that.

Kate Gulliver: And so our focus is really to keep delivering on an excellent offering for the customer. You're seeing that show up in our active customer growth, continuing to improve in our flattish position right now. And over time, you know, that will return us to the strong growth that we've had previously.

Simeon Ari Gutman: That's helpful. And then the follow-up, maybe taking that one step further, the relationship that was provided last year, 600 million of EBITDA on a flat revenue scenario. There was some inherent inherent risk if we got upside to flat revenue. Whatever your prevailing assumption was on incremental margin, has that changed in any way? Are you thinking of spending in any different way on that upside, or should those incremental margins apply in the same way that they did when you gave us that framework?

Kate Gulliver: Yeah, so, as I said on the call, that framework of flat and 600, you know, holds, and again, that was not intended to be guidance; that's really a construct for how to think about the sum total of the cost savings over the last 18 months and how that would flow through the P&L in that hypothetical flat scenario. And then to your point on, you know, incremental margins, you know, yes, we've spoken about that coming in and the mid to high teens.

Anna A. Andreeva: Your next question comes from the line of Anna Andreeva with Needham. Please go ahead.

Anna A. Andreeva: Great, thanks so much, good morning, and congratulations on the nice results. We had a question about promotions. Niraj, you had previously talked about only one-third of sales during these promotional events coming from items that are featured in the promo discount. So basically, once the consumer is engaged, they do convert at full price. So just wanted to follow up if that's still the case. Just any color on that would be super helpful. And then as a follow-up, the brand campaign sounds like it's off to a strong start; just curious, how are you incorporating the learnings from that into the loyalty launch that I think is scheduled for this fall? Thanks so much.

Niraj S. Shah: Yeah, sure. So the way to think about promotions is that promotions drive a lot of traffic to the site. And what customers do, they actually look at the items on promotion, but they also tend to then explore the aisle, and they tend to buy the item that they like the most. And that's kind of what we're referencing, is that only a portion of those sales are the items that are featured in the promotion.

Niraj S. Shah: The majority are items that are actually in the aisle, not necessarily the featured items in the promotion. So that dynamic remains true, and that's sort of been the case for the entire time. The brand campaign, so we think about how the brand campaign can really help us deepen preference for Wayfair among customers. Obviously, the loyalty program is also something that can deepen preference, in the sense that if you join a program and it has benefits, and those benefits entice you to come back, right, and that would build to you becoming more habitual.

Niraj S. Shah: So these are both two of the things we're doing that I think certainly help each other and would help a series of other things we're doing all in the effort of being your go-to place for everything. And that's obviously our goal.

Operator: All right, helpful. Thanks so much. Your next question comes from the line of John Blackledge with T.D. Cowan.

John Ryan Blackledge: Please go ahead. Great, thank you. Two questions. First, kind of on the macro level, is there a potential replenishment?

Operator: Your next question comes from the line of John Blackledge with TD Cowan. Please go ahead.

John Ryan Blackledge: All right, thanks. Thanks, John.

Niraj S. Shah: You know, in the macro replenishment cycle concept, there is a replacement cycle for the various goods we sell. Absolutely, it varies by type of goods. I do think the easiest way to look at it is, you know, no matter what way you look at it, the level we're at relative to 2019, where we're below 2019, in nominal terms, way below in real terms, or whether you do area under the curve, and you take the pull forward, but then you see we've ripped off way past that we're still off trend.

Niraj S. Shah: No matter where you look at it, you see that the category, which has kind of been a cyclical category forever, is in a cycle that's down, which is always followed by a cycle that's up. And so I think that's, there's no question about that.

Niraj S. Shah: I think the trick comes in when you want to time it precisely, right, which is I think your question. Because I do think things like interest rates, existing home sales, and consumer sentiment all play roles in that. The way we look at it is there are two ways to grow. And one way to grow is the markets growing and how you take your excess share. But the second way is, regardless of whether the markets are growing, how do you take your excess share?

Niraj S. Shah: Right? And so go back to the concept of taking share, and how do we take share by being the easier place to shop, the better place to shop, better offerings, better value, faster delivery, more customized delivery, you know, better merchandising, exclusive products, you know, on and on and on and on. And so that's kind of what we're focused on now. And obviously, as the macro moves from negative to neutral, and then neutral to positive,

Niraj S. Shah: Yeah, I can talk to Jenny. I think it's a topic area that I get focused on a lot inside the business. You know, I think there's areas like technology, development, productivity, or sales tools that the sales and service team uses that we're integrating with the business flow that you would expect. I would say broadly, if you look at us as in our history in technology, the business has done well by us staying kind of at the forefront of tech innovation.

Niraj S. Shah: What can you do with technology, we've talked about that but now you are talking about different our technology and you start thinking about we can do we generate.

Niraj S. Shah: And so, you know, Jenny and using other areas of the business is something that we've got all the different business leads in the company sort of focused on thinking about what's most applicable. And then we're, you know, seeing where there are wins, and obviously, staying efficient and staying, you know, current with cutting-edge technology is something that is going to continue to help us grow and do well going forward. Could I just ask one follow-up question there?

Niraj S. Shah: Could it be a tailwind to margins over the long term with potential productivity gains? Um, you know, there's definitely a lot of benefits to it. And I think, you know, yeah, between running the shop more efficiently, obviously, in retail, it's a business of being efficient. And certainly, that's going to help us over time. It's also I think there are really interesting things on the visual side. So I think on the merchandising side, there are some really exciting tools we've actually launched publicly, and we're just starting to get into that area that I think could be meaningful for the consumer experience. Yeah, Jon, I know the way of thinking about like, oh.

Niraj S. Shah: Yeah, Jon, I think the way to think about it, like, over a very long period of time, the way I think about it is that I think a lot of these categories that have been much more fragmented are going to be much less fragmented, and the scale players are going to be able to do many more things for customers than non-scale players will be able to do. And that's going to cause problems with concentration.

Niraj S. Shah: Historically, to access selection, you had to visit many folks and had to be fragmented. The idea that you could access selection from one retailer has only become possible with the advent of the internet. So then when you think about a scale player, what can you do with logistics? We've talked a lot about that, right?

Niraj S. Shah: A lot of that requires scale requires scale in two ways. One the R&D you need to be willing to invest early and if you have scale. You can do that is a very small amount of money in the scheme of things for you. The second is the first party proprietary data you have is a key to the whole thing and if you don't have a very dense amount of that data you are not in a position to really do.

Niraj S. Shah: What can you do with technology? We've talked about that, but now you're talking about a different type of technology. And you start thinking about what we can do with Gen AI.

Niraj S. Shah: Well, a lot of that requires scale. It requires scale in two ways. One, for R&D. You need to be willing to invest early. And if you have scale, you can do that. It's a very small amount of money in the scheme of things for you.

Niraj S. Shah: The second is the proprietary data you have is the key to the whole thing. And if you don't have a very dense amount of that data, you're not in a position to really do the things that are most interesting and novel. And then those things will be getting more scale. And so I do think there's a whole economic argument, too, about how that can grow margins. But I think the bigger economic outcome comes from how demand will move to a smaller number of folks who can do things dramatically better for them.

Niraj S. Shah: Do the things that are most interesting and novel and then those things will beget youre getting more scale and so I do think there is a whole economic argument to and how that can grow margins, but I think the bigger economic outcome comes into how demand moves to a smaller number of folks who can do things dramatically better for customers.

Speaker Change: Thank you.

Operator: That's all the time we have for questions today. I will now turn it back to the Wayfair team for closing comments.

Speaker Change: That's all the time, we have for questions today, I will now turn it back to the way fair team for closing comments.

Niraj S. Shah: Thanks, everybody, for joining us. We appreciate your time. And, you know, it was great, great to chat with you. We'll look forward to talking to you next

Speaker Change: Thanks, everybody for joining.

Speaker Change: I appreciate your time and.

Speaker Change: It was great.

Speaker Change: Good to chat with you we look forward to talking to you next quarter.

Niraj S. Shah: And we're excited about waiting.

Niraj S. Shah: <unk> added about waiting this weekend.

Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Niraj S. Shah: Yes.

Speaker Change: <unk> day, everyone. Thanks.

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

Speaker Change: Please wait the conference will begin shortly.

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