Q2 2024 Wayfair Inc Earnings Call

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

Steven K. Conine: Steve Conine, Co-Founder and Co-Chairman. We will all be available for Q&A following today's prepared remarks, including guidance for the third quarter of 2024. 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, whether as a result of any new information, future events, or other. 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.

Steve Conine co founder and co chairman.

Kate Gulliver, Chief Financial Officer, and Chief administrative officer.

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 third quarter of 2024.

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

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

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

Our 10-K for 2023.

Our 10-Q for this quarter and.

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.

As a result of any new information future events or otherwise.

Also please note that during this call we will discuss certain non-GAAP financial measures as we review the company's performance, including adjusted EBITDA.

Steven K. Conine: Adjusted EBITDA margin and free cash. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP; please refer to the Investor Relations section of our website to obtain a copy of our earnings release and investor presentation, and Reconciliations of Non-Gap Measures to the Nearest Comparable Gap. This call is being recorded, and a webcast will be available for replay on our IR website.

Adjusted EBITDA margin and free cash flow.

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 contains 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.

Unknown Executive: I would now like to turn the call over to. The Wayday results are consistent with the pattern we've observed now for over a year, where promotions continue to drive customer engagement, but correspondingly, we see shoppers pulling back in the non-promo period. We continue to take share in the second quarter as we proactively adjusted to the trends we were observing. Our Market Relative Price Index, an internal measure of how Wayfair prices compared to competition, returned to showing healthy year-over-year improvement following those actions.

I would now like to turn the call over to Derek.

Derek: Thanks, James and good morning, everyone. We're excited to discuss our second quarter results with you today.

Derek: Q2 was a dynamic quarter that resulted in another period of share gains and we continue to see efforts around cost optimization pay off with our best quarter of adjusted EBITDA and free cash flow in three years.

Derek: This was all the more impactful because it was a quarter of continued macro headwinds that are pressuring the way customers shop the category.

Derek: <unk> was a tremendous success with performance up in the double digits versus our event last spring.

Derek: We saw notable engagement throw all three days with broad based strength across the catalog.

Derek: The way the results are consistent with the pattern. We've observed now for over a year, where promotions continue to drive customer engagement, a correspondingly we see shoppers pulling back and then non promo periods.

Derek: The performance spread between promo and non promo remains wide.

Post wait a results came in below expectations.

Derek: This was in part due to the increasing price elasticity, we've been seeing and our customers as well as the decision to intentionally pare back on marketing spend following way day to remain disciplined on efficiency and periods where customer engagement is later.

Derek: We continue to take share in the second quarter as we proactively adjusted to the trends we were observing.

Derek: A more moderate capture rate in May picked up as we got through June and entered July on the back of pricing actions in response to that changing elasticity, coupled with a normalization and marketing spend.

Derek: Our market relative price index, and internal measure wafer prices stack up to competition returned to showing healthy year over year improvement following those actions and correspondingly we've seen our market share set further hubs.

Unknown Executive: And correspondingly, we've seen our market share set further higher. Q2 was a continuation of the macro trends we've been seeing for the last few years; customers remain cautious in their spending on the home. And our credit card data suggests that the category was down by nearly 25% from the peak we saw in the fourth quarter of 2021. We see three clear factors behind this correction. One is the malaise in the housing market. 2.

Derek: Q2 was a continuation of the macro trends we've been seeing for the last few years.

Speaker Change: Customers remain cautious in their spending on the home and our credit card data suggests that the category was down by nearly 25% from the peak we saw in the fourth quarter of 2021.

This mirrors the magnitude of the peak to trough correction the home furnishing space experienced during the great financial crisis. According to U S Census Bureau data.

Derek: Accordingly, this calculation is a nominal dollars adjusting for inflation suggests we're now in the midst of a correction in excess of 35% an unprecedented level of pullback in our sector.

Unknown Executive: Overspending in 2020 and 2021 that has warped the historic replacement cycle, and 3. A slowing U.S. economy. Well, you've seen many of our peers that are impacted by housing decline to an even greater degree than Wayfair. At the end of the day, with housing turnover levels that haven't been as depressed since the great financial crisis, market fatigue weighs on everyone in the category, ourselves included. On the second factor, like many of you, we spent time trying to tease apart the magnitude of the demand pull forward in 2020 and 2021 in an effort to gauge how far along we might be in this period of rationalization.

Derek: We see three clear factors behind this correction.

Derek: One the malaise in the housing market.

Derek: Two overspending in 2020 in 2021 does warp the historic replacement cycle and three a slowing U S economy.

Derek: You are likely very aware of the evidence on the first factor over the first five months of 2024, new home sales are down by nearly 20% compared to the first five months of 2021, while existing home sales are down by more than 30%.

Speaker Change: Well you've seen many of our peers that are impacted by housing declined to an even greater degree than wayfarer.

Speaker Change: At the end of the day with housing turnover levels that haven't been as depressed since the great financial crisis, the market fatigue weighs on everyone in the category ourselves included.

Speaker Change: On the second factor like many of you. We spent time trying to tease apart the magnitude of the demand pull forward in 2020 in 2021 and an effort to gauge how far along we might be in this period of rationalization.

Speaker Change: Controlling for inflation, we measured actual spending from 2020 through the first half of 2020 for I guess, the hypothetical environment, where the pandemic never happens.

Speaker Change: Using data from the census Bureau, the analysis shows actual spend volume coming in below that hypothetical no pandemic world.

Speaker Change: I wanted to take a moment to let the magnitude of that thinking.

Unknown Executive: Customers have more than compensated for the overspending during the pandemic and have now underspent in the category compared to historic patterns. Despite the massive shifts in the aftermath of the pandemic, we still see home as quite underpenetrated online, at roughly a quarter of spending in the capital.

Speaker Change: Customers have more than compensated for the overspending during the pandemic and have now underspent in the category compared to historic patterns.

Speaker Change: This is in spite of the fact that the structural need for products in this category has not changed.

Speaker Change: As we said many times in the past people still need mattresses and tables and chairs.

Speaker Change: They'll need desks and bathroom fixtures and kitchen equipment.

Speaker Change: And at some point, we expect a reversion to the mean.

Speaker Change: While we've yet to see the housing recovery replacement for pandemic spending and broader economic upturn, we anticipate these drivers around the horizon.

Speaker Change: Given how deep we are into the cycle. It's fair to expect the turnaround to come soon and wafer is well positioned to benefit as it does.

Speaker Change: That brings us back to our own performance and how we are positioning way fair to drive both continued market share growth.

Speaker Change: And profitability flow through as the top line begins to inflect.

Speaker Change: Back in February I outlined three initiatives that we're working towards in 2024 to further build out our position in the market.

Speaker Change: Our brand refresh in March the opening of our first large format wafer start in May.

Speaker Change: And the coming launch of our loyalty program later this year.

Speaker Change: On our first quarter call. We spent some time unpacking the brand refresh and how excited we are about our new ways to speak to shoppers.

Speaker Change: Hey, I wanted to dig deeper into the second initiative bundle list our physical stores.

Speaker Change: Despite the massive shifts in the aftermath of the pandemic, we still see home is quite Underpenetrated online at.

Speaker Change: Roughly a quarter of spending in the category.

Unknown Executive: Even in a more mature state, that approaches something closer to a 50-50 split that still leaves hundreds of billions of dollars in addressable market opportunity on the physical side of the equation, and we have a customer file of more than 90 million shoppers. But one piece of the puzzle we didn't have were the physical stores themselves. We launched three stores over the course of the year and then followed up with two more in 2023. The stores average between 10 and 15,000 square feet in high-traffic retail centers, typically close to other specialty furniture retailers.

Speaker Change: Even in a more mature state at approaches something closer to a 50 50 split.

Speaker Change: Hundreds of billions of dollars in addressable market opportunity on the physical side of the equation.

Speaker Change: We don't want to leave this opportunity untapped as we look at our own core competencies, we already have many of the pieces in place to address this segment of the market. We have a household brand across North America and parts of Europe with incredibly strong brand recognition and affinity.

Speaker Change: We have a nationwide industry, leading fulfillment network and delivery capability.

Speaker Change: We have deep relationships with our more than 20000 suppliers offering a broad range of product style and price points for our customers.

Speaker Change: And we have a customer file of more than 90 million shoppers.

Speaker Change: One piece of the puzzle, we didnt have with a physical stores themselves and so we launched our first mall based pop ups in 2018, and followed up with a store and the Natick mall just outside of Boston back in 2019.

Speaker Change: This was a very small format experiment and we quickly realized that we needed something larger to showcase the wafer brand and its true that.

Speaker Change: 2020 to Mark the next stage in our physical retail journey with the launch of our specialty retail stores under the all modern adjusted main banners.

Speaker Change: When launched three stores over the course of the year and then followed up with two more in 2023.

Speaker Change: These stores average between 10, and 15000 square feet and high traffic retail centers.

Speaker Change: Close to other specialty furniture retailers.

Speaker Change: The element of the customer experience was thoughtfully designed with three key goals in mind.

Speaker Change: One capturing incremental share of wallet as we broadened customer awareness to the true depth of our catalog.

Unknown Executive: Two, reaching a new segment of customers that have been reticent to shop for the category online. And three, building brand awareness and driving customer affinity, especially across our specialty brands. Our physical retail operating model mirrors the approach we take online.

Speaker Change: Two reaching a new segment of customers that have been reticent to shop for the category online.

Speaker Change: And three building brand awareness and driving customer affinity, especially across our specialty brands.

Speaker Change: Our physical retail operating model mirrors the approach we take online.

Speaker Change: Inventory is owned by our suppliers and our take rate on top of the suppliers wholesale price drives our gross margins.

Unknown Executive: We've been pleased with the results across our slate of specialty stores, which, with the addition of several Birch Lane locations earlier this year, now sits at a total of nine. This has been a major point of success, and we're seeing that nearly a third of in-store sales are for products that aren't actually on display. We complement this with services that solve some of the biggest problems that could otherwise deter home purchases.

Speaker Change: We've been pleased with the results across our sleep, especially stores, which with the addition of several Birch lane locations earlier this year.

Speaker Change: Now sits at a total of nine.

Speaker Change: Our stores have been averaging thousands of shoppers per month with healthy growth in sales per square foot in tandem with considerable margin expansion as we fine tune the operating model and selection.

Speaker Change: A core part of our strategy is building a bridge to help shoppers make the leap from the physical store experience to our online platform.

Speaker Change: This has been a major point of success and we're seeing that nearly a third of in store sales are for products that are actually on display.

Speaker Change: That comes in tandem with a healthy Halo effect, where we're seeing substantial lift in online sales within the surrounding area of our stores.

Speaker Change: Our specialty stores were years in the making before we opened their doors and we spent even longer preparing for the launch of our wafer branded store this past spring in Wilmette, Illinois.

Speaker Change: If you haven't had the chance to visit the store I'd encourage you to do so the next time you find yourself in the Chicago area.

Speaker Change: We've been thrilled with the very strong initial response from the hundreds of thousands of customers who are visiting the store and love how we are showcasing the wafer brand and its full breadth.

Speaker Change: Part of what differentiates wafer is the scale and sophistication of our offering.

Speaker Change: Right from the store.

Speaker Change: Large parts of the store designed to be experiential such as our functional shower studio and kitchen faucets.

Speaker Change: For the office Chair Tesla.

Speaker Change: We've hand crafted the shopping journey in each segment of the store such as our find your fit Metro section that helps shoppers evaluate all the important attributes of their next bad such as size firmness and materials cusp.

Unknown Executive: Customers are loving the thought and care we've put into every corner of the space, with shoppers leaning heavily into cash and carry items that we feature in the mix. What we've been most excited to see are the early impacts on the surrounding area. Just as we did with our specialty stores and the Wayfair store, the Paragold shopping experience will be uniquely curated to pay homage to all the reasons shoppers love our luxury brand. We can't wait for you to see what that looks like.

Speaker Change: Customers are loving the thought and care, we've put into every corner of the store.

Speaker Change: While it's only been a handful of months since opening the early read on the store has been very encouraging.

Speaker Change: The majority of shoppers coming through are entirely new to wafer.

Speaker Change: We're seeing diversity in basket composition as well with.

Speaker Change: With shoppers leaning heavily into cash and carry items that we feature in the mix as.

Speaker Change: As I mentioned, a moment ago, that's been one of our core goals of physical retail rather than customer awareness to the true scope of our catalog and earning more of their shopping occasions for higher frequency items.

Unknown Executive: As we described at our Investor Day just a year ago, we see physical stores as one of the core growth drivers for Wayfair over the next decade and beyond. Our approach here will be measured, and the intention is to have the stores justify their construction entirely on their own four-wall economics. You can rest assured that we have no plans to work through an investment cycle where we spend deeply at the expense of profitability to expand the store footprint in a rapid fashion. And that will be our mindset every year going forward. Thank you.

Speaker Change: Creation in three years clear evidence of our strict operating discipline.

Speaker Change: We're running the business with the goal of demonstrating substantial growth and profitability this year.

Speaker Change: Even as the topline remains challenging and.

Speaker Change: And that will be our mindset every year going forward as well.

Kate Gulliver: And with that, let me pass it over to Kate for a breakdown of our finances. Thanks, Niraj. And good morning, everyone.

Speaker Change: Thank you and with that let me pass it over to Kate for a breakdown of our financials.

Kate Gulliver: Thanks, <unk> and good morning, everyone, let's dive into our second quarter financials before turning to our outlook for Q3.

Kate Gulliver: Let's dive into our second quarter financials before turning to our Outlook for QC. Top line results for the period came in slightly below our expectations, down 1.7% compared to the second quarter of last year. The decline was driven by a few factors.

Kate Gulliver: Topline results for the period came in slightly below our expectations down one 7% compared to the second quarter of last year.

Kate Gulliver: First, as Niraj shared, we observed a weakening overall macro environment in the back half of the quarter, consistent with the trends that many other consumer companies are experiencing. Our data science teams spend a tremendous amount of time studying the resulting demand curves, and their work has painted a picture of a customer environment where we can both take further share as well as maximize profit dollars by leaning in on price. Through this strategy, we are maximizing gross profit dollars and driving order capture, even if at a slightly lower gross margin.

Kate Gulliver: The decline was driven by a few factors first engineered shared we observed a weakening overall macro in the back half of the quarter consistent with the trends and many other consumer companies are experiencing.

Kate Gulliver: Second our way day results were quite strong, but we saw less momentum in June when we were not running promotional events and subsequently pulled back on advertising and this weighed on our revenue performance.

Kate Gulliver: Absolute revenue growth will still be somewhat a function of the category at large. We are comfortable leaning into this construct as we pair this margin investment with the considerable success we've had driving fixed cost efficiency in the business, which we intend to sustain going forward. This is offset by the renewed price investments I detailed a moment ago, as well as the natural de-leverage from our logistics network during this period, where volumes remained under pressure for the category and for Wayfair. Our selling operations, technology, general, and administrative expenses came in at $399 million in the period.

Kate Gulliver: One we.

Kate Gulliver: We are comfortable leaning into this construct as we pair this margin investment with the considerable success, we've had driving fixed cost efficiency in the business, which we intend to sustain going forward.

Kate Gulliver: With the shifting consumer backdrop over the past several months, we actually began to lean into the price investment as we exited the second quarter and believe it makes sense to continue to do so in the back half of this year.

Speaker Change: Let me now continue to walk down the P&L as I do please note that the remaining financials include depreciation and amortization, but exclude equity based compensation related taxes and other adjustments.

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

Kate Gulliver: Gross margin was 33% in the quarter. It's important to note that there are several moving pieces within that including supplier advertising, which has continued to be a real highlight.

Kate Gulliver: We've seen advertising penetration climb above the 1% of net revenue Mark we had a year ago with Q2, showing a healthy sequential step up.

Kate Gulliver: All together, we reported the strongest quarter of adjusted EBITDA dollars in three years, at $163 million, or 5.2% of net revenue. We've now checked the second box on the path to profitability that we laid out early last year, getting to a mid single-digit adjusted EBITDA margin, a stepping stone on the way to our next goal of 10% plus. While not directly impacting free cash flow or adjusted EBITDA, it's also worth highlighting the progress we've made on stock-based compensation and related taxes, which came in at $98 million in the quarter.

Kate Gulliver: This was down by more than 40% year-over-year and the lowest level we've seen stock comp expense since 2021, as the accounting treatment catches up to the benefit of the cost actions we've taken over the past two years.

Speaker Change: Is the accounting treatment catches up to the benefit of the cost actions, we've taken over the past two years.

Speaker Change: Now, let's turn to third quarter guidance.

Speaker Change: Our quarter to date performance is warped by the new Black Friday in July event that just wrapped up earlier. This week, so I'll move to the full quarter revenue outlook, which we expect to be down in the low single digit year over year did contemplate seasonality consistent with what we saw in the same period last year.

Speaker Change: Moving onto gross margin as I discussed earlier, we are continuing to operate in the range of 30% to 31% of net revenue, but we'll be targeting the lower half of that range in Q3, and Q4, we see a valuable opportunity to drive order capture by leaning in with competitive take rates to augment the promotional activity, we're seeing in the space.

Speaker Change: Customer service and merchant fees should be just below 4% of net revenue and advertising should be between 11, 5% and 12, 5% once again.

Speaker Change: Finally, <unk> G&A should fall within a range of $400 million to $410 million for the quarter.

Unknown Executive: We would hazard to say there are few examples in the history of companies that have undertaken such considerable change while simultaneously protecting their major growth initiatives and the potential for massive profitability to flow through when top line growth does return. Depreciation and amortization of approximately 95 to $100 million. As mentioned, the third and fourth quarters will likely be slightly higher CapEx than the first and second. However, we should still see quite impressive leverage on this line for the full year of 2024.

Unknown Executive: We've now demonstrated market share gains for seven consecutive quarters and have complete confidence that there are more ahead as customers choose Wayfair each and every day. The broad macro headwinds layered on top of home category weakness require nimble execution in the near term, but it's important not to lose sight of the bigger picture. Our consistent ability to outperform the competition through our core recipe and the fundamental overhaul of our cost structure positions Wayfair to benefit considerably when the category normalizes.

Unknown Executive: We have strong conviction in our strategy to successfully navigate the current environment while remaining laser focused on the incredibly exciting longer-term opportunities. Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Please pick up your handset and ensure that your phone is not on mute when asking your question and we'd do request for today's session that you. Please limit your question to one question and one follow up.

Christopher Michael Horvers: And we do request for today's session that you please limit your question to one question and one follow-up. Your first question comes from the line of Christopher Horvers with JP Morgan. Your line is now open.

Christopher <unk>: Your first question comes from the line of Christopher <unk> with JP Morgan. Your line is now open.

Unknown Executive: Thanks, Good morning. So my first question is going back to the comments from the consumer. So it's basically that the troughs are getting deeper, and the consumer is becoming, you know, that much more sensitive. Transcribed by https://otter.ai. So if you think about, we're still spending money on advertising, but we're sort of managing when we're spending to put more of the money towards the promotion period and a little less of the money towards non-promo just to maximize our return based So that's more like the marketing message that works with promo.

Christopher <unk>: Thanks. Good morning. So my first question is going back to the comments on the consumer so it's basically that the troughs are getting deeper and the consumer is becoming that much more sensitive.

Speaker Change: To the promotional aspect of it I guess from your perspective, yes, the toggling of further price investment that you're putting into the gross margin, but you're you're also dialing back the advertising. So can you can you talk a little bit more about.

Speaker Change: How are you going to navigate against this.

Speaker Change: Like a much tougher environment.

Speaker Change: Yes.

Speaker Change: Thanks, Chris Thanks for the question.

Speaker Change: So I think I think here's the way to think of that so.

Speaker Change: It's been a challenging environment for Homegoods for two years.

Speaker Change: First piece of it was sort of kind of the COVID-19 pattern.

Unknown Executive: So then that's, we're putting more of the marketing spend there. And so that balance is a little bit of what we're talking about. And also, in this quarter, the way that played out with June is that June was more non-promotional. We pulled back on advertising a little more. That made June a little softer.

Unknown Executive: As we got into July, we're seeing our market share hitting all-time highs. We're seeing us continuing to succeed and take market share. So we're not really worried about how we can perform in this environment.

Unknown Executive: We think that we can keep delivering profitability, and we think we can keep taking market share. But obviously, in terms of, you know, releasing the kind of growth we all want to see, that's not really going to be the kind of number you post when the market's negative. But then, as the market kind of firms up and grows, I think you're gonna see the fact that we're continuing to invest in mid and long-term initiatives will really pay off in terms of growth.

Unknown Executive: Yeah, and Chris, you know, just to the Q3, specifically, since you mentioned that, you know, really, the Q3, you know, guide, you know, speaks to the same seasonality that we saw last year, Q2 to Q3. So I just, I wouldn't overly read into anything there that's just, you know, consistent with where we've been operating. So I guess, just one quick follow up. So from a market perspective, based on what you observed, do you think your performance sounds better from June to July, but do you think the market set down from June to July?

Speaker Change: Players I would say.

Unknown Executive: I don't know if I can say it stepped down or just remained weak. I know it's a little hard to be too granular and specific on that. I would certainly say that we have no one seeing a market recovery. Unknown Attendee, Steven Conine, Christopher Horvers, Peter Keith, Thomas Forte, Ygal Arounian, Niraj Shah, Steven Conine, Brian Nagel, Jonathan Matuszewski, John Blackledge, Anna Andreeva, Oliver Wintermantel, John Blackledge, Steven Forbes, Brian Nagel, Jonathan Matuszewski, John Blackledge, Satya Tiwari, Landry Ngambia, Wayfair Inc I'd be a little careful not to worry too much about the numbers as you zoom in, and I would just zoom back out.

Speaker Change: I don't know if I can say, it's step down or just remained weak it's a little hard to be too granular and specific on that I would say, it's certainly no. One is seeing a market recovery. Okay. So that's definitely the case.

Speaker Change: But I don't I don't know if I can confirm that it step down because of credit card data. When you look at it just week to week, it's a little noisy zoom out the trends are very clear so.

Speaker Change: We're seeing that we're clearly getting to all time highs in the markets remaining weeks the way I would phrase it.

Speaker Change: Got it thank you very much.

Brett: Thanks, Brett.

Speaker Change: Your next.

Speaker Change: Question comes from the line of Peter Keith with Piper Sandler. Please go ahead.

Peter Keith: Hi, Thanks, Good morning, So maybe just a little bit of follow up on there as it relates to market share did you feel like it sounds like your market share may be compressed a little bit market share gains compressed in Q2 versus Q1, but then I thought you.

Unknown Executive: I'd say what we're consistently doing to take market share, and then we're continuing to invest in the mid- to long-term initiatives, and those will play out over time. We're making sure that we've got the selection, the price, the availability, and we're increasing the quality of the merchandising as we go. And then we're making sure that in the advertising, we're advertising in ways that are productive, driving the traffic, getting the customers into the site, and sort of, you know, making sure that we can monetize that.

Unknown Executive: And so, I'd say that this is the playbook of what we're doing. Yeah, so I'd say the way we price is, you know, we have a relatively sophisticated data science model that's measuring elasticity and really figuring out what margin rates we should be taking on each tranche of the catalog so that we maximize profit.

Unknown Executive: So that's the way I think of it. So what happens is when you think about profit dollars, you know, over a period of time, not going too far out in the future, but not worry about just today. Do we want to maximize that number of dollars? And so we're going to then, the system is meant to optimize around that. Again, on the pricing action we're talking about, remember, we're talking about something in the low tens of basis points.

Unknown Executive: So we're really not talking about, you know, if you think about, you talk about, oh, you know, are you lowering price 5, 10, 20%, you know, meaningful changes. We're talking about tens of basis points.

Unknown Executive: It's really, think about this optimization, something that makes sense to maximize profit. I'll just point out that, you know, this quarter, you look at our EBITDA 5.2%, $163 million, free cash flow, $183 million. That's a quarter since 2021.

Speaker Change: Yeah, Thanks for that.

Speaker Change: Peter for that shot up but you know in the suppliers are noticing we are the best performing out there so.

Speaker Change: Those are the goals, we want to hit and I think we're in yes, Kurt you ask specifically you know our suppliers sharing any of the burden.

Speaker Change: We continue to see suppliers leaning in with us quite nicely. That's how we're able to offer these incredible promo event and actually still maintain gross margin nicely north of 30, right. So I think what we're talking about your new originated 19, its a nuance on making sure that we're at the right an optimal point of the pricing curve based on where we see the consumer today and frankly.

Speaker Change: We're excited that we can lean into that and deliver that for the customer we're able to do that because of the significant cost efficiency that we've driven over the past few years.

Speaker Change: Got it Okay, and then just turning to the shore Gregory to her officer Grit, Charlotte and Austin.

Unknown Executive: And so you can say, okay, well, it's taken a lot of market share while driving profitability in what's clearly a tough macroeconomic environment. And, you know, Yeah, great. So what I would say is, you know, obviously, the store's only been open a little over two months. So, this is the way we think about, we're gonna be really prudent, pragmatic, and how we grow the store.

Unknown Executive: So we've got one that's open, it's off to a great start, we've got a long list of things that we think can even improve its performance, but it started off incredibly strong. And so we're pretty excited about it. We're working on opening a second store, you know, targeting later next year for that second store.

Unknown Executive: And so the idea is that we're going to keep moving forward, but in a very methodical, pragmatic way so that we can make sure that we're optimizing performance and taking all those learnings and using them in what we do next. And that we do this in a way so that, you know, a long time from now, when we look back, we've really built this out in a very, you know, successful way.

Unknown Executive: And so that's kind of the way we think about it. It's probably a little too early to share super detailed financial metrics given that it's only been open a couple months, but I would say, you know, we're pretty thrilled with how far we've come. Hey, good morning, everyone.

Unknown Executive: I wanted to follow up on your prepared remarks where you talked about the ELAS. Getting a little better when you maximize gross profit dollars. And then if you're going to manage gross margin to the lower end of that 30 to 31 range, or is it not reflected in that negative low single-digit, I guess, quarterly guide? And frankly, we're able to do that because of our ongoing success. It is simple.

Unknown Executive: Can we double the EBITDA, and that's $480, or is the imputed run rate in the back half on other cost items actually better such that you can do better than that $480? And you're seeing that play out nicely this quarter with revenue down, but we were able to hit that mid-single-digit adjusted EBITDA, and you'll continue to see that throughout the rest of the year. And so it's really promotion as the right type of marketing event that is successful and breaks through the noise in this type of environment.

Speaker Change: Yeah.

Great. Good morning, and thanks for taking my questions first could you maybe talk about your motivation for conducting the Black Friday sale in July it was mostly an opportunistic decision almost so to reflect the more promotional environment and then any color sort of on the effectiveness of this event on the heels of your way day in Q2.

Speaker Change: And then quickly sort of stronger.

Speaker Change: July trends that you mentioned is that taken into account sort of black Friday.

Speaker Change: Alright, so the black Friday in July sale.

Speaker Change: Successful what I would say is.

Speaker Change: Any kind of recession periods, which is kind of like what we have now.

Speaker Change: Definitely run a promotional cadence that's kind of the higher end of our range of promotions, we would run per time in a normal time here at the lower end of that range. So.

Unknown Executive: And so, yeah, we're happy with it. You know, over the years, we did try different types of events during this time frame. In previous years, we tried the anniversary sale concept. We tried doing a financing event. I'd say Black Friday in July, this sale was more successful than those other formats we tried over the years. That might be a combination of the creative, the way we positioned the event, the way we marketed it, but it could also reflect the macro environment. Kate, anything you want to add?

Unknown Executive: Yeah, I think perhaps you're maybe speaking to the SOTG&A line, Maria, and what we've done there. That's where we've seen, you know, obviously, very consistent reduction for eight quarters in a row now. That line is primarily, or we've said the majority of that line is labor, although there's a number of other expenses in there like software costs, R&O, T&E, etc.

Maria: So T DNA line Maria and what we've done there that's where we've seen.

Speaker Change: Obviously very consistent reduction for eight quarters in a row now that line is primarily or we've said the majority of that line is labor, although theres a number of other expenses in there like software cost our notes et cetera, and we've been quite diligent focus on reducing costs across the bucket of costs.

Speaker Change: In there.

Speaker Change: We've always said or we said for the last few quarters that the labor piece does remain an ongoing lever there and you saw that play out a bit this quarter and we continue to think that the diligent and the expense management. There allows us to do things like make this investment when we know that's the right thing to do for the customer at this moment. So that's sort of how those lines play off of each other and how we're able to think about.

Speaker Change: Investing in some areas like price, where we're able to take cost out of other areas.

Unknown Executive: And we've been quite diligent and focused on reducing costs. [inaudible] One thing I would add is when you think about the efforts we've had on cost and the ongoing things we're doing to optimize profitability, you know, I mentioned the best quarter of EBITDA for cash flow since 2021. The other thing I'll point out, though, is that we actually have to break even on owner earnings. So that's EBITDA, less capex, and less stock-based compensation.

Unknown Executive: So if you look at the stock-based compensation line, you see that that's actually improved significantly. That, of course, doesn't show up in EBITDA, but in the owner's earnings, it does show up. And so I just want to point that out as, Yeah, so I think that, you know, I don't want to be overly dramatic because the spread, again, it widens, but it's not like a light switch that goes from like this way to that way. That's helpful.

Speaker Change: Proactively shopping every day on the thing about kind of how does the category get back to growth when does it get back to growth.

Speaker Change: I just get you to just if you think about existing home sales and if you look at existing home sales and you just kind of look at that a long long period charter that you can see how existing home sales has really dropped down and theres a bunch of other people would do various sentiment type indexes. You can what you can see is that there's a lot of pent up enthusiasm and desire to move but right now.

Speaker Change: The market's a little more frozen and the 30 year mortgage rate, that's a little over 7% and theirs.

Speaker Change: Studies that showed like every percentage point.

Speaker Change: Move in the interest rate lowers demand, but it was like $6 or 18% something like that for every percentage point move.

Unknown Executive: And then, Any chance you guys can just revisit that statement for us? And maybe just give us a sense of reassurance as we sort of rejigger or revise our free cash flow assumptions here? So we feel very good about the ongoing levers available to us on capital structure management, and we'll continue to be prudent and thoughtful and look at what makes sense in the market and what makes sense based on what we see internally as well. Thank you.

Speaker Change: Improving our financial profile and our free cash flow such that cash becomes an opportunity to use to pay down debt the.

Speaker Change: The other way that Optionality plays out and we've said this before too is that that opens up alternatives and use of financing for us beyond the convertible markets such as regular way debt through an ongoing improvement in the maturity of the business and our adjusted EBITDA profile and again you saw that play out this quarter with our strongest adjusted EBITDA since 2021, so we feel.

Speaker Change: Very good about the ongoing levers available to us on capital structure management, and we will continue to be prudent and thoughtful and look at what makes sense in the market and what makes sense based on what we see internally as well.

Speaker Change: Thank you.

Speaker Change: Yeah.

Unknown Executive: Yeah, thanks. So, if we look at the KPIs we saw this quarter, remember that active customer number? That's an LCM number that continued to be, you know, up a little bit. And obviously, that's been going in the right direction over the last few quarters. But when you disaggregate, you know, sort of orders in AOV, though, you saw orders down while AOV was slightly up. And the combo of those two things will lead you to that revenue softness of, you know, negative two, or negative 1.7. So that's really what you're seeing play out there is just a little bit of order softness offset by some AOV. Again, the AOV isn't anything unusual.

Unknown Executive: And you spoke of that earlier on. We're back to a point of seeing normal movements in AOV. And obviously, what we're focused on is, you know, continuing to drive customer acquisition, order capture, and pairing that with wherever the AOV is to help drive revenue overall. What you actually see is that you see good customer engagement. The metrics that we track. But again, the category is out of favor. The engagement is in the context of the environment.

Speaker Change: Yeah, what I would take because there is a much more granular repeat metrics, we actually used to operate the business.

Speaker Change: Higher level numbers aren't the ones I'm, most familiar with but what we actually see is you see good customer engagement and the metrics that we track, but again the categories that are fair. So the engagement is in the context of the environment and so that's where you could see us outperform on market share.

Unknown Executive: So that's where you can see us outperform on market share. But that's in the context of the market, right? And the market's down. So I think it's just us being down 1.7, in the context of a market that's down, we think roughly 10% of that is us taking share. But obviously, the total pie got a little smaller. And so I think that's, Yeah, sure. Again, so that number, the active customer count is this 12 month number.

Speaker Change: But that's in the context of the market right and the market is down so I think it's just us.

Speaker Change: US being down one seven in the context of a market. That's down we think roughly 10% is us taking share, but obviously the total pie got a little smaller and so that I think thats really.

Speaker Change: But the punch line.

Speaker Change: Got it.

Speaker Change: As a follow up.

Unknown Executive: So again, that's it. That's a little bit of a tricky number. And again, not one that we managed to solve, and the reason is that that number changes not just by what you do in this. And so I think that makes that number a challenge.

Unknown Executive: But what you actually see in that number is that we're gaining momentum. And the way we're gaining momentum is by taking market share to a degree that lets us offset the weakness of the market and stimulate our own business. Thank you. I will now turn the conference back over to the Wayfair team for the closing remarks. Well, just want to thank everybody for joining the call, and we appreciate your time. We're excited about the position we're in and the things that we're doing and the way it'll play out. And so, thanks for your interest in Wayfair.

Speaker Change: [music].