Q4 2024 Wayfair Inc Earnings Call
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Aaron: Good morning. My name is Aaron and I will be your conference operator for today. At this time, I would like to welcome everyone to the Wayfair Q4 2024 earnings release and conference call. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, we will have a question and answer session.
Aaron: If you would like to ask a question during this time simply press star followed by the number one on your telephone keypad And if you would like to withdraw your question simply press star followed by the number one again
Speaker Change: We do ask that you please limit yourself to an initial question and then a follow-up question when you were given the opportunity to speak. Thank you.
Speaker Change: With that, let's begin. It's my pleasure to turn the call over to James Lamb, Head of Investor Relations and Treasury.
James Lamb: Good morning, and thank you for joining us. Today, we will review our fourth quarter 2024 results.
James Lamb: With me are Niraj Shah, co-founder, chief executive officer, and co-chairman.
Speaker Change: Steve Conine, co-founder and co-chairman, and Kate Gulliver, Chief Financial Officer and Chief Administrative Officer.
James Lamb: We will all be available for Q&A following today's prepared remarks.
James Lamb: I would like to remind you that our call today will consist of forward-looking statements including, but not limited to, those regarding our future prospects, business strategies, industry trends, and our financial performance, including guidance for the first quarter of 2025.
James Lamb: All forward-looking statements made on today's call are based on information available to us as of today's date.
James Lamb: We cannot guarantee that any forward-looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions.
James Lamb: Our 10-K for 2024 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 Lamb: Accept, 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.
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 flow.
James Lamb: These non-GAAP financial measures should not be considered replacements for, and should be read together with, GAAP results.
James Lamb: 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 Lamb: This call is being recorded and a webcast will be available for replay on our IR website.
Niraj Shah: I would now like to turn the call over to Niraj.
Niraj Shah: Thanks, James, and good morning, everyone. We're excited to reconnect with you this morning to discuss our fourth quarter results.
Niraj Shah: The fourth quarter was a strong conclusion to the year across multiple fronts.
Niraj Shah: From a top-line performance perspective, we ended 2024 on a high note, with net revenue showing positive year-over-year growth.
Niraj Shah: This was driven by healthy performance in our US segment, which grew by more than 1% in the period.
Niraj Shah: These results enabled us to drive nearly $100 million of adjusted EBITDA in the quarter and deliver on our goal of approximately 50% year-over-year dollar growth for 2024.
Niraj Shah: Our strong financial performance enabled us to tap into the high-yield markets for the first time and bolster our capital structure.
Niraj Shah: We're now in the strongest balance sheet position in many years, having paid down a substantial portion of our 2025 and 2026 upcoming convertible maturities at an attractive discount, and have nearly $2 billion of total liquidity available to us.
Niraj Shah: In her shareholder letter last year, Steve and I wrote about the three factors that have defined Wayfair at our best.
Niraj Shah: These include, one, a singular focus on what's most important for both our customers and our suppliers, underpinned by category-defining technology capabilities.
Niraj Shah: 2. A belief that our team is strongest when nimble, relentlessly execution-focused, and lean.
Niraj Shah: and three, a long-term owner's mindset to focus on driving the best ROI over time versus optimizing for the short term.
Niraj Shah: 2024 captured all three of these in many ways, even as we continue to operate in a challenging macro environment. Our relentless customer and supplier focus has resulted in another quarter of healthy share gains in the face of a category that remains under pressure.
Niraj Shah: I've talked in the past about how the overhang a depressed housing cycle has had on customers willingness to spend on their homes
Niraj Shah: The forward outlook, especially in the core of our business, big and bulky furniture, is as unpredictable as any point in the past four years, with uncertainty over the state of inflation, global trade policy, and interest rates, among other factors.
Niraj Shah: What is much more predictable is our own ability to outperform the competition.
Niraj Shah: For decades prior to the pandemic and since late 2022, we have been a consistent share winner through our unmatched expertise across marketing, merchandising, supply chain, and technology.
Niraj Shah: We have a wide range of competitive advantages across each one of these pillars, all aimed at building a better experience for our customers and our suppliers.
Niraj Shah: In our updated investor presentation published today, we highlighted many of these competitive advantages.
Niraj Shah: providing details on a few that are in earlier stages and a deeper level of data on several that we have discussed here before.
Niraj Shah: There are a number of stats that will be new to investors so I'd like to walk you through a few of the noteworthy ones now.
Niraj Shah: We've invested in our proprietary logistics network for nearly a decade, which has given us one of our most potent and durable competitive advantages.
Niraj Shah: Suppliers are eager to leverage the services we offer because Castlegate gives them access to a world-class logistics network. One with a degree of scale and sophistication that very few of the industry's suppliers have the ability to replicate on their own.
Niraj Shah: Castlegate can provide a meaningful growth unlock for our partners by driving a better customer experience and much of that revolves around the benefits of forward positioning.
Niraj Shah: Approximately 90% of the orders from Castlegate have a speed badge due to our ability to intelligently position products across the network and integrate our fulfillment centers into the last mile delivery operations.
Niraj Shah: This advantage, combined with the nature of a logistics network custom built for home, is demonstrable.
Niraj Shah: Compared to items fulfilled by third-party logistics providers, Castlegate fulfilled items see order-to-delivery dates nearly halved, return rate percentage down by about a fifth, lower rates of incidents, and higher NPS.
Niraj Shah: Suppliers routinely experience a considerable uplift in conversion rates as a result of the speed badge and lower retail prices.
Niraj Shah: Going from no-speed badging to a one-day badge can drive a conversion uplift of over 60%.
Alongside logistics, curation is another one of our competitive advantages.
Niraj Shah: Our work around making the catalog fun and engaging to shop is a key driver of trust for our customers.
Niraj Shah: especially when they are making an investment in something for their home that they haven't been able to see or touch.
Niraj Shah: There are many ways we do this, including an initiative we launched late last year called Wayfair Verified.
Niraj Shah: The Wayfair Verified stamp on a product page gives customers a quick and easy way to identify products that we've specifically chosen to highlight and that have been physically audited by our merchants.
Niraj Shah: This means our team handles the products themselves to ensure that they meet the highest quality and value standards.
Niraj Shah: In addition to the attributes on our typical product page, like high-resolution imagery, reviews, and other details,
Niraj Shah: Wayfair verified items often also include a short editorial video where our merchants showcase the key features that make these products stand out and explain why this item is one of their top choices.
Niraj Shah: The benefits to both the supplier and the customer are clear. Today, Wayfair verified items drive more than 15 times the number of visits per SKU than the catalog at large, and drive over 20 times the amount of revenue per SKU.
Niraj Shah: Students of Wayfair will know this well, but fundamentally our competitive advantages are derived from leveraging our scale to solve the multitude of challenges that suppliers face in the home category.
Niraj Shah: This is perhaps no more evident than in our efforts around physical retail.
Niraj Shah: Last spring we opened our first Wayfair branded store just outside of Chicago and the response has been tremendous.
Niraj Shah: We combined our deep supplier relationships, the strength of our brand, and our logistics and curation capabilities into a shopping experience that is resonating with customers, more than half of which are entirely new to Wayfair.
Niraj Shah: While we built the store on the basis of our expectations around four-wall economics, we've been extremely pleased at the wider halo uplift we've seen around the store.
Niraj Shah: To use one basic metric for halo measurement, in 2024, we saw more than 15% spread in the growth rate of the state of Illinois versus the U.S. overall.
Niraj Shah: There is still much more for us to do here and we are already fast at work on our second Wayfair store as well as the launch of our first Paragold branded stores later this year.
Niraj Shah: Zooming back out, we hope this new version of our presentation is a helpful tool for investors, both new and old, as they think about our competitive advantages and how those apply across the set of growth initiatives we have in flight.
Niraj Shah: If you look back over the past couple of years, I would describe 2023 as a year of driving meaningful cost efficiency. Our focus was on returning the business to a place of positive adjusted EBITDA and free cash flow.
Niraj Shah: The theme for 24 was in many ways about laying the foundations for a return to growth, which we saw in the tail end of the year.
Niraj Shah: Looking ahead, we intend 2025 to be a year where our investments and competitive differentiation return the business back to a state of expanding growth, even as the market remains challenged.
Niraj Shah: Our enthusiasm is further enhanced now that our tech replatforming is far along, which means that over the year we can focus an increasing amount of our technology resources on driving growth.
Niraj Shah: Early in 2024, we rolled out a significant brand refresh with our Waverhood campaign, which brought fresh creative in top of funnel.
Niraj Shah: The Waverhood was designed to be a platform on which we could build out future marketing campaigns and the results we've seen so far from these efforts have been encouraging. In the fourth quarter we launched our first holiday installment of the Waverhood and continue to see powerful positive impacts across awareness, brand linkage, and recall rates.
Niraj Shah: This is resonating across the business in multiple ways. We saw healthy double-digit growth in app installs during the fourth quarter, and we saw new customer order growth in the US outpace repeat for the first time since 2020.
Niraj Shah: Pinterest continues to be one of our most powerful channels to speak with home shoppers and we saw a very robust double-digit growth in visits during the fourth quarter.
Niraj Shah: We're very excited about our plans ahead for 2025. We've got new campaigns, new influencer partnerships, and continue to test it in newer channels for us, such as YouTube and AppLovin.
Niraj Shah: This testing stage has been a core part of our expertise in digital marketing for years.
Niraj Shah: We take a thoughtful and considered approach as we look to develop new channels, testing customer response aggressively, and only choosing to scale where we see clear evidence of payback.
Niraj Shah: These investments are table-setting for substantial returns, not just in the quarters ahead, but also for years down the road. We're able to make these investments because of the considerable financial discipline we've exhibited over the past three years as we continually improve multiple areas of the P&L.
Niraj Shah: Financial discipline is a key driver of how we think about return on investment, especially the return of our longer-term investments, which are the initiatives we expect to have the highest payoffs.
Niraj Shah: We hold a high bar and strive to bring intellectual honesty as we evaluate efforts where our investment thesis came to fruition and times that it did not.
Niraj Shah: Last month we announced our decision to exit the German market, largely due to the opportunity to pursue higher ROI initiatives elsewhere.
Niraj Shah: Scaling our market share and improving our unit economics in the German market had proven difficult due to the challenging macro in Germany, our limited scale there, and our current brand awareness in the country.
Niraj Shah: If you didn't get a chance, I'd encourage you to read the letter we published at the time of the announcement for more details. One key takeaway I would reiterate here is this.
Niraj Shah: Like every company, we operate with a set of constraints dictated by the budget we have to deploy against our goals.
Niraj Shah: We've always been proud of the rigor and analysis we put behind each dollar of spend to ensure we are maximizing return.
Niraj Shah: We scale investments that are at a point of proven success, but every effort has to start somewhere. In the lead-up to that, we have small teams that are focused on low-cost and high-potential ideas. In that spirit, I want to call out one of the projects our team focused on Far Future R&D just launched.
Niraj Shah: Muse, our latest innovation in personalized home shopping. Nearly two years ago we launched Decorify, our first foray into leveraging generative AI to drive inspiration in the shopping journey of our customers.
Niraj Shah: Muses are evolution in how customers discover, personalize, and shop for their dream spaces.
Niraj Shah: Users can explore an infinite possibility of room ideas, populated with items to inspire purchases on Wayfair. Muse elevates our best-in-class search experience by utilizing generative AI to blend inspiration and shopping. And we can't wait to see what our customers are able to come up with.
You can start right now at Wayfairnext.com slash muse
Speaker Change: I open today with a reference to our 2023 shareholder letter and the core tenets of how we have run Wayfair for more than two decades.
Niraj Shah: As I wrap up, I'd like to now close with an excerpt from the letter we published just this morning, which I would encourage you to read.
Niraj Shah: Under the umbrella of those core tenets, we enter this year excited about the opportunity to continue to 1. Focus on tight execution to drive profitable growth through taking market share.
Niraj Shah: Two, continue improving the financial position and strength of the business. And three, further build out our five long-term moats.
Niraj Shah: We're making smart high-return investments across the business, and at the same time remain committed to growing adjusted EBITDA dollars year over year. We are confident this approach sets us up well for a compelling payoff over 2025, and we are excited to bring all of our stakeholders with us on this next leg of the Wayfair journey.
Niraj Shah: Thank you, and now let me pass it over to Kate to go through our financials.
Kate: Thanks, Niraj, and good morning, everyone. Let's dive into our fourth quarter results.
Kate: Starting with the top line, net revenue for the fourth quarter ended at $3.1 billion, up 0.2% compared to the fourth quarter of last year.
Kate: This was driven by outperformance across our U.S. segment, which was up by 1.1% year-over-year.
Kate: We saw nice strength across the holiday period with 8% sequential growth compared to the third quarter Which was a healthy step up from the sequential performance we saw a year prior
Kate: This was driven by orders that were up about 15% sequentially, offset by AOV compressing by roughly 6% versus the prior quarter, both in line with the typical patterns we would expect to see in the fourth quarter.
Kate: Let me 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. I will use the same basis when discussing our outlook as well.
Kate: Growth margin for the quarter was 30.2% of net revenue, due in part to some deleverage on contracting orders as well as our own proactive reinvestments.
Kate: We continue to see attractive opportunities to lean in on competitive take rates, the benefits of which are beginning to manifest on the top line. We see our pricing levels today at one of the strongest positions in Wayfair's history, helping to reinforce one of the core elements of our recipes.
Kate: Customer service and merchant fees were 3.7% of net revenue, while advertising was 13.7%, which we expect will represent the high watermark for this line item.
Speaker Change: Niraj mentioned this earlier and we talked at length about it in our call in November, but this is a reflection of the exciting opportunities we are seeing to lean in with incremental advertising spend to drive strength in customer and order acquisition.
Speaker Change: To add to some of the examples Niraj shared, the number of unique influencers producing Wayfair content was up by more than 40% in December. As we've been scaling up the Wayfair Creator Program, our direct line to working with influencer talent interested in partnering to share their passion for Wayfair.
Speaker Change: One of the most prevalent questions we heard from investors last fall was how to think through the nature of timing on advertising spend.
Speaker Change: As many of you know well, all our ad dollars are payback driven, spent against channels with specific expectations for ROI over a defined time frame.
Speaker Change: These time frames will vary depending on where in the customer acquisition funnel each channel falls, but even the shortest payback windows can be in the 60 to 90 day time frame.
Speaker Change: This means that a significant portion of the dollars spent in the quarter won't pay back until the following quarter or beyond. It's worth bearing this concept in mind as you consider advertising spend as a percentage of net revenue because there is a timing mismatch.
Speaker Change: Not all the dollars we deployed last quarter hit their target payback windows within the period. Some of that will carry over into one or more quarters of 2025.
Speaker Change: As the revenue dollars associated with the incremental marketing spend begin to flow in, that serves as a levering force to bring advertising as a percentage of revenue back down. Consequently, we anticipate this metric improving compared to the peak level we saw in the fourth quarter.
Speaker Change: As we've previously discussed at length, we are constantly measuring and evaluating the efficacy of ad spend on a channel-by-channel basis.
Speaker Change: Our industry-leading expertise, underpinned by our proprietary technology tools and decades of experience, enables us to have the agility to lean in where dollars are generating the highest ROI, while simultaneously pivoting from channels if their efficiency weakens.
Speaker Change: The important point to take away here is that we are constantly adapting our spending plans to the reality of the advertising market and the state of consumer demand.
Speaker Change: which affords us the flexibility to swiftly pare back budgets if the ROIs across certain channels in our portfolio begin to deviate from the targets we set out.
Speaker Change: Now, as I've mentioned before, the end result we are solving for is maximizing adjusted EBITDA dollars over a multi-quarter period.
Speaker Change: To that end, we can fund this incremental investment in advertising through savings in other areas like our selling, operations, technology, general, and administrative expenses line item, which came in at $392 million for the fourth quarter.
Speaker Change: We showed further discipline here in Q4, and you should expect this to continue as we get deeper into 2025.
Speaker Change: Altogether, we generated $96 million of adjusted EBITDA in the fourth quarter for a margin of 3.1% and $453 million for the full year 2024 at a 3.8% margin on net revenue.
Speaker Change: Early last year, we made a commitment to driving approximately 50% year-over-year growth in adjusted EBITDA dollars. And we're proud of the work that went into making that happen even in the face of a category that showed a third consecutive year of market contraction.
Speaker Change: We've said many times before that our North Star is driving adjusted EBITDA and excess of capital expenditures as well as equity-based compensation.
Speaker Change: Our cost efficiency was well reflected on that last piece, with equity-based compensation declining by nearly 35%, or over $200 million year-over-year in 2024.
Speaker Change: Again, just like the cash expenses in our SOTG&A line, we expect equity-based compensation to further compress as we get deeper into 2025.
Speaker Change: Cash from operations was a positive $162 million in the quarter, offset by $60 million of capital expenditures for free cash flow of $102 million.
Speaker Change: All told, our $83 million of positive free cash flow in 2024 was another year of meaningful improvement in our financial profile.
Speaker Change: But our work doesn't stop there, as we've made a commitment to drive growth in adjusted EBITDA dollars and free cash flow in 2025 as well.
Speaker Change: Let's now turn to guidance for the first quarter of 2025.
Speaker Change: Beginning with the top line, quarter to date we are just below flat and would expect to end Q1 flat to down year over year. This outlook for the full quarter includes approximately 100 basis points of drag from the exit of our German business.
Speaker Change: Turning to gross margin, we would hold our guided range of 30 to 31%, and expect to be closer to the midpoint here for Q1.
Speaker Change: Customer service and merchant fees should be just below 4% in line with where they've been the past several quarters.
Speaker Change: We expect advertising to be in the range of 12 to 13% of net revenue.
Speaker Change: We leaned in quite heavily in the fourth quarter, and while we continue to see very attractive opportunities to spend,
Speaker Change: We do expect to see our spend in Q1 stay within the upper end of this range, as we get the benefit of some of the dollars spent in Q4 now beginning to pay back.
Speaker Change: Finally, we expect SOTG&A to be in the range of $380 to $390 million in the quarter, showing continued improvement.
Speaker Change: Following this guidance down, we anticipate adjusted EBITDA margin to again be in the 2 to 4 percent range.
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Speaker Change: Now let me touch on a few housekeeping items. We expect equity-based compensation and related taxes of roughly $80 to $100 million, depreciation and amortization of approximately $82 to $87 million,
Speaker Change: Net Interest Expense of approximately $18 million Weighted Average Shares Outstanding of approximately $127 million and CapEx in a $60 to $70 million range.
Speaker Change: As we wrap up, I want to take a moment to thank our team for their incredible work throughout the past year.
Speaker Change: Despite a challenging macro backdrop, we continue to gain share, grow Adjusted EBITDA dollars as well as free cash flow, and improve our balance sheet.
Speaker Change: None of these achievements would be possible without the hard work and dedication of Wayfarians across the globe.
Speaker Change: Collectively, we are as excited as we've ever been about what we're building at Wayfair and look forward to sharing more with you in 2025.
Speaker Change: Thank you, and with that, Niraj, Steve, and I will take your questions.
Speaker Change: Thank you and ladies and gentlemen again a reminder if you would like to ask a question today remember it is star followed by the number one on your telephone keypad and we also again remind you to please limit yourself to a total of two questions when you're given the opportunity to speak.
Speaker Change: I guess the relative outperformance in <unk> on the top line, but the.
Speaker Change: The biggest drivers of that work for you guys.
Speaker Change: On our.
Speaker Change: <unk> <unk> was better than expected and customer count in orders were a little bit worse, but it sounds like that was in line with your expectations was it still predominantly.
Speaker Change: Pricing and discount driven just how to think about what happened in fourth quarter then.
Speaker Change: Thanks for all the color on the letter and on the presentation as we look forward to.
Speaker Change: 2025.
Sure Jay and seems to be a big factor here.
James Lamb: What do you think drives that the most of this year and how much share gain is contemplated in your comments around the profitability of EBITDA growth this year.
James Lamb: Thanks for your questions.
James Lamb: Alright, let me.
James Lamb: Let me start by answering some of this and I'm going to pass it off to cater to try to answer some of the the last update about the guidance kind of contemplation.
James Lamb: In terms of.
James Lamb: The fourth quarter. So we were happy with how the fourth quarter came out.
James Lamb: About it is.
James Lamb: Youre, obviously describing.
James Lamb: Revenue came in well, but youre talking about kind of orders.
James Lamb: I guess the way to think of that that is.
James Lamb: The main thing you think about as sort of whats the right offering for customer what's the rate.
James Lamb: Marketing the rate event cadence as holiday how are you sort of the seasonal goods or you're sorting sort of kind of door busters and other items and then how are you just kind of like in our business. It's not just it's not like gifting, where some rush right before Christmas and start preparing to host Thanksgiving, It's getting your house ready for the holiday festive holiday season, it's been.
Hosting again for Christmas. So there's all these things outside of just.
James Lamb: Getting a gift for yourself or for someone else and so I.
James Lamb: I feel like we did a good job with that.
James Lamb: We'll just say.
James Lamb: We're now in Finn.
<unk> finished the third year, where the market was comping significantly.
James Lamb: The negative and our strategy has been how do we deliver the experience that allows us to take share. So the gains are coming out of successfully taking share by the customers choosing.
James Lamb: Shop with us, even though they're not shopping the category that much. So that's sort of like the way I would kind of frame, what we saw with holiday and.
James Lamb: Happy within kind of the fact that was a solid holiday season, and how it played out.
Speaker Change: Now you had a question about now looking forward.
James Lamb: Share gains has been a big story, which I totally would agree with that and I think Larry.
James Lamb: I would point to that is very important piece of the story as you can see in the shareholder letter, we released that today I talk a lot about that.
James Lamb: As we look forward and I would say Super high level and you can see this in the shareholder when I talk about the coming year.
We underwrite a base case that the market does not get that much better than it's a tough market and why do I say that housing is in a tough place.
James Lamb: 30 year mortgage rates and high high it doesn't make sense for a lot of folks to move and so rather than under <unk>.
James Lamb: This is going to get a lot better we say well, let's let's make the base case that it is not now it's a cyclical category and Theres No question that we're down kind of under the downcycle, when we must be near the bottom, but rather than trying to call. The bottom. We just say hey, we're going to be a big beneficiary now and later and during an up cycle. If we focus on just executing well and what.
James Lamb: The things we can do this year that are in our control that let us take market share.
James Lamb: And it's a very big and fragmented market, we talked about it being over half a trillion dollars, it's very fragmented $12 million or one of the largest players in it.
James Lamb: But theres a lot of areas in our business, where we say hey.
James Lamb: Specific things that we think we can do that would let us take share and when you make a list of these and you say okay. These are ones, we can do who could own each one our desert one what are the metrics what do we need to accelerate that.
James Lamb: You add up what do we think these can do that it could be substantial so thats. The plan we have.
James Lamb: And it is based around taking share of the market being tough and big.
James Lamb: Big advantage as we go into this year that we didn't have in past years, which is just that we are alert technology organization. We've focused over the last few years I talked about.
James Lamb: Three years ago in the shareholder letter.
James Lamb: That we were putting our technology resource very focused on re platforming. Our systems, we have put that off for a long time, but we've gotten to a point with developer velocity was very slow and it was very hard test stable systems.
James Lamb: Introduced new feature function into them and so we made the right I think but tough decision to really focus the technology resource on that so we've had multiple years, where we've not been able to drive feature function. In this type of product led growth has historically been a big piece of that with grown we now have those resources back as the tech re platforming has gotten to this advanced stage. So a lot of the things we talk about.
James Lamb: And I've mentioned, a number of that letter are ones that we can now do this year that we couldnt do in the past year. So there's in our mind. There is a lot of opportunity that's entirely in our control. It's low hanging fruit now in terms of how we think about guidance, let me turn it over to Kate Yeah. So I think what you're referring to you all is that commitment to grow adjusted EBITDA dollars in 2025, and how much of that is tied to top line versus.
Kate: <unk> potentially other levers that ignored shared a bit around how we think we can continue to gain share throughout 'twenty, five and our commitment to that.
Kate: But if we look at sort of how do we grow adjusted EBITDA, even in an ongoing challenging environment. We believe there are a number of levers at our disposal Nir just talked about what can we control one of those is obviously our ongoing reduction in our fixed cost base. So the Sochi G&A line, you've seen that continue to come in quite nicely and obviously in our guide.
Kate: <unk> for Q1, we had that coming in again, so we think that through ongoing expense management, even with a challenging top line environment. We can continue to grow adjusted EBITDA dollars.
Speaker Change: Alright, Thank you guys very helpful.
Kate: Thank you for your questions.
Speaker Change: Our next question is from the line of Maria Rips with Canaccord.
Kate: Your line is live.
Maria Rips: Great. Thanks, so much for taking my questions first can you maybe expand on how you're thinking strategically about pricing investments, especially in the context of tariffs and then secondly, one of the focus areas you highlighted in the in your shareholder letter was going after the low hanging food can you maybe expand on two initiatives that you sort of mentioned there one.
Kate: Money.
Kate: Alright, modernizing your merchandising platform and the other one is developing kind of more nuance promotions capabilities I guess, what are some sort of aspects of functionality that you feel like you need to add on those two.
Kate: Upfront to compete more effectively.
Kate: Alright.
Kate: Thanks, Brian.
Speaker Change: Let's go to questions today, I kind of wanted to touch on the first question around price investments in tariff so.
Speaker Change: Tariffs, let's just take a step back and just I just want to provide a little bit of background for those maybe who haven't followed us for six years now if you go back to the during the first Trump administration.
Speaker Change: Tariffs in our category went from really no tariffs on our goods coming out of China through a couple different iterations up to 25%.
Speaker Change: On goods coming out of our category and that happened it was.
Speaker Change: I would say a surprise to most folks and so it happened fairly quickly that of course, then cause our suppliers to make decisions that their supply chain set with an optimized the cost of their goods because they want to make sure that there is cost competitive as they can be otherwise, obviously, it's hard for them to grow their business and succeed.
Speaker Change: But then what's happened since then is that that understanding that hey. These tariffs. They may change that may continue to evolve that was then kind of firmly set in folks' minds. So what you're really seeing happen is that.
Speaker Change: The sources inside Asia in places like Cambodia, Indonesia, Thailand.
Speaker Change: Philippines.
Speaker Change: Vietnam for sure that have grown as places where folks have factories, and where goods are coming from and thats been a growing trend and in addition to that there are places like India, Brazil, Turkey that have really been growing as a source of goods.
Speaker Change: So the supply chain has been diversifying and then obviously this production in the U S Mexico, Canada, and we as a platform because we have 20000 plus suppliers. We work with all of these folks. So we haven't made a bet hey, we're buying from these Chinese factories. So what we want to change our mind, we need to build a sourcing operation in Mexico, and we want it and they'll buy from.
Speaker Change: Instead, we are working with everybody and so our different suppliers may get advantaged or disadvantaged as different things happen that could be something like global trade policy, but it also could be something like ocean freight pricing right. It could be there is a variety of things and our suppliers are doing what they can to optimize their business. So that they can provide that price value to customers.
Speaker Change: Otherwise they don't win and then we're basically taking a margin on these goods. So meaning if you have opening price point barstools with a certain margin we take on opening price point parcel. So anyone who is selling is opening price point parcels are competing against one another but mid priced wooden bar stool is we may have a different margin, we've decided to take but again any one providing that.
Speaker Change: Regardless of their sourcing in their location their cost structure, we're taking the same margin so different folks could win or lose if they end up advantage or disadvantage depending on the set up they have as you can imagine they want to make sure their advantage. So they've been making changes to try to advantage themselves. We try to help them by providing advice and guidance on what we're seeing what we think is happy.
Speaker Change: <unk>.
Speaker Change: As you know on Ocean freight and shipping costs, we try to help them by being a provider of those services.
Speaker Change: We moved tens tens of thousands of containers on our <unk> C is one of our logistics services. We provide so we're trying to help them, but ultimately they need to optimize their outcome and you see them being pretty smart about that so.
Speaker Change: Price actions, we make are around price elasticity, what we think optimizes the outcome for us.
Speaker Change: Not about what the cost inputs are to our suppliers.
Speaker Change: So there's sort of like obviously related in the sense that you're talking about a retail price at the end of the day, but they are two very different dynamics.
Speaker Change: But before I go on to the two things for the shareholders. Let me I don't know if <unk> wants to add anything on that first of all you know I think that cover the tariff fees well I guess I would just add on sort of that conceptually how we think about price to you heard us talk about investing in price over the last few quarters. What we said there was that we were focused on growing gross profit dollars on this model.
Speaker Change: The quarter basis, and so it.
Speaker Change: Really the framing areas, we think of price as a lever and we are quite selective about how we use it we understand from the Kobe.
Speaker Change: Toby throughout the data, we collect on where the consumer is price sensitive and where we should lean in where we should pull back and that's really based on guiding towards that gross profit dollar growth and ultimately this adjusted EBITDA dollar growth. So as we go into 'twenty five think about us as having that at our disposal in terms of how we lever that up and down.
Speaker Change: Now, let me jump to the second the second question.
Speaker Change: So thank you for reading the letter and anyone on the call definitely if you have a few minutes encourage you to read our shareholder letter we try to zoom mountain.
Speaker Change: Try to be concise, but also try to share thoughts that we think would be interesting to you is thinking about what we're thinking about what were focusing wafer on where we are what we're doing specifically and.
Speaker Change: When we talk about the plan for 2025, one of the things I talked about was low hanging fruit, meaning these are things that again in our control, where we can take share through actions of our own and the low hanging fruit comment. The first that we think there is some real juice to squeeze on these things and so we're going to go after them.
Speaker Change: And as I mentioned a minute ago.
Speaker Change: There is a set of items on that list that wouldn't have been possible for us to do in the recent past because of the technology re platforming effort, it's hard not to kind of overemphasize that because obviously in our history. You go back over 20 plus years, we really built the business through very focused execution, but by using technology as a key lever to really.
Speaker Change: Let us get advantage, so obviously, taking a multi year period and focusing on setting up our technology be scalable flexible enabled developer speed.
Speaker Change: But not to feature function in the meantime is really change and painful and <unk>.
Speaker Change: Ikea in the near term, but we think really smart for the long term. So we did that but now where we are as we are getting that technology resource back.
Speaker Change: So the two the two things you asked about are both ones that do leverage technology resource. So on the merchandising platform. So that refers to as we built our platform for the complexity of the home categories. A long time ago. So in our categories. There's items that have a lot of options there might be.
Speaker Change: Fabric choices at Legg choices and arm choices on the sofa. So theres a lot of complexity in how you want to show items. Some items come in multiple boxes. There is a lot of dynamic and how the catalog needs to be structured. So we set up for that now over time as the world Advanced Theres things that we now know hey, there's easier ways that we can set it up for our supply.
Speaker Change: To work inside our extranet that they work on call partner home to work with us They now have catalog.
Speaker Change: Product information management <unk>.
Speaker Change: <unk> that they now store data in that we want to just automatically integrates into through direct connection through the <unk> or through an API that they can write to and these are things that in the old Tech stack were difficult to do so as a result, it creates friction for our suppliers to be able to do the things. They want it makes it harder it makes a slower it makes it more error prone.
Speaker Change: And so what we now are able to do is rather than sort of a band aid and quick fixing the things that we need to do in the near term because the main focus of the re platforming, what we're able to now do is tackle.
Speaker Change: The bigger bigger cells to make it we wont be the easiest platform for them to work on where they have the most flexibility and theyre able to do things that they cannot do another platform is getting at the nature of the goods, we sell the way they want to merchandise. These good. So that's the kind of like the merchandising platform broadly is that type of work we are meaningfully far along in that now and we think theres a lot of gains to come from that.
Speaker Change: The other one you mentioned is.
Speaker Change: Talking about what we do with promotions in there that's kind of like two facets to that.
Speaker Change: One is just as we've talked about obviously, it's a category that customers have a lot of passion for it they browse shut that want to know about trends, but the ticket the ticket size of the category its not de minimis. So it's not like I need some new iPhone Cable's 10 box no big deal. So you may you may want to make her a little more about sale events or when things on sale you may really want to browse and see what's up.
Speaker Change: There and so the experience for customers on a shopping on sale events interfacing that with our ability to personalize those events and really let them find what they're looking for there is a set of technology around how the sale of its manifest that we want to let them experience and then there's also the supplier side, making it easier for suppliers to launch new.
Speaker Change: Promotion types. So in other platforms, you may see things like coupons or buy one get one free there is certain types of very specific promotion types that today in our system. We don't support they are not necessarily the primary way suppliers market in our category, we support those but they add up and so we want to we want to make those available again those are.
Speaker Change: Not particularly difficult, but when you really have a very scarce amount of technology resource for future function. They wouldn't make the cut now all of a sudden we could add those in the platform those in different categories will unlock a nice pockets of growth and so those are two examples of what's a much longer list that you can see how these things add up I think.
Speaker Change: Great. That's very helpful. Thank you very much.
Speaker Change: Thank you for your questions.
Speaker Change: Our next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is live.
Eric Sheridan: Thank you so much and I'll echo the thanks for all the detail on the letter was really really really helpful.
Eric Sheridan: Part of the letter where you talked about advertising both from a stimulant of growth than the rate of pace of cost reduction I wanted to ask if I could follow up there with maybe just a few questions. One what were the key learnings about channel mix from 2024 that inform the way you want to arc and spend your advertising dollars in 'twenty five and beyond.
Eric Sheridan: And could you talk a little bit about the evolution of direct traffic and rewards and how that could offset advertising is actually create.
Eric Sheridan: Some leverage on that line item over the longer term. Thanks, so much.
Eric Sheridan: Thanks, Eric.
Eric Sheridan: So.
Eric Sheridan: A little bit about <unk>. So the first part of your question was about like learnings from channel mix and so what I would say there is kind of a.
Eric Sheridan: A few thoughts so one there is the concept of channel mix in terms of.
Eric Sheridan: Upper funnel mid funnel and lower funnel and so if you think about the total top of upper funnel might be something like our TV advertising, obviously the waiver Hood campaign was a big launch last year, we're very excited with how thats going with the new set of that campaign that will launch shortly in the spring and obviously, there's the holiday phase and then there's mid funnel or kind of what I would say this.
Eric Sheridan: Things that channel mix why don't we do a lot to try to measure mix and the mix effects. The mix effects are hard to measure. So you have a kind of margin on air on that but what you do find is like the basic premise that you want to be wherever our customers are is obviously very important.
Eric Sheridan: And so what I would highlight there is.
Eric Sheridan: I think when we look back over the last few years wed probably say that we're probably a little slow to experiment and optimize for some of the more emerging channels and so to give some context, one that emerged a handful of years ago. That's grown quite large would be what happens with influencers or creators. When you think about some of the social media channels, whether it be.
Eric Sheridan: Be on tick tock, or Instagram or Youtube shorts, and how do you interact with those in a way that both.
Eric Sheridan: From a brand standpoint provide some upper funnel benefit, but frankly is really also driving that lower funnel sales transaction and so that youre monetizing it on the payback you want.
Speaker Change: And so I would say what we believe is that there are certain channels, which we do a very good job and we're getting we're getting kind of our share we're learning how to kind of keep increasing that cost effectively through increased targeting better creative et cetera, and then theres channels, where we don't yet.
Speaker Change: The recipe correct, but we think they are important place to be and so I mentioned creators, but then similarly, if you look at Youtube full length or whether you look at <unk>, There's a number where we care a lot about being a leader in that channel and getting our share, but then making sure we measure the interaction effects that we're only we're setting the payback.
Speaker Change: So that we're getting the benefit both in the channel, but overall because of the interaction effects.
Speaker Change: And I would say that one of the things we're focused on doing is catching up the channels, we're not yet at a scale in but we don't want that sort of experimentation cost to be a big source of deleverage. So.
Speaker Change: The way, we think about it as hey, there's some upfront cost when you are in channels that you are at payback and but youre not maximizing that hey, you want to spend up to that payback and then you get revenue that quarter and next quarter to quarter. After you know you know your money. Good there. So we're doing that but then the second thing, we're doing which really gets to the channel mix is experimenting in the channels that we think are.
Speaker Change: <unk> ones, but where we don't yet have the share we don't yet have the recipe correct and there what we're doing is we basically.
Speaker Change: I think in the fourth quarter, we sort of did a lot of both of what I've mentioned, but what we've done is we've really fixed set budget to where we're going to be able to continue to expand the channels, we care about but in a way that our overall AD cost is going to be very kind of effective and efficient. So that's kind of led the way I would talk about the channel mix.
Speaker Change: Go to the second part about the direct traffic to anything you want to say on the first part I mean, I think you've covered it well I would say some.
Speaker Change: Some of the key points for US are that all of these channels are managed to very specific paybacks. So they are very tightly managed and sometimes the total advertising dollars gets larger as we test and we play around with where we want to lean in more or less overall, we're always tracking to payback. The other thing I would say just in terms of sort of how do you start to see.
Speaker Change: Some of the leverage in the years will go into loyalty and direct traffic in a minute, but the there is a bit of a mismatch between when the dollars are spent and when you see the benefit from those dollars and so that's why you know on the call. We referenced that Q4 was the high watermark on this.
Speaker Change: Advertising spend because the paybacks can be as low as sort of 60 90 days, but they can also central longer we don't go out beyond a year of course, but you can see some of the revenue generated by marketing spend it was efficient and effective in the fourth quarter may come in multiple quarters later, and so as you think about leverage and where you see leverage I just think that's an important.
Speaker Change: Concept to keep in mind, a little bit of a mismatch there.
Speaker Change: And the second question about direct traffic over time, I think the way to think about it is I talked a lot in the letter about advertising costs and about how you basically have the attention of sort of as folks get increasingly loyal you get a lot of the AD cost leverage on that cohort of customers, but the things youre doing that drive them up to be increasingly loyal actually allow you to get it.
Speaker Change: Lot more newer customers into being active customers and aligning that loyalty ladder and that sort of deleverage you on the AD costs. So those are puts and takes.
Speaker Change: Is your question what I would highlight is there is a couple of other factors that will significantly helps add costs and the way. They do that is really what theyre doing is theyre, helping people move up that loyalty ladder faster.
Speaker Change: It's really the mechanism that helps the ad costs.
Speaker Change: What those are the two I would highlight one is our app the wafer at the percentage of revenue is coming from the wafer app.
Speaker Change: The broader base of users are using the wafer app has been.
Speaker Change: A very positive trend that has the effect of doing that moving people up that loyalty ladder and then the second one is wafer rewards and with our rewards the new loyalty program. It's early days right. We launched it in October but what we're seeing so far from the first cohort of members is the behavior is.
Speaker Change: It's working very well.
Speaker Change: As expected actually the numbers are actually running ahead of expected.
Speaker Change: We have not aggressively marketed yet we've got incentives at a nice pace, but we have not aggressively marketed yet so now what you're going to see is youre going to see it on the site highlighted more.
Speaker Change: Right now you can sign up for it and checkout, but it's not like Super obvious. It's there. If you are paying attention, but we don't make it like really jump out at you like most other folks too.
Speaker Change: Now that we've kind of gotten it through that initial testing and we're seeing it working well youre going to see that ramp up so and that would be another one that has the effect of moving people up that loyalty ladder faster. So there are multiple things outside of the AD costs itself that will have a driver on it in a positive way.
Speaker Change: As you are basically asking.
Speaker Change: Thank you.
Speaker Change: Thanks for your questions.
Speaker Change: Our next question is from the line of Chris <unk> with JP Morgan Your line is live.
Hi, Good morning, this is Joey Wasserman on for Chris.
Speaker Change: Was hoping you could talk to the cadence in terms of what you saw that was more post holiday lull, especially in January versus what the impact was from wildfires and weather and also on the weather portion was weather a good thing for you or a bad thing because I know last year.
Speaker Change: We refer you talked about the polar vortex being headwinds, but this year I saw the app usage was up which is probably.
Speaker Change: More of a cold weather people not going to brick and mortar stores as much benefit. So also speaking to other polar vortex part two that reaction deferred from last year.
Speaker Change: Yes so.
Speaker Change: Thanks for thanks for your question so.
Speaker Change: A couple of thoughts so I would say the cadence, we think about the holiday and into entering the new year. The biggest thing I would say there is if you.
Speaker Change: You ignore the holiday period itself, which was I think strong.
Speaker Change: Basically we have seen is you've seen a relatively weak market in January.
Speaker Change: Was weak and I'd say February has been a little weaker than January but thats not really very much off of the trend that had been on outside of holiday and also when you look at holiday I think it is important to balance in November and December because certain peak days slid from November into December and I think the way some folks look at it is November was down but December was up a lot in there.
Speaker Change: Really excited about that I think you sort of need to add the two together to get that kind of which days fell in which month effect out and still see a good holiday, but it wouldn't be quite stark.
Speaker Change: And so our view is that the market has not dramatically changed it's been a weak market. It is still a weak market, we're probably approaching the bottom impossible to say exactly where that is.
Speaker Change: No immediate catalyst that's good unlike shoot it upward right away there is pent up desire from customers to engage in the category, but no immediate catalyst caused that to happen. So hey, what makes sense, while our strategy around taking market share through our own actions. We think makes perfect sense, we happen to have a set of levers to do that we're very excited.
Speaker Change: About that and again the tech re platforming sort of the position.
Speaker Change: In addition, we've gotten to is a very.
Speaker Change: <unk> lever for us, but it's one that's actually very powerful for us. So we're sort of excited about that.
Speaker Change: As you mentioned theres different weather spikes.
Speaker Change: Spikes that happen.
Speaker Change: Yes.
Speaker Change: This year, it's been a little less.
Speaker Change: Bit more puts and takes I don't know that there is a specific weather pattern in the early part of this year I would point out but anything you'd add.
Speaker Change: I Wouldnt quantify.
Speaker Change: Any significant impact or detraction from weather.
Speaker Change: Neutral.
Speaker Change: That makes sense. Thank you and just a follow up on your February comments, I know lazy boy earlier this week.
Speaker Change: The President's day was just.
Speaker Change: Not as robust as some other recent holidays and following up on your comment about February being I think you said February being slightly weaker than January overall, so just wondering if you could speak to that and whether it's Tim.
Speaker Change: Observe the same trend of that holiday being weaker and then just another quarter to date a question would be how a later Easter is affecting the <unk> outlook and the expected shifts would be thank you.
Yes sure so.
Speaker Change: Yes.
Speaker Change: Again, I did try to comment President's earlier.
Speaker Change: The number of people comment about presence they being weaker.
Speaker Change: No I think in general just market has remained weak I think is probably the main punch line I would put through that and then Easter is a little later Easter doesn't drive a huge amount of change in sales.
Speaker Change: For us we think the category so we're not.
Speaker Change: The Easter moving we don't think is a big driver.
Speaker Change: Thanks for your question. Our next question is from the line of Simeon Gutman with Morgan Stanley. Your line is live.
Speaker Change: Good morning, everyone.
Simeon Gutman: I wanted to ask if you can parse out the guidance for the Q1 and if I caught it was revenue flat to down slightly how it breaks between the U S and international.
Simeon Gutman: I caught some of the quarter to date commentary in there and then how is the first quarter guide dovetails with some of the bump in advertising you did in <unk> and I know narrows its not a perfect science in terms of timing, but I am curious if.
Simeon Gutman: If one or the other on hand in hand.
Speaker Change: Yeah. Thanks, Tim So I'm going to let Kate early answer the bulk of this question, but I think.
Just to talk about advertising.
Speaker Change: Definitely there is definitely a tale in future quarters and.
Speaker Change: That is a factor, but I think most of the guide probably has more to do with.
Speaker Change: A lot of other drivers of what's happening, but taken kind of parse that apart for you.
Speaker Change: What I would say is.
Speaker Change: Okay.
Speaker Change: It's kind of like the main point I guess is what we're talking about a minute ago, which is just more that we think we're going be able to still nicely take market share we've been doing that since the fourth quarter of 2022, we did it for 20 years pre COVID-19.
Speaker Change: And we think that we actually have some.
Speaker Change: <unk> that we can do with this year that are quite advantage. So despite the market remaining weak as it has sort of.
The specific holiday period, and despite the obviously the quarter.
Speaker Change: We're comping not having Germany, we're comping not having the extra day in the quarter from last year, but.
Speaker Change: I think we feel quite good about our position in that taking share, but maybe you can answer the questions about guidance.
Speaker Change: We said quarter to date, we're just below flat and we expect to end the quarter flat to down year over year and that includes about 100 bps drag from the exit of the German business. So we don't typically guide U S versus international but because of the uniqueness of comping over the German business. This year versus last year, we did want to account for.
Speaker Change: So the fourth first quarter guide excuse me contemplates the German exit and as Nick said, the lack of the day the extra day.
Speaker Change: In terms of your question on sort of how is the AD spend driving I think nearer to address some of that what I would say is you know as I referenced a few minutes ago, the marketing spend impacts on multiple quarters right. So certainly is there some benefit from increased spending Q4 into Q1, yes, but it could also impact on subsequent quarters.
Speaker Change: The 2025 year.
Speaker Change: Depending on which channel because the channel all have different payback days and so we're really focused in an ongoing sort of challenge in down market. Obviously, you can look at the year over year comps, but we're quite focused on how are we driving share and are we seeing the benefit from the marketing and share gain because that tells us that we're continuing to do well in an ongoing.
Speaker Change: <unk> challenged environment and so that's how we're looking at it and looking at the impact of it.
Speaker Change: Thanks can I sneak in a quick follow up we had a little bit of a bump in industry demand in late last year I don't know if it was post election or not is there anything in your visibility whether it's big item furniture household items did it feel like this was an end of a reversionary cycle like how did what did you attribute.
Speaker Change: If you are seeing what we are in terms of industry picking up a little bit into the end of last year how.
Speaker Change: How do you assess that.
Speaker Change: Yes, it's less clear to me that Theres really much of a industry bump in demand stands out I think some folks looked at imports, but again I think the timing of the <unk>.
Speaker Change: Lunar holiday in February I think what we saw was a buildup of shipping ahead of it and then there is generally a low which we're now in and then there is a buildup accurate. So I think thats a factor that I think maybe folks were looking at.
Speaker Change: And.
Speaker Change: So.
Speaker Change: I think the other thing is some folks remember.
Speaker Change: Some days moved from November to December calendar Wise I saw a number of folks November was low but then they talked about help high November December was but again I think you've got to add the two together. So my general view is that holiday was good.
Speaker Change: But if you zoom out the trend overall has not really changed in a weaker trend and holiday. If you add up all of it together and look at it it wasn't quite as good as the folks who just look to December alone.
Speaker Change: Thank you good luck thank.
Speaker Change: Thank you for taking my question.
We have a final question today from the line of Steven Forbes with Guggenheim Securities. Your line is live.
Speaker Change: Good morning, Steve case.
Speaker Change: I wanted to focus on the castle fulfillment network and I appreciate the color as others did delivery time return incident rates, but curious.
Speaker Change: Curious if you could help frame up for us capacity utilization today, and how you expect the vendors based on your discussions.
Speaker Change: To engage with that network, but as we move throughout the 25% I mean.
Speaker Change: Anything to note from your discussions today.
Speaker Change: Yes sure.
Speaker Change: In the.
Speaker Change: In the shareholder letter I actually talk about what could drive gross margin one of the things I talked about as utilization of our fulfillment network utilization of castigate as that rises that's a big big driver of a gain for us in the sense that it offers.
Speaker Change: Real leverage so when things, we focused on with our suppliers or like how do we help them do things that are good for them good for us and good for the customer.
Speaker Change: And obviously our goal as we've talked a lot about like so we're being very ROI focused we're focused on how do we grow revenue really focus through the back of taking market share. So we're not underwritten the market getting better but do so while growing profit dollars. So that's the framing right. So just think about that is we want to grow revenue. We think we can.
Speaker Change: We think thats going to be through market share growing, but while we grow the EBITDA dollars.
Speaker Change: And so one of the benefits there is where when we can grow the catalog of fulfillment utilization in a way that's taking out costs for suppliers allowed the retails to get sharper for customers to speed to get faster for customers in a way, where we're getting leverage through utilization of the network that's a big benefit.
Speaker Change: And so that is something that we've kind of worked on honing.
Speaker Change: Kind of the cost structure of Cascade in a way that benefits sort of everyone involved we've seen good reaction to that and then we focused on some of the operations capabilities. We have in our network and one of the things we can do that easier for our suppliers to use our network in a way that's beneficial for everyone in technology that adds efficiency.
Speaker Change: The way to think about it is for our business as we grow there is a lot of profit leverage in the business. So for example revenue when revenue grows 1% EBITDA growth a few percent. So there's real leverage there, but then similarly on the cost side. There are certain things that are fixed costs. So when we kind of think of our corporate overhead is a fixed cost. So obviously there is leverage there.
Speaker Change: That would be that some costs are no longer needed and we save some money like we've done or whether revenue gross well Castle gate is an example of fixed costs, where utilization of that network will drive real profit. So we can get profit again revenue grows 1%, we get a few percent growth in EBITDA, but also leveraged through some of these other things as you meant.
Speaker Change: So so we do we do think this is a real driver.
Speaker Change: And then maybe if I could just a quick follow up on that topic, because you framed the first quarter gross margin profile mid point of the traditional range 31 31.
Speaker Change: Do you think about these comments around capacity utilization and castle gate, and then supply our advertising, which I also think you commented on the shareholder letter.
Speaker Change: So is there any reason for us to think about a second half or full year gross margin profile, that's not within the upper bounds of that range that you are providing.
Speaker Change: Youre not guiding here, but like what.
Speaker Change: What would be the risk factors to that sort of framework for the progression of gross margin as we move through the year.
Speaker Change: Hey, Steve I'm glad you answered the question for me, noting that we're not guiding but I'll try to give a little context on it as well. So if you think about sort of where we've been on gross margin over 24. We've obviously stayed within that 30 to 31 range and that's really been balancing how do we think about investing in the customer experience.
Speaker Change: Particularly around price investments, how do we think about what's valuable there for the consumer while also making sure that we're generating gross profit dollars on this multi quarter basis, ultimately driving adjusted EBITDA dollars on this multi quarter basis and thats. The tradeoff that we're making gross margin. So I would think about decisions around price investment and how do you reinvest things like <unk>.
Speaker Change: Benefits that we get from retail media as really a lever for us in the same way that we talked some about the marketing spend and then we can flex and flex out of that and as you think about sort of the Q1 guide obviously theres a little bit of seasonality. This gross margin has a number of puts and takes to it the retail media spend it has the leverage or deleverage in the logistics network. It has <unk>.
Speaker Change: <unk> mix, so theres, a few things that can move that around quarter on quarter I wouldnt overly anchor on the Q1 guide relative to the rest of the year.
Speaker Change: Thank you.
Speaker Change: Thanks. Thank you for your thank you for your questions and that will conclude our Q&A session for today and I would like to turn it back over to the wafer team for any closing comments.
Speaker Change: Great. Thank you.
Speaker Change: Obviously I want to thank you guys as always for your interest in <unk>.
Speaker Change: Kind of two quick things I'd say that as we look at 2025, it's definitely a year, we're very excited about what's in our control and what we can do.
Speaker Change: Obviously, we are looking to see on the back of market share to see revenue growth, while we grow EBITDA dollars and I think if you have a few minutes I just want to put one more plug it in that just having to take a quick look at the shareholder letter because I think we try to capture some of it there, but thank you again for your interest and talk to you next quarter.
Speaker Change: Please wait the conference will begin shortly.
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