Earnings call transcript Q1 2023

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Operator

Good day, and welcome to the Wayfair Q1 2023 Earnings Release Conference Call. [Operator Instructions]. And finally, I would like to provide all participants that this call is being recorded. Thank you. I'd now like to welcome James Lamb to begin the conference. you. to over James,

James Lamb

Conine, thank first joining me quarter Chief and Co-Chairman; Shah, and Gulliver, and will Financial Chief are Today, review Co-Founder, Officer Steve and Officer our XXXX Administrative Executive and you morning, Co-Chairman; us. Kate Officer. for Chief we Niraj Co-Founder Good results. With

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

trends have to, on I call will and quarter business reasonable statements, including, forward-looking us statements cannot will consist and would expectations like of made including prospects, statements performance, forward-looking in to financial of available date. that information future guarantee based be remind to not our you accurate All our those limited guidance that of strategies, second our We industry our been call today's today the today's we regarding assumptions. are but although for forward-looking on we any as that XXXX. believe

for identify materially our projected for XXXX, to differ any this from Our that XX-Q company's results and the as information, forward-looking factors cause certain in quarter our today. otherwise. actual undertake whether revise XX-K filings a those SEC statements subsequent statements, no any of Except publicly or update made law, or by obligation any of result as future these required events new to we could

flow. our the non-GAAP cash the a that measures our of contain website refer and should be investor performance, descriptions financial Please free including to of and obtain call, measures. please non-GAAP nearest adjusted our results. be non-GAAP reconciliations presentation, we review Investor margin copy considered and the this as should section GAAP of during not GAAP and to with of which Relations we company's comparable measures together earnings non-GAAP for release Also, financial adjusted note will financial read discuss measures replacements certain EBITDA measures EBITDA, These to

to our now website. This call available I for and on be like a turn over to is will Niraj. the replay IR recorded being call would webcast

Niraj Shah

to James, out details we pleased our Thank quarter morning, today profitability. first our share the everyone. laying with you road August, to path you, We're of map Last good and shared a to reconnect results.

a The to X strides and and first simultaneously cost the significant of customer basics our breakeven. offering initiatives core supplier cost Through step getting efficiency, customer on we've driving while loyalty, adjusted our focus structure. EBITDA in back nailing was experience reducing our and improving made

EBITDA we share in Collectively, EBITDA market last have and quarter. quarter, these expenses we're breakeven to second in share excited that resulted adjusted reduction And operating efforts have in getting the versus positive increasing significant QX. to in adjusted nearly a to us expect

further profitable known drive are milestone us the in we spite front opportunity part to year. and better in of demonstrating that the rapidly the model while there We've Wayfair this investing for considerable that expansion and macro We've future growth. business operated now of has is for of environment the our always clearly in inherently reached is margin difficult profitability

of March particular, in with of XX% first many according and contracting year-over-year impacted we XXXX to in others sources category, than turning been has more sales Our follow. now down approximately the

is challenged, our the customer and sustained have share nailing steady basics While traffic leading on supplier and conversion remains our work and held driving market loyalty levels growth. to

the try decided planned X-day event. XXXX year-over-year we as quarter, to of the At Way back and trends, just the beginning of order and denser In promotional the seeing we're Day for our Way a Day. improving we format we're off calendar second seventh a coming for year,

shoppers the to are suppliers We the both from day. very engagement our pleased our by extra and

we firing of the are on delivery, making quality sharp our great even adjustments availability hard of model to the testament the and it's our work as cost fast team base. a and meaningful of pricing, It's execution all to that cylinders,

As we've lens key the the our on you business done initiatives, parts X of update several I in to efficiency. of different want starting quarters, for with cost

and now As share flow that to some operational want moments in outlined part refer you've million provide cost billion us $XXX all the our some manifest coming perspective on heard benefits across chain our cost of from our annualized more initiatives of these to aspects starting progress. we savings few multifold further to we're margin, in see examples these some total to January, a I of of cost savings. $X.X take savings through actions as of our These gross initiatives and value are you

the actually areas to as for of our we cost road down started driving efficiency, enhance and the supplier customer we looked savings. was of As even overarching goal experience,

of is in do well aggregate. reducing specific that rates, both as ways we One products the by damage on the as

rates, In instances our packaging. with points rising working identify in suppliers weak where proactive we stance take and improved see incident we a specific to

information allows using level, damage to to to better this technology results us shoppers. Our the strength and compose in take data on for search rates science next

future. much over know down of order our repeat summer. is order many expenses incidence create a we on shoppers XX% consistently likelihood our has a experience, driven delayed one generating This service By items save factors in prioritizing better last by since driving overall higher after that the and rate that of a we

consumers. delivery prices for lower Lower cost directly of retail translates to

last Wayfair that large our or some expectations, costs. on average actually as our area Though parcel. go optimization as can and as mile XX a is classified of recently pounds is we small small parcels another in sold to So cases. high product either pounds Every focused XXX on

mile parcel are like of to expect, which shipped through are to deliver the driver a would and last large orders network, due FedEx items, delivery fulfilled bulky and nature trucks staffed of rather the parcel are heavy than middle single Wayfair our small all teams and than expensive with most less as you just X-person carriers where products. through Our are

large. straddle or items will the small Many line between

not. that data a as large tools analytics our sharpened parcel classified decide is product we've whether So or a

makes other see are may more higher delivery rates some parcel customer The that of is finding preserving while small indifferent, damage shipping clearly cost in large times the offset we sense. a extra For price than case retail damage which experience. a the creates and rates cases, by parcel as care. more class item reduced the compelling from items, In

Our risk damage logistical ability also more therefore, Improved and optimize delivery means and to Wayfair. that shipping costs to less through customer multiple with drive further times. suppliers fulfillment points faster benefits the been has expense, by positioning to of a lower resulting and efforts forward fewer touch our in CastleGate while accrue to enhanced

XX on badging areas record high items These with across first in speed X a this hit of In distinct examples fact, a quarter the with site percentage new more the of of year. savings. initiative just the multifaceted than are

All more than adds to I which up $XXX mentioned million of earlier. the

last Since achieved we targeted and started and In the here, annualized summer, a process of the than on savings year-end. progress flow-through the but to few speed the basis an minutes, we've half financial now remainder want Kate will more with are on our specifically more towards steady I streams. executed team acknowledge by talk this has which thoroughness completing about making work these

we we these efficiency and We're and that process-oriented returns. it higher savings when still considerable to volume improved we I market believe even mentioned savings our the which driven business, expect every will economics seeing that across durable it we share extremely are order single lead on growth have create repeating. will These changes are proud earlier, as bears but expansion. strong placed

with here a win several our And data. across data sources second progress share best every from clear loyalty we past is comes and from We driving picture. resounding third-party conversations such share share in sources, The for day. suppliers, customer key has evidence the our collect Our quarters, Wayfair. and credit initiative of over and all the market research unified as supplier several the card are picture seeing market

robust shoppers playing summer capture we market, credit quarters. to the #X A as share major speak first Lipid share publicly second the for similar data, in with published our market in for the position more unlocks ongoing made home last our which since we story providers, States, capture recently to their several quarter is Canada, shows where have big one available card us in index data largest region. of share goods United specifically seen the out

to and are love we products recently for loyalty, from search filters the within customer are items in our fulfilled drive to that region launched customers highlighting positioned Across Canada, efforts which country. our the

of prices Our competitive Canadian benefit appreciate incidence added speeds, rates. delivery surfacing customers items the and with faster lower retail

promotional our for more shoppers a Wayfair.ca Canada-specific Canada host and like our and to country. launched speak Day best-in-class Victoria the events customers in sales directly Day French to also We've experience

shoppers we moments, with connect them partnered influencers they items further During our love. to have and will these celebrities and offer with Canadian

fast nicely recipe back. recently place, in core the availability, a that our tracking from of that customers have delivery States. strong been coming nearing kept detailed third Canadian on to pricing the originate As competitive enabled initiatives, orders has with U.S., spirit, ties this end-to-end in we In the the key basics. and our Canada international better never And United

the location their did of once Most shoppers detailed previously could only order it cross see border. northbound the

at now stage reduces to service of customers their of have inquiries. items which are fulfillment, Canadian the where each full volume Our visibility post-order

experience. follow-ups local we've agents number out the meaning true service, strengthened improves basics. shopper, the unique of customer who the of domestic the our team. service theme understand immediately the and the also customer their having of find of We On Canada-based nailing needs reduces

As I back up, wrap moment. for a I zoom to out want

working. we laid we map for the way, chart that you to quarters both the expeditious profitability. out intend X a point a we and we For as now, have we've this thoughtful still told to progress be several see past months Along journey. is that road road return out over And a of proof our plan true while as ahead we us, more the

ever side. for as other the as We're will we've Wayfair it emerge been that confident on stronger

hand to the through with me our financials walk it let Now quarter. Kate for that, to over

Kate Gulliver

at and I seeing want enthusiasm good signs for to are Niraj, morning, echo Niraj's XXXX. the everyone. Thanks, promising we

plan to Our the team manifest we we beginning working be the in and results. more the hard couldn't in outlined pleased output see now XXXX, been has to execute to

into figures. Net billion, let's first at the $X.X in year-over-year. dive X.X% revenue quarter down quarter for So the came

encouraged to We see we growth. and business by order are the in seeing in improving trends a traditional return seasonality our are more

abated, evidence before, and as to As are prices up count we this we starting order we out. see pick volume customer dynamic of inflationary shared playing active and to expected

revenue segment between down of largely international impact our geographic unchanged U.S. The picture FX. excluding the XX.X%, down our and segments segment year-over-year, with remains our net X% in

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

depreciation As related well. please basis taxes I amortization, exclude and and financials when the include adjustments. outlook use but I other note as the do, same will remaining equity-based our that compensation, discussing

even coming a stellar another quarter, had maintained at promotional margin calendar. in Gross robust XX.X%, as we

as Niraj this beginning savings, and Our team continues flow that cost you see headway through on are discussed, line. to make to meaningful operational our to

New in savings York oriented, we've noted that annualized volume described process increases, of and, these savings. targeted our half some cases, is he achieved over our as hold they will meaning and improve

that longer-term the margins which these in important Last to up It's show target through rest mid-XXs of choose in to experience expansion see as we passed begin on our customer in savings sharper starting margin note as gross that the to these the some pricing. we while of have mentioned we Some may savings to reinvest price. them range. road structural quarter, to the you're accrue, I see on gross map to see margin, we

the year. macro of will we the by dictated environment the mix be see The duration over

here to across a I one We gross point that is in dollars do can generated profit our this horizon. However, make to ways. the multi-quarter think operative important maximize X is goal

profit, is gross incremental passing savings on a first directly driving gross to the margin. higher The

offset and business. gross repeat the effectively letting savings our operational more sharpen take to orders The in reduced margin rate, to that unchanged, second out results but from pricing, a the remains is a the impact netting on more

will this outcomes driving dynamic over to time. balance optimal keep We

margin position drive Our order in also plans some expansion. portion gross more grow savings our and in reinvest to balancing price while and share volume of are further to maintain

free efficiency net environment. we of Moving several come while service this and We quarter. that as of out we've line to seen volume driving fees. and merchant first of in better net for customer we continue in the our of on at paid now face revenue direct Advertising due the to the quarters on was XX.X% same revenue traffic channels, macro even X.X% to are saw headwinds the

Finally, general expenses administrative our million. technology, selling, operations, $XXX and totaled

is line software people expense this of majority and covers the reminder, a G&A. our As and remainder to other related the

QX this have You as to are $XXX we moderation see force of compensation annualized figure. seeing savings number million reduction savings January the expect should labor in now rate majority the completed. of the And that the you from we further in of fully show in cash this reflected the piece run

as see each on to top line don't to significant nearly end in in on year-end However, what $XX gross single-digit plan our well of low $XX top contributed improvement as quarter the in and compared the and outperformance $XXX we million the journey negative quarter margin EBITDA adjusted drive negative or All million this XXXX. on through accomplished. we've improvement we million and already substantial this cost savings a SOTG&A at of combined, sequential compression to strength advertising in a and QX negative QX XXXX breakeven the

have adjusted international consecutive saw quarter adjusted positive business the to and $XX compared of second U.S. a losses at we Our EBITDA EBITDA nearly million, QX.

remain our profitability we tightly benefits tangible the are cost and savings goals. around to We work materialize future unified see our excited of

ended investments total our free balance Net over capital were $X.X negative over capacity. flow cash cash $XXX and with just $X quarter revolving highly $XX in operations when credit million. including on from We resulting facility of billion negative million expenditures billion of and of the was sheet liquid million, $XXX a cash our and liquidity

the almost a our peak. a our of capital for As cash holiday given seasonal quarter QX cycle following outflow always quarter first cash the is working conversion business reminder, negative

guidance the quarter. let's for turn to Now second

recently trending Quarter-to-date trend and in revenue. year-over-year, just you net sequential expect below been also gross due compares and imply positive the and would of revenue easier high sequential seasonality, has and about the single to June. QX QX trends digits We've for to XX% this improvement spoken May we in growth negative to

would by Despite in trends signs AOV business. that the range volume the ongoing I XX% excited we the gross XX% On highly reduction earlier. due we and the uncertain to macro are improving environment you seeing in order margin, the are to and framed in deflation, guide to promising

be related continue excluding net to to to XX% service forecast expect be We between the run in of and in customer savings X% XX% taxes, year. and $XXX earlier from compensation fees OpEx, million million we further advertising between come and some to as rate and equity-based improvement showing We QX. or X% merchant for QX revenue the and to from levels between $XXX SOTG&A fully

just improvement the adjusted outlined, second that relative capital times X.X% margins QX in range working guidance as you as the for finally, if several said the So we've on free Based dynamics should already, range should see positive move cash you to see the on EBITDA quarter. into the and to follow you we EBITDA adjusted spring, I've X.X% in a sizable QX. flow sequential for

out stage now we profitability reaching last are We August. first along that our path set the

cash margins thinking So were mid-single-digit I want to free stage, touch about the we EBITDA adjusted on next reaching and positive flow. how

official Let framework seeing to holistically. to think to be cost me impact model you're about full meant be but guidance, the forma clear, provide an this our that illustrative savings pro initiatives the starting frame flow through. To cost to isn't of a

revenue level and our $XX.XX above. already due from and use At mid-single-digit pro savings we well ongoing line expect forma XX% of the revenue to XX% range XXXX. will would enacted XXXX, I EBITDA see top that end and as the exceed that of by of XX% cost savings initiatives roughly margins in level, let's the billion between our gross to work impact are reaches be apply simplicity, to net annualized to SOTG&A low margins the mentioned For fully underway adjusted

and improvements our will many on the revenue our geared for efforts operational next model cost At set expect have of leverage a map. the that when grows in that significant of future, road point, that enable we we is

adjusted the continually several business margin increase we range, floor with once As investment the growth we we we've on intend any philosophical mid-single-digit hit profitability. a times in past, said treat to also a as from desire EBITDA to then spending balance will that which in a for profitability

translate flow. me let Now into that cash

of capital EBITDA between for you expenditures. cash items our know, adjusted and working bridging X and free flow As are capital major many business, there

on conversion operates cash a business cycle. negative Our

cash is be grows and revenue a of when entirely capital will source your Thus, on working of revenue. sequentially impact vice So a versa. capital of function the assumptions working

expenditures If also then minus the cash billion at flow dynamics. run $XX.XX capital positive as translate million rate quarter, plus you assume well, working capital $XX absent per or free to would the

Now let me for touch second on a the few housekeeping quarter. items

as This Please of function assume $XXX above to the million. QX equity-based $XXX trend our will million compensation in cycle. compensation following: taxes and the related of seasonality of roughly a be

are price grants compensation share As is approved. the the at day equity-based a of originally reminder, the as expensed

a historical we remain P&L portion at result, have to share given related that price this the the a elevated of As experienced. in share is prices grants volatility

will approximately of on grants the depending And the million approximately range. $XXX Depreciation the to are average price share going million $XXX weighted shares XXX of $X $XX expense forward million, trajectory to approximately hit outstanding to million in remainder million the to the date approved. P&L new $X interest net $XXX on equal CapEx million, of and amortization million a

up, Before to this want to I I take commend wrap entire opportunity our team.

the while strongest our the same been delivered tremendous in to last efficiency, months, time place bringing years. cost it X the Over has offering we've at

excited XXXX. the continue seeing the that in of to share optimistic profitability are improvements will about and deeper our success we gains drive We core are our recipe into

with questions. will And Niraj, that, your you. I Steve and take Thank

Operator

[Operator Instructions].

comes Goldman Sachs. question line of from first from Steiger the Your Alexandra

Alexandra Steiger

Day? your order through key What into creates us around walk you the to could put Or downside guide? QX versus revenue from growth, to the I trajectory growth. the the here? you comments Way customer think extra do assumption your in including contribution upside around How that went day double-click want drivers do growth maybe on the for an differently, about

Niraj Shah

your Alexandra, question. Yes. thanks for

to the general, are of this half last picked half about way dense we've of the year. We promotional that a and the did in year, is, it what of to response think consumers kind sort guess to. I environment the the back in consumer more calendar, reacting of in So first one. That's

Wayda out days, plan ran at that We've different X we different year, times, run we when we've the X-day, so this is formats And X-day, Other tried did of X beginning X days. things last we we X year, the run of links. sale events.

format and just try That's the of went. this in days of year, day of X we're macro. the So the decided side way one how of happy And surprise we've on that response that with many the to we sort kind done extension. things the promotional then calendar

terms happen, In the been seeing revenue revenue happening? guiding in hold. to and You of seeing drivers. do we're sequentially, count. that see kind numbers, on and -- count it's in the you based and what's seeing, I customer the of core have of business. we've QX sequential and And mean, of the have you but level, revenue also guide, were a the underlying lot Because the we're And what drivers strength we order has with business seeing you we're kind mentioned sequentially, what of our customer active kind pattern

example, for so growth. if growth, year-over-year And you order largest look it our positive quarter-to-date in brand, at has QX Wayfair.com, you look if at order

sort a lot given. that there's able different metrics we're so led to And the effect guidance of we've see the of of to that

Operator

line from JPMorgan. Chris Horvers comes the of question next Your of

Christopher Horvers

on seasonality touching that just So point.

retailers, you're revenue seasonality enterprise think level about about I to the prospect over all a to especially and a How returning quarter think that done, the of lot at pretty are when and next of compared now, first is here. you they're what the As going year. growth said other thinking have you seeing tough to

Niraj Shah

question. your for thanks Chris,

in some as Let and chime me with thoughts out of of a Kate more well. can thoughts throw hers couple

of normalize to first returning and the I of didn't normal biggest mind keep compares of about this we of the -- middle in last think half when growth revenue kind of after didn't we normal we the COVID thing seasonality year, is have revenue see to kind see long unusual sort you year. the years talk until kind of because through still

the year, if you mentioned, feel you of that's year, for half normalized I And once to that's you gives year of the happening now, this metric, on base now. about the And of a a through from one that's get it have and up more sort So are enterprise, of revenue, a to as of a go you entire as you normal we're the just example, year-over-year those Wayfair.com, orders middle kind and when quarter-to-date, getting second what's you while what's not happening ago think comps. you this of have year-over-year.

it's -- the honestly, think key recipe our I is working. So is that

that. I a from So of a then, seeing and speed what are we is terms continuing in We're good good of the improvements of mentioned that? customer order customer experience. customer of I I We're events value. That's offer job we sort make of lot kind to reaction how great not growth. the that availability, a you growth. and growing, a delivery, We're the think, traction responding doing promotional to the in year the our working of And macro see need see excitement. is technical it's have from business think if revenue kind to the where is to And suppliers the sort order don't period ago in play then -- normal if you what out to you climate of point growing, and with a create

be last need year of too. to kind You normal

Kate Gulliver

market guess core I'd also gains. think really sustained of of I touched Yes. to offering. strength seeing on add that And to -- I so share some obviously I We're ongoing pieces. Niraj think that what the the seasonality speaks the

the of to offering in positive point, volume feel order uncertain, our things capture U.S. wayfair.com macro your like and evidenced ability somewhat core that environment to market turning in we by about good the so very Chris, share And to continue is remains the quarter-to-date. strength

Christopher Horvers

savings cost goods you you about from of line. about have And pricing on different these strategy think the very you on is how have overall then it can And your you talk the Yes. be, it to i.e., fulsome front, what now? used

to the your not on market to about you you lead thinking market to the now? try overall price think are price. to pricing relative level How necessarily market I and strategy used

Niraj Shah

Yes, Chris.

don't for philosophy pricing affected measure So be customer's our long but the for what on that -- price our a it to we different to know what it's clear levels. than reaction I is been is just so time, super

types is price. So in of a different deciding in of That goods, use of different factor the what tranches levels the price elasticity margin areas we by catalog. different

to inputs affects in the understanding price where of the that of the competitors goods be elasticity band as that is guys elasticity because, wider then tends kind you One very market to is kind on of can how the the price be heavily when price factor tight also price to increasingly there's exclusive, to get of obviously, competitively offer branded, but of field to need at less a value, the terms a get you of customer to and there's more dynamic good need reflect as well. be to price. branded

on out And the which we've doing, is cited retail scientifically. what so much to we've quite do been taking can thing underlying we we like. we then And been try we have been prices doing. that possible you as focusing margin at the that's that want we've So as cost

gross the to been is the And savings. if kind ability, margin our you've able all has way the gross improve of -- the margin structural we've held so lot seen gross margin a of

unlock actually what and been terms margin do it in that stronger there's savings, availability customer can to things we they poor position frankly, before we get our a to all. philosophy of but sharper those at of us. not we'll But the we've pass then some So are have to fleeting would was value feel advantaged a of And put continue in that when much can on than do. that the did into or, choose we're we we even of hasn't and some are balance like we Or have price. things we done our changed, we inventory

Kate Gulliver

Yes.

of and QX, thing operational the as And maintaining cost nicely mentioned, lever I'd think pull balance And that gross as for profit rest that in flowing Chris, benefit ensuring in of I some we ongoing January. period. seeing be but the the said this focused the the through we think of that, that over balance out we're continues those you'll margin the in we price add as line. of we also that a gross we're And that both see savings very to of to the play Niraj call, laid market, really through I some year dollars the to throughout on is out competitiveness on multi-quarter can us rest generating that a year.

Operator

Oppenheimer of comes line next Your the Co. Brian from question of Nagel &

Brian Nagel

on work. Congrats Nice the progress here.

Kate Gulliver

Thanks, Brian.

Niraj Shah

Thank you.

Brian Nagel

So a couple of questions.

I given think can continue mean needs longer-term of to business off, of we're kind First term guidance, necessarily you we of you I the how and recognizing near longer-term the model that guess, needs your but evolve here. capital should the but the discussed haven't just comments, about capital in need at here, kind as model looking business business?

Kate Gulliver

for Thanks, question. the Yes. Brian,

to and components see costs. that it. is the components I to item frame on And and that to software the CapEx out of network. reduction really want we to one, things: infrastructure, the should show continue this up total that's in line force our sight about the you labor, remainder, line bit ongoing that provide efficiency network. X There's logistics retail PP&E the the to And key So investments saw in tech based think our efficiency that The increased related really about I of that force. two, quarter. the a of expenditure in build-out that quarter. bit up ongoing is in you our CapEx labor think designed of physical how team. you CapEx. see X a capitalized XX% That's so That's seen development our and technology moderate One And

item Wayfair X So that this is open as open year, obviously store and we in that first the driving of we're the mix here, spring that's remainder every the -- remain specialty that line well in as tightly on this of retail and XXXX of as CapEx moderate of sort line possible. the will we a year. bit do run continuing to as that will as for a in brands there the quarter, focused efficiency equal those saw you very roughly with

Brian Nagel

very we're a that's No, improving about a helpful. and here -- my Wayfair then second initiatives. consumer lot Okay. of metrics you And XXXX. lot going on seeing in say with Obviously, just question, the probably unrelated, that early talked

step specific is think mean, maybe what easing prices improved of you of you now right how in some on a efforts space. part of Wayfair terms much of interaction, you're this as versus So function back, seeing consumer on in I do external the

Niraj Shah

so answer of ways. me couple Well, different let a that

So share. we're market clearly taking

is So relative the outcome share. clearly of I I think competitors. We're guess, because to market definition kind of meaningfully kind that's of better like, the doing the

to why think it's than more we I about the doing, are we're better about the what less competitors it's are competitors As doing and what doing.

and XX recipe, we coupling kind tailored proprietary kind heavy and on and great things retail that fast delivery, with on kind we've what of great motive bulky years. all service then when built home business that That's experience for customer of and so mentioned advantage around prices availability, of and again, And known the shopping being for we're discovery over delivery product items. the

couple years a of We the in middle. disruptive had

phenomenon you quickly, times. in for years stretch drove and boon availability If the has when the advantage it beginning chain into a was nice business. And of of platform a tough. tough couple have shortages of COVID recession a ago, in Very turned because back times got short model lot it that and go of the while a goods. supply normal our didn't There's kind inflation, our

time times time kind do because of there's times, argue we're we're more And normal whether a goods of now a most or because recession overstock recession or normal in money. an where of could of whether you have times consumers in

so as And operate. the the healthier, And year-over-year fire, have value be great big goods right? could because because to gets how the that that tailwind a clearly, But semantics set we're kind then a it's is goods for of be kind of market we on not we of down It's -- tough. proposition. home up and market

it's due do think So actions. our I to

Operator

from Citigroup. Arounian Ygal of line the from comes question next Your

Ygal Arounian

a margins see outperformance. want want I just the to better into bit the dig to picture. I get maybe a little nice gross to

more but So like cost they spoke it weighted. starting of half about now. was those some And efforts to I I you're guys see may believe benefits way right the looks be you have that misunderstood, would back then the

So at organic maybe adoption on normalization versus or well. efforts the then some just cost pricing kind is cash of -- increased if improvements within that? there as around improvements And driving

Niraj Shah

the Thanks Great. for Ygal. question,

was number. were ocean freight like -- we up we describing the described we folks capability that then, sales leg drives four that, take runway last comprise that X doing on what And both and then and X,XXX fulfillment be doing XX% were, basis transportation, is damage, cost. of was updated what but type describing proprietary that because our we're on heavy what over and can slows our which those originally, And go back CastleGate and fulfillment lot today on building the had items cost and wants could in the me out thoughts pillars was warehousing evolution that gross jump bulky partners X logistics, and was down pillars what she whether a if the were or more a we a capability to start back inbound because let mile had Kate through a by of X and start Cascade X out add. me then time miles Let described that margin with is answer, logistics to And own maybe both over be the through you of of forwarding, years, which sort margin increases excess gross frankly the which deliveries, also whether in X sortation or pillars induction points. then we we that our operations,

not but an So complicated take of a how just you getting costs. faster, very exciting the but because area customer it's you impact item out

also house well. our were brands. that was basically of exclusive that we which doing increasingly curation, The pillars private and we're label the are our items X experiences second what creating around deciding with as creating that we brands better price have wider or to in to that merchandising where doing to were drives do band conversion we a and elasticity, about semi-exclusive allows us. how us price question back allowed us up price the how and And

volume driving And just the volume price they we sell suppliers. around lower the their how can up, The concentrate with while goods as dollars. third goes actually is they was of profit their up

as and so some pass the a or very it we doing was sense, for last, of it's we that supplier item. just the customer outside on, that this And suppliers the And because for CastleGate, And is added to creates good on And services offerings. at and gross can started buying basically win-win margin a selling to us keep around the in selling pillar we're in on for then retail to what dynamic. them of and logistics their and choose outside and wholesale which offer we us was services.

our is still, us. one of our early. and growing where stream It's kind but suppliers outcomes, still most notable advertising their The ancillary on for still is advertise high-margin can which days. nicely, frankly, of platforms which offering revenue early an it's in drive to its that's

of orders, passed year, customer because those us, said, orders, time, allow to that then we hundreds and cetera. over choose each. So we et per future of in what what consumer, points conversion, to margin, per dollars areas, into X And unlock each profits them our the that long-term them, prices we going would topic lower of drive had drive which put gross drives repeat obviously we're basis on the

'XX, what is year couple in you how 'XX, COVID is of And we've earlier I out. so map. in disruption a unlocking been have here road And due doing what played that mentioned to

before that have we And We're road And aggressively. it along have so moving along is benefit. map it map of still creating back the and we lot the now. road that a is

is, of lot to both operational had which that how over again, that unlocking or thrown tightly, aggressive road have we So well lot long-term in being a and put we what they we've we're described seeing those in have out. is we way now billion COVID into specifically where of prepped of period, that and part choose and of -- and can in that us and sort the is our on build for each kind keep addressing a plays which, map structural on million specifically what $X.X the a way we're reflection of road of the again, $XXX loop, cost you're on But those the zoom versus map ebb specifically in kind a executing during terms us margin so cost unlocking which do savings savings, that we price. is passed inefficiencies retail also other on just so of this of flow. versus but manifest a we actions of then over now them What the in that of

kind how add kind how you that's think anything so of about to want And and of do playing we out. it's Kate, to... it

Kate Gulliver

Yes.

savings that across in of cost I entire nicely logistics add there is hit on the it broad to quarter, the I our on And would think you question network that talking your in go the what specific the to terms infrastructure. about picture. operational we're CastleGate,

very manifesting. CastleGate piece include that infrastructure, So pleased we're that's and the how of that logistics of with course, would,

customer, about and model that our a and improve customer on talking sustain the of frankly, do pass little on our other gross pass Wayfair we're during ability for that expect And gross throughout customer. that significant highly on value think margin think we're gross -- the from unique well to margin I actually able but that what the shows to strength bit raising to that margin improvement here. The I has gross grow I a we is is that this it margin while and been that to that is support, suppliers point to our the who to period and promotional make obviously, and quarter want XXXX, value this to

Ygal Arounian

And And [indiscernible] store Great. the a opportunity helpful Kate, answer. That's on I want there. then a bit to question capital more. investment really mentioned allocation the follow is you physical little up maybe

kind of level of helps that goal trying level of to what when infrastructure understand, business. of is kind what on physical Just ultimate build A, front, online that off right the is the the --

to And then improvement maybe margins American right, continue, improvement, business. North second well a nice continue certainly be below an the but on to going quarter-over-quarter, international,

think needed just and so And you there? the the about investment business international how

Brian Nagel

in. on the start chime question certainly CapEx I don't Evo,Why and Sure. can then Niraj

the X specialty retail physical small format those on are the specialty -- physical a first X retail. and us on just model stores are retail open of testing we piece, set So level retail have learn we sort helping where today, the

we spring year. retail X specialty opening mentioned, will of the first stores stores, in The air waste large format open additional this we're and XXXX

really a new with we and phase. As itery all initiatives, are in test

roll want testing that. then starting we put this how there. to what and really few from board and on first expansion to us is the But further model So be about players the these seeing and learn think now few you're on prudent a based out, thoughtful we determine stores I

on question second international trajectory. in your jump to Niraj I on physical to probably think and the back can retail then go I'm happy margin

Niraj Shah

to is what the a of in What amount but really the try is that hey, be things a you expense also what a profitability have maximize do think, this. is not I to gets as right on today. we way, think in very said $X.X kind think by one capital to that money And very with going was prioritizing slightly on it differently, believe touch it do we allocation question cost in billion I the I being you just didn't The to is zoom to example, of is think actions, International, economic losing to questions. real could beginning, actions, that future. very that to with that the back say, think your was optimize that our But answer that, of which to meaningful we there. actually intact. we how left didn't on cost that, business we making cut plan plan the us productive focused, we significant recipe sure do was potential return for aggressive drive about today segment, outlined And we the being structure

markets. brand X markets international the have metrics we have in in. input of We like household we a those in we're

a proof drives external super lot how of lot a Kate there, retail, around challenging Physical macro mentioned have value. some more We those. early omnichannel of in of in the early, days. reasons, we're a But there's

we And so Wayfair to for right zero large-format have. an that's not expense going open a store first lot right? that have example, CapEx -- we revenue. now, It's today to open Obviously, produces that of going yet, the we're So store.

investing but we're the we where And of for can aggressively the business doing be think while so actually profitable we that. think meaningfully there's that, areas we wise, future. that's And

we kind in. of way balance the that's so And

kind we're we're appropriate not to have at also prioritization in that breaking amount places X But to shot -- be really succeeding investing because So we each of careful to needs through. many too and and going focus have we're set of initiatives a I there healthy Board order so could that to kind way and they way investing flourish. of strategic think are about keeping up And are the a it. meaningful of in that's also be in actually that that them

Kate Gulliver

sort overall said first has on margins, been obviously, want quarter, and we you've on the growth, just goal is is reduction cost the profitable in positive significant in half you'll this specifically international marker losses. that the to as the that last we've there EBITDA adjusted be board. across see profitable, be driving QX. On the seen of and the what We done The We takeout the right? invest Yes. there. call, about losses and

driving business. the we and everywhere Niraj And mind, the that spoke but market margins, those on before, goes the both to our of this allocation have Canada international U.S. overhead mentioned, we've spoken add share some see keep We the in call we there. on I last do about efforts that We as the we and Canada just are would thing gains in profitability to to the operate. our prominence that there. and pleased on about focused we're with And

we as overhead that on, well. costs our EBITDA margins so And very see flow international through of hard benefit some obviously working you'll the reduce as been

Operator

Next Oliver Evercore line the from from comes ISI. Wintermantel of question

Oliver Wintermantel

some in using still pre-pandemic the order to If I they're is And delivered, probably orders look back at levels some bigger. There's that. still XQ there. inflation the -- value 'XX as

delivered order inflation? much number, at now prepandemic that to way how was back levels? at look value, look And that is to good the of on you business the If orders then that a that

Niraj Shah

significant Yes. I inflation way inflation to I'm way on the be is mean inflation, the helpful I that what trying guess about out. back front, well think would there's to think it too. is coming on of its

a their price recognizing starting what as And then availability things last gotten started particular It reflecting starting that got of goods one And the abated mentioned cost got better. had in year. ago, would shipping price getting freight summer, be. that replacement with was lot when by the suppliers costs had you those year and we of intact. the speed went was back so summer, really late But through of is what And basically summer, have ocean better rest of happening last items that in really is a better. the spring the is there

all excess the lot Now deflation the that's don't away. and price going at there's inventory ring that is But their to of coming they have to price because say to right debt through a way future X take through.

So deflation. there will be some

be a revenue. got on is call one won't we've count on the decline I thing conversion, is count. point out customer has things accelerant we've And the that, then pointed on is seen question private an and what that actually though a is The we've will out effectively that a on order historically been this that well, of we AOV as drag

you're plays revenue direct there's that, think to half different I easing it's I up And the And here. customer -- it's hard comps that example, the that of outlook, normal kind through, get what that's math which of you think half year, revenue. Wayfair.com and the mentioned these of to made for to orders think correlation not out. they're very by back on of we AOV, And those multiply kind orders, think, through. get And while got seeing are, is so you've period, take I first had we're creating what's of wonky when moving comps ease, easiest last year, quarter-to-date. the kind there, play parts. right, as are And last the again, some But to a

Kate Gulliver

we your see would that order I we AOV and just the underlying into they and volume as fundamentals, So pointed you those engaged question, order right? we inflated, as on remarket AOV, growth. platform. still volume a then can and order should in to growth improvement, become grow. Those the growth out, Yes. see as to translates have reiterate customer customers are volume that moderate, is that then period as rather right? sustained And to right We'd the starts should customer which

by. So trend a we that is are that encouraged

Unidentified Analyst

that the are still Is in side, not down. you regard Like gone and you price seen which have there? the you gross your up, when gross reduce prices? revenues maybe And for way it. and orders elasticity have a there have the to elasticity margin on reinvest margins any is the up? revenues great, Got seen more you price maybe Or in get but price

Niraj Shah

said That earlier is there, we're -- doing. gross this when opportunity what I about I is that's but definitely margin. address tried Well, we to what

and map our into continuing pretty of what And we're heavy road lowering to -- gross unlock words, then we other into cost there. margin. deciding kind in We price we savings. So put a what there's price put

go continue time. and to there's plan So do through definitely for for to that . as is us to the opportunity us we continue

Kate Gulliver

you as Ali, we model know, a mechanism. very pricing Yes. sophisticated have

we So those pressure testing. of half this are said achieved savings. about that We operational we'd is something constantly cost

there's much our how and to flows generate little what directly more future make how through to customer. depend go flows on and seeing there, will price we're point. and margin, to can a we gross a that your and bit and of with that to on market So real-time decision through of much that orders the

Operator

Needham. the Your of next from comes line question Anna from Andreeva

Anna Andreeva

One on customers. active

at level. already. enterprise stability some the quarters couple seen in of You've the last

U.S. in wanted secondly, churn clearly promo Just adds what up look are terms of as I the curious, for number Just color, what the with does consumer. And like initiatives the in on and then gross resonating of are you any to advertising. that seeing some follow U.S. only?

what So came talk Could your is and working had about And there with specifically. efficiencies? the plan below you sales range what in provided. on you was you're seeing advertising the

Niraj Shah

Yes.

I that count number question Wayfair.com, sequentially, to first we've And up seeing for around is the you're out think start on mentioned example, quarter-to-date. we customers, to quarter-to-date On active that tried point order stabilize.

comment In I let active terms for Kate don't know the of the that. I'll customer U.S., on account what...

Kate Gulliver

breakout We think -- but business. probably mentioned we customer business the the to the pointing the certainly, that U.S. actually business. the would don't improvements equate that And international to piece you and disclose breakout, the order across relative already U.S., international the we've in a I can in revenue trend you're see U.S. naturally the to in

for AC&R was question second your how on that and think looking quarter. at the I leverage we're

Niraj Shah

you that thoughts to Kate, it. Yes. jump add and in can I maybe just then on can Yes.

that items. of talking we there set context. put billion the on to as over summer, advertising, January that $X.X since last into one advertising but cost $X.X actions in to understand So try again, everything of cited kind help outlined of been about billion we've folks it We

group sometimes on think it think there's is I the I cost how some some think we item advertising, of here, the was other in I the to misconception. a ad On because about understand list third it's think things. important

how and that by tight that there. of is very But means, to different I that very run largest We that And the about are what to that's first conversion we paybacks of kind ad do measurable. traffic. the can tight and do can easiest do that the which We And payback very as constraint, increase so it to that creative by with channels far We within think bucket, having helping units. our advertising And way that as with that targeting. the on different we think are spend that? it can cost. looking is think can of do buckets evergreen. are by that the X And are measurable, bucket, evergreen highly think of these

that, And maximize. to continuing we're so

Then advertising. top second there's which funnel generally a type is bucket, of

this, around So other is the this be kind child poster measurement things band that there's can would Those we are but but measure, of television the larger. bucket. error in of there channels

them precisely can't you You that can quite first measure as measure as bucket.

in triangulate the methods there believe So what more you value you is measurement -- the there. on

than could it within of high the the inside think band, at productive that the band And there's you an being there, and again, band. biased arrow spend. getting being the be lower the for spend done or end So you But we low the band in rather would we're that what towards of is good is results the that. band, the And we've there. end from in higher band band

And thing bucket third an the then of as bucket. R&D the

payback these advertising believe that not operate they So channels could. to, are them at we we want but do the yet

now it kind we're "Well, percent to we've on yet. your is many what what very it's X in payback to willing breakthroughs. find what delever saying, these would to it. test up these ad channels, you would approach what you channels ideas depending It's it to we're a higher works, up. of these And end want, then out we then doing we're running down we've you bottoms to ACR what a how many top budget and can productive add hey, or at your So different spend AC&R work. once R&D what want a because approach will either bottoms is. and ad and get deciding, get percentage would of opportunities up, a are and of X into or Because obviously -- up of what payback kind there, to go many total invest we a figuring bucket experimenting of take into -- And that percentage. we're with you doesn't we than It then advertising in like. to with trying bucket taken rather And not getting our could put being of seeing opportunities. high than of scale you -- we done do channel the top-down which amount There, breakthroughs dollars that different see,

there's And deciding chance again, real so about. by excited we're top-down, some

defined to percentage tough what money make did to -- it's that that's a but doing has So high of driven it to grow and doesn't is good be it still too amount nice sure we benefit also tiny spend, in a ACR. to

this grow. is all without we to advertising then paid of on favor, down We is about we've is talked strategically easiest AC&R our remember, with talked being the headwind the of mix, more about And out right? this about So make the able prior hurting the which ability to year-over-year. calls, been XX% way currently to to category think use efficient is which the category free

bigger kind each Booking.com put. not, prepaid other The tailwind And on? mix. category. And the mixture into that are correlated people that's from more as of in ebb flow Well, will are easiest of the economy. with a a at inflow when then And of e-mail interested if sort kind cycle broader has the to homes its the more category, you naturally more about and illustrative category, normalize thing very They boom you spend, a if both frankly, the beginning which it get restaurant the think just and a it's economy. out. discretionary in are these an travel of and COVID Wayfair, because a boom in interest example cycles e-mail travel, COVID, people paid and likely you and in to click typically being turn does, then boom-bust the is Simply entertainment, an was the kind which of from will boom that that bust one around that of like it is followed it had

headwind. a still that's So

and kind about despite the more I what ad that's buckets, due described So gotten -- of efficient the the to X headwind much that's costs

Kate Gulliver

time think X just question. more I we have for

Operator

last our line America And from of question Bank comes the Curtis Merrill of Nagle Lynch. from

Curtis Nagle

that been bit. of, to to latest quick any thinking for One, about, just think guess, what's and strategy that's year. the how like clean the inventory commentary on converts little And continues a -- in terms I surplus seems the guess maybe a nice It kind in it then that? up two flow as addressing the XX think the the industry coming I guys of the through you ones. tailwind I guess, rest of around

Niraj Shah

Great. Yes.

it about to since supplier excess inventory. and flow, and suppliers then way and second inventory Let through have me part answer were about they that, the turn from, of Kate answer to the their on And I'll the still their work had the how are convert. through some over depending first question inventory started flow, on may the some aggressive on the way working it, they it. where last it spring,

now of an of compete the is to excess cost in excess take tailwind it such in there's year -- The into put in or The bit still it basically cautionary is it it because to way of they model believe another and is it next the I'd amount inventory to of through does at whether temporary works sort Some a or to against model that a suppliers it. high of them way inventory. early allows a customer. Because challenge actually of what came amount temporary health. way is thinking very lean a about as basis. actually front it think the the appropriate right their well, be value around kind one our business will of work works inventory an

be. they position to Suppliers the continue then in will level as aggressive And bring it as and normalizes, more as they out, costs not it a to great that normalizes retail costs as therefore, be are not decline would increase. normal in goods necessarily wholesale actually, at a the like are to

we important appreciate kind what nuance get competitive cycle, dynamic that of But our into so further to position a not disadvantaged. actually X a year on the based as because we it's gets happened that's an the of more, And ago. believe advantaged

Kate Gulliver

capital to on around your the Just question touch structure.

disposal -- a continue there. for options everyone we going And remind we referencing we forward, and you're multiple to that opportunistic believe So the XXXX manage to be just at maturity. we'll our late have XXXX this to how

XXXX kind I'd is do pushed September liability a XXXX we the might management So of to our which the out some we thing is maturities going that transaction, of you forward. and transaction, point

good I at you, it. a think joining. we example Great. everyone, that, that's of With thank for how look

Niraj Shah

Thank quarter. you, you to next everybody. Talk

Operator

for today. conclude does That participating. our for Thank you conference

You now disconnect. may all

Wayfair (W) 4 May 232023 Q1 Earnings call transcript