Wayfair Inc.

Thank you for standing by. My name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Wayfair first quarter 2024 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. Thank you. I would now like to turn the conference over to James Lamb, head of investor relations. James, you may begin your conference.

Good morning, and thank you for joining us. Today, we will review our first quarter 2024 results. With me are Neeraj Shah, co-founder, chief executive officer, and co-chairman, Steve Conine, co-founder and co-chairman, and Kate Gulliver, Chief Financial Officer and Chief Administrative Officer. We will all be available for Q&A following today's prepared remarks. I would like to remind you that our call today will consist of forward-looking statements including, but not limited to, those regarding our future prospects, business strategies, industry trends, and our financial performance, including guidance for the second quarter of 2024. All forward-looking statements made on today's call are based on information available to us as of today's date. We cannot guarantee that any forward-looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Our 10-K for 2023, our 10-Q for this quarter, and our subsequent SEC filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. Except as required by law, we undertake no obligation to publicly update or revise any of these statements whether as a result of any new information, future events, or otherwise. Also, Please note that during this call, we will discuss certain non-GAAP financial measures as we review the company's performance, including adjusted EBITDA, adjusted EBITDA margin, and free cash flow. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Please refer to the investor relations section of our website to obtain a copy of our earnings release and investor presentation, which contain descriptions of our non-GAAP financial measures and reconciliations of non-GAAP measures to the nearest comparable GAAP measures. This call is being recorded, and a webcast will be available for replay on our IR website. I would now like to turn the call over to Niraj.

Thank you, James, and good morning, everyone. we're excited to reconnect to discuss our Q1 results today. The first quarter ended on an upswing, as we saw the category show signs of improvement in late February and March, following a challenging start to the year, with our own top line results also reflecting this improvement. Our revenue was down just under 2% year over year for Q1, which marks our sixth straight quarter of outperformance and share gain within a category that was down in the low double digits over the same period. Shoppers are increasingly choosing Wayfair, with year-over-year active customer growth once again positive and accelerating compared to last quarter. Over the past several weeks, we've met with hundreds of our suppliers at major industry events, and the feedback has been encouraging. Inventory levels have been in a very healthy place for a few quarters now, and our suppliers are largely past the period of elevated input costs and transportation prices that they faced in late 2022. For the first time since pre-COVID, we're seeing suppliers introducing large groups of new products into their catalogs as they look to build momentum for the next stage of growth. Across the board, we're hearing their enthusiasm to partner with Wayfair and substantial interest to lean in behind our entire offering, joining our curated brands, being featured in our promotional events, leveraging our fulfillment solutions, taking advantage of supplier advertising, and having shelf space in our stores. You've heard this from us consistently for over a year now. The sum of all our work is our core recipe further improving to the strongest place we've ever seen it. Availability and speed continue to set records, and we see our price levels as some of the most competitive in the industry. Our offering is resonating with shoppers in a powerful way, driving continued momentum in year over year active customer growth. Years from now, we'll look back on the past 24 months as a pivotal moment in the evolution of Wayfair on two vectors. The first will undoubtedly be profitability, as we posted our fourth consecutive quarter of positive adjusted EBITDA. The evolution of our cost structure has set us on a steady path towards the 10% plus adjusted EBITDA margin target we outlined at our investor day, and we're on track to deliver on that goal. The second vector will be market share and how years of compounding market share capture sets us up for even greater success once the category returns to stability and growth. This has been our focus for many months, ensuring that when customers are ready to lean back into spending on their homes, their answer is Wayfair. At the end of our fourth quarter call in February, I briefly mentioned three of the many ways we're mobilizing on this goal in 2024. A new loyalty offering in the second half of the year, the launch of our first Wayfair branded store later this month, and a new brand campaign, which began in March. While still new, I want to take a bit of time to talk through our brand refresh, because this is the most substantial evolution to our brand strategy, creative expression, and marketing presence since 2018. Hopefully by now, many of you have seen our new campaign across social media, television, and email, and have explored the refreshed imagery on both the site and our app. As I mentioned, our operative goal here is to make Wayfair a habitual part of our customers' lives. When our customer decides they want to buy something new for their homes, be it a new coffee table for the living room as they get ready to host their family on Mother's Day, or a new patio set to replace the deck furniture they bought in 2020, they go directly to Wayfair. We know that no two homes are exactly the same. Shopping for a home is emotive, with needs spanning across styles, spaces, and budgets. We know people have less time than ever. Wayfair is their solution for all things home in one seamless experience. Over more than a decade of operating under the Wayfair banner, we built a customer file exceeding 90 million shoppers and have millions of app users. In fact, last year we drove over 20% year-over-year growth in app installs. We have strong aided awareness across the US, Canada, and the UK, where Wayfair is a household brand name, and we continue to grow in Germany. The next step in cementing recurring customer behavior is growing our brand preference, which will be a key in unlocking greater share of wallets. We set out a plan for a more evolved vision of how Wayfair connects with consumers. This starts with our overall brand design system made up of a distinctive brand set of elements, our logo, color, font, and even our jingle. We've created a focused and distinctive set of assets that are being presented with consistency across all of our channels, starting with our logo, where you'll see a more streamlined visual and a more vibrant shade of purple. Our logo has become the foundational brand element that defines our entirely new storytelling platform, the Waverhood. I'm sure you can all think of great advertising campaigns that use a consistent storytelling device that endures over many years. Our goal is to one day have the Waverhood join that list. At its center, the Waverhood embraces the notion of home as a place where everyone can express themselves and what they love, With Wayfair as the shopping destination to make that happen for every style and every home. The first thing you'll likely notice in our new Waverhood ads is the cast of characters we've brought together. We've curated a list of celebrities and influencers who each bring their unique fandoms, such as Shawn Johnson East, a former Olympian who's built an incredible audience of new mothers through her own parenting journey. as well as others, including reality TV star Lisa Vanderpump and social media influencer Doran Bradley. And of course, everyone is brought together by our longstanding brand ambassador, Kelly Clarkson. Our goal is to ensure that wherever you come from and whoever you are, you'll see someone in the Waverhood that speaks to you in your unique expression of home. Every timeless brand evolves across a life cycle that begins with establishing an identity. This moves on to building out an experience, which is measured by engagement and audience development. It is where we currently sit on our brand journey. The next stage on our path is to be able to produce memorable, instantly recognizable brand content. For example, everyone recognizes the gecko that wants to sell you insurance. And that's what you're seeing as part of this launch. This is what takes us from being a website people know and like on the Internet to a brand presence with a fandom of its own. The debut of the Waverhood is the first step on this multi-year journey, and you'll continue to see it evolve in the future as we look to speak with shoppers in entirely new ways. While you may have seen some of our Waverhood ads on television as they debuted at the Oscars back in March, you've likely also been seeing them across all the other screens in your life. As part of this brand refresh, we've taken an expanded lens of our advertising channel portfolio, leaning in with renewed strength across many of the biggest channels on which our customers spend significant time. You'll find these new ads across Instagram, TikTok, YouTube TV, and Hulu, to name a few. And our intent is to drive engagement. To give you an example, historically, our Instagram posts were largely a tool to feature specific products or sale events. These were often met with limited attention and less robust discussion, which naturally results in less engagement. With the launch of this campaign, we're deliberately aiming to drive more conversation, and our early reads on results is quite positive. especially in ad recall, brand linkage, and social engagement. As I mentioned at the outset, this lives alongside our other initiatives like physical retail and loyalty. You'll find the Waverhood motif woven throughout as those launch over the course of this year. We're thrilled for this next step in our evolution as a brand and a platform. Critically, all the investment we've put behind this launch lives in the existing spend envelopes that we've operated against for years. As many students of Wayfair know well, All our advertising spend is carefully managed to a set of payback targets by channel, and that discipline is not changing. While we see considerable long-term benefits to making Wayfair a part of our customer shopping habits, don't mistake this as an investment cycle where ROI only manifests further down the line. In fact, we're continuing to target the same tight prescriptive payback windows across our portfolio with this launch. in large part driven by now scaling up what had been an under-indexed level of investment in these newer chains. Now, before I hand it over to Kate, as we've done for the past several quarters, I want to take a few moments to address some of the major questions that are top of mind for investors right now. The first question we've heard quite often is on the threat from Asia-based competitors, as a handful have made fast forays into the U.S. and built a presence over the past year. While we continue to pay close attention to these players, we still find that there are considerable structural differences in their products and offerings compared to ours. From a size perspective, there are very few competitors in the space that can handle the parcel sizes that we manage daily, as our average small parcel order exceeds 30 pounds. The other major area of difference we see is on product quality and confidence. Customers love the items they buy on Wayfair, in part because of the effort we take to ensure that they know what they are getting before they click on the buy button. To differentiate ourselves further, we're continuing to roll out more content, such as videos with Wayfair product experts showcasing actual items and bringing to light their dimensions, construction, and quality, all to help shoppers gain additional confidence that the item they've picked will be exactly what they're looking for, rather than taking a gamble on something because it has an attractively low price. The second big topic that's come up recently is tariffs. Our category was one of the first impacted back in 2018, with many of the goods we sell incurring a 25% duty that remains in place today. Much has changed since then. While China remains a large center for manufacturing in our space, in the ensuing years, we've seen our suppliers diversify their production to other parts of Asia, including Vietnam and Malaysia, and we've continued to expand our supplier base. In short, the industry has become more nimble following the 2018 tariffs. Ultimately, we're confident that we'll be able to definitely navigate any incremental pressure, given the breadth of our supplier base, the changes in manufacturing we've seen, and the catalog that we offer to our shoppers. To wrap up, Wayfair remains a durable share gainer with multiple initiatives underway to fuel growth into the future. We're doing this at a fundamentally higher level of profitability, which will improve further from here, even with ongoing investments across the business. The power of this combination is something we're very eager to demonstrate as we continue to execute as a leaner, more focused organization. Lastly, let me encourage you to visit us this weekend. Just remember, Wayday offers the best deals of the year and is too good to miss.