Wayfair Inc.

Thank you for standing by. My name is Rochelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Wayfair Q2 2024 earnings release and conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to James Lamb, Head of Investor Relations and Treasury. Please go ahead.

Good morning, and thank you for joining us. Today, we will review our second 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 third quarter of 2024. All forward-looking statements made on today's call are based on information available to us as of today's date. We cannot guarantee that any forward-looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Our 10K for 2023, our 10Q 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 Neeraj.

Thanks, James, and good morning, everyone. We're excited to discuss our second quarter results with you today. Q2 was a dynamic quarter that resulted in another period of share gain, and we continue to see efforts around cost optimization pay off with our best quarter of adjusted EBITDA and free cash flow in three years. This was all the more impactful because it was a quarter of continued macro headwinds that are pressuring the way customers shop the category. Wayday was a tremendous success with performance up in the double digits versus our event last spring. We saw notable engagement throughout all three days, with broad-based strength across the catalog. The wayday results are consistent with the pattern we've observed now for over a year, where promotions continue to drive customer engagement, but correspondingly, we see shoppers pulling back in the non-promo periods. The performance spread between promo and non-promo remains wide, and our post-wayday results came in below expectations. This was in part due to the increasing price elasticity we've been seeing in our customers, as well as a decision to intentionally pare back on marketing spend following weigh day to rain discipline down efficiency in periods where customer engagement is lighter. We continue to take share in the second quarter as we proactively adjusted to the trends we were observing. A more moderate capture rate in May picked up as we got through June and entered July on the back of pricing actions in response to that changing elasticity coupled with a normalization in marketing spend. Our market relative price index, an internal measure of how Wayfair prices stack up to competition, returned to showing healthy year-over-year improvement following those actions. And correspondingly, we've seen our market share set further highs. Q2 was a continuation of the macro trends we've been seeing for the last few years. Customers remain cautious in their spending on the home, And our credit card data suggests that the category was down by nearly 25% from the peak we saw in the fourth quarter of 2021. This mirrors the magnitude of the peak to trough correction the home furnishing space experienced during the great financial crisis, according to U.S. Census Bureau data. Importantly, this calculation is on nominal dollars. Adjusting for inflation suggests we're now in the midst of a correction in excess of 35%. an unprecedented level of pullback in our sector. We see three clear factors behind this correction. One, the malaise in the housing market. Two, overspending in 2020 and 2021 that has warped the historic replacement cycle. And three, a slowing US economy. You're likely very aware of the evidence on the first factor. Over the first five months of 2024, new home sales are down by nearly 20% compared to the first five months of 2021, while existing home sales are down by more than 30%. While you've seen many of our peers that are impacted by housing decline to an even greater degree than Wayfair, at the end of the day, with housing turnover levels that haven't been as depressed since the great financial crisis, the market fatigue weighs on everyone in the category, ourselves included. On the second factor, like many of you, we spent time trying to tease apart the magnitude of the demand pull forward in 2020 and 2021 in an effort to gauge how far along we might be in this period of rationalization. Controlling for inflation, we measured actual spending from 2020 through the first half of 2024 against a hypothetical environment where the pandemic never happened. Using data from the Census Bureau, the analysis shows actual spend volume coming in below that hypothetical no pandemic world. I want to take a moment to let the magnitude of that sink in. Customers have more than compensated for the overspending during the pandemic and have now underspent in the category compared to historic patterns. This is in spite of the fact that the structural need for products in this category has not changed. As we said many times in the past, people still need mattresses and tables and chairs. They still need desks and bathroom fixtures. and kitchen equipment. And at some point, we expect a reversion to the mean. While we've yet to see the housing recovery, replacement for pandemic spending, and broader economic upturn, we anticipate these drivers around the horizon. Given how deep we are into the cycle, it's fair to expect the turnaround to come soon. And Wayfair is well positioned to benefit as it does. That brings us back to our own performance and how we're positioning Wayfair to drive both continued market share growth and profitability flow through as the top line begins to inflect. Back in February, I outlined three initiatives that we were working towards in 2024 to further build out our position in the market. Our brand refresh in March, the opening of our first large format Wayfair store in May, and the coming launch of our loyalty program later this year. On our first quarter call, we spent some time unpacking the brand refresh and how excited we are about our new ways to speak to shoppers. Today, I want to dig deeper into the second initiative on the list, our physical stores. Despite the massive shifts in the aftermath of the pandemic, we still see home as quite underpenetrated online at roughly a quarter of spending in the category. Even in a more mature state that approaches something closer to a 50-50 split, that still leaves hundreds of billions of dollars in addressable market opportunity on the physical side of the equation. We don't want to leave this opportunity untapped. As we look at our own core competencies, we already have many of the pieces in place to address this segment of the market. We have a household brand across North America and parts of Europe with incredibly strong brand recognition and affinity. We have a nationwide industry leading fulfillment network and delivery capability. We have deep relationships with our more than 20,000 suppliers offering a broad range of product style and price points for our customers. And we have a customer file of more than 90 million shoppers. One piece of the puzzle we didn't have were the physical stores themselves. And so we launched our first mall-based pop-ups in 2018 and followed up with a store in the Natick Mall just outside of Boston back in 2019. This was a very small format experiment, and we quickly realized that we needed something larger to showcase the Wayfair brand in its true depth. 2022 marked the next stage in our physical retail journey with the launch of our specialty retail stores under the all-modern and Johnson Maine banners. We launched three stores over the course of the year and then followed up with two more in 2023. These stores averaged between 10,000 and 15,000 square feet in high-traffic retail centers, typically close to other specialty furniture retailers. Every element of the customer experience was thoughtfully designed with three key goals in mind. One, capturing incremental share of wallet as we broaden customer awareness to the true depth of our catalog. Two, reaching a new segment of customers that have been reticent to shop for the category online. And three, building brand awareness and driving customer affinity, especially across our specialty brands. Our physical retail operating model mirrors the approach we take online. Inventory is owned by our suppliers, and our take rate on top of the supplier's wholesale price drives our gross margin. We've been pleased with the results across our slate of specialty stores, which with the addition of several Birch Lane locations earlier this year, now sits at a total of nine. Our stores have been averaging thousands of shoppers per month with healthy growth in sales per square foot in tandem with considerable margin expansion as we fine tune the operating model and selection. A core part of our strategy is building a bridge to help shoppers make the leap from the physical store experience to our online platform this has been a major point of success and we're seeing that nearly a third of in-store sales are for products that aren't actually on display that comes in tandem with a healthy halo effect where we're seeing substantial lift in online sales within the surrounding area of our stores our specialty stores were years in the making before we opened their doors And we spent even longer preparing for the launch of our Wayfair branded store this past spring in Wilmette, Illinois. If you haven't had the chance to visit the store, I'd encourage you to do so the next time you find yourself in the Chicago area. We've been thrilled with the very strong initial response from the hundreds of thousands of customers who have visited the store and love how we are showcasing the Wayfair brand in its full breadth. Part of what differentiates Wayfair is the scale and sophistication of our offerings. We have unparalleled breadth of assortment across styles, price points, categories, and brands, satisfying customer demand across a wide spectrum of budgets and purchase occasions. Our technology and category expertise enable us to personalize the customer journey, combining customer insights and merchant intuition to curate and recommend the perfect looks for each shopper. We complement this with services that solve some of the biggest problems that could otherwise deter home purchases, such as design, financing, assembly, and installation. And we have a supply chain that excels at carefully and quickly moving big and bulky items with reliably high service levels. We've deployed all of this in our new store, creating a shopping experience that's quintessentially Wayfair. The store spans roughly 150,000 square feet with 17 departments and two dedicated spaces for design services. We have more than 10,000 items on display from hundreds of suppliers, many of which are available for customers to purchase and take home right from the store. Large parts of the store are designed to be experiential, such as our functional shower studio and kitchen faucets or the office chair test lab. We've handcrafted the shopping journey in each segment of the store, such as our Find Your Fit mattress section that helps shoppers evaluate all the important attributes of their next bed. such as size, firmness, and materials. Customers are loving the thought and care we've put into every corner of the store. While it's only been a handful of months since opening, the early read on the store has been very encouraging. The majority of shoppers coming through are entirely new to Wayfair. We're seeing diversity in basket composition as well, with shoppers leaning heavily into cash and carry items that we feature in the mix. As I mentioned a moment ago, that's been one of our core goals with physical retail, broadening customer awareness to the true scope of our catalog and earning more of their shopping occasions for higher frequency items. What we've been most excited to see are the early impacts on the surrounding area. Our preliminary data on the Wayfair store shows a halo effect uplift that is multiples larger than we've seen at our specialty location. We're already working on opening our next Wayfair store to help test the model and gain a perspective across different geographies. Based on the performance of these stores and as they hit certain internal thresholds, we are excited about the full potential of physical retail over the next decade. We're also planning to bring another store concept to life with our first physical location for Paragold next year. Just as we did with our specialty stores and the Wayfair store, the Paragold shopping experience will be uniquely curated to pay homage to all the reasons shoppers love our luxury brand. We can't wait for you to see what that looks like. As we described at our Investor Day just a year ago, we see physical stores as one of the core growth drivers for Wayfair over the next decade and beyond. Our approach here will be measured, and the intention is to have the stores justify their construction entirely on their own four-wall economics. You can rest assured that we have no plans to work through an investment cycle where we spend deeply at the expense of profitability to expand the store footprint in a rapid fashion. Our approach here is very similar to how we scaled up the business in our early years, bootstrapping growth in our store portfolio on the back of the successes we've built. That back-to-basics mentality isn't just a description of our physical retail efforts, but has been a core tenet of our entire operating philosophy these past few years. Every action we've taken, every goal we've prioritized, and every dollar we've spent has been considered under the intense scrutiny of our high expectations for return on investment. Even with the challenging macro, this was our best quarter of adjusted EBITDA and free cash flow generation in three years, clear evidence of our strict operating discipline. We are running a business with the goal of demonstrating substantial growth and profitability this year, even as the top line remains challenging. And that will be our mindset every year going forward as well. Thank you. And with that, let me pass it over to Kate for a breakdown of our financials.