Wayfair Inc.

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wayfair second quarter 2025 earnings release 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. And if you'd like to withdraw your question, press star one again. Thank you. And I would now like to turn the conference over to Ryan Barney, head of investor relations. Ryan, you may begin.

Good morning, and thank you for joining us. Today, we will review our second quarter 2025 results. With me are Niraj 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 2025. 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 2024, our 10-Q for this quarter, and our subsequent SEC filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. 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, Ryan, and good morning, everyone. We're pleased to be here today to discuss our second quarter results with you. The second quarter was a resounding success, defined by accelerating sales and share gain in tandem with expanding profitability. As we've discussed over the last few years, we can and will grow profitably while taking significant share in the market. We operate the business by balancing investing for the future with growing our current profitability with the objective of maximizing EBITDA and free cash flow over the long term. The second quarter was a nice proof point of the journey that we've been on and even more exciting of what is to come. Year-over-year revenue growth of 6%, excluding the impact of Germany, marks the highest growth rate we have seen since early 2021. Our over 6% adjusted EBITDA margin demonstrates the significant leverage in our model and is previewed in our investor day two years ago is just the beginning of what we believe we can achieve over time. Switching gears, as we started the quarter, there was intense focus from investors on the ramifications of tariffs on our sector and how this would impact Wayfair's competitive position. As we've previously described, the marketplace forces of our inventory-light model give us unmatched flexibility, with our global network of more than 20,000 suppliers offering over 30 million products and constant competition to present the strongest value to the customer. The benefits of this model continue to prove self-evident despite the various ebbs and flows of the broad business environment. Specifically, when we look at the actual items that customers are viewing and purchasing today, prices have remained relatively consistent with the first quarter. As we spoke about in the spring, suppliers take different approaches to managing cost increases. While some may pass through price increases, others who want to win share in a demand-constrained environment will choose to keep their prices more competitive. and we use all the methods at their disposal to do so. Our model allows us to service the products with the best value for our customers, enabling us and our suppliers to gain share and grow revenue. Pricing consistency is largely reflected in our results on average order value as well. Sequential growth in the second quarter mirrored what we saw last year. It's worth talking through some of the moving pieces. AOV is an output of unit prices, items per order, and mix, We've seen some modest growth in average items per order, but mix is the primary driver of year-over-year AOV growth. Our specialty retail brands and Paragold continue to outperform. Q2 is the peak of the outdoor category in which we're a large participant, and Wayfair Professional posted double-digit growth after a few quarters of increasing momentum. The strength in our top line was a combination of healthy AOV growth and a nice step-up in order growth from Q1. This is partially a function of the new long-cycle initiatives that we've been seeding, and many of those efforts have started to bear fruit in 2025. We'll quickly run through a few of those now, but I'd encourage anyone less familiar with Wayfair to review some of our prior calls for more detail. We introduced Wayfair Verified in the fourth quarter, a curation program designed to give customers a shortcut to items in the catalog that reflect the highest quality and value standards across every style and price point. Wafer Verified is an editorial review program where our merchants hand inspect key items and provide firsthand detail on why they have selected that specific item. The verified checkmark provides a guidepost for shoppers as they navigate our endless aisle, and the response from customers has been very positive. These items are driving outsized performance, converting over 25% better, achieving approximately 20% higher net promoter scores, and generating higher repeat purchase behavior compared to non-verified items. The number of items in the program and the prominence of them in the experience will continue to grow over the course of the year. The second initiative to call out is Wayfair Rewards, our paid loyalty program that launched last holiday season. The initial excitement we saw for Wayfair Rewards at the time of launch continues to gain traction, with member growth and customer lifetime value curves exceeding our initial expectations. We'll have more details to share on the success we're having in the not-too-distant future. Finally, physical retail continues to generate momentum across our portfolio of brands, as May marked the one-year anniversary of our first large-format Wayfair store outside of Chicago. We saw an impressive in-store response to major promotional events of the quarter, like Way Day and Memorial Day, showcasing the power of bringing the Wayfair brand to life in an omni-channel experience. While the sales halo in the metro area from the store has been tremendous, the impact on categories where Wayfair is less top of mind is even more pronounced. In the Chicago DMA, we've seen over a 50% increase in lower ticket frequency purchases, like kitchen accessories, and a more than 35% increase in higher consideration home improvement purchases, like bathroom renovation items and kitchen cabinets. Earlier this year, we announced additional Wayfair stores coming to Atlanta in 2026, and New York in 2027. And just this past week, we announced plans for a Wayfair store outside of Denver to open in late 2026. We're excited to see the impact that these stores have in these key metros as we look to replicate the success we've had in Chicago. We also opened our first Paragold store in May in Highland Village in Houston. And it's off to a great start with a second store opening in West Palm Beach this fall. These are just three initiatives. The full list of initiatives is quite long. And some of the most exciting ones are due to the tech re-platforming efforts over the last few years. Ongoing improvements in the shopping experience, GenAI-powered enhancements for customers and suppliers, and an expansion of our supply chain capabilities are just a few of the areas seeing rapid advances. Stepping back now, the roadmap we have on these various initiatives, combined with our relentless focus on top-tier execution, paints an exciting picture ahead where Wayfair is accelerating share capture and growth. All of this is possible due to the deep partnerships we have with our suppliers across technology and people, but also via deep operational integration across all aspects of their business. Our logistics offering is one of our key competitive moats and an area where we see growing supplier eagerness to lean in. As a reminder to those new to Wayfair, Castlegate is our proprietary logistics network spanning inbound logistics, storage, and outbound fulfillment, It's possible due to the exhaustive technology and operations with more than 60 buildings totaling 22 million square feet across multiple continents. We've been investing in Castlegate since 2015 and have built out one of the world's only networks custom designed for the fragile, heavy, and bulky products that define the home category. Castlegate Forwarding is our inbound logistics and ocean freight forwarding operation. We enable suppliers to maintain a regular flow of goods as production shifts around the globe and they fill up operations in new geographies. Many of our suppliers are small businesses who individually lack the volume to consistently secure cost-effective and reliable ocean freight capacity on their own. Our forwarding services provide access to large, high-quality ocean carriers on amenable terms, which we can then share at competitive rates with our suppliers. We enable this by not just providing the transportation capability to move the goods, but by also offering cost-effective ways to consolidate the goods to enable forward positioning to many locations. We've seen a 40% year-over-year increase in total volume using our Castlegate forwarding offerings over the last year, driven by increases in both active supplier shipping on our service and average containers per supplier. We've also expanded to new markets like Brazil and India, unlocking additional volume and enabling suppliers to more easily diversify their production footprint. Recent supply chain volatility has only reinforced the value we offer our suppliers. In fact, we've seen a more than 30% increase in long-term inbound commitments with suppliers compared to where we started the year. Once product has made its way into the domestic markets, suppliers are keen to leverage our Castlegate fulfillment network as the best way to forward position their products. The percentage of our revenue that comes from products shipped out of our own fulfillment centers, what we call Castlegate penetration, sits at roughly 25% today, up about 400 basis points year over year. The benefits from the Castlegate network are numerous. Suppliers achieve broad forward positioning and speed badging, which lifts conversion, lowers incidents and return rates, lowers ship costs, and thereby lowers retail prices to consumers. Lower prices, of course, drive conversion and enhance customer perception, leading to improved customer lifetime value. Logistics is one of the few areas where improvements help the supplier, the customer, and Wayfair all at the same time. With the uptick in cascade penetration, we've seen the percentage of items on site with speed badging increased by over 800 basis points year over year. The percentage of items with one- and two-day badges increased by approximately 400 basis points as we exited the second quarter. We've also seen a nice drop in average ship distance per order versus last year, driven by the growth in penetration. Castlegate further enhances the customer experience from improved reliability with materially higher exact on-time reliability rates than dropship, driven by our tight control over fulfillment and carrier partnerships. This enhances the customer order to delivery experience and results in higher customer NPS. Suppliers enjoy the benefits they get from participating in the Castlegate network, and one piece of feedback we've heard over the years is a desire to take advantage of our capabilities for more of their order volume. To that end, we're excited to share a key development in our logistics offering, the expansion and marketing of Castlegate to suppliers for fulfilling orders outside of their Wayfair business, what we call multi-channel. Multi-channel has existed in the background for quite some time, but in a different format and a very small scale, used primarily for clearing distressed inventory. Over the past 18 months, we've invested in operational and technology efforts to evolve this offering into a comprehensive third-party logistics service tailored for the home category. Pick and Ship is our core service offering and provides suppliers with competitive rates, premium service, integrated inventory management, and streamlined order fulfillment for any of their customers. After testing with a small subset of suppliers in 2024, we launched the full offering to our entire supplier base earlier this year. The response has been resounding. Multi-channel volumes are rapidly scaling, and we now have hundreds of suppliers utilizing the offering. We have line of sight to continued momentum as existing multi-channel suppliers are growing their inbound volumes and with a healthy pipeline of new suppliers onboarding to the program. For suppliers, Multichannel provides a competitive 3PL alternative, specializing in heavier, larger home goods. For Wayfair, the benefits are significant as well. First, we generate an additional revenue stream and profit center that is accretive to adjusted EBITDA margins. Second, and perhaps more importantly, Multichannel opens up the next leg of Cascade Penetration by growing the inventory pool with which we can offer an enhanced customer experience. Suppliers can now more efficiently include a broader product set in Castle Gate and can stock it deeper, expanding our offering of forward-positioned items and growing their in-stock rates, translating to better speed and lower prices for customers and improving our network efficiency. Ultimately, the multi-channel offering creates a win for our suppliers, a win for our customers, and a win for Wayfair. That's the philosophy we bring to everything we do. Every dollar we spend solves for the best outcome across our customers, suppliers, and Wayfair. Two decades of this approach has taught us that building great things takes time, but when done with thought, care, and prudence, we can have a payoff well worth the wait. You're seeing some of that this quarter. The years of work we've done leading to some of the best growth and profitability flow through our business that we've seen since the pandemic. We couldn't be more excited for what lies ahead in 2025 and beyond. And thank you. And with that, let me turn it over to Kate.