Wayfair Inc.

Hello everyone, thank you for joining us and welcome to the Wayfair Q4 2025 Earnings Release and Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, please press star 1 again. I will now hand the call over to Ryan Barney, Investor Relations. Please go ahead.

Good morning, and thank you for joining us. Today, we will review our fourth quarter 2025 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 first quarter of 2026. 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 2025 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 contribution profit, contribution margin, adjusted EBITDA, adjusted EBITDA margin, and free cash flow. These non-GAAP financial measures should not be considered replacement 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 like to now turn the call over to Neeraj.

Thanks, Ryan, and good morning, everyone. We're pleased to talk with you this morning to discuss our fourth quarter results. Q4 capped off a tremendous year for Wayfair, with revenue growing 7.8% year over year, excluding the impact of Germany. This growth was evenly split between order growth and AOV expansion, both of which grew more than 3%. We had our third consecutive quarter of new customer growth on top of healthy growth in repeat orders. all in the face of a category that contracted in the low single digits for the final quarter of the year. 2025 was a year where we returned to growth and accelerated throughout the year through a number of organic business strategies that can compound for years to come. Numerically, this was characterized by two important themes, our share-taking and top-line growth overwhelming the drag of the macro and the substantial flow-through of that growth to the bottom line. We expect our top line growth and flow through to adjusted EBITDA to be the bedrock of our story for years to come. The opportunity in front of us is considerable. We're playing in a category that is nearly half a trillion dollars in the US, Canada, and the UK. The space is highly fragmented, filled with either large retailers that don't focus on home goods or pure play competitors that cannot match our scale and the benefits we bring to both our customers and our suppliers. Our company was built around the idea that we could leverage technology to build a large business in an underserved retail category by being innovative in how we serve customers and by continually making our customer experience better. Through our history, this simple, though hard to execute, strategy worked, and as a result, we saw it lead to rapid organic growth and an ever larger business through the wonders of compounding. Earlier today, we published our annual shareholder letter where Steve and I explore the three core levers of our growth in 2026 and beyond. One, improving our core recipe of selection, price, availability, and speed of delivery. Two, inventing and scaling new business initiatives which can meaningfully contribute. And three, leveraging technology to improve how we operate, how our suppliers build their business on our platform, and how customers engage with us. We're focusing on activating the true power of our technology organization and the AI-driven enhancements we plan to bring to the shopping experience customers have at Wayfair. We talked about that at length on our third quarter call with our CTO, Fiona Tan, so I'd encourage anyone that didn't have the chance to go back and listen to that. Technology underpins everything we do and is the key enabler as we scale some of our newest growth drivers. I'd like to spend time talking about two of these today, our physical retail portfolio and our loyalty program, Wayfair Rewards. 2026 will mark a major milestone in our evolution with the launch of our next set of Wayfair stores. You've heard us talk at length about the major points of success we've had in our store just outside of Chicago for nearly two years now. More than half the customers have come through the store, have been entirely new to file, and we've seen continued post-store visit lift on sales in the surrounding area. That journey will continue with the launch of our next store in Atlanta early this year, followed by our stores in Columbus and Denver. These will carry over many of the core design themes that have resonated so well with customers in Chicago. Atlanta and Denver will be in the 150,000 square foot range, while Columbus will be a smaller format, roughly 70,000 square feet. Each store will showcase the true breadth of our catalog in a variety of special ways, and you'll find some of the favorites from Chicago, like the Dream Center and Shower Wall, appearing in our Atlanta store as well. This is a hallmark example of our ability to drive cost-effective execution at scale. We already have years of investment across the most significant areas a retailer needs to be successful. Our brand, our fulfillment and delivery capabilities, our supplier relationships, and our curated offerings. The incremental cost here is simply the cost of the stores themselves. These stores are all located in relatively close proximity to one of our fulfillment centers. So when customers purchase large parcel items, those products can show up on their doorstep in a matter of days rather than weeks. And of course, there's a vast selection of cash and carry items in the stores themselves. Many investors have asked about the working capital needs to fill the stores. And that is another area where our unique platform model shines. products in the stores are largely owned by our suppliers exactly like items stored in castlegate in many ways the store functions as a new form of consumer marketing with the product offering and inventory provided by our suppliers who've been very keen to put their items on our shelves from the beginning one of our objectives with physical retail has been growing share of wallet among our shoppers across all categories and also notably when it comes to frequency items today customers are on average, spending roughly $600 per year on Wayfair across two shopping occasions, out of the roughly $3,000 they spend on their homes in total each year. Part of the story is one of awareness. Walking through a physical store gives every shopper a broad view of the breadth of our categories and the depth of our assortment, often inspiring purchases they didn't know they could get through Wayfair. We're seeing this work in real time. In the Chicago DMA, we've seen a nearly 30% spread in the performance of our frequency categories. Items such as bedding, decor, kitchen, and tabletop is a few examples compared to similar DMAs. In tandem with our physical retail efforts, one of our other big initiatives is to drive share of wallet expansion via our loyalty program. And soon shoppers will actually be able to sign up as they're checking out from any of our stores. We've heard many investor questions about the loyalty program as we hit the one year mark. And so I want to spend a few minutes running through some of the highlights of what we've achieved and what's coming next. We launched Wayfair Rewards in the fall of 2024 with the goal of deepening customer loyalty. The program offers terrific value for shoppers with free shipping, access to members only sales and events, and 5% in rewards. Priced at $29 per year, our membership is intentionally designed to be effectively breakeven for that average customer spending $600 per year on Wayfair. The response we've seen from shoppers over the first year of the program has been terrific, with over a million members today. As we expected, many of our existing customers see clear value in the program and early signups were weighted towards recurring Wayfair shoppers. As the program matured, we were really pleased to see a nice diversification in the mix of subscribers. as we increasingly drew in non-active customers. In fact, our recent cohorts have shown more than half of new paid members are non-active customers. What's been most exciting are the spending patterns we're seeing among rewards members. As we exited 2025, we're seeing members driving more than 15% of Wayfair US revenue. The average reward shopper is purchasing on Wayfair across more than three shopping occasions over the first year of the program. spending multiples more than non-members we're seeing higher engagement across a wider mix of our categories compared to non-members reward shoppers have a conversion rate on furniture and decor that's nearly three times higher and a conversion rate on housewares that's more than three and a half times higher all of this comes alongside noteworthy benefits on the pnl For several recorders, you've heard us talk about our focus on contribution margin as the best metric to measure our variable cost efficiency rather than just gross margin. Our improvements in contribution margin in conjunction with steady fixed costs lead to healthy growth in adjusted EBITDA, which is our core goal. Wafer Rewards is a perfect example of this in action. As you can surmise, the program bears incremental gross profit costs as we offer 5% rewards dollars in free shipping on smaller orders, resulting in a headwind to gross margin. However, the gross margin impact is more than offset by our ability to lever advertising spend as these shoppers return to buy from us at much higher rates and ultimately drive share capture through increasing order volume. The net impact is this. We improve contribution margin and lever against our fixed costs to drive appreciation in adjusted EBITDA dollars. While the moving pieces are slightly different, the outcome is similar for physical retail. Stores actually drive a higher gross margin, but bear incremental OPEX costs from the associates. However, when combined with the uplift we see on revenue, the net impact is attractive growth in adjusted EBITDA. 2026 holds even more for us to unlock for Wayfair Rewards. We're excited about new ways we can acquire members through highlighting the rich benefits that they receive. At the same time, we're going to deepen our engagement with our existing members to keep them coming back to Wayfair for even more of their home shopping. You'll see us broaden the aperture of Wayfair rewards beyond just the core Wayfair.com offering. We've only just begun marketing the program on our specialty retail brands, and we'll launch in Wayfair Canada and Wayfair UK in the months ahead. And finally, later this year, we're going to debut a specialized rewards offering designed specifically for the luxury customer with Paragold. There's even more we're working on behind the scenes to drive value for Rewards members. We're expecting to add even more members in 2026 than we did in 2025, as Rewards provides one of the many pistons powering our engine of growth this year. You're going to hear that metaphor as a recurring theme across 2026. While the category may still have ways to go before it finds sustained organic growth, we're firmly in the driver's seat as we propel Wayfair forward. We're set up to take share at a pace we haven't seen in many years and drive top line expansion, regardless of the macro, while continuing to deliver even more flow through to the bottom line. We couldn't be more excited for what lies ahead. And with that, let me turn it over to Kate to walk through our financials.