Wayfair Inc. (W) Earnings Call Transcript & Summary

Okay. Just in order to keep things on time, I think we're going to get going here. So it's my pleasure to introduce the team from Wayfair. We've got Niraj Shah, CEO, Co-Founder and Co-Chairman; and we've got Kate Gulliver, CFO and Chief Administrative Officer.

Niraj, I'm going to start with you. I did this last year, but I like to do it every year with you. The company has been around for quite a while, and you've been on this journey as a company from where it started in the early 2000s. Maybe just level set for those who don't know it as well, a bit of the set today where the company is and what its highest priorities are and how it's you've been on?

Sure. Okay. So where we are today? So today, we're a $12 billion retailer of home goods. We operate in 4 countries: U.S., Canada, U.K. and Ireland. When we talk about home goods, we're relatively expansive in what that means. So it's furniture and decor, it's housewares and then it's home improvement, including large appliances. But it's also only those categories. So we don't operate outside of home goods. That TAM is large in the 4 countries we're in. It's over $0.5 trillion, so it's a large end market. And it's one that's super fragmented. And so often, folks will say, well, who do you compete with? We effectively compete with a long, long list of folks. Our biggest competitors by the nature of the scale we're at would end up being Walmart, Target, Home Depot, Lowe's, Amazon, Costco, if you're focusing on the U.S. market, for example. But in truth, that's just a short list compared to both the share they have is not that large, and then the list of competitors will be very long. Now in order to get to the scale we're at and to kind of achieve our vision over time, we've basically done a few things. One, we've always been very technology-led. So our corporate staff, which is around about 5,000 people, half of that are technologists. So we have a 2,500-person team that are software engineers, data scientists, product managers. And so while we'll use third-party technology, we'll also build a lot of our own in places where we think it matters. The second thing we've done is we've built a proprietary logistics network, that's about 25 million square feet of space encompassing million square foot fulfillment centers, lots of transportation terminals where we deliver a lot of the big bulky items ourselves, consolidation operations where goods are made in Asia and other parts of the world, and we have an ocean forwarding operation. And so by controlling the logistics, we can take cost out, deliver things quickly and reduce damages, which are a big challenge in our world. And the last thing we've done is we built a deep supplier network of tens of thousands of suppliers from all different regions of the world that we work with, with local teams that are our own folks in order to have the expansive catalog we have, which is what enables us to make sure customers can find the exact item they want and the item could be priced well, it can still deliver very quickly and we can have an offering that's kind of a fairly unparalleled. When we talk about the future, so your question is like where are we going, we think we can build off this foundation that I just described and effectively be the destination that everyone wants to go to for all things home. And the way we're going to do that is we have the Wayfair brand, which is our mass platform. We have 3 specialty retail brands, AllModern, Birch Lane and Joss & Main, which operate at the high end of mass, and they exist as their own curated destinations as well. And we have a luxury platform called Perigold that has all the brands you would find in the design center, if you went with your interior designer to the design center here in New York or any of the design centers around the country, the 500, 600 brands that historically sold just through the trade. And we're bringing those brands to life, not just online, but increasingly also, we've started an effort to launch brick-and-mortar stores, taking advantage of the infrastructure and the brand and the customer file we have. And we think a lot of what we can do over the next stretch of time, backed by the technology, the selection we have, the suppliers and the logistics capabilities will continue to make us the kind of a sought-after destination. So $12 billion is obviously small relative to $500-plus billion, the TAM. And we think there's a big opportunity to take a lot more of that as what is a very fragmented market will increasingly consolidate over time.

Okay. So there's a lot in there, and I think I want to try to unpack a lot of those big themes, but that was an excellent way to kick us off. Maybe sticking with the category first. So the category has been on quite a journey over the last 4 or 5 years. And there's been periods of time, including very recently, where you've been a noticeable share gainer irrespective of what's going on with the category. Can you level set your view as a company on where the category is today? And how you think you're set up relative to the category from a share perspective?

Yes, sure. So the category is a notoriously cyclical category. And consumer discretionary, durable goods. And so it's thought as -- and it is quite a cyclical category. And there's sort of a -- over the last 6, 7 years, there's been a big boom bust cycle. With housing where it is today with existing home sales being as low as they are, it's kind of viewed as a bust period. Now the category declined for 3 years, and now it's not really declining anymore. It's sort of flattish, but sort of flattish around the bottom. It would be below 2019 in units, for example. And so the way we look at it is it's a cyclical category, but our view is, with our model, we can take share in a down market, and we can take even more share in an upmarket. So we don't view the cyclicality of it as something that should restrain our ability to grow. And so while the market is not a growth market from a TAM growing standpoint, the truth is, as I mentioned, there's a large number of participants and it's very, very fragmented. And so the ability to take share is actually a very real thing because if you can -- consumers still -- it's a category that has a lot of passion and excitement in it. It's a very emotional driven category. Everyone has a lot of pride in their home. They want to feel special and unique. And then there's a lot of functional needs they have. And so what we found is that the core execution of the things we're doing and being ambitious and driven let us take share in both sides of that cycle.

Okay. Maybe one more for you. You referenced earlier the logistics network. And CastleGate penetration continues to scale nicely. Can you talk a little bit about the investments you've made in building out a logistics network and how investors should think about that as a competitive differentiator for you as a platform when you think about the competitive dynamic in the industry?

Yes. Maybe I'll start and let Kate add on to it and talking about the economics of it. The core thing to realize is like this is what you've seen, any scale player in e-commerce will create a logistics capability oriented around the types of goods they sell. And for most generalists in e-commerce, that's going to be light, small packages. They're going to be very focused on sub-10 pound packages. That's the vast majority of what exists in e-commerce. But in our world, our packages are heavier, bulkier. They're prone to damage. They have different characteristics. They often -- customers may want to put in a specific room in their house, they may want them assembled. There's all these other characteristics of the things we sell. So our logistics network is oriented around our types of packages. And so what we've done starting in 2015 until now, so over 10 years, as we built quite an expansive logistics capability. And it's not just these 1 million square foot fulfillment centers that we have in the U.S., in Canada and the U.K., but it's actually all the transportation logistics that take goods from where they're made and put them there and then it's the transportational logistics that take them from where they're sitting to the customer. And what you find is most of the cost is in that last mile. The damage can happen anywhere in the chain. The speed of delivery is enabled by positioning them close to the customer from the get-go. And our suppliers who are small- to medium-sized businesses for the most part are not in a position to do this on their own because you need scale to do this. So by offering them this logistics capability as a service, which is effectively CastleGate, they can pay us on a unit basis to get advantages that they couldn't get on their own. It helps them grow their sales on our platform. It helps their overall business work. It helps them turn their inventory. And it lets us do things that our competitors can't do in the category. I don't know if you want to comment on kind of the investments?

Yes. So we've -- we really started building out the CastleGate network itself like 2015, 2016. And if you think about our CapEx expenditures, there's 2 broad buckets that we disclosed. One is our software development costs. That's really the capitalization accounting treatment of engineers. Then the other piece is the PP&E. And for many years, the spend in the PP&E was all about the fulfillment center network. And that was expanding the network, putting sortation devices in these fulfillment centers. And now we're at a point for the last few years where the network is largely what we need it to be. It has ample capacity for what were the volume we're doing through it. And it's well positioned. So the locations are where we want the locations to be, we can access in the U.S. everywhere that we want to be accessing at a timely manner. So we've shifted more into maintenance mode from a capital investment perspective there. And on PP&E spend, what you see more is CapEx going towards maintenance CapEx in the fulfillment centers and then growth CapEx would really be going towards the physical retail stores. And we don't see a need to expand the network at this point. We feel pretty good about where it's at.

Okay. That's super clear. Kate, maybe sticking with you, one of the consistent things that come up in our e-commerce work is generally that the consumer is fairly receptive to discounting pricing, things like that. Can you hit the reset for us on where you guys sit today in terms of using pricing and promotion as a demand stimulant on the platform? And how do you think about sort of balancing those needs relative to your broader profitability goals?

Yes. It's a great question. So the way that price works in our platform is the supplier sets -- they have their wholesale. We add on top of that our take rate, of course, and then the cost to ship that product and sort of any returns or damage allowance depending on the product and customer service costs. And that sort of sets the ultimate retail price. So we can adjust that by investing in the take rate, but largely things like promotions are actually largely invested in by the suppliers themselves. So when we talk about promotional activity, that's generally suppliers leaning in for that specific period. And we've seen a lot of success with promotional activity over the last few years, mostly because it's a really important marketing lever to get folks into the site. And in fact, during a promotion, roughly about 30% of the revenue generated from a promotion is on the specifically promoted items for that promotion, about 70% is on other items. So you're really seeing that as sort of the draw to get folks in during a period where the category itself has been relatively out of favor. And so it acts as sort of this big banner way of getting folks to get excited about the products. So as it comes to promotions, we do think they're quite important. They continue to outpunch, but we're able to do that while also managing our gross margin nicely. We have been, over the past years, and we've said this, we have been focused on investing in price. We want to make sure that we're on category by category, we really look at the sort of elasticity curves for each category. We want to make sure that we're at the optimum place on that curve. And so depending on where we are, we will invest in price, that's really in the service of making sure that we're optimizing on gross profit dollars. So making sure that we're growing gross profit dollars on this multi-quarter view we've talked about before. That has tended to lead us over the past few quarters in the 30% to 31% range on gross margin.

Okay. Super clear. I just want to stick with you with maybe one more topic, talking a little bit about how advertising continues to scale on the platform. Maybe just set us a marker in terms of where we are today in terms of supplier advertising as a contribution to the business model? What are you sort of building internally to continue to sustain growth in that? And where can it go over the longer term?

Yes. So we first started disclosing a stat on supplier ads. I think the first time we talked about percentage was in August of '23, and we said it was about 1% of revenue. And then at the end of last year, we said it was about 1.5%. So it grew nicely. We said it's continued to grow since there. Really, we've been able to improve the tooling for our suppliers there. We've also been able to educate them better on how it works. And frankly, we've increased the supply available. And the demand is really there. So as we increase the supply, we've seen nice growth. That obviously flows through to that gross margin line. It comes into a contra cost. And we've said over time, we think that can help us move up the gross margin line. For the time being, some of that, we've actually reinvested back in the customer experience, whether that's in the form of price or we continue to evolve and enhance the delivery experience and speed, those kinds of things. And so for right now, we've been investing that and still holding in that sort of 30% to 31% range, but we certainly see significant ongoing potential with supplier ads growth. It will be different than some folks compared to areas like Instacart, so grocery, it will be very different than that. We don't talk about it getting to those levels of penetration. We've talked about in sort of that over longer-term model, it's sort of in this 3% to 4% range.

Maybe to just put a point on this. Are there things you hear from suppliers as advertisers they want you to build their scale over time to cement the relationship? We talked a little bit earlier about logistics as a mechanism by which suppliers and sellers get real additional value as a platform and create loyalty. Anything on that front just to highlight?

You mean within supplier ads specifically?

Yes.

Yes, I mean we -- I think we've been responsive to that and have been part of the tech work that's been around that has been based on supplier requests. So certainly, there was a desire to improve the bidding process and improve the tech there, which we have done. We are working on some co-bidding technology with suppliers currently, which is both something that we're interested in and something that they're interested in. So things like that.

Okay. Understood. Niraj, you said earlier, you talked about the brands. Can you break that down a little bit? You gave us a little bit of detail about where these brands sit. But when I talk to companies that have platforms with multiple brands, how do you think about aligning those brands in the marketplace? And are you seeing very different performance by brands these days relative to where your expectations might be? How do you think about that broader portfolio act?

Yes. So Wayfair is our mass platform. And then Perigold is our luxury platform. And so the goods that would be on both is a very, very thin sliver at the very, very high end of Wayfair, very, very bottom end of Perigold. So think of those 2 as almost missing. They're not technically missing, but it's close to it. Okay. And then in the specialty retail brands, AllModern, Birch Lane, Joss & Main, those are highly curated brands. They each run, call it, roughly 10,000 products on each. So the very narrow assortments, typical of a normal specialty retailer. And think of them as brands that would do quite well at the higher end of Wayfair. So they're run on Wayfair.com at the higher end is where their share would be. But the bulk of the Wayfair volume would be below where they sit. And kind of the good, better, they would be sort of like the best of the assortment that sits on Wayfair.com in terms of the mass price point. So we purposely set it up so that our brands are not in direct competition with one another in terms of how they sit. And we try to do it in a way that we're really leveraging our strengths, meaning they all leverage our logistics infrastructure. They all take advantage of one of our technology investments, not just the consumer-facing technology, but the supplier-facing technology, the marketing tech stack, et cetera. And then the benefit for a supplier is a lot of suppliers may have sub-brands that play in different places in the market or they may have goods that they want to distribute in different ways. And so for a supplier gives them more ways to work with us if they have the relevant goods. And then again, all our brands only play in the same categories I discussed. So it's not really -- we're not interested in playing outside of home. Home is quite a big category with a lot of complexity. And I think part of the reason the opportunity is so large is that most folks don't really specialize in it. So if you're small and you specialize in it, you don't have the scale to do a lot of the things that would really benefit the customers and the experience and the economics. If you're large and you're a generalist, you're not going to do the specialty things you need to do for this category. So there's this like a situation where we have the scale to do things like a logistics network or the technology investments we make. And yet we're a specialist in the category.

Got it. I don't think I've ever got a chance to ask you this, but just building on some of the topics we've talked about ads and what it does for suppliers and logistics and what it does for suppliers, how does that array of brands allow suppliers to flex up and down the market and become more loyal to you as a platform because they have multiple brands they can align different parts of their own sort of array of products with?

If you're a supplier who's making premium goods, you really don't want them to be distributed in a place that's selling lower end goods because, a, they're not going to sell well there; and b, it could degrade the brand that you build for the premium end of the market. So if you're at the higher end of the market, you really are only interested in distribution that's going to have you with peer brands, your competitors that have the same high-quality brands. And if you think about where that can exist online, you really don't find in our category anyone else who has that at scale online. There are some folks who have their own curated assortment like an Rhouse or an RH, but they're effectively a competitor of the 500, 600 brands that operate at the high end of the market. And those brands that operate in the high end of the market don't have a good way to reach the end consumer who now is very digitally savvy and she has an iPad, she has a Mac, she has an iPhone. She doesn't necessarily want to go through her designer for everything. She wants to -- she can see ideas on Instagram, and she wants direct access to the offering. That's what Perigold provides her with. On the mass side, there, you'd say, well, you're competing with Walmart, you're competing with Amazon. Well, they're -- if you look at those platforms and you pick a category, you pick barstools, you pick whatever category you want, Pages 1 through 10 are full of the really lowest price -- opening price point basic items because that's what the tonnage that's done on those platforms really is about. If you say, well, actually, I'm not looking for a premium item, but I'm looking to browse and shop through the middle, where can you get that experience? And that experience requires you to understand style and have that product assortment, help someone navigate, have them understand the differences, you can have the logistics capability if you're going to offer fast delivery. And all of a sudden, if you're looking for something noncommoditized, we stand out as a place where you can really shop the category. So we're offering customers this kind of category-specific experience, but in the different spots in the market where they might be.

Okay. And maybe just one last follow-up on this topic. When you think about the array of brands you have and how you're positioned in the broader home category, understood you don't want to really move beyond that. Are there any white spaces where you don't think you're addressing in the home category today? Or do you think you've got sort of the strategy and the brands aligned with where you want to apply?

We like our setup of our retail brands and where we are, but I would say some categories we're in, we're still very small in. So in the home improvement space, for example, we've been in lighting and plumbing for a while. But if you look at something like cabinetry or large appliances, we're a smaller player in that. And large appliances, if you're looking for Samsung and LG and GE and Electrolux, you can only find that Home Depot, Lowe's, Best Buy, Costco would be the only 4 national retailers that carry them outside of Wayfair. So the brands are very careful in who they'll have to distribute them because they want the margin to be in the product. They want to make sure that customers are making good decisions. They don't want to deal with a lot of customer issues, technical issues, problems, returns. And so you need a really good retail experience. Well, what's happened is that when those brands were very comfortable with the distribution they had and -- but Wayfair presented them a way to get in front of the audience they couldn't reach, which they want to reach that -- at the core demographic they want is sort of like 35 to 55 female has a family, homeowner and who's making those decisions around the laundy room and the kitchen. And you think about who our core demographic is and what they can do on Wayfair, they get very excited. So that's a nuance point, but large appliances is an end market. It's $45 billion end market in the U.S., for example. We're a relatively new entrant to that. We have a very tiny piece. And the handful of the 4 folks I named have half that market.

Yes. Understood. Okay. That's clear. You referenced earlier physical expansion, and you've talked very positively about the lessons learned and the early yield and returns coming out of the Chicago physical location. Probably one of the #1 questions we get from investors is just better understanding the why on Chicago and the learnings from Chicago and then how to think about Atlanta in '26 and New York in '27 and where you want to take this strategy for the longer term, even Kate alluded to it as sort of a bit of a mix in your capital program towards retail. So just level set for us, what have you learned by opening Chicago? And where does this strategy take us in the next 5-plus years?

Yes. So first, it's like 30 seconds on the background. So a couple of points. So one, as you mentioned, Eric, we've been at this for a long time. So we didn't pursue retail out of the gate. We waited until we had reached some level of scale. And if you look at a traditional brick-and-mortar retailer, they have costs concentrated not just in the cost of the stores, but they have cost in the inventory in their supply chain. They have cost in the distribution logistics capability, delivery capability they need to build and costs associated with building a brand or the marketing to establish who they are. And if you think about us, those latter 3 are basically some costs. Our brands exist and customers know who we are. The inventory sitting in the supply chain is owned by the suppliers. It's well established, and there's a lot of inventory sitting in that supply chain because obviously, we have a $12 billion online business that goods are constantly flowing. And then we have that logistics and delivery capability already established. So the economics for us in opening stores is that you have to spend the money to open a store, you then get to monetize it where 3/4 of the volume is still off-line, 1/4 is online. And there's a lot of use cases where a customer may want to touch and feel something they may want to work with a designer in person. They may need to want to talk about financing. And all of these things are easier in person. So all of a sudden, we unlock a very large piece of the TAM for just the investment of opening the stores, riding on the infrastructure we effectively is a sunk cost that we already have, right? So that's sort of the business strategy. Then for each of our brands, what to do for stores is appropriate to the brand. So for the specialty retail brands, it's an 8,000 to 10,000 square foot store format, and we have 9 of those open. And so there, we continue to work on developing those, and then we'll open up more as they continue to grow. For Perigold, we opened one earlier this year at Highland Village in Houston, it's just under 20,000 square feet. And we have one opening in about 1.5 months, months' time in West Palm Beach in City Place, and it's about 30,000 square feet. And so that's a model that we think, again, for Perigold at the high end, it's the right format for what Perigold store would be. Well, for Wayfair, the format we decided on was to be a destination and to be large enough to showcase all our categories. And so that's a 150,000 square foot format is what we opened in Wilmette in the northern suburbs of Chicago. We didn't say that we had to open in Chicago, but what we wanted to do is we want to find a good location. We wanted the real estate to be in a very good location. We don't want to take a lot of risk in being off kind of the center. And we think we can draw. And so we don't think we actually need to be in the center, but we -- for the first handful, we didn't want to take -- underwrite that risk, right? So we figure, well, let's make sure we're in a good trading area. And so we ran sort of a search across the top 25 metros. And so where can we find a location, where the time line works and we like that location for what we want to achieve. And this location in Chicago was with the developer we liked. We liked it, so we pursued it. So that's been open a little over a year now. It opened end of May a year ago. And it's been very successful, and we continue to iterate on it and try things and continue to see the performance grow. It also created a halo with the state of Illinois went from growing at the same rate at the U.S. to growing 15 percentage points faster than the rest of the U.S. So we measure the halo in also very scientific ways around the trading area with the data science model around different tracking we can do. But the state of Illinois halo math is sort of the easiest to talk about, right? It's like you know what's delivered to the state of Illinois before, after you can compare it to the U.S. numbers, and you can see the spread. And that has continued to endure. So we have a view as to why we think it's very successful, and we have a view as to how we can make it even more successful. And that's why we didn't immediately open more. We want to have time to iterate and work on it. But we're going to open next year in Atlanta, early in the year in Denver later in the year for the Wayfair brand, both large-format stores and one outside of New York in Ridge Hill in early '27. That's what we've announced so far. And we think the economics are pretty compelling.

Great. Okay. Kate, I want to bring you back into the conversation. One of the bigger decisions over the last 12-plus months was the decision to close the German operation. So post that decision, help us level set where the international strategy for Wayfair is today?

Yes. So sort of stepping back a little bit, what led us to that decision on Germany, when we looked at where we were outside of the U.S. and the opportunities in these markets, while we believe we have a chance -- we had a chance to win in Germany, the investment required and the time horizon required were not as exciting as the opportunities in Canada and the U.K. and, frankly, some of the other places that we can invest in the U.S. And so when we thought about the ROI on the further investment in Germany, it was just not as strong as it was in these other areas, and that's what led to the closure of that business. We're really excited about Canada, the U.K. and Ireland, obviously, which operates out of the U.K. market. We don't have any plans right now to expand beyond that. We are not, say, sort of focused on going into other parts of Europe. But we do think in the U.K., our brand has a lot of resonance that we can continue to grow and build that brand. Certainly, Canada, which is even farther along than the U.K., and we've talked some about our position in Canada on prior calls, we're a leader there. The business has done quite well, and we continue to see sort of nice evolution in both of those markets. So as we look forward, it's really how do we bring some of what we've done in the U.S. now into those markets over time. So how do we think about some of these other brands eventually in those markets? How over time do you think further down the line about physical retail, those kinds of things. And so we remain really excited about the opportunity in Canada, U.K., Ireland.

Okay. Moving on to maybe 1 or 2 more topics before we run out of time. Just you guys have put down some real markers around operating efficiency and executed very well against them. We've talked a lot today about growth and aligning the platform for growth for the longer term. How do you think about continuing to drive operating efficiencies and striking the right balance between capturing that growth, but then still delivering against some of the things we've talked about it? Analyst days and events where you've put those markers down?

Yes. I mean obviously, we -- last time we had an Analyst Day in August '23, we talked about moving on the path towards 10% adjusted EBITDA margins. You saw us make really nice progress on that, landing at the 6% last quarter. And as we look at it, we continue to really be focused on how do we keep that OpEx really tight. We've taken significant cost out of that. So how do we keep those dollars tight. And then how do we keep this concept of contribution margin that we've talked about a little bit at sort of 15% or better. And so when we look at contribution margin, which is our gross margin, less our customer service and merchant fees, less the advertising expense that hit that nice sort of 15% plus last quarter, we think that's a good place for it to operate from. Within that, the mix across some of those lines could change, but that's a pretty good place to operate from. And then below that, you have our SOTG&A line, which is largely a fixed cost line. And we said that the dollars there should be able to hold in that we don't need -- we've cleaned up that line quite a bit. It's gone down on an LTM basis every quarter now for the past 9 or 10 quarters. And now we're at a point where it's quite clean and efficient, but we should be able to grow the top line without adding to that. And so that's what sets you up for nice incrementality.

Okay. Maybe one last one for you, Kate. Again, similar to the efficiency narrative you guys put some really interesting markers down over the years about getting the capital structure to where you wanted to take it. You executed against those. What are the priorities or the rank order of priorities for an incremental dollar of capital in the business today? And how do you think about the right mix of reinvesting back in the business versus continuing to look at capital structure and capital return?

Yes. We feel pretty good about the opportunity to continue to invest in the business on a CapEx perspective, keeping it within that 2% to 3% range. We've actually been running under that, but we think sort of generally that 2% to 3% range is fine. So that's what we've talked about for some time. We don't see a need to go beyond that based on what we think about the sort of evolution of physical retail, the fulfillment center network, et cetera. And so as we think about overall capital structure, we're -- our focus over the last year had been, one, improving our optionality, right? So getting to a point where we had sort of other avenues open to us besides the convertible instruments, we obviously proved that. We were able to access the high-yield market quite successfully. And then two, the focus was on managing those newer maturities, which we've now effectively managed on the '25 and '26 converts. So now as we look forward, we have these '27 and '28 converts, which are deep in the money at this point. And our focus on those and sort of overall in the capital structure is twin goals of really managing that gross debt, continuing to bring that gross debt down a bit. You've obviously seen our leverage ratios improve quite a bit because the EBITDA has been improving as well. But bringing down that gross debt, continuing to bring that down and then starting to think about the dilution impact of the '27 and '28 and how we sort of get ahead of that and start to manage that. And that's really the focus right now.

Yes. So that's the prism. Understood. Niraj, I want to end on maybe sort of both a mixture of how you're balancing the short to medium term against the longer term. So obviously, we live in an environment where there's a category, there's a certain pace of consumer spending going on and then there's a tariff dynamic in the market today. But we've also talked a lot about the long-term growth. So talk a little bit about how you think about balancing your focus in the organization on the long-term growth while also navigating through some of these shorter-term dynamics.

Well, the optimization function we're running is we're basically focused on how we're going to generate the best long-term profit stream. So we think about concept of owners' earnings. So basically, if you take EBITDA, but then you take out stock-based comp, you take out CapEx, you're left with the kind of the true earnings power of the business. Well, how do you maximize that number? Basically, there's 2 ways to do that. One is you make sure your costs are very lean. So you're always focused on cost. The second is you want to grow the business as fast as you can with the good unit economics you have and ideally make the unit economics better as you expand through time. So when you think about all the initiatives we're talking about, something like logistics as a way to grow revenue, it's also a way to get the costs down. It's a way to grow the unit economics over time. So certain things let you do both. Some other things, something like advertising, you say, well, advertising that gets me a revenue stream into the future that's profit profile I'm excited to spend money on today. But if it can't generate that, then I don't want to do that. And then what I really want to do is have less advertising on a unit basis in the future. And so how do I -- every customer get, how do I then convert them into a more loyal customer that's coming direct. So things like the loyalty program we launched, the investments we're making in our app or a series of things that do that. So all the decisions you make end up being a combination of getting yields today and yields in the future and then you're trading off. If you're making an investment today for the future, you need to believe it's generating a significant amount of profit into the future. But I think what we've been able to show is that we can be -- we have enough scale, but there's a lot of profit we can actually grow in the near term while still investing in things that will generate increasing amounts of profit into the future.

Okay. Well, I think we're going to leave it there with about a minute to go. Please join me in thanking Wayfair for being part of the conference this year.

Thank you.

Thank you.