Wayfair Inc. (W) Earnings Call Transcript & Summary

Yes. You should ask Kate some follow-up questions for specific numbers.

We're very -- we're excited by the momentum, and we will continue to share as it evolves.

That's -- I will defer to Kate on this and I'd be respectful. So I do appreciate it though. I think it's going to be a really interesting thing to continue to track it and watch how it scales. In the last set of results, the luxury market, Perigold, in particular, was a source of a lot of operating momentum. Talk a little bit about what you're seeing in the luxury market and what that market presents as an opportunity for you over the medium to long term.

Sure. So we talked a lot about Perigold because I think in the last call, just to feature it because I think, obviously, the company name is Wayfair. Our largest brand is Wayfair. Folks know us for Wayfair, but they may be less familiar with our specialty retail brands, AllModern, Birch Lane, Joss & Main and then Perigold and luxury and they also may be less familiar with Wayfair Professional or B2B program. So we try to talk about each of those in some sort of rotation. I think on Perigold, that's still a business that's relatively small compared to the TAM and it's quite small. And we think Wayfair is small compared to its TAM. Perigold will be smaller compared to its TAM. And we're making really nice progress there. We have a very novel offering. So all the brands that you would find in the design centers that historically were open to the trade, but not open to the affluent consumer, that consumer now has access to. And for the vast majority of those brands, the only place you can really find them online is Perigold. When you couple that offering with the fact that we have industry-leading logistics, when you think about what we can do for delivery and consolidation, when you think about the technology that we can support it with, a lot of which is leveraged from it being part of this broader family of brands and the size of our business, we can really do something exciting for the consumer. And so that's growing quite nicely, and it's a great opportunity. And obviously, when we talk about the housing market is a little bit of a depressing factor on the category, our strategy is to just take share, which we can in every segment. But as you would imagine, affluent customers are probably -- will still spend more on a relative basis than less affluent consumers in that type of environment.

Okay. And not to tie 2 themes together, but how do you think about the luxury market offering also fitting back into the physical retail strategy more broadly. Typically, I've found when we've done surveys of the category, the higher up you go in the price point, the more a touch and feel component and a high-touch component continues to become part of the proposition. Are those tied somewhat together as well?

So what we were talking about earlier are the Wayfair stores specifically. For Perigold, we opened 2 stores last year in 2025, one in West Palm Beach in CityPlace and one in Highland Village in Houston, both of which are great markets for us. And they're both doing great. There'll be a point at which we'll start expanding the stores. And so the same effect we're seeing with Wayfair of how you can get the best of both worlds when you have the extensive online offering with great technology, coupled with the stores experience, all kind of supported by the supply chain logistics capability we have and the supply relationship we have, it's a really powerful combination. So we're executing that not just for the Wayfair brand but across each of our brands.

Okay. Understood. Sticking with this concept of growth, and you've talked a little bit about how the category could evolve. Talk a little bit about the underserved or under elements of penetration in the category that could provide other areas of growth to you. Are there verticals? Are there categories or product that you under-index to today that you see as an opportunity for growth contribution over the medium to long term?

I'll start and then maybe Kate can jump in. I'd say absolutely. So I talked a minute ago about how luxury is something we entered only a number of years ago. That's an opportunity to grow. I touched on Wayfair Professional. The share we have on the B2B side, small, quite small relative to the potential. In categories, I think we're best known for furniture and decor and within that for furniture, which is a large category. But when you start thinking about the expansiveness of what we provide in home improvement, which ranges from lighting to plumbing to flooring and tile to door cabinet hardware and to cabinetry. And we design full kitchens, including the large appliances, and we can do everything there from soup to nuts, which is a growing segment for us. But again, we're tiny compared to potential. There's a lot of room there. And then for housewares, there's a lot of room for housewares. And housewares is a great category, for example, in stores, where we over-index in what happens in stores because of the nature of the category. So we have kind of room on multiple dimensions to grow. And so when you think about the share, you say, well, okay, so you want to grow -- you say you can grow not just 5% year-over-year, but you said you can grow to 10%, it can grow to 15% and it can grow to 20%. You're saying that they can do that organically, you can do that with the category flat, and they can do it while you grow profits faster than you grow revenue. How is that possible? The answer is sort of when you add up all these initiatives, they show you how it's possible.

Okay. That's helpful. Look, it's a technology conference, so I'm somewhat contractually obligated to ask about AI. Maybe we could talk a little bit about your broader AI strategy. What I find is companies are talking about it both in the way it's getting deployed inside their business and the way it could change the customer journey outside their business and amplify growth. Maybe just level set with how you think about AI and the implementation of AI across the company and the platform.

So my background is as an engineer, Co-Founder, Steve Conine, background as an engineer. We've always been a technology-driven led company. And I mentioned of our corporate staff, half of the folks on our corporate staff are software engineers, product managers, data scientists. And that's well over 2,000 people. So that's a large-sized technology team. And so we -- the technology changes that came along the way, obviously, when we started the company, it was the Internet, but then you think about cloud and mobile, these are all exciting opportunities for us and ones that we leaned into. AI is effectively that, but on a larger scale opportunity than the ones I mentioned. And so we were, I think, relatively early to make the decision to lean into that. And we sort of did that with like 3 pillars in mind. So one was what do you do for your internal operations? So how do you help everyone in the company learn how to leverage AI to do what they do better, to get more done, to get things done at a higher quality at a lower cost, add efficiency. The second pillar is what can we do for our suppliers to make it easier for them to operate their business on our platform, for them to do more things for them to get better insights for them to basically more quickly get done with the busy work of their jobs, so they spend more time on growing their sales on our platform, participating in more programs. And then the third pillar is what can we do for the customer? How can we change the customer journey in ways that make it more engaging, more productive, more exciting for them in ways that are also very intuitive so that it's not like they have to go up a learning curve to figure out how to change what they're doing.

And then over time, when you think about changing the consumer journey, what do you guys see as a team as the opportunity set around conversion, personalization, discovery? Like how different will the shopping experience potentially evolve to? There's been a lot of talk about agentic commerce here at the conference over the first 2 days. But generally, it mostly boils down to conversations around personalization and conversion. How do you guys think about those broad topics?

That would be our view. Like we don't believe that individual consumer is likely to defer to an agent to make all the decisions on their behalf about how they're going to outfit their home. There are certain categories where there's a lot of personal decision-making in what you want to buy. I think fashion would be one of those categories. I think home is another one of those categories, where there's other categories that are more purely transactional, like I want replenishment of my dish soap and my paper towels or I want execution of an order to get me 3 more USB-C iPhone cables, right? And there, I might be willing to defer a lot just with basic criteria about what I prioritize between cost and quality or whatever speed. And so in our category, we're basically doing a few things. Obviously, we partnered with all the -- AI platforms to make sure we draw in traffic. But really, it's more like when you get on our platform, it is exactly what you said, how can we make the experience more immersive around personalization, around basically intuitively helping folks have an experience that's more enjoyable and more productive for them. So it draws them in deeper in ways that are interesting, both in what they're -- understanding the context of what they want and helping them with that, but also giving -- understanding them to the degree where we can do things proactively for them that are more exciting and interesting.

I would just add that our general view has been that we're agnostic to where the traffic is coming in from. And so we -- as Niraj mentioned, we partnered with Google on Universal Commerce protocols as they've developed that. We partnered with OpenAI on apps. We partner with Perplexity around checkout. So all sorts of -- we're saying we can play wherever. We think, ultimately, as Niraj said, it's a highly emotive category. So there is an element of customer choice that is important here. But we can work with you wherever you want to come to our site from. I do think we often hear from folks in the investor community expectations around how much traffic is coming from AI that are a bit wildly inflated relative -- our customer is a 50-something year old, typically women. And so less is coming right now, although it's growing rapidly from the different LLMs than folks may expect. But we're prepared to work with that as we've always done with new technology, and we think make the experience on the site that much more enjoyable to the shopper from a personalization and conversion perspective. So we're really looking at both angles.

Okay. Maybe turning to some other initiatives. Kate, maybe talk about CastleGate in terms of what you're building, what you're scaling, how it can create differentiation on both the buyer and the seller part of the platform. I'd love to go a little bit deeper on that.

Yes. I mean when we started CastleGate back in sort of really 2015, the idea was that we could leverage our scale to create an experience that was both better for the customer and ultimately more economically efficient. So we could forward position that inventory, get it closer to where the consumer was, and that would result in speed and cost efficiency and probably reduce damage as well. Over many years, we've built the overall -- not just the CastleGate network, but what we call the Wayfair delivery network, which is where we do last mile delivery of large parcel products to your home. And we sort of have middle mile facilities where we can move that product even closer to the customer. So all of that combined, we now have -- Niraj, you always state the number of how many millions of square footage we have across the network now.

Over 20 million square feet across 75-plus...

So that includes U.S., Canada and the U.K., where we have locations in all of those sites. We've also improved over the last several years, the experience for our suppliers in CastleGate. We obviously added the multichannel offering a little over a year ago to enable suppliers to be able to have sort of a broader array of products with us and be able to go a little bit deeper in those products. But the end goal on all of this is to improve that customer experience. So it helps drive that speed. We know we can put a speed badge on it, and that helps improve conversion and it lowers damage, so the ultimate experience for the customer is better.

Understood. And maybe just talk a little bit to the building the scale around it. What kind of competitive advantages for you as a platform do you think that can build over time as well, having that kind of logistics network relative to...

Yes. I mean, Niraj referenced it in the shareholder letter 2 years ago when we talked about our competitive moats, one of the sort of key competitor moats is our logistics network, right? And so that's not just CastleGate, would actually include Wayfair Delivery Network and the overall piece in it. And you really have to have significant scale to make that work. Most of the furniture players that have somewhat of a logistics network are doing that regionally. So to do that nationally is quite unique. And that allows us to do other value-added services for the customer. So we've talked about Delivery Plus a little bit on the call from time to time, but that's something that's rolling out now where the customer can have an enhanced -- if they choose, an enhanced delivery experience in terms of removal of all of the product packaging, going exactly the way they want, scheduling it at the exact hours that they want. We also now do -- we started this a few years ago, deluxing, where we open up the products that are more highly damage-prone in our facilities. So imagine, say, a vanity or a cabinet, and we can touch that up before we deliver to you. That's something that a regional furniture player used to do, but nobody was really doing that at scale. It would be very hard to replicate that kind of network today, and we do think that, that's a very important moat for us.

Okay. And then a few more as we just have a few minutes left. But maybe margins, one of the themes and debates that have been coming up at the conference is just how to balance all the investments companies want to make in growth relative to also continuing to deliver on margin expansion. Kate, one for you and then maybe I'll end on a bigger picture one. But just how do we think about the balance to be struck between investments that you want to make relative to continue to prove out margin trajectory in the business?

Yes. We are -- I mean, you heard Niraj say it actually a few questions ago. We're quite focused on growing top line and bottom line and improving that bottom line faster than top line, right? And so we're very focused on the profitability. I think you've seen us sort of continue on that path over the last many quarters. So we have a high degree of conviction that we can continue to accelerate the top line while improving those EBITDA dollars and EBITDA margin, ultimately continuing to improve to net income positive. So we feel quite good about our ability to invest in the initiatives that we want to on the P&L. And then from the capital structure side, you just asked about the logistics network. That's very well built out at this point. We talked about some maintenance there. Obviously, we've been investing in stores, and we'll continue to invest in that, but we can all fund that from our own cash flows. And so we feel quite good again about our ability to fund that and actually continue to improve our leverage ratios, which we've done pretty significantly over the last few years.

Okay. Niraj, when you look at the investments that the business is making for the long term, talk to me a little bit about what you're the most excited about when you think about deploying capital into the business against the potential return profile of those dollars. And then bringing Kate into the second part of the question as we wrap up, how do you think about striking a balance around all the elements of buy versus build, capital return, all the things that measure against trying to strike a balance more broadly with capital. So excitement about what the return will be relative to striking a balance for the 2?

Yes. So I think we kind of early on talked about this maybe about 20 minutes ago, where how do we decide what programs, what initiatives can we drive, right? And we do that by working from what our customers want and then figure out how to deliver what they want, either in a traditional or nontraditional way, whatever is going to be the most effective way of doing that. And we aim to not be beholden by how things traditionally work or what we were doing yesterday. And so when you think about the places where we're investing, whether it be stores, whether it be in the technology, whether it be in the logistics network, whether it be new programs like Verify, merchants and curators or whether it be rewards and then marketing the loyalty program with customers, all these things tie back to basically a customer need and then us devising an exciting way to deliver that to customers that drive economic gains for us. And the economic gains are an outcome of customers basically reacting positively to what we're doing, like rewarding us with orders, right? And we're protecting the economics so that as we get the orders, we get the profits, right? And so that's sort of how we do everything. So there's not -- so this idea that what we could invest in would be at odds with profits isn't really there because the way we can grow profits the most is by protecting the economics and growing the volume. And so as long as you're doing that, in our business and a lot of businesses, the economies of scale drive a lot more profits. And it's impossible to do when you're smaller. Logistics is a perfect example. As we grow and the logistics network expands, we reduce damage, we increase speed of delivery and we reduce cost. And so our customer gets the benefit of those things, but we get the benefit of those things. Our suppliers get the benefit of those things. And so these things are mutually consistent.

Yes. I mean I think you hit on all of it. I guess I'd go back to sort of overarching. We've talked at various points over the years about sort of our goal of ultimately improving free cash flow per share, right? And so to do that, the business needs to be growing the top line but profitable. We need to be self-funding that from our cash flow, and we need that in a way that's not dilutive. And I think you've seen us make steps on each element of this. We've improved the margin profile. We've improved the cash flow, and we have actually managed what was going to be significant dilution from the converts. We've now managed most of that at this point. And so we're in a pretty good position on each of those to continue to improve. And when you think about a metric that's something like free cash flow per share, what I love about that is, as Niraj spoke to, to hit that goal, we have to be driving the volume and driving the profitability at the same time and in a way that on the capital structure, continues to improve the capital structure. And I think that's where we've been chipping away at.

Okay. Niraj, Kate, thanks so much for giving me the opportunity to have the conversation. Really enjoyed it.

Thank you.

Please join me in thanking Wayfair for being part of the conference.