Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wayfair Fourth Quarter 2023 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. Thank you. James Lamb, Head of Investor Relations and Treasury, you may begin your conference.

Good morning, and thank you for joining us. Today, we will review our fourth quarter 2023 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 first 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 10-K for 2023 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 any 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 Niraj.

Thanks, James, and good morning, everyone. We're excited to be with you today to discuss our fourth quarter results and recap 2023. Q4 was another definitive step on our profitability journey as we generated a 3% adjusted EBITDA margin, even in a difficult macro environment. This was our third consecutive quarter of positive adjusted EBITDA and free cash flow, reflecting the immense progress we achieved across the entire year. In fact, on a revenue base that largely mirrored 2022, our free cash flow in 2023 improved by over $1 billion. As we exited 2022, we anchored ourselves around three core initiatives: nailing the basics, driving customer and supplier loyalty, and increasing cost efficiency. Over the course of 2023, we systematically executed on all three fronts. Our efforts to nail the basics and drive customer and supplier loyalty led to significant improvements in our core recipe across availability, speed, and price competitiveness. The enhancements across our offerings were directly responsible for the increase we saw in loyalty, which manifested in our robust share expansion over the last year and, by the fourth quarter, a return to year-over-year growth in our active customer count. That engagement was driven in part by our progress on the third initiative, which involved a meaningful evolution in our cost structure with savings spanning labor, operations, and every other line of our P&L, allowing us to reinvest in our customer experience. We've consistently shared that these core initiatives would carry forward into 2024, and you've already seen the results of that play out. If you haven't had the chance, I'd encourage you to look at our shareholder letter published alongside our earnings results earlier this morning. Last year, we saw our team unlock large productivity gains as focused execution against our top ideas reduced friction and lessened internal bureaucracy. As we look at the evolution and composition of our teams throughout 2023, it became increasingly clear that there was more we could do to increase productivity. We realized many of our teams were still over-indexed to middle and upper-level managers in proportion to the more execution-focused team members that form each group's foundation. Late last year, we started an exercise involving several of our senior leaders to evaluate each team across the organization and answer some simple questions: How would we maximize the efficiency of this team? How many people would be on it? What would the appropriate leveling look like? Would we actually prioritize all the activities the team undertakes? We answered as if we were starting from a blank slate. We took this work and executed it alongside a previous effort started in the summer of 2022 to return to a lean and fit self by reorganizing around an ideal structure. While this is not work anyone enjoys, being lean is a key part of our culture and partly why we think we've outperformed others over the last 20 years. The key here is that we are comfortable being frugal around headcount. We're excited to welcome a group of new college graduates this summer and will allocate those hires to the key teams and efforts that will provide the most significant gains, all while building the foundational base of talent in the company who can advance through the ranks in the years to come. This enables us to move forward against an ambitious set of growth initiatives while also allowing our team to thrive in a workplace with fewer obstacles, fewer meetings, and fewer boxes to check off to bring these initiatives to fruition. Many of you asked whether the decision was made in reaction to the macro environment, and the answer is no. Our intent was to address our organizational structure in a way that will unlock productivity gains, not just for one or two quarters, but for years to come. However, as we shared in our press release last month, our category does remain challenged with softness persisting through the start of the year. I was recently at the furniture market in Las Vegas and had the opportunity to speak with many of our suppliers. We heard that January was weak, although a short bout of extreme weather was clearly one factor. While uncertainty remains around the timing of a recovery, we believe we are well positioned to see meaningful upside as spending trends around the home and housing rebounds, and we continue to see our growth well outpacing the category. It's important to call out that our success is not exclusively against smaller home-focused competitors; we're also witnessing share gains against some of the largest retailers in the country. As I mentioned earlier, we've been able to win through execution gains, driven by a more nimble, focused team, and we've been encouraged to see that play out across the organization. One area that I'd like to highlight is our UK business, where we've seen a remarkable inflection in share over the past year. The UK is a key market for us, with an addressable market estimated to be in the $60 billion range. The competitive ecosystem has similar challenges to the US, consisting of a mix of a few multinationals, several large multi-category retailers, numerous homeware specialists, and a long tail of smaller competitors in various niches within the category. The actual list of names looks almost entirely different. The market fragmentation works to our advantage, as we are one of the few scale players focusing exclusively on the home. Over the past year, we have driven healthy market share growth on the back of significant availability improvements, double-digit growth in small parcel speed, and more competitive prices. This was fueled by our operational efficiency initiatives that created considerable savings, some of which we were able to pass back to our customers. Our aided awareness in the UK is nearly as high as in the US, and we've seen an encouraging increase in customer satisfaction scores compared to the same time last year. Just as we do in Canada and Germany, we take a country-specific approach to servicing customers in the UK. Our creatives emphasize the UK tone of voice and include UK homes in our television ads, which you can view on our UK-specific social channels. Leveraging our strength in logistics and our six UK Wayfair delivery terminals, we provide our UK customers with a best-in-class fulfillment experience, offering scheduled delivery and white glove upgrades while also presenting a wider selection from suppliers based in Continental Europe. We find that UK competitors frequently have much lower levels of selection, which enhances the appeal of our endless aisle and positions Wayfair as an unrivaled option in the market. Before I hand it over to Kate, I want to take a few moments to address three key topics that have garnered significant interest. First, the Red Sea and Ocean Cargo situation, which we've received many questions about in recent months. We've experienced some supply chain disruptions, especially for products shipped to Europe through the Suez Canal. We've seen our carriers implement interim solutions, including routing shipments around the southern tip of Africa. It's essential to note the minor scope of supply chain disruption compared to the type of disruption we faced in 2021. These new routes have increased shipping time, but to a much more manageable level than we encountered in 2021, and availability across our catalog has seen no meaningful negative impact. Container prices have risen but not to the order of magnitude faced a few years ago when rates reached $20,000 per container during the COVID crisis. Therefore, while rates have increased, we can manage it effectively and are already addressing it. The second topic of interest is average order values. We know this has been closely monitored in recent quarters, as inflationary pressures and supply chain challenges have worked their way out of the inventory picture. Our AOV peaked in the second quarter of 2022, and by the end of that year, we began to see prices decline. We experienced those initial price drops in Q4, and we saw that normalization process occur a bit more rapidly than expected due to a mix shift. While we still anticipate modest negative year-over-year comparisons during the first half of this year, we expect to approach a fully normalized pricing state by midyear. The third topic capturing investor focus is the volatile macroeconomic backdrop as the category nears a new record for peak-to-trough correction. As consistently stated, our focus remains on controlling what we can. You've witnessed the substantial progress we've made with our cost structure over the last 18 months. In our January press release, we projected generating over $600 million in adjusted EBITDA this year in a hypothetical flat revenue scenario, corresponding to a margin exceeding 5%. This would mark the completion of step two in our profitability ramp. Furthermore, that captures only part of the substantial leverage we've unlocked in our model, which is further enhanced by reductions in equity-based compensation and capital expenditures. With the efforts made to optimize our fixed cost base, we can expect even greater benefits to the bottom line when the category recovers, as the high margins on flow-through from each incremental dollar of revenue will quickly drive up the margin rate. It's vital to emphasize that our cost savings initiatives haven't deterred our commitment to delivering an exceptional shopping experience. For instance, we recently introduced free white glove delivery for specific large parcel items, which we combine with Deluxe, allowing our delivery agents to unbox items, inspect for flaws before final delivery, and greatly enhance the customer experience by seamlessly setting items up in the customer's home and ensuring they're ready for use. This is only possible on a national scale due to the focus and resources that Wayfair brings to the category. It's one of the many factors contributing to our return to positive active customer year-over-year growth this quarter. We're eagerly looking forward to demonstrating our business's growth potential as the category recovers. I'd like to conclude by mentioning some of the things I'm most excited about for 2024. First, the launch of our Wayfair branded store this May. We're thrilled to showcase the breadth and depth of our catalog in a completely new way, and we can't wait for you to see it. Second, the launch of our new brand campaign, rolling out in mid-March. We're refreshing the Wayfair brand with new merchandising, marketing, and innovative ways to connect with our shoppers. Lastly, our plan to launch a tender-neutral loyalty program this fall, which will create a differentiated shopping experience for our customers, encouraging them to return time and time again. We've got many exciting initiatives underway to help us drive compounded gains. With that, let me turn it over to Kate to walk you through our financials.

Thanks, Niraj, and good morning, everyone. Let's dive into our fourth quarter results, beginning with revenue. Net revenue for the quarter came in at $3.1 billion, up 0.4% from the same period last year. Orders grew by 2.7% year-over-year, and we saw active customer growth return positive, up 1.4% year-over-year for the period. As Niraj discussed earlier, average order values came in higher than expected, down only 2.5% against the fourth quarter of last year, as we saw a boost from our performance in higher ticket classes during the holiday shopping season. I want to touch on the top line and macro context before diving deeper into the P&L. As Niraj mentioned, our category broadly remains under pressure. Within this context, we are very encouraged by our ongoing share gains and our continued ability to outpace the category. We've started this year with the best share figures we've seen across all the data from our credit card panel going back to 2018. As we've shared before, this share capture can be attributed to the return and strength of our core recipe in Q4 of 2022, as we improved availability, speed, and pricing, driving a best-in-class customer experience while also aggressively managing our cost structure and driving profitability and free cash flow. I'll now move further down the P&L. As I do, please note that the remaining financials include depreciation and amortization but exclude equity-based compensation, related taxes, and other adjustments. Gross profit came in at 30.4% of net revenue as we saw the typical effects of holiday seasonality play out in tandem with our proactive reinvestment of some operational savings we achieved earlier in the year. Customer service and merchant fees were 4.2% of net revenue, while advertising was 12.2% of net revenue. Once again, there is a holiday effect here, which drove the sequential increase in advertising dollars spent. Finally, selling, operations, technology, general and administrative costs, or SOTG&A, came in at $447 million for the fourth quarter, reflecting the impact of our efforts in 2022 and 2023 to drive fixed cost efficiency. We reduced SOTG&A by over 13% in the full year 2023 compared to 2022, and that doesn't even include the progress we made on reducing capital expenditures and incremental dilution from equity-based compensation. Altogether, we achieved a third consecutive quarter of positive adjusted EBITDA at $92 million for the period, equating to a 3% margin on net revenue. Our US segment generated $131 million of adjusted EBITDA at a 4.8% margin on net revenue, while our International segment recorded an adjusted EBITDA loss of $39 million, reflecting less than half the loss we experienced in the same quarter a year ago. We ended the year with $1.4 billion of cash and equivalents and $1.9 billion of total liquidity, including capacity from our undrawn revolving credit facility. Net cash from operations was $158 million, offset by $96 million of capital expenditures, resulting in positive free cash flow of $62 million for the fourth quarter, our third consecutive positive free cash flow quarter. Now let's move on to guidance for the first quarter. Beginning with the top line, quarter-to-date, we are trending down in the mid-single digits year-over-year, and we expect the full quarter to end in a similar place. We are continuing to win share among consumers but see the weight of a category correction now rivaling the Great Financial Crisis, impacting top line growth. To put this in perspective, our review of various data sources indicates the category has been declining year-over-year for nine consecutive quarters, with the last six quarters exhibiting double-digit contraction. Although the timing remains uncertain, when macro pressures on our categories and interest rates eventually ease, we anticipate meaningful benefits in revenue growth and profitability flow-through. Moving on to gross margins, we would continue to guide you to the 30% to 31% range as the appropriate modeling parameter. As we've discussed for over a year, we intend to be very tactical in our investing decisions regarding some of our gross margin back into the customer experience. Given the volatile start to the year for the category, we anticipate maintaining a focus on those investments. Customer service and merchant fees should be between 4% and 4.5% of net revenue, reflecting some of the cost-saving measures from the workforce realignment plan enacted last month. We expect to trend closer to the 4% mark as we realize the full savings by Q2. Advertising should remain within an 11.5% to 12.5% range, and SOTG&A should be in a range of $410 million to $420 million. Following this guidance, we expect adjusted EBITDA margins to fall within the positive low single-digit range for Q1, which is likely to be the lowest point for the year in terms of both dollar and margin basis. Although we don't provide full-year guidance, I want to highlight remarks made on our third-quarter call. It's critically important for us to deliver on our commitment to substantial adjusted EBITDA growth in 2024. We have several levers at our disposal to drive adjusted EBITDA independent of the top line. Even if the macro environment remains challenging throughout 2024, we foresee achieving full-year 2024 adjusted EBITDA growth exceeding 50% year-over-year. As you model our performance, please keep in mind that the first quarter is traditionally when we see initial cash outflows given our negative cash conversion cycle, which reverses as revenues build in the spring. Now let me address a few housekeeping items. You should anticipate equity-based compensation and related taxes of approximately $110 million to $130 million, reflecting the progress we made on cost reductions. Depreciation and amortization are expected to be around $103 million to $108 million, with net interest expense of about $5 million. The weighted average shares outstanding should be approximately 120 million, and CapEx will fall in the $80 million to $90 million range. As I conclude, I want to briefly address capital structure planning as we look at the upcoming maturities. The significant improvement in our financial profile over 2023, along with the cost actions taken last month, has given us broad flexibility in managing the convertible notes maturing in the fall of this year and in 2025. Considering the macro conditions and our cash flow profile, we are prioritizing prudence in our approach. As always, our goal is to maximize value for Wayfair's shareholders, and we are thoroughly evaluating the best timing and options to achieve this. The improvements we've made to our pro forma financial profile allow us to pay down notes in cash and stay opportunistic concerning potential refinancing activities. Before moving to the Q&A segment, I want to return to the themes Niraj highlighted earlier. 2023 was indeed a year of substantial progress for Wayfair. Our market share gains and return to active customer growth underscore that we are the top shopping destination for home goods. This foundation positions us strongly to reaccelerate toward the growth trajectory we laid out at Investor Day once the category stabilizes. Importantly, we have made significant improvements to our cost structure, demonstrating clear discipline that will carry forward into 2024 and beyond. The combination of these elements, coupled with the exciting innovations we have in store, strengthens my confidence in the bright future ahead for Wayfair. Thank you. Niraj, Steve, and I will now be happy to take your questions.

Your first question comes from Simeon Gutman from Morgan Stanley. Your line is open.

Hey. Good morning, everyone. I wanted to ask first about the spread of your share gains vis-à-vis the industry, if you can contextualize where e-commerce or the total industry is trending? And then what gives you confidence that this spread holds throughout the year or could even expand?

Thanks, Simeon. This is Niraj. Sure. Let me answer that. So first on market share, obviously, there are many ways to calculate market share. Our main two methods are a credit card data set we have, which includes close to 100 competitors and gives us granular data at both the competitor level and in total. The second method involves discussions with our suppliers, who share insights on our performance relative to specific competitors. While the latter is less quantitative, it's a dense, detailed source of information. When you zoom out, the easiest way to look at it is through our revenue. Our revenue was up just under 0.5% in the quarter year-over-year. On the other hand, if you look at competitors, depending on the category, you might see numbers are negative 10% or negative 15%, with some potentially going as low as negative 20%. This delta reflects the share we gained, as revenue indicates customers voting with their dollars, which translates into market share. For five quarters since Q4 2022, we've steadily gained share, primarily due to improved availability and pricing post-COVID in December 2022. By Q4 2022, we had our recipe back on track, and while it became more challenging afterward as we hit all-time highs, we’ve continued to capture share. We're consistently reaching new all-time highs in market share with each passing quarter. In the near term, while we expect category challenges, we predict that our year-over-year figures will remain significantly better than the competition, thereby allowing us to keep gaining additional share and reaching new heights. As for your second query, we anticipate that the category will eventually recover. It's a cyclical industry. Interestingly, I recently read a note from Home Depot's call, noting they face challenges in particular segments yet feel poised for substantial gains once the category rebounds. We share similar sentiments. Although it’s tough now, we’ve been executing well, gaining approximately $2 billion from cost savings. Our unit economics are strong, and customers are responding positively. Evidence of this is reflected in our market share and active customer count growth. So while market conditions remain difficult, we are confident our execution will yield continued share gains and, when demand returns, we expect significant revenue and profit acceleration.

And to that point, this will be the follow-up. As sales recover, what's the right way to think about incrementals for every point above zero? And alternatively, if it stays negative for the medium term, is there a way to think about decrementals?

Yeah, sure. So one thing I'll just plug is that today, along with the earnings call materials, we've released our annual shareholder letter on the investor website. We encourage everyone on the call to take a few minutes to download and read it, as it shares our long-term vision and focuses more on the future than on the near term. In the letter, I detail how we approach future earnings. The next $1 billion of revenue is likely to yield mid to high teens on EBITDA, based on fixed costs in our business that leverage as we grow. This framework aims to clarify what incremental potential looks like.

Yes. Simeon, it's Kate. To add to that, as I mentioned in the prepared remarks, we have the goal of substantial EBITDA growth, which assumes a baseline for top-line performance that aligns with our focus on cost initiatives. As I previously stated, we expect to achieve at least 15% EBITDA growth even if the top line remains challenging or, in your scenario, experiences a potential contraction. This reflects our strong cost structure efforts.

Thank you, both.

Your next question comes from Alexandra Steiger from Goldman Sachs. Your line is open.

Great. Thank you so much. You've been very clear that reducing headcounts over the past few months has driven efficiency and productivity within the organization. Where are we in that journey? Do you think there is more room for efficiencies, and when do you think it's the right time to start rehiring and growing headcount again? My second question for Kate is: could you elaborate a bit more on your Q1 revenue guide in terms of drivers behind the outlook and the factors that are inside versus outside your control? Thank you.

I’ll answer the first part and then turn it over to Kate for your second part. Regarding productivity and efficiency gains from reduced headcount, we made reductions in headcount over the last 18 months with a primary focus on what we believe is an efficient organizational model rather than solely cost-saving targets. We believe we've established a very efficient organization. There will be some headcount additions, but they will be modest compared to our overall headcount. This will allow us to reformulate teams, including hiring more junior members, which we didn’t have during the COVID period. We anticipate adding college hires to support key teams, but this will not significantly impact costs. We expect ongoing productivity gains to arise from a few areas: enabling faster actions and execution due to the new organizational structure, the settling in of personnel in new roles, and the substantial gains from our ongoing technology transformation. Regarding timing for adding back headcount, we’ll reassess as we continue to see ongoing productivity improvements.

As for your revenue question, the macro context is what it is; we don’t drive it. However, we have focused for the past several quarters on controlling what we can manage. A key piece of our revenue strategy is rooted in our core recipe: price, availability, and speed, which have driven our ongoing share gains. Currently, sitting on this call deep into the quarter, I just point you back to the quarter-to-date number and reference that as something you can generally expect for the quarter.

Great. Thank you.

Your next question comes from Brian Nagel from Oppenheimer. Your line is open.

Hi, good morning. Thanks as always for the details. I have a couple of follow-up questions regarding the top line guidance you've given for Q1. Should we interpret that to mean that if you're down mid-single digits, the backdrop for Wayfair has actually become more difficult? I recognize there's a lot of seasonality involved, but as we've transitioned from Q3 to Q4 and then into Q1, has the backdrop indeed gotten tougher? My follow-up question, unrelated – Kate, thanks for all the details regarding the balance sheet. Could you help us understand better the timing of actions regarding the balance sheet?

Okay. Great. Brian, on your first question about whether the macroeconomic climate has become tougher, I would agree. We’ve noticed a tougher macroeconomic climate, and that’s echoed in public comments from many retailers. We've seen this reflected in credit card data too. My recent attendance at the Vegas furniture market confirmed that January was particularly weak, although weather contributed to that, but overall, the market does appear softer than expected during this periodic adjustment. So, while the macro conditions have become more difficult, it is essential to recognize that the depth of the current drawdown is substantial. Demand can be viewed as bouncing along the bottom. That said, we cannot predict macro trends, which is why we prioritize focusing on internal execution, such as enhancing our recipe and fostering internal drivers. Even in Q1, we’ve seen our market share continue to climb, and we’re achieving new all-time highs.

Thank you for your question regarding the capital structure. The changes we've implemented in the business have enhanced our financial profile, offering us optionality in terms of capital structure. As I mentioned in the prepared remarks, we've considered the option of paying down the 2025 notes in cash, which could be a viable option. Our focus is on what provides the most economic efficiency for shareholders and for the business. We have a variety of options, from cash payments to refinancing and combinations of both. Regarding timing, as our financial profile continues to improve and our free cash flow generation becomes stronger, the cost of capital will decrease, providing an advantage in terms of timing.

Very helpful. I appreciate it. Thank you.

Your next question comes from Anna Andreeva from Needham. Your line is open.

Apologies. Good morning, guys. Thanks so much. Can you discuss whether you're seeing varying demand across different household income levels? Is it the lower-income consumer feeling more pressure so far in Q1? I'm also curious about the performance of other high-margin brands in your portfolio outside of the core Wayfair banner, particularly in specialty retail and Wayfair Professional performance over the last quarter or so far in the quarter-to-date. Thank you.

Thanks, Anna. Regarding demand, we’re observing greater pressure as we move down income brackets. This trend aligns with our data and macroeconomic insights from banks and credit card companies, which show a pattern that is clean and obvious. On the other hand, our higher-margin brands, including those in specialty retail like Perigold, are performing quite well. The luxury market is less pressured and is experiencing significant growth rates, which is encouraging for us. It’s crucial to note that Perigold, being relatively new to us, has notable growth rates, and we believe there’s potential for more expansion in segments less affected by current pressures.

Your next question comes from the line of Colin Sebastian from Baird. Your line is open.

Thanks and good morning. I appreciate the opportunity. Maybe one quick follow-up on the last question around customer segmentation. There’s curiosity about the emerging competition in e-commerce from Asia, including the expansion of the home category. Is this expected to impact prices or customer acquisition costs? Or is this more likely limited to the lower-end consumer segment? Secondly, in the shareholder letter, I was intrigued by some comments regarding logistics and additional services built on your existing infrastructure. Could you provide more color on whether this translates into new revenue opportunities or is it more about creating additional efficiencies?

Thanks, Colin. First, regarding the emerging competition from e-commerce platforms such as Temu or Shein, we consider that they’re primarily competing in the lower end of the market, both in terms of quality and price. While they are known for high-volume offerings, we haven't seen them perform as direct competitors in home goods. Most of our business focuses on bulkier home items that they typically do not target. These larger items require different logistics and are not aligned with their business model. On the logistics side, we are committed to developing our service offerings to enhance both revenue and efficiency. For example, we're launching consolidated delivery, which allows customers to schedule multiple items for delivery on a chosen date. This convenience should not only improve the customer experience but also encourages customers to purchase more from us, which enhances incremental revenue. From a cost standpoint, delivering multiple items simultaneously is more efficient than individual deliveries. This allows us to improve our margins while providing exceptional customer service.

Great. Thanks, Niraj.

Your next question comes from the line of Christopher Horvers from JPMorgan. Your line is open.

Thanks. Good morning, everybody. As you think about a flat scenario and $600 million plus of EBITDA, can you help frame how that plays out down the P&L? Would you expect gross margin to expand in that scenario? If we go back to Analyst Day, much of the long-term margin potential is in the gross margin line. Is that more dependent on revenue growth or ongoing cost reductions? As a second follow-up, does that 50% adjusted EBITDA growth in 2024 assume that the current business trend down mid-single digits continues throughout the year?

Good morning, Chris. That's an important question. The anticipated benefits of our cost actions from January are key drivers here. I expect gross margins to remain in the 30% to 31% range, indicative of where we averaged for '23. The cost savings we captured are expected to hit particularly in two areas: customer service and merchant fees, and SOTG&A. The $280 million in total takeout includes $150 million impacting adjusted EBITDA and $125 million affecting the SOTG&A line. Thus, gross margin is unlikely to expand significantly in this flat revenue scenario. Regarding the 50% adjusted EBITDA growth, we see that as a minimum expectation. We have several levers to drive improved EBITDA irrespective of the top line, including ongoing operational efficiency and strategic hiring back as needed.

Thanks very much.

Your next question comes from the line of Steven Forbes from Guggenheim Securities. Your line is open.

Good morning. Niraj, could you expand on your curation comments in the letter, especially regarding how the assortment and vendor base might change or how house brand penetration could evolve over the years? Additionally, how do those curation strategies integrate with any mitigation against tariffs?

Sure. The curation strategy focuses on building up our selection of house brands and specialty retail brands, ensuring that we offer items that customers will be thrilled with upon receiving them. Our selection is priced competitively, and our logistics are optimized to support this. Going forward, we'll continue to enhance this curation strategy while being mindful of the suppliers from whom we're sourcing our products and the geographic locations of production. We've been particularly vigilant in industries like mattresses, which have faced tariff complexities. We’re careful to ensure that our relationships with reliable suppliers allow us to maintain quality and availability while offering competitive prices. Thus, our strategy is both thoughtful in terms of assortment and proactive in managing our supply chain efficiently.

Thank you. As a quick follow-up for you, Kate: Could you help us understand the implications of possibly pulling back on some reinvestment? Should we assume the first quarter SOTG&A guidance compared to the fourth quarter is around two-thirds of the benefit? Can you frame where the SOTG&A number might trough in the second quarter?

Yes, of course. Regarding SOTG&A, comparing the midpoint of our current guidance for Q1 with our Q4 figure will reflect the savings we've discussed. Based on our hiring plan, we expect the Q1 SOTG&A guidance to serve as a good baseline through the year, although we may adjust as necessary according to the macro conditions. With the hiring plan, we project that SOTG&A will hold relatively constant throughout the year.

Your next question comes from the line of Oli Wintermantel from Evercore ISI. Your line is open.

Hi, guys. I had a question. Niraj, you mentioned three things you’re excited about in 2024: the new campaign in March, the Wayfair store opening in May, and the loyalty program rollout. Can you elaborate on those initiatives?

Certainly. The launch of our first Wayfair retail store in May is a significant milestone. Located just north of Chicago in Wilmette, it's a chance for us to showcase our extensive catalog in a new environment. The new marketing campaign will roll out in mid-March, strategically designed to cultivate brand loyalty for Wayfair and highlight the breadth of our offerings, ensuring customers understand why Wayfair is their go-to destination for all things home. Finally, the launch of our tender-neutral loyalty program will allow us to provide customer rewards independent of their payment method, enhancing loyalty and driving incremental revenue. As we refine the technology and marketing plans for this initiative, it has the potential to deepen our customer engagements and ultimately become a key aspect of our growth strategy.

Your final question comes from the line of Curtis Nagle from Bank of America. Your line is open.

Good morning, and thank you for taking the question. Kate, regarding the Q1 guidance, could you walk us through the range of outcomes within the low single-digit EBITDA guidance? How much is dependent on gross margin, and what drivers are influencing variability within that range?

Good morning, Curtis. As we’re already into Q1 and trending at a mid-single-digit decline quarter-to-date, that top-line performance is one key area for variability. If that number were to improve, you would see increased flow-through to the bottom line. We've maintained a 30-31% gross margin, consistent with recent quarters, with the advertising and AC&R costs being the more variable factors. If revenue were to accelerate, we’d gain additional flow-through, enabling better performance in the low single digits. We see our current Q1 guidance as an appropriate target given these conditions.

Got it. Makes sense, and thanks.

Thank you all for joining us today. I encourage everyone to read our shareholder letter, available on the Investor Relations website. Despite challenging macro conditions, we remain well positioned for continued success and share gains while anticipating significant EBITDA growth as the market stabilizes. We're seeing fantastic customer engagement, so thank you for your interest in Wayfair.

This concludes today's conference call. Thank you for your participation. You may now disconnect.