Wayfair Inc. Q4 FY2025 Earnings Call

Hello, everyone. Thank you for joining us, and welcome to the Wayfair Inc. Q4 2025 Earnings Release and Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. I will now hand the call over to Ryan Barney, Investor Relations. Please go ahead. Good morning, and thank you for joining us. Today, we will review our fourth quarter 2025 results. With me are Niraj Shah, cofounder, chief executive officer, and cochairman; Steve Conine, cofounder and cochairman; 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 guidance for 2026. All forward-looking statements made on today's call are based on information available to us as of today's date. We cannot guarantee that any forward-looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Our 10-K for 2025 and our subsequent SEC filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. Except as required by law, we undertake no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events, or otherwise. Also, please note that during this call, we will discuss certain non-GAAP financial measures, as we review the company's performance, including contribution profit, contribution margin, adjusted EBITDA, adjusted EBITDA margin, and free cash flow. These non-GAAP financial measures should not be considered a replacement for, but should be read together with GAAP results. Please refer to the investor relations section of our website to obtain a copy of our earnings release and investor presentation, which contain descriptions of our non-GAAP financial measures and reconciliations of non-GAAP measures to the nearest comparable GAAP measures. This call is being recorded and a webcast will be available for replay on our IR website. I would like to now turn the call over to Niraj. Thanks, Ryan.

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

Thanks, Niraj, and good morning, everyone. Let us dive into our financial results for the fourth quarter before we move to guidance for Q1. Starting with the top line, net revenue grew by 6.9% year over year on a reported basis and 7.8% year over year excluding the impact from our exit from Germany. This is our last quarter where there will be a meaningful distinction there. We saw solid performance in both of our geographies, with the US business up over 7% year over year, and the international business grew nearly 4%. Let me continue to walk down the P&L. As I do, please note that the remaining financials include amortization but exclude equity-based compensation, related taxes, and other adjustments. I will use the same basis when discussing our outlook as well. Adjusted gross margin for the fourth quarter came in at 30.3% of net revenue. For more than two years now, we have held gross margin steadily at the low end of our 30% to 31% range as we balance the structural benefits we are getting from programs like supplier advertising and CastleGate against areas where we see an incremental opportunity to invest in the customer experience. While we will get to formal guidance shortly, this will be the same play-through you will see in the first quarter. But as we look deeper into the year, we expect there will be opportunities for us to dip gross margins slightly below 30% as we look to capture share at a faster rate and generate more gross profit dollars in a slightly lower margin. I want to be very clear here: the magnitude of this will be measured in the tens of basis points, not hundreds. Some of this investment is driven by programs like Wayfair Rewards, as Niraj just discussed. Scaling the number of rewards members comes at the expense of gross margin but drives improvement on advertising expense, allowing us to hold to our contribution margin target of 15% and most importantly, adjusted EBITDA dollars. Ultimately, that is our core focus, and you should expect to see us grow the top line while delivering healthy year-over-year adjusted EBITDA and free cash flow growth in 2026. Now looking specifically at Q4, the combination of 30.3% gross margin, with 3.7% of net revenue going to customer service and merchant fees and 11.4% of revenue going to advertising, left us with a contribution margin of 15.3% for the quarter. This was 250 basis points better than we delivered in 2024, as we lapped a period of investment into newer advertising channels. SOT G&A for the fourth quarter came in at $358 million, which, in combination with contribution margin expansion, led to the significant profitability flow-through for the final quarter of the year. In total, we generated $224 million of adjusted EBITDA in Q4, for a 6.7% margin. This was more than double the number of adjusted EBITDA dollars we delivered in 2024. For the full year 2025, we grew adjusted EBITDA dollars by more than 60% to $743 million and improved adjusted EBITDA margin by over 200 basis points. A remarkable achievement that is the culmination of many years of work in cost rationalization, on top of a noteworthy year of share capture and top line momentum. As Niraj said earlier, this is just the beginning of much more to come. We ended the quarter with $1.5 billion of cash on the balance sheet and $1.9 billion of total liquidity when including availability under our revolving credit facility. Cash from operations was $202 million, offset by capital expenditures of $57 million, leaving free cash flow of $145 million for the fourth quarter, more than 40% year-over-year improvement. We issued our third high-yield bond during the quarter, retired the remainder of our 2025 notes, and repurchased just over $100 million of principal on our 2027 convertible notes. As with our 2028 convertible note repurchases during the summer, these bonds essentially trade as an equity substitute given the trading price of the stock. So another way to look at this is that we offset more than 5 million shares of potential dilution through the two sets of convertible note repurchases in the back half of the year. Our net leverage is now under 2.5x, down from approximately 4x exiting 2024 and over 6x at the end of 2023. We also saw our burn rate come down meaningfully in 2025, from a peak of 11% in 2022 to just 4% this past year. I mentioned this last quarter, but it is worth repeating once more: we are operating with a dual mandate of reducing leverage while also managing dilution. And we will continue to balance these opportunistically in the future. Let us now turn to guidance for the first quarter. Beginning with the top line, we would guide to mid-single-digit growth year over year for Q1. We are seeing another quarter of robust share capture translate into healthy growth even in the face of a category that is starting off the year comping negatively. Turning to gross margins, as I mentioned a moment ago, we will guide you to the 30% to 31% range, likely at the low end as we find further value and take rate customer experience investments in the form of order capture. You should expect customer service and merchant fees to be just below 4% of net revenue and advertising to be in the range of 11% to 12% of net revenue. The net of this should produce a contribution margin of roughly 15% for the first quarter for a healthy improvement year over year. SOT G&A is expected to stay in the range of $360 million to $370 million, likely at the lower end of this range. As we have discussed, the power of our model is our ability to scale top line and contribution profit growth without needing to make further investment in headcount. Our team is well equipped today to facilitate considerable growth in the years ahead, which puts us in a remarkable place to see noteworthy leverage as revenue growth compounds. Flowing all of that down, we would expect adjusted EBITDA to be in the range of 4.5% to 5.5% of net revenue, again, demonstrating robust year-over-year improvement. While we do not guide on free cash flow, I do want to remind investors that the first quarter is a cash outflow period for us given the working capital dynamics of our business even when revenue shows strong year-over-year growth. Now, let me touch on a few housekeeping items. We expect equity-based compensation and related taxes of roughly $70 million to $90 million. You should expect further rationalization here over 2026, even accounting for the $20 million impact from the performance award which is reflected in this quarter's figure. Depreciation and amortization should be approximately $67 million to $73 million, net interest expense of approximately $37 million, weighted average shares outstanding of approximately 132 million, and CapEx in a $55 million to $65 million range. 2026 is poised to be a tremendous year for Wayfair Inc. We are leveraging our tech transformation, loyalty ecosystem, and logistics scale to consolidate share in a highly fragmented market. We are in full control of our destiny, and we are well set up to drive healthy top line growth independent of the macro. And we are turning that growth into more profit dollars than ever before. Our team is energized by the opportunity ahead of us, and eager to turn our ambition into reality. We are excited to have you along on this journey with us. Thank you. And with that, Niraj, Steve, and I will take your questions.

We will now begin the question and answer session. Please limit to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, please press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead.

Thanks so much for taking the question. Wanted to ask sort of a multi-parter around AI. When you look at the current landscape, can you talk a little bit deeper about some of your initiatives both internally that could be aimed at reducing friction in the business and or driving operating efficiency from AI and how you are increasingly thinking about partnering with external parties to bring your brand and your marketplace into external environments like LLM agents as a potential pathway to market. Thanks so much.

Yeah. Thanks, Eric, for the question and for being on the call. Actually, so one thing I will just reference that because I am sure you and folks have not had a chance yet to see it. But today, obviously, we released earnings and the refreshed investor deck, but we released our annual shareholder letter. And in the letter from Steve and I, we actually talk a lot about how we look out to the future, the opportunity we see for the business, the economic opportunity, but specifically what drives it. And one of the three things that we talk about significantly in it is how technology plays a big role, and there is a meaningfully, not very lengthy, but a page or so about AI. And it basically tries to address exactly what you are asking. So I will give kind of a summary answer right now, but I think you will probably find that and others may find that of interest. What we talk about there is basically exactly as you posit it. There are significant internal benefits, and the internal benefits have a lot to do with how AI is really an unusual opportunity in that you can improve quality, improve speed, and reduce cost all at the same time. Whereas usually, the truth is when you have a technology that comes along that is transformative, usually there is an opportunity for quality and or speed, but it comes at a cost. But the ROI is there. Here, what is tremendous about it is that you could actually do all three at the same time. So on the internal operations, you obviously start with everyone using an enterprise LLM, you know, chat product. In our case, everyone had Gemini connected to all our data sources to help them do their work more productively to get answers to questions. But where that is fairly quickly led to is how agentic workflows can allow you to automate meaningful pieces of work and do them again, as I mentioned, faster, at higher quality and lower cost. The speed of the development of the technology has been tremendous to where we have, you know, we started let me take a step back—a year ago with some high-level areas, you know, a top-down effort, like how can we help our customer service agents do a great job. Some of the more simple inquiries, how can we just automate the answers to those? We are doing that, and we are getting higher customer satisfaction scores on those, and then our agents are benefiting from the assist co-assist product for them on the more complicated ones. We did that in like half a dozen areas, you know, how we made the product catalog information, how we find inaccuracies in the catalog, etcetera. Where we then went to is now at the individual or the group level how do you take workflows and help automate work in there, getting rid of some of the work that is monotonous and repetitive, and do it in a way that is quick, faster, and more accurate, freeing up people's time to work on things that are higher value. If you think about the efficiency opportunities as you reshape how you allocate resources in the future, there is upside there. So there is a whole section of activity there. And then when you think about external parties, there are kind of two big groups of external parties that I will just touch on really quickly. One is how we help our suppliers succeed on our platform, and that is about giving them tools and taking all the process work of things they need to do with us and eliminating a lot of the work that is time-consuming and has the same sort of dynamic as you would think about with internal activities, and allow them to then do more to grow their business on our platform. Part of it also is giving them analytics and insights that allow them to understand what is happening on the platform in a way that then allows them to know what to do. So there is a set of activities there. But then I think where you were going on the external parties has a lot to do with the kind of the agentic surfaces that are out there. The core AI leaders out there. I think I would draw an analogy to how in the early days, going back to whether it was Google or Meta, later Pinterest, how we have always been a partner working with those folks on both making sure that we show up very well there, and that is in organic placements, and how we give them product information feed data that allows them to represent us in a way that helps them with the consumer experiences they want to create. But then also as they have paid out advertising products and the like, how are we an early partner helping them develop those? Or in the case of commerce transactions, which Google did with Express and Shopping and Pinterest and buyable pins, how are we really partnering there helping them with that? Well, that analogy, if you go to today, while, you know, using Gemini or Chat are different than using these other products, I think there is an analogous series of activities where we start talking about how do we make sure we optimize how we show up there and represent ourselves well and make sure that product information is all there, including very nuanced details. But then it goes to they want to develop advertising units while you partner with them on that in a way that allows us to leverage all the data and the technology we have to make sure that we are a beneficiary as well. And then, frankly, with customers engaging there, that they foresee a world where on some set of transactions, consumers may want to execute the transaction on their agentic surface. That might be an agent executing a transaction if it is a commodity or buying paper towels; it might just be replenishment or maybe the agent is deciding where how to solve that for, and so they want to develop commerce protocol. We have been a partner, and I think multiple of them have named us as one of their handful of partners that they are developing those with. So I think you are seeing us be very early there. And then in our world, we think that will happen because it is not a commodity good where you are not going to be, you know, hey. I need some more of this. It is more of that. And whoever can get it to me by Friday at the lowest price is great. It is going to be something where there is a lot of exploration customers doing in the category. There is a whole view as to how that traffic gets handed off mid-funnel to places like Wayfair. And some of that, again, is organic traffic, and some of that could be paid traffic in the form of ad units. So kind of a relatively holistic view we have. So I think you are going to see us continue to be referenced as an early partner in all these places. I think it is very early in how this will all shape out, but I think we are, you know, the same way being technology-driven Steeve and I's background both as engineers has been a mainstay of how we have been able to grow the business. You are going to see that continue to be true here.

Thanks, Eric.

Your next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is now open. Please go ahead.

Good morning, Darish. Good morning, Kate. I wanted to ask about margins longer term. And if I could get a follow-up, I want to ask about holdout tests. On the margins, so you had a really good incremental margin, think Q4, a big number, like north of 50. Q1 looks pretty strong as well in the twenties. Can you update us on how you see incremental margins evolving especially if the top line recovery continues over the next few quarters? And then we have talked about things you have done or that AI can help do on SOT G&A on your cost base. So is it a level of revenue growth, or is it a matter of time until you get to your long-term EBITDA margin targets?

Yes. Let me start with some thoughts and then turn it over to Kate. I think the way to think about it, so just to take your question and kind of flip it around a little bit. What I would start with is, so what you have seen is as we got through the tech re-platforming and we got through a bunch of the things we need to do to get our organization back to being very lean, focused, efficient, executing very well. That is all work with you already in 2022, 2023, and 2024. The category in those years comping down, you know, negative double digits. We were kind of flattish through most of that period. We entered 2025 sort of flattish, you know, and, like, call it 0% revenue growth. By the end of the year, you see it sort of like in a mid to high single-digit revenue growth. It kind of ticked up each quarter. And that is why the category continued to comp down. I think the overall TAM was probably down low single digits if you index it to the categories we are stronger in. Well, that is really due to probably down mid to high single digits. But you see us pull away. Us taking share because you saw profits grow even faster during the time period than revenue grew. And so we are taking share profitably. Well, how we are doing it through these core initiatives we had like I talked about stores, for example, and rewards on the call earlier. Well, there are over half a dozen of those. So if you kind of look at what we foresee going forward is that these initiatives, a lot of these initiatives are set up to basically kind of continue to scale and compound these wins because a lot of these will get you new customers. They will get you new customers and drive loyalty from them. They will allow these initiatives will help customers understand the breadth of the categories we are in, and they will start buying more in categories that we under-index in. So there are all these things, and that share of customer share of wallet grows profits, you know, faster than gross revenue. The way to think about what we are expecting to have happen is we are expecting to see the rate at which we outpace the market continue to expand. And through our own initiatives, not through the market recovery. We are expecting to see profits grow even faster than that through the combination of leveraging fixed cost and through the economics of these initiatives themselves, through the combination of those two things. That is like the business strategy and the activities that are happening that are driving what you are known, which are like the quantitative analysis of the results. That is kind of what we foresee happening. So then you say, so then what would that create continue to create this outpacing where you see the profits grow faster than the revenue from your standpoint of incremental margins? You say the incremental margins look quite strong, right? Because margins are quite accretive.

Let me turn it over to Kate for anything I actually did not highlight on the key points. Right, which is that we expect to be able to continue to grow and accelerate EBITDA dollars faster than the top line. And so you are going to continue to see very nice flow-through there. Just as a point of fact on that, midpoint of our guidance range in Q1 is over EBITDA margins, over 100 basis points higher than the Q1 2025 EBITDA margin, right? So I think that shows the strength of the flow through in the model. As Niraj pointed out, that has been driven by a number of measures internally. You see our SACA, our SOT G&A, that operating expense down again this quarter. I think that is many quarters; I cannot even count how many at this point because it is a few years in a row of that SOT G&A coming in. So that is providing really nice leverage there. And then, you know, that contribution margin around that 15% again. So you see this ongoing pattern of driving to that EBITDA growth. That is really the North Star that we are driving towards. When you think about these initiatives internally, Niraj mentioned Wayfair Rewards on the call and talked through that. The way that we look at them is how can we improve the customer experience with it but make sure that even if the components of margin move around a bit, that we are again flowing that through at that adjusted EBITDA growth rate. The second part of your question was that timeline to 10% plus adjusted EBITDA. So I do want to be clear, we talked about we believe we can actually get over 10% adjusted EBITDA, and we are pretty excited about the potential to do that. I think we have shown that even in a down market, we have been able to grow adjusted EBITDA margin significantly throughout the year. As we look forward, certainly top line momentum obviously helps you on that leverage. We think a number of our own self-help initiatives can continue to drive those share gains, you know, irrespective of the macro.

The holdout test that you are trying, does that shape how you are spending advertising in '26 or not yet?

Yeah. I think the way to think about the holdout test is that that is not a one-time activity. That is like an ongoing set of activities. So the holdout tests do not sort of start and stop, but there are periods where we are running more of them than other periods. But I think what we have been able to do is run, get back into a cadence of running a relatively high amount of tests that have left us really hone how we do a lot of the marketing attribution and make sure that the anywhere we are spending advertising costs get to really good precision on where we are getting a return and, therefore, spend our money wisely. You have seen some of that in the form of the ad cost leverage. Where we are certainly scaling in a lot of new channels, but we have also been able to become more honed and surgical in where we are spending money, and so we have been able to drive up our return in a way that we have been pretty happy with.

Yes. I mean, I think you may be referring specifically to the Q3 testing of last year; that was a little bit bigger than maybe typical on any given quarter. To your point, so there is a little bit of quarterly change in that. To your point on what we have learned, I think, for example, we have seen pockets of influencer spend and, you know, other elements there that we actually believe we can spend into and yield the kind of returns that we are, you know, expecting and requiring ourselves to get on those lines.

Your next question comes from the line of Steven Forbes with Guggenheim Securities LLC. Your line is open. Please go ahead.

Good morning, Niraj, Kate. Neeraj, maybe just revisiting your comments on physical retail expansion as we look forward to this next class of stores. I wanted you to revisit Wilmette and talk about how those DMAs surrounding the store have performed. You know, sort of two years in here. Is the outperformance gap versus the company average still as strong as it originally was? In any way sort of frame up for us how you are thinking about how those DMAs surrounding those new stores should perform in 2026.

Yeah. Steve, that is a great question. So the store in Wilmette opened up quite strongly when we first opened in May 2024. We could see the lift in that trade area in the state of Illinois very quickly. Now that it has been open over a year or been open, you know, over a year and a half at this point, we have been able to say that we have seen that continue nicely. In fact, in the refreshed investor presentation, we put a slide in and put some updated numbers. We talked about how the store, you know, one thing that is exciting about the store is that it is attracting new customers and you are seeing that, you know, our business overall, you are seeing that we have order growth in new customers and in repeat orders. So repeat orders, which are 80% of our orders, are growing. New orders are 20% of growth. So the store is one small piece of how we are doing that, but the stores help us attract new customers. To your point, we also put the CAGR in there and we see that the Illinois over national growth CAGR you see that it is at over 10% CAGR since the opening. What is happening is that customers obviously could be boiled away from experiencing our online offering, be very happy with that. Then having a store is only going to take those loyal customers and have more use cases and methods to interact with us and grow with us. It is going to enable us to get more shared wallet from them. And then you have maybe new customers who are maybe have heard of Wayfair but have never really engaged with us. Maybe they are sort of online for the home category that is not a comfortable thing for them to think about or maybe they were habitual in going to other places. Well, some of the store may dent that curve. Maybe they experience Wayfair in a different way. That could lead to not just buying in the store, but that could then lead to them buying online as well. What you see is that the interplay of the store to the overall impact in the trade area is very nice. Where the store itself is very economically productive, and we are really changing the customer's behavior. So there is a big strategy if you think about what we are trying to do. If the average customer was spending $600 with us a year, I would have called it a $3,000 or $4,000 annual spend. How do we high-level over time get to it $1,500? How do we get to half of their wallet, or you know, some number, but meaningfully higher? The answer is, well, one thing that you would look at and you say is that, you really need them to buy across the breadth of categories that Wayfair offers. Because if they only buy in a small subset of categories, well, you are limiting how much they could really buy with you. Does that mean? Well, you would want them to buy small frequency items, you know, candles and pillows from us, as well as we would want them to do a renovation project with us where we could do the cabinetry, could do the large appliances, we could do the flooring and tile, we could do the plumbing. How do you do that? Well, they need to become aware that we are in all these categories. We need to give them an easy way to buy these categories. Some of these categories are easily purchased in person. Some of these categories require working with a designer. It may require financing. Some of these categories we just may not have the awareness. How do you grow the awareness? Someone running into that in the store is one of the highly economic ways to drive awareness. So what is happening is stores is one way to dent that then you think about the Wayfair Rewards loyalty program. If you spend $29, you are getting 5% back in rewards dollars. You are getting access to the members-only customer service. You are getting access to the members-only sales. Once you spend the 29, you have sunk the 29. You want to want to maximize your benefit. Yes, if you spend $600, you are breakeven just from the 5%. But the truth is if you spend the next 600 with us, you know, in your mind, you just made $30. That $600 is not going to be incremental to you. Just from our standpoint to be better, it could be incremental to us. It could just be you diverting that spend. Particularly when you start realizing what you are getting in the members-only sales and some of the other benefits realize, probably should have been spending that money with us even before, but now you are getting even more juice out of it and so you should be now. There is a bunch of initiatives we have that sort of ladder up to this customer P&L, and this is why we really want to focus on like how do we accelerate our revenue growth taking more and more share? Do it while we grow profits even faster. Because the lines in between, to our mind, do not matter in the same way in the sense that like the rewards program, it lowers gross margin, but it grows the profit margin. It does that because customers come direct, and the ad cost is different. For stores, for example, you know, you may say, okay, the gross margin looks great, but oh, it hurts SACA. Well, why is there an SACA? Well, the way accounting works is you got to actually take the store's labor cost and put it in the SACA, which does not make any sense to me, but that is what you have to do. These things do not make any sense, but it does not matter because if you can grow revenue at an accelerating rate and grow profits even faster, that is the outcome you want. That is the way to think about these initiatives.

That is helpful, Darish. And then just a quick follow-up. Multichannel fulfillment, I do not think you mentioned in your prepared remarks. So just curious if you can comment on how the benefits of this offering are ramping or accruing to Wayfair in any sort of framework for 2026 on that offering, in terms of the benefits to be now?

Yeah. I think the key thing to think about is, like, we built a logistics infrastructure. One of the big opportunities we have is that the way the world's playing out is that, you know, it is increasingly hard to be a small player and offer the customers the benefits they expect from a retailer today. And why is that? Well, there are three big things that have a tremendous cost in our business. So one is the cost of technology. We have over 2,200 folks, and we are getting into a world that is so even technology matters more and more, not less and less. The second is, if you look at think about the marketing reach we have with spending over a billion dollars in ad spend and having the brand be as strong as it is, it is very hard to do that if you have a very small budget. The third is the logistics infrastructure with, you know, dozens and dozens and dozens of buildings and, you know, 20 million or so square feet of buildings and operations, you know, you can now offer fast delivery and higher quality, lower damage, and better customer services and experiences, and so if you are a small retailer, you cannot do that. If you are a big retailer, there are really only a handful who can do this and really then optimize it for something. So we are the only one who optimizes it for home. Because we do not particularly worry about building materials or grocery or a bunch of categories. We are not in those. So we really are only in home, and so everything's optimized for home. You think about the logistics network because your question was about multichannel. You say, okay, we have got these suppliers all over the world, and they want to put forth the best experience they can for the end customers. They can get share. How do they do that? Well, we have scale they do not have, so we can help them with ocean freight, we can help them with fulfillment, we can help them with transportation delivery, things that they cannot optimize, we can. Well, it really only makes sense for us to do that for items that we can then, you know, where customers can buy enough volume we can then predict the demand. Suppliers can put in that quantity. They can turn that inventory, and customers can then benefit from all the benefits that accrue to them, and because it will not work sustainably for the supplier if they are speculating goods and goods come in there and they do not sell. The big benefit of multichannel is it allows suppliers to put in a broader breadth of products, which then allow us to figure out which ones are really great winners on our platform. Suppliers can lean in and put a lot more product, and we can then position it into more and more facilities, faster and faster delivery, lower and lower shipping costs, less and less damage. Think of multichannel as just one of the most recent additions into the logistics suite that enables suppliers to better take advantage of the Wayfair fulfillment operations in a way that allows them to grow their business on our platform; they are giving customers more benefits. All this along the way helps us. One of the things I talk about in the shareholder letter is a forthcoming delivery offering for consumers called Wayfair Delivery Plus. What we are really excited about is that is going to offer customers a set of services in a very easy and convenient way that no one else offers, specifically tailored for HomeGoods, that takes away a lot of the hassle that is associated with HomeGoods from a customer standpoint. Let us focus on all the benefits they have because they want that item, but maybe they want it assembled when it is delivered. Maybe they want the old one taken away, or maybe they want multiple items delivered on the same day because it is just going to be convenient for them. Or maybe they are doing a project. Or maybe setting up their summer home for the or they are helping their daughter move into her apartment. There are all these use cases. You are going to keep seeing us add our services that are software-powered and operations-powered services that sit on top of the infrastructure we built that allow the customers to benefit from what we have built that allow suppliers to more easily participate and economically win in it. Multichannel is one example, but frankly, you know, Wayfair Delivery Plus, which I talked about in shareholder letters, is another. We are going to keep seeing us do more and more.

Thank you.

Thanks, Steve.

Your next question comes from the line of Zachary Fadem with Wells Fargo. Your line is now open. Please go ahead.

Hey, good morning. Kate, can we walk through the cadence of Q4 in a little bit more detail? And any particular standouts in terms of Way Day versus holiday, etcetera? And then I know you are not disclosing quarter to date anymore, but since you are guiding for a deceleration in Q1, is it fair to say that those Q4 strengths continued into Q1 or not?

Yeah. So, you know, as you know, we do not give color or guidance on monthlies. But I think when we look at Q4, what we really saw overall was ongoing momentum of the initiatives that we started, you know, over a year plus ago. So those are things like Wayfair Rewards, and you spoke to on the call, Wayfair Verified that we have talked to in the past, you know, one that we think is particularly exciting. Changes to the customer experience from the storefront updating and that really is due to the developer capacity that we have freed up from the tech re-platforming. All of those combined and really compound to deliver a pretty exciting Q4 in our minds. As we look into Q1, obviously, we are guiding to mid-single-digit. I think that shows pretty healthy ongoing share gain in a category that we think is actually down low single digits. So when we look at Q4 and sort of you know, into Q1, particularly with some of the complexities of the weather in the beginning of the quarter, we see our share gains really continuing to grow here. That is what you are seeing in the guide. And I think that is exciting about our ongoing momentum.

What I would say is, I think Kate hit it there really well. I think the point is there is no momentum is actually the same way we started last year at zero. We ended the year mid to high single digits. We basically expect to see this momentum continue. In other words, we are starting the year, it is the turn of the year, but nothing is really changed. If you draw the line from the beginning of last year, we should just keep taking it up to the right over time because the initiatives we have are compounding benefit type initiatives. A lot of gains we are seeing from them. The market is sort of not really providing the lift, but we do not really expect it to. One of the things I talked about in the shareholder letter is how, over time, we think the organic growth rate can be 20% plus, and that is just off the back of how we can take share through the compounding nature of the benefits we have. We think we can do that while profits grow faster than revenue. The reason is, as I was kind of addressing a couple of minutes ago, these initiatives drive quite profitable growth. But they, the growth they drive does compound because it is really about how customer behavior changes in terms of customers understanding the breadth of the categories we are in, becoming more loyal, coming back more often, us also getting in front of new customers drawing them in, and then them going through that same experience curve. There are a whole series of efforts that get there. I talked about rewards and stores on the call today, but we could be talking about what we are doing in our Wayfair Professional B2B program with the account managers, the recently released project shopping tool, and the like. We could be talking about the Wayfair app and how that continues to take share and some of the planned product enhancements this year. Of the things I will highlight is now that we are really the tech re-platforming project was a very large project, multiple year project, but now that we are on the backside of that, the amount of technology resource we can put into product-led growth is substantial. We sort of have the best of both worlds right now because we both have a tremendous amount of tech resource coming back available to drive the business forward. I mentioned the app is one thing, but there is a long list of things we are going after, and these things are pretty meaningful. If you just look at the app road map, you would be pretty excited. Also, we have a new set of technologies available with what Gen AI allows. We think we are at the best point in the cycle we could be because we are working off very new platforms that allow for tremendous amounts of developer productivity and actually solves one of the challenges in the Gen AI world, which is that the cleaner and more modern your systems are, the faster it is to use some of the developer productivity tools that are out there as well.

That is helpful. And then following up on Wayfair Rewards, is there a way to quantify what the drag was on the gross margin line in 2025? And should we think about that rolling off in 2026? Or would you expect the impact to persist as you grow new members? And then I suspect the net impact is positive when you offset that with advertising. But if you could walk through that a little more detail, that would be great.

Yeah, I mean, look. So if things go as we plan, actually, the drag should become an increasing drag on the gross margin line because the number of members and the amount of revenue for the total revenue that are coming from rewards members actually is growing at a very nice rate. You would be fantastic; that would be an amazing outcome. Because the profits that you are getting from those customers are higher. This is why I think the gross margin line or the SACA, like, these lines do not really tell you very much. Because if these initiatives are successful, what you should really see is that the revenue line continues to accelerate, the profit line, the EBITDA line, what have you, accelerates even faster. That is the dynamic you would get, whereas you would see, you know, these lines in between moving at a faster divergence. Let me turn it over to Kate.

Yeah, Kate, I, you know, I think you are reaching it well, which is as we described on the call, we think it is an appropriate reward, an appropriate investment to make in the consumer example. Those customers are coming direct. Obviously, that does impact the gross margin line. But on the other end, right? So you are not spending the money on the ad spend to get them to the site, and therefore, it flows through quite efficiently to adjusted EBITDA margin and adjusted EBITDA dollars. That is ultimately the goal, and we talked about sort of some of the gross margin dynamics going forward, that contemplates something like Wayfair Rewards continuing to grow. We think it has enormous potential, and we are seeing really strong benefit from the consumers in this program. Certainly, our focus is on how we can continue to expand it. Again, knowing that you get a trade-off on the gross margin line to the AT and R line, and that is all ultimately flowing through to adjusted EBITDA growth.

Makes sense. Appreciate the time.

Your next question comes from the line of John Blackledge with TD Cowen. Your line is open. Please go ahead.

Great. Thank you. Two questions. First, just any color on the potential for a rebound in the home category as we get through the year? And then second question on agentic commerce. There has been questions around risk to advertising revenue streams for e-commerce marketplaces as the agentic commerce ramps up. Just curious how you guys are thinking about that. Thank you.

Yeah. Rebounding has, you know, it is very hard to predict how it is going to play out. My general view, what we have been seeing, which is, you know, that for the housing market to recover, it is a little bit of a slow burn, and you are seeing like every quarter that goes by, the percentage of mortgages that get refinanced at the current rates keeps ticking up. But it is a relatively slow process. And that basically, you know, not having a crystal ball, we basically underwrite something like that. So our old plan is not really premised on how the market turns; I think that is a very hard thing to predict. Frankly, there is a very good chance it is just a slow burn and it works itself out over a longer period of time. But it is really about a dynamic market. There are really not very many folks who can offer customers the experience that they really want today. There are a lot of folks who are still operating off a model that is really not what customers are looking for as you go forward. There is a lot of market share in what is still a quite big category that can move around. If you go back to thinking about our particular initiatives and how those would impact a customer and allow for market share to move, I think that is the way you could think about our strategy. You saw it last year; it allowed us kind of to pull away from the market at an increasing rate, and we expect that to continue.

I think you hit it well, which is our focus is on our own measures and how those are gaining share. You have seen that share spread actually, you know, expand throughout the course of '25, and we feel really good about the momentum going into '26.

I think you had a second question around supplier ads and the impact of agentic shopping on supplier ads. Yes, what I would say goes back to the type of goods. In other words, if you want to think about these agentic surfaces, I think the way you would say, hey, supplier ads could get impacted, it would mean that the traffic is not moving downstream to the apps or the sites operated by those commerce players, and the transactions are happening upstream on the agentic surface. I think if you are going, you know, you are selling paper towels and dish soap and, you know, chips Ahoy cookies and that could be fulfilled by any number of folks, and you particularly care whose corrugated box shows up at your door, whose plastic bag shows up at your door, then yes, that traffic may never make it to the retailer. The transaction may take place upstream. The traffic by not making it to the retailer means there is no opportunity for the retailer to show the variety of products and the ad units, and that could be a big factor. If customers are coming direct to the retailer, or if customers are still making it to the retailer through these agentic services because there is more products understanding and exploration involved, then the advertising, I think, still gets seen. Frankly, the less of a commodity it is, the more browsing and the more curiosity customer has about the offerings, the more ad units become relevant. We tend to think that our product roadmap on ads, which some ways is similar to some others, but in some ways is quite different, is a very good fit for what customers want to experience at home. We think home is inherently more browsable and requires more sort of, it has more of a customer curiosity—customer desire to understand what is out there than some other categories. I would have linked it more to fashion. In that scenario, that presents you as the retailer operating a platform an opportunity to let other suppliers know, get their products seen, and that is effectively what these ad units do. If you think about something like video, well, certain products lend themselves to video telling a much better story than right? I think home is a great example. Fashion would be a great one. If it is like chips or cookies, the value of the video could be very high, but you could say, well, that could easily get replaced too.

Thank you.

Good morning. Nice quarter. Congrats.

Thank you.

So I want to ask, I get it is probably longer term in nature, but you know, today's results and results related have shown this nice market share. You know, Wayfair is definitely consistently now capturing market share. So as you look at all your data, is there anything we can call out of that market share? Are you seeing new customer or new customer cohorts coming to Wayfair? Are you taking more share and in different income cohorts? Is there anything that is this market share dynamic has persisted? Is there something new that can speak to, like, the broadening reach of the Wayfair brand?

Well, I think there are a few thoughts there. One, we are definitely seeing that that whole K-shape economy thing is real. So when you do talk about higher income cohorts, you know, the highest income cohort, the place that we offer is our Perigold platform. It is a luxury platform, and that is growing at a very fast rate. You see, you really do not see any economic strain there, especially retail brands. The second highest level after Perigold is the old modern Birch Lane, Joss & Main—you see nice growth there. Then we go to Wayfair, and you see nice growth there. But if you cut it by income cohort, you definitely see more strain as you go down the income segments. Our data is not any different than the market data you are going to see, probably. It is what we do see. But then what happens as you go down the cohorts, the truth is there are still customers buying products. Life goes on and they may need something. The question becomes, are you providing do you make it easy for them to figure out which item provides them with the best price value? Are you in a position to offer items that are a better value than maybe a competitor? This goes back to how our logistics operate and the fact that we have so many suppliers on our platform. The ones who can really optimize something can offer better value. We think we are benefiting through that. But, Kate, anything?

Yeah, I would just add that, Brian, that I do not believe there is one particular cohort that is outperforming, I mean, as you just pointed out, customer segmentation, certainly higher income, higher net worth customers have over the last year or so done better. But our cohort has performed pretty consistently. I think what is unique about the platform, frankly, versus maybe other retailers in the space, is we cover the full spectrum. So we cover opening price point all the way up to luxury; we cover decorative accessories to furniture. Right? So we have the full breadth, and we are seeing share gains really across the full catalog. We look at the share gains as not coming from any one retailer, it is not coming from any one profile type. I do think it is the compounding effect of all of these different initiatives that makes them more durable over time. That is what is really exciting when you get into 2026.

That is very helpful. Then my quick follow-up. So again, nice job here on the ongoing delevering of the balance sheet. But Kate, have you indicated some parameters for a target debt ratio where you are kind of working towards?

Yeah. What we have said, Ryan, is we really have a dual mandate that we are operating against right now, which is managing that ongoing net leverage down and continuing to also manage dilution. And I think you have seen us take some really nice steps in that direction. It has really been an evolution of our capital structure over the last few years where we moved from a position where we said, what we want to try to do here is create optionality for us. We will do that by improving the P&L to open up improving free cash flow to open up new vectors for us. You saw us improve the P&L considerably. Free cash flow went up from this year from $83 million in '24 to $329 million in 2025. That has allowed us to then move into a position where we can be more proactive. From a capital structure perspective, you have seen us do that. In Q4 alone, we saw us bring net leverage down. You saw us, in effect, sort of buy back some shares with the work that we did against the '27 notes and the '28 combined, that is about 5 million shares that we, you know, we were able to manage there. You have also seen us throughout '25 manage our dilution effectively, our burn rate come down considerably to around 4%. I think you are seeing all of the pieces in place to manage that net leverage and to manage dilution, and that is the ongoing goal.

Thank you. I appreciate it.

Thanks so much.

This concludes today's question and answer session. I will now turn the call back to the Wayfair Inc. team for closing remarks.

I just want to say thanks to everybody for your interest in Wayfair, and just put in one more plug to encourage you to read the shareholder letter we posted today. We look forward to chatting with you next quarter. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.