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- [00:03]
A
Bloomberg Audio Studios Podcasts, radio news. Well, shares of Wayfair, we're keeping a watch on that one. Dropping a lot. Down about 16% at their lows on earnings, a four month low intraday as active customers during the fourth quarter came in slightly below street expectations. Now the street weighing in on the results, William Blair saying that the 6.9% growth in net revenue likely fell short of buy side expectations. But you had some peers rh our house and also Williams Sonoma under some pressure in the trade. So investors looking at the group overall. Let's get a little bit more on the outlook. We want to head to Boston.
- [00:39]
B
We got Kate Gulliver back with a CFO of Wayfair. Kate, good to have you on the program. Tell us a little bit about the quarter because interestingly enough Jefferies says this is attributable to colder weather to start the year. Anything about the guidance regarding is about colder weather?
- [00:58]
C
Yeah, well maybe let's step back and sort of speak to the quarter we just reported then. I'm happy to shift to guidance. You know we feel really great about the quarter we just reported. I think it highlighted and capped off a year of incredible momentum for us. We opened up the year flat. We, you know, exited the year at 7% revenue growth, 8%, you know, managing for the exit of Germany. And we flowed through to improved EBITDA. EBITDA grew year over year, about 60%. Right. So we're seeing both ongoing market share gains and improved profitability. And that story continues with our guide into Q1. We feel really good about the guide. The mid single digits revenue growth and improved adjusted EBITDA throughout the quarter. So you know, when we look at it, we feel that we produce pretty strong results.
- [01:43]
A
Yeah, I mean you look at the quarter, I mean adjusted EPS better than what the street was expecting just at ebitda, as you said, coming in stronger. Net revenue up about 7% year over year, gross margin coming in better than the street estimate. There were a lot to do. So maybe we talk a little bit about, you know, I am curious, you know, you guys have dealt with the call and so on and so forth. What are you hearing from the investment community that they're not just so comfortable with? Kate?
- [02:12]
C
Yeah, you know, actually, you know, as we talk to investors, I think again they're, they're pleased with the momentum that we see here? You know, obviously we're in a category that has been under pressure. Right. So the category itself we think was down low single digits in the fourth quarter, you know, to your earlier question sort of around weather in the first quarter. We do think the category has been impacted in the first quarter of this year. You know, likely, you know, down low single digits again, maybe slightly worse even than Q4. So there's certainly some complexity in the overall category here. You know, what can we focus on? We can focus on what we can control. And our share gain continues to be a real source of strength. You see us outstripping the category by several points. Right. And that's continued to, you know, Q3, Q4 and then again into the guide in Q1.
- [02:56]
A
And we should point out that investors have been really keen on your stock, I mean, nearly doubling over the past year. Kate, let me just go to what you said. I mean maybe it is those concerns about some softer active customer trends kind of early on in the first quarter. Do you like give us an idea of what you're seeing and any idea or can you tell that continues?
- [03:16]
C
It's a great question. So active customers is one of our reported KPIs. It's actually a lagging indicator. Okay. That metric is LTM active customers. So anyone who sort of placed an order within the last 12 months and as orders grow, and you do see that order volume grew in Q3 and in the quarter we just reported Q4, that sort of precedes active customer growth. The other thing I do just want to point out there is we did exit in January of last year German business. So that took a large chunk of customers, or not a large chunk, but a chunk of customers out of that number. And so as you're looking at that active customer number, you know, obviously that came out. So we'll clear that comp. You know, we exited that in January of this past year.
- [03:58]
B
You did say the sector has been under pressure and Carol mentioned some of the peers. But what about the Wayfair consumer? When they're buying something on the platform right now, are they buying it because they need to replace something in their home? Are they buying it because they have extra money to upgrade something? What's the profile of the consumer? In other words, how is the consumer doing?
- [04:19]
C
It's a great question. We're seeing a few trends, so. So you mentioned some of the sort of luxury peers. Obviously we have high end brands that do compete with those players like a Paragould or specialty retail brand. The Wayfarer brand itself, you know, plays all the way from opening price point to, you know, upper end mass. So really spans the full range. And we have seen, you know, a divergence. Some of that K shaped economy I'm sure we've all been talking about now for a bit. Certainly our paragould brand or specialty retail brands are growing, you know, really north of 20% we said in 2025. So you can see that accelerating beyond the overall core business. And I think that speaks to the strength in that, you know, higher net worth consumer. We also do see a bit of a divergence in the types of things that people are buying. When I talk about the category being down low single digits, that's a category overall. We actually think furniture or bigger ticket items are down more. That tends to actually be where we are more focused and have a bigger part of the business. But you know, we also of course sell decorative accent seasonal decor. That part of the business seems to have done a bit better from a category perspective overall. So those would be lower ticket items, you know, that may feel more comfortable for folks to purchase right now.
- [05:34]
A
Well, and the other thing I want to ask you, and listen, Kate, we're obsessed with this, the buy now, pay later and you can do that on Wayfair too. Are you seeing an uptick in that?
- [05:45]
C
Yeah, we have a number of options, you know, for various financings and buy now, pay later as we work with a wide range of partners. I do think it's an important offering for the consumer. So, you know, to sort of, sort of ensure good underwriting for folks and provide them with a lot of optionality. I would say our penetration there has been lower than other more traditional brick and mortar, brick and mortar furniture retailers. So you, you know, as we grow, we're really trying to get to, you know, sort of a more natural place there for the furniture industry overall.
- [06:14]
B
We're speaking with Kate Gulliver, CFO of Wayfair, joining us from Boston.
- [06:19]
A
You know, Kate, one of the other things that we've talked with you about is the physical stores and you have noticed some encouraging early performance from the physical stores when it comes to brand engagement and cross channel lift. As you think about or as you kind of move from proof of concept toward potential expansion, what specific performance thresholds are you kind of focusing on and would justify accelerating the physical store growth?
- [06:43]
C
Yeah, it's a great question. So, so we look at the economics of the store itself. So purchases that are directly attributable to the store and the economics of, you know, operating that store. So as you think about the overall store for wall P and L. But one of the unique things about, you know, building stores, you already have a well established E commerce brand is you do get to see a benefit in the area for the brand overall. The other thing that we look, you know, what in sort of industry parlance, you might call the halo effect, but really sales that are attributable to folks that maybe came into the store and then, you know, left and went and bought something or, you know, had an idea about the store being in the area because they've heard more about it and therefore then shopped on our platform. And we've seen that continue to hold in really nicely. We gave a stat in our updated investor presentation today that the first store, which is in Chicago, if you look at the entire state of Illinois versus the rest of the country, since the store opened, it's had a 10% CAGR higher than the rest of the country.
- [07:41]
A
Wow.
- [07:41]
C
And that gives you a sense of, you know, the momentum that you can get from the store. It's obviously very crude metric.
- [07:46]
A
Yeah.
- [07:46]
C
But it's an easy way to sort of explain it. So we really look at the combination of the store, PNL and then the other benefits that come along with having the store.
- [07:55]
A
Well, that makes me want to follow, like, what metrics would cause you to maybe remain a little bit more cautious. So, like, if you open another store and the metrics aren't. So you're not seeing that kind of momentum that you're getting in the Chicago store, would you just say, okay, maybe it just depends on the city, the environment. Like, there's a lot of specifics that go into it.
- [08:12]
C
Yeah. You know, I think our focus right now is on learning more about what makes a great store. Right. So we have one store open. We're planning to open three more in 26. We have one opening soon in the Atlanta area, another one this summer in Columbus, and then in the fall in Denver. These will be, you know, the Columbus store, for example, 70,000 square feet versus the other stores are roughly around 150,000 square feet. So we're testing out a slightly smaller format. We're testing out different types of shopping areas where we put the store. And so we intend to learn and then continue to refine the store model based on those learnings.
- [08:45]
B
So let's go.
- [08:46]
C
We are quite excited about it as a channel.
- [08:48]
B
Okay. Let's go from sort of like the old school store retail model to then what you're doing with AI and layering.
- [08:55]
A
Don't you call stores old school?
- [08:57]
B
Oh, they are. I mean, they're coming back.
- [09:00]
C
It's Omni Channel. We like the overall omnichannel experience, but.
- [09:03]
B
But what? How do you layer in personalization with AI. And I'm curious how you do that in a way that actually makes you more competitive in this area.
- [09:13]
C
Yeah, we're. We're really excited about what we can do with AI from the customer experience perspective. And we've already started some of that and piloted some of that on the site, and there's certainly more to come there. You know, I think this category is a bit unique in that respect because it's a category that is a highly emotive category. Right. Feels very personal to folks. It's not a commodity category where you're doing sort of standard replenishment. You want to get a better sense and see the actual options out there. The brand is important. You know, our brand is important because you want to ensure the delivery experience is high quality. So we think that the category itself lends itself to bringing people to our site and engaging them in a unique way. One thing that we can do with AI is help get more personalized for your style preferences. You know, I'm sure if the three of us were to pick an end table, we'd all pick different end tables. What we'd love to do is make sure that when we land on the site, we're serving up to each of us exactly that end table that we want. Generative AI allows us to do that in a faster, more nimble way. It also allows you to play around with discovery. So if you were to go on the app today into the discover tab, you'd see a whole catalog of images. And you can create more yourself if you want, that are genai created that then allow you to shop the catalog based on the type of room that you're designing or the aesthetic look that you're looking for. And I think that kind of engagement and interaction is really compelling in this category.
- [10:37]
A
So I know, Kate, if we had asked Tim, like, if we were going, you, me, and him shopping for pillows, you know, he would say, no more pillows. I don't know about your household, but that's what happens in my household.
- [10:51]
C
People have an insatiable demand for pillows, so we will keep selling them.
- [10:54]
A
Thank God. Thank God. Always appreciate getting time. It is a great reason on the consumer and finding out what's going on. Kate, be well. Thank you. Kate Gulliver, she's the chief financial officer of Wayfair.