Wayfair Q4 2024 Earnings Report

Wayfair EPS Results

• Actual EPS: -$0.96
• Consensus EPS: $0.05
• Beat/Miss: Missed by -$1.01
• One Year Ago EPS: N/A

Wayfair Revenue Results

• Actual Revenue: $3.12 billion
• Expected Revenue: $3.07 billion
• Beat/Miss: Beat by +$47.04 million
• YoY Revenue Growth: N/A

Wayfair Announcement Details

• Quarter: Q4 2024
• Date: 2/20/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 20, 2025
• Conference Call Time: 8:00AM ET

Wayfair (NYSE:W) provides e-commerce business in the United States and internationally. The company offers approximately thirty million products for the home sector. It offers online selections of furniture, décor, housewares, and home improvement products through its sites consisting of Wayfair, Joss & Main, AllModern, Birch Lane, Perigold, and Wayfair Professional. The company offers its products under the Three Posts and Mercury Row brand name. The company was founded in 2002 and is headquartered in Boston, Massachusetts.

Wayfair Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning. My name is Aaron, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Wayfair Q4 twenty twenty four Earnings Release and Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, we will have a question and answer session.

[Operator]

We do ask that you please limit yourself to an initial question and then a follow-up question when you are given the opportunity to speak. Thank you. With that, let's begin. It's my pleasure to turn the call over to James Lam, Head of Investor Relations and Treasury.

[James Lamb, Head - Investor Relations at Wayfair]

Good morning, and thank you for joining us. Today, we will review our fourth quarter twenty twenty four results. With me are Neeraj Shah, Co Founder, Chief Executive Officer and Co Chairman Steve Konine, Co Founder and Co Chairman and Kate Gulliver, Chief Financial Officer and Chief Administrative Officer. We will all be available for Q and 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 twenty twenty five.

[James Lamb, Head - Investor Relations at Wayfair]

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 2024 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.

[James Lamb, Head - Investor Relations at Wayfair]

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 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.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Thanks, James, and good morning, everyone. We're excited to reconnect with you this morning to discuss our fourth quarter results. The fourth quarter was a strong conclusion to the year across multiple fronts. From a top line performance perspective, we ended 2024 on a high note, with net revenue showing positive year over year growth. This was driven by healthy performance in our U.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

S. Segment, which grew by more than 1% in the period. These results enabled us to drive nearly $100,000,000 of adjusted EBITDA in the quarter and deliver on our goal of approximately 50% year over year dollar growth for 2024. Our strong financial performance enabled us to tap into the high yield markets for the first time and bolster our capital structure. We're now in the strongest balance sheet position in many years, having paid down a substantial portion of our 2025 and 2026 upcoming convertible maturities at an attractive discount and have nearly $2,000,000,000 of total liquidity available to us.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

In our shareholder letter last year, Steve and I wrote about the three factors that have defined Wayfair at our best. These include: one, a singular focus on what's most important for both our customers and our suppliers, underpinned by category defining technology capabilities two, a belief that our team is strongest when nimble, relentlessly execution focused and lean and three, a long term owner's mindset to focus on driving the best ROI over time versus optimizing for the short term. 2024 captured all three of these in many ways, even as we continue to operate in a challenging macro environment. Our relentless customer and supplier focus has resulted in another quarter of healthy share gains in the face of a category that remains under pressure. I've talked in the past about how the overhang a depressed housing cycle has had on customers' willingness to spend on their homes.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

The forward outlook, especially in the core of our business, big and bulky furniture, is as unpredictable as any point in the past four years with uncertainty over the state of inflation, global trade policy and interest rates among other factors. What is much more predictable is our own ability to outperform the competition. For decades prior to the pandemic and since late twenty twenty two, we have been a consistent share winner through our unmatched expertise across marketing, merchandising, supply chain and technology. We have a wide range of competitive advantages across each one of these pillars, all aimed at building a better experience for our customers and our suppliers. In our updated investor presentation published today, we highlighted many of these competitive advantages, providing details on a few that are in earlier stages and a deeper level of data on several that we have discussed here before.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

There are a number of stats that will be new to investors, so I'd like to walk you through a few of the noteworthy ones now. We've invested in our proprietary logistics network for nearly a decade, which has given us one of our most potent and durable competitive advantages. Suppliers are eager to leverage the services we offer because CastleGate gives them access to a world class logistics network, one with a degree of scale and sophistication that very few of the industry's suppliers have the ability to replicate on their own. CastleGate can provide a meaningful growth unlock for our partners by driving a better customer experience, and much of that revolves around the benefits of forward positioning. Approximately 90% of the orders from CastleGate have a speed badge due to our ability to intelligently position products across the network and integrate our fulfillment centers into the last mile delivery operation.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

This advantage, combined with the nature of a logistics network custom built for home, is demonstrable. Compared to items fulfilled by third party logistics providers, CastleGate fulfilled items see order to delivery dates nearly halved, return rate percentage down by about onefive, lower rates of incidence and higher NPS. Suppliers routinely experience a considerable uplift in conversion rates as a result of the speed badge and lower retail prices. Going from no speed badging to a one day badge can drive a conversion uplift of over 60%. Alongside logistics, curation is another one of our competitive advantages.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Our work around making the catalog fun and engaging to shop is a key driver of trust for our customers, especially when they are making an investment in something for their home that they haven't been able to see or touch. There are many ways we do this, including an initiative we launched late last year called Wayfair verified. The Wayfair verified stamp on a product page gives customers a quick and easy way to identify products that we've specifically chosen to highlight and that have been physically audited by our merchants. This means our team handles the products themselves to ensure that they meet the highest quality and value standards. In addition to the attributes on our typical product page, like high resolution imagery, reviews and other details, Wayfair verified items often also include a short editorial video where our merchants showcase the key features that make these products stand out and explain why this item is one of their top choices.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

The benefits to both the supplier and the customer are clear. Today, Wayfair verified items drive more than 15 times the number of visits per SKU than the catalog at large and drive over 20 times the amount of revenue per SKU. Students of Wayfair will know this well, but fundamentally, our competitive advantages are derived from leveraging our scale to solve the multitude of challenges that suppliers face in the home category. This is perhaps no more evident than in our efforts around physical retail. Last spring, we opened our first Wayfair branded store just outside of Chicago, and the response has been tremendous.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

We combined our deep supplier relationships, the strength of our brand and our logistics and curation capabilities into a shopping experience that is resonating with customers, more than half of which are entirely new to Wayfair. While we built the store on the basis of our expectations around four wall economics, we've been extremely pleased at the wider halo uplift we've seen around the store. To use one basic metric for halo measurement, in 2024, we saw a more than 15% spread in the growth rate of the state of Illinois versus The U. S. Overall.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

There is still much more for us to do here, and we're already fast at work on our second Wayfair store as well as the launch of our first Paragold branded stores later this year. Zooming back out, we hope this new version of our presentation is a helpful tool for investors, both new and old, as they think about our competitive advantages and how those apply across the set of growth initiatives we have in flight. If you look back over the past couple of years, I would describe 2023 as a year of driving meaningful cost efficiency. Our focus was on returning the business to a place of positive adjusted EBITDA and free cash flow. The theme for 'twenty four was in many ways about laying the foundations for a return to growth, which we saw in the tail end of the year.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Looking ahead, we intend 2025 to be a year where our investments in competitive differentiation return the business back to a state of expanding growth even as the market remains challenged. Our enthusiasm is further enhanced now that our tech replatforming is far along, which means that over the year, we can focus an increasing amount of our technology resources on driving growth. We spent much of last year talking about some of the new investments we made into marketing. Early in 2024, we rolled out a significant brand refresh with our Waverhood campaign, which brought fresh creative in top of funnel. The waiverhood was designed to be a platform on which we could build out future marketing campaigns, and the results we've seen so far from these efforts have been encouraging.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

In the fourth quarter, we launched our first holiday installment of the waiverhood and continue to see powerful positive impacts across awareness, brand linkage and recall rates. This is resonating across the business in multiple ways. We saw healthy double digit growth in app installs during the fourth quarter. We saw new customer order growth in The U. S.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Outpaced repeat for the first time since 2020. Pinterest continues to be one of our most powerful channels to speak with home shoppers, and we saw very robust double digit growth in visits during the fourth quarter. We're very excited about our plans ahead for 2025. We've got new campaigns, new influencer partnerships and continue to test it in newer channels for us, such as YouTube and AppLovin. This testing stage has been a core part of our expertise in digital marketing for years.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

We take a thoughtful and considered approach as we look to develop new channels, testing customer response aggressively and only choosing to scale where we see clear evidence of payback. These investments are table setting for substantial returns, not just in the quarters ahead, but also for years down the road. We're able to make these investments because of the considerable financial discipline we've exhibited over the past three years as we continually improve multiple areas of the P and L. Financial discipline is a key driver of how we think about return on investment, especially the return of our longer term investments, which are the initiatives we expect to have the highest payoffs. We hold a high bar and strive to bring intellectual honesty as we evaluate efforts where our investment thesis came to fruition and times that it did not.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Last month, we announced our decision to exit the German market, largely due to the opportunity to pursue higher ROI initiatives elsewhere. Scaling our market share and improving our unit economics in the German market had proven difficult due to the challenging macro in Germany, our limited scale there and our current brand awareness in the country. If you didn't get a chance, I'd encourage you to read the letter we published at the time of the announcement for more details. One key takeaway I would reiterate here is this. Like every company, we operate with a set of constraints dictated by the budget we have to deploy against our goals.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

We've always been proud of the rigor and analysis we put behind each dollar of spend to ensure we are maximizing return. We scale investments that are at a point of proven success, but every effort has to start somewhere. In the lead up to that, we have small teams that are focused on low cost and high potential ideas. In that spirit, I want to call out one of the projects our team focused on Far Future R and D just launched, Muse, our latest innovation in personalized home shopping. Nearly two years ago, we launched Decorify, our first foray into leveraging generative AI to drive inspiration in the shopping journey of our customers.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Muse is our evolution in how customers discover, personalize and shop for their dream spaces. Muse can explore an infinite possibility of room ideas populated with items to inspire purchases on Wayfair. Muse elevates our best in class search experience by utilizing generative AI to blend inspiration and shopping. And we can't wait to see what our customers are able to come up with. You can start right now at wayfairnext.com/muse.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

I opened today with a reference to our 2023 shareholder letter and the core tenets of how we have run Wayfair for more than two decades. As I wrap up, I'd like to now close with an excerpt from the letter we published just this morning, which I would encourage you to read. Under the umbrella of those core tenants we enter this year excited about the opportunity to continue to: one, focus on tight execution to drive profitable growth through taking market share two, continue improving the financial position and strength of the business and three, further build out our five long term modes. We're making smart high return investments across the business and at the same time remain committed to growing adjusted EBITDA dollars year over year. We are confident this approach sets us up well for a compelling payoff over 2025, and we are excited to bring all of our stakeholders with us on this next leg of the Wayfair journey.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Thank you. And now let me pass it over to Kate to go through our financials.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Thanks, Neeraj, and good morning, everyone. Let's dive into our fourth quarter results. Starting with the top line, net revenue for the fourth quarter ended at $3,100,000,000 up 0.2% compared to the fourth quarter of last year. This was driven by outperformance across our U. S.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Segment, which was up by 1.1% year over year. We saw nice strength across the holiday period with 8% sequential growth compared to the third quarter, which was a healthy step up from the sequential performance we saw a year prior. This was driven by orders that were up about 15% sequentially offset by AOV compressing by roughly 6% versus the prior quarter, both in line with the typical patterns we would expect to see in the fourth quarter. Let me continue to walk down the P and L. As I do, please note that the remaining financials include depreciation and amortization, but exclude equity based compensation, related taxes and other adjustments.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

I will use the same basis when discussing our outlook as well. Gross margin for the quarter was 30.2% of net revenue due in part to some deleverage on contracting orders as well as our own proactive reinvestment. We continue to see attractive opportunities to lean in on competitive take rates, the benefits of which are beginning to manifest on the top line. We see our pricing levels today at one of the strongest positions in Wayfair's history, helping to reinforce one of the core elements of our recipe. Customer service and merchant fees were 3.7% of net revenue, while advertising was 13.7%, which we expect will represent the high watermark for this line item.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Niraj mentioned this earlier and we talked at length about it in our call in November, but this is a reflection of the exciting opportunities we are seeing to lean in with incremental advertising spend to drive strength in customer and order acquisition. To add to some of the examples Niraj shared, the number of unique influencers producing Wayfair content was up by more than 40% in December. As we've been scaling up the Wayfair creator program, our direct line to working with influencer talent interested in partnering to share their passion for Wayfair. One of the most prevalent questions we heard from investors last fall was how to think through the nature of timing on advertising spend. As many of you know well, all our ad dollars are payback driven spent against channels with specific expectations for ROI over a defined timeframe.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

These timeframes will vary depending on where in the customer acquisition funnel each channel falls, but even the shortest payback windows can be in the sixty to ninety day timeframe. This means that a significant portion of the dollars spent in the quarter won't pay back until the following quarter or beyond. It's worth bearing this concept in mind as you consider advertising spend as a percentage of net revenue because there is a timing mismatch. Not all the dollars we deployed last quarter hit their target payback windows within the period. Some of that will carry over into one or more quarters of 2025.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

As the revenue dollars associated with the incremental marketing spend begin to flow in, that serves as a levering force to bring advertising as a percentage of revenue back down. Consequently, we anticipate this metric improving compared to the peak level we saw in the fourth quarter. As we've previously discussed at length, we are constantly measuring and evaluating the efficacy of ad spent on a channel by channel basis. Our industry leading expertise underpinned by our proprietary technology tools and decades of experience enables us to have the agility to lean in where dollars are generating the highest ROI while simultaneously pivoting from channels if their efficiency weakens. The important point to take away here is that we are constantly adapting our spending plans to the reality of the advertising market and the state of consumer demand, which affords us the flexibility to swiftly pair back budgets if the ROIs across certain channels in our portfolio begin to deviate from the targets we set out.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Now, as I've mentioned before, the end result we are solving for is maximizing adjusted EBITDA dollars over a multi quarter period. To that end, we can fund this incremental investment in advertising through savings in other areas like our selling, operations, technology, general and administrative expenses line item, which came in at $392,000,000 for the fourth quarter. We showed further discipline here in Q4, and you should expect this to continue as we get deeper into 2025. Altogether, we generated $96,000,000 of adjusted EBITDA in the fourth quarter for a margin of three point one percent and $453,000,000 for the full year 2024 at a 3.8% margin on net revenue. Early last year, we made a commitment to driving approximately 50% year over year growth in adjusted EBITDA dollars.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

And we're proud of the work that went into making that happen even in the face of a category that showed a third consecutive year of market contraction. We said many times before that our North Star is driving adjusted EBITDA in excess of capital expenditures as well as equity based compensation. Our cost efficiency was well reflected on that last piece with equity based compensation declining by nearly 35% or over $200,000,000 year over year in 2024. Again, just like the cash expenses in our SOT G and A line, we expect equity based compensation to further compress as we get deeper into 2025. We ended the quarter with $1,300,000,000 of cash and equivalents and over $1,900,000,000 of total liquidity.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Cash from operations was a positive $162,000,000 in the quarter offset by $60,000,000 of capital expenditures for free cash flow of $102,000,000 All told, our $83,000,000 of positive free cash flow in 2024 was another year of meaningful improvement in our financial profile. But our work doesn't stop there as we've made a commitment to drive growth in adjusted EBITDA dollars and free cash flow in 2025 as well. Let's now turn to guidance for the first quarter of twenty twenty five. Beginning with the top line, quarter to date we are just below flat and would expect to end Q1 flat to down year over year. This outlook for the full quarter includes approximately 100 basis points of drag from the exit of our German business.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Turning to gross margin, we would hold our guided range of 30% to 31% and expect to be closer to the midpoint here for Q1. Customer service and merchant fees should be just below 4% in line with where they have been the past several quarters. We expect advertising to be in the range of 12% to 13% of net revenue. We leaned in quite heavily in the fourth quarter and while we continue to see very attractive opportunities to spend, we do expect to see our spend in Q1 stay within the upper end of this range as we get the benefit of some of the dollars spent in Q4 now beginning to pay back. Finally, we expect SOT G and A to be in the range of $380,000,000 to $390,000,000 in the quarter, showing continued improvement.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Following this guidance down, we anticipate adjusted EBITDA margin to again be in the 2% to 4% range. Now let me touch on a few housekeeping items. We expect equity based compensation and related taxes of roughly $80,000,000 to $100,000,000 depreciation and amortization of approximately $82,000,000 to $87,000,000 net interest expense of approximately $18,000,000 weighted average shares outstanding of approximately 127,000,000 and CapEx in the $60,000,000 to $70,000,000 range. As we wrap up, I want to take a moment to thank our team for their incredible work throughout the past year. Despite a challenging macro backdrop, we continue to gain share, grow adjusted EBITDA dollars as well as free cash flow and improve our balance sheet.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

None of these achievements would be possible without the hard work and dedication of Wayfairians across the globe. Collectively, we are as excited as we've ever been about what we're building at Wayfair and look forward to sharing more with you in 2025. Thank you. And with that, Neeraj, Steve and I will take your questions.

[Operator]

Thank you. Our first question is from the line of Aigel Arounian with Citi.

[Ygal Arounian, Director - Internet Equity Research at Citi]

Maybe just first on, I guess, the relative outperformance in 4Q and the top line, what the biggest drivers of that were for you guys? I mean, on our numbers, the AOB was better than expected and customer count and orders were a little bit worse, but it sounds like that was in line with your expectations. Was it still predominantly pricing and discount driven? Just how to think about what happened in fourth quarter? And then, thanks for all the color on the letter and on the presentation as we look forward to 2025.

[Ygal Arounian, Director - Internet Equity Research at Citi]

Share gain seems to be a big factor here. What do you think drives that the most this year? And how much share gain is contemplated in the comments around the profitability of EBITDA growth this year? Thanks.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Thanks for your questions. All right. Let me start by answering some of this and I'm going to pass it off to Kate to try to answer some of the last bit about the guidance kind of contemplation. In terms of the fourth quarter, so we were happy with how the fourth quarter came out. The way to think about it is you're obviously describing kind of revenue came in well, but you're talking about kind of orders AOV.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

I guess the way to think about that is the main thing you think about is sort of what's the right offering for the customer, what's the right marketing, the right event cadence, its holiday, how are you sorting the seasonal goods, how are you sorting sort of, kind of doorbusters and other items? And then how are you just kind of like in our business, it's not just it's not like gifting where it's a rush right before Christmas. It's sort of preparing to host at Thanksgiving. It's getting your house ready for the holiday festive holiday season. It's been hosting again for Christmas.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

So there's all these things outside of just getting a gift for yourself or for someone else. And so, I feel like we did a good job with that. And I will just say, we're now in the finished the third year where the market was comping significantly negative. And our strategy has been how do we deliver the experience that allows us to take share. So the gains are coming out of successfully taking share by the customers choosing to shop with us even though maybe they're not shopping the category that much.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

So that's sort of like the way I would kind of frame what we saw with holiday and why we're happy with it and kind of the fact that it was a solid holiday season and how it played out. Now you had a question about kind of now looking forward, share gains been a big piece of the story which I totally would agree with. And I think a very I would point to that as very important piece of the story as you see in the shareholder letter that we released today. I talk a lot about that. As we look forward, and I'd say super high level and you can see this from the shareholder when I talk about the coming year, I'd say that we underwrite a base case that the market does not get that much better, that it's a tough market.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And why do I say that? Well, housing is in a tough place. The thirty year mortgage rate is in a high number. It doesn't make sense for a lot of folks to move. And so rather than underwrite, hey, this is going to get a lot better.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

We say, well, let's make the base case that it's not. Now it's a cyclical category and there's no question that we're down. We've kind of gone through the down cycle and we must be near the bottom. But rather than try to call the bottom, we'd say, hey, we're going to be a big beneficiary now and later and during an up cycle if we focus on just executing well. And what are the things we can do this year that are in our control that let us take market share.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And it's a very big and fragmented market. We talk about it being over $500,000,000,000 and it's very fragmented. Dollars 12,000,000,000 were one of the largest players in it. But there's a lot of areas in our business where we say, hey, there's specific things that we think we can do that would let us take share. And when you make a list of these and you say, okay, these are ones we can do, who could own each one or does own each one, what are the metrics, what do we need to accelerate them.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And you add up what do we think these can do, it could be substantial. So that's the plan we have. And it is based around taking share off the market being tough. And we have one big advantage as we go into this year that we didn't have in past years, which is just that we have a large technology organization, but we focused over the last few years, I've talked about this going back three years ago in the shareholder letter, that we are putting our technology resource very focused on replatforming our systems. We had put that off for a long time, but we've gotten to a point where developer velocity was very slow and it was very hard to have stable systems and yet introduce new feature function into them.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And so we made the right, I think, but tough decision to really focus the technology resource on that. So we've had multiple years where we've not been able to drive feature function and this whole type of product led growth has historically been a big piece of how we've grown. We now have those resources back as the tech replatforming has gotten to this advanced stage. So a lot of the things we talk about and I mentioned a number in the letter are ones that we can now do this year that we couldn't do in the past year. So there's a in our mind, there's a lot of opportunity that's entirely in our control that's low hanging fruit.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Now in terms of how we think about guidance, let me turn it over to Kate.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Yes. So I think what you're referring to, Yigal, is a commitment to grow adjusted EBITDA dollars in 2025. And how much of that is tied to top line versus potentially other levers? I think Niraj shared a bit around how we think we can continue to gain share throughout '25 and our commitment to that. But if we look at sort of how do we grow adjusted EBITDA dollars even in an ongoing challenging environment, we believe there are a number of levers at our disposal.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Neeraj just talked about what can we control. One of those is obviously our ongoing reduction in the fixed cost base. So the SOT G and A line, you've seen that continue to come in quite nicely. And obviously in our guide for Q1, we had that coming in again. So we think that through ongoing expense management, even with a challenging top line environment, we can continue to grow adjusted EBITDA dollars.

[Ygal Arounian, Director - Internet Equity Research at Citi]

Great. Thank you guys. Very helpful.

[Operator]

Thank you for your questions. Our next question is from the line of Maria Ripps with Canaccord. Your line is live.

[Maria Ripps, Managing Director, Senior Research Analyst at Canaccord Genuity Inc]

Great. Thanks so much for taking my questions. First, can you maybe expand on how you're thinking strategically about pricing investments, especially in the context of tariffs? And then secondly, one of the focus areas you highlighted in your shareholder letter was going after the low hanging fruit. Can you maybe expand on two initiatives that you sort of mentioned there?

[Maria Ripps, Managing Director, Senior Research Analyst at Canaccord Genuity Inc]

One is, sorry, modernizing your merchandising platform and the other one is developing kind of more nuanced promotions capabilities. I guess, what are some sort of aspects of functionality that you feel like you need to add on those two fronts to compete sort of more effectively?

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

All right. Thanks, Maria. So let's go through questions kind of one at a time. So on the first question around price investments and tariffs. So on tariffs, let's just take a step back and just I just want to provide a little bit of background for those maybe who haven't followed us for five, six years now.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

If you go back to the during the first Trump administration, tariffs in our category, it went from really no tariffs on our goods coming out of China through a couple of different iterations up to 25% of tariffs on goods coming out of our category. And that happened it was a I would say a surprise to most folks and so it happened fairly quickly. That of course then caused our suppliers to make decisions that their supply chains that would then optimize the cost of their goods because they want to make sure that there is cost competitive as they can be. Otherwise, obviously, it's hard for them to grow their business and succeed. But then what's happened since then is that that understanding that Haiti's tariffs, they may change, they may continue to evolve.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

That was then kind of firmly set in folks' minds. So what you've really seen happen is that there's sources inside Asia, so places like Cambodia, Indonesia, Thailand, Philippines, and Vietnam for sure, that have grown as places where folks have factories and where goods are coming from. And that's been a growing trend. And in addition to that, there are places like India, Brazil, Turkey that have really been growing as a source of goods. And so the supply chain has been diversifying.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And then obviously there's production in The U. S, Mexico, Canada. And we as a platform, because we have 20,000 plus suppliers, we work with all these folks. So we haven't like made a bet, hey, we're buying from these Chinese factories. We want to change our mind.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

We need to build a sourcing operation in Mexico and we want to now buy from Mexico. Instead, we're working with everybody. And so our different suppliers may get advantaged or disadvantaged as different things happen. That could be something like global trade policy, but it also could be something like ocean freight pricing, right? It could be there's a variety of things.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And our suppliers are doing what they tend to optimize their business so that they can provide that price value to customers, otherwise they don't win. And then we are basically taking a margin on these goods. So meaning, if you have opening price point barstools, we have a certain margin we take on opening price point barstools. So anyone who is selling us opening price point barstools are competing against one another. But mid priced wooden barstools, we may have a different margin we've decided to take.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

But again, anyone providing those regardless of their sourcing and their location, their cost structure, we're taking the same margin. So different folks could win or lose if they end up advantaged or disadvantaged depending on the setup they have. As you can imagine, they want to make sure they're advantaged. So they've been making changes to try to advantage themselves. We try to help them by providing advice and guidance on what we're seeing, what we think is happening.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

As you know, on ocean freight and shipping costs, we try to help them by being a provider of those services. We moved tens and tens of thousands of containers on our NVOOC, as one of our logistics services we provide. So we're trying to help them, but ultimately they need to optimize their outcome and you see them being pretty smart about that. So, the price actions we make are around price elasticity, what we think optimizes the outcomes for us, not about what the cost inputs are to our suppliers. So they're sort of like obviously related in the sense that you're talking about a retail price at the end of the day, but they're two very different dynamics.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

But before I go on to the two things for the shareholder, let me I don't know if Kate maybe wants to add anything on that first question.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Yes. No, I think that covered the tariff piece. Well, I guess I just add on sort of, the conceptually how we think about price too. You heard us talk about investing in price over the last few quarters. What we said there was that we were focused on growing gross profit dollars on this multi quarter basis.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

And so really the framing there is we think of price as a lever and we're quite selective about how we use it. We understand from the copious amounts of data we collect on where the consumer is price sensitive and where we should lean in, where we should pull back. And that's really based on guiding towards this gross profit dollar growth and ultimately this adjusted EBITDA dollar growth. So as we go into 2025, think about us as having that at our disposal in terms of how we lever that up and down.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Now let me jump to the second question. So thank you for reading the letter. And anyone on the call, I definitely, if you have a few minutes, encourage you to read our shareholder letter. We try to zoom out and try to be concise, but also try to share thoughts that we think would be interesting to think about what we're thinking about, what we're focusing wafer on, where we are, what we're doing. Specifically, when we talk about the plan for 2025, '1 of the things I talked about was low hanging fruit meaning these are things that again in our control where we can take share through actions of our own and the low hanging fruit comment refers to we think there's some real juice squeeze on these things and so we're going to go after them.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And as I mentioned a minute ago, there's a set of items on that list that wouldn't have been possible for us to do in the recent past because of the technology replatforming efforts. Hard not to kind of overemphasize that because obviously in our history, you go back over twenty plus years, we really built the business through very focused execution, but by using technology as a key lever to really let us get advantage. So obviously taking a multi year period and focusing on setting up our technology to be scalable, flexible, enabled developer speed, but not do future function in the meantime is really change and painful and not ideal in the near term, but we think really smart for the long term. So we did that, But now where we are is we are getting that technology resource back. So the two, Maria, the two things you asked about are both ones that do leverage technology resource.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

So on the merchandising platforms, what that refers to is we built our platform for the complexity of the home categories a long time ago. So in our categories, there's items that have a lot of options. There might be fabric choices and leg choices and arm choices on a sofa. And so there's a lot of complexity in how you want to show items. Some items come in multiple boxes.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

There's a lot of dynamic in how the catalog needs to be structured. So we set it up for that. Now over time, as the world advances things that we now know, hey, there's easier ways that we could set it up for our suppliers to work inside our extranet that they work on called Partner Home to work with us. They now have cataloged product information management systems, PIMs that they now store data in that we want to just automatically integrate. So just through direct connection through the PIM or through an API that they can write to.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And these are things that in the old tech stack were difficult to do. So as a result, it creates friction for our suppliers to be able to do the things they want, makes it harder, makes it slower, makes it more error prone. And so what we've now are able to do is rather than sort of band aiding quick fixing the things that we need to do, in the near term because the main focus of the re platforming, what we're able to now do is tackle, kind of the bigger solve to make it we want to be the easiest platform for them to work on where they have the most flexibility. And they're able to do things that they cannot do on other platforms getting at the nature of the goods we sell the way they want to merchandise these goods. So that's the kind of like the merchandising platform broadly is that type of work we're meaningfully far along in that now and we think there's a lot of gains to come from that.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

The other one you mentioned is talking about what we do with promotions. And there there's kind of like two facets to that. One is just as we've talked about, obviously, it's a category that customers have a lot of passion for. So they browse, they shop, they want to know about trends. But the ticket size in the category, it's not de minimis.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

So it's not like I need some new iPhone cables, $10 no big deal. So you may want to you may care a little more about sale events or when something's on sale, you may really want to browse and see what's out there. And so the experience for customers when they're shopping on sale events, interfacing that with our ability to personalize those events and really let them find what they're looking for. There's a set of technology around how the sale events manifest that we want to, let them experience. And then there's also the supplier side of making it easier for suppliers to launch new promotion types.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

So in other platforms, you may see things like coupons or buy one get one free. There's certain types of very specific promotion types that today in our system we don't support. They're not necessarily the primary way suppliers market in our category. We support those, but they add up. And so we want to make those available.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Again, those are not particularly difficult, but when you really have a very scarce amount of technology resource for feature function, they wouldn't make the cut. Now all of a sudden, hey, we can add those in the platform. Those in different categories will unlock nice pockets of growth. And so those are two examples of what's a much longer list that you can see how these things add up, I think.

[Maria Ripps, Managing Director, Senior Research Analyst at Canaccord Genuity Inc]

Great. That's very helpful. Thank you very much.

[Operator]

Thank you for your questions. Our next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is live.

[Eric Sheridan, Managing Director at Goldman Sachs]

Thank you so much. And I'll echo the thanks for all the detail in the letter. It was really, really helpful. In terms of the part of the letter where you talked about advertising, both from a stimulant of growth and then the rate of pace of cost reduction, I want to know if I could follow-up there with maybe just a few questions. One, what were the key learnings about channel mix from 2024 that inform the way you want to ARK and spend your advertising dollars in 2025 and beyond?

[Eric Sheridan, Managing Director at Goldman Sachs]

And could you talk a little bit about the evolution of direct traffic and rewards and how that could offset advertising and actually create some leverage on that line item over the longer term? Thanks so much.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Thanks, Eric. Yes, so let me talk a little bit about advertising. So the first part of your question was about like learnings from channel mix. And so what I would say there is kind of a few thoughts. So one, there's the concept of channel mix in terms of upper funnel, mid funnel, lower funnel.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And so if you think about the total top of upper funnel might be something like our television advertising. Obviously, the Wayborhood campaign was a big launch last year. We're very excited with how that's going. We have the new set of that campaign that will launch shortly in the spring. And obviously, there's the holiday phase in there.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And then there's mid funnel, lower funnel. I would say the things that channel mix, one, we do a lot to try to measure mix and the mix effects. The mix effects are hard to measure, so you have a kind of margin on error on that. But what you do find is like the basic premise that you want to be wherever customers are is obviously very important. And so what I would highlight there is, I think when we look back over the last few years, we'd probably say that we're probably a little slow to experiment and optimize for some of the more emerging channels.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And so to give some context, one that emerged a handful of years ago that's grown quite large would be what happens with influencers or creators when you think about some of these social media channels, whether it be on TikTok or Instagram or YouTube shorts? And how do you interact with those in a way that both from a brand standpoint, provide some upper funnel benefit, but frankly is really also driving that lower funnel sales transaction and so that you're monetizing it on the payback you want. And so I would say, what we believe is that there are certain channels which we do a very good job in. We're getting kind of our share. We're learning how to kind of keep increasing that cost effectively through increased targeting, better creative, etcetera.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And then there's channels where we don't yet have the recipe cracked, but we think they're important places to be. And so I mentioned creators, but then similarly, if you use look at YouTube full length or whether you look at AppLovin, there's a number where we care a lot about being a leader in that channel and getting our share, but then making sure we measure the interaction effects that we're only we're setting the payback tight enough so that we're getting the benefit both in the channel, but overall because of the interaction effect. And I would say that one of the things we're focused on doing is catching up in the channels we're not yet at the scale end. But we don't want that sort of experimentation cost to be a big source of deleverage. So the way we think about it is, hey, there's some upfront cost when you're in channels that you borrow payback end, but you're not maximizing that, hey, you want to spend up to that payback and then you get revenue that quarter, in the next quarter, the quarter after and you know your money good there.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

So we're doing that. But then the second thing we're doing, which really gets to the channel mix is experimenting in the channels that we think are important ones, but where we don't yet have the share and we don't yet have the recipe cracked. And there what we're doing is we basically have, I think in the fourth quarter, we sort of did a lot of both of what I mentioned. But what we've done is we've really fixed that budget to where we're going to be able to continue to experiment the channels we care about, but in a way that our overall ad cost is going to be very kind of effective and efficient. So that's kind of by the way I would talk about the channel mix.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Before I go to the second part about the direct traffic key, anything you want to say on the first part?

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

No, I mean, I think you've covered it well. I would say some of the key points for us are that all of these channels are managed to very specific payback. So they are very tightly managed. And sometimes the total advertising dollars gets larger as we test and we play around with where we want to lean in more or less. But we're always tracking the payback.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

The other thing I would say just in terms of sort of how do you start to see some of the leverage and yours will go into loyalty and direct traffic in a minute. But there is a bit of a mismatch between when the dollars are spent and when you see the benefit from those dollars. And so that's why on the call we referenced that Q4 was a high watermark on this, advertising spend because the paybacks can be as low as sort of 60 to 90 days, but they can also extend to longer. We don't go out beyond a year, of course. But you can see some of the revenue generated by marketing spend that was efficient and effective in the fourth quarter may come in multiple quarters later.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

And so as you think about leverage and where you see leverage, I just think that's an important concept to keep in mind a little bit of the mismatch there.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Yes. On the second question about direct traffic over time, I think the way to think about it is, I talk a lot in the letter about advertising costs and about how you basically have a tension of sort of as folks get increasingly loyal, you get a lot of ad cost leverage on that cohort of customers. But the things you're doing that drive them up to be increasingly loyal actually allow you to get a lot more newer customers into being active customers and climbing that loyalty ladder. And that sort of de leverage you on the ad cost. And so those are puts and takes.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

I think your question, what I would highlight is, there's a couple other factors that will significantly help ad costs. And the way they do that is really what they're doing is they're helping people move up that loyalty ladder faster. That's really the mechanism that helps the ad costs. And what those are the two I would highlight. One is our, the app, the Wayfair app.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

The percentage of revenue that's coming from the Wayfair app and those broader base of users are using the Wayfair app has been it's a very positive trend. That has the effect of doing that moving people up that loyalty ladder. And then the second one is Wayfair Rewards. And Wayfair Rewards, the new loyalty program, it's early days, right? We launched it in October.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

But what we're seeing so far from the first cohort of members is the behavior is it's working very well. It's it's going as expected. Actually, the numbers are actually running ahead of expected. We have not aggressively marketed yet. We've gotten sign ups at a nice pace, but we've not aggressively marketed yet.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

So now what you're going to see is you're going to see it on the site highlighted more. You know, right now you can sign up for it and check out, but it's not like super obvious. It's there if you're paying attention, but we don't make it like really jump out at you like most other folks do. Now that we've kind of gotten it through that initial testing and we're seeing it working well, you're going to see that ramp up. So and that would be another one that has the effect of moving people up that loyalty ladder faster.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

So there are multiple things outside of the ad cost itself that will have a driver on it in a positive way, as you were basically asking.

[Eric Sheridan, Managing Director at Goldman Sachs]

Thank you.

[Operator]

Thanks for your questions. Our next question is from the line of Chris Horvers with JPMorgan.

[Jolie Wasserman, Equity Research Analyst at JP Morgan Chase & Co]

This is Jolie Wasserman on for Chris. I was hoping you could talk to the cadence in terms of what you saw that was more post holiday lull, especially in January versus what the impact was from wildfires and weather. And also on the weather portion, was weather a good thing for you or a bad thing? Because I know last year, Wayfair, you talked about the polar vortex being a headwind. But this year, I saw the app usage was up, which is probably, more of a cold weather.

[Jolie Wasserman, Equity Research Analyst at JP Morgan Chase & Co]

People not going to brick and mortar stores is much benefit. So also speaking to whether Polar Vortex Part two, that reaction differed from last year?

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Yes. So thanks for your question. So, a couple of thoughts. So I would say the cadence, we think about the holiday and entering the New Year. The biggest thing I would say there is, if you ignore the holiday period itself, which was I think strong, basically what you've seen is you've seen a relatively weak market.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And January was weak and I'd say February has been a little weaker than January. But that's not really very much off of the trend it had been on outside of holiday. And also when you look at holiday, I think it's important to balance November and December because certain peak days slid from November into December. And I think the way some folks looked at it is November was down, but December was up a lot and they're really excited about that. I think you sort of need to add the two together to get that kind of which days fell and which month effect out.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

You'd still see a good holiday, but it wouldn't be quite as stark. And so our view is that the market has not dramatically changed. It's been a weak market. It's still a weak market. We're probably approaching the bottom, impossible to say exactly where that is.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

No immediate catalyst that's going to like shoot it upward right away. There is pent up desire from customers to engage in the category, but no immediate catalyst caused that to happen. So, hey, what makes sense? Well, our strategy around taking market share through our own actions, we think makes perfect sense. We happen to have a set of levers to do that.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

We're very excited about that. And again, the tech replatforming sort of the position we've gotten to is a very idiosyncratic lever for us, but it's one that's actually very powerful for us. So we're sort of excited about that. Weather, as you mentioned, there's different weather kind of spikes that happen. This year, it's been a little less, it's a little bit more puts and takes.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

I don't know that there's a specific weather pattern in the early part of this year I would point out. But Kate, anything you'd like to add?

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Yes. I wouldn't quantify any significant impact or detraction from weather. It's been neutral.

[Jolie Wasserman, Equity Research Analyst at JP Morgan Chase & Co]

That makes sense. Thank you. And just a follow-up on your February comment. I know La Z Boy earlier this week said that Presidents' Day was just not as robust as some other recent holidays. And following up on your comment about February being I think you said February being slightly weaker than January overall.

[Jolie Wasserman, Equity Research Analyst at JP Morgan Chase & Co]

So just wondering if you could speak to that and whether you observe the same trends of that holiday being weaker. And then just another order to date question would be how later Easter is affecting the 1Q outlook and what the expected shift would be? Thank you.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Yes, sure. So again, I did try to comment on Presidents Day earlier. I have seen a number of people comment about Presidents Day being weaker. I don't know I think in general, just the market has remained weak. I think it's probably the main punch line I would put through that.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And then Easter is a little later. Easter doesn't drive a huge lot of change in sales for us or we think the category. So we're not that Easter moving we don't think is a big driver.

[Operator]

Our next question is from the line of Simeon Gutman with Morgan Stanley.

[Simeon Gutman, Analyst at Morgan Stanley]

I wanted to ask if you can parse out the guidance for the Q1. And if I caught it, it was revenue flat to down slightly. How it breaks between The U. S. And international?

[Simeon Gutman, Analyst at Morgan Stanley]

I

[Simeon Gutman, Analyst at Morgan Stanley]

caught some

[Simeon Gutman, Analyst at Morgan Stanley]

of the quarter to date commentary in there. And then how it the first quarter guide dovetails with some of the bump in advertising you did in 4Q. And I know Neeraj is not a perfect science in terms of timing, but I'm curious if one and the other are hand in hand.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Yes, yes. Thanks, Damian. So I'm going to let Kate really answer the bulk of this question. But I think just to talk about advertising, there's definitely a tail in future quarters and that is a factor. But I think most of the guide probably has more to do with a lot of other drivers of what's happening.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

But Kate can kind of parse that apart for you. What I would say is, you know, it's kind of like the main point I guess is what we were talking about a minute ago, which is just more that we think we're going to be able to still nicely take market share. We've been doing that since the fourth quarter of twenty twenty two. We obviously did it for twenty years pre COVID. And we think that we actually have some ways that we can do it this year that are quite advantaged.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

So there's quite the market remaining week as it has sort of ex the specific holiday period. And despite that obviously the quarter, we're comping not having Germany, we're comping not having the extra day in the quarter from last year. But I think we feel quite good about our position in the taking share. But Kate, maybe you can answer the questions about guidance.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Yes. So we said quarter to date, we're just below flat and we expect to end the quarter flat to down year over year. And that includes about 100 bps drag from the exit of the German business. So we don't typically guide U. S.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Versus international, but because of the uniqueness of comping over the German business this year versus last year, we did want to account for that. So the fourth the first quarter guide, excuse me, contemplates the German exit and as Niraj said, the lack of the day, the extra day. In terms of your question on sort of how is the ad spend driving, I think Niraj addressed some of that. What I would say is, as I referenced a few minutes ago, the marketing spend impacts on multiple quarters, right? So certainly is there some benefit from increased spend in Q4 into Q1?

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Yes. But it could also impact on subsequent quarters throughout the twenty twenty five year, depending on which channel because the channels all have different payback days. And so we're really focused in an ongoing sort of challenging down market. Obviously, you can look at the year over year comps, but we're quite focused on how are we driving share and are we seeing the benefits from the marketing and share gain because that tells us that we're continuing to do well in an ongoing challenge environment. And so that's how we're looking at it and looking at the impact of it.

[Simeon Gutman, Analyst at Morgan Stanley]

Thanks. Can I sneak in a quick follow-up? We had a little bit of a bump in industry demand in late last year. I don't know if it was post election or not. Is there anything in your visibility, whether it's big item furniture, household items, did it feel like this was an end of a reversionary cycle?

[Simeon Gutman, Analyst at Morgan Stanley]

Like how did what did you attribute? And if you're seeing what we are in terms of industry picking up a little bit into the end of last year, how

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

do you assess that? Yes. It's less clear to me that there is really much of an industry bump in demand that stands out. I think some folks looked at imports. But again, I think the timing of the lunar holiday in February, I think what we saw was a buildup of shipping ahead of it and then there's generally a low, which we're now in and then there's a buildup after it.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

So I think that's a factor that I think maybe folks were looking at demand. So again, I think the other thing is some folks remember some days moved from November to December calendar wise. I saw a number of folks, November was low, but then they talked about how high December was. But again, I think you got to add the two together. So my general view is that holiday was good, but if you zoom out the trend overall has not really changed.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

It's been a weaker trend. And holiday, if you add up all of it together and look at it, it wasn't quite as good as the folks who just looked at December a low.

[Simeon Gutman, Analyst at Morgan Stanley]

Thank you. Good luck.

[Operator]

Thanks for your question. We have a final question today from the line of Stephen Forbes with Guggenheim Securities. Your line is live.

[Steven Forbes, Senior Managing Director at Guggenheim Securities]

Good morning, Niraj, Steve, Kate. Niraj, I wanted to focus on the CastleGate fulfillment network. I appreciate the color as others did delivery time, return, incident rates. But curious if you could help frame up for us capacity utilization today and how do you expect the vendors based on your discussions to engage with that network, right, as we move throughout 2025? Anything to note right from your discussions today?

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Yes, sure. So in the shareholder letter, I actually talk about what could drive gross margin. One of the things I talk about is utilization of our fulfillment network, utilization of CastleGate. As that rises, that's a big driver of gain for us in the sense that it offers real leverage. So one of the things we focused on with our suppliers are like how do we help them do things that are good for them, good for us and good for the customer.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And obviously, our goal as we've talked a lot about like sort of being very ROI focused. We're focused on how do we grow revenue, really focused through the back of taking market share. So we're not underwriting the market getting better, but do so while growing profit dollars. So that's the framing, right? So just think about that as we want to grow revenue, we think we can.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

We think that's going to be through market share growing, but while we grow the EBITDA dollars. And so one of the benefits there is where when we can grow the CapExate fulfillment utilization in a way that's taking out costs for suppliers, allows the retails to get sharper for customers, the speed to get faster for customers in a way where we're getting leverage through utilization of the network, that's a big benefit. And so that is something that we've kind of worked on honing, kind of the cost structure of Cascade in a way that benefits sort of everyone involved. We've seen good reaction to that. And then we focused on some of the operations capabilities we have in our network and what are the things we can do that make it easier for our suppliers to use our network in in a way that's beneficial for everyone and technology that adds efficiency.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

And the way to think about it is for our business, as we grow, there's a lot of profit leverage in the business. So for example, revenue, when revenue grows a percent, EBITDA grows a few percent. So there's real leverage there. But then similarly on the cost side, there's certain things that are fixed costs. So one, we kind of think of our corporate overhead as a fixed cost.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

So obviously there's leverage there whether that be that some costs are no longer needed and we save some money like we've done or whether revenue grows? Well, CastleGate is an example of a fixed cost where utilization of that network will drive real profit. So we can get profit as again revenue grows 1%, we get a few percent growth in EBITDA, but also leverage through some of these other things as you mentioned. So we do think this is a real driver.

[Steven Forbes, Senior Managing Director at Guggenheim Securities]

And then maybe if I could just a quick follow-up on that topic because you frame the first quarter gross margin profile midpoint of the traditional range 30 by 31. You think about these comments around capacity utilization in CastleGate and then supplier advertising, which I also think you commented on the shareholder letter. So is there any reason for us to think about a second half or full year gross margin profile that's not within the upper bounds of that range that you're providing? Noting you're not guiding here, but like what would be the risk factors to that sort of framework for the progression of gross margin as we move through the year?

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Hey, Steve. I'm glad you answered the question for me, noting that we're not guiding. But I'll try to give a little context on it as well. So as you think about sort of where we've been on gross margin over '24, we've obviously stayed within that 30 to 31 range. And that's really been balancing how do we think about investing in the customer experience, so particularly around price investments, how do we think about what's valuable there for the consumer while also making sure that we're generating gross profit dollars on this multi quarter basis, ultimately driving adjusted EBITDA dollars on this multi quarter basis.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

And that's the trade off that we make in gross margin. So I would think about decisions around price investments and how do you reinvest things like benefits that we get from retail media as really a lever for us in the same way that we talked to them about the marketing spend. And then we can flex in and flex out of that. As you think about sort of the Q1 guide, obviously, there's a little bit of seasonality. This gross margin has a number of puts and takes to it, the retail media spend.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

It has the leverage or deleverage in the logistics network, it has merchandising mix. So there's a few things that can move that around quarter on quarter. I wouldn't overly anchor on the Q1 guide relative to the rest of the year.

[Steven Forbes, Senior Managing Director at Guggenheim Securities]

Thank you.

[Kate Gulliver, CFO & Chief Administrative Officer at Wayfair]

Thank you.

[Operator]

Thank you for your questions. And that will conclude our Q and A session for today. And I would like to turn it back over to the Wayfair team for any closing comments.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Great. Thank you. I think obviously, I want to thank you guys as always for your interest. And just kind of two quick things I'd say. As we look at 2025, it's definitely a year we're very excited about what's in our control and what we can do.

[Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder at Wayfair]

Obviously, we are looking to see on the back of market share to see revenue growth while we grow EBITDA dollars. And I think if you have a few minutes, I just want to put one more plug in and just have you take a quick look at the shareholder letter because I think we try to capture some of it there. But thank you again, for your interest and talk to you next quarter.

Participants

Executives

• James Lamb, Head - Investor Relations
• Niraj Shah, Chief Executive Officer, Co-Chairman and Co-Founder
• Kate Gulliver, CFO & Chief Administrative Officer

Analysts

• Ygal Arounian, Director - Internet Equity Research at Citi
• Maria Ripps, Managing Director, Senior Research Analyst at Canaccord Genuity Inc
• Eric Sheridan, Managing Director at Goldman Sachs
• Jolie Wasserman, Equity Research Analyst at JP Morgan Chase & Co
• Simeon Gutman, Analyst at Morgan Stanley
• Steven Forbes, Senior Managing Director at Guggenheim Securities