Wayfair Q2 2025 Earnings Report

Wayfair EPS Results

• Actual EPS: $0.87
• Consensus EPS: $0.33
• Beat/Miss: Beat by +$0.54
• One Year Ago EPS: $0.47

Wayfair Revenue Results

• Actual Revenue: $3.27 billion
• Expected Revenue: $3.11 billion
• Beat/Miss: Beat by +$159.26 million
• YoY Revenue Growth: +5.00%

Wayfair Announcement Details

• Quarter: Q2 2025
• Date: 8/4/2025
• Time: Before Market Opens
• Conference Call Date: Monday, August 4, 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 Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Revenue growth accelerated to 5% year-over-year (6% ex-Germany), marking the strongest topline performance since early 2021, driven by order growth, higher AOV from specialty brands and the launch of Wayfair Verified and Wayfair Rewards.
• Positive Sentiment: Adjusted EBITDA margin expanded to 6.3% (7.8% in the U.S.), while free cash flow reached $230 million—the highest generation since 2020—underscoring the leverage in Wayfair’s inventory-light model and cost discipline.
• Positive Sentiment: Wayfair expanded its CastleGate logistics moat by scaling multichannel third-party fulfillment for suppliers, creating a new accretive revenue stream and deepening its forward-positioned inventory pool to improve speed badges and customer experience.
• Positive Sentiment: Advertising spend fell to 11.4% of revenue amid the trimming of low-ROI channels and measured investment in emerging platforms, contributing to a best-in-class 15.2% contribution margin for the quarter.
• Neutral Sentiment: For Q3, Wayfair expects low‐to‐mid single-digit revenue growth (with a ~100 bps drag from exiting Germany), gross margins of 30–31%, and a 5–6% adjusted EBITDA margin, reflecting continued reinvestment in the customer experience.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by.

[Operator]

My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wayfair Second Quarter twenty twenty five Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you.

[Operator]

And I would now like to turn the conference over to Ryan Barney, Head of Investor Relations. Ryan, you may begin.

[Ryan Barney, Head - IR at Wayfair]

Good morning, and thank you for joining us. Today, we will review our second quarter twenty twenty five results. With me are Niraj Shah, Co Founder, Chief Executive Officer and Co Chairman Steve Koenine, 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 2025.

[Ryan Barney, Head - IR 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 ks for 2024, our 10 Q for this quarter 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.

[Ryan Barney, Head - IR 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 the webcast will be available for replay on our IR website. I would now like to turn the call over to Neeraj.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Thanks, Ryan, and good morning, everyone. We're pleased to be here today to discuss our second quarter results with you. The second quarter was a resounding success, defined by accelerating sales and share gain in tandem with expanding profitability. As we've discussed over the last few years, we can and will grow profitably while taking significant share in the market. We operate the business by balancing investing for the future with growing our current profitability with the objective of maximizing EBITDA and free cash flow over the long term.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

The second quarter was a nice proof point of the journey that we've been on and even more exciting of what is to come. Year over year revenue growth of 6%, excluding the impact of Germany, marks the highest growth rate we have seen since early twenty twenty one. Our over 6% adjusted EBITDA margin demonstrates the significant leverage in our model and as previewed in our Investor Day two years ago, is just the beginning of what we believe we can achieve over time. Switching gears, as we started the quarter, there was intense focus from investors on the ramifications of tariffs on our sector and how this would impact Wayfair's competitive position. As we've previously described, the marketplace forces of our inventory light model give us unmatched flexibility with our global network of more than 20,000 suppliers offering over 30,000,000 products in constant competition to present the strongest value to the customer.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

The benefits of this model continue to prove self evident despite the various ebbs and flows of the broad business environment. Specifically, when we look at the actual items that customers are viewing and purchasing today, prices have remained relatively consistent with the first quarter. As we spoke about in the spring, suppliers take different approaches to managing cost increases. While some may pass through price increases, others who wanna win share in a demand constrained environment will choose to keep their prices more competitive, and we use all the methods at their disposal to do so. Our model allows us to service the products with the best value for our customers, enabling us and our suppliers to gain share and grow revenue.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Pricing consistency is largely reflected in our results on average order value as well. Sequential growth in the second quarter mirrored what we saw last year. It's worth talking through some of the moving pieces. AOV is an output of unit prices, items per order and mix. We've seen some modest growth in average items per order, but mix is the primary driver of year over year AOV growth.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Our specialty retail brands and Perigold continue to outperform. Q2 is the peak of the outdoor category in which we're a large participant, and Wayfair Professional posted double digit growth after a few quarters of increasing momentum. The strength in our top line was a combination of healthy AOV growth and a nice step up in order growth from Q1. This is partially a function of the new long cycle initiatives that we've been seeding and many of those efforts have started to bear fruit in 2025. We'll quickly run through a few of those now, but I'd encourage anyone less familiar with Wayfair to review some of our prior calls for more detail.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

We introduced Wayfair Verified in the fourth quarter, a curation program designed to give customers a shortcut to items in the catalog that reflect the highest quality and value standards across every style and price point. Wafer Verified is an editorial review program where our merchants hand inspect key items and provide firsthand detail on why they have selected that specific item. The Verified check mark provides a guidepost for shoppers as they navigate our endless aisle, and the response from customers has been very positive. These items are driving outsized performance, converting over 25% better, achieving approximately 20% higher net promoter scores, and generating higher repeat purchase behavior compared to nonverified items. The number of items in the program and the prominence of them in the experience will continue to grow over the course of the year.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

The second initiative to call out is Wayfair Rewards, our paid loyalty program that launched last holiday season. The initial excitement we saw for Wayfair Rewards at the time of launch continues to gain traction with member growth and customer lifetime value curves exceeding our initial expectations. We'll have more details to share on the success we're having in the not too distant future. Finally, physical retail continues to generate momentum across our portfolio of brands as May marked the one year anniversary of our first large format Wayfair store outside of Chicago. We saw an impressive in store response to major promotional events of the quarter, like Way Day and Memorial Day, showcasing the power of bringing the Wayfair brand to life in an omnichannel experience.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

While the sale of Halo in the metro area from the store has been tremendous, the impact on categories where Wayfair is less top of mind is even more pronounced. In the Chicago DMA, we've seen over a 50% increase in lower ticket frequency purchases, like kitchen accessories, and a more than 35% increase in higher consideration home improvement purchases, like bathroom renovation items and kitchen cabinets. Earlier this year, we announced additional Wayfair stores coming to Atlanta in 2026 and New York in 2027. And just this past week, we announced plans for a Wayfair store outside of Denver to open in late twenty twenty six. We're excited to see the impact that these stores have in these key metros as we look to replicate the success we've had in Chicago.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

We also opened our first Paragold store in May in Highland Village in Houston, and it's off to a great start with a second store opening in West Palm Beach this fall. These are just three initiatives. The full list of initiatives is quite long, and some of the most exciting ones are due to the tech replatforming efforts over the last few years. Ongoing improvements in the shopping experience, GenAI powered enhancements for customers and suppliers, and an expansion of our supply chain capabilities are just a few of the areas seeing rapid advances. Stepping back now, the road map we have on these various initiatives combined with our relentless focus on top tier execution paints an exciting picture ahead where Wayfair is accelerating share capture and growth.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

All of this is possible due to the deep partnerships we have with our suppliers across technology and people, but also via deep operational integration across all aspects of their business. Our logistics offering is one of our key competitive moats and an area where we see growing supplier eagerness to lean in. As a reminder to those new to Wayfair, CastleGate is our proprietary logistics network spanning inbound logistics, storage, and outbound fulfillment. As possible due to the exhaustive technology and operations with more than 60 buildings totaling 22,000,000 square feet across multiple continents. We've been investing in CastleGate since 2015 and have built out one of the world's only networks custom designed for the fragile, heavy, and bulky products that define the home category.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Cascade forwarding is our inbound logistics and ocean freight forwarding operations. We enable suppliers to maintain a regular flow of goods as production shifts around the globe, and they fill up operations in new geographies. Many of our suppliers are small businesses who individually lack the volume to consistently secure cost effective and reliable ocean freight capacity on their own. Our forwarding services provide access to large high quality ocean carriers on amenable terms, which we can then share at competitive rates with our suppliers. We enable this by not just providing the transportation capability to move the goods, but by also offering cost effective ways to consolidate the goods to enable forward positioning to many locations.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

We've seen a 40% year over year increase in total volume using our CastleGate forwarding offerings over the last year, driven by increases in both active supplier shipping on our service and average containers per supplier. We've also expanded to new markets like Brazil and India, unlocking additional volume and enabling suppliers to more easily diversify their production footprint. Recent supply chain volatility has only reinforced the value we offer our suppliers. In fact, we've seen a more than 30% increase in long term inbound commitments with suppliers compared to where we started the year. Once product has made its way into the domestic markets, suppliers are keen to leverage our CastleGate fulfillment network as the best way to forward position their products.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

The percentage of our revenue that comes from products shipped out of our own fulfillment centers, what we call CastleGate penetration, sits at roughly 25% today, up about 400 basis points year over year. The benefits from the CastleGate network are numerous. Suppliers achieved broad forward positioning and speed badging, which lifts conversion, lowers incidents and return rates, lowers ship costs, and thereby lowers retail prices to consumers. Lower prices, of course, drive conversion and enhance customer perception, leading to improved customer lifetime value. Logistics is one of the few areas where improvements help the supplier, the customer, and Wayfair all at the same time.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

With the uptick in cascade penetration, we've seen the percentage of items on-site with speed badging increased by over 800 basis points year over year. The percentage of items with one and two day badges increased by approximately 400 basis points as we exited the second quarter. We've also seen a nice drop in average ship distance per order versus last year driven by the growth in penetration. CastleGate further enhances the customer experience from improved reliability with materially higher exact on time reliability rates than drop ship, driven by our tight control over fulfillment and carrier partnerships. This enhances the customer order to delivery experience and results in higher customer NPS.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Suppliers enjoy the benefits they get from participating in the Cascade network, and one piece of feedback we've heard over the years is a desire to take advantage of our capabilities for more of their order volume. To that end, we're excited to share a key development in our logistics offering, the expansion and marketing of Cascade to suppliers for fulfilling orders outside of their Wayfair business, what we call multichannel. Multichannel has existed in the background for quite some time, but in a different format and a very small scale, used primarily for clearing distressed inventory. Over the past eighteen months, we've invested in operational and technology efforts to evolve this offering into a comprehensive third party logistics service tailored for the home category. Pick and ship is our core service offering and provides suppliers with competitive rates, premium service, integrated inventory management, and streamlined order fulfillment for any of their customers.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

After testing with a small subset of suppliers in 2024, we launched the full offering to our entire supplier base earlier this year. The response has been resounding. Multichannel volumes are rapidly scaling, and we now have hundreds of suppliers utilizing the offer. We have line of sight to continued momentum as existing multichannel suppliers are growing their inbound volumes and with a healthy pipeline of new suppliers onboarding to the program. For suppliers, multichannel provides a competitive three p l alternative specializing in heavier, larger home goods.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

For Wayfair, the benefits are significant as well. First, we generate an additional revenue stream and profit center that is accretive to adjusted EBITDA margins. Second, and perhaps more importantly, multichannel opens up the next leg of Cascade penetration by growing the inventory pool with which we can offer an enhanced customer experience. Suppliers can now more efficiently include a broader product set in Cascade and can stock it deeper, expanding our offering of forward positioned items and growing their in stock rates, translating to better speed and lower prices for customers and improving our network efficiency. Ultimately, the multichannel offering creates a win for our suppliers, a win for our customers, and a win for Wayfair.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

That's the philosophy we bring to everything we do. Every dollar we spend solves for the best outcome across our customers, suppliers, and Wayfair. Two decades of this approach has taught us that building great things takes time. But when done with thought, care, and prudence, we can have a payoff well worth the wait. You're seeing some of that this quarter.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

With years of work we've done leading to some of the best growth and profitability flow through our business that we've seen since the pandemic. We couldn't be more excited for what lies ahead in 2025 and beyond. And thank you. And with that, let me turn it over to Kate.

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

Thanks, Niraj, and good morning, everyone. Let's dive into our results for the second quarter. Starting with the top line, net revenue grew 5% year over year and six percent excluding the impact of our exit from Germany. This was driven by strong performance across all of our brands and geographies with our U. S.

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

Business up over 5% and our international segment growing over 3% compared to the second quarter of last year, showcasing the momentum we're seeing in Canada, The UK and Ireland. Our Q2 sequential order growth of 10% reflects strong execution and share capture despite a complex operating backdrop. 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. I will use the same basis when discussing our outlook as well.

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

Gross margin for the quarter came in at 30.1% of net revenue. For over a year now, we've discussed how our ability to measure demand elasticity in virtually real time enables us to make tactical investments on a level of granularity and precision that few other retailers can replicate. The result of this work drives our share spread wider and leads to outcomes like we saw in the second quarter, growing orders as well as growing gross profit dollars and we continue to see high return from these investments today. Jorg spoke at length about CastleGate and the ways that our model is advantaged as we drive penetration higher. This gives us more flexibility as we think about strategic areas of reinvestment and our goal to maximize adjusted EBITDA dollars.

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

Multichannel is an important part of that puzzle, so it might be worthwhile to walk through the economics as it starts to scale. Multi channel revenue gets recognized as net revenue and program costs mostly sit in cost of goods sold. The offering has a similar gross margin profile to the business in aggregate and critically the flow through becomes very attractive as we think about bridging from the gross margin rate of the multichannel business to its profit contribution. The cost after gross profit are much smaller than they are for the business at large, meaning multichannel has a variable profit profile closer to its gross margin making for accretive economics as this business grows. This is an important concept that we've discussed in pieces before but bears some reiteration now.

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

We are always solving for growing multi quarter adjusted EBITDA dollars. We achieve this by optimizing revenue growth with our flow through after accounting for gross profit, customer service and merchant fees, and advertising costs. Most of these expenses are largely variable like gross profit and customer service and merchant fees or can be dialed up and down based on payback, like advertising expense. These flow through dollars offset our selling, operations, technology, general and administrative or SOT G and A expense, our bucket of fixed costs. Let's walk through how we did on that basis this quarter.

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

Customer service and merchant fees came in at 3.6% of net revenue for the quarter. Advertising was 11.4% showing a solid path of sequential declines from the peak Q4 twenty twenty four and Q1 twenty twenty five levels. There are multiple factors coming together to drive the advertising leverage seen in this quarter. First, as we've shared in the past, we are rigorous about holding each of our channels to specific payback periods and that we adjust spend when testing data indicates that we are over or under our threshold. We were also seeing some efficiency here from areas where testing data has shown we should pull back spend to hold to our target.

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

We are constantly evaluating the effectiveness of our marketing spend and due to our proprietary ad tech stack and tooling, we can nimbly react to ROI data. Second, as we discussed last year, we made a sizable push into the middle and upper funnel channels beginning in the fourth quarter of last year. Some of those were more nascent channels to Wayfair, like TikTok, Instagram, YouTube, and more where we were testing the efficacy of these investments. Last fall, we explained how there's an initial deleverage period that comes as you ramp to scaled spending across several channels at the same time and that many of these take multiple quarters to pay back. These investments set the stage for future revenue, and you see this bearing fruit here today as revenue dollars associated with prior quarter spend flows in.

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

It's also worth noting that we are seeing encouraging momentum in direct traffic. Starting with our loyalty program, Wayfair Rewards is more than a way to generate incremental share of wallet and order momentum, but naturally leads to more direct traffic as customers return to Wayfair to spend the rewards dollars on their next find for their home. We also continue to see healthy engagement with our app where the second quarter marked the highest level of installs since Q4 twenty twenty and the percent of wafer U. S. Revenue from the app continues to climb steadily to all time high of approximately 30%.

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

Now coming back to the concept of flow through, we drove a rate of 15.2% in the second quarter, 30.1% gross margin less 3.6% for customer service and merchant fees and 11.4% for advertising. That's the best result we've had since 2023 and was critical to the success we had on driving EBITDA and free cash flow dollars in the quarter. We think this is a helpful construct for investors to bear in mind as they model the business as it takes a more comprehensive view of our cost structure than any one of our variable line items alone and combined with SOT G and A leverage drives total EBITDA flow through. Selling, operations, technology, general and administrative expenses were $370,000,000 in the second quarter. This was down by roughly $30,000,000 compared to the second quarter of last year.

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

While we did see modest sequential growth, some of this was due to mix shift between OpEx and capitalized labor. In fact, when you pair the SOT G and A with our site and software development costs in the quarter, our capitalized labor line, we have now reached the lowest levels of combined spend since Q2 twenty nineteen, a testament to the years of cost efficiency we have driven across the organization. In total, we generated $2.00 $5,000,000 of adjusted EBITDA dollars in the second quarter for a 6.3 margin on net revenue, including a 7.8% adjusted EBITDA margin in our U. S. Segment.

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

As Niraj mentioned earlier, we are now realizing the powerful profitability flow through of our model, which we have been building towards for years even in a very challenging environment. We ended the quarter with $1,400,000,000 of cash, cash equivalents and short term investments and $1,800,000,000 of total liquidity. Cash from operations was $273,000,000 and capital expenditures came in at $43,000,000 This reflects the March technology restructuring following our re platforming efforts, which drove lower capitalized labor combined with tight discipline around fulfillment CapEx and some timing variance on physical retail, some of which will rebalance in the quarters ahead. Free cash flow in the second quarter was $230,000,000 the strongest free cash flow generation since the 2020 with approximately 20% quarter over quarter revenue growth driving a healthy working capital benefit. We deployed approximately $200,000,000 of cash in the quarter to retire more of our 2025 notes and nearly all of our remaining 2026 notes at attractive discounts to par.

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

Looking ahead, after just a small step of the remaining twenty twenty five due in October, we will sit with a clean balance sheet all the way out to September 2027. This has been a remarkable evolution in our capital structure over the last year driven by intense operating discipline and rapid profitability growth. Let's now turn to guidance for the 2025. Beginning with the top line quarter to date, we are trending up in the mid single digits year over year and we would expect to end the quarter up in the low to mid single digits. This outlook for the full quarter continues to include approximately 100 basis points of drag from the exit of our German business earlier in the year.

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

Turning to gross margins, we will guide you to the lower end of the 30% to 31% range once again. Just like our operating philosophy across all parts of our business, whether it's investments in the customer experience and sharp pricing or thinking about the growth of multichannel over time, we will always be thoughtful and data driven about whether to pocket gross margin gains or tactically reinvest them. Customer service and merchant fees should be just below 4% in line with recent quarters. We expect advertising to be in the range of 11% to 12% of net revenue, reflecting a continuation of the dynamics we saw last quarter. This range should be the correct ballpark going forward.

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

Stepping back, we do not view any of these line items in isolation. In any given period, one of investment that impacts the gross margin line may have higher ROI than one dollar on the advertising line and vice versa. As you've seen us demonstrate, we remain nimble in our investment mix across the P and L, solving for the highest volume of revenue and EBITDA dollars across a multiyear view. Finally, SOT G and A is expected to be in the range of $360,000,000 to $370,000,000 once again in the third quarter. This is the right quarterly run rate for the business today in light of all of our operating efficiency work.

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

Following the guidance down, we anticipate adjusted EBITDA margin to be in the five percent to 6% range for Q3. Now let me touch on a few housekeeping items. We expect equity based compensation and related taxes of roughly $75,000,000 to $95,000,000 depreciation and amortization should be approximately $73,000,000 to $79,000,000 net interest expense of approximately $30,000,000 weighted average shares outstanding of approximately $130,000,000 and CapEx in a $55,000,000 to $65,000,000 range. Wrapping up, this quarter's results are just an early illustration of the strength of our model. Our healthy top line growth and robust profitability are a reflection of the value we bring to both our customers and our suppliers as well as the tremendous evolution we've undertaken in our cost structure, all while continuing to invest for the years ahead.

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

As you've heard us say many times in the past, this is a Wayfair now built to both drive exciting share capture and profitability expansion at the same time. We have never been more focused on the opportunity in front of us and confident in our strategy, discipline and execution. Thank you. And with that, Niraj, Steve and I will take your questions.

[Operator]

Thank you. We will now begin the question and answer Your first question comes from the line of Christopher Horvers with JPMorgan. Please go ahead.

[Christopher Horvers, Senior Analyst at JP Morgan]

Thanks. Good morning, everybody. So some related top line questions. Can you talk about how you think the market grew and how your share gains have shaped up over the past year or so and through the second quarter here? And do you think any of the strength in the business is related to consumer pull forward around fear about tariffs?

[Christopher Horvers, Senior Analyst at JP Morgan]

Obviously, quarter date is very strong still. But anything you pick up on consumer side, whether it's pull forward or some differential between the low and high end consumer would be really helpful. Thank you.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Thanks, Chris. Well, great. Let me share, I guess, a few thoughts related to all that. I guess what I would say on the market, if I just start with the macro and then maybe I'll talk specifically about Wayfair. If you just look broadly at the market, what I would say is that the market this year is definitely better than the last three years where it was down substantially each year.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

But I think the market is still flat to down low single digits. And I would describe the market not as having strength, but it's sort of, feeling like it's bottomed out, like bumping along the bottom. And in terms of pull forward, we have not seen any signs of pull forward. Like, I showed you a demand chart and ask you, hey, where this year were tariffs announced, when were they ex played it, when were they rolled back, when were they settled, you would not be able to find any points in that demand chart that would make you feel confident, oh, something happened here, something happened there. So that's not really there.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

You know, there's no question the higher end market is stronger than mass. That's definitely the case. I think you kinda see that in a lot of different data, but that's not really surprising if you just think about the category being discretionary. So what I would say is the category is kinda it's on it's on a bottom. It's bumping along on bottom after a few years of declines.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

It's not showing great strength, but it's it's just maybe maybe you would call it stable ish because flat to down low singles is not moving around a ton. What's happening in Wayfair I think is very different which is that I think our strength is structural and I think what we've been doing over the course of time is building momentum and over this year we've been seeing momentum build from Q1 to Q2 and we've seen momentum continue to build Q2 to Q3. So we're actually I think pulling away and I think the reason for that is specific to some Wayfair specific drivers. And the way I think about that is that we sort of have one main pillar and we've talked a lot about it, which is how we've taken share every quarter since the 2022, which is that we focused a lot on improving the core recipe, is price, selection, availability, speed of delivery. And by working with our suppliers, being very focused on those things, we may be to kind of continue to improve the customer experience with those things, the customer benefits from those things and that has been a driver of our share gain.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

I would say what's notable though is historically, we've had three pillars in how we grow. And we've had that one back intact kind of post COVID since fourth quarter twenty two and it's worked for us to take share, but we now have the other two pillars back intact. And that that's the notable change. So the second pillar is basically just to, you know, remind everyone on the call, you know, we have a 2,500 person technology organization. And so those are software engineers, data scientists, product managers, designers, and we build a tremendous amount of our own technology.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

And with that, we're able to improve the customer experience and improve the supplier experience in a way that grows the business. Well, for a number of the last few years, we basically focused that team on re platforming a lot of our core systems. And so that took the vast majority of our development cycles. And it both at the time and in hindsight was the right decision. So even though we weren't able to progress the business of technology the truth is building the modern platforms to facilitate faster developer velocity and to basically deprecate the old platforms it allows us to really be much stronger with the technology we can put forward.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Well now that we're very far into that replatforming effort, a lot of the cycles of that team are now back building feature and function to improve the customer experience, improve the supplier experience and you see that affect things whether it's conversion rates, whether that's enabling suppliers to do more on the platform, whether that's launching new Gen AI powered features, whether that's efficiency gains in operations. And so that's been a great boost. That second pillar is back intact. And then the third pillar is somewhat related to that second pillar but it's as you know from 2022 to 2024 we also embarked on getting our organizational structure back working great post COVID. So that's the balancing of senior with junior folks, the rightsizing of teams.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

You know, and that that took a lot of work and was very distracting. Well, as as we got through that, you know, we have a great team today, a great team in place. And now they're back driving the business forward at a faster speed than we've had before. And one of the ways that they provide benefit to the business is launching new programs. So we talked about a few of these on the call, Wayfair Rewards, Wayfair Verified, brick and mortar stores.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

There's a long list. There's improvements we're making. Logistics, there's whole series of things. Those new programs are somewhat reliant on the team having the cycles for it and somewhat reliant on the technology support for those. Now we have these three pillars back in place, The recipe keeps getting better, the technology cycles are available to drive the business forward and we've been launching and growing new programs.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

And so I think that's where you're seeing the momentum built.

[Christopher Horvers, Senior Analyst at JP Morgan]

And then my follow-up question is for Kate. How do you think about the long term profitability, ladder higher? If you went back to the twenty three Analyst Day, you definitely saw the benefit of leverage on advertising, on SOT G and A. A key piece to the low double digit plus EBITDA margin target was also gross margin. So can you talk about like is there something changing in the business that makes that sort of paradigm and framework different as we look forward versus what you talked about in 2023? Thank you.

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

Yeah. Thanks, Chris. So as you alluded to, you know, in in the analyst day in '23, we spoke to getting to towards north of 10% adjusted EBITDA margins. And I think you're seeing us actually make really nice progress, on that path, and we feel very good about our ability to achieve that and continue to see momentum there. To your point, there are a few different elements to that.

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

I referenced on the call, part of how we look at it internally is to think through the components that really drive to what we would call our contribution margin. So the gross margin less the customer service and merchant fees and less the ad costs and ensuring that we're optimizing on that contribution margin to then cover off on the SOT G and A and provide that really nice incremental flow through, that you saw this quarter and we want to continue to see. And we do trade off across the elements within there to ensure that we're doing the right thing to maximize, over time adjusted EBITDA dollars, which, you know, ultimately then drives one of our core North Star, which is driving positive owners earnings. So the adjusted EBITDA dollars less the CapEx, less the SBC, you saw that very nicely positive this quarter. And so the combination of the gross margin, the customer service, the AC and R, those things driving to that contribution margin, trying to drive that up over time then helps you get to that adjusted EBITDA dollars and helps you get to that adjusted EBITDA margin that we talked about.

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

I wouldn't say that there's anything fundamentally different in the way that we're looking at the business, but we do want to provide a framework to help folks think through how we make trade offs across those lines to ensure that we are driving to maximizing adjusted EBITDA dollars, which then in turn obviously drives that margin.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

And the only thing I would just chime in to add to what Kate said, because Kate I think recaptured really well. That positive owners earnings and maximizing that is really a goal we have. So if you think about that, well, how would you do that? Well, the if you kind of run out scenarios, you would see that, hey. If I believe I can grow revenue at a pretty, meaningful rate and do it while protecting the flow through at a significant level, you would see that that compounds very quickly.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

And so you end up optimizing for that because that is what's going to give you that asymmetric upside. And so we're very focused on that. You're starting to see that manifest when see the highest revenue growth, highest profit since 2021 and we're telling you momentum is building. Well, okay. Well, where could that go if that builds over time?

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Well, that's what we believe the opportunity is. But so that's not focusing on revenue growth and that's not focusing on profitability. It's a combination of the two. Right? So you need you need to have the flow through and if you couple that with meaningful revenue growth then then then you really are going to maximize the dollars.

[Christopher Horvers, Senior Analyst at JP Morgan]

Got it. Thanks very much.

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

Thanks, Chris.

[Operator]

Your next question comes from the line of Peter Keith with Piper Sandler. Please go ahead.

[Peter Keith, MD & Senior Research Analyst at Piper Sandler Companies]

Hey, thanks. Good morning and great results guys. Following up on the flow through question, so the flow through margin does look particularly good right now and the Q3 guide looks like it's holding steady at a strong level, maybe even strengthening. I'm wondering, are we at like a new normal? We can see the power of the model with revenue growth?

[Peter Keith, MD & Senior Research Analyst at Piper Sandler Companies]

Or is there somewhat of an elevated contribution margin today as we're kind of coming off the bottom and now starting to see some of that incremental growth?

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

Yes. I can start and then, Neeraj, feel free to jump in. I think actually for many quarters, we've spoken about the impact that the cost discipline we we've, you know, held to over the last few years, the impact of that on overall profitability as we started to see momentum in the top line. And that this was really poised for significant flow through as you saw that momentum. And, you know, we're really pleased with that flow through, that contribution margin this quarter, and then obviously the incremental margins being, you know, very solid this quarter because of that stock holding in there and remaining in that $360,000,000 to $370,000,000 as we said.

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

So I think what you're hearing from us is this is what we expected to see. We've been driving the business to this point for many years now, and you see the momentum in the top line really manifesting in that nice adjusted EBITDA flow through and that nice adjusted EBITDA margin. So it's not that there isn't anything abnormal in here. There isn't anything unusual. It's just really that build over the last few years getting us to this point.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

And what I'd Peter, think just to make sure I think I understood the question correctly. So I think if you look at that contribution margin of 15%, I think you were asking is there is there some reason that that's too high? I would say, you know, if you if you if you do think back to the Investor Day and thinking about what we're talking about now, that we we think no. We think that's a good level. And that's that's the point.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

It's like if you have that type if you have that level of contribution margin and you couple it with meaningful revenue growth, that's how you create the outcome we're talking about.

[Peter Keith, MD & Senior Research Analyst at Piper Sandler Companies]

Okay. Very good. And then, I did wanna follow-up on, the marketing. And so it is interesting that you made the the, investment in q four around influencers. You saw the deleverage then and now you're seeing accelerated growth.

[Peter Keith, MD & Senior Research Analyst at Piper Sandler Companies]

Could you unpack that a little bit? Are starting to see an uptick in some of that, middle and upper income customers coming into the funnel, which could be a direct result of that marketing? How's it been going and could you even accelerate it further?

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Yes. So what I would say, so if you kind of look inside the ad cost bucket, I think what you would see is there's two, significant trends that are both happening at the same time. One is that the emerging channels, which would be things like influencers or things like TikTok, like segments where we've been underpenetrated, arguably behind, and we focused on, figuring out the right recipe to crack them economically. But we made really good headway there, and we're growing them quite nicely, and they are getting us in front of a new incremental set of customers. So we're really excited about that.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

I will say that the amount of the total budget that's spent in those areas is still pretty modest, but it's actually performing really well, growing nicely. I would say the bigger thing that's happened, on the ad cost line is through a lot of testing and some enhances to some of our measurement models. We've also been able to identify pockets of our spend which we do not believe were contributing at the economic payback we wanted. So even though they were creating some revenue for us, it was not at at a cost level that would make sense to us. So there what we've done is we've trimmed out those pockets of spend because we're now able to, identify them better.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

And as we trim them out, it creates a revenue headwind. So like for like, you know, ad cost would be higher, revenue would be higher, but it makes sense to trim them out. They're not worth, that level of spend. And so what you've seen is that overall, even though we're growing these emerging channels, on net, we're getting a lot of advertising cost leverage because of how those two add together. And we're pretty excited about the combination of those two things that are that are happening.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

And, you know, you could hear from Kate's guide kind of our expectation that we that there's nothing kind of one time about that.

[Peter Keith, MD & Senior Research Analyst at Piper Sandler Companies]

Very good. Thanks so much.

[Operator]

Your next question comes from the line of David Bellinger with Mizuho. Please go ahead.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

Hey, good morning. Thanks for the question. Could you just help us understand the progression of the revenue growth through the quarter especially in The U. S? And you mentioned not a lot of price moving across the platform yet.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

So how should we think about that layering in over the back half?

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

Yes. So I think you're talking about the Q2 revenue growth perhaps and maybe a little bit of the Q3 momentum. Obviously, don't guide revenue by month, but I think what you saw here was a very solid q two revenue growth and q two revenue comp. We did make the point on the call, you know, that we're not seeing any, you know, changes in price, and we do think that that's frankly due to the benefit of the marketplace model. And so you're seeing, you know, that marketplace competitive dynamic enable that prices that are on page one, those best sellers, the ones that are at the top of the store order where folks are actually driving the volume, are, you know, maintaining their price efficiency.

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

And that's resulting in ongoing customer engagement that result in, you know, order volume ink wide, being slightly positive this quarter. And indeed, as we look into the second quarter, you actually see order volume, you know, building more momentum into the or starting to the third quarter, order volume building more momentum. So as we think about how this trends in the third quarter, we've actually said we're actually trending mid single digit quarter to date coming off of a very nice Black Friday in July promotion and we feel really good about the momentum that we're seeing in the business.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

Great. Thank you, Kate. And maybe a longer term question as we start to explore some of this agentic shopping, AI agents, we're starting to see more of this across consumer. And understanding Wayfair is using clarify and use, is there anything else we should be aware of in terms of customer facing AI? We've seen some of this new beta testing on the app, a Discover tab with some AI generated images.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

And Niraj, you're just talking about the pivot from the developers to showcasing more features. So anything new there? Anything else we should be aware of going forward? Thank you.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Yes. David. So what I would say is there's a bunch of places that are consumer facing where the experience is getting improved through GenAI. And so some of that you'll see in things like search results, in sort order, in product descriptions, product level imagery, attribute attribute sort of coverage and accuracy. So there's there's a lot of things like that, that are already, happening.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

And then there's a lot more to come. And so, one of the things, you know, I'm sure you you kind of think about in our category, it's different than a category where you know exactly what you want. Where, you know, most most retail categories are branded and large portion of those are consumable categories where you're buying the same thing or you're buying something you kind of very specifically know what you want. Here where, there's a lot more product discovery, there's a lot of content around trends, you might create different types of events. You're trying to personalize based on someone's style and their price point.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

You're trying to have engaging content so they come back more often. And then how you can use video and the cost and the quality of what you can create on videos drop really fast with there's a lot of things that we're also working on that are yet to come. And then there's sort of really engaging features like you mentioned Decorify and Muse. There's what we do in the discover tab and there's more coming there as well including a lot of types of experiences that would have a lot more to do with like what we're doing with influencers off-site and what we could do on-site. So I would say that's an area that you can just kind of keep watching and so we've done a bunch of things but there's a lot more coming as well.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

And I think in our category, it can make for a very rich experience.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

Great. Thank you both.

[Operator]

Your next question comes from the line of Oliver Wintermantle with Evercore ISI. Please go ahead.

[Oliver Wintermantel, Managing Director at Evercore]

Yes, thanks and good morning. Could you guys comment on the revenues from repeat customers versus orders from new customers? It looks like orders from new customers grew a little bit faster this quarter. I want to see what the trends were there for the quarter.

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

Yes. Ollie, as you point out, we did see new order growth this quarter, which is exciting. We always want to see that kind of momentum. But we're not seeing anything fundamentally different in the repeat business as well. And so as you think about how do we build the top line and the share gains over time, some of those share gains are going to come from lifetime value of repeat customers and some of those share gains are going to come from new customer acquisition and new customers engaging on the platform.

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

So we want to be seeing is both of those moving in the right direction. We feel really good about directionally where those where each of those are trending.

[Oliver Wintermantel, Managing Director at Evercore]

Got it. Thank you. And then a follow-up on mix. I think, Neeraj, you said that within AOV mix was the biggest driver. If you can maybe comment on the three parts like units per order, items per order or the mix if what the magnitudes were? Thank you.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Yes. Thanks, Ali. I think so if you think about mix where we've got some higher end brands, some lower end brands, we have different geographies, we have different categories. Mix has a lot of impact in that number. And so I think we talked about this earlier in the call about how some of the other factors or items are up marginally.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

But mix is a very big piece of the total. So I guess, the same way we were talking about the price level of items has not really changed. And so most of what you're seeing in AOV is really mixed, I guess. That would be

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

Yeah. And I think it you know, Ali, it speaks a little bit to you know, there could be mix within our categories, but there can also be mix across our brands. So that helps you know, you're speaking to the momentum we've talked in the past about Perigold, some of the specialty retail brands and our b to b business. All of these things come in at substantially higher AOVs. And so that mix helps drive the overall AOV up even when you're not seeing like for like pricing changes.

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

And I think it's important there was a lot of discussion around are we going to see like for like pricing changes. So I think it's important to call out that's not what we're seeing. Are seeing some typical seasonality in AOV and we are seeing this mix benefit in AOV.

[Oliver Wintermantel, Managing Director at Evercore]

Thanks very much and good luck.

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

Thank you.

[Operator]

Your next question comes from the line of Jonathan Matuski with Jefferies. Please go ahead.

[Jonathan Matuszewski, SVP at Jefferies]

Nice quarter and thanks for taking my questions. The first one is on market share. Is there any evolution you're seeing in the source of your gains? Obviously, you've had a string of multiple quarters of consecutive share gains, but fragmented industry. Are you seeing any different changes in terms of where you are picking up share? That's my first question. Thanks.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Sure, John. Thanks for your question. I would say at a high level no. I mean what we're still seeing is that it's obviously a very large category. It's very fragmented.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

There's been some notable companies who had decent size who went out of business. There's also a very long tail of smaller companies who've gone out of business, and then there's a lot of folks who are just losing share over time. There's a relatively small number of folks who are winning and taking share. And, you know, in the past, we've we've mentioned Amazon is taking share. We mentioned HomeGoods is taking share, and we've commented that we believe that ourselves in those two if you look back over the last few years are the three notable largest share winners.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

That's what would look consistent in the data as we look at it over time. So the same story is playing out and it's just kind of continuing.

[Jonathan Matuszewski, SVP at Jefferies]

Thanks. And then just a quick follow-up on David's question maybe more from an external lens, but we've been seeing a growing percentage of your site traffic being referred by folks like ChatGPT or Perplexity, small overall but growing exponentially. So maybe if you could discuss how Wayfair is positioning itself externally to benefit from consumers increasingly using these LLMs as shopping assistance? Thanks.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Yeah. Sure. Sure, John. So I think you're describing it well in the sense that, you know, whether it's OpenAI or Google Gemini or Perplexity, the the amount of traffic coming from them is rising, but it's very, very small. And so that said, given the magnitude of the change, it's not something you're going to, you know, ignore.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

So our view is, you know, we're kinda doing multiple things. One is how how do you optimize the interaction with them so that the the the those platforms can understand Wayfair well. So that is their their their recommending things, they can recommend Wayfair. Then a number of those platforms also have desires to get into shopping in the same way Google got into Google Shopping or Pinterest got into, you know, shopping. And the the different goals of how high in the funnel they wanna stay, and it's gonna vary by category because again, if you're replenishing, commodities that you buy on a weekly or biweekly basis, that's one level of execution they can do.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

If it's a if it's a much more complex category, there's a different level of assistance they can provide. And so we we're working with each of the major players on ways that we optimize things together. I think this is an area where our technology strength can help us a lot because a lot of what a lot of what our team can do, the same way we've we've been a close partner with Google and Meta and Pinterest and others over the years as they've evolved their, kind of upper funnel products, and we've been able to help them and benefit, by, being very early in. It's analogous I think to what's happening here. And I think we benefit from being a category where frankly a product selection is not a commodity UPC item with a SKU number where just who's got the cheapest price that can have it delivered by Friday where that's a thing, where the customer actually wants to pick the right thing, where it's complicated to pick, where delivery is a complicated activity.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

These are fragile heavy, prone to damage items. So I think that this is the other thing we're seeing is that that, you know, each category type will manifest differently. And I think we're set up well for our category, and to be a partner with these folks as they become a larger source of where customers start.

[Jonathan Matuszewski, SVP at Jefferies]

Helpful. Best of luck.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Thank you.

[Operator]

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

[Pedro Gil, Equity Research at Morgan Stanley]

Good morning. This is Pedro Gale on for Simeon. Nice quarter. Thanks for taking our questions. My first one is about demand.

[Pedro Gil, Equity Research at Morgan Stanley]

How do you reconcile the improvement in demand that you're capturing this quarter with the fact that housing turnover is still depressed? And are you seeing an uptick in the replacement cycle absent the housing cycle? And as a follow-up, what are you hearing from vendors in terms of profitability? Do they feel like they're earning enough? Or do prices potentially need to increase in the back half of the year?

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Yes. So on demand, I mean I tried to kind of address this earlier in some of my comments in the sense that I wouldn't say the category is doing great. So to your point about housing turnover being depressed, if you look at the demand level in the category, you've got three years where it went down by kind of significant amount per year and now you have it kind of flat to down. Think I said I thought it was flat to down low single digits. So that's not a strong environment.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

And I think one of the reasons it is that way is exactly what you mentioned about housing turnover and existing home sales being off by so much. So I think that's still the case. Now the way I reconcile how we're doing with that to your question is that I think our strength is structural and specific to Wayfair. And that was what I was trying to describe with the three pillars and effectively how we're able to grow through our own actions. I think it's important to realize the category is still a very big category.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

So you have hundreds of billions of dollars of spend in this category and it is very fragmented. It's arguably far too fragmented and the strong players are providing an experience that's much much better than what the average participant can provide. So what would it naturally then make sense for customers to do? I think that's where we can pull demand away from places that someone may have gone by providing that customer with a better experience. And that's across the recipe, that's across what we can do with technology, and that's across what we can do with new programs.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

So we think that's what's happening and we think there's like a lot of evidence to support that and you can kind of see that yourself. On your second question around suppliers and profitability, are their margins workable. I think what we've seen from suppliers is that they're very keen to not raise prices on goods. Because what they've seen is if they raise prices on goods, they lose demand for those goods quite quickly. And it's a competitive world.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

There's a lot of suppliers. You know, we have over 20,000 suppliers on our platform. And they are, to some degree, in competition with each other. So they know that, hey, if I take an item, it's doing well. I raise its price.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

It could kill that item. I don't wanna do that. So suppliers are pretty keen to figure out how to how to maintain those prices. And there's a lot of levers between, is there room on the manufacturer's margin? Is there room in their margin?

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Is there room in what they built in for ocean freight pricing? Where ocean freight is a state at lower level prices and has not become elevated again. And so there's ways to work to make sure that items that are popular with customers at a certain price point can stay that way. And so this what we're hearing broadly from suppliers.

[Pedro Gil, Equity Research at Morgan Stanley]

Got it. Thank you. Good luck.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Thank you.

[Operator]

We have time for one more question, and that question comes from the line of Brian Nagel with Oppenheimer. Please go ahead.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

Hi, good morning. Thanks for slipping me in here. Nice quarter. My first question, and it's going to be repetitive, so I apologize. But just looking at the sales trajectory here in Q2 and then the guidance into Q3, there's clearly been a nice inflection stronger.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

So I guess the way I want to ask the question is did over this period, to say, did Wasser pull some specific lever? Or it was more a matter of just kind of the business coming together to drive the stronger top line?

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

Yep. Thanks, Brent. I I would actually say, you know, I think the demand has been building, and I think it's just now building to a level that it's easier to see. And, obviously, as it continues to build, it will become increasingly easier to see. Right?

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

So I think the way I would describe it is that there's no single lever. In fact, I think I highlighted that, you know, if you do add cost like for like, you would actually see a higher level of revenue growth. So in other words, created a revenue headwind by, rationalizing some of the ad cost based on some of the improvements we're able to make in the way we were able to measure and model different tranches of the ad cost in a way that's actually been a great benefit for us overall. Because again, as I mentioned, revenue growth is one goal. The contribution margin flow through is the other goal.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

The combination creates this growth in dollars in the owner's earnings, is really the ultimate goal. And so there's not one lever. It's what I described with the three pillars playing out and that's been playing out not necessarily this quarter but over the course of this year and you're just seeing this building.

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

Yeah. The the momentum, you know, as Niraj said earlier a few times, the momentum feels, you know, to us driven by the structural business initiatives, not by any onetime events, any, you know, unique pull forward, anything like that. And and that momentum is, you know, continuing.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

Okay. That's very helpful. And then my second question, just with regard to, gross margin. So, you know, again, you're you're kind of guiding towards, you know, for q three that that lower end of that normalized range. But, you know, you've mentioned a lot of, you know, how much control you have over this and, know, kind of your decision to reinvest upside.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

When you're looking at the gross margin, particularly the sales are turning stronger, what specific is that reinvestment? Where are you putting that upside back into the model, so to

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

Yes. It's a great question.

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

I mean, as we've spoken about in the past, we always want to be thoughtful about how we're continuing to drive value for our customer, right? And so one of the levers, that we think about is investing in price. We've talked about in the past using our large first party data sets to really have a fine tuning on that elasticity curve and where we think we should be optimizing on that curve. And so often when we think about price investments, which can take the form of take rate reductions or co investment and promotion, we're thinking about where we want to land on that elasticity curve to overall drive gross profit dollars on this multi quarter basis, ultimately flow through, right, that 15% contribution margin that we hit this quarter and we talked about and ultimately driving adjusted EBITDA dollars and adjusted EBITDA margin. And so we'll take into account where we think we should be on that elasticity curve to ensure that we are optimizing there.

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

But we also invest in other parts of the customer experience like for example speed or improvements in the delivery experience from know, deluxe thing or consolidation of delivery. All of these things are really important to us to help overall you know, drive value for our customer and you know, drive that adjusted EBITDA dollars growth and adjusted EBITDA margin.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

Okay. It's very helpful. I appreciate it. Thank you.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

All right. Thank you.

[Operator]

And that concludes our question and answer session. And I will now turn the conference back over to the Wayfair team for closing comments.

[Niraj Shah, Co-Founder, Co-Chairman & CEO at Wayfair]

I just want to thank everyone for your interest in Wayfair and for joining us today. We look forward to talking with you again next quarter and hope everyone's enjoying the summer.

[Operator]

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

Participants

Executives

• Ryan Barney, Head - IR
• Niraj Shah, Co-Founder, Co-Chairman & CEO
• Kate Gulliver, CFO & Chief Administrative Officer

Analysts

• Christopher Horvers, Senior Analyst at JP Morgan
• Peter Keith, MD & Senior Research Analyst at Piper Sandler Companies
• David Bellinger, Director & Senior Analyst at Mizuho Financial Group
• Oliver Wintermantel, Managing Director at Evercore
• Jonathan Matuszewski, SVP at Jefferies
• Pedro Gil, Equity Research at Morgan Stanley
• Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.