Hello, everyone. Thank you for joining us, and welcome to the Wayfair Q4 2025 Earnings Release and Conference Call. [Operator Instructions] I will now hand the call over to Ryan Barney, Investor Relations. Please go ahead.

Good morning, and thank you for joining us. Today, we will review our fourth quarter 2025 results. With me are Niraj Shah, Co-Founder, Chief Executive Officer and Co-Chairman; Steve Conine, Co-Founder and Co-Chairman; and Kate Gulliver, Chief Financial Officer and Chief Administrative Officer. We will all be available for Q&A following today's prepared remarks. . I would like to remind you that our call today will consist of forward-looking statements, including, but not limited to, those regarding our future prospects, business strategies, industry trends and our financial performance, including guidance for the first quarter of 2026. All forward-looking statements made on today's call are based on information available to us as of today's date. We cannot guarantee that any forward-looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Our 10-K for 2025 and our subsequent SEC filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. Except as required by law, we undertake no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events or otherwise. Also, please note that during this call, we will discuss certain non-GAAP financial measures as we review the company's performance, including contribution profit, contribution margin, adjusted EBITDA, adjusted EBITDA margin and free cash flow. These non-GAAP financial measures should not be considered a replacement for 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 like to now turn the call over to Niraj.

Thanks, Ryan, and good morning, everyone. We're pleased to talk with you this morning to discuss our fourth quarter results. Q4 capped off a tremendous year for Wayfair, with revenue growing 7.8% year-over-year, excluding the impact of Germany. This growth was evenly split between order growth and AOV expansion, both of which grew more than 3%. We had our third consecutive quarter of new customer growth on top of healthy growth in repeat orders. all in the face of a category that contracted in the low single digits for the final quarter of the year. 2025 was a year where we returned to growth and accelerated throughout the year through a number of organic business strategies that can compound for years to come. Numerically, this was characterized by two important themes: our share-taking and top line growth overwhelming the drag of the macro and the substantial flow-through of that growth to the bottom line. We expect our top line growth and flow through to adjusted EBITDA to be the bedrock of our story for years to come. The opportunity in front of us is considerable. We're playing in a category that is nearly $0.5 trillion in the U.S., Canada and the U.K. The space is highly fragmented, filled with either large retailers that don't focus on HomeGoods or pure-play competitors that cannot match our scale and the benefits we bring to both our customers and our suppliers. Our company was built around the idea that we could leverage technology to build a large business in an underserved retail category by being innovative in how we serve customers and by continually making our customer experience better. Through our history, this simple though hard to execute strategy worked. And as a result, we saw it lead to rapid organic growth and an…

Thanks, Niraj, and good morning, everyone. Let's dive into our financial results for the fourth quarter before we move to guidance for Q1. Starting with the top line, net revenue grew by 6.9% year-over-year on a reported basis and 7.8% year-over-year, excluding the impact from our exit from Germany. This is our last quarter where there will be a meaningful distinction there. We saw solid performance in both of our geographies, with the U.S. business up over 7% year-over-year, while the international business grew nearly 4%. Let me continue to walk down the P&L. As I do, please note that the remaining financials include 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. Adjusted gross margin for the fourth quarter came in at 30.3% of net revenue. For more than 2 years now, we've held gross margin steadily at the low end of our 30% to 31% range as we balance the structural benefits we're getting from programs like supplier advertising and CastleGate against areas where we see an incremental opportunity to invest in the customer experience. While we'll get to formal guidance shortly, this will be the same play to you'll see in the first quarter. But as we look deeper into the year, we expect there will be opportunities for us to dip gross margins slightly below 30% as we look to capture share at a faster rate and generate more gross profit dollars and a slightly lower margin. I want to be very clear here. The magnitude of this we measured in the tens of basis points, not hundreds. Some of this investment is driven by programs like Wayfair Rewards, as Niraj just discussed. Scaling the number of rewards members comes at…

[Operator Instructions] Your first question comes from the line of Eric Sheridan with Goldman Sachs.

I wanted to ask sort of a multi-parter around AI, when you look at the current landscape, can you talk a little bit deeper about some of your initiatives, both internally that could be aimed at reducing friction in the business and/or driving operating efficiencies from AI? And how you're increasingly thinking about partnering with external parties to bring your brand and your marketplace into external environments like LLM agents as a potential pathway to market.

Yes. Thanks, Eric, for the question and for being on the call. Actually, so one thing I'll just reference that because I'm sure you and folks haven't had a chance yet to see it. But today, obviously, we released earnings and the refreshed investor deck, but we released our annual shareholder letter. And in the letter, from Steve and I, we actually talk a lot about how we look out to the future, the opportunity we see for the business, the economic opportunity, but specifically what drives it. And one of the three things that we talk about significantly in is how technology plays a big role, and there's a meaningfully not very lengthy, but a page or so about AI. And it basically tries to address exactly what you're asking. So I'll give like kind of a summary answer right now, but I think you probably find that and others may find that of interest. And what we talk about there is basically exactly as you posit it. There's significant internal benefits, and the internal benefits have a lot to do with health. AI is really an unusual opportunity in that you can improve quality, improve speed and reduce cost all at the same time, whereas usually, the truth is when you have a technology that comes along that's transformative, usually, there's an opportunity for quality and/or speed but it comes at a cost, but the ROI is there. And here, what's tremendous about it is that you can actually do all three at the same time. So on the internal operations, we obviously start with everyone using an enterprise LLM chat product, in our case, everyone had Gemini, connected or data stores to help them do their work more productively to get answers to questions. But where that…

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

Please go ahead. I wanted to ask about margins longer term. And if I get a follow-up, I want to ask about holdout tests. On the margin, so you had a really good incremental margin. I think Q4 looks a big number, like north of 50%. Q1 looks pretty strong as well [indiscernible] 20%. Can you update us on how you see incremental margins evolving, especially if the top line recovery continues over the next few quarters? And then we've talked about things you've done or that AI can help do on SOTG&A on your cost base. So is it a level of revenue growth? Or is it a matter of time until you get to your long-term EBITDA margin targets?

Yes. So let me start with some thoughts and then I'll turn it over to Kate. I think the way to think about it, so just to take your question and kind of flip it around a little bit. What I would start with is -- so what you've seen is as we got through the tech replatforming and we got through a bunch of the things we need to do to get our organization back to being very lean, focused, efficient and executing very well. And that's all work we did already '22, '23, '24 the category in those years comping down negative double digits. We were kind of flattish through most of that period. We entered '25 sort of flattish in I call it, 0% revenue growth. By the end of the year, you see a sort of like in a mid- to high single-digit revenue growth, and it kind of ticked up each quarter. And that's why the category continued to comp down. I think the overall TAM was probably down low single digits. If you index it to the categories we're stronger in, probably down mid- to high single digits but you see us pull away. Well, that's really due to us taking share because you saw profits grow even faster during the time period than revenue grew. And so we're taking share. We're taking share profitably. We'll how we're doing it through these core initiatives we had, like I talked about stores, for example, and rewards on the call earlier, well, there's over half a dozen of those. So if you kind of look at what we foresee going forward is that these initiatives, a lot of these initiatives are set up to basically kind of continue to scale and compound these wins because a…

I actually [indiscernible] on the key point, right, which is that we expect to be able to continue to grow and accelerate EBITDA dollars faster than the top line. And so you are going to continue to see very nice flow through there. And just as point of fact on that midpoint of our guidance range in Q1 is over -- the EBITDA margin is over 100 bps higher than the Q1 2025 EBITDA margin, right? So I think that shows the strength of the flow-through in the model. And as Niraj has pointed out, that's been driven by a number of measures internally. You see our stock or SOTG&A that operating expense down again this quarter. I think that's many quarters in I can't even count how many at this point because it's a few years in a row of that SOTG&A coming in. So that's providing really nice leverage there. And then that contribution margin around that 15% again. So you see this ongoing pattern of driving to that adjusted EBITDA growth, and that's really the North Star that we're driving towards. And when you think about these initiatives internally, Niraj mentioned Wayfair rewards on the call and talk that the way that we look at them is how can we improve the customer experience with it, but make sure that even if the components of margin move around a bit, then we're again flowing that through at that adjusted EBITDA growth rate. The second part of your question was that time line to 10%-plus adjusted EBITDA. So I do want to be clear, we talked about we believe we can actually get over to that 10% adjusted EBITDA. And we're pretty excited about the potential to do that. I think we've shown that even in a down market, we've been able to grow adjusted EBITDA margin significantly throughout the year. And as we look forward, certainly, top line momentum obviously helps you on that leverage and we think a number of our own self-health initiatives can continue to drive those share gains somebody respective of the macro.

Great. The holdout test that you're trying? And does that shape how you're spending advertising in '26 or not yet?

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

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

Your next question comes from the line of Steve Forbes with Guggenheim Securities, LLC.

Maybe just revisiting your comments on physical retail expansion as we look forward to this next class of stores. I wanted to -- I was hoping you maybe revisit [ Remate ] and talk about how those [ DMAs ] surrounding the store have performed sort of 2 years in here. Is the outperformance gap versus the company average still as strong as it originally was? And any way to sort of like frame up for us how you're thinking about how those [ DMAs ] surrounding those new storage should perform in 2026.

Yes. Steve, that's a great question. So the store will met opened up quite strongly when we first opened in May of '24. We could see the lift in that trade area in the State of Illinois very quickly. Now that it's been open over a year, it's been open over 1.5 years at this point. What we've been able to say is that we've seen that continue nicely. In fact, in the refreshed investor presentation, we put a slide in and put some updated numbers. And -- let me talk about how the -- one thing that's exciting about the store is that it's attracting new customers, and you're seeing that our business overall, you're seeing that we're have order growth in new customers and in repeat orders. So repeat orders, which are 80% of our orders growing new orders, 20% or growing. So the store is one small piece of how we're doing that, but the stores help us attract new customers. But to your point, we also put the CAGR in there, and we see that the Illinois over national growth CAGR. You see that it's an over 10% CAGR since the opening. And what's happening is that customers obviously could be boiled a Wayfair from experiencing our online offering, be very happy with that. Then having a store is only going to take those oil customers and have more use cases and methods to interact with us and grow with us. So it's going to enable us to get more share of wallet from them. And then you may have new customers who are maybe have heard of Wayfair, but have never really engaged with us and maybe they're sort of online for the home category is not a comfortable thing for them to think about…

That's helpful, Niraj. And then just a quick follow-up. Multichannel fulfillment. I don't think you mentioned in your prepared remarks. So just curious if you can comment on how the benefits of this offering are ramping or accruing to Wayfair and any sort of framework for 2026 on that offering in terms of the benefits of the P&L.

Yes. I think the key thing to think about is like we've built a logistics infrastructure. So one of the big opportunities we have is that the way the world is playing out is that it's increasingly hard to be a small player and offer the customers the benefits they expect from a retailer today. And why is that? Well, there's three big things that have a tremendous cost in our business. So one is the cost of technology. We have over 2,500 folks and we're getting into a world so even technology is mattering more and more, not less and less. The second is, if you look at -- think about the marketing reach we have with spending over $1 billion in ad spend and having the brand be as strong as it is, it's very hard to do that if you have a very small budget. And the third is the logistics infrastructure with dozens and dozens and dozens of buildings and 20 million or so square feet of buildings and operations, you can now offer fast delivery and higher quality, lower damage and better customer services and experiences, et cetera. And so if you're a small retailer, you can't do that. And if you're a big retailer, there's really only a handful who can do this, you really then optimize it for something. So we're the only ones who optimized it for home because we don't particularly worry about building materials or grocery or a bunch of categories. We're not in those. So we really are only in home. And so everything is optimized for home. And so then you think about the logistics network because your question was about multichannel. And you say, "Well, how do you think about the logistics there?" Well, we say, "Okay,…

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

Can we walk through the cadence of Q4 in a little bit more detail? And any particular standouts in terms of Way Day versus holiday, et cetera? And then I know you aren't disclosing quarter-to-date anymore, but since you're guiding for a deceleration in Q1, is it fair to say that the Q4 strength continued into Q1 or not?

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

And what I would say is I think they're really well. And I think the point is there's no momentum is actually the same way we started last year at 0. We ended the year mid- to high single digits. And we basically expect to see this momentum continue. So in other words, we're starting the year it's the turn of the year, but nothing has really changed. If you draw the line from the beginning of last year, we should keep taking it up to the right over the course of time because the initiatives we have are compounding benefit type initiatives, and there's a lot of gains we're seeing from them. And so the market is sort of not really providing the lift, but we don't really expect it to. And so a lot of -- one of the things I talked about in the shareholder letter is how over time, we can -- we think the organic growth rate can be 20% plus. And that's just off the back of how we can take share through the compounding nature of the benefits we have, and we think we can do that while profits grow faster than revenue. And the reason is, as I was kind of addressing a couple of minutes ago is these initiatives drive quite profitable growth. But the growth they drive just compound because it's really about how customer behavior changes in terms of customers understanding the breadth of categories we're in, becoming more loyal, coming back more often. Us also getting in front of new customers, drawing them in and then them going through that same experience curve. One thing, there's a whole series of efforts to get there. So I talked about rewards and stores on the call today. But we could…

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

Yes. I mean, look, so if things go as we plan, actually, the drag should become an increasing drag on the gross margin line because the number of members and the amount of revenue of the total revenue that are coming from rewards members actually is growing at a very nice rate. And you'd be at that will be fantastic. That would be an amazing outcome. Because the profits that you're getting from those customers actually are higher. So this is why I think like the gross margin line or the so these lines don't really tell you very much because if these initiatives are successful, what you should really see is that the revenue line continues to accelerate the profit line, the EBITDA line, what have you accelerated even faster. And that's the dynamic you get, whereas you'd see these lines in between move faster divergences. But let me turn it over to Kate.

Yes. Zach, I think Niraj hi it well, which is as we described on the call, we think it's an appropriate reward is an appropriate investment to make in the consumer obviously, that does impact the gross margin line. But on the other end, for example, those customers are coming direct, right? So you're not spending the money on the ad spend to get them to the site and therefore, it flows through quite efficiently to adjusted EBITDA margin and adjusted EBITDA dollars. And that's ultimately the goal. And you actually -- when we talked about sort of some of the gross margin dynamics going forward, that contemplates something like Wayfair Rewards continuing to grow. We think it has enormous potential, and we're seeing really strong benefit from the consumers in this program. So certainly, our focus is on how we can continue to expand it. Again, knowing that you've got a trade-off on the gross margin line to the [ AC&R ] line, and that's ultimately flowing through to adjusted EBITDA growth.

Your next question comes from the line of John Blackledge with TD Cohen.

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

Thanks, John. Yes, rebounding -- it's very hard to predict how going to play out. My general view is what we've been seeing, which is the -- for the housing market to recover, it's a little bit of a slow burn. And you're seeing like every quarter that goes by the percentage of mortgages that get refinanced at the current rates, keeps ticking up, but it's a relatively slow process. And that's basically not having a crystal ball. We basically underwrite something like that. So our old plan is not really premised on how the market turns because I think that's a very hard thing to predict. And frankly, there's a very good chance. It's just a slow burn, and it kind of works itself out over a longer period of time. But it's really about -- it's a pretty dynamic market. There's really not very many folks that can offer customers the experience that they really want today. There's a lot of folks who are still operating off a model that's really not what customers are really looking for as you go forward. And so there's a lot of market share in what's still quite a big category that can move around. And so if you go back to think about our particular initiatives and how do those impact the customer and allow for market share to move I think that's the way you could think about our strategy. And so you saw it last year allow us to kind of pull away from the market. And at an increasing rate, and we expect that to continue. And so our whole plan that we've discussed and the numbers we talk about are basically what we can make happen sort of without the housing market turning around. And I think it will. It's a cyclical category. It's just a time horizon for when there's a next big kind of up cycle tied to housing is just very hard to predict. And so it's not something that we're putting into how we think about the market, time horizon and our initiatives. I don't know, Kate, any thoughts on that?

Yes. I think you hit it well, which is our focus is on our own measures and how those are gaining share. And you've seen that share spread actually expand throughout the course of '25, and we feel really good about the momentum going into '26. I think you had a second question around supplier adds and the impact of a genic shopping on supplier adds.

Yes. Kate, why don't I just comment on that. You can feel free I think it goes back to the type of goods. So in other words, if you want to think about these Agentic surfaces, I think the way you would say, hey, supplier adds could get impacted. It would mean that the traffic is not moving downstream to the apps or the sites operated by those commerce players, and the transactions are happening upstream on the Agenetic surface. And so I think if you're -- if you're selling paper towels and dish soap and chips away cookies and that could be fulfilled by any number of folks, and you don't particularly care whose corrugated box shows up at your door who's a plastic back shop at your door, then yes, that traffic may never make it to the retailer the transaction may take place upstream. The traffic by not making it to the retailer, then there's no opportunity for the retailer to show the variety of products and the ad units, and that could be a big factor. If customers are coming direct to the retailer or if customers are still making it to the retailer through these Agentic surfaces because there's more product understanding and exploration involved. Then the advertising, I think, still gets seen. And frankly, the less of a commodity is, therefore, the more browsing and the more curiosity the customer has about the offerings, the more ad units become relevant. And so we tend to think that our product road map on ads, which, in some ways, is similar to some others, but in some ways, it's quite different is a very good fit for what customers want to experience at home, and we think home is inherently more browsable and requires more sort of -- it has more of a customer curiosity and customer desire to understand what's out there than some other categories, I would like it more to fashion. And in that scenario, that presents you as the retailer offering a platform, an opportunity to let other suppliers get their products seen, and that's effectively what these ad units do. And if you think about something like video, will certain products lend themselves to video telling a much better story than others, right? And so I think home is a great one. Fashion would be a great one. Well, is like ships like cookies, like they value the video, it could be very high, but you can say, well, that could easily get replaced too.

Your next question comes from the line of Brian Nagel with Oppenheimer.

Nice quarter. Congrats. So the question I want to ask, I think it's probably longer term in nature, but today's results and the results way they've shown this nice market share. Wafer is definitely consistently now capturing market share. So as you look at all your data, is there anything we can call out in that market share? Are you -- do you see new customer cohorts coming to Wayfair? Are you taking more share in different income cohorts? Anything is this market share dynamic has persisted? Is there something -- is there anything new that can kind of speak to like the broadening reach of the Wayfair brand?

Well, I think a few thoughts there. So one, we're definitely seeing that -- and that whole [ K-shape ] economy thing is real. So when you do talk about higher income cohorts, you have the highest income cohort place that we offered our parable platform, the luxury platform. And that's growing at a very fast rate. You see -- you really don't see any economic strain there, especially retail brands would be the second highest level after Perigold all of them are on in [ Burland ], Johnson, Main, you see nice growth there. And then we go to Wayfair, you see nice growth there. But then if you cut it by income cohort, you definitely see more strain as you go down the income segments. And -- our data is not any different than the market data you're going to see broadly, but you do see it, and that's the case. But then what happens as you go down the cohorts. The truth is, they're still customers buying products because let goes on and they may need something, and so then the question becomes, are you providing value? Do you make it easy for them to figure out which item provides them with the best price value? Are you in a position to offer items that are a better value than maybe a competitor this goes back to how our logistics operate, in fact, that we have so many suppliers on our platform. And so the ones who can really optimize something can offer the better value. So we do think we're benefiting through that. But I don't know, Kate?

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

That's very helpful. And then my quick follow-up. So again, a nice job here in the ongoing delevering of the balance sheet. But Kate, have you indicated just for some kind of parameter like a target debt ratio kind of what you're working towards?

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

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

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

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