Wayfair Inc Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Christopher Horvers - JPMorgan - Analyst : Thanks, and good morning. So my first question is on the top line understanding that the Easter shift creates. I think some benefit here in the April month was -- can you parse out how much Easter was maybe a headwind as we thought about the first quarter. How much exactly was the leap-day headwind? And then more broadly on the sales side, he had a big bump in average order value. Is that prices going up, or is that people buying higher priced items on the pull-forward basis given tariff uncertainty? Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah. Sure, Chris, thanks for your question. So let me share some thoughts on those two different questions. So first on the top line. What I'd say is there's definitely a bunch of timing mismatches this year to last year. You mentioned Easter moving, Way Day, for example, just happened this year. But last year, it's going to happen this coming weekend, the one that's coming up next. The leap year, as you mentioned, leap -- you lose a day, right? So it's that about 1% in the quarter or something like that that you're going to lose. Because our demands kind of like fairly spread out. And so the timing is what makes it difficult. So like obviously, we didn't give a quarter-to-date number and the reason we didn't is we could have shared it. It would be a very big number. It would be up a tremendous amount, but it's a hard number to do anything with because Way Day is coming up, right? And that's-- so there the timing mismatches make things a little hard to read. But what I'd say is we're seeing demand actually stay pretty strong. There's a big divergence between what we're actually seeing in actual demand and what you're reading in the headlines about the consumer sentiment. Now, the consumer sentiment stuff is talking about forward expectations. We haven't hit the forward period yet, obviously, but we're seeing demand actually, demand be pretty good. On AOV, no, we have not seen suppliers raise prices. And to be honest, when we've been talking with our suppliers, because we have a large team that work with our suppliers to create joint plans, make sure the inventory and bestsellers stays in stock, talks about pricing, what we're seeing on the platform. Well, we're actually seeing suppliers are very wary to raise prices because they know they're competing with one another. They know the way our platform works is that they need to compete with each other to impress the customer or they don't get the sales. Because it's been a prolonged downturn in this category, multi-year downturn, they know that it's hard to get volume and they need volume to be efficient. And so what we've seen is that their interest is really the opposite. It's not in trying to raise price quickly. It's actually trying to not raise price or to defer it as long as possible and do the minimum that they would need to do. So there's a lot of conversations about what they think that could be. But basically, we've not seen prices go up on the platform. I don't -- Kate, is there anything you want to -- ?

Question: Christopher Horvers - JPMorgan - Analyst : And then the follow up is just -- is there an indication of pull-forward demand? I'm not sure how you would measure that. It seems like the consumer is just reflecting back to maybe the supply chain crisis and stuff that products that maybe they had to wait for in the furnishings category, the electronics category. Are you seeing -- and can you comment on or measure how much of this could be pulled forward? Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah, thanks Chris. So we know what we see in our data, we know what we see in credit-card data, and we know what we hear from some other companies in the in the space. And so we don't believe we've really seen pull forward. The only one subcategory we have where we've seen pull forward was in large appliances. So large appliances clearly had some pull forward. It lasted a fairly short period of time and because of the size of that -- the category is very large overall, but we're a relatively new player in it. It's a relatively small category for us. So the amount of pull forward we directly benefited from is actually very small, it's de minimis for us. So overall, we haven't really benefited from pull forward, and we don't think the category has had much.

Question: Jonathan Matuszewski - Jefferies - Analyst : Oh great, good morning, and thanks for taking my questions. My first one was a follow up on pricing. Sounds like not a lot of suppliers are raising price on your marketplace. Is there any indication, maybe from your conversations with vendors, that they're choosing to raise prices on other platforms first, maybe as a test, before doing so on Wayfair? Any thoughts there would be great. Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah, I would -- what I would say is generally what we've heard from them is they're generally wary to raise prices and anywhere and so I don't know exactly like I, we've been. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 12:00PM, W.N - Q1 2025 Wayfair Inc Earnings Call I haven't heard that, right? So I haven't heard of them being aggressive in raising prices anywhere yet. What I've generally heard is that they're trying to be very thoughtful about how to optimize their business. They know that it's a challenged demand environment in general, and they know that raising prices, if their competitors don't, is going to hurt them substantially. So they want to make sure that they remain competitive. I think a number of places that they sell, they have a similar dynamic to us that we have a very big benefit because we're as a platform versus being a traditional retailer. We have a lot of suppliers on that platform that are competing with each other and to some degree their goods are substitutable. So the dynamic is such that by raising your price, it's not so much that you're negotiating with a buyer and a zero sum, and it's not necessarily directly correlated to the retail here, you're actually able to do whatever you want, however, you're directly changing the retail. So you have to worry about the end effect and because of that. We haven't, we've seen what they don't want to raise on our platform now with regards to what they may want to do selling to traditional retailers, I think that could be a different setup, but we're less, that's not our model. We have a little less insight into how aggressive they're being there, but we've definitely heard that a lot of folks are saying that they can't, that they have to, they can't eat the cost. The traditional retailer, if they're doing direct import, they have to basically carry the cost.

Question: Jonathan Matuszewski - Jefferies - Analyst : Understood. Best of luck.

Question: Brian Nagel - Oppenheimer - Analyst : Good morning. Thanks for taking my questions, I guess. So my first question on surprise, I want to talk about tariffs, and I mean, I appreciate all the commentary you outlined. So I guess if we just step back, the question I have is, as you were watching this tariff dynamic unfold. If I'm hearing you correctly, it sounds like, from a wafer perspective, I mean, most of the burden is really lies with your suppliers. So I guess, that's just to make sure I heard that correctly. But the second question I have, or the question I have is, are there, as this is unfolding, are there levers that Wayfair is internally pulling, to kind of help through the to help through this dynamic and improve the business through the dynamic. Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah, I'd say there's two things we really directly help suppliers with. So one is we share a lot of data on what we're seeing happen on the platform because suppliers realize that they may need to raise prices at some point, but again they don't want to raise them earlier or larger than competitors do. So they want to know what's happening on the landscape so that they can try their best to stay very competitive. So we basically do try to provide them with some direction and guidance and share the landscape with them. And the second thing we can help them with is when you think about CastleGate, I think, often you think about Cascade fulfillment. So the kind of warehouses we have the fulfillment centers and the fact that we do with the WAN, we do the last mile delivery for large bulky items and through the combination of the two we can provide a high quality of service on deliveries. We can offer faster delivery. But what we actually offer goes all the way back to moving the goods via ocean freight forward positioning the goods using consolidation centers that are close to the point of origin, and then obviously then they make it to the fulfillment centers and they do everything we just described. And then we have fulfillment centers not just in the US but also in Canada and the UK. So in Canada we have 21, in Vancouver, and one in Toronto, and in the UK, we have a large facility in Lutterworth. And so they have an ability to directly bring goods into the country versus in the case of like Canada for example, transiting through the US, which could prove to be much more expensive. So the second way we help them is with kind of custom logistics solutions, taking advantage of all the assets and the network we have that allow them to optimize and lower their costs, which then allows them to save money and keep retail sharp. And so perhaps something costs them more money and something lets them save some money, and these are benefits that they want to make sure that they're optimizing.

Question: Brian Nagel - Oppenheimer - Analyst : Thank you I appreciate the call. Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Thank you. Sorry. Oh, go ahead, Brian.

Question: Brian Nagel - Oppenheimer - Analyst : I appreciate the call. Thank you.

Question: Eigel Ironian - Citi - Analyst : Hey, good morning, guys, thanks for taking my question. I guess I want to ask about the range of potential outcomes and how you think about it and how you can potentially plan for it, meaning we got to pause on the 90-day reciprocals for many of the countries, and I think maybe you could help expand on this a little bit. We've seen some production shift to those countries instead of China. And what happens if those come back at the end of the 90 days or we have higher tariffs and more of the input countries. How you think about that, how you can help your vendors and the ability for vendors to absorb costs in that scenario where there's less of an ability to shift production to other countries. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 12:00PM, W.N - Q1 2025 Wayfair Inc Earnings Call Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah, I mean, it's obviously it's a pretty dynamic environment right now because obviously there's a 10% base tariff on we're talking now in China, there's a 10% base tariff, and then there's the varying degrees of reciprocal tariffs. The reciprocal tariffs are what have been paused for 90 days. And then China has a different whole set of things. And so to try to project exactly how this will all met out because there's been talks of discussions, negotiations underway with India and with South Korea and with Vietnam and with a whole host of countries and to project exactly how they'll play out, it's difficult. What I will say is what's happened if you go back all the way to 2019 and the tariffs that were put on fairly quickly during that period of time, that really spurred a lot of companies who had not yet created a lot of diversification to really work on diversification to multiple places. So we have suppliers who have manufacturing capability in multiple countries. And then what they do is they flow goods based on, there of course there's where they have capacity and skills, but frankly a lot of it is where does the cost come out the best between the various types of manufacturing operations they have. In some cases they may have more automation, some cases they may have optimization for certain types of degrees of finishes and there's a raw material supply chain. There's a whole bunch of variables that drive that. So long story short, what I would say is, I don't think suppliers are all in on a specific bed of how things are going to play out, but they have a general trajectory that they believe, and I think they're optimizing for that. And obviously, they're trying to do in a way that they're creating a kind of a multivariate solution so that they can evolve it as needed. And I think, today, we sell goods on our platform that come from that are made in over 100 countries. So there's a wide amount of diversification that already has taken place and I think our suppliers have a view on kind of relatively, what's, range of what could happen and they're kind of playing towards that in general, we feel like that sets things up. Pretty well around, flexibility and agility for our platform given our base of suppliers, the large number of them and the dynamics we have. I don't know, Kate, is there anything you'd like to add?

Question: Eigel Ironian - Citi - Analyst : Oh, okay, that's really helpful. And maybe, to follow up on the opportunity to take share and tie that into the advertising strategy in this environment, Kate, you mentioned leaning in a little bit as things were going better than expected, maybe not characterizing that perfectly, but. How do you think about your advertising message? Are, is there an opportunity to kind of, make that message to the consumer or come to Wayfair get better value in this type of environment and stepping into that over the course of the year. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 12:00PM, W.N - Q1 2025 Wayfair Inc Earnings Call Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah, sure. I'll share a couple thoughts and then turn it over to Kate. So on our marketing spend, one thing I do want to just reiterate. We do measure it by the paybacks it creates, and we've tightened up those paybacks and we've now we continue to hold that degree of tightness. So we don't like create a budget and then spend it regardless of what we're seeing for signal. We make sure that it's paying back a portion of it's around brand building and that would be longer payback and a portion that's much more transactional and that gets paid back much more quickly, but everything's on a relatively short payback still and. There are certain channels we're large in and certain channels that are emerging for us that have grown to be large in the industry that we think there's an opportunity for us to sort of grow in while doing so profitably, right? So we also think about our whole goal is to grow EBIT dollars and so the way we think about it is like what's the optimal mix of things between whether it's in the cost of goods line or whether it's in the SOA line or the ACNR line that let us maximize the growth of profitable dollars and that's kind of the way we're. A managing it and so that we're seeing are the outcomes of that. But Kate, I don't know if there's anything you want to add.

Question: Eigel Ironian - Citi - Analyst : Thank you.

Question: Michael Lasser - UBS - Analyst : Good morning. Thank you so much for taking my question. So it sounds like your message is listen, we've got a lot of benefits from tariffs just as many more benefits than drawbacks. The big unknown is what's going to happen to the demand environment. So with that being said, is it right for us to continue to use this incremental decremental margin of mid to high teens as we. try and synthesize what the model looks like over the next couple of quarters and then longer term, does Wayfair need to make any adjustments to the extent that this tariff regime stays in place such that its margins would be permanently impacted, or is that not realistic given that the benefit of time would provide more flexibility to make any changes and adjust accordingly? Thank you very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 12:00PM, W.N - Q1 2025 Wayfair Inc Earnings Call Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah thanks let me mention, let me try to clarify that comment on be benefit, and then I'll turn it over to Kate to answer your question. Just to be clear, I'm not saying that we benefit from tariffs. What I'm saying actually is that in a scenario where there are these tariffs, our business model of being having a platform, having a very large number of suppliers, allowing suppliers to have a dynamic where they control their destiny by competing with one another and focusing, our business is focused on the substitutable categories. This creates a much more beneficial scenario than if we were a traditional retailer where we had merchants, where we bought goods from Narrow set of factories in a long dated way and now and we're the importer of record and now we've got all of a sudden these tariffs and you know our plans for the next 12 or 18 months have been locked and we're in a tricky situation. So it's more a relative thing versus saying that tariffs are beneficial for us as a direct point. But Kate, let me turn it over to you to answer.

Question: Michael Lasser - UBS - Analyst : Okay, my follow-up question is your stock has been adversely impacted by this tariff situation. There's probably a lot of misunderstanding given what's been helpfully presented today. Is there enough capacity in other markets outside of China to absorb the demand for the production of home furnishings to make it a relatively seamless transition. As this potential situation continues such that you know there wouldn't be a lot of disruptions for Wayfair as your platform shifts to wherever, the demand, or supply I should say, goes. Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Sure. Yeah, so I would share your observation that the stock certainly has not been great and that I do think folks misunderstand some of our relative strengths and how well things are going. But, to answer your specific question about capacity outside of China. Well, there's actually a large amount of capacity outside of China, and I kind of said this a few times, but the demand in the category has been weak for a number of years in a row. And so the amount of capacity that exists is operate the operating level of it right now is far below the capacity that is available. Obviously, folks source and bringing goods from wherever the kind of the best price value for them is. And so tariffs think of tariffs as something to change the landscape of price value from various different, in this case countries around the world that will change the math for folks and there's a lot of capacity that can where things can move in terms of disruption, I wouldn't claim that that makes it then just a light switch and super smooth, but this is again where our platform helps us because we have this logistics capability that's fully integrated. That actually operates in all of these places already and so that gives us a significant benefit over others. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 12:00PM, W.N - Q1 2025 Wayfair Inc Earnings Call We already work with this large base of suppliers from all over the world, whether that be other countries in Asia, whether that be folks who have multiple manufacturing locations, whether that be countries that have been emerging in. Scaling like Turkey, India, Brazil, whether that be different countries in Europe, Eastern Europe that that are considering becoming larger exports. So we're quite advantaged in this environment because of how we're set up.

Question: Simeon Gutman - Morgan Stanley - Analyst : Good morning everyone. My first question, I wanted to ask the last time we had some tariffs, we saw some price increases, and I think your margins were just fine to all the points on the take rate. There was a little sticker shock in an initial couple of quarters and sales slowed a little. It doesn't sound like that's happening, but thinking about if that happens, where you see some sticker shock from pricing, how do you think about managing it given that you've made a lot of positive changes now to the P&L? What's the contingency plan? Are there offsets to be able to manage with potential deleverage? Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah, but, let me start, let me answer, a little bit of that question and then you turn it over to Kate to further answer it. I think, when you think about what's changed from 2019 to now. I think there's a couple things. One, when I talk about the dynamic on the platform and I talk about basically the breadth and depth we have of suppliers from all over the world, that has certainly increased substantially since 2019. I think we have double the number of suppliers and then if you look at their geographic distribution, that would be probably change even more than that. And then the other thing would be our logistics capabilities. So when I talk about the consolidation operations, we have a number of locations abroad, the number of freight lanes, ocean freight lanes that we operate our ocean brokerage on. When I talk about the forward positioning capabilities we have both from technology and a physical logistics standpoint, that's much more enhanced. So there's quite a lot that's advanced on the logistics side which It ends up being material to how you think about this because that is, it's one thing to say like I'm going to figure out how to buy goods in other countries. I say, oh, I have suppliers who actually operate there and they want to scale up and we have a logistics capability they can just use. So what they just need to do their end of it and then they can leverage us for these other things. So I think we're pretty advantaged there. The other thing I would say. I, one of the things that we embarked on around that time frame was a large tech replatforming of our, a large tech stack. And that project ended up taking a number of years, but we're now substantially through that. We're very far into it. And so this is the first time in a few years where we're now turning tech capacity back towards building feature function, which is historically a big way that we've driven our growth. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 12:00PM, W.N - Q1 2025 Wayfair Inc Earnings Call So we talk about these levers we have to take market share and accelerate our rate of taking market share and grow profitably, things like growing our loyalty program rewards or scaling up Wayfair Verified or editorial program or what we're doing with our B2B salesforce or, enhancements we can make to customer service. What happens is we actually now can dedicate technology resources to those for the first time in a number of years and That I think is actually a pretty big lever for us to actually drive growth in our business, which I think could be pretty exciting because even if it's a tough macro, it's still a very large category and there's a lot of share to be had.

Question: Simeon Gutman - Morgan Stanley - Analyst : My one follow up, just thinking about the vendor community. Niraj talked a bit about this and thinking about China-based vendors, have you seen a lot of movement already? And you know we think about some of the makers of product. If you're a single source origin, Wayfair should be no worse off. If a certain table with some modifications appears on many different platforms of your competitors and you, that price in theory goes up. But is there a situation in which some platform, a vendor moves production and a price can be lowered? Like how do you think about that? Like the risk that someone else moves a vendor quicker. And the and someone else's platform has a lower price. Why shouldn't Wayfair be disadvantaged in that situation? Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah, so again there's two types of competitors. So there's competitors who are also platforms. There I would talk about the scale of our team, the size of our team that directly works with suppliers versus them solely having to work with us through the technology we offer them, and that's a real advantage we have there. And then there's kind of what we've built for logistics that's bespoke for home goods. So there's some advantages we have there. I would say by and large with the biggest platforms out there, we work with a very large bread of suppliers and so I'm not sure that they have a substantial advantage over us, when you think about the number of the other platforms, and I think we have an advantage over a number of them. So it's a balancing act, we're one of the strongest for sure on that side. Then if you talk about traditional retailers, I think there you have them sourcing from a very specific company and they generally have sourcing offices in one, two, three, whatever numbers of countries. They focus on certain regions and then they are directly sourcing from these factories. You could say, okay, well, they'll stop sourcing from one, they'll start sourcing from another. That then REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 12:00PM, W.N - Q1 2025 Wayfair Inc Earnings Call becomes a question as to do you already know what factories they want to do that from? Have they been working with them already or not? If not, that startup period, it could take a while, but they would have the ability to directly write a purchase order to that company, but I don't think that that's a very fast thing. So then the question is like which models faster, I would argue that the platform model where you're already working with folks, particularly where you could provide the logistics would be generally faster.

Question: Peter Keith - Piper Sandleryst - Analyst : Hey, thanks. Good morning, everyone. Just focusing on when prices go up, I think we can all agree that they will go up at some point on your platform. Is the intent that you want to hold the product margin or hold gross profit dollars, or would you even absorb some of those price increases, just for, price competition? Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Yeah, so, the way to think about that is like we We're always running different pricing tests to make sure that our take rates, our margin rates by the various subcategories that we vary the margin rates by, that they're optimized to maximize our profit dollars. So we will always do that. But generally the way to think about it is when a supplier changes the input costs, whether that be the wholesale price they want to charge us or the logistics set up. That flows through into a retail within a matter of minutes. And so there's the kind of long-term data science approach where we're constantly testing different cohorts to find the optimal margin rates and those changes continue to flow through the system. And then there's the sort of a given supplier's activity and so those two I'd encourage you to kind of think about them separately. They're both optimized to create the best outcomes for the customer and us together, and that's why we talk a lot about growing profit dollars because that's the optimization function that we're focused on.

Question: Peter Keith - Piper Sandleryst - Analyst : Thank you. So much. Niraj Shah - Wayfair Inc - Co-Chairman of the Board, President, Chief Executive Officer, Co-Founder Thanks Peter. Thanks.