Wayfair (W) Q3 2026 Earnings Call Transcript

DATE

Wednesday, Nov. 4, 2026

CALL PARTICIPANTS

• Head of Investor Relations-Ryan Barney
• Co-Founder, Chief Executive Officer and Co-Chairman-Niraj S. Shah
• Co-Founder and Co-Chairman-Steven K. Conine
• Chief Financial Officer and Chief Administrative Officer-Kate Gulliver

TAKEAWAYS

• Total Net Revenue -- $3.4 billion, representing 9.7% year-over-year growth driven by strength in the U.S. segment.
• U.S. Net Revenue -- $3.0 billion, an 11.4% increase year-over-year that expanded the company's market share into double digits.
• International Net Revenue -- $380 million, a 2.3% decrease reflecting earlier maturity stages and category weakness in Canada and the UK.
• Net Income -- $62 million, an improvement of $161 million compared to the third quarter of 2025 due to revenue growth and advertising leverage.
• Adjusted EBITDA -- $236 million, resulting in a 6.9% margin, which management reported as the best Q3 result since 2020.
• Gross Profit -- $1.0 billion, representing a 29.6% gross margin.
• Active Customers -- 22.2 million, a 4.7% year-over-year increase driven by structural gains in customer acquisition.
• Orders Delivered -- 11.0 million, representing 12.2% growth compared to the prior-year period.
• Average Order Value -- $311, down from $317 in the prior-year quarter due to faceted mix shifts.
• Repeat Customer Order Rate -- 80%, with repeat customers placing 8.8 million orders during the third quarter.
• Advertising Expense -- $338 million, or 9.9% of net revenue, marking the first single-digit result for this metric since 2021.
• Operating Income -- $106 million, an increase from $38 million in the third quarter of 2025.
• Free Cash Flow -- $136 million, representing a $43 million increase over the prior year's third quarter.
• Net Cash Provided by Operating Activities -- $198 million, up from $155 million in the third quarter of 2025.
• Cash and Equivalents -- $1.0 billion, providing total liquidity of $1.5 billion when including the revolving credit facility.
• Total Equity-Based Compensation -- $66 million, reflecting a decrease from $92 million in the prior year period.
• Capital Expenditures -- $62 million, including $30 million for property and equipment and $32 million for site and software development.
• Mobile Device Orders -- 64.4% of total orders delivered, up from 63% last year due to increased engagement on the Wayfair app.
• Q4 Revenue Guidance -- high single-digit growth for the fourth quarter as momentum continues from the Way Day promotional event.
• Q4 Adjusted EBITDA Margin Guidance -- between 6% to 7% of net revenue.

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RISKS

• Gulliver stated that advertising as a percentage of revenue is expected "to come up in Q4" to a range of 10.5% to 11.5%, reflecting seasonal marketing investments for the holiday season.
• Gulliver warned that the international segment's performance is being challenged as the "home furnishings category in Canada and the UK continues to lag the U.S. market," resulting in a 2.3% revenue decline.

SUMMARY

Wayfair Inc. (NYSE:W) reported third-quarter revenue growth of 9.7% and its best Q3 adjusted EBITDA margin in six years, driven by a double-digit expansion in U.S. market share. Management reported that order growth reached a post-pandemic record of 12.2%, while advertising expenses fell to single digits as a percentage of revenue for the first time since 2021. The company is actively shifting its strategy toward direct customer traffic and creator-led commerce while integrating artificial intelligence across its shopping platforms through partnerships with Meta Platforms, Alphabet's Google, and OpenAI. Wayfair is also expanding its physical retail footprint, with five new stores scheduled to open in 2027 following positive performance in existing test markets.

• CEO Shah noted that the U.S. market share spread reached double digits in the third quarter, compared to high single digits at the end of 2025.
• CFO Gulliver attributed higher-than-expected expenses in the third quarter to a one-time settlement with the Competition and Markets Authority in the UK.
• Traffic referred by AI doubled sequentially in the third quarter and now represents approximately 1% of total traffic.
• Management reported that revenue from direct visits rose over 15% year over year, supported by a 40% growth in the company's text message audience.
• Shah highlighted that creator program sales during the recent Way Day event grew more than 70% compared to the event held in the fall of 2025.
• The company reported it received double credit upgrades from S&P and Moody's during the quarter, following an earlier upgrade from Fitch.

INDUSTRY GLOSSARY

• Agentic Commerce: An emerging retail model where AI agents assist customers in product discovery, room coordination, and transactional execution.
• AOV: Average Order Value, calculated as total net revenue divided by the number of orders delivered.
• CastleGate: Wayfair's proprietary fulfillment and logistics network that stores supplier inventory and optimizes delivery speed.
• LTM: Last Twelve Months, a financial period consisting of the most recent 52 weeks or 12 months used for calculating rolling metrics.
• Wayfair Rewards: A paid loyalty program designed to increase customer lifetime value through member-only benefits and lower prices.
• Way Day: A major annual promotional event held by Wayfair featuring significant discounts to drive volume and new customer acquisition.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the Wayfair Q3 26 Earnings Release and Conference Call. After today's prepared remarks, you would like to ask a question,, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Ryan Barney, Head of Investor Relations. Ryan? Please go ahead.

Ryan Barney: Morning, and thank you for joining us. Today, we will review our third quarter 26 results. With me are Niraj S. Shah, Co-Founder, Chief Executive Officer and Co-Chairman; Steven K. 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 fourth quarter of 26. 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, 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 contribution profit, contribution margin, adjusted EBITDA, adjusted EBITDA margin, and free cash flow. 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 contains descriptions of our non GAAP financial measures, and reconciliations of non GAAP measures to the nearest comparable GAAP measures. This call is being recorded and a webcast will be available for replay on our IR website. I would now like to turn the call over to Niraj.

Niraj S. Shah: Thanks, Ryan, and good morning, everyone. We are pleased to be here to discuss our third quarter results. Q3 was our strongest quarter of growth in the post pandemic period. With total net revenue up 9.7% year over year and our US business growing over 11%. That growth flowed through nicely to the bottom line, with an adjusted EBITDA margin of 6.9%, our best Q3 results since 2020. At the start of this year, we told you we expected to take share in the US, at a pace we had not seen in several years.

We entered 2025 with a US share spread in the mid single digits, widened it to high single digits by year end, and promised to push it into the double digits in 2026. With US revenue growing double digits against a roughly flat category here in Q3, we have done exactly that. That growth was driven by orders, which were up 12% year over year. That translated to strength in customer growth with active customers up more than 4%, and new customer orders up over 14%. Another post pandemic record. The momentum we have on orders and customers gives us confidence that our share gains are structural. Because order growth compounds over time while AOV growth does not.

We are very excited by the trajectory we are on, and we are still in the early innings. Earlier this year, I described the many pistons powering our engine of growth. And you are seeing their success in real time as they work in tandem. We are frequently asked which of these is the biggest driver to our share success. The answer is that it is not any single 1. Programs like Wayfair Rewards, Wayfair Verified, Delivery Plus, our stores, along with long standing businesses like Perigold, our specialty retail brands, and Wayfair Professional, all sit on top of a core recipe of assortment, availability, speed, and price. That is the strongest it has been in our history.

Most of these initiatives are still early in their maturity and they compound on that core and on 1 another to produce outcomes like we just delivered in the third quarter. Let me give you an example of how that works in practice. A shopper walks into 1 of our stores and discovers the depth of our catalog. Including categories like bedding and tabletop she may never have thought to buy from Wayfair. She joins Wayfair Rewards at checkout, giving her 1 more reason to come back. Her kitchen table arrives in days rather than weeks because we are shipping close to our CastleGate fulfillment centers.

And the next time she shops online, the verified badge helps her choose with confidence. She comes back more often, she benefits from low prices due to rewards, And for Wayfair, our ad costs have fallen, improving her customer lifetime value. And as she helps our volume grow, suppliers invest more in our platform and sharpen their pricing, which makes the offer even better for the next customer. that is why we have real confidence that our US share spread can keep building into 2027 and beyond.

You have heard us say this many times, but our success has been independent of the macro, And when the category does return to growth, that spread will apply to a much larger base. We are also following the same playbook now in our international markets, albeit at an earlier stage with more to roll out in the coming quarters. Our approach remains the same. Grow faster than the market, flow that growth through to maximize adjusted EBITDA dollars, and keep reinvesting in what earns the customer's loyalty. The concept of loyalty is a critical 1 to our flywheel.

We began this year talking about loyalty in the scope of our rewards program and I now want to round out the year returning to the topic of loyalty and how we think about it across our marketing investments. Over the past 2 years, we have grown orders faster while spending less on advertising as a share of revenue. Which was under 10% this quarter for the first time since 2021. This is even as we have invested more in our brand and channels that are newer to the mix. So today I would like to spend some time on what has driven that progress why we believe it lasts, where we are headed.

The first driver is that more customers are coming to us directly. Rewards verified our stores and a better, faster site and app all give customers more reasons to start their shopping with Wayfair. In the third quarter, revenue from direct visits was up more than 15% from a year earlier. That comes in tandem with nice improvements in our core channels. For example, we have grown our text message audience by more than 40% over the past year with revenue from those texts up by more than 30%. The second driver is measurement. Which has always been central to how we run Wayfair.

From our earliest days, we have built our own in house tools to understand what every marketing dollar returns. And that discipline is a big part of how we stayed efficient. Over the last few years, several things shifted at once. Privacy changes across the major platforms made traditional attribution less reliable, and customer behavior evolved in the post pandemic environment, changing where and how people shop for their homes. In response to this, we have significantly increased how often we test, leaning more heavily on controlled experiments that isolate the true incremental impact of our spend, Not surprisingly, that combination has surfaced opportunities to reallocate spend.

Where the spend was mostly reaching shoppers already on their way to Wayfair, we have pulled it back. And where it reliably drives incremental sales, as with influencers, we are leaning in. This is 1 of several factors that helped our conversion rate increase. By more than 30 basis points. Since early 25. We have shifted more spend toward building the Wayfair brand with TV now a larger share of our marketing mix including the fall campaign we launched in September, in tandem with the NFL season. And into newer channels like creators and video. These investments build familiarity and trust in the Wayfair name and you can see it in how customers find us.

Branded search visits, where a customer types in something like Wayfair sofa, to a search engine, up more than 17% in Q3. Every customer who comes to us directly is 1 we do not need to pay to reach again which frees up dollars to keep investing in growth. We Creators are the clearest example of where we have ramped investment. Home is a category made for creator content. A product styled in a real home answers the questions every shopper is asking. Which is how it will look in her space. So we built our program around what creators told us they needed, we treat them the way we treat our suppliers. We succeed when they succeed.

And that work is paying off. Sales driven by creator content grew more than 70% during this past Way Day, versus our event last fall. The program now includes tens of thousands of creators who together with our partner networks have produced hundreds of thousands of new pieces of content this year far ahead of what we produced in 2025. Creator program sales have already surpassed their full year 2025 total and LTK, our largest creator network partner, recognized Wayfair this year for leading what is next in creator commerce. there is a lot we are excited for ahead, such as creator storefronts on the site and app, which is set for a full rollout in 2027.

Creators are 1 example of how we are increasing our reach to make sure we are prominent everywhere a customer may start their home shopping journey. These journeys can start in many places, in a store, a social feed, a search interface, or an AI assistant. Wherever her journey begins, we want Wayfair to be there and to make it easy for her to keep shopping. With us. In terms of AI applications and agents, our goal is simple. And the same as how we think of other surfaces. Wayfair's catalog should be available wherever shoppers are, and optimized for the channel.

To that end, we are working across the major AI platforms and agent applications rather than betting on any single 1. We are confident that Wayfair is well positioned to compete here because we bring strengths we have spent 2 decades building. The broadest selection in the category rich and accurate product information, customer reviews, competitive pricing, and fast, reliable delivery. We share tens of millions of products with these platforms, and we are using AI of our own to enrich that catalog data at scale. While AI assistants are a new place for customers to start, we are seeing that the destination is usually the same.

Most shoppers who discover us through these tools continue their journey on Wayfair's own site and app. And even when a customer does buy inside an AI assistant, Wayfair remains the retailer. The order lives in her Wayfair account, and we own the delivery and service promise. Either way, the relationship is with us. it is still early, this traffic is growing quickly. AI referred visits more than doubled sequentially in the third quarter, to roughly 1% of our total traffic. Much of our progress here comes from working hand in hand with the platforms themselves. And from partnerships with Google, OpenAI, and Meta and these show what this looks like.

Google has been an important partner for nearly our entire history. When Google set out to build an open standard for agentic commerce with the industry, Wayfair was a foundational partner in codeveloping the universal commerce protocol. Today, customers can find our products, even complete a purchase from Wayfair and Google's AI experiences. We are also seeing many shoppers discover products in Google's AI experiences and then continue shopping on Wayfair's site which helps us build lasting relationships with those customers. With OpenAI, we were 1 of the first advertisers on ChatGPT. and 1 of the first to launch a Wayfair branded shopping agent that customers can chat with directly inside the platform.

Many conversations with our agent are multi turn, the most common request is help decorating or coordinating a room. Exactly the kind of inspiration led shopping where Wayfair's assortment and design expertise stand apart. And when she's ready to buy, she completes her purchase on wayfair.com, where her orders, her rewards, and her saved looks all live together. So a conversation that starts in ChatGPT becomes the beginning of a direct relationship with Wayfair. We were also 1 of the first partners announced for Meta's Muse. Our full AI-optimized catalog is now live in Muse, and we are partnering with Meta to explore richer agent led experiences.

So much home inspiration already starts in social feeds, and an assistant that helps a shopper turn that inspiration into a home she can actually buy is a natural fit for the breadth of our catalog. The better AI agents get at helping customers navigate a vast, unbranded, and complex category like home, the more our scale, our data, and our logistics advantages come through. Whether a customer first meets us through a creator, a search, or an AI assistant, our goal is the same. To turn that first interaction into a lasting relationship so that the next time she's shopping for her home, she comes to Wayfair directly.

That loyalty is what has been driving our direct traffic higher as shoppers choose to come back to our site and app to have a shopping experience custom tailored for the home category and, increasingly, for that customer herself. This is where much of our customer experience investment heading into 2027 is focused. Making our site work more like a personal design partner, with room ideas tailored to her style, and complete looks built around what she's browsing. All anchored to inventory, we can deliver. that is the flywheel we are building.

Every customer we earn, wherever she first finds us, becomes 1 who comes back to us directly more often and at a lower cost, and that is what we believe will keep fueling both our share gains and our adjusted EBITDA growth into 2027 and beyond. With that, let me turn it over to Kate to walk through our financials.

Kate Gulliver: Thanks, Niraj, and good morning, everyone. Let's dive into our financial results for the third quarter. Revenue for Q3 grew by 9.7% year over year, with the US segment up by 11.4%. And our international segment down by 2.3%. As we discussed last quarter, our international markets are in earlier stages of share than our US business, and the home furnishings category in Canada and the UK continues to lag the US market. Orders were up by 12.2% versus the third quarter of last year, while AOV contracted by roughly 2%. Most of the decline was driven by various facets of mix shift as the spread between the wayfair.com business and our other higher AOV business lines narrowed.

Let me continue to walk down the P&L as I do please note that the remaining financials include depreciation, amortization, but exclude equity based compensation, related taxes, and other adjustments. I will use the same basis when discussing our outlook as well. Gross margin for the third quarter was 29.6% of net revenue, driven by investments we continue to make in loyalty and the broader customer experience. Customer service and merchant fees were 3.7% of net revenue, while advertising was 9.9% of net revenue. As Niraj called out, the first time we have had a single digit result on this line since 2021. The net of this was a contribution margin of 16.1%.

The progress we have made on advertising is a reflection of years of work as we have retooled our testing and expanded our channel portfolio. We will get to guidance in a moment, but some of the advertising cost here in Q3 was also a function of timing, and we would expect this number to come back up in Q4 as we lean in ahead of the holiday season. Selling, operations, technology, general and administrative $378 million in the third quarter. This came in slightly higher than our guided range as we saw a few 1-time costs hit in the quarter, including the competition and markets authority settlement in the UK.

Reflecting the 1-time nature, we fully expect to return to a range of $360 million to $370 million next quarter. That did not stop us from delivering 1 of our most profitable quarters in history, with adjusted EBITDA of $236 million for a 6.9% margin on net revenue. Working to the bottom of the P&L, we delivered $62 million of net income here in Q3, a more than $160 million improvement compared to the third quarter of last year. On our last call, we shared an in-depth breakdown of the bridge between producing positive adjusted EBITDA and positive net income. And we are pleased to see that play out here in Q3.

We ended the third quarter with $1.1 billion of cash and equivalents on our balance sheet and $1.5 billion of total liquidity when including our revolving credit facility. Cash from operations was $198 million, while capital expenditures were $62 million for free cash flow generation of $130 million in the quarter, more than 40% higher than what we produced in the third quarter of 25. While we had less activity on the capital markets front this quarter, I would be remiss if I did not call out the double upgrades we received from both S&P and Moody's, matching what we received from Fitch earlier in the spring.

We talked at some length about our capital structure priorities on the last call, and part of that included a transition from repurchasing our convertible bonds to repurchasing our equity outright. Q3 marked the beginning of that. We repurchased $60 million of shares at a full offset to the stock based compensation we paid out in the quarter. The result is a roughly flat share count quarter over quarter. As we discussed, we intend to make this offset a part of our capital allocation strategy while remaining opportunistic to modify when we believe it is appropriate. Now let me turn to guidance for the fourth quarter.

Starting with the top line, we would guide you to a high single digit growth range for Q4. We are pleased with the momentum we have seen to start the quarter with Way Day last week, nicely setting up the holiday events later this month. Turning to gross margin, I would continue to guide you to the range of 29.5% to 30.5% of net revenue. Once more targeting the lower portion of the range. Customer service and merchant fees should be in line with what we delivered in Q3 as a percent of net revenue, and advertising should be in a 10.5% to 11.5% of net revenue range.

We do expect advertising as a percentage of revenue to come up in Q4 compared to Q3. As I mentioned a moment earlier, there is some seasonality at play as we lean in heavier during the holiday season. But would still expect healthy year over year leverage on advertising versus what we reported in the fourth quarter of 25. SOTG&A should continue to be in a range of $360 million to $370 million. Working our way down the P&L, we would expect adjusted EBITDA margin in a range of 6% to 7% of net revenue for the fourth quarter. Now let me touch on a few housekeeping items.

We expect equity based compensation and related taxes of roughly $60 million to $70 million. Depreciation and amortization should be approximately $59 million to $65 million. Net interest expense of approximately $42 million, weighted average shares outstanding of approximately 138 million, CapEx in a $70 million to $80 million range. You are beginning to see this line item grow as we ramp up our investment in stores, and that will continue into 2027. Of course, this is all in the construct of strong performance from our stores, which allows us to self fund that growth while still driving robust and growing free cash flow.

As we head into the holiday season and look ahead to 2027, I want to step back for a moment. A year ago, we told you we would invest judiciously to grow the business at a rapid pace while growing adjusted EBITDA faster than revenue. And that is exactly what this quarter shows. Our US share spread is now in the double digits. That growth is coming from orders and customers. We are spending less to acquire each of these customers, and more of each incremental dollar is reaching the bottom line. In adjusted EBITDA, in net income, and in free cash flow.

With a stronger balance sheet and a share account we are tightly controlling, we are turning that growth into more value per share. Most of the initiatives Niraj described are still early, and we believe the best of this compounding is still ahead of us. Thank you. And with that, Niraj, Steven, and I will take your questions.

Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question,, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open. Please go ahead.

Simeon Gutman: Good morning, everyone. Thanks for taking our question. So my first question is on loyalty. Can you talk about how pleased you are with the level of growth that you are getting and the level of call it, gross profit dollar growth. And, Niraj, is there a way to tell us the level of inning that you are with this? Does this completely change your ability to talk to consumers? It feels like it is only a couple of quarters in and I would. I wanna ask how much, I guess, the share spread. Are we early in the share spread equation? Could that even, grow even further? Thanks.

Niraj S. Shah: Hi, Simeon. Thanks for your questions. Yeah, let me start with loyalty. So on loyalty, I would say. So we are very pleased. We launched it not quite, probably about 2 years ago. And what we have seen is it is been growing at a nice rate. But to your question about innings and the growth ahead of us, the way to think about it is there is a lot that is ahead of us because what you get is sort of the folks who are paying the most attention, your most interested customers early, But a lot of what we think is ahead of us is the program has very substantial benefits.

When we talk to customers about it, they get very excited about it. It would still be relatively easy for a customer to be unaware of the program. And so if you think about all the places on our services where we can help existing members know of all the benefits, additional benefits they have so we can get more dollars per year from them. Gross profit dollars per year as you ask. Or when you think about the large.

Much larger number of people who have not yet joined, where they can then learn about what the program is, the benefits they get, and then sign up And then once they sign up, you know, the behavior changes because they want to take advantage of the program that they just joined. That still has room to grow. So I would say that we think we are in terms of innings you know, it is not the first inning, but it is not far into the game. Call it the third inning or something, second inning.

You know, it is pretty it is pretty early in the game, and we think this can ramp to be a much higher percent of revenue than it is today. And, you know, as you know, the core tenet of the program is that it offers customers really tangible value in a way that encourages them to consider us much more top of mind as their go to place for all things home. Getting them buying across more categories, the dollars per year go up. And our profit dollars per year go up because the. Really, the ad load associated with the revenue we get from that customer dropped significantly.

So even though we are giving them benefits, you know, we are a net winner on this. In terms of how that ties in with share spread, how we think about share spread, you know, we have now talked for a couple years about how when we entered 2025, we were at 0% year over year growth. Which was taking share because the category was negative, but it was not a lot of And we talked about how we could go from 0 to 5, 5 to 10, 10 to 15, 15 to 20, to 20-plus. We talked about how, you know, the recipe, price selection, speed availability was the foundation of how we have been taking share since 2022.

But that in 2025, we were now in a position where we could augment that with new programs. Because we have gotten far enough in the tech replatform that we could allocate efforts then. Rewards, loyalty, verified, delivery plus. You know, are some examples. Well, those have gone well, Have helped accelerate our growth. Now that we are even further into the replatforming and a big merchandising catalog change, we now, the whole concept of product-led growth can now get more attention. And, obviously, agentic commerce can even further accelerate that. And so with the way we think about it is, you know, we are basically at 10. Right?

So we start talking about this at 0, 5, 5 to 10, 10 to 15, 15 to 20, 20 plus. We are basically at 10, and we are basically just marching along this agenda. So you are gonna see that continue to happen. And so from a share spread standpoint, we do not expect the categories growing at those rates. Like, stepping up at those rates. So the share spread is effectively the difference. You are going to see that continue to widen.

Simeon Gutman: Okay. And then we are talking about EBITDA growth, and we talked about the outlook for this year being faster than revenue growth. Is that a reframing going forward permanent reframing? We should not talk. Think about margin. Anymore. We should think about dollar growth. And how does physical retail affect that growth rate 1 way or the other?

Niraj S. Shah: Yeah. So well, I think ultimately the thing we are optimizing for certainly is EBITDA dollar growth. But if EBITDA dollar growth grows faster, than revenue growth, the margin does expand over time. But I think we want to focus on EBITDA dollar growth because EBITDA dollars can go up 2 ways. 1 is the margin rate expanding, but the other is the revenue dollars expanding. And I think the way that you can actually get the furthest over any meaningful period of time is actually to think about both of those and not over optimize for the margin rate.

So the margin rate will continue to rise but you are gonna see the EBITDA dollars grow faster because on a relative basis between margin rate and revenue dollar growth, you are gonna see the contribution from revenue dollar growth. Be quite high.

Kate Gulliver: And, Simeon, I would add 1 point. I think you mentioned that is that a sort of a change or a shift that is actually, I think, pretty consistent with how we have talked about it for some time and how you have seen it play out for several quarters in a row now. You also, I think, added how is physical stores impacting this EBITDA dollar growth rate. And I think it is important to note that as we think about the stores, we are quite focused on the contribution of those stores.

And we are seeing, as we have talked about, some really nice performance out of the Chicago market. that is driving, you know, significant revenue growth there. We are seeing really nice performance from the additional 2 stores. And so as we think about how that flows through the P&L, we are focused on that continuing to be, you know, over the long run, still meeting that improved EBITDA dollar growth and improved EBITDA margin growth. The stores themselves, we have long talked about those being self funding. As we think about the investment in stores on a capital perspective, that as well, we wanna do in a self funding way.

Simeon Gutman: Okay. Have a great fourth quarter. Thanks. Thank you.

Operator: Your next question comes from the line of Christopher Horvers with JPMorgan. Your line is open. Please go ahead.

Christopher Horvers: Thanks. Good morning, everybody. I know you do not speak directly to the quarter to date, but you did mention momentum. We have seen some other categories at retail, slow down based on the data points that we can see. We have had a very highly contested election, you know, the highest midterm spending of all time. You have gas prices up. And so can you talk about what you have seen from the home furnishings market growth rate? Was there any sort of shake in the market here in October? And any concern about the consumer?

Do you think there is some deferral of spending to post election especially as we think about the, you know, double digit share gains in Q3 versus the high single digit guide for Q4?

Niraj S. Shah: Yeah. I think you are. You can kind of have 2 questions wrapped in there. Right? So 1 is, like, how are we how do we think the category is doing? And the second is how are we doing? Right? And so I think if you break those apart, I think the category continues to bump a lot. And so, you know, it is it is it is a category that is been out of favor for some time. that is a very, very large category. And it you know, it. it is it is cyclical, but we are probably on the low end of the cycle or at the bottom. And so and we are seeing.

We are not seeing any signs of it, you know, you know, it is basically bumping along at a low and that. it is kinda been that way for a while. So I would I would say consider that sort of you know, holding the course it is been on. In terms of how we are doing, we feel like we are doing quite well. But I think we are doing quite well for the reasons I mentioned earlier. Right? The recipe, what we are doing with product led growth, what we are doing with programs, and we feel pretty, happy with our continued performance and our continued momentum. And it is not necessarily because the macro is changing.

At all. it is really because of the things we are doing.

Christopher Horvers: Understood. And then on the advertising rate side, especially in light of the success that you are seeing in loyalty, if you went back to the IPO, I think you targeted a 6% to 8% margin rate on average advertising. You were a hair below that in the third quarter and an 80% repeat rate. As we think about potential advertising efficiency, to what extent does this rate come down over time back to that original goal? As you build out the brand as you mentioned?

And then to what extent is that improved tied to our higher repeat rate I was just wondering how that 80% compared to maybe some of the more established home furnishings brands out there in the retail world and how high that needs to go to maybe get that advertising rate down into that original 6 to 8.

Niraj S. Shah: Yeah. So, you know, for some of the modeling questions, let me turn it over to Kate in just 1 second. But I just. Let me talk about the 80%. So I think the way to think about the 80%, we are not particularly focused on 80%. Meaning, we wanna grow repeat a lot and we wanna acquire new customers. And the 80 is like the mix of the 2. And so if you are doing both equally well, you know, the 80 would hold. Ultimately, if you get bigger and bigger, you might say there is less new customers to get, and so the repeat could grow.

I think at the end of the day, the repeat number should be pretty high because, you know, if repeat's not working, then the business is not working in retail, you know, if you are not delivering your customers a good experience, they are not coming back. Whether you have a problem in the near term or the midterm, you are gonna have a problem. And so we tend to look at repeat on a narrower definition, which is, you know, our net repeat rate. So different customer cohorts, how often are they coming back, and so it is not the metrics that are easy to see when you zoom out to the total.

Because that has a lot mixed into it together. But, basically, we are seeing repeat strengthening and climbing, whether that is a more loyal customer, or that is a relatively new customer to the brand, whether that is a ecom only customer, that is a customer. Ecom customer who is then experienced stores and then what they do. So we cut it up many, many ways. And so we are seeing that all going the right way, which is effectively the leading indicator of your future revenue and your future revenue growth rate. In terms of the. How the guidance and the PML shape, let me turn that over to you.

Kate Gulliver: Christopher, I am impressed that you can pull a model from 12 years ago that embarrassed to say I was probably involved in developing. So thank you for the callback. But as it speaks to sort of AC and our leverage, you know, clearly, we are seeing some nice momentum on AC and R leverage over the past 12 months. And I think a number of the things that Niraj mentioned are helping to drive that. So loyalty is something that should drive AC and R leverage. And structural improvement over time. You know, further order volume growth and repeat growth to your point, does drive AC and R leverage.

And you see that start to show up in repeat order growth has actually grown quite nicely over the last several quarters. Niraj shared his data on his call when he was talking about the marketing spend saying that revenue from or direct revenue associated with direct traffic is up 15% year over year. So you are seeing that momentum and that push that does help give you know, more structural AC and R leverage. That said, we do see some seasonality here.

So I just want to remind folks that we sort of called out some of the improvements this quarter, maybe hit a little bit better because of the seasonality that we might see in the fourth quarter and you know, we noted that obviously in the guide. But over time, you have seen that nice engagement there.

Christopher Horvers: Thanks so much.

Operator: Your next question comes from the line of Oliver Wintermantel with Evercore ISI. Your line is open. Please go ahead.

Oliver Wintermantel: Thanks. Good morning, guys. So your contribution margin reached 16.1% despite lower gross margins. And as we think about 4Q and next year, how much of that improvement is sustainable? And where do you think you have to reinvest? Yeah.

Kate Gulliver: Oliver, I will start. So the first thing I would point to is, you know, we have talked at for some quarters now about 15% being sort of a general place where we are operating contribution margin from. Is that the right position to, as we talked about a few questions ago, really hit on that place of accelerating revenue growth and accelerating EBITDA dollar growth faster than that revenue growth. So that 15% place seems to be generally sort of the right balance of trade off on that gross margin in the AC and R. Obviously, quarter, you did see that accelerate a little bit.

Again, as we just talked about, Christopher, some of that is due to the seasonality of marketing spend. And so in the guide, you know that goes back to roughly that 15% place for next quarter.

Niraj S. Shah: I think the thing, just to zoom back out. Right? We. We were talking a few minutes ago about EBITDA dollar growth and margin rate. And what we are trying to do. So think about the business, ultimately, what we would like to have is a very large business So that. what is that. that is revenue with a very large amount of profit. Right? And what is that? That. that is the EBITDA dollars or the owner's earnings, your EBITDA less free cash flow. Whatever way you wanna think about it. But, ultimately, it is what is the true intrinsic process associated with that revenue. Right? And so then the question is like, how do you get there?

So the strategy of how we get there is what we have talked about. Right? We believe in the recipe. We believe in programs. We believe in product led growth. We think these things are really going to that strategy executed well will get this outcome. So then when you start going to like lines in between on the P&L, those lines have a number of things and trades in them. But ultimately, the way you can tell if you are making the right trades is gonna be a combination of, you know, what is what is that revenue growth? And the revenue dollars, and what are the profit dollars?

And if you are growing the profits faster than you are growing the revenue, your margin rate will continue to tick up. And at that point, our view is what you would wanna do is not worry about the margin rate speed of going up. Like, the. You know, basically, the velocity. What you wanna worry about is already maximizing the dollars as you go. Ultimately, you wanna get to the biggest dollars, and the margin rate will keep climbing if you do exactly what I said well. But if you opt. Overoptimize for the margin rate, you may end up with less dollars. Than you could otherwise. Right?

So you wanna do both, which is your growing the margin rate, but that is secondary to growing the dollars. And so you are growing the margin rate while growing the dollars in maximum amount. And you are doing that by balancing the margin rate contribution with the profit with the revenue. Contribution times the margin rate. Right? And so the lines in between you know, to our mind, there is always trade offs and we are gonna optimize those to get the outcome I just described. Got it.

Oliver Wintermantel: Thank you. And then just on international EBITDA, the loss widened to $25 million can you maybe talk about what is driving the deterioration there and what needs to change before the U.S. growth initiatives can translate into better international results.

Niraj S. Shah: I will turn it over to Kate in just a second. But let me just say, you know, tried to address this in the script. I think the thing to realize is, like, when we when we talked about how. Because we got our tech cycles back, we are able to focus on programs and focus on product led growth. there is a little bit of a sequence to that, and we prioritized wayfair.com. As the first place we did that work. So you can see that by, like, some elements Like, when did we launch rewards? Like, for example, we launched rewards, you know, a year and a half or more later. In our, you know, foreign markets.

Or, there is still programs like delivery plus or stores that we have not launched in our other markets. So there is basically a lag associated with the strategy playing out in other markets relative to playing out in The US. that is the main point I would make, but let me turn it over.

Kate Gulliver: Yeah. I think, you know, Niraj spoke to the revenue piece. Obviously, the top line, we have long said that the maturity curve is at an earlier state in these markets. And I think when you speak to represents how we think that can improve over time as we launch these initiatives, Loyalty, for example, just launched in the spring in both markets, and we have seen nice engagement there. Specifically, on your point on the EBITDA dollar, I did mention on the call, we had a onetime expense on the SOTG&A line. That was specific to The UK, the competition and market authority there.

And so that obviously would an impact on the EBITDA dollars in The UK this quarter, or in international this quarter rather.

Oliver Wintermantel: Got it. Thanks very much, and good luck.

Operator: Your next question comes from the line of Maria Ripps with Canaccord. Your line is open. Please go ahead.

Maria Ripps: Great. Good morning, and thanks for taking my questions. I just wanted to go back to market share gains. And I guess, how much of this outperformance is coming from structural improvements in your competitive position versus perhaps sort of opportunities created by the current industry environment? And then how should we think about sort of incremental drivers of further share sort of acceleration from here? And then I have a quick follow-up.

Niraj S. Shah: Yeah. So I think the market share gains, I mean, ultimately, the environment, whether it is a weak or a strong environment, ultimately, it is competitive between you and your competitors. And so I think it is really about what you are doing that. and how does that line up with what customers want relative to what competitors are doing? And so I think, I would say it is more structural. Right? So in other words, there is things we are doing on how we reach customers from a marketing standpoint. there is things we are doing on how we do delivery. Things we are doing around how we provide selection.

Things around how we help customers have confidence in items around curation. These things, I think, would matter whether it was an upmarket or a downmarket from a macro standpoint. So in that sense, I would say, I think it is I think it is structural. And the drivers to expand the share spread and to expand the share gains are really the same things I have referenced. Right? The recipe. it is the programs, and it is the product led growth. Those things, a number of big things I would point out there is you do not necessarily need new ones of those. Because the. Most of those are things that compound.

And so you can continue to execute on that program as you make it stronger and stronger. It has a compounding effect. They also compound with each other. So there is interplay between each other. Simeon joins rewards, In the meantime, you make. They download the app, and then in the meantime, we are making the app better. In the meantime, you know, you figure out new, things to do during promotions that are more engaging. You augment selection in a category. Right? These things all compound on each other.

Maria Ripps: Got it. that is very helpful. And then you touched on AI partnerships and sort of some of the key developments there. But as product discovery sort of shifts toward, like, AI agents, how would you expect sort of your customer acquisition strategy to evolve? And what are the implications for marketing efficiency and spending over time?

Niraj S. Shah: Yeah. So I think AI agents, AI surfaces, that is just an evolution in our mind for our category relative to you know, properties like Meta or Pinterest or Google from years past. And the reason I say that is ultimately, customers may start their experience any number of places.

And whether they do it entirely on their own, or whether they do it with a friend or whether they do it with an agent, The question is, at what point do they want to, be more involved in that in other words, if they start by working with an agent, if it was a category that is more of a commodity, we would expect the agent could take quite a lot of agency and execute that all the way through for you. If it is a category like picking out a sweater or buying a sofa, I think the agent can help you get started.

And what the agent would be able to help you be aware of is that Wayfair has the biggest selection. It has the most editorial content, It has, you know, the, you know, best price value. It has the past delivery. These types of things. And it can then steer you there. But, ultimately, we believe that what you are gonna find is most customers are really gonna wanna be the ones who then explore And the things we can do on our services with the customer, I think, are richer experiences than what the agent can do for them. If they want the agent to transact for them, we mentioned we do this with Google today.

They could do that. We think that is a rare case, which is the same thing Google found with shopping or Pinterest found with buyable pins, so on and so forth, which is just that customers ultimately depending on a category behave differently. And that, we just think that is a. that is not a common use case. But what you are gonna find is that we are gonna optimize ourselves in all places. Optimize ourselves in how we work with agents. Optimize how we are handling how we appear on AI surfaces in the organic results.

Optimize how we work in AI services, as the ad products get developed and mature over time, And you actually find us to be an early partner with all of these folks and helping effectively build this product set in all these places just like we have done in kind of all the other products over the years.

Maria Ripps: Got it. that is very helpful. Thank you.

Operator: Your next question comes from the line of Michael Lasser with UBS. Your line is open. Please go ahead.

Michael Lasser: Good morning. Thank you so much for taking my question. As you have seen this growth over the last several quarters, is the nature of the customer or the composition of the basket any different than either what Wayfair has experienced in past cycles or what you have expected. The intention of the question is to try and determine to what degree are customers buying more core related items and they are going to come back as the furniture element of the category really starts to recover. Thank you so much.

Niraj S. Shah: Yep. I think I mean, the answer to your question is, you know, yes and no. Like, we have such a broad base of customers who all kind of engage in different ways. So you know, 1 of the things we have been very excited about, what we have seen, for example, with stores. Is that, you know, it does make us much more obvious and a strong source for all these frequency items, you know, as you referred to as decor, bedding, housewares, And so that. that is been exciting. You know? And to the earlier question about AOV, that would, for example, draw down AOV.

But to your point, would be more top of mind We are getting their purchases big and small, so we are growing revenue per customer per year. And the more top of mind you are, the more you are gonna be in line for that big purchase when they get around to it because they are gonna think of you as a place to go explore for that. Right? So there is that. But I do not want to make too much of it. Like, you know, what we are doing is we are doing things on every dimension. I mentioned earlier, for example, large appliances. We are growing a large appliances business.

We are there is very few folks who have, you know, selection from LG and Samsung and GE and, you know, the majors, and we are 1 of a handful. And I think we are particularly well positioned to build that business. Well, that. You know, that. that is a category we gotta build awareness of, and that is a category that we are actually growing at a very fast rate, but it is relatively small. And that does not play into the thesis of, you know, focusing on decor. So we are doing both. Is, I guess, my only point. I do not know, Kate.

Kate Gulliver: Yeah. Michael, I just add, because you know, I enjoyed your piece on the overall cycle and the replacement cycle in the category. I would say right now, we do not see the category sort of seeing that yet. Right? And again, what we are seeing is our own share gains. Now those are broad based, as Niraj pointed it out, across a number of different categories. So something like stores is driving frequency. But something like our own, you know, initiatives may drive bigger or bulkier items. But it is not as if seeing pronounced sort of outperformance in 1 sector or another.

And this is why we go back to the point of AOV being an output, not an input, because we are not driving trying to drive pronounced outperformance of 1 sector or another. We are in fact sort of trying to drive sort of wholesale share gain. I think we are seeing that.

Michael Lasser: Understood. Thank you very much for that. My follow-up question is, as you look at the drivers of the gross margin in the third quarter, how much of the change was due to what might be termed reactive factors, like consumers getting a discount because of the loyalty program, versus more proactive factors such that you are taking some of this outperformance and working with your vendors to lower price. And the intention of the question is obviously what your message seems to be as you get into next year your gross margin might fall below the 29.5% low end of the range that you are guiding to this year.

So just help frame if that is a realistic expectation the different pieces of what would be driving that more proactively that will help future quarters versus reactive. This is a function of how the model's gonna work. Thank you so much.

Niraj S. Shah: Yeah. Sure. I mean, I will turn it over to Kate to answer that, but the 1 thing I just wanna remind you, like, what we mentioned earlier right, is that we intend to grow profit dollars faster. Than we grow the revenue dollars. So if you think about that, that means margin rate is you know, holding in there. Right? And so, again, there is these lines in between, but there is, there is a lot of puts and takes as you are saying. But I think chaining together a bunch of negative things would not get you the outcome we are talking about.

Kate Gulliver: So Michael, I appreciate the question because I think it hits on a key point, which is sort of, you know, as Niraj just highlighted, which is how we are thinking about the interplay across items. And we are really focused on that contribution margin And as we have said for a few quarters now that currently, we believe the right place to operate is that sort of 15 ish percent contribution margin. And that will help meet that goal of accelerating EBITDA dollar growth on this multi quarter view faster than top line growth. Or faster than the top line growth, but also growing the business, you know, overall.

And so what does that mean from a GM perspective, a gross margin perspective? That said, there is a few different ways that we have seen good investment opportunities in gross margin. You did see that show up. I would actually say the loyalty is a proactive investment on our part because we have decided that, as an initiative, is really helpful to the overall business. It makes our growth overall more efficient and more profitable. Because we know that the marketing spend to get those customers back in is significantly less. They come more direct. They are more engaged. They buy across categories, actually, as you just mentioned in the first question.

And so they have sort of a broader base experience with us. And we think that is going quite well. So we would say that was an intentional strategy to sort of overall drive the flywheel that drives that EBITDA dollar growth, but then does, yes, have some impact on the gross margin. But the net of all of that is that contribution margin sort of 15% -ish.

Michael Lasser: Very helpful. I hope you guys have a great holiday. Thank you so much. Thank you. You too, Michael.

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

Peter Keith: Hey. Thank you. Good morning. Nice quarter, guys. Kate, you just mentioned the last comment around loyalty making your business more efficient, more profitable. I was hoping you could update us on where you guys stand from a loyalty membership count. I think you came into the year with a little over a million, maybe a goal of doubling it. How has that been going? Do you think you are on track to at least double it in 2026?

Kate Gulliver: Yeah. You know, we do from time to time give updates on pro like loyalty. We are feeling good about the momentum and you know, overall sort of engagement there. I think there is 2 pieces that we are focused on there. 1 is the members, as you mentioned, we feel like we are on track, that is going well. The second is the engagement of those members. So getting them to, you know, sort of increase that incrementality of spend, and, you know, that is going well. it is going well as well.

Peter Keith: Okay. Alright. Well, we will send it over to stores. You know, it is maybe a little early, but you do have the Atlanta Lemma stores now open. Are those seeing similar type of performance as the Chicago store? Its early months? And then related to that, I am wondering if some of this, like, the store success begets more success. In other words, our landlords start to realize that you guys are driving traffic. you could become a large tenant. Are you starting to get more calls and better real estate deals as you are looking to expand that real estate pipeline?

Niraj S. Shah: Yeah. Thanks. I will make a couple comments, and then Kate can also join in. Add any thoughts she has. So, landlords are seeing that our stores draw significant traffic that we have seen them be very keen to get us into their centers. We have continued to stay very disciplined and picky about which centers we think fit what we want, and we have also learned. Continue to learned a lot about the right size space, the right type of space, the right trade area, the right location in the trade area. Like, right cotenancy.

And because the landlords are pretty keen to get us, we are able to combine sort of getting what we need and the right economics to get the financial outcomes we want. So that. that is been pretty that is been a pretty clear signal. As we have more stores open and they are replicable in terms of seeing those strong results, that is the other thing I think the landlords have noticed because they will they will visit multiple locations and they say, Oh, geez. This is very strong. You know, what I am gonna get here and they kind of there is not a lot of concepts that are growing that can be draws like this.

So, yeah, that is all going quite well.

Kate Gulliver: Yeah. Peter, to your specific question on, you know, how are Atlanta and Columbus performing, we see very similar results in Atlanta and Columbus to what we saw in Chicago. And so that state level lift is holding nicely. Obviously, that is a blunt force metric. Right? We do a lot of detailed analysis underneath that to understand the list, but we are. You know, we feel very good about the trajectory there. So that. that is quite exciting. As Niraj mentioned, certainly, having some stores in the ground you know, does help us in ongoing landlord discussions. You know, we have already announced additional leases.

And as you can if you go back and look through the leases, we have 5 stores opening next year, and we are quite excited about those.

Operator: Your next question comes from the line of Chuck Grom with Gordon Haskett. Your line is open. Please go ahead.

Analyst: Hey. Thanks very much. Good quarter. I wanted to double click on the AOB decline and not from a negative perspective, more from a positive 1 in that you mentioned that the spread of the business is narrowing. So I presume that the core wafer business actually got better. In the quarter. So maybe just talk to that. And then more recently, talked about success of Way Day. Do you think you did differently and what is the preview for the upcoming holiday season? Thank you.

Niraj S. Shah: Yep. Thanks, Chuck. Yeah. So. Look. At the end of the day, our total company result can only vary so much from the result of wayfair.com. The sheer size of wayfair.com. it is not the entirety of the business. These other businesses are meaningful. But from a just a percentage standpoint, it you know, it. it is a very large business. Right? And so if it is not doing well, we. As a company, we cannot do well. And so what you are seeing though is that Wayfair is doing well You are also seeing that our other business are doing well.

When you add them up, this is, you know, how do we go zero to 5, 5 to 10, 10 to 15, 15 to 20. 20 to 20 plus. Things all contribute. Right? And that is effectively the route we are marching along. And that is working well. And that is why we feel very confident we are continuing to march along that trajectory. In terms of Way Day, you know, as I mentioned, way day went well. 1 of the things we continue to learn, like, this year, we did a shorter event than we did last year. We continue to hone the calendar.

I would not say we necessarily have, like, more sales or more event days, but we are we are kind of continuing to know how to shape the calendar. And then we are adding features in that are of increasingly exciting. You know? For years, we drive people in by the. Getting them to like, be on our email list, or download the app. Now, you know, the messaging list is now meaningful.

We have added things into promotional events, things like flash deals and other promotional type levers that suppliers can use that just make these events more exciting and also makes it that if it is a 3 day event, not everything is the same each of the 3 days. there is reasons to come back maybe multiple times during that So we continue to learn how to shape it, and then you know, as you know, we are in a variety. We are only in home goods, but we are in a quite a variety of subcategories of home.

And so we are also finding different ways to kind of mix across those categories in a way that makes what we are doing and more interesting as a place for customers to come and check. So I do think there is innovation in what we are doing, in addition to the fact that just the core recipe price, selection, speed availability is very strong.

Analyst: Great. Thank you very much. Appreciate it.

Operator: Your next question comes from the line of Jon Matuszewski with Jefferies. Your line is open. Please go ahead.

Analyst: Good morning. This is Andres on for Jon. You said rewards changes behavior once customers join. A few weeks in, are you seeing a similar shift with Perigold Insider? Which is higher fee and also higher AOVs? And is it pulling in new households or mostly just existing Perigold shoppers?

Niraj S. Shah: Yeah. So, as our conditions are saying, it is super early,, but the way to think about it you know, the same way we have watched the launches, of rewards and geographies. We watched how it launched in the Perigold program launch for Perigold and was launched very strong. So we know, like, first few days what type of revenue penetration we would like to see, what number of sign ups we would like to see. You know? And that is off to a really good start. As you mentioned, it is very early. So, you know, extrapolating is dangerous, but the trajectory the early trajectory is actually very strong.

Analyst: Great. Thank you.

Operator: We have reached the end of the Q and A session. I will now turn the call back to the Wayfair team for closing remarks.

Niraj S. Shah: Everybody. We just want to thank you for your continued interest in Wayfair and for joining. We hope everyone has a great holiday season. And we just want to remind you, whether it is Perigold or Wayfair, make sure you shop with us. We also have a specialty retail brand. So thank you for your interest.

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

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