Good day, and welcome to the Wayfair Q1 2023 Earnings Release Conference Call. [Operator Instructions]. And finally, I would like to provide all participants that this call is being recorded. Thank you. I'd now like to welcome James Lamb to begin the conference. James, over to you.

Good morning, and thank you for joining us. Today, we will review our first quarter 2023 results. With me are Niraj Shah, Co-Founder, Chief Executive Officer and Co-Chairman; Steve Conine, Co-Founder and Co-Chairman; and Kate Gulliver, Chief Financial Officer and Chief Administrative Officer. We will all be available for Q&A following today's prepared remarks. I would like to remind you that our call today will consist of forward-looking statements, including, but not limited to, those regarding our future prospects, business strategies, industry trends and our financial performance, including guidance for the second quarter of 2023. 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 2022, our 10-Q for this quarter and our subsequent SEC filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. Except as required by law, we undertake no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events or otherwise. Also, please note that during this call, we will discuss certain non-GAAP financial measures as we review the company's performance, including adjusted EBITDA, adjusted EBITDA margin and free cash flow. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Please refer to the Investor Relations section of our website to obtain a copy of our earnings release and investor presentation, which contain descriptions of our non-GAAP financial measures and reconciliations of non-GAAP measures to the nearest comparable GAAP measures. This call is being recorded and a webcast will be available for replay on our IR website. I would now like to turn the call over to Niraj.

Thank you, James, and good morning, everyone. We're pleased to reconnect with you today to share the details of our first quarter results. Last August, we shared a road map laying out our path to profitability. The first step was getting back to adjusted EBITDA breakeven. Through a focus on our 3 core initiatives of driving customer and supplier loyalty, nailing the basics and cost efficiency, we've made significant strides in improving our offering and customer experience while simultaneously reducing our cost structure. Collectively, these efforts have resulted in increasing market share and a significant reduction in operating expenses versus last quarter, getting us to nearly adjusted EBITDA breakeven in Q1. And we're excited to share that we expect to have positive adjusted EBITDA in the second quarter. We've always known and now we are clearly demonstrating that the Wayfair model is inherently profitable and that there is considerable opportunity in front of us to rapidly drive further margin expansion while investing for future growth. We've reached this profitability milestone in spite of the difficult macro environment our business has operated in for the better part of the year. Our category, in particular, has been impacted more than others with sales first turning down in March of 2022 and now contracting approximately 20% year-over-year according to many of the sources we follow. While traffic remains challenged, our conversion levels have held steady and our work on nailing the basics and driving customer and supplier loyalty is leading to sustained market share growth. In the second quarter, we're seeing improving year-over-year order trends, and we're just coming off the back of our seventh Way Day event. At the beginning of the year, as we planned a denser promotional calendar for 2023 and we decided to try a 3-day format for Way…

Thanks, Niraj, and good morning, everyone. I want to echo Niraj's enthusiasm at the promising signs we are seeing for 2023. Our team has been working hard to execute the plan we outlined in 2022, and we couldn't be more pleased to see the output now beginning to manifest in the results. So let's dive into the first quarter figures. Net revenue for the quarter came in at $2.8 billion, down 7.3% year-over-year. We are seeing a return to more traditional seasonality in our business and are encouraged by the improving trends we see in order growth. As we shared before, we expected order volume and active customer count to pick up as inflationary prices abated, and we are starting to see evidence of this dynamic playing out. The picture between our geographic segments remains largely unchanged with net revenue in our U.S. segment down 5% year-over-year, and our international segment down 14.4%, excluding the impact of FX. I'll now move further down the P&L. As I do, please note that the remaining financials include depreciation and amortization, but exclude equity-based compensation, related taxes and other adjustments. I will use the same basis when discussing our outlook as well. Gross margin had another stellar quarter, coming in at 29.7%, even as we maintained a robust promotional calendar. Our team continues to make meaningful headway on our operational cost savings, as Niraj discussed, and you are beginning to see that flow through to this line. New York described these savings is process oriented, meaning they will hold and, in some cases, improve as our volume increases, and he noted that we've achieved over half of our targeted annualized savings. Some of which you're starting to see show up in gross margin, while the rest we have passed on to price. It's…

[Operator Instructions]. Your first question comes from the line of Alexandra Steiger from Goldman Sachs.

I do want to double-click on the comments around your Q2 revenue growth. How do you think about the key drivers here? What creates upside versus downside in the trajectory to including the contribution from an extra day for Way Day? Or put differently, could you maybe walk us through the assumption around customer growth, order growth that went into your guide?

Alexandra, thanks for your question. Yes. So I guess the way to think about it is, in general, the first half of this year, the promotional calendar, we've picked a more dense one. We did that in the back half of last year. That's in response to kind of the consumer environment and sort of what consumers are reacting to. And so when we plan that out at the beginning of this year, 1 of the things we did is we tried different formats last year, we ran 2 Wayda events. Other times, we've run 8-day, 6-day, 5 days, 3 days. We've run different sale links. So this year, we decided to try that sort of way day format of the 2 days and then the surprise extension. And we're happy with how that went. That's just one of kind of the many things we've done on the promotional calendar side in response the macro. In terms of the Q2 revenue guide, I mean, we were guiding revenue based on what we're seeing happen, and a lot of that has to do with also underlying drivers in the business. Because it's -- you have the revenue level, but you have kind of what's happening? You mentioned kind of order count and customer count. And what we've been seeing, and you kind of see our active customer numbers, sequentially, we're seeing the sequential pattern hold. And sequentially, we're seeing strength in the business and the core drivers. And so for example, if you look at order growth, if you look at our largest brand, Wayfair.com, it has positive quarter-to-date in Q2 year-over-year order growth. And so there's a lot of different metrics that sort of we're able to see that led to the effect of the guidance we've given.

Your next question comes from the line of Chris Horvers of JPMorgan.

So just touching on that seasonality point. As you think about what you're seeing now, especially compared to a lot of other retailers, I think when all is said and done, they're going to have a pretty tough first quarter here. How are you thinking about that seasonality and the prospect of returning to revenue growth at the enterprise level over the next year.

Chris, thanks for your question. Let me throw out a couple of thoughts and Kate can chime in with some more thoughts of hers as well. I think the biggest thing to keep in mind when you talk about returning to growth is through the first half of this year, we still have unusual revenue compares because we didn't see kind of normal seasonality and normal -- kind of we didn't see revenue kind of normalize after sort of the long COVID years until the middle of last year. So once you get to the middle of this year, if you go through the second half of this year, you now, when you think about year-over-year revenue, you have a kind of a base from a year ago that's normal and you have the what's happening now. And as I mentioned, quarter-to-date, for example, on Wayfair.com, orders are up year-over-year. And while that's not the entire enterprise, and that's just one metric, it sort of gives you a feel of what's happening as we're getting to more of those normalized comps. So I think honestly, it's -- the key is that our recipe is working. So what is that? That's availability, speed of delivery, great value. We're continuing to make a lot of improvements in the customer experience. We're seeing good traction and customer reaction to that. We're then, I think, doing a good job from a kind of order we offer a customer in terms of I mentioned the promotional events and how are we sort of responding to what the macro climate is and working with our suppliers to create that excitement. And then I think from a technical point you need the normal year ago period in order to have the revenue kind of play out where the sort of -- if the business is growing, you see growth. And if it's not growing, you don't see growth. You kind of need last year to be normal too.

Yes. I guess what I'd add to that -- so I think Niraj touched on some of the seasonality pieces. We're also obviously seeing ongoing sustained market share gains. And I think that really speaks to the strength of the core offering. And so to your point, Chris, the macro environment remains somewhat uncertain, we feel very good about our ability to continue to capture share in that market and the strength of the core offering is evidenced by things like order volume in wayfair.com U.S. turning positive quarter-to-date.

Yes. And then on the pricing front, can you talk about how you think about your strategy overall now? And is it different from what it used to be, i.e., you have you have these very fulsome savings on the cost of goods line. I think you used to try to price to market and not necessarily lead the market on price. How are you thinking about your pricing strategy relative to the overall market level now?

Yes, Chris. So I don't know that our pricing philosophy is super different than what it's been for a long time, but just to be clear on what it is for -- so we measure affected the customer's reaction to our price levels. So the price elasticity by different types of goods, different tranches of price. That is a factor in deciding what margin levels we use in different areas of the catalog. One of the inputs to that is understanding competitively where the field is in terms of competitors at price because, obviously, that affects the price elasticity kind of dynamic as well. when goods get to be more heavily branded, the elasticity tends to reflect the need to be very tight to market on price as good get to be less branded and increasingly also exclusive, then there's a factor of kind of you guys need to offer the customer price value, but there's a wider band of how you can price. So we try to do that quite scientifically. And then the underlying thing we've been doing, which you cited is we've been focusing on taking out as much cost as possible so that we can have the margin we want at retail prices we like. And that's what we've been doing. And so a lot of our ability, if you've seen the gross margin has held -- the gross margin is kind of the way we've been able to improve the gross margin all structural savings. So they are not things that are fleeting at all. And we feel like we can continue to actually unlock value in terms of savings, then we can choose to we pass those to the customer and get sharper on price. Or do we put some of it into our margin and there's a balance of what we'll do. But our philosophy hasn't changed, but we're in a much stronger position than we would have been when inventory availability was poor or, frankly, even before we did some of the things that we've done that have advantaged us.

Yes. I think the thing that I'd add to that, Chris, is as Niraj mentioned, we're really seeing nicely in Q1, the benefit of those operational cost savings that we laid out in January. And that continues to be a lever for us that we can pull throughout the rest of the year as we balance both maintaining and ensuring ongoing price competitiveness in this market, but also flowing some of that through to the gross margin line. And as we said on the call, we're very focused on generating gross profit dollars over a multi-quarter period. And I think you'll see some of that balance play out through the rest of the year.

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

Congrats on the progress here. Nice work.

Thanks, Brian.

Thank you.

So a couple of questions. First off, can you discussed in your comments, just I guess, the near term kind of need capital needs here, but recognizing you haven't necessarily given longer-term guidance, but as we're looking at the business model and the business model continue to evolve here. I mean how should we think about kind of that longer-term capital needs of the business?

Yes. Thanks, Brian, for the question. So I want to frame up how we think about CapEx and the components of it. There's 3 key components to CapEx. One is that line item that you see that sight and software development costs. That's capitalized technology labor, so our tech team. And you should see that line continue to moderate a bit based on the reduction in force seen and the ongoing efficiency in our labor force. And I think you saw that show up a bit this quarter. That's about 60% of the total CapEx expenditure in the quarter. The remainder, the PP&E is really related to 2 things: one, ongoing investments in our logistics infrastructure, that's really designed to provide increased efficiency out of that network. And two, the build-out of our physical retail network. So in this year, that's a Wayfair store that will open in the spring of 2024 as well as 2 specialty retail brands that will open this year. the sort of mix of those is roughly equal for the remainder of the CapEx you obviously saw that line moderate a bit in the first quarter, and we remain -- as we do with every line item here, we're very focused on driving efficiency there and continuing to run that as tightly as possible.

Okay. No, that's very helpful. And then my second question, unrelated, you talked about just the -- probably say improving consumer metrics here that we're seeing early in 2023. Obviously, a lot going on with Wayfair and a lot of initiatives. So as you step back, I mean, how much of what you're seeing right now in terms of improved consumer interaction, do you think is a function of specific efforts on the part of Wayfair versus maybe some easing on external prices in this space.

Well, so let me answer that a couple of different ways. So we're clearly taking market share. So I think the outcome is relative to competitors. We're clearly doing meaningfully better because that's kind of like, I guess, the definition of kind of the market share. As to the why are we doing better than competitors I think it's less about what the competitors are doing, and it's more about what we're doing. And so when we mentioned that recipe, again, great availability, fast delivery, great retail prices and then kind of coupling that with all the things we're known for around customer service and motive shopping experience and product discovery and being tailored for home and kind of proprietary delivery advantage on heavy bulky items. That's kind of what we've built the business on over 20 years. We had a disruptive couple of years in the middle. If you go back a couple of years ago, because the COVID phenomenon while the beginning was a nice boon for our business. Very quickly, it turned into a tough stretch when availability got tough. There's a lot of inflation, supply chain kind of short and drove shortages of goods. And our platform model didn't have the advantage that it has in normal times and in recession times. And most times or normal times of recession times, where you could argue whether we're in a recession time now because there's an overstock of goods or whether we're in kind of more of a normal time because consumers do have money. And so that could be semantics because clearly, the goods -- the home goods market is not kind of on fire, right? It's down year-over-year and it's tough. But we have a great value proposition. And then as the market gets healthier, we're set up for that to be a big tailwind because of kind of how we operate. So I do think it's due to our actions.

Your next question comes from the line of Ygal Arounian from Citigroup.

I want to dig into the gross margins a little bit nice to see the outperformance. I just want to maybe get a better picture. So I may have misunderstood, but I believe the way you guys spoke about the cost efforts was that they would be more back half weighted. And then it looks like you're starting to see some of those benefits right now. So just -- maybe on the cost efforts versus kind of organic improvements around pricing or normalization within that? And then if increased cash at adoption is driving some improvements there as well.

Great. Thanks for the question, Ygal. Let me start the answer, and then maybe Kate can also jump in on the thoughts she wants to add. And let me start by describing sort of the gross margin evolution over time because if you go back 4 or 5 years, we had a gross margin that was more like a 24% type number. And back then, what we were describing to folks is that we had -- and originally, we described 3 pillars and then we updated described 4 pillars that was a runway of over 1,000 basis points. And what those four pillars were, 1 was what we were doing in logistics which was building out our own proprietary logistics, which today comprise of both the inbound ocean freight leg through Cascade forwarding, the CastleGate fulfillment operations, which is our warehousing capability and fulfillment capability and then what we're doing on last mile transportation, whether that be with partners through sortation and induction or whether that be our sales on the heavy bulky items and that, that could take out a lot of cost because excess miles both slows down deliveries, increases damage, but frankly drives up cost. So it's a very complicated but exciting area because of how you impact not just the customer getting an item faster, but you take out costs. The second of the 4 pillars was what we were doing around our house brands. which were basically our private label brands where we're creating curation, creating better merchandising experiences and also increasingly doing that with items that are exclusive or semi-exclusive to us. And that allowed us back to the question about how do we price and price elasticity, that allows us to have a wider band in deciding how we price and drives up…

Yes. I think you hit on it nicely in terms of the broad picture. And specific to the quarter, to your question on CastleGate, what I would add there is that the cost savings that we're talking about in the operational network go across our entire logistics infrastructure. So that would, of course, include the CastleGate piece of that logistics infrastructure, and we're very pleased with how that's manifesting. The other point that I make on gross margin while we're talking about it is -- and that I think is a little bit unique to Wayfair is that we're able to improve this gross margin during what has been a highly promotional period for the customer. And I think that shows the strength of our model and our ability to pass on that value to the customer support, frankly, our suppliers who want to pass on that value to the customer, but do that well actually raising gross margin throughout 2022, and obviously, significant gross margin improvement this quarter and we expect that to sustain and grow from here.

Great. That's a really helpful answer. And then I want to follow up on the capital allocation question a little bit more. And maybe is [indiscernible] Kate, you mentioned the physical store opportunity investment there. Just trying to understand, A, on that front, what the kind of ultimate goal is when -- what level of physical infrastructure is the right level that helps kind of build off of the online business. And then maybe second on international, right, margins going to continue, certainly an improvement quarter-over-quarter, a nice improvement, but continue to be well below the North American business. And so just how you think about the international business and the investment needed there?

Sure. Evo,Why don't I start on the CapEx question and then Niraj can certainly chime in. So on the physical retail piece, just a level set on where we are today, we have 2 specialty retail 3 specialty retail stores open the first -- those are small format sort of testing and helping us learn the model physical retail. The first large format waste air stores, we mentioned, will open in the spring of 2024 and we're opening 2 additional specialty retail stores this year. As with all new initiatives, we are really in a test and itery phase. So we want to be prudent and thoughtful about how we roll this out, learn from these first few stores and then determine further expansion based on that. But I think what you're seeing now is really us testing the model and starting to put a few players on the board there. I think Niraj probably can jump in on physical retail and then I'm happy to go back to your second question on the international margin trajectory.

I think I was going to touch on it slightly differently, which is also just to kind of zoom in on the beginning, what you said with our capital allocation questions. And by that, one way, I think, to answer your question is to think about this. The $1.4 billion of cost actions, that plan that we outlined was a plan that we think gets us back to being very focused, prioritizing the right actions, being very aggressive with that, making sure the recipe is intact. But what it didn't do was we didn't try to say, hey, how do you cut the cost structure to really optimize the business to maximize profitability today. What we left in is a very significant amount of expense on things that do not drive productive economic return today that we think could be meaningful in the future. And International, for example, is losing money as a segment, but we actually believe that we have real potential there. We have a household brand in 2 of the international markets we're in. we have input metrics we like in those markets. We have a more challenging macro in some of those. Physical retail, Kate mentioned super early, there, there's a lot of reasons, a lot of external proof around how omnichannel drives value. But we're in the early days. So we're going to -- right now, for example, we have a lot of CapEx going to open the first Wayfair large-format store. Obviously, that store today produces zero revenue. It's not open yet, right? And so that's an expense that we have. And so there's areas of the business where we're aggressively investing for the future. And we think that, that's wise, but we think we can actually be meaningfully profitable while doing that. And so that's kind of the way we balance in. So we're going to be careful not to have too many places that we're investing because each 1 needs appropriate amount of focus and prioritization in order to really have a shot at succeeding and breaking through. But we're also -- we also are keeping that Board of strategic initiatives that could be meaningful kind of there and investing in them in a healthy way so that they actually are set up to flourish. And that's kind of the way I think about it.

Yes. The overall goal is invest and be profitable, right? We want to be driving profitable growth, and you'll see the sort of first marker on that and the adjusted EBITDA positive in Q2. On international margins, specifically this quarter, obviously, what you've seen there is significant reduction in the losses. We just about half the losses there. as we said on the last call, the cost takeout that we've done has been across the board. We are focused on driving the profitability everywhere that we operate. And as Niraj mentioned, we're pleased with some of the efforts that we see there. We spoke about Canada on the call and the market share gains in Canada and our prominence there. And the last thing I would add on those margins, just to keep in mind, we've spoken about this before, but we do have overhead allocation that goes both to the U.S. and to our international business. And so as we reduce our overhead costs been obviously working very hard on, you'll see some of that benefit flow through the international EBITDA margins as well.

Next question comes from the line of Oliver Wintermantel from Evercore ISI.

If I look at the orders delivered, they're back to pre-pandemic levels using 1Q '20 as that. And the order value is still bigger. There's probably some -- still some inflation in there. If you look at that orders delivered number, is that now a good way to look at the business that back to prepandemic levels? And then on the order value, how much of that was inflation?

Yes. I'm trying to think what would be helpful too. I mean I guess the way to think about it is on the inflation front, there's significant inflation, that inflation is well on its way of coming back out. And so one of the things we have mentioned is that starting a year ago, basically last summer, is really when the rest got back intact. It started with availability getting better in the spring of last year. But as you went through the summer, speed got better. And then by late summer, price had gotten better. And what was really happening there is a lot of that was suppliers recognizing that shipping costs in particular ocean freight had abated and starting the price goods reflecting what their replacement cost of those items would be. Now that's going to take 1 because there's a lot of excess inventory that ring their way through and they don't have to say price at all to the future price right away. But the debt deflation is coming through. So there will be some deflation. The thing I will point out though is this has been a question that we've got on a private call as well, we won't then the AOV decline be a drag on revenue. And one of the things we've pointed out is that what we've seen historically is actually that, that is an accelerant on conversion, effectively on order count and customer count. And so when you're creating the revenue outlook, you've got to take kind of customer orders multiply that by AOV, right, to get revenue. And it's -- while it's not kind of the easiest math to kind of think through, there's a very direct correlation there, and that's what we're seeing play out. And we mentioned orders, for example, on Wayfair.com are up quarter-to-date. And I think some of what's made comps hard is that, again, last year, first half had wonky comps as those ease, which they're easing here. And you get to the normal period, the back half of last year, that plays through. But I think these are, I think, the different moving parts.

Yes. I would just reiterate to your question, we should see order volume improvement, right? So as the AOV, as you pointed out, which is still inflated, as that starts to moderate, we should see that order volume grow. And that then translates into customer growth. Those are the right underlying fundamentals, right? We'd rather have order volume and customer growth and AOV growth on a sustained period as we can then remarket to those customers and they become engaged in the platform. So that is a trend that we are encouraged by.

Got it. And maybe in that regard on the gross margin side, have you seen any price elasticity there? Like your gross margins have gone up, which is great, but the revenues are still down. Is there a way for you to maybe reinvest more in price and get the revenues and orders up? Or have you not seen the price elasticity when you reduce prices?

Well, this is what I tried to address earlier when I said about gross margin. That opportunity is definitely there, but we -- that's what we're doing. So in other words, we're continuing to unlock cost savings. We then deciding what we put into price -- lowering price and what we put into our gross margin. And there's kind of a pretty heavy road map there. So there's definitely opportunity for us to continue and the plan is for us to continue to do that as we go through time. .

Yes. Ali, as you know, we have a very sophisticated pricing model mechanism. So this is something that we constantly are pressure testing. We said we'd achieved about half of those operational cost savings. So there's more to go there, and we can make a real-time decision on how much of that flows through to price to your point. and generate future orders and how much of that flows directly through to gross margin, and that will depend a little bit on the market and what we're seeing with our customer.

Your next question comes from the line of Anna Andreeva from Needham.

One on active customers. You've seen some stability at the enterprise level. in the last couple of quarters already. Just curious, what does that number look like for U.S. only? Just any color, what are you seeing in terms of gross adds and churn in the U.S. as some of the promo initiatives are clearly resonating with the consumer. And then secondly, I wanted to follow up on advertising. So your sales came in on plan and advertising was below the range you had provided. Could you talk about what you're seeing there with the efficiencies? And what is working specifically.

Yes. On the first question around active customers, I think we've tried to point out that sequentially, you're seeing that number start to stabilize. And we mentioned quarter-to-date on Wayfair.com, for example, order count is up quarter-to-date. In terms of the active customer account for the U.S., I'll let Kate comment on that. I don't know what...

We actually -- we don't disclose the breakout, but I think you're pointing to a trend that you can see in the revenue breakout across the U.S. and the international business. And certainly, we've already mentioned the order piece in the U.S., that would probably naturally equate to customer improvements in the U.S. business relative to the international business. I think your second question was on AC&R leverage and how we're looking at that for the quarter.

Yes. Kate, can I just jump in on that and then you can maybe add thoughts to it. Yes. So advertising, again, that $1.4 billion kind of over $1.4 billion set of cost actions that we outlined in January to help folks try to understand everything we've been talking about since last summer, but put it into context. We cited advertising on there as one of the items. I think it was the third item on the list is in a group of some other things. On advertising, here, I think it's important to understand how we think about the ad cost because I think there's sometimes some misconception. And so I think the easiest way to think about it is think of it as having 3 buckets of that cost. And the first bucket, which is by far the largest bucket, think of that as kind of evergreen. And by evergreen what means, these are different advertising channels that are highly measurable, that are run to very tight paybacks and that we are looking to increase our spend there. But within that payback constraint, that's very tight and very measurable. And how can we do that? We can do that with targeting. We can do that with different creative ad units. We can do that by helping the conversion on the traffic. And so that, we're continuing to maximize. Then there's a second bucket, which is generally top of funnel type advertising. So television would be kind of the poster child of this, but there's other things in this bucket. Those are channels that we can measure, but the error band around measurement there is larger. You can't measure them quite as precisely as you can measure that first bucket. So you -- the measurement methods there more triangulate…

I think we just have time for 1 more question.

And our last question comes from the line of Curtis Nagle from Bank of America Merrill Lynch.

I guess two quick ones. One, how to think about, I guess, the inventory flow in the industry coming through the rest of the year. It seems like that's been a nice tailwind for you guys to think that continues -- maybe as surplus clean it up a little bit. And then just any commentary in terms of, I guess, the latest thinking on addressing the 25 converts and kind of what's the strategy around that?

Yes. Great. Let me answer the first part about inventory flow, and then may I'll turn it over to Kate to answer the second question about the convert. on the inventory flow, since last spring, suppliers have had excess inventory. And that, depending on the supplier and how aggressive they were on it and where they started from, some of the work their way through it, some are still working their way through it. Some believe they still -- it will take them into early next year to work their way through it. I'd be cautionary around thinking of that as a temporary sort of tailwind or temporary health. The way to think about it is actually the way the business model works is it our model works very well, whether there's kind of an appropriate amount of inventory or an excess amount of inventory. Because what it does is it basically allows the suppliers to lean in and compete against one another to put value in front of the customer. The excess inventory actually is a bit of a challenge right now because it came in at such a high cost basis. Suppliers are not in a great position to necessarily be as aggressive as they would like to be. And as it normalizes, they then bring goods in that are at a more normal level actually, the wholesale costs and therefore, the retail costs will continue to decline as it normalizes out, not increase. And so that's kind of a nuance based on the dynamic of what happened a year ago. But it's an important 1 to appreciate because as we get further into the cycle, we believe that our competitive position actually gets advantaged more, not disadvantaged.

Just to touch on your question around the capital structure. So we -- you're referencing the 2025 to just remind everyone that a late 2025 maturity. And we believe we have multiple options at our disposal for how to manage this going forward, and we'll continue to be opportunistic there. So I'd point you to our September transaction, which is a liability management transaction, we pushed out some of the 2024 and 2025 maturities is the kind of thing that we might do going forward. I think that's a good example of how we look at it. Great. With that, thank you, everyone, for joining.

Thank you, everybody. Talk to you next quarter.

That does conclude our conference for today. Thank you for participating. You may now all disconnect.