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Wayfair (W +11%) is trading sharply higher today after reporting its Q2 results this morning. This home furnishings retailer reported its largest EPS beat in 7 quarters. Revenue grew 5% yr/yr to $3.27 bln, which marks its highest growth rate since early 2021. Just as encouraging, after not providing quarterly revenue guidance last quarter, W provided Q3 revenue guidance, with revenue expected to grow low-to-mid single digits. Revenue has been down low single-digits to flat yr/yr over the last six quarters, so investors are encouraged to see that management is confident in maintaining current growth.

• Revenue growth was driven by strong performance across all of W's brands and geographies. Its US business was up over 5% yr/yr, a nice acceleration from 1.6% in Q1. Its international segment was up 3% yr/yr, showcasing the momentum W is seeing in Canada, UK, and Ireland following the closure of its German business. Additionally, order growth was up 10% sequentially despite the complex operating backdrop.
• The nice step up in order and the top-line growth is partially from W's long-cycle initiatives, including Wayfair Verified, Wayfair rewards and Wayfair's new retail locations. Wayfair verified gives customers a catalog of items that reflect a higher quality than others. These items have converted over 25% better and have generated higher repeat purchasing behavior compared to non-verified items.
• Wayfair rewards is also leading to more direct traffic. W has seen the largest number of installs since 4Q20, and the percentage of US revenue from the app continues to climb steadily to all-time highs.
• May marked one year of W's first large format store in the Chicago DMA. While W noted that the sales halo in the metro area has been significant, the impact on categories where W is less known for is even more pronounced. For example, W saw over a 50% increase in lower ticket purchases like kitchen accessories, and a more than 35% increase in home improvement purchases, like bathroom renovations or kitchen cabinets.
• CastleGate, W's inbound logistics and ocean freight operations, continues to be a bright spot. W saw a 40% yr/yr increase in total volume through its CastleGate network, as it helps keep suppliers fulfillment costs down. The percentage of revenue that comes from products shipped out of W's fulfillment centers (CastleGate penetration) was roughly 25%, up around 400 bps yr/yr.

Overall, this was a great quarter for W. While its largest EPS beat in 7 quarters is encouraging, investors are also pleased to see W report its highest revenue growth in 4 years. W's initiatives like the recent opening of its retail stores and CastleGate networks are clearly driving results. W really seems to have turned a corner after having negative to flat top-line growth over the last six quarters.