BUSINESS: Financial Warby Parker Reports Double-Digit Sales Increase in Q2, But Notes Weakness in Eyeglass Demand ‘Industry Wide’ By Staff Friday, August 12, 2022 12:30 AM NEW YORK—Warby Parker Inc. (NYSE: WRBY) reported Thursday that its sales in the second quarter increased 13.7 percent (or $18.1 million) to $149.6 million. The increase was 19.1 percent on a three-year compound annual growth basis compared with the second quarter of 2019. In addition, Warby Parker said it increased active customers 8.7 percent to 2.26 million year over year. Average revenue per customer in the quarter ended June 30 increased 8.2 percent year over year to $254, even as the company noted an “industry-wide” decline in demand for eyeglasses.On the bottom line, Warby said its net loss (GAPP) in the quarter widened to $32.2 million (from $10.3 million), while it achieved adjusted EBITDA of $5.9 million (versus $10.8 million in the year-ago period) and an adjusted EBITDA margin of 4.0 percent (versus 8.2 percent). The company opened nine new stores during the quarter, ending the period with 178 stores. Warby Parker also “more than doubled revenue” of its contact lens offering, and maintained a net promoter score (NPS) of 80. “Q2 was another quarter where Warby Parker made strong progress against our core strategic growth initiatives, gained market share, and delighted customers despite shifts in consumer spending,” co-founder and co-CEO Neil Blumenthal said in the company’s announcement. “Our team remains focused on sustainable growth, expanding profitability, and providing vision for all,” added co-founder and co-CEO Dave Gilboa. On a store-level basis, Warby Parker said brick-and-mortar locations are generating an average of $2.1 million in sales on an annual basis despite operating in an “environment with lower retail traffic.” (Earlier this week, Warby Parker said it was trimming its workforce at the corporate office by 63 positions, or 2 percent of its total workforce, as VMAIL reported.) In a call with securities analysts, Gilboa noted that while the company’s sales were in line with guidance and EBITDA was “ahead of guidance” in Q2, it also was a quarter in which “the normally steady and predictable shopping behavior in our category continued to deviate from historical trends.” After experiencing positive trends in the spring that stretched into mid-May, “starting in the back half of May we began to see a deterioration in retail productivity, as well as headwinds for overall eyeglasses demand,” Gilboa added. “We believe this weakness in demand is industry wide, driven by lingering pandemic effects, inflation and shifts in how consumers are spending their money and time. While we are not immune from these macro factors, we remain confident that our brand's value proposition and delivery model continue to resonate with consumers.” Gilboa noted that Warby Parker customers are spending more than ever with the company. The company did not provide a breakdown of online sales versus brick-and-mortar store sales. The company also noted a decline in its gross-margin rate, which dropped to 57.7 percent compared with 59.3 percent in the prior year. The decline in gross margin was primarily driven by increased penetration of contact lenses, which carry lower gross margins than eyeglasses, reflecting the strategy “to grow its contact lens offering,” the company noted. Also impacting the gross-margin rate were the growth in store count, which drove higher store occupancy and depreciation costs, and an increase in salary and benefit costs associated with optometrists as the company scales its eye exam offering across the store fleet. These factors were partially offset by the scaling of progressive lenses and leverage from the company’s in-house optical laboratory network. Looking ahead and with the macro-economic headwinds, Warby Parker lowered its financial guidance for the full year 2022. The company now expects net revenue in a range of $584 million to $595 million, representing growth of 8 percent to 10 percent versus full year 2021. The previous top-line annual guidance for revenue reflected growth of 20 percent to 22 percent over 2021, with a sales range of between $650 million to $660 million. The forecasted adjusted EBITDA margin is now approximately 3.8 percent to 4.4 percent. Warby Parker is still projecting the opening of 40 new stores, bringing total store count to 201. “We are pleased that our second quarter top-line performance was in-line with our expectations and adjusted EBITDA was ahead, especially given the uncertain macroeconomic environment,” chief financial officer Steve Miller said. “In light of these challenges, we have rationalized our expense base and adopted a new outlook on the remainder of the year. As a leadership team, we are taking a disciplined approach to managing costs to set us up for sustainable growth and profitability.” In addition, Warby Parker said it is continuing to invest in its “eye exam business” by hiring and retaining talented optometrists. “We ended the quarter offering exams in more than 70 percent of our retail stores and remain on track to provide eyes exams in more than 150 stores by year-end,” Blumenthal said. Following the release of Warby Parker's financial results, the company’s stock price closed at $16.90 on August 11, up from $14.18 the day before.