Warby Parker Inc. Q3 FY2024 earnings call

• Net revenue of $192.4 million, 13.3% YOY growth, with adjusted EBITDA margin expansion to the highest of the year. • Highest active customer growth of the year, ending Q3 with 2.4 million active customers, up 5.6% on a trailing 12-month basis, and average revenue per customer at $305, up 7.5% YOY. • Marketing spend efficient with diversified media model, testing new creative and direct mail campaigns. • Expanded in-network relationship with Versant Health, integrating millions of additional lives, with average revenue per member expected to expand over multi-year period. • Glasses business saw positive momentum from strategic investments, including marketing and product innovation. • Store base productive with 269 stores, 42 net new stores added in past year, retail revenue up ~20% YOY. • E-commerce channel showed positive momentum with velocity increasing each month, single vision glasses and contact lenses growing.

Net revenue for Q3 was $192.4 million, a 13.3% year-over-year growth. Retail revenue increased approximately 20% year-over-year, while e-commerce revenue increased approximately 1% year-over-year. Retail represented 70% of the overall business, consistent with the previous quarter and up 365 basis points year-over-year versus Q3 2023. Glasses grew approximately 10% year-over-year. Contact lens sales grew approximately 35% year-over-year to almost 11% of revenue. Eye exam revenue grew approximately 40% year-over-year to over 5% of revenue.

• Revised full-year 2024 guidance to approximately 14%-15% revenue growth and approximately $73 million in adjusted EBITDA. • Q4 guidance: revenue between $184 million and $187 million, representing 14%-16% YOY growth; adjusted EBITDA margin of approximately 7.3% at midpoint. • Gross margin still guided to stability in mid 50s as percent of revenue, with Q4 gross margin typically seeing seasonal sequential decline. • Marketing spend expected to be in low teens as percent of revenue, with slight increase in Q4 seasonally.

• Tariffs on imported goods, with ~20% of COGS directly imported from China, but company has reduced exposure and plans to offset tariffs. • Impact of election-related changes on business operations and consumer behavior. • General market uncertainties and potential impact on sales and margins.

Q: Can you elaborate on the drivers of sequential momentum and how much is attributed to industry vs. specific actions?

A: Sequential strength seen with disciplined marketing efforts focusing on acquisition cost per customer. Active customer growth has been increasing for five quarters, e-commerce velocity continues, and stores perform strongly. Marketing spend as percent of revenue was 11.6% Q3 last year vs. 12.3% Q3 this year, anticipated to moderately increase in Q4 within mid-teens as percent of revenue.

Q: How do you think about tariffs on sourced components from China?

A: Over last five years, exposure to Chinese products has materially reduced to ~20% of COGS, and company can flex into other regions to offset tariffs.

Q: What's the opportunity for Warby Parker in smart glasses?

A: Excited about potential of smart glasses to transform technology engagement. Company has been in discussions with relevant parties, and expects next few years to see first wave of consumer-ready smart glasses, with its brand, design, distribution, and customer experience capabilities positioning it well in the emerging category.

Q: Thoughts on gross margin modeling with prudent investments in doctors?

A: Hiring eye doctors is strategic for serving and acquiring customers, with 75% of prescription glasses purchased where eye exam is done. Gross margin expected to settle in mid fifties this year, with opportunistic hiring in eye doctors area as it's strategic for customer acquisition.

Q: Perspective on medium-term growth of e-commerce channel and customers shopping in stores then returning to e-commerce?

A: E-commerce channel on strong path to growth, with momentum seen despite Q3 comps, encouraged by direct glasses purchases and contact lens growth. Customers tend to repeat in the channel where they made their first purchase, but also see customers making subsequent purchases online after initial store purchase.

Q: Thoughts on Versant Health Partnership benefits next year?

A: Excited about partnership integrating many lives, with revenue per member expected to steadily increase over multi-year period, expecting to be a multi-year tailwind starting towards end of current year.

Q: Puts and takes on opening around 40 stores a year and accelerating awareness for in-network folks?

A: Plan to open at least 40 stores a year, with stores performing in line with expectations. To accelerate in-network awareness, train teams, partner with insurance carriers, and use in-store events to highlight in-network options.