Warby Parker Inc. Q4 FY2024 earnings call

• 2024 Performance: Delivered strong Q4 with highest revenue growth since 2021. Drove revenue growth above 15% for the full year, expanded adjusted EBITDA margins by approximately 170 basis points, and made progress on strategic initiatives while delivering millions of pairs of glasses to people in need.
• Strategic Priorities for 2025:
  • Marketing Spend: Plan to continue efficient investment in brand awareness and customer acquisition, leveraging an enhanced data-driven media mix model. Scale marketing spend in the low teens as a percent of revenue.
  • Insurance Business: 2024 was transformative with expansion of in-network coverage to over 30 million lives. Focus on scaling existing integrations and driving awareness across member bases.
  • Glasses Growth: Build on momentum in single vision and progressives. Plan to introduce nearly 20 frame collections, expand lens options, and continue suburban store expansion.
  • Omnichannel Model: Plan to open 45 new stores in 2025 (including 5 shop-in-shops with Target), focus on suburban expansion, and drive e-commerce growth with AI and personalization features. Expand holistic vision care offering with video-assisted eye exams and retinal imaging in more stores.

In 2024, Warby Parker achieved revenue growth above 15% for the full year. Retail revenue increased 21.4% year-over-year and accounted for 70% of the overall business, up approximately 360 basis points from 2023. E-commerce revenue saw positive growth for the first time since 2021, with a 3% year-over-year increase. Glasses grew approximately 12% year-over-year in 2024, up from 8% in 2023. Contacts grew 36% year-over-year in 2024, and exams grew 41% year-over-year. The company ended 2024 with 276 stores, having added 39 net new stores over the year, and 86% of its total fleet had eye exam capabilities.

• 2025 Full Year: Revenue expected to be $878 million to $893 million, representing 14%-16% growth year-over-year. Adjusted EBITDA expected to be $97 million, with an adjusted EBITDA margin of approximately 11% at the midpoint. Gross margins expected to remain in the mid-50s, with a 20-40 basis point headwind from tariffs. Marketing spend to remain in the low teens as a percent of revenue.
• Q1 2025: Revenue between $223.5 million and $225.5 million, representing growth of approximately 12%-13% year-over-year. Adjusted EBITDA guided to $27 million to $28 million, with a margin of approximately 12% at the midpoint.

• Macro-economic uncertainties: Actual results may differ materially from forward-looking statements due to various risks and uncertainties in the broader macro-economic environment.
• Tariffs: Anticipate a 20-40 basis point impact to gross margin from tariffs, with efforts to manage through sourcing diversification and vendor mitigation.

Q: Good morning, thank you for taking my question. I guess to start off, lots of customer acquisition initiatives in the hopper here with marketing, new stores, you're announcing the Target partnership. Last year, the revenue growth algo was fairly balanced between customer growth and revenue per customer. Just can you speak a bit more on how you're thinking about that algo moving forward?

A: Sure. Thanks, Mark. Yes, we have made an intentional effort to invest in customer acquisition across a variety of activities, including store openings, our insurance integrations, hiring more doctors, scaling our contacts business, investing in additional media dollars. And we've seen the benefit of that over the last few quarters. Q4 was our sixth straight quarter of accelerating active customer growth. And we expect those positive trends will continue. And we did see more balance, as you noted last year, between customer growth and average revenue per customer. We expect that for this year and going forward that a significant portion of our growth will come from customer growth and that you'll see -- continue to see strong active customer growth from us in 2025.

Q: Hi, Neil, David and Steve. Regarding your guidance, what are your thoughts on traffic? We're still seeing a choiceful consumer and winners and losers in the industry at large. So, I would love your thoughts on what's embedded in terms of traffic. Also, the new store plan sounds exciting. Steve, as we model new stores in the year, what's the contribution to the total revenue growth that you expect based on productivity rates of new stores? And finally, the Target deal sounds quite exciting. That's a very customer-centric retailer. What are your thoughts in terms of what we should know regarding the margin structure of that and any modeling knowledge we should know about? And also more strategically, why it makes sense, how you're picking the initial stores and the vision for medium to longer term in terms of possible scenarios? Thank you.

A: Thanks for the questions, Oliver. From a guidance perspective as it relates to traffic, we've provided color on this metric over time, and we'll continue to do so. We haven't embedded a specific guide as it relates to traffic, but in the context of our retail performance and store productivity, we are modeling in, depending on whether you're looking at the low end or the high end of our range, but let's stick with the high-end. We are modeling a moderate improvement in store productivity that dovetails nicely with our low single-digit growth in e-com. We have seen periods of strength for traffic, and we have seen some periods of challenges for traffic. Overall, the trend line is positive, and we're baking that into our guidance at the high end for the full year. As it relates to your questions regarding the Target partnership, I think Neil and Dave will talk more about that. But the five stores that we're opening are in the back half of this year, and they're adding a moderate amount of top line and cost into our overall performance for the year. So, we view that as negligible. It's really a five store test, and we expect to see more of the contribution next year versus this year, particularly depending on the degree to which we plan to roll-out and expand the partnership. And as it relates to any other color on the partnership, we'll turn it over to Neil and Dave, who can provide a little bit more insight as to why Target and the overall level of excitement that we feel with this test.