Warby Parker Inc. Q3 FY2025 earnings call

Key Points

• Q3 was a strong quarter with net revenue growth and progress towards long-term profitability goals. Adjusted EBITDA grew ~50% to $25.7 million with an 11.6% margin.
• Reflected shifting consumer trends, with single-vision customers showing some softness and progressives more resilient. Entering Warby Parker's third act defined by innovation through AI, partnering with Google and Samsung for intelligent eyewear.
• Hosted One Vision Summit with retail leaders and optometrists, shared vision to leverage AI for new products and enhanced customer experience.
• Q3 highlights: highest glasses volume growth, ninth consecutive quarter of accelerated active customer growth, record retail productivity, largest ever quarter for new store openings including first 5 Target shop-in-shops, completed optical labs system upgrade, expanded AI use across operations.

Net revenue grew 15.2% year-over-year, with retail revenue up 20%. Adjusted gross margin was 54.2% and adjusted EBITDA grew approximately 50% to $25.7 million, representing an 11.6% adjusted EBITDA margin. Glasses revenue grew ~13% year-over-year, contacts grew 21% and represented 11.5% of revenue, eye exams grew 41% and represented 6.5% of revenue. Retail represented 73% of overall business in Q3.

Guidance

• Reaffirm 2025 adjusted EBITDA outlook and raise adjusted EBITDA margin expectations. Net revenue expected between $871 million and $874 million (~13% growth y-o-y). Adjusted EBITDA $98 million to $101 million (margin 11.3%-11.6%, 180-210 basis points expansion y-o-y). 45 new stores including 5 Target shop-in-shops in 2025.
• Q4 2025 guidance: net revenue $211 million to $214 million (~11%-12% growth y-o-y). Adjusted EBITDA $18 million to $21 million (margin 9.2% at midpoint, 190 basis points expansion y-o-y).

Risks

• Macro environment uncertainty and consumer sentiment softness may impact business. Tariff-related headwinds in glasses, slower growth in contacts business amid broader macro dynamics.

Q: Was hoping you could give a bit more color on this mix shift you're seeing with single-vision versus progressives.

A: As you've heard from a number of other brands and retailers, it's been quite a volatile year, and we've seen meaningful swings with periods of broad strength across consumer cohorts and then other periods when consumer sentiment has taken a dip. And in those weaker periods, it's been younger and low income consumers who have been most impacted. Now as a category, we're more insulated than others because of the needs-based nature of the products and services we offer, and more specifically with Warby Parker, our customer base tends to skew higher income, but we do serve a cohort of younger customers who are increasingly feeling uncertain about their future and are being more selective in their purchasing behavior.

Q: Regarding the mix shift and what you're seeing, does that change the product road map or how you think about marketing and what you're thinking about the composition that you may see within the guidance?

A: From a product road map perspective, some of this short-term softness that we're seeing with some of our younger customers is really not driving changes for our product road map. We continue to introduce different lens options that we find resonates with both younger and older customers. So we're very confident in the product road map, and we continue to be able to respond much faster than a lot of our competitors because of the vertical integrated nature of our business. Typically, we'll introduce 15 to 20 collections per year, and we're not beholden to the fashion calendar or the wholesale calendar and can even make adjustments midyear as necessary. As we think about efficiency gains, thanks to AI, there are a few that we're particularly excited about, whether we're using AI in our eyewear design process and even evaluating technical designs as we leverage AI as part of our customer journey flow and some of the work of our CX teams, as some of our brand and creative teams are leveraging new tools to bring down the cost of content creation, in particular, as we think about photo shoots and a lot of the production costs that go into the sheer number of shoots that we do per year, we're already seeing some savings there. The other thing that I would add is that, every corporate team member is using often multiple AI tools per day, and we're finding increased productivity right across our headquarters team.