Warby Parker Widens Quarterly Losses by $32 Million, Revises Outlook
Warby Parker is still struggling to find the path to profitability in an era of inflation.
The direct-to-consumer eyewear brand revealed quarterly earnings Thursday before the market opened, improving on top-line sales while also widening losses, thanks to increased expenses.
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Investors seemed unsure of how to interpret the results. Shares of Warby Parker teetered back and forth between positive and negative during pre-market hours, only to close up 19.18 percent to $16.90 on Thursday.
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“[The second quarter] 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,” Neil Blumenthal, cofounder and co-chief executive officer, said in a statement.
Dave Gilboa, cofounder and co-CEO, added: “We offer products and services people need to see and believe we offer unparalleled value and a superior customer experience that will position us over the long term. Our team remains focused on sustainable growth, expanding profitability and providing vision for all.”
For the three-month period ending June 30 total revenues grew by more than $18 million, or 13.7 percent, to nearly $150 million, up from $131 million the same time last year.
But increased expenses cut into profits, causing the company to widen its losses for the quarter. Net losses totaled more than $32 million for the quarter, compared with losses of $10.3 million a year ago.
Warby said the losses can be attributed to an increase in SG&A expenses (which increased $31.6 million during the quarter), more people using contact lenses, higher employee wages and new store opening costs. (There were nine in the most recent quarter.)
“Frankly, it’s been very inconvenient to get an eye exam throughout the pandemic, but in particular in the first half of this year because of Omicron, a lot of optometric practices and optical shops experienced temporary closures or doctors called out as they were sick. That happened across every industry and every workplace,” Warby’s chief financial officer Steve Miller, told analysts on Thursday morning’s conference call. “So we believe that there were folks that would have normally gotten exams that haven’t [and then] didn’t necessarily buy glasses.”
Even with widening losses, Miller said Warby is pleased with the revenue results, “especially given the uncertain macroeconomic environment.”
He added that the company has adopted a more cautious go-forward strategy, which includes a recent round of layoffs and a revised full-year outlook.
For the full 2022 fiscal year, Warby is now anticipating net revenues in the range of $584 million to $595 million, an increase of 8 percent to 10 percent, compared with 2021. Adjusted earnings before interest, taxes, depreciation and amortization for the eyewear firm are expected to grow between 3.8 percent and 4.4 percent, or between $22 million and $26 million, year-over-year. The adjusted EBITDA includes a $7.5 million impact for supply chain disruptions caused by Omicron at the start of the year.
“In light of these challenges, we have rationalized our expense base and adopted a new outlook on the remainder of the year,” Miller said. “As a leadership team, we are taking a disciplined approach to managing costs to set us up for sustainable growth and profitability.”
Additional cost-saving measures include a reduction in marketing spend — from 17 percent of revenues in the first half to roughly 12 percent in the second half, saving the company about $12 million, year-over-year — and a decrease in the number of employees.
“In aggregate, these cost reduction initiatives are expected to lead to savings of $8 million to $9 million this year and $15 million to $18 million next year,” Miller said.
Warby’s latest earnings results come just days after the firm revealed a round of layoffs. On Tuesday, the company said it was laying off about 15 percent of its corporate workforce, or 2 percent of the total staff. The announced cuts mirror retail industry giant Walmart’s recent layoffs, which affected corporate workers at a time when the mass-channel merchant is still struggling to find in-store workers. Makeup brand Glossier and sneaker company Allbirds have also recently revealed corporate layoffs. Many of these retailers have said they’re trimming their workforce to make way for more pandemic-friendly jobs in fields such as tech, supply chain, e-commerce and health and wellness.
In the case of Warby, the firm’s CEOs cited “significant volatility and uncertainty” in the global economy as the reason for the 63 layoffs.
“This is impacting consumer behavior in every industry, including the optical industry,” the CEOs said in an internal company memo. “As a business, we must do our best to adapt, which sometimes involves making difficult decisions in the best interests of the company. While this was an incredibly difficult decision, we are making these changes to enable us to operate in a more focused and nimble manner and to capitalize more efficiently on our highest impact opportunities.”
Warby Parker, which was founded online in 2010 and went public in September 2021, quickly rose to fame for its affordable eyewear and direct-to-consumer model.
On the call, Blumenthal said expanding product offerings, opening new stores and expanding the eye exam and contact lens businesses will help drive future growth.
“The biggest barriers to purchase from Warby Parker include not having a store nearby, not being able to get an eye exam and not being viewed as a place that serves all of their vision care needs,” he said.
The cofounder pointed out that Warby’s contacts business grew from 3 percent in 2021’s second quarter, to 7 percent in the most recent quarter, and will likely continue to grow as more stores incorporate the business. “It takes time to ramp up an eye exam practice,” he said. “So while we anticipate this will continue to provide a deleverage from a gross margin perspective in the near term, in the long term it will set us up to do two things: one is to tap into the $6.5 billion eye exam market and the second is to better serve our customers.”
Meanwhile, Warby’s continued store fleet expansion also helps acquire new customers.
The firm is also planning to open roughly two dozen more stores by the end of the fiscal year, bumping the current count of approximately 175 to north of 200. And Blumenthal said many of these stores pay for themselves by generating $2.1 million in revenues on an average annualized basis.
“And this strong performance is consistent across our store fleet,” he said. “Our 2020 stores have paid back within 20 months. And 24 of our 35 stores opened in 2021 have paid back with the remaining 11 on track for similar payback.
“We anticipate that we’ll be able to grow that revenue per store over time,” Blumenthal added. “Given the macro environment, we don’t know when that will be. But even at these levels, we believe that the store performance is strong and we’re going to continue to open up lots of stores going forward.”
The company ended the quarter with more than $211 million in cash and cash equivalents. Shares of Warby Parker are down approximately 69 percent, year-over-year.
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