Q4 2021 Warby Parker Inc Earnings Call
Okay.
The year over year.
[music].
And fiscal year financial results Conference call. My name is Victoria, and I will be calling it quote today, if you'd like to ask a question. During the presentation you might differ by pressing star one on your telephone keypad. If you wish to withdraw your question. Please press the Staci.
Ask your question. Please ensure that your line is open.
I'll now pass over to Iced tea, not my money head of Investor Relations to begin. Please go ahead.
Thank you and good morning, everyone here with me today are Neil Blumenthal, and Diego Bella are co founder and co CEO alongside Steve Miller, Senior Vice President and Chief Financial Officer.
Before we begin we have a couple of other niners our earnings release and slide presentation are available on our website at investors <unk> Parker Dot com during this call and in our presentation. Neither will be making comments that are forward looking nature actual results may differ materially.
And uncertainties.
Information about some of these risks please review the company's SEC filings, including the sections titled risk factors in the company's latest 10-Q filing.
10-K filing.
These forward looking statements are based on information as of March 17, 2022.
And you see no obligation to publicly update or revise our forward looking statements.
Additionally, we will be discussing certain non-GAAP financial measures.
non-GAAP financial measures are in addition to you and not a substitute for measures of financial performance prepared in accordance with GAAP.
A reconciliation of these items to the nearest GAAP measure can be found in this morning's press release.
In our slide deck available on our IR website.
With that it's my pleasure to turn the call over to David Stickney Bock.
Thanks, Peter and good morning, everyone. Thank you for joining us bright and early to discuss worthy partners fourth quarter and full year 2021 results as well as our outlook for 2022 and beyond.
Before we dive in we wanted to use this public forum to thank our <unk> partners and congratulate our team on surpassing 10 million pairs of glasses distributed to people in need through our <unk> program.
That means more than 10 million people now have the glasses, they need to see to learn to work and to provide for their families.
We're incredibly proud of the impact our team and partners are having and we couldnt be more grateful to our customers and shareholders for making it possible.
This impact and enables us to attract and retain them.
Most passionate curious driven employees, who wake up every day.
First with delighting customers and helping people see and who in turn enable us to deliver strong financial results.
And now turning to those results.
2021 was a record year for worthy Parker and we're proud that our team delivered another year of sustainable growth we grew revenue.
The new 37% to $541 million, while expanding adjusted EBITDA margin 270 basis points to four 6% up from one 9% in 2020.
This was achieved while delivering exceptional customer experiences, resulting in another year with a net promoter score above 80%, while also making significant strides against our long term strategic initiatives that will lead to sustainable growth for years and decades to come.
We achieved these results in spite of many pandemic related challenges and in particular in Q4, when we saw significant impairment during our peak selling season.
<unk>. Thank you for your continued perseverance and resilience.
As we look back on 2021, it was incredibly exciting to celebrate so many milestones alongside <unk>. In addition to the 10 million pairs distributed we became the first public benefit Corporation to go public through a direct listing we grew our active customer base by nearly 400000 people the most ever in a year to $2 2 million.
Happy customers, we opened 35 new stores. The most we've ever opened in a year ending 2021 with 161 stores and the performance of the 35 new stores are in line with the first year performance of stores, we launched pre COVID-19 as.
As you may recall in our S. One we discuss best in class unit economics targeting four wall margins of 35% and paybacks in under 20 months.
In 2021, we opened stores in nine new markets from Sarasota, Florida to Albuquerque, New Mexico in Richmond, Virginia, and we continue to see a very consistent growth profile when entering new markets with the entire market growing over 250% on average in the first year of opening a new store.
We expanded our product assortment by launching 21 eyewear collections and introduced innovative first to market designs and constructions like our tortoise collage and SCE edition, while also increasing our penetration with progressive lenses.
And we made meaningful progress in our evolution from being primarily an eyewear company to a holistic vision care provider, we more than doubled the size of our contacts business and opened 36, new locations, while hiring dozens of optometrists.
We opened our second optical lab, a 69000 square foot facility in Las Vegas that further strengthen the vertically integrated supply chain, we built over the years and enables us to maintain the highest quality standards exceed customer expectations and lower costs.
We also continued to focus on innovation in our category, leading e-commerce experience and digital breaking technologies like our virtual vision tests, telehealth, App, which allows eligible users to renew both glasses and contact lens prescription from anywhere at any time, using just an iPhone in less than 10 minutes.
Anvil continued adoption of our first of its kind treat a scale virtual prom.
As I mentioned, we accomplished all of these milestones while maintaining an industry, leading net promoter score of more than 80.
Maintaining this metric.
In turn fuels our growth.
And this is happy.
Customers are spending more with us than ever our average revenue per customer for the year was $246 up $28 13.
Percent versus 2020.
The largest increase we have ever seen in our 12 years since launch.
That increase has come from raising prices, it's coming from two five.
<unk> and contacts in addition to glasses.
And second an increase in the penetration of progressive lung.
On days and higher price point trends.
As a reminder, progressives are our highest price point and highest margin product and this remains an area, where we are significantly ascription glasses for $95 for 12 plus years since launch.
With products at different price points.
I'd like to increasing average order value and improving customer economics over time.
And as we have introduced.
Demand.
We know Theres a lot of talk about inflation and you're seeing many companies increased prices.
Because their margins are getting squeezed and some opportunistically at the expense of their customers.
We started <unk> in large part because we refresh created by the high price of glasses ourselves and wanted to create a much more customer friendly alternative.
As such we will always focus on delivering great value and we will leverage our structural advantage of controlling our supply chain, while eliminating wholesale markups and licensing fees to pass savings onto our customers.
To maintain our high gross margins and continue to improve our customer economics without resorting to sweeping price increases.
Prices our value proposition.
We will become even stronger over time, which we expect will lead to even.
Greater sustainable competitive advantage.
Of course, all of these positive results are due to the tireless efforts from our more than 3000 team members, who continue to be highly engaged and a recent survey 87% of employees.
But they are proud to work for worthy Parker.
Command <unk> Parker is a great place to work.
We couldnt be prouder of how our team has managed through the multiple waves of the pandemic, especially the most recent on the current outbreak on.
<unk> was particularly impactful given the unique seasonality in our business because of FSA spending and visit insurance utilization at year end, we typically see our highest sales days of the year between Christmas and new years.
This year Omicron peak during that same window in many of our biggest markets.
As a result, we saw significantly lower retail foot traffic staffing related store closures and fewer eye exams.
We also saw many other retailers and optical shops closed several or all of their stores for days or weeks at a time.
This in turn led to fewer shoppers at neighboring stores and importantly, fewer people getting eye exams, preventing them from shopping with us.
We believe the omicron resulted in nearly $5 million of lost sales in Q4 and over $15 million in Q1 stemming from fewer people shopping in our stores.
What we've seen from prior Covid surgeons is that store traffic and productivity does not immediately bounce back and most customers does immediately switch to shopping online.
To do so.
Prescriptions and there is often a time lag for new exams to be scheduled.
When the Delta variant emerge this summer we saw a significant decline in store productivity relative to the same period in 2019, followed by a steady improvement for the following four months until omicron appeared.
Subsequent omicron related decline in retail productivity was nearly twice this of either is that from delta.
As a result, we estimate that our Q4 revenue growth of 18% was negatively impacted by about four points in our Q1 began with major headwinds.
This is a temporary setback in the most recent weeks, we're experiencing a similar recovery curve to what we saw from other pandemic surges and we remain as confident as ever in our long term growth plan and a reacceleration of our growth in the coming months.
While the pandemic has been disruptive to our business. It has been more disruptive to others in our category.
This has enabled us to continue to grow our customer base and take material market share over the last two years.
The U S eyewear market grew 5% from 2019 to 2021, while we grew 46%.
And our differentiated Omnichannel model is even more advantaged when consumers have easy access to high doctors in prescriptions and feel fully comfortable shopping.
As consumer behavior rebounds in our category. We believe we will benefit differentially as our 160 plus stores regained foot traffic and return to full productivity.
We continue to serve customers through our unique and industry, leading digital tools and ecommerce platform.
And with that I'll pass it over to my co CEO and co founder Neil to talk through why we remain so excited for the rest of 2022 and beyond.
Thanks, Dave and good morning, everyone.
We are as excited about our business and category is when we first started 12 years ago as.
As many of you know our category is different from other consumer categories. Our core product eyewear is the combination of the health product in a fashion accessory.
We have a unique responsibility to provide vision, while amplifying one's identity and style.
We are fortunate to operate in a large and growing market of $160 billion globally and $44 billion in the U S alone and one that provides essential products and services that are purchased in both strong and weak economic environments.
Several factors contribute to this growth and durability.
First most people need vision correction with 76% of adults using some form of vision correction in 2021.
There is a natural replenishment cycle as prescriptions change or it's people update their fashion preferences.
Further there are several macro factors contributing to rising vision correction needs and a steady influx of new customers, who expect an exceptional vision care experience from an aging population and increased screen time usage to the accelerates in our e-commerce penetration and increasing prominence of telehealth.
These trends support expectations that the industry will continue to grow and continue to become more favorable to our omnichannel approach.
This is obviously exciting for us that will be Parker.
Despite being one of the only optical retailers to grow in 2020, and then accelerate that growth to 37% in 2021, reaching $541 million in revenue, we still just represent 1% of the U S market.
Another optical industry dynamic that makes it particularly appealing to our vertically integrated business model is that roughly 50% of the market is served by independent doctors in their optical shops that purchase frames and lenses wholesale and then resell them.
The other half of the market is served by retail chains.
And of that 50% of the market that our chain stores roughly one third is owned by one company.
Customers come to warranty Parker, often after spending significantly more on their glasses, because they either bought them from an overpriced optical scan or an independent optometry practice.
The other interesting dynamic of our industry is the prescription nature of the product you need a valid prescription to buy glasses and contacts industry wide approximately 70% of people buy glasses and contacts in the same location they have an eye exam.
This benefits us as we open up more stores with exam suites and ophthalmic drugs.
However, sales are negatively impacted when customers are not able to obtain prescriptions for marks or their local optometrist due to omicron or other variants.
While the prescription dynamic protect incumbents by providing barriers to entry in normal times.
Leads to a slower ramp up than other categories. After COVID-19 surge.
In spite of Covid. The IRA market is poised to continue to grow faster than GDP with an outlook.
A five 3% CAGR from 2022 to 2025.
If theres one phrase that you hear repeated in the offices of worthy Parker its sustainable growth our management philosophy is to drive predictable growth, while expanding margins and delivering exceptional customer experiences to ensure our future growth.
Our long term outlook remains the same we plan to grow revenue consistently at 20% or more maintained healthy gross margins of 58% to 60% gain leverage and expand adjusted EBITDA margins 100 to 200 basis points per year to achieve 20 plus percent adjusted EBITDA margins.
We also plan to continue to make appropriately sized investments in technology and in our team to ensure exceptional customer experiences that result in a net promoter score of greater than area.
In 2022, we anticipate growth consistent with our philosophy of continued sustainable growth.
We expect to grow top line, 20% to 22% to $650 million to $660 million.
Ahead of our direct listing in September before the onset of Omicron, we provided a framework of 2022 net revenue growth of at least 25%.
We arrived at our current range of 20% to 22% growth after taking into account the yet.
Thanks, Tom Omicron in Q1.
The percent of pre pandemic levels in Q2 and full productivity in Q4.
On the recovery curve, we observed from the onset of Covid.
From the emergence of Delta.
We expect our gross margins remained consistent at 58% to 60%.
And we anticipate that we will improve adjusted EBITDA 100 to 200 basis points gain in net promoter score at or about to tremendous opportunity in front of us.
Fueled by the natural tailwind, we have as a business, having long punch purely online selling.
Jeff single vision prescription glasses.
We expect most of our 2022 growth to be driven by a region.
Retail channel as traffic and sales productivity rebound, particularly for our 63 urban locations, whose productivity is currently 15 points lower than our suburban location II and end the year with 201 locations.
Last year we.
We commissioned a third party study that concluded our retail footprint has room to expand to over 900 retail locations in the U S. While maintaining our best in class four wall economics. This.
This is still a fraction of the 41000 optical shops that exists today.
We continue to expand our product and service offering we believe this will also expand our store footprint opportunity.
And of course, we will continue to serve customers via our leading E Commerce channel using unique tools like our virtual try on to make the shopping experience funding convenient both online and offline.
Having a flexible omnichannel model has enabled us to grow significantly faster than others in our category and we will continue to be a structural competitive advantage going forward.
On the product front, we expect our progressive penetration will continue to increase driving topline growth and gross margin expansion.
Glasses with progressive lenses and enable customers to see in the defense and up close it's a product that is generally for customers 45 years and older.
A progressive glasses start at $295 versus our single vision product that starts at $95.
In addition to the significantly higher ASP progressive have a higher gross margin.
We continue to be highly underpenetrated versus the industry with progressive making up approximately 45% of all prescription glasses sold in the U S. Today, while it's just 20% of our prescription business up from 16% in 2020.
We're particularly excited by the fact that today progressive purchases tend to skew more towards bricks and mortar given the complex nature of the prescription and the older customer demographic. So as we scale, our retail footprint and our stores returned to full productivity, we expect to see compounding the growth of this product.
We expect that our eyewear ASP and gross margin will continue to expand thanks to our increased progressive penetration given the $200 price differential between our single vision glasses and our progressive glasses.
We will also continue to invest in a relatively new contacts business, which doubled last year to 4% of our business and which we expect to grow at a similar pace in 2022.
The contract market alone is over $5 $5 billion and contact typically account for 15% to 20% of an optical retailer sales. So we believe we have many years of high growth ahead of us.
We will also continue to invest in our eye exam and vision testing business like.
<unk> contact and progressive we are underpenetrated in the eye exam market, given our ecommerce beginnings.
The IHS Markit is over $6 $5 billion and why our exams typically account for 10% to 15% of an optical retailer sales.
<unk> accounted for less than 2% of our sales in 2021.
To drive growth all 40 of our new 2022 stores will offer eye exams.
We anticipate ending the year, providing eye exams, and 154 stores up from 107 in 2021.
We will also transition 40 existing stores in states, where we cannot directly employ optometrists to a PC model, which will give us greater control over the customer experience and enable us to recognize the exam revenue.
Lastly, we will continue to lead the way in telehealth and expand the capabilities and awareness of our virtual vision test.
Of course, we recognize businesses like ours are currently facing unique challenges, but we feel confident in our team's ability to navigate through them.
Despite Apple's <unk> update and privacy changes, we've not experienced significantly higher customer acquisition costs.
Several years ago, we made the strategic decision to limit our dependency on paid social media platforms by reducing spend until that's in 5% of our total media budget and instead leverage our highly flexible marketing model through a diverse mix of online and offline marketing channels.
Given our customer base generally skews more affluent we did not detect an increase in sales last year because of the federal stimulus in March and are therefore, not lapping a one time Bob.
Regarding shipping the majority of our customer shipments are made through carriers, where we haven't negotiated fixed price multiyear agreement in place that do not include fuel surcharges.
As Dave mentioned, we expanded our manufacturing footprint in the U S by opening a second optical lab in Las Vegas last year. This enables us to make more glasses in house, which leads to greater gross margins higher quality and faster delivery times.
We've been able to hire the talent required to scale operations faster than planned.
In fact, we continue to attract and retain great talent across the organization from our manufacturing facilities to our stores to our corporate offices.
Thanks to our employer brand, which has only gotten stronger because of our actions during the pandemic to protect the health safety and financial well being of our employees as well as our do good efforts. Our team takes immense pride in our recent milestone of distributing 10 million pairs of glasses to people in need.
While these are extraordinary times <unk> is well prepared and fully energized to continue along the path of sustainable growth.
With that I'll turn it over to Steve to talk about our results and provide color on our 2022 financial outlook.
Thanks, Neil and Dave Good morning, everyone jumping right in revenue for the full year 2021 came in at $540 8 million up 37% versus 2020 and up 46% versus 2019, we finished the year with $2 2 million active customers an increase.
22% year over year, the power of our financial model stems from robust customer economics, which continue to strengthen.
During the year, we grew average revenue per customer by 13% to $246. Additionally, our retention rates through 2021 continue to demonstrate the long term relationship we're able to form with our customers, which we believe is unique in the optical industry.
Despite navigating through can underscore the opportunity ahead.
We execute against our growth strategies.
For the fourth quarter revenue came in at $132 9 million up 18% year over year and up 42% compared to Q4 2019, the onset of <unk> at the end of November and had a meaningful impact on our business given the unique seasonality aspects a top three.
Given the importance of Q1 within the optical industry anti our business, let me take a moment to walk you through the trends you've seen since the start of the year.
The disruption from <unk> Mcleod in January was twofold first the software empty December resulted in a lower revenue deferral than we've historically seen in addition to the varian continuing to dampen traffic levels into January and February in our stores.
We estimate the impact of below mccahon at $5 million in top line from Q4, 2021 and $15 million in top line for Q1, 2022, most of which would yield loss business in the lead up to the exploration of FSA dollars with the impacts with across Q4, and Q1 and largely in December and January .
Given the unique seasonality of optical purchases and customer FSA usage behavior, we do not expect to recapture the majority of these lost sales and have reflected this impacting our first quarter and full year outlook.
With regard to the ecommerce performance in the fourth quarter, while we saw an increase in e-commerce demand over the last two weeks of December it did not offset the decline we experienced in retail traffic trends for our business to shift between retail and E. Commerce may not be a natural or immediate as it is for other categories such as apparel given the need for <unk>.
<unk> prescriptions and various consumer comfort levels around purchasing eyewear online for the first time.
For the fourth quarter ecommerce represented 41% of our overall business versus 56% in 2020 and 34% in 2019.
For the full year ecommerce penetration was 46% versus 60% in 2020 and 35% in 2019 E. Commerce grew 96% during the fourth quarter of 2020 as such Q4 of 2021 E Commerce is down 14%, but up 69% versus 2000.
19, representing a two year CAGR of 30%.
For the full year ecommerce grew 5% on top of 83% growth last year, representing a two year CAGR of 39%.
Before shifting gears to gross margin and SG&A I wanted to reiterate some of the fourth quarter seasonality dynamics that I spoke with you about last quarter Q.
Q4 is generally our lowest margin quarter, given the revenue deferral and as we made several investments to support the important holiday selling season as well as the expiry of FSA benefits. These.
These investments include marketing to support and generate customer demands investments in shipping as we expedite orders to meet holiday timing.
Increasing store staffing to accommodate higher traffic and extended store hours and increasing our customer experienced staffing to support higher demand as well as elevated call volume related to flexible spending benefit questions.
So while we believe our long term outlook will show consistent high growth and steadily improving profitability on an annual basis as we saw in 2021 as a quarter to quarter picture may fluctuate.
We've also added to our earning slides a historical view of revenue by quarter going back to 2016 as you can see the revenue distribution is fairly equal across quarters in the same year with a significant step up in sequential growth from Q4 to Q1, we expect this cycle to continue post pandemic given the consistency we've seen.
And our business over many years prior.
With that in mind, let's move on to gross margin as a reminder, our gross margin is fully loaded and accounts for a range of costs, including frames lenses optical labs customer shipping doctors store rents and the depreciation of store build outs.
Gross margin also includes stock based compensation expense for our optometrists and optical lab employees for comparability I'll be speaking of gross margin excluding stock based compensation.
Quarter adjusted gross margin came in at 57, 5% compared to 57, 8% and 57, 8% in 2020 and 2019, respectively for.
For the full year adjusted gross margin came in at 59, 8% compared to 58, 9% in 2020 and 62% in 2019.
For the quarter, we have some unique costs and benefits impacting comparability.
As well as several operational puts and takes that I'll talk through.
First Q4, 2020 benefited from a tariff rebate of approximately 70 basis points.
Excluding this benefit adjusted gross margin would have expanded.
Next the acceleration and penetration of our complex business as a percentage of the total was the primary driver of slight moderation in fourth quarter gross margin.
As Neil mentioned, expanding our content offering is a core part of scaling our holistic vision care offering and the key driver of increasing average revenue per customer.
While contact lenses have a lower gross margin versus our other product offerings. They are accretive to gross margin dollars given the higher purchase frequency and subscription like purchase cycle of this product.
Additionally, we typically experience higher sales retention rates for customers that purchase context, given the ability to meet all of their eye care needs within the walby Parker ecosystem.
As we've talked with you about last quarter, there was a moderate drag on gross margin as our second optical lab in Las Vegas ramps to 100% operating capacity, we expect the lab to reach scale in the back half of 2022, which will allow us to more efficiently serve our west coast customers ultimately supporting leverage within gross margin.
Lastly, we saw a benefit to gross margin from continued inventory and product strategy optimization as well as the expansion of our higher margin progressive business.
For the full year 2020 gross margin benefited from a tariff rebate of approximately 40 basis points. Excluding this benefit in 2020 adjusted gross margin expansion would have been greater in 2021, primarily driven by leverage on retail occupancy as we lapped store closures last year and leverage.
<unk> as we continue to scale, our higher margin progressive business, partially offset by the acceleration in penetration of our context business during the year.
Shifting gears to SG&A SG.
SG&A for our business includes three main components.
<unk> expense for our headquarters customer experience in retail employees marketing spend including our home fire on program and general corporate overhead expenses.
Adjusted fourth quarter SG&A came in at $89 4 million or 67, 3% as a percentage of net sales in line with pre pandemic spend levels as we make investments to support increased demand and deliver remarkable experience to our customers.
The primary driver of the planned deleverage during the quarter was increased media investments as we spoke with you about in November during the third quarter, we pulled back on marketing spend in response to the uncertainty presented by the Delta area with the intention to strategically redeploy those dollars in the fourth quarter.
When the Omicron Varian emerged in late November we made the strategic decision to continue to invest behind marketing given the learnings we have gained after having navigated the first Gary as well as the importance of the December selling season to our business.
And less than 15% unaided brand awareness each annual FSA expiry season is a prime opportunity to introduce new customers to the brand and we engage with existing customers.
We want to be at the top of our customers' minds when purchase intent is potentially higher than in other seasons.
For the full year on an adjusted basis SG&A came in at $316 million or <unk> 58, 4% as a percentage of net sales an improvement of three two points when compared to 2020 and about flat to 2019, as we realized leverage on both salaries and G&A, partially offset by investments.
And marketing.
For the fourth quarter adjusted EBITDA margin was negative four 8% in line with our guidance driven by the investments I just spoke about versus 9% last year and negative five 4% in 2019.
Given the fixed nature of the Q4 investments already described we believe we would have realized healthy flow through on the $5 million of lost sales in the quarter and adjusted EBITDA would have been higher.
For the full year adjusted EBITDA margin was four 6% versus one 9% last year and five 9% in 2019, reflecting continued cost discipline and realizing leverage across SG&A categories.
We finished the year with a strong balance sheet, reflecting $256 million in cash, which will continue to deploy deliberately to support our growth and operations.
Looking ahead, while consumers will likely continue to be impacted by near term macro headwinds and global uncertainty the optical industry is healthy and growing and we remain confident in the long term sustainable growth algorithm, we communicated at our Investor day in September .
As it relates to the full year 2022, we are guiding to revenue between 650 and $660 million, which represents growth of approximately 20% to 22%.
This outlook reflects the impact of an estimated $15 million of lost sales in the first quarter that I spoke about previously.
While we do not plan to guide on a quarterly basis, given the disruption of OMA crime to the start of the year and the corresponding impact to our full year 2022 guidance, we wanted to provide additional color.
For Q1, 2022, we're guiding to revenue between 153 to $154 5 million, which represents growth of 10% to 11% year over year. This.
This represents a sequential topline growth of approximately 17% from Q4 2021 to Q1 2022 as you can see in our slides pre pandemic. We typically had seen sequential step ups of 25% plus from Q4 to Q1 and would have expected a similar dynamic this year.
Here, if not for omicron.
Our full year guidance assumes continued retail recovery, reaching approximately 90% of pre pandemic levels and cute scene and full productivity by yearend for context in 2019, our stores opened for 12 months or more generated $2 6 million in revenue on average.
While we remain optimistic we will ramp back to full productivity faster, we're maintaining a conservative stance as the timing and rate of recovery will continue to be impacted by changes in the COVID-19 environment alongside some of the broader macro headwinds faced in the consumer and the economy, both known and unknown.
Our outlook also reflects our expectations for earlier timing of new store openings.
<unk> to 2021 we expect more than half of our openings to occur in the second and third quarters and underpins accelerated growth from Q2 forward.
In line with the results delivered in 2021 and consistent with our long term outlook for sustainable growth. We expect full year 2022 gross margin to be in the range of 58% to 60% and expect adjusted EBITDA margin improvement of one to two points, representing five 6% to six 6% adjusted.
EBITDA margin for full year 2022.
We continue to expect sources of leverage to come from continued optimization of our retail and customer experience teams disciplined deployment of marketing spend and corporate overhead with revenue growth outpacing SG&A spend.
In summary, we are very excited about the growth in the business. The continued recovery of our stores post COVID-19 and the opportunity in front of us.
To quickly recap some of the highlights we want you to take away from today's call first our business grew significantly expanded profitability and gain share despite being materially impacted by omicron, given its timing during FSA season, as well as its disruption of customers'.
To obtain eye exams and new prescriptions.
Our business is not significantly impacted by increased shipping costs labor shortages apples privacy updates or lapping stimulus.
Third our business benefits from the reopening currently underway as our retail productivity at our channel mix normalize.
Fourth our enthusiasm and energy for the success of our customers our shareholders our coworkers and the communities. We serve has never been higher and we're excited for the year ahead.
With that Neil Dave and I are excited to take your questions. Operator. Please open the line for Q&A.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Your question. Please press star funds by chain.
Thanks to ask a question. Please ensure that your line is from Midland County.
And our SaaS question comes from Mark <unk> from Baird. Please go ahead. Your line is open.
Great. Good morning, Thanks for taking my questions here.
I guess to start off I was hoping you could give us a bit of an update on how youre thinking about the competitive backdrop and maybe more specifically competition at the lower end bid some of the increasing inflationary pressures on the consumers.
And then related there you talked a lot about the opportunities on the progressive front can you remind us how <unk> price point on progressive compares to the competition and how does your do you have that same pricing gap that you see with the single vision single vision classes. Thank you.
Okay.
Thanks, So much for your question.
First as you mentioned, our progressive glasses start at $295, which is a $200 step up from our single vision product at $95. When we priced this product the intent was to provide the same.
Level of exceptional value and so we frequently see.
Customers spending.
800 to $1000 or more on a pair of progressive and then they come from.
From us are able to get glass is still at a fraction of what they would typically cost.
Similarly in the competitive dynamic we still find that our.
Customers tend to skew more affluent and are coming to us from.
High end optical shops from optometric practices.
Have not seen significant competitive pressure from the lower end of the market. We think in this inflationary environment, our pricing power just becomes.
More and more competitive and compelling to our customers.
That's great. Thank you quick follow up for Steve.
If you could just give us a little bit more color on the bridge between the prior 25% plus outlook and the current 'twenty to 'twenty three.
Even adjusting for the <unk> disruption of the $15 million the midpoint, maybe a couple of points below the prior outlook.
If you could give us a little bit more detail there that would be great. Thanks again.
Sure. Thanks for the questions Mark and just on the last part of your question on progressive pricing versus the competition. So if our average price was $2 95 for a similarly quality progressive frame and lens.
Looking anywhere from $600 to $200, depending on the retailer. So we believe that Theres still continues to be a tremendous pricing advantage that we offer base.
Based on the specific quality of our lens type and.
Frame.
In terms of the question.
Regarding the full guidance for 2022.
We attribute roughly $15 million of lost business in Q1 to Amazon, which accounts for roughly three four points of growth, which gets you from our 25% guide down to 22 and we've also.
Modeled in some conservative assumptions as it relates to the recovery of our stores to 100% productivity and so that would account for the incremental two points flexibility that we've built in our model. There is still a level of uncertainty in the environment and although we're all optimistic that we are.
Through the Covid era, and does not officially done yet and while our stores are on their path to recovery and we're optimistic they will get back to a 100% before year end and 90% in Q2, we wanted to build in a level of conservatism just that we think is prudent.
Great Best of luck.
Thank you.
Yes.
Thank you very much for your question. Our next question comes from Kimberly Greenberger from Morgan Stanley . Please go ahead.
Thank you so much good morning, Steve I just wanted to follow up on your answer to Mark Mark's question. There if we could just start there.
On the recovery in your urban store productivity.
I'm wondering if you can help us understand.
First of all the suburban stores have improved there.
Our productivity back to 2019 levels in other words have you seen.
The original onset of Covid in the spring of 2020 have you seen your suburban stores.
Trace back and recover the full productivity.
Then on the urban store recovery embedded in your revenue guidance for 2022 are you assuming that office workers.
Go back to their in office habits have kicked out that next level of productivity in your urban cores.
Of course.
Thanks, Kimberly Kimberly this is Neil.
Our suburban stores have not.
Yet reached full productivity.
And again, our urban stores are more than 15 points below that.
We are assuming.
What we're seeing in our own business, which is we're calling back our New York headquarters.
Starting April 5th.
We're also returning to the office mandatory three out of five days a week.
So we are assuming a ramp to full productivity, but not necessarily.
Full traffic to pre pandemic levels and part of our increases in productivity.
<unk> continued to be driven by increased progressive penetration.
I exam is contact sales are urban stores had been impaired not just because of reduced office worker traffic, but in many neighborhoods reduce tourism as well.
We anticipate will rebound.
So we do anticipate that the urban stores will return to full productivity.
Slightly slower pace than our suburban locations.
Okay, Great. That's great color. Thank you so much and I just wanted to step back for a second and talk about the.
The strategy that you might have in place either in 2022 or 2023 to enhance the worthy Parker proposition to consumers, who have vision insurance any sort of incremental strategies or new ways of.
Really tackling that insured market. Thank you.
Sure.
The question is can really.
We believe the insurance remains a massive opportunity for us and we.
Within that really and I think of it as three three distinct opportunities. So the first is expanding our in network.
Relationships. We're currently in network with Unitedhealthcare, which covers roughly 20 million mines.
As well as being operating in network benefits to large employers like GE and Boeing and <unk>.
You'll see us continue to deepen relationships like this and we'll have more.
News to share on that front later this year.
The second.
Category within the World of insurance is building awareness about out of network benefits.
And we did a recent survey.
A couple of thousand consumers and found that industry wide.
Consumers are spending $130 out of pocket when they use their in network benefits.
But if those savings.
Consumers came to where we Parker they would have they would spend zero dollars out of pocket to purchased single vision glasses and.
We believe that there is massive.
Massive opportunity here to create education, both online and in our stores around how consumers can use those out of network benefits.
To pay even less at Parker.
Then the third is.
Really rethinking.
Vision insurance and continuing to innovate.
As we have in other parts of the industry.
And.
All of the aspects.
Our expansion into a holistic vision care provider.
Continuing to open exam rooms throughout the country continuing to higher optometrist investing in telehealth, expanding our context business.
Create the foundation that we believe will enable us to create more innovation in the category.
Over over a longer time period.
Yes.
Thank you so much that's very clear.
Okay.
Thank you very much for your question. Our next question comes from Paul <unk> from Citigroup. Please go ahead. Your line is open.
Yes.
Hey, Thanks, guys.
If you could talk about the drivers of your sales assumption for F. 'twenty two just in terms of active customer growth versus spend per average customer and then also curious about any bottlenecks that you're running into getting stores open on the construction front door staffing fronts.
And then last just the number of stores that youre growing in new markets versus existing markets in 2002, thanks guys.
Cole.
Thanks for the question Paul I'll answer the first part of the question and then turn it over to Neil in terms of sales sales drivers and assumptions around active customer growth one of the nice consistent.
Aspects of our financial model really has been the consistency around which we've grown active customers.
And the 22% zone, so call it the low twenty's.
And coupled with that we've seen and our one.
Ability our ability to increase average revenue per customer on a consistent basis, we talked about how thats up 13% year over year to $246 and so we believe that we will continue to be able to deliver active customer growth and a very consistent way in line with how we have done that.
And we also believe that we will continue to drive increases in average revenue per customer maybe not as high as 13%.
But certainly consistent with how we've done so in the past.
From a demand generation perspective, there are a few factors to keep in mind that really underpin our ability to acquire customers. So one is opening up new stores. We plan to open up 40, new stores. This year 25 of them are in Q2 and Q3.
Which really underpin our accelerating growth targets over the course of the year and we plan to continue to deploy very disciplined marketing spend we're very conscious.
Equation between revenue growth and CAC and similar to this year and previous years, we want to make sure that our revenue growth is growing appreciably faster than CAC and so ultimately we're increasing contribution profit and contribution margin on a per customer basis. So those are some of the factors and driver.
<unk> that go into.
Our customer acquisition model.
And Paul this is Neil.
We're not seeing any bottlenecks or an inability for us to complete construction and maintain sort of our store opening timelines and these new stores are performing inline with expectations and in line with first year performance of the stores that we launched pre COVID-19 , so trending towards our targeted 20 months.
Paybacks in our 35% four wall EBITDA.
The other thing is in 2021, we opened nine stores in new markets added 35 stores that we opened and we plan to continue to open up in new markets.
We serve a similar proportion.
Yes, the rough split this year Paul is.
30 markets. We're opening in 25 will be existing markets and five will be new markets. So as Neil indicated very similar to the split as to last year, but this year index thing a little bit more towards existing.
Got it. Thank you guys. Good luck.
Thank you.
Yeah.
Thank you very much for your question.
Next question comes from brokerage from Goldman Sachs. Please go ahead.
Good morning, and thank you so much for taking our question.
Neil Dave I'd love to hear a little bit more about your plans for <unk> brand awareness campaigns and marketing strategy to drive that new customer growth into 2022 and beyond.
Insight you can share on the marketing efficiency that you're seeing.
Noticeable differences between existing markets or new markets for the brands.
Sure This is Neil.
Start.
First we should probably just talk a little bit about our marketing efficiency and we know that a lot of companies are seeing challenges because of the <unk> changes.
Have not announced because we made a very deliberate decision several years ago to reduce our dependency on social media platforms and it now represents less than 5% of our media spend and we did see CAC in Q4.
Does.
<unk> due to increased spend really in anticipation of our peak sales season.
We believe that cap was indeed impacted by the decrease in sales.
<unk>.
Being said, we believe the fundamentals related to our customer acquisition model remains strong.
Avenue as revenue is growing faster than CAC.
Also increased retail productivity tends to benefit our CAC that stores, our marketing vehicles, and we tend to see a higher percentage of new customers in our stores vis a via our ecommerce channel.
And one of the ways that we raise the awareness is by opening these stores and making them Super beautiful.
And this week, we're opening up a store and high park village in Tampa.
Our second location in Tampa, I'm, sorry, our third location in Tampa and it's just.
The styling the exterior.
Is.
<unk> already sort of generating.
A lot of attention in that community. So you'll continue to see.
Mix performance and brand marketing.
That.
Enables our customers to fall in love with US and of course, just know that we exist.
And I would just add that from a marketing standpoint, we've never been overly dependent on paid marketing.
Our customers have been and remain our best marketing channel.
And we're excited to maintain our industry, leading net promoter score.
And to this day the majority of our customers continue to learn about us through word of mouth and.
And we expect that to continue to be the case.
Thank you and if I could just ask one quick follow up to some of the prior questions regarding your on the kind of impact on thanks for all the color that you provided so far I'd love to hear a little bit more about the signals that you're seeing in the business maybe in the suburban stores versus the urban stores that give you confidence that the lower store productivity that you're seeing.
Through the end of February is truly a function of Justin Macfarlane relative to maybe a more challenging consumer backdrop, given the inflationary pressures on the consumer's wallet. Thank you.
Okay.
One of the things that.
We continue to see is increased.
Version in our stores and again increase.
Or sort of stable net promoter score.
And we're not seeing.
Sure.
Any concern are hearing from our customers.
Shirley about pricing if anything we're hearing sort of reinforcement around sort of the value that we continue to provide.
This is also.
Now, let it through multiple waves of the pandemic and we've seen similar patterns where.
When there are COVID-19 outbreaks at a certain geography, there is an immediate drop in retail traffic and then because of the prescription and nature of our product and there's not an immediate bounce back like you might see in some other consumer categories and so we have seen multi month recovery curves.
We're seeing consistent patterns coming.
Coming out of the crowd that give us confidence that store productivity will continue to increase.
And just adding to that.
Some of the numbers that we shared in our investor slides.
Where are we.
Shined, a spotlight on the recovery curve at the onset of <unk> I think one of the interesting things. We've all seen from Omicron is how quickly the impact occurred and you can see that our stores.
At the beginning of December we're at 90% of productivity and pretty quickly dropped to 75% by year end and they've rebounded rebounded now rather rapidly to the mid eighties and as we project a recovery curve over the course of the year and as a reminder, we believe that our stores will be at 90% by Q2 of 100.
Sent by the full year that is informed by how our stores have rebounded and recovered through the various.
Timeframes of the pandemic the original onset of Covid at the onset of Delta.
And now the onset of omicron in the recovery through it.
Thanks, So much I'll pass it on.
Thank you so much for your question. Our next question comes from Oliver Chen from Cowen. Please go ahead.
Regarding holistic vision care would love your thoughts on the virtual vision testing telehealth.
Ahead key catalysts there.
Customer profile looks as well as the technology roadmap and then as we think more.
Near term.
With FSA and some changes in that but in terms of the legislation and what should we be monitoring.
That may impact your business and what's embedded in guidance.
And you also mentioned macro factors, which are.
Many of them are out of your control, but was curious about which ones are most sensitive to store traffic and other factors. Thank you.
Thanks for the questions I'll start with that.
As the telehealth one.
No.
We remain incredibly excited about the prospect of telehealth.
Looking at easier faster cheaper for.
Our customers and patients.
Renew prescriptions and new prescriptions, and we believe that we're uniquely positioned.
To bring some of this technology to market.
And we're seeing very positive results from our virtual vision test and it's still a new product we introduced a few months ago.
Getting incredible feedback from customers who use it.
To renew their prescriptions in just a few minutes for glasses and contacts from whom.
And Youll see us this year introduce new capabilities and new features that will make it even easier for us to prescribe additional products and extend the reach of our doctors.
Also are excited about the potential of using other forms of telehealth, including in our stores.
And continuing to invest in technology that.
And make it easier for our doctors to serve more patients.
And drive efficiency in that part of our business.
Okay.
And I think from an FSA perspective.
We welcome legislation that makes the use of those funds more flexible.
That being said, we found that customers tend to be pretty uninformed.
On changing legislation or even.
If their exploration date is not December 31.
There is a perception.
So while these changes may immediately take effect, we think that it will take several years for it to significantly influence.
Customer behavior.
Is almost similar dynamic with even vision insurance, where.
Manny.
Customers.
Don't fully understand how their vision insurance works and the fact that it doesn't protect against catastrophic risk and thats. It.
Secondly, our prepayment plan often with a high deductible.
So.
The FSA changes may impact from seasonality in years ahead, and we don't expect it to significantly impact.
Our plans this year.
Okay. Thank you and on the macro side, just would love your take and lastly.
Hopefully there.
No.
Really scale, new variance, but theres always news about things happening as you think longer term are there ways to the few.
As you approach your business with respect to the dime.
Dynamic.
Love your thoughts as you evaluate long term strategy. Thank you.
Okay. Thanks, and one of the things that we did see in our business as traffic declined in our stores conversion increase significantly.
So as we think about retail productivity in our plans.
<unk> 22 in particular.
We feel like we don't need to model to get back to a 100% or even higher traffic in order to reach full productivity.
To achieve our plans, we think the macro environment.
<unk> impact other categories more than the optical industry historically, the optical industry grows at a rate.
Higher than GDP.
On the same token decreased traffic to neighboring stores right increases traffic and into our stores. So that's something that we'll continue to monitor.
We when it comes to Varian and managing through the pandemic.
We were early mover.
And implemented health and safety protocols quickly that earned us goodwill with our customers and our employees and we continue to benefit from that today in our ability to recruit and retain top talent the talent.
And thats seen in our employee engagement score that's seen in our turnover rates I think all businesses saw.
Lower than usual churn employee turnover in 2020, and then elevated in 2021 hours was relatively stable. So we feel really great about that and we continue to be just a preferred employer because of our culture because of our social innovation.
And also just the digital capabilities that we have that are <unk>.
<unk>.
Our business.
In our category will continue to ensure that we have flexibility to serve customers regardless of.
Kind of what happens.
In terms of future variance or other surprises.
And has enabled us to continue to take meaningful market share throughout the course of the pandemic that get enabled us to serve customers.
When we had to close all of our stores.
And so.
Got it.
Omnichannel model that we have in those investments.
<unk>.
Continue to.
Ensure that.
We are better positioned to serve customers regardless of.
Kind of unexpected.
<unk>.
Sure.
Very helpful. Thank you best regards.
Thank you so much and our final question for today comes from Mark Mahaney from Evercore. Please go ahead.
Thanks, You mentioned the 40, new stores Youre Rolling out this year are all going to have my exam capability could you just remind us how many of your existing stores have that and what the differences in the productivity of the stores that have eye exam capability versus those that don't and if its a large gap.
A possibility or is it.
Appealing.
Feasible the idea of retrofitting all stores to have that is thank you.
Sure.
Hi, Mark Thanks for the question approximately 107 of our stores today have eye exam capabilities roughly 40 of those we referred to as employed are these where we employ the doctor and.
And recognize the revenue from the Doctor, We've got another 60, or so independent Ods, where we leased the doctor a small amount of space typically adjacent to our store we did not recognize the revenue from those eye exams, but were optimistic although we can't track it that the customer gets from examined in places an order in our store.
As a reminder, roughly 70% of all prescription eyewear is purchased at the same place where an individual gets an eye exam that number is higher for our stores. So we're optimistic as we continue to rollout.
<unk> capabilities everywhere there'll be an elevated conversion rate, where we're benefiting not just from the eye exam revenue, but from a conversion of that exam into a sale and roughly just 2% of our business today. As a reminder comes from the sale of the eye exams with PC model that Neil talked about on his prepared remarks.
We are planning to rollout roughly.
Other 30% to 40 PC model stores this year and that will enable us in a market, where we needed to partner with an independent and nobody will be able to for all intents and purposes have an employer like relationship with Adobe and recognize the revenue from those eye exams and have a bit more control over the customer.
Experience in terms of the incremental costs.
To add an eye doctor, the doctor him or herself more than pays for him or herself.
Virtue of the fact that we sell eye exams in our eye appointment slots are generally books, we tend to book and 20 minute increments versus 10 minute increments. So we do believe that that in and of itself is a factor that makes our work environment a bit more pleasant and manageable for an eye doctor at a warranty store versus at a competitor store.
Cost to build out the space is negligible.
South of a $100000 and accounts for approximately 200 to 250 square feet stores, whereby doctors generate moderately more revenue than stores without for the understandable reasons in terms of payback, we've seen very consistent paybacks for our stores.
At 20 months or below and that also applies the stores, where we have this <unk> capability.
Thank you Steve.
Thank you very much and this brings us to the end of our Q&A session. Today I'd now like to pass the call back over to Neil for any final remarks.
Great.
Thank you all for your great questions today, Dave Steve and I are so proud of what we and the team have accomplished in 2021.
Credibly excited for the months and years ahead.
If you have any additional questions or follow ups. Please feel free to reach out to ciena or our investor relations inbox that investors that worthy Parker dot com and we look forward to chatting with you all again in May Thank you.
Everyone else has left the call.
Thank you everybody for joining today's call you may now disconnect your lines.
Okay.
Yes.
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