Q1 2022 Warby Parker Inc Earnings Call
Okay.
Thank you.
Okay.
Yes.
Okay.
Yes.
Alright.
Yes.
Yes.
[music].
Okay.
Sure.
Okay.
Yes.
Yes.
Sure.
Okay.
Okay.
Yes.
Okay.
Okay.
Thank you and good morning, everyone here with me today are you. Please now Dave Gilboa, our Python does NTIC ice alongside Steve Miller, Senior Vice President and Chief Financial Officer.
Before we begin we have a couple of remind us our earnings release and slide presentation are available on our website at investors <unk> com during this call and in our presentation, we will be making comments of a forward looking nature.
<unk> results may differ materially from those expressed or implied as a result of various risks and uncertainties for more information about some of these risks. Please review our company's SEC filings, including the section titled Risk factors in the Companys latest annual report on Form 10-K.
These forward looking statements are based on information as of May 16th Chief <unk> G and we assume no obligation to publicly update or revise our forward looking statements. Additionally, we will be discussing certain non-GAAP financial measures.
These non-GAAP financial measures in addition to and not substitute for measures of financial performance prepared in accordance with GAAP.
Conciliation of these items to our nearest U S. GAAP measure can be found in this morning's press release and on our slide deck available on IR.
Website.
I would now like to pass over to your highest new brief note you begin. Please go ahead.
Good morning, everyone and thank you for starting your day with US. This is probably the first meeting many of you are having this week and we'll try and do our best to make it engaging in productive.
Ed I'll dive right into Q1 performance.
Our team has continued to make strong progress throughout the quarter and executing on our key objectives and driving sustainable growth.
In particular, we grew our active customer base expanded our products and services operate opened eight new retail stores and further enhance our digital capabilities.
As we walk through our last earnings call almost call it, particularly impactful for us in Q1, given the unique seasonality of our business. We believe omicron resulted in approximately $15 million worth of lost sales in Q1.
Revenue for the first quarter was $153 2 million up 10, 3% versus the first quarter of 2021 and up 18% on a three year CAGR basis.
While Q1 was the lowest growth in profitability quarter, we expect to have this year.
Routed the milestones we achieved despite a challenging backdrop.
This quarter, we launched for eyewear collections, including our spring quarter correction, starting at our core price point of $95, including prescription lenses as well as our NAPCO series, which is priced at $195 and features a unique interlocking construction green dot by our in house design team and produced in Italy.
Across our collections, we continue to focus on delivering a range of styles and fits for different consumer lifestyles and preferences, all while prioritizing exceptional quality and value.
This commitment to design and convenience inspire darden flip on assortment, which allows customers to transform their favorite optical frames into sunglasses instantaneously and just in time for summer.
We ended the quarter with more than $2 2 million happy customers, who help fuel our growth by telling friends and family members about their experiences with us.
Since day, one word of mouth has been and continues to be the primary way customers worried about our brand.
We're encouraged that these customers are spending more with us than ever before as our average revenue per customer grew 11% year over year to $249.
To continue to meet customers, where and how they want a job we expanded our retail fleet by opening eight new stores, bringing our store count to 169 locations at the end of Q1.
This included opening our very first store in Nebraska, and going deeper in key markets like Houston, and Tampa, where we opened our sixth third stores respectively.
Throughout Q1, we continued to enhance our holistic vision care offering by making it even easier for customers to get an eye exam with us.
This starts by adding and retaining highly engaged optometrists, we believe our optometrists, who love working for worthy Parker because of our mission and culture the career opportunities they see in front of them as part of the SaaS Valley brand.
Competitive benefits, we offer and the work structure environment, we've created which allows them to focus first and foremost on patient experience and care.
And we've continued to see increasing sales coming out of our exam room.
On our last call we shared our commitments have been Berthing 40 of our existing stores in states, where we cannot directly employ optometrist to a professional corporation or PC model, which gives us greater control over the customer experience and enables us to recognise exam revenue.
This quarter, we made progress toward that goal by converting 17 existing stores to the PC model at the end of Q1 115 of our 169 stores offer the eye exams.
And for eligible patients who prefer to update their prescription from the comfort of their home, we're continuing to make that easier to leveraging first to market technology like our virtual vision tests telehealth app.
Third to Q1 2021 this quarter, we nearly doubled the number of vision tests administered through our App.
We also continued to see meaningful growth in our contact lens business, which more than doubled since Q1 2021.
Past quarter, we continued to scale, our optical labs in Las Vegas, Nevada in Phillipsburg, New York, which strengthens our vertically integrated supply chain and further insulates us from global supply chain pressures.
And we did all this while staying laser focused on our customer delivering remarkable experiences both online and offline that result in a net promoter score above 80%, which we believe is not only best in class within our industry, but also beyond that.
Alongside our commitment to our customers our commitment to driving impact we aim to inspire other entrepreneurs and businesses to think along the same lines, we do and to serve as an example that you can indeed scale, while creating impact.
As part of this commitment we announced the partnership with Eastman chemical to pioneer a first of its kind demo labs molecular recycling program.
One of the largest environmental impacts within the <unk> industry is the lack of a recycling solution for demo lenses.
<unk> lenses used in the industry to maintain frame shape and integrity, while frames, our in transit or on display.
Working in close partnership with Eastman, we've come up with a solution to break the material down to the molecular level. So that it can be repurposed to create an assay that is chemically and physically identical to traditional acetate and offers a sustainable solution without compromising aesthetic of our performance.
Currently we are the only either brands or the cycle or demo lenses, while sourcing acetate.
Making progress towards a circular solution that should lower the environmental impact of producing our friends.
It's programs like this and our teams focus on driving vision for all the earned will be Parker the top honor of SaaS companies 2022 lists of the month.
<unk> companies within social good.
Recognized in particular for our work distributing glass assist students in need through our People's project program.
To be recognized alongside the organization's reshaping industries and broader culture.
This recognition is a testament to the dedication and important where T. More we continue to execute as part of our mission to provide vision for all.
In Q1, we continued to hire great talent across the business within our manufacturing facilities, our customer experienced in retail team, our corporate offices and our optometry team.
We're proud that the retention of our full time team members mirrored that of pre pandemic levels and continue to focus on fostering a work environment, where employees can think big and have fun, David Ireland every single day by team worthy resilience their creativity and their commitment to our stakeholders.
While Q1 was the lowest growth in profitability quarter. We expect to have this year, we are starting to see improvements in retail productivity and have confidence in our growth trajectory for 2022, which Dave will talk more about.
Thanks, Neil it's great to be speaking with many of you again and to those joining us for the first time welcome. While 2022 began with significant and unique omicron related challenges for our customers and the optical industry overall, we remain as optimistic as ever about the long term prospects for our category and our opportunities to strengthen our.
Market position within it.
As we look ahead to the rest of 2022, we expect to see our growth rate accelerate as retail productivity continues to recover.
On our last earnings call, we talked about the impact that <unk> had on retail productivity, which we defined as the average sales per store compared with pre pandemic levels in 2019.
In Q1 retail productivity was around 82% of pre pandemic levels.
Our below where this metric with trending in mid Q4 prior to overcome.
In April retail productivity rose to 90%, indicating progress along the recovery curve.
<unk> after each wave of the pandemic and pointing to continued recovery.
We said then and continue to believe that we'll reach full retail productivity by year end.
We do not need or expect retail foot traffic to rebound to pre pandemic levels in order to achieve 100% retail productivity.
Conversion and <unk> games, our team has driven and will enable us to get there with modest assumptions around traffic increases.
In addition to increased productivity from our existing stores. We also remain on track to expand our retail footprint by 40, new stores. This year, ending 2022 with 201 stores.
Even with this rapid growth at year end, we will still represent less than 1% of the 41000 optical shops opened in the U S. Today.
In addition to serving our customers better through our expanding retail footprint and driving adoption of our industry, leading digital tools like our virtual try on and virtual vision tests will continue to drive growth by launching new products and scaling our existing product offerings in particular progressive contacts and eye exams, all areas in which our business still.
And that's just a fraction of the broader market.
We expect our progressive penetration to continue to increase driving topline growth and gross margin expansion progressive.
Progressive make up 21% of our prescription eyewear business less than half of the industry average progressives are our highest price point in highest gross margin category and we see a higher mix of progressive in our stores versus online. So as retail productivity increases we expect to see progressive growth will benefit both our top and bottom line.
We will continue to drive growth in our contact business, which currently accounts for just 7% of our business, while typically accounting for 15% to 20% of an optical retailer sales as more of our customers purchase those glasses and contacts from US we'll continue to see growth in average revenue per customer stay of envision testing business we entered.
Dissipate ending the year, providing eye exams in more than 150 of our stores up from 107 in 2021 and will continue to drive innovation in the telehealth space as we add new features.
And drive more awareness to our virtual vision test that.
Industry wide, approximately 70% of glasses, whereas purchase classes from dependent on customers getting their prescription for mortgage Parker.
Going forward.
Having more convenient exam envisioned testing options for our customers.
Customers will reduce friction for them it should be a significant growth catalyst for our business.
There is an insurance remains a large opportunity for us. We are currently focused on scaling our in network insurance relationships, while also making it easier for customers to use their out of network.
In your report we became an in network option for members of the Blue Cross Blue Shield Federal employee program. We're excited.
Just to make it even easier for federal government employees to purchase glasses exams and contacts for as little as $10.
These numbers.
In addition to.
Our base of in network customers.
A meaningful portion of our customer reviews are out of network benefits to pay for eyeglasses exams for the purchase of eyeglasses.
We are investing in a number of ways.
These are existing benefits with us and to educate consumers that they can use their benefits with us regardless of the plan.
And we probably should.
In order to offer exceptional.
So the insurance benefits or not or $95 prescription glasses.
And as a reminder, this unit.
Slide price includes lightweight and in fact, we had been polycarbonate prescription lenses with anti reflective in that.
In an environment like the challenging one room, we are grateful for the inherent resilience.
And durability of both our industry and business model.
The optical industry.
What the economy will look like in the coming months.
We do know that continue.
We'll need to access the essential products and services, we offer to help them.
79%.
And we expect that number to increase as there are several macro factors contributing to rising vision correction needs.
Like increased screen time and increased time spent indoors.
The various waves of the pandemic.
Disrupted the normally consistent shopping behavior in our category, but we are confident that consumers will resume their eye, Dr visits and eyeglass purchases.
Okay.
We recognize that consumers have a lot on their minds these days with high costs and rampant.
Given the exceptional value we offer as well.
We believe we are uniquely positioned to capture the attention of consumers searching for vision care and to serve their needs.
And we expect to be less impacted than others in the industry has been.
It's about $100000.
Even this past quarter, where our growth was well below our typical.
Levels, we still took market share and strengthened our competitive position in a category.
As the recovery continues we expect we will benefit differentially continue to scale our base of happy customers continue to take share and continue to create impact.
And now I'll pass over Steve to dive a bit deeper into our financial performance.
Thanks, Neil and Dave Good morning, everyone, let's.
Let's jump right in and talk through topline performance for the quarter.
Revenue for the first quarter of 2022 came in at $101 21, and up 18% on a three year CAGR basis versus the first quarter of 2019.
We finished the quarter with $2 3 million active customers, an increase of 18% versus the same period a year ago.
Our average revenue per customer increased 11% year over year to $240 million.
We're pleased to see continued scaling and average revenue per customer, which reflects our ability to continue to provide more values.
As a reminder, both.
The active customers and average revenue per car.
12 month basis.
For customer for the quarter was driven by a number of factors, including a consistent replenishment cycle.
As well as continued progress in growing our contact lens business, which while up 400 basis.
Still only represented 7% of our business overall all in.
In Q1 'twenty two.
Was account for 15% to 20% of sales of the typical optical retail.
Sure.
As we mentioned.
Our Q1, 2022 revenue and year over year growth rate reflects the impact of approximately $15 million in estimated loss sales due to the effect of the omicron on store traffic and the recovery time needed for consumers to rebook eye exams and returned to stores to purchase glasses.
Visit.
Course, where store traffic and productivity declined from above 90% in the weeks preceding the onset of Oman.
5% in the early weeks of January .
We saw a slow but steady recovery in store productivity as Q1 progressed for the first quarter retail productivity came in at 82% of 2019 levels with that said, we saw retail productivity rise to 90% in April which is roughly a 10 point improvement from where we started the year, we expect to see this moe.
Mentum continue as the year progresses.
As it relates to our e-commerce business for the first quarter. It represented 44% of our overall business versus 56% in Q1, 2021, and 37% in Q1 2019.
E Commerce revenue grew 81% in the first quarter of 'twenty.
2021, as such our Q1 'twenty two E com revenue was down 14% year over year, but was up 24% on a three year CAGR basis versus Q1, 2019, having developed a diversified network.
Suppliers.
As additional color on a factor affecting Q1 revenue, we did want to call out a small shipping delays.
From a freight forwarder that temporarily suspended operations the last week in March.
We were able to move quickly and transition these shipments to another supplier and this shifted roughly $600000 of customer delivery.
And from Q1 to Q2.
This is a good example of the resilience of our supplier base as we used to delivery is still reach customers within our promise turnaround time, if not for this delay at the end of March revenue for Q1 would have been toward the high end of our guidance range.
Moving on to gross margin as a reminder, our gross margin is fully loaded and accounts for a range of costs, including frames and lenses optical labs customer shipping optometrists store rent and depreciation of store build outs are gross margin also.
Stock based compensation expense for our optometry and excluding stock based compensation.
Adjusted gross margin.
Q1 for.
For the quarter, we had.
Some unique benefits in Q1 2021 impacting comparability.
As well as several operational puts and takes Q1 2021 benefited from a tariff rebate of approximately.
Separately 25 basis points.
Excluding this benefit the change in adjusted gross margin between Q1 'twenty one in Q1, 'twenty two would've been narrower.
With regard to the various operational puts and takes to gross margin.
First the accelerated as a percentage of the total was the primary driver of the decrease in gross as I noted our contactor business.
7% of our business in Q1, 'twenty two from approximately 3% of our business in Q1.
As mentioned on prior earnings calls expanse.
Our contact lens offering as a core part of scaling our holistic vision.
With increasing average revenue per customer.
The lower gross margin percent versus our other product offerings, they are higher purchase frequency and subscription.
Sure Mike purchase cycle of this product.
We're also pleased to see sales of non prescription sunglasses improved year over year grew by approximately 200 basis.
With our pre pandemic product mix in 2000.
Classes of moderately lower margins. This ultimately had some deleverage on next we saw the impact of OMA.
On lower store traffic and product.
Deleverage in gross margin in <unk>.
Key areas, which are the more fixed portion of our cost of goods.
These fixed elements of our Cogs stack or retail.
It will remain the same regardless of revenue as.
Q1 was impacted by $15 million in lost sales.
The fixed portion of Cogs became elevated as a percentage of revenue and <unk>.
Of course of the last 12 months.
From 134 stores.
March 31, 2021 to a 169 stores as of March 31.
2022, or an increase in our store base of 26% year over year, which naturally leads to an increase in store rents.
<unk> from store build outs.
We saw some downward pressure on growth.
Engage directly with an optometrist.
Where we both recognize the revenue.
From the exam service performed as well as the salaries and benefits for the optometrist.
Of the 68 stores 44 are in stores, where we directly employ the doctor and 24 in stores, where we engage the documents with the PC model. This was twice the amount of stores, we had at the interest all of which at the time for.
Direct employee models as we did not start our PC model rollout until Q4 dollars 21.
The majority of our PC models and existing store with an independent.
Hi, Doctor to the PC model.
And therefore, we had already been recognizing a significant portion of product conversion sales at our stores from the independent Doctor as.
As we convert these stores to the PC model, we expect a near term margin headwind given the gross margin on the exam service alone are lower than our AR glasses and contacts gross margins with that said as we mentioned since we expect the PC model will give us greater control over the customer experience enable us to recognize eye exam revenue and measure.
And see higher conversion rates from eye exam to product purchase we believe this will benefit us over the long term and achieving our goal of becoming a holistic vision care company.
In both cases, we would've incurred the same cost with or without the $15 million.
Estimated loss sales in the quarter due to on the product.
Offsetting these items was the continued mix shift of optical lab fulfillment completed at our in house facilities and fluids, Both New York and Las Vegas, Nevada.
In Q1, 'twenty two we continued to increase the percentage of orders fulfilled through our in house labs, which has many benefits, including higher NPS lower refund rates faster turnaround.
Brown time and improved gross margin overall.
As we mentioned last quarter, we're still scaling our second optical lab in Las Vegas that we opened in Q3 2021, and we expect this lab to reach scale in the back half of 2022, which will allow us to more efficiently serve our Las Vegas lab, we expect to see more cost efficiencies, which will translate to improved gross margin.
<unk>.
Lastly, we saw a benefit to gross margin from the expansion of our higher margin Progressive business, which has increased from 18% of our prescription business in Q1 last year to 21% in Q1 2022.
Next I would like to talk about SG&A expenses as we through continued disciplined deployment of marketing spend and strategic hiring.
We're conscious of the fact that we continue to operate within a challenging macroeconomic backdrop.
And we will continue to manage the business towards both growth and profitability.
As a reminder, SG&A for our business includes three main components.
<unk> expense for our headquarters customer experience in retail employees marketing spend including our home try on program and general corporate overhead expenses.
Yes.
Adjusted SG&A, which excludes stock based compensation in the first quarter came in at $96 2 million or <unk> 62, 8% of revenue.
This compares to Q1, 2021 adjust and increase of 580 basis points year over year.
In terms of year over year dollar growth adjusted SG&A was up 21% year over year compared to <unk>.
Adjusted SG&A in Q1.
In 2021 versus Q1, 2020, which was up 26%.
Related to an increase in corporate overhead.
Expenses, mostly related to <unk>.
Costs, we incurred to operate as a public company, which we did not incur in Q1 'twenty.
Due to the growth in our store base.
Public company cost.
Equal to roughly 165% of revenue in the quarter the.
The impact of lock G&A as a percentage of revenue.
Regardless.
Honestly.
Sequential basis, our adjusted SG&A spend in Q1 2022 of $96 2 million was moderately higher than Q4 2021 adjusted.
We believe Q4.
For two reasons.
One it is the first quarter were more closely reflects our corporate.
Overhead cost base supportive of that.
And to our store store count in Q1 2020.
And is therefore more reflective of the level of store related fixed costs required to operate a larger fleet of stores.
Given that in Q1 that we've already discussed.
We still incurred the costs to operate our larger store base and we will realize additional leverage.
As it relates to marketing spend.
We've highlighted previously that we maintain a highly flexible model with the only committed spend that largely around linear television during competitive periods.
Prior to 2020, our marketing spend as a percentage of revenue was in the low teens measuring at Approx.
Slightly 13% in 2019.
We elevated the spend to close to 20% throughout those 2020 and 2021 for reasons previously discussed including surging demand for our home try on program and to continue to reach customers through store EBIT same level of marketing spend as a percent.
We're now back in the cadence of opening stores at the pace, we were the pandemic.
Our stores are effective marketing vehicles.
Will allow us to toggle down marketing spend below the mid teens and closer to pre pandemic levels in the second half of the year.
As we look ahead to the rest of the year, we expect to see a similar sequential trend and adjusted SG&A to what we saw in 2021 with Q2 and Q3, adjusted SG&A spend and moderately lower than Q1 with an increase into Q4 to support the important holiday season and FSA expire.
For the first quarter of 2022, we generated adjusted EBITDA of $8 million, representing an adjusted EBITDA margin of half a percent.
The $15 million in estimated loss sales had a significant impact on first quarter profitability as we estimate that incremental sales flow through to adjusted EBITDA at a rate of roughly 50%.
We did contemplate the impact of lost sales and adjusted EBITDA in our guidance for the full year. Despite the.
<unk> presented.
Be able to generate moderately profitable.
<unk> adjusted EBITDA.
We finished the quarter with a strong balance sheet.
Sheep, reflecting $230 million in cash, which will continue to deploy deliberately to support our growth and operations.
As I noted earlier.
The impact of the lost sales on revenue and adjusted EBITDA in Q1 was factored into our projections for the year and we believe the cost pressures that we experienced in the first quarter will be mitigated in the remaining quarters of the year.
Therefore for 2022, we still expect revenue to be between $650 million and $660 million, which represents growth of approximately 20% to 22% and for Q2 2022, specifically, we're guiding to revenue growth of 13% to 60% and with regard.
Adjusted EBITDA margin, we are reiterating our target range of five 6% to six 6% for 2022 in terms of how our overall results are breaking down by quarter.
With EBITDA margins in the first quarter.
We didn't do in the second and third quarters.
Q4 has typically been our lowest profit quarter or has swung to a loss.
As we make investments to support increased holiday buying and the exploration of flex spend and many of these investments in Q4 lead to deferred revenue that gets recognized in Q1 of the following year.
We expect this year's performance to be somewhat in reverse order with margins being the weakest in Q1 and the strongest in Q3 and Q4 as storage.
He returned to full productivity.
More specifically, we expect Q2 adjusted EBITDA margin to be in the low single digits in the second half of 2022, adjusted EBITDA margins to be in the high single digits as.
As we mentioned on our last call our full year guidance assumes continued retail recovery, reaching approximately 90% of pre pandemic levels in Q2 and at the high end of our guidance, reaching full productivity by year end.
Our guidance also assumes we maintain a consistent three year CAGR for our E Commerce business that we observed in Q1 in the mid twenties.
Finally, with respect to our outlook for 2022, we are forecasting stock based compensation as a percentage of net revenue to be in the mid teens compared with 20% in 2021.
Stock based compensation from both years is above our long range forecast of the low single digits. As the result of <unk> expense associated with our direct listing and multi year equity grants for our co Ceos in 2021.
In summary, we're proud of all of the progress we've made growing our business developing our teams and maintaining both challenging period in the world. We acknowledge that the macro environment continues to be murky, yet we're as excited as ever about the long term prospects of the business.
We provide a medical necessity that combines a price point.
And level of customer experience that is unique within the optical industry.
We'll continue to keep a close eye on the broader environment manage costs as needed to achieve growth with profitability and invest in people stores and technology as we evolve into a holistic vision care company.
Thanks for joining us on this call we look forward to keeping you updated and providing as much transparency as we can into our performance with that we'll open up the line for Q&A.
Perfect. Thank you we will now start the Q&A session.
If you'd like to ask a question. Please press star followed by one on your telephone keypad.
Joining us online please press the red flag icon.
Ask your question. Please ensure that your line is on mute here lately.
And our first question comes from Oliver Chen of Cowen. Please go ahead. Your line is open.
Alright. Thank you very much the productivity that is very helpful. What's the assumed ahead in terms of productivity levels and what do you think will be key drivers in achieving that as well as key risk factors.
Second question, you've made a lot of progress with our network customers just would love to hear about the opportunity ahead of regarding insurance and what's happening in the consumer experience and also the the demand youre seeing from employees. Thank you.
Okay.
Thanks, Oliver I'll start this is Neil.
We see sort of continued strength in retail productivity throughout the course of the year.
One of the things that we're particularly excited about is sort of the new stores that we opened in 2021% reaching maturity.
So we opened 35 stores in 2021 that was an increased store count by 28%.
And in 2020 right in the depths of the pandemic, we only opened seven stores our increased store count.
6%.
The majority of those new stores that we've been opening are in suburban areas. So as we think about retail productivity increasing rates not only.
The U S consumer show of returning to normal habits, and visiting so shopping centers.
But our store fleet.
It's been shifting.
From urban to suburban.
And one of the things that we shared.
During the last call was that we saw last year 15 point differential and retail productivity from our urban locations to our suburban locations.
<unk> now seen that narrow to only an eight point score.
Red and we expect that to continue to narrow.
But again, even if it doesn't right. We now have more suburban locations than we did a year ago. So we continue to be optimistic.
Confident in sort of growing retail productivity.
And then the.
Insurance front, we continue to believe that.
Insurance remains.
A really big opportunity for us and within the world of <unk>, ensuring that there are.
<unk> distinct.
Opportunities for aircraft to go after the first is continuing to expand our in network relationships.
Excited.
Ted.
Blue Cross Blue Shield Federal employee program.
And be able to serve.
The federal government.
Employees in.
Better ways, where.
That those consumers can now purchase exams glasses contact for as little as $10.
And Julien.
The consumers, who has coverage from United healthcare employees for our margin.
From GE and Boeing.
You will see us expand our.
Our in network.
Options for more and more companies and employer groups in the coming months and years.
Also believe that there is a really significant opportunity to educate consumers that they can use their visit insurance benefits with us regardless of plan.
And that they are often.
There will often be spending less coming to will be parker paying out of pocket or using their out of network benefits than they were going to use in network benefits somewhere else in a recent survey we found that most consumers are spending $130.
Pocket. When these are out of network benefits going to a non worthy Parker provider.
Same people can often by a single digit losses.
Where they would pay zero dollars out of pocket and so.
In.
In the coming months Youll see us.
Really creates a lot of education.
On our site.
<unk> been in our stores around how people can use those benefits.
Thank you. Thank you very much David the last question on the marketing spend as we look ahead on the digital marketing landscape has been somewhat volatile with idea bank privacy.
Whats your philosophy in terms of <unk>.
Thinking about the marketing spend.
Relative to the productivity and also.
What youre seeing what the customer acquisition trends. Thank you.
Sure. Thanks, Oliver we've seen relative consistency in terms of customer acquisition trends and Thats. Despite seeing continued scale in average revenue per customer continued to want to see a separation between those two numbers average revenue per customer and average growth in customer acquisition costs.
What we did call out earlier is that.
We elevated with intention throughout the pandemic, our marketing spend as a percent of revenue from 13% in 2019.
Almost 20% in 2020 in 2021 and right around 20% as a percent of revenue as a percent of revenue in Q1 of this year as Neil called out we opened up 35, new stores over the past 12 months, we will open up 40, new stores. This year stores for us are very very efficient marketing.
Nichols and what that will enable us to do is toggled down marketing spend as a percent of revenue closer to pre pandemic levels below that the mid single digits closer to that 13% that we were spending in 2019, and so I would characterize our marketing spend.
Yes.
Very disciplined and the way that we view marketing spend in store rollout is really any tandem with one another as we know that stores are really really efficient ways, not just to sell products and serve customers, but attracts new customers and retain existing customers and that.
Shifting marketing spend also dovetails with our incremental profitability that we've talked about over the course of the year as we've talked about adjusted EBITDA.
Leverage will largely come from improvements in SG&A and the largest portion of that is marketing staff, which we called out will go from around 20% back to ward back.
Back towards pre pandemic levels closer to 13%.
And Oliver I'll also add.
With that.
As we mentioned in our <unk>.
Last call as well we have not seen.
Big impact from <unk> or Apple.
Apple privacy updates because we deliberately <unk> several years ago.
Reduced reliance on paid social channels for customer acquisition and so.
Whereas we hear from many other companies that that continues to be a challenge that has not been a challenge for us.
Also historically seen that when we bring down marketing spend we find that marketing efficiency increases.
So that is.
Potentials of tailwind for the rest of the year as well.
Very helpful. Thank you.
Thank you very much for your question.
Our next question comes from tore <unk> class.
Please go ahead.
Hey, Thanks, guys I'm curious if you can.
Can you give any more color in terms of your expectations for active customer growth for both <unk> and.
A year versus how you're thinking about average spend per customer.
Also curious if youre seeing anything in your business that you would describe those customers trading down within your assortment, maybe non op pain for certain additional features anything along those lines.
Sure. Thanks, Paul.
So we will report on an active customer.
Aside from Q1, which was impacted by <unk> as we've discussed our active customer growth has generally been in the low twenties with average revenue per customer somewhere in the 5% to 8% zone. So I would expect as our business normalizes and as our stores ramp back to <unk>.
Productivity.
We would see that consistent trend continue.
Yes.
The other thing is we.
Haven't observed customers sort of trading down.
$395, whereas.
Other high end optical chains or independents optometric practices that same product.
Okay forget lay more so.
They are saving 100.
<unk>.
And again as well.
Retail productivity increase.
We expect and have seen.
Progressive penetration increase and Thats.
Our highest price.
Product, our highest margin product.
The other thing that we've observed as well is the resilience of our committee of income on average over $100000.
Okay.
Thank you very much for your question.
Question comes from Dana Telsey at.
Please go ahead your line is open.
Hi.
Okay.
Can you talk a little about it.
Improving productivity at the stores that you've seen has attainment.
James was it consistent during the cadence for the quarter, how did you see it and then on the gross margin component, which contacts.
And congrats Jay how do you envision the.
The cadence going forward given the improvement in the increases in contact land base and then just lastly on insurance what are you seeing on the insurance front and how do you expect that to be back. Thank you.
Thanks Dana.
On the storefront.
We tend to see a differential between performance in our suburban locations in our urban locations. So last year from a retail productivity standpoint urban stores had.
<unk> 15, lower productivity than urban location. However, if we look at Q1 that gap has narrowed to 11 point to nine points.
The other thing that.
We remain confident about our retail store rollout is that our new stores that we've opened in the last 12 months are performing in line with pre pandemic targets.
So our new stores continued to perform well again.
Those are proportionately more in suburban locations than has.
And then as it relates to your gross margin question as we called out there are a range of puts and takes in our gross margin line and our Cox our Cogs stack is fully loaded as intended it includes frame Glenn.
This customer shipping store occupancy depreciation of store build outs in the eye Doctor salaries.
And so I would look to see our gross margin consistent in the 58% to 60% zone generally.
Q1 exhibits higher gross margins other than Q1 of this year due to the impact of <unk> and our ability to leverage fixed costs.
In Q4 is moderately our lowest quarter given the fact that we make investments in the business a lot of which are deferred as order deliveries into January and thus recognized as revenue in the month of January .
Contacts, which is really what we want to continue that.
Optimize the business for us so.
We're really reiterating our 58% to 60% gross margin guidance for the full.
For the full year, there will be some fluctuations during the year, particularly in Q1 and Q4 and as you saw what happened in Q1. This year given the impact of OMA Crown we saw fixed.
Fixed costs become a larger portion of revenue, which added some deleverage to our story for Q1, but.
But as store productivity comes back those fixed costs will.
Continue to be leveraged.
And would also just add that.
From a product mix standpoint, we tend to see a higher <unk>.
Progressive mix.
From our storage.
Given the impact on the crop.
And then.
Particularly a detrimental impact on store productivity that.
That balance between progressive which have opposite impact.
On gross margin.
It is not.
Ed.
Yes.
The mix of transactions that we.
We would expect in a typical quarter.
And then on the insurance front we're.
We're seeing really promising trends.
And in particular for our customers who have in network coverage through plans that were part of.
Where.
That cohort of customers is growing fast.
We're excited to be able to expand some of those efforts with this federal employee program.
And.
Other employer groups that.
That we are.
Able to add soon.
Thank you.
Thank you very much for your question Donna.
Our next question comes from Marc Ashok iPad. Please go ahead your line is open.
Hi, good morning, Thank you.
So youre right.
Revenue guidance or your guidance assumes revenue acceleration through the year, which is different than the seasonality of the company has seen historically, it's similar on the profitability guidance.
Is this assumption based primarily on the assumed store productivity recovery following the omicron, where you or what are the other controllable factors you see that gives you confidence in that sequential builds in what continues to be a very dynamic external environment.
Sure. Thanks Mark.
At a high level growth in productivity over the course of the year, one we called out a few times and you certainly mentioned and Thats the ramping retail productivity back to a 100% by Q4. The other is really maintaining a consistent three year CAGR for our e-commerce business in the mid Twenty's. So e-commerce.
Our three year CAGR came in at 24%.
And as long as we see scaling retail productivity and as long as we really maintain a consistent E com three year CAGR, we will.
Full year, so I would look to see how.
How we're reporting on those two key items in particular.
Each time, we meet here to discuss.
Thank you and then Steve with the direct listing you provided to me.
Detail on customer level contribution can you update us on.
And what your guidance implies in terms of per customer contribution. This year. Thank you sure sure.
So we provided a window.
Really meant as a onetime view in how we Orient and panel business where are we.
Really look at blended margins.
By customer across channel and.
We don't look at things through the lens of the channel, but through the lens of the contribution margins have been consistent.
To what we've reported.
We're not anticipating providing visibility into that metric.
But I would look for us to provide some incremental visibility into customer economics.
Perhaps as part of.
Sure.
Annual recap of performance, but suffice it to say, we've seen consistency part on them regularly but honest.
On annual basis, our planning.
That number.
Okay.
Thank you Mark for your question. Our next question comes from Goldman.
Goldman Sachs. Please go ahead.
Taking a question.
I was wondering if you could provide some more color can you to deliver consistent.
Have you seen any change in the customer activity.
Among any demographic for your online business as the external macro environment has changed thank you.
Thanks for your question.
We haven't seen significant changes.
And customer behavior online.
What we have seen since the pandemic.
Increased use of our <unk>.
Best in class virtual try on as a reminder, this was.
The feature that we built in house that was through to scale.
To overcome a bunch of technical challenges to actually make it.
Realistic.
The ability to try on glasses virtually is quite different than for example.
Trying.
That color or a different phase.
You may see.
Various social channels. So we've been excited by sort of.
The adoption of this technology by our consumers.
We've seen it.
Bob and usage of our virtual visits.
The market.
The online version test that enables our customers to.
Renew their prescriptions.
Thank you I'll pass it on.
Perfect. Thank you for your question.
And our final question comes from Mark Mahaney at Evercore. Please go ahead.
Okay. Thanks, you talked about the store productivity gap between urban and suburban narrowing you quantified that could you just go into the why what's causing that.
That that gap to suburban productivity levels to rise to urban urban levels and then.
Secondly, talk about the steps to get to your long term margins of 20% and maybe Steve but I'll ask you to do is.
What is it what are the lowest hanging fruit and what are the highest hanging fruit in order to get there what are the easiest ways to lever the model or challenging, but doable parts of that leverage story. Thanks a lot.
Thanks Mark.
First.
One of the things that we're seeing in our urban locations as increased traffic.
It's Phil.
Fully return and we still see elevated conversion across the entire store fleet, but we think this is due to.
Better weather as people.
Cities are spending more time outdoors, but also.
As offices reopen.
So that's where we're seeing sort of an improvement in our urban locations and I expect that to continue.
As the year progresses.
Great and then in terms of the second question around margin expansion as we March toward our long term adjusted EBITDA target of 20%.
We called out that since gross margin will be consistent in the 58% to 60% of them. The real sources of leverage youre going to come from SG&A.
And to revenue.
Yes.
As we've talked about the three largest components of SG&A our salary.
And that's split between our corporate headquarters in our retail stores, our customer experience team.
Marketing.
Spend which includes our home try on program and what we deploy on media and then just general corporate overhead and public company costs, what we pay our vendors.
I would put at the top of the list in terms of the single.
Easiest lever to pull is marketing spend as a percent of revenue as we called out in Q1 that represented 20% of revenue and pre pandemic that number represented roughly 13% of revenue and that number was elevated to 20% for a few factors one through store closures, we saw a surge in demand in our home.
Try on program and we've seen that normalize somewhat given stores onto that we opened up 35, new stores last year. We plan to open up 40, new stores. This year stores are highly highly effective marketing vehicles and brand awareness builders and the opening and maturation.
Stores in new and existing markets.
Naturally allows us to toggle down marketing spend closer to pre pandemic levels. So I would call out that as the easiest and the largest category we plan to continue.
To leverage investments, we've made in our corporate overhead.
Built a very strong.
Set of corporate functions across the board to support growth for years to come.
And in addition to that we are.
We will remain fixed spend to support us as we become a public company as we grow those cut leverage on them so far.
So I would describe our sources of black.
And relative order in the context of.
Okay. Thank you very much.
Thank you very much Mark quick question.
At this time to our next I have a question and now I'd like to pass back over to Jay for any final remarks.
Thank you all for joining us today and for the great questions.
Proud of what <unk> has accomplished.
So far this year and we look forward to the months ahead as we maintain both discipline.
Can be informed of our progress as the year.
Congrats as if you have any additional.
So to our Investor relations inbox that investors that were not.
Thank you.
Thank you everybody so much for joining todays conference.
Paul you may now disconnect.
Uh huh.
Okay.