Q2 2023 Warby Parker Inc Earnings Call
[music].
Hello, and welcome so there won't be too cute.
23 earnings Conference call My.
My name is Elliot I'll be caught making your cold stacked.
If you would like to register for a question. Please press star followed by one on your telephone keypad.
I would now like to hand over to Chuck them directly.
<unk>.
Floor's Yours. Please go ahead.
Thank you and good morning, everyone here with me today are Neil Blumenthal, and Dave <unk>, Our co founder and co CEO alongside Steve Miller, Senior Vice President and Chief Financial Officer.
Before we begin we have a couple of reminders our earnings release and slide presentation are available on our website at investors not worthy Parker dotcom.
During this call and in our presentation, we will be making comments as a forward looking nature.
Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties.
More information about some of these risks please review the company's SEC filings, including the sections titled risk factors in the company's latest annual report.
On Form 10-K.
These forward looking statements are based on information as of August nine 2023, and except as required by law, we assume 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 and not a substitute for measures of financial performance in accordance with U S. GAAP.
A reconciliation of our non-GAAP measures to the most directly comparable U S. GAAP measures can be found in this morning's press release and our slide deck available on our IR website.
And with that I'll pass it over to Dave to kick us off.
Good morning, and thank you for joining us today to discuss our Q2 results and our outlook for the remainder of the year.
Q2 was another quarter, where we delivered strong financial results, while delighting customers, gaining market share and making meaningful progress against our core strategic growth initiatives.
Our net revenue of $166 1 million was up 11% year over year and our adjusted EBITDA of $14 2 million represents an eight 5% margin and 450 basis points of year over year margin expansion.
These results were delivered in spite of continued demand headwinds in the optical industry and a realignment of marketing spend as a percentage of revenue.
Over the last 12 months, our marketing spend has been down 30% year over year when compared to the prior 12 months period.
In contrast, and as we will discuss it in more detail. Shortly we expect Q3, and Q4 marketing spend to be up year over year setting us up to deliver strong results in spite of continued macro uncertainty.
We believe our growing and highly productive retail footprint digital innovation and continued focus on delivering a superior customer experience combined with unmatched value have enabled us to outperform in a challenging operating environment and have set us up for continued long term success.
Based on our recent outperformance and our updated view of the rest of 2023, we're raising our full year guidance for net revenue and adjusted EBITDA.
Steve will provide more detail on our financial results and guidance shortly but first neill and I will spend a few minutes to provide updates on our continued progress against our core business drivers.
First we continue to lead with innovation and expand our product offering services and technology platform as we evolve into a holistic vision care company.
In Q2, we launched precision progressive our new premium progressive lens.
Vision Progressive are made using additional measurements to optimize vision reduce peripheral distortion and provide a wider field of view.
Additional benefits include improved visual quality for viewing digital devices reduced one effect and overall superior visual quality and comfort.
Precision progressive start at $395, which like all of our glass is all in pricing and includes the frame lenses in all coatings.
This is the highest price point product, we've ever introduced while still delivering best in class value given that similar products often cost more than $1000 elsewhere, while still in the early days and only available in our retail channel. We are pleased with the uptake we are seeing from our customers.
We also continue to innovate with our friend collection, creating both unique designs and novel constructions. In addition to launching our summer 2023 collection starting at $95. We introduced the colored block edit collection, featuring a complex frame construction handcrafted in northern Italy inspired by our each style has distinctive.
Contracting to use and colored blocks, there laminated together, creating starkly defined lines and beautiful silhouette.
Isn't this collection started at $195 and a strong response, we've seen from customers indicates a continued willingness to purchase products across a range of price points.
Our other product categories have continued to deliver strong growth with contacts representing eight 1% of Q2 revenue up 110 basis points versus a year ago.
This is still well below the industry average of 20% and represents a meaningful opportunity for future growth.
I exams, which are the gateway to prescription eyewear and contact purchases also now represents three 9% of revenue in Q2 versus two 4% last year.
Scaling exams and contracts continues to be a primary strategic priority in order to deliver a seamless holistic customer experience and drive customer lifetime value.
We're pleased with the progress we are seeing on both fronts and expect these long term investments to deliver significant value over time.
Supporting our product offering is a suite of proprietary technology that enhance the customer experience, while improving <unk> productivity.
We are excited by the rapid evolution of AI and believe we are uniquely positioned to bring this innovation to the optical industry, given our digital heritage and our technology investments.
We are particularly encouraged by the productivity gains are engineers product managers and designers are seeing from the expanding use of generative AI as well as early applications of this technology to create easier faster shopping experiences for our customers.
Our team has leveraged machine learning and AI over the last few years to introduce first of its kind products like our virtual try on and virtual vision test and to improve the digital experience we offer our customers in.
In Q2 relaunch to be one of our personalized stream recommendations in our iOS App and expect AI, driven enhancements will lead to better and more personalized shopping experiences, which we expect will drive higher conversions over time.
As we've talked about in the past our customer journey is integrated across the two channels. So these digital tools can be used by customers, who ultimately checkout either online or in our stores.
We also continue to be excited by the opportunity to use telehealth to make eye care more accessible more convenient and more efficient.
In addition to virtual vision test, which enables patients to renew their prescriptions from home in under 10 minutes. We are also investing to expand the number of stores in which we offer video assisted exams.
These are comprehensive eye health exam, using live doctors, who remotely engage with patients sitting in the exam suites in our stores.
We have only introduce this technology in a small number of stores, but we are seeing very promising results with great feedback from patients.
We believe this technology offers the opportunity to efficiently scale exam capacity in a complementary manner to our efforts to add optometrists to our stores directly or through our PC model.
Finally, we continue to rollout retinal imaging and more exam suite, enabling advanced disease diagnostics without pupil dilation, resulting in a better experience for our patients.
The second core business driver is our growing and highly productive store base complemented by an improving E Commerce channel.
We continue to invest in expanding our store base, which we believe is integral to advancing our mission to provide holistic eyecare.
Retail revenue increased 21, 5% year over year, driven largely by the addition of 39 net new stores since Q2 of last year, including 13, new stores in the most recent quarter.
Seven of the new stores in Q2 were expansions within existing markets and six were entries into new markets, including Colorado Springs, Albany, Rogers, Arkansas, Wichita, Greensborough and Jackson, Mississippi.
All 13, new stores include eye exam capabilities, which brought the number of locations offering eye exams at quarter end to 169 or 78% of our total fleet of 217 locations.
As we increase the number of stores offering eye exams, we have seen a nice uptick in average revenue per customer driven by both eye exam revenue and a higher penetration of progressive lenses.
Stores remain highly efficient customer acquisition vehicles, continuing to deliver a compelling unit economics, even in the current demand environment we.
We continue to target new stores that payback within 20 months and generate four wall adjusted EBITDA margins of 35%.
For the quarter average store productivity was in line with the prior year period, which is consistent with the quarter to date trends, we spoke about in our Q1 earnings call in May.
Given recent traffic and other headwinds facing the industry. We are pleased with the relative performance of our more mature stores and are encouraged by the early performance of our most recent cohorts.
As we look to the remainder of 2023, we are on track to add a total of 40 stores this year.
Longer term, we believe we can open at least 900 stores in the U S. A significant opportunity for further penetration of new and existing markets for years to come while still representing a small fraction of the 48000 optical shops in the U S.
Consistent with the expectations, we shared at the start of the year, our E Commerce channel, which is more sensitive to changes in marketing spend declined 5% year over year in Q2 compared to down 8% in Q1 of this year.
We believe that we're on track to see our E Commerce channel begin to grow in each two of this year supported by marketing dollars Comping positive year over year as we anniversary the pullback in marketing spend that began at the end of Q2 of last year.
Now I'll hand, it over to Neil to review, our customer metrics and focus areas going forward.
Thanks, Dave.
Third driver of our performance is our ability to attract and retain consumers with our seamless multichannel approach.
Our performance this quarter was highlighted by a nine 2% increase in average revenue per customer up to $277 on a trailing 12 month basis.
Range of factors contributed to this increase including scaling progressive launching precision progressive growing our contact in eye care business.
Wrong retention and repeat purchasing and continued consumer adoption of our higher priced spring.
We're also pleased to report a consistent revenue retention rate of roughly 50% over 24 months and 105% over 48 months for the most recent cohort with four years of purchase history.
As Dave mentioned, we've rebalanced marketing spend to the low double digits in the first half as a percent of revenue, which has had a direct impact on the growth of our E Commerce channel.
We dropped marketing spend by 30% on a trailing 12 month basis, as we reduced marketing spend year over year in each of the past four quarters.
We're excited to see marketing spend comp year over year, beginning in Q3, which we expect will support growth across the business and in our ecommerce channel in particular.
In Q2, we saw trailing 12 month active customer growth of one 2%, which we believe will be our low point for the year, reflecting the fourth and final quarter of our marketing spend pullback.
We're already seeing positive momentum in active customer growth in Q3 to date and expect to report increasing active customer growth over the course of the year.
Another factor, having a small impact on this metric is that in the second half of last year, we introduced new functionality to make it easier for multiple members of the household to transact without on a single customer account.
We believe that once someone shops with us and experiences the incredible value and customer service that will be Parker offers they become a customer for life and who better to advocate for our brand and members of your own home.
We will continue to invest judiciously in strategically in household and individual customer growth whether that is redesigning our pediatric eye exam experience or deploying additional funds to paid media.
With our channel mix between stores and E. Commerce now rebalanced the pre pandemic level, we expect marketing spend as a percent of revenue to remain in line with pre pandemic levels in the low teens.
We are pleased with the marketing efficiency, we are seeing and that these levels expect to drive steady and sustainable new customer growth.
Starting this month in addition to our normal customer acquisition efforts, we are launching a brand campaign to boost awareness across media types and demographics.
This campaign led by our brand team and our new VP of growth is designed to drive top of funnel awareness and represents our commitment to investing in our brands to drive long term growth.
Over the last year as we've pulled back on marketing spend we concentrated our media dollars in channels like linear television to drive our progressive business.
This new campaign will supplement those efforts to grow overall brand awareness, which we believe will lead to stronger active customer growth overtime.
Another key lever available to us is in the insurance market, which we believe not only attract new customers.
But also unlocks an even better value proposition for our existing customers.
More than 60% of our customers have vision insurance.
A portion of those customers are leveraging their benefits with us while others recognize that their out of pocket spend is still lower worthy Parker versus purchasing in network elsewhere.
We have a number of efforts underway to make insurance reimbursement more seamless for our customers to that end in June we launched a universal eligibility check tool on our insurance landing page and in checkout, which allows customers to seamlessly check their in network and integrated insurance benefit that will be Parker with as little friction.
Possible.
We also continued to develop contracted reimbursement relationships with a range of managed vision care plan.
In Q2, we saw strong growth from in network insurance customers.
More customers than ever can seamlessly are proud of their benefits without paying just their net price at checkout.
Finally, we continue to be immensely proud of the impact we've had on the communities we serve.
We expanded our school based free glasses distribution program to four cities in New Jersey, which directly gives vision care and glasses to local students.
In total our pupils project now serves over 30 cities in six states in the U S. While our broader buyer peer give a fair program has served over 75 countries since inception.
We encourage you to read more in our 2022 impact report, which we released in Q2.
Looking forward, we remain committed to the strategic priorities, we set out at the start of the year and are excited about our progress to date, our north star is maintaining a healthy balance between driving long term sustainable growth and expanding profitability. We remain confident in the full year adjusted EBITDA margin guidance, we gave up.
The start of the year and we'll continue to invest in our long term strategic objectives.
And now I'll pass the call over to Steve to cover our financial performance in more detail.
Thanks, Neil and Dave Good morning, everyone, starting with revenue, we generated revenue of $166 1 million up 11% year over year and above the high end of our Q2 guidance range of 160 to $162 5 million or up 7% to 9% year over year.
Here.
From a channel perspective retail revenue increased approximately 21, 5% year over year, while E. Commerce revenue declined approximately five 3% versus Q2 of 2022.
For the second quarter E Commerce represented 33% of our overall business compared to 39% in 2022 and in line with our pre pandemic channel mix.
The decline in E. Commerce revenue was in line with our expectations and driven by an intentional reduction in marketing spend by 12% year over year as we bring marketing spend as a percentage of revenue back to pre pandemic levels in the low teens.
We expect ecommerce revenue to begin comping positive in each two of this year as we anniversary. The pullbacks. We've made in marketing spend will begin to increase marketing spend dollars year over year.
We opened 13, new stores in Q2, and 39 over the past 12 months, finishing Q2 with 217 stores.
Retail productivity in Q2 was 100% versus the same period last year.
As a reminder, we define retail productivity as sales per average number of stores opened in the period. So even as we continue to add an average of 40 stores per year or more mature cohorts continue to perform as those newer stores ramp.
From a customer perspective, we finished the quarter with $2 two 8 million active customers an increase of one 2% versus the same period, a year ago and our average revenue per customer increased nine 2% year over year to $277.
It's worth noting that our revenue growth by channel follows a similar pattern to our growth in active customers were active customers are increasingly retail driven by new store openings and decreasing in our ecommerce channel as we rebalanced marketing spend.
As Neil mentioned, we expect that active customer growth in Q2 will be our lowest for the year as we anniversary four consecutive quarters of marketing spend pullbacks and we're seeing positive momentum in Q3 already.
We're pleased with our increase in average revenue per customer, which was primarily driven by a few factors, including an increase in progressive is as a percentage of our business mix and continued ramping of both contact lens and eye exam sales progressive.
Progressive has represented 23, 2% of total prescription glasses sold in Q2 2023 up from 21, 7% when compared to the second quarter of 2022. This.
This is still well below the market average of approximately 40%, leaving a substantial runway for product category growth <unk>.
Progressives are also our highest gross margin and highest price point product starting with $295.
We continue to make progress on our move into holistic vision care as we evolve from a glass was only brands into one that offers glasses contexts and eye exams to customers.
From Q2, 'twenty two to Q2 2003 contact lenses have increased from 7% to eight 1% of our business mix over the same period Eyecare has increased from two 4% to three 9% of our business mix.
Contacts and eye exams, both represent large opportunities for future growth each accounting for $10 billion plus portions of the 76 billion U S optical industry.
We remain well underpenetrated for sales of these products as a percent of revenue versus other national optical retailers.
Moving on to gross margin as a reminder, our gross margin accounts for a range of costs, including frames lenses optical labs customer shipping optometrist salaries store rent and the depreciation of store build outs.
Our gross margin also includes stock based compensation expense for our optometrists and optical lab employees for comparability I will be speaking to gross margin excluding stock based compensation.
Second quarter adjusted gross margin was 54, 7% compared to 55, 2% in Q1 of this year and 57, 9% in Q2 of last year.
The year over year decrease we saw was driven by strong growth of eye exams and contact lenses as we evolve into a holistic vision care company and expand into these large segments of the optical industry.
Exams and contacts have lower gross margin profiles than eyeglasses, but over the medium and long term are accretive to gross margin dollars and allow us to serve all of our customers eye care needs.
Expanding our contacts offering as a core part of scaling our holistic vision care offering and a key driver of growing average revenue per customer.
While contact lenses have a lower gross margin percentage compared to our other product offerings. They are higher purchase frequency and subscription like purchase cycle are accretive to gross margin dollars.
We also experienced continued year over year gross margin deleverage in two areas that represent the fixed portion of our cost of goods.
Retail occupancy and optometrists salaries, which are directly linked to our expansion into eye care.
Our growth in store count has naturally led to an increase in store rent and depreciation from store build outs in Q2, specifically, we opened 13 new stores.
We also saw downward pressure on gross margin year over year from an increase in overall optometry salaries as we hired optometrists for our new stores and continued the rollout of our professional corporation or PC model.
As of the end of Q2 2023, we operated with 129 stores, where we engage directly with an optometrist and therefore recognized both revenue from exams and optometrists salaries. This represents an increase of approximately 45% or 40 additional locations from 89.
<unk> employed in PC exam stores at the end of the second quarter last year.
We believe this ongoing investment in eye exam capabilities will benefit the business long term as a result of greater control over the customer experience, new eye exam revenue and higher in store conversion rates.
There are a few accretive tailwind to margin that active partially offset these dilutive effects first we continue to scale, our highest priced and highest gross margin progressive business in the second quarter Progressive accounted for 23, 2% of our prescription eyeglass units, which is up 150 basis points versus a year ago.
Secondly, we continue to scale the portion of prescription glasses orders that we in source at our two owned optical labs in New York and Nevada.
We expect our continued scaling of these facilities to result in continued gross margin benefits along with higher net promoter scores lower refund rates and faster turnaround times.
Shifting gears to SG&A.
As a reminder, SG&A for our business includes three main components salary expense covering our headquarters customer experience in retail employees marketing spend including our home try on program and general corporate overhead expenses.
Adjusted SG&A excludes noncash costs like stock based compensation expense depreciation and charitable equity donations.
Adjusted SG&A in the second quarter was $86 8 million or 52, 2% of revenue compared to Q2 2022, adjusted SG&A of $88 5 million or <unk> 59, 2% of revenue.
Primary drivers of the 700 basis point decrease in adjusted SG&A as a percentage of revenue with lower marketing costs and benefits from the adjustments to our cost structure, we implemented in August of last year, including lower salary and general corporate expenses.
Marketing spend for the quarter came in at $18 2 million.
Or 11% of revenue this is down from $20 7 million and 13, 8% of revenue in the same period last year.
<unk> spend in Q2, 2003 was 11, 7% lower year over year, which compares to revenue growth of up 11% year over year.
Turning now to adjusted EBITDA in the second quarter, we generated adjusted EBITDA of $14 2 million, representing an adjusted EBITDA margin of eight 5%, which compares to adjusted EBITDA of $5 9 million or 4% of revenue in the year ago period.
The significant year over year improvement underscores our commitment and ability to drive profitable growth.
Turning now to our balance sheet, we finished the quarter with a strong balance sheet position, reflecting $213 million in cash, which we will continue to deploy deliberately to support our growth and operations. We also have an undrawn credit facility of $100 million other.
Other than 4 million for letters of credit that we can upsize to $175 million.
Now to our outlook.
Based on our strong first half performance and updated view of the rest of 2023, we're raising the full year guidance, we outlined on our Q4 earnings call in February and reaffirmed on our Q1 earnings call in May.
For 2023, we now expect net revenue growth of approximately nine 5% to 11% representing a revenue range of $655 million to $664 million.
Adjusted EBITDA margin of approximately seven 9% in line with prior guidance, which equates to adjusted EBITDA of approximately $52 $1 million at the midpoint of our topline guidance range.
We still expect gross margin in the mid <unk> as a percent of revenue and to open 40, new stores this year.
We're still forecasting stock based compensation as a percentage of net revenue in 2023 to be roughly 10% compared with 16% in 2022.
Stock based compensation for both years is above our long term forecast as a result of the multi year equity grants to our co Ceos in 2021, we still anticipate stock based compensation to normalize to a range of 2% to 4% of net revenue late in 2024.
With respect to the third quarter, we're guiding to the following.
Net revenue of $163 million to $165 million or revenue growth of approximately nine 5% to 11% through.
Through the first week of August we've observed trailing 28 day retail productivity versus 2022 of 101%.
From a bottomline perspective, we're guiding to adjusted EBITDA of eight to $9 5 million, representing an adjusted EBITDA margin of approximately 5% to 6%.
That Neil Dave and I are pleased to take your questions. Operator, Please open the line for Q&A.
Thank you and if you would like to ask a question. Please press star followed by one on your telephone keypad. If you would like to withdraw your question. Please press star one.
<unk> asked the question. Please ensure your devices on mute.
Our first question comes from Oliver Chen with Cowen Your line is open.
Hi, David Neil and Steve Great quarter.
Think about the consumer environment, it's been it's been mix would love your thoughts on on traffic and what youre seeing with traffic and potential volatility there in the face of inflation and disinflation.
So as you think about the big opportunity for more unit growth how has the new store productivity been trending and what markets are you. Most excited about with that development and then Steve as we look at our models on the gross margin line. The gross margin compare gets a bit easier in the fourth quarter.
So would love any thoughts on modeling <unk> versus <unk> there. Thank you.
Thanks, Oliver this is Neil.
We're seeing traffic.
Dart to normalize and be more consistent than we've seen over the past year, which is encouraging.
It's still below 2019 levels.
And that is true when we talk to some of our peers in the optical space, but also other retailers as well and our teams are doing a phenomenal job and making the most of that traffic and we continue to see elevated conversion rates.
In our stores.
One of the things that is very encouraging is just.
How traffic is becoming more and more predictable as we look at days of the week.
As we look at splits between urban and suburban some of the gap that we previously saw a year ago have been narrowing.
We attribute this to more.
Dirty and consistent return to work habits.
Many corporate workers are now in the office.
Three to four days, sometimes five days a week, but we know in each community what to expect and are able to schedule our store teams accordingly.
One of the things that we're excited about is sort of back to school.
And we anticipate sort of a stronger back to school this year than last year, just as we had a stronger FSA season than last year, and we're already seeing some signs of that in terms of.
I exams being scheduled at this point in the back to school season. So in general we're optimistic about traffic for particularly for our category through the back half of the year.
Is it as it relates to new store productivity, we're seeing stores performed in line with the targets that we've previously talked about which is achieving paybacks within 20 months and four wall margins of 35%.
So we're seeing consistent performance across our store fleet. The number that we talk about the store productivity versus the prior period and in Q2, our stores. We're at 100% of Q2 levels and as we think about that calculation, it's really a productivity metric across our entire fleet.
That is open in a given period. So average stores opened in Q2. This year at 212 average stores opened in Q2 of last year of 173, which is a blend of existing stores and new stores with.
With new store with existing stores, making up the bulk of that productivity metric because they've had a chance to mature and perform and so we're very happy with the levels of productivity that we're seeing across our retail fleet, new stores and existing stores and in particular, if we think about some of the markets that we're in.
Excited about we've talked about opening up stores in existing markets and new markets and from an existing perspective, we're excited about New York La Dallas, Chicago will continue to drive significant business there from a new market perspective.
Jackson, Mississippi, Knoxville, Tennessee, Charleston, South Carolina, all performing quite well.
Neil and Dave can you provide some additional color from a market perspective, but one of the round out on your question as it relates to new store productivity.
And how we're thinking about market level performance and what's getting us excited.
On your last question, which is really the gross margin compare Q3 to Q4, we're expecting a similar trend line that we see in a typical year, where there is a decline in gross margin from Q3 into Q4, where Q4 is typically.
Our lowest gross margin quarter, driven by the fact.
That we have a fair amount of revenue that we differ from December into January as we staff up and capture orders for the busy holiday season, we ship and deliver those orders in January and then into Q1 and we recognize revenue at the time of order delivery not at the time of order placement and so.
I would expect to see a similar trend line as it relates to Q3 and Q4 part of the reason why we do have an easier comp heading into Q4 is really just due to that revenue deferral from the end of one year into into the next.
We are still reaffirming our guidance for the full year for gross margin in the mid seventies.
Thanks, a lot best regards.
Our next question comes from Michael Schrock with Baird. Your line is open.
Good morning, Thanks for taking the question.
Following up on the guidance it sounded like store productivity.
101%, that's stable to improve versus what you were seeing in Q2.
At the same time, it sounds like Youre expecting e-commerce to flip from a down 5% to perhaps positive in Q3.
No.
Putting those two things together would seem to imply an acceleration in revenue versus Q2, but I think the high end of the guide for the third quarter would be stable. So maybe just unpack that a little bit for us is that typically conservatism or other considerations.
As we think about the back half of the year.
Steve.
Hi, Mark this is Steve.
It's a great question.
A couple of points of context as it relates to E. Comm growth, we're confident that E. Com growth will return to positivity in the back half of the year. It may not be in Q3, it might be in Q4, although we are seeing positive signs. So there is still some level of uncertainty is whether as to whether it's a Q3 phenomenon our Q.
Four phenomenon, which will be driven by increasing marketing dollars year over year for the first time in five quarters as it relates to store productivity, we are seeing some promising signs with that metric.
At the start of Q3, but that metric will evolve over the course of the quarter as it has evolved over previous quarters. So it's really a snapshot.
As to how we're performing really through the first week in August we've still got.
Some additional time in the quarter to go and is that metric fluctuates and as we see where E. Com growth ultimately shakes out that will determine how fast we grow and whether it's at the high end of the range above the high end of the range.
There is also still some level of uncertainty in the broader macroeconomic environment and within the optical industry in general. So we are maintaining a conservative position and believe the guidance numbers that we put out there or are prudent and certainly are based on the metrics that we're seeing across both channels.
Thank you for that.
Then Neil or Dave could you size up the opportunity you see in this precision progressive category, who is the target customer there.
And just given the higher price point, maybe update us on how you are thinking about the growth in customers versus Rev per customer for the model in the medium term. Thank you.
Great. Thanks.
Our precision progressives is off to a great start on one of the things that we always strive to deliver for our customers is exceptional value. So how can they get something that.
Great quality, but a fraction of the cost.
Purchasing elsewhere, and we found with our precision progressives.
Really significant uptick.
As we look at sort of the percent of our progressive mix. So as we think about potential gross margin expansion or.
What provides sort of.
Benefits to gross margin, it's obviously, increasing our mix of progressive, which we're still very underpenetrated versus the market, which is around 40% and then it's increasing that mix within progressive from our standard 295 dollar progressives offering to our 395.
Precision progressive offering.
And we've seen those customers.
Equal to higher net promoter score.
Also just as happy if not more happy to sell their friends.
The other members of their household about it than just the feedback has been great.
These are customers that are going to.
Independent optical shops or other chains in spending well over a $1000.
So it's sort of in line with the war warranties philosophy on how do we provide incredible customer experiences and providing just great value that price quality ratio.
And we're also seeing a higher percentage.
New customers that are purchasing precision progressives.
And.
This is the type of product that.
We have gotten a lot of consumer feedback around that people wanted.
Purchase from US and I think is just further indication around the type of customers.
The graphics that we're serving where the median household income is over $100000.
And people are really looking.
To purchase premium products for us.
Still expect that create value that we deliver across all of our products.
Great. Thank you again.
And now I'll turn to Andrew <unk>.
With Piper Sandler your line is open.
Hey, Good morning, guys. Two quick ones for me I guess first you kind of called out in the last call you were going to add more premium.
Over 99, I noticed you guys launched hail bird kind of any.
Signs of kind of how those are doing and if that had a positive impact on gross margin and then as a follow up.
I know that you've cited for number of quarters now kind of an elongation of the purchase cycle, which is customers deferring some of the vision care that they might need are you seeing stabilization there or even improvement. Thank you.
Okay.
Thanks, Ed.
We are seeing sort of stabilization I think the question remains is.
Has the industry sort of hit that two to two year sort of milestone right because the Americans on average by glasses every two to 2.2 years.
And right there was a period.
During the depth of Covid in 2020, where folks were.
Really not purchasing the industry then bounce back in 2021 and then the question is are we sort of returning to a cycle, where all of those folks that still further purchases in 2020, but then purchase purchased in 2021.
Are they sort of coming back to the market now in 2023.
We haven't seen sort of big upticks in traffic or sales, which is why.
We're.
Trying to be prudent.
With our guidance for the rest of the year.
Bye.
There is the potential for those customers to return to the market whether it's the back half of this year or to next year. The one thing that we know for certain is that there is this physiological needs that isn't going away, that's actually only expanding by $2050, 50% of the world's population.
We will need glasses or contact correct.
So we do expect those customers to return for eye exams, and glasses to the category sort of red writ large on your previous question.
Just around the premium frames.
We are seeing those perform well and not seeing any price resistance our customers get really excited.
Like our color block at a collection for example that.
Are these innovative construction that we've developed in house, and then work with sort of premium to suppliers on.
And you'll continue to see those.
Launch, we just launched our full our fall core collection, which we're really excited about.
We featured.
Partially own.
Women.
<unk> and filmmaker and touch on Jones Timescape order of the year, we partnered with in the past as part of the campaign.
To.
Advertise and promote the collection.
Already starting to see sort of good good results there.
We expect.
Premium frames, just like our premium progressive to continue to be sort of a benefit for our gross margin going forward.
Thank you.
Our next question comes from Roche with Goldman Sachs. Your line is open.
Good morning, and thank you for taking my question.
I'm wondering if you could contextualize, how you're thinking about the opportunity for video assisted exams.
Initiative for you in the near term or is this does a test and learn at this stage and what could that mean for financial contribution of eye exams to growth and profitability looking forward.
Yes.
<unk>.
Really excited about that he has to take them.
This has been sort of in.
In that pilot phase, where we've rolled this out to a small number of stores.
And we're seeing.
Really positive feedback from patients from our store teams from from doctors.
And we.
We view this really as complementary to our efforts to hire full time optometrists.
To our stores or through RPC model.
And we view video assisted exams as an opportunity to add example capacity in newer stores that may not.
Be mature enough or have enough volume to justify a full time.
<unk> from the start we also view it as a really interesting opportunity to expand capacity even in stores, where we have existing doctors.
That may not be working seven days, a week or we may want to supplement certain hours of the day.
And from a financial standpoint.
Is.
<unk> enables us to scale exam capacity in a really capital efficient way and enables us to offer exams in more locations without incurring.
The cost of a fulltime ot from from the get go.
And.
Those optometrist costs are absorbed within gross margin.
As we look at the kind of store paybacks for new stores.
And.
The impact on gross margin, we expect that as we roll this out across the country that we will see.
The benefit to both of those metrics.
Great. Thanks, and then for Steve maybe you can refresh us on how youre thinking about the potential for adjusted EBITDA margin expansion now that you've cycled. Some of these marketing initiatives in particular could you contextualize the drivers of the lower EBITDA margin that you've guided for <unk>. This year. Thank you.
Sure.
Sure. Thanks Brooke so.
Our first stop start at a higher level and then we'll talk a little bit about Q3 in the back half of this year. So the guidance that we provided at the beginning of the year is to achieve an adjusted EBITDA margin of seven 9%.
Which is significantly above.
Full year adjusted EBITDA margin for last year, but we really peg that to the adjusted EBITDA margin, we achieved in the back half of last year post, making a number of cost adjustments to the business.
Which allowed us to generate adjusted EBITDA of six 9% <unk> of last year. So I just wanted to reiterate that reiterate that framework.
As Neil mentioned on his.
It's part of his prepared remarks, we are planning for a brand awareness campaign.
We will kick off in Q3 brand awareness by its very nature is a little bit less intentional in terms of incentive a customer to make an acquisition in the moment, but it really has an incredible long term ROI as it builds better awareness.
The brands about the fact that we'll be Parker has not only stores stores near you with eye doctors and so as we put together.
Together, our gross margin guidance for the back half of the year, we feel very confident that we'll hit the seven 9% margin.
And more of the adjusted EBITDA that will generate is an H one versus H two but we wanted to give ourselves some leeway heading into Q3 to account for the fact that we are launching this brand awareness campaign as part of driving future growth in the business and so that's why we're guiding with some level of.
Conservatism as it relates to EBITDA next quarter.
Thank you so much I will pass it on.
Our final question today comes from James <unk> with <unk>.
Your line is open.
Hi.
Good morning, Thanks for taking my question Congrats on the progress I was hoping you could speak a little bit more to the overall hiring environment, perhaps how much M&A you've called out some wage pressure in Q2 with any of that more than you expected I would just love to hear what youre seeing in terms of the constraints around the uptime of just hiring thank you.
Thanks Jeanine.
We continue to be a preferred employer of doctors.
And continue to see sort of strong retention rates.
<unk>.
Our stores.
Tend to be new have top of the line of equipment tends to be located near where our doctors who live and work.
Environment.
Is super friendly and the collaboration between our doctors.
Our retail advisors and store management are.
Our highly collaborative.
We continue to.
Be able to hire the doctors that we need for our store expansion.
Fact across the entire organization.
We're finding.
Very good access to talent and we're seeing attrition rates across every aspect of the business to be some of the lowest that we've ever experienced since we started measuring our attrition at the company.
So it's sort of we're proud to say that the strength of our team is the strongest that it's ever been and engagement levels as we look at productivity.
And employee satisfaction.
Remain high.
Great and then just a quick follow up question around the EBITDA margin guidance for the full year are you keeping the EBITDA margin guidance at previously, but youre raising the revenue is that just the marketing campaign in Q3 are there any other additional expense items that would be a lab.
No other additional expense items to be aware of and so raising our revenue guide.
And maintaining the seven 9% margin naturally raises our EBITDA dollar guide from at the mid point 71, 5 million to a little over $52 million and we don't have any other anticipated expenses. This brand awareness campaign.
As an expense that is anticipated, but we wanted to make sure that we're communicating that.
In the context of our Q3 guidance, but beyond that I think there is no incremental or additional color as to the cadence of sequencing of EBITDA for the full year that is worth mentioning.
Okay, great, Thanks, and best of luck.
Ladies and gentlemen, this concludes our Q&A and today's conference call.
Thank you for your participation you may now disconnect your lines.
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Yeah.
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