Q3 2023 Warby Parker Inc Earnings Call
Hello, and welcome to today's will be pocketing <unk> 23 earnings call School.
My name is daily and I'll be your moderator for today, all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you will.
I'd like to ask a question. Please press star followed by one on your telephone keypad.
It's possible, but you all host Jeff Buckley head of Investor Relations. Please go ahead, when you're ready.
Thank you and good morning, everyone here with me today are Neil Blumenthal, and David Gilboa, our cofounder and co Ceos 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.
Investors got worthy Parker Dot com during this call and in our presentation, we will be making comments of a forward looking nature actual 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 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 November eight 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 prepared in accordance with U S. GAAP a.
A reconciliation of our non-GAAP measures to the most directly comparable U S. GAAP measure can be found in this morning's press release.
And our slide deck available on our IR website.
With that I'll pass it over to Neil to kick us off.
Thank you Jacqueline and good morning, everyone. Today, we look forward to discussing the drivers of our Q3 performance and our updated outlook for fiscal 2023.
Our net revenue of $169 8 million was up 14, 2% year over year, our strongest quarterly revenue growth this year and our adjusted EBITDA of $11 million represents a six 5% margin.
We're particularly pleased to report our results within the backdrop of the broader optical industry. During a time when industry growth has been lower than historical norms.
Regardless of the environment, we believe our unmatched value proposition and innovation, our multichannel approach and our strategic investments in both holistic vision care and marketing position us for long term sustainable growth.
Based on our recent outperformance and outlook for Q4, we're raising our full year guidance.
With that Dave and I will go through how each of these drivers contributed to our strong Q3 results and our outlook for the remainder of the year.
Starting with the first driver, our unmatched value proposition and customer centric innovation.
Because of our direct relationship with consumers, we have the ability to quickly incorporate customer data and feedback into every aspect of our business from eyewear design to manufacturing to the overall shopping experience on.
On the product side, our consumer centric approach to innovation as well that's a novel frame construction and abroad lens portfolio that support average revenue per customer.
On our Q2 call we shared that we introduced a premium progressive offering called precision progressive.
We introduced this lens in response to customer demand, particularly from the retail channel where progressive its penetration is higher.
Our precision progressive start at $395 and like all of our glasses that prices all in including the frame lenses and all coding.
Precision progresses to provide the best of both average order value and gross margin, while delivering superior quality and exceptional value to our customers given similar products often cost more than $1000 elsewhere.
In Q3 overall progressive made up 22, 5% of our total prescription glasses sold up from 21, 4% in Q3 of last year.
We believe there is significant white space for future growth as progressive represent approximately 40% of the eyewear market overall.
In September we launched our memory metal collection, which starts at $195 and was developed in response to customer demand for lighter weight and more flexible frames.
We use that titanium alloy for the trains and innovative material that allows the nose bridge and arms of the frames to band and returned to their original shape.
In addition to memory metal, we launched three other collections this quarter, including our circa collection, our fall collection and our second collaboration with La based artist Geoff Mcfetridge, a longtime friend of the brand who is already you can find in several of our shores.
Our customers have come to trustworthy Parker's innovative designs and exceptional quality work.
Encourage that as we've introduced more complex constructions at higher price points, we've seen little price resistance and now our customers are spending more with us than ever in.
In Q3 average revenue per customer was up 10% year over year to $284.
And while we have expanded our assortment we've maintained our core pricing of $95 for a single vision frames and lenses and coding and we currently offer more assortment at that price than ever before.
Since day, one our simple affordable pricing structure has been an integral part of our value proposition and we believe it continues to attract new customers in.
In addition to product innovation, we continually make technology investments to enhance our customer experience.
This quarter, we focused on three key areas.
The first was leveraging in house technology to enhance operational efficiency, which in turn drives higher in store conversion and productivity.
One example is a tool our opticians can use that automates the optical measurements that previously required time consuming manual processes.
We've heard great feedback from our pilot stores about the efficiency gains they've seen and plan to roll this out more broadly in the coming quarters.
Another tool that we are in the early stage of rolling out uses AI to facilitate the transcription of prescriptions with improved speed and accuracy.
Second in Q3, we incorporated our virtual try on tool into additional parts of the customer journey as a reminder, our virtual try on Leverages first of its kind technology developed in house to help customers find the perfect bidding frame, we find that if e-commerce customers see a pair of glasses on their face they are more likely.
To convert.
We're excited to introduce our virtual try on to more customers than ever and to continue to invest in its future capabilities.
Third we improved the online experience of booking eye exams, and finding nearby worthy Parker retail stores.
We've already seen these improvements generate more eye exam bookings online, which we expect to lead to higher conversion and support average revenue per customer over time.
The second driver of our growth with expanding our highly productive store base, coupled with an improving ecommerce channel.
In Q3, we continued to invest in our stores, which have consistently delivered strong unit economics, even in the current demand environment.
Retail revenue increased 21% year over year, driven by the addition of 40 new stores since Q3 of last year, including 11 in the most recent quarter.
We entered new markets, including Grand Rapids, Michigan in Gainesville, Florida, and we expanded further in states like Tennessee with the additions of our Franklin in Knoxville stores. We also continue to infill some more suburban locations just outside of our largest markets like New York, Northern New Jersey and Philadelphia.
Our new stores continue to payback within 20 months and generate strong four wall adjusted EBITDA margins in line with our target of 35%. So we plan to continue investing in store growth.
In addition to being highly efficient customer acquisition vehicles, our stores are integral in advancing our goal of providing holistic eyecare.
Every new store that we've opened in 2023 includes the eye exam capabilities.
We find that exam stores drive higher sales in non exam stores and industry wide nearly 80% of prescription glasses are purchased at the same location an eye exam takes place.
Stores are also a gateway to continued scaling progresses, our highest ASP.
The highest margin products.
In Q3, we saw retail productivity of 101% versus Q3 2022, consistent with the trends we shared in early August.
In spite of recent traffic another macro headwinds our store leaders have been successful in driving in store conversion and higher revenue per customer.
As we look to the remainder of the year and we are on track to add a total of 40 stores in 2023, having already opened 30 year to date.
Longer term, we believe we can open at least 900 stores in the U S.
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.
Last quarter, we shared that we expected to see our E Commerce channel and return to growth at some point in <unk> and.
In Q3, we're pleased to report that E. Commerce revenue was up 3% year over year, driven by marketing Comping positive in the growth of our context business the majority of which is online.
While we are encouraged by the growth we saw in Q3, we don't expect ecommerce recovery to be linear and we may see periods of higher or lower growth in the near term, including in Q4. Looking ahead, we believe that the overall trend line is positive and our ecommerce business is on a path towards sustainable growth.
And now I'll hand, it over to Dave to take us through some of our other product categories and customer metrics.
Thanks Neil.
The third key driver of our strong Q3 results with our expanded holistic vision care, offering, which is attracting new customers and driving higher customer lifetime value.
Our contacts business had a record quarter delivering strong growth and representing nine 3% of Q3 revenue of 240 basis points versus a year ago.
Does it still well below the industry average of 20% and represents a meaningful opportunity for future growth.
While contact lenses have a lower gross margin percentage compared to our other product offerings their higher purchase frequency and subscription like purchase cycle are accretive to gross margin dollars.
Context have also been a key driver of new customers and looking forward to provide additional upside for our e-commerce business given purchases tend to skew more online.
I exams, which are the gateway to prescription eyewear and contacts purchases represented four 4% of revenue in Q3 versus three 2% last year.
Scaling exams and contacts continues to be a strategic priority in order to deliver a seamless holistic customer experience and drive higher customer lifetime value on.
On average customers that get an eye exam with us and buy glasses and contacts spend to two times with us in their first year versus glasses, only customers and continue to purchase more frequently and spend more in subsequent years.
To support our holistic vision care business, we added 57, net new optometrists to our team this quarter and we continue to invest in their professional development their engagement and their ability to provide exceptional patient care.
In October we brought our optometrist and store leaders together for our first ever one vision summit, where these leaders spent time discussing how to continue to deliver best in class customer and patient experiences.
In addition to opening stores with physical exam suites in hiring optometrists, we continue to be excited by the opportunity to use telehealth to make eye care more accessible more convenient and more efficient.
Actual vision tests telehealth app enables patients to renew their prescriptions from home in under 10 minutes.
We continue to see strong engagement and exam growth through this channel.
And a small number of stores. We're also testing video assisted exams that offer a comprehensive eye health evaluations, using why doctors, who remotely engage with patients sitting in our exam suites.
We believe this technology offers the opportunity to scale exam capacity efficiently in combination with our efforts to add optometrists to our stores directly or through our PC model.
Finally, we continue to rollout retinal imaging and more games suites, enabling advanced disease diagnostics without pupil dilation, resulting in a better patient experience, which we expect to drive loyalty and retention.
We are pleased with the progress we're seeing on both the contact and exam front and expect these long term investments to deliver significant value over time.
We also continue to invest in efforts to make it easier for customers to use their vision insurance benefits with us.
More than 60% of our customers have vision insurance and in Q3, we saw higher utilization of in network insurance benefits across our customer base in.
In addition to the continued usage of out of network benefits.
While our customers recognize that even without reimbursement their out of pocket spend at worthy Parker is lower than purchasing in network elsewhere, we want to ensure that our products and services are as affordable as possible.
Looking ahead, we continue to explore additional partnerships and capabilities to make it easier for our customers to leverage their in network and out of network benefits with us.
The fourth driver was a reinvestment in marketing, while making longer term investments in our brand.
Neil highlighted the third quarter marked a return to a year over year increase in marketing dollars. Following the rebalance of this expense that began in the second quarter of 2022.
With our channel mix between stores and e-commerce back to pre pandemic levels, we expect marketing spend as a percent of revenue to remain in the low teens.
We are pleased with the marketing efficiency, we are seeing and expect these levels to drive steady and sustainable new customer growth.
In Q3, we saw trailing 12 month active customer growth of one 8% up from one 2% at the end of Q2 and in line with our expectation that active customer growth would positively inflect as our marketing spend comped up year over year in Q3. As a reminder, this is a trailing 12 month metric and our marketing spend is still.
Down 21% on an LTM basis as marketing spend further increases on a year over year and trailing 12 month basis, we expect to see active customer growth rates continue to improve from current levels.
Importantly, we continue to see strong customer retention metrics and repeat purchasing patterns across cohorts, including our 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.
In addition to our core customer acquisition efforts during the third quarter, we launched a brand campaign to boost awareness across different media platforms and demographics.
This campaign is distinct from our primary customer acquisition efforts and that is designed to drive top of funnel awareness to fuel future growth not necessarily near term transactions and represents our commitment to investing in our brands to drive long term growth.
We've seen strong engagement throughout the campaign and look forward to updating you more in the coming quarters.
In addition to the brand campaign, we've continued to strategically align the brand with unique cultural moments to expand our audience. An exciting example of which was our recent collaboration with Marvel Insomniac games, and Sony Interactive Entertainment tied to the release of the highly anticipated Marvel Spider Man two video game.
We're be Parker was one of three brands and the only optical brand that marvell worked with to launch in game in real World products supporting our long time commitment to giving back and helping others emission that fits perfectly with Spider man.
Working with Marvell, we launched a capsule collection of character inspired frames and working further with Insomniac games and Sony Interactive Entertainment select Orby Parker frames, Billboards and a worthy Parker storefront are featured in the game itself.
Finally, one of the most rewarding outcomes of our recent performance is the broader impact we are having through our <unk> program. As a reminder, for every pair of Ob Parker glasses sold appears distributed to someone in need. We're now proud to share that 15 million pairs of glasses had been distributed globally via the program, meaning that 50.
<unk> million more people now have the glasses, they need to learn work and achieve better economic outcomes.
Across <unk>, we continue to be excited that as our business scales are impacts grows and feels more meaningful than ever.
And now I'll turn it over to Steve to review the details of our financial performance.
Thanks, Neil and Dave starting with revenue, we generated revenue of $169 8 million up 14, 2% year over year and above the high end of our Q3 guidance range of $163 million to $165 million or up 10% to 11%.
From a channel perspective retail revenue increased 27% year over year, while E Commerce revenue increased 3% versus Q3 of 2022.
For the third quarter E Commerce represented 33% of our overall business compared to 37% in 2022 and in line with our pre pandemic channel mix as Neil mentioned the positive inflection in E. Commerce revenue was driven by marketing spend returning to growth and the continued scaling of our contacts business.
The majority of which is online.
As Neil mentioned, while we were encouraged by the growth. We saw in Q3, we don't expect the e-commerce recovery to be linear and may see some periods of higher or lower growth in the near term including in Q4.
Looking ahead, we believe that the overall trend line is positive and our ecommerce business is on a path towards sustainable growth.
We opened 11, new stores in Q3, and 40 over the past 12 months, finishing Q3 with 227 stores retail productivity in Q3 was 101% 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 continued to add an average of 40 stores per year or more mature cohorts continue to perform as those newer stores ramp.
Seven of the new stores in Q3 were expansions within existing markets.
And four were entries into new markets. All 11, new stores include eye exam capabilities, which brought the number of locations offering eye exams in the quarter.
To 183 or 81% of our total fleet of 227 locations.
From a customer perspective, we finished the quarter with $2 3 million active customers and.
An increase of one 8% versus the same period, a year ago, and our average revenue per customer increased 10% year over year to $284.
As Neil mentioned, we're pleased with our increase in average revenue per customer, which was driven by a few factors, including an increase in progressive as a percentage of our business mix and continued ramping of both contact lens and eye exam sales.
Progressive has represented 22, 5% of total prescription glasses sold in Q3 2023 up from 21, 4% when compared to the third quarter of 2022.
This is still well below the market average of approximately 40%, leaving a substantial runway for product category growth Progressive are also our highest gross margin and highest price point product starting at $295.
We also continue to make progress on our move into holistic vision care as we evolved from our glasses only brands into one that offers glasses contact and eye exams to customers.
From Q3, <unk> to Q3, 'twenty three contact lenses have increased from six 9% to nine 3% of our business mix over the same period Eyecare has increased from three 2% to four 4% of our business mix.
Contacts and eye exams, both represent large opportunities for future growth each accounting for $15 billion plus portions of the 76 billion dollar 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 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 to adjusted gross margin, which excludes stock based compensation.
Third quarter adjusted gross margin was 54, 8% compared to 54, 7% in Q2 of this year and 56, 9% in Q3 of last year.
The year over year decrease was driven by strong growth of eye exams and contact lenses as we evolve into a holistic vision care company and expand them to these large segments of the optical industry.
I exams in context of 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. Furthermore, expanding our contacts offering as a core part of scaling a holistic vision care offering and a key driver of growing average revenue.
For customer.
In addition, contact lenses have a higher purchase frequency and subscription like purchase cycle.
We also experienced continued year over year gross margin deleverage in two areas that represent the more fixed portion of our cost of goods retail occupancy and optometrists salaries, which are directly linked to our expansion into eyecare.
Our growth in store count has naturally led to an increase in store rent and depreciation from store build outs in Q3, specifically, we opened 11 new stores.
As of the end of Q3 2023, we operated with a 140 stores, where we engage directly with an optometrist and therefore recognize both revenue from exams and optometry salaries. This represents an increase of 31% or 33 additional locations from 107 employed in PC exam stores at the end of.
The third 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 act to partially offset these effects first we continue to scale, our highest priced and highest gross margin progressive business in the third quarter Progressive accounted for 22, 5% of our prescription eyeglass units, which is up 110 basis points versus a year ago.
<unk>, 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 adjust.
Adjusted SG&A in the quarter was $93 4 million or 55% of revenue compared to Q3 2022, adjusted SG&A of $82 3 million or 55, 3% of revenue.
The 30 basis point decrease in adjusted SG&A as a percentage of revenue was primarily due to adjustments to our cost structure. We made in August of last year, including lower salary and general corporate expenses, partially offset by a planned increase in marketing spend.
In Q3 of this year, we began anniversarying. These pullbacks in SG&A spend driven by reductions in marketing and salary spend in particular.
For the first nine months of this year adjusted SG&A spend as a percent of revenue was 52, 6% versus 59, 1% for the same period last year, a decrease of 650 basis points.
Marketing spend for the quarter came in at $19 7 million or 11, 6% of revenue. This is up from $14 9 million and 10% of revenue in the same period last year driven in part by our new brand campaign aimed at driving longer term awareness of warranty Parker.
Turning now to adjusted EBITDA in the third quarter, we generated adjusted EBITDA of $11 million, representing an adjusted EBITDA margin of six 5%, which compares to adjusted EBITDA of $11 9 million or 8% of revenue in the year ago period.
For the nine months ended September of this year, we generated adjusted EBITDA of $42 9 million and adjusted EBITDA margin of eight 5% compared to adjusted EBITDA of $18 6 million and adjusted EBITDA margin of four 1% for the same period last year.
On a year to date basis, we increased adjusted EBITDA margin by 440 basis points compared to last year.
Turning now to our balance sheet, we finished the quarter with a strong balance sheet position, reflecting $216 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 than $4 million for letters of credit that we can upsize to $175 million.
Now to our outlook.
Just on our strong year to date performance and updated view of the rest of 2023, we're raising the full year guidance, we outlined on our Q2 call in August for 2023, we now expect net revenue of $666 million to $669 million, representing approximately 11, 5% growth at the.
Mid point of our range.
Adjusted EBITDA margin of approximately seven 9% in line with prior guidance, which equates to adjusted EBITDA of $52 7 million at the midpoint of our topline guidance range.
We still expect gross margin in the mid fifties 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 the 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 later in 2024.
With respect to the fourth quarter, we're guiding to the following.
Net revenue of $158 million to $161 million or revenue growth of approximately 8% to 10%.
The first week of November we've observed trailing 28 day retail productivity versus 2022 of 100%.
From a bottomline perspective, we're guiding to an adjusted EBITDA margin of approximately 6% at the midpoint of our revenue guidance with that Neil Dave and I are pleased to take your questions. Operator. Please open the line for Q&A.
Thank you.
I would like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you would like to repeat that question. Please press star on the bite to again to ask a question. Please press star followed by one.
And if you are using a speaker phone. Please remember to pick up your handset before asking your question I am pleased to ensure that you are on mute locally.
Our first question today comes from the line of Mark Mahaney from Evercore. Please go ahead. Your line is now open.
Okay. Thanks, two questions. Please I think Dave you referred in the end of your comments to active customer growth rates should continue to improve from current levels could you just double click on that a little bit maybe either quantify that or qualify that a little bit what's the pace of active customer growth. We saw in the September quarter is that a good proxy for how we should think about it going forward.
And then Steve on the EBITDA margins is the business setup. So that youll continue to have this.
One to 200 bps of EBITDA margin expansion going forward is that still the cadence that we should expect thank you very much.
Great. Thanks.
Thanks, Mark and this is Dave.
Just touching on that active customer growth first.
As a reminder, this is a trailing 12 month metric and so.
As we noted in our Q2 call, we expected that to be the low point given.
The 30%.
12 month trailing marketing cuts.
We had made at that point.
And we have seen active customer growth trends and the way that we expected.
And as our marketing investments will continue to increase on a year over year basis over the next few quarters.
Active customer growth to continue to trend positively.
We are pleased with the returns that we're seeing from our marketing spend.
Marketing efficiency.
And expect that to continue.
To keep water and indeed beyond.
Another factor that's impacting our active customer.
<unk> that we report on as we as we mentioned in our Q2 call is that.
At the back half of last year, we introduced new functionality to make it easier for multiple members of the household to transact with us under a single customer account.
And as a result, we're seeing more multi person customer accounts.
Our family you might walk into the store and purchase classes for.
<unk> wife, and two kids under the same account right now.
Even though we're serving multiple people under one account what we're reporting on is the is the number of accounts.
And so as we see more of these households purchasing together that's also.
Impacting the <unk>.
<unk> in general, but in spite of that we are expecting to see continued positive growth in the coming quarters.
Great and Mark as it relates to your question on adjusted EBITDA margin improvement.
At this time, we're still planning for an annual increase of 100 to 200 basis points in incremental adjusted EBITDA. Each year, we'll provide an updated perspective on what that number should be on our Q4 call early next year.
Just wanted to point out.
The level of increase that we guided to for this year really used HQ last year as the benchmark off of which we would add an incremental 100 basis points of adjusted EBITDA margins have gone from six 9% <unk> of last year to seven 9% H two of this year. If we were to look at that on an annual Bay.
This is the improvement would be from four 5% adjusted EBITDA margins last year to the seven 9%. This year. So on an annual basis. The improvement is roughly 340 basis points versus.
The 100 basis points, which is just benchmarked against HQ.
Thanks for the question.
Yes.
Thank you.
The next question today comes from the line of Edward <unk>.
From Piper Sandler. Please go ahead. Your line is now open.
Hey, good morning, guys. Thanks for taking the question I know you guys have some pretty interesting growth vehicles within the product assortment I'd love to click down a little bit I know you spent a lot of time talking about contact I guess, what's the success of the private label product understand that maybe that will help to offset some of the gross margin drag and then second.
Some of the higher price point frames and mixed materials that you've introduced in recent quarters, I guess kind of where where does that stand in terms of percent of mix and has that been a gross margin driver. Thank you.
Thank you so much for your question this is Neil.
When we first launched the contract logistics.
Just a couple of years ago, we thought it was important to launch.
With our own branded scout, because we're known as direct to consumer lifestyle brand.
I thought that that was the right way to introduce contacts to customers.
Sure.
Well.
That being said, we always knew that it would be.
Relatively small percent of our overall sales.
Dale.
We just look at the overall market.
The fact that third party contact lenses constitutes of that.
The majority of the overall market and the fact that.
When you purchase contact you need to use about prescription and those prescriptions have the brand how tax written.
So.
We'll continue to have private label option and it is a higher gross margin than.
Other contact that we sell.
The vast majority of contacts that we sell will generally be other brands.
Particularly the big ones, J&J, Alcon and others.
We are right to point out that.
Yes.
Or sort of higher priced frames are higher margin.
And you'll continue to see us invest.
Invest in a broader frame assortment.
We have not seen price resistance from our customers and it's really important to us that we're delivering exceptional value. So.
While we now have frames at $145 or starting at 175 or $195.
They would be sold for in other locations for several hundred if not over $1000 and that is just core to our.
Ethos and our pricing strategy is to always deliver exceptional value.
Thanks, so much.
The next question today comes from the line of Brooke Roach from Goldman Sachs. Please go ahead. Your line is now open.
Good morning, and thank you for taking our question.
Maybe you could elaborate on the trends youre seeing in the market in terms of traffic and conversion as you've moved through <unk> and into <unk>, that's driving the more conservative outlook that you've provided today in your fourth quarter Guide how does this inform your view of future total marketplace growth on a comparable basis.
Great. Thanks for the question.
Seeing consistent trends.
As far as it relates to traffic and conversion the metric that we report each quarter is our trailing 28 day store productivity.
<unk>.
The most recent week before our earnings call on that number for store productivity.
Is 100% on a trailing 28 day basis that number now will fluctuate over the course of the quarter. So it's not necessarily that is the number that we will see on a consistent trailing 28 day basis as the quarter evolves and as we ramp up for the busy holiday period.
And so that's the color we've given from a quantification perspective as it relates to the store productivity.
What I will say is we've seen consistent trends as it relates to higher conversion and higher <unk> and higher average.
Average revenue per customer in our stores that have offset lower traffic trends that the industry has been experiencing for several quarters.
Yes.
And at high level, we have seen some signs of stability over the last few months in the category.
And more predictable customer behavior around periods like back to school than we've seen.
Over the last couple of years, but we have yet to see evidence of significant pent up demand flowing through the category.
In store traffic still remains below 2019 levels.
And as we've seen.
Throughout the last couple of years.
<unk> been some choppiness in trends, including from weather disruption continued macro uncertainty and so while we are encouraged by some of the recent trends.
We're maintaining a conservative outlook.
In general.
Great. Thank you and if I could just ask one follow up on the insurance industry dynamics can you provide an update on the amount of new wins that you have recently had on getting more customers to be in network with Murphy Parker.
Yes.
We are encouraged by the progress that we're making on the insurance front.
In.
Q3, we saw higher utilization.
Insurance.
Usage, both from our in network.
Customers and continued strong usage out of network reimbursement some of it.
New functionality that we've introduced like our universal eligibility checks makes it easier.
For customers to understand their benefits and how to use them at will be Parker and some of the relationships with large employers and carriers that we've introduced over the last year.
We're seeing stronger utilization there so that's encouraging.
Then we also believe that as we continue to.
To scale as we expand our store footprint as we hired more doctors.
We continue to be.
And position ourselves to be a better partner.
Two large employers and large carriers.
<unk>.
We are encouraged by that.
The potential for us to unlock much bigger relationships over time.
Thanks, So much I'll pass it on.
The next question today comes from the line of Oliver Chen from TD Cowen. Please go ahead. Your line is now open.
Thanks, Hi, Neil Dave and Steve rigor.
Regarding your guidance and what's ahead in the sort of the mix consumer picture.
What are you forecasting in terms of promotions and how are you thinking about promotions on a year year over year basis in this environment.
And then second as we zoom out longer term on the 900 store target lots of opportunity ahead.
Raul will opticians play and also how is new store productivity, helping inform that longer term target and why why is that the right number 900 in terms of what you see thank you.
So much for your question this is Neil.
On the consumer front and promotions in general.
To run the business to always provide exceptional value right, whether that's $95 a pair of glasses. All in that would typically cost $400 elsewhere or are progressive offering whether that's our standard progress is at $295 or our precision progresses at $395 that would.
Cost over $1000 elsewhere.
And given that sort of exceptional value, we haven't felt the need to offer in tons of promotions.
So you Shouldnt expect to see us introducing.
Promotions during the holiday season.
Do have an AD a pair and save promotion. That's currently been running now for a while and that encourages folks to buy more from us and that drives UPC and Hey O V. In.
So the more you spend with us.
The more you save.
But we will continue to ensure that everything that we're selling.
His exceptional value and that price quality ratio will continue to be unmatched as we think about our retail rollout. We continue to be on track to open 40 stores next this year and we plan to continue on.
A similar trend.
Sure.
We as we've sort of done analysis and worked with third parties right. We've identified that 900 number is over 48000 optical shops in the U S and there's plenty of white space ahead of us.
We continue to.
Have.
No challenges hiring and training opticians optician rain as a licensed fashion in most states.
And we've been able to develop a lot of talent internally. So not only do they have the competency and skill set around fitting glasses and expertise around lenses, but also.
<unk>.
Ingrained with our sort of culture around great customer experiences and making sure that every customer and patient feels amazing walking in and walking out.
A worthy Parker store.
How should we think about hiring optometrists and we still continue to be a preferred employer.
Tom interests.
And while only 1800 or so optometrist graduate every year.
Finding the challenges hiring optometrists that.
Some other companies are often speak to.
We will continue to create an amazing work environment for optometrists, So that way we continue.
To hire the best and brightest in the field and we will continue to invest in technology.
<unk> leverages their expertise so they can focus on clinical care rather than administrative tasks.
And that also helps us on recruitment and retention of optometrists.
That's regard thank you.
The next question today comes from the line of Mark <unk> from Baird. Please go ahead your.
Your line is now open.
Thank you good morning, I guess first off I was hoping you could talk a little bit more about some of the takeaways from the new marketing campaign and just the broader re ramping marketing spend are you seeing the demand lift you would expect there you.
You also mentioned that you would not expect the e-commerce growth line to be linear I'm wondering if that signals, maybe some more choppiness quarter to date and kind of what youre, what youre readings are there.
Yeah. Thanks, Thanks Mark.
In general we've been pleased with.
The returns and the response that we've seen from <unk>.
Investing more in marketing in general as we noted last quarter.
Our marketing efforts.
Kind of.
On into two categories in this last quarter and extend into Q4.
There is kind of the core marketing effort designed.
To drive transactions and then there's a separate effort that is our brand awareness campaign.
Sure.
That is really reflect our commitment to long term investment in our brand and increasing brand awareness.
And we're pleased with the engagement and the response that we're.
We're seeing from that campaign.
The goals there really to move some of our brand awareness metrics.
Not necessarily.
Convert in the current period and so.
We need to wait a few months.
<unk>.
Look back at our brand awareness and see how much we've moved it but in general the engagement that we've seen on some platforms that we haven't been doing much marketing on previously like Youtube and Tic Toc we've seen.
We've achieved kind of all our engagement goals there.
And so our <unk> are pleased with the.
The returns that that we've seen so far.
And then as it relates to E com.
We're confident in the overall.
Trend line for E com continuing to go up into the right.
Do you expect there to be some volatility from quarter to quarter and so there may be some acceleration or deceleration when looking at year over year growth from.
One period to another.
Part of our business is more sensitive to marketing spend and media rates and.
And as we've started to allocate more of our budget to experimentation and your channels recognize that some of those things will work some won't and.
We plan to take more shots on goal Uber.
Over the next few quarters than we did in the prior few quarters and so that may.
They reflected in kind of some some near term.
<unk>.
Volatility there but.
But overall.
Our focus on ensuring that our E comm business is.
Returning to long term sustainable growth and we certainly believe brown.
That.
Okay.
And Mark that's very helpful.
Okay.
Talk a little bit about this before the other factor impacting E com growth and this occurs every year as we talk about.
Making sure that we're capturing consumer demand during the busy holiday season, there's a fair amount of orders that we take in December the back half of December in particular.
Some of those we recognized as revenue in Q4 in December but there are a number of them. The vast majority actually that we will actually deliver and recognize revenue on in.
In January in Q1 of the following year. So there's also that element of timing involved and the pace of e-commerce growth and order over orders over the course of Q4 within December in particular.
Okay.
Thank you, Steve that actually dovetails nicely into my follow up I guess I'm wondering if there's any.
Initial views you can share on sales growth plans for 2024.
Typically as you called out you do see your biggest quarter over quarter revenue gain from Q4 to Q1.
Any reason, we shouldnt expect that same typical seasonality as we look at the next few months here.
Yeah, Great question Mark.
It's safe to assume that we should assume.
The step up from Q4 to Q1 will follow a similar trend line to what we've seen in previous years. That's just the pattern that our business has exhibited for many many years and we expect the same step up from Q4 to Q1 looking ahead to next year.
Great. Thank you.
The next question today comes from the line of Paul <unk> from Citigroup. Please go ahead. Your line is now open.
Hey, everyone. This brand and shoot him on for Paul I was wondering.
Now that we've lapped the reduction in marketing spend.
Can we assume active customer growth to accelerate over the next couple of quarters.
It's also wondering what could you quantify just how much of a drag on active customer growth is.
The change to multiple people ordering from one household account how should we think about that going forward. Thanks.
Thanks Brendan.
To start we do expect that active customer growth will continue to accelerate.
As mentioned this is a trailing.
12 month metric and soon.
Currently.
Trump.
Against the period, where three of the quarters we were.
Spending materially less on <unk>.
<unk> and then one quarter, where we are.
We've seen marketing spend returned to year over year growth.
And.
We have seen.
That metric move positively as well.
<unk>.
Reintroduced.
Marketing investment and expect that to continue in the coming quarters.
And.
Right now we.
Arndt.
Can you provide any additional color on kind of the multi person accounts, but it is.
<unk>.
A factor that is moderately impacting that metric and one that we may be able to provide some additional visibility into.
In the coming quarters.
Got you and if I can just a quick follow up.
The direct business returned to growth and I'm, just wondering can you help frame that.
<unk> contact supply understanding, but almost entirely all along of your penetration has increased there. So I guess what is like the core direct business and what is your outlook for that.
Haven't broken out the split online of contacts versus glasses, and we will continue to report on E. Com really is.
As a blended channel.
Is it to say that.
We're excited with the progress, we're making selling contact online and seeing that account for a greater portion of our business. We're also excited at how customers are using our E Commerce channel.
Both to purchase new glasses and to more importantly returned to purchase a second or third pair of glasses.
I appreciate it good luck thanks guys.
The final question today comes from the line of Alex <unk> from Morgan Stanley. Please go ahead. Your line is now open.
Yeah.
Please do ensure that youre on mute locally.
It appears we may have lost Alex.
This concludes today's question and answer session and this concludes today's call. Thank you all for your participation you may now disconnect your lines.
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