Q1 2024 Warby Parker Inc Earnings Call & Business Update

Operator: Hello all, and thank you for your patience. Today's Warby Parker First Quarter 2024 conference call will begin in just a few moments. Today's call will be hosted by Jaclyn Berkley, Head of Investor Relations. And if you would like to ask a question during today's call, please press star followed by one on your telephone keypad. Once again, today's call will begin in just a few moments. Thank you all for your patience.

Hello, and thank you for your patience today's will be pocket first quarter 2020 for corporates cool, we'll begin in just a few moments time.

Today's call will be hosted by Jackson Dudley head of Investor Relations.

Jackson Dudley: I would like to ask a question on todays call. Please press star followed by one on your telephone keypad.

Jackson Dudley: To begin today's call will begin in just a few moments time. Thank you all for your patience.

Jackson Dudley: [music].

Bailey: Hello, and welcome to today's Warby Parker first quarter 2024 conference call. My name is Bailey, and I will be the moderator today.

Hello, and welcome to today's will be pocket first quarter 2020 full conference call. My name is Bailey and I'll be the moderator for today, all lines, where we need to during the presentation portion of the cool with an opportunity for questions and answers at the end.

Bailey: All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I'd now like to pass the conference over to Jaclyn Berkley, Head of Investor Relations. Please go ahead.

Jackson Dudley: I would like to ask a question. Please press star followed by one on your telephone keypad.

Jackson Dudley: I'd now like to pass the call over to Chuck <unk> head of Investor Relations. Please go ahead.

Jaclyn Berkley: Thank you and good morning, everyone. Here with me today are Neil Blumenthal and Dave Gilboa, our co-founders 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 at investors.warbyparker.com. During this call and in our presentation, we will be making comments of a forward-looking nature. However, actual results may differ materially from those expressed or implied as a result of various risks and uncertainties.

Thank you and good morning, everyone here with me today are Neil Blumenthal, and they've Gilboa, our co founders and co Ceos alongside these Miller senior Vice President and Chief Financial Officer.

Chuck: Before we begin we have a couple of reminders our earnings release and slide presentation are available on our website at investors don't worry 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 the various.

Chuck: Risks and uncertainties.

Jaclyn Berkley: For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors in the company's latest annual report on Form 10-K. These forward-looking statements are based on information as of May 9th, 2024, 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. These non-GAAP financial measures are in addition to, and not a substitute for, measures of financial performance prepared in accordance with U.S. GAAP.

Chuck: 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.

Chuck: These forward looking statements are based on information as of May nine for 'twenty, 'twenty, four and except as required by law, we assume no obligation to publicly update or revise our forward looking statements.

Chuck: Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with U S. GAAP.

Jaclyn Berkley: 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 Neil to kick us off.

Chuck: 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.

Chuck: And with that I'll pass it over to Neil to kick us off.

Neil Harris Blumenthal: Thank you, Jaclyn, and good morning, everyone. The momentum in our business continued to build throughout the first quarter, primarily driven by strength in our retail channel and glasses business. We are pleased to have delivered record quarterly revenue and adjusted EBITDA in Q1, along with improvements to gross margin. Our Q1 net revenue of $200 million was up 16.3% year over year, and adjusted gross margin was 56.9%, up from 55.2% in Q1 last year. We also delivered a Justity Bida'a of $22.4 million, representing an 11.2% margin.

Neil: Thank you Jacqueline and good morning, everyone.

Neil: The momentum in our business continued to build throughout the first quarter, primarily driven by strength in our retail channel and glasses business.

Neil: We are pleased to have delivered record high quarterly revenue and adjusted EBITDA in Q1, along with improvements to gross margin.

Neil: Our Q1 net revenue of $200 million was up 16, 3% year over year and adjusted gross margin was 56, 9% up from 55, 2% in Q1 last year.

Neil: We also delivered adjusted EBITDA of $22 4 million, representing an 11, 2% margin.

Neil Harris Blumenthal: Over the last couple of years, in spite of challenging industry dynamics, we have continued strategically investing in the business for the long term, including expanding our store footprint, hiring optometrists, scaling our contacts business, introducing new frame and lens innovation, and more recently, reinvesting in marketing. Our Q1 results are evidence that these investments are bearing fruit and demonstrate our team's ability to execute and deliver incremental growth and profitability. Based on our first quarter performance, we are raising our full-year guidance for both net revenue and adjusted EBITDA. Steve will provide more detail on our financial results and guidance, but first Dave and I will review our progress against Warby Parker's strategic priorities, as well as the drivers of our Q1 results.

Neil: Over the last couple of years in spite of challenging industry dynamics, we continued strategically investing in the business for the long term, including expanding our store footprint hiring optometrists scaling our contacts business, introducing new frame and less innovation and more recently reinvesting in March.

Neil: <unk>.

Neil: Our Q1 results are evidence that these investments are bearing fruit and demonstrate our team's ability to execute and deliver incremental growth and profitability.

Neil: Based on our first quarter performance, we are raising our full year guidance for both net revenue and adjusted EBITDA Steve.

Neil: Steve will provide more detail on our financial results and guidance, but first Dave and I will review, our progress against worthy partner strategic priorities as well as the drivers of our Q1 results.

Neil Harris Blumenthal: I'll start first with the positive inflection in our glasses business, where we saw strength in single vision glasses and progressives. In Q1, GLASSES overall drove approximately 70% of our revenue growth for the quarter, and as a product line, GLASSES grew over 13% year-over-year, compared to average growth of 8% over the course of 2023. In addition, glasses are our highest-margin product and the primary driver of gross margin expansion in the quarter.

Neil: I'll start first with a positive inflection in our glass business, where we saw strength in single vision glasses and progressive.

Neil: In Q1 glasses overall drove approximately 70% of our revenue growth for the quarter and as a product line glasses grew over 13% year over year compared to average growth of 8% over the course of 2023.

Neil: In addition, glasses are our highest margin product and the primary driver of gross margin expansion in the quarter.

Neil Harris Blumenthal: We attribute the improvement in glasses growth to many of our core strategic investments, including marketing, the expansion of our store fleet, and scaling of our exam business, as well as positive e-commerce growth. We were particularly encouraged by the improvement in single vision glasses, which continue to make up the majority of our prescription glasses business. A key contributor to this growth was our marketing efforts to drive customer growth, especially within acquisition channels like paid social and streaming, which cater more to our single-vision customers.

Neil: We attribute the improvement in glass's growth to many of our core strategic investments, including marketing the expansion of our store fleet and scaling of our exam business as well as positive ecommerce growth.

Neil: We were particularly encouraged by the improvement in single vision glasses, which continue to make up the majority of our prescription glasses business.

Neil: A key contributor to this growth was our marketing efforts to drive customer growth, especially within acquisition channels like paid social and streaming which cater more to our single vision customer.

Neil Harris Blumenthal: More broadly, we continue to see strong adoption of higher-priced frames and more complex lens types like precision progressives, which offer customers better visual quality and comfort at a fraction of the price of what similar products often cost elsewhere. However, progressives overall still only represent approximately 22% of our prescription glasses sold in Q1, and we continue to believe there's a significant opportunity to increase penetration over time. Underpinning single vision strength and glasses performance overall is our ongoing product innovation, which involves regularly introducing new designs, colorways, materials, and sizes.

Neil: More broadly we continue to see strong adoption of higher priced frames and more complex lens types like precision progresses, which offer customers better visual quality and comfort at a fraction of the price of what similar products offering costs elsewhere.

Neil: Progressive overall still only represent approximately 22% of our prescription glasses sold in Q1, and we continue to believe there's a significant opportunity to increase penetration over time.

Underpinning single vision strains and glasses performance overall as our ongoing product innovation, which involves regularly introducing new designs color ways materials inside the.

Neil Harris Blumenthal: In Q1, we launched four collections featuring a variety of innovative frame constructions and price points, ranging from our core $95 up to $145, $175, and $195. This included our Terra collection, a unique capsule assortment that incorporated our signature graduated rivets alongside metal detailing and polished cellulose acetate.

Neil: In Q1, we launched four collections featuring a variety of innovative frame constructions and price points ranging from our core of $95 up to 145 175 and $195.

Neil: This included our Terra collection of unique capsule assortment than cooperated our signature graduated rivets alongside metal detailing and polished cellulose acetate.

Neil Harris Blumenthal: We continue to see customers opt in to higher-priced frames and lens enhancements, including anti-fatigue and light responsive, which have contributed nicely to average revenue per customer. Scaling our eye exam business, including exam utilization, has had and will continue to have a direct impact on our glasses business. We find that exam stores drive higher sales than non-exam stores. And industry-wide, approximately 75% of prescription glasses are purchased at the same location where an eye exam takes place.

Neil: We continue to see customers opt into higher priced frames and lenses enhancements, including anti fatigue, and light responsive, which have contributed nicely to average revenue per customer.

Neil: Scaling our eye exam business, including exam utilization has had and will continue to have a direct impact on our glasses business, we find that exam stores drive higher sales the non exam stores and industry wide approximately 75% of prescription glasses are purchased at the same location and I.

Neil: Exam takes place.

Neil Harris Blumenthal: As we've increased the number of stores offering eye exams, we've seen strong growth in average revenue per customer driven by eye exam revenue, and higher penetration of progressive lenses and contact lenses. While we have yet to see evidence of a return to normalcy in the optical industry, we've observed encouraging trends within our business, giving us confidence to invest in customer acquisition to drive growth and profitability amidst the dynamic consumer environment. The second driver of our growth was expanding our highly productive store base coupled with further improvement in our e-commerce channel.

Neil: As we've increased the number of stores offering eye exams, we have seen strong growth in average revenue per customer driven by eye exam revenue, a higher penetration of progressive lenses and contact lenses.

Neil: While we have yet to see evidence of a return to normalcy in the optical industry, we've observed encouraging trends within our business, giving us confidence to invest in customer acquisition to drive growth and profitability amidst a dynamic consumer environment. The.

Neil: The second driver of our growth was expanding our highly productive store base, coupled with further improvement in our E Commerce channel we.

Neil Harris Blumenthal: We saw strength in our retail channel in particular, with retail revenue increasing over 24% year over year, compared to store count growth of approximately 20% year over year. Since Q1 of last year, we've added 41 net new stores, including eight in Q1 of 2024, all of which were expansions within existing markets and in largely suburban markets. We added additional stores in the southeast near Atlanta, Miami, and Orlando, as well as in the Mountain West region near Salt Lake City and Las Vegas.

Neil: We saw strength in our retail channel in particular with retail revenue, increasing over 24% year over year compared to store count growth of approximately 20% year over year.

Neil: Since Q1 of last year, we've added 41, net new stores, including eight in Q1 in 2024, all of which were expansions within existing markets and in largely suburban markets. We added additional stores in the southeast near Atlanta, and Miami and Orlando as well as in the mountain West region near Salt Lake City and Las Vega.

Neil: Yes.

Neil Harris Blumenthal: To further contextualize the opportunity ahead of us, over 50% of the major metropolitan areas we operate in only have one store. With an ending store count of 245 in Q1, we still have a long runway before reaching our longer-term 900-store potential, which would still represent a small fraction of the 45,000 optical shops in the U.S. We continue to see strong returns from our new stores and remain on track to add a total of 40 new stores in 2024.

Neil: To further contextualize the opportunity ahead of us over 50% of the major metropolitan areas, we operate and only have one store.

Neil: With an ending store count of 245 in Q1, we still have a long runway before reaching our longer term 900 store potential which would still represent a small fraction of the 45000 optical shops in the U S.

Neil: We continue to see strong returns from our new stores and remain on track to add a total of 40 new stores in 2024.

Neil Harris Blumenthal: In Q1, our e-commerce channel continued to improve, growing 2% year-over-year and contributing to overall top-line growth and fixed-cost leverage. We saw strength in contact lenses from both new and returning customers, as well as improvement in our single vision glasses business. As we shared on our last call, the composition of our e-commerce channel is evolving, with Home Try-On driving a smaller percentage of our orders as we've scaled our store base and as customers are increasingly comfortable purchasing directly online with the support of our virtual try-on feature.

Neil: In Q1, our E Commerce channel continued to improve growing 2% year over year and contributing to overall top line growth and fixed cost leverage.

Neil: We saw strength in contact lenses from both new and returning customers as well as improvement in our single vision glasses business.

Neil: As we shared on our last call the composition of our E. Commerce channel is evolving with home try on driving a smaller percent of our orders as we've scaled our store base and as customers are increasingly comfortable purchasing directly online with the support of our virtual try on feature.

Neil Harris Blumenthal: Given this, overall channel growth is benefiting from a positive inflection in direct glasses purchases, which is being offset by an ongoing but diminishing headwind from our Home Try-On program. Looking ahead, we believe that our e-commerce business is on a path toward long-term sustainable growth. Now, I'll pass it over to Dave to talk about additional growth drivers.

Neil: Given this.

Neil: Overall channel growth is benefiting from a positive inflection in direct glasses purchases, which is being offset by an ongoing but diminishing headwind from our home trial program.

Neil: Looking ahead, we believe that our ecommerce business is on a path toward long term sustainable growth.

Neil: And now I'll pass it over to Dave to talk about additional growth drivers.

Dave: Thanks Neil.

David Abraham Gilboa: We told you in our last call that our goal for this year was to re-accelerate Gloss's growth and active customer growth, and we are pleased that the year is off to a good start across both dimensions. We believe a core reason for this is our team's strong marketing execution. We're proud of what our marketing team has achieved year to date, curating high-impact brand moments while driving efficient growth. In Q1, marketing spend was concentrated in two main categories.

Dave: We told you in our last call that our goal for this year was to Reaccelerate glass's growth in active customer growth and we're pleased that the year's off to a good start across both dimensions.

Dave: We believe the core reason for this is our team's strong marketing execution.

We're proud of what our marketing team has achieved year to date generating high impact brand moments, while driving efficient growth.

Dave: In Q1 marketing spend was concentrated in two main categories. The first being long term investments to drive brand affinity and awareness.

David Abraham Gilboa: The first being long-term investments to drive brand affinity and awareness. The second being investments to drive customer acquisition and near-term transactions. Hopefully, many of you were able to experience the great North American solar eclipse on April 8th.

Dave: Being investments to drive customer acquisition and near term transactions.

David Abraham Gilboa: We took the opportunity to celebrate this rare celestial event by designing and distributing free eclipse glasses in our stores with the goal of making viewing safe and accessible for customers. This activation drove our highest retail traffic week ever, generated thousands of press mentions, and enabled our stores to grow awareness within their communities. We continue to hear that the number one reason people who are familiar with Warby Parker but have not shopped with us is that they're not aware there is a store nearby.

Dave: Hopefully many of you were able to experience the great North American solar Eclipse on April eight.

Dave: We took the opportunity to celebrate this rare celestial event by designing and distributing free eclipse glasses in our stores with the goal of making dealing safe and accessible for customers.

Dave: This activation drove our highest retail traffic week ever.

Dave: Generated thousands of press mentions and enabled our stores to grow awareness within their communities. We continue to hear that the number one reason people who are familiar with <unk> Parker, but have not shopped with us is that they're not aware there is a store nearby.

David Abraham Gilboa: We believe that the excitement around the eclipse created significant awareness of our growing store footprint, and when many of these consumers need their next exam or purchase their next pair of glasses, Warby Parker will be top of mind. We were also excited to work with like-minded partners to extend the reach and impact of our campaign, including Delta Airlines, who distributed custom co-branded solar eclipse glasses to passengers aboard their eclipse flights and to travelers in select Delta Sky Clubs.

Dave: We believe that the excitement around the eclipse created significant awareness of our growing store footprint and when many of these consumers need their next exam or to purchase their next pair of glasses worthy Parker will be top of mind.

Dave: We were also excited to work with like minded partners to extend the reach and impact of our campaign, including Delta Airlines, who distributed custom co branded solar eclipse glasses.

Dave: <unk> aboard their eclipse flights into travelers and select Delta Sky clubs.

David Abraham Gilboa: Overall, we were very pleased with the strong engagement we saw across the country and believe our investment in the Eclipse will drive brand awareness and goodwill over the long term. We've also focused on using product collections to expand awareness within influential audiences. Earlier in the quarter, we launched our first collaboration of the year with New York-based fashion label Theophilio. Edvin Thompson, Theophilio's creative director and founder, is one of the fastest rising stars in fashion and won the CFDA's coveted Emerging Designer of the Year Award.

Dave: Overall, we were very pleased with the strong engagement, we saw across the country and believe our investment in the Eclipse will drive brand awareness and goodwill over the long term.

We are also focused on using products collections to expand awareness within influential audiences.

Dave: Earlier in the quarter, we launched our first collaboration of the year with New York based fashion label <unk>.

Edwin Thompson, the Ophelia as creative director and founder is one of the fastest rising stars in fashion and won the <unk> coveted emerging designer of the year Award.

David Abraham Gilboa: We believe targeted limited edition collaborations like this speak to a more fashion-oriented consumer while elevating brand perception. We continue to invest in customer acquisition through our new stores and diversified media model. We allocate a portion of our media spend to linear TV and search, where we continue to see positive results. At the same time, we've been testing and scaling additional channels like Influencer, Direct Mail, and Streaming, where we've also seen strong returns.

Dave: We believe targeted limited edition collaborations like this speak to a more fashion oriented consumer while elevating brand perception.

Dave: We continue to invest in customer acquisition through our new stores and diversified media model, we allocate a portion of our media spend to linear TV in search where we continue to see positive results.

Dave: At the same time, we've been testing and scaling additional channels like Influencer direct mail and streaming where we've also seen strong returns as a result of our marketing efforts. It was encouraging to see strong sequential revenue growth and in particular glass's growth, while maintaining marketing in the low teens as a percentage of revenue.

David Abraham Gilboa: As a result of our marketing efforts, it was encouraging to see strong sequential revenue growth, and in particular growth in glasses, while maintaining marketing in the low teens as a percentage of revenue. You'll see us continue to stay disciplined while leaning into these marketing strategies the rest of the year. Our stores and marketing initiatives have also driven our third consecutive quarter of improving active customer growth, a trend we expect to continue throughout the year.

Dave: Youll see us continue to stay disciplined while leaning into these marketing strategies the rest of the year.

Dave: Our stores and marketing initiatives.

Dave: Also driven our third consecutive quarter of improving active customer growth a trend we expect to continue throughout the year.

David Abraham Gilboa: We ended Q1 with 2.4 million active customers, an increase of 3.2% on a trailing 12-month basis, while average revenue per customer grew 9.6%. Additionally, we continue to see positive customer retention metrics and repeat purchasing patterns across cohorts, including a revenue retention rate of roughly 50% over 24 months and roughly 100% over 48 months for the most recent cohort. The fourth and final growth strategy I'll dive into this quarter is our effort to scale holistic vision care and drive higher customer lifetime value.

Dave: We ended Q1 with $2 4 million active customers an increase of three 2% on a trailing 12 month basis, while average revenue per customer grew nine 6%.

Dave: And we continue to see positive customer retention metrics and repeat purchasing patterns across cohorts, including our revenue retention rate of roughly 50% over 24 months and roughly 100% over 48 months for the most recent cohort.

Dave: The fourth and final growth strategy I'll dive into this quarter as our effort to scale holistic vision care and drive higher customer lifetime value.

David Abraham Gilboa: In Q1, contact lens sales grew approximately 40% year-over-year to a little over 9% of revenue, which remains well below the 20% industry average. We plan to continue to grow this portion of our business as it attracts not only new customers but also some of our highest-value customers, given the replenishment nature of the product and their propensity to go on to purchase classes. In the quarter, iExam revenue also grew over 40% year over year to approximately 5% of revenue, which remains well below the approximately 15% industry average.

In Q1 contact lens sales grew approximately 40% year over year to a little over 9% of revenue, which remains well below the 20% industry average.

Dave: We plan to continue to grow this portion of our business as it not only attract new customers, but also some of our highest value customers given the replenishment nature of the product and their propensity to go on to purchase classes.

Dave: In the quarter eye exam revenue also grew over 40% year over year to approximately 5% of revenue, which remains well below the approximately 15% industry average.

Steve Miller: Today, the majority of our customers still get their eye exams elsewhere and bring their prescriptions to Warby Parker, highlighting the opportunity in front of us. As we've increased the number of stores offering eye exams, including stores with in-person and remote doctors, we have seen strong growth in average revenue per customer driven by eye exam revenue, as well as strong uptake of precision progressives, and contact lenses. Finally, as many of you know, earlier this year, we announced an expanded relationship with Versant Health, the wholly owned subsidiary of MetLife, which will bring an additional 15 million lives in network with Warby Parker and nearly double the number of lives within network insurance access with us to over 34 million.

Dave: The majority of our customers still get their eye exams elsewhere and bring their prescriptions to worry Parker highlighting the opportunity in front of us.

Dave: As we've increased the number of stores offering eye exams, including stores with in person and remote doctors, we have seen strong growth in average revenue per customer driven by eye exam revenue strong uptake of precision progressive and contact lenses.

Dave: Finally, as many of you know earlier this year, we announced an expanded relationship with <unk> health a wholly owned subsidiary of Metlife, which will bring an additional 15 million lives in network with <unk> Parker and nearly double the number of lives within network insurance access with us to over $34 million.

Steve Miller: Our phased integration began earlier this month and will continue throughout the next couple of quarters. We look forward to updating you as the integration moves forward. In parallel, we continue to leverage our universal eligibility check tool in stores and online to help customers easily locate their in-network insurance coverage and average out-of-network benefits. Most out-of-network plans cover an average of $100 reimbursement for a pair of glasses or contacts, meaning that these customers often take $0 out of pocket for their eyewear purchase at Warby Parker.

Dave: Our phased integration began earlier this month and will continue throughout the next couple of quarters.

Dave: We look forward to updating you as the integration moves forward.

Dave: In parallel we continue to leverage our universal eligibility check tool in stores and online to help customers easily locate their in network insurance coverage and average out of network benefits.

Most Adam network plans cover an average of $100 reimbursement for a pair of glasses or contacts meaning that these customers often day $0 out of pocket for their eyewear purchase at worthy partner.

Steve Miller: Looking ahead, we're eager to build upon the momentum we've seen throughout the business and plan to maintain a healthy balance between driving growth and expanding adjusted EBITDA margins. Now, I'll turn it over to Steve to review the details of our financial performance.

Dave: Looking ahead, we're eager to build upon the momentum we've seen throughout the business and plan to maintain a healthy balance between driving growth and expanding adjusted EBITDA margins.

Dave: And now I'll turn it over to Steve to review the details of our financial performance.

Steve Miller: Thanks Neil and Dave. Revenue for the first quarter came in at $200 million, up 16.3% year-over-year. From a channel perspective, retail revenue increased 24.4% year-over-year, while e-commerce revenue increased 1.8% versus Q1 of 2023. Turning to our stores, we added 41 net new stores over the course of the last 12 months, ending the quarter with 245 stores, up from 204 stores at the end of Q1 2023. This 20% increase in our store count compares to retail revenue growth of more than 24% over the same period.

Steve: Thanks, Neil and Dave.

Steve: Revenue for the first quarter came in at $200 million.

Steve: Up 16, 3% year over year from a channel perspective retail revenue increased 24, 4% year over year, while E. Commerce revenue increased one 8% versus Q1 of 2023.

Steve: Turning to our stores, we added 41 net new stores over the course of the last 12 months ending the quarter with 245 stores up from 204 stores at the end of Q1 2023.

Steve: This 20% increase in our store count compares to retail revenue growth of more than 24% over the same period.

Steve Miller: Looking at Q1 retail performance on a blended basis, including both new stores and stores open greater than 12 months, retail productivity was 102% as compared to the same period last year. As a reminder, we define retail productivity as the year-over-year change in retail sales per store for the average number of stores open in the period.

Steve: Looking at Q1 retail performance on a blended basis, including both new stores and stores opened greater than 12 months retail productivity was 102% as compared to the same period last year.

Steve: As a reminder, we define retail productivity as the year over year change in retail sales per store for the average number of stores opened in the period. This metric covers all stores opened in the period, even new stores opened in the last 12 months.

Steve Miller: This metric covers all stores open in the period, even new stores opened in the last 12 months. Our new stores continue to deliver strong unit economics, performing in line with our target of 35% four-wall margins and 20 month payback. Two-thirds of our 2022 cohort have now paid back in an average of 17 months, and the cohort as a whole is on track for approximately 20 months.

Steve: Our new stores continued to deliver strong unit economics performing in line with our target of 35% four wall margins in 'twenty month paybacks, two thirds of our 2022 cohort have now paid back in an average of 17 months and the cohort as a whole is on track for approximately 20 months.

Steve Miller: For stores open more than 12 months, average revenue per store was 2.2 million, and performance was in line with our target 35% four-wall adjusted EBITDA margin. Over the course of the past year, we added nearly 50 net new eye exam locations, bringing our stores with eye exams to 204, or 83% of our total fleet of 245 stores. From a channel mix perspective, for the first quarter, retail represented 69% of our overall business.

Steve: For stores opened more than 12 months average revenue per store was $2 2 million and performance was in line with our target, 35% four wall adjusted EBITDA margins.

Steve: Over the course of the past year, we added nearly 50 net new eye exam locations, bringing our stores with eye exams to 204 or 83% of our total fleet of 245 stores.

Steve: From a channel mix perspective for the first quarter retail represented 69% of our overall business. This compares to 64% in Q1 2023.

Steve Miller: This compares to 64% in Q1 2023. From a customer perspective, we finished Q1 with 2.36 million active customers, which we believe is more reflective of active households and represents an increase of 3.2% on a trailing 12-month basis. As we started anniversary marketing spend pullbacks in Q2 of last year, we've been pleased to see the sequential improvements in year-over-year active customer growth. Starting in Q2, our trailing 12-month metric will no longer capture periods that had significant marketing spend pullbacks, so we anticipate seeing this metric continue to inflect upward throughout the year.

Steve: From a customer perspective, we finished Q1 with $2 $3 6 million active customers, which we believe is more reflective of active households, and represent an increase of three 2% on a trailing 12 month basis.

Steve: As we've started anniversarying marketing spend pullbacks in Q2 of last year we.

Steve: We've been pleased to see the sequential improvement in year over year active customer growth.

Steve: Starting in Q2, our trailing 12 month metric will no longer capture periods that had significant marketing spend pullbacks. So we anticipate seeing this metric continue to inflect upward throughout the year.

Steve Miller: We also continue to see strength in average revenue per customer of $296 in Q1, up 9.6% year-over-year. This was driven by a few factors, including an increase in higher-priced lenses, including progressives, and continued ramping of both contact lens and eye exam sales. As previously noted, we have multi-user accounts in which one person in the household places an order on behalf of others, and if we look at our customers on an individual basis, we serve 2.49 million individuals, which is up 4.5% on a trailing 12-month basis and reflects average revenue per individual up 8.3%.

Steve: We also continued to see strength in average revenue per customer of $296 in Q1 up nine 6% year over year.

Steve: This was driven by a few factors, including an increase in higher price lenses, including Progressives and continued ramping of both contact lens and eye exam sales.

Steve: As previously noted we have multi user accounts and which one person in the household places an order on behalf of others and if we look at our customers on an individual basis. We served to $4 9 million individuals, which is up four 5% on a trailing 12 month basis and reflects average revenue.

Steve: Per individual.

Steve: Eight 3%.

Steve Miller: Moving on to gross margins. As a reminder, our gross margin is fully loaded and accounts for a range of costs, including frames, lenses, optical labs, customer shipping, optometrist salaries, store rent, and the depreciation of the store build-out. 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. First quarter adjusted gross margin came in at 56.9% compared to 55.2% in the year-ago period.

Steve: Moving on to gross margin as a reminder, our gross margin is fully loaded and accounts for a range of costs, including frames lenses optical labs customer shipping optometrist salaried store rent and depreciation of store build outs.

Steve: Our gross margin also includes stock based compensation expense for our optometrists and optical lab employees.

Steve: For comparability I'll be speaking to gross margin excluding stock based compensation.

Steve: First quarter adjusted gross margin came in at 56, 9% compared to 55, 2% in the year ago period.

Steve Miller: The increase in gross margin was primarily driven by faster growth in our glasses business, which is our highest gross margin product category, efficiencies in our owned optical laboratories, and lower outbound customer shipping costs as a percent of revenue. As expected, we saw stability and modest leverage within the more fixed portion of our cost of goods, including retail occupancy, as we've continued to scale our store base. Partially offsetting gross margin leverage in Q1 were higher optometrist salaries as the number of stores offering eye exams grew and continued strength in contact lenses and eye exams, which have lower gross margin profiles than eyeglasses but, over the medium and long term, are accretive to gross profit dollars, which were up 20% year over year in Q1.

Steve: The increase in gross margin was primarily driven by faster growth in our glasses business, which is our highest gross margin product category.

<unk> and our owned optical laboratories, and lower outbound customer shipping costs as a percent of revenue.

Speaker Change: As expected.

Speaker Change: <unk>, we saw stability and modest leverage within the more fixed portion of our cost of goods, including retail occupancy as we've continued to scale our store base.

Speaker Change: Partially offsetting gross margin leverage in Q1 were higher optometrist salaries as the number of stores offering eye exams grew and continued strength in contact lenses and eye exams, which have lower gross margin profiles than eyeglasses, but over the medium and long term are accretive to gross profit dollars, which were up 20% year.

Speaker Change: Year over year in Q1.

Steve Miller: Expanding our contact lens offering is a core part of scaling our holistic vision care offering and the key driver of growing average revenue per customer. In addition, contact lenses have a higher purchase frequency and a subscription-like purchase cycle.

Speaker Change: Expanding our contacts offering as a core part of scaling our holistic vision care offering and the key driver of growing average revenue per customer.

Speaker Change: In addition, contact lenses have a higher purchase frequency and subscription like purchase cycle.

Steve Miller: All in all, we're pleased with our gross margin in Q1, and we continue to have confidence in our ability to consistently deliver mid-50s gross margin this year, as we expect glasses growth to offset the dilutive effects of contacts and eye exam growth. Shifting gears to SG&A. As a reminder, SG&A for our business includes three main components, salary expense for our headquarters, customer experience, and retail employees, marketing spend, including our home try-on program, and general corporate overhead expenses. Adjusted SG&A excludes non-cash costs like stock-based compensation.

Speaker Change: All in all we're pleased with our gross margin in Q1, and we continue to have confidence in our ability to consistently deliver mid <unk> gross margin. This year as we expect glass's growth to offset the dilutive effects of contacts and eye exam growth.

Steve Miller: Adjusted SG&A in the first quarter came in at $103.4 million, or 51.7% of revenue. This compares to Q1 2023 adjusted SG&A of $87.2 million, or 50.7% of revenue. The primary source of de-leverage in the quarter was marketing spend increasing as a percent of revenue from 11.7% to 12.4%, while non-marketing SG&A remained flat as a percent of revenue at approximately 39%. In addition, we also saw natural increases in retail salaries as we expanded our store base, as well as investments in fully integrating our new ERP system, which we anticipate will begin to moderate in Q2 and the rest of the year.

Speaker Change: Shifting gears to SG&A.

Speaker Change: As a reminder, SG&A for our business includes three main components salary expense for our headquarters customer experience in retail employees marketing spend including our home try on program and general corporate overhead expenses adjusted SG&A excludes the noncash costs like stock based compensation expense.

Speaker Change: Adjusted SG&A in the first quarter came in at $103 4 million or 51, 7% of revenue. This.

Speaker Change: This compares to Q1 2023, adjusted SG&A of $87 2 million or 57% of revenue.

Speaker Change: The primary source of deleverage in the quarter was marketing spend increasing as a percentage of revenue from 11, 7% to 12, 4%, while non marketing SG&A remained flat as a percent of revenue at approximately 39%.

Speaker Change: In addition, we also saw natural increases in retail salaries as we expanded our store base as well as investments and fully integrating our new ERP system, which we anticipate will begin to moderate in Q2 and the rest of the year.

Steve Miller: As a reminder, this year we expect to keep marketing spend in the low teens as a percent of revenue. Marketing spend for the quarter came in at $24.9 million, or 12.4% of revenue. This is up from $20.1 million and 11.7% of revenue in the same period last year. Turning now to Adjust-A-Deed-A-Doe.

Speaker Change: As a reminder, this year, we expect to keep marketing spend in the low teens as a percent of revenue marketing spend for the quarter came in at $24 9 million or 12, 4% of revenue. This is up from $20 1 million and 11, 7% of revenue in the same period last year.

Speaker Change: Turning now to adjusted EBITDA.

Steve Miller: In the first quarter, we generated adjusted EBITDA of $22.4 million, representing an adjusted EBITDA margin of 11.2%, which compares to adjusted EBITDA of $17.7 million, or 10.3% of revenue in the year-ago period. Turning now to our balance sheet. We were free cash flow positive for the fourth consecutive quarter and ended with a strong balance sheet position reflecting approximately $220 million in cash, which we will continue to deploy deliberately to support our growth and operations. We also have an undrawn credit facility of $120 million that we can increase to $175 million.

Speaker Change: In the first quarter, we generated adjusted EBITDA of $22 4 million, representing an adjusted EBITDA margin of 11, 2%, which compares to adjusted EBITDA of $17 7 million or 10, 3% of revenue in the year ago period.

Speaker Change: Turning now to our balance sheet.

Speaker Change: We were free cash flow positive for the fourth consecutive quarter and ended with a strong balance sheet position, reflecting approximately $220 million in cash, which we will continue to deploy deliberately to support our growth and operations. We also have an undrawn credit facility of $120 million that we can increase to 100.

Speaker Change: $75 million.

Steve Miller: Now to our outlook. We are encouraged by our momentum year to date, but we are still maintaining a conservative stance in guiding our business given the broader macroeconomic environment. Given our performance in Q1, we're revising our full year 2024 guidance higher to the following: revenue of $753 to $761 million, representing approximately 12.5% to 13.5% year-over-year growth. Adjusted EBITDA of $70 million at the midpoint of our revenue range, which equals an adjusted EBITDA margin of 9.2%.

Speaker Change: Now to our outlook, we are encouraged by our momentum year to date.

Speaker Change: But we still are maintaining a conservative stance on guiding our business given the broader macroeconomic environment.

Speaker Change: Given our performance in Q1, we're revising our full year 2024 guidance higher to the following.

Speaker Change: Revenue of $753 million to $761 million, representing approximately 12, 5% to 13, 5% year over year growth <unk>.

Speaker Change: Adjusted EBITDA of $70 million at the midpoint of our revenue range, which equals an adjusted EBITDA margin of nine 2%.

Steve Miller: Stability and gross margin in the mid-50s as a percent of revenue, consistent with last year, and 40 new stores. We anticipate adjusted EBITDA margin expansion over the remainder of the year will be driven more by leverage within SG&A as new stores ramp up, as we see marketing spend consistent as a percent of revenue, and as we leverage our corporate expense overhead. As a reminder, because of the brand campaign in Q3 last year, we anticipate this year's Q3 will be more profitable than Q2.

Stability in gross margin in the mid fifties as a percent of revenue consistent with last year.

Speaker Change: And 40, new store openings.

Speaker Change: We anticipate adjusted EBITDA margin expansion over the remainder of the year will be driven more by leverage within SG&A as new stores ramp.

Speaker Change: As we see marketing spend consistent as a percent of revenue and as we leverage our corporate expense overhead.

Speaker Change: As a reminder, because of the brand campaign in Q3 last year. We anticipate this year's Q3 will be more profitable than Q2.

Steve Miller: We anticipate gross margin closer to the mid-50s, in line with our full year guidance. We plan to continue to drive growth from both contacts and eye exams and offset the dilutive impact of these offerings by continuing to scale our glasses business, as well as efficiencies achieved through our in-house optical lab. We also expect to see lower year-over-year growth from some of the more fixed components of our COGS stack, including optometrist salaries and store rent.

Speaker Change: We anticipate gross margin closer to the mid fifties in line with our full year guidance. We plan to continue to drive growth from both contacts and eye exams and offset the dilutive impact of these offerings by continuing to scale, our glasses business as well as efficiencies achieved through our in house optical labs.

Speaker Change: We also expect to see lower year over year growth from some of the more fixed components of our Cogs stack, including optometrists salaries and store rents.

Steve Miller: We're still forecasting stock-based compensation as a percentage of net revenue in 2024 to be approximately 6% compared with 10.5% in 2023. However, stock-based compensation for both periods 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 next year. For Q2 2024, we're guiding to the following. Revenue was between $185 and $187 million, which represents growth of approximately 11.5 to 12.5% year-over-year.

Speaker Change: We're still forecasting stock based compensation as a percentage of net revenue in 2024 to be approximately 6% compared with 10, 5% in 2023.

Speaker Change: Stock based compensation for both periods 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 next year.

Speaker Change: For Q2 2024, we're guiding to the following <unk>.

Speaker Change: Revenue between $185 and $187 million, which represents growth of approximately 11, five to 12, 5% year over year.

Steve Miller: Quarter to date, we've observed 101% productivity in our retail stores versus the same period last year. As we've seen more consistency in our business across channels, we do not plan to share interquarter metrics going forward. Our quarterly guidance reflects our outlook for retail productivity and e-commerce in the relevant period. From a bottom line perspective, in Q2 2024, we're guiding to adjust to EBITDA of approximately $17 million, representing a margin of 9.1% at the midpoint of our range.

Speaker Change: Quarter to date, we have observed 101% productivity in our retail stores versus the same period last year.

Speaker Change: As we've seen more consistency in our business across channels, we do not plan to share intra quarter metrics going forward, our quarterly guidance reflects our outlook for retail productivity and e-commerce and the relevant period.

Speaker Change: From a bottomline perspective in Q2 2024, we're guiding to adjusted EBITDA of approximately $17 million, representing a margin of nine 1% at the midpoint of our range.

Operator: Thank you again for joining us this morning. With that, Neil, Dave, and I are pleased to take your questions. Operator, please open the line for Q&A.

Speaker Change: Thank you again for joining us this morning with that Neil Dave and I are pleased to take your questions. Operator. Please open the line for Q&A.

Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask another question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question, and please do ensure that you are unmuted locally. Our first question today comes from Oliver Chen from TD Cowan. Please go ahead; your line is now open.

Speaker Change: Thank you.

Speaker Change: I would like to ask a question. Please press star followed by one on your telephone keypad.

Speaker Change: Any reason you would like to terminate that question. Please press star followed by.

Speaker Change: Again to ask a question. Please press star followed by one as a reminder, 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 muted locally.

Our first question today comes from the line of Oliver Chen from TD Cowen. Please go ahead. Your line is now open.

Neil Harris Blumenthal: Hi Neil, David, and Steve. The active customer growth momentum is quite impressive and attractive. What do you see happening there longer term in terms of your longer term target growth rate of active customer growth? And then in your comments, you call out macro, and we're seeing a bifurcated customer, generally, in terms of the health of the consumer, but you also call that more consistency. We'd love your thoughts on traffic, traffic trends you're seeing, and if the consumer is still being very considered and how that may or may not interplay with what you're thinking about, price points.

Oliver Chen: Hi, Neil David and Steve.

Oliver Chen: The active customer growth momentum is quite quite.

Oliver Chen: Quite impressive and attractive what do you see happening there longer term in terms of your longer term target growth rate of active customer growth.

Oliver Chen: And then on your comments.

Speaker Change: Call it macro and we're seeing a bifurcated customer generally in terms of the health of the consumer but you also called out more consistency would love your thoughts on traffic.

Traffic trends youre seeing and if the consumer.

Speaker Change: Phil I think very considered and how that may or may not play with whats youre thinking about.

Neil Harris Blumenthal: And lastly, you gave a lot of great ingredients, Steve, on fixed versus variable. What are the rough fixed versus variable mixes? And as you think longer term, what are you most excited about in terms of margin expansion? Thank you.

Speaker Change: Price points.

And lastly, you gave a lot of great ingredients, Steve on fixed versus variable.

Speaker Change: What are the rough fixed or variable mixes and as you think longer term.

Speaker Change: What are you most excited about in terms of margin expansion. Thank you.

Speaker Change: Okay.

Neil Harris Blumenthal: Thanks, Oliver. This is Neil.

Speaker Change: Thanks, Oliver this is Neal.

Speaker Change: An active customer growth.

Speaker Change: We continue to see.

Speaker Change: Improvement there and we've been seeing that for a while particularly as we think about sort of the imperial metric as a reminder, what we share publicly it's a trailing 12 month metric.

Neil Harris Blumenthal: On active customer growth, we continue to see improvement there, and we've been seeing that for a while, particularly as we think about sort of the in-period metric. As a reminder, what we share publicly is a trailing 12-month metric that still includes periods where we pulled back significantly on marketing when we saw slowing demand during periods last year. So, we anticipate that our active customer growth will continue to increase. We're also continuing to deploy more capital towards customer acquisitions across more diverse channels and are finding success.

Speaker Change: <unk>.

Speaker Change: Still includes periods, where we pulled back significantly in marketing when we saw slowing demand during period last year.

Speaker Change: So we anticipate that our active customer growth will continue to increase we're also continuing to deploy more capital towards customer acquisitions across more diverse channels and are finding success, we continue to invest with discipline.

Neil Harris Blumenthal: We continue to invest with discipline to ensure that we're getting the returns that we'd like. We continue to see really strong customer lifetime value, as you see in our slides, related to sales retention rates. So, we're pretty excited about what we're seeing with respect to what we have control over, right, the deployment of marketing resources. That being said, your next question about the macro, we are seeing some sort of more consistency, we'd say, sort of month to month, but still, we tend to be in the best retail centers across the country, and traffic still hasn't sort of rebounded to what we'd.., would have expected at this point.

Speaker Change: Ensure that.

Speaker Change: We're getting the returns that we like we continue to see really strong customer lifetime value as you see in.

Speaker Change: Our slides related to sales retention rate.

Speaker Change: So.

Speaker Change: We're pretty excited about what we're seeing.

Speaker Change: With respect to what we have control over the deployment of marketing resources that being said next question about the macro.

Speaker Change: We are seeing sort of more consistency.

Speaker Change: They sort of month to month, but still.

Speaker Change: We tend to be in the best retail centers across the country and traffic is still hasn't sort of rebounded to what we had.

Speaker Change: Would have expected at this point.

Neil Harris Blumenthal: So, and if we think about the broader optical category, it still has not returned to normalcy. But as a business, we're gonna continue to stay focused on what we can control, which is sort of marketing, for managing our expense base so we can continue to grow, acquire customers while expanding profitability. And that's sort of the mantra here at Warby, irrespective of the macro; we're gonna gain market share and grow sustainably

Speaker Change: So and if we think about the broader optical category.

Speaker Change: Still has not returned to normalcy.

Speaker Change: As a business we're going to continue to stay focused on what we can control which is.

Speaker Change: Marketing.

Speaker Change: So managing our expense base. So we can continue to grow acquire customers while expanding profitability.

Speaker Change: And that's sort of the mantra here at war be irrespective of the macro we're going to gain market share and grow sustainably.

Steve Miller: Thanks for your question on margin, Oliver. The color that we've given in terms of fixed versus variable, particularly as it relates to gross margin, is that approximately 60% of our costs are variable, and that's a good number to stick with for now.

Speaker Change: Thanks for your question on the margin Oliver the color that we've given in terms of fixed versus variable, particularly as it relates to gross margin is approximately 60% of our costs are variable and that's a good number to stick with for now.

Steve Miller: We're excited to take up our full-year adjusted EBITDA number and margin, so that adjusted EBITDA margin is increasing 130 basis points year-over-year, and we're excited to add that to the full year based on the strong performance we saw in Q1. In terms of what we're most excited about that will continue to drive margin, so one, we saw it in Q1, is an acceleration in glass growth. Glasses, as a reminder, is our highest-margin product category, and in particular, progressives, and our new precision progressive lens, in particular, are driving really strong gross margin and gross profit dollars.

Speaker Change: We're excited to take up our full year adjusted EBITDA number and margin. So that adjusted EBITDA margin is increasing 130 basis points year over year.

Speaker Change: Excited to add that to the full year based on the strong performance. We saw in Q1 in terms of what we're most excited about that will continue to drive margins. So one we saw in Q1 and acceleration in glass's growth glasses. As a reminder, is our highest margin product category and in particular progressives.

Speaker Change: And our new precision progressive lens in particular is driving really strong gross margin and gross profit dollars.

Speaker Change: We also plan to maintain marketing intensity, that's marketing as a percent of revenue in the low teens at around 12% of revenue and we plan to be disciplined as we deploy marketing spend.

Speaker Change: We also expect to see continued margin improvement as we ramp new store productivity and as we achieve labor efficiencies and higher eye exam utilization at our newer eye exam stores. As a reminder, we've added approximately 50 eye exam locations over the past year.

Steve Miller: It's critical for us to be able to serve the customer, but it also takes some time for eye exam offerings to ramp. And lastly, just maintaining discipline with and leveraging our corporate expense base. We're adding very selectively to corporate expenses, and we'll continue to see that as a source of leverage over time.

Speaker Change: Thats.

Speaker Change: Critical for us to be able to serve the customer but it also takes some time or eye exam offerings to ramp and lastly is just maintaining discipline with and leveraging our corporate expense base and we are adding very selectively to corporate expenses and we'll continue to see that as a source of leverage over time.

Operator: Thanks very much. Very helpful. Best regards.

Speaker Change: Thank you very much very helpful Best regards.

Operator: Thank you. Our next question today comes from the line of Dana Telsey from the Telsey Group. Please go ahead; your line is now open.

Speaker Change: Thank you.

Speaker Change: Our next question today comes from the line of.

Speaker Change: Dana Telsey from Telsey Group. Please go ahead. Your line is now open.

David Abraham Gilboa: Hi, good morning, everyone, and nice to see the progress on the results. With the glasses penetration, it seems like it's moving higher and being higher margin. The drivers of the glasses penetration, is it the newness of the product, and are you seeing higher prices also, and what are you seeing from the customer base? New customers online versus in-store? And then lastly, Steve, you mentioned that obviously you'll no longer be giving guidance on some of those store metrics that you mentioned. On new markets versus existing, on terms of where you're opening this year, has anything changed, and has anything changed in how you're looking at the productivity profile of store openings? Thank you.

Dana Lauren Telsey: Hi, good morning, everyone and nice to see the progress on the results with the glasses penetration it seems like moving higher and being higher margin. The drivers of the glasses penetration is it the newness in the product.

Dana Lauren Telsey: Are you seeing higher prices also and what are you seeing from the customer base, new customers online versus in store and then lastly, Steve you mentioned that obviously I'm no longer be giving guidance on some of those store metrics that you mentioned on new markets versus existing in terms of where you are opening this year.

Dana Lauren Telsey: Anything changed and has anything changed in how you're looking on the productivity profile of store openings. Thank you.

Dana Lauren Telsey: Okay.

David Abraham Gilboa: Thanks, Dana. In terms of Glasses, it really comes from great execution from multiple parts of our business, starting from our team designing and bringing to life beautiful and innovative products, to continuing to open stores that are conveniently located for our customer base, to strong execution on the marketing and customer acquisition front, as Neil was mentioning, and to all the investments that we have been making over the last few years to deliver great products and accessible experiences for customers are paying off, and our marketing messages are responding

Speaker Change: Thanks Dana.

Speaker Change: In terms of glasses.

Speaker Change: It really comes from great execution from multiple parts of our business are starting.

Speaker Change: For my team.

Speaker Change: Designing and.

Speaker Change: Bringing to life beautiful and innovative products.

Speaker Change: To continue to open stores, where.

Speaker Change: Another conveniently located.

Speaker Change: For our customer base.

Speaker Change: Two strong execution on the marketing and customer acquisition.

Speaker Change: As Neil was mentioning.

Speaker Change: And third.

Speaker Change: All of the investments that we have been making.

Speaker Change: Over the last few years to deliver.

Speaker Change: <unk> products.

Speaker Change: Accessible experiences for customers.

Speaker Change: Sure.

David Abraham Gilboa: And we're seeing strong adoption of our newer products, ranging from precision progressives, as Steve mentioned, to new collections at a variety of price points, including some of our higher priced collections, $145, $175, and $195. In terms of where we're generating new customers from, we continue to see that our stores are the primary way that our customers are engaging with Warby Parker, and we are seeing strong results from our stores. We saw our retail revenue grow over 24% year over year, while our store base increased 20%. And so, even as many of those new stores are ramping up, we are seeing really strong performance in retail and continue to see the majority of our customers and the majority of new customers come from those stores.

Speaker Change: <unk> are delivering and our marketing messages are resonating.

Speaker Change: And we're seeing strong adoption of our newer products ranging from precision progressive as Steve mentioned.

Speaker Change: Two new collections at a variety of price points.

Speaker Change: <unk> some of our higher priced collections 140 575 to $195.

Speaker Change: In terms of where we're generating new customers from we continue to see that our stores.

Speaker Change: The primary way that our customers are.

Speaker Change: Engaging with.

Speaker Change: Or be Parker and are seeing strong results from our stores, we saw our retail revenue grow over 24% year over year.

Speaker Change: Our store base increased 20%.

Speaker Change: Even as many of those new stores are ramping.

Speaker Change: Are seeing really strong performance out of retail and continue to see the majority of our customers inventory of new customers.

Speaker Change: Come from the stores.

Steve Miller: And Dana, for your question as it relates to the productivity of stores in new markets versus existing markets, we're seeing a lot of consistency in productivity, whether it's a greenfield new market or whether we're expanding an existing market. In 2023, as a reminder, we opened up stores in 17 new markets and 17 existing markets. We're very pleased with the productivity curve we're seeing in those new markets opened in 2020.

Speaker Change: And Dana for you as it relates to the productivity productivity of stores in new markets versus existing markets. We're seeing a lot of consistency in product activity, whether it's a greenfield new market or whether we're expanding an existing <unk>.

Dana Lauren Telsey: In 2023 as a reminder, we open up stores and 17, new markets and 17 existing markets.

Dana Lauren Telsey: We're very pleased with the productivity curve, we're seeing in those new markets opened in 2023 and the numbers that we talked about earlier in terms of average revenue per store of $2 2 million 20 month paybacks.

Operator: And the numbers that we talked about earlier in terms of average revenue per store of 2.2 million, 20-month paybacks, and a path to achieving 35% forewall margins within 24 months, usually sooner than that. We're seeing both within our existing markets and within our new markets. We also talked about the majority of our stores already having paid back from our 2022 cohort. And as a reminder, in 2022, we opened up stores in just five new markets, and across those five new markets, we're seeing a very consistent performance across the dimensions that we talked about. Thank you. Our next question today comes from the line of Mark Altschwager from Baird. Please go ahead; your line is

Dana Lauren Telsey: And a path to achieving 35% four wall margins within 24 months, usually sooner than that we're seeing both within our existing markets and within our new markets. We also talked about.

Dana Lauren Telsey: The majority of our stores already having paid back from our 2022 cohort.

Dana Lauren Telsey: And as a reminder, in 2022, we opened up.

Dana Lauren Telsey: Doors in just five new markets and across those five new markets, we're seeing very consistent performance across the dimensions that we talked about.

Speaker Change: Thank you.

Operator: Our next question today comes from the line of Mark Altschwager from Baird. Please go ahead; your line is now open.

Operator: Store productivity question. We typically see that number fluctuate over the course of the quarter. When we talked about that number in February, it was closer to 106%. And the large reason for that was because we were comping against a period when we had bad weather and some easier comps. We also had some fluctuation in that number over the course of Q1, given some bad weather in early January, which normalized. So the 102% number is more in line with the intra-quarter visibility that we've given on previous calls. And we view that as a positive indicator of the performance of our store fleet this year compared to last year. Thanks for watching! and Mark.

Speaker Change: Our next question today comes from the line of Mark our Sugar from Baird. Please go ahead. Your line is now open.

Speaker Change: Good morning, This is Amy <unk> on for Mark.

Amy: <unk> you noted that productivity trends are 100% in the quarter, which implies a moderation from where you were tracking at the end of February. So I was hoping you could speak to some of those trends through the quarter and then second if you could comment on learnings from your recent marketing investments. It seems like the eclipse glasses campaign really drove a lot of buzz. So wondering if youre seeing any dirt.

Amy: Correct correlation to new customer acquisition yet.

Amy: Store productivity question.

Amy: We typically see that number fluctuate over the course of the quarter when we talked about that number.

Amy: In February it was closer to 106% and the large reason for that was because we were comping against the period, where we had bad weather and some easier comps. We also had some <unk>.

Amy: Fluctuation in that number over the course of Q1, given some bad weather in early January which normalized so the 102% number is more in line with the intra quarter visibility that we've given on previous calls and we view that as a positive indicator of the performance of our store fleet. This year.

Amy: Versus last year.

Neil Harris Blumenthal: On the marketing front, we did see the solar eclipse activation really drive a lot of traffic and sales, some within Q1 and then some into Q2. It actually drove our highest retail traffic week ever. We were distributing hundreds of thousands of these solar eclipse viewers. And this comes from sort of a tradition at Warby to do fun things to engage the community and our customers. So we first celebrated the Solar Eclipse back in 2017 and included a big black party in front of our store in Nashville, which was in the path of totality. And we took those learnings and applied them to the great North American eclipse on April 8th.

Amy: On the marketing front.

Amy: We did see.

Amy: Solar eclipse activation really drive a lot of traffic and sales.

Amy: Some within Q1 and then.

Amy: Some into Q2.

Amy: Actually drew.

Amy: Our highest retail traffic week ever we were distributing hundreds of thousands of these are cliffs viewers.

Amy: Comes from sort of a tradition at or B to do fun things to engage the community and our customers. So we first celebrated solar eclipse back in 2017 and that included a big block party in front of our store in Nashville that within the path of totality and we took those learnings.

Amy: Apply that to the great North American cuts on April eight.

Neil Harris Blumenthal: Also, in the past, we had the Warby Parker class trip, where we purchased an old yellow school bus, took out the seats, replaced those with oak shelving, and basically had a mobile store that traveled across the country. So, we share these as examples of some of our brand marketing initiatives that you'll see us continue to engage with over the course of the year and next year, as marketing spend has now sort of normalized.

Amy: Also in the past.

Amy: Had the watery Parker class trip, where we purchased an old yellow school bus.

Amy: Took out the seats or replace those with shell.

Amy: <unk> and <unk>.

Amy: So they had a mobile store that traveled across the country.

Amy: So.

Amy: We share these as examples of some of our brand marketing initiatives that Youll see us continue to.

Amy: Engage.

Amy: With that over the course of the year and next year.

Amy: As <unk>.

Amy: Marketing spend has now sort of normalized.

Neil Harris Blumenthal: We've also been able to sort of diversify the channels across linear and streaming, paid social, direct mail, creators, and influencers, and we're finding that this diversified approach is leading to stable acquisition costs that give us confidence in our ability to continue to drive customer growth. Thank you. The next question today comes from...

Amy: <unk> also been able to sort of diversify the channels.

Amy: Across linear and streaming paid social direct mail creator influencer.

Amy: We're finding that this diversified approach is leading to stable.

Amy: Acquisition costs that give us confidence in our ability to continue to drive customer growth.

Speaker Change: Thank you.

Operator: The next question today comes from the line of Mark Mahaney from Evercore. Please go ahead; your line is now open. Hey, thanks, and congrats on the customer momentum.

Speaker Change: The next question today comes from the line of Mark Mahaney from Evercore. Please go ahead. Your line is now open.

David Abraham Gilboa: Thanks, Mark. Yeah, we continue to make good progress on the insurance front. The partnership that we announced last quarter with Versant MetLife, the integration there is on track. We launched a very small pilot earlier this month, but the vast majority of those lives will be integrated into the coming months, and we expect that the incremental 15 and a half million lives will be able to use their in-network benefits by the end of the year.

Mark Stephen F. Mahaney: Hey, Thanks, and congrats on the customer momentum I wanted to ask about insurance channels. So can you just bring us up to date on where you are in terms of.

Mark Stephen F. Mahaney: Being able to access more customers through those channels getting more coverage. Thanks a lot.

David Abraham Gilboa: I should note that we haven't included contribution from this partnership in our guidance, given that those lives are not integrated just yet. And then we continue to see positive trends from our existing insurance relationships with increasing utilization over time, as employees understand that they can use their in-network benefits with Warby Parker. We find that awareness grows the longer those relationships are in place, and we also believe that the investments that we've been making to scale our business, and in particular, continuing to open stores across the country, and continuing to hire lots of eye doctors, make us a natural and attractive partner to other insurance carriers, and we are excited to make progress there, and in particular, are excited to welcome lots of new Versant MetLife members to Warby Parker later this year. Thank you very much. The next question today comes from the line of...

Speaker Change: Thanks Mark.

Metlife: Yes, we continue to make good progress on the insurance front, the partnership that we announced last quarter with Metlife.

Metlife: The integration there is on track.

Speaker Change: Launched a very small pilot earlier this month.

Speaker Change: But the vast majority of those lives.

Speaker Change: It will be integrated in the coming months and we expect that the.

Speaker Change: The incremental $15 5 million lives will be able to use their in network benefit.

Speaker Change: By the end of the year I should note that we haven't included contribution from this partnership into our guidance given that those lines or not.

Speaker Change: Integrated just yet.

Speaker Change: And then we continue to see positive trends from our existing insurance relationships with.

Speaker Change: With increasing utilization over time.

Speaker Change: As employees.

Speaker Change: Understand that they can use their in network benefits.

Speaker Change: With war be Parker.

Speaker Change: <unk>.

Speaker Change: We find that kind of awareness grows.

Speaker Change: The longer those relationships arent in place and continue to see strong utilization trends.

Speaker Change: And we also believe that the investments that we've been making to scale our business in particular.

Speaker Change: To open stores across the country continuing to hire lots of eye doctors.

Speaker Change: Make us a natural and attractive partners.

Speaker Change: Other insurance carriers.

Speaker Change: We are excited to make progress there and.

Speaker Change: And in particular.

Speaker Change: Alright.

Speaker Change: Welcome lots of new Versant Metlife.

Speaker Change: <unk>.

Speaker Change: To where be Parker.

Speaker Change: Later this year.

Parker: Thank you very much.

Speaker Change: Okay.

Operator: The next question today comes from the line of Janine Stichter from BTIG. Please go ahead; your line is now open.

Speaker Change: The next question today comes from the line of Jeanine Streater from BTG. Please go ahead. Your line is now open.

Janine Marie Hoffman Stichter: Hi, Thanks for taking my question a question for Steve wanted to ask about the gross margin guidance in the mid <unk>.

Janine Marie Hoffman Stichter: I think think about the range of outcomes. There. If we continue to see the glass is off right outperform and then also I was just looking for an update on and start Hello, Albert I think you launched last year at any initial learnings from those test. Thank you.

Steve Miller: Thanks, Janine. I'll address the question on glass and gross margin and then turn it over to Neil and Dave for an update on what we're doing in telehealth. So we're still very comfortable with the guidance that we've given to be in the mid-50s from a gross margin perspective. And we're very pleased with the leverage that we saw in Q1, driven by the acceleration of glass growth. We are still operating in a dynamic macro environment with a level of uncertainty that still persists for the optical industry.

Albert: Thanks, Janine I'll address the question on glass on gross margin and then turn it over to Neil and Dave for an update on what we're doing in telehealth. So we're still very comfortable with the guidance that we've given to be in the mid <unk> from a gross margin perspective, we're very pleased with the leverage that.

Albert: We saw in Q1, driven by the acceleration of Glass's growth.

Albert: We are still operating in a dynamic macro environment with the level of uncertainty that still persists for the optical industry, we are growing faster than others in our category and taking share which gives us optimism, but at the same time as we project our business for the remainder of the year, we still want to maintain a thoughtful and prudent stance.

Steve Miller: We are growing faster than others in our category in taking share, which gives us optimism, but at the same time, as we project our business for the remainder of the year, we still want to maintain thoughtful and prudent stance as it relates to the growth of glasses and the recovery of that category. We are still seeing very strong momentum in growth as it relates to contacts and eye exams, and so we could potentially see those two categories make up a greater portion of our product mix in Q2 to Q4.

Albert: As it relates to the growth of glasses and the recovery of that category. We are still seeing very strong momentum and growth as it relates to contacts and eye exams and so as we potentially see those two categories make up a greater portion of our product mix in Q2 to Q4, we are still maintaining a conservative approach is.

Steve Miller: We are still maintaining a conservative approach as to how we're modeling gross margin. It's still in the mid-50s, assuming the glass margin persists. It could be on the higher end of that range. But for now, I think we want to be thoughtful and maintain a very consistent level of guidance, as we did last year, to be within the mid-50s and perhaps toward the lower end of that range, depending on the ultimate mix we see glasses, contacts, and exams, the remainder of the

Albert: How we're modeling gross margin it is still in the mid fifties, assuming glasses margin persists it could be on the higher end of that range, but for now.

Albert: I think we want to be thoughtful and maintain a very consistent level of guidance as we did last year to be within the mid fifties, perhaps towards the lower end of that range, depending on the ultimate mix, we see glasses contacts and exams the remainder of the year.

Neil Harris Blumenthal: One other thought on gross margin is that we tend to see it highest in Q1 thanks to some of the revenue deferral from Q4 and into Q1 coming out of the FSA season at the very end of the year. That being said, we continue to have great leverage of the fixed costs of COGS thanks to our retail growth and our e-commerce channels returning to growth. And we've always maintained that we have significant opportunities to gain leverage over those fixed costs.

Albert: One other thought on gross margin is that we tend to see a highest in Q1 and things that some of the revenue deferrals from Q4 into Q1 coming out of the FSA season at the very end of the year.

Albert: That being said, we continue to have great leverage of the fixed cost of Cogs. Thanks to.

Albert: Our retail growth in our ecommerce channel sort of returning to growth and we've always sort of maintain that we have.

Albert: Significant opportunities to gain leverage over those fixed costs.

Neil Harris Blumenthal: One of those fixed costs is our investment in our eye exam business, particularly, you know, our doctor salaries. As you mentioned, we are continuing to invest in telehealth, and we view this as a way to supplement our in-person doctors and provide more availability and convenience to our customers and patients. As we have an in-person doctor, we may be able to have broader hours, thanks to telehealth. So you'll see us continue to expand the pilots on video-assisted eye exams that we currently have. But the biggest impact will likely be next year as that gets scaled and we continue to sort of invest in that area of our eye exam.

Albert: One of those fixed costs.

Albert: <unk>.

Albert: Our investment in our eye exam business, particularly.

Albert: Doctor salaries.

Albert: As you mentioned, we are continuing to invest in telehealth and we view this as a way to supplement our in person doctors and provide more availability and convenience.

Albert: To our customers and patients.

Albert: As we have an in person doctor, we may be able to have.

Albert: Broader hours, thanks to <unk>.

Albert: Telehealth, so youll see us continue to expand the pilots on video assisted eye exams that we currently have.

Albert: But the biggest impact will likely be next year at that gets.

Albert: The scale that we continue to invest in that area of our eye exam business.

Operator: Great, thanks much for all the calls. The next question today comes from the line of Dylan Carden from William Blair. Please go ahead. Your line is now open. Thanks a lot.

Speaker Change: Great. Thanks for all the color.

Operator: The next question today comes from the line of Dylan Carden from William Blair. Please go ahead. Your line is now open. Thanks a lot. I'm just curious how you think about the comments.

Albert: The next question today comes from the line of Dylan Carden from William Blair. Please go ahead. Your line is now open.

David Abraham Gilboa: Yes, so overall, we continue to see that our stores with doctors drive higher levels of sales. And so we've been excited to expand our doctor network and onboard new doctors into kind of all of our new stores in addition to adding doctors to some of our existing stores. There is a ramp-up period, as you noted.

Dylan Carden: Thanks, a lot.

Dylan Carden: Just curious.

Dylan Carden: How do you think about the comp lift from new Doctor availability.

Dylan Carden: And is there sort of incremental marketing that you are putting towards that kind of grow awareness I. Appreciate theres, a lag time, just sort of given the purchase cycle and then if I missed it apologies, but any color between sort of growth by channel as you think about the second and full year guidance revenue.

Dylan Carden: Yes.

Dylan Carden: Okay.

Dylan Carden: Yes.

Dylan Carden: Overall, we continue to see that our stores with doctors drives.

Dylan Carden: Higher level of sales and zone.

Dylan Carden: We've been excited to expand our Doctor network in.

Dylan Carden: In <unk>.

Dylan Carden: And on board new doctors.

Dylan Carden: And all of our new stores.

Dylan Carden: In addition to adding doctors to some of our existing stores.

Dylan Carden: There is a ramp up period as you noted and.

David Abraham Gilboa: And there is a big opportunity for us to drive more awareness that we offer exams and that we have doctors conveniently located across the country. We find that even with some of our longstanding customers who have bought multiple glasses from us online, they're not aware that we have stores that are now conveniently located in their city. and there's even less awareness that we have eye exams. And so our team has been focusing on leveraging our increased media investment to drive home some of those messages, whether that's through TV commercials or direct mail campaigns within a certain radius where we're opening new stores or have brought on new doctors. And so we're excited to continue to build momentum there.

Dylan Carden: And.

Dylan Carden: There is.

Dylan Carden: A big opportunity for us to drive more awareness.

Dylan Carden: That we offer exams and that we have doctors conveniently located across the country, we find that.

Dylan Carden: Even with some of our long standing customers, who have bought multiple classes from us online.

Dylan Carden: But they are not aware that we have.

Dylan Carden: Our stores that are.

Dylan Carden: Now conveniently located in their cities and.

Dylan Carden: And there is even less awareness that we have eye exams and so our team has been focusing on.

Dylan Carden: Leveraging our increased media investment to drive some.

Dylan Carden: Some of those messages, whether thats through TV commercials or.

Dylan Carden: Direct mail campaigns.

Dylan Carden: Certain radius, where we're opening new stores or have brought on new doctors.

Dylan Carden: So we're excited to continue to.

David Abraham Gilboa: We also believe that as more customers are able to use their in-network benefits, that will also help increase doctor utilization over time. And in terms of our channel growth, we know that we continue to see the majority of our growth driven from retail. We have seen an influx of e-com traffic positively over the last few months here, but we are still projecting, still guiding to low single-digit growth for e-com for the remainder of the year

Dylan Carden: To build momentum there. We also believe that as more customers are able to use their in network benefits that will also help increase Dr utilization over time.

Dylan Carden: And in terms of.

Dylan Carden: <unk>.

Dylan Carden: Our channel growth.

Dylan Carden: We continue to see the majority of our growth driven from from retail.

Dylan Carden: We have seen E com in flex.

Dylan Carden: Positively.

Dylan Carden: Over the last few months here.

Dylan Carden: But still projecting.

Dylan Carden: So guiding to low single digit growth.

Dylan Carden: For for E com for the remainder of the year.

Speaker Change: Thank you.

Operator: Our next question today comes from the line of Brooke Roach from Goldman Sachs. Please go ahead; your line is now open.

Speaker Change: Our next question today comes from the line of road shrink Goldman Sachs. Please go ahead. Your line is now open.

Operator: Hey, everyone. This is Evan Dorschner for Brooke. Thanks for taking our question. I guess first, just a follow up on Mark's question earlier regarding insurance. Are you seeing any differences in trends between in-network customers and out-of-network customers and just how they shop? And then separately, could you just talk a little bit more about e-commerce trends? And I may just mention that they are still guiding low single-digit growth for the year. What's it going to take to drive an even further acceleration on things reflected in this quarter, especially as you start to lap lower marketing spend last year?

Road Shrink: Everyone uses of <unk> on for Brooks, Thanks for taking my question.

Road Shrink: I guess first just a follow up Mark's question earlier regarding insurance.

Speaker Change: Are you seeing any differences in trend between in network customers are out of network customers.

Speaker Change: How they shop.

Speaker Change: Then separately.

Speaker Change: Could you just talk a little bit more about e-commerce trends.

Speaker Change: You just mentioned still guiding to low single digit growth for the year.

David Abraham Gilboa: So on the insurance front, we tend to find that customers who use their in-network benefits at Warby tend to be some of our best customers. They tend to spend a bit more both for their initial purchase and over time. And so we're excited to expand that population. The majority of our customers do have vision insurance; 60 percent of people who shop with us have vision insurance. Some of those people are leveraging their benefits, and others just know that they're getting great value with us.

David Abraham Gilboa: But we are excited to make it even easier for people to get value out of those benefits, both in-network and out of network. And then, as it relates to EECOM, we're seeing modest growth at this point, but it is a significant improvement when you compare it to where we were a year ago when EECOM was a drag on our overall business and was negatively impacting both revenue and gross margin. Our team has driven better trends, particularly in glasses.

Speaker Change: Uhm.

Speaker Change: And then as it relates to E. Com, we're seeing modest growth at this point, but it is a significant improvement when you compare to where we were a year ago. When he com was a drag on our overall business and was negatively impacting both revenue and gross margin.

Speaker Change: Our team has driven better trends, particularly in glasses, and we noted we still have a a headwind from pump try on as a diminishing portion of our overall sales and or e-commerce sales, but directly to classes purchases are growing nicely.

David Abraham Gilboa: And we noted we still have a headwind from home try-on as a diminishing portion of our overall sales and our e-commerce sales, but direct glasses purchases are growing nicely, and those direct glasses purchases enable us to serve customers faster. They're also higher-margin, so we're encouraged by that trend. We also find that a higher percentage of repeat purchases take place online. And so, as our overall installed base of customers grows, that will be a tailwind in addition to contact sales largely taking place online as well.

Speaker Change: And those are dry classes purchases enable us to serve customers faster, they're also higher margin, so where where encouraged by by that trend.

Speaker Change:

Speaker Change: We also find that a higher percentage of repeat purchases take place online and so as our overall installed base of customer grows that will be a tailwind. In addition to contact sales largely thing places online as well and so we continue to believe that E. Commerce is on the right track and we'll see.

David Abraham Gilboa: And so we continue to believe that e-commerce is on the right track and will continue to positively impact growth going forward. We are excited to continue to evolve our digital experience and introduce some digital features that will make shopping more fun and convenient across channels later this year.

Speaker Change: <unk> positively impact growth going forward and and are excited to continue.

Speaker Change: Continue to ball of our our digital experience and introduce Uhm digital.

Speaker Change: Digital features that will make shopping work on an inconvenient across channels later this year.

Operator: Great, super helpful, thank you.

Speaker Change: Great Super helpful. Thank you.

Operator: Thank you. This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.

Speaker Change: Thank you.

Speaker Change: Today's conference call. Thank you will feel participation you may now disconnect your lines.

Speaker Change: [music] [noise].