Q1 2025 Warby Parker Inc Earnings Call
Hello, and thank you for your patience. Today's Warby Parker, first quarter 2025 earnings call will begin in just a few moments of time.
Speaker Change: Today's call will be hosted by Jaclyn Berkley, Vice President of Investor Relations and if you would like to ask a question on today's call, please do press star followed by one on your telephone keypad. Once again, today's call will begin momentarily. Thank you for your patience.
Bailey: Hello and welcome to today's Warby Parker first quarter 2025 earnings call. My name is Bailey and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad.
Speaker Change: I now like to pass a conference over to Jaclyn Berkley, Vice President of Investor Relations. Peace go ahead when you're ready.
Jaclyn Berkley: Thank you and good morning everyone. Here with me today are Neil Blumenthal and Dave Gilboa are co-founders and co-CEOs alongside Steve Miller, Senior Vice President and Chief Financial Officer. Before we begin we have a couple of reminders.
Jaclyn Berkley: Our earnings release and slide presentation are available on our website at investors.warbyparker.com
Jaclyn Berkley: During this call and in our presentation, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties.
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 10K.
Jaclyn Berkley: These forward-looking statements are based on information as of May 8th, 2025, 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
Jaclyn Berkley: These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with U.S. gaps.
Jaclyn Berkley: A reconciliation of our non-GAAP measures to the most directly comparable US 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 it off.
Thanks, Jaclyn, and thank you all for joining us today.
Neil Blumenthal: Our team delivered a strong start to 2025 driven by continued progress against Warby Parker's strategic priorities.
Neil Blumenthal: We grew revenue 12% year-over-year, reflecting consistency in our two-year stock growth and delivered profitability above guidance, with an adjusted EBITDA margin of 13.1%.
Neil Blumenthal: Marking nearly 200 basis points of year-over-year expansion. We also reached a significant milestone by achieving our first quarter of positive gap net income as a public company.
Neil Blumenthal: This start to the year provides a solid foundation as we execute on our strategic initiatives for the remainder of the year and beyond.
Neil Blumenthal: Key to this is our continued focus on customers, both customer experience and customer acquisition.
Neil Blumenthal: We are pleased to have delivered seven straight quarters of accelerating active customer growth and we intend to build off this momentum while continuing to benefit from strong retention, high-value repeat purchasing and the power of our brand.
Neil Blumenthal: Looking at the remainder of the year, we plan to continue investing in marketing in the low teams as a percent of revenue, while leveraging sophisticated analytics to optimize media
Neil Blumenthal: As some other advertisers pull back, we intend to capitalize on opportunities while keeping a close eye on demand signals and adjusting spend accordingly. We're pleased with the trends we are seeing within network insurance customers and our version integration continues to ramp in line to slightly ahead of expectations.
Neil Blumenthal: We'll also continue to lead with product innovation. So far this year, we've won seven collections, including our first rimless collection.
Neil Blumenthal: Reacting to customer demand we also introduced a new premium light responsive lens which is exceeding expectations
Neil Blumenthal: We plan to drive further expansion in glasses and progressive growth by expanding exam coverage, designing and launching new frame collections and introducing lens enhancements.
Neil Blumenthal: We believe glasses growth will complement continued rapid growth from contacts and exams and that our holistic range of products and services allows us to attract new customers and significantly increase their lifetime value.
Neil Blumenthal: and finally, we'll further invest in scaling our industry leading Amy channel model, while delivering exceptional experiences.
Neil Blumenthal: Our real estate and store teams open more stores this quarter than in any prior to one, a strong start to a year in which we expect to open more stores than ever. New stores are performing in line with our expectations while driving new customer acquisition
Neil Blumenthal: We are on track to open 45 new stores this year, including our previously announced shopping shops with Target, which will open in the second half of 2025.
Neil Blumenthal: You'll also see us continue to innovate and invest in our online experience, which drove accelerated growth in our e-commerce channel in Q1. We are excited about early test results from our new AI-powered personalization features, which will roll out more broadly later this year.
Speaker Change: David and I also want to share the decisive actions we've already taken to mitigate the impact of higher tariffs.
Neil Blumenthal: Before Steve discusses our financial performance and guidance in more detail.
Neil Blumenthal: We've faced dynamic environments like this before, and each time we've proven our team's ability to adapt with speed and agility, whether it was managing through tariffs in 2019.
the COVID-19 pandemic starting in 2020.
Neil Blumenthal: or the recalibration of our cost structure in the years that followed. Our omnichannel model is resilient and has emerged stronger and more efficient each time. We are confident in the playbook that we're already leveraging, as well as the 10 year team that we have in place to execute it.
As we look ahead, we have three main priorities.
Neil Blumenthal: 1. To continue to serve our customers by delivering both exceptional value and service [inaudible]
Neil Blumenthal: 2. To continue investing in growth and executing on our strategic initiatives.
Neil Blumenthal: and three to actively mitigate the impact of tariffs to maintain a strong financial profile.
Neil Blumenthal: Let me walk you through our plan to do so as well at the progress we've made today.
Neil Blumenthal: I'll start first with the adjustments we've already made to our supply chain, demonstrating its flexibility as well as the depth of our vendor relationships.
Neil Blumenthal: For background, we operate a global diversified supply chain designed to optimize cost and speed while maintaining strict quality standards
Neil Blumenthal: Over the past several years, we've significantly enhanced our capabilities by expanding our supplier base and geographic reach, while investing in our own US optical labs.
Neil Blumenthal: As input, cost shift, or disruptions arise, we're well equipped to make rapid adjustment.
and we've done so in reach out weeks.
Neil Blumenthal: As we've shared last quarter, approximately 20% of our CODs originate from China down meaningfully in the past five years. More recently, we've accelerated this work, which we estimate will reduce our China sourcing by over half to less than 10% of CODs by year end.
Neil Blumenthal: Every pair of Warby Parker glasses and sunglasses is designed in-house at our New York headquarters.
Neil Blumenthal: We produce frames in various countries across Asia and Europe and purchase lenses from partners in Asia and the U.S. We've reallocated frame production away from our Chinese partners to other trusted partners in Europe and Asia and have a healthy balance of frame inventory in place.
Neil Blumenthal: Many of our more complex lens types are purchased in real time, giving us the flexibility to shift production across a global network.
Neil Blumenthal: We've already moved a significant portion of our lens sourcing out of China, primarily to U.S. partners.
Neil Blumenthal: The speed and efficiency of this transition reflects the strength of our supplier relationships.
Neil Blumenthal: In short, we've dramatically accelerated a multi-year supply chain diversification strategy that was already underway.
Neil Blumenthal: Our Vertically Integrated Director Consumer Model gives us enhanced control and visibility in our longstanding vendor relationships, many over a decade, enable the speed and agility that continue to serve us well.
Dave Gilboa: and now I'll turn it today to cover off on the remainder of our plan.
David Gilboa, David Gilboa, David Gilboa,
Dave Gilboa: Thanks, Neil. The second prong of our mitigation strategy in making selective price adjustments while still ensuring we deliver exceptional value to our customers.
Speaker Change: From day one, Warby Parker was built on the belief that buying glasses should be seamless, affordable, and fun. As frustrated consumers ourselves, we questioned why quality I wear was extraordinarily expensive with opaque pricing, and we sent out to change that paradigm.
Speaker Change: Our pricing model reflects that philosophy, delivering exceptional value without the hidden markups.
Speaker Change: Our entry price of $95 includes premium acetate frames and prescription polycarbonate lenses with anti-scratch, anti-reflective and anti-smudge coatings, features that are often treated as add-ons and upsells elsewhere.
Speaker Change: Over the years, we have expanded our assortment while maintaining our commitment to accessible and transparent pricing.
Speaker Change: We've introduced additional lens types and lens enhancements like progressives, blue light filtering, anti fatigue and light responsive.
Speaker Change: as well as premium frame collections using a range of materials and more complex constructions at higher price points, including $125, $175, and $195.
Speaker Change: Her customers have responded positively to these additions with no signs of price resistance, which has resulted in steady increases in average revenue per customer.
Speaker Change: While much of the industry has relied on price increases to offset soft unit volumes over the last several years, we've taken a more customer centric approach and have rarely raised like for like prices.
Speaker Change: As a result, we believe our value gap today is even wider than when we started the company.
Speaker Change: For $95 single vision prescription glasses are the same price as when we launched in 2010 compared to hundreds of dollars elsewhere in our highest price point items like our $395 precision progressive rival products that often retail for well over $1,000.
Speaker Change: So while we don't take price increases lightly, a component of our tariff mitigation plan is to make targeted and strategic price adjustments to a subset of our products where the new prices still enable us to offer exceptional value relative to comparable offerings elsewhere.
Speaker Change: At the end of April , we rolled out a handful of targeted pricing creases across some of our lend sites and accessories, while maintaining pricing across most products and services, including our entry, $95 price point.
Speaker Change: In aggregate, we estimate that these changes will reflect a low single-digit price increase across our glasses business
Speaker Change: While it's still early days, we are seeing promising signs from a conversion and product mix standpoint, in line or ahead of our expectations.
Thank you.
Speaker Change: Importantly, our pricing model is built to support flexibility, enabling customers to select options across multiple dimensions, including frame style, lens type and enhancements.
Speaker Change: This optionality allows us to make future price adjustments as needed while still delivering compelling value and continuing to grow our market share.
Speaker Change: The third prong of our mitigation efforts are strategic expense reductions.
Speaker Change: Looking ahead, we will be taking an even more disciplined approach to expense management.
Speaker Change: We're planning to preserve investments in marketing and other growth driving initiatives while taking a strategic approach to reducing other corporate expenses.
Speaker Change: These efforts are helped by the realization of meaningful productivity gains from our use of AI and automation, which is helping us operate more efficiently.
Speaker Change: Overall, we're tightening or operating expense management without compromising our long-term priorities.
Speaker Change: Before I hand it over to Steve, I want to thank our team for their swift and decisive action. Our ability to move quickly and deliberately has been and will continue to be a competitive advantage.
Steve Miller: This type of environment actually presents an opportunity for Warby Parker. We operate in a resilient and defensive consumer category, one that provides essential products and services, has grown through economic cycles and presents significant white space.
Steve Miller: Our brand speaks to both value conscious and design driven consumers with a median household income of over $100,000 and we benefit from trade-down dynamics when times are uncertain.
Steve Miller: We have consistently outperformed through challenging barriers in the past and believe we're well positioned to continue gaining share and expanding profitability with many levers in place to drive growth.
Steve Miller: Our strong balance sheet gives us the flexibility to keep investing and to act opportunistically when the time is right and our vertically integrated direct to consumer model gives us unique advantages control over our supply chain real time disability and to consumer behavior and a nimble mindset that's built to move quickly.
Steve Miller: And with that, I'll pass it over to Steve to review Q1, as well as our outlook for the remainder of the year.
Steve Miller: Thanks, Neil and Dave. I'll begin with a detailed review of our first quarter performance.
Steve Miller: Then I'll outline our updated guidance for the full year and our outlook for the second quarter of 2025 reflecting the current operating environment, including tariff impacts and our mitigation plans.
starting first with Q1. [inaudible]
Steve Miller: Revenue for the first quarter came in at 223.8 million, up 11.9% year-over-year.
Steve Miller: As a reminder, the prior year period included an extra day of revenue due to the leap year of roughly $2 million and we're lapping our second highest quarterly growth last year, which was up 16.3% year over year.
Steve Miller: Retail Revenue increased 14.8% year-over-year, and e-commerce revenue increased 5.5% year-over-year. It's highest quarterly growth since 2021.
Steve Miller: Now looking at customers, we finished Q1 with 2.57 million active customers on a trailing 12-month basis, representing a consistent acceleration in growth to 8.7% year-over-year.
Steve Miller: We've seen sequential improvements in year-over-year active customer growth for the past seven quarters reflecting the positive returns from our marketing investments and strategic initiatives.
Steve Miller: We also continue to see strength in average revenue per customer which increased 4.8% year-over-year on a trailing 12 month basis to $310.
Steve Miller: This was driven by factors, including a higher mix of premium lenses like Progressives, continued growth in both contact lens and eye exam sales, and uptake of our higher priced frame collections.
Steve Miller: Byproduct, Glasses revenue grew 9.1% year-over-year and we saw continued strength in our holistic vision care offerings, but contact lens revenue growing 25.1% and eye care growing approximately 40% year-over-year.
Steve Miller: Contact increased from 9.2% of revenue in Q1, 24 to 10.3% in Q1, 25.
Steve Miller: I care increased from 4.7% of revenue in Q1 24 to 5.8% in Q1 25.
Steve Miller: Turning to our stores, we opened 11 new stores in the quarter, our highest number ever for Q1, ending the period with 287 stores.
Steve Miller: This represents 42 net news stores opened over the course of the last 12 months.
David Gilboa, David Gilboa, David Gilboa, David Gilboa,
Retail Productivity with 99.8% versus the same period last year.
Steve Miller: 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. This metric covers all stores and is impacted by factors like opening cadence and doctor hiring.
for stores that have been open greater than 12 months.
Steve Miller: We observed strong year-over-year growth in Q1 in spite of the weather disruptions and closures throughout the first part of the quarter. Our new stores continue to deliver strong unit economics, performing in line with our target of 35% fall-wall margin and 20-month paybacks.
Steve Miller: For stores open more than 12 months, average revenue per store was $2.2 million, and our performance was in line with our target 35% for Wal-Martin.
Steve Miller: Overall, we continue to be pleased for the performance, growth, and productivity of our fleets.
Steve Miller: Over the course of the past year, nearly every news store include an eye exam suite, bringing our total number of stores with eye exam capabilities to 247 stores, or 86% of our total sleep.
Steve Miller: From a channel mix perspective, retail represented approximately 70% of our overall business in Q1, consistent with recent quarters.
Moving on to Grossmargin.
Steve Miller: 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 rents, and the depreciation of store buildouts.
Steve Miller: Our Grossmargin also includes stock-based compensation extents for our optometrists and optical lab employees.
Steve Miller: For comparability, I will speak to Gross Margin, excluding stock-based compensation.
Steve Miller: First quarter adjusted gross margin came in at 56.4% compared to 56.9% in the year ago period.
Steve Miller: The modest year-over-year decrease was primarily driven by the continued scaling of contact
Steve Miller: These factors were partially offset by increased penetration of our higher-priced frames and lenses and lower outbound customer ship and cost as a percent of revenue.
Steve Miller: Shifting Gears to SGNA, as a reminder, adjusted SGNA exclude non-cash costs like stock-based compensation expense.
Steve Miller: Adjusted SGN in the first quarter came in at 110.3 million, or 49.3% of revenue.
Steve Miller: This compares to Q1 2024 adjusted SGNA of 103.4 million or 51.7% of revenue, representing 240 basis points of leverage year-over-year.
Steve Miller: Within Adjusted SGNA, Marketing Spend was 27.9 million, or 12.5% of revenue compared to 24.9 million, or 12.4% of revenue in Q1 2024.
With roughly consistent marketing spend as a percent of revenue,
Steve Miller: Disciplined expense management, drove leverage across our non-marketing adjusted S.G.N.A. categories.
Steve Miller: which include salaries for our stores and customer service employees and general corporate expenses, including our headquarter salaries and general operating expenses to support the business.
Non-marketing adjusted SGNA declined by 250 basis points.
Steve Miller: from 39.3% of revenue in Q1 2024 to 36.8% of revenue in Q1 2025.
Steve Miller: This reflects our commitment to continue cost discipline and drove our higher flow through in Q1 above the high end of our guidance range.
Steve Miller: Turning now to Adjusted EBITDA, in the first quarter, we generated Adjusted EBITDA of $29.2 million representing an Adjusted EBITDA margin of 13.1%.
Steve Miller: This compares to a justly bit of 22.4 million or 11.2% of revenue in the year ago period. Reflecting the expansion of 190 basis points.
David Gilboa, David Gilboa,
Steve Miller: This result was driven by relative gross margin stability, paired with significant non-marketing S.G.N.A. leverage.
Steve Miller: Turning now to our balance sheet, we generated $13.2 million in free cash flow in Q1 2025 and ended the quarter with a strong cash position of $265 million.
Steve Miller: We will continue to deploy capital deliberately to support our growth and operations. We also have a credit facility of $120 million, expandable to $175 million, that is unlawed other than $2 million outstanding for letters of credit.
Turning to our Outlook for 2025.
Steve Miller: We recognize that we continue to operate in a very dynamic macro environment concerning both global trade policies as well as the potential impact on consumer sentiment.
Steve Miller: We're paying close attention to how these factors may evolve and we have confidence in our ability to remain flexible and make adjustments as needed.
Steve Miller: Our guidance reflects both our response to these external factors, including tariffs, and a generally more conservative outlook to the increased uncertainty around consumer spending the remainder of the year.
Steve Miller: Let me specifically address the estimated impact in tariffs, assuming the current increased tariff rates of 145% for China and 10% for the rest of the world.
Steve Miller: As we just discussed, we have reduced dark exposure to China over the last five years and have accelerated our efforts to do so in this environment.
Steve Miller: As of our last earnings call, we disclosed that China made up roughly 20% of our total cost of goods sold. At that time, we expected the incremental 10% tariff announced then to account for 20 to 40 basis points of gross margin D leverage for 2025.
Steve Miller: which factored in moderate geographic shifting of suppliers and savings from negotiating cost sharing with our vendors.
Steve Miller: This equaled approximately $3 million, given that the total incremental increase on most China
Steve Miller: We have accelerated and expanded our mitigation efforts as Neil and Dave shared.
Steve Miller: Assuming current tariff rates hold for the remainder of the year, we estimate that the gross impact to our business in 2025, before considering the extensive mitigation actions taken to date, would be roughly $45 to $50 million.
Steve Miller: Due to our actions to date, across multiple areas of the business, and our plan for the remainder of the year, we believe we will mitigate the substantial majority if not all of the potential 45 to 50 million exposure.
Steve Miller: The actions we've taken fall into three main categories. One, shifting sources of supply and realigning our vendor mix globally.
Steve Miller: 2. Implementing strategic pricing changes without disrupting our core value proposition and 3. Reducing operating expenses to support profitability and to ensure continued cost discipline.
Steve Miller: We continue to maintain a very disciplined approach to managing operating expenses as evidence
Steve Miller: To support our profitability goals in light of the current environment, we have slowed the pace of hiring, reduced discretionary expenses across a range of categories, and are diligently managing our operating costs, such as continued labor optimization across our stores, including eye doctors and our customer experience team.
Steve Miller: Importantly, we have largely maintained our planned marketing investment and are still planning for marketing spend in the low teens as a percent of revenue for the whole year. Reflecting our confidence in the efficiency of our marketing programs and their role in driving longer term growth.
Steve Miller: And as a result of these proactive measures, we have dramatically reduced our cogs exposure to China and we estimate that by year end, depending on where tariffs land, we expect to decrease our exposure by as much as a half or from approximately 20% to less than 10%.
Steve Miller: Taking all these factors into account, the macroeconomic backdrop, the tariff impact, and our mitigation efforts, and our operational adjustments, we are providing the following updated outlook for the full year 2025.
Steve Miller: Net revenue between 869 million and 886 million, representing approximately 13-15% growth year-over-year.
Steve Miller: Adjusted EBITDA of 91 million to 97 million, representing Adjusted EBITDA margin of approximately 10.5% to 11%.
Steve Miller: We are committed to delivering at least 100 basis points of year over year margin expansion within our long term guidance range and up to our original guidance of approximately 11% or 150 basis points of year over year expansion. Thank you very much.
Steve Miller: 45 new store openings, including the five previously announced shop and shops within target stores slated to open in the second half of the year.
Steve Miller: As a reminder, our previous guidance range of revenue growth of approximately 14-16% year-over-year reflected a continuation of the trends we observed in the second half of 2024 and early
Steve Miller: It assumed customer-led growth paired with a moderation and average revenue per customer, a full year of additional in-network lives and mid-single-digit growth in e-commerce.
Steve Miller: Our updated range of 13-15% growth reflects a moderately more conservative outlook for the second half of the year, with the midpoint of the range representing a continuation of recent trends.
Steve Miller: Versus our original guidance, we are projecting a modest acceleration and average revenue per customer given our pricing actions.
Steve Miller: Our updated range now assumes a modest reduction to store productivity as well as our e-commerce channel growing low to mid-single digits.
Steve Miller: Our store openings have been on track, including our target shop and shops, and we continue to see encouraging results from our verson integration.
Steve Miller: As it relates to gross margin, given the impact of tariffs and our mitigation efforts to date, we're projecting a potential impact to gross margin of approximately 200 to 300 basis points for full year 2025.
Steve Miller: We continue to expect stock-based compensation as a percentage of net revenue to normalize in the 2-4% range for the full year. For Q2 2025, we're guiding to the following.
David Gilboa, David Gilboa, David Gilboa,
Steve Miller: Net revenue between 211 million and 214 million, which represents growth of approximately 12 to 14% year-over-year.
Steve Miller: Adjusted EBITDA of 20 to 22 million, representing approximately 10% margin at the midpoint.
Steve Miller: This range contemplates the mitigation efforts that are already underway, which we expect to continue to phase in over the course of the year. We'll provide updates on our progress during each quarterly call.
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.
Thank you.
Speaker Change: If you would like to ask a question on today's cold, Keith Presta, followed by one on your cell phone. If for any reason, you would like to remove that question,
Speaker Change: We do ask that you ask one question, and then one follow up before returning to the queue if you do have any additional question.
Speaker Change: Thank you for watching. I'm Neil Blumenthal. I'll see you next time.
Speaker Change: The first question today comes from the line of Mark Altschwager from Baird. Peace to the head of your line is now open.
Good morning. Thank you for taking my question.
Speaker Change: I guess first what's hoping you could give a little bit more color on the change in your revenue outlook for the year in what's driving that slight downward revision. What's the change in consumer behavior that you've seen recently here and what is incorporated in that related to the price increases specifically. Thank you.
David Gilboa, David Gilboa, Sarah
Speaker Change: Great. Thanks, Mark. I can start in and Steve can provide a little more color on on the specific guidance, but
Speaker Change: Yeah, I think at a high level, we're taking just a more cautious and conservative approach to, you know, guidance for for the rest of the year given that we know that consumers have a lot on their minds these days.
with unusually high volatility in terms of...
Arrowing customer
Speaker Change: Sentiment and Confidence, and what we found during COVID and kind of other periods of uncertainty and low consumer confidence that...
Speaker Change: Yeah, that can impact chopping behavior and create more volatility and traffic and that doesn't necessarily mean that our customers would go elsewhere, but that
Speaker Change: There is some potential for the elongation and the purchase cycle and
Speaker Change: and so we've seen relatively consistent consumer behavior over the last few months, but did want to build in some conservatism just given the potential risk to the broader economy.
David Gilboa, David Gilboa, David Gilboa,
Thank you. Thank you.
Speaker Change: Yeah, that's exactly right. And at a high level, we think given some of the uncertainty, still evident in the macro environment, we thought that it proved, it proved in just to maintain a conservative position on how we project the rest of the year. So we made a moderate change to how we're projecting for your growth. Originally, we were projecting up 14 to 16%. We took that down a notch to up 13 to 15% and at the midpoint of our guidance, we wanted to be very transparent to call out [inaudible]
Speaker Change: but that represents really a continuation of recent trends that we're seeing in the business, which implies behind woods. [inaudible]
Speaker Change: to imply an increase or acceleration in some of the recent friends that we're seeing in at the low end a de-celeration. So we try to set up an architecture that just provides transparency into the current velocity of the business.
Speaker Change: Bearing in minds that we are operating in a more uncertain environment and so we wanted to take that as an opportunity to notch our projections moderately more conservative.
Speaker Change: Thank you. And then the follow up. Appreciate all the detail on tariffs.
Speaker Change: In light of the changes in the mitigation playbook, anything else we should consider regarding the shape of the year from a gross margin, EBITDA margin perspective.
Speaker Change: And then bigger picture, the margin guide, he bit the margin guide now a bit below the one to 200 basis point annual target at the midpoint. So quite reassuring given what you're dealing with on tariffs, but as we think beyond 2025 is that still the right framework. Thank you.
David Gilboa, Sarah
The shape of the year from an EBITDA perspective.
Speaker Change: If we look at what our EBITDA pattern was last year, Q1 was the highest.
Speaker Change: and Q4 was the lowest and it was roughly a step down from Q1 to Q2 to Q3 to Q4. I would anticipate the shape of this year to look not dissimilar but there might be more parity in the middle of the year given some of the changes that were in the process of phasing in as it relates to the tariff mitigation but I think it would be safe to say that same pattern of highest margin, first quarter lowest margin on a relative basis from an EBITDA perspective.
Speaker Change: The final quarter of the year would still hold for our business.
Speaker Change: as we thought through all of the mitigation actions that we're taking, again, which involves...
strategically shifting our vendormix across the globe.
Speaker Change: Number two, taking very selective price increases across our glasses, business and three, maintaining a very disciplined approach to operating spend, which you saw reflect very positively in our Q1 financials, where we had a higher degree of flow through from managing non-marketing S.G. name particular, and we feel very confident, still being within range of our long-term adjust to be with our margin improvement, which is up
Speaker Change: 100 to 200 basis points a year, our original guidance called for up 150 basis points.
Speaker Change: We're ranging that now at up a hundred to a hundred and fifty basis points
Speaker Change: depending on a range of factors including where tariffs ultimately land, so that element of our long-term guidance is certainly intact.
Speaker Change: and as it relates to close margin beyond 2025 toward the end of this year, once some of the dust
Speaker Change: All of these trade actions that are in the process of being worked out will provide updated perspective on where gross margin we believe will settle.
Speaker Change: Thank you. The next question today comes from the line of Oliver Chen from TD Cowan. Please go ahead, your line is now open.
David Gilboa, David Gilboa, David Gilboa, David Gilboa
Speaker Change: David Gilboa, David Gilboa, David Gilboa,
Speaker Change: Hi, Neil Davin, Steve. We're seeing so much market and financial volatility. Are you seeing a similar amount in relation to your customer traffic and your thoughts on them?
Speaker Change: Consumer Confidence so far. And as we think about the e-commerce guidance, what's happening there with traffic relative to conversion and any details you can share? Thank you.
Neil Blumenthal: Thanks, Oliver. This is Neil. We are seeing pockets of strength and pockets of volatility as
Neil Blumenthal: pertains to customer behavior as we look at Q1. Some of the pockets of volatility were from typical causes, like weather. We actually lost.
Neil Blumenthal: More operational hours due to weather in Q1 this year than last year was actually up 68 percent so significant. But again,
Neil Blumenthal: When there've been announcements out of Washington, we've also seen at times changes in traffic patterns and customer behavior that being said, we tend to be a benefactor of
Disruption in the markets because of our value proposition.
Neil Blumenthal: Right, most of our customers are coming from more expensive optical shops, whether those are chains or independence.
Neil Blumenthal: and when they're drops in consumer sentiment, that just puts us in an even greater sort of competitive positioning.
Neil Blumenthal: We are competent. I will continue to emerge stronger from the current environment, just as we did during COVID and during other times of volatility. But in general, we're seeing consumer traffic.
Neil Blumenthal: Hold up and conversion and consumer behavior hold as well.
Neil Blumenthal: and then as it relates to E-Com, we continue to be pleased with the progress that...
Growth in Q1 since 2021.
Neil Blumenthal: and continue to benefit from strengths in our contact lens business that is primarily online.
Neil Blumenthal: and a lot of our newer tools that make it easy for people to purchase classes without having to do a home triumph.
Neil Blumenthal: So leveraging our virtual trial capabilities and increasingly AI-driven recommendations. And so, you know, continue to see both traffic and conversion have in the direction that we'd like to see.
Speaker Change: Okay, thanks. The follow-up targets are very exciting. So, we'd love your thoughts on how you thought about the stores and locations that you're choosing and the key hurdles that you'll be looking for in terms of goals in a nearer and longer term and how that will impact the model, longer term. Thank you.
Neil Blumenthal: Sure. Well, we're super excited about our partnership with Target. We're in the process of designing our stores, and we're going to learn a lot of this initial cohort of five stores that are strategically positioned, you know, as we think about opening stores across a range of dimensions.
Neil Blumenthal: such as store design, hiring, our sortment. This is strategy is really going to be a continuation here in that
Neil Blumenthal: We will provide these exceptional experiences. So we're we're excited we're going to learn a lot in the first five train the first.
Neil Blumenthal: Five stores and that will help us.
Neil Blumenthal: Grow going forward, we view this as complement complement.
Neil Blumenthal: Complementary to our Standalone store growth and.
Neil Blumenthal: Be evaluated similar to a new store it expands the overall white space and access to a broader set of consumers.
Speaker Change: Thank you. The next question today comes from the line of Brooke Roach from Goldman Sachs. Please go ahead. Your line is now open.
Speaker Change: Hi, Good morning. This is Savannah summer on for Brett Crouch. Thank you. So much for taking our question can you discuss what you've been seeing in regards to marketing spend efficiency should you see increased efficiency on that line item how much if any should we expect to drop to the bottom line for the full year. Thank you.
Speaker Change: So yes, we continue to be pleased with the efficiency of our marketing investments and we see consistency in our acquisition costs as we ramped up spend.
Speaker Change: Over the last couple of years.
Speaker Change: While we have seen some fluctuation in media pricing with cost rising on some platforms.
Speaker Change: We've been able to find efficiency on other platforms.
Speaker Change: It just underscores the fluid and diversified media mix that our team of employees to optimize spend.
Speaker Change: Ranging from more traditional channels like TV and direct mail to real time options across digital.
Speaker Change: Panels to working closely with creators on bespoke content and increasingly we're using AI based models.
Speaker Change: Sophisticated methods to allocate and analyze spend.
Speaker Change: Also have the advantage of the direct to consumer brands that we have access to so much real time data around.
Speaker Change: Whats working and whats not so that we can we can optimize and.
Speaker Change: We are hearing that in.
Speaker Change: Tariffs in the current environment that.
Speaker Change: Some advertisers are pulling back on spend and so.
Speaker Change: We are opportunistically looking for areas that we can lean in and continue that.
Speaker Change: Highlight our differentiated value proposition.
Speaker Change: And are increasingly kind of spending time.
Speaker Change: Through paid media promoting not only are our E com business, but also our nearly 300 stores.
Speaker Change: And in.
Speaker Change: In the current environment are also really focused on highlighting our advantaged pricing and value proposition.
Speaker Change: Given that the rest of the category has and will continue to take price more.
Speaker Change: More than we have.
Speaker Change: Thanks, so much for the color I'll pass it on.
Speaker Change: Thank you.
Speaker Change: Our next question today comes from the line of Ginnie Stricture from BTG. Please go ahead. Your line is now open.
Ginnie Stricture: Hey, good morning, Thanks for taking my question and I was hoping you could just comment on what Youre seeing out of your insurance paying customers versus your non insurance customers and then can you update us on the penetration of customers, who have insurance versus the to use it at Huawei Parker and maybe elaborate on that I mean, the initiatives you're working on to bridge that gap. Thank you.
Ginnie Stricture: So we continue to be pleased with the progress.
Ginnie Stricture: And making it easier for customers to use their insurance benefits with us and are seeing.
Ginnie Stricture: Positive early signs from our Burson integration.
Ginnie Stricture: The vast majority of those members still haven't used their benefits with us and we view all of these partnerships as multiyear tailwind that will ramp over time, rather than a step function increase at the time of integration.
Ginnie Stricture: And we see for our longest standing insurance relationships that utilization continues to increase over over many years.
Ginnie Stricture: Alongside the increasing revenue per member per year and.
Ginnie Stricture: And we expect that that same behavior with person in our.
Ginnie Stricture: Seeing early positive signs there we continue to find that our insurance customers spend more with us and each transaction and also repeat more frequently.
Ginnie Stricture: So people like using their benefits and they know that they can get even more value coming to where we parker than going other places.
Ginnie Stricture: And it's still.
Ginnie Stricture: An area, where we're underpenetrated relative to the rest of the category and remains a really big opportunity for us, but we're pleased with the progress that we've made especially over the last couple of years.
Speaker Change: Thanks, So much best of luck.
Speaker Change: Thank you. The next question today comes from the line of David <unk> from Evercore ISI. Please go ahead. Your line is now open.
Speaker Change: Okay. Thank you two for me. Please could you please break down the expected sources of leverage and EBITDA.
Speaker Change: Especially with regard to gross margin and SG&A in the second half and how might these be impacted by tariffs and demand trends and then part two can you also quantify.
Speaker Change: Each of the tariff mitigation bucket some models supply chain reallocation selective pricing and expense control. Thank you.
Speaker Change: Yeah sure.
Speaker Change: With the first question in terms of sources of leverage across our P&L. If you look at Q1 for a good example, we saw very modest deleverage in gross margin year over year from 56, 9% to 56, 4% and yet we increased adjusted EBITDA margin by 190 basis points.
Speaker Change: Largely by maintaining a very disciplined approach to the non marketing elements within SG&A marketing spend as a percent of revenue, which is within SG&A was really flat at roughly 12, 5%.
Speaker Change: In both periods and so that 190 basis points of leverage was really concentrated within our non marketing SG&A elements, we're planning for.
Speaker Change: Significant leverage to continue to come from non.
Speaker Change: Non marketing SG&A in <unk> as we pack.
Speaker Change: What is in that category. If we think about Q1 of this year as a frame of reference roughly 25% of that is marketing spend 75% are the non marketing elements, which include salaries for our store employees salaries for our customer experience employees and then all of our corporate expenses.
Speaker Change: <unk>, including HQ salaries.
Speaker Change: And all of the dollars that we deployed toward vendors and so we will continue to make sure that we're driving cost savings and leverage from those elements within.
Speaker Change: Within our SG&A cost stack. In addition to that in response to this tariff environment. There are two actions that we're taking that will directly impact gross profit to the positive to offset some of the impact.
Speaker Change: Impacts that we expect to continue to see from tariffs in the short term and that is one shifting our vendor mix globally and two very selected price increases.
Speaker Change: We have not broken out the specific mitigation associated with each of our actions so far.
Speaker Change: From price increases from Reorienting, our supply chain across the globe and from operating expense reductions, but we have.
Speaker Change: Communicated that in aggregate, we plan to mitigate all if not.
Speaker Change: $8 million in tariff exposures at the current 145% China rate than 10% rest of world that persists for now if those rates change and we're optimistic that they will we'll continue to evolve our plans just to take into account the reality of the current new environment.
Thank you.
Speaker Change: The next question today comes from the line of Dylan Carden from William Blair. Please go ahead. Your line is now open.
Speaker Change: Thanks.
Speaker Change: I guess that answers my question that the the language around success in mitigating tariffs I guess, you've kind of answered it.
Speaker Change: I am curious kind of what Youre seeing is the countervailing force as far as the repurchase cycle.
Speaker Change:
Speaker Change: I know you're less exposed to managed care, that's part of the strategy, which seems to be recovering faster, but you know how do you think about sort of the latent demand for this category kind of go this year.
Speaker Change: Yes.
Speaker Change: Sure. Thanks for the question.
Speaker Change: Where we're seeing similar trends as we have over the past few years in customer behavior.
Speaker Change: One of the things that we're very focused on controlling.
Speaker Change: Controlling what we can control so as an example of that as we think about tariff mitigation right. We know that tariffs are likely going to shift so how do we construct.
Speaker Change:
Speaker Change: Systems that are adaptable and what we mean by that is how can we.
Speaker Change: Quickly strategically.
Speaker Change: Change pricing in a selective way when that makes sense, how can we strategically shift.
Speaker Change: Aspects of our supply chain.
Speaker Change: That makes sense and we view speed as a competitive.
Speaker Change: Vantage.
Speaker Change: As we sort of and this is in line with our belief that we have to control what we can control and when it comes to the consumer right. If we continue to deliver best in class.
Speaker Change: Service, if we continue to provide incredible.
Speaker Change: Incredible value and we think that the value that we're providing.
Speaker Change: That price quality ratio is actually only increasing.
Speaker Change: As we look at competitors raising prices.
Speaker Change: That we're going to see.
Speaker Change: Consistent.
Speaker Change: Two improved repurchase cycles relative to the category.
Speaker Change: So we continue to see strong <unk> strong conversion.
Speaker Change: And you know.
Speaker Change: We've continued to demonstrate category growth era.
Speaker Change: Irrespective of what our Hum.
Speaker Change: What's happening in the markets are a writ large.
Speaker Change: And price I mean, you know it.
Speaker Change: Take care side for a second you mentioned there that you mentioned in the prepared remarks that you haven't really taken price on the opening.
Speaker Change: The entry level offering since founding I mean is price a broader opportunity here I know that you sort of introduce new newer pricing with newer.
Speaker Change: Launches, but is there kind of a tariff.
Speaker Change: Ex tariff price opportunity in this model more broadly thanks.
Speaker Change: Hum.
Speaker Change: We do believe so but we're also conscious that we operate in our industry that has historically taken price liberally.
Speaker Change: Free opportunity and that's continued in this current environment and.
Speaker Change: Frankly, that's created a price umbrella.
Speaker Change: That has enabled us to offer better value.
Speaker Change: And take market share since we launch and we can we plan to continue to do that for many years to come.
Speaker Change: And really our focus has been on building long term sustainable growth in order to do that the most important factors or are building consumer trust around our brand and ensuring that our customers are delighted.
Speaker Change: Offering exceptional value and great pricing is a core part of that that customer promise and we don't plan to deviate from that approach.
Speaker Change: But that said.
Speaker Change: There there is a very big umbrella here in N.
Speaker Change: And.
Speaker Change: We found that.
Speaker Change: When we do introduce higher price point products, our customers are willing to spend more with us and we tend to primarily serve high income customers and so as we launch products like precision progressives starting at $395.
Speaker Change: We've seen.
Speaker Change: Very strong uptake and lots of kind of customer satisfaction from from those products.
Speaker Change: And so in this environment, where some of our input costs are going up we have selectively adjusted pricing on some of our products and.
Speaker Change: Where we're seeing positive early signals in terms of customer response.
Speaker Change: And so do you believe that there's more opportunity.
Speaker Change: Over time to introduce.
Speaker Change: Products at a variety of price points, and I think you'll you'll see us continue to drive increases in average revenue per customer.
Speaker Change: For many years to come.
Speaker Change: Okay.
Speaker Change: Thank you and the next questioner today, just as context.
Speaker Change: Please carry on.
Speaker Change: Please go on.
Speaker Change: We'll just we're just adding on on Dave's comments, just as context, we selectively taken price actions like this very rarely the last time that we did something like this was at the end of 2021.
Speaker Change: We rolled out a small handful of price increases across tumor types.
Speaker Change: Men's types, which we increased pricing for by roughly $10 and a prescription some lands, where we increased pricing by $20.
Speaker Change: The handful of changes that we're making here are a little broader but not much and certainly informed by what we've done in the past, we'll continue to really focus.
Speaker Change: On price through offering new products and seeing price evolved through mix, but selectively we've done this before and the process that we went through a year with certainly informed by some of the results and success of the actions that we have taken on a selective basis in the past.
Speaker Change: And we're expecting a similar type of trajectory for these increases as well.
Speaker Change: Thank you.
Speaker Change: The next question today comes from the line of Ana <unk> from Piper Sandler. Please go ahead. Your line is now open.
Paul: Hi, This is Paul <unk>. Thanks for taking our question I'm curious if you could speak to me.
Paul: Consumer behavior, new cohorts, you're seeing it wouldn't be a acceleration in active customers, if that's mostly coming from existing markets or new ones.
Paul: Secondly, I'm curious if you could confirm whether you've seen an acceleration in March versus February that's generally.
Paul: <unk> maintained into April.
Paul: Any evidence of a cohort.
Paul: Some of that demand. Thank you.
Speaker Change: Sure. Thanks for your question, we're seeing very consistent consumer behavior across new and existing cohorts.
Speaker Change: As we continue to expand across the U S and we have lots of opportunity. There is 45000 optical shops in the U S. Most of our new stores have been in existing markets.
Speaker Change: Just because we're now in all of our large markets.
Speaker Change:
Speaker Change: The as.
Speaker Change: And again, where we tend to.
Speaker Change: Gain market share is from optical shops that are.
Speaker Change: Charging.
Speaker Change: Often two to three to four times as much as we are so the beauty of having this large market.
Speaker Change: Having these 45000 optical shops across the U S. It's just we have a massive opportunity in front of us and we still think that.
Speaker Change: We're in the first innings here.
Speaker Change: And then as it relates to March and any color on April So March was our strongest month in Q1.
Speaker Change: And so we did finish the quarter on a on a very strong note as it relates to April we saw pockets of variability of the first part of April and then we finished April with a very strong exit rate that has continued into may and so that's how we would describe.
Speaker Change: The color of the end of the quarter heading into the current environment in which we find ourselves now.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Conclude todays question and answer session on today's call. Thank you for your participation you may now disconnect your lines.
Speaker Change: [music].