BUSINESS: Financial Warby Parker Reports 10 Percent Increase in Q1 Sales as ‘Active’ Customer Count Climbs 18 Percent, But Net Loss Also Widens By Staff Tuesday, May 17, 2022 12:27 AM NEW YORK—Against a backdrop of disruption due to the Omicron variant that was first felt in the last weeks of December and continuing through the first quarter, Warby Parker Inc. (NYSE: WRBY) on Monday reported that its Q1 revenue rose 10.3 percent to $153.2 million as both active customer count and average revenue per customer increased also in the quarter ended March 31. However, the retailer's net loss totaled $34.1 million in the quarter, primarily as a result of an increase in SG&A (selling, general and administrative) expenses, according to its announcement. Warby Parker had a profit of just over $3 million in the year-ago quarter. The “active customer” count increased 18.0 percent to 2.23 million, while average revenue per customer jumped 11.2 percent year over year to $249, the company noted. "Our team has a lot to be proud of this quarter,” co-founder and co-chief executive officer Dave Gilboa said in the announcement. “We opened eight new retail stores, expanded our eye exam capacity, launched four new eyewear collections, scaled our vertically-integrated supply chain, and continued to deliver above-and-beyond experiences to our customers, who are spending more with us than ever before.” A Warby Parker store in the Crocker Park development in Westlake, Ohio.Co-founder and co-chief executive officer Neil Blumenthal added that the company believes that, despite a challenging macroeconomic backdrop, it continues to grow faster than others in the eyecare and optical sectors. “We believe our omnichannel business model, compelling value proposition, and strong consumer brand uniquely position us to capture market share for years to come in both good and turbulent environments,” he said. For the fiscal 2022 year, Warby Parker said it was reiterating its outlook and still expects net revenue of $650 million to $660 million, representing growth of 20 percent to 22 percent versus full year 2021. The outlook includes the impact of approximately $15 million in lost sales, or 3 percentage points of growth, related to the disruption caused by Omicron to the start of the year. The outlook for adjusted EBITDA margin is approximately 5.6 percent to 6.6 percent, and the company said it expects 40 new store openings this year, bringing its total store count to 201. Among the other Q1 highlights Warby Parker cited: Net revenue increased $14.2 million (on a dollar basis) compared with the first quarter of 2021 and increased 17.9 percent on a three-year CAGR basis compared with the first quarter of 2019.Active customers increased by 340,000 to 2.23 million.Q1 2022 GAAP net loss of $34.1 million.Q1 2022 adjusted EBITDA of $0.8 million and an adjusted EBITDA margin of 0.5 percent.Opened eight new stores during the quarter, ending the quarter with 169 stores.More than doubled revenue of its contact lens offering.Maintained 80+ Net Promoter Score (NPS).Gross margins benefited from the expansion of the higher-margin progressive lens business, which the company said increased from 18 percent of the prescription lens business in last year’s first quarter to 21 percent in Q1 2022.E-commerce sales represented 44 percent of overall Q1 business, versus 56 percent in 2021’s first quarter and 37 percent in 2019’s first quarter. E-commerce revenue grew at 1 percent in the first quarter of 2021, “as such, Q1 2022 revenue was down 14 percent year over year, but it's up 24 percent on a three-year CAGR basis versus Q1 2019.Warby Parker also noted that Q1 revenue was negatively impacted by approximately $15.0 million in estimated lost sales due to the Omicron variant, with disruption heightened in the last weeks of December and continuing into the first quarter. “The onset of Omicron coincided with peak demand in the optical industry as customers seek to utilize flexible spending dollars ahead of Dec. 31 expirations. Most orders placed in the last weeks of December are delivered and recognized as revenue in the first quarter, so the lower December sales negatively impacted revenue in the first quarter, as did the continued impact of Omicron on store traffic and demand,” the company said. According to the announcement, gross profit dollars increased 7.0 percent to $89.6 million, but the gross margin rate dropped to 58.5 percent compared with 60.3 percent in the prior year. The decline in gross margin was primarily driven by the increased penetration of contact lenses, “which carry lower gross margins than eyeglasses, reflecting Warby Parker’s strategy to grow its contact lens offering, and a benefit of 25 basis points related to a tariff rebate received in the first quarter of 2021, partially offset by the scaling of progressive lenses and leverage from the company’s in-house optical laboratory network,” the announcement stated. On a conference call with securities analysts, Blumenthal said he expects the company’s retail productivity to continue improving, due primarily to increasing sales productivity of suburban stores and inroads in the managed vision care area. The company’s store fleet is in the midst of a shift from urban to suburban locations.” “In the insurance front, we continue to believe that insurance remains a really big opportunity for us,” Blumenthal said, noting that there are distinct opportunities for Warby Parker to target, including continuing to expand network relationships. He said the company also has now added a Blue Cross Blue Shield federal employee program, which allows members to purchase glasses and contact lenses for “as little as $10,” but he didn’t provide any additional details on the Blue Cross Blue Shield plan. He added, “We also believe that there's a really significant opportunity to educate consumers that they can use their vision insurance benefits with us regardless of plan and that they'll often be spending less coming to Warby Parker and paying out of pocket or using their out of network benefits, than they was going to use in network benefits somewhere else.” One of the factors affecting the bottom line was an increase in selling, general and administrative expenses (SG&A), which rose $42.6 million to $123.4 million, primarily driven by an increase of $25.9 million in stock-based compensation expense and related employer payroll taxes, partially offset by $0.3 million of costs incurred in the first quarter of 2021 associated with the company's direct listing. Excluding these expenses in both years, SG&A increased $17.0 million to $96.2 million, on an adjusted basis, the company said.