Warby Parker on Thursday joined the slew of retailers that have cut their financial forecasts for the year, even as it reported a narrower-than-expected loss in its fiscal second quarter and sales in-line with analysts’ estimates.
Chief Financial Officer Steve Miller said the eye glasses maker is facing an “uncertain macroeconomic environment.”
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Miller said in a statement:
“We are taking a disciplined approach to managing costs to set us up for sustainable growth and profitability.”
As part of its efforts to trim expenses, Warby has cut 63 jobs, representing about 2% of its total employee base and 15% of corporate positions, a spokesperson confirmed to CNBC.
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In recent weeks, retailers including Walmart, Best Buy, Gap and Allbirds have lowered their expectations for sales or profits as they begin to see consumers cut back spending on discretionary items, such as apparel or electronics, amid soaring inflation. At the same time, though, luxury brands like Ralph Lauren and Versace owner Capri Holdings say people are still splurging on expensive shoes and handbags.
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At Warby, customer demand started to fall off in the second half of May, executives told analysts on a conference call Thursday morning. The company also said it pulled back on marketing spending as fewer people visited its brick-and-mortar shops.
Still, the retailer’s shares rallied Thursday, closing up more than 19%. Investors cheered the cost-cutting efforts as Warby attempts to turn a profit while still in growth mode.
Here’s how Warby did in its fiscal second quarter ended June 30 compared with what analysts were anticipating, based on Refinitiv estimates:
- Loss per share: 1 cent adjusted vs. 2 cents expected
- Revenue: $149.6 million vs. $149.5 million expected
Warby’s loss for the three-month period ended June 30 widened to $32.2 million, or 28 cents per share, from a loss of $18.8 million, or 35 cents a share, a year earlier. Excluding one-time items, it lost a penny a share.
Sales grew roughly 14% to $149.6 million from $131.6 million a year earlier, boosted in part by loyal customers spending more money on average.
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The company said its count of active customers increased 8.7% to 2.26 million. It defines these customers as people who have made at least one purchase of any product or service from Warby in the previous 12-month period.
“While the losses are disappointing, they are somewhat understandable given that the company remains in expansion mode,” said Neil Saunders, managing director of GlobalData Retail.
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However, Saunders said, the main concern is that the money spent needs to translate into delivering stronger returns.
For fiscal 2022, Warby is now calling for sales to be within a range of $584 million to $595 million, down from a prior range of $650 million to $660 million.
It sees its adjusted EBITDA amounting to about $22 million to $26 million, including a $7.5 million hit related to pandemic-related disruptions to its business.
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In its latest quarter, Warby said it opened nine stores, bringing its total count of physical locations to 178. The retailer, founded online in 2010, has been ramping up its investments in real estate to reach more customers and market its brand. It hopes to one day grow to more than 900 stores.
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Beyond its glasses, Warby has a contact lens business and offers services in its stores for eye exams. The company has said that people who buy contacts from Warby end up spending more than those who only shop its eyewear.
Including Thursday’s gains, Warby shares have fallen more than 60% year to date.
COMMENTARY: Warby Parker's sales began to soften about the same time many retail brands began to feel the effects of inflation and slowdown in buying by consumers. Warby Parker joined the slew of retailers that have cut their financial forecasts for the year 2022. Warby Parker reported a narrower-than-expected Q2 2022 quarterly loss and sales in-line with analysts' estimates.
Warby Parker opened a record 35 stores in 2021 to end the year with 161. Warby Parker plans on opening a total of 40 stores in 2022. Warby Parker had 188 stores in the U.S. on July 27, 2022, but the economic uncertainty will probably put a halt to any new store openings in the second half of 2022.
Warby Parker's primary target customers are hip and fashionable millennial-aged consumers between 25-34. Warby Parker customers are socially active, purchase online, overshare and engage on social media channels. Warby Parker understands them very well. These young consumers have a bustling loyalty to the brand. This may be Warby Parker's Achilles heel for the following reasons:
- Millennials have the highest median income but are burdened with high levels of debt from home loans, automobile loans, personal loans and student loans, and this debt is growing at a faster rate than any other generation.
- Millennials are the largest generation and growing as a group because lower wage earning middle class workers are falling behind economically and trickling down into the millennial generation group.
- A 2019 survey by Fannie Mae found that 55% of millennials and Generation Z believe that homeownership is “out of reach financially.” Several factors, including the rising cost of housing and pre-existing debt (often from student loans), present barriers to homeownership for these generations — and new obstacles continue to emerge.
- Millennials cannot afford today's high rents and utilities and often have one or more roommates to lessen this burden.
- Millennials do not make enough to save for retirement or emergencies and often resort to credit cards to make ends meet.
- 60% of millennials (those born between 1983 and 2002) are considered middle-class, compared to 70% of baby boomers (those born between 1943 and 1964) when they were in their twenties, according to the report, “Under Pressure: The Squeezed Middle Class.” Worldwide, the share of households considered middle-class has slipped from 64% in the 1980s to 61% today.
It is not all bad news for Warby Parker. Growth opportunities include progressive lenses, which account for 20 percent of Warby’s mix versus 45 percent of all prescription glasses sold in the U.S. Progressive glasses start at $295, Warby’s highest price point and highest margin. Buyers of progressive lenses tend to be 45 years or older. Dave Gilboa, co-CEO at Warby Parker said, “Progressives purchases tend to skew more toward bricks and mortar given the complex nature of the prescription and the older customer demographic.”
Stores also enable eye exams, which accounted for less than two percent of Warby’s sales in 2021 compared to 10-to-15 percent at a typical optical retailer. Neil Blumenthal, co-CEO, said exams also “give us greater control over the customer experience.”
Finally, in-store exams support sales of contact lenses, which doubled in 2021 to four percent of Warby’s sales versus 15-to-20 percent at a typical optical retailer. Industrywide, 70 percent of consumers buy glasses and contacts in the same location where they have an eye exam.
Courtesy of an article dated August 11, 2022 appearing in CNBC, an article dated April 27, 2022 appearing in Seeking Alpha, and an article dated March 24, 2022 appearing in Retail Wire, and an article dated April 12, 2019 appearing in CNBC
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