Warby Parker slashed its guidance and is reining in costs after its Q2 net loss widened by $21.9 million to $32.2 million, mostly due to a 420 basis point bump in SG&A expenses, including labor at more stores, corporate overhead, costs from going public and tech investments.
The DTC eyewear retailer now expects full year net revenue to rise 8% to 10%, reaching $584 million to $595 million, and adjusted EBITDA margin of 3.8% to 4.4%. That’s down from its May estimate of a 20% to 22% revenue rise to between $650 million and $660 million, and adjusted EBITDA margin of about 5.6% to 6.6%.
Then and now, however, Warby Parker expects to open 40 new stores and is maintaining its goal of expanding its footprint to 900. The company opened nine stores in the second quarter and now runs 175 in the U.S. and three in Canada. Layoffs announced earlier this week won't affect store employees.
Warby Parker has evolved from an online DTC purveyor of spectacles to a more well-rounded vision care company very focused on brick-and-mortar retail. The brand is now offering eye exams at some locations and has expanded into contacts, where revenue doubled in Q2.
In some ways that all appears to be paying off. The retailer added 180,000 active customers in the second quarter, an 8.7% increase to 2.26 million. In addition, its net revenue rose 13.7%, to $149.6 million, and its gross profit dollars rose 10.6% to $86.3 million. But adding contacts, which carry lower margins, was mostly responsible for a gross margin decline from 59.3% a year ago to 57.7%.
The company is dedicated to expanding its footprint despite the costs and its expectations that its store productivity could decline from 80% to 75% in the remaining months of the year.
“We continue to believe that it makes sense to open up stores and that it’s a good use of capital,” co-founder and co-CEO Neil Blumenthal told analysts on Thursday.
Stores have emerged as effective marketing and customer-acquisition tools and may be especially important in a space where trying on goods is key to sales. Still, while Warby Parker may have had an advantage in the eyewear market thanks to its reputation for trendy frames — as some customers come in more often than they need to in order to buy extra pairs of eyeglasses — that also makes it extra vulnerable to the changes in consumer behavior brought on by inflation, according to GlobalData Managing Director Neil Saunders.
The company’s layoffs, while probably necessary, are evidence that it’s headed in the wrong direction, Saunders said. Its operating losses are 3.6 times higher than last year, with net losses on a similar trajectory, according to GlobalData research.
“For all of the short term problems, we believe that Warby Parker remains a disruptive force in the eyewear market. However, it desperately needs to stabilize the bottom line and ensure that expansion and growth is focused very strongly on areas that deliver good returns,” he said in emailed comments. “This will be far less easy in a more constrained consumer economy that is not as conducive to its business model.”