Warby Parker Inc. (WRBY) Q2 2025 Earnings Call Transcript

Hello and welcome to today's Warby Parker Second Quarter 2025 Earnings Conference 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 start followed by one on your telephone keypad. I'd like to pass the conference over to Jacqueline Berkley, Head of Investor Relations, to begin. Please go ahead when you're ready.

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. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. 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 August 7th, 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. 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. 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 Dave to kick us off.

Thank you Jacqueline and good morning everyone. 2025 has already been a busy and eventful year and we're excited by the progress we're making toward Warby Parker's ambitious near and long-term objectives. Our team delivered strong results in Q2, growing revenue 14 percent year-over-year and expanding adjusted EBITDA margin 130 basis points, both above the high end of our guidance while delivering our eighth straight quarter of accelerating customer growth. These results reflect the team's disciplined execution and ability to adapt in a dynamic environment like we saw in April, including taking decisive actions to mitigate the impact of tariffs. We continue to lay a strong foundation for long-term growth by investing strategically, driving innovation, and forging key partnerships. In particular, we'd like to highlight some recent milestones that demonstrate progress against key pillars of our strategy to drive sustainable growth while creating positive impact along the way. In July, we opened our 300th store at Brookfield Place in downtown Manhattan, and just a few days ago, we opened our very first Target Chop and Chops in Willowbrook, Illinois, in Bloomington, Minnesota. We're only one-third of way to our long-term opportunity of more than 900 standalone stores across north america underscoring the significant white space ahead with additional scale we are able to serve more customers than ever while having even greater impact in q2 we announced that we surpassed 20 million pairs of glasses distributed to people in need through our buy pair give a pair program a powerful reminder of the impact we're having on communities across the world these milestones also reflect a natural evolution in how we are serving our customers today and in the future. One led by a highly productive store footprint and supported by increasingly personalized AI driven digital tools and experiences. We'll speak more to how AI is transforming the way we serve customers later in this call, but we also wanted to highlight how excited we are to be developing devices that will enable our customers to engage AI seamlessly wherever they go. In May, we announced a long-term partnership with google to develop ai-powered intelligent eyewear designed for all day use marking a transformative step for our brand and significantly expanding our tan beyond traditional glasses we believe glasses are the perfect form factor to leverage ai enabling the delivery of real-time personalized insights tailored to what the wear sees and hears as they move through the world glasses allow ai to understand the wearer's environment and surface relevant information without forcing someone to pull out their phone or look at a separate screen imagine the world's smartest assistant ready with answers when you need them and invisible when you don't embedded in a beautifully designed paired glasses made for all day wear we're thrilled to partner with google an ai innovator renowned for technology that powers lives around the globe Coupled with Warby Parker's capabilities in product design, eye care, retail operations, customer experience, and tech-enabled innovation, we believe our partnership is uniquely positioned for this rapidly evolving space. We see tremendous potential in what Warby Parker and Google can achieve together and look forward to sharing more in the coming months. It's been an active and productive first half, and we're pleased with our momentum heading into the rest of the year, which gives us confidence to raise our full-year guidance. Before Steve talks through our financials and guidance, Neil and I will recap the drivers of our Q2 performance. I'll start first with our eighth consecutive quarter of accelerating active customer growth. We ended Q2 with 2.6 million active customers, an increase of 9% on a trailing 12-month basis, with average revenue per customer up 4.6%. Our retail channel remains our primary growth engine, and we continue to see strong growth in active customers generated through our stores. In Q2, we invested across a broad mix of paid media channels to drive brand awareness and acquire new customers. As we shared in February, a key focus this year has been leveraging even more advanced analytics, including media mix modeling to optimize core spend and scale into newer high potential channels. This approach has proven especially valuable in the first half, allowing us to adapt quickly and sustain momentum in a dynamic environment. We're also seeing encouraging results from new streaming and localized campaigns, whether through in-store events or targeted local media aimed at driving awareness for our stores and eye exams. Complementary to our core marketing efforts is strong growth within our insurance business, and we're especially encouraged by the continued ramp of Versant Health. Insurance customers are some of our highest value customers, spending more on their initial purchases, selecting progressive lenses at a higher rate, and returning more frequently. We believe insurance will remain a long-term tailwind as we drive broader awareness of our in-network and out-of-network benefits.

We're pleased to report consistency in our revenue retention metrics across cohorts with revenue retention rates of approximately 50% over 24 months and over 100 percent over 48 months and now i'll pass it over to neil to walk through the remaining drivers thanks dave next we saw strong demand across glasses supported by ongoing product and lens innovation as well as our continued focus on delivering exceptional value to our customers glasses grew approximately 11 year over year with progressives accounting for approximately 23 percent of prescription units sold in q2 we launched five new collections and continue to expand our lens portfolio highlights include the launch of transitions extra active lenses the introduction of our kids assortment online and a collaboration with la-based streetwear brand market studios featuring musician and producer rizza that generated strong engagement These initiatives help us reach new audiences while deepening loyalty with existing customers. As part of our tariff mitigation strategies, we moved forward with a handful of price increases focused on select lens types and add-ons, while still preserving our entry-level $95 price point. Overall, these pricing actions had minimal impact to mix and conversion. In some cases, product mix for higher value add-ons and lens treatments trended above our expectations. We believe this is evidence of the considerable value gap that still exists in the industry. We aim to offer high-quality products and services at an accessible price point, and we continue to believe that combining design, quality, and service is a key differentiator for our brand. The third driver of our Q2 growth was the strength of our highly productive store base, complemented by continued innovation in our digital experience. Retail revenue grew 19% year-over-year, driven by new store expansion and continued healthy growth of our stores opened 12 months or more, consistent with color we've provided on prior calls. We opened 11 new stores in Q2, entering six new suburban markets and expanding our presence in five existing ones, including areas outside of Boston, Philadelphia, Washington, D.C., and Charlotte. Looking ahead, we expect the majority of our new store growth to come from building out under-penetrated suburban markets like these. Over 50% of the major metropolitan areas we operate in only have one store, and we believe we have significant potential to expand our presence in existing markets while also entering new markets. We're also seeing clear benefits from our densification strategy in that markets with the highest number of stores frequently have the highest e-commerce growth, driven by greater brand awareness and customer engagement across channels stores open longer than 12 months average 2.2 million in revenue with four wall margins in line with our target of approximately 35 percent and newer stores are tracking in line with our targets as our physical footprint scales we're also evolving the way we serve customers across channels we launched warby parker without retail stores during a time when less than 2.5 percent of glasses were sold online and our first of its kind home try on program offered a unique convenient way for customers to try on five glasses for five days at home completely free of charge for many years and especially during the pandemic home try on was a novel way to help customers shop for glasses online design. Today, our differentiated in-store experience across 300 locations, combined with increasingly personalized digital tools like our industry-leading, first true-to-scale virtual try-on, have transformed the way people engage with our brand and shop for eyewear. The vast majority of recent home try-on customers live within 30 minutes of a Warby Parker store. As we've scaled and Home Tryon has become a less meaningful driver of our e-commerce business, and as we have seen strong growth from customers directly purchasing glasses online and in our stores, we've decided to sunset the program at the end of this year. We're confident we can serve customers effectively and efficiently through our stores, our leading digital experience, and by leveraging proprietary AI-powered technology. Given home try-on costs are included in our total marketing spend, we'll now be able to reallocate resources toward brand awareness and customer acquisition. This quarter, we also redesigned our customer experience team structure to reflect the evolution in how we serve customers given our growing store footprint and the sunset of our home try-on program. Even with this transition, we continue to expect e-commerce growth in the low to mid single digits this year and believe the channel remains on a path to long-term sustainable growth while q2 growth was at the lower end of this range due to a slower april we saw a sequential improvement throughout the quarter which continued through july as part of our continued investment in the online experience we launched advisor in q2 a personalized, AI-driven recommendation tool within our app designed to replicate the guided retail experience. Early results are encouraging, and we're seeing strength in AI-powered tools like Advisor, partially offset by headwinds from home try-on. Going forward, we believe Advisor will play a meaningful role in driving product discovery and conversion. Lastly, we continue to expand our holistic vision care offerings as part of our broader strategy to serve all of our customers needs. Contacts remained a healthy contributor to growth in Q2, supported by strong adoption from both new and returning customers. Contacts grew 28 percent year over year and now represents 11.5 percent of revenue, yet our penetration remains well below the approximately 20% industry average, highlighting the significant runway ahead. iExams were another key driver of growth. We expanded exam capacity across our growing retail footprint, and in Q2, our iExam business grew 44% year-over-year to account for 6% of total revenue. Eye exams drive traffic, conversion, and average revenue per customer, given roughly 75% of glasses are purchased at the same location as the exam. Today, the majority of our customers still bring prescriptions from external providers, underscoring a significant long-term opportunity to capture more of the vision care journey. We also continued scaling retinal imaging across more locations, an offering that enhances the clinical experience and reflects our commitment to accessible, high-quality vision care. Our performance this quarter reflects the successful execution of our near-term strategy, as well as our team's ability to balance that execution with a focus on our long-term vision. By strengthening our core business and strategically expanding both access and convenience, we are not only meeting customer demand but also shaping the future of our category. We've laid the groundwork for sustainable growth and we're poised to lead our business and more broadly our industry into its next chapter. Before I pass it over to Steve, I want to share a leadership update. After 14 incredible years at Warby Parker, Steve has made the decision to step down from his role as Chief Financial Officer at the end of this quarter to pursue an opportunity outside of the industry. Steve was our inaugural CFO. He started as a team of one and worked tirelessly to build a rigorous strategic financial organization. His leadership has been instrumental in achieving Warby Parker's countless milestones, in particular our transition to life in the public markets. Steve's deep commitment to the company's success and to his team and our impact efforts has created a strong foundation that will be felt throughout our stores, offices, and optical labs for years to come. He leaves our team, operations, and systems in the best place they have ever been. Until a successor is named, Dave will assume the roles of principal financial officer and principal accounting officer on an interim basis. He will work in close partnership with our tenured financial and accounting leadership teams to ensure a seamless transition.

And now, Steve, I'll pass it over to you. Thanks, Neil and Dave. Before I dive into financials, I want to express a tremendous amount of gratitude to Neil and Dave, our board, the finance team, and the broader Warby Parker team for giving me the opportunity to be in the arena with you. I'll now be cheering you on, but from another arena. When I joined Warby Parker 14 years ago, we were a small private company with roughly 30 employees, no stores, no factories. Today, we're operating as a public company at scale with over 300 stores, two optical labs, nearly 4,000 employees, and this is our 16th earnings call. We have our eight core values printed throughout our spaces to remind us what's important. They include phrases like do good, take action, and lead with integrity. My favorite is learn, grow, repeat. I plan to carry these with me. Now on to our financials. I'll begin with a detailed review of our second quarter performance. Then I'll outline our updated guidance for the full year and our outlook for the third quarter of 2025. Starting first with Q2, we're pleased to deliver both revenue and adjusted EBITDA above the high end of our guidance, despite meaningful tariff-related uncertainty throughout the quarter. These results reflect the flexibility of our model and the team's ability to move quickly. Over the course of the quarter, we made significant and timely adjustments to the business, which contributed to our strong financial performance and highlight the levers we have to drive results in a dynamic environment. Revenue for the second quarter came in at $214.5 million, up 13.9% year-over-year. Retail revenue increased 19.3% year-over-year, with store count up 16.4% and e-commerce revenue up 2% year-over-year. Looking at customers, we finished Q2 with 2.6 million active customers on a trailing 12-month basis, representing a consistent acceleration in growth to 9% year-over-year. We've now seen sequential improvements in year-over-year active customer growth for the past eight quarters, reflecting the positive returns from both new and existing stores, marketing investments, and a range of strategic initiatives. We also continue to see strength in average revenue per customer, which increased 4.6% year-over-year on a trailing 12-month basis to $316. This was driven by factors including our selective pricing increases in glasses at the end of April, a higher mix of premium lenses like progressives, and continued growth in both contact lens and eye exam sales. By products, glasses revenue grew roughly 11% year-over-year, and we saw continued strength in our holistic vision care offerings with contact lenses up 28% and eye exams up 44% year-over-year. Contacts increased from 10.2% of revenue in Q2 2024 to 11.5% in Q2 2025. Eye exams increased from 4.8% of revenue in Q2 2024 to 6% in Q2 2025. From a channel mix perspective, retail represented approximately 73% of our overall business in Q2. We opened 11 new stores in the quarter, ending the period with 298 stores. This represents 42 net new stores opened over the course of the last 12 months retail productivity was 101.7 percent versus 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 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, we observed an acceleration in year-over-year growth in Q2. Our new stores continue to deliver strong unit economics, performing in line with our target of 35% four-wall margin and 20-month paybacks. 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 margins. Overall, we continue to be pleased with the performance, growth, and productivity of our store fleet. Over the course of the past year, nearly every new store included an iExam suite, bringing our total number of stores with iExam capabilities to 259 stores, or 87% of our total fleet. Moving on to gross margin, as a reminder, our gross margin is fully loaded and accounts for range of costs, including frames, lenses, optical labs, customer shipping, optometrist salaries, store rents, and the depreciation of store build-outs. Our gross margin also includes stock-based compensation expense for our optometrists and optical lab employees. For comparability, I will speak to gross margin excluding stock-based compensation and one-time items in the quarter, including the write-down of inventory related to our home try-on program, second quarter adjusted gross margin came in at 54.3 percent, in line with expectations, and compared to 56.1 percent in the year-ago period. The year-over-year decrease was driven by tariff-related headwinds in glasses, sales growth of contact lenses, and increased doctor headcount, and store occupancy related to our store count growth. These impacts were partially offset by increased penetration of our higher priced lenses and frames as well as the select price increases implemented at the end of april that impacted may and june shifting gears to sgna as a reminder adjusted sgna excludes non-cash costs like stock-based compensation expense adjusted sgna in the second quarter came in at 104.8 million or 48.9 percent of revenue This compares to Q2 2024 adjusted SG&A of 98.2 million, or 52.2% of revenue, representing 330 basis points of leverage year over year. Within adjusted SG&A, marketing spend was 26 million, or 12.1% of revenue, compared to 22.4 million, or 11.9% of revenue in Q2 2024. With roughly consistent marketing spend as a percent of revenue, disciplined expense management drove leverage across our non-marketing adjusted SG&A categories, which include salaries for our stores and customer experience employees and general corporate expenses, including our headquarters salaries and general operating expenses to support the business. Non-marketing SG&A improved by 360 basis points from 40.3% of revenue in Q2 2024 to 36.7% of revenue in Q2 2025. Non-marketing adjusted SG&A grew just 4% year over year. This reflects our commitment to continued cost discipline and drove our higher flow through in Q2 above the high end of our guidance range. Turning now to adjusted EBITDA, in the second quarter, we generated adjusted EBITDA of 25 million, representing an adjusted EBITDA margin of 11.7%. This compares to adjusted EBITDA of 19.6 million, or 10.4% of revenue in the year-ago period, reflecting expansion of 130 basis points. This was driven by significant non-marketing SG&A leverage. Turning now to our balance sheet, we generated $24 million in free cash flow in Q2 2025, ending the quarter with a strong cash position of $286 million. 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 undrawn, other than $4 million outstanding for letters of credit. Turning to our outlook for 2025, given our strong first-half performance and continued execution across the business, we are updating our full-year guidance, which I'll summarize in just a moment. let me begin with an update as it relates to tariffs as we discussed last quarter we outlined three primary mitigation strategies including shifting our global supplier mix selectively raising prices and closely managing operating expenses all of which we've now implemented with positive results as tariff rates have evolved we've continued to adapt our approach demonstrating our team's ability to respond with agility in near real time The gross impact of tariffs has moderated since our last call, and that, combined with the actions we've taken, have resulted in incremental EBITDA flow-through in our Q2 results and our raised full-year adjusted EBITDA guidance. And now I'll provide additional color on our three key strategies spanning gross margin and non-marketing SG&A. First, we continue to shift our sources of supply to optimize our global vendor mix. Our flexible supply chain has allowed us to quickly adapt to production in response to changing tariff rates. Based on our latest plan, we now expect China to account for approximately a low teens percentage of our total cost of goods sold by year end, and we will continue to diversify our country mix to optimize for the most cost-effective outcome. While China tariffs have come down since our May call, rates for the rest of the world have increased, and we continue to make adjustments in response to these changes. Second, we implemented strategic price increases at the end of April on a handful of lens types and add-ons, while still preserving our core value proposition. Third, we will remain disciplined on costs while continuing to invest in growth. Through the first two quarters of the year, we've delivered an average of 300 basis points of leverage within non-marketing adjusted SG&A, an area that will continue to be a source of leverage moving forward. At the same time, we've kept marketing spend in the low teens as a percentage of revenue. As the tariff and general business landscape evolves, we will remain disciplined and continue to reassess and optimize spend. Taking all these factors into account and the acceleration we saw in the business throughout Q2 and into Q3, we are raising our outlook for the full year 2025. We now expect net revenue between $880 and $888 million, representing approximately 14 to 15 percent growth year over year. The high end of our range implies approximately 17 percent growth in the second half, which is consistent with the acceleration we've seen in the business since May. Adjusted EBITDA of 98 to 101 million dollars, representing an adjusted EBITDA margin of 11.1 to 11.4 percent and 170 to 190 basis points of year-over-year expansion, 45 new store openings, including the five previously announced shop-and-shops within Target stores. We are projecting gross margins to remain in the mid-50s, with adjusted gross margin in Q2 as a good reference point for the full year. We're pleased to continue to guide toward gross margin in the mid-50s, despite operating in a dynamic tariff environment. Finally, we expect stock-based compensation as a percentage of net revenue to be in the 2% to 4% range for the full year. For Q3 2025, we're guiding to the following. Net revenue between $223 and $225 million, which represents growth of approximately 16% to 17% year-over-year. Adjusted EBITDA, of $24 to $25.5 million, representing an 11% margin at the midpoint of our range, or 210 basis points of year-over-year expansion. Similar to the first half, we anticipate adjusted EBITDA margin expansion in Q3 will be driven by leverage within non-marketing SG&A, supported by ongoing efficiencies in staffing our store and customer experience teams, and achieving continued leverage in corporate expenses while keeping marketing spend consistent as a percentage of revenue in the low teens now dave i'll pass it back to you thanks steve and thank you all for joining us on the call today i wanted to echo neil's thoughts and thank steve for a tremendous 14 years at warby parker we look forward to seeing all that you'll accomplish in this next chapter

With that, Neil, Steve, and I are pleased to take your questions. Operator, please open the line for Q&A.

Again, to ask a question, please press star followed by one. We'll now take our first question. Our first question comes from Brooke Roach Goldman Sachs. Please go ahead. Your line is now open.

Good morning and thank you for taking our question. Neil, Dave, I'd love to hear your thoughts on the latest views of the health of the eye care consumer and your confidence in driving continued sequential growth in this mid to high teens range on a go forward basis. And then for Steve, can you just help us a little bit with the magnitude of potential SG&A leverage on a go forward basis? I understood that there's some really nice gains over the course of the next couple of quarters associated with some of these tariff savings actions, but what's the opportunity for that over the next couple of years? Thank you.

Thanks, Brooke. We continue to feel fortunate that we operate in a category that is a health need. So while we sell a fashion accessory, it's also a health product, as you know. And we do see stability in our customer base, and we see that consistency, whether it's in repeat purchasing or in sort of our product mix. We did see some choppiness earlier in the quarter. You know, as you've heard from many companies, April was challenging. We have sort of recovered and have strong trends now that give us confidence for the remainder of the year. But as we've demonstrated over the last few years, that irrespective of the macro environment, we're going to continue to grow at a rapid clip and in a consistent and predictable way by delivering exceptional value and incredible customer experiences. And one inherent advantage, whenever there's a crisis, as a lot of companies face in April, we tend to adapt and move faster than many of our competitors, competitors, and that puts us in a competitive, a better position. So, as an example, we were able to quickly roll out select and strategic price increases that have sort of benefited our growth. Now, those have enabled us to still maintain incredible value for our customers as we saw While competitors raise prices higher than we have, and as they have, you know, for the past 15 years. So we think we're actually even offering more value than we did when we first launched in 2010, which, again, gives us confidence, again, irrespective of how the market is behaving. And I'll pass it over to you.

And thanks for your question on leverage from adjusted SG&A, non-marketing adjusted SG&A in particular. So I'll first just by providing a reminder of what is in our adjusted SG&A stack. So for Q2, roughly $105 million in expense, $26 million was marketing. The remainder of that is really split into a few categories. It's salaries for our retail store teams, our customer experience teams, and then a range of corporate expenses. As it relates to retail, we continue to make strides to better and more efficiently staff to match staffing in stores with demand that we're seeing from customers. For our customer experience team, we talked specifically this quarter, for example, about a restructuring change that we've made to that team due to the fact that we're enabling ourselves to better leverage AI technology and increase our level of outsourcing. That's that $1.3 million charge that we've disclosed. And our ability to more efficiently staff customer experience has certainly been a source of leverage. The next category is really corporate expenses, so headquarter salaries, what we pay to our vendors, what we pay to our consultants. and we take a very disciplined approach to how we allocate capital to all of those areas. Year to date, we've seen roughly 300 basis points of leverage from non-marketing SG&A, and on a historical basis, just to set the stage, in 2023, 240 bps of improvement. Last year, 170 bps of improvement. This year, if the trend continues, 300 basis points of improvement. So So across those categories, we feel very, very confident that we'll continue to drive adjusted SG&A leverage, which will certainly be a part of our adjusted EBIT margin story this year and for years to come.

Great. Thanks so much. I'll pass it on.

Our next question today comes from the line of Donna Telsey from Telsey Advisory Group. Please go ahead. Your line is now open.

Hi. Good morning, everyone. And, Steve, best of luck on your next chapter. As you think about the Google announcement that was made earlier, where are you on the progress there? How do you think about that development, given the importance of those glasses to the overall ecosystem going forward? Tell us a little bit about that. And then with the target shop and shops, I think, what is it, three days or whatever that you're open? I know the first five this year. How are you thinking about next year? And just lastly, the price increases that you took selectively, response to that, what are you seeing from the end consumer?

Great. Thanks, Dana. We're really excited to partner with Google for a number of reasons, but first and foremost, because they're the global leader in AI and their deep mind team and broader organization continue to push the boundaries of what the latest Gemini models can do. and we anticipate that smart glasses adoption will dramatically accelerate when consumers are able to use their glasses not only for photos and audio but when they become the primary interface with which they engage with AI and we believe that Google has very unique capabilities in terms of how advanced their AI is not to mention the scaled assets they they have from the android operating system to gmail map search youtube and so much more that will give wares incredible value when when paired with gemini um and uh since our our founding in 2010 we've been a technology innovator in in the optical industry um and to design products that and fashion health and personal identity and by combining that foundation with google's cutting edge ai and software we believe we can unlock entirely new levels of utility while making sure that our glasses wearers continue to to look good and and feel their best and so um it's uh We believe this is a massive new opportunity, and we've seen computing evolve from desktops to laptops to phones, and we're incredibly excited that as we enter the AI era, Glasses are poised to be the next major computing platform. So it's hard to overstate the size of this potential market opportunity, and we're pleased by the progress that we're making and look forward to sharing more about our product road map and timeline and teacher calls.

And Dana, just to share a little bit about our Target Shop and Shops, it's been great partnering with the Target team. They have a great appreciation for brands and for customer experiences. And we've been able to literally design a Warby Parker and plop it within Target. So you walk into the threshold of the Warby at Target and it feels like any other Warby Parker store. It's staffed by Warby Parker team members, leveraging Warby Parker technology. And so far, we're on track and we've gotten a great response that we're excited about. We've been able to leverage and promote sort of internally from Warby to staff the Warby Parker at Target stores. And this has been a strength of ours across the organization. It's just our great talent pipeline that just having great retention enables us to do. And it's particularly important in our category as one needs to develop expertise around our product assortment, around prescriptions, around opticianry. So we're able to leverage that for our target shop and shop. So the early reception has been very positive. The remaining stores will open this month in August. So yeah, we're excited. With respect to the selective price increases that we took. Overall, well-received. We've seen minimal impact to conversion and mix. And in some cases, we actually saw a stronger uptake on higher value lens upgrades. So as we look across our assortment, again, we're providing greater value in terms of price to quality than we think we have within a competitive landscape for the entire 15 years that we've been in business as we've seen competitors take price. And this is one of the first times that we've actually increased prices over the last 15 years, whereas a lot of our competitors are increasing prices of frames and lenses on an annual basis so we continue to hear from our customers just how much value that they get from what our premium products sold at a very accessible price thank you the next question today comes from the line of mark olschvarger from bed please go ahead your line is now open thanks for taking my question and steve best wishes in your next chapter

So, first, I was hoping you could help us understand the drivers to the revenue growth acceleration you're seeing into July. Is that happening across channels? And how should we think about the contribution from customer growth versus revenue per customer in Q3, Q4? Is where are you seeing the biggest change in trend there? Thank you.

Sure. And thank you for the good wishes, Mark, I'm excited to be able to talk more openly about my next opportunity at some point. It's been wonderful working with you and everyone on the call. As it relates to your question on growth that we're seeing across channel, so really starting in May through to July, as Neil called out, we've seen an acceleration in growth across retail and across e-commerce. So we've been pleased to see that it's been an omni-channel lift across the business, in some ways supported by the pricing changes that we enacted at the end of April that are only reflected in May and June for the quarter, but the positive momentum has really carried through to July. As it relates to how we think about growth from active customers versus average revenue per customer, as Dave Dave called out, we're pleased that this is our eighth consecutive quarter reporting LTM active customer growth up 9%. We continue to see a positive trajectory as it relates to that number with healthy growth and average revenue per customer. This quarter, that number came in at $316, up 4.6%. On our last call, we talked about there might be a slight rebalancing in how we see the interaction of growth driven by those two numbers, where we might see moderately higher growth driven by average revenue per customer, driven by the small set of price increases we implemented, and moderately lower growth from active customers, but we would still contextualize the path that we're seeing for both active customers and average revenue per customers as positive and strong.

Thank you.

And then separately, can you talk a bit more about the warby advisor you called out in the release this morning what are the key capabilities how are consumers interacting with it just any thoughts on the impact that could have on conversion and revenue for customers that rolls out thanks again yeah so this is a new feature that we introduced on ecom that uses ai driven personalized recommendations that recommends frames based on the user's face shape and features, along with their preferences around different styles and colors and materials. And the intent here was really to bring the best parts of our retail shopping experience online, where if you walk into one of our stores, One of our expert style advisors can look at that customer, their face shape and contours, ask them a few questions around what they're looking for, and then help provide personalized recommendations. And now we're able to do that online using AI and all the best elements of our virtual try-on experience. And so we introduced that feature in Q2, and we're seeing very strong adoption in terms of engagement in sales. And that gives us confidence to move beyond what has been a big driver of our e-com business historically, our home try-on program. and the new features that we've introduced are driving strong year-over-year growth and direct e-com glasses purchases that don't involve a home try-on and now we'll have one less message on our site in our marketing materials and we can more effectively reallocate those resources to driving customers to the newer parts of our business that are driving higher incremental returns namely to our 300 plus stores and our ai driven digital features on our site

great thanks for all the detail thank you the next question today comes from the line of oliver chen from td cowan please go ahead your line is now open thanks a lot steve congrats and it's been wonderful to partner with you uh steve dave and neil the google partnership is really exciting We'd love thoughts on as you see competitive differentiation versus the current offerings in the market and also your take on the evolution of distribution. I'm sure that you'll do this in a very customer-centric way. Second question is on all the progress you're making with insurance and reducing friction as well as growing awareness. What's ahead there in terms of how you're thinking about the multi-year opportunity and different things that can happen? to further enhance that, especially as your awareness grows. And finally, Steve, as we think about contacts and progressives, they're both nice opportunities with different margin complexions. Could you help highlight the longer-term impact there and also your vision for Mix, given that they both have nice TAMs as well? Thank you.

Thanks, Oliver. We couldn't be more excited to be partnering with Google as we think about creating the future. These AI glasses are being developed for all day, everyday wear. And what's so powerful about this form factor is that it can see what you see and you can engage with AI in a different way that's generally possible right now. And by partnering with somebody with Google, who literally wrote the research, on artificial intelligence by which other folks have built their tools, right? We're sort of going to the originator of all of this amazing innovation. And if you think about all of the incredible products that the Google ecosystem has that can be leveraged to make all of our lives better and more productive and enable us to leverage our curiosity in ways that we haven't been able to before, frankly. It's something that gets us just incredibly excited and motivated. So the key differentiator, we think, is that these are being designed for all-day use and that the AI is something that will be incredibly useful. The term that we tend to use is helpfulness, and we can't wait until we're in a position to show you the product and for you to try it. In terms of distribution, this is a device and a category that needs to be eyewear first, And the same principles that go into selling and shopping for traditional eyeglasses are going to need to be applied for this new wearable device in that it's unlike other devices or consumer electronics in that it sits on your face. and as we know we all have different facial features from different pupillary distances to nose bridges and we think that we're uniquely positioned to provide an exceptional shopping experience our staff is trained in helping everyone find the absolute best pair of glasses for them that best represents their identity and we think that we're also best positioned and to enable people to test and try and demo this new product that will be different from what people have experienced in the past. So our distribution of now 300 stores, our ability to provide best-in-class primary eye care through eye exams and retinal imaging, Our cohort of some of the best opticians and optometrists in the country, the locations of our stores in some of the best streets and malls and lifestyle centers across the country, really put us in, we think, an incredible position to help develop and grow this nascent market.

As it relates to insurance, we're seeing significant year-over-year growth in our in-network insurance business and continue to be pleased by the early signs from our Versant MetLife integration, we're seeing the cohorts of our newly integrated Versant members ramped in line or ahead of prior insurance cohorts. And we really view this as a multi-year tailwind. And if you look at our longest standing insurance relationships, we continue to see increasing utilization and increasing revenue per member per year, even several years after our initial integrations, and we expect the same with Versant. And we continue to find that our insurance customers spend more in each transaction and repeat more frequently. And so we're eager to make it even easier for people to use their in-network and out-of-network benefits with us so that their dollars go further.

And in that vein, we do continue to pilot relationships with other carriers and and look forward to unlocking additional relationships over time and oliver regarding your questions about contacts and progressives as long-term tailwinds supporting growth for the business i'll talk about each one separately so contacts is a 12 billion dollar market if you annualize our most recent results our contact business is order magnitude $95 to $100 million. So just a drop in the bucket is what we have in terms of the broader market share. The typical contacts retailer at scale sells roughly 20% of their business mix in the form of contacts. Contacts are just an 11% portion of our mix. And so we see a dramatic opportunity just to continue to take share of this large market and see that proportion of our business mix increase over time. I will also say one of the nice things about the contact lens purchase, it's the most subscription-like purchase of all of the products that we sell. We have talked about contact lenses having a lower gross margin profile from a percentage perspective, but given the subscription-like nature and regularity of the purchase, the gross margin dollar profile is certainly very appealing and accretive to our gross margin dollars. Moving to progressives, we'll also lay out the backdrop from a market size perspective. So progressives, trifocals and bifocals make up roughly 40% of all prescription units sold. Just 23% of our business today is made up of progressives. As a reminder, progressives are our highest priced and highest margin glasses products, and that's certainly been a continued driver of increase in average revenue per customer and an increased driver of our gross margin. As a reminder, we'll also say that progressives are largely purchased at retail, given the progressive customer is slightly older, and there's a more complex measurement that needs to be taken called seg height, which can be taken with more accuracy in-store. And so sales of progressives in-store are higher and will be supported by our continued rollout of retail stores. So as we open up more stores, that business line will continue to grow. And we certainly see both contacts and progressives as long-term tailwinds supporting growth over the coming years.

Thanks for all that detail. best regards.

The next question today comes from Paul Coez from the city. Please go ahead. Your line is now open.

Hey, everyone. This is Brandon Cheatham. I'm on for Paul. Steve, I want to add my congratulations. It's been great working with you and best of luck on your future opportunity. Can you talk a little bit about sunsetting your home triumph program?

You know, how much of that is getting reallocated in marketing or elsewhere versus providing potential margin upside in the future just about you know how much of your direct business is initiated through the home trial program uh thanks brandon um the the day we launched orby parker in 2010 uh gq published an article calling us the netflix of eyewear um comparing our home try on program uh to the dvds that netflix mailed at the time and and uh just like netflix has evolved uh their their business model. We've evolved ours over the last 15 years to the point that Home Try On is no longer necessary as part of our core offering. And while we're grateful for how much impact our Home Try On program has had, we're excited to be entering a new era for the business that's center around our 300-plus stores and AI-driven, personalized digital tools. And really, the home try-on program was designed to enable people to try on glasses before we had stores and before technology existed to enable a true-to-scale virtual try-on. And now we're frankly able to solve that fitting problem better using our stores and digital capabilities. and we have included our home try-on costs historically as part of our marketing line item and as we wind down this program we're excited to be able to reallocate those resources and that capital to awareness driving activities and customer acquisition that we believe will drive have higher returns and that we have evidence of higher ROI. Thanks.

And if you're able to share, when might you be able to go to market with your Google AI glasses or when do you anticipate having a prototype ready that you could share with?

So we're very excited by the progress that we're making. We don't have a timeline to share yet, but we look forward to sharing a lot more in future calls.

Thank you. This concludes today's question and answer session and concludes today's call. Thank you all for your participation. You may now disconnect your lines.