WRBY Q2 2024: Guides Q3 margins at 9% as growth stays modest
- Innovative customer experience: The company is leveraging new technologies—such as the "glasses eraser" feature for Virtual Try-On and an AI-powered styling tool—to make the online experience more engaging and true-to-scale, driving both new customer acquisition and repeat business.
- Growth in eye care and contact lenses: Executives highlighted significant untapped potential in the examination and contact lens segments, which currently represent only 5%-10% of revenue compared to industry averages; they see these as long‐term tailwinds as awareness expands.
- Sustained revenue per customer momentum: The management emphasized that increased adoption of higher-priced offerings, such as precision progressives, coupled with no observed price resistance, supports strong and sustainable improvements in average revenue per customer.
- Q3 Margin Pressure: Guidance for Q3 shows revenue growth only modestly above Q2 while expecting lower adjusted EBITDA margins (around 9% vs. Q2’s 10.4%), which may signal that the business faces headwinds in maintaining its recent margin expansion.
- Reliance on High Marketing Spend: Executives emphasized the need to keep marketing spending at elevated levels to drive customer growth and brand awareness, suggesting that profitability is heavily dependent on continued high marketing investments that could pressure margins if consumer demand weakens.
- Early-Stage Eye Care and Contacts Expansion: The company's eye exam and contacts segments remain in the early innings—with exam revenue at about 5% of revenue and contacts at roughly 10%—implying risks that efforts to boost these lower-margin, yet potentially high-growth areas, may take longer to positively impact overall profitability.
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Industry & Q3
Q: What drives Q3 guidance amid industry headwinds?
A: Management noted that despite broader consumer challenges, their high-income customer base remains strong. They expect Q3 revenue to modestly increase while margins compress by around 140 bps due to disciplined SG&A and stable gross margins, reflecting lessons from recent performance. -
Gross Margin
Q: What upside exists for gross margins?
A: Steve explained that if single-vision sales outpace expectations, improved product mix and optical lab efficiencies could drive margins slightly above forecast mid-50s levels, though conservative estimates remain in place. -
Eye Care
Q: How will exam and contacts penetration improve?
A: Management stated that eye exams and contacts, currently at roughly 5% and 10% of revenue respectively, are in early stages. They see significant long-term potential to boost these percentages toward industry benchmarks as they expand exam services and contacts awareness. -
Store Trends
Q: How are store cohorts maturing?
A: Neil and Steve described a consistent rollout of stores maturing with target 4-wall margins of 35% and 20-month paybacks. Efficient labor management and enhanced exam capabilities continue to underpin profitable cohort performance. -
Customer Revenue
Q: Are revenue per customer trends sustainable?
A: Management observed that strong average revenue per customer is driven by higher-priced offerings such as precision progressives and exam-based sales, with no signs of price resistance, supporting long-term revenue sustainability. -
Innovation & Diff.
Q: What innovations set WRBY apart?
A: Neil highlighted advancements like the “glasses eraser” feature in Virtual Try-On and an AI-powered styling tool, which along with robust digital marketing, create a distinctive customer experience that differentiates the brand. -
Marketing Spend
Q: When will retail lower marketing costs?
A: David noted that marketing spend is expected to remain steady as investments in customer acquisition and brand building continue, with no near-term plans to reduce marketing levels. -
Consumer Health
Q: How are consumer health and sales trending?
A: David reassured that despite previous volatility, their strategy of delivering exceptional value and expanding the store network is producing reliable, resilient consumer demand and steady sales performance.