Business context and reporting period
Warby Parker Inc. filed this Form 10-K for the fiscal year ended December 31, 2022; it is an annual report, not a standalone fourth-quarter report. The company sells eyewear and related vision-care services through e-commerce and company-operated stores. It ended 2022 with 200 stores, including 150 offering in-person eye exams, and 2.28 million active customers.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net revenue | $598.1 million | $540.8 million |
| Gross profit / margin | $341.1 million / 57.0% | $317.7 million / 58.8% |
| Operating loss | $111.2 million | $143.7 million |
| Net loss | $110.4 million | $144.3 million |
| Adjusted EBITDA / margin | $27.2 million / 4.5% | $24.9 million / 4.6% |
| Net cash from (used in) operating activities | $10.4 million | $(32.0) million |
| Cash and cash equivalents at year-end | $208.6 million | $256.4 million |
FY2022 investing cash outflow was $60.2 million, primarily for store build-outs, supply-chain infrastructure, and software. Operating cash flow less investing outflow was approximately negative $49.8 million, a simple derived cash-flow measure. Inventory was $68.8 million, up from $57.1 million. The company reported no borrowings under its credit facilities; it had a $100 million five-year revolving facility, with $4.2 million of letters of credit outstanding. Operating lease liabilities totaled $173.4 million after adoption of lease accounting on January 1, 2022.
Material changes versus the prior comparable period
- Revenue rose 10.6%; active customers increased 3.6% to 2.28 million. Average revenue per customer rose 6.9% to $263, partly reflecting more progressive-lens purchases.
- Retail revenue grew to $364.2 million from $291.5 million, while e-commerce revenue declined to $234.0 million from $249.3 million.
- Gross margin fell 180 basis points, primarily due to greater contact-lens sales, higher store occupancy and depreciation costs, and expanded prescription services. Higher progressive-lens mix and use of in-house optical labs partly offset the decline.
- SG&A decreased 2.0% to $452.3 million, including lower marketing and nonrecurring listing-related costs compared with 2021. The company reduced marketing spend and eliminated 63 corporate positions in an August 2022 restructuring.
- Net loss narrowed, but remained substantial. Adjusted EBITDA increased modestly while its margin edged down. Stock-based compensation was $98.0 million in 2022, including $73.0 million related to the founders’ grant.
Outlook, risks and unusual items
The filing provides no numerical revenue, earnings, or margin guidance. Management says operating losses could continue as it invests in stores, products, technology, and vision-care services; it expects existing cash, credit availability, and operating cash flows to fund operations for at least the next 12 months. Its stated growth priorities include expanding the retail footprint, strengthening customer engagement, broadening vision care, and investing in technology and supply-chain capabilities.
- Key risks include continued losses, pressure on gross margin, macroeconomic and inflation impacts, customer-acquisition costs, inventory management, and execution of store expansion.
- Supply-chain concentration is material: more than half of cellulose acetate used in many frames comes from one supplier; the company also relies on a limited set of manufacturers, labs, and logistics partners.
- The company is implementing a new ERP system, with delays possible. Management and the auditor identified material weaknesses in IT general controls and financial-reporting controls. Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end; the auditor issued an adverse opinion on internal control. The auditor nevertheless gave an unqualified opinion on the financial statements.
- The company continues to work toward resolution of an OCR investigation related to a 2018 credential-stuffing incident and HIPAA compliance. The filing reports no pending legal matters expected to have a material adverse effect.
- The FDA confirmed in November 2022 that the Virtual Vision Test no longer required 510(k) clearance under the cited basis; the company describes its current marketing approach as subject to the applicable enforcement policy.
- Unusual and significant items include the 2022 restructuring charge of $1.5 million, noncash charitable stock donations of $3.8 million, and adoption of lease accounting, which added lease assets and liabilities to the balance sheet.
Important facts for investors to verify
- Whether revenue growth can be sustained and e-commerce revenue can stabilize while retail expansion continues.
- Whether gross margin recovers as contact lenses and vision-care services grow, and whether new stores generate the expected returns.
- Whether operating cash flow can support planned capital spending and reduce cash depletion.
- Progress and timing of ERP implementation and remediation of the reported material weaknesses.
- Exposure to concentrated suppliers, inflation, inventory obsolescence, and the unresolved OCR matter.
- The effect of stock-based compensation, founder performance awards, lease commitments, and the revolving credit facility’s covenants on future results and liquidity.