Warby Parker Inc. — Q1 2022 Form 10-Q
Business and period: Warby Parker sells eyewear and related optical services through e-commerce and retail stores. This unaudited filing covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021, unless otherwise noted. Amounts below are in millions of dollars except per-share data, percentages, and customer/store counts.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $153.2 | $139.0 |
| Gross profit / gross margin | $89.6 / 58.5% | $83.8 / 60.3% |
| Operating income (loss) | $(33.7) | $3.0 |
| Net income (loss) | $(34.1) | $3.0 |
| Adjusted EBITDA / margin | $0.8 / 0.5% | $9.3 / 6.7% |
| Net cash used in operating activities | $(10.3) | $(3.3) |
| Capital expenditures | $16.1 | $8.7 |
- Revenue increased 10.3%. Active customers rose to 2.23 million from 1.89 million, while store count increased to 169 from 134.
- Revenue by channel shifted toward stores: retail revenue was $86.2 million versus $60.8 million; e-commerce revenue was $67.0 million versus $78.2 million. Eyewear products generated $147.3 million and services and other revenue $5.9 million.
- Gross margin fell 1.8 percentage points. Management cited lower-margin contact lens growth, higher store occupancy and depreciation costs, and a prior-year tariff rebate; higher progressive-lens sales and optical-lab scale partly offset these effects.
- SG&A rose 52.8% to $123.4 million, or 80.5% of revenue, driven primarily by higher stock-based compensation and payroll costs, workforce growth, and marketing investment. Q1 2022 stock-based compensation expense was $27.1 million, including substantial expense associated with founder awards and awards whose performance condition was met upon the 2021 direct listing.
- Cash and cash equivalents were $230.3 million at March 31, 2022, down from $256.4 million at December 31, 2021. The company reported a $527.4 million accumulated deficit. Operating and investing cash outflows totaled $26.4 million; cash decreased by $26.1 million during the quarter.
- No credit-facility borrowings were outstanding; $4.0 million of letters of credit were in use under the $50 million revolving facility. The filing reports operating lease liabilities of $151.3 million at March 31, 2022. The company adopted ASC 842 in Q1, recognizing lease assets and liabilities; this makes balance-sheet comparisons with 2021 less directly comparable.
Changes, outlook, and risks
- Compared with Q1 2021, the company moved from positive operating and net income to significant losses, while adjusted EBITDA decreased from $9.3 million to $0.8 million. Higher operating expenses—especially stock-based compensation—and lower gross margin contributed to the deterioration.
- Management expects operating losses could continue as it invests in business expansion, stores, sales, and marketing. It believes cash, available credit, and operating cash flows will fund operations for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- Management reported minimal supply-chain disruption through Q1 2022, but noted uncertainty around COVID-19, consumer behavior, supplier and fulfillment operations, and future demand. It also cited potential inflation in materials, shipping, labor, construction, and rent, and noted that inflation—including conditions related to the war in Ukraine—had so far had limited impact.
- Other stated risks include competition, inventory management, store expansion and related costs, customer acquisition, and the ability to offset cost increases. The top five inventory suppliers accounted for approximately 23% of cost of goods sold in Q1 2022.
- Disclosure controls and procedures were not effective as of March 31, 2022 because of previously identified material weaknesses in IT general controls and financial-reporting process controls. Remediation was ongoing; management cautioned that completion would take time and incur significant costs.
- No pending legal matters were reported that management believed could have a material adverse effect. The filing reported no material changes to the risk factors in the 2021 Form 10-K.
Important facts for investors to verify
- Whether revenue growth and the shift toward retail can be sustained while recovering gross margin.
- How much of future reported results is affected by stock-based compensation, including founder awards, and the resulting potential share dilution.
- Whether operating cash use, capital spending, and store expansion remain within available liquidity; also monitor lease commitments and any future credit-facility use.
- Progress in remediating the material weaknesses and whether controls become effective.
- Subsequent events disclosed after quarter-end: approximately $7.0 million of additional retail lease commitments, a $3.3 million stock donation to the Warby Parker Impact Foundation, and issuance of ESPP shares in May 2022.