Warby Parker Inc. — Q1 2024 Form 10-Q
Business and period: The company sells eyewear and provides optical services through e-commerce and retail stores. This unaudited report covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023, unless otherwise noted. Warby Parker reported 245 stores at quarter-end, including 204 offering in-person eye exams.
Financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $200.0 million | $172.0 million | +16.3% |
| Gross profit / margin | $113.5 million / 56.7% | $94.8 million / 55.1% | Margin +1.6 percentage points |
| Operating loss | $5.1 million | $12.4 million | Loss narrowed |
| Net loss | $2.7 million | $10.8 million | Loss narrowed |
| Adjusted EBITDA and margin (non-GAAP) | $22.4 million / 11.2% | $17.7 million / 10.3% | Improved |
| Net cash from operating activities | $19.9 million | $8.6 million | Increased |
Revenue growth reflected a 3.2% increase in active customers and average revenue per customer rising to $296 from $270. Management attributed the latter chiefly to adoption of precision progressive lenses, bundling promotions, and more purchases of contacts or eye exams with glasses. Retail revenue was $137.1 million versus $110.2 million; e-commerce revenue was $62.9 million versus $61.8 million.
Gross margin improved as glasses, the company’s highest-margin product category, grew faster, optical lab efficiencies increased, and outbound shipping costs declined as a share of revenue. These benefits were partly offset by contact lens sales and higher doctor salaries. SG&A rose 10.6% to $118.6 million, but declined to 59.3% of revenue from 62.3%; higher payroll, marketing, and technology costs were partly offset by lower stock-based compensation.
Cash, liquidity, debt, and other metrics
- Cash and cash equivalents were $220.4 million at March 31, 2024, versus $216.9 million at December 31, 2023. Operating cash flow was $19.9 million; investing cash outflow was $16.4 million, including $14.4 million for property and equipment and a $2.0 million investment in an optical equipment company.
- Inventory was $56.5 million, down from $62.2 million at year-end. Current assets were $296.1 million and current liabilities were $118.5 million at quarter-end.
- No revolving-credit borrowings were outstanding; $4.3 million of letters of credit were in use. In February 2024, the company replaced its $100 million facility with a five-year $120 million revolving facility, with an option to increase capacity by up to $55 million, subject to conditions. Borrowings are secured by substantially all borrower assets; a 3:1 maximum senior net leverage covenant applies when borrowings exceed $30 million.
- Operating lease liabilities totaled $181.5 million on a present-value basis. The company reported an accumulated deficit of $669.5 million. Stock-based compensation expense was $14.0 million.
Changes, outlook, and notable items
- Compared with Q1 2023, revenue, gross profit, gross margin, operating cash flow, and adjusted EBITDA increased, while GAAP operating and net losses narrowed. Store count increased from 204 to 245; active customers rose to 2.361 million from 2.287 million.
- The filing provides no specific numerical revenue, earnings, or margin guidance. Management expects operating losses could continue as it invests in expansion, but believes cash, available credit, and operating cash flows are sufficient for at least the next 12 months. Capital needs depend in part on store growth and investments in labs, distribution, products, technology, and personnel.
- Management cited inflation, interest rates, consumer spending, customer acquisition costs, supply-chain factors, competition, inventory management, and recruiting vision-care professionals as risks. It said inflation’s impact had been limited so far, but higher materials, transportation, labor, construction, and rent costs could pressure results. The company also noted seasonality, including historically higher December demand and costs that may precede revenue recognition.
- After mediation in April 2024, the company reached an agreement in principle to settle related California wage-and-hour and representative-action litigation for $1.95 million. Terms remained under negotiation and required court approval; the cases could continue if settlement terms are not finalized or approved.
- Management concluded disclosure controls and procedures were not effective as of March 31, 2024 because of two material weaknesses: IT general controls and certain financial-reporting process, application, and management-review controls. Remediation is underway, but is not complete; the company could not estimate total remediation costs and cautioned that future misstatements or restatements remain possible.
- Subsequent events included new or extended retail leases, with approximately $3.7 million of commitments under new leases, and a May 2024 donation of 178,572 Class A shares to the company’s foundation, valued at $2.2 million.
Important facts for investors to verify
- Whether revenue growth and gross-margin improvement persist as product, channel, and store mix change, and whether the business reaches sustained GAAP profitability.
- How much adjusted EBITDA depends on exclusions—particularly stock-based compensation—and how operating cash flow compares with ongoing store and technology investment needs.
- Progress and costs in remediating the disclosed material weaknesses, and whether controls operate effectively for a sufficient period.
- Final terms and court approval of the proposed $1.95 million litigation settlement.
- Future use of the revolving facility, compliance with its covenants, lease commitments, and the implications of the multi-class voting structure.