Warby Parker's stock suffers record selloff as margins were hurt by contact lens sales strength

By Tomi Kilgore

Contact lens outperformance hurt earnings as they carry lower gross margins than other eyewear

Shares of Warby Parker Inc. were having their worst day in the two years since going public, after the eyewear retailer said that strength in contact lens sales continued to weigh on profitability.

Gross margin, or gross profit as a percentage of sales, contracted by 2.1 percentage points, to 54.6% from 56.7% in the same period a year ago, after contracting by 3.1% in the second quarter and by 3.4% in the first quarter.

The company said the drop in gross margin was due primarily to "contacts outperformance," since contacts sell at lower margins than other eyewear.

The stock (WRBY) tumbled 22.9% in afternoon trading, to put them on track for the lowest close since May 31. The stock was also headed for the biggest one-day plunge since it started trading on Sept. 29, 2021.

Warby Parker reported before the opening bell net losses that narrowed to $17.4 million, or 15 cents a share, from $23.8 million, or 21 cents a share, a year ago. Excluding nonrecurring items, earnings per share of 1 cent was flat with last year and matched the FactSet consensus.

Revenue grew 14.2% to $169.8 million, above the FactSet consensus of $164.7 million, while average revenue per customer increased 10% to $284 and active customer rose 1.8% to 2.30 million.

The contacts business had a "record quarter," representing 9.3% of third-quarter revenue, which was 2.4 percentage points more than a year ago, Co-Chief Executive Dave Gilboa said on the post-earnings conference call with analysts, according to an AlphaSense transcript.

He noted that while contacts have a lower gross margin, "their higher purchase frequency and subscription-like purchase cycle are accretive to gross margin dollars," Gilboa said.

For 2023, the company raised its guidance range for revenue to $666 million to $669 million from $655 million to $664 million. The company said it remained on track to open 40 new stores in 2023.

Warby Parker went public through a direct listing on Sept. 29, 2021, and it closed that day 36% above its $40-per-share reference price at $54.49. The stock closed at a record high of $59.50 on Nov. 17, 2021 before reversing lower.

The stock has dropped 18.3% year to date, while the S&P 500 index SPX has rallied 14.1%.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

11-08-23 1441ET

Copyright (c) 2023 Dow Jones & Company, Inc.