Warby Parker (WRBY)

Eyewear retailer Warby Parker (NYSE:WRBY) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 11.9% year on year to $223.8 million. The company’s full-year revenue guidance of $877.5 million at the midpoint came in 0.7% below analysts’ estimates. Its GAAP profit of $0.03 per share was 55.9% below analysts’ consensus estimates.

Company Overview

Founded in 2010, Warby Parker (NYSE:WRBY) designs, manufactures, and sells eyewear, including prescription glasses, sunglasses, and contact lenses, through its e-commerce platform and physical retail locations.

The company is known for its direct-to-consumer business model and initiatives such as the Home Try-On program and the "Buy a Pair, Give a Pair" social mission.

Beauty and cosmetics retailers understand that beauty is in the eye of the beholder, but a little lipstick, nail polish, and glowing skin also help the cause. These stores—which mostly cater to consumers but can also garner the attention of salon pros—aim to be a one-stop personal care and beauty products shop with many brands across many categories. E-commerce is changing how consumers buy cosmetics, so these retailers are constantly evolving to meet the customer where and how they want to shop.

Competitors in the eyewear retail industry include EssilorLuxottica (ENXTPA:EL), National Vision Holdings (NASDAQ:EYE), and EyeBuyDirect (private).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $795.1 million in revenue over the past 12 months, Warby Parker is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the bright side, it can grow faster because it has more white space to build new stores.

As you can see below, Warby Parker’s sales grew at an impressive 15.5% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new stores and expanded its reach.

This quarter, Warby Parker’s revenue grew by 11.9% year on year to $223.8 million but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 14.6% over the next 12 months, similar to its five-year rate. This projection is eye-popping and suggests the market sees success for its products.

Warby Parker opened new stores at a rapid clip over the last two years, averaging 19% annual growth, much faster than the broader consumer retail sector. This gives it a chance to scale into a mid-sized business over time.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Note that Warby Parker reports its store count intermittently, so some data points are missing in the chart below.

Warby Parker has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 55.1% gross margin over the last two years. That means Warby Parker only paid its suppliers $44.86 for every $100 in revenue.

Warby Parker produced a 56.3% gross profit margin in Q1, in line with the same quarter last year but missing analysts’ estimates by 0.8%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Although Warby Parker was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 5.8% over the last two years. Despite the consumer retail industry’s secular decline, unprofitable public companies are few and far between. It’s unfortunate that Warby Parker was one of them.

On the plus side, Warby Parker’s operating margin rose by 6.4 percentage points over the last year, as its sales growth gave it operating leverage. Still, it will take much more for the company to show consistent profitability.

This quarter, Warby Parker generated an operating profit margin of 1.1%, up 3.7 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although Warby Parker’s full-year earnings are still negative, it reduced its losses and improved its EPS by 19.7% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability. We hope to see an inflection point soon.

In Q1, Warby Parker reported EPS at $0.03, up from negative $0.02 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Warby Parker’s full-year EPS of negative $0.12 will reach break even.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Warby Parker has shown impressive cash profitability, driven by its attractive business model that gives it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 3.7% over the last two years, better than the broader consumer retail sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Warby Parker’s margin expanded by 3.4 percentage points over the last year. This is encouraging because it gives the company more optionality.

Warby Parker’s free cash flow clocked in at $13.21 million in Q1, equivalent to a 5.9% margin. This result was good as its margin was 4.2 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Warby Parker has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 54.1%, meaning management lost money while trying to expand the business.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Warby Parker is a well-capitalized company with $265.1 million of cash and $223.7 million of debt on its balance sheet. This $41.41 million net cash position is 2.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Warby Parker beat analysts’ EBITDA expectations this quarter. On the other hand, its EPS missed significantly and its gross margin fell slightly short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $16.17 immediately after reporting.

Updated: May 22, 2025 at 11:45 PM EDT

Are you wondering whether to buy Warby Parker or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We think Warby Parker is a good business. First off, its revenue growth was impressive over the last six years. And while its brand caters to a niche market, its new store openings have increased its brand equity. On top of that, its admirable gross margins are a wonderful starting point for the overall profitability of the business.

Warby Parker’s P/E ratio based on the next 12 months is 53.8x. Looking at the consumer retail space right now, Warby Parker trades at a compelling valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $21.79 on the company (compared to the current share price of $20.21), implying they see 7.8% upside in buying Warby Parker in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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