Warby Parker shares drop on pressured margins in Q4

Warby Parker (WRBY) shares fell after the eyewear company posted mixed fourth quarter results. Warby topped fourth-quarter revenue estimates, hitting $161.9 million versus the expected $161 million. However, shrinking gross margins overshadowed the top-line beat. Co-CEOs Neil Blumenthal and Dave Gilboa joined Yahoo Finance Live to discuss the results.

While gross margins remain pressured, Blumenthal says they feel "excited" about 2024, noting that initiatives such as expanding holistic vision care can grow customer "lifetime value" and margins over time. Gilboa added they're seeing "more stability" despite inflation and are focusing on providing "value" as demand rebounds post-pandemic.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

BRAD SMITH: Well, shares of glasses and contact lens retailer Warby Parker falling today. The company beat expectations for revenue in its fourth quarter reported a narrower loss compared to a year ago. But what the Street is bumping up against is those gross margins shrinking in the latest quarter.

Joining us now on this, we've got the Warby Parker co-founders and Co-CEOs, Neil Blumenthal and David Gilboa. Great to see you both here. And thanks for joining us to help break down some of what you saw in the quarter and the outlook going forward.

On the margins, the Street hang up clearly on there. What do you believe is going to be part of the formula to really beat on some of the expectations that the Street has for where Warby Parker can perform?

NEIL BLUMENTHAL: Yeah. I think we saw a run up in our share price going into earnings. So we see some return to where we were a few weeks ago happening today, perhaps. But we're excited about this year. We're seeing really strong momentum in the business. We're seeing an acceleration in growth as our 2024 guidance suggests.

And we're seeing stabilization in our gross margins. One of the things that we've been doing is investing in eye exams and contact lenses. And these are great strategic initiatives for us, as we pursue holistic vision care. And it expands the lifetime value of our customers, expands the contribution margin of those customers.

And last year, we made significant investments there. And that had an impact on gross margin. But as we look to 2024 and beyond, we see increased progressive's penetration, which is our highest gross margin glasses product. That will stabilize gross margins, and, hopefully, expand them in years to come.

SEANA SMITH: Dave, taking a step back here and going off of what Neil was just saying, some of the trends or focus areas within your business for the years ahead, what are you seeing though today from the consumer? Are as many customers coming into your store? What does foot traffic look like? And then how is that being factored in, or, I guess, really impacting sales here?

DAVE GILBOA: Yeah. We're coming off an unusual period over the last couple of years, resulting from some hangover effects from the pandemic. But we're encouraged by a lot of the consumer demand signals that we're seeing. And that's true in what we saw at the end of the quarter around holiday and FSA shopping season, and what we've seen year to date in 2024.

And so we're excited about this year. We're not seeing a flood of pent up demand from lower activity over the last couple of years. But we are seeing more stability and some positive signals from our consumers.

There's no question that, overall, there continue to be some macro factors that are impacting, where people are spending their dollars. Inflation over the last couple of years, and, now, higher interest rates mean that people are looking for their dollars to go further. And we've always delivered great value and offered our products and services at a fraction of the price of where people are used to buying glasses and getting exams and contacts.

And so we feel like we're benefiting disproportionately, as more demand comes back into our category.