Warby Parker Inc. (WRBY) Earnings Call Transcript & Summary

Good morning, and welcome to another session of the Goldman Sachs Global Consumer and Retail Conference. My name is Brooke Roach, and I cover the apparel, softlines, and brand sector here at GS. And I'm thrilled to introduce our next session with Warby Parker. Here with me today is Neil Blumenthal, Co-Founder and Co-CEO; and Adrian Mitchell, CFO. Welcome, Neil and Adrian.

Thank you for having us.

Thank you for having us.

Neil, just kicking off with the discussion of the moment, which is Intelligent Eyewear. You've described it as the beginning of Warby Parker Act 3. How should we be thinking about the changes to the business model if this product is successful over the next few years?

Sure. So if we think about Warby's journey, it's hard to believe we're now in our 16th year, but we started by being one of the pioneers of launching a lifestyle brand online, and we were purely e-commerce. I'd say Act 2 was then going into bricks and mortar, and we've now scaled to over 350 stores and expanded into holistic vision care, selling adjacent products like contacts and offering eye exams. And now Act 3 is just how do we transform leveraging AI. I think like every company on the planet, right, they're using this powerful new technology to drive productivity and expand profitability. But we also look at it as how can we create new products. And the best example of that are the AI glasses or the Intelligent Eyewear that we'll launch later this year. And we have a history of leveraging sort of AI for enhancing customer experiences, whether it's our Virtual Vision Test or our Virtual Try-On, which was the first true-to-scale Virtual Try-On, that trying on glasses is really difficult, and most people aren't good at shopping for glasses because they do it pretty infrequently. But we have this technical challenge of how do you get a third-party object on someone's face and to fit as it would on the nose bridge, on the ears, without 1 million, sort of, measure -- hand measurements per se. And we continue to enhance that product. For example, we now have Glasses Eraser. So you could be wearing your glasses, and our app will erase those glasses and virtually put on the ones that you're trying on. So we have a history of leveraging technology to enhance customer experiences with Intelligent Eyewear, we're so excited. If we think about new product introductions over the last 20 years, if you think about the iPhone, that was marketed first as a phone plus a camera plus an iPod, right? And it ended up being a lot more than that, right? It launched before the App Store even existed, and we couldn't fathom all the things that it was going to help us with our daily lives. Now if you think about Intelligent Eyewear, one way to think of it would be as glasses plus camera plus headphones plus an AI agent. And we're just, as a society, starting to understand sort of the power of some of these AI agents. But as somebody who has been demoing our product, one of the things that I love most about it is that I'm able to leave my phone in my pocket a lot more and sort of leverage this form factor, which is the original wearable, right, to just make my life easier.

As you think about what drives the durability and the adoption of smart glasses, what's unique about Warby's positioning here versus competitors?

Yes. We're designing for all-day, everyday wear. So what is going to make this product successful is if it looks great and it's comfortable and then that it has real utility. We think content capture, for example, is a great intermittent use case, but it's not something that will drive all-day adoption. So if we think about that first piece around style and comfort, right, what's super important is weight, and our eyewear is super lightweight. It has to look great, which I feel like we have a track record of designing eyewear that people love. And then as we think about utility, right, it's got to last. So our batteries at the moment, we're finding that last usage for about 9 hours on a single charge, which is great. And then it just has tons of usage. I was using it to capture a photo through a window, and I said, hey, remove the glare from the photo. And then on my phone, a photo popped up with a picture looking out a window with no glare through it, which was pretty amazing. Or when I'm in between meetings, I'm able to look up at my coworkers because I'm able to ask the glasses quickly, hey, what's my next meeting? as opposed to taking my phone out of my pocket, looking down. And it's just these small things that have significant impact. My co-founder was just walking back from the office and was asking his glasses to create a reminder for him to book a haircut. And the glass has responded, I see your last haircut was with Ryan Cunningham Haircuts. Would you like me to look on the website to see the next available appointment? And that's because, right, we've partnered with Google. There are deep integrations with Google products to start, but also with other apps like Uber, Instacart, and DoorDash. And so there's going to be tons of utility, and we think that if this makes your life easier, people are going to want it and they're going to use it.

What should we watch over the first 6 to 12 months following launch to gauge success? And what metrics will provide the clearest indications that Intelligent Eyewear is meeting or exceeding your own expectations?

The biggest thing that we'll be looking at internally is Net Promoter Score. This has been sort of a guiding light for us. We always believe that if we do right by customers, good things will happen. So we'll be spending a lot of time on customer feedback, whether that's Net Promoter Score, we have different CSAT measurements that we have, focus groups, what have you, looking at customer reviews that will be sort of most important. And obviously, we'll be looking at sort of traffic and interest. This will be available in all of our 350-plus stores. We'll have demos across all of our 350-plus stores. So we'll be able to gauge very quickly sort of interest from a demo perspective. One of the beauties of being direct-to-consumer is that we're interacting with our customers every single day. So we're getting that feedback. And it's what I love when I'm visiting the stores. I usually visit over 50 stores a year. The #1 piece of feedback that I've gotten over the last couple of months is, when are we getting our Intelligent Eyewear? which is exciting to hear from folks.

What are the biggest execution risks around launch in your view? And is Warby Parker prepared for launch? What's known? What's still test and learn?

So when we describe it as Act 3, we don't think it's hyperbole. And that's because sort of every aspect of our business is involved in this launch. So if we think about our supply chain, we've been investing in and building out additional capacity in our optical lab. So we're able to fulfill Intelligent Eyewear. And it's a slightly different sort of process than traditional glasses. We've designed fixtures for our stores that will be delivered to those stores pretty quickly. We've been designing and iterating on our demo processes. And we actually have a bunch of demos running as we speak, and we keep learning and iterating. And what we find that we're tweaking is what are some of the use cases that we want to sort of spend time on. And one of the magical moments is when people use this for live translation, and they're able to hear somebody in another language and have it translate immediately. So just yesterday, I was observing someone testing our glasses, where one person was speaking Italian, the other person was speaking Hebrew, and it was translating in real time. I find that sometimes I'm at a restaurant and there's an ingredient that I'm unfamiliar with. And I feel like I'm pretty sophisticated eater, but I think we're all in those moments, I'm able to point to it and say, hey, what is this ingredient? and then sort of it tells me. So that demo process is really far along, but like everything at Warby, it will iterate. Hardware complete. Software, we're going to be constantly iterating on this, and there'll be, like any sort of tech product these days, over-the-air updates. Every time that there's a model improvement to Gemini or what have you, right, you'll be able to sort of reap the benefits of that through your glasses. So we feel like we're in sort of pretty good shape for launch.

Excellent. One question that we're asking all companies at our conference today is, do you expect a significant increase in efficiency as a result of AI in '27 versus '26, yes or no? And what part of your business will change the most as a result of AI in the next year? Maybe outside of Intelligent Eyewear, what else is happening within your organization on that question?

Sure. I'll start, feel free to chime in by. Across the org, even actually tomorrow, we have WarbyCon, which is an all-day conference that we do for our corporate team once a year in which we bring in some outside speakers, but also people from within the organization speak. And the theme this year, as it was last year, is AI transformation. So there'll be folks on our planning team talking about some of the new models that they built in Claude. There'll be folks on our creative and brand design teams talking about some of the tools that they're using to bring down the cost of creative production, whether that's photo shoots or using -- shooting commercials or what have you, will be -- even we have EAs on our team that are now sort of developing tools to make them sort of more efficient and productive. So across the org, we're just seeing what they used to take maybe a team to a year to do, that can be done now in a quarter or 6 months. An example would be earlier this year, we rolled out a homegrown electronic health records platform. And just as we built our own point of sale, we saw a hole in the marketplace where there was not a single electronic health records platform that any doctor liked. And as a company that employs over 500 doctors in a category in which it's generally hard to hire doctors. So we want to make sure we can recruit and retain the best talent. We want to create the best experience for our doctors and then, of course, create the best experience for our patients. So with a single team in less than 6 months, we built our own electronic health records platform, where if I were to estimate that's just like 2 years ago, it probably would have taken 2 teams probably 2 years to build, or 4 teams maybe like a year. So that is pretty dramatic. And if we think about how that translates, what it means is that our doctors can see more patients without sacrificing any quality of clinical care. And there are these small things that really enhance the patient and the doctor experience. So for example, having night mode on their computer screen. I know this sounds crazy, but if you've ever had an eye exam, you know that those exam suites are generally dimly lit, and that's because it's the easiest way to look into your eye and particularly the back of your eye. So if you have all of these screens that are really brightly lit, right, that just erodes the experience. So there are these small things that when you add up, make a big difference.

Just to build on the great examples that Neil just gave, we look at it also from a capital allocation standpoint, and he provided 2 great examples of where do you go externally for software? Is this something that we can build better, more efficiently, and create a better experience. So when you think about capital allocation, we have so much more degrees of freedom now with AI to be able to build the kinds of customer experiences, the kinds of efficiencies in how our teams work, and also thinking very differently about our CapEx within the business to drive better returns for our shareholders. So it just gives us a lot more flexibility as we actually continue to delight the customer, introduce new categories, and have a differentiating experience within the brand.

One last question about AI and Intelligent Eyewear. Your current guidance excludes both Intelligent Eyewear revenue and any halo effect from the broader business. But I think a lot of people think that there could be some halo. How are you thinking about the halo effect of the brand via traffic, awareness, or customer acquisition? What's the potential here?

Sure. So this will be the biggest marketing launch that Warby has ever done, certainly from the amount of dollars deployed from a marketing standpoint, from just our footprint and how we'll leverage that. Similarly, we have some pretty large partners in Google and Samsung, and you can expect complementary marketing campaigns from our partners as well. One of the things that we've leveraged in the past are pop-ups to help raise awareness and interest in a particular collection. So we'll likely leverage that strategy as well, which also enables us to just do more and more demos. Just like eye exams are a big driver for glasses, we think that demos are a big driver for sales of Intelligent Eyewear because, again, the majority of the country has never tried this product. And the majority of the country, right, doesn't necessarily viscerally understand like how awesome it is to be having a product on your face that fits and looks just like regular glasses yet can do so much more. So we think by giving people the opportunity to do that, that will enable us to drive a ton of sales. Now I was just walking to the office and talking to a colleague and they're like, hey, is something different? Like you sound much clearer than usual. And I was like, oh, no, I'm actually talking to you on my glasses. And it makes sense because these glasses have more microphones than typical earbuds and they're also closer to your mouth. So the audio quality is going to be better for anybody that is ever in a crowded environment or rides like a Citi Bike, for example, it's far safer to have your hearing not obstructed by earbuds. So that way, you can sort of listen to music, your podcasts, have a conversation, but also be aware of your surroundings.

Very clear. Let's switch to the base business, and we'll start with a couple of questions that we're asking all companies at the conference. The first one is on the health of the consumer and the back half environment. What are your expectations for the U.S. vision care consumer in the second half of '26 relative to your recent results? Do you expect things to be the same, better, or worse?

I think we generally have a policy of thinking things are going to be the same unless we see otherwise. And we always plan for the worst, being any decent management team should be doing that. There is some softness in the optical category as sort of we reported during our last earnings call. And since then, The Vision Council, which is one of the few sort of sources of data for the category, put out a report on Q2. And Q2 was actually worse than Q1 despite all the significant weather events that retail experienced in Q1. And what they were showing was sort of lower unit sales in Q2 of frames, lenses, eye exams, sunglasses as well. And what we've been seeing in the category is that where there is growth, it's really driven by price. So our competitors continue to increase prices. They're seeing sort of usually unit growth either flat or down. And we're playing for the long game. So as we've always done, how do we make sure that we have healthy growth that is both units-driven and ASP or AOV-driven. What we tend to do from an ASP or AOV perspective is not just take existing products and just make them more expensive, but how can we provide more value to our customers. So as we've had more complex construction of our frames, those might be higher price points as we've introduced more lens options, as we've introduced new categories like sport, for example, those we believe are healthy drivers of ASP and AOV.

There's a lot to unpack there. Maybe let's start with AOV and ASP. One Question that we're asking every company at our conference is how much of your growth is coming from units versus price mix today? Is there an upper limit on how much price mix can contribute? And do you expect your prices and AUR to be higher, lower, or the same in the back half of this year than the first half?