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Warby Parker Goes Public: Should You Buy?


Affordable designer eyewear maker Warby Parker goes public. The Direct to Consumer Selling (DTC) start-up was founded just 11 years ago, but has already disrupted the eyewear industry with its range of styles and its focus on customer service that has spawned legions. loyal fans.

But rather than an initial public offering or the trendier Special Purpose Acquisition Company (SPAC), the trendy eyewear and sunglasses maker will use a direct listing to bypass financial institutions and let insiders, employees and first funders sell their shares directly to the public.

Yet as his sales skyrocket, Warby Parker has been unable to turn a profit. So let’s take a closer look at whether the future is so bright that the eyewear manufacturer will have to wear sunglasses.

Image source: Warby Parker.

A unique way to sell glasses

Eyewear sales are exploding. Warby Parker ended 2020 with more than $ 393 million in revenue. In the past 12 months, revenue increased 33% to $ 487 million. What’s more, sales continue to accelerate: in the first half of 2021, sales rose a further 58% to over $ 270 million, indicating that there is still plenty of avenues for further expansion. .

Warby Parker isn’t your typical mall kiosk sunglasses retailer, or even a LensCrafters-type store (although it does have 145 outlets). Instead, it is an online eyewear retailer, which means it had to overcome consumers’ reluctance to buy something unseen that reflects considerable individuality.

It does this by shipping up to five styles to customers, who can try them on at home to see which one works best and matches their personality (it also offers an iPhone app to try on frames virtually).

Buyers then upload their prescriptions to Warby Parker or use its prescription checker app to get a new one, then wait for their new glasses to arrive. It is also helpful that she has partnered with a number of insurance companies, including Etna, Cigna, Humana, and UnitedHeath Group, for network coverage.

Magnifying glass looking at the financial statements

Image source: Getty Images.

Costly customer acquisition

The system seems to be working. Warby Parker had more than 2 million active customers as of June 30, up from 1.81 million at the end of last year. Many were also drawn to the company’s Buy One, give one program, where for every pair of glasses purchased, it donates a second pair to those in need. He says more than 8 million pairs of glasses have been distributed through the program.

Still, just because a business is doing good in the world doesn’t mean it’s a good investment, and that’s where it gets a little murkier for investors.

After breaking even in 2019, Warby Parker ended last year with a net loss of $ 55.9 million. The loss of income resulted from the 35% jump in advertising costs from the previous year to $ 58.5 million. And although operating losses have narrowed somewhat in the first six months of this year, the company said it plans to continue recording operating losses for the foreseeable future as it attempts to further develop its activities.

And that’s really the difficulty many DTC brands face: the ever-increasing marketing and advertising costs to acquire customers, which now account for nearly 20% of Warby Parker’s sales at the end of 2020, up from 13%. the previous year. Where it cost $ 27 to acquire a client in 2019, last year it jumped to $ 40 each.

Additionally, even though the average revenue per customer rose to $ 218, the contribution to operating profit per customer fell to $ 45. This led to direct operating margins at the customer level of 21%, down from the 26% earned in 2019.

Warby Parker store

A Warby Parker store. Image source: Warby Parker.

A growing physical presence

What investors should be wary of is that Warby Parker appears to be increasing its customer acquisition numbers to soften the blow. Rather than simply dividing the number of customers acquired by the amount it cost to acquire them, as most businesses do, he includes all active customers, which he defines as someone who has completed a purchase during the past year.

So its numbers include a mix of new and existing customers, which muddies the waters and indicates that its chances of becoming profitable may not be easily met.

However, Warby Parker turned to stores as the main contributor of revenue (at least they were before the pandemic). In 2019, stores accounted for 65% of total revenue, but that figure fell to 40% after the COVID-19 outbreak closed them for a period. Points of sale have rebounded to 50% this year with the reopening of stores, but we could see the company continue to grow its physical footprint in an effort to reduce some of those customer acquisition costs.

But the stores aren’t free either, and have actually been a hindrance during the pandemic for retailers who still had to pay rent for their closed stores. Look for Warby Parker’s spending to keep increasing in the future.

Put your green eyes

Warby Parker intends to list its shares on the New York Stock Exchange under the ticker symbol WRBY, but an investor might want to wait before jumping into the stock.

As more consumers shop online, a DTC brand like Warby Parker is expected to experience greater growth, but the eyewear retailer has not indicated it will be profitable growth anytime soon. Because of this, any initial euphoria over its debut could quickly fade under the stern gaze of close scrutiny from the market.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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