Warby Parker Stock

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?

I can take that. So when we think about unit and price, we think about 2 key metrics within our business. We think about active customer growth, which is a proxy for volume. And we also think about the actual amount of spend per customer. So on the volume side, we are very focused on growing active customer growth.

And what we spoke to in the last call was the reality of 6 consecutive quarters, as Neil referenced, in terms of unit volume decline within the category. But we also recognize that at 1.2% share, there's a tremendous amount of innovation that we can continue to do in our branding and in our marketing. So that's something that we're focused on.

There's tremendous innovation coming from the brand when you think about spend per customer. We introduced this month paid warranties. We introduced in the spring our performance sunglass business, which has performed quite well. We continue to have multiple collections, 15 collections each year. We're introducing Intelligent Eyewear. So we're really focused on the customer experience and introducing innovations that allows us to really broaden the category.

We're also very delighted with the momentum we continue to see in areas like insurance and exams. The top of the funnel for this customer is really with the exams, and we continue to see very strong growth in exams, which was 30% year-over-year in the second quarter. That momentum continues, but very excited also about our insurance offering, particularly our out-of-network offering.

The reality is today, we have about mid-teens customers that use insurance within our business, but 2/3 of the category transact with insurance, whether that's in-network or out-of-network insurance. So when we think about the unit and volume, we really think about it in terms of more customers transacting with us and more spend for every customer that spends time with us, whether in our stores or online.

And as we think about that opportunity, Neil, you mentioned a more cautious unit backdrop. It sounds like you're competing for customers, you're looking to gain that momentum. But your guide for the back half is indicative of much stronger sales momentum versus recent trends of what you reported in 2Q. Can you unpack the drivers that underpin your confidence there given the more cautious backdrop for the category?

The biggest piece is we have easier comps, to be honest. So last year, Q3, we grew 15%. In Q4, we grew 11%. So we have an easier path ahead of us.

The other thing I would just add to build on Neil's point is the continued momentum in out-of-network continues to be something that we're really leaning into. We lean into that with our marketing. When our customers come into our stores, we're offering that as an opportunity for us to actually submit the claim for us. And what we find is that out-of-network customer actually shops very similar to an in-network customer.

So you think about the growth in the spend on that visit is actually quite attractive. We're also quite excited with the momentum we're seeing in exams. We're leaning into branding. We're leaning into marketing to really make more aware to our customers that we offer exams because what we see is more than 70% of customers who have an exam actually purchase contacts and/or glasses on that same visit.

So it really expands the amount of spend on that visit. But again, we're very much leaning into awareness, which is an opportunity that Neil and the team are leading, really around making sure that more and more customers get to know us even in this moment where the category feels a little bit more stressed.

So for example, as Neil pointed out, we have -- we came out of the last quarter with 352 stores. We're within 30 minutes of 2/3 of the U.S. adult population, and we have 1.2% share. So there's a wonderful opportunity for us to really lean into awareness, and Intelligent Eyewear will only help us do that as we get through the back half of the year.

One more question as we think about that back half of the year and that opportunity. Have you seen any change in the competitive backdrop as units have become more stressed in the industry? It feels to us like we're seeing some companies really lean into price value with very cheap options for the customer and others try and make up their growth with higher prices. What are you seeing in the competitive backdrop? And where are you gaining or losing customers?

Yes. We continue to see customers -- sorry, competitors raise prices, and we continue to take share just as we've had every year, primarily from some of the larger expensive optical chains, also some high-end optical independent practices. But for the most part, we're now in most of the best shopping centers in the country.

And we'll sometimes see customers who will come in and are just learning about Warby Parker for the first time, and they'll pick out a pair of glasses, and this is a deliberate purchase. And sometime, we'll say, feel free to walk across the center and browse, and sure enough, every single time they come right back because that same product is several hundred dollars more.

So that value proposition is actually over the last couple of years has only continued to increase. So it's now been 16 years that we've maintained that $95 entry point for single-vision acetate frames with anti-scratch, anti-reflective lenses, polycarbonate, which are lightweight and thin. So the driving force for us every single day is how do we make customers happy.

And in a lower traffic environment, right, how do we make the most of all of that. So every single person that crosses that threshold, right, our conversion is some of the highest it's ever been. Our AOV is the highest it's ever been. And our Net Promoter Score and customer satisfaction is some of the highest it's ever been. So we'll continue to be focused on that.

And as Adrian was mentioning, there continues to be opportunity within vision insurance. So we've expanded the number of in-network lives from 32 million earlier in the year to 35 million, so a pretty sizable impact. And then the tool that we rolled out in March that enables us to process people's out-of-network claims on their behalf has also been a great driver of AOV and customer satisfaction.

Let's tie all this together into store comps. For your mature stores, what comp trends are you seeing today? And for newer stores, how should investors be thinking about that sales ramp or that comp waterfall as they grow? I guess are you seeing strong enough trends in both your new and existing stores to give you confidence in continued store fleet expansion on a multiyear basis?

Yes, I can comment on this. The first thing I would say is that all of our stores had very healthy returns from a capital allocation standpoint. Our stores tend to operate in and around 35% contribution margin. They have a payback of about 20 months. And when we look at the investments of our stores, our new stores, our remodels, what we're seeing is a very healthy return, IRR return relative to our cost of capital.

So first and foremost, the stores are actually quite profitable. When we think about the productivity that you're thinking about, Neil touched on this a little bit earlier, record level of conversion, record level of AOV, customers are continuing to spend with us, and there's still tremendous runway that's still left.

So for example, we -- you hear us talk a lot about exams, which we're very excited about. Right now, exams is only 7% of our business. But in the eyewear industry, it's usually 10% to 15%. When you think about insurance, our insurance penetration, as I mentioned a little bit earlier, is in the mid-teens, and a person that uses insurance spends significantly more on that visit than a cash pay customer, yet 70-plus percent of customers transact with insurance, we're in the mid-teens. So there's a tremendous amount of opportunity.

So when we think about store productivity, the future looks even brighter -- excuse me, the future looks even brighter. Intelligent Eyewear, paid warranties, which we introduced earlier this month, greater penetration with momentum in exams and insurance, innovation and newness within the product, all being sold within the same stores and processed through the same optical labs. So we're quite excited about the potential for store productivity and the continued improvement of each of our assets as we touch more and more customers in years to come.

Very clear. Stepping back, how are you thinking about Warby Parker's long-term revenue and margin algorithm today? Has anything changed on the algo as you think about Intelligent Eyewear, strategic initiatives, or the macro that you're seeing?

Yes. When we think about the core business, the long-term algorithm is effectively low to mid-teens growth. When you think about the margin or EBITDA algorithm, what we're looking at is a clear path to 20% margin rate over the next period of time. So we're very excited about what that looks like, particularly with the improvement in the core business as we improve awareness, but also the significant improvement with the penetration of Intelligent Eyewear.

When you think about the top line, there are so many initiatives we've talked about. There's still so much headroom and so much runway. And when we think about the impact of Intelligent Eyewear, we believe that will just continue to help us accelerate our performance as greater awareness within the core business and also touching a lot of new customers who get excited about this product.

I think what's been really fascinating in the demos that we've experienced is even customers that don't wear glasses are excited about the Intelligent Eyewear product. So we're excited to reach not just customers who know us and need corrective vision, but those who just want to take advantage of a better utility in their lives.

On the margin standpoint, we typically have an algorithm that's in kind of the mid-50s range. And when you think about the addition of Intelligent Eyewear, the dollar flow-through is actually quite powerful. So when you think about our current pricing tiers, it's between $95 and $195 with a lot of our customers transacting on the lower end of that tier.

But when you think about the impact of Intelligent Eyewear, even though the gross margin dollars on the frame specifically will be comparable to consumer electronics, the dollar flow-through is actually quite exciting for us. And again, processed in our existing labs and sold in our existing stores. So we look forward to that path to 20% EBITDA margin over time and continuing to have double-digit growth in our business. And we'll share a lot more about what this looks like as we get into 2027.

Adrian, one question that we get from a lot of investors is whether or not the 12.2% guided range of this year, is that the right baseline margin to contemplate as we think about 1 to 2 points of annual EBITDA margin expansion from here? Or do we need to make any adjustments to reflect tariffs, refunds, and Intelligent Eyewear investments?

Yes. So we'll certainly help as we get into 2027 articulate that. The reality is in this investment year, and a year that also has tariffs, it's difficult to compare to last year, and it's also difficult to compare to next year. So what we want to be very clear about is that we continue to see growth in our future. We continue to see an expansion in our adjusted EBITDA.

The path to 20% is very clear for us as we ran a number of different scenarios. And what we'll be able to articulate is the impact based on the volume we expect in 2027 on the total business in terms of our top line growth and also our EBITDA expansion. But the reality is there are a number of initiatives that we see that can actually contribute to both top line and bottom line while doing it in a very capital-efficient way. So we look forward to having that conversation in early next year.

Excellent. The last question that we're asking all questions -- or all companies at our conference today is whether or not you expect to see more margin headwinds or tailwinds in 2027 versus 2026. Any thoughts there?

Net-net, we would expect more tailwinds, but we recognize that there are both headwinds and tailwinds. So for example, one of the things that customers seem to really be responding well to is product warranties. And that's really around attachment rates, and that's for both our Intelligent Eyewear as well as our non-Intelligent Eyewear products.

We see a number of initiatives that we put in place in our labs, our leaders in our labs and our supply chain have done a really nice job of finding additional savings opportunities. You'll continue to see leverage in non-marketing SG&A, which you've seen for a number of years as we've expanded EBITDA margin. Those are just a non-exhaustive list of things that are actually tailwinds on the margin side.

But we also acknowledge and recognize that this year, we have a tariff refund. Next year, we don't. Did a number of other adjustments. But again, the path to 20% is clear for us, and we'll share more about the shape of that in 2027 when we'll have the entire year of Intelligent Eyewear on a run-rate basis without the investments that we've had this year.

Very clear. We're about out of time. Neil, any closing comments or thoughts that you'd like to leave to the audience that we haven't addressed today?

Yes. We're just incredibly excited about the Intelligent Eyewear opportunity. I've been sort of wearing this product now for a couple of months, and it's awesome. And I think what's really been energizing is some of the private demos that we've been doing as part of our sort of dogfooding and testing and seeing people's reaction.

My career started in nonprofit distributing eyeglasses in parts of the world where people are living on less than $4 a day. And I vividly would remember like putting a pair of glasses on someone's face and then being able to see for the first time and like smile [indiscernible] ear-to-ear. Now is not as awesome as that, but it was reminiscent of it.

So I'm really excited. It's great to see 16 years in just our team having it sort of feel like start-up mode again and just the excitement. It's hard work as we prepare for launch, but something that we're really excited about.

Excellent. Well, Neil, Adrian, thank you so much for your time today, and thanks for all of the audience for tuning in.

Thanks for having us.

Thank you.

Hello, everyone, and thank you for joining us, and welcome to the Warby Parker Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Jaclyn Berkley -- apologies, Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Here with me today are Neil Blumenthal and Dave Gilboa, our Co-Founders and Co-CEOs; alongside Adrian Mitchell, our Chief Financial Officer.

Before we begin, we have a couple of reminders. Our earnings release and slide presentation are available on our website at investors.warbyparker.com. During this call and in our presentation, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties.

For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors in the company's latest annual report on Form 10-K. These forward-looking statements are based on information as of August 6, 2026, and except as required by law, we assume no obligation to publicly update or revise our forward-looking statements.

Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of our non-GAAP measures to the most directly comparable U.S. GAAP measures can be found in this morning's press release and our slide deck available on our IR website.

And with that, I'll pass it over to Neil to kick us off.

Thank you, Jaclyn, and good morning.

In Q2, we generated $236 million in revenue, representing approximately 10% year-over-year growth, while continuing to make progress against our core business initiatives, particularly in eye exams, insurance and e-commerce. We also accelerated investment in the pace of activity across the business as we prepare to launch our Intelligent Eyewear collection this fall.

Adjusted EBITDA was approximately $33 million or a 14% margin, including an $11.8 million benefit from tariff refunds, which was partially used to offset strategic investments in the business as we prepare to launch Intelligent Eyewear.

Today, we'll walk through the drivers of our second quarter results, highlight the progress we're making against our strategic priorities and share more about our upcoming Intelligent Eyewear launch. It's pretty incredible to think that after years of work, we're finally entering the home stretch. In just a few weeks, we'll unveil all of the designs within our first intelligent eyewear collection with customer deliveries on track for the holiday season.

16 years ago, Dave, Andy, Jeff and I set out to build a brand people love to reimagine the glasses shopping experience and to design eyewear that enables people to feel like the best versions of themselves. That mission has taken us from one store to more than 350, helped us serve millions of customers and enabled us to distribute more than 25 million pairs of glasses to people in need.

We've scaled by building differentiated capabilities across the business from our own state-of-the-art optical labs and proprietary point-of-sale system to the first true to scale virtual try-on. Now we're bringing that same combination of design, technological innovation and customer-centric execution to Intelligent Eyewear.

Our Intelligent Eyewear will unlock new possibilities within the glasses millions of people wear every day, opening up new ways to explore, discover, remember, navigate and connect, all while keeping your eyes on the world around you. Launching a new category like this is the result of years of ideation and hard work by our incredible team.

One thing we've learned throughout this journey is that when you bring together brilliant, committed people around a shared mission, they're capable of doing great things over and over again. Since our last call, we've been wearing these glasses every day, and I've been amazed by how they help me stay present in experiences instead of pulling me out of them.

A few months ago, I was at a Knicks game with my son and one of my best friends from high school. As it became clear the Knicks were about to seal the victory on their path to their first championship in over 50 years, everyone jumped to their feet. Instead of reaching for my phone, I was able to stay present and use my glasses to capture those precious moments of us celebrating. It's become one of my favorite videos. And every time I watch it, it brings me back to the immense joy we felt that night.

Whether it's capturing an unforgettable moment like a Knicks win, learning a new recipe in the kitchen, navigating a new city more confidently, troubleshooting a complicated project at home or documenting your child's first steps, which one of our team members was able to do, we found ourselves feeling more present, more curious and more connected to the world around us. We believe we're only beginning to expand what's possible with glasses and the role they can play in our lives and remain excited about the opportunity to shape the future of eyewear for years to come.

Turning to the balance of the year. We remain focused on executing against our strategic priorities for the core business while preparing for the launch of intelligent eyewear. With the introduction now just weeks away, we're increasing investment in several areas that are critical to delivering a great customer experience from day 1 and scaling over time.

Over the past several months, we've identified and chosen to lean into incremental strategic growth opportunities. Supported by approximately $14 million of tariff refunds this year, we have greater flexibility to invest across the business as we prepare for launch, strengthening operational capabilities while driving brand and media investments that we believe will build awareness and excitement this year and position us to scale the business in 2027 and beyond.

The second quarter tariff benefit offset those additional investments with the remaining benefit expected to offset similar investments throughout the balance of the year. We continue to take a disciplined and prudent approach to our outlook, which excludes any expected revenue benefit from AI glasses or any benefit from the increased awareness and marketing surrounding the launch.

We are reaffirming our full year revenue and adjusted EBITDA guidance, which now includes the tariff refund benefit and the additional investments we're making ahead of launch. We remain confident in the strategic initiatives underway and our outlook for the second half, which Adrian will discuss in more detail.

With that, Dave and I will walk through the drivers of our Q2 performance. Starting first with our plan to further invest in scaling our industry-leading omnichannel model and delivering exceptional customer experiences. We focused on this in 3 primary ways this quarter.

In Q2, we opened 15 net new stores, including our 350th store at Dorel Marketplace outside Miami as well as suburban markets like Tigard, Oregon and key tri-state suburbs of Westport, Connecticut, Scarsdale and Portchester, New York.

With 29 net new stores opened through the first half of the year versus 22 at this point last year, we're already more than halfway towards our goal of opening 50 stores in 2026, putting us in a strong position as we prepare to launch intelligent eyewear. Our growing retail presence has always been a competitive advantage, and it's one that becomes even more important for demonstrating the power and utility of AI glasses.

We now have 352 stores across 43 states and 2 Canadian provinces, including locations in 48 of the 50 largest metropolitan areas in the U.S. Today, nearly 2/3 of the U.S. population lives within 30 minutes of a Warby Parker store. Our stores will play a critical role in helping customers discover Intelligent Eyewear, experience it firsthand, get an updated prescription and personalized eye care from our network of over 500 doctors and receive ongoing support from our advisers and opticians.

Next, we drove growth within our existing fleet, particularly through eye care and higher-value products. One of our biggest priorities this year has been growing our eye exam business. Today, exams represent 7% of our business. But based on industry penetration, we believe they have the potential to become as high as 15% to 20% over time. We now offer eye exams in approximately 90% of our stores, positioning us to drive growth through greater awareness and utilization.

Our recent surveys show that awareness remains quite low, even among our existing customers. Today, roughly 50% of customers who have shopped with Warby Parker still don't know we offer eye exams. Given that industry-wide, approximately 75% of customers purchase glasses where they get their eye exam, we believe increasing awareness represents one of the clearest long-term growth opportunities.

In Q2, we launched a dedicated eye exam marketing campaign, generating nearly 200 million impressions across linear TV, YouTube, Reddit, social media and other channels. We're encouraged by the early response and intend to continue leaning in here for the balance of the year to drive more intentional, high-converting traffic into our stores. Eye exams grew over 30% year-over-year and reached approximately 7% of revenue, up from 6% a year ago.

Progressive lens penetration reached 23.4%, up 30 basis points from last year, reflecting the benefit of opening more stores with doctors. Behind the scenes, we also built and implemented our own homegrown electronic health record system. Our technology team leveraged AI to build it far faster than would have been possible just a few years ago. The result is a system that's purpose-built for our doctors, improves our patients' experiences and gives us a stronger foundation as we grow our exam business.

We also expanded our product assortment with 5 new collections during the quarter, including the launch of Warby Parker Sport, our first foray into performance eyewear. Sport represents a new technical capability for us. The collection is handcrafted in Italy from lightweight, flexible nylon and features 6 and 8 base wrapped frames, along with performance polarized lenses designed to reduce glare and enhance visual clarity. These are technologies and construction techniques we haven't offered before, allowing us to serve customers in entirely new ways.

From the beginning, we designed the collection with prescription wearers in mind. Given our strong prescription sun business, we saw an opportunity to bring high-quality performance eyewear to prescription customers at a more accessible price point. It's still early, but we're encouraged by what we're seeing and have already started working on our second collection.

Customers continue to remark about how lightweight and comfortable they are, allowing them to take Warby Parker on a run around their local park or on the tennis court. We're attracting a higher mix of new customers in our Sun business, which caters to a returning customer while also seeing strong adoption of progressive lenses.

Overall, we're pleased to see strong conversion in our stores and higher average order values driven by offerings like exams, insurance and new product innovations, including sport. At the same time, traffic remains softer than we'd like. Increasing awareness and bringing more customers to Warby Parker remains one of our biggest opportunities, and we're excited about the role Intelligent Eyewear can play in introducing the brand to millions of new customers.

I'll now turn it over to Dave to walk through the remaining drivers and provide an update on our Intelligent Eyewear launch.

Thanks, Neil. I'll speak to the dynamics we're seeing in e-commerce and the investments we're making to support a successful launch of Intelligent Eyewear and drive customer growth in the back half of this year.

Starting with e-commerce, we're encouraged by the underlying performance in the channel as our recent investments continue to pay off. While e-commerce revenue was flat year-over-year, this reflects the expected and transitory headwind from the sunsetting of our Home Try-On program.

As a reminder, we completed the sunset of Home Try-On at the end of last year. Customers are now served faster and better through our stores and AI-powered virtual try-on experiences and the cost savings are flowing into higher returning investments that support customer growth and margin expansion.

Excluding Home Try-On impact, e-commerce glasses and contact sales order volume grew low double digits year-over-year, giving us confidence that our recent investments are resonating with customers and that the e-commerce channel is set up for higher growth.

In the first half, we shifted marketing spend away from contacts acquisition and toward glasses and eye exams, driving strong online glasses performance. As a result, contacts across the whole business grew in the high-single digits year-over-year, driven primarily by our retail channel and penetration remained steady at approximately 11% of revenue.

We're also seeing a rebound in organic web traffic following the investments we began making late last year, supported by additional content and new personalization features that are driving word of mouth, while also improving conversion and helping customers find the right products more easily.

We are pleased with the underlying trends in the channel and expect the Home Try-On headwinds to become less meaningful in the second half of the year and fully abate by 2027, where we see a path to higher channel growth overall.

I'll now spend a few minutes talking about our plan to launch Intelligent Eyewear this fall. In a few weeks, we'll unveil the full collection and share pricing, technical specifications and the experiences we've built alongside our partners. We'll also begin welcoming analysts, media, partners and other guests for early access, giving them a firsthand look at the collection and everything it can do. We can't wait to share it with you.

What's especially encouraging is the early interest we're seeing from customers. When Neil and I visit our stores, usually the first question we hear is, when can I get to AI glasses? We hear it on nearly every visit. That excitement gives us confidence that people are ready for eyewear that combines the fit, style and comfort they expect from Warby Parker with entirely new everyday capabilities and utility.

Defining this new category starts with the product itself. People won't wear Intelligent Eyewear unless they love how the glasses look and feel, and they won't make them part of their everyday routine unless they deliver real utility. That's why we've obsessed over every detail, balancing style, comfort and fit with battery life and exceptional technical capability.

At Samsung's Galaxy Unpack last month, we shared that the glasses deliver approximately 9 hours of battery life based on typical usage, a critical milestone for all-day wearability. By pairing timeless design with the power of Gemini, we are empowering people to get things done, answer questions, learn new things and stay more present throughout their day.

For more than 15 years, our customers have trusted us to make buying eyewear easier and more approachable. That trust becomes even more important as eyewear becomes sintelligent. Together with Samsung and Google, we're combining leading AI capabilities with a customer experience centered on privacy and trustworthiness for both the wearer and those around them. As a company that's entrusted with our customers' vision and eye health, we take this responsibility incredibly seriously.

And finally, we believe our omnichannel model will be a key competitive differentiator. Buying intelligent eyewear is fundamentally different from buying most consumer electronics. These products not only address a health care need and become a valuable everyday utility, but they are a fashion accessory and a core part of your identity.

Customers want to try them on, understand how they work and receive expert guidance, especially if they need prescription lenses, all in one place. Beyond the point of sale, customers also expect ongoing support and service.

Our stores, our doctors and our optical expertise allow us to deliver an experience that extends well beyond the initial purchase, an advantage that will only grow in importance as this category evolves.

Of course, none of this happens without a tremendous amount of work behind the scenes. We're confident in our progress, but there's still important work happening across the company every day as we prepare for launch this fall. We've been investing in our brand and go-to-market efforts ahead of what we expect will be one of the biggest moments on our journey to date. We're expanding our optical lab capabilities, strengthening our quality control processes and ensuring we can consistently deliver a product that meets the high standards customers expect from us.

We're training thousands of team members across our stores, customer experience, optical labs and operations teams, so they're ready to introduce customers to an entirely new category of eyewear. We're also continuing to invest in the technology and systems that will support everything from orders to fulfillment as we scale.

Our final strategic priority this year is driving brand awareness and customer acquisition, including capturing vision insurance spend. In the second quarter, active customers grew 4.1% over the trailing 12 months and average revenue per customer increased 6.6% year-over-year. While we're pleased with the continued growth in average revenue per customer, we expected to see stronger active customer growth and attracting new customers is a key priority in the back half of the year.

We're addressing this in several ways. First, we're entering the largest marketing moment in Warby Parker's history. In the second half of the year, we'll see a significant increase in total brand and marketing investments when you include the contributions from both Warby Parker and our Intelligent Eyewear partners. We expect that increased visibility to drive awareness and support traffic and customer acquisition in the back half of the year and beyond.

Second, we're building on the momentum we're seeing in eye exams. We've expanded our marketing efforts around eye exams and are testing additional initiatives to increase awareness and engagement. Eye exams are a highly effective customer acquisition channel, driving intentional traffic that converts at attractive rates and creates long-term high-value customer relationships.

Finally, insurance continues to be an important growth opportunity, and we're encouraged by the progress we're seeing. As of the end of Q2, we had over 35 million in-network lives, and we are making meaningful strides across both our in-network and out-of-network offerings as we build the infrastructure, systems and partnerships to make insurance a more seamless part of the customer experience.

We saw over 20% growth year-over-year in our in-network business with insurance penetration reaching approximately 8%, up from 7% a year ago. We're also very encouraged by the adoption of our out-of-network submission tool, whose penetration has now surpassed our in-network business.

By enabling customers to submit claims seamlessly at the point of sale, we're making the reimbursement process significantly easier while also driving higher average order values. While we're still in the early innings, we're strengthening relationships with existing insurance partners, expanding access for more customers and believe there's a significant opportunity to increase insurance penetration over time.

As we look ahead, we expect higher active customer growth by the end of the year. We're already seeing improving in-period customer growth trends, and we expect those to be reflected in our reported Q4 active customer growth. The Home Try-On headwind to customer growth will continue to diminish through the balance of 2026, while our increased marketing investment, continued momentum in eye exams and insurance and the launch of intelligent eyewear are all expected to support customer growth. Our contacts business will remain a smaller source of new customers as we continue to prioritize glasses, exams and holistic vision care customers.

And now I'll hand it over to Adrian to cover our financial results and guidance.

Thanks, Dave. Good morning, everyone. Today, I'll review our second quarter results in more detail and our guidance for the third quarter as we reaffirm our full year guidance for 2026. Before I review the financials, I'd like to briefly comment on the investments we're making this year and how we're approaching the use of tariff refunds. We entered 2026 knowing this would be one of the most important years in Warby Parker's history.

Our #1 priority this year is the successful introduction of intelligent eyewear, defined by delivering the most compelling product and shopping experience in the market while continuing to execute against our core business priorities. As we enter the final stretch ahead of launch, we identified additional opportunities to invest in our technology infrastructure, optical labs, retail operations and supply chain that we believe are critical to integrating intelligent eyewear capabilities into the core Warby Parker business. This enables us to deliver an exceptional customer experience from day 1. A large portion of these investments include one-time foundational investments to support the launch and the balance are recurring expenses that will become part of operating the integrated business over the longer term.

Our original full year and Q2 guidance did not contemplate any tariff refunds. The $14.4 million tariff refund benefit we are recognizing this year provides us an additional source of funding. We're using that benefit to offset the additional operational investments we made in the second quarter and expect to make through the balance of the year.

It also provides us the flexibility and capacity to increase our investments in brand, media and customer acquisition strategies in the second half as we build momentum heading into 2027. We're doing so while continuing to maintain a prudent outlook that excludes any revenue contribution from Intelligent Eyewear and any potential halo benefit on the core business.

To provide some additional detail, included in the $14.4 million tariff refund is an $11.8 million benefit in Q2 for inventory sold through the second quarter and a $2.6 million reduction to inventory that will be recorded through cost of goods sold as inventory turns in the second half of the year.

The additional investments in Q2 were approximately $6 million, which were offset by the tariff refund and a significant portion of the remaining $8.4 million will be used to offset additional investments we plan to make in Q3.

At a later time, we'll provide more detail on the go-forward operating model and expected run rate expenses for 2027 relative to the revenue we expect to generate with Intelligent Eyewear based on the growth investments we make this year.

With that context, let me turn to our second quarter results, which include the $11.8 million tariff benefit. Let's start with the second quarter revenue. Second quarter revenue was $235.5 million, up 9.8% to last year and within our guidance range. Retail revenue increased 13.6% year-over-year and e-commerce revenue was $58.7 million, down 0.3% year-over-year due to lapping a period that included home try-on.

Excluding that impact, e-commerce glasses and contact sales order volume grew low double-digits year-over-year. On a full year basis, we continue to expect e-commerce growth to be in the low single-digit range year-over-year as the headwind from home try-on diminishes in the second half and the underlying trends in the channel remain healthy.

Turning to gross margin. In the second quarter, adjusted gross margin was $136.9 million or 58.1% of revenue, 380 basis points above last year. The increase was primarily related to the tariff benefit, which drove 500 basis points of margin improvement relative to last year. These benefits were partially offset by modest deleverage in the fixed cost portion of gross margin. This included higher doctor headcount as we hired ahead of plan to support further growth in eye exams, retail occupancy costs as we accelerated store openings ahead of launching intelligent eyewear and costs associated with enhancing quality control processes that we implemented in our optical labs.

In total, our eye exam business grew over 30% year-over-year. These investments in our eye exam capabilities, retail locations and optical labs support future growth as we prepare our store fleet for the rollout of Intelligent Eyewear.

Now shifting to SG&A. As a reminder, adjusted SG&A excludes non-cash costs like stock-based compensation expenses, non-cash charitable donations and non-recurring expenses. Second quarter adjusted SG&A expenses were $119.3 million or 50.6% of revenue, 170 basis points higher than last year. This was primarily driven by increased retail compensation and higher technology investments related to integrating intelligent eyewear capabilities into our business. This was partially offset by customer experience efficiencies.

Second quarter adjusted EBITDA was $32.9 million, which includes an $11.8 million tariff refund benefit for inventory sold through the second quarter. As a percent of total revenue, adjusted EBITDA was 14% or 230 basis points above last year, which for the quarter was net of investments.

As we look to the balance of the year, let me provide some additional context around the key drivers of our second half outlook. Starting with gross margin. We expect expansion in the second half, supported by product mix, operational initiatives and the launch of our first-ever paid protection program. In addition, the remaining tariff benefit will be offset by continued investments in our business.

Within marketing, we plan to meaningfully increase our total brand and media investments, which will be shared with our partners as we scale intelligent eyewear campaigns. As I mentioned earlier, we are planning for additional investments in the third quarter. The majority of the remaining $8.4 million tariff benefit would fund those investments this quarter, which is reflected in our outlook. As we move into the fourth quarter, we expect to benefit from several initiatives to drive top and bottom line and a more favorable year-over-year comparison.

Now shifting to capital allocation. We ended the second quarter in a strong cash position of $293 million. We generated approximately $7 million in free cash flow in Q2, which included $3.4 million of cash collected from tariffs and the associated interest. We continue to prioritize reinvestment in the business while maintaining optionality through our $100 million share repurchase authorization.

Now let's turn to our outlook for 2026. As we look to the balance of the year, we expect to build on the progress we've made across our strategic priorities. We're seeing encouraging momentum in areas like e-commerce, eye exams and insurance, and we plan to make meaningful marketing investments alongside our partners as we launch intelligent eyewear. We'll also introduce new products and services, including a pay protection program. Taken together, these initiatives support our confidence in the remainder of the year.

Our outlook continues to exclude any revenue benefit as we launch Intelligent Eyewear. Our reaffirmed adjusted EBITDA guidance incorporates the benefits of tariff refunds recognized in the second quarter and our decision to invest all of those proceeds back into the business in the third quarter as reflected in our guidance.

For the full year 2026, we are reaffirming our prior guidance. This includes revenue of $959 million to $976 million, representing approximately 10% to 12% year-over-year growth. Adjusted EBITDA of $117 million to $119 million, which equates to an adjusted EBITDA margin of 12.2% across the range and 130 basis points of expansion year-over-year.

Turning to the third quarter outlook. We are taking a prudent stance on growth in the third quarter. We continue to make investments that we expect will improve active customer growth over time while helping offset the traffic headwinds we're seeing in the category. As a result, we are guiding Q3 to revenue of $243 million to $246 million or growth of approximately 10% to 11% year-over-year.

Adjusted EBITDA of $26 million to $28 million and an approximately 11% adjusted EBITDA margin at the midpoint of our range. While the third quarter also represents our toughest revenue comparison of the year, we've already seen underlying trends improve on a 2-year basis as the year has progressed, including in July. We believe our outlook appropriately balances improvements across the business with the more challenging revenue comparison and the incremental investments we're making ahead of launch.

We expect strong year-over-year growth in the fourth quarter, supported by improving e-commerce trends as the home try-on headwind diminishes, increased investments in our upcoming marketing campaigns and a more favorable year-over-year comparison.

With that, I'll now pass it back to Dave for closing comments.

Thank you, Adrian. We're entering an exciting new chapter for Warby Parker. Over the past several years, we've built the capabilities, partnerships and infrastructure to prepare for this launch while continuing to strengthen our core business. We look forward to sharing more with you in the coming weeks.

With that, operator, please open the line for Q&A.

[Operator Instructions] Your first question comes from the line of Brooke Roach with Goldman Sachs.

Neil, Dave, Adrian, I was hoping you could dive a little bit deeper into the trends that you're seeing in your stores business. I think everyone understands what's happening in e-commerce, but the comments on traffic that you made in the prepared remarks are interesting. And I'm curious, if you can dive a little bit deeper into what's driving traffic trends in your retail business relative to where it was before, the changes and the preparations that you're making as you set up for increased traffic into the back half of the year with the Intelligent Eyewear launch and how you're thinking about your stores business contribution, both for the rest of this year and on a multiyear basis?

Brooke, this is Neil. So what we are seeing across the category in the industry, especially as we speak to some of our peers is continued sort of softness, whether that is in traffic or in units, most of the category over the last year or so has been growing through price. We are seeing in our stores strong conversion. We're seeing our highest average order values that we've ever seen. We continue to see strong units per transaction and some of our highest customer satisfaction rating. So once customers cross that threshold and enter a Warby Parker, we're delivering incredible customer service and providing the products that people want. We continue to be focused on driving that incremental traffic, and you'll see us continue to make bigger and bigger marketing investments.

Now from a P&L perspective, you'll see that be consistent in that low double-digit range as a percent of revenue. But as we prepare to launch AI glasses, right, some marketing costs will be shared with our partners. You're going to see campaigns around promoting eye exams. We've run some pilots over the last quarter or 2 that yielded promising results, and we'll be focused on not only raising awareness about the Warby Parker brand, but that we offer holistic vision care and provide eye exams. You'll also see us continue to build on our insurance business. So in expanding the number of in-network lives that we serve as well as continuing to enable our customers to use their out-of-network benefits and there's a big awareness component there as well.

Just to add a little bit of commentary in addition to building on Neil's comments. The most important takeaway for us in the second quarter is that we actually gained market share. So when you think about the product innovation, the newness and our expansion of stores, we continue to see that the investments that we're making are actually paying off. What we did acknowledge, as Neil spoke to was some of the headwinds in the industry around traffic is something that we're also grappling with. And so experimenting with new customer acquisition tactics, including expanding our exam campaign, using some new tactics with paid media, we're doing some optimization with direct mail.

In addition to increasing our number of lives, as Neil spoke to, we are now at about 35 million lives in network insurance. And when we spoke last quarter, that was about 32 million, so about a 10% increase. So we're doing a number of things. And what's encouraging given some of these experiments is what we've seen in period now is an elevation or an increase or rebound in active customer growth this period. But as we think about on a trailing 12-month basis, we will continue to see a dip in the third quarter and a strong rebound in the fourth quarter. So something we're very clear about and something that we're actually addressing.

Great. And then just one quick follow-up for Adrian. Can you outline how you're thinking about the fixed versus variable cost structure within your SG&A as you look to potentially significantly increase the number of units that are moving through your ecosystem in the back half of this year and scaling into '27 and '28?

Absolutely. As you think about this year, we do acknowledge that there's an inherent degree of messiness as we're launching this new intelligent eyewear product at scale. So as we think about those choices, we've made deliberate choices to spend in areas where it makes sense because it's really important for us to prepare our teams and our business to scale intelligent eyewear. For example, we do recognize as we look at '27 and '28 and beyond that the same stores, the same digital platform will be actually selling this additional category at a higher price point than what we're actually experiencing today. So we do believe it's accretive.

As you think about this year, it's a little bit messy. So let me give you a tangible example within this ambitious agenda that we're actually pursuing. The reality is integrating Intelligent Eyewear into our business really touches almost every process and every system across the company. But some of them are absolutely things we have to do in order to integrate Intelligent Eyewear, and there's some opportunistic things that we've actually pursued as we actually went through the quarter. So for example, our current product today does not have 0 numbers. Every intelligent eyewear product will have a 0 number.

So you can think about the implications in our retail POS system, our inventory tracking system, our order management system, our exchange processes. Those are things that we're investing in that makes this year a little bit muddy. But we've also taken -- made the choice to invest portions of the tariff refund in things that we view as opportunistic.

So as we went into this year, we did not plan and reflect in our guidance anything around paid warranties. So we have to build that system that touches our retail POS, our website, our app system. But the reality is that's a high-return opportunity for us and something that we decided to pursue and approve to pursue in the quarter.

So we're just really thinking through those onetime investments. A large portion of the investments this year are onetime to integrate Intelligent Eyewear into our business. But as we get later into the year, we'll be able to provide much more clarity around the run rate of our business in terms of expenses, also inclusive of Intelligent Eyewear volume as well.

Your next question comes from the line of Oliver Chen with TD Cowen.

Regarding your comments on active customer growth, what are you seeing improving in period that gives you conviction on improvement? And why was it different from what you expected? What do you think are some of the variables contributing to that in addition to sunsetting the Try-On program?

And second question on the exciting AI glasses ahead. How are you approaching inventory management in terms of you'll have a lot of demand. So how are you thinking about how to feed into that and planning accordingly, yet ideally not having too much inventory? And second, the framework for pricing and margins because the consumer electronics sector can generally have a lower margin. So I would love your thoughts.

Oliver, I can start with the active customer growth question where we are continuing to see positive signals across the business, as we mentioned, within e-com, which, as you know, has been a drag on overall growth over the last few years as our Home Try-On program as we work to make that a smaller part of our business and then sunset at the end of last year.

As we look at the remaining parts of e-com, direct purchases of glasses and our contacts business, we continue to see strong positive growth there and expect that to continue and kind of outshine the Home Try-On headwind, which will continue to diminish and be fully diminished by the end of the year. We're also seeing strong positivity in our exam business, and we're leaning into that and really running our biggest marketing and promotion campaign around exams in the history of the business, and that's paying dividends and driving high-value customers that are converting and purchasing products in addition to those exams.

We also continue to see strong growth in our insurance business, both in network, where we're adding lives and seeing increased utilization. Again, those tend to be our highest value customers and spend more and come back more frequently. We're also seeing positive results in customers using their out-of-network benefits. And this year, we've implemented a number of tools to make that process easier and the reimbursement automatic for those out-of-network customers. And so there are lots of positive signals that we're seeing and leaning into.

As we noted, there continue to be headwinds across the category in terms of traffic in units outside of smart glasses, which is sort of the one bright spot that we're hearing from peers. And so we're very excited to introduce our own product there later this fall and expect that to generate lots of excitement and lots of traffic and footsteps into our stores.

And Oliver, this is Neil. I'll chime in on some of the inventory management and margin questions that you had regarding intelligent eyewear. You'll see us offer demos across our entire fleet of 350-plus stores. Similar to how we offer our current eyewear, right, in that the majority of customers come in, they try on our glasses and then they place an order and then we customize them, right? We make them individually for them out of our optical labs and ship them direct to our customers.

So relative to non-optical categories, right, we carry very little inventory in our stores with the exception of Sun. We certainly will be offering a takeaway for our Intelligent Eyewear, and we think that, that will be a higher percentage than our existing business and are prepared for that.

From a product margin perspective, on a percentage basis, Intelligent Eyewear will be slightly lower than our existing product, as we know, as you mentioned, the higher cost of consumer electronics. But on an absolute dollar basis, it will be the same or higher and you'll see that flow through. You'll see it in our gross margin line because a lot of those fixed costs that we have in COGS like our retail occupancy, our doctor salaries, right, those will remain constant. So we'll then have flow through throughout the entire P&L.

Oliver, just to add a little bit more color on the operation. The key thing that we're looking at here, as Neil and Dave pointed out, is that this is a higher unit cost item, and it's also a consumer electronic item. As it relates to managing our inventory, preorders this fall is going to be a key indicator for us of signaling demand and the trajectory of that demand. So we have plans in place to really look at those numbers and really begin to make sure that we have the right flow of inventory coming in or inventory receipts coming in to be able to meet that demand.

The last thing I would say is, from an investment standpoint, there are a number of things that we're navigating. So for example, with this being an electronic item, we're making retrofit changes in our labs. So, for example, our workstations are basically being designed to eliminate electrostatic discharges, which can damage the product. We're also expanding out space to be able to actually manage this. But as important, we're actually improving our inspection processes. We're strengthening our loss prevention processes. All of these are the implications of having a higher unit product that's really cutting edge as we think about the introduction of Intelligent Eyewear. So just some additional color on how we're managing the inventory side as well, both from a demand standpoint and also a cost standpoint.

Your next question comes from the line of Dana Telsey with Telsey Advisory Group.

As you think about your stores, any update on the shop-in-shops and Target, how many will be done there and what you're learning from that? Will you have the AI glasses in those shop-in-shops? And then with the launch of the AI glasses, how do you think of the setup of the store? Does it take away from many other glasses? Is it a new fixture that you put in? And does this adjust any of your thoughts about the number of new store openings going forward annually? And then just lastly, on the insurance portion, how is that going? What are the next steps that we should look at to show progress there?

Thanks so much for your questions. We'll start with your question about our Target rollout. We're rolling out 5 new stores this fall. Unlike the prior 5, where we experimented with locations sort of in the middle of the store on the pad or on the perimeter. These will provide some additional external signage or in new markets. Yes, they all will have our intelligent eyewear available for sale into the demo. This is a continued opportunity for learning and part of our core value around learn, grow, repeat. Everything that we do tends to be very deliberate. We built a strong foundation for them for further growth.

And on the insurance side, we're pleased with the progress that we're making. Some of the markers that you should look for are the number of lives that are in network, which we added millions of lives between last quarter and this one. We've already added more lives in the current quarter and are continuing to deepen our relationships with carriers.

And we're seeing strong utilization, both of in-network and out-of-network benefits. As a reminder, across the category, 2/3 of transactions use in-network benefits. For us, that's less than 10%. So there's a massive opportunity for us that we're spending a lot of time focused on and believe that there's a lot more potential.

And Dana, I think you had one additional question around store openings. The last 2 years, we've opened approximately 50 stores per year. In terms of your future modeling, I think it's fair to assume that level of openings going forward.

Your next question comes from the line of Mark Carden with UBS.

So I wanted to ask on your updated guidance, what your underlying assumptions are for fuel costs for the back half of the year? Does it build in any underlying improvement on that front? How much of an impact could we see on cost structure there? And then on the tariff refunds, do you believe this is likely to be a final number or could there be additional indirect benefits rolling in?

Mark, it's great to be with you. On the fuel piece, we expect there's going to be continued volatility. I think the thing that we're most excited about is one of the operational improvements that we've done is actually working with some new shipping carriers, which will actually be a benefit to us in terms of margin given some of the rates and the scaling that we've been doing in the month of July.

As we think about the tariff benefit, the full benefit this year is the $14.4 million, $6 million we invested in Q2. We expect to invest approximately $8.4 million in Q3, and maybe there's a little bit that spills into the back portion of the year.

The thing that I'd be thinking about as we think about the overall EBITDA benefits is on one dimension, we have the tariff refunds offsetting the incremental investments, but we do have other operational initiatives that will contribute through the end of the year. We also talked about this new paid protection program, which will benefit both revenue and a high margin rate flowing through to EBITDA as well in addition to significant investments in marketing.

But from a P&L standpoint, we'll continue to see low teens there while we're actually having support from our partners in driving traffic, driving productivity. So as you kind of look at the full sauce, that really reflects how we're thinking about our EBITDA guide. But the $14.4 million is what we have projected for the rest of the year, and I think that's going to be it in totality.

Your next question comes from the line of Mark Altschwager with Baird.

I wanted to follow-up on the outlook. Just first, for Q3, anything you're willing to share on quarter-to-date trends relative to your guide and how you're thinking about the top line trajectory as you lap some of the softer trends from September and October last year, I think things stepped down a bit at that time.

And then more broadly on the year, Q2 revenue was towards the low end of your guide. If I back out the net tariff benefit, I think EBITDA was at the lower end as well. You guiding Q3 below the fiscal year trajectory, I think, because of some of those investments that you are reaffirming the full year. So I was hoping you could just talk about your level of confidence in that range. I know there's no Intelligent Eyewear revenue in the numbers, but curious what you're baking in, in terms of a traffic halo on the core business that is supporting the expected step-up in revenue in the fourth quarter?

Thank you for the question, Mark. All really good questions. Let me talk about the pattern of what we saw in Q2, and then we'll talk about the back half in terms of top line and reiterate a little bit of what we talked about a few moments ago on bottom line.

In terms of your question around confidence, our confidence is high. And let me kind of walk through some of the things that we saw that actually indicate that. So when you think about the second quarter, what we've spoken about in May is that the second quarter was off to a solid start coming out of April. That was something that we continue to see throughout the quarter, particularly on a 2-year stack basis, which has continued to expand as we progress through the year, and that has also continued into July.

Now, what we're seeing as major drivers of that is the increase in our average order value, the increase in conversion. Again, these are in both channels. The increase in insurance. As Dave pointed out, we went from 32 million to 35 million lives in network and our penetration of out-of-network within months is now exceeding the in-network penetration number. And exams, which is a key part of the customer journey, up 30% year-over-year. So we feel really good about that.

What we did see at the end of June, the last 2 weeks of June was unexpected softness that brought us from the high end of our revenue range to the low end of our revenue range. The good news to your question is that we have seen a rebound on a 2-year basis as we actually get into -- as we actually came out of the month of July. So that is very encouraging to us.

Now, let us talk about the back half of the year. To your point, we are excluding any revenue benefit from Intelligent Eyewear and the halo as we talked about in our opening remarks. But we do continue to see in this quarter momentum in e-commerce, momentum in eye exams, momentum in insurance, again, both in-network and out of network. The Home Try-On sunsetting that we did last year continues to diminish.

So just to put in perspective, in Q2, the headwind from Home Try-On was about 2.8 percentage points of growth. We expect in the third quarter, it is probably going to be more about 1.7 percentage points of growth and in the fourth quarter, about 0.5 point. So, you can see that diminishing over time. Paid warranties will be revenue recognition for us. So that's going to kick off at the beginning of the next month.

And then, as Neil spoke to, meaningful investments in active customer growth to address some of the traffic headwinds that we are seeing in the category. And so, when you begin to kind of dimensionalize that, you think about Q3 last year, grew 15% year-over-year. So, we are paying close attention to the 2-year trends. And in the fourth quarter of last year, we were 11% growth year-over-year. So, you can imagine Q3 has pretty tough compares, but it eases as we get into Q4. So, a lot of that benefit will show up in Q4, which is why we spoke in our opening remarks to the back half of the year.

On the EBITDA, just to recap very quickly, operational efficiencies, product mix, pain protection program contributing to revenue growth, investments in marketing. And with regards to the investments in the business and integrating Intelligent Eyewear, that is fully funded by the tariff benefits.

Excellent detail. A follow-up if I may. On the out-of-network submission tool, could you talk a little bit more about that? How much incremental utilization do you think that is driving? I think you mentioned in the prepared remarks that the out-of-network mix has now outpaced in-network. Just maybe you can give us a little bit more context on how that is trended and kind of the lift you are seeing and the AOV lift you're seeing as a result of this tool in the last few months?

Yes. So we're pleased with the early data that we're seeing and the feedback that we're getting from customers. And this is a tool that we rolled out last quarter across our stores. And most customers aren't aware that we offer it until they're already in our store. So we think that there's a lot of opportunity to do more promotion just to make sure that consumers are aware how easy it is for them to get benefits from their vision insurance regardless of carrier and regardless whether we're in or out of network.

When someone is in our store, one of our team members can easily look up their exact benefit plan, know exactly what their reimbursement will be and actually submit it on behalf of the customer. And so we take all the work out from -- on behalf of the customer and so that's been very well received. What we are seeing is that customers that do go through that process tend to spend more and recognize that their dollars go further. And so it's still early days, and we think there's a lot more opportunity we can leverage these new capabilities in actually driving additional awareness and traffic into the stores, but the early signals are positive.

And Mark, just one additional thing to add to Dave's comments. We're paying close attention to the penetration numbers of both in-network and out-of-network quite closely. And as Dave shared, very pleased with the steep trajectory of out-of-network. The biggest benefit is the AOV. And what we see in terms of the average order spend when a customer comes in and uses the out-of-network benefit is just shy of the AOV that you would see with an in-network. So that behavior is actually quite attractive to us and something we're continuing to lean into, as Dave described.

We have time for one more question. Your next question comes from Peter McGoldrick with Stifel.

I wanted to ask about the makeup of the active customer base. How should we be thinking about the new customers to the franchise versus retention of existing customers? And then within the existing customers, can you help us think about the characteristics of your stickier cohort either by age, income, store type or insurance usage?

And then just one aside on the AI glasses launch, you mentioned a preorder program to help inform demand. Can you help us think when that will show up and the speed of the supply chain to support the pathway from order to consumption?

Sure. I can start with kind of the makeup of the customer base and the dynamics that we're seeing. We continue to have very happy customers. And so once someone experiences Warby Parker, they tend to come back and they tend to tell other people about it. So our NPS continues to be far above the rest of the category. And the repeat purchasing behavior continues to be strong and consistent.

What we have seen over the last few years is that the repurchase cycle has, in some cases, elongated, but we tend to find that the retention that we're seeing is relatively consistent to what we've seen historically. Really, the focus has been on attracting new customers, and that's where we believe that there's more opportunity and are encouraged by what we're seeing around promotion of eye exams, insurance benefits as we just spoke about. And we're seeing high growth in those categories. Those tend to be higher-value customers and stickier customers as well, and so areas that we continue to lean into.

And then in a few weeks, we'll share more about our Intelligent Eyewear launch. We'll unveil the full collection, share more on pricing, technical specs, all the experiences that we've built alongside our partners. We'll also begin welcoming analysts and media and partners and others for early access, giving them an opportunity to experience the product firsthand.

And later this fall, consumers will have the opportunity to demo these glasses across our entire fleet and place preorders. That will help us better understand mix either between our various silhouettes, but also between different lens types, whether it's takeaway Sun or various chromic lenses or prescription lenses, and that will help us with some of our demand planning in our optical labs, for example, and deliveries are on track for the holiday season.

Just one final comment, Peter. Just one final comment for you. The reality is we're ready to launch this fall. And so your comment about supply chain, our timing this fall reflects our preparation in our lab and in our supply chain. So we're ready.

And this concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for holding, and thank you for joining us. Welcome to Warby Parker Inc. First Quarter 2026 Earnings Conference Call.

[Operator Instructions] I will now hand the conference over to Jaclyn Berkley, Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Here with me today are Neil Blumenthal and Dave Gilboa, our Co-Founders and Co-CEOs, alongside Adrian Mitchell, our Chief Financial Officer. Before we begin, we have a couple of reminders. Our earnings release and slide presentation are available on our website at investors.warbyparker.com.

During this call and in our presentation, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors in the company's latest annual report on Form 10-K. These forward-looking statements are based on information as of May 7, 2026, and except as required by law, we assume no obligation to publicly update or revise our forward-looking statements.

Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of our non-GAAP measures to the most directly comparable U.S. GAAP measures can be found in this morning's press release and our slide deck available on our IR website.

And with that, I'll pass it over to Neil to kick us off.

Thank you, Jaclyn, and good morning, everyone. In the first quarter, we delivered top and bottom line results that exceeded our guidance. Revenue reached $242 million, representing 8.3% year-over-year growth, and adjusted EBITDA was $30 million, reflecting a 12.2% margin. We achieved these results in a dynamic operating environment.

As we shared on our last call, the quarter was impacted by periods of extreme winter weather, store closures, and continued softness in category traffic and unit demand. Against this backdrop, our performance underscores that customers continue to choose Warby Parker for our compelling value proposition, exceptional products, and differentiated shopping experiences, a combination that positions us well to continue to drive sustained market share gains over time.

As we outlined in February, we have 3 strategic priorities for 2026.

First, we are focused on scaling our industry-leading omnichannel model while consistently delivering remarkable customer experiences.

Second, we are preparing for the launch of our AI glasses.

And third, we are continuing to invest in brand awareness and customer acquisition, including advancing our efforts to capture vision insurance spend.

We are encouraged by the progress we are making across all 3 of these priorities as well as the momentum we are seeing quarter-to-date. We are driving strong performance in several key areas, including eye exams, online glasses after sunsetting our Home Try-On program, average revenue per customer, and insurance penetration.

Before looking ahead, I want to express my gratitude to our team. Their unwavering commitment to delivering exceptional patient and customer experiences is the foundation of everything we do, whether they are welcoming customers with a smile after digging out from a snowstorm or embracing new technology that our team has developed. Their dedication and agility make Warby Parker unique.

That same combination is exactly what positions us to redefine the eyewear category when we introduce intelligent eyewear. 16 years ago, Warby Parker reimagined how consumers shop for glasses. Today, we are developing products that will fundamentally transform the role glasses play in our lives.

Working closely with our partners, Google and Samsung, we expect to launch our first line of intelligent eyewear later this year. We're designing a product and shopping experience that feels distinctly Warby Parker, one that is seamless, fun, easy, and always centered on our customers. We believe they will be the world's first truly intelligent AI glasses designed for all-day and everyday wear.

AI glasses will redefine personal computing, moving technology off the screen and seamlessly into our daily field of vision. Instead of reaching for a device, wearers will stay present in the moment, while the technology works alongside them, providing contextual real-time assistance.

Dave and I are actually wearing our prototypes right now. As part of our rigorous testing program, these glasses have already become essential to our daily routines. We're reviewing our schedules and adding meetings to our calendars, checking cross-city travel times, and working through complex math problems right off the whiteboard. I even had them help me review my son's Spanish homework. The best part is that they integrate seamlessly with the apps we and billions of other people use every day.

Building a category and a product that customers will incorporate into their everyday lives requires a high degree of precision across every detail. We've contemplated every millimeter and curvature of the product itself while evolving our supply chain to incorporate our most complex lens fulfillment process yet. We're progressing this work with intensity and focus. Our ambition is to help define this category in a way that creates value on day one for our customers, our partners, and our investors. We look forward to sharing more updates closer to launch.

Turning to the balance of the year. We're pleased with trends quarter-to-date while continuing to take a disciplined and prudent approach to our outlook. Consistent with the framework we outlined previously, we are reaffirming our full-year 2026 guidance. We're encouraged by what we're seeing in the business today, and we have a number of initiatives underway that we expect will build as the year progresses.

This outlook does not include any revenue contribution from AI glasses, but it does reflect the known operating expenses and investments required ahead of launch. With that, Dave and I will walk through the drivers of our Q1 performance before Adrian provides more color on our financial results and guidance.

I'll start with our first strategic priority, scaling our industry-leading omnichannel model and delivering exceptional customer experiences.

We focus on 3 initiatives in this area in Q1.

First, we expanded our retail footprint. We opened 14 net new stores in the quarter compared to 11 in the prior year period and remain on track to open 50 stores in 2026. These openings included entry into a new market, Baton Rouge, Louisiana, as well as continued expansion in 9 existing markets. Consistent with our strategy, the majority of these openings were in suburban locations as we continue to broaden access to our brand.

Importantly, this expanded footprint also positions us well for the future introduction of intelligent eyewear, allowing us to bring the product to customers at scale through a retail experience that supports discovery, education, and service.

Next, we drove growth within our existing fleet, particularly through eye care and higher-value products. Exams were a bright spot in the first quarter, growing 30% year-over-year with demand rebounding as weather normalized, highlighting both the needs-based nature of this category and the progress we're making in scaling this part of our business.

We are still in the early innings of this opportunity. During the quarter, we expanded exam services to nearly 90% of stores, rolled out retinal imaging across all active exam lanes, and introduced new tools that reduce the administrative burden for our optometrists and allow them to focus more fully on clinical care for our patients.

On the product side, we saw strong customer response to our new collections, including our sport collection, which launched in late April. This has been one of the most requested categories from our customers and represents our first entry into this growing segment of the eyewear market.

We designed this collection to seamlessly bridge everyday style with sport-specific functionality, aiming to reach customers looking for products that can keep up with their multidimensional lifestyles. This is our most advanced performance offering and is built in partnership with leading Italian manufacturers that specialize in flexible, lightweight nylon production. It includes performance polarized lenses and wrap prescription capabilities, which we believe is a key area of differentiation.

We also focused on delivering value by offering an accessible price point for prescription glasses with prices for our sport glasses starting at $195 for nonprescription and $295 for prescription, compared to competitive products that can exceed $800.

During the quarter, we also introduced several new core collections, including Spring 2026 and The New Deco 2.0. These assortments lean into current trends such as 90's inspired oval silhouettes, which are resonating well with younger customers and are helping to drive engagement with that audience. Our $95 frames continue to outperform expectations, reinforcing our ability to deliver exceptional value while also driving mix towards higher-value products like progressives, lens enhancements and other add-ons.

Finally, we continue to invest in e-commerce through an increasingly personalized online experience. E-commerce revenue was down 4%, in line with our expectations as we lapped a period that includes our Home Try-On program, which was sunsetted at the end of last year. We expect this headwind to diminish as the year progresses and excluding Home Try-On, underlying demand in the channel was healthy. We are driving engagement and conversion by introducing AI-powered tools like Photo Booth, a feature that leverages our Virtual Try-On technology to allow customers to see themselves as the model directly on product pages.

We also unveiled a new personalized recommendations engine to further enhance discovery and relevance. The year-over-year online growth in non-Home Try-On glasses, driven in part by these features reinforce our confidence in the underlying trends of the channel, and the bets we have placed for the future.

As we discussed on our last call, contact lens demand moderated late last year. In response, we've taken a more deliberate and disciplined approach to contact customer acquisition, reallocating marketing spend towards the growth of glasses, an area where we can continue to showcase the strength of our brand and grow more profitably.

In the quarter, contacts revenue grew mid-single digits with penetration consistent at around 10% of revenue. This year, we are focused on building deeper customer relationships across our holistic vision care offering with exams and glasses serving as the key entry points.

Our store footprint and doctor network remain a durable competitive advantage and a sustainable engine for long-term growth, and we have seen strong year-over-year growth in contact lens orders that follow an exam. Ultimately, customers who engage across glasses, contacts and exams generate the highest lifetime value, reinforcing our strategy of serving more of their vision care needs over time.

I'll now turn it over to Dave to walk through the remaining two strategic priorities.

Thanks, Neil. Our second strategic priority in 2026 is organizational readiness for our intelligent eyewear launch later this year. This is a massive cross-functional effort. We are building the capabilities and infrastructure required to support both the initial launch and the long-term scaling of this category.

We are making targeted investments across our omnichannel shopping experience to support how customers discover and engage with AI glasses. This includes enhancements in our stores, such as dedicated display bays and improved acoustics alongside a tailored digital experience that enables customers to explore and interact with the product online.

At the same time, we are expanding capacity at our optical labs and upgrading business systems to ensure we can scale this complex fulfillment process seamlessly. Marrying the standardized processes of consumer electronics with the precision and customization of prescription lenses isn't trivial, and we're investing to build the systems and infrastructure to do this reliably at high volumes.

We are also investing in our brand and go-to-market strategy. We're treating the launch of our AI glasses as a milestone moment to redefine our category just as we did 16 years ago when we first introduced Warby Parker to the world. You can expect to see that same inventive spirit and creative ambition just at a larger scale.

These investments are designed to not only support our expansion into the intelligent eyewear category but also establish a solid foundation for growth as we continue to scale our core business.

Our third strategic priority is driving brand awareness and customer acquisition, including capturing vision insurance spend. We ended the quarter with 2.7 million active customers, up 4.8% on a trailing 12-month basis and average revenue per customer up 6.9% year-over-year, driven by a favorable mix of progressives, lens add-ons and higher insurance utilization.

While we continue to see healthy long-term customer and spend trends, our priority is driving further acceleration in active customer growth, which I'll touch on in a moment.

Looking back, Q1 was impacted by a few factors, including weather, tough comparisons against strong prior periods, broader industry softness and flat year-over-year marketing spend. We stayed disciplined on marketing spend as demand fluctuated throughout the quarter. As trends have improved, we are leaning back in with confidence in our ability to deploy that spend efficiently.

This includes increased top-of-funnel investment to build awareness. Our recent campaigns, including those featuring Arch Manning, have driven meaningful gains and aided brand awareness. We continue to see a significant opportunity to reach new customers and further educate existing ones, many of whom still think of us as an online-only glasses company.

We complemented these broader efforts with more localized activations. In the first quarter, this included community and influencer events in New York with partners such as Happy Medium and Fashion Fiction during New York Fashion Week, helping us engage customers in a more targeted way. As we look to the future, we have several initiatives underway to accelerate customer growth this year.

First, we're reallocating marketing spend toward higher return categories, including shifting investment from contacts to glasses. At the same time, we're expanding efforts across additional channels such as YouTube, Reddit and TikTok to broaden our reach and drive higher customer engagement. We also see opportunities to expand our efforts across existing digital channels and direct mail.

Second, we're building on the momentum we achieved in Q1 by further integrating insurance into the customer experience. We're increasing insurance-focused messaging in our marketing and are equipping our store teams with ways to better educate customers on how to use both in-network and out-of-network benefits at Warby Parker.

In Q1, we delivered strong growth from in-network insurance, which reached approximately 10% penetration, up from approximately 8% in the prior year. We also saw increased adoption of our automatic out-of-network submission tool, which we rolled out to all stores in early March. This is improving the customer experience by making submissions more seamless at the point of sale and facilitating reimbursements. Since we've rolled this out, we've seen strong early adoption and found that customers using this feature spend more than customers who don't.

Our insurance strategy complements our broader marketing efforts and serves as an additional customer acquisition lever. Our pricing philosophy has always been to offer fair, transparent pricing, whether a customer pays out of pocket or uses an insurance.

While customers at traditional optical retailers often still pay more than $200 out of pocket even when using in-network benefits at Warby Parker, they can purchase a complete pair of prescription glasses starting at $95. We've always focused on delivering compelling value regardless of how a customer chooses to pay.

At the same time, we recognize that many customers have vision insurance benefits, and we're making it easier for them to apply those benefits when shopping with us. Importantly, insured customers remain among our most valuable, spending more on their initial purchase, selecting progressive lenses at higher rates and returning more frequently over time.

Third, we're driving newness across the business to attract new customers and reengage existing ones. This includes recent collection launches like sport as well as preparing for the AI glasses launch later this year. In total, across marketing, insurance and new product innovation, we expect these initiatives to build momentum as we progress through this year.

Finally, before handing it to Adrian, I want to highlight our recently released 2025 impact report. Since our founding, we have believed that a business can scale while creating meaningful impact, and this report demonstrates how we're delivering on that commitment.

In 2025, we surpassed 25 million pairs of glasses distributed through our Buy a Pair, Give a Pair program, expanded Pupils project to reach more students and continue to grow the Warby Parker Impact Foundation. But what matters most is what those numbers represent, millions of people with improved access to eye care and a model that continues to demonstrate the power of aligning purpose with performance. As we grow, our ability to deepen that impact grows alongside it.

This commitment to mission continues to resonate deeply with our team, strengthening engagement, helping us attract exceptional talent and reinforcing the kind of company we're building for the long term.

Thank you, team Warby for living our values every day. And now I'll hand it over to Adrian to cover our financial results and guidance.

Thanks, Dave. Good morning, everyone. After a full quarter on the job now, I continue to be incredibly impressed with Warby Parker's brand leadership, relentless focus on the customer shopping experience and its healthy pipeline of product, service and customer experience innovations. I'm even more excited about the long-term and sustainable growth trajectory for this business.

Today, I'll review our first quarter results in more detail and our guidance for the second quarter as we reaffirm our full year guidance for 2026.

Let's start with the first quarter.

We are pleased to have delivered top and bottom line results that exceeded our guidance in the first quarter. First quarter revenue was $242.4 million, up 8.3% to last year despite early quarter disruption from extreme winter weather and temporary store closures.

Retail revenue increased 13.6% year-over-year and e-commerce revenue was $63.6 million, down 4.1% year-over-year due to lapping a period that included Home Try-On.

We continue to expect full year e-commerce growth to be in the low single-digit range as the headwind from Home Try-On diminishes throughout the year and underlying trends in the channel remain healthy.

Turning to gross margin. In the first quarter, adjusted gross margin was 54.2%, 220 basis points below last year. As expected, the decrease in adjusted gross margin was primarily driven by deleverage in the fixed expenses portion of gross margin, which includes doctor headcount and occupancy as well as the impact of tariff costs related to glasses and increased optical lab and shipping costs.

This deleverage also reflects the number of store openings in the quarter and continued investment in exam capacity, which drove 30% year-over-year growth in exams. These investments position us for future growth and support the rollout of AI glasses across our retail footprint.

These impacts were only partially offset by selective price increases taken earlier last year in glasses and increased penetration of higher-margin progressive lenses and other lens enhancements.

Looking ahead, we expect gross margin tailwinds from more favorable tariff dynamics year-over-year, and we've already seen early results from recent actions. For example, we're driving customers toward higher-margin products and made changes to our Pair and Save offer that are delivering higher average order values.

Shifting to SG&A. As a reminder, adjusted SG&A excludes noncash costs like stock-based compensation expense. First quarter adjusted SG&A expenses were $117.1 million, or 48.3% of revenue, 100 basis points lower than last year. This reflects disciplined spend during the quarter as we navigated weather-related disruption and broader demand volatility.

The leverage was primarily driven by the sunset of our Home Try-On program, which drove a year-over-year decline in marketing of 90 basis points to 11.6% of revenue.

Adjusted non-marketing SG&A was 36.7% of revenue, 10 basis points below last year as we saw leverage from corporate expenses and our customer experience team, partially offset by increased retail compensation as a percent of revenue.

For the remainder of the year, we expect marketing spend to increase as a percent of revenue, but still within our low-teens range as we lean into customer acquisition pilots and investments while continuing to drive efficiency in non-marketing SG&A.

Importantly, our model continues to demonstrate strong flow-through from revenue to adjusted EBITDA, which gives us the confidence to lean into growth investments while maintaining our profitability targets.

First quarter adjusted EBITDA was $29.6 million, which was above our guidance. As a percent of total revenue, it was 12.2%, 90 basis points below last year.

Now shifting to capital allocation. We ended the first quarter in a strong cash position of $288 million, up $23 million from the first quarter of 2025. We generated approximately $8 million in free cash flow in the first quarter. We continue to prioritize reinvestment in the business while maintaining flexibility through our $100 million share repurchase authorization.

As a reminder, we have a $120 million credit facility expandable to $175 million, which remains undrawn other than $4 million outstanding for letters of credit, providing us with additional liquidity and flexibility.

Our partnership with Google also reflects a shared commitment to building the intelligent eyewear category, including a $75 million reimbursement that supports our ability to invest behind AI glasses as we scale the platform together.

Now let's turn to our outlook for 2026.

We are pleased with trends quarter-to-date yet remain disciplined and prudent relative to our outlook for the balance of this fiscal year. So, after one quarter of results, we are reaffirming our guidance for 2026, which does not include any revenue from AI glasses, but includes the known expenses we expect to incur before and after launch.

For the full year 2026, we are reaffirming our prior guidance, which is revenue of $959 million to $976 million, representing approximately 10% to 12% year-over-year growth. Adjusted EBITDA of $117 million to $119 million, which equates to an adjusted EBITDA margin of 12.2% across our revenue range and 130 basis points of expansion year-over-year.

Turning to the second quarter. We are guiding to revenue of $235 million to $238 million, or growth of approximately 10% to 11% year-over-year. Adjusted EBITDA of $27 million to $29 million and an approximately 12% adjusted EBITDA margin at the midpoint of our range.

This outlook takes into account a recovery from weather-related impacts in the first quarter and a continuation of current trends in the business while maintaining a prudent stance. It also reflects investment in certain growth initiatives that we expect will build momentum and drive greater growth and profit contribution in the second half of the year.

We've made solid progress so far this year and are continuing to take share, reflecting the strength of our brand and the value we offer our customers. Looking ahead, we're focused on executing against a clear set of priorities for the rest of the year.

With that, I'll now pass it back to Neil for closing comments.

To wrap up, we're encouraged by the strength we're seeing across the business and the progress we're making against our strategic priorities. We look forward to sharing more about our AI glasses closer to launch.

Above all, Dave and I want to thank the incredible Warby Parker team for their continued dedication and outstanding contributions to our mission.

With that, operator, please open the line for Q&A.

[Operator Instructions] Your first question comes from the line of Mark Altschwager with Baird.

To start out, I was hoping you could help us unpack the drivers to the revenue acceleration that's embedded in the annual guide. You mentioned a few initiatives that will build through the year, but you're also lapping last year's price increases. So I just want to understand those puts and takes a bit better. Second, separately, you indicated you're pleased with the start of the quarter. Can you clarify if April is tracking ahead of that plus 10% to 11% Q2 guide?

We're seeing positive trends quarter-to-date, but staying prudent in our guide. Where we're seeing strength is in our e-commerce business, in particular the non-Home Try-On portion of that business. Obviously, we're lapping our Home Try-On program, which we sunsetted at the end of last year. We're also seeing the benefits of some recent initiatives that we expect to continue to bear fruit in the quarters ahead.

So that includes some new features around out-of-network reimbursement that we've rolled out to all stores that make it easier for our customers to check the eligibility of their vision insurance coverage and that enables us to file for reimbursement on their behalf.

Also the launch of our sport collection, which is sort of our first in the category and some of the efficiency we're seeing in our marketing spend. From a customer perspective, we're seeing stable growth and anticipate acceleration throughout the year.

And to follow-up there, can you talk about the AUR trends you're seeing within glasses? It sounds like there's maybe a mix shift towards premium frames. And you just discussed the sport launch as well. How do you expect that to impact glasses AUR for the balance of the year?

So we have a few tailwinds here as well. One is around progressives. As we know, that is an area where we continue to see strength. Also over time, we continue to introduce new collections, whether they're made in Italy or have complex constructions as we sort of leverage the expertise of our internal design team. We also continue to introduce more lens options, including various tents that we introduced towards the end of last year. That all benefits us. We've also made some changes to our Add a Pair and Save program that is expanding average revenue per customer and also has a positive benefit on our gross margins.

Your next question comes from the line of Brooke Roach with Goldman Sachs.

Neil, Dave, I was hoping you could unpack the results that you're seeing as you look to accelerate your active customer count? How are active customer counts trending on a per store basis as you open new stores versus the active customer count that you're seeing online? And what plans do you have for marketing and store activation plans as you move throughout the year, particularly as you get into the AI glasses launch time line?

Thanks, Brooke. I think it's important for us to provide some context around Q1. As you've heard from many other consumer and retail businesses, Q1 was a challenging macro environment with extreme weather that drove twice as many store closures as last year, lots of negative headlines for consumers, which resulted in consumer sentiment hovering near record lows.

And so, we're, while we're pleased with how we exited the quarter and recent trends, it's worth noting that all of our metrics, including customer growth were impacted by these abnormal events in Q1. And when you look at our active customer growth, we report a trailing 12-month metric and over that time frame, the broader optical industry has faced significant pressure on traffic units, customer growth and really growth in the category coming from price.

So our mid-single-digit active customer growth coming in spite of those Q1 headwinds, some tough comps and the sunsetting of our HTO program, Home Try-On program, I think, stands out relative to the rest of the category. That being said, we believe that there's lots of opportunity to drive more growth in the future. And those drivers to reaccelerate customer growth come from a few areas.

The first is marketing spend. During Q1, we remain disciplined on marketing spend and given demand volatility and ended up with marketing dollars flat on a year-over-year basis and down as a percent of revenue. And given the trends that we've seen recently, we're confident we can deploy marketing dollars efficiently to fuel growth, and we're actively investing behind the highest return areas of the business. As we've mentioned, including allocating more dollars towards glasses where we're seeing some strength and unlocking some new channels.

The second factor, as Neil just mentioned, but worth reiterating is that the Home Try-On and e-com dynamics will become more favorable as the year goes on with Home Try-On headwinds abating, and we're continuing to see strong non-Home Try-On-driven e-comm glasses sales.

And then we're also benefiting from a number of newer initiatives like insurance expansion, exam strength, new launches like sport. And of course, we believe the AI glasses will drive a lot of traffic and momentum across the entire business. And so taken together, we remain confident in the customer growth assumptions embedded for guidance for the rest of the year and continue to see that when we open stores, they tend to perform in line with our high expectations and continue to be the primary drivers of customer growth for the business.

Great. And then just one quick follow-up. Can you quantify the headwind that you saw in 1Q from weather and Home Try-On for the audience?

When we think about the headwind with regards to Home Try-On, what we've actually seen is a pretty healthy growth without Home Try-On. Obviously, now that we've actually sunsetted it, we've definitely seen that benefit. Obviously, there's a bit of challenge with regards to weather. But with regards to Home Try-On, we're not lapping it this year. We're seeing pretty healthy growth with regards to year-over-year on the web side of the business.

Your next question comes from the line of Anna Andreeva with Piper Sandler.

I wanted to follow-up on the active customer growth. You had previously talked about that younger demo that was pulling back. I don't think you mentioned that this morning. So has that improved? And then secondly, I guess, to Adrian, on the gross margin guidance, I think you still said flat for the year. Can you talk about what's implied for the second quarter? And what kind of a tariff rate are you embedding for the year?

Thanks for the questions. Yes, on the active customer growth front, we've seen consistency within the younger demo. Overall, the category continues the trend of traffic in units. And the younger consumer has been trending in line with kind of our previous commentary.

I would add on the young customers, this is a segment of consumer that, as we all know, is under more stress, whether it's higher-than-usual unemployment rates, high consumer and student debt, that being said, we've never been more competitive for this consumer. Our opening price point of $95, which include premium acetate frames with polycarbonate lenses with anti-reflective and anti-scratch coating remains at that $95 price point from where we priced it when we launched the business in 16 years ago. And again, if we look at industry trends where growth has come almost exclusively from price as our competitors year after year have been increasing price, especially in the last few years, we are more competitive than ever at that price point, which we find that our customers really appreciate.

So let me speak a little bit to gross margin. Let me set the context with regards to the first quarter, and then we'll talk about margin improvement as we actually get through the balance of the year. The main driver of the margin, gross margin rate decrease was really around cost deleverage. So as you saw, we had 30% growth plus in exams, which was driven by our doctors' compensation.

Retail occupancy is a bit of a fixed cost in addition to opening 14 stores. But we also saw some compounding additional expenses as we were in a position where we had to close labs and stores, but also spend money in our recovery efforts. As we look ahead, the key thing to keep in mind here is that there are two drivers of margin going forward, but let me focus on gross margin in particular. The biggest thing is that we have a number of healthy initiatives that we're actually introducing.

So on the gross margin side, the first thing we would say is that we're lapping more favorable rates this year versus last year. That will be a contributor that you start seeing in April. The second thing is we have a number of gross margin initiatives that are already in flight and already showing benefits as we look at quarter-to-date. As Dave and Neil mentioned, there are some changes to out-of-network states that's improving our gross margin position. The mix towards higher-margin products is what we're seeing in our data. And obviously, the momentum that we've seen in sport, which starts at $195 nonprescription and $295 prescription is definitely accretive to our business.

The new dimension that we're also adding in are some operational initiatives that will improve our gross margin as we progress through the year. So efficiencies in our labs would be one example where we some of that up on the gross margin line. As we think about EBITDA margin, we'll continue to see leverage in terms of leverage against non-marketing SG&A. But overall, we're really focused on a number of profit-driving initiatives that will impact both gross margin as well as EBITDA margin for the balance of the year.

Your next question comes from the line of Oliver Chen with TD Cowen.

Hi Neil, David and Adrian, regarding your use of the glasses, what have been your biggest surprises? And what would you say might the top three use cases be? And related to this, there's been a lot of demand in the marketplace already. On fulfillment, on the AI glasses and the supply chain, what are you doing to prepare for that? Because some of the items components could be in shortage. And would love if there's a framework, Adrian, for the margin parameters because these glasses have unique characteristics in terms of cost as well as what you're thinking in terms of the service levels, I'm sure you'll add.

A follow-up question, Adrian, on the traffic and unit as well as the interplay with your strategies regarding marketing and demand creation. How are you thinking about that interplay in order to just try to future-proof the business to that kind of volatility that you've been discussing?

Thanks, Oliver. I'll take the AI glasses question first. I'd say in general, we're super excited about the progress that we're making and our teams are working around the clock with our partners at Google and Samsung to build really incredible products. And as it relates to supply chain, we feel like we're in a well-positioned given the strength of the partnership that we have with those companies and the foresight and the access to components as a result.

And as Neil mentioned, we've been wearing these glasses internally. And the moment you put them on, it becomes immediately clear that they offer a fundamentally more natural and human way to experience and interact with the world rather than looking down at screens in your hands. And for most of human history, interaction has revolved around voice, eye contact and shared context with those around you, screens and keyboards are a massive anomaly to how humans are used to interacting. And we're most excited that intelligent eyewear will move us back to a more natural human way of interacting.

I checked my screen time the other day, and it was down 60% since I started wearing these AI glasses. And so underneath the hood, there's really incredible technology and some really magical use cases that we and our partners will talk about and demonstrate as we approach launch. But really the human element of bringing our attention back to the real world and away from screens is probably what we're most excited about.

And of course, for that vision to become a reality, it means that the product has to look great, feel comfortable for all day wear, accommodate a range of prescriptions and work seamlessly from day one. And so we're working hard to achieve all that, which means that we've been deliberately investing in everything from supply chain capacity to advanced lens fulfillment and just making sure that all the elements line up for a very successful consumer launch later this year.

Great. Oliver, great to be with you. My two use cases: one, math equations, which is actually pretty amazing. And the second is really around translation, given all the languages that can be translated. With regards to AI glasses economics, we'll share a bit more about the economics later in the year. So, I won't be able to speak to the margin impact at this point. That being said, our current guidance does not include AI glasses. So just a quick reminder there.

To your point on demand, as we think about the balance of the year, I'll actually point you to kind of three things that we're focused on. The first is, as Neil described, is continuing to build on the progress that we've already made. We see momentum in exams. We see momentum in average revenue per customer, insurance, our Add a Pair and Save has actually driven higher AOV. But I think the biggest driver that we're seeing is just the continued newness, the new collection. Sport is doing well. Deco 2 is doing really well. So we're very pleased with the newness that's actually driving momentum in the business, and we've seen that quarter-to-date.

The second thing that Dave pointed out is we no longer have the HTO headwinds as high as they were in the first quarter because we expect that to abate over the course of the year. We do expect e-commerce to have low single-digit growth this year, and we're definitely on track to achieving that. But the third thing, I think, to your point around demand is we're being very deliberate in the second quarter around piloting and investing in new tools and new tactics to build awareness, which ultimately will actually help us continue to build demand. And this is both in our digital channels as well as our direct channels. And so that experimentation really positions us well for the back half of the year.

Your next question comes from the line of Paul Lejuez with Citigroup.

This is Brandon on for Paul. I wanted to follow up on the active customer growth. Just do you view the first quarter as a low point for the year?

You're a little bit hard to hear. We're having trouble hearing you.

Is that better? Can you hear me? I want to follow up on active customer growth. Do you view 1Q as a low point for the year? And I understand weather was a factor, but how should we think about that with eye exams up 30% in the quarter? Are you seeing a shift in the eye exam customer converting? Or was there a timing issue there? I guess just any more details you can share on some of the offsets?

Yes. We are expecting active customer growth to accelerate throughout the year. As we discussed earlier, we have a bunch of marketing initiatives underway and are already seeing green shoots this quarter.

And anything on the eye exam customer converting up 30% is pretty strong growth, but your active customer growth wasn't quite as strong. So just are there timing issues there? Are they not converting like you expected?

We're still in our early days of holistic vision care. So as we think about our consumers, we're still letting people know that we have stores. And then once they know that we have stores that we have a store near them and then that we offer eye exams. We have 90-plus percent of our stores offering eye exams, which is great. And we've been building out capabilities from our techs that help support our optometrists to the technology that our optometrists use to increase efficiency and exceptional patient care and experiences. There sometimes can be a lag between an eye exam and a purchase, but our conversions tend, are what we consider same-day conversions tend to be at or exceed industry norms.

Got it. That's helpful. And to follow up on the increased costs related to your AI glasses rollout that's included in the guidance. I guess, should that build as we get closer to launch? Are those onetime in nature or kind of ramp? And then are you training your staff now or adding labor hours? Or does that come closer to launch as well?

I'll take that. As it relates to the cost, the key thing to keep in mind is that those costs are actually shared between Google and Warby Parker. But to your point, we are investing in training. We are investing in labs. We're investing in our stores. We're investing in systems. We're investing in R&D. We're investing in branding. And we do expect a number of those expenses to show up, obviously, prelaunch, but also there will be some additional costs post launch. But at that point, we would certainly have demand in our favor.

So when you think about some of the expense items that we've reflected in our guidance for Q2, to your point, Brandon, that's really the investments in preparation for a launch later this year.

Your next question comes from the line of Dylan Carden with William Blair.

Adrian, were those costs at all in the first quarter? Is that some of the add-back from an EBITDA from a system standpoint? Or is that just all the optometrist system support?

It's really the cost in the first quarter, especially when you think about the deleverage was really around our doctors and recovery efforts. And so when you think about closing our labs, closing our stores, the recovery efforts, some of the additional costs with snow removal and those sorts of things, that certainly added cost as we think about the first quarter. But the cost with regards to AI glasses was more moderate like what we expect and what we saw in previous quarters.

More so in the guide for the second quarter from a cost standpoint. Is that fair to assume?

We elevated in the second quarter. That's why you see a little bit of additional expense in the second quarter guide. But obviously, we'll benefit from those investments in the back half of the year. Some of those investments also include some of the brand awareness efforts that we referenced a bit earlier in terms of some pilots and investments around building brand awareness in preparation for later this year as well.

My actual question is, you're seeing an absolute explosion in demand for this category. Clearly, that's tax refund related and on the heels of 5 years of sort of a low in the repurchase cycle. And so I'm just curious, I get that there might be hesitation to kind of fully invest in that trend given that it could be pull forward. Are you seeing that? And if there's that level of volatility out there in the market, how do you navigate that?

In regard to kind of the explosion in demand, I think there are a few different data sources. I'm not sure which one you're referring to that kind of track category demand. Certainly, we've seen a lot of consumer demand for AI glasses that exist in the market, and that's been driving a lot of excitement and adoption and that makes us even more eager to have our own product in market later this year. And we believe that our offering will be differentiated and have unique features and properties that we're excited to unveil.

In the past, we really haven't seen tax refunds have a material impact on our business, the same as it may on others in the category. So we don't view that as kind of a material factor in the trends that we're seeing and aren't anticipating kind of a significant pull forward as a result.

And then just to be clear about this, when you speak to efforts to reignite actives, is that code for sort of marketing deleverage? AI or smart glasses should presumably have some, if not significant, traffic effect. Are you kind of baking some of that even though you're not baking in the revenue?

And just remind us the relationship between store growth and active customer growth as far as sort of what we should expect from where we sit, right? I mean you've been growing stores high teens for 3 years straight. I get it's a trailing metric, but it continues to kind of come in. And you're getting this question. Is there a potential need, effort, willingness to adjust the store strategy to some extent if you kind of see that disconnect continue?

Let me go ahead and take that. With regards to the investment in active customer growth, there are really two dimensions: the amount of marketing spend, which we remain committed to be in the low teens, and the way that we actually deploy our marketing tactics, both in the digital channel as well as the direct channel.

We are experimenting with some different digital channels. We're looking at some different tactics in order to really grow that active customer number. And we'll be able to speak more to that as we get into our next earnings call and speak to the results that we've seen in Q2.

With regards to store growth, the reality is there are a number of dimensions that you have to think about. So when you think about street locations, which tend to be super high-volume locations versus grocery-anchored, very different volume profile. So the actual store count is probably not a good indicator of the actual dollar volume because different stores are going to have different volume profiles.

Our stores are meeting our expectations. We're very pleased with what we're seeing with regards to our new stores. They're certainly benefiting from the elevated average order values. They're benefiting from increased conversion, which we've seen over the course of the year.

But it's really a little bit of apples and oranges, even though we do focus on our new stores really providing access to customers in a physical dimension in new markets and in different neighborhoods in existing markets.

Yes. The other factor there is e-commerce and our Home Try-On program, where if you look at the blended customer number that's across channels. And as we've noted, we sunset our Home Try-On program after kind of spending a few quarters winding that down. And so that has served as a headwind that will abate as we move throughout the year.

We have time for one more question. This question comes from the line of Janine Stichter with BTIG.

Just want to dig into the vision insurance side of things. Nice to see the growth. I think you said 10% penetration, whereas I think you said 60% of your customers have insurance. What's the realistic target penetration? And maybe speak to some of the initiatives as you bridge that gap? And then I would also be curious if you have any stats on how much the insurance customer spends versus the uninsured consumer.

Sure. We think about insurance sort of in two ways. One is how do we capture more lives in network. And then of that pool of in-network lives, how do we get them to spend with us? And right now, we have 35 million lives that are in network at Warby Parker, and they can come and seamlessly use their insurance. And as we expand that, it then takes time for those individuals to know that we're in network and then actually need glasses or primary eye care.

Second, we think a lot about how do we make it easier for people to spend their out-of-network benefits with us. And that's where we've made tremendous progress over the last 6 months as we've made it easy for individuals in store to check their eligibility and then for us to file for reimbursement on their behalf. With both in-network and out-of-network insurance customers, we do see higher average order values and higher customer satisfaction as well.

Just to build on that very briefly, we're very pleased to see the increased penetration of insurance usage. And we believe, to your point, Janine, that there's tremendous headroom still ahead of us. As we think about our branding and awareness efforts, this dimension of being able to use your insurance with Warby Parker is certainly a dimension that we want to lean into in order to really take advantage of closing the gap on that headroom.

The one thing that we're very pleased with also is we did scale to all stores the out-of-network option, and we've seen tremendous traction. So we're very pleased with that. But as Neil said, when you look at a cash-pay customer versus a customer either using in-network or out-of-network benefits, the average order value is meaningfully higher.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, and welcome to the Warby Parker Incorporated 4Q '25 Earnings Conference Call. My name is Harry, and I will be coordinating your call today. [Operator Instructions]

I will now hand the call over to Jaclyn Berkley, Head of Investor Relations, to begin. Please go ahead.

Thank you, and good morning, everyone. Here with me today are Neil Blumenthal and Dave Gilboa, our Co-Founders and Co-CEOs; alongside Adrian Mitchell, Chief Financial Officer; and Josh Truppo, Vice President of Financial Planning and Analysis.

Before we begin, we have a couple of reminders. Our earnings release and slide presentation are available on our website at investors.warbyparker.com. During this call and in our presentation, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of the various risks and uncertainties.

For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors in the company's latest annual report on Form 10-K. These forward-looking statements are based on information as of February 26, 2026, and except as required by law, we assume no obligation to publicly update or revise our forward-looking statements.

Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of our non-GAAP measures to the most directly comparable U.S. GAAP measures can be found in this morning's press release and our slide deck available on our IR website.

And with that, I'll pass it over to Dave to kick us off.

Thanks, Jaclyn, and good morning, everyone. Thank you for joining us today to discuss our fourth quarter and fiscal 2025 results and our outlook for 2026.

2025 was an eventful year and one that we're proud of. We took decisive actions that enabled us to continue delighting customers to invest in innovation and position Warby Parker for long-term success, all while delivering sustainable growth. We drove double-digit revenue growth each quarter, meaningfully expanded adjusted EBITDA and reported our first full year of positive net income, even as we navigated tariffs in a dynamic consumer backdrop.

Looking ahead, 2026 will be an exciting year for Warby Parker. We continue to see tremendous runway in scaling our existing growth initiatives from opening more stores to driving progressives' growth to increasing insurance penetration. We'll speak to these and other core business drivers shortly.

This year, we also plan to introduce our first AI glasses in partnership with Google and Samsung, which we expect will unlock significant new TAM and enable us to take advantage of the biggest technology shift in our lifetime. These devices will bring the world's most advanced AI to glasses designed for all day wear.

Over the last 16 years, we have reimagined how people shop for eyewear, bringing together great design, exceptional value and an unparalleled customer experience underpinned by technology, innovation and customer obsession. Over time, we've seen how this powerful combination has drawn consumers to our brand and helped us capture market share.

Today, we believe the optical industry is in a period of transition. While the core eyewear category remains large and more stable than most consumer sectors, we have seen more volatility in demand and transient softness than usual in the post-pandemic era, including during some periods over the last year. Our confidence remains in the long-term durability and attractiveness of the category, given the increasing health need that it serves, but we are planning conservatively for the near term given recent trends.

At the same time, enthusiasm for smart glasses is accelerating with clear proof points of consumer eagerness to embrace these new devices, serving as a demand catalyst independent of trends in the broader eyewear category.

We believe we're well positioned to continue taking market share regardless of macro conditions. And given our inherent advantages as a tech-enabled brand, believe we are better positioned than the rest of our category to successfully navigate and capitalize on the transition from traditional eyewear to intelligent eyewear.

This gives us a great deal of confidence in our 2026 plan and as we enter Warby Parker's third act. Acts 1 and 2 were about pioneering the direct-to-consumer brand, then evolving into a holistic eye care provider and omnichannel retailer. Act 3 is all about AI. We plan to introduce new products like AI glasses while also leveraging AI across the organization to drive productivity and enhance the customer experience.

With that, let's turn to results. In fiscal 2025, we delivered 13% revenue growth, driven by 47 new store openings, the most ever in a single year, high single-digit customer growth and mid-single-digit average revenue per customer growth. We believe this performance reflects continued market share gains. We drove healthy unit volumes, average selling price and customer growth, while prescription glasses units declined 6% industry-wide according to the Vision Council.

And while much of the category relied on significant price increases, we mitigated the impact of tariffs while preserving our unmatched value proposition and maintaining prices on the vast majority of our offerings, including our $95 prescription glasses. We believe our innovative designs, value proposition and seamless omnichannel experience position us well to continue gaining share in any market condition.

We also expanded profitability. Full year adjusted EBITDA was $95 million, up 30% year-over-year, driven by leverage in non-marketing SG&A expense. We also achieved our first full year of net income profitability and generated $44 million in free cash flow. We delivered these results while continuing to invest in our long-term strategic initiatives and strengthen the foundation of our operations. We implemented changes that mitigated the impact of tariffs, demonstrating the flexibility of our supply chain and the resilience of our team.

In addition, we streamlined our operations by sunsetting our Home Try-On program and completed several infrastructure upgrades in our labs and across our tech stack to support future growth and prepare us for our AI glasses launch.

Turning to the fourth quarter. In the quarter, revenue grew 11% and adjusted EBITDA margin was 7.2%, roughly in line with last year. As we shared on our last call, our guidance assume that the trends we saw in September and October would continue through the end of the year. However, in December, we saw a slowdown in our 1-year and 2-year growth trends with softness concentrated in our 25- to 34-year-old consumer cohort, while our older progressive customer remained more resilient. We experienced softer retail traffic and contact lens growth slowed, which pressured our e-commerce channel. As a result of this, fourth quarter adjusted EBITDA came in below our expectations.

While we are not satisfied with that outcome, we responded quickly and incorporated learnings directly into our 2026 plan. Trends improved early in the first quarter before being impacted by historic winter weather. Looking ahead, we remain as excited as ever about the opportunity in our core business and the role we expect AI glasses to play in expanding our addressable market and growth potential beyond traditional eyewear.

Today, we represent approximately 1.3% share of the $70 billion U.S. eyewear market, and that does not include any future spend in AI glasses. While the market is large, we believe many customers remain underserved by a category that has not prioritized innovation, customer experience and transparency. While the category has relied largely on price increases, our team has proven that our brand, product assortment, omnichannel offerings and value proposition resonate well with consumers across market conditions.

As we look to 2026, our strategy emphasizes scaling the drivers of our core business to accelerate growth while preparing the organization for the launch of AI glasses. We're prioritizing expanding access across our omnichannel platform, increasing insurance penetration and continuing to elevate the customer experience as we scale. We believe these investments position Warby Parker for sustained market share gains and long-term profitable growth.

In 2026, we're also taking a disciplined and measured approach to our guidance, given the macroeconomic trends that remain outside of our control, while staying focused on the initiatives we can control. While the Vision Council projects the total eyewear market to be down this year, we are committed to delivering low double-digit revenue growth and 130 basis points of adjusted EBITDA margin expansion. This guidance does not include any potential revenue from AI glasses, but it does include the operating expenses and capital investments required for launch. We are investing thoughtfully and from a position of strength. We look forward to sharing more about our launch plans in the months ahead.

Before I turn it over to Neil, let me take a moment to talk about Q1. As many of you know, the country has faced historic winter storms and cold weather to start the year, and we are not immune to those impacts. Our high concentration of stores on the East Coast, which are among our highest volume stores, has presented a challenge early in the year, resulting in store closures and lower traffic. Adrian will provide further details later in the call when reviewing guidance.

And with that, I'll turn it over to Neil to walk through our 2026 plan.

Thank you, Dave. Let me begin by highlighting our 3 strategic priorities for 2026. Our first priority in 2026 is to further invest in scaling our industry-leading omnichannel model while delivering exceptional customer experiences. We're focused on this in 3 primary ways: one, expanding our retail footprint; two, increasing revenue within our existing fleet through eye exams and product mix; and three, continuing to enhance our online experience.

First, we will continue to thoughtfully expand our store base. We ended 2025 with 323 stores, just a fraction of the almost 45,000 optical shops in the U.S., and well below our long-term potential of at least 900 stores. When we survey consumers who have not yet shopped with us, one of the top reasons is that there isn't a store nearby. That's why we will continue to scale points of distribution while driving convenience and awareness in those markets where we already operate. In 2026, we plan to open 50 new stores, and a large portion of those new stores will be located in existing markets.

We're also seeing clear benefits from our infill strategy, in that markets with the highest number of stores frequently have the highest e-commerce growth, driven by greater brand awareness and customer engagement across channels. Our approach to retail expansion is deliberate with a rigorous site selection process designed to shorten ramp time and support sustained revenue and margin growth over time. Our stores continue to generate attractive unit economics, including strong 4-wall margins and healthy payback periods, reinforcing our confidence in our ability to expand retail locations thoughtfully as we scale.

Second, we see significant opportunities to drive additional growth within our existing fleet, particularly through eye care and higher-value products. Eye exams are an important driver of a store's revenue growth, given that industry-wide 3/4 of glasses are purchased in connection with an eye exam. In 2025, eye exams grew 37% to approximately 6% of our business, supported by rolling out features like digital retinal imaging.

We now have exam capabilities in almost 90% of our stores and find that stores offering eye exams deliver higher revenue, sales conversion and gross profit, while delivering a more seamless experience for our customers and patients. In 2025, eye exams accounted for $11 billion in industry spend. Over time, we believe eye exams within our business can scale to levels comparable to the broader industry. In 2026, we'll continue scaling eye exams as a core lever of store growth by increasing awareness of our offerings, expanding coverage in high-demand markets and optimizing scheduling capacity to serve more customers and patients.

Dave and I would like to extend a special thank you to the approximately 550 full-time and part-time optometrists that are part of the Warby Parker family for their exceptional commitment to patient care.

In addition to eye care, broadening our product assortment and increasing customer choice remains central to how we drive engagement and experience. Style and newness are core to that strategy. In 2025, we launched 15 new collections, and we plan to maintain a steady cadence going forward across both optical and sun.

In 2026, we will also enter new categories with the launch of our first sport collection featuring performance lenses, one of the most requested categories from our customers. We believe expanding into this category will attract new customers while fueling incremental purchases from our existing base. At the same time, we plan to drive higher average revenue per customer by expanding our offering of complex lenses, tints, coatings and other enhancements. Progressives are a key component of that opportunity.

In 2025, progressives for us represented approximately 22% of prescription units compared to an industry average of roughly 40% across progressives, bifocals and multifocals.

Third, we will continue to invest in e-commerce and an increasingly personalized online experience. This channel is a core part of how customers discover and engage with Warby Parker, and it plays an important role both in the initial purchase journey and in driving retention over time.

In 2025, e-commerce grew low single digits as the channel continued to face a high single-digit headwind from the decision to sunset our Home Try-On program. Excluding Home Try-On, direct online glasses and contacts purchases grew in the mid-teens, giving us confidence that this channel can return to higher growth levels year-over-year with our investments in personalization and customer experience as we lap the phasing out of Home Try-On later this year and next year.

We're also driving e-commerce growth through tools like Advisor, our proprietary AI-powered recommendations engine that launched in 2025, which paired with our award-winning Virtual Try-On tool, is driving higher conversion by simplifying the shopping journey and enhancing the customer experience. We will continue to leverage these assets to drive growth in 2026.

Our second priority this year is preparing for the launch of AI glasses. As we look ahead, we believe the opportunity in front of Warby Parker is larger than ever as we enter Act 3. While our core mission remains unchanged, this next act is about expanding our reach and integrating groundbreaking technology into a product people already love and wear every day.

With the integration of powerful AI models like Gemini, we are building glasses that deliver real-time, personalized assistance, allowing you to keep your phone in your pocket and stay present in the moment. This is a powerful personal assistant that is there when you need it and invisible when you don't, embedded in beautifully designed eyewear made for everyday all-day use that you'd expect from Warby Parker.

In 2026, we will continue building capabilities across several areas to support this next phase of innovation. First, we are prioritizing production and supply chain readiness to address the added complexity of the consumer electronics space. We are expanding manufacturing capacity, strengthening systems and quality control processes and building the operational infrastructure necessary to support and scale a new category.

Second, we are readying our stores and store teams for the launch of AI glasses. This includes adding dedicated fixtures, investing in training and designing a best-in-class shopping experience across channels. We are equipping our teams to support product education, demonstrations, servicing and ongoing customer support from day 1.

Third, on the technology side, we are advancing a multiyear product road map, supported by continued investment in research and development with additional products and features already in the pipeline. These initiatives involve targeted operating and capital investments, aligned with our expected launch time line later this year.

We are working closely with our strategic partner, Google, who is offsetting a large portion of prelaunch investments. At the same time, we continue to use AI across the organization to drive productivity and efficiency. We are already seeing impact across teams from creative and design to engineering, where AI is now generating more than 50% of our code base.

And finally, our third priority in 2026 is to make additional strides to increase insurance penetration while continuing to invest in brand awareness and customer acquisition. A significant opportunity in the business today is expanding access to both in-network and out-of-network insurance customers.

From the beginning, our pricing philosophy has been to offer fair, transparent pricing, whether a customer pays out of pocket or uses insurance benefits. Customers using in-network benefits at traditional optical retailers still pay approximately $200 out of pocket, whereas at Warby Parker, they can purchase a complete pair of prescription glasses starting at $95.

Our goal has always been to deliver compelling value regardless of how a customer chooses to pay. At the same time, we recognize that many customers have vision insurance benefits and we have worked diligently to make it easier for them to apply those benefits when shopping with us.

In 2025, our in-network insurance penetration was approximately 8%, up from 7% in the prior year. This represents approximately 40% year-over-year dollar growth. Insured customers continue to be among our most valuable, spending more on their initial purchase, selecting progressive lenses at higher rates and returning more frequently over time.

In 2026, our plan assumes incremental progress across 3 dimensions. First, we are expanding covered lives by strengthening relationships with existing carriers and scaling pilots with additional carriers.

Second, we are focused on scaling utilization by increasing awareness and simplifying how customers access their benefits. That includes making it easy to verify coverage across both in-network and out-of-network plans, clearly communicating eligibility and ensuring Warby Parker is visible when customers are actively searching for covered providers.

Third, we are improving the experience for out-of-network customers. Last year, we piloted a new capability designed to simplify reimbursement, reducing friction and making it easier for customers to use their benefits with us. We are encouraged by the early result and plan to scale this to all stores this quarter.

We are working diligently to increase insurance penetration. While competitive dynamics make this challenging, we remain relentless in our pursuit as we believe this is a key driver of revenue growth and market share gains for our business over time. In parallel, we continue to invest in marketing to drive awareness and acquire customers in ways that complement our retail and insurance strategies.

In 2025, we increased investments in top-of-funnel marketing, including launching a 3-year partnership with Arch Manning, a glasses wear since age 3 and a Warby Parker customer since middle school. This partnership has allowed us to participate in a national linear media campaign and connect with a younger demographic, particularly in key markets across the Southeast.

To further expand awareness in 2026, we plan to pursue differentiated partnerships, collaborations and brand initiatives designed to reach a broader audience. In 2025, we leveraged more advanced measurement tools and analytics to inform our media mix decisions in the midst of rising media costs. In 2026, we remain committed to marketing spend in the low teens as a percent of revenue, while continuing to improve productivity across a broader set of both established and emerging channels. We are actively optimizing and reallocating spend towards higher return marketing channels, including reinvesting savings from the sunset of the Home Try-On program into brand awareness initiatives and customer acquisition.

Taken together, these 3 priorities are designed to strengthen the core eyewear business, expand into new categories and establish the capabilities necessary for us to drive higher levels of revenue growth over time, positioning the company to accelerate as these investments scale.

As we grow the business, we remain guided by the belief that scale and impact go hand-in-hand. In 2025, we surpassed 20 million pairs of glasses distributed globally through our Buy a Pair, Give a Pair program and expanded Pupils Project to reach more students across the U.S., committing to distribute an additional 40,000 pairs of glasses over the next 2 years in Baltimore, Boston, Newark and Washington, D.C.

Now I'm thrilled to welcome Adrian Mitchell to Warby Parker. Adrian brings deep operating and financial leadership and experience across some of the world's most recognized consumer brands. He joins us at an important moment in Warby Parker's evolution. I also want to take a moment to recognize Josh Truppo, our VP of FP&A, for his meaningful contributions during this critical transition period and for his steady leadership and partnership. We're grateful for the roles he's played.

With that, I'd like to welcome Adrian Mitchell, our new Chief Financial Officer, to share some additional detail on our results for the quarter and our outlook for the balance of this fiscal year.

Thank you, Neil, and thank you, Josh. I've always been impressed by Warby Parker's innovative brand leadership, relentless focus on customer experience and its history of innovation. I'm excited to join the team at this important moment and to work alongside you, Dave and the broader team to support long-term sustainable growth while making vision care more accessible for all.

Today, I'll review our fourth quarter and full year 2025 results in more detail and then provide guidance for the full year and the first quarter of 2026.

Let's start with the fourth quarter. Fourth quarter revenue was $212 million, up 11.2% to last year. Retail revenue increased 15.2% year-over-year, driven by contributions from both new and existing stores. E-commerce revenue was $56.8 million, up 1.6% year-over-year.

Turning to gross margin. Our gross margin accounts for a range of costs, including frames, lenses, optical labs, customer shipping, optometrist salaries, store rent and the depreciation of store build-outs. Our gross margin also includes stock-based compensation expenses for our optometrists and optical lab employees.

For comparability, I will speak to gross margin excluding stock-based compensation. Fourth quarter adjusted gross margin was 52.5%, 170 basis points below last year. The decrease in adjusted gross margin was primarily driven by tariff-related headwinds in glasses and deleverage in the fixed portion of gross margin, which included increased doctor headcount as we staffed up in advance for our busiest period.

We also experienced increased penetration of lower-margin contact lenses and an increase in expedited customer shipping costs. These impacts were partially offset by selective price increases taken earlier this year in glasses and increased penetration of higher-margin progressive lenses and other lens enhancements.

Shifting to SG&A. Adjusted SG&A excludes noncash costs like stock-based compensation expenses. Fourth quarter adjusted SG&A expenses were $110.3 million or 52% of revenue, 200 basis points lower than last year, reflecting revenue growth outpacing expense growth. Marketing as a percent of revenue was 12.9%, flat from last year. As expected, the majority of the leverage was driven by adjusted non-marketing SG&A, which was 200 basis points below last year. Fourth quarter adjusted EBITDA was $15.2 million. As a percent of total revenue, it was 7.2% or 10 basis points below last year.

Now I'll turn to the full year 2025. Full year 2025 revenue was $871.9 million, up 13% year-over-year. Retail revenue increased 17.3% year-over-year, driven by contributions from both new and existing stores. E-commerce revenue was $241 million, up 3.1% year-over-year.

We finished 2025 with 2.7 million active customers, representing growth of 7% year-over-year on a trailing 12-month basis. Average revenue per customer increased 5.7% year-over-year to $324 in 2025. This was driven by several factors, including our selective price increases for lenses and lens enhancements at the end of April, a higher mix of premium lenses like progressives and continued growth in both contact lenses and eye exam sales, partially offset by the mix shift into lower price point frames.

Full year adjusted gross margin was 54.4%, down 110 basis points. The decrease in adjusted gross margin was driven by tariff-related headwinds in glasses, higher contacts mix, increased doctor headcount and customer shipping costs. These impacts were partially offset by selective price increases in glasses and increased penetration of progressive lenses and other lens enhancements.

Full year adjusted SG&A expenses were $433.3 million. As a percent of total revenue, adjusted SG&A was 49.7%, 280 basis points lower than last year. Marketing as a percent of revenue was 12.6%, 20 basis points higher than last year. And as expected, the majority of the leverage was driven by adjusted non-marketing SG&A, which was 300 basis points below last year.

Now shifting to capital allocation. We ended the year in a strong cash position of $286 million, up $32 million from the prior year. We generated approximately $44 million in free cash flow in 2025, up from $35 million in 2024. As anticipated, 2025 marked our third consecutive year of positive and accelerating free cash flow.

In addition, we have a $120 million credit facility expandable to $175 million, which remains undrawn other than $4 million outstanding for letters of credit, providing us with additional liquidity and flexibility.

The growth in our cash balance is a result of increased profitability and disciplined capital management. Notably, our balance sheet is a meaningful strategic asset. It gives us the flexibility to self-fund the strategic initiatives underway in 2026, support the launch of AI glasses and position the business for accelerated growth.

As it relates to capital allocation, we will continue to deploy capital deliberately to support growth, while maintaining financial flexibility. We evaluate capital allocation holistically, balancing investments in the business with returns to shareholders.

Earlier this week, our Board of Directors authorized up to $100 million in share repurchases. We intended to use this authorization opportunistically, primarily to offset dilution over time and in a manner consistent with our capital allocation priorities. Equally as important, our primary focus remains investing in high-return initiatives within the business to support long-term profitable growth and healthy value creation.

We are pleased that our cash flow generation allows us to self-fund our priorities while also providing the flexibility to return excess capital to shareholders through this share buyback program.

Now let's turn to our outlook for 2026. Based on recent trends and core eyewear industry headwinds, we believe that it is prudent to adopt a measured approach. Spending in the broader optical industry is expected to decline low single digits this year on both a unit volume and dollar basis. While we have conviction in our strategic initiatives and the underlying health of our business, we're planning with discipline given the current backdrop.

We are focused on executing across our omnichannel model, continuing to elevate the customer experience and successfully launching AI glasses, all of which we believe will create a durable platform for long-term profitable growth.

Before getting into the specifics, we wanted to also share that we are assessing what metrics we disclose to ensure that our stakeholders can better track the drivers of value creation within our business. It is also important to note that our 2026 outlook excludes any revenue contribution from AI glasses, but it does include the operating expenses required to support the launch. We believe this approach reflects an appropriate balance of transparency and conservatism as we enter this new category.

For the full year 2026, we're guiding to revenue of $959 million to $976 million, representing approximately 10% to 12% year-over-year growth. We expect e-commerce to grow in the low single-digits range for the full year with the impact of sunsetting the Home Try-On program more concentrated in the first half and moderating in the second half of the year.

We expect gross margin to be in line with the full year 2025, reflecting mixed dynamics across glasses, contacts and eye exams as well as ongoing supply chain efficiencies, partially offset by nonproduct-related investment costs, including store rent and doctor salaries.

We are guiding to adjusted EBITDA of $117 million to $119 million, which equates to an adjusted EBITDA margin of 12.2% across our revenue range and 130 basis points of expansion year-over-year. We expect marketing to remain in the low teens as a percent of revenue.

Turning to the first quarter. Since we sunset the Home Try-On program, retail is expected to represent approximately 75% of our revenue in the first quarter. Encouragingly, retail delivered high teens year-over-year growth in early January of this year, reflecting an acceleration from December. Starting in mid-January and extending through this week, we experienced significant snow and prolonged cold weather conditions that materially impacted store traffic and sales in areas that generated over 70% of total retail sales for Warby Parker.

When we look at the Q1 performance for stores in these areas, which include many of our highest volume locations, we have seen high teens year-over-year retail growth during periods of normal weather, but deteriorated performance to low single-digit declines year-over-year growth during periods of inclement weather. In these weather-impacted areas, performance returned to high teens growth year-over-year after snow and cold weather conditions passed, and these stores returned to normal operations. In non-weather-impacted markets, retail growth has been low double digits, which is consistent with new store growth in these markets.

For e-commerce, growth trends have been muted with low single-digit year-over-year declines quarter-to-date, largely unaffected by weather patterns while absorbing the impact of the sunsetting of our Home Try-On program in the fourth quarter. For e-commerce quarter-to-date, our direct glasses and contacts purchases have been growing in the low double-digits range, reinforcing the fact that the forward-looking parts of our e-commerce business remain healthy despite the headwind from sunsetting the Home Try-On program late last year.

Taking all this into account, including inclement weather conditions, our quarter-to-date top line growth for the full business as of earlier this week is in the mid-single-digit range. As a result, for the first quarter of 2026, we're guiding to revenue growth of 6.5% to 7.5% year-over-year or approximately $238 million to $240 million, assuming no further significant weather-related disruptions for the remainder of the quarter.

We expect an adjusted EBITDA of $27 million to $28 million, approximately 11.5% EBITDA margin at the midpoint of our range. As expected, first quarter adjusted EBITDA is impacted by lower revenue resulting from the impact of inclement weather, and we expect to drive year-over-year leverage in the remainder of the year as top line growth normalizes.

2026 is a year we are intentionally investing in building the capabilities necessary to support accelerated revenue growth over time. We are focused on scaling the core business, expanding access across our omnichannel platform and executing the launch of AI glasses. While there are external factors beyond our control, we're planning our business with discipline, staying focused on what we can control and continuing to make progress on the initiatives that matter most.

Before I wrap up, I'll share a few observations from my first few weeks here. First, our powerful brand proposition, positioned at the intersection of exceptional style, superior quality and outstanding value, creates a meaningful runway for our core business to demonstrate sustained mid-teens to high-teens growth and continued gains in market share. We also see a significant opportunity to deepen relationships with holistic vision care customers, those who engage with us across exams, glasses and contacts and who consistently become our most valuable customers over time.

Second, our culture and proven track record of innovation positions us incredibly well as a leading player in the smart glasses category, which complements our core business. Finally, our healthy balance sheet and strong free cash flow allows us to self-fund strategic growth initiatives as we scale our business in future years, while also maintaining the flexibility to return capital to shareholders through our share repurchase program.

All this is possible because of an impressive team. I'm energized to be a part of this team and really excited about the long-term opportunities ahead.

With that, I'll now pass it back to Dave for closing comments.

Thank you, Adrian. 2026 is an important year for us, and we believe we remain uniquely positioned to continue delivering strong growth and market share gains while we expand the profitability of our business over time. At the same time, we are excited about the launch of AI glasses later this year and have a clear plan to drive growth in 2026 and beyond.

I also want to recognize our team. Neil and I are inspired by the talent and dedication of our team members across Warby Parker right now, who are enabling us to embark on our next ambitious phase of growth. We're excited about the road ahead and confident in what this team continues to accomplish.

With that, operator, please open the line for Q&A.

[Operator Instructions] Our first question today will be from the line of Brooke Roach with Goldman Sachs.

Can you elaborate on the softness that you're seeing with your younger customer? Are you losing share with that age cohort or is that simply a function of the broader industry pressure? And what actions are you taking to shore up this part of the business in 2026?

We believe this is reflective of pressure that the category is seeing overall. And if you look at some of the industry sources like Vision Council, they indicate that both prescription glasses units and contact units were down in the mid-single digits on a unit basis year-over-year and that those trends deteriorated in the back half of the year in Q4.

And so on a relative basis, we believe we're continuing to outperform the category, but there's no question that younger and lower income consumers are feeling pressure, and that's impacting some of their purchasing behavior in the category.

Now we are taking actions to engage with that demographic. We're adding incremental media dollars and new campaigns on channels where younger consumers are spending time, including TikTok, Reddit, YouTube Shorts and others.

And we also recognize that people are being conscious around the dollars that they're spending and are looking to take advantage of their vision insurance benefits. And so we've been spending a lot of time in investing in efforts to make their dollars go further, both by educating folks around their new in-network benefits that they -- Warby may be an option for the first time for them.

And then also making it easier for people to have visibility into their out-of-network benefits. We ran a pilot in Q4 that was quite successful, where regardless of insurance carrier, customers can get a precise indication of the reimbursement that they'll receive from their out-of-network benefits, and our teams can help them submit those forms.

And so given the success of that pilot, we'll be rolling that out more broadly and anticipate that, that will help drive conversion for all demographics, but in particular, those younger and lower income cohorts.

Great. And then as a follow-up, Neil, you spoke in the prepared remarks about supply chain readiness for the upcoming launch of AI glasses. Can you speak to the unit capacity that you're preparing for in launch here? And how quickly you might be able to scale the supply chain should demand follow a similar cadence of growth as the broader industry?

Sure. One of our advantages from day 1 was building a vertically integrated brand, so that way, we could be responsive to customer demand as well as customer needs and changing interest. So our team, which is based right in New York, but has presence globally to ensure that we have a robust and resilient supply chain, one of which has only gotten stronger given some of the tariff crises of recent years.

We continue to invest in our optical labs to ensure that we have the capacity that we need and the new capabilities to ensure that this product, which we believe is the first one that's really designed for all day, every day wear, and really coming from an eyewear first, and in particular, a prescription eyewear first perspective, puts us in a unique position.

Similarly, as we think about our store fleet of 300-plus stores, staffed with long tenured, incredibly passionate but tech-forward team members, also puts us in a position ahead of eventual competitors on how to properly sell and market and serve customers of AI glasses.

The next question today will be from the line of Dana Telsey with Telsey Group.

As you think about the cadence of this year, and obviously, we had the weather -- we have the weathers impacts, and hopefully, the snow will be ending, but who knows what. How are you thinking about growth rates going forward? And I noticed you're opening 50 stores this year, including the 5 Targets. How are those Target shop-in-shops doing? What is the learnings? And how are you thinking about tariffs, given the volatility that's currently going on? And what pricing looks like for 2026?

I'll take the Target question first. We've opened 5 shop-in-shops last year and are anticipating opening a similar number this year. This is part of our strategy to test and learn, just as we grew our own store fleet in a very deliberate way, starting with a showroom in our office to doing shop-in-shops in marquee stores across the U.S., including like Imogen and Whalen in Nashville, to doing activations in hotels, and at one point, buying an old yellow school bus and driving that cross-country and converting it into a mobile store as part of the Warby Parker class trip. This is something where we're testing and learning.

I had a chance to visit our Brick location in Brick, New Jersey. The store looks beautiful. It's the first thing that you see as soon as you walk into the Target. Our team there is fantastic. We're seeing slightly older demographics. So we are seeing higher progressives penetration than in our existing fleet. And we're also seeing a higher percentage of new customers. But again, we're in the test and learn phase, and we'll be able to sort of share more after this pilot.

Dana, it's great to be with you. With regards to our outlook, we talked a little bit on the call with regards to the headwinds that we saw with weather in the first quarter, but yet we're still committed to low double-digit growth as we think about the balance of the year. The one thing that I would share is that our growth is actually quite healthy. So if you compare to what we saw last year in the industry, which was up about 4%, we grew at actually 3x the rate of the industry, but not just on compounding price, which is what we saw in the industry, given the decline in units that Dave spoke about earlier, but we had a healthy balance of unit growth, ASP growth and customer growth. So that's an important dimension in terms of the health.

The other thing that we continue to believe, given the strength of the proposition, is that we'll continue to be a market share gainer, not a market share donor. And so even though we expect a softer Q1, just given the weather impacts and what we spoke about on the call, we do expect to see acceleration and return to more normalized trends as we look ahead.

The one thing I'll just point out from my opening remarks as it relates to what we experienced in Q1 is -- the big takeaway is that the fundamentals of the business remain healthy. In those periods where weather was not an impact, we talked about the high teens growth of our retail business. And also when you think about the normalization of the headwinds with e-commerce, very healthy low double-digit growth in terms of web glasses and contacts. So we're very encouraged about what's ahead, but we also want to be consistent in delivering what we say we're going to deliver. Josh, you would like to talk about tariffs?

As it relates to tariffs, you're absolutely right, certainly volatile. The Supreme Court ruling from last week is pretty recent, so we're still analyzing those impacts. But when you think about that ruling or you break it down to 2 pieces, first, there's the refunds on what we already paid for, and the Supreme Court didn't really say anything specific regarding that. So we're continuing to monitor that. We'll obviously take the necessary steps to preserve our rights as it relates to those refunds. We have not assumed anything in either our margins or our cash flow plan for the year as it relates to collection of those refunds.

And in terms of the go-forward piece of tariffs, the ruling removed the emergency tariffs. However, pretty quickly, the administration responded with a new global surcharge of 10%, and they've indicated they're likely going to move that up to 15%.

So given all of that, we have not incorporated any sort of benefit into our 2026 guidance tied to that ruling. We do think that any benefit will largely be offset by the statutory changes to tariffs that the administration is currently exploring. With that being said, we are in a position to continue to be flexible and nimble, navigate the tariffs as we have in 2025.

The next question will be from the line of Mark Altschwager with Baird.

Welcome, Adrian. Following up on the revenue guidance and the acceleration after Q1, you were clear that you're not incorporating any revenue from the smart glasses. But curious if you're making any assumptions regarding how the launch may impact traffic and conversion for the core business.

We are not -- we have not factored in a halo effect from the launch of AI glasses in our guidance.

Thank you for the welcome, Mark.

And then separately, more on the margin front, but can you help us reconcile the acceleration in store openings with the dip you're seeing in active customers and the average retail productivity? Specifically, what are the other components that are enabling you to sustain the target 4-wall profitability?

So within margin in Q4, one of the things that we've talked about all year is -- when you kind of look at our store fleet and you look at our gross margin as well as our non-marketing SG&A, one of the areas that we continue to experience leverage in is non-marketing SG&A. In Q4, non-marketing SG&A was up 200 basis points. And a piece of that obviously impacts our store fleet and our 4-wall margins.

Within Q4, we did experience a little bit of pressure around gross margins, very specifically related to certain impacts in Q4. Dave talked a little bit about the revenue cadence throughout the quarter that ultimately decelerated in the month of December, which allowed us a little time to kind of make some adjustments, especially as it relates to doctor salaries, which is embedded in our gross margin, and we had staffed ahead of the holiday season. So those are very specific to kind of Q4 impacts and we expect kind of a normalized gross margin. As Adrian talked about, we expect gross margin in 2026 to be very much in line with 2025.

Mark, if I could just also actually build on Josh's point. We have pretty clear standards for our new store opening results. We look at payback period and 4-wall margin, as you mentioned. But the reality is, like any retail company, there's going to be a variety of performance as you look at individual stores. But what we are very pleased with is the performance across the portfolio as a lot of these new stores that are opening continue to mature.

I'd also just call out some of the channel dynamics, where e-com continues to be an evolving part of our business, in particular, with the sunsetting of our Home Try-On program. This is our first quarter without that offering and we are seeing -- Home Try-On, historically, we've seen the strongest volumes in Q1. And in this period where we anticipated that we would be able to drive a significant portion of those Home Try-On customers to our stores had been impacted by weather.

We're seeing some speed bumps to that plan but remain confident that we'll be able to serve those customers effectively. And if you isolate the performance of our retail stores, we continue to see very healthy dynamics in terms of customer generation, overall growth and profitability as we would expect, and that gives us the confidence to continue to invest and accelerate our store rollout plans.

The next question today will be from the line of Oliver Chen with TD Cowen.

Neil and David, as you know, from our Wharton days on the AI models, a lot of the large language models rely on unsupervised and supervised training models. A question about the LLM training and what might be proprietary to Gemini and Google versus how you're thinking about what's unique to Warby Parker? And also on the AI front here with glasses, what are your views on personalization and some unlock that will set you apart?

Adrian, as we look at guidance going forward, what are your thoughts on units relative to traffic and other comp levers? What's incorporated in your guidance view?

We're very excited about the transformation that will be happening within the optical industry over the next decades, particularly as we transition right from traditional eyewear to intelligent eyewear. We believe that Google is the best partner for us for a variety of reasons, including their AI leadership overall, basically writing the research papers that all LLMs are based off of, but how they continue to innovate and lead with a product like Gemini.

But it's not just their work in AI that makes them a great partner for us. It's their suite of products that billions of people use every day from Google Maps to Calendar to Chrome to Gmail to YouTube and more. So we don't plan to develop any of our own models. Where we'll continue to develop IP is around the eyewear itself, around fixing prescription lenses and fulfilling those. And we'll ensure that the market and customer feedback that we get from being a vertically integrated brand, we're able to act on faster than everybody else. And that's been a key part to our success over the last 16 years, is to always be customer first because we're engaging directly with our customers and patients every single day, and have the shortest feedback loop to our product development team, our design team, our supply chain teams and more.

Oliver, it's great to be with you. I would say that as we look at the outlook for 2026, it starts with an important premise that we have a very healthy brand proposition that will allow us to continue to outperform the market. The market this year is projected to be down low single digits. But again, we are committing ourselves to being up low double digits.

Just to put it in a little bit of perspective, we do expect to continue to see healthy levels of traffic as well as conversion both in stores and online. But when I look at this business and we talk about driving success in 2026, one is clearly the number of points of distribution. We believe that we have at least 900 stores on the horizon in an industry with over 45,000, but we're opening 50 stores this year to reach more markets, more customers and more communities.

The second thing is when you look at the composition of our business in terms of spend in exams, contacts and glasses relative to the industry, there are opportunities for us to more mirror the industry penetration, which actually provides real growth for us. We continue to see very healthy growth in exams. We continue to see healthy growth in progressives. And so when you think about how the industry spends, we think there's a lot of opportunity to begin to mirror those penetration levels.

The innovation of this company is actually quite compelling. You think about new categories and new collections, we have a very healthy cadence of that innovation. And as we spoke about a bit earlier, sports and athletic is a new category for us or a new collection for us that's in demand for customers that we've already spoken to. And then obviously, AI glasses has had a very healthy level of adoption.

And then the last thing I would say is really around price. We just had a healthy mix of balancing units, ASP and growing our customer base, which is unlike what we see in the industry, which is really been driven by compounding price increases on a like-for-like basis. So when you think about the way that we drive price, we're very encouraged by what that can do for us as well as we think about the outlook for this year and beyond.

So helpful. There's one follow-up. We're getting questions from clients around parameters on timing. It's probably very dynamic regarding the AI glasses launch. And any thoughts you have on what you're testing in relation to a framework for timing?

Yes. We can't share specifics at this moment, but we are very excited by the progress that we're making on the product. We were out in the Bay Area earlier this week meeting with some of the senior leaders at Google and Samsung and are just really excited about the progress that we're making together and look forward to sharing more later this year. But yes, for now, all we can say is that we're excited to introduce these to customers later in 2026.

The last question we have time for today is from the line of Paul Lejuez with Citi.

Welcome, Adrian. The active customer count grew at the slowest pace all year in the fourth quarter. Curious if you think that customers are putting off purchases because of higher prices in the assortment. You think it's more of a higher price issue across the retail environment, maybe specific to the categories you called out, some weaker industry trends.

But I guess along those lines, maybe frame for us how you're thinking about that revenue growth for next year, for '26, when we think about that increase in active customer counts versus revenue per customer. If you can frame that for us. Sort of what underpins your revenue guidance?

And then just second, I just want clarity on the -- what you're saying about the revenue assumed from the Google partnership. Are you assuming that there's no incremental revenue? That any revenue that you receive would not be incremental to the business this year? Or are you saying at this point, you're kind of pretending like those glasses don't even hit the assortment and so there will be 0 revenue from Google glasses?

To answer your last question first, just to clarify, we have not included any incremental revenue through the sale of AI glasses in our guidance. We have included the expenses that we'll incur to prepare and launch this new category for us. So we plan to share more around timing and projections sort of later in the year. But we do anticipate, right, with the launch that there would be incremental revenue. But we're not baking it into our guidance.

And we're also not including any halo effect or anticipation of additional traffic and sales drivers for the existing products in our business. So we view that all as upside once we do launch that product and believe that these will generate quite a bit of excitement and drive people to our stores and our digital properties that will generate additional benefits. But again, right now, we're just projecting the core business as it stands today.

And then to tackle your first question, I'll start and then kick it over to Adrian. But we are seeing based on the category data that some customers are putting off their purchases. Now we are outperforming the market and gaining share, and that's both from a customer perspective, from a unit perspective, from a revenue perspective as well.

One of our strengths has always been our pricing model and our $95 opening price point, including anti-reflective prescription lenses is more competitive than ever because it's been that price now for 16 years as we've seen our competitors continue to take price. And we think that this is one of the reasons why in this category that historically has been resilient, that is experiencing some volatility, that we continue to outperform our competitors in acquiring customers and driving units.

So we'll continue to be competitive there. We are seeing as well as we're hearing from other folks within our category, but also people across the consumer and retail landscape that the younger consumer in their 20s is behaving more cautiously and is under financial stress. So we're not surprised that the category is seeing this particular customer sort of pull back a bit.

We, again, think that we're best positioned, and we're going to continue to acquire customers, whether they're younger or whether they're older. And one of the things that we see with our older customers is that, that drives progressives' penetration, which helps drive ASP and gross margin and contribution margin overall.

I think Dave and Neil actually captured it quite well. Just to amplify the point, the way we think about it is units, ASP and new customers. When you think about the expansion of 50 points of distribution, that's clearly a way to really reach out to more customers, where we know from our data that one of the biggest drivers of opportunity is to actually have a physical location nearby.

What I love about this brand is the healthy view on ASP, which is heavily driven by mix. So when you think about the sport and athletic, introductions that we plan to have later this spring, what's really exciting about that is it's at a healthier price point, but in terms of its price point, it's at great value. So those dimensions on mix really help us quite a bit.

And as we think about units, we're thinking about our existing comp stores that exist within the business and getting more and more customers from the neighborhood into those stores, but also in terms of units, getting units through the new stores that we're opening as well as it actually progresses through its maturity curve.

So just to kind of amplify what Dave and Neil spoke about. We're focused on a number of initiatives for units. We have a healthy way to think about ASP, and we also have avenues for us in our omnichannel platform to get new customers, particularly with physical openings and points of distribution.

Thank you. With that, we will conclude the Warby Parker Incorporated 4Q '25 earnings conference call. Thank you to everyone who is able to join us on the call today. You may now disconnect your lines.

Okay. Well, hi, good afternoon, everyone. Thank you for joining us on day 1 of the conference. I'm Jenna Giannelli, the Head of Retail and Consumer Credit Research here at Morgan Stanley. I am helping to fill in for Alex Straton, our equity analyst that covers Warby, who will soon be having a baby. So we're very excited. I'm happy to be filling in for her. I'm really excited and happy to be here with you and hosting Warby. So Joined today by Warby's Co-Founder and Co-CEO, David Gilboa. Thank you for coming and joining us, and welcome to the conference.

Yes, thanks for having me.

Of course, of course. So just some disclosures, housekeeping items, from Morgan Stanley research disclosures, please see morganstanley.com/researchdisclosures or reach out to your Morgan Stanley representative.

I'm going to start off fireside chat, Q&A, a lot of investor questions that have been most frequently asked and on investors' minds of late. And then if there's time at the end, we can get to some investor, audience questions.

So let's start off. You've been a public company now for about 4 years. Looking back at your IPO vision kind of versus today's. Maybe just walk us through some of the strategic pivots what that journey has looked like for you? And maybe what has kind of surprised you most about that journey?

Yes, maybe I'll start a bit further back. So we've been now in business for 15 years. And when we look at the trajectory of Warby Parker, we can really break it into three acts. So act 1 was launching by selling glasses online and pioneering the direct-to-consumer brand model. And we introduced a lot of novel concepts to the category in that act like our Home Try-On, all-in pricing. So you could buy a pair of classes like the ones I'm wearing for $95, including prescription lenses, including all the coatings that you need and just have kind of much more transparency than the rest of the category was used to, offering high-quality glasses for a fraction of what they would cost elsewhere.

But we realized that there was a lot of friction for our customers. We're making our customers do a lot of work. They have to go somewhere else to get their eye exam, if they were contact, they had to go somewhere else to buy contacts. We didn't offer kind of the broad array of products and services that they were looking for.

And so act 2 was expanding into an omnichannel retailer and becoming a holistic eye care business. So we went from operating 0 stores to now over 300. We now employ hundreds of eye doctors to make it really easy for you to get eye exams in addition to offering single vision glasses. Now we have multiple types of progressive lenses, lots of different lens options, frame options, a large and growing contact lens business. And so but really focused on making it more convenient for our customers to meet all of their eye care needs at Warby Parker and choose whether they want to engage with us for any part of that customer journey, online or offline. So you can get your prescription using telemedicine or in our stores, you can buy grosses, online or offline, by contacts, online or offline. And that's been kind of the main areas of investment over the last few years.

And now as we enter act 3, that's all about AI and really focusing on introducing AI products that our customers can wear, also infusing AI into every part of the customer experience in every part of our business to drive efficiency. And I'd say if there's one kind of thing that's been surprising to us is just the speed of AI advancement. We know we're not the only ones that are surprised by that, but we have been interested in the prospect of launching smart glasses for quite some time. We've had conversations with potential technology partners, really going back to almost the beginning of the company. And we never kind of felt comfortable in putting our name and brand on products and developing the products because we thought they were too bulky and they didn't do enough for customers.

And really what we were waiting for was battery technology to advance, batteries could be smaller, cameras to shrink, sensors to shrink, and other things have happened. But I think what was what has been really surprising and compelling more recently is just how quickly AI has advanced in ways that can enable glasses to be the kind of primary computing device for this next AI era.

And so we're really excited to be developing products with Google and Samsung that we'll be introducing soon. But also just infusing AI into every part of our journey, including like on our digital tools, a feature called Advisor, where we can scan your face and based on your face shape and contours. We recommend frames that we know are going to fit your face. And can make more personalized product recommendations, and then infusing AI into kind of every part of our operating business, every department from how we do kind of photography and creative shoots to our supply chain team and inventory allocation and really kind of finding efficiencies using the latest technology in every part of the business.

Well, it sounds like there's a lot of exciting things on the horizon. I do want to circle back to the AI component because there's a lot to dive into right there. As you talked about that evolution and kind of becoming a more holistic eye provider soup to nuts for the consumer. I guess as the company stands today, what are those most differentiating factors when you think that here's what really kind of stands out and sets us apart for the consumer?

Yes. So I think, first and foremost, we're really the only eyewear retailer and brand at scale that has a true omnichannel offering. So the category really hasn't changed much since we launched in 2010. It's made up roughly 50-50 of large retail chains and then half of the category is independent optometric practices. Now there's optometric practices, really -- they haven't invested in technology. They don't have -- it's primarily individual doctors that kind of run their own practice. They don't have an e-commerce offering. Most of the large chains really haven't invested in e-commerce and omnichannel offerings. And so I think, first and foremost, consumers are able to shop with us the same way that they're used to shopping for every other consumer product, whether that's buying their Lululemon gear, workout gear or kind of any other consumer product, they can come to us and shop across channels.

Second is just the value proposition that we offer. So the glasses that I'm wearing now cost $95, including prescription lenses and all the coatings you need the same price that we introduced in 2010. And this is a category where most of our peers consistently raise prices every single year. And so the gap between our pricing and the value we provide now is greater than it's ever been since we've launched, and that especially in times where there are certain consumer segments that are being kind of more thoughtful and choiceful around where they're spending and how they're spending. We're just kind of the smarter choice and offer more for -- more value for your dollars.

And then we're a brand. So we design our own products that you can only find at Warby Parker locations and on our website, because we're a direct-to-consumer, we get so much feedback from customers and so much data in real time that we can use to continuously develop products that we know that consumers like and be able to test them and get immediate feedback. And that places at a competitive advantage relative to the rest of the category, where things operate on much lower kind of wholesale cycles.

And being a brand also gives us unique opportunities, whether that's partnering with someone like Arch Manning, who's been a customer of ours, and a Warby Parker wearer since he was 12 years old and launching campaigns together, or partnering with companies like Google to develop products in ways that kind of other stand-alone retailers can't do?

So you said that's kind of the value proposition. Maybe just a little bit on the category as a whole. I think last year at the conference, you kind of gave an update on what the trends were looking like, especially coming out of the COVID era. I guess maybe give us a lay of the land and what the optical landscape looks like right now and what are some of the puts and takes?

Yes. So what attracted us to the category is -- it's a massive category, well over $60 billion and growing the products that we offer help people see. So there's a medical necessity. There's also a fashion element and a fashion component. So there's kind of some discretionary aspect to it, but the majority of activity is driven by health care needs, which means that it tends to be a category that is resilient regardless of economic climate.

And we've seen that over the years. It said COVID was an exception where there was lots of disruption in unique ways that impacted our category and had kind of a hangover for some years. But we're largely through that. And what we started to see in kind of the back half of last year was return to kind of normal shopping behavior in the category. And this year, we've seen really some periods of disruption, including in April after tariffs were announced and that kind of put a chilling effect on consumers in general. But I'd say as a whole, we've seen a relatively steady shopping behavior in the category and expect that to continue.

Got it. So -- and let's go back then to driving growth in the category because I know that there was lot of excitement from investors earlier on in the year, when you rolled out or started talking about the Google partnership. So maybe just tell us a little bit about what you think that opportunity could look like? Is it more of a marketing and brand-building initiative, a real revenue driver, both ideally, right? And I guess, how are you thinking about profitability of that growth over time?

Yes, this is going to be a massive new business for us. I think it's hard to overstate the TAM. Really, if you think about kind of going back 20 years, I think people didn't understand how powerful the Internet and kind of always-on connectivity was going to be when everyone was using desktop computers. It took smartphones to showcase kind of the power of always-on Internet and always-on connectivity. And the mobile -- smartphone is really the kind of a native device for this last era. And we believe that AI glasses are going to be the native form factor for the AI era and really showcase how powerful AI can be for consumers, and we believe that we're partnering with the best companies out there in Google, who has been an innovator and leader in AI, in general. They also have such a powerful ecosystem of products that billions of people are using on a daily basis that we'll be able to seamlessly integrate with. And then partnering with Samsung on the hardware manufacturing aspect. They built billions of consumer devices and really believe that we're bringing together the kind of the best of three worlds with hardware, consumer electronic hardware expertise, software and AI expertise from Google. And then design and customer experience and prescription supply chain for Warby Parker.

And these are going to be really remarkable products that we believe are going to rapidly change the nature of our business and the nature of the category. And if you look at kind of the success of some of the existing products on the market today that are selling millions of units a year, I think they show that consumers are ready to purchase glasses that if they look pretty similar to normal glasses, but add additional functionality. And I think the existing products do certain things really well, like take pictures and the audio is pretty good and can replace AirPods, and it's a nice feeling not to have your ear canal block all the time to the world, but they don't provide that much utility beyond that.

And we believe that our products are going to be really differentiated and have a remarkably good AI that will provide utility to consumers that is really mind blowing from having a smart assistant that can answer any question about any topic that understands what you're looking at, understands what you're hearing that can provide you an instant instruction manual on how to grill a piece of meat or how to fix your kid's toy or what's going on with your broken dishwasher, to being able to ask when was my last meeting with Morgan Stanley and have it sync with your calendar and your previous experiences to asking things like where did I leave my keys this morning? Or what was the name of the book on my night stand yesterday and just -- it provide just really massive utility to consumers in ways that existing technology can't.

Well, I need those already. So I guess, let's talk about -- it gives a lot of great context on what the kind of sales growth could look like over time. Maybe just to kind of bring you back to 2025, you did update the 2025 revenue guidance in the earnings print back in November. Maybe just walk us through that, what were kind of some of the puts and takes on your sales growth algorithm for 2025?

Yes. So I think we reported a pretty strong Q3 with north of 15% top line growth. It was our ninth consecutive quarter of accelerating active customer growth, which I think is pretty unique in our category, where we talked about how we've seen kind of steady behavior and steady growth in the category. But if you look kind of outside of Warby Parker, really all of that growth is coming from price and units are flat to down, and customer growth is flat to down. And for us, it's been the opposite, where we've really focused on having customer growth be the engine for our overall growth as a business. And in an environment like this where you do have some consumers that are being more choiceful around where they're spending, I think they realized that our value proposition stands out very strongly, and we're taking meaningful market share on a customer basis and a revenue basis from the rest of the category.

Now when we guided at -- in August, we were coming off some of our strongest growth that we've seen in quite some time. We had really strong back-to-school. And shortly after that, in September, we did start to see some trends shift. So we continue to see pretty steady traffic and customer growth. But within our younger consumer demo, we started to see smaller basket sizes to kind of a trade down where people that were buying contacts, instead of buying an annual supply, we're buying maybe a 1- or 3-month supply of contacts, fewer single vision orders where people were buying multiple pairs of glasses at the same time.

And then within single vision and also people kind of a higher mix $95 frames versus some of our higher price point frames. And we continue to see steady behavior from our older customers and our Progressive business. But because of some of those basket size dynamics that we were expecting to change, we did bring down our revenue outlook for the year just to take a more conservative view. We kind of maintained our profitability outlook. We've been pleased with the efficiencies that we've been able to drive throughout the SG&A portion of our business outside of marketing spend. And a lot of that is really coming from infusing AI to every part of the business and starting to see real efficiencies there.

That's great. I'll jump around on my questions and kind of ask you to elaborate a little bit more, I guess, what are the extent of some of those efficiencies because you were able to maintain that earnings and that EBITDA outlook. So I guess you talked a bit about it before using AI and driving margins over time. But I guess, how should we think about that trend in 2026 and beyond on that line and really leveraging the SG&A?

Yes. So over the last few years, we've built up a lot of capability on our team side and within our systems that will enable us to support additional growth without our expense base scaling in line with top line. So we went through an ERP migration. We added significant capabilities throughout our tech stack, throughout our team that enables us to continue to grow, to add stores, to continue to add revenue while maintaining meaningful efficiencies throughout the P&L.

And what we've said is that we want to continue to invest in marketing, and that will stay relatively steady in the kind of low teens as a percent of revenue. But in every other part of our SG&A base. We should see meaningful leverage. And I think we've demonstrated that this year and expect that to continue. And there are certain areas like we're saving millions of dollars a year in photo shoots by leveraging AI. Our design team is using AI, just to rapidly speed up the prototype and design process and reduced reliance on third-party suppliers and really kind of every part of the business is just getting faster and more efficient, and we expect that to continue.

Awesome. I want to ask you a little bit about channels and stores relative to online as you think about growth over time. So maybe just on stores, what are you hoping for from that channel, whether it's in terms of store count or square footage? And then how are you balancing that with online digital penetration and where you could see that going over time?

Yes. So we have a little over 300 stores now out of about 45,000 optical shops in the U.S. And we still see a massive opportunity to continue to expand our store footprint, when we survey consumers and who are familiar with Warby Parker, who haven't shopped with us yet, the #1 reason is that there's not a store nearby. And another top reason is that they don't have a valid prescription. But we can solve both of those problems by just opening more stores and making them more commonly located.

And this year, we opened more stores than we ever have before, between our own stores and then also five within Target locations. That just gives us another opportunity to scale beyond kind of our stated goal of having 900-plus freestanding stores. We view the kind of Target locations as incremental to that, because they enable us to tap into communities that we probably otherwise wouldn't open a freestanding store in that exact place.

And we're finding that our stores are working. They're really capital efficient. They cost us less than $1 million to build. They pay back in under 20 months, have 35% 4-wall margins, and are really efficient ways for us to capture customer demand and also retention over time. We also believe that the best place to showcase our new AI glasses is going to be by demoing them in our stores. We now have more stores than Apple does in the U.S. and are just going to have a very convenient locations for consumers to understand the power of this new technology.

In our last quarter, we reported some of the highest retail productivity that we reported as a public company. And so we are continuing to see our stores scale well and are seeing really consistent economics from our newest cohort of stores and strong performance from our existing stores that have been open for more than 12 months.

And then within our e-com business. There, we've seen, I'd say, some shifting dynamics. We announced recently that we're sunsetting our Home Try-On program, which had been a major driver of growth really for -- through the company's history. When we launched, there was an article that called us the Netflix of eyewear, comparing us to Netflix, back when Netflix shipping DVDs back and forth and much like their business has evolved, so as ours. And now we can, frankly, serve customers better through our store footprint and through our digital tools, including our AI capabilities online that enable you to digitally try on glasses and get personalized recommendations in faster and more efficient ways than our Home Try-On can.

But as that Home Try-On business has been winding down, that has been creating some headwinds to growth. The other parts of our e-com business that will persist over time are direct frame purchases. So people buy glasses without doing a Home Try-On. And there, we're seeing very strong and steady year-over-year growth. And then our contact business is also very healthy online. And so once we get past the kind of the headwind from the Home Try-On business, where we believe that our e-com business is also set up for accelerating growth over time.

Are you seeing nice uplift on the e-com business in the markets in areas where you're opening stores? Or is there a correlation there a bit?

Yes. We -- so we tend to see -- if you look at our cities that have the highest density of retail locations, like New York, Chicago, Boston, Dallas, they tend to be the areas or the cities that also have the highest e-com growth. And so we do tend to find really nice synergies. And we tend to have really happy customers. We have the highest NPS in our category. And when we have a concentration of customers in an area, they tend to tell other people about it and it tends to kind of drive more growth for that region.

Great. Let's shift back toward the profitability and margins. If we could talk a little bit about gross margins and down that P&L. Maybe just we're in this kind of mid-50s range of margins, I guess, talk to us how that's evolved over time and where you see that going, perhaps with changes in the product or premiumization, could there be an opportunity there? I guess, when you're thinking about gross margin over the next few years, what does that trajectory look like?

Yes. So our gross margin has stayed relatively steady in the mid-50s, and we believe that, that enables us to drive 100 to 200 basis points of adjusted EBITDA improvement year-over-year for the next several years and get us to being a 20%-plus adjusted EBITDA margin business.

Within gross margin, we -- there are a number of different components, and we have fully loaded COGS that includes store rent and depreciation of store build-outs. It includes our optometrist costs. In addition to kind of a lot of the standard components that most companies, including COGS. And if you look at the areas that we've been investing in over the last few years, described in act 2 of becoming an omnichannel holistic eye care provider, we really ramped up store growth. So taking on a lot of store build-out costs and a lot of store occupancy costs even for kind of new stores that are still taking time to ramp.

We've really invested in eye exam capabilities and hiring lots of doctors and bringing them on board even before they're kind of fully utilized and driving as much efficiency as possible in absorbing kind of the full cost of those optometrists in our COGS line. We've been investing in our contact lens business, which has been growing quickly and is margin accretive. I think our contact customers tend to be some of our highest value customers, but it's a lower gross margin category.

And so some of those factors have been headwinds to gross margin. But I think in spite of those investments, we're pleased that we've been able to maintain gross margins in the mid-50s. And part of that is from the strength that we're seeing in our glasses growth, in our Progressive growth and some of our higher price point items. We're also starting to see more efficiency from our eye exam business as our doctors -- doctor utilization increases. And so we're anticipating that our gross margins will remain relatively steady.

Now as we enter kind of new categories like AI glasses, those are consumer electronics tend to have lower margins on a percentage basis relative to traditional glasses, but these are going to be higher price point items. And so on a dollars basis, certainly be accretive.

Understood. We can't really talk about gross margins without talking about tariffs, which is something you guys have been managing through quite well. So maybe walk us through some of the levers that you've been able to pull to offset those headwinds. Anything that's proven to be a little bit more or less successful than one strategy over another?

Yes. So when tariffs were announced, we have a global supply chain. And so we were certainly impacted immediately, and we set out to fully offset the impact of tariffs, and we've successfully done that. And it's really kind of through three strategies. So one was shifting production. The second was through selective price increases on a subset of products. And the third was kind of finding other areas to cut expenses. And through those kind of a combination of those actions, we have successfully mitigated the full impact of tariffs.

On the first piece of shifting production, we have very healthy relationships with all of our suppliers, very -- we don't go through agents or any kind of third-party brokers. We have a very strong -- we've built very strong relationships with kind of the owners of all of our suppliers, and we tend to be viewed as a great customer. And so we found ourselves kind of front -- first in the queue of all the folks that wanted to shift production, and we're able to do that successfully in a number of cases.

We did then look through all of our products and found a subset of products that primarily lens types, where we thought we could bring up prices by a small margin and still offer an exceptional value to our customers relative to our peers. And so we put those pricing actions in place in Q2 and really didn't see impact from a conversion standpoint as a result of those changes.

And then we found kind of forensically went through every part of the P&L and just try to find other areas that we can get more efficient and we're able to successfully do that. It was really important to us. We knew that our peers even in areas where there are not tariffs and they're not kind of external factors that raise costs. Our peers tend to raise prices liberally, and we have seen them do that this year. We think it's really important to maintain the trust with our customers and continue to offer tremendous value. And I think we've been able to do that successfully in spite of some of the impact to our cost base.

That's great. That's great. I was going to ask you about your pricing philosophy, and I think I got it right there. So no, that's helpful. I think we're coming a little bit downtime, and we did have three questions that we asked all companies that attended and participating in the conference. So I do want to get to those. And then if we have time, audience questions. So I'm going to dive into those if I can?

Sure.

So the first one, kind of just -- when we think about the next 12 months relative to recent trends, do you expect consumer demand to accelerate, or remain stable or decelerate?

I expect it to be relatively stable. Yes, it's kind of neutral. I think there -- yes, as we discussed in our last call, we had seen kind of some shift towards the end of Q3, where younger consumers were kind of changing their basket size and buying kind of smaller quantities. And we expect that kind of lower income and younger consumers will continue to be challenged, but I also think there's stimulus coming next year that will help that demographic specifically. And it seems like high income, wealthier segments continue to be in good shape. So I would expect kind of relatively steady behavior next year.

Okay. Perfect. Similar question on margins over the next 12 months. Do you expect margins to face more tailwinds, a balance of tailwinds and headwinds, so neutral or more headwinds?

I'd say neutral to fewer headwinds. Hopefully, there fewer new tariffs that are announced and fewer surprises than this year.

Okay. Okay. Great. And then just on capital allocation, how are you thinking about priorities there in terms of investing in the business versus shareholder returns, M&A, any kind of possible capital allocation thinking about priorities?

Yes, I think we expect to be more active there than we have been historically. We have a very healthy balance sheet, about $300 million in cash, no debt. We're generating -- consistently generating cash and expect to do so for the foreseeable future. We are making significant investments into AI glasses, but one of the reasons we're excited to partner with Google is that they agreed to fund $75 million of our initial cost for that product development. And yes, going forward, I think we are excited to explore opportunities, both to kind of return capital to shareholders and explore strategic opportunities with our balance sheet.

Excellent. I'll turn to the audience if there are any questions. Yes.

I wonder you're getting to the point now where you've got enough store [indiscernible] and you're reporting [indiscernible] and things like that. I wonder whether the growth algorithm, whether you can kind of start to rethink that it's been a few years. And the company is maybe more durable and more capable of a little bit higher growth algorithm and to push just a little bit harder. And it's certainly the brands there in the retail fleet.

Yes, we certainly have ambitions of driving what we call sustainable growth and continue to drive much higher growth than the rest of the category. We believe that there is an opportunity within our core business as it stands today to drive growth and certainly in the teens and continue to add 100 to 200 basis points of adjusted EBITDA expansion per year.

And then we'll be launching this entirely new category of glasses that we believe will have a really meaningful impact on our growth, overall and also just create a halo, drive lots of people into our stores, lots of people to our exam rooms, and drive a lot of new customer growth. And so we are -- yes, we do see a path to driving accelerated growth over the next few years. Absolutely.

That's great. And just one last one, maybe if we could wrap kind of an open-ended question. If there's anything we didn't cover today or any key message that you want to leave investors with today? The floor is yours.

One topic we didn't cover was insurance that we are also excited to be making progress on. Last year, we nearly doubled the number of people that can use their in-network insurance benefits with us. We continue to have additional pilots with the other large carriers and see a path to driving much more insurance adoption in our business. It's an area that we're massively underpenetrated relative to the rest of the category. And I think the fact that we've been able to grow to the size that we have without more insurance coverage is a testament to the value proposition that we offer, but we still want to make it as easy as possible for people to get value out of their benefits and an area that we're also investing in, and I believe that there's a lot of potential upside over time.

And yes, we're very excited about 2026 as a transformational year for the business. I think these AI glasses are really going to blow people away. And I think we have a very unique opportunity partnering with Google, in particular, to launch the best product out there. And I think there's going to be massive demand for them.

Excellent. Excellent. Well, thank you so much, I really appreciate the time today.

Great. Thank you.

Hello, and welcome to today's Warby Parker Inc. Third Quarter 2025 Earnings Conference Call. My name is Bailey, and I will be your moderator for today. [Operator Instructions] I'd now like to pass the conference over to Jaclyn Berkley, Vice President of Investor Relations at Warby Parker. Jaclyn, please go ahead.

Thank you, and good morning, everyone. Here with me today are: Neil Blumenthal and Dave Gilboa, our Co-Founders and Co-CEOs; alongside Josh Truppo, Vice President of Financial Planning and Analysis.

Before we begin, we have a couple of reminders. Our earnings release and slide presentation are available on our website at investors.warbyparker.com. During this call and in our presentation, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties.

For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors in the company's latest annual report on Form 10-K. These forward-looking statements are based on information as of November 6, 2025, and except as required by law, we assume no obligation to publicly update or revise our forward-looking statements.

Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of our non-GAAP measures to the most directly comparable U.S. GAAP measures can be found in this morning's press release and our slide deck available on our IR website.

And with that, I'll pass it over to Neil to kick us off.

Thank you, Jaclyn, and good morning, everyone. Q3 was a strong quarter on many fronts, reflecting both top line acceleration and significant progress towards our long-term profitability goals. Net revenue grew 15.2% year-over-year, driven by 20% growth in retail revenue. Adjusted gross margin was 54.2% and adjusted EBITDA grew approximately 50% to $25.7 million, representing an 11.6% adjusted EBITDA margin and 260 basis points of year-over-year expansion, our highest quarterly expansion in the last 2 years.

It was also a quarter that reflected shifting consumer trends, particularly within our single vision and contacts customer base, which tends to skew younger, while we have seen more resiliency from our progressives customers. We entered the quarter with strong momentum. July and August represented the strongest 2-month period of the year before trends moderated in September and have remained consistent. We saw a mix shift within glasses that weighed on average selling price, while contacts growth decelerated as broader consumer sentiment softened.

Performance remained consistent on a 2-year stack basis, even as we lapped an acceleration in growth last year. Volume growth remained healthy, and we delivered adjusted EBITDA profitability ahead of our guidance on lower-than-planned revenue, underscoring the adaptability of our business and our team's strong execution. Based on the trends we've seen since September, we are reaffirming our 2025 adjusted EBITDA outlook and raising our adjusted EBITDA margin expectations, reflecting continued operational discipline and AI-driven productivity gains even as we take a more measured view on revenue given the current macro environment. And as we look beyond 2025, we're incredibly excited about what's next.

We believe we are entering Warby Parker's third act. Our first act was to establish one of the first made-on-the-Internet lifestyle brands. We launched with features in GQ and Vogue and pioneered how to sell glasses online. Our second act was characterized by our expansion into bricks and mortar, becoming the industry's first true omnichannel retailer while entering holistic vision care by providing eye exams and contacts. And now we're entering our third act, defined by innovation through AI.

We plan to leverage AI to develop new products like AI glasses, to enhance our customer and patient experience like our homegrown first true to scale virtual try-on that now encompasses features like glasses eraser and adviser and to drive productivity and accelerate EBITDA expansion. We previously announced that we'll be working with Google to bring intelligent eyewear to market and are excited to share that we're partnering with Samsung as well.

We believe that Samsung's innovation in hardware and their mobile device ecosystem, combined with Google's leadership in AI and Warby Parker's strength in design, eye care and customer experience unlock enormous potential to create beautifully designed intelligent eyewear that seamlessly integrates into everyday life. We look forward to sharing more details in the coming months.

Dave and I just got back from Colorado, where we hosted our annual One Vision Summit. For several days, we brought together over 500 retail leaders and optometrists across our team for strategizing, training and team building. We shared our vision to leverage AI to develop new products, enhance the customer experience and drive productivity. We walked away feeling energized and inspired by their ideas, their camaraderie and their passion for delivering best-in-class customer experiences, which is paramount as we head into our busiest time of the year.

Our retail leaders and doctors typically join Warby Parker because of our track record of innovation and best-in-class technology, and they have grown accustomed to our rapid growth and are the most tech-forward leaders in the category. It's events like our One Vision Summit that makes us more confident than ever in the foundation we're building for the next chapter of Warby Parker. We operate in a large and resilient market with an unmatched value proposition and believe we are well positioned to continue taking market share for many years and decades to come.

Our long-term priorities remain unchanged, but our ambitions have only grown. We continue to make meaningful progress in our core business, including achieving significant leverage in our expense base while also investing in AI glasses, an opportunity that will expand our TAM beyond traditional glasses and define the next era of our brand.

I'd like to call out a few Q3 highlights that demonstrate our ability to continue on our path of sustainable growth. We delivered our highest glasses volume growth of the year alongside our ninth consecutive quarter of accelerated active customer growth. Retail and especially our eye care business were bright spots with record retail productivity and our largest ever quarter for new store openings, including our first 5 Target shop-in-shops.

We also completed a major system upgrade in our optical labs to support future growth, faster delivery times and enable us to eventually fulfill AI glasses. We expanded the use of AI across our operations to improve efficiency and empower our teams to spend more time with customers.

We're confident in our ability to navigate the near-term environment while we embark on our next act, one defined by even more personalized experiences, intelligent eyewear and a relentless focus on profitable and sustainable growth. As we head into our busiest season, our teams are focused on what we can control, delivering the exceptional customer experience and remarkable value that have come to define Warby Parker.

Before Josh walks through our financials and guidance, Dave will recap the drivers of our Q3 performance.

Thanks, Neil. As we move into our next act, we remain excited about the opportunities ahead in our core business. Our Q3 performance demonstrates our commitment to driving sustainable growth and steady progress toward achieving our long-term strategic goals. I will now speak to our 4 primary growth drivers this quarter, beginning with the drivers behind our ninth consecutive quarter of accelerating active customer growth.

We ended Q3 with 2.7 million active customers, an increase of 9.3% on a trailing 12-month basis with average revenue per customer of $320, up 4.8% year-over-year. Our retail channel remains our primary growth engine, and we continue to see strong customer acquisition through our stores.

Our marketing strategy continues to balance disciplined performance marketing with thoughtful investments that build long-term brand awareness. To drive near-term transactions, our flexible media model allows us to allocate capital in real time to where we're seeing the strongest efficiencies, such as streaming and direct mail. To build community and brand affinity at the local level, we continue to host creative localized programs like our book Report series, which brings notable authors like Nighttime Grammy Award winner, Mark Ronson, into our stores for engaging events and conversations with customers.

At the same time, we continue to invest in top-of-the-funnel initiatives, including our 3-year partnership with Arch Manning, a glasses wear since age 3 and the Warby Parker customer since middle school. This partnership has allowed us to participate in national linear media and connect with a younger demographic, particularly in key markets across the Southeast.

Our "It Must Be the Glasses" campaign featuring Arch has been a fun way to bring our literary focused brand personality into the sporting world and highlight Arch's authentic connection to our brand. It's been very well received, helping broaden our audience and drive meaningful impressions. We're pleased to see consistency and stability in our customer acquisition costs even as we've increased our marketing investments. And by sunsetting our Home Try-on program, we will have even more flexibility to invest in awareness driving initiatives like these.

Meanwhile, customers utilizing insurance benefits with us continue to grow in Q3 with Versant lives ramping in line with expectations ahead of the typical year-end increase in benefit usage. Insurance customers remain among our highest value cohorts, spending more on initial purchases, selecting progressives at higher rates and returning more frequently. We're continuing to highlight this message in stores and across our creative to increase awareness that customers can use both their in-network and out-of-network benefits at Warby Parker. Finally, we're pleased to report consistent revenue retention metrics across cohorts with revenue retention of approximately 50% over 24 months and over 100% over 48 months, underscoring the loyalty of our customer base.

The next driver of Q3 performance we'll speak to is the acceleration we drove in our glasses business. Glasses grew 13% year-over-year, up from approximately 10% in the first half of 2025, driven by both healthy unit growth and average selling price. In Q3, we launched 5 new collections and continue to expand our lens portfolio. Highlights include our Tortoise Color Block collection starting at $95, which demonstrates our ability to deliver exceptional design at our core price point and the Strato Series starting at $195, featuring elevated Italian construction with etched metal layered between crystal acetates. We also introduced new sun and light responsive lens colors. Newness across both frames and lenses continues to drive customer engagement and repeat purchasing.

We continue to be pleased with how customers have responded to the pricing actions we took earlier this year, primarily in progressives and lens add-ons. While we see strong and consistent adoption of lens enhancements and add-ons, our $95 frame styles outperformed relative to higher price points, which impacted average selling price for the quarter. While recent category growth has relied on price increases, we believe our focus on designing stylish products and delivering exceptional value and experiences positions us to grow both market share and customer loyalty over the long term.

The third driver of our Q3 growth was the strength of our highly productive store base. Retail revenue grew 20% year-over-year, driven by a 16% new store expansion over the same period and continued healthy growth of our stores opened 12 months or more, consistent with the color we've provided on prior calls. In Q3, we opened 15 new stores, including our 300th store at Brookfield Place in Manhattan and our first 5 shop-in-shops at Target. In total, this represented the highest number of openings we've completed in a single quarter.

We opened stores in 12 suburban markets, including in San Diego, California; Arlington, Texas; and Jacksonville, Florida, and we see significant opportunities to continue infilling underpenetrated markets like these. More than half of the major metropolitan areas where we operate still have only one store, giving us a meaningful opportunity to expand within existing markets while continuing to enter new ones.

A complementary part of our strategy to continue infilling markets is our partnership with Target. We're really pleased with how the first 5 shop-in-shops turned out. Each is a beautifully designed, fully enclosed space that brings the Warby Parker experience to life across several markets in the Midwest and Mid-Atlantic. Looking ahead to next year, you should expect us to open a similar number of locations as we continue testing in-store placement and markets. Our focus remains on ensuring these locations deliver a consistent Warby Parker experience while helping drive brand awareness and reach new customers.

I want to take a moment to highlight our store teams, many of whom we had the pleasure of seeing last week, as Neil mentioned. We're fortunate to have experienced leaders across our retail organization with roughly 60% of our current store leaders having been promoted into their roles. We believe that our ability to attract, develop and retain great talent sets us apart and remains a key driver of our retail success going forward.

As we look across our differentiated omnichannel model, we're also seeing clear benefits from our densification strategy in that markets with the highest number of stores frequently have the highest e-commerce growth driven by greater brand awareness and customer engagement across channels.

As we shared on our last call, we're evolving how we serve customers across channels as we expand our physical footprint and invest in AI-driven tools and have decided to sunset our Home Try-on program by the end of the year. Beyond creating a more seamless customer experience, the shift also allows us to streamline our marketing messages. While still early days, we continue to see healthy year-over-year growth in direct e-com frame purchases as the Home Try-on headwind diminishes.

We're encouraged by the engagement and conversion we're seeing from AI-powered tools like Advisor, which gives us confidence in our ability to drive the channel long term. Lastly, we continue to expand our holistic vision care offerings as part of our broader strategy to serve all of our customers' needs.

Contacts remained a healthy contributor to growth in Q3, but moderated in the months of September and October. In Q3, contacts grew 21% year-over-year and represented 11.5% of revenue, consistent with the prior quarter, yet well below the approximately 20% industry mix average, underscoring the significant runway ahead. As part of our ongoing evaluation of how to best serve customers, we made the decision to retire Scout, our private label contacts brand.

Scout helped us successfully enter the contacts category, which we've since expanded to include dozens of leading third-party brands that provide customers with more choice, value and convenience. Our decision to sunset offerings like Scout and Home Try-on reflect our focus on aligning with customer preferences and evolving technology while also simplifying operations and positioning us to be more agile with less inventory going forward.

Eye exams also remain an important driver of growth. We expanded exam capacity across our growing retail footprint. And in Q3, our eye exam business grew 41% year-over-year to account for 6.5% of total revenue. Eye exams drive traffic, conversion and average revenue per customer, given roughly 75% of glasses industry-wide are purchased at the same location as the exam. Today, the majority of our customers still bring prescriptions from external providers, highlighting a significant long-term opportunity to capture more of the vision care journey. We also scaled retinal imaging across more locations, an offering that enhances the clinical experience and reflects our commitment to accessible high-quality vision care.

Alongside the progress we made across the business this quarter, making a positive impact remains at the heart of what we do. Through our People's Project program, we continue to provide free eyeglasses to students in need in more than 40 U.S. cities. With the support of our partners, we're proud to announce that we'll be doubling the number of students served in Baltimore, Newark, New Jersey and Washington, D.C. and expanding our reach in Boston to serve the entire public school district. We plan to distribute an additional 40,000 glasses to students in these communities over the next 2 years.

And now I'll pass it over to Josh Truppo, VP of Financial Planning and Analysis.

Thanks, Neil and Dave. It's my pleasure to join you all today on our third quarter earnings call. I'll begin with a detailed review of our third quarter performance. Then I'll outline our updated guidance for the full year, including our outlook for the fourth quarter of 2025.

Starting first with Q3. Revenue for the third quarter came in at $221.7 million, up 15.2% year-over-year. Retail revenue increased 20.2% year-over-year with store count up 16.4% and e-commerce revenue up 3.2% year-over-year. I'd like to add a bit more context around the shape of the quarter.

We entered Q3 with strong momentum with July and August marking our strongest 2-month stretch of the year before trends began to moderate in September and have remained consistent. During this time, our frame mix shifted towards our entry-level $95 offering. And while higher-priced lens modifications and progressives remained strong, this had an overall impact on average selling price for glasses.

Additionally, we saw slower growth in our contacts business amid broader macro dynamics. These factors coincided with stronger year-over-year comparisons given the acceleration we saw last year, though results remained stable on a 2-year stack basis.

Looking at customers, we finished Q3 with 2.66 million active customers on a trailing 12-month basis, representing a consistent acceleration in growth to 9.3% year-over-year. We've now seen sequential improvements in year-over-year active customer growth for the past 9 quarters, reflecting the positive returns from both new and existing stores, marketing investments and a range of strategic initiatives.

Average revenue per customer increased 4.8% year-over-year on a trailing 12-month basis to $320. This was driven by factors, including our selective price increases in glasses at the end of April, a higher mix of premium lenses like progressives and continued growth in both contact lens and eye exam sales, partially offset by the mix shift into lower price point frames we described earlier.

Progressives penetration within prescription units increased 30 basis points from 22% in Q3 2024 to 22.3% in Q3 2025. By product, glasses revenue growth accelerated to roughly 13% year-over-year, with contact lenses up 21% and eye exams up 41% year-over-year. Contacts increased from 10.9% of revenue in Q3 2024 to 11.5% in Q3 2025. Eye exams increased from 5.3% of revenue in Q3 2024 to 6.5% in Q3 2025.

From a channel mix perspective, retail represented 73% of our overall business in Q3. We opened 15 new stores in the quarter, ending the period with 313 stores. This represents 44 net new stores opened over the course of the last 12 months. Retail productivity was 103.8% versus the same period last year. As a reminder, we define retail productivity as the year-over-year change in retail sales per store for the average number of stores opened in the period.

We are pleased to be reporting our highest quarterly retail productivity since 2022, which was driven by stronger glasses growth paired with continued momentum in our contacts and exams businesses in stores. For stores that have been opened greater than 12 months, we observed an acceleration in year-over-year growth in Q3. Our new stores continue to deliver strong unit economics, performing in line with our target of 35% 4-wall margin and 20-month paybacks. For stores opened more than 12 months, average revenue per store was $2.2 million and performance was in line with our target 35% 4-wall margins.

We continue to be pleased with both these new and existing store metrics, which reflect the overall health and productivity of our store fleet. Over the course of the past year, nearly every new store included an eye exam suite, bringing our total number of stores with eye exam capabilities to 275 stores or 88% of our total fleet.

Moving on to gross margin. As a reminder, our gross margin is fully loaded and accounts for a range of costs, including frames, lenses, optical labs, customer shipping, optometrist salaries, store rents and the depreciation of store build-outs. Our gross margin also includes stock-based compensation expense for our optometrists and optical lab employees. For comparability, I will speak to gross margin, excluding stock-based compensation.

Third quarter adjusted gross margin came in at 54.2% compared to 54.6% in the year ago period. The year-over-year decrease was driven by tariff-related headwinds in glasses, sales growth of contact lenses and customer shipping. These impacts were partially offset by the selective price increases in glasses and increased penetration of progressive lenses and other lens enhancements. We were particularly pleased with the margin expansion in our eye exam business, which has become less of a headwind over time as we become more efficient with doctor coverage and utilization.

Shifting gears to SG&A. As a reminder, adjusted SG&A excludes noncash costs like stock-based compensation expense. Adjusted SG&A in the third quarter came in at $108 million or 48.7% of revenue. This compares to Q3 2024 adjusted SG&A of $100.6 million or 52.3% of revenue, representing 360 basis points of leverage year-over-year. Within adjusted SG&A, marketing spend was $29 million or 13.1% of revenue compared to $23.7 million or 12.3% of revenue in Q3 2024.

With marketing spend in the low teens as a percent of revenue, disciplined expense management drove leverage across our non-marketing adjusted SG&A categories which includes salaries for our stores and customer experience employees and general corporate expenses, including our headquarter salaries and general operating expenses to support the business.

Non-marketing adjusted SG&A improved by 440 basis points from 40% of revenue in Q3 2024 to 35.6% of revenue in Q3 2025. Non-marketing adjusted SG&A grew just 3% year-over-year. This reflects our commitment to continued cost discipline and drove flow-through in Q3 above the high end of our guidance range.

Turning now to adjusted EBITDA. In the third quarter, adjusted EBITDA grew approximately 50% year-over-year to $25.7 million, representing an adjusted EBITDA margin of 11.6%. This compares to adjusted EBITDA of $17.3 million or 9% of revenue in the year ago period, reflecting expansion of 260 basis points. As discussed, this was driven by non-marketing SG&A leverage.

Turning now to our balance sheet. We ended the quarter with a strong cash position of $280 million. While free cash flow during the quarter was impacted by the timing of vendor payments and inventory purchases, we have generated $36 million in free cash flow year-to-date and anticipate full year 2025 will be our third consecutive year of positive and accelerating free cash flow.

As it relates to capital allocation, we will continue to deploy capital deliberately to support our growth in operations. We also have a credit facility of $120 million, expandable to $175 million that is undrawn other than $4 million outstanding for letters of credit.

Turning to our outlook for 2025. Starting briefly with an update on tariffs. We've successfully executed the mitigation strategies we outlined on our prior [ quarterly ] calls, including supplier diversification, selective price adjustments and disciplined expense management. These actions have offset the impact of tariffs and demonstrate our team's ability to adapt quickly in what remains a dynamic environment. Together, they contributed to incremental flow-through in Q3 and give us confidence to hold our full year adjusted EBITDA guidance.

Given recent trends and the more uncertain consumer environment, we're taking a more conservative view on top line for the remainder of the year, which assumes that September and October trends persist. We remain committed to delivering adjusted EBITDA dollars in line with our prior outlook and now expect to deliver higher year-over-year adjusted margin expansion on a modestly lower revenue outlook.

We now expect net revenue between $871 million and $874 million, representing approximately 13% growth year-over-year, adjusted EBITDA of $98 million to $101 million, representing an adjusted EBITDA margin of 11.3% to 11.6% and 180 to 210 basis points of year-over-year expansion; 45 new stores, including the 5 Target shop-in-shops that opened in Q3. We continue to expect full year gross margin in the mid-50s, reflecting stability in our ongoing tariff mitigation strategies discussed earlier. Finally, we expect stock-based compensation as a percentage of net revenue to be in the 2% to 4% range for the full year, consistent with our long-term target.

For Q4 2025, we're guiding to the following: net revenue between $211 million and $214 million, which represents growth of approximately 11% to 12% year-over-year; adjusted EBITDA of $18 million to $21 million, representing a 9.2% margin at the midpoint of our range or 190 basis points of year-over-year expansion. Similar to our year-to-date results, we anticipate adjusted EBITDA margin expansion in Q4 will be driven by leverage within non-marketing SG&A, supported by ongoing efficiencies in staffing our store and customer experience teams and achieving continued leverage in corporate expenses while keeping marketing spend consistent.

With that, Neil, Dave and I are pleased to take your questions. Operator, please open the line for Q&A.

[Operator Instructions] Our first question today comes from the line of Mark Altschwager from Baird.

Was hoping you could give a bit more color on this mix shift you're seeing with single-vision versus progressives. I think you cited relative resiliency with the progressive customer, but also called out a mix shift that weighed on ASP. So just want to understand the moving pieces there. And I guess wondering just within that, are you seeing evidence that some of the price increases on the premium lenses might be driving some trade down in the frame selection?

Thanks, Mark. As you've heard from a number of other brands and retailers, it's been quite a volatile year, and we've seen meaningful swings with periods of broad strength across consumer cohorts and then other periods when consumer sentiment has taken a dip. And in those weaker periods, it's been younger and low income consumers who have been most impacted.

Now as a category, we're more insulated than others because of the needs-based nature of the products and services we offer, and more specifically with Warby Parker, our customer base tends to skew higher income, but we do serve a cohort of younger customers who are increasingly feeling uncertain about their future and are being more selective in their purchasing behavior. And so if you look at this quarter, we entered Q3 with strong momentum. July and August were our strongest 2-month stretch of the year before we did see some shift in trends in September. And while we've still been driving healthy year-over-year growth and consistency on a 2-year growth basis, we've seen a moderation in average order value or basket size in categories that skew younger, like single-vision with more of a shift to $95 frames versus some of our higher price point frames, fewer multiunit orders on the glasses side, and lower quantities of contact lenses per order, including fewer customers purchasing annual supplies. Within our older demographic and our progressives customers and higher-income consumers, we're seeing consistent behavior. And in the areas that we did take some price earlier this year, including progressives and lens treatments, we really haven't seen a shift and continue to see resiliency in that cohort.

Just maybe as a follow-up, just in light of all of these shifts and some of the near-term volatility, I know you're not guiding to 2026, but could you just refresh us on how we should be thinking about the growth algorithm here? Is mid-teens still the right expectation? And how are you thinking about the balance between active customer growth versus rev per customer?

Thanks, Mark. This is Neil chiming in. We're still aligned to our long-term growth algorithm. And if anything, we continue to have more confidence in our ability to expand the EBITDA. And as part of that algorithm, we've always said 100 to 200 basis points of expansion per year. Long-term, we think we're a 20% adjusted EBITDA business.

That being said, as you see in the high end of our guide, we're at 210 basis points for this year. We continue to see great leverage across our corporate expenses, including CX. For next year and for the foreseeable future, we anticipate marketing as a percent of revenue staying consistent. So we continue to have faith and confidence in the category and in our customers. We have now come to expect just volatility as I think any operator has over the last few years. And certainly, our customer is relatively wealthy. And as Dave alluded to, median income above $100,000. As we continue to open stores, they tend to be more in suburban areas. So we still are underpenetrated for that 45-year-old plus customer that buys progressives. So yes, you should still assume high growth for us next year and beyond.

The next question today comes from the line of Oliver Chen from TD Securities.

Regarding the mix shift and what you're seeing, does that change the product road map or how you think about marketing and what you're thinking about the composition that you may see within the guidance? And is that still happening? Or is it resting at a point that -- where you have visibility in terms of the ASPs? And second, on the AI initiatives, what would you highlight as your favorite ones for driving productivity and scalability that's impacting many parts of the organization? And finally, on the insurance customers and opportunities, what's ahead there in terms of continuing to drive awareness as well as key goals? That would be great.

Thanks, Oliver. From a product road map perspective, some of this short-term softness that we're seeing with some of our younger customers is really not driving changes for our product road map. We continue to introduce different lens options that we find resonates with both younger and older customers. So we're very confident in the product road map, and we continue to be able to respond much faster than a lot of our competitors because of the vertical integrated nature of our business. Typically, we'll introduce 15 to 20 collections per year, and we're not beholden to the fashion calendar or the wholesale calendar and can even make adjustments midyear as necessary.

As we think about efficiency gains, thanks to AI, there are a few that we're particularly excited about, whether we're using AI in our eyewear design process and even evaluating technical designs as we leverage AI as part of our customer journey flow and some of the work of our CX teams, as some of our brand and creative teams are leveraging new tools to bring down the cost of content creation, in particular, as we think about photo shoots and a lot of the production costs that go into the sheer number of shoots that we do per year, we're already seeing some savings there. The other thing that I would add is that, every corporate team member is using often multiple AI tools per day, and we're finding increased productivity right across our headquarters team.

I'd also just add that we're increasingly using AI to drive customer engagement and growth, including with features like adviser that we introduced on our app and across our site, where AI is used to recommend glasses based on a user's face shape and features and what we know about them. And we've seen just really strong adoption and increases in conversion and are excited to continue to lean into tools like that.

And then on the insurance front, we continue to be pleased with the progress that we're making there. This is an area of high growth for us, where we could now offer in-network benefits to more individuals than ever, where we're seeing strong adoption from the newest members of the Versant cohorts that are using their benefits with us. But the vast majority of those members still have not shopped with Warby Parker. And so we're spending a bunch of time creating awareness around the fact that we do have these integrations in place. And then longer term, we also have several pilots underway with larger carriers that we're not in network with yet that we'd like to be and are also just making it easier for people to use their out-of-network benefits with us, understanding at the point of sale, what their exact reimbursement will be and making that purchase process as seamless as possible for our customers.

Our next question today comes from the line of Brooke Roach from Goldman Sachs.

This is Savannah Sommer on for Brooke Roach. You touched on it a bit already on the call, but I wanted to dig into the Target shop-in-shops. With 2025's cohort being open for a few months now, could you discuss how early performance has compared to your initial expectations?

And as we think about the planned openings you mentioned for 2026, how are you identifying the right markets for these shop-in-shops particularly in your relation to the broader suburban densification strategy for the core Warby fleet?

It is early days in our partnership with Target, and we're excited to report that expectations --our performance are in line with expectations. The 5 shop-in-shops that we've built and opened are beautiful and deliver the same exact Warby experience as in a stand-alone Warby store. We plan to continue at this pace next year as we learn. That's just a philosophy at Warby Parker is to test, learn, expand rapidly.

One of the things that we're looking at is also just even placement within a store, whether that is in line or on the pad in the center of the store. So we'll continue to learn and grow. One of our core values is learn, grow, repeat. We're very early days overall in our expansion into suburban areas. So we have our pick of the litter, so to speak, as we think about expanding within Target and even within our stand-alone stores as well.

Our next question today comes from the line of Anthony Chukumba from Loop Capital.

I guess my question is, what are you seeing in terms of optometrist retention and also compensation? How is that in line with [ doctors ] and I guess, recruitment as well. So retention, recruitment, and compensation, how is that tracking in line with your expectations?

Thanks, Anthony. While it's generally more challenging to hire eye doctors than folks with different backgrounds. across the board, I think you're probably hearing this from a lot of other companies as well. It's generally an employer's market right now. One of the nice things is that over the last few years, as we've expanded into primary eye care and have been building eye exam suites in all of our new stores and hiring more and more optometrists, our reputation as a great employer for doctors has only grown. And we hear from our doctors that they love working at Warby Parker because of the culture, because of the technology. One of the -- just as we've developed a lot of our own retail technology, like our own point of sale that we call a Point of Everything, that really empowers our retail advisers. We similarly build software for our optometrists so that way they can focus on clinical care and focus on the patient rather than be bogged down with lots of administrative tasks. So we find that draws a lot of optometrists to come to work at Warby Parker.

So we would say at this moment, it's -- while it's never easy, it's never been easier for us to hire and retain great doctors. Dave and I just returned from Denver, where we had our One Vision Summit. Once a year, we bring all of our store leaders together and all of our optometrists, where we focus on the strategy for the next year. We provide learning opportunities, including continuing education for our optometrists. We share best practices. And it is just both a joyful and a productive time, and we just got so much incredible feedback from our doctors about what we're doing as a company and how we continue to invest in them. And even having an event like this that brings together all of our doctors annually, a lot of our competitors, we know have canceled events like this, but we find that it's important. And our doctors also tend to be pretty tech-forward. So they're very excited about some of the advancements that we're making in AI, whether that's from a systems perspective or from a product perspective, which with the eventual launch of AI glasses coming.

Our next question today comes from the line of Paul Lejuez from Citi.

Sorry, I was on mute. This is Brandon Cheatham on for Paul. Hello, can you all hear me?

Please go ahead.

This is Brandon Cheatham on for Paul. Sorry about that. I was just wondering how you all are thinking about your active customer growth and sales per customer in fourth quarter. Guidance would seem to imply that at least one of those metrics decelerates. I'm just curious with some of the comments you made on consumers gravitating to your lower-priced frames. If you saw sales per customer roll over in September-October, or if there's maybe a little more pressure on the active customer side? How should we think about that for 4Q?

The primary shift that we saw was in basket size amongst the younger demographic that we serve and single-vision glasses and contact lenses. And just given the uncertainty around the economic environment and what we're hearing from some other brands and retailers, we thought it was prudent just to take a more conservative view into the fourth quarter. We are still seeing strong year-over-year growth and healthy growth in terms of active customers and average revenue per customer, in particular, relative to the rest of the category where we continue to take share. But we just thought it would be prudent to take a more conservative view.

And I wanted to follow up with future store growth plans. I know you're leaning in a little bit more to existing markets where you only have 1 or 2 stores. Is that something that we can expect from you all going forward? And do you see a different customer response in markets where you already have a couple of stores and then are able to densify that marketplace?

We tend to be in most major markets. So we are in a period primarily of densification. We generally don't see much difference in customer behavior. But when we add a second or a third store to a market, it just gives us more flexibility from a team perspective, whether that's scheduling or building a cohort of tenured team members that we can promote from within. So the majority of our store managers, whom we call store leaders, are promoted from within, which is great because they understand our systems, they understand our commitment to exceptional customer experiences. Typically, they've received a bunch of training around optics and opticianry and some of the more technical aspects of selling glasses and delivering eye care and understand the importance of that relationship with our doctors. So that's the real advantage to us having multiple stores in a given market.

The next question today comes from the line of Janine Stichter from BTIG.

Want to ask about the at-home sunset impact. Just curious if you've seen the impact to e-commerce be in line with your expectations. And has there been any noticeable benefit to the stores business since you've sunset that. And then maybe on Scout, just how meaningful is that? Maybe you can help us square up how big it is in terms of sales? And any impact to margins as we see the mix of contact lenses go more towards third-party branded?

So we are constantly evaluating the products and services that we're offering our customers and making sure that we're delivering exceptional value and exceptional experiences. And as part of that evaluation, we decided to sunset both the Home-Try On program and Scout, and we've done so in a thoughtful way over an extended period of time where both the parts of those business have intentionally scaled down over time. And if you look at starting with Home-Try On, we've invested in our in-store experiences and also our AI-driven features online like adviser where we are seeing strong benefit and are able to serve those customers that otherwise would have used a Home-Try On in different and better ways and are highlighting the stores nearby more prominently for those customers.

We found that the vast majority of people that were ordering Home-Try Ons lived within 30 minutes of a store. And now we can be more directive around where to drive them. We're also seeing strong year-over-year growth in direct e-comm glasses purchases. So people ordering glasses without doing a Home-Try On. And that growth has been partially offset by a declining Home-Try On business. But the decision to sunset this program will enable us to get back to higher e-comm growth rates faster over time. We also have to send one less message for customers and can more effectively reallocate those resources to driving customers to the newer parts of our business that are driving higher incremental returns.

And with Scout, it's been a small part of our overall contacts business. It was a really innovative products that we introduced that offered really great value to customers. But we found that in terms of both customer, patient, and doctor preferences that there are third-party brands that people are happy with. And we've found benefits in offering a broad assortment of third-party brands, and don't expect the retirement of Scout to have a material impact on our P&L. I think the nice part about retiring both of these offerings is having less inventory and enabling us to be more nimble going forward.

Our final question today comes from the line of Matt Koranda from ROTH Capital.

Just wanted to maybe understand a little bit more about the pricing philosophy here. I guess a lot of competitors have been taking steady price increases each year in the category in some form or another. And I guess a lot of the category growth is probably coming from price. But it seems like you guys have been a little bit more selective in the ways that you're taking price. The price gaps probably have widened over the last few years. I guess why not take more price intentionally to close that gap?

Thanks for your question, Matt. We have seen competitors take price. And when we look at a lot of the growth in the category, it tends to be from price. We view that as less healthy and less sustainable growth, and we're committed to sustainable growth. That's been our philosophy since we launched the company in 2010. And we believe that if we make customers happy, they'll stay with us for years and decades. And we've seen that in our repeat purchase behavior, in our retention now over many years where our cohorts have performed remarkably consistent. And we think that's in large part due to the great customer experience and the incredible value that they get from us.

So it's something that were highly considered whenever we think about a price increase. One of the things that we're proud of in this quarter, even though we're very disappointed that we missed our bottom end of top line guidance, is that we had healthy customer growth. So you can anticipate that we will continue to grow in a healthy manner next quarter and beyond because we'll continue to treat customers well. Our opening price point of $95 with anti-reflective, anti-scratch, single-vision prescription lenses has remained consistent since 2010. Of course, since then, we've also introduced frames at higher price points. We've introduced different lens options, whether it's different tints or high index or other ultrathin options. We've gone beyond our signature progressive and now offer precision progressives. So what you'll see from us in the short and midterm is continue to have more options for our customers to choose from, but we'll ensure that it's always exceptional value, and our hope and intent is that, that value gap continues to increase as our competitors raise prices.

Maybe just for my follow-up. Curious to hear a little bit more about AI smart glasses, if you can say anything, just any updated thinking around how new products might be rolled out next year and just any thoughts on the AOV and benefits there?

We believe we're best positioned to win here because of our brand. We pioneered lifestyle brand made on the Internet and technology has always been at the heart of Warby Parker. Our stores and our digital experience is second to none in the category. So when introducing a new complex product like AI glasses, having very knowledgeable, tenured, and tech-forward teams that are able to sell this and explain this product to the customer and serve the customer is going to put us in a position to win here. We're very excited about our partners who we engage with on a daily basis at Google and Samsung, 2 of the most world-class technology innovators on the planet. And we'll have more to share in the coming months. But we're excited about this new product category for us.

Thank you. This concludes today's call. Thank you all for your participation. You may now disconnect your lines.

Good morning, and welcome to this next session of our 32nd Annual Global Retailing Conference. I'm very pleased to introduce our next session with Warby Parker.

Here with me today, I have Neil Blumenthal and David Gilboa, both co-founders and co-CEOs. So, welcome, Neil and Dave.

Thanks for having us.

Neil, can you start us off with some updated thoughts on your outlook for the U.S. vision care market?

Sure. So one of the things that we've seen is consistent behavior from our customers. Now we tend to have higher income customers than the overall market. We certainly saw some challenges in April, given the tariff announcement as a lot of people have seen. But we come out of that, and from May onwards have had sort of strong and steady growth.

We see consistent repeat purchase behavior. We -- I think like many companies need to figure out how to navigate the tariff situation, and we're surprised by the significant impact it had on consumer sentiment in April, but are feeling confident right now.

That's great to hear. One of the questions that we're asking all companies at our conference today is their outlook for the second half and the health of the consumer.

What's your outlook for the second half of '25 relative to recent results? Do you expect things to be same, better or worse?

We expect them to be consistent, and we're delivering higher growth, again, very consistent from May onwards. We'll be comping sort of our period in Q4 of last year, where we saw an acceleration of growth and sort of our consistent growth that we've guided towards incorporates that more challenging comp for us.

So yes, in general, we're feeling confident. We're seeing strong traffic in our stores and our apps and websites and seeing consistent product mix and conversion.

That's great. As a follow-up, is there any differences in how you would think about that same question going into 2026?

We've always kind of positioned ourselves, especially since COVID. That's like, hey, it doesn't matter what's going on externally, we need to deliver. We need to deliver on growth. We need to continue to expand EBITDA, which we've done consistently at 100 to 200 basis points.

So that means we need to come up with more creative marketing strategies. We go ahead and do that. But right now, we feel that the wind is at our backs and are feeling good going into 2026.

That's really great to hear. Another question that we're talking to nearly every company about is the competitive landscape.

How would you characterize the competitive landscape today? What are your expectations for share consolidation going forward? Do you expect that to speed up, slow down or stay the same?

Yes. So if you look at our category, it certainly a competitive marketplace. But it's one that the competitive landscape hasn't materially changed really since we launched in 2010. There really haven't been many new entrants that have taken meaningful share.

There -- the market is made up roughly 50-50 of large retail chains and the other 50% is independent optometry practices where eye doctors operate their own businesses and sell their own glasses and contacts. And we expect that over time, there will be more consolidation where those independent doctors will be making up a smaller percentage of the overall market, but it's not a drastic change and really haven't seen significant share shift within the existing players. I'd say we continue to outperform the market and continue to take share, both in good times and bad, and expect that to continue.

Very clear. Let's shift to some of the strategic initiatives that are driving that share gain. And think first and most importantly, is your store strategy.

Can you elaborate on how your densification strategy in certain suburban or urban markets fits into your longer-term goal of having more than 900 stand-alone stores in North America, which markets or areas do you see the most opportunity?

Yes. So we have around 300 stores now out of roughly 45,000 stores in the U.S. And so still a massive opportunity for us to scale our footprint and this year, we'll open around 45 stores, including some new target locations that we're excited about. And still see a path to open several hundred stores over the next few years, both in new markets and in additional markets.

Right now, we operate in around 220 markets, but only 30 of those have more than 1 store. So we have lots of opportunity to add incremental stores into areas where we already have a presence. And what we see in some of our dentist markets where we have the most established store footprint like New York, Chicago, Boston, Dallas. It's an area -- these are areas that continue to see high growth within those geos, both from our store sales, but also e-comm.

So when we have more of a presence in a market, there's more awareness, our marketing is more effective, and we tend to see the benefit of that over time. And so we're excited and see lots of opportunity to continue to open stores, both in existing markets and some of the new markets that we don't have a presence in yet.

The new aspect of this strategy, and you mentioned it just a moment ago is the Target shop-in-shops. And you've opened a couple of those this year, 5 planned for the year. I know it's very early, but is there anything that you can share regarding the performance of those stores and what you see as the opportunity ahead?

We've been really excited about this partnership. For 1 thing, we have great partners in Target, and we've been able to build the equivalent of a Warby Parker store. So you walk in, it feels exactly the same as Warby store, the shelving system, the assortment is the same, it's staffed by Warby Parker employees. The revenue is recognized by Warby Parker and they use the technology of our point of sale, what we call point of everything that we've developed in-house. And we're getting great results from the initial 5 locations and most importantly, they just gotten great feedback from our customers.

That's great to hear. One question that we get very regularly about your stores is what the underlying comps are of those stores? Is there anything that you can help us regarding like a typical underlying comp of a new store as it starts to go through the maturity curve, both in its early days and as it gets quite older?

And then how are you thinking about getting customers into the store when you open a new store, what proportion of those sales are driven by new customer acquisition versus stronger sales from existing customers?

So what you'll continue to see is us continue to invest in marketing to raise brand awareness. Often when we hear potential customers, why haven't they purchased from us, it's because there isn't a store nearby them. So you'll continue to see us open more stores. As Dave mentioned, there's almost 45,000 optical shops in the U.S. and convenience is certainly important and all the large optical players have well over 1,000 locations.

When we open in a market, we tend to get welcomed by that local community. We often commission artwork from a local artist, we get featured in local press and celebrated. So we continue to see similar ramps as we've seen over the last 15 years as we open up stores.

As Dave mentioned, we're increasing our densification, particularly in suburban markets because when we opening up stores, we had the benefit of our large e-commerce business and we start to focus really on sort of the urban, sort of, cool street locations, whether it was Green Street and Soho or Abbot Kinney in L.A. or Hays Valley in San Francisco, and we've now been able to sort of move out more into the suburbs where we're in lifestyle centers or even grocery-anchored centers, which is nice because they tend to be lower rent.

But we continue to have a lot of drivers of retail productivity. So 1 is just the mix of products. So from a progressive standpoint, these are the lenses that help you see in the distance and up close, and we tend to see higher progressive mix in our suburban locations, and these products are more expensive and higher margin.

We are still in the early days of our eye care business. So our -- all of our new stores have eye exam suites and we now have hundreds of optometrists that work for us. And across the industry, 75% of people buy glasses where they got their eye exam, so we are just at the beginning of being known for having a great exam experience.

And some of our technology heritage also contributes to that in that we have top-of-the-line equipment, we have software that we've developed in-house to make our optometrist very efficient and also makes them want to come to and work for us so that way they can focus on clinical care and spend less time on the administrative task of being an eye doctor.

We're also still at the early days of our insurance business and becoming more in-network with more and more networks. So all of these things are contributing to retail productivity and driving comps, both today and in the years ahead.

Let's dig a little bit deeper into a couple of those drivers. You mentioned eye exams and what you're doing to engage your customer but also make sure that you have great employees in each of those stores. What's the largest unlock for incremental eye exam growth from here?

I think the main thing is just awareness. So we find that many of our customers who have been loyal customers for years aren't aware of many of the new store locations that we've opened. Some of them aren't aware that we offer eye exams at all or in their city.

And so there's a big effort underway just from a marketing and awareness standpoint, just to let people know that while last time you bought glasses for Warby Parker, we told you had to go to a non-Warby Parker doctor and bring us your prescription, now we can serve those needs concurrently, and we can do so very conveniently. And if you have contact lenses and if you're looking for certain kinds of lenses that we maybe didn't offer previously, we now offer those.

And so the -- yes, the biggest thing is just creating more awareness in the market. The second is continuing to open more stores in every 1 of our new stores. We're building out with eye exam suites, sometimes multiple exam rooms. The third is increasing penetration and awareness around our insurance offering, where many customers and patients start their exams journey by going to their insurance portal and seeing which doctor is in network.

And now we're able to meet the demand of many of those types of customers and patients. And the last piece is continuing to hire some of the best doctors in the country and the world, and we're becoming known as a great employer for optometrists. Our stores are located in places where eye doctors want to live or using state-of-the-art equipment in all of our exam rooms, including leading retinal imaging and enabling doctors to leverage this technology to serve patients better.

And then a lot of our software capabilities and the customer experience that we've enabled in our stores enables doctors to really focus on patient care, and they can rely on our software platforms and our store teams to serve customer needs and handle a lot of the tasks that often eat up time that takes them away from patient care in other places. And so I think all those factors are leading to us increasing the number of locations and kind of supply side of eye care and then are pairing that with lots of marketing and awareness and demand-generating activities and those things they're working and our eye exam business is growing really quickly. We're still massively underpenetrated relative to the rest of the category, and so still lots of opportunity ahead for us.

You've recently expanded your insurance partnerships. What proportion of customers that are in your potential network today are coming to Warby Parker? And what do you think the opportunity is over the course of the next couple of years? And specifically, insurance is about 7% of your business in '24. What do you think that can be over the course of the next 1 to 3 years?

Sure. Most optical retailers, right, it's the bulk of their business will remain pretty underpenetrated, and we still provide exceptional value because the average of out-of-pocket for our customers that are shopping elsewhere using their vision insurance is over $200.

So again, what we always want to be doing is providing exceptional value. So we're able to do that even though on a relative basis, we have a smaller sort of insurance business. But, you'll continue to see us be in more plans. And then we'll continue to take time for those members to learn that we're in network and then, of course, for their sort of purchase cycle to hit. But we think that we're still in the very early innings of our vision insurance business.

Very clear. You mentioned the importance of providing exceptional value to your customer, both for the insurance customer and for your pay out-of-pocket customer. Pricing has been top of mind for a lot of the industry and you talked a few pricing actions earlier in April. Are you seeing any pushback or elasticity to those pricing actions? And how should we be thinking about your pricing plans for the rest of the year and into 2026? Is there more on the horizon?

Yes, ever since we've launched, we've made a commitment to our customers that we're going to deliver exceptional value, and that was inherent in the price of prescription glasses that we introduced back in 2010, like the ones that I'm wearing, cost $95, including prescription, lenses and all the coatings that you would need, free shipping, free returns, and we still offer these losses for $95 today, 15 years later, in a category that has literally taken price almost every year very consistently and there's been a lot of inflation in the category that has led to our value differentiation being much stronger today than it was even when we launched in 2010.

And we expect that commitment to continue. And they're certainly -- we've had lots of opportunities over the years, including in inflation was going up. Few years ago to take price and we chose not to do so. When the tariffs were announced on Liberation Day, some of our cost inputs changed and that did caused us to take a fresh look at the pricing of all of our products, and we looked at a small number of SKUs where we thought we could adjust our prices, raise prices slightly but still offer exceptional value relative to the rest of the category. And so we made those pricing changes while we left the majority of our pricing where it has always been.

And we really didn't see a change in elasticity from our customers really didn't see kind of any pushback or questions. And I think that's because we were still able to commit to our messaging around offering a better value than other options. And so that enabled us to mitigate a significant portion of the tariff increases and enable us to continue to offer great value to our customers. And currently, we're not planning to make any additional pricing changes at the moment.

Very clear. You mentioned tariffs, so let's go there for a moment. How should we be thinking about the annualized headwind from tariffs on a full year basis once it's fully in? And at what point do you expect to fully mitigate the currently enacted rates?

We feel that we've now fully mitigated them, and that's been incorporated into our guidance. I think when we first came out in April, we jumped into action. Unfortunately, we had a bunch of muscle memory from COVID, but we took 3 actions. One was, as Dave was describing, sort of select and strategic price increases. We also realigned parts of our supply chain, which is more nimble, thanks to the learnings from COVID.

We also have 2 optical labs here in the U.S. where we cut our lenses and sort them into our frames, ensure that Warby Parker hands are doing final quality inspection that go to customers. So we were able to manage from a supply chain standpoint and then sort of made some OpEx reductions.

And now we feel like we've been able to fully mitigate the impact of tariffs and we'll continue to be on a path to expand EBITDA. And our plans over the last few years has been how do we expand EBITDA 100 to 200 basis points, we think long term, we're a 20% EBITDA business and are on a path to get there.

So you do believe that 1 to 2 points of annual expansion is still achievable even in the current environment?

Yes, absolutely.

And the 20% is still achievable?

Yes.

Very clear. How should we be thinking about the key levers of driving that? Is that incremental SG&A leverage on top of what you've already delivered this year? Or do you expect gross margins to begin to grow?

Yes. Primary leverage on SG&A. We have stability in gross margin around in the mid-50s. And as a reminder, our gross margins are fully loaded with retail occupancy with the sort of salaries that we pay our optometrists, for example.

Very clear. Let's go to one of the more exciting partnerships in the business today, which is your partnership with Google as you look to develop some smart glasses.

What are the most differentiated aspects about your smart glasses initiative relative to what is also in the marketplace from potential competitors? How are you thinking about that competitive differentiation that you're going to serve to customers? How are you going to message that? And what should we be expecting?

Yes. So we're excited to share a lot more about our product road map in the coming months. But these are going to be really incredible products that look and feel like Warby Parker glasses designed for all day were designed to be used with prescriptions or nonprescription lenses.

And the biggest kind of difference from a use case standpoint is that AI is going to be incredible, and user experience is going to provide so much utility for wears on an all-day basis. And I think some of the existing products on the market today show that there is demand for glasses that have additional technology in them.

Our understanding is that the primary use cases are really to replace AirPods or take hands-free photos and our products will do that exceptionally well. But the reason that we were really excited to partner with Google is because of their AI capabilities throughout their organization with Gemini and DeepMind and they have -- they've really invented the technology that all LOMs are based on and they continue to innovate in really meaningful ways.

And they also have such massive capabilities across hardware and software with their Android platform, they power billions of devices. Users will be able to tap in to products that they use every day from Gmail to Google Maps search. And so whether you're kind of -- If you wake up and you're used to kind of picking up your phone or logging into your computer to check your e-mail and text, can imagine a world where you don't have to do that anymore that you can just put on your glasses and walk down the street and the software will surface the relevant messages, you can respond to them on the go. If you see a sign about something or a building or you're curious what kind of tree you're looking at or what kind of bird you hear chirping.

You can get intelligence and context around the real world about you. You can be speaking to someone in a different language and have real-time translation. If you're looking at a forum that you're filling out and you don't remember your Marriott Bonvoy number. It will have integration with your e-mail and be able to pull that number out for you. And so we're really excited for these products. We think that they're going to be really transformative in terms of how people engage with technology and will enable them to stop being tethered to kind of pulling a screen out of their pocket and engage more with the real world.

Very exciting. I'm going to try them on when they finally launched, of course.

You've mentioned AI as part of the reason why you were excited about the smart glasses, but how are you integrating AI into your business? And what are the near-term and longer-term opportunities that you see?

We sort of have been leveraging AI across the business for many years now, whether it was developing the first sort of true to scale Virtual Try-On for eye glasses. It was a major technological challenge to fit a pair of glasses on somebody's face virtually, like very different than applying makeup because you had a third-party object that needed to sort of fit and understand your pupillary distance, where your nose bridge sits, where your ears are.

So we have a strong history of leveraging AI, but now we sort of leverage it across the organization where we have what we call AI visionaries embedded in every single team across our corporate organization that are vibe coding and we're finding ways to be more efficient and productive, whether it's using AI and eyewear design or creating an AI agent that speaks in the Warby voice. So our copywriters can be more focused on interesting marketing activations versus driving product descriptions, for example, literally every aspect of our company as being rethought and reimagined leveraging this incredibly powerful technology.

Let's go back to your core for a moment. You started with a single vision lens, a couple of decades ago now and you're wearing them. How should we be thinking of what is the core growth rate that you're seeing in single-vision glasses today? And what's your expectation on a medium-term basis?

We continue to see strong growth in our glasses business and single vision business. If you look back at Q2, April was soft for the reasons that we spoke about related to consumer sentiment and behavior post-Liberation Day. But after that, the trends that we were seeing across the business, including in glasses and single vision, we're quite strong and enabled us to deliver double-digit growth for classes in Q2.

And if you kind of ring-fence April, stronger growth than that. And we're expecting that to continue. We see lots of opportunities to continue to expand our customer growth from a new customer standpoint. We still have less than 2% market share in a really big category. Our customers that do make a purchase from us, tend to be really happy and to repeat on a very consistent time frame. And so we still see lots of future growth for our single vision business.

Very clear. You talked a little bit about some of the near-term trends that you've seen in April through the end of the second quarter. Your guidance in the back half calls for sustained 17% momentum. And that's in an environment where a lot of other companies are calling for a lot more conservatism and caution into the back half.

What gives you so much confidence in achieving that back half guidance range? And are there any comments that you can provide on back-to-school? Knowing that your back-to-school business is not necessarily a large driver.

If you look back really over the last 4 quarters, going back to the back half of last year and in the first half of this year. We've really seen kind of strong and consistent demand trends other than a couple of air pockets, including Liberation Day and when there was some extreme weather, but outside of those macro effects, which were relatively short-lived.

We've seen consistency and strength from a demand standpoint, and that's given us confidence to lean in from a marketing a marketing standpoint. And our marketing is working, and we have the advantage of being direct-to-consumer, so we get such rapid signals around what's working and what's not and how to optimize. And we're increasingly using AI to make those marketing capital allocation decisions and really shift dollars where we're seeing the most efficiency and so just based on the trends that we've seen not just kind of post-April, but really going back over the last 12 months, just give us the confidence that demand will continue to be there in the category that has historically been a category that has very consistent demand outside of the pandemic period and the hangover.

And we believe that we're kind of back to that steady state where we continue to lean in grow faster than the category because of all the initiatives that we have around opening stores, generating awareness through marketing insurance continuing our penetration around exams, contact glasses, progressive, single vision. We just had lots of growth drivers that we have confidence we'll work and continue to enable us to grow in the high teens.

Very clear. You've mentioned marketing several times now. And marketing has been a big opportunity from an awareness perspective, especially in terms of the store driver for some time.

What's changed in your marketing, whether that's out-of-home, in-home, digital, non-digital? And do you think that low-teens as a percentage of revenue is the right level, longer term?

Yes. I think you'll see consistency as marketing as a percent of revenue, but obviously, the absolute dollars will continue to increase. One of the big things that we've announced is that we're sunsetting our Home Try-On program and sat within our marketing line item.

We'll continue to spend those dollars, but there'll be more focus on customer acquisition.kind of -- it's a bitter sweet to be sunsetting the Home Try-On program, but we no longer need it given the strength of our Virtual Try-On given our 300 locations, speaking of which our 300th is right here at Brookfield Place. So if you have a chance to check it out, please do.

And when we launched in 2010, GQ called us, the Netflix of eye wear, and that was when Netflix was setting DVDs to people's homes because we have this Home Try-On, right? We shipped people 5 pairs of glasses to try on at home. And just as Netflix has sort of made the move to streaming, we no longer see a need for our Home Try-On program.

But in general, we continue to see great performance across our channels, whether that's linear and streaming or even direct mail or paid social. One of the things that we were excited to launch this past week was our partnership with Arch Manning, and that's in a long line of very authentic collaborations that we've done. Arch is a long-time glasses wearer. He's a longtime Warby Parker customer.

So our ads include images of him as a child wearing glasses, sometimes even within the football helmet. And just how we were part of the sort of conversation during sort of the opening weekend for college football. But you'll continue to see us invest in the brand and continue to be part of the cultural [ zeitgeist ].

Great. And a final question for you. CapEx and capital allocation priorities. Your CapEx spend is covered in $50 million to $65 million in the last couple of years, but have been creeping up a little bit.

What's the rate level for CapEx as a function of the needs of the business that you see today? And how should we be thinking about capital allocation?

Yes. So we don't think there will be any material deviations from the trends that you've seen. We'll continue to open stores, which require capital. But our stores are quite capital efficient. We continue to target paybacks in under 20 months.

We also see opportunities to invest in technology and software and AI. And we've always been a technology-driven brand, and that will continue. And the new area of spend is around AI glasses. This is a massive TAM and massive new opportunity. We feel fortunate to be partnering with Google. And as part of our partnership, that they'll be covering some of our expenses to stand up these new products, and that goes to both product development but also the experience that we'll be able to sell these glasses in our stores, the new fixtures, the demo experience, we believe that our stores are the ideal environment for customers to come in and try on and demo this new category of products. And so that will require some spend, but a lot of that will be supported from Google.

Great. Well, with that, we're out of time. Thank you, Neil. Thank you, Dave, and thanks for all the audience for tuning in.

Thank you and thanks for having us.