Hello, and welcome to today's Warby Parker Second 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, Head of Investor Relations, to begin. Please go ahead when you're ready.

Thank you, and good morning, everyone. Here with me today are Neil Blumenthal and Dave Gilboa, our Co-Founders and Co-CEOs; alongside Steve Miller, Senior Vice President and 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 7, 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 Dave to kick us off.

Thank you, Jaclyn, and good morning, everyone. 2025 has already been a busy and eventful year, and we're excited by the progress we're making toward Warby Parker's ambitious near- and long-term objectives. Our team delivered strong results in Q2, growing revenue 14% year-over-year and expanding adjusted EBITDA margin 130 basis points, both above the high end of our guidance, while delivering our eighth straight quarter of accelerating customer growth. These results reflect the team's disciplined execution and ability to adapt in a dynamic environment like we saw in April, including taking decisive actions to mitigate the impact of tariffs. We continue to lay a strong foundation for long-term growth by investing strategically, driving innovation, and forging key partnerships. In particular, we'd like to highlight some recent milestones that demonstrate progress against key pillars of our strategy to drive sustainable growth while creating positive impact along the way. In July, we opened our 300th store at Brookfield Place in Downtown Manhattan. And just a few days ago, we opened our very first Target shop-in-shops in Willowbrook, Illinois, and Bloomington, Minnesota. We're only 1/3 of the way to our long-term opportunity of more than 900 stand-alone stores across North America, underscoring the significant white space ahead. With additional scale, we are able to serve more customers than ever while having even greater impact. In Q2, we announced that we surpassed 20 million pairs of glasses distributed to people in need through our Buy Pair, Give a Pair program, a powerful reminder of the impact we're having on communities across the world. These milestones also reflect a natural evolution in how we are serving our customers today and in the future, one led by a highly productive store footprint and supported by increasingly personalized AI-driven digital tools and experiences. We'll speak more to…

Co-Founder, President, Co-CEO & Co-Chair Thanks, Dave. Next, we saw strong demand across glasses, supported by ongoing product and lens innovation as well as our continued focus on delivering exceptional value to our customers. Glasses grew approximately 11% year-over-year, with progressives accounting for approximately 23% of prescription units sold. In Q2, we launched 5 new collections and continue to expand our lens portfolio. Highlights include the launch of Transitions XTRActive lenses, the introduction of our kids assortment online, and a collaboration with L.A.-based streetwear brand, Market Studios, featuring musician and producer Rizza, that generated strong engagement. These initiatives help us reach new audiences while deepening loyalty with existing customers. As part of our tariff mitigation strategies, we moved forward with a handful of price increases focused on select lens types and add- ons while still preserving our entry-level $95 price point. Overall, these pricing actions had minimal impact to mix and conversion. In some cases, product mix for higher value add-ons and lens treatments trended above our expectations. We believe this is evidence of the considerable value gap that still exists in the industry. We aim to offer high-quality products and services at an accessible price point, and we continue to believe that combining design, quality, and service is a key differentiator for our brand. The third driver of our Q2 growth was the strength of our highly productive store base, complemented by continued innovation in our digital experience. Retail revenue grew 19% year-over-year, driven by new store expansion and continued healthy growth of our stores opened 12 months or more, consistent with color we've provided on prior calls. We opened 11 new stores in Q2, entering 6 new suburban markets and expanding our presence in 5 existing ones, including areas outside of Boston, Philadelphia, Washington, D.C., and Charlotte. Looking…

Thanks, Neil and Dave. Before I dive into financials, I want to express a tremendous amount of gratitude to Neil and Dave, our Board, the finance team, and the broader Warby Parker team for giving me the opportunity to be in the arena with you. I'll now be cheering you on, but from another arena. When I joined Warby Parker 14 years ago, we were a small private company with roughly 30 employees, no stores, no factories. Today, we're operating as a public company at scale with over 300 stores, 2 optical labs, nearly 4,000 employees, and this is our 16th earnings call. We have our 8 core values printed throughout our spaces to remind us what's important. They include phrases like do good, take action and lead with integrity. My favorite is learn, grow, repeat. I plan to carry these with me. Now on to our financials. I'll begin with a detailed review of our second quarter performance. Then I'll outline our updated guidance for the full year and our outlook for the third quarter of 2025. Starting first with Q2. We're pleased to deliver both revenue and adjusted EBITDA above the high end of our guidance despite meaningful tariff-related uncertainty throughout the quarter. These results reflect the flexibility of our model and the team's ability to move quickly. Over the course of the quarter, we made significant and timely adjustments to the business, which contributed to our strong financial performance and highlight the levers we have to drive results in a dynamic environment. Revenue for the second quarter came in at $214.5 million, up 13.9% year-over-year. Retail revenue increased 19.3% year-over-year, with store count up 16.4% and e-commerce revenue up 2% year-over-year. Looking at customers, we finished Q2 with 2.6 million active customers on a trailing 12-month basis,…

Thanks, Steve, and thank you all for joining us on the call today. I wanted to echo Neil's thoughts and thank Steve for a tremendous 14 years at Warby Parker. We look forward to seeing all that you'll accomplish in this next chapter. With that, Neil, Steve, and I are pleased to take your questions. Operator, please open the line for Q&A.

[Operator Instructions] Our first question comes from Brooke Roach of Goldman Sachs.

Neil, Dave, I'd love to hear your thoughts on the latest views of the health of the eye care consumer and your confidence in driving continued sequential growth in this mid- to high teens range on a go-forward basis. And then for Steve, can you just help us a little bit with the magnitude of potential SG&A leverage on a go-forward basis? Understood that there's some really nice gains over the course of the next couple of quarters associated with some of these tariff savings actions. But what's the opportunity for that over the next couple of years?

Thanks, Brooke. We continue to feel fortunate that we operate in a category that is a health need. So while we sell fashion accessory, it's also a health product, as you know. And we do see stability in our customer base, and we see that consistency, whether it's in repeat purchasing or in sort of our product mix. We did see some choppiness earlier in the quarter. As you've heard from many companies, April was challenging. We have sort of recovered and have strong trends now that give us confidence for the remainder of the year. But as we've demonstrated over the last few years that irrespective of the macro environment, we're going to continue to grow at a rapid clip and in a consistent and predictable way by delivering exceptional value and incredible customer experiences. And one inherent advantage whenever there's a crisis, as a lot of companies face in April, we tend to adapt and move faster than many of our competitors, and that puts us in a competitive -- a better position. So as an example, we were able to quickly roll out select and strategic price increases that have sort of benefited our growth. Now those have enabled us to still maintain incredible value for our customers, as we saw competitors raise prices higher than we have as they have for the past 15 years. So we think we're actually even offering more value than we did when we first launched in 2010, which again gives us confidence, again, irrespective of how the market is behaving. And now I'll pass it over to Steve.

And thanks for your question on leverage from adjusted SG&A, non-marketing adjusted SG&A in particular. So I'll first just by providing a reminder of what is in our adjusted SG&A stack. So for Q2, roughly $105 million in expense $26 million was marketing. The remainder of that is really split into a few categories. It's salaries for our retail store teams, our customer experience teams and then a range of corporate expenses. As it relates to retail, we continue to make strides to better and more efficiently staff to match staffing in stores with demand that we're seeing from customers. For our customer experience team, we talked specifically this quarter, for example, about a restructuring change that we've made to that team due to the fact that we're able to -- enabling ourselves to better leverage AI technology and increase our level of outsourcing. That's $1.3 million charge that we've disclosed, and our ability to more efficiently staff customer experience has certainly been a source of leverage. The next category is really corporate expenses. So headquarter salaries, what we pay to our vendors, what we pay to our consultants, and we take a very disciplined approach to how we allocate capital to all of those areas. Year-to-date, we've seen roughly 300 basis points of leverage from non-marketing SG&A. And on a historical basis, just to set the stage, in 2023, 240 bps of improvement. Last year, 170 bps of improvement. This year, if the trend continues, 300 basis points of improvement. So across those categories, we feel very, very confident that we'll continue to drive adjusted SG&A leverage, which will certainly be a part of our adjusted EBITDA margin story this year and for years to come.

Our next question today comes from the line of Dana Telsey from Telsey Advisory Group.

Steve, best of luck on your next chapter. As you think about the Google announcement that was made earlier, where are you on the progress there? How do you think about that development, given the importance of those glasses to the overall ecosystem going forward? Tell us a little bit about that. And then with the Target shop-in-shops, I think what is it 3 days or whatever that you're open. I know the first 5 this year, how are you thinking about next year? And just lastly, the price increases that you took selectively, response to that, what are you seeing from the end consumer?

Great. Thanks, Dana. We're really excited to partner with Google for a number of reasons. But first and foremost, because they're the global leader in AI and their deep mind team and broader organization continue to push the boundaries of what the latest Gemini models can do. And we anticipate that smart glasses adoption will dramatically accelerate when consumers are able to use their glasses, not only for photos and audio, but when they become the primary interface with which they engage with AI. And we believe that Google has very unique capabilities in terms of how advanced their AI is, not to mention the scaled assets they have from the Android operating system to Gmail, Maps, Search, YouTube, and so much more that will give wearers incredible value when paired with Gemini. And since our founding in 2010, we've been a technology innovator in the optical industry and have designed products that blend fashion, health, and personal identity. And by combining that foundation with Google's cutting-edge AI and software, we believe we can unlock entirely new levels of utility while making sure that our glasses wearers continue to look good and feel their best. And so it's we believe this is a massive new opportunity, and we've seen computing evolve from desktops to laptops to phones. And we're incredibly excited that as we enter the AI era, glasses are poised to be the next major computing platform. So it's hard to overstate the size of this potential market opportunity, and we're pleased by the progress that we're making and look forward to sharing more about our product road map and timeline in future calls.

And Dana, just to share a little bit about our Target shop-in-shops. It's been great partnering with the Target team. They have a great appreciation for brands and for customer experiences, and we've been able to literally design a Warby Parker and club it within Target. So you walk into the threshold of the Warby at Target, and it feels like any other Warby Parker store. It's staffed by Warby Parker team members, leveraging Warby Parker technology. And so far, we're on track, and we've gotten a great response that we're excited about. We've been able to leverage and promote sort of internally from Warby to staff the Warby Parker at Target stores. And this has been a strength of ours across the organization. It's just our great talent pipeline that just having great retention enables us to do, and it's particularly important in our category, as one needs to develop expertise around our product assortment, around prescriptions, around opticianary. So we're able to leverage that for our Target shop-in-shop. So the early reception has been very positive. The remaining stores will open this month in August. So yes, we're excited. With respect to the selective price increases that we took, overall, well received. We've seen minimal impact to conversion and mix. And in some cases, we actually saw a stronger uptake on higher-value lens upgrades. So as we look across our assortment, again, we're providing greater value in terms of price to quality than we think we have within a competitive landscape for the entire 15 years that we've been in business, as we've seen competitors take price. And this is one of the first times that we've actually increased prices over the last 15 years, whereas a lot of our competitors are increasing prices of frames and lenses on an annual basis. So we continue to hear from our customers just how much value that they get from what our premium products sold at a very accessible price.

The next question today comes from the line of Mark Altschwager from Baird.

Steve, best wishes in your next chapter. So first, I was hoping you could help us understand the drivers to the revenue growth acceleration you're seeing into July. Is that happening across channels? And then how should we think about the contribution from customer growth versus revenue per customer in Q3, Q4? I guess where are you seeing the biggest change in trend there?

Sure. And thank you for the good wishes, Mark. I'm excited to be able to talk more openly about my next opportunity at some point. It's been wonderful working with you and everyone on the call. As it relates to your question around growth that we're seeing across channel, so really starting in May through to July, as Neil called out, we've seen an acceleration in growth across retail and across e- commerce. So we've been pleased to see that it's been an omnichannel lift across the business, in some ways, supported by the pricing changes that we enacted at the end of April that are only reflected in May and June for the quarter, but the positive momentum has really carried through to July. As it relates to how we think about growth from active customers versus average revenue per customer, as Dave called out, we're pleased that this is our eighth consecutive quarter reporting LTM active customer growth up 9%. We continue to see a positive trajectory as it relates to that number, with healthy growth in average revenue per customer. This quarter, that number came in at $316, up 4.6%. On our last call, we talked about there might be a slight rebalancing in how we see the interaction of growth driven by those 2 numbers, where we might see moderately higher growth driven by average revenue per customer, driven by the small set of price increases we implemented and moderately lower growth from active customers, but we would still contextualize the path that we're seeing for both active customers and average revenue per customers as positive and strong.

And then separately, can you talk a bit more about the Warby Advisor you called out in the release this morning? What are the key capabilities? How are consumers interacting with it? And just any thoughts on the impact that could have on conversion and revenue per customer as that rolls out?

Yes. This is a new feature that we introduced on e-comm that uses AI-driven personalized recommendations that recommends frames based on the users' face shape and features, along with their preferences around different styles and colors, and materials. And the intent here was really to bring the best parts of our retail shopping experience online, where if you walk into one of our stores, one of our expert style advisers can look at that customer, their face shape and contours, ask them a few questions around what they're looking for, and then help provide personalized recommendations. And now we're able to do that online using AI and all the best elements of our virtual try-on experience. And so we introduced that feature in Q2, and we're seeing very strong adoption in terms of engagement and sales. And that gives us confidence to move beyond what has been a big driver of our e-comm business historically, our home try-on program. And the new features that we've introduced are driving strong year-over-year growth in direct e-comm glasses purchases that don't involve a home try-on. And now we'll have one less message on our site in our marketing materials, and we can more effectively reallocate those resources to driving customers to the newer parts of our business that are driving higher incremental returns, namely to our 300-plus stores and our AI-driven digital features on our site.

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

Steve, congrats, and it's been wonderful to partner with you. Steve, Dave, and Neil, the Google partnership is really exciting. Would love thoughts on as you see competitive differentiation versus the current offerings in the market, and also your take on the evolution of distribution. I'm sure that you'll do this in a very customer-centric way. Second question is on all the progress you're making with insurance and reducing friction, as well as growing awareness. What's ahead there in terms of how you're thinking about the multiyear opportunity and different things that can happen to further enhance that, especially as your awareness grows. And finally, Steve, as we think about contacts and progressives, they're both nice opportunities with different margin complexions. Could you help highlight the longer-term impact there and also your vision for mix, given that they both have nice TAMs as well?

Thanks, Oliver. Yes, we couldn't be more excited to be partnering with Google as we think about creating the future. These AI glasses are being developed for all-day, every-day wear. And what's so powerful about this form factor is that it can see what you see, and you can engage with AI in a different way that's generally possible right now. And by partnering with somebody with Google, who literally wrote the research on artificial intelligence, which other folks have built their tools, right, we're sort of going to the originator of all of this amazing innovation. And if you think about all of the incredible products that the Google ecosystem has that can be leveraged to make all of our lives better and more productive and enable us to leverage our curiosity in ways that we haven't been able to before, frankly, it's something that gets us just incredibly excited and motivated. So the key differentiator, we think, is that these are being designed for all-day use and that AI is something that will be incredibly useful. The term that we tend to use is helpfulness. And we can't wait until we're in a position to show you the product and for you to try it. In terms of distribution, this is a device and a category that needs to be eyewear first. And the same principles that go into selling and shopping for traditional eyeglasses are going to need to be applied for this new wearable device, in that it's unlike other devices or consumer electronics in that it sits on your face. And as we know, we all have different facial features, from different pupillary distances to nose bridges. And we think that we're uniquely positioned to provide an exceptional shopping experience. Our staff is trained in…

And Oliver, regarding your questions about contacts and progressives as long-term tailwinds supporting growth for the business, I'll talk about each one separately. So contacts is a $12 billion market. If you annualize our most recent results, our contact business is order of magnitude, $95 million to $100 million. So just a drop in the bucket is what we have in terms of the broader market share. The typical contact retailer at scale sells roughly 20% of their business mix in the form of contacts. Contacts are just an 11% portion of our mix. And so we see a dramatic opportunity just to continue to take share of this large market and see that proportion of our business mix increase over time. I will also say one of the nice things about the contact lens purchase, it's the most subscription-like purchase of all of the products that we sell. We have talked about contact lenses having a lower gross margin profile from a percentage perspective. But given the subscription-like nature and the regularity of the purchase, the gross margin dollar profile is certainly very appealing and accretive to our gross margin dollars. Moving to Progressives. We'll also lay out the backdrop from a market size perspective. So progressives, trifocals, and bifocals make up roughly 40% of all prescription units sold. Just 23% of our business today is made up of progressives. As a reminder, progressives are our highest priced and highest margin glasses product, and that's certainly been a continued driver of increase in average revenue per customer and an increased driver of our gross margin. As a reminder, we'll also say that progressives are largely purchased at retail, given the progressive customer is slightly older, and there's a more complex measurement that needs to be taken called Seg height, which can be taken with more accuracy in-store. And so sales of progressives in-store are higher and will be supported by our continued rollout of retail stores. So as we open up more stores, that business line will continue to grow. And we certainly see both contacts and progressives as long-term tailwinds supporting growth over the coming years.

The next question today comes from Paul Lejuez from Citi.

This is Brandon Cheatham on for Paul. Steve, I want to add my congratulations. It's been great working with you, and best of luck on the future opportunity. Can you talk a little bit about sunsetting your home try-on program? How much of that is getting reallocated in marketing or elsewhere versus providing potential margin upside in the future? And then just about how much of your direct business is initiated through the home try-on program?

Thanks, Brandon. The day we launched Warby Parker in 2010, GQ published an article calling us the Netflix of eyewear, comparing our home try-on program to the DVDs that Netflix mailed at the time. And just like Netflix has evolved their business model, we've evolved ours over the last 15 years to the point that home try-on is no longer necessary as part of our core offering. And while we're grateful for how much impact our home try-on program has had, we're excited to be entering a new era for the business that's centered around our 300-plus stores and AI-driven personalized digital tools. And really the home try-on program was designed to enable people to try on glasses before we had stores and before technology existed to enable a true-to-scale virtual try-on. And now we're frankly able to solve that fitting problem better using our stores and digital capabilities. And we have included our home trialing costs historically as part of our marketing line item. And as we wind down this program, we're excited to be able to reallocate those resources and that capital to awareness-driving activities and customer acquisition that we believe will drive higher returns and that we have evidence of higher ROI.

And if you're able to share like when might you be able to go to market with your Google AI glasses? Or when do you anticipate having a prototype ready that you could share with us?

So we're very excited by the progress that we're making. We don't have a timeline to share yet, but we look forward to sharing a lot more in future calls.

Thank you. This concludes today's question-and-answer session and concludes today's call. Thank you all for your participation. You may now disconnect your lines.