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About Warby Parker

A few years back, I took a day trip with some of my friends from Houston, Texas and shot down to everyone’s (least) favorite beach town, Galveston.

I really don’t understand why most Texans aren’t fans, but I am not a true Texan, as I was raised in the Midwest, so maybe I just never had a chance to understand.

At any rate, all was going well, as I threw my swim trunks on, jumped into the water with my friends and, like the clearly intelligent human being I am, I intentionally leapt my body into rows of oncoming waves, oh yeah, while I was wearing my pair of glasses.

All was fine until I ran into a wave a little too hard and all of the sudden, my face felt naked.

My glasses had been confiscated by the Gulf of Mexico and I’ll never forget doing everything I could to stop my body and anxiously but still ever so slightly move my toes, feet and arms around so as to feel around and retrieve my spectacles.

No such luck.

Suffice it to say the rest of the trip was sort of a bummer, but it was still nice to be in good company, even if I couldn’t really see any of them at all.

My prescription is fairly strong, so that was awesome.

I ended up getting a new pair of glasses, and thankfully they were much more stylish than the ones I “donated” to the Gulf, and I am truly grateful that I had the opportunity to have helped some sea creatures have better eyesight, free of charge.

Yep, this was my weird little anecdote in introducing a prominent eyewear company by the name of Warby Parker.

Headquartered in New York City, New York, Warby Parker is in the business of designing, manufacturing and selling prescription glasses and sunglasses. The primary differentiator between Warby and practically every other eyewear company is the fact that Warby made it a point to cut out the middleman and opted to sell glasses directly to consumers both online but also in their physical store locations as well.

The company is famous for undercutting its more veteran competitors, selling glasses for around $95 on the lower end of the pricing spectrum, which, for anyone who has bought glass before, understands just how much of a discount this is. Now, with the company clearly priding itself on its remarkably low prices, I don’t presume Warby Parker to be inordinately profitable, if profitable at all. It’s also worth mentioning that I’ve read through the grapevine that the company’s revenue growth has been decelerating in recent history, also citing a good deal of pressure being exerted on its balance sheet.

Per usual, I’ll be the judge of that.

One of the last things I’ll mention about this company is that it offers a very consumer-friendly at-home try-on program, allowing consumers to order up to five pairs of glasses or sunglasses and try them on, simply sending the ones they don’t favor back to the company. Although I view this as a general competitive advantage, boosting the company’s reputation among consumers globally, I also view it as a potential point of challenge and headache, as all sorts of retail theft are up by crazy amounts and on the basis of logistics, sending, receiving and possibly even resending eyewear can be quite expensive to a company with already thin margins.

Another piece of this company one should chew on is whether or not you consider it recession resistant or not. Personally, I deem this to be sort of a mixed bag, as sunglasses are most certainly a discretionary expense, but I think their main source of revenues, prescription eyewear, is prone to being fairly resistant to recessionary pressures and the negative impacts stemming from consumer budget tightening, as for those that need them, glasses are all too essential and it is far from likely that individuals are going to forgo paying for such a critical part of their wardrobe.  

While I clearly have my own initial thoughts, it would make more sense if I allowed the numbers to speak for themselves, so allow me to do just that.

Warby’s stock financials

Coming in at a market capitalization of $1.97 billion, a stock price of $16.43, a price-to-earnings (P/E) ratio of zilch and no annually issued dividend offered to its shareholders for the time being, not a whole lot can be definitively gleaned from these preliminary figures, other than further solidifying my initial beliefs surrounding this company’s profitability, or really, lack thereof, being that it doesn’t pay its shareholders a dividend (because it probably cannot afford to do so) nor does it have an available price-to-earnings ratio on display, as is doesn’t appear as though the company has any positive earnings to report at the moment.

In doing some more investigating, I found that Warby Parker’s executive team is in charge of tending to and making the best out of $580 million in terms of total assets, matched with $279 million in terms of total liabilities. In briefly analyzing this overall breakdown, I feel fine, since the company has a sufficiently higher amount of cumulative assets than it does liabilities, however, as the company continues expanding into more brick-and-mortar locations, management must be quite disciplined in where they ultimately develop physical stores, as this continual build-out will require some capital and undoubtedly some debt financing.

With respect to the company’s income statement, Warby Parker’s annual revenues have actually been growing at a more than solid pace between and during 2019 and 2023, setting a base of $370 million 2019, rising each and every following year to its latest reported figure of $670 million, per its report in 2023.

To be completely frank, I wasn’t personally all that concerned with the company’s recent annual revenues, both by virtue of the company’s online and in-person expansion of sales outlets and also the fact that it seems as though more people than ever need glasses, particularly due to the fact that most of us are constantly looking at one screen or another, but I’m no expert.

What I am more concerned with is how much cash this company either lost (or hopefully retained) in generating this sort of impressive, annualized sales growth.

Onto the company’s cash flow statement, it can be found that Warby Parker’s total cash from operations during the exact same time period have stood markedly subdued, with the company’s operational cash flows ranging between -$32 million in 2021 (go figure, given the Pandemic) and still a pretty measly high of $61 million, as reported in 2023, particularly when this cash flow is contextualized by an associated revenue figure of $670 million, which, among perhaps a few other reasons, is likely a byproduct of the company offering such a strong discount on its lenses and frames. However, for a company such as this one, I am actually a bit more sympathetic and happy to find that it is generating some cash from its operations, and I more so reckon with the company’s total cash from operations being relatively low since Warby Parker is throwing some more capital into marketing, store growth and adequate physical storage space in order to properly address all of its inventory.

This all being the case, and when considering all of the aspects and operations of this business along with the very line of industry it finds itself in, I won’t be losing much sleep at night after discovering the condition of the company’s most recent annual cash flows.

Warby’s stock fundamentals

Now, onto the last and most dreaded nook of Warby Parker’s business, its net profit margin.

As it is shown on Charles Schwab’s platform, Warby’s net profit margin is shown as -6.38%, which was totally to be expected given my multiple comments regarding its discounted product line(s), but more importantly, its value accretive pursuals in growing its physical and digital footprints as well as tapping into other new ways in which it can continue engaging consumers and growing.

Therefore, once more, in the “all things considered” context of Warby Parker and the sort of phase of growth it is in, I am not going to pout much at all about its net profit margin, especially since the company’s gross margin rocketed up to a level of 56% during Q2 2024.

Progress is being made, it just seems like it might take a little time on the profitability front.

Should you buy Warby Parker stock?

Warby Parker is growing at a strong pace.

With this sort of well-defined recent annual revenue growth, it is bound to incur some losses in the profit-sphere, but given the company’s track record leading up to this point, the relative trim-ness of its balance sheet (i.e., it can technically afford to incur a few more, but certainly not an infinite amount, sizable losses for the sake of attaining long-term growth), its founder-led management team (I love that, as, among other things, it indicates that the company is in the hands of motivated, lifelong stewards) and the more macro growth I anticipate to come out of the prescription eyewear category, I feel comfortable in offering this company’s stock (NYSE: WRBY) a “buy” writing.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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