Warby Parker Inc.

Hello everyone and thank you for joining us and welcome to the Warby Parker Inc. Second Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. I will now hand the conference over to Jacqueline Bradbury, 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 and 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. 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 one 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-free funds 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. Thank you for joining us. In Q2, we opened 15 net new stores, including our 350th store at Durrell Marketplace outside Miami, as well as suburban markets like Tigard, Oregon, and key tri-state suburbs of Westport, Connecticut, Scarsdale, and Port Chester, New York. With 29 net new stores open through the first half of the year versus 22 at this point last year, we're already more than halfway toward our goal of opening 50 stores in 2026, putting us in a strong position as we prepare to launch intelligent eyewear. Thank you for joining us. Today, nearly two-thirds 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 advisors and opticians. Next, we drove growth within our existing fleet. Thank you for joining us. Thank you for joining us. 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. Thank you for joining us. 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 five 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 six and eight 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 sum 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 than 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 and Impact, e-commerce glasses and contacts 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 headwind 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 the 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 nine 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 intelligent. 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 healthcare 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 number one 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 one. A large portion of these investments include one-time foundational investments to support the launch and to balance our recurring expenses that will become part of operating the integrated business over the longer term. Our original full year in Q2 guidance did not contemplate any tariff refunds. The $14.4 million tariff refund benefit we're 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. 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. Thank you for joining us. 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. Thank you for joining us. 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. 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%, were 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 paid 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 of 2026, we are reaffirming our prior guidance. This includes revenue of $959 to $976 million, representing approximately 10% to 12% year-over-year growth. Adjusted EBITDA of $117 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 to $246 million or growth of approximately 10% to 11% year-over-year. Thank you for joining us today. 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 a 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.

Thank you. We will now begin the question and answer session. To allow everyone an opportunity, please limit yourself to one question. To raise your hand, please press star followed by the number one on your telephone keypad. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. And if you are muted locally, please remember to unmute your device. Kindly stand by while we compile the Q&A roster. Your first question comes on the line of Brooke Roach with Goldman Sachs. Your line is open. Please go ahead.

Good morning and thank you for taking our question. 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 Thanks, Brooke. This is Neil.

What we are seeing across the category in the industry, especially as we speak to some of our peers, is continued 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 ratings. So once customers cross that threshold, delivering incredible customer service and providing the products that people want. We continue to be focused on driving that incremental and many more. Thank you. and many more. Thank you. 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.

Hi, Brooke. Good morning. 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 extending our exam campaign, using some new tactics with paid media, redoing 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 a 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-eyed 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, Thank you so much for joining us. 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 serial numbers. Every intelligent eyewear product will have a serial 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. We've also 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 approved to pursue in the quarter. So we're just really thinking through those one-time investments, a large portion of the investments this year are one-time to integrate intelligent eyewear into our business. But as we get later into the year, we'll be able to provide much more clatter around the run rate of our business in terms of expenses, also inclusive of intelligent eyewear volume as well.

Thanks so much. I'll pass it on.

Your next question comes from the line of Oliver Chen with TD Cowan. Your line is open. Please go ahead.

Hi, Neil, David, and Adrian. 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 would love your thoughts. Thank you.

Thanks, 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-comm, which, as you know, has been a drag on overall growth over the last few years as our Home Triumph 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-comm, 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 Classes, 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, 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. We make them individually for them out of our optical labs and ship them direct to our customers. So relative to non-optical categories, 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 and many more. Our retail occupancy, our doctor salaries, right? Those will remain constant. So we'll then have flow through throughout the entire P&L.

Good morning, Oliver. Just to add a little bit more color on the operation. The key thing that we're looking at here is 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, pre-orders 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 of how we're managing the inventory side as well, both from a demand standpoint and also a cost standpoint.

Thanks a lot. Best regards.

Your next question comes from the line of Dana Telsey with Telsey Advisory Group. Your line is open. Please go ahead. Hi, good morning, everyone.

As you think about your stores, any update on the shop and 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 and shops? And then with the launch of the AI glasses, how do you think of the fit up of the store? Does it take away from any 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? Thank you.

Thanks so much for your questions. We'll start with your question about our target rollout. We're rolling out five new stores this fall. Unlike the prior five, you know where we experimented with locations sort of in the middle of the store on the pad or on the perimeter you know these will provide some additional external signage or in new markets yes they all will have our intelligent eyewear available for sale and to demo this is a 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 build a strong foundation for that for further growth.

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 this current quarter and are continuing to deepen our relationships with carriers. And we're seeing strong utilization both in network and out of network. and many more.

and Dana, I think you had one additional question around store openings. The last two 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 opening is going forward.

Thank you.

Your next question comes from the line of Mark Cardin with UBS. Your line is open. Please go ahead.

Your line is open. Please go ahead.

Good morning. Thanks so much for taking the question. 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? Thank you.

Good morning, 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 benefits, the total 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'll be thinking about as we think about the overall EBITDA benefits is on one dimension, we have the tariff refunds offsetting the incremental investments. 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 teams 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 gonna be it in totality.

Thanks so much, good luck guys.

Your next question comes from the line of Mark Altwager with Baird. Your line is open, please go ahead.

Good morning. Thank you for taking my questions. 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 up the net tariff benefit, I think EBITDA was at the lower end as well. You guide in 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'd 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 in 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'd 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 two-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 outer 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 two 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 two-year basis as we actually came out of the month of July. So that's very encouraging to us. Now let's 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 trying was about 2.8 percentage points of growth. We expect in the third quarter is probably going to be more about 1.7 percentage points of growth. And in the fourth quarter, about a half a point. So you can see that diminishing over time. paid warranties will be a 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're 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're paying close attention to the two-year trends. and in the fourth quarter of last year, we're 11% growth year over year. So you can imagine Q3 has, you know, 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, pay protection program contributing to revenue growth, investments in marketing, and with regards to the investments in the business and integrating intelligent eyewear, that's fully funded by the tariff benefits.

Excellent detail. Thank you. 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's driving? I think you mentioned in the prepared remarks that the out of network mix is now outpaced in-network because maybe you can give us a little bit more context on how that's trended and kind of the lift you're seeing and any AOV lift you're seeing as a result of this tool in the last few months. Thanks again.

Yes, 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's 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 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 that 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 comment. 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, it uses the out-of-network benefit. It's 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 they've described.

Thank you.

We have time for one more question. Apologies to those whose questions we did not get to. Your next question comes from Peter McGoldrick with Stiefel. Your line is open, please go ahead.

Hey guys, thanks for taking my question. I wanted to ask about the makeup of the active customer base. How should we be thinking about the new customers, 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 pre-order program. to help inform demand. Can you help us think when that'll show up and the speed of the supply chain to support the pathway from order to consumption?

Sure. Can start with kind of make up the customer base and the dynamics that we're seeing. You know, 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 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 that 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 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 pre-orders 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 photochromic 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.

Go ahead.

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 labs and in our supply chain. So we're ready.

Appreciate that. Thank you.

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