Executive Summary / Key Takeaways

• Warby Parker is undergoing a "third act" transformation, leveraging AI to develop intelligent eyewear, enhance customer experience, and drive operational productivity, significantly expanding its total addressable market beyond traditional glasses.
• The company delivered strong financial performance in Q3 2025, with net revenue growing 15.2% year-over-year and Adjusted EBITDA expanding approximately 50% to $25.7 million, marking its highest quarterly expansion in two years and achieving positive GAAP net income in Q1 2025.
• Strategic omnichannel expansion, including 45 new stores in 2025 (with 5 Target shop-in-shops), and a robust holistic vision care offering (contacts and eye exams) are key drivers of customer acquisition and increased lifetime value.
• Warby Parker has successfully mitigated an estimated $45 million to $50 million gross impact from increased tariffs through supply chain diversification, selective price adjustments, and disciplined expense management, demonstrating operational agility.
• Despite macroeconomic uncertainties and shifting consumer trends, the company reaffirmed its 2025 Adjusted EBITDA outlook and raised margin expectations, projecting 180 to 210 basis points of year-over-year Adjusted EBITDA margin expansion, underscoring confidence in its long-term profitability goals.

The Evolution of Vision: Warby Parker's Omnichannel and AI-Powered Future

Warby Parker Inc. (NYSE:WRBY) stands as a distinctive force in the eyewear industry, having consistently challenged traditional models since its founding in 2010. As a founder-led, mission-driven lifestyle brand, Warby Parker operates at the intersection of technology, design, healthcare, and social enterprise. Its core business revolves around providing holistic vision care, offering eyewear products and optical services directly to consumers through a seamlessly integrated retail and e-commerce platform. This approach, coupled with its "Buy a Pair, Give a Pair" program, has not only fostered a strong brand identity but also cultivated a loyal customer base.

The company's journey can be segmented into distinct evolutionary phases. Its "first act" established it as a pioneering online eyewear brand, introducing features like the virtual try-on tool and maintaining a disruptive $95 price point for prescription glasses. The "second act" saw a significant expansion into physical retail, transforming Warby Parker into a true omnichannel player and broadening its services to include comprehensive eye exams and contact lenses. By the end of 2024, the company had grown to 276 stores and achieved positive e-commerce growth for the first time since 2021. This strategic expansion into holistic vision care proved highly successful, with contact lens sales increasing 36% and eye exams growing 41% year-over-year in 2024.

Warby Parker is now embarking on its "third act," defined by innovation through artificial intelligence. This strategic pivot aims to leverage AI across multiple facets of the business: developing new products like AI glasses, enhancing customer and patient experiences through tools such as the virtual try-on and AI-powered Advisor, and driving significant productivity gains across operations. This forward-looking strategy is poised to expand the company's total addressable market (TAM) beyond traditional eyewear, positioning it at the forefront of the evolving smart glasses market.

Technological Edge and Innovation Roadmap

Warby Parker's technological differentiation is a cornerstone of its competitive strategy, enabling both enhanced customer experience and operational efficiency. The company's proprietary Virtual Try-On tool, which leverages AI, allows iOS users to virtually try on frames, with 75% engagement, fostering confidence in frame selections without the need for physical samples. This tool, along with features like "glasses eraser" and "advisor," aims to replicate the guided retail experience online, driving conversion and deeper customer engagement. The AI-powered Advisor, launched in Q2 2025, recommends frames based on facial features and style preferences, showing encouraging early results in engagement and sales.

Beyond customer-facing tools, AI is being integrated into internal operations to improve efficiency. This includes leveraging AI in eyewear design, evaluating technical designs, streamlining customer experience workflows, and reducing content creation costs for marketing. The company has also completed a major system upgrade in its optical labs to support future growth, accelerate delivery times, and prepare for the eventual fulfillment of AI glasses. These internal applications of AI are already yielding productivity gains across the headquarters team.

A significant technological leap for Warby Parker is its partnership with Google (GOOGL), announced in May 2025, to develop AI-powered intelligent eyewear for all-day wear. This collaboration, which later expanded to include Samsung (SSNLF), combines Warby Parker's design expertise and eye care capabilities with Google's leadership in AI and Samsung's hardware innovation. Google has committed up to $75 million for product development and commercialization costs, with a potential additional $75 million equity investment. This initiative is designed to create beautifully designed intelligent eyewear that seamlessly integrates into everyday life, enabling real-time personalized insights without the need for a separate screen. Management believes glasses are the ideal form factor for AI, allowing the technology to understand the wearer's environment and surface relevant information. While specific launch timelines for these AI glasses are "after 2025," the strategic intent is clear: to position Warby Parker as a leader in the next major computing platform.

Competitive Landscape and Strategic Positioning

The eyewear market is highly competitive, with Warby Parker facing both large, established players and niche disruptors. Key direct competitors include EssilorLuxottica (ESLOY), National Vision Holdings (EYE), and Signet Jewelers (SIG) (through its optical divisions). EssilorLuxottica, a global behemoth, dominates with its vast manufacturing capabilities, extensive brand portfolio (e.g., Ray-Ban), and widespread retail presence. National Vision Holdings focuses on value-priced eyewear through a large network of physical stores, while Signet Jewelers offers eyewear as part of its broader retail mix.

Warby Parker differentiates itself through a direct-to-consumer (DTC) omnichannel model that emphasizes affordability, design, and a seamless customer experience. Its initial $95 price point for prescription glasses, maintained since 2010, continues to offer exceptional value compared to competitors who often charge "hundreds of dollars elsewhere" for comparable quality. This value proposition has allowed Warby Parker to gain market share, particularly from more expensive optical shops. The company's agile, vertically integrated supply chain enables faster response to market changes and product innovation, a key advantage over more traditional, less nimble competitors.

In the emerging smart glasses market, Warby Parker's partnership with Google and Samsung positions it to compete directly with tech giants like Meta (META) (with its Ray-Ban Meta glasses) and Apple (AAPL) (developing its own AR glasses). While Meta has seen success with its Ray-Ban partnership, leveraging a stylish design and existing retail networks, Google's collaboration with Warby Parker aims to replicate this playbook, capitalizing on Warby Parker's brand, design capabilities, and growing omnichannel distribution. The focus on "eyewear first" design and Warby Parker's expertise in fitting and customer service are critical differentiators in this nascent, complex product category.

Warby Parker's competitive advantages, or "moats," include its strong brand identity built on social impact and value, its efficient direct distribution channels, and its continuous digital innovation. These factors contribute to superior customer loyalty and recurring revenue. However, the company's smaller scale compared to industry giants like EssilorLuxottica presents a vulnerability in terms of cost efficiencies and broader market penetration. Barriers to entry in the eyewear industry, such as regulatory requirements for eye exams and the need for established brand and supply chain networks, help protect Warby Parker's position while also favoring larger, more established players.

Financial Performance and Liquidity

Warby Parker has demonstrated a compelling trajectory towards profitability, marked by significant financial milestones in 2025. For the three months ended September 30, 2025, net revenue increased 15.2% year-over-year to $221.7 million, and for the nine months ended September 30, 2025, it grew 13.7% to $659.9 million. This growth was underpinned by a 9.3% increase in Active Customers and a 4.8% rise in Average Revenue per Customer to $320, driven by the glasses business, selective price increases, and strong adoption of precision progressives. The company achieved its first quarter of positive GAAP net income as a public company in Q1 2025.

Profitability metrics show significant improvement. Adjusted EBITDA for Q3 2025 surged approximately 50% year-over-year to $25.7 million, representing an 11.6% adjusted EBITDA margin and 260 basis points of year-over-year expansion, the highest quarterly expansion in two years. For the nine months ended September 30, 2025, Adjusted EBITDA reached $80 million, with a 12.1% margin. This strong performance was achieved despite a slight decrease in gross margin, which was 54.1% in Q3 2025 compared to 54.5% in Q3 2024, primarily due to tariffs on glasses, lower-margin contact lens sales growth, and increased shipping costs. However, selective price increases and higher penetration of precision progressives partially offset these impacts.

Selling, General, and Administrative (SGA) expenses, while increasing in absolute dollars due to marketing investments and retail workforce growth, demonstrated significant leverage as a percentage of net revenue. SGA decreased by 540 basis points in Q3 2025 and 510 basis points for the nine months, driven by efficiencies in corporate expenses and customer experience, alongside lower stock-based compensation. This disciplined expense management has been a critical factor in driving Adjusted EBITDA expansion.

From a liquidity perspective, Warby Parker maintains a strong financial position. As of September 30, 2025, cash and cash equivalents stood at $280.4 million. The company generated $87.5 million in net cash from operating activities for the nine months ended September 30, 2025. While net cash used in investing activities was $51.9 million (primarily for property, equipment, and capitalized software), and net cash used in financing activities was $9.7 million, the company anticipates 2025 will be its third consecutive year of positive and accelerating free cash flow. A $120 million revolving credit facility, expandable to $175 million, remains largely undrawn, providing additional financial flexibility.

Outlook, Guidance, and Risk Assessment

Warby Parker's outlook for 2025 reflects a blend of continued strategic investment and a cautious approach to macroeconomic headwinds. The company reaffirmed its 2025 Adjusted EBITDA outlook, projecting $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. This confidence in profitability comes despite a slightly more conservative view on revenue, with full-year net revenue expected to be between $871 million and $874 million, representing approximately 13% growth year-over-year. For Q4 2025, the company guides for net revenue between $211 million and $214 million (11% to 12% growth YoY) and Adjusted EBITDA of $18 million to $21 million (9.2% margin at midpoint).

Key assumptions underpinning this guidance include:

• Store Expansion: 45 new stores are planned for 2025, including the first five Target (TGT) shop-in-shops. These new locations are expected to drive customer acquisition and deliver strong unit economics, with a target of 35% four-wall margins and 20-month paybacks. The Target partnership, while in early stages, is performing "in line with expectations" and is seen as incremental to the broader omnichannel strategy.
• Tariff Mitigation: The company has successfully mitigated an estimated $45 million to $50 million gross impact from increased tariffs (with China-sourced goods facing up to 145% tariffs) by reducing China sourcing to less than 10% of COGS by year-end, implementing low single-digit price increases on select lens types, and enacting strategic expense reductions.
• Marketing & Customer Acquisition: Marketing spend is anticipated to remain in the "low teens as a percent of revenue," focusing on efficient customer acquisition and brand awareness, particularly for new stores and holistic vision care offerings.

• Holistic Vision Care Growth: Continued expansion of contact lens sales (currently 11.5% of revenue, well below the 20% industry average) and eye exams (6.5% of revenue, with 88% of stores offering exams) is expected to drive customer lifetime value.
  

• AI Innovation: Investments in AI-powered tools and the Google/Samsung AI glasses partnership are expected to enhance customer experience and open new market opportunities.

Risks to the outlook include the "volatile" overall economic environment, which can impact consumer sentiment and spending, particularly among younger, single-vision, and contact lens customers. While the needs-based nature of eyewear provides some insulation, shifts towards lower-priced frames and reduced multi-unit orders have been observed. The ongoing uncertainty of international trade policies and tariffs, despite successful mitigation efforts, remains a potential pressure point on cost structure and gross margins. Additionally, the Co-CEOs adopting Rule 10b5-1 trading arrangements for Class A common stock sales introduces a factor for investor consideration, though these are pre-planned sales.

Conclusion

Warby Parker's journey from an online disruptor to an omnichannel leader, now entering its "third act" of AI-driven innovation, presents a compelling investment narrative. The company's consistent revenue growth, accelerating customer acquisition, and robust Adjusted EBITDA expansion underscore its operational effectiveness and strategic adaptability. By leveraging its vertically integrated model, Warby Parker has successfully navigated macroeconomic headwinds and tariff challenges, demonstrating a strong ability to control costs and maintain profitability.

The strategic partnerships with Google and Samsung for AI-powered intelligent eyewear represent a significant long-term growth vector, promising to expand the company's TAM and redefine the eyewear experience. Coupled with its ongoing physical retail expansion, a growing holistic vision care offering, and a commitment to exceptional value, Warby Parker is well-positioned to continue gaining market share in a resilient industry. While macroeconomic uncertainties and competitive pressures persist, the company's technological leadership and disciplined execution provide a clear path toward its long-term goal of becoming a 20% Adjusted EBITDA business, making it a noteworthy consideration for discerning investors.