Warby Parker (WRBY) Q2 2024 Earnings Call Transcript

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Warby Parker (NYSE: WRBY)
Q2 2024 Earnings Call
Aug 08, 2024 , 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, everyone, and welcome to the Warby Parker second quarter 2024 earnings call. My name is Seb and I will be the operator for your call today. [Operator instructions] I will now hand the floor over to Jaclyn Berkley to begin. Please go ahead.

Jaclyn Berkley -- Head of Investor Relations

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 investor.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 8, 2024, 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. With that, I'll pass it over to Dave to kick us off.

Dave Gilboa -- Co-Founder and Co-Chief Executive Officer

Thank you, Jaclyn, and good morning, everyone. We're pleased to share that our team executed another strong quarter in Q2 delivering net revenue and adjusted EBITDA ahead of the high end of our guidance, while making strong progress against our key long-term strategic initiatives. On a year-over-year basis, we grew net revenue 13.3% to $188.2 million and improved gross margin 140 basis points to approximately 56%. We also grew adjusted EBITDA nearly 40% to $19.6 million, representing a 10.4% margin and generated $14 million of free cash flow in the quarter.

When we introduced our 2024 plan, we called out three notable differences that we expected this year relative to the previous couple of years. The first was increased marketing spend to drive an acceleration in customer growth. The second was returning our e-commerce channel to positive growth. And the third was to significantly expand our insurance offering.

Halfway through the year, we feel great about our progress against these goals and are happy to report our fourth consecutive quarter of improving active customer growth, our highest quarterly e-commerce growth since Q1 of 2021 and progress on our insurance expansion which we will speak to shortly. Amidst the challenging consumer and optical backdrop, our Q2 performance indicates we're continuing to take share and drive consumer demand. Importantly, our results also demonstrate our ongoing commitment to driving sustainable growth, as we continue investing in customer acquisition and brand building while expanding both adjusted EBITDA and free cash flow. Based on our second quarter performance, we are raising our full year guidance for both net revenue and adjusted EBITDA and now expect to deliver $72.5 million in adjusted EBITDA at the midpoint of our guidance which represents 170 basis points of margin expansion.

Before Steve provides more detail on that later in the call, Neil and I will review the key drivers of our Q2 results. First, we continue to see positive momentum in our glasses business with an acceleration in growth versus Q2 of last year. We attribute the improvement in glasses growth to many of our core strategic investments including marketing, expanding our store fleet and our exam business and our product innovation. Given that glasses are our highest margin product, improved glasses growth is also an important driver of gross margin expansion in the quarter.

On a year-over-year basis, we drove an acceleration in the growth of single-vision glasses which represent the majority of our prescription glasses business driven by our marketing investments within channels like paid social, streaming and influencer which cater to our single-vision customer. Glasses growth also continues to benefit from progressive penetration and the adoption of more complex lens types. Progressives overall still only represent 23% of our prescription glasses sold in Q2, and we believe there's a significant opportunity to increase penetration over time. Within the progressive category, we have seen strong uptake of precision progressives, which start at $395, including frames, lenses and coatings, and offer customers better visual quality and comfort at a fraction of the price of what similar products often cost elsewhere.

While we expect progressives' penetration to remain higher in our stores than in e-com, we only recently launched precision progressives online this quarter to provide a more seamless experience for our customers. We also continue to expand our lens options to give customers more choice. Within our sun business, we recently introduced the option to add polarized and custom lens colors to non-prescription sunglasses and the ability to add additional anti-reflective coatings to prescription sunglasses. Options like these, in addition to lens enhancements like anti-fatigue, blue light and light-responsive, have contributed nicely to average revenue per customer.

We're not only seeing customers buy more complex lens types, we're also seeing them select higher-priced frames with more complex constructions like those in our recently launched Italian-made diamond cut collection starting at $195. While the response to our new frames across multiple price points has been very positive, the majority of our frames are still sold at our accessible, all-inclusive $95 price point. The second key driver of our strong Q2 results was active customer growth, which has now improved for four consecutive quarters. Similar to Q1, we've been scaling our media spend across a variety of channels, and we've been pleased with the efficiencies we're seeing, while maintaining marketing in the low-double digits as a percent of revenue.

We believe our diversified media model affords us significant flexibility, including the ability to stay disciplined, while leaning into certain channels where we're seeing strong results. Looking ahead at the remainder of the year, we'll continue testing and scaling certain channels to drive store and exam awareness, as these are the top reasons that customers who are aware of Warby Parker have not yet shopped with us. Direct mail has shown promising results in this regard to complement our broader linear search, streaming and influencer spend. As a result of our strategic investments in marketing and new stores, we ended Q2 with 2.4 million active customers, an increase of 4.5% on a trailing 12-month basis, while average revenue per customer grew 8.8%.

We anticipate seeing active customer growth continue to inflect upwards throughout the year. We know once we acquire a customer and deliver an exceptional Warby Parker experience, we see consistent retention metrics and repeat purchasing patterns across cohorts. For the most recent cohort, we had a revenue retention rate of roughly 50% over 24 months and roughly 100% over 48 months. Complementary to our core marketing efforts, we're excited to be able to serve even more customers through in-network and out-of-network insurance plans.

Earlier this year, we announced an expanded in-network relationship with Versant Health, a wholly owned subsidiary of MetLife, which, once fully integrated, will bring millions of additional lives in network with Warby Parker. Our integration with Versant Health is expected to be complete before our busy period at the end of the year. Given the time it takes for in-network awareness to grow and for customers to realize they can use their benefits at Warby Parker, we have not incorporated this into our guidance and expect it to be a longer-term tailwind over the next several years. In parallel to our in-network insurance initiatives, we continue to leverage our universal eligibility check tool in stores and online to help customers easily locate their in-network insurance coverage and average out-of-network benefits.

Most out-of-network plans cover an average of $100 reimbursement for a pair of glasses or contacts, meaning that these customers often pay $0 out of pocket for their eyewear purchase at Warby Parker. And now, I'll pass it over to Neil to talk about additional growth drivers.

Neil Blumenthal -- Co-Founder and Co-Chief Executive Officer

Thanks, Dave. The third driver of our Q2 growth was our highly productive store base, complemented by an improving e-commerce channel. Retail revenue increased approximately 18% year over year, coupled with e-commerce growth of over 4% year over year, the channel's highest quarter growth since Q1 2021.Since Q2 of last year, we've added 39 net new stores, including 11 in Q2. Five new stores were in new markets, including Savannah, Georgia; Wilmington, North Carolina; and Thousand Oaks, California.

Six new stores were expansions within existing markets, including D.C. Pittsburgh and New York City. With an ending store count of 256 in Q2, we still have a long runway before reaching our longer-term 900-plus store potential which would still represent a small fraction of the 45,000 optical shops in the US. Within our e-commerce channel, we saw an improvement in our single-vision glasses business consistent with Q1, as well as strength in contact lenses from both new and returning customers.

As we've shared previously, overall channel growth is benefiting from a positive inflection in glasses purchases which is partially offset by an ongoing, but diminishing headwind from our Home Try-On program. What's been particularly encouraging to see is that e-commerce growth was highest in many of our largest and most mature markets like New York, Chicago and Dallas where we also continue to see strong retail growth. We believe this underscores the meaningful opportunities ahead of us to drive omni-channel growth as we both infill existing markets and expand to new markets as we see overall market growth benefit from greater brand awareness and store density. Our omni-channel experience remains unique in our category and we continue to invest in technologies that enhance and personalize the online customer experience.

In Q2, we piloted two features within our award-winning Virtual Try-On tool which enables customers to try on all of our eyeglasses and sunglasses on their digital devices with life-like accuracy. One of these features is called glasses eraser. Many of our customers have strong prescriptions requiring them to keep their glasses on to be able to see when looking at screens including seeing themselves when using our Virtual Try-On. Glasses eraser uses computer vision and generative AI to digitally erase the glasses users wear on their face enabling them to virtually try on new glasses while keeping their current pair on.

The second feature is an AI-powered styling tool that makes frame recommendations for our users. It's like a virtual stylist at your fingertips. After testing throughout Q2, both of these features are now live in our iOS app. We also continue to invest in leading retail tools to enhance the customer experience while making our team more productive.

Team Warby's commitment to leveraging data and technology is one of the reasons we're able to continue exceeding customer expectations. The fourth and final growth strategy I'll dive into this quarter is our effort to scale holistic vision care and drive higher customer lifetime value. In Q2, contact lens sales grew approximately 45% year over year to a little over 10% of revenue which remains well below the 20% industry average. We plan to continue growing this portion of our business as it not only attracts new customers, but also some of our highest-value customers given the replenishment nature of the product and their propensity to go on to purchase glasses.

In the quarter eye exam revenue grew approximately 40% year over year to approximately 5% of revenue, which remains well below the approximately 15% industry average. Today, the majority of our customers still get their eye exams elsewhere and bring your prescriptions to Warby Parker, highlighting the opportunity in front of us to broaden awareness of this service and capture more share of the $11 billion segment of the industry. In quarters past, we referenced our commitment to delivering best-in-class patient experiences by piloting technologies like video assisted eye exams and retinal imaging. Our patients continue to provide great feedback about these services, so we rolled them out to several new stores throughout Q2 and we'll continue expanding them in Q3.

Scaling our eye exam business including exam utilization has had and will continue to have a direct impact on our glasses business. We find that exam stores drive higher sales than non-exam stores and industrywide approximately 75% of prescription glasses are purchased at the same location as an eye exam takes place. As we've increased the number of stores offering eye exams, we've seen strong growth in average revenue per customer driven by eye exam revenue, a higher penetration of progressive lenses and contact lenses. Similarly, as we've added doctors to stores that previously did not have coverage, we see a top line benefit as we not only capture the exam revenue, but also the glasses purchased post-exam.

When we launched Warby Parker, we committed to building a business that can scale while doing good, and delivering on these four growth strategies has enabled us to have an even greater impact. This quarter we finalized plans to expand our Pupils Project initiative to two new cities; Austin Texas; and Las Vegas Nevada. Through this school-based vision program, we work with local organizations and government agencies to give free vision screenings, eye exams and glasses to school children in the US. For many of whom this is their first pair.

Since we launched the program, we've distributed more than 240,000 pairs of glasses to students. We fulfill Pupils Project orders out of our optical lab in Las Vegas. So the team there is particularly excited to impact students in their own community. It's initiatives like these that continue to attract exceptional talent and motivate the team every day.

And now, I'll turn it over to Steve to review the details of our financial performance.

Steven Miller -- Senior Vice President, Chief Financial Officer

Thanks, Neil and Dave. Revenue for the second quarter came in at $188.2 million, up 13.3% year over year. From a channel perspective, retail revenue increased 17.8% year over year, while e-commerce revenue increased 4.4% versus Q2 of 2023. Turning to our stores, we added 39 net new stores over the course of the last 12 months, ending the quarter with 256 stores, up from 217 at the end of Q2 2023.

Looking at Q2 retail performance on a blended basis including both new stores and stores open greater than 12 months, retail productivity was 99% as compared to the same period last year. As a reminder we define retail productivity as the year-over-year change in retail sales per store for the average number of stores open in the period including our new store openings. As is the case in most quarters, we see this metric fluctuate throughout the quarter as it can be impacted by a number of factors including the timing and composition of store openings year over year, as well as the timing of doctor hiring for new stores. For stores that have been open greater than 12 months, we continue to observe strong year-over-year growth.

Our new stores continue to deliver strong unit economics, performing in line with our target of 35% four-wall margins and 20-month paybacks. For stores open more than 12 months, average revenue per store was $2.2 million, consistent with Q1 and performance was in line with our target 35% four-wall adjusted EBITDA margins. Over the course of the past year, we added 46 net new eye exam locations bringing our stores with eye exam capabilities to 215 stores or 84% of our total fleet. From a channel mix perspective for the second quarter, retail represented 69% of our overall business consistent with Q1 of this year and up 260 basis points versus 67% in Q2 2023.

From a customer perspective, we finished Q2 with 2.39 million active customers, which we believe is more reflective of active households and represents an increase of 4.5% on a trailing 12-month basis. We've been pleased to see sequential improvements in year over year active customer growth for the past four quarters as we've now fully anniversaried periods that were impacted by reduced marketing spend. Looking ahead, we anticipate seeing this metric continue to inflect upward throughout the year. We also continued to see strength in average revenue per customer, which came in at $302 in Q2, up 8.8% year over year.

This was driven by a few factors including a higher mix of our premium lenses such as progressives continued ramping of both contact lens and eye exam sales and continued uptake of our higher-priced frame price points. As previously noted, we have multi-user accounts in which one person in the household places an order on behalf of others. And if we look at our customers on an individual basis, we serve 2.52 million individuals, which is up 5.5% on a trailing 12-month basis and reflects average revenue per individual of $286, up 7.8%. Moving on to gross margin, as a reminder our gross margin is fully loaded and accounts for a range of costs, including frames, lenses, optical labs, customer shipping, optometrist salaries, store rents and the depreciation of store build-outs.

Our gross margin also includes stock-based compensation expense for our optometrists and optical lab employees. For comparability, I will be speaking to gross margin excluding stock-based compensation. Second quarter adjusted gross margin came in at 56.1%, compared to 54.7% in the year-ago period up approximately 140 basis points year over year. We're pleased to report that gross profit dollars increased 16% year-over-year in Q2, our second consecutive quarter reflecting the benefit of revenue growth paired with gross margin expansion.

The increase in gross margin was driven by continued growth in our glasses business, which is our highest gross margin product category, lower outbound customer shipping cost as a percent of revenue and efficiencies in our owned optical laboratories. As expected, we saw stability within the fixed portion of our cost of goods including retail occupancy, as we've continued to scale our store base partially offsetting gross margin leverage in Q2 were continued strength in contact lenses and eye exams which have lower gross margin profiles than eyeglasses. But over the medium and long-term are accretive to gross profit dollars which were up 16% year over year in Q2 as previously noted; and higher optometrist salaries as the number of stores offering eye exams grew.Expanding our contacts offering is a core part of scaling our holistic vision care offering and the key driver of growing average revenue per customer. In addition, contact lenses have a higher purchase frequency and subscription-like purchase cycle.

Shifting gears to SG&A. As a reminder, SG&A for our business includes three main components: salary expense for our headquarters, customer experience and retail employees; marketing spend including our Home Try-On program; and general corporate overhead expenses. Adjusted SG&A excludes non-cash costs, like stock-based compensation expense. Adjusted SG&A in the second quarter came in at $98.2 million or 52.2% of revenue.

This compares to Q2 2023 adjusted SG&A of $86.8 million or 52.2% of revenue. Within adjusted SG&A marketing spend increased from $18.2 million or 11% of revenue to $22.4 million or 11.9% of revenue. The deleverage from marketing was offset by disciplined expense management and leverage in corporate expenses as non-marketing adjusted SG&A declined as a percent of revenue from 41.2% to 40.3%. Turning now to adjusted EBITDA, in the second quarter we generated adjusted EBITDA of $19.6 million, representing an adjusted EBITDA margin of 10.4% which compares to adjusted EBITDA of $14.2 million or 8.5% of revenue in the year-ago period.

This represents approximately 190 basis points of adjusted EBITDA margin expansion. Turning now to our balance sheet, we were free cash flow positive for the fifth consecutive quarter, generating $14 million in Q2 and ended with a strong balance sheet position reflecting approximately $238 million in cash which we will continue to deploy deliberately to support our growth and operations. We also have an undrawn credit facility of $120 million that we can increase to $175 million. Now, to our outlook, Warby Parker operates in a durable category providing healthcare products and services and our team is encouraged by the momentum we're seeing year-to-date.

That being said, we are maintaining a conservative stance on guiding our business given the broader macroeconomic environment. Given our performance in Q2, we're revising our full year 2024 guidance higher to the following. Revenue of $757 million to $762 million, representing approximately 13% to 14% year-over-year growth; adjusted EBITDA of $72.5 million at the midpoint of our revenue range which equates to an adjusted EBITDA margin of 9.5% or approximately 170 basis points of year-over-year expansion; stability in gross margin in the mid-50s as a percent of revenue; and 40 new store openings. We anticipate adjusted EBITDA margin expansion over the remainder of the year will be driven by leverage within SG&A supported by ongoing efficiencies in staffing our store and customer experience teams and achieving continued leverage in corporate expenses, while keeping marketing spend consistent as a percent of revenue in the low-teens.

We're still forecasting stock-based compensation as a percentage of net revenue in 2024 to be approximately 6% compared with 10.5% in 2023. Stock-based compensation for both periods is above our long-term forecast as a result of the multi-year equity grants to our Co-CEOs in 2021. We're still forecasting stock-based compensation as a percentage of net revenue in 2024 to be approximately 6% compared with 10.5% in 2023. Stock-based compensation for both periods is above our long-term forecast as a result of the multi-year equity grants to our Co-CEO's in 2021.

We still anticipate stock-based compensation to normalize to a range of 2% to 4% of net revenue next year. For Q3 2024, we're guiding to the following: revenue between $188 million and $190 million, which represents growth of approximately 11% to 12% year over year. From a bottom-line perspective in Q3, we're guiding to adjusted EBITDA of approximately $17 million, representing a margin of approximately 9% at the midpoint of our range. Given our outperformance in Q2, we now expect Q3 adjusted EBITDA to be lower than Q2 consistent with the shape of last year, while we still expect to expand adjusted EBITDA margin by approximately 250 basis points year over year.Thank you again for joining us this morning.

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

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question is from Mark Altschwager from Baird. Please go ahead.

Mark Altschwager -- Analyst

Good morning. Thank you for taking my questions. I guess first Neil, Dave, it would be great to hear your views on the health of the broader industry where we are in the replenishment cycle? And then, Steve on the guide you're guiding to Q3 revenue that's slightly above Q2 but margins that are about 140 basis points lower than Q2. I was hoping you could just walk us through the puts and takes there? Thank you.

Dave Gilboa -- Co-Founder and Co-Chief Executive Officer

Thanks Mark. So, on the industry demand side, we've yet to see signs of pent-up demand in the category and haven't seen a major change in trend this year. Now, given that our business sits at the intersection of consumer products, fashion, and healthcare, we're subject to two largely independent macro forces the first being overall consumer discretionary spending and the second being essential eye health-related activities. And on the discretionary spending side, we're certainly not immune to the challenges that many companies are experiencing, but we do benefit from the fact that in spite of our low prices, we serve mainly high-income consumers with a median household income north of $100,000 who seem to be in better shape than lower income households.

And those customers continue to opt into some of our higher-priced items, resulting in higher average revenue per customer as we discussed. On the eye health side, we benefit from serving essential eye health-related conditions including when people's prescriptions change. Here we've yet to see a significant shift in patterns and have not seen meaningful differences in the category trends year-to-date. And so, overall, this results in us continuing to see more intentional traffic a smaller percentage of shoppers that are carrying bags from other stores nearby.

A higher percentage of our patients and customers are beginning their journey with an -- and with Warby Parker as their only kind of shopping visit. But we also do know that if some of that discretionary spending in our category is put off long enough it does turn into required health-related spend. So, at some point, we are expecting category demand to increase, but are not counting on that this year and believe we can hit our guidance targets without an improvement in category demand.

Steven Miller -- Senior Vice President, Chief Financial Officer

Hi Mark. This is Steve. Thanks for your question as it relates to Q3. So I'll unpack a little bit of what went into our projections for Q3.

As a reminder, we are comping top line off of our strongest growth last year where we were up a little north of 14% year over year. But turning to gross margin, we've seen two consecutive quarters of gross margin expansion. We're projecting that that moderates in Q3 and I would point you toward the midpoint of our mid-50s range as it relates to gross margin and would point to Q3 of last year as a good reference point. So we're not planning for the same level of expansion that we've seen to-date and would point you toward really the mid-50s in Q3 of last year as reference points.

As it relates to marketing, stepping down the income statement within SG&A, we're planning for marketing spend really consistent as a percent of revenue with what you saw in Q2 in the low-teens as a percent of revenue with really Q2 as a good reference point. And SG&A spend ex-marketing as a percent of revenue as we called out came in at roughly 40.3% and we're projecting a similar level of spend for SG&A ex-marketing. And so, that's how we unpack the quarter, consistent gross margin as opposed to an expansion and then real leverage coming from SG&A ex-marketing with consistent marketing spend as a percent of revenue.

Mark Altschwager -- Analyst

That's very helpful. Thank you.

Operator

Our next question is from Oliver Chen at TD Cowen. Please go ahead.

Oliver Chen -- Analyst

Hi, Neil, Dave and Steve. You've been bucking the trends as peers or others in the industry have been seeing weakness and ending Q2 in some weaker commentary. I would love your thoughts on that. It sounds like a lot of innovation is taking hold.

Also, as you mentioned, contacts and exams and the big opportunities going forward there, what are you doing to drive that awareness factor and initiatives to distinguish yourself and drive differentiation? Also, the optical lab efficiencies have been encouraging. Do you expect those to continue? What inning are you in with making some nice benefits there as well? Thank you.

Neil Blumenthal -- Co-Founder and Co-Chief Executive Officer

Thanks Oliver. This is Neil. What we're continuing to see is payoffs from our increased investment in marketing. So we've gone back to sort of our pre-pandemic strategy of diversifying across multiple channels.

We have a lot of creative output out in the market and that's paying off to attract new customers and of course engage existing customers as well. And this is all on the backdrop of a much larger sort of network of stores that -- many of which have been sort of built and opened in the last couple of years that continue to ramp. So we're sort of taking advantage of increased awareness and of course just increased access through our larger footprint. We continue to invest in innovation as we mentioned.

We're really excited about this latest feature our glasses eraser that makes our Virtual Try-On, which was already sort of best-in-class and sort of the first to have a true-to-scale Virtual Try-On now enables people to use that tool while wearing their existing glasses because we know many of our customers can't see without their existing glasses. So it's tools like this that constantly enhance the customer experience that make our returning customers want to come back to us. And our customers tell their friends and family about us. From a contracts perspective, we continue to see good productivity there.

These are some of our highest-value customers and we have existing customers that have been shopping with us for a while that then learn that we offer contacts and start buying from us and then new to Warby Parker contacts that then end up going to buy glasses. And I think what we find is that our customers are just finding it really easy to purchase with us and are continually surprised by the exceptional value and that creates this customer acquisition flywheel given the added investment with marketing. From an optical lab perspective, we continue to scale our two optical labs. As in the past we find when we do things ourselves, we do it faster at higher quality and at lower cost.

So it's been great to see leverage from our sort of investments in those two optical labs.

Oliver Chen -- Analyst

Great. Thank you.

Operator

Our next question comes from Janine Stichter from BTIG. Janine, please go ahead.

Janine Stichter -- Analyst

Hi, good morning. A question for Steve on the gross margin. So I understand you're kind of positioning them right – for the back half of the year right in the middle of that mid-50s guidance. But can you help us think about the range of outcomes if we continue to see single-vision glasses outperform and then maybe some of the other drivers? What could the upside case look like both for the back half of the year? And then, how are you thinking longer term about where gross margins could settle if we continue to see that growth in single-vision glasses? Thank you.

Steven Miller -- Senior Vice President, Chief Financial Officer

Yes sure. There are a number of puts and takes within gross margin. And the easiest way to think about the main factors impacting margin would just be product mix. We've seen a lot of strength in glasses growth Q1 and Q2 and that certainly helped gross margin inflect upward.

In Q2 we saw meaningful efficiencies in our optical lab network which we just talked about and very strong efficiencies with shipping and mix of shipping carriers that we chose to work with during the quarter. As we think about the back half of this year we are seeing continued strength in eye exams and contacts. And so, we're creating the space to continue to see those two offerings ramp significantly in the back half of this year. And we are taking a conservative stance as it relates to projecting glasses growth.

So there could be some upside to gross margin as it relates to glasses growth coming in higher than anticipated. For the full year, we are still projecting really the mid-50s, the midpoint of that range. And based on the relative mix of the business in terms of glasses, contacts and exams that really represents where we've embedded potential upside.

Janine Stichter -- Analyst

Perfect. Thanks for all the color. Best of luck.

Operator

Our next question is from Dylan Carden at William Blair. Please go ahead.

Dylan Carden -- Analyst

Thanks a lot. Curious now that you've added all these doctors how that's sort of showing up in the model. And I don't know if the way to do that is to think about kind of the industry rule of thumb that 80% of glasses happen with an exam. Maybe how that relates to your business and if there's some lag effect as those doctors ramp? And kind of a related question any update on where the penetration rates are from sort of the major categories progressives, exams, contacts versus where you were kind of at the direct listing? Thanks.

Dave Gilboa -- Co-Founder and Co-Chief Executive Officer

So on the eye care front we continue to hire more and more optometrists and continue to be a preferred place of employment for our eye doctors, given the location of our stores, given the design of the stores, given the new and cutting-edge equipment and technology that we use especially those that enable our doctors to focus on clinical care rather than administrative tasks. And we are at the early innings of our sort of journey into eye care. We still find that many of our customers and general public don't realize that we offer eye exams, so it's something that we continue to focus on. It's just raising awareness about this offering.

We still – only a small fraction of our customers are purchasing Warby Parker glasses and contacts with a prescription that we've given them after an eye exam. We expect that to ramp but this is a multi-year and really a mid and long-range strategy for us to eventually get to the 15% of revenue that most optical retailers get through exam revenue. And we still see in the market yes, that 75% to 80% of customers are buying glasses where they got their eye exam. And again, we're just a fraction of that.

So we see this as early innings and this will be a continued tailwind for us for the next decade as we continue to raise awareness about our exam offering as we continue to expand our sort of, exam availability in stores. So it's something that we're really excited about. Every new store we open has at least one exam lane and we continue to make investments in that business expanding video-assisted eye exams, for example, that will enable us to continue to scale in the years ahead.

Neil Blumenthal -- Co-Founder and Co-Chief Executive Officer

And to your question about opportunity to expand contacts and exams and where we are in that journey so as we talked about contacts make up roughly 10% of our business. For a more mature optical retailer with a large network of stores that number is closer to 20%. In terms of eye exam, that makes up roughly 5% of our business. We've talked about that number being 15% for national optical retailers.

In terms of our market share of these particular categories within the optical industry very early innings. We've got about 0.5% of the $12 billion contacts market and under 0.5% of the roughly $11 billion eye exam market. Not to mention prescription glasses which is our largest category and our most profitable category that still represents just 12 -- just 2% market share if you look at our glasses business versus that of the prescription glasses market at large.

Dylan Carden -- Analyst

Thank you. Curious if I could squeeze one with kind of that -- I know that you have to grow some awareness of these newer offerings in the, sort of, more medium-term. But any thoughts as to kind of the marketing leverage when you might start being able to kind of utilize the retail channel to take down some of your marketing spend from a timing standpoint?

Dave Gilboa -- Co-Founder and Co-Chief Executive Officer

We don't anticipate sort of lowering marketing from where it is today. If anything we might invest more in the coming months and years. We think that we can continue to expand EBITDA, while maintaining or even investing more in marketing as we gain increased leverage over other corporate expenses and other SG&A.

Dylan Carden -- Analyst

OK. Thank you very much.

Operator

Our next question is from Brooke Roach at Goldman Sachs. Please go ahead.

Brooke Roach -- Goldman Sachs -- Analyst

Good morning and thank you for taking our questions. I was hoping to get your thoughts on the sustainability of the strong revenue per customer trends that you've been seeing in recent quarters. Are you seeing any signs of price sensitivity in the customer or any changes to basket size or AUR as you've moved into the back half of this year?

Dave Gilboa -- Co-Founder and Co-Chief Executive Officer

Thanks, Brooke. We continue to see very encouraging trends in terms of the average revenue per customer that we're seeing. And it's coming from a combination of factors including; increased adoption of some of our newer products like precision progressives that come in at a higher price point; a higher percentage of our customers who are not only buying glasses from us but are starting their journey with an exam and as patients have a very high attach rate to buy other products from us; an increasing percentage of our customers who are buying glasses and contacts and often buying annual supply of contacts which tend to be kind of high dollar purchases. And so, we see a lot of runway ahead as a higher percentage of our customers move from being glasses-only to purchasing multiple products and services from us.

And in general, as we've introduced some higher price point items, whether those are new frame collections or different lens offerings. We price them at significant value relative to where people can buy comparable products, the price points that people can buy comparable products elsewhere and our customers tend to appreciate that value. And so, we haven't seen any price resistance as we've introduced products at a multitude of price points.

Brooke Roach -- Goldman Sachs -- Analyst

That's very helpful. As a follow-up, can you elaborate on the current maturation trends that you're seeing within your store fleet today? How are sales in each cohort maturing relative to your prior expectations? What four-wall EBITDA trends are you seeing by cohort today? And what are the biggest levers of profitability improvement from here?

Neil Blumenthal -- Co-Founder and Co-Chief Executive Officer

The biggest -- this is Neil, Brooke. The biggest opportunity for continued sort of expansion of profitability is really leverage over SG&A in our corporate expenses. Our stores continue to be very profitable. We continue to see payback periods at our targets of 20 months.

We continue to see four-wall margin at our target at 35%. We're finding new stores maturing at similar rates of previous cohorts. So we're finding consistent performance from our retail replication strategy. And so, that's why you'll continue to see us open -- we're on track to open 40 stores this year, and we'll continue to do that in the years ahead.

Steven Miller -- Senior Vice President, Chief Financial Officer

And then, just adding a little bit more color as it relates to the store-specific P&L, as we've talked about from a product mix perspective, our stores SKU more progressive than online. Progressive glasses are our highest priced and highest gross margin products. And so, as we think of the leverage within the store P&L we'd really point to gross margin, driven by progressives. The second is really the biggest controllable expense within the store, which is labor management.

And every single quarter, every single year, we develop more sophisticated tools and labor management models just to make sure that we're optimizing staffing within the stores. Lastly, I'll talk a little bit about eye exams. As we mentioned earlier on the call, about 75% to 80% of all prescription glasses are bought at the same time and at the same store where there was an eye doctor. We have seen that stores that have eye doctors are moderately higher from a top line perspective, but also amplify our ability to sell more complex lenses, if there's a doctor in the store who can talk to the customer about those lenses, and that includes photochromic lenses, blue light lenses, anti-fatigue lenses, all of which are accretive to margins.

Brooke Roach -- Goldman Sachs -- Analyst

Thanks so much. I'll pass it on.

Operator

Our next question is from Alex Straton at Morgan Stanley. Please go ahead.

Megan Alexander -- Analyst

[Inaudible]

Operator

Unfortunately, we can't hear your line. Could you please try speaking a bit closer to the microphone?

Megan Alexander -- Analyst

Sorry, about that. So there's been a lot of talk in the market now around consumer health. I wonder, outside of the broader industry trends, could you provide any color on how you're thinking about the health of the consumer? And then, also, can you provide any color on how sales have trended throughout the quarter?

Dave Gilboa -- Co-Founder and Co-Chief Executive Officer

Sure. We've been living through the last few years of choppiness and sort of fear, that the consumer environment is going to worsen. It's been frankly a roller coaster for every operator, the last few years. And it's unfortunately, become the norm and it's just been the environment that we're now accustomed to and realize that we have to continue to manage through.

So the way that we manage through is, continuing to provide exceptional value, so that we have more customers coming to us from competitors in the space where they can get the same, if not better quality for a fraction of the price. How do we bring those offerings closer to them to make it more convenient? By opening up more stores, by ensuring that our website and our apps are sort of best-in-class and available and by increasing our marketing, to raise awareness that we're the place to go to save money and to have a delightful customer experience. So, as we sort of look to the future, we're going to continue to do what we do which is deliver great value, create great customer experiences and market to folks, so that way we can grow in these sort of more dynamic and potentially sort of challenging environment.

Megan Alexander -- Analyst

Great. Thank you.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Jaclyn Berkley -- Head of Investor Relations

Dave Gilboa -- Co-Founder and Co-Chief Executive Officer

Neil Blumenthal -- Co-Founder and Co-Chief Executive Officer

Steven Miller -- Senior Vice President, Chief Financial Officer

Mark Altschwager -- Analyst

Steve Miller -- Senior Vice President, Chief Financial Officer

Oliver Chen -- Analyst

Janine Stichter -- Analyst

Dylan Carden -- Analyst

Brooke Roach -- Goldman Sachs -- Analyst

Megan Alexander -- Analyst

Alex Straton -- Analyst

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