AI Eyewear And Retail Expansion Will Transform Long Term Earnings Power

Catalysts

About Warby Parker

Warby Parker designs, manufactures, and sells eyeglasses, contacts, and eye exams through a vertically integrated omnichannel model.

What are the underlying business or industry changes driving this perspective?

• Scaling intelligent eyewear in partnership with Google and Samsung positions Warby Parker at the center of the next computing interface, opening a high price point and recurring upgrade cycle that could materially accelerate revenue growth and drive operating leverage as AI glasses scale.
• Ongoing densification of the retail footprint, including Target shop in shops and suburban expansion, deepens local brand awareness and drives higher store productivity, supporting sustained double digit top line growth and stronger four wall margins.
• Rapid expansion of in store eye exams and retinal imaging increases control over the full vision care journey, boosting traffic, attachment of glasses and contacts, and mix toward high margin clinical services, which should lift average revenue per customer and net margins over time.
• Growing penetration of progressives and premium lens add ons among older, higher income customers taps into a structurally growing aging population, raising mix toward higher ticket transactions and supporting durable gross margin expansion and earnings growth.
• Broader adoption of AI across design, marketing, customer experience, and operations reduces content and labor costs while improving conversion, enabling sustained SG&A leverage that can compound EBITDA margin expansion even in mid teens revenue growth scenarios.

Assumptions

This narrative explores a more optimistic perspective on Warby Parker compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Warby Parker's revenue will grow by 19.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 0.1% today to 11.3% in 3 years time.
• The bullish analysts expect earnings to reach $165.0 million (and earnings per share of $1.29) by about December 2028, up from $717.0 thousand today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $62.7 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 31.3x on those 2028 earnings, down from 4540.7x today. This future PE is greater than the current PE for the US Specialty Retail industry at 20.6x.
• The bullish analysts expect the number of shares outstanding to grow by 1.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.56%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent macro pressure on younger and lower income consumers, already causing trade down to $95 frames, smaller baskets and fewer annual contact lens supplies, could structurally cap pricing power and average order values over time, limiting revenue growth and constraining net margin expansion.
• The long term shift in channel mix toward retail stores, including rapid suburban densification and Target shop in shops, increases fixed rent and labor costs. Any slowdown in store productivity or active customer growth would erode four wall margins and depress overall EBITDA margins.
• AI glasses and broader AI initiatives may take longer and cost more to commercialize than anticipated. If customer adoption or partner execution with Google and Samsung disappoints, elevated R and D and systems investments could weigh on operating leverage and delay earnings growth.
• Growing reliance on third party contact lens brands after sunsetting Scout, combined with tariff exposure and customer mix shifts toward lower priced frames, could compress fully loaded gross margins if selective price increases and cost mitigation actions stop offsetting these headwinds.
• Expansion of eye exams and retinal imaging requires continued success in recruiting and retaining optometrists. If labor markets tighten or clinical utilization falls short, underused exam suites and higher doctor compensation would dilute profitability and limit net margin improvement.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Warby Parker is $32.0, which represents up to two standard deviations above the consensus price target of $25.0. This valuation is based on what can be assumed as the expectations of Warby Parker's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $32.0, and the most bearish reporting a price target of just $18.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $165.0 million, and it would be trading on a PE ratio of 31.3x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $26.65, the analyst price target of $32.0 is 16.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.