On Friday, Piper Sandler adjusted its outlook on Warby Parker Inc. (NYSE:NYSE:WRBY) shares, increasing the price target to $22 from the previous $18, while maintaining an Overweight rating on the stock. The firm noted Warby Parker's third-quarter performance, highlighting an acceleration in e-commerce and customer traffic as the quarter advanced.
The company is also experiencing a surge in momentum going into the fourth quarter, marked by an uptick in active customers, e-commerce sales, and in-store transactions.
Despite the stock's underperformance on Friday, which was attributed to a weaker gross margin that fell short of consensus estimates by 60 basis points, Piper Sandler remains optimistic. The miss on gross margin came after a period in the first half of the year where the company exceeded expectations by an average of 160 basis points.
Warby Parker capitalized on a robust pipeline of candidates by hiring more optometrists than initially planned, a strategic move in a tight supply market.
The firm's Overweight rating is partly based on Warby Parker's expansion into eye exams and insurance, a significant element of the company's broader market appeal. Currently, 85% of Warby Parker's store base includes optometrists. Piper Sandler views this expansion as a prudent investment, even though it introduces some variability into an important gross margin key performance indicator.
Piper Sandler has also raised its estimates and price target based on a multiple of 20 times the 2026 expected enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), an increase from the previous 18.5 times 2025 estimate. This adjustment reflects confidence in Warby Parker's accelerating revenue growth.
Moreover, the firm pointed out that Warby Parker's sourcing from China is decreasing and now represents approximately 20% of the cost of goods sold. Given the company's competitive pricing, with glasses starting at $95, demand is perceived to be largely inelastic, suggesting that consumers will continue to purchase despite price variations.
In other recent news, Warby Parker Inc. has reported a top-line beat in its third-quarter revenue, posting a figure of $192.4 million, surpassing the anticipated $190.2 million and marking a 13.3% increase year-over-year.
Despite this, the eyewear retailer reported an adjusted loss per share of $0.03, not meeting the expected $0.05 profit. The company's active customer base grew 5.6% year-over-year to 2.43 million, with an average revenue per customer increase of 7.5% to $305.
Warby Parker has also upgraded its full-year revenue guidance for 2024 to a range of $765 million to $768 million, a boost from its previous forecast and higher than the consensus estimate of $761.6 million. The company expects an adjusted EBITDA margin of 9.5% at the midpoint of its revenue range.
Moreover, Warby Parker expanded its physical presence by opening 13 new stores in the last quarter, bringing the total to 269 locations. These developments point to a focus on capturing market share and accelerating growth, as indicated by Co-Founder and Co-CEO Dave Gilboa and Chief Financial Officer Steve Miller.
InvestingPro Insights
Recent data from InvestingPro adds depth to Piper Sandler's optimistic outlook on Warby Parker. The company's stock has shown remarkable performance, with a 77.64% price total return over the past year and a significant 55.23% return in the last six months. This aligns with Piper Sandler's increased price target and reflects growing investor confidence.
InvestingPro Tips highlight that Warby Parker holds more cash than debt on its balance sheet, indicating a strong financial position. This solid foundation could support the company's expansion plans into eye exams and insurance, as noted by Piper Sandler. Additionally, analysts predict that the company will be profitable this year, which could further boost investor sentiment.
However, it's worth noting that Warby Parker is currently trading near its 52-week high and at a high EBITDA valuation multiple. This suggests that investors should carefully consider the stock's current valuation in light of its growth prospects.
For readers interested in a more comprehensive analysis, InvestingPro offers 14 additional tips for Warby Parker, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.