Ladies and gentlemen, thank you for holding, and thank you for joining us. Welcome to Warby Parker Inc. First 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 and star 6 to withdraw. I will now hand the conference over to Jaclyn Berkley, Head of Investor Relations. Please go ahead.
Thank you, good morning, everyone. Here with me today are Neil Blumenthal and Dave Gilboa, our Co-Founders and Co-CEOs, alongside Steve Miller, 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 May 7th, 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. With that, I'll pass it over to Neil to kick us off.
Thank you, Jaclyn, good morning, everyone. In the first quarter, we delivered top and bottom-line results that exceeded our guidance. Revenue reached $242 million, representing 8.3% year-over-year growth, and adjusted EBITDA was $30 million, reflecting a 12.2% margin. We achieved these results in a dynamic operating environment. As we shared on our last call, the quarter was impacted by periods of extreme winter weather, store closures, and continued softness in category traffic and unit demand. Against this backdrop, our performance underscores that customers continue to choose Warby Parker for our compelling value proposition, exceptional products, and differentiated shopping experiences, a combination that positions us well to continue to drive sustained market share gains over time. As we outlined in February, we have three strategic priorities for 2026.
First, we are focused on scaling our industry-leading omni-channel model while consistently delivering remarkable customer experiences. Second, we are preparing for the launch of our AI glasses. Third, we are continuing to invest in brand awareness and customer acquisition, including advancing our efforts to capture vision insurance spend. We are encouraged by the progress we are making across all three of these priorities, as well as the momentum we are seeing quarter to date. We are driving strong performance in several key areas, including eye exams, online glasses after sunsetting our Home Try-On program, average revenue per customer, and insurance penetration. Before looking ahead, I want to express my gratitude to our team. Their unwavering commitment to delivering exceptional patient and customer experiences is the foundation of everything we do.
Whether they are welcoming customers with a smile after digging out from a snowstorm or embracing new technology that our team has developed, their dedication and agility make Warby Parker unique. That same combination is exactly what positions us to redefine the eyewear category when we introduce intelligent eyewear. 16 years ago, Warby Parker reimagined how consumers shop for glasses. Today, we are developing products that will fundamentally transform the role glasses play in our lives. Working closely with our partners, Google and Samsung, we expect to launch our first line of intelligent eyewear later this year. We're designing a product and shopping experience that feels distinctly Warby Parker, one that is seamless, fun, easy, and always centered on our customers. We believe they will be the world's first truly intelligent AI glasses designed for all day and every day wear.
AI glasses will redefine personal computing, moving technology off the screen and seamlessly into our daily field of vision. Instead of reaching for a device, wearers will stay present in the moment while the technology works alongside them, providing contextual real-time assistance. Dave and I are actually wearing our prototypes right now. As part of our rigorous testing program, these glasses have already become essential to our daily routines. We're reviewing our schedules and adding meetings to our calendars, checking cross-city travel times, and working through complex math problems right off the whiteboard. I even had them help me review my son's Spanish homework. The best part is that they integrate seamlessly with the apps we and billions of other people already use every day. Building a category and a product customers will incorporate into their everyday lives requires a high degree of precision across every detail.
We've contemplated every millimeter and curvature of the product itself while evolving our supply chain to incorporate our most complex lens fulfillment process yet. We're progressing this work with intensity and focus. Our ambition is to help define this category in a way that creates value on day one for our customers, our partners, and our investors. We look forward to sharing more updates closer to launch. Turning to the balance of the year, we're pleased with trends quarter to date while continuing to take a disciplined and prudent approach to our outlook. Consistent with the framework we outlined previously, we are reaffirming our full year 2026 guidance. We're encouraged by what we're seeing in the business today, and we have a number of initiatives underway that we expect will build as the year progresses.
This outlook does not include any revenue contribution from AI glasses, but it does reflect the known operating expenses and investments required ahead of launch. Dave Gilboa and I will walk through the drivers of our Q1 performance before Steve Miller provides more color on our financial results and guidance. I'll start with our first strategic priority, scaling our industry-leading omni-channel model and delivering exceptional customer experiences. We focus on 3 initiatives in this area in Q1. First, we expanded our retail footprint. We opened 14 net new stores in the quarter compared to 11 in the prior year period and remain on track to open 50 stores in 2026. These openings included entry into 1 new market, Baton Rouge, Louisiana, as well as continued expansion in 9 existing markets.
Consistent with our strategy, the majority of these openings were in suburban locations as we continue to broaden access to our brand. Importantly, this expanded footprint also positions us well for the future introduction of intelligent eyewear, allowing us to bring the product to customers at scale through a retail experience that supports discovery, education, and service. We drove growth within our existing fleet, particularly through eye care and higher value products. Exams were a bright spot in the first quarter, growing 30% year-over-year, with demand rebounding as weather normalized, highlighting both the needs-based nature of this category and the progress we're making in scaling this part of our business. We are still in the early innings of this opportunity.
During the quarter, we expanded exam services to nearly 90% of stores, rolled out retinal imaging across all active exam lanes, and introduced new tools that reduce the administrative burden for our optometrists and allow them to focus more fully on clinical care for our patients. On the product side, we saw strong customer response to our new collections, including our Sport collection, which launched in late April. This has been one of the most requested categories from our customers and represents our first entry into this growing segment of the eyewear market. We designed this collection to seamlessly bridge everyday style with sport-specific functionality, aiming to reach customers looking for products that can keep up with their multidimensional lifestyles. This is our most advanced performance offering and is built in partnership with leading Italian manufacturers that specialize in flexible, lightweight nylon production.
It includes performance polarized lenses and wrap prescription capabilities, which we believe is a key area of differentiation. We also focused on delivering value by offering an accessible price point for prescription glasses, with prices for our Sport glasses starting at $195 for non-prescription and $295 for prescription, compared to competitive products that can exceed $800. During the quarter, we also introduced several new core collections, including Spring 2026 and New Deco 2.0. These assortments lean into current trends such as 90s-inspired oval silhouettes, which are resonating well with younger customers and are helping to drive engagement with that audience. Our $95 frames continue to outperform expectations, reinforcing our ability to deliver exceptional value while also driving mix towards higher value products like progressives, lens enhancements, and other add-ons.
We continue to invest in e-commerce through an increasingly personalized online experience. E-commerce revenue was down 4%, in line with our expectations as we lapped a period that includes our Home Try-On program, which was sunsetted at the end of last year. We expect this headwind to diminish as the year progresses, and excluding Home Try-On, underlying demand in the channel was healthy. We are driving engagement and conversion by introducing AI-powered tools like Photo Booth, a feature that leverages our virtual try-on technology to allow customers to see themselves as the model directly on product pages. We also unveiled a new personalized recommendations engine to further enhance discovery and relevance. The year-over-year online growth in non-Home Try-On glasses, driven in part by these features, reinforce our confidence in the underlying trends of the channel and the bets we have placed for the future.
As we discussed on our last call, contact lens demand moderated late last year. In response, we've taken a more deliberate and disciplined approach to contacts customer acquisition, reallocating marketing spend toward the growth of glasses, an area where we can continue to showcase the strength of our brand and grow more profitably. In the quarter, contacts revenue grew mid-single digits, with penetration consistent at around 10% of revenue. This year, we are focused on building deeper customer relationships across our holistic vision care offering, with exams and glasses serving as the key entry points. Our store footprint and doctor network remain a durable competitive advantage and a sustainable engine for long-term growth, and we have seen strong year-over-year growth in contact lens orders that follow an exam.
Ultimately, customers who engage across glasses, contacts, and exams generate the highest lifetime value, reinforcing our strategy of serving more of their vision care needs over time. I'll now turn it over to Dave to walk through the remaining two strategic priorities.
Thanks, Neil. Our second strategic priority in 2026 is organizational readiness for our intelligent eyewear launch later this year. This is a massive cross-functional effort. We are building the capabilities and infrastructure required to support both the initial launch and the long-term scaling of this category. We are making targeted investments across our omni-channel shopping experience to support how customers discover and engage with AI glasses. This includes enhancements in our stores, such as dedicated display bays and improved acoustics, alongside a tailored digital experience that enables customers to explore and interact with the product online. At the same time, we are expanding capacity at our optical labs and upgrading business systems to ensure we can scale this complex fulfillment process seamlessly.
Marrying the standardized processes of consumer electronics with the precision and customization of prescription lenses isn't trivial, and we're investing to build the systems and infrastructure to do this reliably at high volumes. We are also investing in our brand and go-to-market strategy. We're treating the launch of our AI glasses as a milestone moment to redefine our category, just as we did 16 years ago when we first introduced Warby Parker to the world. You can expect to see that same inventive spirit and creative ambition, just at a larger scale. These investments are designed to not only support our expansion into the intelligent eyewear category, but also establish a solid foundation for growth as we continue to scale our core business. Our third strategic priority is driving brand awareness and customer acquisition, including capturing vision insurance spend.
We ended the quarter with 2.7 million active customers, up 4.8% on a trailing 12-month basis, and average revenue per customer up 6.9% year-over-year, driven by a favorable mix of progressives, lens add-ons, and higher insurance utilization. We continue to see healthy long-term customer and spend trends, our priority is driving further acceleration in active customer growth, which I'll touch on in a moment. Looking back, Q1 was impacted by a few factors, including weather, tough comparisons against strong prior periods, broader industry softness, and flat year-over-year marketing spend. We stayed disciplined on marketing spend as demand fluctuated throughout the quarter. Trends have improved, we are leaning back in with confidence in our ability to deploy that spend efficiently. This includes increased top-of-funnel investment to build awareness.
Our recent campaigns, including those featuring Arch Manning, have driven meaningful gains and aided brand awareness. We continue to see a significant opportunity to reach new customers and further educate existing ones, many of whom still think of us as an online-only glasses company. We complemented these broader efforts with more localized activations. In the first quarter, this included community and influencer events in New York with partners such as Happy Medium and Fashion Fiction during New York Fashion Week, helping us engage customers in a more targeted way. As we look to the future, we have several initiatives underway to accelerate customer growth this year. First, we're reallocating marketing spend toward higher return categories, including shifting investment from contacts to glasses. At the same time, we're expanding efforts across additional channels such as YouTube, Reddit, and TikTok to broaden our reach and drive higher customer engagement.
We also see opportunities to expand our efforts across existing digital channels and direct mail. Second, we're building on the momentum we achieved in Q1 by further integrating insurance into the customer experience. We're increasing insurance-focused messaging in our marketing and are equipping our store teams with ways to better educate customers on how to use both in-network and out-of-network benefits at Warby Parker. In Q1, we delivered strong growth from in-network insurance, which reached approximately 10% penetration, up from approximately 8% the prior year. We also saw increased adoption of our automatic out-of-network submission tool, which we rolled out to all stores in early March. This is improving the customer experience by making submissions more seamless at the point of sale and facilitating reimbursements. Since we've rolled this out, we've seen strong early adoption and found that customers using this feature spend more than customers who don't.
Our insurance strategy complements our broader marketing efforts and serves as an additional customer acquisition lever. Our pricing philosophy has always been to offer fair, transparent pricing, whether a customer pays out of pocket or uses insurance. While customers at traditional optical retailers often still pay more than $200 out of pocket, even when using in-network benefits, at Warby Parker, they can purchase a complete pair of prescription glasses starting at $95. We've always focused on delivering compelling value regardless of how a customer chooses to pay. At the same time, we recognize that many customers have vision insurance benefits, and we're making it easier for them to apply those benefits when shopping with us.
Insured customers remain among our most valuable, spending more on their initial purchase, selecting progressive lenses at higher rates, and returning more frequently over time. We're driving newness across the business to attract new customers and reengage existing ones. This includes recent collection launches like sport, as well as preparing for the AI glasses launch later this year. Across marketing, insurance, and new product innovation, we expect these initiatives to build momentum as we progress through this year. Before handing it to Steve Miller, I want to highlight our recently released 2025 impact report. Since our founding, we have believed that a business can scale while creating meaningful impact, this report demonstrates how we're delivering on that commitment.
In 2025, we surpassed 25 million pairs of glasses distributed through our Buy a Pair, Give a Pair program, expanded Pupils Project to reach more students, and continued to grow the Warby Parker Impact Foundation. What matters most is what those numbers represent. Millions of people with improved access to eye care and a model that continues to demonstrate the power of aligning purpose with performance. As we grow, our ability to deepen that impact grows alongside it. This commitment to mission continues to resonate deeply with our team, strengthening engagement, helping us attract exceptional talent, and reinforcing the kind of company we're building for the long term. Thank you, Team Warby, for living our values every day. Now I'll hand it over to Steve Miller to cover our financial results and guidance.
Thanks, Dave. Good morning, everyone. After a full quarter on the job now, I continue to be incredibly impressed with Warby Parker's brand leadership, relentless focus on the customer shopping experience, and its healthy pipeline of product, service, and customer experience innovations. I'm even more excited about the long-term and sustainable growth trajectory for this business. Today, I'll review our first quarter results in more detail and our guidance for the second quarter as we reaffirm our full-year guidance for 2026. Let's start with the first quarter. We are pleased to have delivered top and bottom line results that exceeded our guidance in the first quarter. First quarter revenue was $242.4 million, up 8.3% to last year, despite early quarter disruption from extreme winter weather and temporary store closures.
Retail revenue increased 13.6% year-over-year. E-commerce revenue was $63.6 million, down 4.1% year-over-year due to lapping, a period that included Home Try-On. We continue to expect full-year e-commerce growth to be in the low single-digit range as the headwind from Home Try-On diminishes throughout the year and underlying trends in the channel remain healthy. Turning to gross margin. In the first quarter, adjusted gross margin was 54.2%, 220 basis points below last year. As expected, the decrease in adjusted gross margin was primarily driven by deleverage in the fixed expenses portion of gross margin, which includes doctor headcount and occupancy, as well as the impact of tariff costs related to glasses and increased optical lab and shipping costs.
This deleverage also reflects the number of store openings in the quarter and continued investment in exam capacity, which drove 30% year-over-year growth in exams. These investments position us for future growth and support the rollout of AI glasses across our retail footprint. These impacts were only partially offset by selective price increases taken earlier last year in glasses and increased penetration of higher margin progressive lenses and other lens enhancements. Looking ahead, we expect gross margin tailwinds from more favorable tariff dynamics year-over-year. We've already seen early results from recent actions. For example, we're driving customers towards higher margin products and made changes to our Add a Pair and Save offer that are delivering higher average order values. Shifting to SG&A. As a reminder, adjusted SG&A excludes non-cash costs like stock-based compensation expenses.
First quarter adjusted SG&A expenses were $117.1 million or 48.3% of revenue, 100 basis points lower than last year. This reflects disciplined spend during the quarter as we navigated weather-related disruption and broader demand volatility. The leverage was primarily driven by the sunset of our Home Try-On program, which drove a year-over-year decline in marketing of 90 basis points to 11.6% of revenue. Adjusted non-marketing SG&A was 36.7% of revenue, 10 basis points below last year, as we saw leverage from corporate expenses and our customer experience team partially offset by increased retail compensation as a percent of revenue.
For the remainder of the year, we expect marketing spend to increase as a % of revenue, but still within our low teens range as we lean into customer acquisition pilots and investments while continuing to drive efficiency in non-marketing SG&A. Importantly, our model continues to demonstrate strong flow through from revenue to adjusted EBITDA, which gives us the confidence to lean into growth investments while maintaining our profitability targets. 1st quarter adjusted EBITDA was $29.6 million, which was above our guidance. As a % of total revenue, it was 12.2%, 90 basis points below last year. Now, shifting to capital allocation. We ended the 1st quarter in a strong cash position of $288 million, up $23 million from the 1st quarter of 2025.
We generated approximately $8 million in free cash flow in the first quarter. We continue to prioritize reinvestment in the business while maintaining flexibility through our $100 million share repurchase authorization. As a reminder, we have a $120 million credit facility expandable to $175 million, which remains undrawn other than $4 million outstanding for letters of credit, providing us with additional liquidity and flexibility. Our partnership with Google also reflects a shared commitment to building the intelligent eyewear category, including a $75 million reimbursement that supports our ability to invest behind AI glasses as we scale the platform together. Now let's turn to our outlook for 2026. We are pleased with trends quarter to date, yet remain disciplined and prudent relative to our outlook for the balance of this fiscal year.
After 1 quarter of results, we are reaffirming our guidance for 2026, which does not include any revenue from AI glasses, but includes the known expenses we expect to incur before and after launch. For the full year 2026, we are reaffirming our prior guidance, which is revenue of $959 million-$976 million, representing approximately 10%-12% year-over-year growth. Adjusted EBITDA of $117 million-$119 million, which equates to an adjusted EBITDA margin of 12.2% across our revenue range and 130 basis points of expansion year-over-year. Turning to the second quarter, we're guiding to revenue of $235 million-$238 million or growth of approximately 10%-11% year-over-year.
Adjusted EBITDA of $27 million-$29 million and an approximately 12% adjusted EBITDA margin at the midpoint of our range. This outlook takes into account a recovery from weather-related impacts in the first quarter and a continuation of current trends in the business while maintaining a prudent stance. It also reflects investment in certain growth initiatives that we expect will build momentum and drive greater growth and profit contribution in the second half of the year. We've made solid progress so far this year and are continuing to take share, reflecting the strength of our brand and the value we offer our customers. Looking ahead, we're focused on executing against a clear set of priorities for the rest of the year. With that, I'll now pass it back to Neil for closing comments.
Thank you, Steve Miller. To wrap up, we're encouraged by the strength we're seeing across the business and the progress we're making against our strategic priorities. We look forward to sharing more about our AI glasses closer to launch. Above all, Dave and I want to thank the incredible Warby Parker team for their continued dedication and outstanding contributions to our mission. With that, operator, please open the line for Q&A.
Thank you. We will now begin the question and answer session. To allow for everyone an opportunity, please limit yourself to one question. To raise your hand, please press star followed by one on your telephone keypad. To withdraw your question, press star one again. A kind reminder to pick up your handset when asking your question. 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 from the line of Mark Altschwager with Baird. Your line is open. Please go ahead.
Good morning. Thank you for taking my question. To start out, I was hoping you could help us unpack the drivers to the revenue acceleration that's embedded in the annual guide. You mentioned a few initiatives that will build through the year, but you're also lapping last year's price increases. Just want to understand those puts and takes a bit better. Second or separately, you indicated you're pleased with the start of the quarter. Can you clarify if April is tracking ahead of that +10%-11% Q2 guide?
Thanks, Mark. This is Neil. We're seeing positive trends quarter to date, staying prudent in our guide. Where we're seeing strength is in sort of our e-commerce business, in particular in our non-Home Try-On portion of that business. Obviously, we're lapping our Home Try-On program, which we sunsetted at the end of last year. We're also seeing the benefits of some recent initiatives that we expect to continue to bear fruit in the quarters ahead. That includes some new features around out-of-network reimbursement that we've rolled out to all stores that make it easier for our customers to check the eligibility of their vision insurance coverage, and that enables us to file for reimbursement on their behalf. Also the launch of our Sport collection, which is sort of our first in the category.
Some of the efficiency we're seeing in our marketing spend. You know, from a customer perspective, we're seeing stable growth and anticipate acceleration throughout the year.
Thank you. To follow up there, can you talk about the AUR trends you're seeing within glasses? Sounds like there's a maybe a mix shift towards premium frames and you just discussed the sport launch as well. How do you expect that to impact glasses AUR for the balance of the year? Thank you.
We have a few tailwinds here as well. One is around progressives. As we know, that is an area where we continue to see strength. Also, over time, we continue to introduce new collections, whether they're made in Italy, or have complex constructions as we sort of leverage the expertise of our internal design team. We also continue to introduce more lens options, including various tints that we introduced towards the end of last year. That all benefits us. We've also made some changes to our Add a Pair and Save program that is expanding average revenue per customer and also has a positive benefit on our gross margins.
Thanks so much. Best of luck.
Your next question comes from the line of Brooke Roach with Goldman Sachs. Your line is open. Please go ahead.
Good morning, thank you for taking our question. Neil, Dave, I was hoping you could unpack the results that you're seeing as you look to accelerate your active customer count. How are active customer counts trending on a per store basis as you open new stores versus the active customer counts that you're seeing online? What plans do you have for marketing and store activation plans as you move throughout the year, particularly as you get into the AI glasses launch timeline? Thank you.
Thanks, Brooke. You know, I think it's, you know, important first to, you know, provide some context around Q1. You know, like you've heard from many other consumer and retail businesses, Q1 was a challenging macro environment with extreme weather that drove twice as many store closures as last year. Yeah, lots of negative headlines for consumers, which resulted in, you know, consumer sentiment hovering near record lows. While we're pleased with how we exited the quarter and recent trends, it's worth noting that, you know, all of our metrics, including customer growth, were impacted by these abnormal events in Q1.
When you look at our active customer growth, we report a trailing 12-month metric, and over that timeframe, the broader optical industry has faced significant pressure on, you know, traffic units, customer growth and really, growth in the category coming from price. So, you know, our mid-single-digit active customer growth coming in spite of those Q1 headwinds, some tough comps and the sunsetting of our HTO program, Home Try-On program, I think stands out relative to the rest of the category. That being said, we believe that there's lots of opportunity to drive more growth in the future and those drivers to re-accelerate customer growth, you know, come from a few areas.
The first is marketing spend. During Q1, we remained disciplined on marketing spend, you know, given demand volatility and ended up with marketing dollars flat on a year-over-year basis and down as a % of revenue. Given the, you know, the trends that we've seen recently, we're confident we can deploy marketing dollars efficiently to fuel growth, and we're actively investing behind the highest return areas of the business, as we've mentioned, including allocating more dollars towards glasses, where we're seeing some strength in unlocking some new channels.
The second factor, as Neil just mentioned, but worth reiterating is that Home Try-On and e-com dynamics will become more favorable as the year goes on with Home Try-On headwind abating and we're continuing to see strong non-Home Try-On driven e-com glasses sales. Then we're also benefiting from a number of newer initiatives like insurance expansion, exam strength, new launches like Sport. Of course, we believe AI glasses will drive a lot of traffic and momentum across the entire business. You know, taken together, we remain confident in the customer growth assumptions embedded for guidance for the rest of the year.
You know, continue to see that, you know, when we open stores, they tend to perform in line with our high expectations and, you know, continue to be the primary drivers of customer growth for the business.
Great. Just one quick follow-up. Can you quantify the headwind that you saw in 1Q from weather and Home Try-On for the audience?
Hi, Brooke. Good morning. You know, when we think about the headwind with regards to Home Try-On, what we've actually seen is a pretty healthy growth without Home Try-On. Obviously, now that we've actually sunsetted it, we've definitely seen that benefit. Obviously, there's a bit of challenge with regards to weather, but with regards to Home Try-On, we're not lapping it this year, and we're seeing pretty healthy growth with regards to year-over-year on the web side of the business.
Great. Thanks so much. I'll pass it on.
Your next question comes from the line of Anna Andreeva with Piper Sandler. Your line is open. Please go ahead.
Great. Thank you so much for taking our question, and good morning. Wanted to follow up on the active customer growth. You had previously talked about that younger demo that was pulling back. I don't think you mentioned that this morning. Has that improved? Secondly, I guess to Steve Miller, on the gross margin guidance, I think you still said flat for the year. Can you talk about what's implied for the second quarter, and what kind of a tariff rate are you embedding for the year? Thank you so much.
Thanks for the questions. Yeah, on the active customer growth front, we've seen consistency within the younger demo. You know, overall the category continues the trend of soft traffic in units. The younger consumer has been trending in line with kind of our previous commentary.
I would add on the young customers, this is a segment of consumer that, as we all know, is under more stress, whether it's higher than usual unemployment rates, high consumer and student debt. That being said, we've never been more competitive for this consumer. Our opening price point of $95, which include premium acetate frames with polycarbonate lenses with anti-reflective and anti-scratch coating, remains at that $95 price point from where we priced it when we launched the business in 16 years ago.
Again, if we look at industry trends, where growth has come almost exclusively from price as our competitors year after year have been increasing price, especially in the last few years, we are more competitive than ever at that price point, which we find that our customers really appreciate.
Let me speak a little bit to gross margin. Let me set the context with regards to the first quarter, and then we'll talk about margin improvement as we actually get through the balance of the year. The main driver of the margin, gross margin rate decrease was really around cost deleverage. As we saw, we had 30% growth plus in exams, which was driven by our doctor's compensation. Retail occupancy is a bit of a fixed cost in addition to opening 14 stores. We also saw some compounding additional expenses as we were in a position where we had to close labs and stores, also spend money in our recovery efforts.
As we look ahead, the key thing to keep in mind here is that there are two drivers of margin going forward. Let me focus on gross margin in particular. The biggest thing is that we have a number of healthy initiatives that we're actually introducing. On the gross margin side, the first thing we would say is that we're lapping more favorable comp rates this year versus last year. That'll be a contributor that you start seeing in April. The second thing is we have a number of gross margin initiatives that are already in flight and already showing benefits as we look at quarter to date. As Dave and Neil mentioned, there are some changes to out-of-network that's improving our gross margin position. The mix towards higher margin products is what we're seeing in our data.
Obviously the momentum that we've seen in Warby Parker Sport, which starts at $195 non-prescription and $295 prescription, is definitely accretive to our business. The new dimension that we're also adding in are some operational initiatives that will improve our gross margin as we progress through the year. Efficiencies in our labs would be 1 example where we'd actually see some of that benefit show up on the gross margin line. As we think about EBITDA margin, we'll continue to see leverage in terms of leverage against non-marketing SG&A. Overall, we're really focused on a number of profit-driving initiatives that will impact both gross margin as well as EBITDA margin for the balance of the year.
Thank you so much. Much appreciated.
Your next question comes from the line of Oliver Chen with TD Cowen. Your line is open. Please go ahead.
Hi, Neil, Dave, and Steve. Regarding your use of the glasses, what have been your biggest surprises, and what would you say might the top 3 use cases be? Related to this, there's been a lot of demand in the marketplace already on fulfillment on the AI glasses and the supply chain. What are you doing to prepare for that? Because some of the items, components could be in shortage. Would love if there's a framework, Steve, for the margin parameters, because these glasses have unique characteristics in terms of costs as well as what you're thinking in terms of the service levels, I'm sure you'll add. A follow-up question, Steve.
On the traffics and unit as well as, the interplay with your strategies regarding marketing and demand creation, how are you thinking about that interplay in order to just try to future-proof the business to that kind of volatility that you've been discussing? Thank you.
Thanks, Oliver. I'll take the AI glasses question first. I'd say in general, we're super excited about the progress that we're making, our teams are working around the clock with our partners at Google and Samsung to build really incredible products. As it relates to the supply chain, we feel like we're in a well-positioned given the strength of the partnership that we have with those companies and the foresight and the access to components as a result.
As Neil mentioned, we've been, you know, wearing these glasses internally, the moment you put them on, it becomes immediately clear that they offer a fundamentally more natural and human way to experience and interact with the world, rather than looking down at screens in your hand. For most of human history, interaction has revolved around voice, eye contact, and shared context with those around you. Screens and keyboards are a massive anomaly to how humans are used to interacting, and we're most excited that intelligent eyewear will move us back to a more natural human way of interacting. Yeah, I checked my screen time the other day, and it was down 60% since I started wearing these AI glasses.
You know, underneath, there's underneath the hood, there's really incredible technology and some really magical use cases that we and our partners will talk about and demonstrate as we approach launch. Really the human element of bringing our attention back to the real world and away from screens is probably what we're most excited about. You know, of course, for that vision to become a reality, it means that, you know, the product has to look great, feel comfortable for all-day wear, accommodate a range of prescriptions, and work seamlessly from day one.
We're working hard to achieve all that, which means that we've been deliberately investing in everything from supply chain capacity to advanced lens fulfillment and just making sure that all the elements line up for a very successful consumer launch later this year.
Great. Oliver Chen, great to be with you. My two use cases, one, math equations, which is actually pretty amazing. The second is really around translation, given all the languages that can be translated. With regards to AI glasses economics, we'll share a bit more about the economics later in the year, so won't be able to speak to the margin impact at this point. That being said, our current guidance does not include AI glasses, so just a quick reminder there. To your point on demand, as we think about the balance of the year, I'll actually point you to kind of three things that we're focused on. The first is as Neil Blumenthal described, is continuing to build on the progress that we've already made. We see momentum in exams. We see momentum in average revenue per customer. Insurance.
Our Add a Pair and Save has actually driven higher AOV. I think the biggest driver that we're seeing is just the continued newness, the new collection. Sport is doing well. Deco 2 is doing really well. We're very pleased with the newness that's actually driving momentum in the business, and we've seen that quarter to date. The second thing that Dave pointed out is we no longer have the HTO headwinds, as high as they were in the first quarter because we expect that to abate over the course of the year. We do expect e-commerce to have low single-digit growth this year, and we're definitely on track to achieving that.
The third thing, I think to your point around demand, is we're being very deliberate in the second quarter around piloting and investing in new tools and new tactics to build awareness, which ultimately will actually help us continue to build demand. This is both in our digital channels as well as our direct channels. That experimentation really positions us well for the back half of the year.
Best regards. We're really excited. Thank you.
Thank you.
Your next question comes from the line of Paul Lejuez with Citigroup. Your line is open. Please go ahead.
Hey, everyone. This is Brandon Cheatham on for Paul. I wanted to follow up on the active customer growth. Just, do you view the first quarter as-
Hey, Paul.
the low point for the year? Yeah, can you hear me?
Paul, you're a little bit hard to hear. Okay.
We're having trouble hearing you.
Is that better?
Yes, that's a little bit better. Thank you.
Hey, is that better? Can you hear me? Hey, Sorry about that.
A little bit better. Yeah.
This is Brandon Cheatham on for Paul.
Oh, hi, Brandon. Good to-
I wanted to follow up.
Good to be with you.
Yeah. I wanted to follow up on active customer growth. Do you view 1, 2 as a low point for the year? You know, I understand weather was a factor, but how should we think about that with eye exams up 30% in the quarter? You know, are you seeing a shift in the eye exam customer converting, or is there a timing issue there? Like, I guess just any more details you can share on some of the offsets.
Yes, we are expecting active customer growth to accelerate throughout the year. As we discussed earlier, we've a bunch of marketing initiatives underway and are already seeing green shoots this quarter.
Anything on the eye exam customer converting? You know, like, up 30% is pretty strong growth, but your active customer growth wasn't quite as strong. Just are there timing issues there? Are they not converting like you expected?
Yeah. We're still in our early days of sort of holistic vision care. As we think about, you know, our consumers, you know, we're still letting people know that we have stores, and then once they know that we have stores, we have a store near them, and then that we offer eye exams. We are now, you know, have 90-plus percent of our stores offering eye exams, which is great, and we've been building out capabilities, you know, from our techs that help support our optometrists, to the technology that our optometrists use to increase efficiency and exceptional patient e-care and experiences.
There sometimes can be a lag between an eye exam and a purchase, but our what we consider same-day conversions tend to be at or exceed industry norms.
Got it. That's helpful. To follow up on the increased cost related to your AI glasses rollout that's included in the guidance, should that build as we get closer to launch? Are those, one time in nature or kind of ramp? Are you training your staff now or adding labor hours, or does that come closer to launch as well? Thank you.
I'll take that. As it relates to cost, the key thing to keep in mind is that those costs are actually shared between Google and Warby Parker. To your point, we are investing in training, we are investing in labs, we're investing in our stores, we're investing in systems, we're investing in R&D, we're investing in branding, and we do expect a number of those expenses to show up, you know, obviously pre-launch, but also there'll be some additional costs post-launch. At that point, we would certainly have demand in our favor. When you think about some of the expense items that we reflected in our guidance for Q2, to your point, Brandon, that's really the investments in preparation for a launch later this year.
Got it. That's helpful. Thank you, and good luck.
Your next question comes from the line of Dylan Carden with William Blair. Your line is open. Please go ahead.
Steve Miller, were those costs at all in the first quarter? Is that some of the add back from EBITDA from a system standpoint, or was that just all the optometrist system support?
It's really, the cost in the first quarter, especially when you think about the deleverage, was really around our doctors and recovery efforts. When you think about closing our labs, closing our stores, the recovery efforts, some of the additional cam which still removing those sorts of things, that certainly added cost, as we think about the first quarter. The cost with regards to AI glasses was more moderate, like what we expected and what we saw in previous quarters.
More so in the guide for the second quarter from a cost standpoint, is that fair to assume?
We have elevated in the second quarter. That's why you see a little bit of additional expense in the second quarter guide. Obviously we'll benefit from those investments in the back half of the year. Some of those investments also include some of the brand awareness efforts that we referenced a bit earlier in terms of some pilots and investments around building brand awareness in preparation for later this year as well.
Thank you. My actual question is, you're seeing an absolute explosion in demand for this category. Clearly, that's tax refund related and on the heels of five years of, you know, no, sort of a lull in the repurchase cycle. I'm just curious. I get that there might be hesitation to kind of fully invest in that trend given that it could be pull forward. Are you seeing that? If there's that level of volatility out there in the market, you know, how do you navigate that?
It in regards to kind of explosion in demand, you know, I think there are, you know, a few different data sources. I'm not sure which one you're referring to that kind of track category demand. Certainly, we've seen a lot of consumer demand for AI glasses that exist in the market, and that's been driving a lot of excitement and adoption and that makes us even more eager to have our own product in market later this year. We believe that our offering will be differentiated and have many unique features and properties that we're excited to unveil.
In the past, we really haven't seen tax refunds have a material impact on our business the same as it may on others in the category. We, we don't see that as kind of a material factor in the trends that we're seeing and, yeah, aren't anticipating kind of a significant pull forward as a result.
Then just to be clear about this, when you speak to efforts to reignite actives, is that code for sort of marketing deleverage? You know, AI or smart glasses should presumably have some, not a significant traffic effect, you're kind of baking some of that in even though you're not baking in the revenue. I guess, you know, just remind us the relationship between store growth and active customer growth as far as sort of what we should expect from where we sit, right? I mean, you've been growing stores high teens for 3 years straight. I get it's a trailing metric, it continues to kind of come, you're getting this question somewhat regularly, you know, is there a potential need, effort, willingness to adjust the store strategy to some extent if you kind of see that disconnect continue? Thanks.
Let me go ahead and take that. With regards to the investment in active customer growth, there are really two dimensions: the amount of marketing spend, which we remain committed to be in the low teens, and the way that we actually deploy our marketing tactics, both in the digital channel as well as the direct channel. We're looking at some different tactics in order to really grow that active customer number, and we'll be able to speak more to that as we get into our next earnings call and speak to the results that we've seen in Q2. With regards to store growth, the reality is there are a number of dimensions that we have to think about.
When you think about street locations, which tend to be super high volume locations versus grocery anchored, very different volume profile. The actual store count is probably not a good indicator of the actual dollar volume because different stores are gonna have different volume profiles. Our stores are meeting our expectations. We're very pleased with what we're seeing with regards to our new stores. They're certainly benefiting from the elevated average order values. They're benefiting from increased conversion, which we've seen over the course of the year. It's really a little bit of apples and oranges, even though we do focus on our new stores really providing access to customers in a physical dimension in new markets and different neighborhoods and existing markets.
Thank you, Steve Miller. I appreciate that.
Yeah. The other factor there is e-commerce and our Home Try-On program, where, you know, if you look at the blended customer number that that's across channels. As we've noted, you know, we sunset our Home Try-On program after kind of spending, you know, a few quarters, you know, winding that down. That has served as a headwind that will abate as we move throughout the year.
Thank you.
Thank you. We have time for one more question. This question comes from the line of Janine Stichter with BTIG. Your line is open. Please go ahead.
Hey, good morning, and thanks for fitting me in. Just wanted to dig into the vision insurance side of things. Nice to see the growth. I think you said 10% penetration, whereas I think you said 60% of your customers have insurance. What's a realistic target penetration? Maybe speak to some of the initiatives as you bridge that gap. Would also be curious if you have any stats on how much the insurance customer spends versus the uninsured consumer. Thank you.
Sure. We think about insurance sort of in 2 ways. One is, how do we capture more lives in-network? Then, of that pool of in-network lives, how do we get them to spend with us? Right now we have 35 million lives are in-network at Warby Parker, and they can come and seamlessly use their insurance. You know, as we expand that, it then takes time for those individuals to know that we're in-network and then actually need, you know, glasses or primary eye care. Second, we think a lot about how do we make it easier for people to spend their out-of-network benefits with us?
That's where we've made tremendous progress over the last six months as we've made it easy for individuals in store to check their eligibility and then for us to file for reimbursement on their behalf. With both in-network and out-of-network insurance customers, we do see a higher average order values and higher customer satisfaction as well.
Just to build on that, very briefly, we're very pleased to see the increased penetration of insurance usage, and we believe, to your point, Janine, that there's tremendous headroom still ahead of us. As we think about our branding and awareness efforts, this dimension of being able to use your insurance with Warby Parker is certainly a dimension that we wanna lean into in order to really take advantage of closing the gap on that headroom. The one thing that we're very pleased with also is we did scale to all stores the out-of-network option, and we've seen tremendous traction, so we're very pleased with that. As Neil said, when you look at a cash pay customer versus a customer either using in-network or out-of-network benefits, the average order value is meaningfully higher.
Great. Thanks so much.
This concludes today's call. Thank you for attending. You may now disconnect.