WRBY earnings call for the period ending December 31, 2024.
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Warby Parker (WRBY 2.31%)
Q4 2024 Earnings Call
Feb 27, 2025, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Hello, and welcome to today’s Warby Parker fourth quarter 2024 earnings call. My name is Bailey, and I will be your moderator for today. [Operator instructions] I would now like to pass the call over to Jaclyn Berkley, head of investor relations. So please go ahead when you’re ready.
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 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 February 27th, 2025, 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. And 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. In 2024, we set ambitious goals for ourselves, and we’re proud to report that our team delivered, punctuated by a strong Q4, our highest revenue growth quarter since 2021. For the full year, we drove revenue growth above 15% and expanded adjusted EBITDA margins by approximately 170 basis points while making meaningful progress against our long-term strategic initiatives and delivering millions of pairs of glasses to people in need. We achieved our second consecutive year of accelerated revenue growth by opening 41 new stores and maintaining our industry-leading unit economics while driving positive e-commerce growth for the first time since 2021.
This growth was primarily driven by improved customer and glasses growth, which we expect will be the core drivers of our business for years to come. We set out to fuel brand awareness and affinity by investing in marketing spend, and we saw active customer growth accelerate in every quarter last year. We committed to expanding insurance and our holistic vision care strategy, and we significantly increased in-network lives while growing contacts and exams by 36% and 41%, respectively. We accomplished all this while maintaining an unwavering focus on profitable, sustainable growth, resulting in a 40% increase in adjusted EBITDA versus 2023.
We believe this execution lays a strong foundation for the years ahead and gives us confidence in our 2025 plan as we look to build on this momentum. This month, we celebrated 15 years since our founding when we set out to demonstrate that business and impact can go hand in hand. From day one, we sought to provide vision for all while delivering exceptional customer experiences at great value. And today, that remains at the heart of everything we do.
The Warby Parker of today is who we aspire to be 15 years ago, and we have even more conviction in our vision than ever before. As we think about our next 15 years and beyond, we believe there are tremendous tailwinds in our category. The incidence of myopia continues to rise rapidly. And it’s estimated that by 2050, over half of the world’s population will need corrective vision, presenting both a profound responsibility and tremendous opportunity.
And while the U.S. market remains large at an estimated $68 billion, we believe its customers are largely underserved because of structural barriers, limited innovation, complex pricing, and inadequate customer service. Despite lower-than-usual growth in the optical industry over the last few years, our team has proven that our brand, product assortment, omnichannel offering, and value proposition resonate across all market conditions. And we believe we are as well-positioned as ever to continue taking share in leading with innovation for years to come.
In 2025, we plan to sustain and expand the moment we have built over the last few quarters. We expect to continue to drive strong top line and adjusted EBITDA growth by investing further in customer acquisition, opening more stores than ever, scaling our insurance business, introducing products that offer unbeatable value, and delivering exceptional customer experiences. Now Neil and I will cover our 2025 strategic priorities before Steve goes into more detail on our Q4 and 2024 results and our 2025 financial plan. I’ll start first with marketing spend.
We plan to drive more customer-led growth in 2025 by continuing to invest efficiently in both brand awareness and customer acquisition. We believe our strategic marketing investments in 2024 drove growth across several key dimensions, including customers, glasses, retail traffic, and e-com. And these strong results give us confidence to scale marketing spend in 2025 while maintaining it in the low teens as a percent of revenue. Throughout 2024, we were able to invest efficiently across a variety of channels as our team evaluated different messages and tactics.
In 2025, we plan to leverage and enhance data-driven media mix model to make real-time optimizations. We see significant opportunities to scale spend across channels, and we’re excited to have even more advanced analytics to inform these decisions. Stores remain our largest and most efficient drivers of customer growth. Our 45 openings planned for this year, up from 41 in 2024, skew toward existing markets, and we believe the additional market density will help drive awareness.
One trend we observed throughout 2024 was that e-com growth was highest in many of our largest retail markets, reinforcing our confidence that overall market growth benefits from store density and therefore greater brand awareness. We continue to find that our happy customers are our best marketing channel. And the more of them we have in a market, the better it is for growth across channels. Last year, we saw encouraging results from more intentional media to drive local store awareness through campaigns that included direct mail and localized digital ads.
We will look to do more of that this year. This not only helps to drive awareness with new customers but also longtime customers who think of Warby Parker as an online-only business. Due, in part, to these efforts, we drove an improvement in traffic throughout the year, including an acceleration in Q4. Earned media continues to be a powerful driver of awareness with 2024 initiatives, like our solar eclipse campaign and Emma Chamberlain collaboration, generating significant press, in-store traffic, and brand engagement.
These high-impact moments reinforce the power of our brand and our ability to connect with customers in clever, meaningful ways. Strong retention and repeat purchasing patterns further validate the power of our brand with revenue retention rates of approximately 50% over 24 months and greater than 100% over 48 months for our 2020 cohort. Our insurance business serves as a powerful complement to our traditional customer acquisition channels, expanding access to new customers while driving higher value purchases and repeat purchasing. 2024 was a transformative year for our insurance business.
With the successful integration of Versant Health, we expanded our in-network coverage to over 30 million lives, unlocking a significant opportunity to serve more customers utilizing their vision care benefits at Warby Parker. We believe this expansion not only strengthens our position in the market but also sets the stage for long-term growth as we scale utilization and see average revenue per member increase. While it is still early days, we are seeing promising trends for Versant members. Utilization is tracking in line with or slightly ahead of prior carrier integrations and is already attracting a higher percent of new customers than our non-insurance business.
Insurance customers continue to be some of our highest value customers, spending more on their initial purchases, selecting progressive lenses at a higher rate, and returning more frequently. As we move into 2025, we will focus on scaling existing integrations while driving greater awareness across their member bases. In parallel, we continue to think there is an opportunity to educate customers about using their out-of-network benefits at Warby Parker. Right now, we estimate around 60% of our customers have vision insurance, and 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.
Our next strategic priority is driving further growth in glasses, building on our moment in both single vision and progressives. In 2024, glasses grew approximately 12% year over year, up from 8% the prior year, driven by continued growth in progressives, the expansion of complex lens types and enhancements, as well as an acceleration in single-vision lenses, which represent the majority of our prescription eyewear business. Progressives overall still only represent approximately 22% of our prescription glasses sold in 2024, and we believe there’s a significant opportunity to increase penetration over time. At the same time, it was encouraging to see the acceleration in single-vision lenses throughout 2024 and in particular in Q4.
This year, we’ll look to build upon that moment by deploying targeted media spend to drive glasses units. As a leader in style and innovation, we plan to introduce nearly 20 frame collections this year. From new styles and colorways to expanding sizing and novel constructions, each collection reflects our commitment to delivering newness and curation to our customers who come to us as a style and variety authority in the industry. Our direct-to-consumer model, paired with our own in-house design team, makes us uniquely positioned to gather and react to customer feedback.
Because of this, we can offer a tighter, more curated assortment than our competitors and focus on building out franchise styles with new sizes, colors, and materials. As an example, earlier this month, we launched our first-ever rimless assortment, starting at $195 and available in a variety of lens shapes. Our customers frequently requested rimless styles, and we work diligently to ensure we could introduce this intricate and complex construction that met our quality standards at a price point far below most other retailers and optical shops. Since launching in 2010, we’ve intentionally maintained our $95 price point, which remains a key part of our value proposition and represents the majority of sales today.
While we intend to continue offering accessible pricing, we plan to expand our $145, $175, and $195 offerings, and our recently introduced $125 price point. We also plan to continue expanding our lens options to give customers even more choice in 2025. Last year, we had success expanding our sun lens offerings, introducing the ability to customize polarized lens colors and add anti-reflective coatings, alongside our core enhancements like anti-fatigue, blue light, and light responsive, which contributed to an increase in average revenue per customer. Progressives are closely tied to store expansion as progressives penetration is higher in our retail channel and with insurance customers.
In addition to being efficient customer acquisition vehicles, our stores are integral to advancing our goal of providing holistic eyecare. Consistent with the last couple of years, every new store that we open in 2025 will include eye exam capabilities. Industry wide, approximately 75% of prescription glasses are purchased at the same location an exam takes place. And now I’ll turn it over to Neil to talk through our channel and holistic vision care strategies.
Neil Blumenthal — Co-Founder and Co-Chief Executive Officer
Thanks, Dave. For our third 2025 priority, we plan to further invest in scaling our industry-leading omnichannel model and delivering exceptional customer experiences. Starting first with retail where we expect to see the majority of our growth come from in 2025. We ended 2024 with 276 stores.
And longer term, we believe we can open more than 900 stores in the U.S., highlighting a significant opportunity for further penetration of both new and existing markets for years to come while still representing a small fraction of the approximately 45,000 optical shops in the U.S. In 2025, we are set to open more stores than ever before with plans for 45 new locations, including an exciting partnership with Target to open five shop-in-shops in the second half of the year. This initiative reflects our commitment to expanding access and convenience for our customers while testing new ways to engage both existing and new customers. While still in its early phases, this partnership is incremental and complementary to our broader omnichannel strategy.
We know many of our customers already shop at Target for their everyday needs, and the shop-in-shop format provides an opportunity to introduce Warby Parker to even more customers who may not have engaged with us before while maintaining the exceptional customer experience and strong branding Warby Parker is known for. Each Warby Parker at Target shop-in-shop will be staffed by Warby Parker employees and offer products and services consistent with those across our existing channels today. We view this as a longer-term tailwind to our business and a valuable opportunity to test and learn as we explore new ways to expand reach and accessibility while partnering with a best-in-class retailer like Target. We plan to open 40 new stand-alone stores this year with a continued focus on suburban expansion.
The vast majority of these stores are expected to be in existing suburban markets, and we plan to enter nine new markets overall. One advantage of being a digitally native company continues to be that we’re able to open stores in areas where we know our customers live and work. For new stores, we continue to target 35% four-wall margins and paybacks within 20 months. We remain confident in our store growth strategy given the consistent returns we see across cohorts.
As we continue to scale, delivering a consistent, delightful store experience starts with investing in our people. Promoting from within is core to our approach, and our optician apprentice program is a prime example. Through this program, we offer retail associates the opportunity to train, upskill, and become certified opticians and in many cases provide tuition reimbursement. We often hold ourselves to a higher standard than even state requirements, ensuring every store is staffed with experts who provide best-in-class service.
Through this program, we are not only strengthening our teams but also fostering long-term career growth. Since the program’s inception, more than 500 team members have become licensed opticians. Shifting to e-com. In 2025, we are focused on driving continued growth in our e-commerce channel, building upon the moment we saw in 2024.
We anticipate full-year e-commerce growth to improve to the mid-single digits, fueled by our investment in enhancing the digital shopping experience for glasses, alongside the ongoing growth of our contacts business. A key priority will be introducing the next era of our digital experience that leads with AI and personalization and brings the guided high-touch feel of our retail stores into our online platform. We are designing industry-leading tools, including an AI-powered recommendation engine that will use facial features and style preferences to provide tailored product suggestions. Rolling out in a few months, our new features are designed to help customers feel confident in their frame selections without needing to do a home try-on.
By making the shopping journey even more intuitive and engaging, we aim to strengthen conversion and deeper customer engagement. 75% of iOS users already engage with our proprietary virtual try-on tool, which leverages AI and gives us confidence to further scale this and other AI experiences to drive conversion and help customers find the perfect pair of glasses wherever they choose to do so. Finally, we’ll continue to expand our holistic vision care offering, which is attracting new customers and driving higher customer lifetime value. Customers who engage with us across glasses, contacts, and exams not only spend more initially but continue to increase their spend over time, 1.8 times more in their initial purchase and 2.6 times more after 12 months compared to glasses-only customers.
The high lifetime value of a holistic vision care customer reinforce our confidence in investing strategically in our holistic vision care products and services, as well as in customer acquisition. In 2024, our contact lens business saw strong growth, increasing 36% year over year to reach approximately 10% of total revenue. Despite this progress, our penetration remains well below the 20% industry average, representing a significant opportunity. In addition to being a retention driver, given the replenishment nature of the product, contacts drive new customer acquisition.
Approximately 30% of contact lens customers in 2024 were new to Warby Parker. Not only are we attracting new customers, but we also see many of those customers go on to purchase glasses with an opportunity to expand this further in 2025 and beyond. Another major contributor to growth has been our expanding eye exam business, which grew over 40% year over year in 2024 and now accounts for approximately 5% of revenue. Today, the majority of our customers are still getting their eye exams elsewhere and bringing their prescriptions to Warby Parker, highlighting the long-term opportunity.
Innovation remains a key priority within our eye exam business. In 2025, we plan to expand video-assisted eye exams, which connect customers with remote doctors. We also plan to roll out retinal imaging to more retail locations, which provides advanced diagnostics without dilation. Early adoption of these services has been strong, which leaves us excited about the potential to enhance the patient experience while driving further growth.
And 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, progressive lenses, and contact lenses. We find that exam stores drive higher sales conversion and gross margin than non-exam stores while offering a more seamless experience for our customers and patients. In 2025, our focus is on increasing awareness of our exam offerings and optimizing coverage in high-demand locations to maximize efficiency. And with that, I’ll pass it over to Steve to touch on 2024 performance, as well as the financials embedded within our 2025 plan.
Steven Miller — Senior Vice President, Chief Financial Officer
Thanks, Neil and Dave. I’ll begin with a detailed review of our fourth quarter and full-year 2024 performance, then I’ll outline our guidance for the full year and first quarter of 2025. Let’s jump into Q4 and full-year results. Revenue for the fourth quarter came in above the high end of our guidance at $190.6 million, up 17.8% year over year with retail revenue increasing 23.9% year over year and e-commerce revenue increasing 5.3% year over year.
On a full-year basis, revenue was $771.3 million, up 15.2% year over year with retail revenue increasing 21.4% year over year and e-commerce increasing 3% year over year, its first full year of positive growth since 2021. Starting first with customers, we finished 2024 with 2.51 million active customers, representing an increase of 7.8% on a trailing 12-month basis. We’ve been pleased to see sequential improvements in year-over-year active customer growth for the past six quarters as we benefit from the positive returns we are seeing from our marketing investments. As Dave mentioned, we anticipate seeing more customer-led growth throughout 2025.
We also continue to see strength in average revenue per customer which came in at $307 in 2024, up 6.8% 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 frames. By products, glasses grew approximately 15% year over year in Q4 ’24, up from 7% in Q4 ’23 and approximately 12% year over year in 2024, up from 8% in 2023. In addition to the acceleration in glasses growth, we saw continued strength in contacts and exams, which grew 30% and 45% year over year in Q4, respectively.
On a full-year basis, contacts grew 36% year over year, and exams grew 41%. Turning to our stores, we added 39 net new stores over the course of the last 12 months, ending the year with 276 stores, up from 237 at the end of 2023. This 16.5% increase in our store count compares to retail revenue growth of 21.4% over the same period. so we continue to be pleased with the productivity and growth of our more mature store cohorts.
Retail productivity in Q4 was 102.1% versus the same period last year and 101.4% for the full-year 2024. 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. This metric covers all of our stores, including new stores and stores open 12 months or more. As such, this metric is 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 observed an acceleration in growth year over year for both Q4 and the full year. 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 and performance was in line with our target 35% four-wall margin. Over the course of the past year, we added 42 net new eye exam locations, bringing our stores with eye exam capabilities to 236 stores or 86% of our total fleet.
From a channel mix perspective, retail represented 70% of our overall business, up approximately 360 basis points year over year versus 66% in 2023. Moving on to gross margin. We were pleased to see improvement to gross margin versus 2023. 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 rent, and the depreciation of store buildouts.
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. Fourth quarter adjusted gross margin came in at 54.2%, compared to 54% in the year-ago period. Full-year adjusted gross margin was 55.5%, compared to 54.7% in 2023.
Starting first with the fourth quarter, the increase in adjusted gross margin was primarily driven by higher glasses growth, including the scaling of higher margin lens types like progressives, as well as lower outbound customer shipping costs. For the full year, the increase in adjusted gross margin was also driven by higher glasses growth, customer shipping efficiencies, as well as continuing to scale the portion of prescription glasses orders that we fulfill at our two owned optical labs in New York and Nevada. There are many benefits we see from insourcing orders at our labs, including higher NPS, lower refund rates, faster turnaround times, and improved gross margin. Offsetting a portion of these accretive factors in both Q4 and the full year was the continued scaling of contact lenses from 9.5% in Q4 ’23 to 10.5% in Q4 ’24 and from 8.6% in full year ’23 to 10.2% in full year ’24 as a percentage of our total business.
Expanding our contacts offering is a core part of scaling our holistic vision care offering and a driver of increasing average revenue per customer. While contact lenses have a lower gross margin percent versus our other product categories, they are accretive to gross profit dollars given their higher purchase frequency and subscription-like purchase cycle. Contact lenses represented a $12 billion market and account for almost 20% of the optical market. Within the fixed portion of our cost of goods, store rent was a consistent percent of revenue on a year-over-year basis in Q4 and for the full year.
We saw deleverage from optometrist salaries as we hired optometrists for our stores. As of the end of 2024, we operated with 194 stores where we engaged directly with an optometrist and therefore recognized both revenue from exams and expense from optometrist salaries. These 194 stores compare to 150 stores at the end of 2023. We expect that our investment in eye exam capabilities in store will benefit us in the long term as it gives us greater control over the customer experience, enables us to recognize exam revenue and results in higher product sales conversion and gross margin than non-exam stores.
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 fourth quarter came in at $103 million or 54% of revenue.
This compares to Q4 2023 adjusted SG&A of $91.4 million or 56.4% of revenue, a decrease of 240 basis points year over year. Within adjusted SG&A, marketing spend increased from $20.3 million or 12.5% of revenue to $24.6 million or 12.9% of revenue as we reinvested a portion of our revenue upside into customer acquisition given strong demand signals in the quarter. 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 43.9% to 41.1%, a decrease of 280 basis points year over year. Total adjusted SG&A was up 12.8% with non-marketing adjusted SG&A up just 10.4% year over year as compared to revenue growth of 17.8% in the quarter.
For the full year, on an adjusted basis, SG&A of $405.2 million represented 52.5% of revenue, down 100 basis points from 53.5% in 2023. Non-marketing adjusted SG&A was 40.1% of revenue versus 41.8% in 2023, representing leverage of approximately 170 basis points year over year. Turning now to adjusted EBITDA. In the fourth quarter, we generated adjusted EBITDA of $13.8 million, representing an adjusted EBITDA margin of 7.3% which compares to adjusted EBITDA of $9.4 million or 5.8% of revenue in the year-ago period.
For the full-year 2024, we generated adjusted EBITDA of $73.1 million, representing an adjusted EBITDA margin of 9.5% which compares to adjusted EBITDA of $52.4 million or 7.8% of revenue for the full-year 2023. This represents margin improvement of approximately 170 basis points, in line with our long-term guidance of adding 100 to 200 basis points of margin improvement per year. Our adjusted EBITDA margin was partially impacted by media spend in December that contributed to strong growth at the end of December into January. Turning now to our balance sheet.
We generated $35 million in free cash flow in 2024, up from $7 million in 2023 and ended with a strong balance sheet position, reflecting approximately $254 million in cash, which we will continue to deploy deliberately to support our growth and operations. We also have a credit facility of $120 million expandable to $175 million that is undrawn, other than $4 million outstanding for letters of credit. Turning to 2025. Before I get into the specifics of our outlook, I want to point out that we expect the quarterly cadence of our results to look similar to 2024 with Q1 our most profitable quarter and Q4 our least profitable quarter as a portion of late December and FSA-related orders are recognized as revenue in Q1 of the following year.
Now to guidance. While we have confidence in our 2025 plan, we’re maintaining a conservative stance on guiding our business given the broader macroeconomic environment. For the full-year 2025, we’re guiding to the following: revenue of $878 to $893 million, representing approximately 14% to 16% growth year over year; adjusted EBITDA of $97 million, representing an adjusted EBITDA margin of approximately 11% at the midpoint of our revenue range; gross margin in the mid-50s as a percent of revenue; 45 new store openings, including five shop-in-shops with Target, excluding the Target locations which are slated to open in the second half of the year. Our 40 new stores in 2025 will open with a cadence similar to 2024.
We’re guiding gross margin to remain stable in the mid-50s as a percent of revenue, which includes an estimated 20- to 40-basis-point headwind from tariffs. As it relates to tariffs, over the past five years, we have strategically diversified our sourcing to reduce tariff exposure with China representing approximately 20% of our total cost of goods and no exposure to Canada or Mexico. We’ve worked with our vendors to mitigate cost increases and will continue to do so, and we’ll continue making intelligent decisions around diversifying sources of production globally. As the China tariffs are currently structured, we anticipate a 20- to 40-basis-point impact to gross margin and believe we have multiple levers in place to manage a dynamic tariff environment going forward.
For 2025, we plan to maintain marketing in the low teens as a percent of revenue, and we will continue to maintain a disciplined approach to operating expenses, which we expect will be reflected in non-marketing adjusted SG&A continuing to drop as a percentage of revenue. We remain committed to expanding our adjusted EBITDA margin by approximately 150 basis points this year at the midpoint of our revenue guidance, which equates to $97 million, and we plan to preserve flexibility to either allow incremental revenue to flow through to adjusted EBITDA or to reinvest in the business, including into customer acquisition. We’re forecasting stock-based compensation as a percentage of net revenue to normalize in the 2% to 4% range. For Q1 2025, we’re guiding to the following, which accounts for recent trends that have been impacted by weather: revenue between $223.5 million and $225.5 million, which represents growth of approximately 12% to 13% year over year.
Normalizing for the extra day due to leap year last year which contributed roughly $2 million to Q1 revenue, growth in Q1 2025 is estimated to be roughly 13% to 14%. As a reminder, Q1 of last year also included the benefits of $2 million of incremental revenue deferral which equates to roughly 100 basis points of growth in Q1 2024. From a bottom-line perspective, in Q1 2025, we’re guiding to adjusted EBITDA of $27 million to $28 million, representing a margin of approximately 12% at the midpoint of our range. 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 today comes from the line of Mark Altschwager from Baird. Please go ahead. Your line is now open.
Mark Altschwager — Analyst
Good morning. Thank you for taking my question. I guess to start off, lots of customer acquisition initiatives in the hopper here with marketing new stores. You’re announcing the Target partnership.
Last year, the revenue growth algo was fairly balanced between customer growth and revenue per customer. Just can you speak a bit more on how you’re thinking about that algo moving forward?
Dave Gilboa — Co-Founder and Co-Chief Executive Officer
Sure. Thanks, Mark. Yeah. We have made an intentional effort to invest in customer acquisition across a variety of activities, including store openings, our insurance integrations, hiring more doctors, scaling our contacts business, investing in additional media dollars.
And we’ve seen the benefit of that over the last few quarters. Q4 was our sixth straight quarter of accelerating active customer growth, and we expect those positive trends will continue. And we did see more balance, as you noted, last year between customer growth and average revenue per customer. We expect that for this year and going forward that a significant portion of our growth will come from customer growth and that you’ll see — continue to see strong active customer growth from us in 2025.
Mark Altschwager — Analyst
Thank you. And then following up on the insurance partnership, the Versant piece. How is that affecting your outlook for customer acquisition in 2025? I think you mentioned in the prepared remarks that it’s tracking similar to or slightly above other carrier integrations. Maybe you could expand on that and just give us a sense of what that maturity curve has looked like in the past and what you’re expecting this time around.
Thank you.
Dave Gilboa — Co-Founder and Co-Chief Executive Officer
Yeah. So what we’ve seen with prior integrations is that once a population is able to use their in-network benefits with us that the contribution on a per-member basis continues to increase over a multiyear period. So there’s an awareness factor where certain populations may not be immediately aware that they can use their in-network benefits with us, and then there’s the effect of sometimes multiyear cycles between when people get exams and eyeglasses and contacts. And so what we’ve seen is that the longer that we’ve been integrated with carriers, the more customers and the more revenue they generate from the same population.
And we’re expecting to see that with. Say the early trends are positive and are tracking in line or ahead of what we’ve seen with previous carriers, and so we’re encouraged by the results so far, and we expect that it will drive some performance in 2025 but really look at this as a longer multiyear opportunity.
Steven Miller — Senior Vice President, Chief Financial Officer
And Mark, as we’ve discussed, some of the benefits that we see as it relates to insurance customers, from a mix perspective, insurance customers tend to skew newer versus returning versus the rest of our business. And in addition, insurance is oftentimes just viewed as another source of customer acquisition. So we believe in the long term, this will help strengthen our ability to acquire customers in a more efficient way. And then some of the economic benefits that we’ve talked about include not just newer customers who will come back and repeat purchase but buying a higher basket of goods where more complex lenses, which cost more like progressives, are part of the package.
Mark Altschwager — Analyst
Thanks again.
Operator
Thank you. Our next question today comes from the line of Oliver Chen from TD Cowen. Please go ahead. Your line is now open.
Oliver Chen — Analyst
Hi, Neil, David, and Steve. Regarding your guidance, what are your thoughts on traffic? We’re still seeing a choiceful consumer and winners and losers in the industry at large so would love your thoughts on what’s embedded in terms of traffic. Also, the new store plan sounds exciting. Steve, as we model new stores in the year, what’s the contribution to the total revenue growth that you expect based on productivity rates of new stores? And finally, the Target deal sounds quite exciting.
That’s a very customer-centric retailer. What are your thoughts in terms of what we should know regarding the margin structure of that? And any modeling knowledge we should know about and also more strategically why it makes sense, how you’re picking the initial stores, and the vision for medi to longer term in terms of possible scenarios? Thank you.
Steven Miller — Senior Vice President, Chief Financial Officer
Thanks for the questions, Oliver. From a guidance perspective, as it relates to traffic, we’ve provided color on this metric over time, and we’ll continue to do so. We haven’t embedded a specific guide as it relates to traffic. But in the context of our retail performance and store productivity, we are modeling — and depending on whether you’re looking at the low end or the high end of our range, but let’s stick with the high end.
We are modeling a moderate improvement in store productivity that dovetails nicely with our low single-digit growth in e-com. We have seen periods of strength for traffic, and we have seen some periods of challenges for traffic overall. The trend line is positive, and we’re baking that into our guidance at the high end for the full year. As it relates to your questions regarding the Target partnership, I think Neil and Dave will talk more about that.
But the five stores that we’re opening are in the back half of this year, and they are adding a moderate amount of top line and cost into our overall performance for the year, so we view that as negligible. It’s really a five-store test, and we expect to see more of the contribution next year versus this year, particularly depending on the degree to which we plan to roll out and expand the partnership. And as it relates to any other color on the partnership, we’ll turn it over to Neil and Dave who can provide a little bit more insight as to why Target and the overall level of excitement that we feel with this test.
Neil Blumenthal — Co-Founder and Co-Chief Executive Officer
Yeah. Thanks, Steve. Oliver, as you mentioned, Target is renowned for its customer centricity, and we’ve known the team for many years now. And we tend to look at everything through a strategic lens, and we love optical puns, but a strategic lens of what’s best for the customer.
And Target being guest focused and sharing that commitment to always doing right by their customers and creating exceptional value and great customer experiences made it a perfect fit for us. Culturally, there’s a lot of alignment around that, so we feel through these shop-in-shops which will be managed and run by Warby employees will continue to deliver the specialized customer experiences that we’re known for across our typical fleet. So we’re quite excited. We’re going to learn a lot in this first year as we open five stores, so we’re looking forward to this.
One other thought just on traffic, in general, for the category, we made a commitment that we’re going to grow, irrespective of what’s happening in the category, and we’re going to do that by continuing to provide great products that people love and that they covet and that they seek out. We’re going to continue to invest in marketing to acquire those new customers. 2024 was our first full year sort of marketing spend comping positive since 2021, and we saw that drive customers and glasses sales and across our channels. And we’re excited for the year ahead.
As you’ve seen from a lot of retailers, there has been sort of some weather and some traffic challenges in the — toward the middle of Q1, and you’ll see that in our guide. But we’re confident that we’ll continue to deliver great growth and that healthy growth by drawing in sort of customers. And then just your last question as it relates to —
Steven Miller — Senior Vice President, Chief Financial Officer
And then Oliver, was just rounding out on your last question regarding new stores — oh, good. Perfect.
Oliver Chen — Analyst
Oh, yeah. That would be helpful. Thank you. Well, what are your — any parameters you should — we should think about with these new stores and the nature of them different from prior indoor productivity levels that you expect?
Steven Miller — Senior Vice President, Chief Financial Officer
Yeah, very consistent productivity levels with what we expect. Our targets are 35% four-wall margins and payback within 20 months, all very similar formats. The majority of our stores will be opened in existing markets versus new markets, so roughly nine new markets and 16 existing markets. And most of our openings will be suburban as opposed to urban, so very consistent with what you saw last year, and happy to provide more color as part of our callback.
But that’s how we describe our new store plan for this year, really pointing to consistency in terms of format, location, and economics.
Oliver Chen — Analyst
Thank you very much.
Operator
Thank you. The next question today comes from the line of Brooke Roach from Goldman Sachs. Please go ahead. Your line is now open.
Brooke Roach — Analyst
Good morning, and thank you for taking our question. I was hoping you could speak to the drivers of non-marketing SG&A expense leverage that’s contributing to the 150 basis points of adjusted EBITDA margin expansion this year. What do those non-marketing opportunities look like on a multiyear basis? And is the 1 to 2 points of adjusted EBITDA margin expansion per year sustainable on a multiyear horizon?
Steven Miller — Senior Vice President, Chief Financial Officer
Great question. Thanks, Brooke. So yes, the 100 to 200 basis points of margin expansion, we believe is sustainable on a multiyear basis. So this past year, 2024, we expanded adjusted EBITDA margin by 170 basis points, the year before by 330 basis points.
The number that we’re projecting for this year is 150 basis points, right in the middle of the 100 to 200 basis points long-term algo that we’ve talked about frequently if we unpack what’s in non-marketing SG&A. So for now, we’re not planning to see any leverage as it relates to our marketing spend, but the categories of spend in there are salaries across our retail stores, customer experience teams, and headquarters, in addition to general corporate expenses that cover the rest of the company, all of the vendors that we pay, all of the third-party consultants that we might use. And we believe that there’s a really strong degree of future leverage that will come from finding efficiencies in each of those categories, so as we continue to staff more efficiently at our retail stores, as we continue to staff more efficiently across our customer experience and customer service teams, and as we certainly continue to leverage what we view as more of a fixed cost within corporate expenses that we’re only adding to on a very selective basis, whether it relates to onboarding a new vendor or hiring incremental employees for the team. And so I would really describe the sources of leverage within non-marketing SG&A in that order.
We certainly plan to benefit from all of that leverage as we hit our 150-basis-point target for adjusted EBITDA margin this year.
Brooke Roach — Analyst
Great. And then in the prepared remarks, you spoke about AI and personalization investments. The other technology trend in the industry is smart glasses. Can you talk about your strategy here?
Dave Gilboa — Co-Founder and Co-Chief Executive Officer
Sure. Yeah. We’ve certainly been staying close to the latest movement in wearables and the smart glasses market. And as hardware components continue to shrink and battery life improves, and most importantly, as real-time, always-on AI begins to offer meaningful utility to wearers in a form factor that looks similar to existing glasses, we expect adoption will grow quickly, and we believe we’ll have an important role to play.We believe we have highly complementary capabilities and assets to some of the companies that have been investing vast sums to bring leading AI models to the market.
And just given the strength of our brand, design capabilities, omnichannel distribution, prescription lens, supply chain, doctor network, our ability to deliver exceptional customer experiences, we believe it puts us in a strong position to enter this space if we choose to do so. And we look forward to sharing more as this market develops.
Brooke Roach — Analyst
Great. Thank you so much. I’ll pass it on.
Operator
Thank you. The next question today comes from the line of Dana Telsey from Telsey Group. Please go ahead. Your line is now open.
Dana Telsey — Analyst
Hi. Good morning, everyone. As you think about the price point architecture and whether it’s the $125, $150, the prices that are being expanded from the $95, and the average revenue per customer, what are you seeing within the different price points? How is it moving along? And then with the Target partnership, how do you think of the price points that you’ll be offering there? What’s the square footage of the in-store shop that you’ll have? And how do you think of the ability to scale that? Does it go from potentially from 5 to 20 in the next year? What markers do you have to say to expand it? Thank you.
Neil Blumenthal — Co-Founder and Co-Chief Executive Officer
Thanks. When we started the company, we were frustrated consumers, right, walking into an optical shop where the glasses were treated like precious jewelry in glass displays or behind the counter out of reach for hundreds of dollars, and we wanted to provide a seamless shopping experience, but more importantly, be able to provide exceptional value, effectively a fourth of the cost, so that’s why we started with $95, right, all in, with anti-reflective, anti-scratch prescription lenses. As we’ve expanded our assortment, we follow that same principle and how can we provide exceptional value, and we’ve introduced these new price points at $125, $145, $175, and $195 as we’ve introduced more complex constructions and different materials into our frames, continuing that promise of exceptional value where comparable quality, right, would cost hundreds of dollars elsewhere. So what we found is similar adoption and similar success with these higher price points where customers continue to view us as providing great value, and they go on to tell their friends about us.
Our customers continue to be our best source of marketing and customer acquisition. As we think of our partnership with Target and launch these first five shop-in-shops, we’re going to have the same assortment that we have in our regular stores. And our vertically integrated supply chain enables us to do that rather easily, right, where we can display frames and manage inventory out of our top-of-the-line optical labs outside of New York and outside of Las Vegas. And we think that those price points will continue to resonate as we’ve seen, thanks to sort of our — the consumer insights work that we’ve done.
Dana Telsey — Analyst
Thank you.
Operator
Thank you. Our next question today comes from the line of Nick Jones from Citizens. Please go ahead. Your line is now open.
Nick Jones — Analyst
Great. Thanks for taking the questions. I guess could you just talk about how you’re thinking about marketing this year. We’re hearing a lot of other kind of online platforms across commerce, travel, etc., talk about deeper integrations across social media platforms and other kind of mid-funnel opportunities.
Could you kind of at a high level discuss how you’re thinking about marketing and where you’re kind of seeing opportunities across the various channels?
Dave Gilboa — Co-Founder and Co-Chief Executive Officer
Yeah. We’ve invested in a pretty broad range of media channels and will continue to do so. We — over the years, we’ve seen and including recently over the last few quarters, we’ve seen strong performance from channels, ranging from linear TV and direct mail to digital advertising, search, social media, and we’ll continue to invest in those assets. We believe that awareness is still kind of a critical aspect that we need to invest against as we open new stores, as we hire new doctors, as we have new capabilities.
We still have around 1% market share in a massive category, and we have lots of customers who know us as an online company that sells glasses and aren’t as aware of a lot of our recent capabilities. And so we’re creating that awareness around many of our new stores, our eye exam capabilities, our contact lens business, the various lens offerings that that we have, and we’re seeing positive results in terms of driving both online traffic and awareness but also using those media channels to drive traffic into stores, leveraging channels like direct — localized direct mail, localized social media campaigns. And as we noted, we’ve seen very positive results in driving active customer growth as a result of some of those efforts, and we’ll continue to invest this year across that broad variety of channels.
Nick Jones — Analyst
Got it. And then maybe asking a separate question on kind of Target partnership. As we wait to kind of see the first five stores and see how that progresses, is there any sense or any kind of direction you can give us on how to think about the pace of opening a location in Target versus opening a stand-alone store? Is it about the same timeline? Is it faster or slower? Any color you can kind of help provide there? Thank you.
Neil Blumenthal — Co-Founder and Co-Chief Executive Officer
We’ve developed a lot of this capability in house where we’re sort of confident that we can move quickly and design spaces that our customers love, and it’s been great partnering with the Target team on this and are confident that we’ll be able to roll out some of these shop-in-shops in a manner that sort of fits both our strategies.
Nick Jones — Analyst
Thanks.
Operator
Thank you. Our next question today comes from the line of Janine Stichter from BTIG. Please go ahead. Your line is now open.
Janine Stichter — Analyst
Hey, good morning. I was hoping you could expand on a comment on e-commerce growth and awareness being stronger in markets, more density. Can you speak more to the halo effect that you see with e-commerce as you open stores or as you get to a point of density in the market? And then just curious how you view the interplay between store growth and e-commerce growth?
Neil Blumenthal — Co-Founder and Co-Chief Executive Officer
Yeah. There was a time early in our retail journey, our bricks-and-mortar journey, where when we would open a store, a first store or even a second store in a market, and we would see cannibalization of e-commerce sales. And that was really because there was a certain level of awareness, and there were folks that wanted to purchase in person but could only sort of shop online, and that sort of reflects the broader market. We think online penetration of the category is roughly 12% or so.
So what tended to happen was the stores, those first few stores would increase overall awareness, grow the overall pie. And after a year or two of initial cannibalization, e-commerce would return to growth in that geography. Now as we’ve already hit a critical mass of awareness and these incremental stores can help drive even deeper awareness and we start to see more and more returning customers as we’ve also introduced sort of these adjacent product categories like contacts and eye exams, that has helped us continue to grow exams as we’ve sort of continued to grow our e-commerce channel, right, as we’ve started to open up more and more stores in a given geography. Our locations tend to be centrally located with high visibility with beautiful facades.
We leverage a lot of artwork in our stores, not only on the inside of the stores, but on the facades. And those act as great billboards that help drive awareness, driving sales for both channels. And again, the reason why we love being a vertically integrated omnichannel brand is that we can create great experiences and seamless experiences as people go back and forth between both channels.
Janine Stichter — Analyst
Great. And the way to think about — go ahead.
Steven Miller — Senior Vice President, Chief Financial Officer
I was just — the one point, just to round out, Janine, I know we’ve talked a little bit about this. New stores are very efficient customer acquisition vehicles, and so our customer mix might skew a little newer at store and a little bit more returning online. So once a market densifies, i.e. New York is our densest market with 34 stores, we’ll see e-com in New York growing faster than e-com in our e-commerce-only markets.
And part of the reason for that is the two channels really support each other during the purchase process. But also afterwards, when it comes time for a customer to repeat purchase, you’ll see we have a very, very strong revenue retention rate. Our e-commerce channel really helps to support, bringing repeat purchasers back to the store given they found a style that they like. They’re comfortable with the purchasing process, and it’s very easy for them to — instead of going into the store, go online to make the next purchase.
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
Brooke Roach — Analyst
Dana Telsey — Analyst
Nick Jones — Analyst
Janine Stichter — Analyst
