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Shares of Warby Parker Inc. pulled back sharply Wednesday after the eyewear retailer reported a surprise fourth-quarter loss as gross margins continued to fall.

The stock
WRBY,
-14.03%

tumbled 13.7% in morning trading. That puts it on track for the biggest one-day selloff since the record plunge of 24% on Nov. 8, 2023, after third-quarter results were reported.

The stock had run up 18% month to date ahead of the results, including a 7.7% jump on Tuesday.

The company reported before the opening bell net losses for the quarter to Dec. 31 that narrowed to $19.05 million, or 16 cents a share, from $20.25 million, or 18 cents a share, in the same period a year ago.

Excluding nonrecurring items, the adjusted net loss was $1.11 million, while the FactSet consensus called for earnings per share of 1 cent.

Gross margin declined to 53.8% from 55.1%, due primarily to increased sales of contact lenses, which are sold at a lower margin than glasses. For 2023, gross margin fell to 54.5% from 57%.

Other factors weighing on gross margin included increased doctor salaries — coupled with an increase in the number of stores offering eye exams — and increased store-occupancy costs.

The company has reported year-over-year declines in quarterly gross margin for every quarter since going public in September 2021.

The company said contact lens sales were about 9% of total revenue in 2023, which is well below the industry average of 20%.

“In 2024, we plan to continue to invest and grow this portion of our business as it not only attracts new customers, but also some of our highest value customers given the replenishment nature of the product,” said Co-Chief Executive Neil Blumenthal, according to an AlphaSense transcript of the post-earnings conference call with analysts.

While that might suggest further declines in gross margin, the company expects 2024 gross margin to “remain stable” in the mid-50s percentage range.

Chief Financial Officer Steve Miller explained on the call that the drag on gross margin from increased contacts sales and eye exams is expected to be offset by growth in the higher-margin businesses of glasses and Progressives, which are lenses that can contain multiple prescriptions.

Back to fourth-quarter results, the company said adjusted earnings before interest, taxes, depreciation and amortization (Ebitda), which is often a closely watched measure of underlying profitability for startups, rose to $9.4 million from $8.6 million, but missed the FactSet consensus of $9.8 million.

Revenue grew 10.5% to $161.9 million, to beat the FactSet consensus of $160.9 million, as active customers increased 2.5% to 2.33 million and average revenue per customer increased 9.3% to $287.

And also for 2024, the company expects revenue of $748 million to $758 million, which surrounds the current FactSet consensus of $751.2 million.

The stock has still run up 20% over the past three months, while the S&P 500
SPX,
-0.15%

has gained 11.3%.

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