Warby Parker’s revenue jumped 14 percent to $170 million in the third quarter of the year, an increase propelled by 11 new store openings, product launches and higher sales of its contact lenses. But the company’s stock price still fell over 20 percent after the earnings release, as gross margins dropped to 55 percent from 57 percent a year earlier.

That drop can be attributed to the fact that some of Warby Parker’s biggest growth drivers are starting to strain its profit margins. Contact lenses, for one, have lower margins than eyeglasses. The brand’s store expansion, which has helped it narrow losses by driving customer acquisition while cutting back on digital advertising, also compressed margins in the third quarter. That was due in part to the company hiring more optometrists to increase the number of stores that offer eye exams.

Still, the eyewear maker managed to improve net losses by around $6 million because of its sales growth. But its profit margins on adjusted earnings before interest, taxes, depreciation and amortisation dropped to 6.5 percent from 8 percent a year earlier.

Warby Parker raised its year-over-year revenue growth expectations for 2023 to nearly 12 percent, up from 11 percent previously. Its profit slip in the third quarter, however, may have spooked investors.

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The DTC Eyewear Brands Challenging Warby Parker

As the digital pioneer focuses more on its stores, competitors see an opportunity to fill the void in e-commerce. But with online prescription glasses sales on the decline, they may soon need to follow their rival into the real world.