Warby Parker is one of Evercore ISI's top SMID picks

Warby Parker was named one of Evercore ISI’s Best SMID Core Ideas. The firm sees Warby Parker (NYSE:WRBY) as well positioned for future growth in the $40B U.S. vision care market, with its penetration rate standing at just 1%.

The eyeglass retailer was noted to be seeing accelerating online penetration and observed to have a demographic tailwind as ~20MM people are entering the +65 cohort in the next decade with the need for vision correction. The overall Warby Parker (WRBY) business model was called robust, with ~60% gross margin rates, positive EBITDA, industry-leading retail store productivity, and highly consistent customer retention rates all standing out. The New York City-based company was also said to have a steady track record of product innovations from Home Try-On introduced at launch in 2010 to app-based Virtual Try-On and Virtual Vision Test, and product expansions into progressive lenses, add-ons , private-label contacts, and more. Warby Parker (WRBY) is expected to see further total addressable market expansion into contact lenses, eye exams, and vision insurance in the long term.

Evercore ISI has an Outperform rating on Warby Parker and price target of $18. For the near-term, an attractive risk-reward profile is seen on a growth-adjusted basis, both intrinsically and relative to peers.

During Q4, Warby Parker (WRBY) reported revenue rose 10.5% year-over-year to $161.9M in Q4. Average revenue per customer increased 9.3% to $287. The company's total count of active customers increased 2.5% to 2.33M. Gross margin was 53.8% compared to 55.1% in the prior year. The decrease in gross margin was primarily driven by the sales growth of contact lenses which are sold at a lower margin than glasses, increased doctor salaries, as the number of stores offering eye exams grew, and increases in store occupancy costs. Those impacts were partially offset by increased progressives penetration, increased efficiencies in owned labs, and lower outbound customer shipping costs as a percent of revenue. Adjusted EBITDA was $9.4M vs. $8.6M a year ago. EPS came in at -$0.16 vs. -$0.12 consensus and -$0.18 a year ago.

Shares of Warby Parker (WRBY) are down 8.5% on a year-to-date basis.