DTC Briefing: Green shoots emerge as some DTC brands raise their outlooks in Q2

Overall, the outlook for DTC brands remains bifurcated. Some, like Solo Brands and Brilliant Earth, lowered their outlooks amid an uncertain macroeconomic environment. 

But, multiple companies – specifically Warby Parker, Hims & Hers Health Inc. and Figs – raised their full-year outlook on the back of strong second-quarter earnings. Scrubs brand Figs previously expected sales to decline by as much as 2%. Now, it’s projecting sales to be flat, or up by as much as 2% after new product launches performed better than expected.

While it’s not a massive increase, it’s a sign that some brands that were projecting 2024 to be a down year may be able to eke out a little bit of growth as certain economic indicators improve. 

Below are other takeaways from DTC brands during second-quarter earnings: 

Consumers remain cautious about big-ticket purchases 

How 2024 is looking for brands is partially dependent upon what category they are operating in. Jason Goldberg, chief commerce strategy officer at Publicis, said generally speaking, two types of companies are performing well right now: those that sell essential goods, or those that sell non-essentials “that have built a particularly strong relationship with a consumer and have a differentiated value proposition.”

But nearly every category is still seeing some challenges with purchasing habits. Spear of Figs said, for example that nurses are buying fewer sets of scrubs per year compared to pre-Covid. But, Figs has been aided by the sales of non-scrubs products. In the second quarter, it launched a line of leggings, and sales of non-scrubs products grew by 13% in the second quarter.

Over at Warby Parker, co-founder and CEO Dave Gilboa said that the brand was seeing more customers “select higher-priced frames with more complex constructions.” That was one data point that led Warby Parker to boost its outlook, and the glasses brand is now expecting revenue to increase between 12.5% and 13.5% this year. 

Hims meanwhile, is not seeing any signs of consumer pullback, and is expecting revenue to total as much as $1.4 billion in 2024, up significantly from $872 million in sales in 2023. Hims a telehealth platform, allows consumers to access medications to treat common conditions like hair loss and erectile dysfunction. As of May, the company now offers access to GLP-1 injections.

Hims CFO Yemi Okupe said during the earnings call that Hims helps people treat some of the “most emotionally resonant conditions.” And as a result, “[what] we’ve observed historically during these moments of economic uncertainty is that consumers are very reticent to let that go.”

The second quarter proved to be much more challenging for other companies. Brilliant Earth, which sells lab-grown diamonds, reported that sales were down 4% year-over-year. The company is expecting net sales to be as low as $410 million in 2024, compared to $446 million in 2023. 

“Since June, we’ve encountered a weaker-than-expected consumer environment, specifically for highly considered purchases,” CEO Beth Gerstein said. 

Brand ubiquity remains key to breaking through the noise 

Another common thread connecting the haves from the have-nots in the DTC space is marketing. Some brands are still struggling to figure out the right marketing mix, making it harder to acquire new customers at a time when customers are already picky about what they are willing to buy. 

Goldberg said that amid a tough macroeconomic climate, more brands have pivoted to focusing on profitability. And some, as a short-term response, have cut marketing costs, specifically brand marketing But, he added that that can be counterproductive sometimes. “As you move further away from establishing value for your brand and building your actual brand, your ability to win in this market, it gets more greatly eroded,” he said. 

Solo Brands, which previously blamed a poor fourth-quarter performance on spending too little on performance marketing, had another challenging quarter. 

The company lowered its annual guidance amid an “uncertain macroeconomic environment,” and is projecting sales to be down by as much as $24 million this year. “We know that the marketing campaigns that we’ve run over the past couple of years hasn’t been as effective as they should be,” CEO Chris Metz said during the second quarter earnings call. But, he said the company was optimistic about its first true full-funnel marketing campaign, which it would roll out in August.

Figs, on the other hand, said its second-quarter performance was aided by taking more of a “360-degree marketing” approach. Andrew Lipsman, an independent media analyst at Media, Ads + Commerce, said that a key challenge many digitally-native startups have encountered over the years is that “there has to be cultural awareness of the brand,” and that when a brand relies only on performance marketing, “they reach a ceiling in terms of who they can hit.”

Figs’ marquee campaign this quarter was an Olympics-themed initiative. The company announced that it would outfit the Team USA medical volunteers, starting with the 2024 Olympics and Paralympics. To promote the campaign, Figs created a short film to highlight the medical team. It hosted an event to watch the Opening Ceremonies in New York. And the campaign had other components across channels like streaming, billboards and social.

Spear said that Figs will be looking to do more of this “360-degree marketing brand that will continue to elevate our brand.” 

Lipsman said that in order to take a 360-degree marketing approach, brands have to invest in things that build true cultural awareness. And what makes true cultural awareness, he said isn’t just that a random person off the street is familiar with a brand, but that “any person knows that the person next to them also knows what that brand is.”

The AI creep continues 

Mentions of artificial intelligence continue to ramp up on earnings calls. More brands are using AI to aid in the various parts of creating an ad campaign. Matt Meeker, CEO of Bark said during his company’s earnings call that the pet care brand was “using artificial intelligence tools to generate more and better creative and do so more efficiently.” 

Others are investing in AI-powered styling or try-on tools. Resale app ThredUp launched a suite of AI tools last week, ahead of its earnings, that aim to help generate outfit suggestions for customers based on queries like “Brat summer” or “cottage core.” Warby Parker said it piloted an AI-powered styling tool during the second quarter that makes frame recommendations. 

Hims & Hers, meanwhile, “recently kicked off our search for a CTO with expertise in AI and machine learning,” according to CEO Andrew Dudum. “We believe this hire will help put us at the forefront of the many exciting opportunities AI can bring in health care.”

Lipsman said that particularly as it relates to marketing, he’s in favor of more brands adopting AI if it helps them create better creative – but is skeptical about it until more brands definitively share numbers showing how much these tools are benefitting their businesses,  “We can’t just hand wave that we use AI and it’s somehow better. You have to show the results of using AI,” he said. 

“At the end of the day, there are no real shortcuts to building an enduring brand,” Lipsman said. And all of the investments today’s DTC brands are making – deciding how much to invest in AI, brand building, or performance marketing – ladders up to that. 

What I’m reading 

• Hair care brand Madison Reed is tapping athletes on the UConn women’s basketball team to promote a new product launch. 
• E.l.f Beauty is on a tear, reporting that that sales jumped 50% during its fiscal first-quarter earnings. 
• The Business of Fashion has a look at how Rothy’s is dipping its toes into international expansion, starting with a pop-up in the department store Liberty London. 

What we’ve covered 

• Founders of newer startups like Modern Dose and Dryft shared how they bootstrapped their brands. 
• Marketers at brands like Birdy Grey and Lumin sound off on how influencer marketing has changed. 
• According to a report from MediaRadar, prebiotic soda brand Poppi spent more than $43 million on advertising from January to April, more than both Dr. Pepper and Gatorade.