Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenues in the second quarter were $452 million, up 4.6% over the same period last year.
- Adjusted comparable store sales improved to 2.4%, driven by a 2.9% increase at America's Best.
- Adjusted operating income increased by 13.8% to $14.1 million.
- The Eyeglass World brand showed sequential improvement in comp store sales from the first to the second quarter.
- Remote exam capabilities have been expanded to nearly 600 stores across 28 states, with remote exams now representing about 12% of exams in remote-enabled states.
Negative Points
- Despite positive sales, the financial results did not meet the anticipated targets for the year.
- Heightened macro consumer pressure affected second-quarter sales results, leading to a revision of the full-year guidance.
- Cash-pay customer sales were essentially flat, indicating ongoing consumer spending constraints.
- The company is facing increased costs, including higher doctor wages and other associate wages.
- Lower-than-expected results from this year's OD recruitment class impacted the company's ability to meet exam capacity demands.
Q & A Highlights
Q: What has changed about the industry or National Vision that has made returning to consistent mid-single-digit same-store sales growth more difficult?
A: Leonard Fahs, CEO: Post-pandemic, three main factors have impacted growth: disruption in the purchase cycle due to stimulus money, an optometric shortage as medical professionals retired early or reduced hours, and significant inflationary trends. National Vision has been adapting through remote medicine, flexible schedules, pricing actions, and digitization, but needs to accelerate these efforts to return to mid-single-digit comps and operating income margins.
Q: Is the increased cost of doing business the reason why next year's operating margin rate is expected to be flat? What else can be done to improve profitability?
A: Melissa Rasmussen, CFO: Yes, higher costs for optometrist wages, associate wages, and benefits are factors. National Vision operates a high fixed-cost model and is looking for ways to leverage costs more efficiently through technology advancements and other initiatives. Store rationalization is also being considered to improve profitability.
Q: How is the range of sales productivity across the fleet, and how are you approaching store optimization?
A: Melissa Rasmussen, CFO: There is a divergence across the fleet, with America's Best performing better than Eyeglass World. The optimization review will consider various factors, including capacity and demand alignment, to improve performance. The review will involve less than 5% of the total fleet and will include closures, conversions, or operational changes.
Q: What are you seeing in the third quarter to date, particularly with back-to-school promotions?
A: Leonard Fahs, CEO: July was weaker than June due to weather and IT challenges but still comped positively. The lack of an inflection point in July was a factor in lowering guidance. It's too early to comment on back-to-school trends.
Q: How much of the comp weakness is due to macro factors versus leaving sales on the table?
A: Melissa Rasmussen, CFO: It's a combination of both. National Vision is working to match exam capacity with patient demand through remote technology and other initiatives. The company is focusing on what it can control, such as expanding exam capacity and leveraging remote technology.
Q: What is the status of the remote rollout in Texas, and are there expectations for other states?
A: Melissa Rasmussen, CFO: All 25 dark and dim stores in Texas have been enabled with remote capabilities, with a total of over 140 stores expected to be completed by the end of the year. Other states will be considered based on favorable legislation.
Q: What is the go-forward sales algorithm for National Vision, considering industry growth, comps, and new store contributions?
A: Melissa Rasmussen, CFO: The industry is growing at about 3%. National Vision aims to optimize growth through new stores and established store growth. The company is finding efficiencies to leverage its cost structure at a lower comp level while focusing on top-line improvement.
Q: What changed in your second-half outlook, and how much is due to demand versus doctor availability?
A: Melissa Rasmussen, CFO: The outlook revision is due to a combination of year-to-date performance, macro concerns, and lower-than-expected recruiting and retention trends. While there are positive trends from remote expansion and sales initiatives, the improvement was not enough to meet the original guidance.
Q: What is the average lease life of your pre-existing fleet, and is there a permanent four-wall pressure on overall contribution?
A: Melissa Rasmussen, CFO: Lease terms range between 5 and 10 years. While there is pressure on four-wall profitability, it remains healthy. The company balances pricing with cost increases and continues to evaluate ways to optimize profitability.
Q: Is remote care still expected to be an incremental benefit to the model in the long term?
A: Leonard Fahs, CEO: Yes, remote care is an important factor for expanding exam capacity and addressing the optometric shortage. It has become more efficient and profitable over time and will continue to play a significant role in the company's strategy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
