National Vision(EYE) - 2022 Q4 - Annual Report

PART I Business National Vision is a leading U.S. value optical retailer, operating 1,354 stores and providing affordable eye care and eyewear - National Vision is a leading value optical retailer in the U.S. with a mission to make eye care and eyewear affordable and accessible, operating 1,354 retail stores and 16 consumer websites as of fiscal year-end 2022[24] Overview of Brands (as of Dec 31, 2022) | Brand | Positioning | OD Model | Store Count | Avg. Sq. Ft. | Frame SKUs | Lab Type | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | America's Best | Lowest Price | Employed ODs | 905 | ~3,500 | ~1,400 | Centralized Lab | | Eyeglass World | Eyewear Value Superstore | Mostly Independent ODs | 136 | ~4,500 | ~1,400 | In-Store / Centralized | | Vista Optical (Fred Meyer) | Shop-Within-A-Shop | Mostly Independent ODs | 29 | ~800 | ~600 | Centralized Lab | | Vista Optical (Military) | Commissary Store | Mostly Independent ODs | 54 | ~1,000 | ~800 | Centralized Lab | | Walmart Vision Center | Shop-Within-A-Shop | Mostly Independent ODs | 230 | ~1,800 | ~800 | Centralized Lab | - The company has a long-term growth target to expand its America's Best brand to at least 1,300 stores and its Eyeglass World brand to at least 850 stores, totaling at least 2,150 stores[30] - As of December 31, 2022, the company had 13,975 full-time and part-time associates; professional corporations it contracts with employed an additional 1,841 optometrists[60] - The company has deployed a telehealth solution in approximately 300 America's Best locations as of year-end 2022, allowing remote optometrists to conduct eye exams and address exam capacity constraints[46] - The business is subject to extensive government regulation, including state laws on the corporate practice of medicine, the Fairness to Contact Lens Consumers Act (FCLCA), HIPAA for data privacy, and FDA regulations for medical devices[88][89][91][95] Risk Factors The company faces multiple risks including economic volatility, intense competition, operational challenges, and substantial indebtedness - Business and operational risks include the continued impact of the COVID-19 pandemic, economic volatility affecting consumer spending, intense industry competition, and challenges in recruiting and retaining vision care professionals, which led to exam capacity constraints in 2022[109][113][117][120] - The company has significant concentration risk with its Legacy partner, Walmart; sales from this arrangement represented 7.6% of consolidated net revenue in fiscal 2022; the management agreement term ends on February 23, 2024[125] - There is a high concentration of supplier risk; in fiscal year 2022, 87% of spectacle lens expenditures were with one vendor, and 92% of contact lens expenditures were with three vendors[170] - The company has a significant amount of debt, totaling approximately $552.5 million as of December 31, 2022, which could limit business flexibility and affect its financial position[203] - Extensive state and federal regulations, particularly those related to the corporate practice of medicine/optometry and telehealth, pose a risk to the company's operating model and its ability to expand its remote medicine solutions[181] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[228] Properties The company leases all its retail stores, corporate offices, and facilities, including 905 America's Best and 136 Eyeglass World stores - The company leases all of its America's Best and Eyeglass World retail stores, typically with 5- to 10-year noncancelable terms[230] Store Count by Major Brand (as of Dec 31, 2022) | Brand | Store Count | | :--- | :--- | | America's Best | 905 | | Eyeglass World | 136 | | Legacy (Walmart) | 230 | | Other (Vista Optical) | 83 | - Corporate offices are leased in Duluth, Georgia, with additional leased office space in Columbus, Ohio (AC Lens) and Upland, California (FirstSight)[233] Legal Proceedings The company faces various legal proceedings, including a wage and hour class action and a securities class action lawsuit - A lawsuit was filed by a former employee in California alleging violations of wage and hour laws on behalf of a proposed class[573] - A purported class action complaint was filed in federal court in Georgia alleging violations of the Exchange Act for materially false and misleading statements made between May 2021 and May 2022[574] Mine Safety Disclosures This item is not applicable to the company - Not applicable[235] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'EYE', has no dividend plans, and maintains a share repurchase program - The company's common stock is listed on the Nasdaq Global Select Market under the symbol 'EYE'[237] - The company has no current plans to pay dividends on its common stock[241] - The Board of Directors has authorized a total of $200 million for share repurchases; during fiscal year 2022, the company repurchased 2.7 million shares for $80.0 million, with approximately $50 million remaining available as of December 31, 2022[240] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2022, net revenue decreased by 3.6% to $2.01 billion, leading to a 67.2% drop in net income, reflecting macroeconomic pressures and capacity constraints Results of Operations In fiscal year 2022, net revenue decreased by 3.6% to $2.01 billion, primarily due to a 7.6% decline in comparable store sales, significantly impacting profitability Fiscal Year 2022 vs. 2021 Performance (in millions) | Metric | Fiscal Year 2022 | Fiscal Year 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Net Revenue | $2,005.4 M | $2,079.5 M | (3.6)% | | Income from Operations | $61.3 M | $174.9 M | (65.0)% | | Net Income | $42.1 M | $128.2 M | (67.2)% | | Diluted EPS | $0.52 | $1.43 | (63.6)% | | Adjusted EBITDA | $180.3 M | $294.4 M | (38.8)% | - The 3.6% decrease in net revenue for FY 2022 was primarily driven by a decline in Adjusted Comparable Store Sales Growth of (7.6)%, partially offset by sales from 80 new stores opened during the year[293][295] - Costs applicable to revenue increased as a percentage of net revenue to 46.2% in FY 2022 from 43.5% in FY 2021, mainly due to higher optometrist-related costs and lower eyeglass margin[300] - Selling, general and administrative (SG&A) expenses increased as a percentage of net revenue to 45.6% in FY 2022 from 43.3% in FY 2021, driven by higher store payroll and corporate overhead, partially offset by lower incentive compensation[306] Liquidity and Capital Resources As of December 31, 2022, the company had $229.4 million in cash and $293.6 million in revolving credit availability, with operating cash flow decreasing - As of December 31, 2022, the company had $229.4 million in cash and cash equivalents and $293.6 million of availability under its revolving credit facility[361] Cash Flow Summary (in thousands) | Cash Flow Activity | Fiscal Year 2022 | Fiscal Year 2021 | Fiscal Year 2020 | | :--- | :--- | :--- | :--- | | Operating Activities | $119,198 | $258,938 | $234,981 | | Investing Activities | $(110,894) | $(92,897) | $(76,410) | | Financing Activities | $(84,556) | $(234,324) | $176,281 | - Net cash from operating activities decreased by $139.7 million in FY 2022, primarily due to an $86.1 million decrease in net income and unfavorable changes in working capital[362] - Capital expenditures totaled $113.5 million in FY 2022, an increase from $95.5 million in FY 2021, mainly for new stores and remote medicine infrastructure; the company projects $115 million to $120 million for fiscal year 2023[366][373][374] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to changes in interest rates on its variable-rate debt, with $150.0 million subject to variable rates as of December 31, 2022 - The company is exposed to market risk from changes in interest rates on its variable-rate debt[398] - As of December 31, 2022, $150.0 million of term loan borrowings were subject to variable interest rates; the company uses an interest rate collar to mitigate some of the effects of interest rate increases[399][400] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2020-2022, including key financial statements and an unqualified auditor opinion Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Jan 1, 2022 | | :--- | :--- | :--- | | Total Current Assets | $473,836 | $514,576 | | Goodwill | $777,613 | $777,613 | | Total Assets | $2,291,246 | $2,293,091 | | Total Current Liabilities | $344,264 | $343,803 | | Long-term Debt & Finance Leases | $563,388 | $566,081 | | Total Liabilities | $1,390,133 | $1,367,111 | | Total Stockholders' Equity | $901,113 | $925,980 | Consolidated Statement of Operations Highlights (in thousands) | Account | Fiscal Year 2022 | Fiscal Year 2021 | Fiscal Year 2020 | | :--- | :--- | :--- | :--- | | Total Net Revenue | $2,005,404 | $2,079,525 | $1,711,760 | | Total Costs Applicable to Revenue | $925,587 | $904,779 | $786,624 | | Income from Operations | $61,275 | $174,937 | $87,007 | | Net Income | $42,122 | $128,244 | $36,277 | - The goodwill balance for the Legacy segment was $60.1 million as of December 31, 2022; the fair value of this reporting unit exceeded its carrying value by a relatively small margin, making it sensitive to changes in assumptions like the discount rate, which was identified as a Critical Audit Matter[409][410] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[611] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[613] - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2022, based on the COSO framework[616] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[617] PART III Directors, Executive Officers and Corporate Governance This section identifies executive officers as of March 1, 2023, and incorporates detailed information from the 2023 Proxy Statement Executive Officers (as of March 1, 2023) | Name | Age | Position | | :--- | :--- | :--- | | L. Reade Fahs | 62 | Chief Executive Officer and Director | | Melissa Rasmussen | 46 | Senior Vice President, Chief Financial Officer | | Patrick R. Moore | 59 | Senior Vice President, Chief Operating Officer | | Ravi Acharya | 48 | Senior Vice President, Chief Technology Officer | | Jared Brandman | 46 | Senior Vice President, General Counsel and Secretary | | Bill Clark | 48 | Senior Vice President, Chief People Officer | | Joe VanDette | 45 | Senior Vice President, Chief Marketing Officer | - Additional information required by this item is incorporated by reference from the company's definitive 2023 Proxy Statement[636] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[637] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[638] Certain Relationships and Related Transactions and Director Independence Information regarding related transactions and director independence is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[639] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[640] PART IV Exhibits and Financial Statement Schedules This section lists consolidated financial statements, schedules, and an index of all exhibits filed with or incorporated by reference into the Form 10-K report - This section lists the consolidated financial statements, financial statement schedules, and all exhibits filed as part of the Form 10-K[642][643] Form 10-K Summary The company indicates that there is no Form 10-K summary - None[650]