National Vision(EYE) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net revenue growth of 6.6% for Q3 2023, with comparable store sales growth of 4.3% and adjusted diluted EPS of $0.15, unchanged from the prior year period [19][41][43] - Adjusted operating income decreased to $15.7 million from $21.5 million in the prior year, with adjusted operating margin declining by 130 basis points to 3% [33][52] - The effective tax rate for Q3 was 5.8%, primarily due to legacy segment impairment losses [43] Business Line Data and Key Metrics Changes - Strength was noted in the America's Best brand, while Eyeglass World experienced softness [20][42] - The company opened 70 new stores in Q3, with a combined unit growth of 5.3% across America's Best and Eyeglass World [28] - The company continues to address dark and dim store performance, with dark stores being approximately 80% less productive than fully staffed stores and dim stores about 50% less productive [30][34] Market Data and Key Metrics Changes - The managed care business showed strength, indicating a trade-down behavior among customers in a dynamic macro environment [21][63] - The company expects revenue from Walmart store operations and AC Lens operations to account for approximately $355 million in 2023, with a total of about $400 million expected from these operations [49][50] Company Strategy and Development Direction - The company is focused on streamlining operations following the termination of the Walmart partnership, which will allow for a more simplified business model [25][40] - Strategic initiatives are aimed at expanding exam capacity and improving operational efficiency, particularly in America's Best [19][21] - The company plans to implement an expense reduction program targeting annualized savings of $10 million to $12 million [66] Management's Comments on Operating Environment and Future Outlook - Management expressed a conservative outlook due to the challenging macro environment but remains committed to achieving objectives for the year [27][60] - The company anticipates a deceleration in comparable store sales growth for Q4, factoring in current business trends and consumer health [8][41] - Management is optimistic about achieving mid-single digit adjusted operating margins by 2025 through pricing actions and cost savings [68][141] Other Important Information - The company ended Q3 with a cash balance of approximately $266 million and total liquidity of $559 million [45] - Capital expenditures for 2023 are expected to be in the range of $115 million to $120 million, primarily for new stores and technology investments [46] - The company is on track to complete the rollout of electronic health records at all America's Best locations by the end of 2024 [36] Q&A Session Summary Question: Can you provide commentary on the comp differential between managed vision care and out-of-pocket? - Management noted that trade-down behavior continues, with a greater percentage of customers coming from higher income households, impacting both managed care and non-managed care segments [63] Question: What is the expectation for mid-single digit operating margins by 2025? - Management indicated that pricing actions and ongoing strategic initiatives will contribute to achieving this goal, with a focus on improving margins without disrupting customer value [77][141] Question: Can you discuss the impact of remote exam capabilities on productivity? - Management highlighted that remote exams have significantly improved productivity, particularly in dark and dim stores, and they expect remote doctors to at least match the productivity of in-store doctors [137][138] Question: How is the competitive landscape evolving? - Management acknowledged increased marketing efforts from competitors but emphasized that the market remains fragmented, and their focus is on budget-conscious consumers [92] Question: What is the status of dark and dim stores? - Management reported a decrease in dark stores and ongoing efforts to improve dim store performance through remote capabilities [34][100]