National Vision Holdings, Inc. (NASDAQ:EYE) is one of the largest optical retailers in the United States, operating a diverse portfolio of 1,201 retail stores across four brands as of March 30, 2024. National Vision has established itself as a leader in the attractive value segment of the U.S. optical retail industry, providing eye exams, eyeglasses, and contact lenses to value-seeking and lower-income consumers.

Business Overview

Despite the challenging macroeconomic environment, National Vision has remained focused on executing its core growth initiatives and strengthening its competitive advantages. In the first quarter of 2024, National Vision delivered results in line with its expectations, reporting total net revenue of $542.5 million, up 4.2% year-over-year. However, National Vision's adjusted comparable store sales growth from continuing operations was 0.4%, reflecting the impact of a slower start to the tax refund season and ongoing consumer caution amid economic uncertainty.

National Vision's Owned & Host segment, which includes its America's Best, Eyeglass World, Military, and Fred Meyer brands, generated $476.9 million in net revenue, an increase of 3.2% compared to the prior-year period. This growth was primarily driven by new store openings and comparable store sales growth, partially offset by the impact of closed and converting stores. National Vision's Corporate/Other segment, which includes its AC Lens and FirstSight operations, contributed $68.0 million in net revenue, up 4.8% year-over-year, driven by increases in wholesale fulfillment.

Financials

National Vision's costs applicable to revenue increased 5.6% to $248.7 million, representing 45.8% of net revenue, up from 45.2% in the prior-year period. This increase was primarily driven by lower eyeglass mix, higher growth in optometrist-related costs, and other mix and margin effects, partially offset by the positive impact of higher exam revenue.

Selling, general, and administrative (SG&A) expenses increased 5.2% to $245.4 million, or 45.2% of net revenue, up from 44.8% in the prior-year period. This increase was primarily driven by higher litigation settlement costs, legal and professional expenses, and other operating expenses, partially offset by decreases in performance-based incentive compensation and stock-based compensation expense.

Strategic Initiatives

Despite the challenging macroeconomic environment, National Vision remains focused on executing its strategic initiatives to drive long-term growth. National Vision has made significant progress in expanding its remote exam capabilities, with over 550 locations enabled as of the end of 2023. In the first quarter, remote exams represented over 7% of all exams provided, and in remote-enabled states, they were in the low double-digit percentage range.

National Vision's efforts to improve doctor retention and recruitment have also been successful, with levels remaining healthy in the first quarter. National Vision is particularly excited about the opportunity to expand its remote exam capabilities into Texas, the largest state with America's Best presence, which it expects will benefit sales in the second half of 2024.

Additionally, National Vision has made progress in reenergizing its Eyeglass World brand, with a focus on standardizing operations, improving coverage, and leveraging remote technology. The conversion of 20 Eyeglass World stores in California to the America's Best brand is also progressing well, with National Vision's training teams helping the staff and doctors transition to the new model.

Liquidity

National Vision's balance sheet remains strong, with $150.0 million in cash and cash equivalents and $293.6 million of availability under its Revolving Loans as of March 30, 2024. National Vision was in compliance with all covenants related to its long-term debt as of the same date.

Outlook

Looking ahead, National Vision is reaffirming its fiscal 2024 outlook, which includes the impact from the termination of its Walmart partnership and the wind-down of its AC Lens operations. National Vision expects the termination of the Walmart partnership and the wind-down of AC Lens to reduce its revenues, profitability, and cash flows, which could adversely impact its operational results and financial condition.

Risks and Challenges

Despite the ongoing macroeconomic challenges, National Vision remains committed to controlling the aspects of its business that it can control, including disciplined expense management, productivity improvements, and gross margin expansion. National Vision believes that its strategic initiatives, such as the expansion of remote exam capabilities and the reenergizing of its Eyeglass World brand, will position it for long-term success and the achievement of its fiscal 2025 target of a mid-single-digit adjusted operating margin.

Conclusion

National Vision is navigating the current macroeconomic environment with a focus on executing its core growth initiatives and strengthening its competitive advantages. National Vision's strong balance sheet, disciplined expense management, and strategic initiatives position it well to weather the ongoing challenges and deliver value to its shareholders over the long term.