National Vision Holdings, Inc. (NASDAQ:EYE) is a leading value retailer of eyeglasses, contact lenses, and eye care services in the United States. The company operates a diverse portfolio of 1,231 retail optical locations as of September 28, 2024, through its four store brands: America's Best Contacts and Eyeglasses, Eyeglass World, Vista Optical locations on select U.S. military bases, and Vista Optical locations within select Fred Meyer stores.

Company History and Growth

Founded in the 1980s, National Vision has a rich history of providing affordable and accessible vision care solutions to its customers. The company's mission is to make quality eye care and eyewear available to everyone. Over the years, National Vision has strategically expanded its footprint, leveraging its low-cost operating model and value-focused approach to drive growth and capture market share. The company started with its Americas Best Contacts and Eyeglasses brand, which aimed to provide affordable eye exams, eyeglasses, and contact lenses to customers. As it grew, National Vision added additional retail brands such as Eyeglass World and Vista Optical to its portfolio.

In the early 2000s, National Vision faced a significant challenge when its relationship with its largest partner, Walmart, came under pressure. The company successfully renegotiated its agreement with Walmart and adapted its business model during this period, demonstrating its resilience and ability to navigate complex partnerships. Despite this disruption, National Vision maintained its growth trajectory and continued expanding its store base.

A pivotal moment in the company's history came in 2017 when National Vision was acquired by private equity firm KKR & Co. Inc. This transaction provided the company with additional capital and resources to further expand its operations. Under KKR's ownership, National Vision accelerated its growth, investing in infrastructure improvements such as the development of in-house optical laboratories and a centralized supply chain.

In 2021, National Vision achieved another milestone by successfully completing an initial public offering, transitioning to publicly traded status. This move provided additional financial flexibility and access to public capital markets to support the company's long-term growth plans.

Financials

In the company's most recent fiscal year ended December 30, 2023, National Vision reported total revenue of $2.13 billion and a net loss of $65.9 million. The company's gross profit margin stood at 53.1%, while its adjusted EBITDA margin was 6.4%. As of the end of fiscal 2023, National Vision had $149.9 million in cash and cash equivalents on its balance sheet and $923.5 million in total debt, resulting in a net debt to adjusted EBITDA ratio of 2.3x.

During the first nine months of fiscal 2024, National Vision continued to navigate a challenging macroeconomic environment, reporting a 3.8% increase in total net revenue to $1.39 billion compared to the same period in the prior year. The company's adjusted comparable store sales growth was 1.2% for the nine-month period, reflecting a higher average ticket and an increase in customer transactions. Adjusted operating income for the first nine months of fiscal 2024 increased 10.0% to $62.3 million, while adjusted diluted EPS from continuing operations was $0.56.

For the most recent quarter ended September 28, 2024, National Vision reported revenue of $451.51 million, representing a 2.9% year-over-year increase. The company attributed this growth primarily to new store sales and a rise in customer transactions, partially offset by lower e-commerce revenue. Adjusted comparable store sales grew 0.9% in the quarter. However, the company reported a net loss of $8.47 million for the quarter.

In terms of cash flow, National Vision generated $27.92 million in operating cash flow and $4.05 million in free cash flow during the most recent quarter. For the fiscal year ended December 31, 2023, the company reported operating cash flow of $173.03 million and free cash flow of $58.26 million.

As of December 31, 2023, National Vision's financial position included $81.15 million in cash and an available credit line of $293.6 million. The company's debt-to-equity ratio stood at 0.989, while its current ratio and quick ratio were 1.00 and 0.70, respectively.

Business Segments and Operations

National Vision operates in a single reportable segment called the Owned Host segment. This segment consists of the company's owned brands (America's Best Contacts and Eyeglasses and Eyeglass World) and host brands (Vista Optical locations on select U.S. military bases and within select Fred Meyer stores).

As of September 28, 2024, the company operated: - 1,020 Americas Best retail stores - 130 Eyeglass World retail stores - 53 Vista Optical locations on select U.S. military bases - 29 Vista Optical locations within select Fred Meyer stores

The Owned Host segment also includes sales from the Americas Best, Eyeglass World, and Military omni-channel websites. In the most recent quarter, this segment generated $445.1 million in net revenue, representing 98.6% of the company's total net revenue. The segment's adjusted operating income was $80.8 million, or 18.1% of its net revenue.

National Vision's consolidated results also include activity recorded in the Corporate/Other category, which consists of the company's e-commerce website (formerly part of AC Lens) and the business conducted by FirstSight, a wholly-owned subsidiary licensed as a single-service health plan under California law.

Recent Developments and Strategy

In its most recent quarterly report, National Vision highlighted the ongoing strength in its managed care business, which helped offset softness in its cash-pay customer segment. The company also discussed the progress it is making on its transformation initiatives, including a comprehensive review of its store fleet, the implementation of traffic-driving promotions, and the expansion of its remote exam capabilities.

National Vision's store fleet review resulted in the decision to close 39 underperforming stores by the end of fiscal 2026, with an expected $4 million in annualized adjusted EBITDA improvement. These closures include 21 America's Best stores, 9 Eyeglass World stores, and 9 Fred Meyer locations. While this is expected to create a $13-$16 million revenue headwind, the majority of the EBITDA improvement and revenue impact will be realized in fiscal 2025.

Additionally, the company is temporarily moderating its new store growth in fiscal 2025, planning to open between 30 and 35 new America's Best stores, primarily in remote-enabled states. This strategic move will allow National Vision to allocate capital towards enhancing the overall patient and customer experience, such as modernizing the exam and shopping experience.

The company's remote exam capabilities have continued to advance, with over 730 locations enabled with remote technology as of the end of the third quarter of fiscal 2024. Remote exams now represent approximately 11% of total exams in remote-enabled states, and National Vision has been encouraged by the fact that remote doctors' patient seen per day exceeded that of in-store doctors for the first time during the quarter.

National Vision has also been actively exploring ways to drive traffic and enhance the customer experience, including the launch of new promotions, such as the Wise Buys promotion at America's Best, and the introduction of exclusive product partnerships, like the Pair Eyewear collection. These initiatives are aimed at attracting new customers and strengthening the company's value proposition.

Outlook and Guidance

For fiscal 2024, National Vision reiterated its guidance, expecting: - Total net revenue to be in the range of $1.82 billion to $1.84 billion - Adjusted comparable store sales growth between 0.5% and 1.5% - Adjusted operating income to be in the range of $57 million to $62 million - Adjusted diluted EPS from continuing operations to be between $0.45 and $0.50

Looking ahead to fiscal 2025, the company has announced plans to moderate new store growth, focusing on opening 30-35 new America's Best stores, primarily in remote-enabled states. The company plans to provide more detailed guidance for fiscal 2025 when it reports its Q4 2024 results.

Conclusion

Despite the ongoing challenges faced by the retail optical industry, National Vision remains focused on executing its transformation strategy, which includes optimizing its store fleet, enhancing the customer experience, and leveraging its remote exam capabilities to drive long-term growth and profitability. The company's single-segment focus allows for streamlined operations and targeted growth initiatives. As National Vision continues to navigate the evolving landscape, investors will be closely monitoring the company's ability to adapt to market conditions, improve profitability, and capitalize on the opportunities that arise in the competitive optical retail sector.