Executive Summary / Key Takeaways

• Strategic Transformation Driving Growth: National Vision is successfully executing a multi-year transformation, shifting focus from purely budget-conscious consumers to higher-value managed care, progressive, and outside Rx customer segments, which now represent a significant portion of sales and are driving robust comparable store sales growth.
• Strong Financial Rebound: The company delivered its highest Q2 results in recent years, with adjusted comparable store sales up 5.9% and adjusted operating income surging 69% year-over-year, leading to a 180 basis point margin improvement. This performance is fueled by effective pricing actions, product assortment enhancements, and operational efficiencies.
• Technological Differentiators and Digital Leap: EYE leverages a differentiated optometry network with remote exam technology (surpassing 1 million exams) and is investing heavily in AI-powered diagnostics (Toku Inc. BioAge pilot), a new ERP system, and an Adobe CRM platform to enhance efficiency, personalization, and customer experience.
• Prudent Outlook with Upside Potential: Management raised its full-year 2025 guidance, projecting revenue between $1.93 billion and $1.97 billion and adjusted EPS of $0.62 to $0.70, reflecting confidence in ongoing initiatives while maintaining a cautious stance on macroeconomic factors and awaiting proof points from new digital platforms.
• Optimized Fleet and Capital Allocation: Strategic store closures and a temporary moderation in new store openings for 2025 are reallocating capital to strengthen the existing store base and enhance customer experience, aiming for improved comparable store sales and operating leverage.

The Visionary Shift: Redefining Value in Optical Retail

National Vision Holdings, Inc. ($EYE) has long been a stalwart in the U.S. optical retail sector, founded in 1990 with a clear mission: to make quality eye care and eyewear affordable and accessible to all Americans. Historically, the company built its business around the cash-pay, budget-conscious consumer. However, the optical landscape is dynamic, marked by evolving consumer preferences, technological advancements, and a growing emphasis on managed vision care. EYE has not only adapted but is actively reshaping its strategy to thrive in this environment.

The company operates a vast network of 1,240 retail optical locations under brands like America's Best Contacts and Eyeglasses, Eyeglass World, and Vista Optical. This extensive footprint, coupled with its market recognition as a leading value provider, forms a foundational strength. Yet, the customer base has broadened significantly over the years, with managed care customers growing to approximately 40% of revenues by 2024. This demographic shift, alongside an "emergent optometrist shortage" in 2022, catalyzed a multi-year transformation that is now yielding tangible results.

In the competitive arena, EYE occupies a distinct position. Global eyewear giant EssilorLuxottica (ESLOY) dominates the premium and vertically integrated segments, boasting a gross profit margin of 63% and an operating profit margin of 13%. Digitally native Warby Parker (WRBY) disrupts with its direct-to-consumer model and online-first approach, though it currently reports a negative operating profit margin of -4%. Warehouse club Costco (COST) offers optical services as part of its broader membership-based value proposition, achieving a 4% operating profit margin with a much lower gross margin of 13%. EYE differentiates itself through its extensive physical presence, specialized eye care expertise, and a value proposition that is now being refined to appeal to a broader, more resilient customer base. While EYE's TTM gross profit margin of 58.61% is competitive, its TTM operating profit margin of 0.43% indicates room for improvement, which the current transformation aims to address.

Technological Edge: Illuminating the Path Forward

A cornerstone of National Vision's transformation is its commitment to technological differentiation and innovation. The company's robust optometry network provides an unmatched eye exam experience, leveraging industry-leading technology for both in-store and remote examinations. This dual approach is a significant competitive moat, enhancing accessibility and operational efficiency.

The remote exam technology has been a game-changer, enabling over 730 locations by the end of 2024 and accounting for approximately 12% of exams in remote-enabled states. A notable achievement in the second half of fiscal 2024 was remote doctors' patient-seen-per-day surpassing that of in-store doctors, underscoring the efficiency gains. By Q2 2025, the company celebrated a significant milestone, having conducted over 1 million remote exams. This capability directly addresses the optometrist availability constraints, ensuring consistent service delivery and optimizing doctor utilization across the fleet. The hybrid remote pilot, expanded to 16 stores, further exemplifies this, allowing in-store optometrists to remotely perform exams in other stores based on demand, promising systemic improvements in patient throughput.

Beyond remote care, EYE is investing in cutting-edge AI. The company has invested $3.3 million in Toku Inc., an entity specializing in AI-powered screening and diagnostic tools for retinal imaging. A pilot of Toku's BioAge wellness product, which uses retinal images to determine biological age, has expanded to 117 stores across five states. While currently a cash-pay service, this initiative is strategically building "muscle memory" for future AI-driven diagnostics, positioning EYE at the forefront of integrating advanced health screening into routine eye care.

The digital transformation extends to customer engagement and internal operations. An in-store app, rolled out in Q2 2025, demonstrates the advantages of advanced lens technologies and progressive lenses, enhancing the sales experience. Furthermore, the first phase of a new finance and accounting ERP system went live in Q2 2025, streamlining core financial processes. A new Adobe CRM platform is slated for a second-half 2025 launch, designed to create personalized customer journeys, improve targeting precision, and significantly enhance online experiences, ultimately driving customer retention and basket size through tailored offers. These technological advancements are not merely incremental improvements; they are foundational to EYE's competitive strategy, enabling higher average tickets, better conversion rates, and a more efficient, personalized customer experience.

Strategic Pivot: Capturing the Evolving Consumer

National Vision's strategic pivot is centered on "heightened segmentation, personalization, and digitization" across its messaging, product assortment, pricing architecture, and consumer experience. This involves a deliberate focus on three target customer cohorts: managed care, progressive lens wearers, and outside Rx customers. These segments, while representing about half of the customer base, contribute a disproportionately large percentage of sales and exhibit greater resilience to macroeconomic fluctuations.

The managed care segment, now 40% of EYE's revenue, is a key growth driver. In Q2 2025, this business delivered low double-digit comparable store sales growth, bolstered by strong increases in both average ticket and customer traffic. To better serve these customers, whose benefits often average $130 for frames, EYE is evolving its product assortment to increase the percentage of frames priced over $99 from 20% to approximately 40% this year. New designer partnerships, including L.A.M.B., Ted Baker (launched Q1 2025), Jimmy Choo, and HUGO BOSS (launched Q2 2025), are performing well, validating the strategy of offering more fashion-forward options. Pilots for innovative products like Ray-Ban Meta glasses and Nuance Audio glasses are also underway, signaling a commitment to a broader product appeal.

Pricing strategy, historically geared towards cash-pay customers, is also being recalibrated. Pricing actions implemented in late 2024 and Q1 2025, combined with new "lifestyle training" for associates, contributed to a 6.6% increase in average ticket in Q2 2025. Crucially, this was achieved without any degradation in exam-to-eyeglass purchase conversion rates, indicating strong customer acceptance. The company intentionally chose not to repeat a deep promotional activity from the prior year, which had driven traffic but offered lower profitability, further underscoring a focus on profitable growth.

Even the Eyeglass World brand, which experienced challenges, is showing signs of a turnaround under new leadership. It delivered its best first-half performance since 2021, with a 2.8% comparable store sales growth in Q2 2025. The doctor model in Florida, affecting 40 of its 120 locations, was modified to an employee structure to enhance patient experience. These focused efforts, combined with a planned brand modernization, aim to stabilize and grow the segment.

Financial Performance: Early Returns on Transformation

The strategic shifts and technological investments are translating into a strong financial rebound for National Vision. The second quarter of 2025 marked the company's highest Q2 results in recent years and its 10th consecutive quarter of positive comparable store sales growth.

For Q2 2025, net revenue increased 7.7% year-over-year to $486.42 million. Adjusted comparable store sales growth reached an impressive 5.9%, driven by a 6.6% increase in average ticket. Adjusted operating income surged 69% year-over-year to $23.8 million, leading to a significant 180 basis point expansion in adjusted operating margin to 4.9%. Adjusted EPS for the quarter was $0.18, up from $0.15 in the prior year.

The gross margin saw a substantial improvement, with costs applicable to revenue decreasing by approximately 170 basis points as a percentage of net revenue. This was primarily due to the higher average ticket and leveraging of optometrist and tech-related costs. For the full fiscal year 2025, the company now anticipates a slight expansion in gross margin. While adjusted SG&A deleveraged by 20 basis points in Q2 2025 due to higher variable compensation and healthcare costs, the company still expects adjusted SG&A to leverage for the full year, supported by a $12 million corporate expense reduction implemented earlier in the year.

The balance sheet remains robust, with $48.47 million in cash and cash equivalents and total liquidity of $327 million as of June 28, 2025.

The company successfully settled $84.8 million in convertible notes in May 2025, reducing total debt (net of unamortized discounts) to $272 million and bringing the net debt to adjusted EBITDA for the trailing 12 months to a healthy 1.3x.

Year-to-date operating cash flow stood at $87 million, with $32 million invested in capital expenditures, reflecting a disciplined approach to funding growth and strategic initiatives.

Outlook and Risks: A Prudent Path Forward

National Vision's management has expressed confidence in its transformation, raising its full-year 2025 guidance. The company now projects net revenue between $1.93 billion and $1.97 billion, with adjusted comparable sales growth of 3% to 5%. Adjusted operating income is expected to be between $85 million and $95 million, and adjusted EPS is guided to be between $0.62 and $0.70 per share, assuming approximately 80 million weighted average diluted shares outstanding. This outlook incorporates the benefit of a 53rd week, adding an estimated $35 million in net revenue and $3 million in adjusted operating income.

The guidance is underpinned by several key assumptions: continued benefit from previous pricing actions (without assuming additional price hikes), second-half traffic trends consistent with Q2 performance, and the $12 million in expense savings. Notably, management is prudently waiting for "proof points" from the new CRM platform and America's Best brand assets before incorporating their potential benefits into the guidance, suggesting potential for further upside. The impact of tariffs, a concern earlier in the year, has been significantly reduced and mitigated, no longer posing a material unmitigated headwind.

To optimize its store fleet and reallocate capital, the company plans to open approximately 32 new stores in fiscal year 2025 while closing 20, resulting in 12 net new stores. This moderation in new store growth, coupled with strategic closures (39 stores by end of fiscal 2026 aiming for $4 million in adjusted EBITDA improvement), allows for increased investment in enhancing the existing store base and customer experience.

Despite the positive momentum, risks persist. Macroeconomic uncertainty and inflationary pressures, particularly on wage rates and raw materials, could impact consumer spending and profitability. While doctor recruitment and retention are currently healthy, the long-term availability of vision care professionals remains a factor. The company is also exposed to interest rate risk, with $262.6 million in variable-rate debt, where a 1% increase would result in a $2.6 million rise in annual interest expense. Ongoing legal proceedings, including a derivative action, also present a potential, albeit manageable, risk.

Conclusion

National Vision is in the midst of a profound and successful transformation, moving beyond its traditional value-for-cash model to strategically capture higher-value customer segments. By leveraging its robust optometry network, investing in cutting-edge technology like remote exams and AI diagnostics, and meticulously refining its pricing, product assortment, and customer experience, EYE is building a more resilient and profitable business. The strong financial performance in Q2 2025, coupled with a raised full-year outlook, provides compelling evidence that this strategic pivot is gaining significant traction.

For investors, the narrative is clear: National Vision is not merely reacting to market shifts but actively shaping its future through disciplined execution and technological leadership. The company's ability to drive average ticket growth without sacrificing customer conversion or satisfaction, while simultaneously optimizing its cost structure and store fleet, positions it favorably against competitors. While macroeconomic headwinds and operational risks warrant continued monitoring, EYE's strategic refocus, underpinned by its technological roadmap and a prudent growth strategy, suggests a compelling opportunity for long-term value creation in the evolving optical retail landscape.