National Vision Holdings Inc (NASDAQ:EYE) Q4 2024 Earnings Conference Call February 26, 2025 8:00 AM ET Company Participants Tamara Gonzalez - VP of Investor Relations Reade Fahs - CEO Alex Wilkes - President Melissa Rasmussen - CFO Conference Call Participants Michael Lasser - UBS Anthony Chukumba - Loop Capital Markets Taylor Brimberg - Wells Fargo Simeon Gutman - Morgan Stanley Meghan Holtz - Jefferies Adrienne Yih - Barclays Molly Baum - Bank of America Operator Good day, and thank you for standing by. ...

Core Insights - National Vision reported a quarterly loss of $0.04 per share, which was better than the Zacks Consensus Estimate of a loss of $0.05, representing a 20% earnings surprise [1] - The company posted revenues of $437.28 million for the quarter ended December 2024, aligning with the Zacks Consensus Estimate but down from $506.4 million year-over-year [2] - National Vision shares have increased approximately 9.8% since the beginning of the year, outperforming the S&P 500's gain of 1.3% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.26 on revenues of $500.01 million, and for the current fiscal year, it is $0.51 on revenues of $1.89 billion [7] - The estimate revisions trend for National Vision is mixed, leading to a Zacks Rank 3 (Hold), indicating expected performance in line with the market [6] Industry Context - The Consumer Products - Staples industry, to which National Vision belongs, is currently in the bottom 49% of over 250 Zacks industries, suggesting potential challenges ahead [8] - Another company in the same industry, Warby Parker Inc., is expected to report quarterly earnings of $0.03 per share, reflecting a year-over-year change of +400% [9]

Store Operations and Closures - The company plans to close 39 stores by the end of fiscal 2026 and convert four Eyeglass World stores to America's Best by the end of fiscal 2024[134]. - The planned expansion may strain existing operational and managerial resources, potentially affecting store performance[139]. - As of December 28, 2024, 12 locations were closed and four Eyeglass World stores were converted[495]. - The total costs incurred from the store fleet review were immaterial for fiscal year 2024, with severance and other charges offset by non-cash gains related to remeasurements of store leases[495]. - The company recognized $10.5 million of non-cash intangible asset impairment and $4.3 million of non-cash tangible long-lived and ROU asset impairment related to the planned store closures[496]. - All costs related to the store fleet review were recognized in the corporate and other category[497]. - Liabilities related to the store fleet review are recorded in Other payables and accrued expenses in the Consolidated Balance Sheets[497]. Financial Performance - Total net revenue for Fiscal Year 2024 was $1,823,320, an increase of 3.8% from $1,756,371 in Fiscal Year 2023[427]. - Net product sales reached $1,463,139, up from $1,423,229 in the previous year, reflecting a growth of 2.8%[427]. - The company reported a net loss of $28,499 for Fiscal Year 2024, an improvement from a net loss of $65,901 in Fiscal Year 2023[427]. - Basic earnings per share for continuing operations was $(0.35) compared to $0.05 in the prior year[427]. - Total current assets decreased to $249,828 from $396,670, a decline of 37.1%[424]. - Total liabilities increased to $1,191,438 from $1,343,093, a decrease of 11.3%[424]. - Stockholders' equity decreased to $816,333 from $829,418, a decline of 1.6%[424]. - Cash and cash equivalents dropped to $73,948 from $149,896, a decrease of 50.7%[424]. - The company incurred total operating expenses of $1,069,623, up from $997,226, representing a rise of 7.2%[427]. - Net income for fiscal year 2024 was a loss of $28,499, compared to a loss of $65,901 in fiscal year 2023, and a profit of $42,122 in fiscal year 2022[432]. - Net cash provided by operating activities for fiscal year 2024 was $133,649, a decrease from $173,033 in fiscal year 2023[432]. - Total cash, cash equivalents, and restricted cash at the end of fiscal year 2024 was $75,237, down from $151,027 at the end of fiscal year 2023[432]. Debt and Financing - As of December 28, 2024, the company had approximately $339.0 million of aggregate principal amount of indebtedness, including $254.2 million in Term Loan A due in 2028 and $84.8 million in 2.50% convertible senior notes due on May 15, 2025[222]. - The company repurchased $100.0 million of its 2025 Notes in November 2023 and an additional $217.7 million in August 2024 for a total cash repurchase price of approximately $215.0 million plus accrued interest[224]. - The company's term loan borrowings of $254.2 million were subject to variable interest rates with a weighted average borrowing rate of 6.5% as of December 28, 2024[225]. - The company may face increased costs of servicing its debt due to potential interest rate increases, which could materially reduce profitability and cash flows[225]. - The company's credit agreement imposes significant operating and financial restrictions, limiting its ability to obtain additional financing and react to changes in market conditions[227]. - The conversion of the 2025 Notes could dilute the ownership interest of existing stockholders if the trading price of common stock increases significantly before maturity[231]. Regulatory and Compliance Risks - The company is subject to extensive state, local, and federal vision care and healthcare laws, which could negatively affect its operations if compliance is not maintained[196]. - The company faces significant regulatory challenges in deploying its remote medicine solution due to varying state laws, which may disrupt operations and impact financial status[199]. - Compliance with the FCLCA and state laws regarding warranty plans may lead to increased costs and potential penalties if regulators impose additional requirements[200]. - The company must adhere to federal healthcare laws, including the Anti-Kickback Statute and physician self-referral laws, which could result in civil and criminal penalties if noncompliance occurs[201]. - The company is subject to stringent privacy and data protection laws, including HIPAA, which require significant resources for compliance and could lead to liabilities if not adhered to[207]. - The company’s Eyecare Club programs may be classified as discount medical plans, potentially subjecting it to additional regulatory requirements and compliance costs[206]. - The company is exposed to product liability claims and recalls, which could adversely affect its reputation and financial results[210]. - The company must comply with PCI Standards for payment card information, and any failure in compliance could disrupt operations and lead to financial losses[217]. - The company’s operations are subject to managed vision care laws, and noncompliance could result in sanctions or loss of licenses, particularly for its subsidiary FirstSight[205]. - The company is at risk of increased compliance costs due to evolving state privacy laws and regulations, which could impact its business practices and financial condition[208]. Operational Challenges - The company has experienced wage pressure for vision care professionals in fiscal year 2024, which is expected to continue into 2025[136]. - Significant capital is required to fund the expansion, including investments in new store spaces, laboratories, and distribution centers[137]. - The company faces risks associated with leasing substantial amounts of space, including future increases in occupancy costs[143]. - The majority of store leases are subject to long-term noncancelable agreements, which could impact financial flexibility if stores are not profitable[147]. - E-commerce and omni-channel operations face distinct risks that could negatively impact profitability if not managed effectively[149]. - Retaining senior management and attracting qualified personnel is critical for disciplined execution and overall business success[154]. - Catastrophic events, including natural disasters and extreme weather, may significantly disrupt business operations and adversely affect financial performance[156]. - The company faces risks related to inventory management, including potential markdowns and excess inventory due to inaccurate demand predictions[161]. - The company relies on third-party relationships for managed vision care, which represent a significant portion of overall revenues and may pose concentration risks[177]. - The company relies on a limited number of suppliers, with approximately 82% of lens expenditures from one vendor and 94% of contact lens expenditures from three vendors, exposing it to significant supplier risk[189]. - In fiscal year 2024, the company transitioned contact lens fulfillment and distribution services to a third-party vendor, indicating a shift in operational strategy[180]. - The company has implemented mitigation plans to offset the impact of tariffs, including terminating its outsourced laboratory relationship with China in early 2024[185]. - The company is heavily reliant on third-party coverage and reimbursement, with potential reductions adversely affecting its net revenue and profitability[194]. - The company faces risks associated with cybersecurity, as breaches could lead to significant financial and reputational damage[192]. Technological Investments - The company has invested in technological innovations, including artificial intelligence, which may lead to financial losses if these investments do not succeed[175]. - The company intends to progress ERP initiatives and expand EHR platform installations in 2025[137]. - The company is in the process of implementing a new ERP system, which is critical for managing operations and could disrupt business if not executed properly[191]. - The company invested $1.5 million in an entity specializing in artificial intelligence-powered screening and diagnostic tools during fiscal year 2024[463]. Market and Economic Conditions - The company faces potential adverse impacts from increasing tariffs, with less than 10% of costs applicable to revenue currently subject to tariffs on Chinese imports, but future changes could increase costs[185]. - The company experiences seasonal fluctuations, typically realizing a higher portion of net sales during the first half of the fiscal year due to factors like tax refunds and healthcare plan resets[155]. - The company has market risk exposure from changes in interest rates and may use derivative financial instruments to mitigate this risk[408]. - An increase or decrease in market interest rates by 1.0% would result in a $2.5 million increase or decrease in interest expense as of December 28, 2024[410].

Financial Performance - Preliminary net revenue from continuing operations for Q4 2024 is approximately $437 million, representing a 3.9% increase from the same quarter in fiscal year 2023[12]. - For the full fiscal year 2024, net revenue from continuing operations is approximately $1,823 million, an increase of 3.8% from fiscal year 2023[12]. - The company expects Adjusted Operating Income from continuing operations to be slightly above the higher end of its previously provided guidance for fiscal 2024[12]. - The financial results are preliminary and subject to change until the completion of financial closing procedures[8]. Comparable Store Sales - Comparable store sales growth for Q4 2024 is approximately 2.6%, while Adjusted Comparable Store Sales Growth is approximately 1.5% compared to the same quarter in fiscal year 2023[12]. - Full year comparable store sales growth is approximately 1.9%, with Adjusted Comparable Store Sales Growth at approximately 1.3% compared to fiscal year 2023[12]. - Total comparable store sales growth for the three months ended December 28, 2024, was 2.6%, compared to 6.6% for the same period in 2023[20]. - Adjusted Comparable Store Sales Growth from continuing operations for the three months ended December 28, 2024, was 1.5%, down from 6.3% in the prior year[20]. - For the fiscal year 2024, total comparable store sales growth was 1.9%, compared to 3.4% in fiscal year 2023[20]. - The company estimates a 0.5% decrease in Adjusted Comparable Store Sales Growth for 2025 due to the effect of deferred and unearned revenue[20]. - The adjusted growth includes the effect of recognizing deferred and unearned revenue as if earned at the point of sale[20]. Segment Performance - America's Best segment reported a comparable store sales growth of 2.0% for the three months ended December 28, 2024, compared to 7.2% in 2023[20]. - Eyeglass World segment experienced a decline in comparable store sales growth of (1.7)% for the three months ended December 28, 2024, compared to a growth of 1.2% in 2023[20]. - Military segment showed a slight increase in comparable store sales growth of 0.2% for the three months ended December 28, 2024, down from 5.1% in 2023[20]. - Fred Meyer segment reported a comparable store sales decline of (2.1)% for the three months ended December 28, 2024, compared to a decline of (0.2)% in 2023[20]. Leadership Changes - Leadership changes include Joe VanDette as Chief Brand & Marketing Officer and Jared Brandman as Chief Legal & Strategy Officer to support transformation efforts[5]. - Mark Banner has been appointed President of America's Best, focusing on enhancing the in-store experience[6]. - The company is in the process of transitioning leadership with CFO Melissa Rasmussen departing after the release of Q4 and full fiscal year 2024 results[2]. Company Operations - The company operates over 1,200 stores across 38 states and Puerto Rico, aiming to make quality eye care more affordable and accessible[18]. - The company’s performance metrics are based on cash basis revenues consistent with reportable segment revenues[20].

Core Insights - National Vision Holdings, Inc. (EYE) is implementing leadership changes, expanding exam capacity, and pursuing strategic initiatives to strengthen its foundation and growth potential in the optical retail industry [1][3] - The company's America's Best brand is experiencing revenue growth, benefiting from the strength of managed care [1][7] - However, National Vision faces challenges with a negative solvency position and rising expenses [1][10][11] Company Performance - Over the past year, National Vision's stock has declined by 40.6%, contrasting with a 0.1% decline in the industry and a 24% rise in the S&P 500 [2] - The company has a market capitalization of $978.9 million and has consistently surpassed earnings estimates, achieving an average earnings surprise of 93.7% over the last four quarters [2] Strategic Initiatives - National Vision is advancing its transformation with new leadership, expanded exam capacity, and a comprehensive store fleet review, which includes plans to close 39 stores by 2026, expected to improve adjusted EBITDA by approximately $4 million [3][4] - The company has moderated new store openings to 30-35 America's Best stores in fiscal 2025, focusing on existing operations and capital deployment for revenue growth [4] Industry Trends - The U.S. optical retail industry is showing consistent growth, driven by medical and recurring eye care purchases, with 82% of respondents using some form of vision correction [5][6] - A significant whitespace opportunity exists for National Vision, with the potential to open at least 2,500 additional stores, more than double its current count [4] Revenue Drivers - America's Best is a key revenue driver, leveraging managed care strength and introducing promotions like "two pairs for $129.95, including an eye exam" to attract customers [7][9] - The brand has also formed exclusive partnerships, enhancing its market presence and customer offerings [9] Financial Concerns - National Vision's solvency is a concern, with cash and cash equivalents at $81.2 million and short-term debt of $101 million, alongside a nearly 75% increase in long-term debt to $253 million [11] - The Zacks Consensus Estimate for 2024 earnings per share has increased by 4.1% to 52 cents, while revenue estimates suggest a 13.3% decline from the previous year, projected at $1.84 billion [12]

Core Insights - National Vision (EYE) is positioned well to potentially beat earnings estimates in its next quarterly report, continuing a solid history of performance [1] Company Performance - National Vision has a strong track record of exceeding earnings estimates, with an average surprise of 145% over the last two quarters [2] - In the last reported quarter, National Vision achieved earnings of $0.12 per share, surpassing the Zacks Consensus Estimate of $0.05 per share, resulting in a surprise of 140% [3] - For the previous quarter, the company was expected to earn $0.06 per share but delivered $0.15 per share, leading to a surprise of 150% [3] Earnings Estimates - Estimates for National Vision have been trending upward, influenced by its history of earnings surprises [4] - The company currently has an Earnings ESP of +11.11%, indicating that analysts are optimistic about its earnings prospects [7] - The combination of a positive Earnings ESP and a Zacks Rank of 3 (Hold) suggests a strong possibility of another earnings beat [7] Predictive Metrics - Stocks with a positive Earnings ESP and a Zacks Rank of 3 or better have a nearly 70% chance of producing a positive surprise [5] - The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate, with the Most Accurate Estimate reflecting the latest analyst revisions [6] - A negative Earnings ESP does not necessarily indicate an earnings miss, but it does reduce predictive power [7]

Core Viewpoint - Momentum investing focuses on "buying high and selling higher" rather than traditional strategies of "buying low and selling high" [1] Group 1: Momentum Investing Strategy - Momentum investors often face challenges in determining the right entry point, as stocks may lose momentum when their valuations exceed future growth potential [2] - A safer approach involves investing in bargain stocks that exhibit recent price momentum, utilizing tools like the Zacks Momentum Style Score to identify such opportunities [3] Group 2: National Vision (EYE) Stock Analysis - National Vision (EYE) has shown a four-week price change of 3.9%, indicating growing investor interest [4] - EYE has gained 14.2% over the past 12 weeks, with a beta of 1.42, suggesting it moves 42% more than the market [5] - EYE holds a Momentum Score of A, indicating a favorable time to invest based on momentum [6] Group 3: Earnings Estimates and Valuation - EYE has a Zacks Rank 2 (Buy) due to upward trends in earnings estimate revisions, which attract more investors [7] - The stock is trading at a Price-to-Sales ratio of 0.46, indicating it is relatively cheap at 46 cents for each dollar of sales [7] Group 4: Additional Investment Opportunities - Besides EYE, there are other stocks that meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen, suggesting further investment opportunities [8] - The Zacks Premium Screens offer over 45 strategies tailored to help investors find winning stock picks [9]

Core Insights - National Vision (EYE) is currently rated as a 1 (Strong Buy) by Zacks, while Clorox (CLX) holds a 3 (Hold) rating, indicating a stronger earnings outlook for EYE compared to CLX [3] - Value investors typically assess various traditional metrics to identify undervalued stocks, including P/E ratio, P/S ratio, earnings yield, and cash flow per share [4] Valuation Metrics - EYE has a forward P/E ratio of 21.39, whereas CLX has a forward P/E of 23.34, suggesting EYE may be more attractively priced [5] - The PEG ratio for EYE is 1.51, indicating a favorable earnings growth outlook compared to CLX's PEG ratio of 2.95, which suggests higher expected growth relative to its price [5] - EYE's P/B ratio stands at 1.01, significantly lower than CLX's P/B ratio of 88.57, further indicating EYE's relative undervaluation [6] - EYE has been assigned a Value grade of B, while CLX has a Value grade of D, reinforcing the perception that EYE is the more attractive investment option for value investors [6]

Core Insights - National Vision Holdings, Inc. (EYE) is gaining market share across four sub-segments of Owned and Host, supported by growth drivers such as the America's Best brand and new promotional initiatives [1][3] - The company is facing challenges from rising expenses and high dependence on a limited number of vendors, which may negatively impact sales [1][10][11] Company Performance - Over the past year, National Vision's stock has declined by 48.2%, contrasting with a 6.2% growth in the industry and a 24.4% rise in the S&P 500 [2] - The company has a market capitalization of $1.58 billion and has surpassed earnings estimates in three of the last four quarters, achieving an average earnings surprise of 93.7% [2] Growth Initiatives - National Vision is expanding its exam capacity and improving in-store efficiencies through remote medicine technology and electronic health records, which are expected to enhance sales [4] - The company has completed a store fleet review, resulting in a plan to close 39 stores by 2026, projected to improve adjusted EBITDA by approximately $4 million [5] - New store openings are being moderated to 30-35 America's Best stores in fiscal 2025, allowing for more investment in existing operations [6] Industry Trends - A 2023 report indicates that 82% of respondents use some form of vision correction, highlighting a strong market for optical retail [7] - The World Health Organization reported that nearly 2.2 billion individuals globally have vision impairment, with 1 billion cases unaddressed, indicating a significant market opportunity [9] Financial Estimates - The Zacks Consensus Estimate for National Vision's 2024 earnings per share (EPS) is 49 cents, with revenues projected at $1.84 billion, reflecting a 13.3% decline from the previous year [12]

Group 1 - National Vision Holdings (NASDAQ: EYE) is expected to be at the high end of its FY24 guidance, indicating strong performance potential [1] - The author utilizes a diverse investment strategy that includes fundamental, technical, and momentum investing approaches to enhance the investment process [1] - The article serves as a platform for tracking investment ideas and connecting with like-minded investors [1] Group 2 - There are no disclosed positions in any of the companies mentioned, and no plans to initiate any positions within the next 72 hours [2] - The article reflects the author's personal opinions and is not compensated beyond the platform used for publication [2] - Seeking Alpha does not provide investment recommendations or advice, and past performance is not indicative of future results [3]