Q1 2020 Earnings Call

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Ladies and gentlemen, thank you for standing Bonnie and welcome to the National Vision first quarter fiscal 2020 financial results call. At this time all participants are in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star.

One on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star then zero.

After a few moments of silence I would now like to turn the call over to Mr., David Mann, Vice President of Investor Relations, just one moment.

Thank you and good morning, everyone welcome to National Visions first quarter 2020 earnings call. Joining me on the call today or read Fives, Chief Executive Officer, and Patrick more Chief Financial Officer earnings releases.

This morning in the presentation, which will be reference during the call are both available on the Investor section of our website nationalization dot com and a replay of the audio webcast will be archived on the investors page. After the call before we begin let me remind you that our earnings materials. In today's presentation include forward looking statements that's defined in the private securities.

Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. He's risks and uncertainties include but are not limited to the factors identified in the release and then or filings with the Securities and Exchange Commission release in today's presentation also includes certain.

Non-GAAP measures reconciliation of these measures are included in our release in the supplemental presentation. We also would like to draw your attention to fly to in today's presentation for additional information about forward looking statements and non-GAAP measures as a reminder, national vision expects to provide certain supplemental materials are presentations for investor reference on.

The investors section of our website now let me turn the call ever to read.

Thank you David Good morning, everyone I'd like to thank you all for joining US we hope that everyone is doing well and staying safe during these adverse times.

Even the circumstances, we pick it will be more relevant to you. If we start by discussing our response to the Kobin 19 endemic and how we're navigating the near term uncertainty then we will shift to art first quarter results.

Turning to slide four.

Safety concerns mounted in mid March we acted rapidly with the temporary closing of our stores to protect the safety of our optometrist store team Haitian customers and communities, while the doors tourist stores were locked to the public we continued to staff our stores with skeleton crews to meet the essential.

I hear an eye wear needs of our patient and customer base, facilitating contact lens orders, managing broken or lost glasses, and connecting patience with emergency medical need to one of our associated optometrists at the same time, we experienced a spike in ecommerce orders and cold into our customer call Center.

The past seven weeks have been a visit reminder of the fact that the medical services and optical products. We offer truly are an essential medical necessity.

Each week I received many stories of exceptional patient and customer care amid adverse circumstances for which our store and call center teams deserve great great.

Concurrently RV leadership team got to work planning for the safe and gradual reopening of our stores and those are the words, we kept repeated safe and gradual we established a cross functional safety office that developed covert 19 operating protocols. They did here to CBC, an American Optometric Association guidelines.

The safety office has been closely monitoring federal state and local government and public health announcements. These protocols include heightened cleaning features personal protective equipment, social distancing in stores and expanded health and safety training.

Then we developed a detailed gradual approach to reopening by both brand and geography across the country.

Last week, we began selectively reopening stores to address essential eye care needs of our patience and customers.

The first store openings were Walmart, Fred Meyer and military based locations. This week, we launched an initial group of America's Best and Eyeglass World stores, we intend to have all of our stores opened my early June.

Turning to slide five we're operating in an uncertain and dynamic environment as such we've also been focused on ensuring that we have the liquidity and financial flexibility to weather the storm regardless of its duration.

Upon temporarily closing our stores, we rapidly shifted to solidifying our financial well being we reduced compensation across the organization led by senior management and subsequently made the difficult decision to furlough a significant portion of associates.

We paused, our new store openings and postponed a significant amount of capital expenditure.

We reduced discretionary spending including near term marketing and travel, we're working with our vendors and landlords to extend terms and modify contracts where possible.

We elected to draw down the remaining available funds under our revolving credit facility as a precautionary measure we are evaluating potential applicable tax related benefits under the cares that and we'll look to implement them, where we can and as we will discuss later on we reached agreement with our credit facility lenders to suspend our financial <unk>.

And it's through March 2021, giving us additional runway to navigate the challenges, resulting from the covert 19 endemic.

All of these actions have been taken to manage our costs an increase our financial flexibility. So that our patients in customers can continue to depend on us for their low cost eye exams, eyeglasses and contact lenses need long into the future.

While short term in nature, all spending cuts were very much made with an eye towards the successful reopening of our stores and the long term recovery if our business.

When we spent money it was an investment in a variety of long term relationships.

Our operating model has a history of business recovery after major external events as the low cost provider of a medical necessity. We believe we're well positioned to recover as our stores reopened.

Our overarching focus is to do whatever is needed to thrive on the other side of the Anda.

Turning to slide six let me briefly touch on trends in the corner.

Q1, net revenue increased 1.8% with the six percentage point benefit to growth from unearned revenue adjustable comparable store sales growth was down 10.3% due to the temporary store closings.

The closing of our stores in March turned our quarterly results into a tale of two periods pre coated in January and February our business was robust with continued sales momentum following our strength in the latter half of 2019 comps in January and February increased 5.7% driven predominantly by.

Customer traffic.

As the covered 19 pandemic gradually became a factor in consumer behavior in March our business began to slow our March comps declined nearly 40%, mostly resulting from stores being locked for the public for the last 10 days.

Adjusted EPS decreased to 28 cents versus 31 cents last year.

One noteworthy event to share since quarter end is the transition to end VI management of the first of the five additional Walmart vision centers as noted last quarter. The amendment to our existing contract with Walmart added additional vision centers for the first time in over 25 years.

We're working with Walmart regarding the logistics to take over the operations of the other Ford vision centers, which we expect to occurred this summer.

Our Walmart partners have been supportive and understanding of our March decision to also temporarily closed division centers that we operate.

Most of our vision centers have now reopened to patients in customers regarding the current contract our conversations with Walmart continue.

Turning to slide seven.

Well I'm sorry to report that are much touted record number of 72 consecutive positive comp quarters came to an end in Q1. It took nothing short of a global pandemic and the shutting down of most all of American retail to bring this street to an end.

As we exited February the team was on target to deliver our 70 threerd consecutive quarter of positive comps and as a as late as mid March I still thought we had a shot at delivering another positive comp quarter.

As the chart shows our business has a history of health, even amidst broader economic challenge during the great recession of 2008 in 2009, our business generated comps in the positive me low to mid single digits, each quarter, where of course in unprecedented times and we're not looking to forecast near term performance here today, but.

We do believe that our reputation for low prices should be even more appealing to an even larger slice of the American public during the upcoming economic challenges.

And we believe that once they have tried our value priced products it will be hard for them to ever go back to paying higher prices again.

Another factor underpinning our consistency over the last two decades has been the optical industry shift in favour chains and the value segment in particular, the optical retail industry remains highly fragmented we believed that the current environment should hasten these trends and favour larger better capitalized value retailers like National vision, We also would not.

Be surprised if there were fewer optical locations in the U.S. next year than there were prior to cope with.

Thus, we continued to be a large opportunity and potentially an even larger opportunity in before in front of as we.

We look forward to starting another long consistent positive comp quarter Street like the again.

Shifting to slide eight.

Prior to covert 19, we had solid strategic plans for 2020, and we're off to a strong start let me share how we're navigating our business and our core initiatives to adapt to the current uncertainty.

First we paused for a new store openings after opening 23 stores in the first quarter. We have most current real estate projects on hold and we can restart quickly as the environment warrants, but we do not rule out that we might open as many as 25 more stores this year, depending on how we see the recovery evolve.

Turning to comparable store sales growth, our stores or reopening to operate in an uncertain consumer environment. Some of these uncertainties include macro economic factors consumer shopping patterns, social distancing and current and future quarantine measures. As this is a dynamic situation there a broad range of outcomes of how our business will perform in the coming.

Depending on how the pandemic evolve.

We continue to leverage our decades of experience is optical veterans and we're controlling what we can control recall our glasses business is primarily driven by steady decline in our consumers vision. So while people have been sheltering in place their eyes Isight has continued to get worse.

As with other disruptive events in our history, we believe there will be some level of pent up demand as our stores reopened.

And as we emerge beyond the covert pandemic, we expect continued to enjoy multiple levers to drive comparable store sales growth.

On past calls you've heard me share that a key to our success is the ability to retain the optometrists, we have and attract new ones. During the pandemic optometrist remain a key focus as a result of our continued investment we feel that we are perceived by the doctors as having truly put our money where amounts have been during this crisis.

We believe our actions further demonstrate that we are and optometrist centric company.

As we begin the process of reopening our stores are optometric retention rate remains at record levels.

On the recruitment front, our secure predictable employed position with great benefit and paid vacation now seem to be even more attractive than they were before the crisis.

We are encouraged by the response that we are seeing to our recent recruitment efforts during a period of store closure, including the return of some odie, who left the previously and I wish to return.

As I noted earlier, we adjusted our marketing efforts and significantly reduced TV advertising, while our stores have not been open.

To help restart our operations, we have a robust CRM database to connect with existing customers and we'll look to increased marketing investments appropriately as the environment improves.

We believe that at the low cost provider of a medical necessity, we are well positioned to attract value seeking consumers are introductory offers for our two growth brand to for six to 995 in America's best including a free comprehensive eye exam and two first $78 that eyeglass world with glasses available that same day.

Represent incredible values that have historically attracted patients and customers to our stores.

In terms of managed care, we continued to see revenue growth tied to these partnerships in January and February before we close net revenue tied division insurance remains our minority of our net revenue and thus we are underdeveloped relative to the category. We continued to see an ongoing opportunity here as managed care dollars and Copays tend to go.

Further in our stores than elsewhere.

Let me share an update on inventory in supply chain, we remain comfortable with our current inventory position.

As we carry predominately traditional and basic styles of frames as opposed to fashion dependent frame. We do not believe that we have exposure to any material inventory obsolescence risk.

Regarding covered my team and our supply chain most of our frame suppliers in China, our Bakken business, we're not particularly worried about supply chain issues at this time.

Our lab network remains the key reason that we've been a low cost provider, we've scaled back our cost structure, there as well and the lab group is prepared to ramp as needed. This gradual ramping has already begun.

Our remote medicine pilots are continuing as well in March we announced our partnership with Fellas University to educate upcountry students on remote eye exam technology, and we're involved in other testing and development in this area as well.

Before I turn the call over to Patrick Let me say that we're excited to be in the process. The safely reopening our store to serve the many patients and customers who have been a waiting our return.

We believe we are quite well position to recover we have a proven resilience in prior downturn, where a low priced provider of a medical necessity necessity and we have a proven team of optical veterans executing our initiative and deep multi year relationships throughout the company for all these reasons I'm confident in our team.

As we navigate and uncertain environment that we will emerge stronger on the other side of this crisis.

Now over to Patrick.

Thanks read and good morning, everyone.

I want to take a few moments now to cover our first quarter results then discuss our plans to address coated 19 headwinds and finally to provide a context in terms of how we're thinking about the coming months.

Turning to slide 10 lets dive into Q1 results.

Through mid March we opened 23, new stores and closed one store the in the quarter with 1173 stores for a 6.2% increase in store count in the past year.

Our Americas best in Eyeglass World growth brands combined unit growth increased 8.7% over the last 12 months.

The chart of adjusted comparable store sales growth presents our comps calculated on a cash basis.

Same store sales decreased 10.3% during the quarter driven by the decline in customer transactions due to store closures. As brief noted we were pleased with the continued topline momentum in our business in January and February when our comps were primarily driven by an increasing customer transactions.

By category, we experienced stronger contact lens revenue growth compared to our glasses as contact lens customer transactions were less impacted by the store closures. The contact lens category continued to see growth in average ticket as our contact lens customers are increasingly adopting newer technology lenses that have higher prices.

Which is a trend that we expect will continue.

Turning to income statement highlights on slide 11, net revenue increased 1.8% net revenue growth benefited by 6% from the change in unearned revenue this benefit to net revenue as well as profitability was unusually large this quarter as a result at the store closures.

And lack of revenue in the final days of the quarter that would have typically increased on unearned revenue.

We would expect this benefit to reverse in the second quarter.

To help unpack how unearned revenue is somewhat unique to our service based business model versus more traditional retailers. We have again included and explanatory slide on unearned revenue in the appendix section.

Cost applicable to revenue increased 3.1% or an increase of 50 basis points as a percentage of net revenue versus last year. The increase as a percentage of revenues primarily reflected the de leveraging of optometrist cost due to the temporary store closures as well as higher contact lens red.

Any growth, partially offset by higher eyeglass margin.

Adjusted SGN, a expenses increased 1.1% in the first quarter versus last year or a decrease of 30 basis points as a percentage of net revenue. The key factor behind this improvement was the benefit from unearned revenue as well as lower performance based incentive compensation, partially offset by.

Hi, deleveraging of store payroll due to the store closures.

Adjusted EBITDA decreased 3% and adjusted EBITDA margin decreased 30 basis points to 13% in the quarter. The net change in margin on unearned revenue lifted adjusted EBITDA growth by 34%.

Adjusted operating income decreased 10.8% and adjusted operating margin decreased 110 basis points to 8.1%.

The decrease in adjusted operating margin was primarily due to our de leveraging of optometrist and store payroll expenses related to store closures and higher depreciation and amortization growth, partially offset by the net change in margin on revenue and higher eyeglass margin.

The net change in margin unearned revenue lifted adjusted operating income growth by 48% again, we would expect that this timing benefit will reverse in the second quarter 2020.

Adjusted diluted EPS decreased three cents to 28 cents versus 31 cents last year with a 19 cents benefit from the net change in margin on unearned revenue.

Now turning to slide 12 on our balance sheet.

The ended the first quarter, our total debt was 717 million and our cash balance was 263 million in March we drew down remaining 146 million and available funds from our revolving credit facility as a precautionary measure.

Net debt to adjusted EBITDA was 2.3 times, an improvement from 2.9 times in the first quarter last year.

We have no debt maturities on our term loan or revolving credit facility until 2024, and as a result of our prepayment of debt principal in 2019. The company does not oak principal payments on its term loan in 2020 and 2021.

Other than a potential repayment from the proceeds of any new capital market transactions, we complete in the coming months.

Moving to Capex, we invested 13 million and capital expenditures in the quarter, the lower level of Capex versus last year resulted from planned timing and the postponement of a significant amount of capital projects, including the pausing of store openings.

Turning to slide 13, and our financial positioning to address the coated 19 headwinds.

As read noted we believe we have taken decisive actions in response to the coated 19 pandemic challenge, we have implemented multiple initiatives to reduce expenses and deferred capex and are committed to remain agile given the dynamic environment, we have significantly reduced our cash needs and we'll continue to maintain a can.

Servitude posture on cost and cash preservation, Walmart stores ramp back to higher volumes.

We have reviewed multiple planning scenarios, but recognize that this is a very challenging time to forecast as conditions remain fluid.

We expect to utilize a portion of our current cash balances while stores ramp over the next few quarters and believe that we have sufficient liquidity to operate our business through the end of the year.

As of the ended the first quarter, we were in compliance with all covenants under our credit agreement.

As I mentioned earlier I'm pleased to share that we have entered into an amendment under our credit facility, which will span certain financial maintenance covenants through our fiscal quarter ending in March 2021. This amendment will allow the company to focus on the business of sites. The returning stores to normal operations in serving our patients and.

Customers.

We are appreciative of the vote of confidence that this represents.

We're continuing to evaluate additional measures that we may elect to undertake in order to improve our liquidity position in light of the code 19, pandemic, including potentially accessing the capital markets to obtain additional debt or equity capital. We will keep you updated on these measures when we are able to.

Do so.

As for the rest of 2020, we previously with grew our fiscal outlook given the uncertainty regarding cobot 19, and its ongoing impact. We note. The following actions and insights to consider regarding the potential impacts of cobot 19 on our business.

We have just begun the gradual reopening of our stores, which were generally close for the month of April with stores not open that month, we will have limited revenues and would expect significantly negative comps.

We expect our store recovery could be gradual with social distancing in place and the potential for lengthened or additional stay at home orders.

Contact lens growth outpaced eyeglasses growth in Q1, and this trend could continue with reduced margin implications.

We would expect that unearned revenue will reverse in Q2 and have a negative impact on net revenue and profitability.

We intend to appropriately fit our capital investment decisions to evolving business conditions.

We would expect higher levels of net debt in the near term and as a result higher interest expense.

We also would note that we are a team with a history of de leveraging as demonstrated over the last few years as our business improves balance sheet improvement will remain a top priority.

Lastly, we would anticipate that we will incur incremental cost of doing business in a post coated world.

In summary, I'm very pleased with the actions that we've taken and in a way in which the management team has executed.

I want to reiterate what Reed said in his closing that we believe this company will effectively navigate this challenge and emerge as an even stronger business.

At this point I'll turn the call back to read.

Thank you Patrick.

We have traditionally ended these calls with a moment of mission.

We've done this to give you a better sense of who we are as a company what we do and our ambitions for how we do it.

Kobin tested us and all organizations in ways that made a company's culture, even more vivid pronounced and apparent to all.

One of the expressions, we repeated often during the past few weeks of Koby trial was it's better to like single candle than the curse that darkness.

Envy eyes candle lighting took many forms.

We donated 40000 protective face math to the Georgia Emergency management agency to support the efforts of healthcare workers treating covered patients.

While everyone in the company was working at reduced income and many had been furloughed associates came together and Selflessly contributed over $190000 out of their own pockets to our associate crisis relief fund.

Even the presence of such a fund, which many companies our size have never set up is a reflection of a value system, but the fact that in a time of financial sacrificing hardship. So many associates would be so generous to fellow associates that they don't even know says a lot about the types of people that we've been lucky enough to attract to national vision.

And finally every week, while our doors have been locked there have been numerous individually examples that highlight associates dedication to patient and customer care.

I'm involved doctors addressing urgent medical needs that involves coming into the office for emergencies.

Some involved handling broking glasses issues in getting customers contact lens orders, sometimes involving pickup and delivery to customers purchase.

Some involved assisting frontline healthcare workers with their urgent optical needs. So that they could continue on with their vitally important jobs.

I've been so heartened by the steady stream of these stories and want to thank our entire team for providing so much inspiration over the past seven weeks.

As a business. We are of course pleased that despite locked doors, we still managed to care for the medical and product needs of so many patient and customers, thus ensuring their ongoing loyalty, but as an organization, we're even more proud and fulfilled by the spirit of care and generosity that's been demonstrated by the.

And VI team.

We've often mentioned the nobility of the work that we think is involved in providing low cost medical care and optical products. How the team has risen to the challenges presented by Cove. It makes me even more confident of that sentiment.

In closing as I think about the events of the last several weeks and how the entire national vision team performed I could not be more proud and appreciative of their inspiring endurance.

Shared sacrifice and strife.

While the road ahead remains uncertain I'm confident that the national vision team will emerge from this extraordinary experience stronger from the adversity, we will have overcome together.

With that I'll turn the call back to the operator, despite the question and answer portion of the call.

Thank you as a reminder to ask a question you will need to press star one on your telephone we ask that you. Please limit yourself to one question and one follow up question. You May then return to the Q to withdraw your question press the pound.

Sanbolic compiled the Q and a roster.

Our first question today will come from Stephanie Wissink with Jefferies. Please go ahead.

Thank you good morning, everyone thinks streets for Shang positive news again today on Europe missions that you're doing.

Two question or two part question related to customer and.

How much risk acquisition and retention because it does seem to be bright spots can you talk a little bit about the o. eight nine financial crisis, and what you saw in terms of your ability to acquire customers either through marketing or at the time. If there was some sort of can CRM advancement and then you also mentioned optometrists Rick.

Meant efforts being strong maybe just talk a little bit about how you're seeing the pipeline of new talent coming into your source.

Sure so.

Terms of.

Customer acquisition during the recession of Oh wait Onein.

I'd like to say, what I called story during that time and say why are you doing so well one of the frequent answers with something along the lines there seem to be nicer cars in our parking lot and in short sorry during that time, there are more and more.

Consumers looking for value and great prices and and when people are seeking value in great prices phenoptics. They tend to find osten I'll out. So we saw nice customer acquisition during that time and we believe they stayed stayed with us afterwards I sort of.

Thank you.

Once you've found that you could pay a lot less for a product yet you tend to stick with that.

Since then I'd say, our our brands have only gotten stronger if I could show you the advertising real for both America's Best and Eyeglass World start since that time.

Any anyone would look at that real of of the history of those ads and say Wow, it's gotten a lot better and I think I think you see that in sort of the period 2015 to now if you look at our comp chart on slide seven you say, Oh, yeah, and but we see that and a lot of ways our brands are.

Stronger were known even more for for value. There in terms of Optometrists you know what what happens during tight financial times is.

It's it's a harder to be an independent if you're close to retirement you might you might say all right maybe I'll shut my practicing go get and employ gig I mean, we have we have really great salaries. We have great benefits, we have paid vacation, where you don't have to find your replacement.

Continuing education, it's really a great package and sort of we found again, a continuing trend over the years has been.

The greater acceptance and appreciation of the benefits of the employment model, where you get to you get the practice pure optometry you don't have to.

Ron run a business. So it's it's good in that way and I see that that should continue on the other side of that maybe even more sale.

Ability to attract.

Optometrists were again, we're seeing it now.

We talk to students to talk about how some of their fellow students. We had offers with independent practices are there offers are being rescinded. So so thats on the student side and.

I alluded to in the comments.

Got there Mike My bet is there just aren't going to be as many optical doors out there on.

To clarify it's not as simple as you you can't extend the store hours by an hour or two if you were trying to get the same throughput if you're right. If you have to put more distance or time in between appointments et cetera, <unk> not as simple as that I assume.

I actually Where's your last sentence I didn't hear your last sentence. There I got most of it just the last sentence.

It just putting more time in a day in in in in it in an operating schedule in order to get similar.

One one can always do that if one if one wants to if if if required that that is a possibility and you can open more stores on Sundays and the like if if one wanted to but we're we're good process people were good it's sort of sorting out.

Processing and work flow, that's that's really been one of our our competencies over the years and we're just we're we're adding some pieces to it but.

<unk> we're good at.

Getting through things like that.

Fair enough and then can you to share you.

Measured you're expecting a lot of pent up demand I think we spoke of maybe a month or so earlier about all the interest that's coming through the website et cetera can you frame by frame. It up I mean, this is should be a release of pent up demand like we've never seen or it's going to come gradual is you know social distancing et cetera.

Yeah. So so.

The nice thing about our business, we always like to say versus a a restaurant you know if if there's a snowstorm and and and you can't get a to a restaurant last night, you're never Gonna have last night dinner again with US of course your eyes, just get worse than I don't care about the economy I said, they just <unk>.

We've time and so for the past seven or so weeks, our our customers have been at home a a steering probably too much at screens and and they are.

Their eyes have just been getting getting worse I, yeah, I think seven or eight weeks was about 15% of the year. Just that's just you know the massive weeks to the year and and our seasonality as you know let's.

It would be such that they're going to be a lotta people need <unk> Samson, a lotta people, who who need glasses and contacts because their prescription has changed so I think pent up demand is going to be real and and you. Yeah. You said sort of on on the you know we we're finding different parts of the country are viewing this situation.

Differently I mean that we all see that just in the fact that differ governors are approaching it differently and and and you know in some states there's much more openness to to getting out and doing things. After so many two weeks of being cooped up but we we think this we think it's going to be a gradual.

Nice build but people.

<unk> have been going bad so I'd pent up demand will be very real.

Thanks.

Thank you know our next question will come from Anthony Chukumba. Some live capital markets. Please go ahead.

Thanks, Thanks for taking my question I'd really appreciate it you know I know we talked about on revenue you know sort of every quarter, you know and there's obviously puts and takes between quarters, but you know the the the impact on this course results will just so dramatic I mean can you just sort of who you know Oh, Oh, Oh, Oh no revenue.

One o., one which is if you can just kind of walk us through you know why you know exactly the mechanics of why so much more dramatic this quarter I understand what's your stores quoting habits guts back to the next quarter. We I just want to make sure that we you know that we get the modeling right given that it's such a a a disproportionately impact this time.

Yeah.

Anthony Good morning as Patrick.

I will all want everyone to page 26, I'm not gonna drain that slide, but I'll I'll give you a high level sense of it <unk> the timing of on on revenue has always swung our results a little bit you know quarter to quarter, we always purposefully disclose what that amount is and if you think about.

It's all about that last seven to nine days of the quarter, where people have come in and paid us for eye glasses, but they're not delivered yet so we can't recognize it. So at the end of the you know at the end of whatever period, you're looking at whether that the month or a quarter a year [noise].

That last seven to nine days is really critical.

In in in most of the sales in that period or moved into that honor and revenue account as you get into the next period those flow into the account. So as we look at two one unpack that we had all of those revenues coming in from Q. for that were honored queue for how however, we were.

Close so not last seven to nine day period, and so they were very little or no sales, especially of eye glasses and thus there was nothing that was going out into that honor and.

Unearned categorization. So you've got this very real accounting timing thing on a cash basis. There you know.

There was not a lot of impact, but you have a big help this time and that you weren't pushing the normal revenues out at the end of the quarter that will reverse to a great degree into two now I guess by the end of the year. When we look at the year in general It will probably look a lot more normal.

That is a complex topic, so I do want to stop and see if that helped.

Yeah, no that's exactly what <unk>. Thank you.

Thank you I I next question will come from Michael Lasso with U.B.S. Please go ahead.

Good morning people have for taking my question read what percentage of your sales come from Deferrable transaction. Then the question comes about because you offer some evidence that you think that category will hold up while during a recession given what happened the last time, although last time.

Around your store volumes were probably half.

What they are today.

And the demographic of those who are being affected by the labor market weakness does the line up with your core customer demographic. So is it possible that if for example in the past someone might have gone in for an eye exam.

12 months that could extend out 13 months in what percentage of your sales would be affected by that thank you.

Alright, and and so deferrable transaction, <unk> and I'm gonna take that as the something <unk> customer can delay frankly, <unk>, we we think that our customers in general I I in my mind. So F.C. two sets of customers costs tougher one is.

Total price consumer they they often can't even they tend to afford to go anyplace else. So they they are really they they this is this is for them because they can't afford to go anyplace else and then the other customer is the value shopper the marshals T.J. Max shopper, who.

No. It's a good deal is that value Hunter out there looking for for a a good deal. So the the price customer has already deferred and that's always been an experience with us there waiting to last minute because they are so living paycheck to paycheck, the the the value shot the value shop.

<unk> yeah, there there could be a little that I don't think that's going to be a big factor Michael if if if that's if that's what you're saying, especially given this pent up demand or 15 weeks along the way and then we've got a also factor in the managed care consumer managed care consumer often is is dealing with their benefit their annual benefits or they don't they.

You know get get a access an eye exam a pair of glasses.

Annually, so they they they might differ but they won't differ out of the year. So I'm, that's I would consider that a minor smaller factor and yeah.

Thank you very much my second question is.

How should we think about the incremental costs of doing business that Patrick alluded to and maybe you could put it in the context, you will store volumes were to fully recover in 2021, because that's really what the.

Woody marketing focus on in a more caught on court normalize here how would your P. now how would your mortgage and look <unk> with these incremental costs that you're you're probably going to incur indefinitely from parts in here.

Hey, Michael Good morning.

You know I would I would first emphasize we have just started reopenings indoors.

And I think Reed said earlier, we are we consider ourselves to be pretty decent process people. We are working our way through that and feeling our way through that I do do those cost as incremental I don't have a scale to put on that yet and we're also thinking about.

Not necessarily the there's going to be this period, where we've got all these incremental cost and then you know those all go away and so we may simply be in.

Another chapter where those are way of life I think that again going back to the process question. We're we're in very early evenings I think we will.

Figure out how to do this effectively in affordably and I would you know I can't get into longer term guidance, but again I would expect that to be more on the very incremental signs longer term.

In the short term as we learn to play this game effectively you know could be a little heavier than just like incremental.

So does that give you some perspective.

Thank you very much.

Thing.

Thank you know our next question will come from <unk> with Wells Fargo. Please go ahead.

<unk>.

Is that could you be on mute.

Can you hear me there we go now we can.

Okay, sorry about that so so good morning read I'm curious if you could update us on on the state of that competitive landscape as a result, as a farm damage and how you think about the potential for it industry consolidation or perhaps consumers pivoting more on line in the category and how you think your position.

Sure you know the the the category is I get is is.

That same trends are going to be continuing chains growing at the expense of independence I think now we'd have to add in well capitalised chains are growing at the <unk>, while I'm independence will lose share we believe non.

Mall dependent chains will do better value chains, we'll do better.

We we think that that's all all gonna.

Continue and plays to our strengths, we take the consumers are going to be seeking price now more than ever a while while we expect our managed care business to continue to grow more unemployment means less people, having managed care benefits. When it's your money you come find us when it's your.

And you're tied on money you come find find off.

You know I I think that.

Certain host environments.

Especially mall host environments are you know you can read in the newspaper are looking are looking at tougher and I think it'd be harder to be any sort of a mole based optician and most models have a couple opticians in them and I I do think there are going to be less.

Doors, you hear all sorts of different estimates on that as to how many people won't be opening up and we are hearing about.

About 123, a door practices that are just saying.

That it's time to retire it's time to throwing the <unk>.

You know and then there's I think a few months from now there's going to be a lot of cash flow surprises in the independent sector as well. So we think those are those are the big trends, but.

Again I think.

I think they played of who we are I think that's why we've been doing well for a long time and I think that will continue.

God it thanks for that read and for Patrick It stores begin to reopen and the understanding.

Sales could very curious if there're any guard rails that you can give us on how to think about the key to P.N.L.M.S.G.N.A. in particular, given the on there and revenue headwinds coupled with incremental costs as well as the actions you've taken <unk> can manage costs in this environment.

Sure as we think about the story up again early evenings, we're taking a very gradual unsafe approach.

We expect the recovery curve to be gradual we are thinking that there's pent up demand and maybe longer term opportunity for less other doors out there, but you know this could take a multiple quarters to recover is is I think about you know how to think about the ongoing profitability.

You know in the short term, we are going to have some incremental cost of doing business.

However, we think that this could yield some of the some relief from some of the wage pressures that we've been feeling in recent years. We think that are optometrist availability is going to be a good maybe very good generally these environments you see some advantages.

For businesses like us regarding advertising and rent.

So you know it then I think there's an opportunity for us to continue to be a.

Share grower as a low cost provider of the medical necessity as it relates back to S.G.N.A.

Oh, we manage our store labor in a very in a very careful and almost a matrix fashion and we are taking these first.

Two to four weeks to really get a feel of what new normal is what's gonna what that's going to feel like but ultimately we're a company that likes to.

Grow revenues and grow profits and opens doors and we look forward to returning to that position as as soon as we can.

Got it appreciate the time.

Thank you all our next question will come from Adrian Yeah less Barclays. Please go ahead.

Good morning, I'm glad everybody is doing well.

I guess my first question for you is you know kind of going back to the same stuff needs question about the t. that nine recovery sorry, what was the cycle of our country. You know how long were calm negative and then how long did it take to recover to Prerecession level and then Patrick My follow up is can you talk.

About the E. commerce trend I noted that small piece of the business. Thanks for giving a monthly color the period of March closures, the backtrack what would imply.

This track imply a down 90, which makes sense.

And I'm, assuming we should use that for April and the duration of you know whenever the stores you know three of mid day, except for essentially half the court in which case slow you know recapture even once you open I just had to make sure that that sort of the right logic. Thank you.

Good good Andrei and I I think I think I registered your question I'd be back in Oh wait Oh nine we we never had negative comps the same yeah. The team here has never the team that came together 18 years ago has in that 18 years never had a negative a quarter. So so that that's.

The and and and the first two months of this year every one of our brands was was positive except for Fred Meyer, which a slap at all like rough brands were nicely positive in in that way and I'll take the second question and Adrian if I if I missed the mark on this.

But you know, but it was you commerce has never been a huge component business. We've disclose that aren't you commerce revenues are in the mid single digits in terms of overall revenue. We we remain a physical presence business, an optometrist centric business.

And but if there's always been a component at the <unk> during that time period, when our stores were close.

When customers and patients really couldn't come in and get my exams for glasses. They could however, maybe get a contact lens order still or maybe get a prescription extended and so we've seen you know far heavier mix of contact lens files, just because our doors were close we've.

We'll have a skeleton crew interest or worse to take care of those customer requests and even at some times connecting then too.

A doctor for a more you know urgent urgent need I think we'll continue to see that as the stores or reopening, but the the more stores. We open the more that we start seeing patients again from an eye exam perspective again gradually safely I think we'll.

See or return to that kind of prior mixes glasses versus contact lens, it's simply been heavier now because of the fizzled <unk> physical constraints of the door being closed.

Okay, and then Patrick just that we took one what is the minimum topics minimum maintenance topics that you could have for fiscal 20.

We have you know we still use this futuristic of 25 or so per cent of our annual cap Act is maintenance oriented and I'm glad you asked that we've you know if you noted our cap X. was.

Fairly light on the quarter as compared to last year part of that was timing just when we plan to spend the capital. The year impart was we we you know delayed opening some stores and put some projects on pause <unk> I think about cap x. for the rest of the year we're not.

<unk> fill out the next 468 weeks mode right now if we need to we can certainly break you know keep the brakes on cap acts, but but hey look if if things start to improve if we see that we're able to thrive during this and.

You see patients safely and gradually then we could go back into the on position in terms of you know even opening stores in the second half of the year, maybe not at the original pace intended but <unk>, we're taking a very agile approach to the deployment of capital and you know, we'll get more clues every week.

Great. Thank you very much say well.

Thank you are next question will come from Alex Nice Yeah with Bam back. Please go ahead.

Hey, good morning, and thanks for taking my questions. We unfortunately seem that I'll ticking retail bankruptcy's, although I think it couldn't be an opportunity for brands in certain markets can you just give us your thoughts on this new retail real estate environment, where it benefits you the most.

We think overall real estate is going to be more plentiful and cheaper than it was that's how it worked in the last recession and we think that the the real estate market is another thing that will play to our favor in the coming years.

Okay got it and going off his x. question from earlier and how it applies to on line. We saw set up the initiatives in early April that allowed people to update prescriptions and get vision tests online while the optical centers were closed it is measure that benefit your brands at all in April and D.C. any risk that these could remain in place.

Even after the shut down done quite that they they were put in place temporarily we see potential viability to help us we can access that as well and we do not see that as a large threat to us.

Alright, great. Thanks, guys say well.

Thank you. Thank you I next question will come from Paul H.U.S. was city. Good. Please go ahead.

You guys sensitive question.

Truly is what percent dish doors or involves oh, so curious.

You know with your own girl, if you just remind us your combine a hotel on them.

<unk>.

<unk>, Yeah, do you have <unk> clauses in planes <unk> bones.

Action.

That is really struggling that might trigger something for you on the <unk>.

So Paul you are a little hard to here, but I I think I can do it I don't we don't have an exact percentage of of of <unk>. How many of the doors are in malls, but most malls tab several optical doors in them historically, so a a couple.

A couple of free standing a couple host you know a Macy's and J.C. Penney both have have I have Optical's, then I'm fears fears did up until February where where that sort of ended up there because it became less fun I think to be a host there in there that.

<unk>. So that's that and then I think your other question was how many cotenancy clauses are are there in our contracts I I would say I don't have that number top of mind, but it's a lot I think in in good ways like that can favor us and of course.

We're we're perceived as an ever better tenets and there could be some things that would benefit us depending on what happens to other major tenant and and I would also and you know in general.

<unk> to put our real estate and these value oriented shopping complexes and I suspect that those centers will continue to do a little better than some of the more premium upskill, but as as we list as we left other tailwinds that could be tell when for us.

Some of the the things in the contract there.

<unk> <unk> <unk> <unk> <unk> from on just a little bit dry burns.

Margin.

<unk>.

How long you expected.

<unk>.

Yeah in in terms of the eye glass margins, we're still benefiting from a year over year basis from the and improved lens contract. We've also seen you know in the early part of the quarter, obviously that new Texas, Wow up and running.

In and out of the the more not diluted the less profitable phase. So those are two substantial factor fall. This that helped us on on the odd west side.

It might be anniversary.

<unk>.

That that contract went into place in June.

Thank you.

Thank you are next question will come from Cape Mcshane last Goldman Sachs. Please go ahead.

He for taking my question, Okay, just too quick questions. When I wondered if you had seen any change in demand as a result of the stimulus checks that started to hit in mid April and my second question for clothes [laughter].

Well I I know that but I just in terms of Senator E. Commerce, which I know a small so I just wondered if it had any kind of impact and then also wondered if you were doing anything different with the for new Walmartstores that you now are responsible for yeah. So two things we act.

I did see a slight sort of a a noticeable but despite uptake from the stimulus checks, we actually expect that to continue because not everyone has received their checks lots of people haven't received their their furlough benefits and unemployment benefits yet so again in terms of short short term tail wins.

We think that money is going to <unk>.

Tumors pockets from delays in government execution that should be a short term help and the other Walmart for it's it's really just about the the time for Walmart to transfer things to us and you know they're juggling a few priorities right now in there and their stores as they try to sort of.

Feed in support America. So so that that's only delayed because of of that peace, but all is going well there.

Okay.

Thank you and our final question today will come from Michael last year with U.B.S.

Big property for taking my question.

It's on.

Overall up optometrist <unk>.

Any any indication that the willingness to come come back in a mention that retention rates again by but at the willingness to come come back to work.

Be an impediment your business getting back up and running and for those stores that you reopen and the in a Walmart location. What is didn't you initial response recognizable and then they don't we.

<unk> so <unk>.

Terms of willingness.

In terms of willingness to come back what we're seeing a strong returned raid spell only watch out his first sort of people over 65, some of them and and it's a very small percentage of our overall Doctor group. Some some of them are saying.

Not at this time, but it's small not significant that's one and the other.

Shin was Oh, yeah, yeah. When we you know we're talking about a week's worth of results and we'd never like to talk about within quarter is that what we're looking forward to sharing all that with yeah and the next quarterly call, but it sharing one week results are yes, yeah, operator, it's the top of the hour. So if there are any other foods in the.

Call list I will be available chance of questions and they can feel free to reach out to me I mean, it turn it back to read to complete the call and and Sharif. Thank you. So much you know I think you found the who does it have been following God's work, where a consistent and predictable team and a consistent unpredictable industry, resulting in a company that delivers <unk>.

<unk> predictable result, <unk>, it's certainly been disruptive, but we believe the future continues to play to our strength, perhaps even more so I. Thank you all for for your attention today and for your ongoing support my congratulations B.M.B.I. team. It's such an inspiration. This team has been to me.

The past seven weeks and we look forward to sharing news of our reopening a bowler stores with you on the next call. Thank you all very much.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now <unk>.

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