Q3 2020 National Vision Holdings Inc Earnings Call
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Ladies and gentlemen, thank you for standing by.
Welcome to the National Vision third quarter fiscal 2020 financial results conference call at.
At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session. That's good question. During the session you will need to press star one on your telephone. Please be advised that todays conference is being recorded if you acquire any further systems. Please press star zero.
I would now like to turn the conference just forget their day David Mann. Please go ahead Sir.
Thank you and good morning, everyone welcome to National Vision, <unk> third quarter 2020 earnings call. Joining me on the call today are read bogs, Chief Executive Officer, and Patrick Moore, Chief Financial Officer earnings release issued this morning, and the presentation, which will be referenced during the call are both available on the investors.
Section of our website national vision 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 todays presentation includes forward looking statements as defined in the private Securities Litigation Reform Act of 995. These statements are subject to risks.
And uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to the factors identified in the release and in our filings with the Securities and Exchange Commission. The release and today's presentation. Also includes certain non-GAAP measures reconciliation of these measures are.
As noted in our release and the supplemental presentation. We also would like to draw your attention to slide two 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 or presentations for investor reference on the investors section.
Of our website now let me turn the call over to read.
Thank you David Good morning, everyone I'd like to thank you all for joining us today, I hope, you're all staying healthy and safe.
Today, we are sharing exceptional third quarter results that highlight the strength of our business model in these challenging times before we begin I want to acknowledge that these results would not have been possible without the team's great thinking great execution, and great patient and customer care over the last few months, our national vision team has.
Remained focused on our mission to make eye care and eyewear more affordable and accessible something that continues to grow in importance throughout America.
Our key priority remains the health and wellbeing of our store teams, our patients and our customers I'm pleased to report we accomplished these third quarter results with our continuing safety protocols firmly intact. Our results can be tied to many decisions made earlier. This year. We were quick to act in the early days of pandemic to put our people.
First to strengthen our financial position and manage our costs, we developed enhanced safety and cleaning protocols that enabled us to safely reopen and operate during the pandemic and we made decisions with a long term focus on our optometrists store associates and our customers. We believe that these actions have placed us in a.
In an advantage position during this continued period of disruption.
Turning to slide four let me briefly touch on trends in the third quarter.
Word after five years I would like to sincerely. Thank <unk> for his service and significant contributions during his tenure.
Randy is our longest serving board member and it's been a great strategic and operational partner with us for the past 15 years is understanding of our business and our category is unrivalled, we loved the institutional memory that as chairman chip brings while also appreciating the fresh perspectives and insights from our newer board members.
Based on a recent performance and confidence in our business model, we're reinstating our fiscal 2020 outlook in a few minutes Patrick will take you through our queue three results in the queue for in 2020 outlook in more detail.
Turning to slide five as the chart chairs our business has a history of strength and resilience through a variety of economic and external challenges. This is one of the benefits of a purchase tied to a medical necessity.
We're pleased with the return to positive comps this quarter led by double digit comps that our growth brands are storage experienced consistently strong demand from our patients and customers.
Which we believe highlight that are affordable eyecare and eyewear offerings are even more in need during the pandemic.
And in this economy, we noted that consumer demand remained healthy even after the government government stimulus faded and enhanced unemployment benefits expired during the quarter. The fourth quarter is off to a strong start as the third quarter comp momentum continued throughout October.
The trends that we've experienced this quarter are a testament to the essential healthcare role we play in the communities. We serve are low cost value offerings, given the state of the economy and the combined macro and micro operational navigation by our long tenured management and field teams.
Quarter as in the prior year, we experienced strong organic demand a reminder of the fact that the optical services and products. We offer are an essential medical necessity. We believe optical consumers are attracted to our extreme values such as our introductory offer for our two growth brands two for 69 95.
Five at America's best including a free comprehensive eye exam and two for $78 at Eyeglass World with glasses available that same day as we plan for the for the fourth quarter, we expect to return to more normalized marketing investments to remind consumers that they don't have to pay higher prices for their optical needs.
We continued to experienced strong revenue growth tied to our managed care partnerships net revenue tied division insurance remains a minority of our net revenue and thus we remain underdeveloped relative to the category. We continued to see an ongoing opportunity here as managed care dollars and co pays tend to go further in our stores than elsewhere.
Regarding our our supply chain our lab teams have been working hard to handle the elevated business volumes. This quarter and we're very proud of their efforts are lab neck network remains a key reason that we are a low cost provider.
In September the temporary relief on terrorists for frames imported from China expired and reverted back to the 15% level given the fluid nature of tariffs over the last year, we will continue to monitor ongoing developments as well as continue to progress our tariff mitigation efforts.
Creditability to navigate dependent.
Turning to slide eight let's dive right into our results.
We opened 17, new America's Best stores, one eyeglass World store and closed one vision center in Walmart, which was due to the closing of the Walmart post locations. We ended the quarter with 1200, one stores for a 4.9% increase in store count in the past year for our Americas, Best and I guess.
EXPAREL growth brands combined unit growth increased 6.2% over the last 12 months.
As Rick noted we were excited to celebrate passing the 1200 store milestone this quarter.
The chart of adjusted comparable store sales growth presents our comps calculated on a cash basis.
Same store sales increased 12.4% during the quarter at our growth brands pumps at Eyeglass World increased 18.4% in Americas Best was up 13.6%, we are especially pleased with the robust post reopening performance at our glassware.
This quarter same store sales were driven by an increase in average ticket as the trends in customer transactions and average ticket was influenced by more muted back to school season, which we believe was consistent across the industry.
We experienced fewer children's transactions, which tend to carry a lower average ticket and in turn had a positive impact on our average ticket this quarter.
My category, we experienced positive comps in both eyeglasses and contact lens with especially strong performance in our glasses high gloss comps were driven by increases in both customer transactions and average ticket, especially at our growth brands.
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 nine as you see from today's press release, our Q3 results reflect the continued strong momentum in our business since June.
Net revenue increased 12.4% and in terms of unearned revenue. The change this quarter was consistent with the third quarter last year, thus the impact to net revenue and profitability was not material this quarter.
Cost of applicable for revenue increased 3.1% or a decrease of 390 basis points as a percentage of net revenue versus last year. The decrease as a percentage of net revenue reflected both higher on glass mix and onquest margins as well as lower growth and optometrists costs.
Adjusted EPS DNA expenses increased 3.1% in the third quarter versus last year or a decrease of 350 basis points as a percent of net revenue. The key factor behind this decrease was lower advertising investment.
Additionally, the company incurred incremental hosted related expenses of nearly $5 million in the quarter, primarily for the one time 250 dollar appreciation bonus to our frontline associates and network of doctors as well as the acquisition of PE supply.
Adjusted EBITDA increased over 89% to $88.1 million and adjusted EBITDA margin increased 740 basis points to 18.2% in the quarter.
Adjusted operating income increased 160% to $67.7 million, an adjusted operating margin increased 800 basis points to 14%. The increase in adjusted operating margin was driven by the strong comp leverage of fixed costs higher eyeglass mix and on glass margin.
And lower advertising as a result of these factors the flow through this quarter was unusually strong.
Adjusted diluted EPS increased to 54 cents versus 16 cents last year.
Our diluted share count reflects the impact of the convertible senior notes issued in May which were in the money this quarter.
By all measures this was a stellar quarter for the company one of the best in our history.
Turning to slide 10, our year to date results reflect a strong recovery in our business. After the first half impact of store closures and to a lesser extent the timing of unearned revenue.
Adjusted comparable store sales growth was down 11% net revenues down 8% and adjusted operating income declined 27% adjusted diluted EPS declined to 42 cents from 66 cents last year.
Now turning to slide 11, and our balance sheet and ended the quarter. Our total debt was $652 million, our cash balance was $377 million or an increase of $121 million. During the quarter. We are extremely pleased with the strong free cash flow generation.
This quarter.
Net debt to adjusted EBITDA across the 2.0, Mark for the first time in our history as a public company at 1.6 times, a decrease from 2.6 times in the third quarter last year.
Balance sheet strengthening has been a key stated priority for our company and I'm very pleased with it and proud of this milestone accomplishment.
Year to date, we invested nearly $41 million in capital expenditures, the lower level of Capex versus last year generally results through cash preservation strategies deployed during the second quarter, including the timing of new store capital investments.
Our financial strength gives us the opportunity to make ongoing investments in our people in our business. We believe that our ability to invest remains a competitive advantage as such we are continuing to invest in projects that will support our future growth. We now expect our total of 22000 capex to be in the range of 75.
$80 million.
From an estimated $65 million to $75 million range, we noted last quarter.
Turning to slide 12 at the end of Q3, we are in a strong financial position with over $671 million of liquidity from our cash balances and available capacity from our revolver. We believe that we have sufficient liquidity to manage our operations continue to invest in our business and six.
Escalate navigate depend demand.
As we emerge from this period of uncertainty balance sheet improvement will remain a key priority.
As noted in the press release today, we are reinstating our financial outlook for fiscal 2020, and providing fourth quarter outlook as well.
While the operating and macro environment remains uncertain our performance since reopening our stores gives us heightened confidence in our business. Our outlook reflects the currently expected impacts related to coated however, ultimately impacts of coated remain uncertain the outlook assumes no material deterioration.
In the company's current business operations as a result of cobot government actions and regulations.
As a reminder, fiscal 2020 is a 53 week year for National Vision, we estimate the extra week will add approximately 35 million to net revenue within approximately breakeven impact to adjusted diluted EPS. The projected minimal profitability is due to the expected net change in margin on.
In revenue in the 50 Threerd week we.
We currently expect the timing of unearned revenue to be generally inventorial in the fourth quarter. However, during the high volume last week of the year sales are a little more difficult to predict and we can see a material swing in unearned revenue and its associated impact versus our estimates.
Turning to slide 13, and the details of our financial outlook for the fourth quarter. We project net revenue of $460 million to $475 million adjusted comparable store sales growth in the range of 5% to 9% on a 13 week basis, adjusted EBITDA between 42 and $47 million.
Adjusted operating income between 20, and 25 million adjusted diluted EPS between 10, and 14 cents, assuming 84.2 million weighted average diluted shares.
As recent noted we're off to a strong start to the fourth quarter and the third quarter comp momentum continued throughout October however, significant macro economic and cobot related uncertainties remain and we expect our comps to continue to normalize as pent up demand moderates further.
For the fourth quarter, we estimate a 70 basis point increase in adjusted operating margin at the midpoint of our guidance range, our outlook assumes a more normalized flow through in the quarter due to the following factors.
As a percentage of revenues and cost of political revenue should rise modestly versus the fourth quarter of last year.
We expect to incur an increase in advertising investments, we're cycling a more difficult Q4 comp comparisons from last year and the impact of the extra week this year as well.
Turning to our full year outlook, we expect net revenue for fiscal 2020 of 1.675 to 1.69 billion adjusted comparable store sales growth of between negative 6.4, and 7.4% and adjusted diluted EPS between 53 and.
57 cents, we are projecting 2020 depreciation of approximately $93 million interest of approximately $32.5 million and incremental coda related costs of approximately $9 million.
We estimate ongoing overhead related costs should be around $1 million per quarter based on current pandemic and related conditions.
Lastly, our fiscal 2020 tax rate is estimated to be approximately 26% as a reminder, this guidance does not consider the tax benefit due to the impact of stock option exercises that may occur in fiscal 2012.
For additional details regarding our 2020 outlook. Please reference today's press release for presentation.
In summary.
Im extremely pleased with the stellar performance this quarter and proud of the team's accomplishments. This quarter further highlight the competitive strength and health of our business model. The strong store level execution in free cash flow generation, we continue to feel well prepared to 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 turning to slide 14, and our moment of mission.
The topic of investing based on environmental social and governance factors or ESG has gained much attention recently and we continue our efforts as well as you know our company has always operated with a mission based focus and this year, we've embarked on a journey towards developing a more formal approach to ESG.
Strategy.
We have long thought of ourselves, it's a fast growing business and can that meets a critical need in society, whose success fuels a fast growing philanthropic mission.
Our philanthropic efforts have long been an integral part of who we are and what we do.
Our commitment to philanthropy was highlighted in our first philanthropic impact report, which was published in Q3.
The report details the many ways in which we strive to help children across America help impoverished people with diminished sites globally and partner with the optical philanthropic eco system.
We invite you to access the report on the National Vision Web site and be at the link in our presentation.
We have a commitment to diversity as embodied by the gender balance now reflected on our board with 50% female directors.
Only 5% of mid cap companies in the U.S. can say that we are quite happy and pleased with our board.
For a long time, we've tried to ensure that our store teams and central support teams reflect the communities that we serve I'm.
Im proud of our continuing initiatives to enhance diversity equity and inclusion throughout the organization, including the establishment this quarter of a senior leadership position to oversee and support our ongoing D efforts.
We continue to invest in optometry and are proud of our recent pledge to reestablish the summer enrichment program at Salus universities, Pennsylvania College of Optometry a program. That's been considered one of the most successful in attracting large numbers of minority students to the profession of optometry last.
Lastly, we are committed to best practices for corporate governance, our proxy statement earlier this year shared the board's commitment to declassify the board and remove Super majority Amendment provisions and put these issues to a stockholder vote at our 2021 annual meeting.
As noted we are developing a holistic ESP strategy that will identify opportunities to build on our philanthropic mission and social efforts. We are in the process of formalizing our priorities, including consideration of environmental impacts and we look forward to providing further information as we continue to progress on our ESG journey.
The tremendous success of this past quarter combined with our belief in the strength of our future allows us the time resources and stability to ensure that our societal impact is every bit as strong as our finances.
In summary, as we just passed our three year anniversary as a public company and then thinking about the events of the last several months and how the entire national vision team performed I could not be more proud appreciative and impressed with all they accomplished.
With that I'd like to turn the call back to the operator to start the question and answer portion of the call. Thank you as.
As a reminder to ask your question your need to press Star one on your telephone.
Hi, a question. Please press the pound cake. Please stand by while we couple of Q and a roster.
First question comes from Simeon Gutman with Morgan Stanley. Your line is open.
Hi, everyone. Good morning, I want to first ask about gross margins. So the business Scott a lot of leverage on that line some of that mix some of it against the fixed costs.
You've had other quarters with good comps not quite as strong as you've had but we've never seen the gross margin expand like this so I was hoping you could talk a little bit more maybe about the components. If you can breaking down some of the expansion by.
Buckets, and then how to think about them going forward.
Yeah sure happy to do that Simeon good morning, So on on Q3, you're right. We saw really outsized gross margins in the quarter.
Just under 400 basis points and you're you're exactly right. We saw nice leverage there benefited from higher.
Higher eyeglass mix and margin.
And the margin is a function of a little bit of a lift in ticket that we've seen.
As well as lower growth and optometrists costs. So those were pretty big factors.
On the on the ticket side, we think that some of that is at least partially related to the stimulus effects.
And the other factor is we saw a very muted back to school season.
Typically we have a large influx of children's classes, which are often lower.
Price their single vision folks are picking very affordable options, and we really didnt get out in the mix this quarter.
All of those factors weighed in to what you saw there in in Q3 as I kind of look the fourth quarter.
And is that if you look at the guidance. We provided we are expecting the comps in the ticket through moderate a bit.
And we are striking cycling a pretty strong gross margin comparisons from.
From last year that was up 200 basis points I think the last factor that I want to make sure everybody understands is that the 50 Threerd week, we probably talked about it back in February when we did guidance that we probably Havent mentioned that began in that 50 Threerd week for our company, where unearned revenue comes into play can be.
Can be a little odd in that we do expect I think we had guided on mid thirtys like $35 million incremental revenue in that 50, Threerd week, but due to unearned revenue accounting impacts those delays in customer pickup versus when they purchase the in that last really big week of the year most of that impact will differ.
Sure.
And so those are those are kind of some of the big factors for the quarter as well as how we're thinking about the fourth quarter. It was great to see the leverage.
It's a nice testament to the business model and we were really pleased with those results.
Okay, and then a follow up if you take the 12 for comp.
Can you can you share what you think what percentage of that was driven by new customers and then compare how that looks versus prior trends.
Yes, well you know that was a record crop like this we saw gains in existing and new customers were getting a higher mix of new customers, especially at AAD Eyeglass World.
Americas past that a bit more consistent.
With historical trends, but eyeglass world definitely seeing growth in new customers and we're really pleased with this growth there of new customers out when in a period, where sort of we had a lower level of marketing investment, which generally drives.
The new customers and and all that against the backdrop of.
Muted our back.
Back to school season versus last year.
For us and the industry, we believe.
Thank you. Our next question comes from Zack Fadem with Wells Fargo. Your line is open.
Hey, good morning could you talk a little more about the strength you're seeing it eyeglass world.
I don't think we've seen that business out comp America's best buy this wider margin in recent memory and you mentioned new customers. They are weak I'm curious if this is specific to any initiatives that you put in place hitting T W or or more so a function of the demand environment, our consumer preferences for that model in this climate.
Any color there.
Yes. Thank you. Thank you is that yes, we're Darren I'm proud that as our 18.4% comp is a real nice nice number offer for eyeglass World. There are a few things on that first of all when you talk about specific initiatives I am I really would just like to point out for.
Eyeglass World and and the rest of the business. These numbers don't just happen again I do think that there are trends that we are are are riding a wave of but there's been a number of specific initiatives.
In all our brands that we've put in.
Post co bid that we think have played a role here for competitive reasons, we don't want to go too much into specifics on that but I really think.
The teams thinking planning execution internal communication and above.
Both serve micro and macro thinking and planning has played a role in all of this but to your question about abouts.
Last world, specifically I do think that there is a way for us.
Sort of post co head into.
Interest in same day service that has been helpful to us there and sort of one one trip sodas.
Moving to end to end and speed of turnaround. So I I do think that the eyeglass world positioning is especially well suited for the world We're living in now.
Got it and then for Patrick on the impact as deferred revenue and a little more detail as this I believe that the larger than normal week, it's typically a headwind for for Q1, but with that we shifting Q4 should we expect a net positive impact.
Can't wind relative to 10 normal years and is this.
Maybe you could walk through how this will impact growth gross margin personal that CNH.
Yes, so and I liked your statement in a normal year [laughter].
In a normal year, you would absolutely expect effects. So all other factors held constant.
I think you're right to assume that that last week of the year is they typically big sales week as many customers and patients.
Make sure they're using any benefit they are going to lose it's not the easiest suite to predict this year, we're doing it in kind of pandemic world. So.
I think in an enclosed in a normal year, you're right to think about that that deferring.
But we're being careful this year and I think we indicated we expected it to have.
Probably another immaterial impact in fourth quarter as it did in the third quarter as well now when you think about the unearned revenue.
We defer the rep, we defer the revenue and the cost of sales that goes with that revenue so you're deferring the revenue and the margins.
The other cost in the business of occurred so thats why you can get such lumpy swings to gross margin uneven EBIT margin with the swings in the unearned revenue margin because you're it's very high margin impacts to whatever quarter, it's being recognized.
Hope that helps.
Thank you. Our next question comes from Paul Lewis with Citigroup. Your line is open.
Hey, Thanks, guys.
Curious number legacy segment was positive, but not as strong as you're on.
Those businesses. So just curious if you will speak to the trends that you saw.
Well, yes, we eliminated at all in terms of hours of operation maybe talk traffic ticket.
In that business and also if you could give us an update on how the converted Walmart stores have been performing.
Good Paul Thank you very much sort of our legacy business sort of return to pre Kobe performance levels.
And and.
And we end up and we are operating in a way, where we have a lot of sort of.
Things up to make it a little harder to enter the store because we weren't worth we've got the safety first mentality, so sort of their expansions up to keep to make it. So that you have to in essence sort of knock on the door. Almost there is not a door, but you have to be let in and temperature and all that which which is.
As a factor in all this.
The five new stores that they are continuing to generate positive results and we see great future potential for those five stores and I guess on on our legacy group I did want to point out that we did close one vision center in Q3 and Thats because that's.
Thats a big box closed itself. So the the big Walmart store closed then we therefore had to close also so thats that explains.
That that piece.
Okay. Thanks, just to follow up on Palm Trust or are we passed the days of deleverage.
As we think about that line item within within gross margin and maybe if you could talk about just how recruitment efforts have been going during this kind of wacky Barrett.
Hey, Paul its Patrick I will take the first part of that and then within reach.
Complete the swing we did see a.
Less of a growth rate in optometrist cost in the quarter, which we reported.
Im not ready to call that trend yet although over time, we think there will be a few less optical doors open which could help supply and demand. If you leave the economic theories and that would say you probably could see some lessening of wage pressure for optometrists, but.
Im not ready to call that a trend yet we were glad to see it in the quarter.
And then in recruiting efforts of recap Scott's up so a retention remains.
Hi at near record levels for Optometrists and of course, you don't you don't deliver the sort of results. We just delivered if you don't have strong strong coverage out there.
Recruitment is stable to overall, the trends and but we as we said since the day, we went public.
We can always use more optometrists and again I do think that we are going to be seeing sort of a hastening of the trends that that have been benefiting us pre covanta hastened.
Post Kobe, it including sort of decline in market share of the traditional segmented into and the mall segments and just.
Just makes me feel that again. These trends are are good for us coming out of the other side of all that.
Thank you. Our next question comes from Michael Lasser with GBM. Your line is open.
Good morning, Thanks for taking my question, how much of the pent up demand you think you've already worked through the stores were closed for a.
A good portion of the time like you are constantly say is the medical necessity for the the demand that will go away because it really comes back over a period of time. So how much have you already worked through.
In you had indicated that your comp trends were up high teens to start the quarter, presumably it flowed to the low to low double digit range to end the quarter is that how we should think about the exit rate and that continued into the current quarter.
So so I'd say the initial surge.
Pent up demand is is normalizing.
But but there are also customers who are sort of just sitting out the market. There just some people just don't want to leave their house or that sort of thing again that the comp show that that plenty of people are back in our stores for sure record comps show that but.
We do know that consumers, who are sort of sit.
Hiddink sitting out for a time period, you know it's that thing we always talked about when they are sitting at home. Their eyes are just sort of getting worse. We are I think our our metaphors. Since we went public has been it's not like a restaurant there theres a snowstorm you're never East last night dinner again, but with.
With your eyes get worse, and you have to address it sooner or later so that will.
They'll come to us eventually.
In my.
Exceeding on that point and then I'll add my follow up question would you have expected traffic to be better and given more of your comp if you will.
The the pent up demand being released and then my follow up question.
You.
You talked about the factors that drove both the gross margin and the senior leverage is there anything that you're learning on how you can now run the business more efficiently such that you are going to come out of this situation in a structurally higher margin situation the work going into it or what the experience.
James was of the third quarter and maybe some degree in the fourth quarter, just a function of a unique period that we're in where you don't need to advertise as much.
A little more utilization out of your optometrists, who will do we shouldnt really read into it. Thank you so much.
Sure I'll take the first half and Patrick will take the second half.
It when when you deliver at 12.4% comp the the best quarterly comp certainly 18 years I've been here I can't remember any quarters in my life quite like this you don't sort of get to.
Frustrated by sort of the pent up demand normalizing a bit but I think we've got Eric remember I think you are comparing it seemed like the 19% again in June.
Sort of we do generally see a back to school surge.
In in August and we and the industry did not see that the 19% did have a lot of government stimulus government stimulus has always helped our business a lot and we saw that that dissipating there also so.
Yeah we're.
We're pretty happy with 12.4% top end. The fact that that caused that momentum has gone through October also in this crazy environment, where we're operating.
As we.
Two with such so my safety protocols.
We're pretty darn pleased with that.
And then on the margins Michael.
Great question I like the way you worded that and what I would say is we've adapted a really strong consistent growth business model to operate inside.
And Damon.
That has been more.
Evolutionary than revolutionary So may be good news bad news the good news is.
We havent found anything major through this this chapter that tells US we have been doing things in a sub standard way before the chapter and in fact this our margins right now are probably being hurt a little bit by the incremental cost of coated so.
The business model that came into the pandemic has adapted during it but I view this as a rather exceptional period in time now longer term management remains very focused on it.
June doing to Eke out margin improvements.
Kind of talked about supply and demand factors for OTI availability as well as cost.
I think we could see a friendlier advertising for rents going forward, maybe some advertising leveraging each year. We we typically get some small degree of productivity gains in our labs and our opportunity to leverage corporate overhead we do have I wouldn't call them headwinds, but it's not all on the Pos.
Yes, the side of Ledger. There is this incremental cost of doing business during the pandemic, which we estimated for everybody in about a million dollars a quarter and then and then some degree to be determined that wage inflation and we talked about Dr. Inflations that states.
States are enacting incremental minimum wage laws and hikes and so we continue to to try to balance that in maintaining good service levels.
So management still focused on on the.
We're assuming the.
Find ways to improve margin trajectory, but I don't think we can count on.
Click format. This exceptional period and assume there's been some really large gains that we found in those now paint across the future, but I do see opportunity to focus on here.
Thank you, ladies and gentlemen, we ask that you. Please limit yourself to one question and one follow up please.
Next question comes from Kate Mcshane with Goldman Sachs. Your line is open.
Hi, good morning, Thanks for taking my question.
I wondered when we start to lap the ticket impact from some of the higher priced contact.
Contact gives me that you're selling and can you give us any more color on the growth brands that you've been investing a lot are showing strength.
I'll take the first good morning, Patrick than we've been seeing that trend and our customers.
Customers, new patients selecting a little higher price a little higher performing content lens for probably two years now we expect that to continue as they shift to lower time duration modalities. So I don't know that I would say, there's a there's a lapping of that that we are.
Looking forward to this is just a general trend, that's playing out and it's showing up in our business for our customer set as well.
And and in terms of trends in growth brands again in our Americas, best 13.6% comp eyeglass world, 18.4% comp without a back to school.
Up a benefit with less marketing it.
It It says to me that you know that our businesses, especially our growth brands are are just very much on trend with what consumers are looking for from a price and one stop shop.
Standpoint, and that our operations team.
Really are executing well.
Precision in a way that makes consumers.
Comfortable with his work gateways weve shopping in storage of feel you know we're all we're all consumers when we enter any environment are looking around for emblems of safety, our people's masks appropriate our car there are the all the little things that we need to feel secure.
And this pandemic occurring and I think that what these results are demonstrating is people are comfortable being in our stores like our safety protocols, a lot like our price position and with high class World like our speed position.
Positioning.
Thank you. Thank you. Our next question comes from Adrian with Barclays. Your line is open.
Good morning. Thank you everybody for taking my questions read I guess my my initial question is really quick are you comfortable with us taking on October strength to low double digit kind of 12% carryover on throughout the rest of the quarter notwithstanding coated surging.
Over the country. So that's my first.
Secondarily the strength.
Hi, glass world with the one day.
Turning the the product what is the lab utilization rate of eyeglass world.
Is it logistically impossible does it not make sense to have 80 America's best have some ability to fill in that that utilization and then Patrick on the guidance for the fourth quarter that returned to advertising are we saying that you're ramping that advertising spend it's typically a 7% annually.
Are we ramping that from you can you give us a notion that way it was in the third quarter and how we should think about that relative to the 7%. Thanks. So much.
I mean, why don't I take the first question is in the third one, but the comps and the advertising.
And since that okay. Adrian good morning so.
So on the comps we are expecting to see some.
Slight moderation in comps across the quarter. So we did remark that October business has continued pretty strong there but based on.
Our conversations a few moments ago about pent up demand in ticket.
You're not assuming that that plot lines were assuming we started to see some moderation there and then on advertising as it relates to the Q4.
We've been very judicious in how we've been almost high trading our advertising spend and over the past 90 days, we've turned a lot of that back on not completely we continue to look at that.
At a very market specific level. So I would say that we'll be ramping back to normal levels. There is not going to be.
Switch, where it goes from zero to one so we are seeing we are expecting that to ramp back and and and set to Patricks point on the first question also man wasn't environment, we are living in.
Between between co bid ramping and national politics, and it doesn't seem like there's a week that goes by where we don't have to deal with either a hurricane or our wildfire. Some place. It's just good to be prudent in this in this day and age because we're getting a lot of stuff thrown at us as a as a as a country.
So.
So and to your your Eyeglass World point on on Lab utilization, then I think you were sort of talk.
Talking about.
That relative to sort of.
America's Best Orthos profitable synergy if thats, what I took away from your from your question.
When there's an eyeglass world in in the market with America's Best there, they're very they're very friendly to one another and and America's best when they have somebody who does have an urgent need often does send folks over to the eyeglass world, We really I guess world model to be.
As low cost as we are has to be sort of dead simple and systematize and process oriented I mean, so much of the ability to maintain low cost is about just really well thought out efficient processes and that and that for America's best involve the centralized labs, a centralized lab model is based.
On an algorithm that figures out at which of our six labs, we're able to most efficiently make that particular job. It's really a great source of of our low cost model. So we really in terms of using eyeglass world labs for nearby Amir.
Because bass were referring not really doing that we think that that add complexity and complexity always ask ads.
Costs in our mind, so both both run the runway, but theres friendliness for serving consumers, who do indeed have a need for speed.
Thank you. Our next question comes from Bob Trouble with Guggenheim Securities. Your line is open.
Hi, good morning, guys.
Reid I was wondering if you could just give us your latest thoughts on I think the competitive closures, whether its store closures in the industry or square footage I Wonder if you could maybe help us with that thanks.
Yes, so bright this industry is changing and we firmly believe that there will be a lot.
Less doors going forward than they were pre Cove, Ed there was already a trends towards towards that occurring again. This as some of the traditional operators some of the small pieces, but that has been haythem.
Bye.
By these these new trends and we when we went public. We stated here are the trends, we expect to occur and benefit us over the next several years and we are seeing that it is coming through just as we thought and now more rapidly than ever we are confident we are going.
Growing market share we are confident that.
January February next year, we'll have significantly less doors than before and those doors up.
Many of the doors that are open are seeing less patient they are slowing down their books. If they know they are taking less exams per hour or their opening less less less hours overall, so again from a competitive standpoint, it's still.
Clear that consumers.
Our are are they see this as a stores based purchase.
There are going to be less doors, especially less traditional mall doors.
And and some hosts stores and we are benefiting from that and we will continue to benefit from that.
Great and just have a follow up if I could read.
Reed you mentioned and this is a weird times that we're in I was just wondering if you thought that you might see a surge in demand from people straining their eyes as they watch for the election results.
[laughter].
We can't think quite that short term in nature. We do believe that all of US are spending a heck of a lot more time staring at screens, both large and small we believe that that contributes to ice strain and we believe.
That is another trend we will be benefiting from it are benefiting from now we'll benefit from going forward. Just asked the people you interact with and they will talk about the strain they will talk about.
Mid vision, they will talk about blue light the lens desires and all those pieces and again, it's another win.
When we end to end, our sale and probably on the election side, yes that is at a near term.
Impact on People's eyes, and and mental outlook as well.
Thank you. Our next question comes from Seth listen with Jefferies. Your line is open.
Thank you good morning, everyone. Most of my questions have been asked but read I'd be remiss if I didnt complement you on the board appointments, so Bravo for that Oh.
My question actually relates directly to it you spend some time on the call talking about the skill sets of these women that had been appointed talking about digital transformation marketing and data analytics. So wondering if you can help connect that to the strategy and then as you think about shifting from cash preservation to cash deployment, how should we think about investments in.
In digital marketing data customer data et cetera, and higher.
For castings, one of your strategies around those areas. Thank you.
So all those this is I'll take the first part Patrick you will take the second part there.
Although this is a more traditional category.
Category with the consumer purchasing experience more slow moving then than other categories. We have been committed to will be can it continue to be committed to ongoing digitization of both the consumer facing and the internal parts of our business.
We have a roadmap laid out and a steady brick by brick a process in place I do think that both up right now.
Naomi and Susan.
Come at it come to this with great skills and insights there have already been asking.
Great and stimulating questions that will make us a better end probably move even faster in these directions, but.
But we're finding all sorts of ways to.
Sort of get to give consumers it.
Digital options that they seem to be taking too and we will be doing this for for years to come.
And we're happy with that and.
And some of those are in areas and things like we're finding a lot of our ship to home things and having people order even from our stores and get that done is another aspect of our omni channel.
But we are committed to being.
Both a traditional and a digital winner going forward and Patrick you can take on it and talked about the how that affects our India embed us.
We have we have been investing in E commerce, omni and data analytics for quite a while now please.
Pleased with the progress we've made especially over the last few years no plans to not keep doing that so as we look to strategy and multi year planning those all have important places inside of our portfolios. So we will be investing in.
And as Reed said, we still see this as a store base business with omni and E Commerce complements.
Successful retailers and the retail was no exception will have to meet the customer where they want to be met and so we continue we continue to invest in and those projects.
Just one other piece out when when you're when your sales are as strong as ours have been you have the ability to think longer term and tech spend time thinking about.
Your processes and ways of working and I do feel especially in the area of.
Data analysis of our business and consumer understanding.
That we are.
More sophisticated now than we were pre co head we start in my mind I think of this as a sort of a piece dividend that the business is so good that we have been able to really focus our our internal processes, our internal analysis, our our our data management and visualization in ways that.
We will pay dividends to us long into the future.
Thank you and our next question comes from Anthony Chip.
Combo with loop capital your line is open.
Thank you very much for taking my question congrats on the strong quarter and I will outbreak like contributed to your comp because I got another I come at a better than my Buck contact lenses. So.
Just wanted to get to that but a lot of product.
[laughter]. So a lot of lot of good questions. Most of my questions Discrepant answer I just had one quick question you talked about the fact that Tom matures.
Competition growth.
Sounds a little bit slower I'm, Scott I Wonder if you can provide a little color around that with respect to your comps grew at 12% we kind of leveraged.
Optometrist.
Compensation or was there some sort of you know.
Supply and demand dynamics are and depending the additional color you could provide would be helpful. Thank you.
Sure Anthony you nailed it that was principally leverage.
Tom interest cost is the rate of growth was a little lower than we've seen and again I'm just not ready to call that a trend.
We are happy to pay competitive salaries for the doctors. They are full component of our business model attracting good doctors and retain them is is central to the business model and so yes in Q3, we leverage that a little little more than than we have in the past and part of that is really focused on the outsized comp.
So.
I expect to continue to see some degree of.
The wage pressure there.
Wage inflation, there, but but again so important to the business model and so important too.
Recruiting and retention.
Got it. Thank you. Thank you we have time for one more question Molly.
Molly bomb with Bank of America. Your line is open.
Hi, guys. Thanks for thanks for taking my question.
On the call for Robert you done another any call right now, but I just had one question do you guys have talked a lot about pent up demand driving some of the comp increases we've seen I'm. Just curious if you could talk a little bit more about how big of an impact you've seen from some of the government stimulus programs because when.
When we look at broader spending we saw a drop in August with the expiration of the care that to pick up again in September with the seamless way program one that was distributed how.
Have you seen similar as we closed for any other indication that stimulus and a big driver and kind of related to that with comps holding up quite well is anything built into guidance.
Another round of stimulus would that kind of service not stopping here. Thank you.
Yes, so so we.
We are a business that are always benefits when governments send money to consumers you serve in pre Cove is times and more normal times, we always talk about the rustic Tom's when tax refund checks go out and so.
Sort of the the some of what we are seeing in in June and July was very much related to cash in our consumers' pockets win win there with the government stimulus. So so we are with that.
Stimulus helps our business, Okay, having said that we are I have based nothing in to our guidance our future projections are based on the thought that there will be any more stimulus so that would be.
The encouraging for us and for sure would be helpful.
Thank you at this time I'd like to turn the call back over to Mr. Pos for any final remarks.
Thank thank you norm and I appreciate all the all the good questions there we'd like to thank you all for joining US. This morning for your continued interest in and support of National Vision, and we look forward to speaking with you again, when we report our fourth quarter results. Thank you all very much.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
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