Q1 2021 National Vision Holdings Inc Earnings Call
Good day and thank you for standing by welcome to the National Vision first quarter 2021 earnings call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session task of question during the session and need to press star one on your telephone.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker day, David Mann, Vice President of Investor.
And Investor Relations. Please go ahead.
Thank you and good morning, everyone welcome to National Vision's first quarter 2021 earnings call. Joining me on the call today are REIT pause Chief Executive Officer, and Patrick Moore, Chief Financial Officer, and our earnings release issued this morning, and the presentation, which will be referenced during the call are both available on the investors section of.
Of our web site at 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 and today's presentation include forward looking statements as defined in the private Securities Litigation Reform Act of 1095 of 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 included in our release and 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 <unk>.
Our website now let me turn the call over to Reed.
David Good morning, everyone I'd like to thank you all for joining us today, I hope, you're all staying healthy and safe.
Turning to slide four and a summary of Q1 results.
We've been saying since we reopened last June the COVID-19 has hastened the industry trends that we've been benefiting from for many years. Our Q1 results are further evidence of this this combined with the great execution of our store teams, who rose to the challenge of serving the increased demand for our low cost eye exams and glasses.
And contact lenses made Q1 and another outstanding quarter for US net revenue increased nearly 14% adjusted comparable store sales growth increased 35, 8% and the quarter with comps once again led by our two growth brands Eyeglass World delivered a 48, 3% increase and <unk>.
And because best deliver the 35, 3% increase the legacy segment had and nearly 30% comp increase and we continued to generate positive results at the five additional Walmart vision centers that we added last year we.
We opened 25, new stores during the quarter and ended with 1230 locations for four 9% increase and store count versus last year adjust.
Adjusted operating income and income increased 78% and adjusted EPS increased nearly 73% to 48 cents, which established another record for our first quarter profit as a public company.
And finally, we continued to progress and our ESG journey. Most recently, we shared our ESG framework and launched a corporate responsibility section on our website Q1 quite simply exceeded our expectations. While the pandemic is not over our year to date momentum gives us confidence to raise our full year outlook.
Look.
And in a few minutes Patrick will take you through our Q1 results and our updated 2021 outlook in more detail.
Turning to slide five as the chart shows our business has a consistent history of strength and resilience through a variety of economic and external challenges. We're pleased with our continued strong comps this quarter, which we believe are due to several factors first we believe the strong results were likely helped by the interplay of beef.
Continued he is think of the industry trends that have been helping us for a long time at.
And pent up consumer demand these trends favor larger better capitalized value retailers like national vision. The optical industry remains highly fragmented and we're confident that we continue to outpace the industry and grow market share.
Second we believe our results were aided by the additional rounds of government stimulus and finally, we believe that our safety first mindset and our rigorous safety protocols have resonated with patients and customers and it's been a factor and our strong performance during the pandemic.
As we noted on our last call severe weather net negatively impacted customer traffic and February however in March we more than recovered the lost sales from these weather related disruptions and.
As we've demonstrated over the years. This highlights the benefits of operating at a category, where the purchase is tied to of medical necessity patients and customers are choosing to visit our store of at robust levels attracted evermore to our low cost eye care and eyewear. Thus.
Thus far Q2 is off to a strong start with continued sales momentum and April while the duration of this heightened level of demand remains difficult to predict we would expect it to moderate over time.
Shifting to slide six let's review, our core drivers of growth and how we plan to capitalize on our momentum and further strengthen our competitive advantages.
New stores remain a primary focus as we continue to see a sizable white space opportunity with the potential to double our current total store footprint.
We are off to a strong start with 25 openings and the first quarter and we continue to plan to open about 75 stores in 2021.
We currently have a solid pipeline of specific locations for this year and into 2022.
We're fortunate to have had two very attractive growth engines, and America's best and Eyeglass World, both brands, especially eyeglass world have been performing and and extremely high levels since reopening last June the.
And the consistent strong performance and improved return profile of Eyeglass World gives us the confidence to modest modestly accelerate our opening plans for the brand in 2022.
Optometrists play a key role and our ongoing success and we are of great network of over 2200 up contracts associated with the company.
Our strong performance this quarter would not have been possible without their tireless hard work and commitment to patient care.
As I said in the past, we can always use more uptime interest and we continue to invest and our top of interest recruitment and retention programs to keep our high retention rates near record levels with healthy Dr coverage, we're able to meet the strong patient demand for eye exams with of safety first approach.
In terms of marketing, we returned to a more typical level of spend this quarter and marketing both television and digital continues to be a key factor and attracting customers and driving traffic to our stores.
We're progressing our efforts to be ever more full funnel of marketers and we're pleased to of acquired many new customers in Q1.
In April we launched new advertising to highlight our exclusive purvey rebel assortment and the new campaign features of our al with actor and per <unk> co founder and Jamie Fox. The commercials are viewable on our Investor Web site and via a link on the last page of the presentation.
As a reminder, we expanded our partnership with purveyor of Io last year and are pleased to offer their fun and stylish celebrity endorsed assortment to America's best customers at an attractive value and.
And we remain the only U S optical retail chain that can offer their prescription optical products given our continued exclusive relationship this year.
Another key comp driver is positive word of mouth, we believes and optical retail is a fair category, where those who take the best care of their patients and customers tend to win during the pandemic. We believe optical consumers are even more attractive to our extreme values such as the introductory offers for our two growth brands.
And two for six and $9 at America's best including a full of a free comprehensive eye exam and two for $78 and eyeglass world with glasses available that same day.
We also think the word of mouth on our safety protocols and give the patients and customers great comfort and security.
Participation in vision insurance programs remain a positive comp driver strong net revenue growth tied to these partnerships continued and the first quarter, we remain underdeveloped relative to the category and continue to see and ongoing opportunity here as managed care dollars and co pays and tend to go further and our stores and elsewhere.
Regarding our supply chain, our lab teams rallied to handle the elevated eyeglass volumes during the first quarter, we believe our lab network's capacity positions us well to handle continued consumer demand and its efficiency remains a key reason that we're able to be of low cost provider.
Merchandise inventories remain and a solid position as well despite the record sales trends to date, we have not been impacted by any significant supply chain disruptions.
Or port slowdowns that are impacting other sectors.
In terms of our digital and omni channel initiatives, we continue to progress efforts to expand capacity to see patients as well as opportunities to improve customer engagement throughout the customer journey of.
All supported by insights from updated consumer and market research our efforts and remote medicine are continuing and remain encouraging.
Before I turn the call over to Patrick Let me say that we're very pleased with our Q1 performance in this environment of course, our procurement is at its core of Testament to the store level execution of our teams and their commitment to safety patient care and customer service every day and every store one patient and one customer at a time.
And.
Looking ahead, we appreciate that the environment remains volatile with risks of COVID-19 variance at of potential uneven economic recovery.
At the same time with continued progress with vaccinations, we remain hopeful that we are on our way to establishing what a new normal can look like and we continue to believe that we're well positioned and and attractive industry and are confident and our growth strategies and ability to build the business for the long term.
Now I'll turn the call over to Patrick.
Thanks, Ryan and good morning, everyone and we're excited to be starting fiscal 2020 one on such a positive note as the business performed well ahead of our expectations before.
Before I share some further color on our strong first quarter results and the upward revisions to our 2021 outlook. Let me begin with one item to help frame today's discussion the comparability of our reported sales results. This year, especially in the first half will be affected by the temporary store closures last year and.
And the one week shift forward in our fiscal reporting calendar. This year caused by the 53rd fiscal week in 2020.
Thus, we believe that it is more indicative to look at a two year compound annual growth rate compared to 2019 per sales and comps.
Now, let's turn to slide eight we opened 23, new America's best stores, and two eyeglass world stores to end the quarter with 1230 stores for a four 9% increase and store count and the past year.
For our America's Best and Eyeglass World growth brands combined unit growth increased six 1% over the last 12 months.
Our store growth rate was impacted by the temporary pause and new store openings during the second quarter last year.
The chart of adjusted comparable store sales growth presents our comps calculated on a cash basis same store sales increased 35, 8% during the quarter and our growth brands Comped at Eyeglass World increased 48, 3% and Americas Best was up 35, 3%.
Looking at comps on a two year basis, our Q1 adjusted comparable store sales growth represented a high single digit compound annual growth rate over 2019.
Shifting to unpack the components Q1 same store sales were driven primarily by increases in customer transactions and to a lesser extent by an increase and average ticket we experienced positive comps and both eyeglasses and contact lens with increases in customer transactions.
And average ticket in both categories.
Turning to income statement highlights on slide nine.
Our Q1 results reflect the continued strong momentum and our business this year as well as the cycling of temporary store closures last year net revenue increased 13, 7% for the quarter on a two year basis net revenue increased at a seven 6% compound annual growth rate over 2009.
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Net revenue growth and the quarter was reduced seven 4% due to the timing of unearned revenue recognition the significant year over year increase of unearned revenue reflects the strong sales near the end of this quarter compared to lower sales at the end of Q1, 2020 when our <unk>.
Doors were temporarily closed.
To help unpack how unearned revenue is somewhat unique to our service based business model versus more traditional retailers and we've again included an explanatory slide on owner and revenue in the appendix section of today's earnings presentation.
Cost applicable to revenue increased two 8% or a decrease of 440 basis points as a percentage of net revenue versus last year. The decrease as a percentage of net revenue reflected both higher eyeglass mix and eyeglass margin as well as lower growth and optometrist costs.
Which continued the trends we experienced in the second half of last year.
Adjusted SG&A expenses increased 15, 8% and the first quarter versus last year or an increase of 70 basis points as a percent of net revenue. The key factor behind this increase was the impact from unearned revenue, which resulted in approximately 250 basis points.
Other expense deleveraging, otherwise, we leveraged store payroll and advertising expenses from the strong sales, which more than offset higher performance space incentive compensation.
Adjusted operating income increased nearly 78% to $67 $7 million and adjusted operating margin increased 460 basis points to 12, 7% the.
The increase and adjusted operating margin was driven by the strong comp leverage of fixed costs higher eyeglass mix, and eyeglass margin and lower depreciation and amortization.
As a result of these factors we experienced another unusually strong quarter of flow through.
Adjusted diluted EPS increased 73% to <unk> 48 on a diluted share count of 96 million shares which reflects the fully converted impact of the convertible senior notes using the if converted method of accounting.
By all measures the company and deliver a remarkable quarter.
Now, let's turn to slide 10, and our balance sheet.
At the end of the first quarter, our total debt was $738 million or an increase of approximately $83 million from year end as we noted last quarter. This increase is tied to our early adoption of the new accounting standard regarding accounting for convertible notes and represents the reclassification of.
Conversion feature balances tied to our convertible notes from equity to debt.
Our cash balance was $454 million or an increase of approximately $80 million from year end 2020 net debt to adjusted EBITDA was one two times or a 48% decrease from two three times and the first quarter of last year and represent our lowest net.
Leverage point as a public company.
And the quarter, we invested $16 million and capital expenditures, primarily for new store investments and continue to project 2021, Capex and the range of $100 million to $105 million with our current outlook for top line growth and relatively stable Capex, we expect our 2012.
And one capital intensity to now decline to approach 5% of net revenue.
Yeah.
And our progression as a public company, we have sharpened our strategic focus on capital allocation and intensity. These efforts had been more formally aligned with our 2021 and incentive compensation plans, which now incorporate adjusted operating income and return on invested capital as performance metrics.
As outlined in our recently published 2021 proxy statement. The board of directors took into account feedback from stockholders and the evolution of our public reporting and fiscal outlook measures and transitioning to these new performance metrics.
We continue to be and a very strong financial position with nearly $750 million of liquidity from our cash balances and available capacity from our revolver, we believe that our financial strength and our ability to invest remain a competitive advantage. As we proceed. This year, we will look to balance of concern.
And of cash posture amidst this period of continued uncertainty with our key saved at priority of balance sheet improvement in that regard, we are exploring opportunities and the capital markets to favorably amend our credit facility.
Turning now to our outlook on slides 11, and 12 today based on our strong performance in Q1 and April we're raising our fiscal 2021 outlook, while the operating and macro environment remain uncertain and our consistent performance since reopening our stores gives us heightened confidence and our <unk>.
Business and our outlook reflects the currently expected impacts related to COVID-19. However, we anticipate potential significant volatility driven by ongoing uncertainty related to the pandemic. The outlook currently assumes no material deterioration and the company's current business operations as a result of COVID-19.
Government actions or regulations.
As a reminder of fiscal 2021 is comparing to the 53 week period and 2020 against the backdrop of what we know today, our 2021 outlook now projects net revenue between $1 97, five and $2 <unk> 5 billion adjusted comparable store sales growth and the range of six.
<unk> to 19% adjusted operating income between 155 and $162 million adjusted EPS between $1 seven and $1 12.
Assuming 96 million weighted average diluted shares reflecting the treatment of our convertible notes under the if converted method.
At the midpoint of our outlook. This represents a nearly 21% increase over 2020 adjusted diluted EPS.
We continue to expect strong net revenue and profit growth and the first half compared to 2020.
And our guidance does not reflect material changes and our view for the back half of the year. As a reminder, we will face significant grow over challenges and the second half from record double digit comps and exceptional margin expansion. Following the reopening of our stores, but it is not expected to be sustained thus we continue to project <unk>.
Second half net revenue growth to be generally flat with a meaningful decline and profit metrics for modeling purposes. We continue to expect the quarterly cadence of results to be more in line with 2019.
As Reade noted we're off to a strong start to the second quarter with continued momentum and April while we would project first half comps to benefit from negative year over year comparisons. We continue to expect the underlying level of heightened demand to moderate further over time.
For full year 2021, as a percentage of net revenue, we expect cost applicable to revenue to decrease of 50 to 70 basis points versus last year compared to our initial outlook of a 50 to 70 basis point increase our record performance in 2020 benefited from product mix shift.
And that we expect to normalize in 2021 with some expected cost pressure in the second half our outlook continues to us and 15% tariffs on products that we import from China.
For Q2, we expect cost applicable to revenue to be down 800 to 820 basis points as we grow over a period affected by store closures.
In terms of expenses, we would expect adjusted SG&A to increase 90 to 110 basis points as a percentage of net revenue and our outlook the SG&A increase versus our previous outlook primarily reflects higher performance.
Base incentive compensation and Q1 marketing spend that is projected to return to a more normalized percentage of net revenue and higher levels of wage inflation in the back half of the year against this backdrop, we will continue to tightly manage growth and corporate expenses.
As a result, we estimate and adjusted operating margin of approximately seven 9% at the midpoint of our guidance range or approximately 10 basis points above the 2020 level and approximately 130 basis points above 2019, we.
We continue to project depreciation and amortization and a range of 97 to 98 million and interest expense of approximately 28 million of.
Our fiscal 2021 tax rate is estimated to be approximately 26% and does not consider the tax benefit due to the impact of stock option exercises that may occur in fiscal 2021.
Lastly, we would remind everyone at unearned revenue recognition timing can affect our quarter to quarter comparisons we would expect of year over year decrease and honor and revenue in Q1 of approximately $35 million to at least partially reversed and the second quarter of 2021 as always we will clearly communicate the seven.
10 day accounting timing impacts of the investors can always understand the underlying cash momentum of the business.
To summarize I would like to say how pleased we are with our momentum thus far and fiscal 2021, we remain confident that we are well positioned to effectively navigate this challenge and emerge as an even stronger business at this point I'll turn the call back to Reed.
Thank you Patrick turning to slide 13, and our moment of mission.
Since our last call we've made significant progress on our ESG initiatives and developed a far more structured corporate responsibility approach. We now have a formal framework to further focus our ESG efforts. This framework, which we call C plus G. That's spelled S E as you might expect.
<unk> from our optical retailer represents three key pillars of social employees environment. The foundation supporting these pillars is the GE for governance, our social focus starts with our mission, we can improve lives by providing access to affordable eye care and eyewear and this is our every.
Day work and our business.
But we extend our impact to provide site to those who would not otherwise be able to afford it and communities, where we operate and throughout the world through our many philanthropic partnership we worked with at a variety of other groups to try to address what the New York times referred to as the largest public health crisis, you've never heard.
Of which is the lack of access to affordable eyeglasses for the roughly $1 1 billion people on the planet, who have vision problems that could be corrected by a simple pair of glasses.
Our efforts involve extensive partnerships both in America and around the World for instance in America, We recently announced a new collaboration with Americares and our long standing partner restoring vision through which we intend to provide free classes to hopefully half of million low income Americans via <unk>.
<unk> free clinics throughout the country.
Our most recent initiatives internationally has been through a new partnership with a group called great for impact, which we mentioned last quarter, we've been collecting new frames from a variety of industry connections for a while now and just recently gave hundreds of thousands of frame to grace for impact for them to use and.
Clinics, serving the poor in Nigeria, and Ghana, Madagascar, Tanzania, and outside of Africa and Mexico.
And this year, we hope to play a role and getting glasses to over 1 million low income people around the world.
The second section of our three part framework involves employees internally, we always use the word associates, but employee at makes the optical acronym work some of it and so much more fun for us the way. We think about this is that we want our associates and doctors to live better lives because they are associated with national vision.
This effort takes a variety of forms from training and development to financial literacy to an emergency crisis relief fund that since its founding two years ago has distributed just shy of $1 billion to associates and need.
And for a while now we focused effort and this pillar.
And <unk> initiatives.
Interestingly over 50% of our associates and 45 per cent of optometrists and our network identify as Bipack.
Just last week I signed the CEO action for diversity and inclusion pledge and fully committing us to a set of recognized protocols most of which we already had in place of.
Our efforts in this area of where recently independently recognized by Forbes magazine, who included at Us and their listing of best employers for diversity in 2021.
The third of the three pillars of environment and this area, we're conducting and initial greenhouse gas inventory to provide us with a baseline measurement to assess the impact of future initiatives at <unk>.
Apprise accolade came our way recently in this regard to and office depot chose us.
And our lead leadership in Green purchasing of award based on the fact that our purchases were more eco conscious and 99% of their largest customers last year.
Governance at the foundation focus area and our new framework. This involves identifying and implementing best practices and standards to promote quality safety and compliance for example of our 'twenty 'twenty. One proxy statement includes proposals to declassify, the board and removes certain supermajority charter provisions.
These proposals followed through on the board's commitment to Sunset. These issues following the transition from private equity ownership.
To help stakeholders to better understand and track our many ESG initiatives.
Further formalizing our communications of these efforts, we recently launched of dedicated area of the National vision and website titled Corporate responsibility, where you can find more information about our ESG strategy and the C plus G framework.
So with that I'll, just summarize we at a heck of a quarter and industry trends continue to favor of value offerings. Our store teams and optometrists are executing well and keeping our stores and safe for us and our patients and customers our growth brands continued to over perform and win market share.
And we think there's white space to potentially still double our store count we're starting to modestly increase the number of eyeglass world stores will be we will build reflecting their tremendous success over the past 10 months. Its reopening our ESG efforts are really kicking into gear and being recognized and we feel well poised for.
Future success on a variety of fronts.
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.
Ladies and gentlemen, as a reminder to ask a question you would need to press Star then one on your telephone to withdraw.
And all of your question press the pound key.
And again Thats star one to ask the question.
Ladies and gentlemen, and I ask that you limit yourself to one question and one follow up please.
Our first question comes from the line of step with at the Jefferies. Your line is open.
Thank you and good morning, everyone I have a housekeeping question and then my real question. The first one I think Patrick probably best for you when in your script I think you mentioned at your conference driven by transaction, which was a bit of a surprise it was expecting a little bit more from the average transaction value and just given the stimulus and you can maybe break that apart for us a bit and.
And just talk about how that compared to your internal expectations would suggest that youre picking up quite a bit of market share and new customer I just wanted to understand a little bit better.
And then read the question for you about Eyeglass World and this is I think the first quarter and quite a number of quarters, where it sounds like the tinkering on that model is coming to a point, where you feel really confident in accelerating the growth. So can you just remind us what within the operating model you have changed what are the kpis that are being measured that give me.
And that conviction to start rolling out those the stores at a more aggressive way. Thank you.
And our staff just to make it easier for Patrick I'm going to take both of those questions all right selling something yet right. So trap and it is.
It's both both traffic and check and then of course you know.
What was of course, a factor versus closings of last year. So I mean, you're gonna at get get traffic, but but still both were encouraging we're getting nice growth from new customers and returning customers and we are seeing at average ticket benefits.
Relating to the fact that our consumer has has more money and in their pocket. So it's it is both pieces and and and also at the as we said in the past contact lenses at sort of people at seem to be a pocket of seem to be prescribing and people seem to be preferring sort of more premium.
Tacked lenses and again that helps with that.
Transaction value.
And on the Eyeglass World front, yes, so we have really been feeling great about eyeglass world since since reopening of 10 months ago I'd say at.
Right out of the shoot very strong I think our operations team has been.
And sort of again, we've been sort of.
Getting the right people and the right place and I think that all really came together for us just to on concurrent with the timing of of.
Of reopening we think also the residents of.
Same day shopping at had a little extra.
And residence Inn, and COVID-19 and it's a bigger store so nice feeling of safety within the stores, we've been at focusing our marketing efforts ever more on the benefits associated with same day service. So that's been a plus as well and generally sort of we find there are moments, where just everything comes together and you get to.
Higher a higher plane and that happened with eyeglass world coming out of the shoot and June has been consistent ever since it's nice to have spiked and two growth engines. It's nice.
It's nice and we mentioned we're going to be building a few more of those eyeglass world stores, we've gotten the ROI sort of right in that range of of America's Best and we're just really encouraged and again further confidence that we'll be able to double our store count.
And versus what we have now and keep building tons of stores for 15, and 16 years I think is our latest projection hey, Steph I would like to at.
And that we're tinkering.
Summary way to think about it but in general and we've seen over the last couple of years, you off and seen the robust growth and E. G. W.
What you don't explicitly see as the margin expansion, that's incurred and that occur.
Occurred and that brand and so on top of the comp growth has been even in quarters appeared to be we've seen nice margin expansion. That's put us in at very different place in terms of returns on invested capital and now we have two brands that are essentially in the same zone of ROI and see making it a little.
Easier for us to.
Consider them as equal growth brands.
Hats off to the operations team hats off to the the strategy team and the marketing team there it's been it's been great.
Sure them on and that way.
Thank you very helpful.
Thank you.
Our next question is from Adrian day with Barclays. Your line is open.
You very much good morning, Reed, Patrick and David and congratulations on another stellar quarter.
And so read my first question is.
You know 35 of adjusted <unk> and 18 reported comp.
It would seem that the capacity utilization of maybe the exam aspect of the optometrist time and it.
It seems like they might be being book you know.
At close to all the time. So I guess my question is how far is at stress stretching the system is shopping these longer and longer hours of service demand and.
You know cannot keep going and.
Then for Patrick My question for you its third consecutive quarter of solid double digit margin pre pandemic. We were looking at kind of mid to high single digit margin op margin how long.
Of that is structural.
And should we be thinking about of different long term margins and I know you haven't given and hallo pizza just early days of thinking about that thank you.
And it says so.
And again I just wanted to point out to sort of achieve these numbers case really strong execution on it on a great. Many fronts I mean, yeah, just at the labs, keeping up the distribution center of the store teams, but as you mentioned sort of your patience, we're choosing our eye exams in.
And in far greater numbers.
We do think that there is still capacity therefore for ongoing growth and we have we're always working on different ways to make sure the flow through the store is as of fish as efficient as possible. So that our doctors can do what what they do best which is which is.
At due to good eye exams, and we are of a lot of people sort of helping to get them. The data they need to be great optometrists, along the way, but we do think we aren't feeling that there is a tremendous.
Capacity constraints for us we do think the industry is seeing some capacity constraints.
Many of independents, especially have reduced their store hours, we have not reduced our store hours.
Many of our <unk> are seeing a lot less advanced per hour.
And we have and focusing very much on a safety first mindset with cleaning and cleaning and cleaning and and and social distancing.
And Matt and all of those pieces, but we think we're benefiting from the reduced industry capacity. We think that's been one of the helps but we think we're still well poised to continue at at strong high levels continued growth.
And I'll pick up from there Adrian so yes, we are seeing a continuation of of rather exceptional March and margin expansion period and that started essentially when we reopened our stores.
And we benefited from robust demand we benefited from tickets that have elevated partially due to stimulus.
And we benefited from eyeglass mix versus content lens. There was a period of time, where we weren't advertising as much debt has moved much closer to normal now.
And so there's been many factors in terms of the margin expansion.
What of that.
Remains versus what has been more transitory nature is to be seen we are we have been highly focused on margin expansion and even from 2018 to 19 and I think we improved operating margins 30, or 40 basis points. So it remains a strategic focus I would say we are expect.
And comps to begin to normalize we did comment that they were very strong first quarter and through April and that was part of our guide lift of obviously the flow through of Q1 and and the strength of Q2 that we're seeing through April.
But we do expect to see some moderation most comps over time, we don't think that ticket is going to remain this elevated and in terms of our business model, we really don't want it to remain to celebrate and we want folks to remember that they've got a great deal of and then come back in and a year or two the parts of our margin going forward that I think we already got some where we have some additional opt.
Unity is always looking for some incremental benefits of lab productivity, Inc.
Incremental benefits potentially of advertising and rent cost and then the liberty and the corporate overheads. So I think I still see some opportunity beyond some of the more exceptional transitory.
Margin impacts that we felt and we're focused on getting that.
Thank you.
Our next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.
Hey, good morning, everyone and nice quarter. My first question is on your assumption around mix shifts product mix shifts throughout the rest of the year can you remind us what they were in 2020 of the positive ones and why why do you think they revert I'm asking because looking across the cross section of the retailers and.
And all of the sub segments, we cover most of them really not expecting a lot of sort of category of mixed reversion and a lot of the margin trends at the stay in place. So curious why your assumptions.
Mike and a little different there.
I'll start and add a few comments and and REIT can certainly weigh in as we think about what drove the shift during the period of time when our stores were closed we were still open and we would just had locked doors, we were selling contact lens. There were some online and on glasses. So that really started the niche and the mix shift we have.
Scene of much higher air are substantially higher degree of eyeglass mix and our assumption at mix reverts closer to normal over time, it's just a function of managing the business for so long we've seen periods of time, where mixed bounced around a little but in general it does fall at some fairly.
And consistent norms so.
We are expecting as we think about the second half to see that approaching closer back to where we were in terms of standard mix.
And.
Building on that.
Just need unified contact lenses, even when our doors were shut you can call. The store you can go online and buy from us. So so that that wasn't that's disrupted and of course people. Some were a little insecure about supply chain and things like that and bought up of.
And to the future sort of a pet.
Happy about it.
And.
And I'd say also just in terms of of of mix, where we're finding things like.
Peter glass of Blue like glasses as we're all we're all spending more time in front of screens and I think we haven't wanted to and and so our sales of Blue light lenses are going to vary.
Strong and that's a that's a factor also people one of them make sure they're protecting their eyes and seeing their best and and even frankly looking at their best on the screen. So that that's been a.
Waller factor and all of us as well.
Okay and Thats helpful. And then the follow up is on.
The margin outlook for the rest of the year inclusive of the second quarter. It looks like you still have some and it looks like deferred revenue catch up like a good a good guy and to the P&L to reverse of what happened this quarter, but at the back half of the year. If you retain like you said flattish for the back half if you retain most of the bump that you got the prior.
For year two.
Two year stack wood.
Similar to what this business has been doing historically.
And the reversal and margin can you talk about because your volumes overall will still be higher I guess, you mentioned some costs that are going to come back up inflation and wages et cetera, and the back half, but is there any reason why the flow through of shouldnt be a little bit better sense of just higher levels of volume overall and the business.
Yeah, Simeon and I would say it starts with our position on planning sales and comps and all.
Although the environment is certainly better we have better visibility, it's still nothing like say, we had pre pandemic. So we continue to take of a prudent posture towards towards planning.
As you think about the second of the first half we're growing over.
Foreclosure periods from last year, and the second half for growing over robust growth. So so yes in terms of the guidance raise for today that was a result of Q1, that's in the books and then what we're now expecting and it's a little lift in Q2 versus where we were back in February 2nd half were still holding pretty close to where our plans were.
And maybe we'll see some incremental stimulus benefit and maybe will.
Exceed those.
And those comps were double digit and Q3 in Q4, and so we're being a little cautious as we approached at.
And in general.
Our plans and assume that we see some normalization of comps some normalization of ticket.
Maybe not back to pre pandemic levels.
But but certainly not at the highs that we've experienced.
And then yeah. Thanks for the plug and honor and revenue you don't always like to talk about that we do expect that to reverse to a high degree per second quarter and become more of a positive than of negative at this time and as always half of <unk>.
Moving to 10 day timing thing and.
And we'd like to look at the business kind of putting that aside but in general the margins for second half, we expect them to not fully revert, but at least start re approaching.
And the margin profile with more normalized comps more normalized mix.
Thank you.
Our next question comes from the line of Paul <unk> with Citigroup. Your line is open.
Hey, guys. Thanks.
Two questions one on and EG W. I'm curious.
If you're leaning more towards using independent doctors first of all of those employed by you and is there anything that changed on the Doctor side.
Factored into your ability to accelerate the growth there is it more driven by the sales traction that youre seeing and.
And I guess, along those lines you know all of them.
Disruption that youre seeing and the market and the.
Share up for grabs a little bit more and that GW demographic persons person JBC.
That's the first question second question I'm, just kind of curious what the plan is from a marketing perspective, I think it was at a point of leverage and 2020 I'm just curious how you're planning marketing.
This year and how does that compare.
ABC versus ECW. Thanks, Scott.
Good.
So.
So simply no real change to the Doctor model and EG W that was not a factor and we have of mix. Some stores have employed doctors some stores have lease doctors at we're pretty agnostic and you look at the laws of the state of course, but we're pretty agnostic as to how that that.
Works.
And so really no new news of the Doctor side of it.
<unk> World.
Your question of market share up for grabs with the gws demographic and maybe maybe that I would if a factor of probably Oh.
A smaller factor versus the larger factor, but yeah, we wouldnt be surprised I mean overall of both of our brands or all of our brands are are benefiting from the hasting of the trends of the shift from from.
Independence to change from from from malls.
Non malls from from traditional and more expensive to more value oriented. So so I think that those are bigger factors for all of our businesses, especially in.
And America is bad debt than than others.
In terms of.
Our marketing planning, we do believe marketing spend is going to normalize as sort of the world. We live in normalizes, we're expecting that that to get back to normal levels.
Having said that we are getting ever more engaged at all in our marketing orientation for both of our brands and we're pleased that we think we're really getting of hang of of that.
And and I think the biggest difference between.
America's Best and I have lots of orders just America's best benefits from the fact that we've got on network television now for a few years that helps us here and when we open a store people know, who we are and and if I heard of us and understand our benefits and that's a plus and I guess I would point out just the one other thing right now sort of our America's Best brand is.
Has some of that that advertising and we mentioned at our call comments of.
We've had exclusive of J D power for vapor rebel frames and at that Paul and in particular, I think you would really enjoy the AD. So please do due to watch that.
But in general mortgage at all at Meredith.
And that has as network advertising and normalizing of spend through the balance of the year.
Thank you.
Our next question comes from of lineup Robby <unk> with Bank of America. Your line is open.
Hey, good morning, guys.
And another great quarter.
Just maybe a follow up read on just when you look forward are you seeing a threat of more significant wage pressures either for the optometrists and.
<unk> of the store associates and also maybe not seeing at a lot yet but are there potential inflation issues and the supply chain either on the left side of crane side.
Yeah, Okay at that thank you Robbie let me back and answer your questions backwards.
All right.
Our lenses, we have nice long contracts with fixed.
Cost to them our frame to get were not seeing anything significant in terms of inflationary.
Of course is forces there.
Operating at the same where all of everyone else does and and labor is tighter than than it was at this particular moment in time, you know sort of post the big stimulus.
Check so.
At this.
COVID-19 thing and it's been about different chapters and chapters change and where we are and a chapter now of of tight labor and we like that we like to pay competitively and make sure that our trucks are are well compensated. So that's that's something we're watching and managing carefully.
Great. Thanks, so much.
Thank you.
Our next question comes from the line of Kate Mcshane with Goldman Sachs. Your line is open.
Hi, good morning, Thanks for taking our question.
Just a quick one from us.
With regards to new stores on rent are you starting to see more favorable rents and 'twenty, one or was that kind of already locked in and so as we look towards 2020 and when you can maybe see them.
Something more favorable and then finally are you looking to do any relocation and could take advantage of.
So all of it with lower rents.
Hi, good.
Good morning, So you know really what we've observed on the rent market as Reed said, we've had some chapters we had a chapter and 2020 and where we saw some benefits in terms of renewals and even new store rents.
And I'm seeing now.
<unk>.
And at flat, maybe a couple of down a couple of up so I would say we've kind of moderated.
And I'm not expecting because of the types of places, we like to be or high traffic value of shopper.
Those rents on a per square foot basis of held up far better.
And you know that.
Given the scale of the size of the store that we're after this three to 4000 square feet is and our sweet spot. So.
And I think there are a lot of vacant.
At four big box stores, where rents have collapsed really not seeing that and our markets and don't don't expect too we have benefited from some construction cost declines over the last year or so.
And we still feel good about where those costs are this.
And this year because so many of our store build projects are seven to nine months and durations and a lot of those costs are already already baked in and so that's kind of how we're viewing our real estate market in general we expect to continue to put 75, new stores out there for a long period of time every year and have been pleased.
And with what we're seeing in terms of the cost profiles.
Thank you.
Thank you.
Our next question comes from the line of Michael Lasser with UBS. Your line is open.
Good morning, Thanks, a lot for taking my question recognizing that it's really hard to Si.
Part of the stimulus.
And your first quarter results.
And he had to quantify how much the contribution was from the acceleration and the.
And it's starting in mid March at the time check here.
How much was that.
And to what extent do you think that that has released and.
It's up to me and and.
Throughout the industry and.
And you noted that trends have remained strong through April is there a reason why you just mentioned through April and not.
Middle of May where we stand for day.
Let's see.
A few pieces at its hard to to pick up part of.
What exactly is as stimulus driven yes. The at average sale has gone up but it started going up last June so so.
And I think at all economic indicators out there are suggesting that.
Consumers, especially our target consumer is feeling pretty cash flush and has been for a while now and I think at Wall Street Journal is talking about us out of the credit card debt being all time lows or.
Very very low historically.
So so it's hard to pick that piece of part we do believe also that pent up demand is is still a factor I'd be surprised at all all of you for the past 10 months of been going to the dentist as regularly as you used to ultimately people are going to get eye exams and similarly, so we do feel there is.
Still a pent up demand there, but I do think I do think the bigger factor relates to these hey, this hastening of trends that we've been talking about.
For several years now ever since we went public and before internally and that that debt that has been H and I do think that's sort of of the independent sector is.
And having less eye exams, and then they were before and.
And I think we are the beneficiary of that and Q1.
And and in.
Yeah, Yeah and end in April and we just picked a focus we are writing.
And we've published yet and we're starting right at the start of last week.
It was a big deal for us of even give you like months of lumped into a corner of giving us parking by week seemed a little much.
And you mentioned March So February we had that the weather issue that we mentioned on the last call weird because we're in the midst of that debt. Whether then but then of course the the business came back in March as it always does for US you know, we always referenced the restaurant and model that snow storm.
At that restaurant has lots of that meal youre never going to have last night's dinner again with us the first and stays at home there I'd get worse and they just come once the snow melts and.
And.
So that was the factor for us and and and March I Hope that answer. Your question. It is hard to pick all of this our part and of course, then there's that other factor of tax season. This year is so weird taxis and there's always a big benefit for us and that one's just a hard one to sort of sort out given all that's going on with the IRS and all of this year.
And so there's just a lot of I think.
Use of words interplay and our press release and the interplay of just a number of forces coming together overall.
Overall like strongly beneficial to us.
Understood.
Yes.
Plentiful number of good good things.
My follow up question and what is your current capacity and.
Store.
And we've covered around at 75 range for a while you're mentioning you've mentioned that you're going to accelerate the growth of DW. Presumably this is not going to come at the expense of slowing the store growth per America's best.
And what do you feel comfortable with.
And is it just that now that your overall store base.
Are you going to have a increased absolute number of openings to maintain the same level of growth or can you actually start to see Inc.
Overall level of growth from some of the contribution from new stores.
Yes, so youre getting to a good point, we saw a little more of impact this quarter on comp composition from.
From our are Comping stores.
Versus new stores and that was part of it because we because we didn't open as many last year, we have guided to open 75. This year. So you can probably take that at the bank. We've not we've not determined and what we're gonna do beyond 2021, and certainly understand your point, but we really do launch of our new store opening.
Machine, we're very good at at opening 75 on a very specific cadence with good success.
It's about real estate, it's about getting store ready and it's about getting the doctor and place.
Store can open and strong so.
At 75 this year beyond this year, we will certainly.
All of those factors into account as we think about 2022 and beyond.
Thank you very much.
And our final question comes from of lineup of Dylan Carden with William Blair. Your line is open.
And we appreciate it thank you.
Just wanted to follow up on a couple of items there.
Reed you mentioned kind of this reduction of industry capacity.
At present and I'm just curious how much of that you think is permanent and.
And then on pricing and sort of inflation I'd like to come at it from a different angle can you just remind us of your pricing philosophy I know the entry level is more or less.
Acreage, but how much of your business could you take price. If you wanted to or would you just sort of use at more sort of strength and the value proposition and the market.
Good.
So how much of the industry capacity.
And decline that we benefited from is permanent.
Hard to tell I haven't got me, there and that it's probably.
More so than the plug out and have some long lasting effect that's got meter.
And there again, it's hard to predict because you're talking about the decisions made by large numbers of of independence.
But we.
We do know our theirs and industry stat out there that the independents at about 3% less doors than they did before that door closure and we also know that there's been sort of other door closure out there and.
At 10th of suspected of lot of independents sort of have grown used to a new a new pace for themselves, but who knows I can't I can't predict that who knows pricing philosophy. Our philosophy is we like our kind of customers to none of that they've saved a lot versus other places they might go we'd like them to walk out the door, saying Wow that was.
And I spent last year that was of great value I pulled him at less money out of my pocket, we like that to be a noticeable difference we don't tend to take major pricing actions we do.
And our entry level price as you mentioned is I think been in place at America's Best for 15, maybe 20.
Ears, and Theres not much to talk about about changing that sometimes you can peripherally sort of make a change to sort of a lens package here and there last time, we did that was 2019 and we don't do that very frequently you talk about that very much but in general we like our customers two of saved money by choosing us.
Thank you.
I would now like to turn the call back over to Ray for closing comments.
Thank you. Thank you draw and we'd like to thank you all for joining US. This morning for your continued interest and and and support of National Vision, We're proud of the tech of.
Q1, and we're looking forward to speaking of again, when we reported our second quarter of results. Thank you all very much for your attach at today.
Bye bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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