Q1 2022 National Vision Holdings Inc Earnings Call

May 10, 2022

Yeah.

Welcome to the National Vision Q1 earnings Conference call. My name is John and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. If.

During the question and answer session. If you do have a question.

Zero one on your Touchtone phone.

As a reminder, the conference is being recorded.

I will turn the call over to David Mann.

Thank you and good morning, everyone welcome to National Vision's first quarter 2022 earnings call. Joining me on the call today are <unk>, Chief Executive Officer, and Patrick Moore, Chief Financial Officer, Our earnings release issued this morning, and the presentation, which will be referenced during the call are both available on the investors section of our web.

Site nationalization dot com and a replay of the audio webcast, which 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. 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.

<unk> 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 real.

<unk>.

Thank you David Good morning, everyone. Thank you all for joining US today I Hope you all are staying safe and healthy.

The pandemic era has brought swings of both opportunity and challenge there have been multiple chapters and with our resilient business model along with our dedicated management team, we have successfully navigated and adapted to each one.

Chapter we're in now is one of the challenging chapters.

The historically consistent optical category is experiencing the impact from macro headwinds and a temporary disruption to the purchase cycle the headwinds, including the recent surge in inflation and weaker consumer confidence are leading to demand softness for our lower income predominantly uninsured customers, especially when compared to record.

Demand last year.

Our last call, we believe macro headwinds have caused a real shift in our consumers' behavior.

Additionally, emerging constraints to our exam capacity affected customer traffic in many of our stores, while we have delivered a record level of comfort hiring thus far this year, our exam capacity is temporarily out of sync with our needs.

This was primarily due to the impact of a modestly lower level of optometrist retention coupled with the start date of many new hires occurring later in the year.

Both of these challenges are substantially consequences of the Covid era and had significant impact on our first quarter performance and updated outlook for fiscal 2022.

For the first quarter net revenue decreased one 2% versus a record Q1 sales last year and adjusted comparable store sales declined six 8% compared to the strong 35, 8% increase in the first quarter of 2021 and.

And we delivered adjusted EPS of <unk> 33.

Patrick will provide more detail on our results and outlook in a moment, but I want to emphasize that we believe that the challenges we are facing are temporary.

Our team is laser focused on overcoming these headwinds and we're taking recruitment and retention actions to improve exam capacity, including the acceleration of our remote medicine initiative. We believe remote medicine will help to address our ever present need for optometrists to keep up with the demand for eye exams at our locations.

The optical category has a history of consistently every time and we believe that the future will see a return to a more stable and predictable environment.

Our long term confidence in the health of our model remains unchanged as we remain a low cost provider of a medical necessity.

Turning to slide five as the chart shows prior to the pandemic our business demonstrated consistent performance over time, even amidst broader economic challenges during the great recession of 2008 and 2009, our business generated comps in the positive low to mid single digits. So in this current environment of <unk>.

Inflation and lower consumer confidence, we believe that our value offerings should be even more appealing to an even larger slice of the American public and we believe that once consumers have tried our value priced products. It will be hard for them to ever go back to paying higher prices again.

Note that this week after a significant consideration we implemented our first pricing change to America's best signature offer in over 15 years.

We now offer two pairs of eyeglasses, including a free eye exam for $79 95.

I would also add that the signature offer at eyeglass World was increased to two for $89. During the first quarter. We feel these actions are appropriate given the current inflationary environment. Even with these increases we are proud to continue to deliver industry leading value to our consumers.

On slide six the chart, our quarterly comps highlights the volatile comp performance caused by the pandemic over the last two years.

Turning to slide seven the comp volatility was especially pronounced in the first quarter as the chart in the upper left corner shows, but it is also equally if not more volatile in the second quarter.

During the pandemic era, the consistency and predictability of the optical purchase cycle was disrupted and this trend continued in the first quarter as.

As we noted on our last call our store operations and customer traffic. This quarter were negatively impacted by the COVID-19 surge at the beginning of the year.

Since our call. We believed optical consumer demand was further affected by inflationary pressures and a decline in consumer confidence as well as lapping government stimulus from last year.

The softness is noticeably more pronounced for our predominantly uninsured customers, who are paying out of pocket for our products and services. We believe that this slowdown in demand has been felt in most of the category in March and April .

Those of you who have been following us for years have heard us say that we are always seeking more uptime tourists as the optical consumer journey typically begins with an eye exam.

This has been more true recently in.

In the first quarter, we experienced constraints and exam capacity in some locations and by that I mean, specifically that in some locations we could not fulfill exam demand that is there due to the lack of available optometry.

Some of these constraints related to pandemic factors such as scale backs in days worked by individual optometrist or a modest downtick in optometry retention and some relates to the mix and timing of new upcoming tourist arrivals.

Although our level of optometrist retention has declined since the record high pre pandemic. It still remains within historical bands. We have multiple recent initiatives to drive retention, which are being executed by a new level of clinical management and the early signs that these initiatives are encouraging.

In terms of hiring we've been investing more heavily in recruiting programs. These efforts are leading to enhanced hiring trends as this year. Thus far has been a record year for the hiring of op counters. However, many of the new hires will not begin to practice until late this summer. Thus there is a timing lag between hiring and star.

Dates.

We currently expect these disruptions to impact our business performance for the next couple of quarters. Our team is working hard to quickly expand our exam capacity to mitigate this impact.

Amidst this we see our remote medicine initiative, it's a way to address our exam capacity constraints and thus we are accelerating its rollout. We are now targeting to operate remote medicine and up to 300 stores by year end up from the previous goal of at least 200 announced last quarter. We are extremely pleased with the increasing exam capacity.

<unk> added by remote medicine, and the role it can play in serving more patients across both geography and time.

So despite the temporary challenges facing our business, we remain confident in the long term strength of our business model based on the following.

Our business has shown tremendous consistency and resiliency over long periods of time. This is a benefit of being a low cost provider of a medical necessity. We operate in a highly fragmented industry with ongoing positive trends such as an aging population and increased ice cream from such things as increased screen usage.

<unk>.

And our customers need to see to get through their lives. As there is continued to worsen over time vision correction issues eventually need to be addressed.

Over the past periods of volatility we expect the category will eventually revert to its historical cycles.

Shifting to slide eight in addition to our exam capacity in remote medicine efforts, we continued to progress our core growth initiatives.

New stores remain a primary focus as we continue to see a sizable white space opportunity. We are off to a solid start with 17 openings in the first quarter, including two eyeglass world locations as we ramp up expansion of this brand. We continue to plan to open at least 80 stores in 2022.

Currently have a solid pipeline of specific locations for this year and into 2023.

Marketing along with the positive word of mouth from happy patients and customers continues to be a key factor in driving traffic to our stores. We compete in a marketing intensive category given the infrequent purchase cycle for eyeglasses.

We believe our value messaging will resonate with consumers in an environment of high inflation.

We aggressively invested last year to maximize share growth as well as run marketing tests in 2022, our team is more focused on optimizing our marketing investment.

Our participation in vision insurance programs continues to be a positive revenue driver, especially in the current environment in the first quarter, we experienced solid growth in sales tied to vision insurance as insured consumers because the insurance funds most of or all of their purchases are not deterred from shopping and the type of economy or comps related to <unk>.

Managed care grew in the positive low single digits, let me repeat that in the first quarter, our comps related to managed care grew in the positive low single digits, we remain underdeveloped relative to the category and continue to see an ongoing opportunity here as managed care dollars and co pays tend to go further in our stores.

Elsewhere.

At this point, let me turn the call over to Patrick for a more detailed discussion of our financial results and the 2022 outlook.

Thanks, Ray and good morning, everyone.

First I want to echo <unk> confidence in the underlying health of our business and that we view. The current issues are shorter term in nature in the interim the team is focused on what we can control continuing to invest in key growth initiatives and appropriately realigning cost to our revenue outlook.

Now, let's turn to slide 10.

As a reminder, the first quarter of 2021 results had the tailwind to revenue and profitability from pent up demand from store closures the benefit of government stimulus and an elevated average ticket.

In Q1, 2022, net revenue decreased one 2% compared to 2021 due to the omicron impact macroeconomic headwinds the constraint to exam capacity and the exceptional growth last year.

The timing of unearned revenue benefited revenue growth by 2%, which was better than expected to get the volume sales in the final week of the quarter compared to 2019 net revenue increased 14, 4%.

During the quarter, we opened 15, new America's best stores, and two eyeglass world stores for a 5% increase in store count for our America's Best and auto glass World growth brands combined unit growth increased six 8% over the last year.

Adjusted comparable store sales declined six 8% versus 2021 compared to a record 35, 8% increase in the first quarter of 2021.

Q1 comparable store sales were impacted primarily by a decline in customer transactions average ticket declined slightly year over year, but increased sequentially from the Q4 ticket level. We are encouraged by the fact that our average ticket has stabilized primarily helped by pricing actions and successful product introductions.

<unk> light Blue line.

Turning to slide 11, as a percentage of net revenue cost applicable to revenue increased 260 basis points or slightly above our expectations for a $2 20 to 240 basis point increase.

The increase was driven by deleverage of optometrist related cost decreased eyeglass mix and lower eyeglass margin associated with the year over year decline in average ticket.

Adjusted SG&A expense percent of net revenue increased 110 basis points. The key factors behind this increase with the deleveraging of advertising store payroll and occupancy expenses from lower revenue, partially offset by lower incentive compensation.

We expect advertising in 2022 to be maintained at a similar percentage of revenue as 2021 with the potential to be slightly leveraged for the year.

Adjusted operating income decreased 33% to $45 million and adjusted diluted EPS decreased 32% to 33.

Compared to 2019, despite the challenges this quarter adjusted operating income and adjusted diluted EPS were up 6% and 7% respectively.

Now turning to slide 12, our balance sheet and liquidity remains strong at the end of the first quarter, our cash balance was approximately $315 million and total liquidity exceeded $600 million when including available capacity from our revolver.

We ended the quarter with total debt of $578 million.

Net debt to adjusted EBITDA was nine times compared to one two times at the end of the first quarter of 2021.

We funded $28 million in capital expenditures that we're primarily focused on new store and customer facing technology investments and remain on track for 2022 Capex in the range of $110 million to $115 million as we continue to invest in key growth initiatives.

With our free cash flows and considerable cash position. We continue in our shareholder return program year to date through May six we repurchased 5 million shares for $19 million and have $111 million remaining under the current share repurchase authorization.

Since the inception of our share repurchase program last November we have repurchased one 9 million shares for $89 million.

Regarding our inventory position, we are comfortable with the current level and its ability to support our 2022 growth plans our efforts to mitigate supply chain disruption continued to be affected to date at the end of the quarter inventories were $127 million and.

Tori per store grew less than 2% on a year over year basis.

Our merchandising and distribution teams continued to execute extremely well to help us manage through the current challenging supply chain environment.

Overall, we believe that our financial strength and our commitment to invest in our business remain a competitive advantage.

Turning now to our outlook on slides 13 and 14.

I'll conclude with some commentary regarding our updated 2022 outlook, which we included in today's earnings release the.

The operating and macro environments are extremely uncertain. The updated fiscal 2022 outlook reflects the currently expected impacts related to macroeconomic factors, including the ongoing COVID-19, pandemic inflation geopolitical instability and risk of recession as well as constraints on exam.

On capacity.

The outlook assumes no material deterioration in the company's current business operations as a result of such factors.

The current environment, it's difficult for forecasting as visibility is quite challenged as a result, we have taken a more conservative posture to the updated outlook and have incorporated wider ranges, reflecting specific planning scenarios. The wider range of assumptions are driven by the unprecedented market conditions.

<unk>, our ability to predict demand within normal level of certainty given the real shift in the consumer and the disruption of the purchase cycle.

Against the backdrop of what we know today, our updated 2022 outlook projects net revenue between 2.01, and 207 billion adjusted comparable store sales growth compared to last year in the range of negative four to negative 7%.

Adjusted operating income between 85, and $105 million and adjusted diluted EPS between <unk> 65 and 80.

Assuming 82 million weighted average diluted shares.

Let me share some underlying assumptions in our outlook the high end and the low end of the comp and revenue ranges represent two potential scenarios for consumer demand for the rest of the year at the high end of the ranges. We are assuming a modest level of recovery for consumer demand in the second half, including the back to school season.

As well as improvements in exam capacity.

At the low end of the ranges, our comparable store sales and revenue assumptions essentially reflect very limited demand recovery as well as a lower degree of exam capacity improvement.

In terms of operating expenses, we've taken smart tactical actions to align costs with the revised revenue outlook, primarily in store payroll advertising and corporate overhead. However, we are continuing to invest in the business and key initiatives and our store growth and capital expenditure plans remain unchanged.

Our ongoing commitment to investment as further evidence of our confidence in the future prospects of the business.

As we have done in the past I would like to provide additional color given the unique comparisons to 2021 in the second quarter. We are facing a continued grow over challenge from our record results and government stimulus last year also quarter to date revenue trends have been negatively impacted given the macro hedge.

<unk>, an exam capacity our outlook assumes comps in the negative low teens and modest profitability for the second quarter for the second half, we now expect comps to be in a range of negative low single digits to positive low single digits due to easier comparisons moderating average ticket pressure and increased.

Exam capacity.

Store openings. This year will continue to be predominantly America's best locations, coupled with a doubling of eyeglass world openings. We are on track to open at least 80 stores in the openings are expected to be evenly spread over the year. We project a few closings as is typical each year.

Let me share a couple of other factors assumed in our outlook for 2022.

We are excited about the accelerated rollout of our key remote medicine in EHR initiatives and continue to anticipate incremental dilution in the range of $6 million.

We continue to expect the timing of unearned revenue will have a negative impact in 2022. We currently estimate this impact to adjusted operating income to be about $9 million.

As a reminder, unearned revenue recognition is a 7% to 10 day timing impact that can affect our quarter to quarter and annual comparisons.

For full year 2022, as a percentage of net revenue, we expect cost applicable to revenue to increase $3 50 to 375 basis points versus last year, primarily due to the deleverage of fixed cost as well as the lapping of last year's record performance there.

That's it from product mix shift and an elevated ticket for Q2 cost applicable to revenue are expected to increase about 400 to 450 basis points versus last year.

In terms of expenses, we would expect 2022 adjusted SG&A to increase between 125 to 150 basis points as a percentage of net revenue year over year. The SG&A increase primarily reflects sales deleveraging and to a lesser extent higher levels of wage investments too.

To assist with modeling we have also provided additional assumptions on depreciation and amortization interest and tax rates.

As <unk> stated earlier, we have successfully navigated several unique chapters during the pandemic and while the current chapter is one of the more challenging I have every confidence in our business model value proposition and our management team to take the necessary actions now to return the business to a growth trajectory.

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

Thank you Patrick turning to slide 16, and our moment of mission as we continue our ESG journey, we're continuing to invest in our associate experience to ensure that national vision is providing a life, giving fulfilling workplace. We received the results of our first associate experience survey. This quarter. This is an important.

Additional way for us to have an ongoing dialogue with our associates and to continuously improve our work environment and the ways that will matter most to our associates.

We were quite pleased with the results and encouraged to confirm that associates feel we are doing many things well already some quick highlights 92% of associates are proud to work for National vision, 90% feel good about the ways, we contribute to the community, 93% clearly understand how their job contributes to.

Achieving the goals of National vision, and importantly, 90% have confidence in the future of National vision, which is significantly above U S benchmarks.

In these highlights and throughout the survey results, we see tremendous alignment among associates on some of the core values that we feel make national vision successful.

I'd like to conclude by sharing my heartfelt appreciation to the entire national vision team for their continued resilience hard work and their commitment to patient care and customer service during these challenging and dynamic times.

In summary, the key takeaways from today's call are these after 18 years of consistency and predictability that pandemic era has temporarily made the optical market and consequently, our business more volatile.

We believe that the marketplace overtime should return to trends more consistent with the pre Covid era, especially as our customers vision only continues to get worse with time and we remain a low cost provider of this medical necessity we.

We believe that several initiatives, including our remote medicine rollout should help us to get our exam capacity more in line with the demand that is there for exams at our stores thus.

Thus, although we are currently in one of the challenging Covid era chapters, our confidence in our mid and longer term prospects remain unchanged.

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 well now begin the question and answer session. If you do have a question from zero one on your Touchtone phone.

If you would should be removed from the queue. Please press zero then to infusing.

Using a speakerphone you may need to pick up the handset first before question in numbers.

And we ask that you have one question and then one follow up.

Once again, if you do have a question.

Zero and then one on your Touchtone phone.

Yes.

Our first question is from Simeon Gutman from Morgan Stanley .

Go ahead with your question.

Operator, it seems we have a problem with that question can we go to the next question and we'll come back to Simeon.

Yes, Sir our next question is from Michael Lasser from UBS.

Good morning, Thanks, a lot for taking my question can you quantify or frame how much of the challenge.

Seeded with macro pressure on the lower income consumer versus the capacity constraints that you spoke to perhaps you could do it in the context of the guidance for the second quarter, which is obviously for the comp which is obviously going to be much lower than the first quarter. Despite having.

Yes.

The difficult stimulus comparison periods.

Yes, Michael Thank you. Thank you for the question there. So we would say it was.

Somewhat balanced between the economic factors and the.

Capacity factors.

And in Q2, we took that into account when we're up against.

Higher stimulus.

For Q2 of recall that.

Last year, our Q2 comp.

It was 77%.

That was that was a combination of the closures from the prior year and the.

The stimulus.

The stimulus overall I would say some of these things are interrelated, but.

The consumer, especially in March and April .

Really really slowed down, especially our lower income uninsured consumers.

Understood My follow up question is to the extent that.

Pressure on the <unk>.

Availability of optometrists per se.

To what degree does that structurally pressure.

<unk> vision margins over the long term and how will you manage to that will you continue to need to raise prices in order to offset it and what type of elasticity do you expect to see.

On to the price increase for your core offer.

Hey, Michael Good morning, It's Patrick I'll take the bulk of that and then.

We would want to add anything thats. Good we've managed through several years of Ot wage pressure and is generally never combs ubiquitous national fashion in general generally comes in.

Specific markets, even specific cities, so I think we've gotten pretty decent and being able to work through those.

I would assume that we're going to continue to see a little more of that as we have over the last few years and frankly.

As we've done at that time, we'd look to offset those pressures across other areas of the P&L for example, we pick up.

Some degree of economic of scale benefits in our lab costs. Each year. So this will not be a new game. In fact this is what happens second I'll. Just mentioned, we did make we did take some steps last year and made.

Wage and just adjustments for our optometrists, we kind of discussed.

November .

In terms of how to think about that.

Pricing and elasticity.

No.

We certainly model all of that into guidance.

We are going to expect some modest degree of short to medium term demand impact, although I will say as we rolled out our new GW increases we really didn't see that so we are modeling some degree of elasticity.

And.

That's in our guidance.

And then Michael can I build on what Patrick said, there first of all we expect capacity to improve as I said, we have we had a record hiring that retention versus the end of the year.

Is encouraging and I'd like to emphasize key one of the key things that we're excited about in a remote medicine initiatives is how that address is.

Localized localized.

Concerns because our these are sort of more fungible over over space and time and Thats why we accelerated I think with last last quarter, we talked about 200 remote offering openings this year and we expect to be.

Upper close to 300 by the end of the year.

That so so again, we expect capacity to improve we also are seeing the beginnings of trade down I think many people heard the expression that we used during the recession.

The last recession, where we'd call stores and ask why are they doing so well in Africa thing. We heard was the term nicer cars in the parking lot. We are starting to see the beginnings of Nitro cars.

The parking lot as as it happened the last time off economic.

Uncertainty and challenge.

Thank you very much and good luck.

Our next question from Zack <unk> from Wells Fargo.

Hey, good morning can you talk through the moving parts around the added 130 basis points of gross margin pressure versus your initial expectations last quarter and how do you square the positive impact of price increases with the added pressures you're seeing from <unk>.

Tom It's just cost the remote modest investment in the other deleveraging items to bridge that gap.

Yes, good morning, Jack.

We essentially saw some deleveraging of fixed cost even inside of gross margin recall that our <unk>.

<unk> networks.

We're in there and there is some degree of fixed costs, so that was deleverage to it a bit.

So in general we were expecting to see some degree of deleveraging of optometrist.

Glass mix and lower on glass margin all of those showed up now.

I'll have two mainly.

The fixed costs that actually live in gross margin.

It's not large, but we did see impact in the quarter.

Got it and can you talk a bit more about the thought process behind changing the America's best signature offer why is now the right time to pull this lever and can you also talk about <unk>.

After after implementing this change to what extent does your price competitiveness now change in the market versus your peers.

Good so the decision to raise the headline prices had been under review and discussion for a while here frankly. It also takes a while to execute something that that complicated between all the marketing messages all the signage and that sort of thing. So we have been.

Hindering this and working on this for a while now we are still a great value leading.

<unk>, a low cost provider of a medical necessity, we believe that the market gap between us and our competitors is going to.

I didn't further in in an inflationary environment, because we are generally the slowest to pull the pricing lever versus most others in our category to reinforce this has been our headline price for over 15 years over 15 years and as Pat said, we have built in.

The expectation of potential near term impact traffic, but we did not see that we had with our eyeglass world move.

Thanks, Larry I appreciate the time.

Our next question is from Simeon Gutman from Morgan Stanley .

Hi, This is Jack on for Simeon can you guys hear me Okay, yes.

Yes, we can jacky perfect sorry about that we were having some technical difficulties.

Our first question if we were thinking about bridging from 2019 to 22, what are the incremental costs coming in and out of the base.

I think 2022, Jackie becomes difficult year to bridge to I mean, just quite frankly, we have seen.

Early significant impacts from the factors that we called out.

Which is distressing.

In Q1 deleveraging from cost.

So in general I think about what cost have risen over that timeframe, we've seen some incremental wage pressure.

<unk> associates, which is fairly consistent with most retailers we.

We spent a little more on advertising as a percentage of revenue last year I think this year, we still have a good shot to be flat to last year, maybe even leverage a bit.

The all of the cost of sale element through frankly, the same we have long term contracts with vendors and have not experienced any significant pressure. There. So probably the number one item is just.

Wrestling with some of the wage pressures that we've seen across retail.

Gotcha that makes a lot of sense and just as.

Quick follow up is the price increase built into topline guidance on are there any further increases planned. Thanks again.

Yes. The top line increase is built and think about this is.

One of many offers this is our core base offer.

At $2 79, we've talked about what percentage of our customers take that over time, it's not a tiny number it's not a huge number.

We're looking at about <unk>.

Solid half year, or so impact to that so yes. It's in guidance is not spending the needle.

Any huge way this year.

Got you. Thanks, so much.

Our next question is from Chris <unk> from Jefferies.

Great. Thanks, everyone. Just wanted to ask quickly about the IBM constraints. So could you maybe go deeper into that and maybe quantify how many of your optometrists are currently at capacity and then maybe one more to add on that you are expecting that that blocked up demand works its way through throughout the balance of the year I mean, you would.

Good to catch up are you expecting consumers to forego.

Exams.

Yes, so to be clear the exam.

<unk> capacity is is not about individual doctors achieving capacity, it's about not having enough doctors for the demand. We have it's a it is a very nice problem, having the consumer demand again value priced low priced provider.

Provider of a medical necessity.

And so it's about it's about having doctors.

Incremental doctors there in the geographies, where we need them in order to fill the consumer demand that is therefore us even in.

Even in these these.

These challenging times economically.

And then yes, we expect capacity to improve our record record hiring but start dates more later in the summer.

And and remote medicine is going to help us.

As well as we as we have more and more stores.

There that is a great way of.

Adding capacity.

For protective effects, how this works.

We open a store historically prior to remote.

We'd have we'd open it with one lane and one doctor in an empty room next door as the store ramp we filled the second room with exam equipment and the Doctor goes back and forth and it's more efficient as the volumes continue to ramp we put in a second doctor occasionally even the third doctor.

We're putting in remote medicine, now, which will help with stores, where we can't find a second doctor that will help on the doctors days off if someone calls in fact vacations whatever so it remote it is a very versatile solution to something we've been talking about since our IPO roadshow.

Where we have been saying.

We never have enough optometrists, and Youre, probably never going to hear from us that we have enough optometrist, but with remote who knows we may we may be able to get there.

Most to that that stake Hey, Chris I would also add as we looked at remote launched our initial results. We did announce today that we are accelerating from being in 200 locations. This year to 300.

Not really.

It tells you we're pretty happy with what we're seeing we're happy with the initial economics. In fact note that we're moving from 200 to 300, but we did not update the dilution figure of about $6 million. So we're really pleased with how thats going internally.

Continue to resource that and even accelerated and we think thats going to play a really large rolling capacity going forward.

Yes, that's great and I think that's a great proof point for remote but.

Maybe another maybe on the funds the lower consumer confidence it sounds like ticket actually improved quarter over quarter. So I guess I'm surprised why that didn't come down as well and then may be why wouldn't the trade down effect you talked about earlier why wouldnt. It serves to offset some of that lost volume in the quarter and maybe April to date.

Okay.

No.

So our Q1, our average ticket was above 2019 and showed an increase versus Q4.

We're up against just stimulus infused spending.

Last year, which did which did grow the average ticket.

Please sort of since the stimulus declined our average sale did decline, but it's stabilized at a place that we were where we're happy with.

I took some some peripheral pricing actions in Q4 that also help to stabilize that.

As well and and in terms of sort of the nicer cars in the parking lot, but it's not really a light switch.

A gradual thing or low income uninsured consumers sort of their.

Third piece was more light switch like in terms of as they saw.

Throughout March as sort of the ground war in Europe played on I'm worried about gas and seeing that at the pump and worried about food prices and seeing that.

At the grocery store they got.

That consumer got very concern.

We think the nicer cars is a gradual thing that we're starting to see the beginnings of that we have historical precedent for it to continue to expect progress there.

That's great color. Thank you.

Yeah.

Our next question is from Paul <unk> from Citi.

Hey, Thanks, guys can you talk about the stores, where you've already rolled out the telemedicine.

Our docks and how the performance might be different in those stores versus the rest of the fleet just how far along are you in rolling those out and then second.

The change on the on the core offering.

Both American fashion Eyeglass world, but curious what sort of price increases are happening in the rest of the rest of the assortment and then Patrick can you just remind us the percentage of.

Your business is typically done on that opening off 20% in my head, but if you could just remind us of that.

And when you say in the rest of the assortment there.

Do you mean in the rest of our other brands or.

The rest.

90% of your business is done at that opening offer price point.

We could see the change that you're making from a price point perspective on that whats happening in the rest of the business.

Yes, I think just.

In the industry, we are seeing multiple competitors raise price it's not surprising.

Paul Youre right, we disclosed that figure a while back it was less than 20% I think youre still.

And the guard rails, there as you think about that kind of high teens figure that's probably a good place.

Figure, but higher for the uninsured consumers.

And in terms of remote rollout.

Our remote teams can tell you we are measuring that every way possible. We like what we're seeing we're clearly able to identify incremental capacity and incremental utilization of the remote now while we're ruling it out it does in the store that it's being rolled out and it can slow things down for a little bit as you get people trained.

And then a new remote doctor.

It doesn't immediately become perfectly productive is a remote doctor.

Some period of time, so there is a gradual ramp curve in terms of store moving from okay. It's now remote and EHR enabled two it is very capable and that's that's weeks weeks kind of a.

Curve there so we've been happy with what we've seen and hence the acceleration.

And a reminder, when we rollout remote we also put in electronic health record. So the store becomes fully digitized, but there is again a couple of a couple of week.

Adjustment period, which you would expect right.

Alright, just to clarify you are taking your that opening price point up by a double digit percentage increase so is that fair to assume that you're taking the entire assortment up by double digits.

Across all price points.

No.

<unk>.

Okay.

Yeah that.

No.

Now the other pricing, it's been very peripheral in nature.

Okay. Thanks, good luck.

Yes.

Our next question is from Bob <unk> from Guggenheim Securities.

Hi.

Good morning, just a couple of questions from me.

Can you talk about the trends in the legacy segment, and just sort of what youre seeing there.

But as any different from your core <unk> EDW.

<unk> W and then on the remote.

Initiatives.

Are those in terms of your <unk>.

Adding those stores are those also going into some of the legacy segments. I'm. Just curious if you could help us understand that a little bit better. Thanks.

Remote is.

Starting in a b and we also have some of America's best and we have some of it and eyeglass World. We have small early stage experiments.

Walmart related pieces, but it's all that's all small when we talked about the expansion of the.

Aggressive expansion to promote you should you should see that as primarily American's best but we do anticipate that.

Over time, it will be just a part of how we do business overall, our legacy group, our Walmart group performed a little better in Q1 than.

Then.

Then America's best and Eyeglass World their comparison werent quite as as.

Deep there and frankly, while we're talking about host I'd like to point out I know, we almost never talked about Fred Meyer, Fred Meyer did comp positively in the quarter and I only bring that up because Fred Meyer has the highest managed care business for us and that was a.

That was what drove that.

Okay, Great and then just one other follow up in terms of the industry.

Are you seeing sort of re expansion or the independents, where you saw a contraction in the industry are independent.

I apologize is that part of the challenge in terms of <unk>.

Meeting the demand that you need is there a change going on in the industry around that ballpark or is it essentially.

Just more competitiveness of the industry on the <unk> side of it.

In general the industry trends overall are in line with what we've been talking about.

For the past several years.

At that.

That chains are growing value chains are growing.

And that has been that's been ongoing I do.

It's hard to get data on the pricing of independents, I know theyre not getting any any more competitive value wise, but I know the independents in general are all facing a lot of staffing issues. That's a big challenge for them. So when I say that I believe that.

In this environment the gap between us and the rest of the market is going to remain our expand in terms of the value. We provide is my estimate that the independents are going to be pulling the pricing lever a lot more.

Great. Thank you.

I would just add I think the other thing that you have to think about is really not just last year with the year before what were those other companies or independents doing at that time Youll see reports, where independents are trading up and you have to quickly ask.

How do I think about that over the last two years is it a really easy comp is a harder comp I think that some of the things and some things that are affecting our doctors are obviously affect the independence.

Yeah.

Thank you guys.

Our next question comes from Adrian <unk> from Barclays.

Good morning.

Okay.

Thank you.

Yes.

The working assumption.

Okay.

And how do they weigh.

The capacity utilization.

Dan.

During the quarter.

And then have the Apple Bob Matt would be.

Okay.

Well that means.

The shortfall that Youre seeing.

I mean, it would be.

Okay.

Usage, we work on.

Yes.

Okay.

It was a little hard to hear the sound quality wise, but.

I've I've got that so.

You know sort.

Sort of a little bit was was what's changed relative to <unk> since our last call.

Q1 was an especially challenging time to be a reading.

Sort of the capacity and the like.

In the early part of the quarter, we had doubled the number of optometrists.

Ouch with Covid versus versus the high end of the first wave of Covid. So we had all in again.

Our pumps that we had we had double number of associates as well. It's just it was just math it wasn't anything about our company in general.

And then and then frankly in March.

We also saw a.

<unk> vacations of optometrist at twice the rate that we had that we would normally expect.

And all of this we were seeing.

Seeing the strongest hiring year to date that we've.

That we've we've had and and although although the retention was not at the 2019 record levels are still very much within historical band. So I will say you know sort of in terms of.

A little bit of a cytology.

All of this and I think we're seeing this for.

All manner of workers, but a lot of our pumps as we're thinking about work life balance asking for another day off maybe wanting to work four days instead of five.

Five days again, that's something that affects capacity and again one of our key a fight excitements about remote is it really does tie into sort of.

Post COVID-19.

And I wouldn't be surprised if many of you were working from home right now sort of people wanting more flexibility in the geography of where they practice and remote allows people optometrist a practice for the first time ever from some there Dan or home office.

Or whatever so so all of this all of this ties ties together.

Together.

In that way.

Okay.

Part of that question with the additional 100 stores.

Does that fills the gap and if those are successful how quickly can you ramp I know you have this theory of 440 400. This would get you close to that how quickly can you ramp faster than that.

We so as as Patrick.

Sure.

<unk> mentioned, a moment ago, we launch it and it's a few weeks to get used to it in the stores and the doctors themselves.

Take it take a few weeks to get used to it but again, we were at 200 that we said a quarter ago, and we think will be.

As much as 300 for this year now so we are excited by this and behind it in.

And a nice way and again in terms of addressing the problem. We have now so that the new hires again record number of new hires but they don't start to more like mid to late summer. So that will the cavalry will be arriving then.

And then my final topic is just on demand was there a point at which you saw demand fall off I mean, clearly in general consumer.

April was the month, where it became very evident with late March and in April It became very evident that something happened I'm wondering if that pattern that's true for you.

And you know the managed care piece of the business that maybe can fill in some of the demand.

Demand.

The demand weakness at the uninsured level.

What can you deal what are you doing to increase penetration there what programs are accelerating.

Thank you very much Brian .

The first question, especially was a great question.

Yes, we saw some slowing in late March but something happened in April something happened to the optical category overall in April that was noticeable and so we're sitting here, saying and saying as we're trying to put together this earnings call.

So how long does it last and our guidance is based on you know in a world like this you've got to sit there and say I didn't know when the war ends I didn't know when inflation and I do I do know the nicer cars are coming thats. Good I do know that the ods are showing up later in the year, but but my my peers and I.

In April we're saying something.

Something has happened and what that means a broader I don't I can't I can only speak about the optical category I don't know that's about the optical category.

The eyes.

Biology of the EIS gets worse.

The biology of VII does not care about groundwork in Europe as the biology of the EIS does not care about whats happening in inflationary trends.

The biology that is the I get worse over time, and eventually need to be addressed and this is why as the low cost provider of a medical necessity. We believe that this will right itself and we will eventually get to a more consistent and period more like 18 years, leading up to.

The pandemic than the weird volatility that we've been experiencing.

And since the pandemic.

Great and the managed care alright.

No no no I'm.

I'm sorry.

Yeah.

Managed care I can help there are some things we can do.

To drive that it is it is growing our managed care did have positive comps in the <unk>.

Quarter.

And so there are there are actions, we can take to us to improve that.

Yes.

I don't like the share sure that for.

For competitive reasons overall.

Fair enough. Thank you very much and best of luck.

Thank you.

Great question.

Our next question is from Molly Baum from Bank of America.

Hi, guys. Thank you for taking my question I'm on for Ravi He's at our Investor day today, but I wanted to just ask a few follow ups on some of the questions about trade down what you guys have been seeing.

Theres been a mix of this earning season with retailers and whether or not they've seen trade down.

I'm just curious if theres any quantifiable way to measure what trade than you've seen or if it's still kind of too early and then within your existing customer cohort are you seeing trade down.

Two the introductory offer or.

Or is that not something you've really seen either thank you.

Let me talk about trade down from.

Customer perspective.

Again sort of sort of.

In the in sort of the.

The year following our re openings.

The drive was more driven by our lower income customer who is very flush with cash from the stimulus.

And now we are as we said starting to see the beginnings of.

Wealthier customers than then.

Then than normal.

Coming back and becoming a larger part of our of our of our mix and in terms of we're not seeing any unusual mix is mix within <unk>.

Within the store of what people are buying right now except for us.

Did launch Blue light.

A year and a half ago and people are buying buying that.

Amounts, but nothing unusual in terms of.

What people are purchasing mix shift so we've talked in the past about how people are buying a nice or nicer contact lenses, that's more driven by.

New technologies now contrast, excitement of new modalities, but that's been an ongoing trend for like a.

A couple of years.

Got it. Thank you that's very helpful.

And we have no further questions at this time.

Well John Thank you very much for your management of this call and for all of you listening. This morning, we'd like to thank you all for joining us here today and to thank all of our stakeholders for your continued support we look forward to speaking you again, when we report our second quarter results. Thank you all very much.

Thank you, ladies and gentlemen that concludes today's call. Thank you for participating and you may now disconnect.

[music].

A question and answer session. If you do have a question for zero one on your Touchtone phone as a reminder, the conference is being recorded.

I will now turn the call over to David Mann.

Nationalization dot com and a replay of the audio webcast, which 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. These statements are subject to risks and uncertainties that could cause actual.

<unk> 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 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 Reed.

Thank you David Good morning, everyone. Thank you all for joining US today I Hope you all are staying safe and healthy.

Historically consistent optical category is experiencing the impact from macro headwinds and a temporary disruption to the purchase cycle the headwinds, including the recent surge in inflation and weaker consumer confidence are leading to demand softness for our lower income predominantly uninsured customers, especially when compared to record demand.

<unk> last year.

Since our last call, we believe macro headwinds have caused a real shift in our consumers' behavior.

Additionally, emerging constraints to our advanced capacity affected customer traffic in many of our stores.

While we have delivered a record level of optometrist hiring thus far this year our exam capacity is temporarily out of sync with our needs. This was primarily due to the impact of a modestly lower level of optometrist retention coupled with the start date of many new hires occurring later in the year.

Both of these challenges are substantially consequences of the Covid era and had significant impact on our first quarter performance and updated outlook for fiscal 2022.

And we delivered adjusted EPS of <unk> 33.

Patrick will provide more detail on our results and outlook in a moment, but I want to emphasize that we believe that the challenges. We are facing are temporary our team is laser focused on overcoming these headwinds and we're taking recruitment and retention actions to improve exam capacity, including the acceleration of our remote medicine initiative, we bill.

Leaved remote medicine will help to address our ever present need for optometrists to keep up with the demand for eye exams at our locations. The optical category has a history of consistently every time and we believe that the future will see a return to a more stable and predictable environment.

Our long term confidence in the health of our model remains unchanged as we remain a low cost provider of a medical necessity.

Note that this week after a significant consideration we implemented our first pricing change to America's best signature offer in over 15 years, we now offer two pairs of eyeglasses, including a pre eye exam for $79 95.

I would also add that the signature offer at eyeglass world with increased to two for $89. During the first quarter. We feel these actions are appropriate given the current inflationary environment. Even with these increases were proud to continue to deliver industry leading value to our consumers.

On slide six the chart, our quarterly comps highlights the volatile comp performance caused by the pandemic over the last two years.

During the pandemic era, the consistency and predictability of the optical purchase cycle with disrupted and this trend continued in the first quarter as.

As we noted on our last call our store operations and customer traffic. This quarter were negatively impacted by the COVID-19 surge at the beginning of the year.

Since our call. We believe optical consumer demand was further affected by inflationary pressures and a decline in consumer confidence as well as lapping government stimulus from last year.

Those of you who have been following us for years have heard us say that we are always seeking more up contrasts as the optical consumer journey typically begins with an eye exam. This has been more true recently in.

Some of these constraints related to pandemic factors such as scale backs in days worked by individual optometrist or a modest downtick in optometrist retention and some relates to the mix and timing of new optometrist arrivals.

In terms of hiring we've been investing more heavily in recruiting programs. These efforts are leading to enhanced hiring trends as this year. Thus far has been a record year for the hiring of our counters. However, many of the new hires will not begin to practice until late this summer. Thus there is a timing lag between hiring and start.

Dates.

We currently expect these disruptions to impact our business performance for the next couple of quarters. Our team is working hard to quickly expand our exam capacity to mitigate this impact.

Amidst this we see our remote medicine initiative as a way to address our exam capacity constraints and thus we are accelerating its rollout. We are now targeting to operate remote medicine and up to 300 stores by year end up from the previous goal of at least 200 announced last quarter. We are extremely pleased with the increasing exam capacity.

<unk> added by remote medicine, and the role it can play in serving more patients across both geography and time.

So despite the temporary challenges facing our business, we remain confident in the long term strength of our business model based on the following.

<unk>.

And our customers need to see to get through their lives. As there is continued to worsen over time vision correction issues eventually need to be addressed.

Similar to past periods of volatility we expect the category will eventually revert to its historical cycles.

Shifting to slide eight in addition to our exam capacity in remote medicine efforts, we continued to progress our core growth initiatives.

And currently have a solid pipeline of specific locations for this year and into 2023.

While we aggressively invested last year to maximize share growth as well as run marketing tests in 2022, our team is more focused on optimizing our marketing investment.

Managed care grew in the positive low single digits, let me repeat that in the first quarter, our comps related to managed care grew in the positive low single digits, we remain underdeveloped relative to the category and continued to see an ongoing opportunity here as managed care dollars and co pays tend to go further in our stores than <unk>.

Elsewhere.

At this point, let me turn the call over to Patrick for a more detailed discussion of our financial results and the 2022 outlook.

Thanks, Ray and good morning, everyone.

I want to Echo <unk> confidence in the underlying health of our business and that we view. The current issues are shorter term in nature in the interim the team is focused on what we can control continuing to invest in key growth initiatives and appropriately realigning cost to our revenue outlook.

Now, let's turn to slide 10.

As a reminder, the first quarter of 2021 results had the tailwind to revenue and profitability from pent up demand from the store closures the benefit of government stimulus and an elevated average ticket.

In Q1, 2022, net revenue decreased one 2% compared to 2021 due to the omicron impact macroeconomic headwinds the constraint to exam capacity and the exceptional growth last year.

The timing of unearned revenue benefited revenue growth by 2%, which was better than expected due to the volume sales in the final week of the quarter compared to 2019 net revenue increased 14, 4%.

Adjusted comparable store sales declined six 8% versus 2021 compared to a record 35, 8% increase in the first quarter of 2021.

<unk> light Blue line.

Turning to slide 11, as a percentage of net revenue cost applicable to revenue increased 260 basis points or slightly above our expectations for a $2 20 to 240 basis point increase.

The increase was driven by deleverage of optometrist related cost decreased eyeglass mix and lower eyeglass margin associated with the year over year decline in average ticket.

We expect advertising in 2022 to be maintained at a similar percentage of revenue as 2021 with the potential to be slightly leveraged for the year.

Adjusted operating income decreased 33% to $45 million and adjusted diluted EPS decreased 32% to 33.

Compared to 2019, despite the challenges this quarter adjusted operating income and adjusted diluted EPS were up 6% and 7% respectively.

We ended the quarter with total debt of $578 million.

Net debt to adjusted EBITDA was <unk> nine times compared to one two times at the end of the first quarter of 2021.

With our free cash flows and considerable cash position. We continued in our shareholder return program year to date through May six we repurchased 5 million shares for $19 million and have $111 million remaining under the current share repurchase authorization.

Since the inception of our share repurchase program last November we have repurchased one 9 million shares for $89 million.

Regarding our inventory position, we are comfortable with the current level and its ability to support our 2022 growth plans our efforts to mitigate supply chain disruption continued to be effective to date at the end of the quarter inventories were $127 million in inventory per store grew less than two person.

On a year over year basis.

Our merchandising and distribution teams continued to execute extremely well to help us manage through the current challenging supply chain environment.

Overall, we believe that our financial strength and our commitment to invest in our business remain a competitive advantage.

Turning now to our outlook on slides 13 and 14.

I'll conclude with some commentary regarding our updated 2022 outlook, which we included in today's earnings release.

The operating and macro environments are extremely uncertain. The update in fiscal 2022 outlook reflects the currently expected impacts related to macroeconomic factors, including the ongoing COVID-19, pandemic inflation geopolitical instability and risk of recession as well as constraints on <unk>.

<unk> capacity.

The outlook assumes no material deterioration in the company's current business operations as a result of such factors.

Our ability to predict demand within normal level of certainty given the real shift in the consumer and the disruption of the purchase cycle.

Against the backdrop of what we know today, our updated 2022 outlook projects net revenue between 201, and 207 billion adjusted comparable store sales growth compared to last year in the range of negative four to negative 7%.

Adjusted operating income between 85, and $105 million and adjusted diluted EPS between <unk> 65, and 80, assuming 82 million weighted average diluted shares.

As well as improvements in exam capacity.

At the low end of the ranges, our comparable store sales and revenue assumptions essentially reflect very limited demand recovery as well as a lower degree of exam capacity improvement.

Our ongoing commitment to investment as further evidence of our confidence in the future prospects of the business.

As we have done in the past I would like to provide additional color given the unique comparison to 2021 in the second quarter. We are facing a continued grow over challenge from our record results and government stimulus last year also quarter to date revenue trends have been negatively impacted given the macro.

Exam capacity store openings. This year will continue to be predominantly America's best locations, coupled with a doubling of eyeglass world openings. We are on track to open at least 80 stores in the openings are expected to be evenly spread over the year. We project a few closings as is typical each year.

Let me share a couple of other factors assumed in our outlook for 2022.

We are excited about the accelerated rollout of our key remote medicine in EHR initiatives and continue to anticipate incremental dilution in the range of $6 million.

We continue to expect the timing of unearned revenue will have a negative impact in 2022. We currently estimate this impact to adjusted operating income to be about $9 million.

As a reminder, unearned revenue recognition is a 7% to 10 day timing impact that can affect our quarter to quarter and annual comparisons.

<unk> ticket for Q2 cost applicable to revenue are expected to increase about 400 to 450 basis points versus last year.

Assist with modeling we have also provided additional assumptions on depreciation and amortization interest and tax rates.

At this point I will turn the call back to Reed.

Additional way for us to have an ongoing dialogue with our associates and to continuously improve our work environment in the ways that will matter most to our associates. We were quite pleased with the results and encouraged to confirm that associates feel we are doing many things well already some quick highlights 92% of associates are proud to work for Nash.

Vision, 90% feel good about the ways, we contribute to the community, 93% clearly understand how their job contributes to achieving the goals of national vision, and importantly, 90% have confidence in the future of National vision, which is significantly above U S benchmarks.

In these highlights and throughout the survey results, we see tremendous alignment among associates on some of the core values that we feel make national vision successful.

We believe that several initiatives, including our remote medicine rollout should help us to get our exam capacity more in line with the demand that is there for exams at our stores thus.

Thus, although we are currently in one of the challenging COVID-19 the euro chapters, our confidence in our mid and longer term prospects remain unchanged.

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 well now begin the question and answer session and if you do have a question press zero one on your Touchtone phone.

We should be removed from the queue. Please present zero then to infusing.

Using a speakerphone you may need to pick up the handset first before Christian in numbers.

And we ask that you have one question and then one follow up.

Once again, if you do have a question.

Zero and then one on your Touchtone phone.

Yes.

Our first question is from Simeon Gutman from Morgan Stanley .

Go ahead with your question.

Operator, it seems we have a problem with that question can we go to the next question and we'll come back to Simeon.

So our next question is from Michael Lasser from UBS.

Good morning, Thanks, a lot for taking my question can you quantify or frame how much of the challenge is associated with macro pressure on the lower income consumer versus the capacity constraints that you spoke to perhaps you could do it in the context of the.

Guidance for the second quarter, which is obviously for the comp which is obviously going to be much lower than the first quarter, despite having less of the difficult stimulus comparison period.

Yes, Michael Thank you. Thank you for the question there. So we would say it was.

Somewhat balanced between the.

Make factors and.

Oh the capacity factors.

And in Q2, we took that into account when we're up against.

Higher stimulus.

For Q2, I recall that.

Last year, our Q2 comp.

It was 77%.

So that was that was a combination of the closures from the prior year and the stimulus.

The stimulus.

I would say some of these things are interrelated, but.

The consumer, especially in March and April .

Really really slowed down, especially our lower income uninsured consumers.

Understood My follow up question is.

To the extent that.

Pressure on the availability of optometrists per se.

To what degree does that structurally pressure national vision margins over the long term and how will you manage to that will you continue to need to raise prices in order to offset it and what type of elasticity do you expect to see.

To the price increase for your core offer.

Hey, Michael Good morning, It's Patrick I'll take the bulk of that and then.

We would like to add anything thats good.

We've managed through several years of Ot wage pressure and it is generally never pumps.

Put us national fashion in general generally comes in.

Specific markets, even specific cities. So I think we've gotten pretty decent and being able to work through those I would assume that we're going to continue to see a little more of that as we have over the last few years and frankly.

As we've done at that time, we would look to offset those pressures across other areas of the P&L for example, we pick up.

Some degree of economic of scale benefits in our lab costs. Each year. So this will not be a new game. If in fact this is what happens second hour. Just mentioned we did make we did take some steps last year and made.

Wage and adjusted adjustments for our optometrists, we kind of discussed.

November .

In terms of how to think about.

The pricing and elasticity.

We've certainly model all of that into guidance.

We are going to expect some modest degree of short to medium term demand impact, although I will say as we rolled out our agw increases we really didn't see that so we engineered modeling some degree of elasticity.

And.

And that's.

That's in our guidance.

And then Michael can I build on what Patrick said, there first of all we expect capacity to improve as I said, we have we had a record hiring that retention versus the end of the year is encouraging and I'd like to emphasize key what are they.

Key things that we're excited about in a remote medicine initiatives is how that address is.

Localized localized.

Concerns because our these are more fungible over over space and time and that's why we accelerated I think with last last quarter, we talked about 200 remote operating openings. This year and we expect to be up or close to 300 by the end of the year.

That so so again, we expect capacity to enter.

We also are seeing the beginnings of trade down I think many people heard the expression that we used during the recession.

The parking lot.

As it happened the last time off economic.

Uncertainty and challenge.

Thank you very much and good luck.

Our next question from Zack <unk> from Wells Fargo.

Tom It's just cost.

Madison investment any other deleveraging items to bridge that gap.

Yes, good morning, Jack.

We essentially saw some deleveraging of fixed cost even inside of the gross margin recall that our.

Lab networks are in there and there is some degree of fixed costs, so that which deleveraged to it a bit.

Also in general we were expecting to see some degree of deleveraging of optometrist eyeglass mix and lower eyeglass margin all of those showed up.

But I would point to mainly.

Some of the fixed costs that actually living in gross margin.

Not large, but we did see impact in the quarter.

Got it and can you talk a bit more about the thought process behind changing the America's best signature offer why is now the right time to pull this lever and can you also talk about <unk>.

After after implementing this change to what extent does your price competitiveness now change in the market versus your peers.

Good so the decision to re.

As the headline prices had been under review and discussion for a while here frankly, it also takes a while to execute something that that complicated between all the marketing messages all the signage and that sort of thing. So we have been.

This and are working on that for a while now we are still a great value leading.

<unk>, a low cost provider of a medical necessity, we believe that the market gap between us and our competitors is going to.

Why didn't further in in an inflationary environment, because we are generally the slowest to pull the pricing lever versus most others in our category to reinforce this has been our headline price for over 15 years over 15 years and as Pat said, we have built in.

And the expectation of potential near term impacts traffic, but we did not see that we had with our eyeglass world move.

Thanks, Rich I appreciate the time.

Our next question is from Simeon Gutman from Morgan Stanley .

Hi, This is Jack on for Simeon can you guys hear me Okay, yes.

Yes, we can jacky perfect sorry about that we were having some technical difficulties.

Our first question, if we were thinking about bridging from 2019 'twenty two what are the incremental costs coming in and out of the base.

I think 2022, Jackie becomes difficult year to bridge to I mean, just quite frankly, we have seen.

Early significant impacts from the factors that we called out.

Which is distressing.

In Q1 deleveraging from cost.

So in general I think about what cost have risen over that timeframe, we've seen some incremental wage pressure.

<unk> associates, which is fairly consistent with most retailers, we spent a little more on advertising as a percentage of revenue last year I think this year, we still have a good shot to be flat to last year, maybe even leverage event.

The all of the cost of sale element through frankly, the same we have long term contracts with vendors.

Have not experienced any significant pressure there so probably the number one item is just.

<unk>.

Wrestling with some of the wage pressures that we've seen across retail.

Got you that makes a lot of sense.

Just a quick follow up is the price increase built into topline guidance on are there any further increases planned. Thanks again.

Yes. The top line increase is built and think about this is.

One of many offers this is our core base offer.

The $2 79, we've talked about what percentage of our customers take that over time, it's not a tiny number it's not a huge number.

We're looking at about <unk>.

Solid half year, or so impact to that so yes. It's in guidance is not spending the needle.

Any huge way this year.

Got you. Thanks, so much.

Our next question is from Chris <unk> from Jefferies.

Great. Thanks, everyone. Just wanted to ask quickly about the eye exam constraints. So could you maybe go a bit deeper into that and maybe quantify how many of your optometrists are currently at capacity and then maybe one more to add on that you are expecting that that blocked out demand works its way through throughout the balance of the year I mean that you would.

Good to catch up are you expecting consumers to forego.

Exams.

Yes, so to be clear.

Our exam capacity is is not about individual doctors achieving capacity it's about <unk>.

Not having enough doctors for the demand we have it's a it is a very nice problem, having the consumer demand again value priced low priced I'll provide.

Rider of a medical necessity and so it's about it's about having doctors incremental doctors there in the geographies, where we need them in order to fill the consumer demand that is therefore us even in even in these these.

These challenging times economically.

And then yes, we expect capacity to improve our record record hiring but start dates more later in the summer.

And and remote medicine is going to help us.

As well as we as we have more and more stores.

There that is a great way of.

Adding capacity just.

For protective effects, how this works.

We open a store historically prior to remote.

We'd have we'd open it with one lane and one doctor in an empty room next door as the store ramp we feel the second room with exam equipment and the Doctor goes back and forth and it's more efficient as the volumes continue to ramp we put in a second doctor occasionally even the third doctor.

We're putting in remote medicine, now, which will help with stores, where we can't find a second factor that will help on the doctors days off if someone calls in fact vacations whatever so it.

Motive is a very versatile solution to something we've been talking about since our IPO roadshow, where we have been saying.

We never have enough optometrist, and you're probably never going to hear from us that we have enough optometrist with remote who knows we may we may be able to get.

Close to that that state Hey, Chris I would also add as we've looked at remote launched our initial results. We did announce today that we are accelerating from being in 200 locations. This year to 300.

And that really tells you we're pretty happy with what we're seeing we're happy with the initial economics. In fact note that we're moving from 200 to 300, but we did not update the dilution figure of about $6 million. So we're really pleased with how thats going internally, we continue to resource that and even accelerated and we think.

That's going to play a really large rolling capacity going forward.

Yes, that's great and I think that's a great proof point for remote well.

So maybe another maybe on just the lower consumer confidence it sounds like ticket actually improved quarter over quarter. So I guess I'm surprised why that didn't come down as well and then may be why wouldn't the trade down effect you talked about earlier why wouldnt. It serves to offset some of that lost volume in the quarter and maybe April to date.

Okay.

No.

So our Q1, our average ticket was above 2019 and showed an increase versus Q4, but we're up against just stimulus infused spending.

Last year, which did which did grow the average ticket.

Please sorry since the stimulus declined our average sale did decline, but it's stabilized at a place that we were where we're happy with.

Chuck some some peripheral pricing actions in Q4 that also help to stabilize that.

As well and and in terms of sort of the nicer cars in the parking lot, but it's not really a light switch.

A gradual thing or low income uninsured consumers sort of their their piece was was more light switch like in terms of.

They saw.

Throughout March as sort of the.

The ground war in Europe played on and worried about gas and seeing that at the pump and worried about food prices and seeing that.

Grocery store they got.

That consumer got very concern, we think the nicer cars is a gradual thing that we're starting to see the beginnings of that we have historical precedent for it to continue to expect progress there.

That's great color. Thank you.

Our next question is from Paul <unk> from Citi.

Hey, Thanks, guys can you talk about the stores, where you've already rolled out the telemedicine.

Docks and how the performance might be different in those stores versus the rest of the fleet just how far along are you in rolling those out and then second you can see the change on the on the core offering.

On both America's best and Eyeglass World, but curious what sort of price increases are happening in the rest of the rest of the assortment and then Patrick can you just remind us the percentage of.

Your businesses that can be done on that opening offer I have 20% in my head, but if you could just remind us of that.

And when you say in the rest of the assortment there.

Do you mean in the rest of our other brands or in the cloud.

The rest is 20% of your business is done at that opening offer price point.

We could see the change that you're making from a price point perspective on that what's happening in the rest of the business.

Yes, I think just.

In the industry, we are seeing multiple competitors raise price it's not surprising.

Paul Youre right, we disclosed that figure a while back it was less than 20% I think youre still in the guard rails. There as you think about that kind of high teens figure that's probably a good place <unk> figure, but higher for the uninsured consumers.

And in terms of remote rollout.

And then a new remote doctor.

Isn't immediately become perfectly productive is a remote doctor.

Some period of time, so there is a gradual ramp curve in terms of store moving from okay. It's now remote and EHR enabled two it is very capable and that's that's.

We just kind of a.

Curve there so we've been happy with what we've seen and hence the acceleration.

And a reminder, when we rollout remote we also put in electronic Health records. So the store becomes fully digitized, but there is again a couple of a couple of week.

Adjustment period, which you'd expect.

Alright, just to clarify.

That opening price point out by a double digit percentage increase so is that fair to assume that you are taking the entire assortment up by double digits.

Across all price points.

No.

Now.

<unk>.

Okay.

Yeah.

No.

Now the other pricing, it's been very peripheral in nature.

Okay. Thanks, good luck.

Yes.

Our next question is from Bob <unk> from Guggenheim Securities.

Hi.

Good morning, just a couple of questions from me.

Can you talk about the trends in the legacy segment, and just sort of what youre seeing there.

But as any different from your core <unk> EDW and then on the remote.

Initiatives are those in terms of your.

Adding those stores are those also going into some of the legacy segments. I'm. Just curious if you could help us understand that a little bit better. Thanks.

Remote.

Starting in <unk> and we also have some of America's best and we have some of it and eyeglass World. We have small early stage experiments in Walmart related pieces, but it's all that's all small when we talked about the expansion of the aggressive expansion of remote you should.

You should see that as primarily America's best but we do anticipate that.

That over time, it will be just a part of how we do business overall, our legacy group, our Walmart group performed a little better in Q1 then.

<unk>.

And America's Best and Eyeglass World their comparison weren't quite as as steep.

Steep, but theyre in and frankly, while we're talking about.

I'd like to point out I know, we almost never talked about Fred Meyer admire did comp positively in the quarter and I only bring that up because Fred Meyer.

Highest managed care business for us and that was a.

That was what drove that.

Okay, Great and then just one other follow up in terms of the industry.

Are you seeing sort of a re expansion or the independents, where you saw a contraction in the industry are independent.

Is that part of the challenge in terms of meeting the demand that you need is there a change going on in the industry.

Round that ballpark or is it essentially.

More competitiveness of the industry on the Ot side of it.

In general the industry trends overall.

Are in line with what we've been talking about.

For the past several years.

That that.

That chains are growing value chains are growing.

And that has been that's been ongoing I do.

It's hard to get data on the pricing of independents, I know theyre not getting any any more competitive value wise, but I know that the independents in general are are facing a lot of staffing issues. That's a big challenge for them. So when I say that I believe that.

In this environment the gap between us and the rest of the market is going to remain our expand in terms of the value. We provided is my estimate that the independents are going to be pulling the pricing lever a lot more.

Great. Thank you.

I would just add I think the other thing that you have to think about is really not just last year was the year before what were those other companies or independents doing at that time Youll see reports, where independents are trading up and you have to quickly ask.

How do I think about that over the last two years is it a really easy comp is a harder comp.

Some of the things and some things that are affecting our doctors are obviously affect the independence.

Yeah.

Thank you guys.

Our next question is from Adrian <unk> from Barclays.

Good morning.

Okay.

Thank you.

We.

Yes.

It's actually a quarter ago.

A kind of a transaction how do they weigh.

The capacity utilization.

During.

In the quarter.

And then kind of Apple format will be the NPS.

Yes.

Utilization.

Or the shortfall that youre seeing.

It would be.

Okay.

Usage, we work on.

Yes.

Steve.

It was a little hard to hear sound quality wise, but I think.

I've got that so.

Sort of a little bit was was what's changed relative to our.

Since our last call.

Q1 was an especially challenging time to be.

Reading.

Sort of the capacity and the like.

In the early part of the quarter, we had doubled the number of optometrists.

With COVID-19 versus versus the high end of the first.

Wave of Covid, So we had and again.

We had we had double number of associates as well.

It was just math it wasn't anything about our countries in general.

And then frankly in March.

Also Paul.

<unk> vacations of optometrist at twice the rate that we had.

We would normally expect.

And all of this you know we were seeing.

Seeing the strongest hiring year to date that we've.

That we've we've had and and although although the retention was not at the 2019 record levels are still very much within historical band I will say you know sort of in terms of a little bit of a cytology.

Listen I think we're seeing this for.

All manner of workers, but a lot of our pumps as we're thinking about work life balance asking for another day off maybe wanting to work four days instead of five days again, that's something that affects capacity and again one of our key a fight excitements about remote is it really.

It does tie into sort of a poll.

Covid trends I wouldn't be surprised if many of you were working from home right now sort of people wanting more flexibility in the geography of where they practice and remote allows people I'll talk just a practice for the first time ever from some there there Dan or.

Or or home office or whatever so so all of this all of this ties ties together.

In that way.

Okay and then the second part of that question with the additional 100 stores.

Is that still the gap and if those are successful how quickly can you ramp I know you had the theory of 440 400.

Get you close to that how quickly can you ramp faster than that.

We.

As Patrick.

Sure.

<unk> mentioned, a moment ago, we launch it and it's a few weeks to get used to it in the stores and the doctors themselves.

Take it take a few weeks to get used to it but again, we were at 200 that we said a quarter ago, and we think will be.

As much as 300 for this year now so we are excited by this and behind it in in a in a.

In a nice way and again in terms of addressing the problem. We have now so that the new hires again record number of new hires but they don't start to more like mid to late summer. So therefore, the cavalry will be arriving then.

And then my final topic is just on demand was there a point at which you saw demand fall off I mean, clearly in general consumer.

April was the month, where it became very evident with late March and then April it became very evident that something happened I'm wondering if that pattern holds true for you.

And you know the managed care piece of the business that maybe can fill in some of the you know demand.

They had weakness at the uninsured level.

What can you deal what are you doing to increase penetration there what programs are accelerating that Karen. Thank you very much.

Alright.

The first question, especially with a great question.

Yes, we saw some slowing in late March.

But something happened in April something happened to the optical category overall in April that was noticeable and so we're sitting here, saying and saying as we're trying to put together this earnings call. So how long does it last and our guidance is based on you know in a world like this.

You got to sit there and say I didn't know when the war ends I didn't know when inflation and I do I do know the nicer cars are coming thats. Good I do know that the ods are showing up later in the year, but but my my peers and I in April we're saying something has happened and what that means a broader.

I don't I can't I can only speak about the optical category I do know this about the optical category.

<unk>.

The eyes.

The biology of the EIS gets worse.

The biology of the <unk> does not care about groundwork in Europe as a biology of the ice does not care about whats happening in inflationary trends.

The biology that I'd be I'd get worse over time, and eventually need to be addressed and this is why as the low cost provider of a medical necessity. We believe that this will right itself and we will eventually get to a more consistent.

And period more likely 18 years, leading up to the pandemic than the weird volatility that we've been experiencing.

Since the pandemic.

Great and the managed care sorry.

Oh no no no.

Sorry.

Yeah.

Managed care I can help there are some things we can do so.

Drive that it is it is growing our managed care did have positive comps in <unk>.

As of quarter end.

And so there are there are actions, we can take two to improve that.

Yes.

I don't like to share share that.

For competitive reasons overall.

Fair enough. Thank you very much and best of luck.

Thank you.

Great question.

Our next question is from Molly Baum from Bank of America.

Hi, guys. Thank you for taking my question I'm on for Ravi He's at our Investor Day to day, but I wanted to just ask a few follow ups on some of the questions about trade down what you guys have been seeing.

There's been a mix this earning season with retailers and whether or not they've seen trade down.

I'm just curious if theres any quantifiable ways to measure what trade than you've seen or if it's still kind of too early and then within your existing customer cohort are you seeing trade down.

Two the introductory offer or.

Or is that not something you've really seen either.

Yes.

But let me talk about trade down from a customer perspective.

Sort of sort of.

In the year following our reopening.

Sort of that the drive was more driven by our lower income customer who is very flush with cash from the stimulus.

And now we are as we said starting to see the beginnings of a.

Wealthier customers than then.

And then the normal.

Sure.

Ah.

Coming back and becoming a larger part of our of our of our mix and in terms of.

Not seeing any unusual mix is mix within.

Within the store of what people are buying right now except for us.

Did launch Blue light up about a year and a half ago and.

People are buying buying that amount.

Amounts, but no nothing unusual in terms of.

But people are purchasing mix shifts so we've talked in the past about how people are buying a nice or nicer contact lenses, that's more driven by new.

New technologies now contrast, excitement of new modalities, but that's been an ongoing trend for like a.

A couple of years.

Got it. Thank you that's very helpful.

And we have no further questions at this time.

Thank you, ladies and gentlemen that concludes today's call. Thank you for participating and you may now disconnect.

Q1 2022 National Vision Holdings Inc Earnings Call

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