Q4 2022 National Vision Holdings Inc Earnings Call

Speaker 1: The content

Speaker 2: and the session you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again.

Speaker 2: Please be advised today's conference is being recorded. I would like to hand the conference over to your speaker today, Caitlin Churchill. And rest of the relations, please go ahead.

Speaker 3: Thank you and good morning everyone. Welcome to National Vision's fourth quarter 2022 earnings call. Joining me on the call today are Reid Faz, CEO , Melissa Rasmussen, CFO , Patrick Moore, COO is also with us and will be available during the Q&A portion of the call.

Speaker 3: 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 website, nationalvision.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...

Speaker 3: that our earnings materials and today's presentation include forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

Speaker 3: These risks and uncertainties included but are not limited to the factors identified in the release and our filings with the Securities and Exchange Commission.

Speaker 3: The release and today's presentation also includes certain non-GAAP measures. Each of these measures is included in our release and supplemental presentation.

Speaker 3: 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 provides investor presentations and supplemental materials for investor reference on the investor's section of our website. Now let me turn the call over to read. Thank you.

Speaker 4: Thank you, Caitlin. Good morning, everyone. Thank you all for joining us today. I thought I'd start today with an overview of what we're going to take you through to provide context and a framework for the further details that Melissa and I will then be providing. As we discussed before, the pandemic disrupted the historically consistent optical purchase cycle.

Speaker 4: In addition, it impacted global supply chains, leading to increased costs and inflation, and created a challenging labor market, especially impacting doctor availability, as seen in other areas of specialty healthcare as well.

Speaker 4: While we believe that we will return to a more normalized purchase cycle and cost environment, we're addressing the new reality of the optometrist market and overall business environment in which we are operating today.

Speaker 4: As we will discuss, optometrists and our network are now being offered a greater variety of scheduling options and improved variable compensation programs. And we are progressing the remote medicine initiative that we've been discussing in our last few calls. We are also resetting our management short term incentive plan.

Speaker 4: to ensure that we keep our team highly incentivized to perform. In addition, like all companies, we must evolve our systems to support our growing business and gain advantages and efficiencies of ongoing digitization.

Speaker 4: As we enter 2023, while the actions we are continuing to take will have an impact on our operating margins in the near term, and the macroeconomic factors remain challenging, we are intently focused on continuing to further adapt and transform our business.

Speaker 4: to excel in the post-pandemic new normal business environment.

Speaker 4: Before I discuss our plans and initiatives for 2023 in more detail, let me first review highlights from our 4th quarter and full year performance.

Speaker 4: Turning to slide four, 2022 was a challenging year for the optical industry overall and for national vision.

Speaker 4: We ended the year in line with our guidance expectations while navigating a difficult macroeconomic environment, which especially impacted our core budget-conscious, uninsured customer base, and we contended with exam capacity constraints in certain markets.

Speaker 4: I continue to be very proud of our entire team and their commitment to providing exceptional patient care and customer service while also remaining focused on our strategic initiatives.

Speaker 4: These include the rollout of remote care and electronic health record capabilities to over 300 locations and the opening of 80 new stores despite many supply chain obstacles.

Speaker 4: For the fourth quarter, specifically, net revenue declined 1.9% and adjusted comparable store sales declined 2.4% compared to the prior year period. We delivered adjusted diluted EPS of negative 8 cents for the period inclusive of a 10 cent negative impact from unearned revenue.

Speaker 4: Traditionally, a very important time in optics as various annual insurance benefits end.

Speaker 4: These trends help to also support positive comp growth for both the quarter and the year in our managed care business, representing an increase in customers with vision insurance.

Speaker 4: Insured customers are less sensitive to the elevated inflationary and macro pressures facing our uninsured customers.

Speaker 4: In addition, we continue to see evidence of trade down in the fourth quarter from higher income consumers in our stores.

Speaker 4: Now, turning to slide five, our plans for 2023 continue to focus on our transformation with the expansion of our remote care offering, strategic investments in ophthalmetic recruiting and retention initiatives.

Speaker 4: our omni-channel capabilities, the further digitization of our stores and corporate office, as well as continued store openings based on the significant white space opportunities still ahead.

Speaker 4: Turning to slide six, as I explained, the pandemic created unprecedented and unique challenges to the optical industry by not only impacting the historically consistent purchase cycle, but also optometrist availability.

Speaker 4: This has significantly impacted eye exam capacity for the industry.

Speaker 4: Of these factors, the one that we believe we can influence the most is recruiting and retaining doctors in an effort to expand exam capacity, albeit with increased levels of investment. We believe that the pandemic led to more doctors' retirements in the field or significantly cutting back the number of days they work each week.

Speaker 4: Accordingly, changes were needed to continue to maintain healthy retention rate and recruit new talent to our doctor network.

Speaker 4: Dr. Retention rates have a starkly range between 80 and 90 percent.

Speaker 4: We were pleased with the improvement we saw in 2022 in our recruitment and recruitment efforts, including delivering the best year ever for our Pontryis student recruiting.

Speaker 4: In 2023, we believe there is an opportunity to build on this improvement in momentum through investments in a number of additional initiatives, including increased scheduling options and OD variable compensation program updates.

Speaker 4: These initiatives were piloted in select markets during the fourth quarter and given early positive results, a strategic decision was made to expand these programs throughout our America's best brand in 2023.

Speaker 4: In addition to these initiatives, we're also continuing the rollout of remote care capabilities, which provide doctors with additional levels of flexibility and expand exam capacity in many areas.

Speaker 4: By the end of 2022, we had rolled out remote care capabilities to approximately 300 stores. While this is a nascent program, we're pleased with the initial results and have incorporated key learnings from the rollout related to the productivity ramp and learning curve needed for doctors to transition to the new system.

Speaker 4: We've implemented new techniques and training to minimize the productivity loss.

Speaker 4: We plan to continue to expand this program further in additional America's best locations in 2023, and we're evaluating approaches to remote practice and other brands as well.

Speaker 4: We see this mode of practice as being highly appealing to optometrists now and going forward without sacrificing quality of patient satisfaction.

Speaker 4: We believe that with the one-two punch of enhanced recruiting and retention initiatives and expanded remote capabilities, we are increasing the competitive most around our business while significantly improving exam capacity.

Speaker 4: retention efforts. We remain focused on the important role that our associates play in supporting our business and providing the great customer service that our patients and customers expect.

Speaker 4: We take pride in training and growing the talent needed to support our white space expansion and are proud that approximately 40% of current store managers started with us in entry level positions.

Speaker 4: We've also implemented an Optometric Technician Certification Program that improves the quality of our technicians and consequently the job satisfaction of the optometrist.

Speaker 4: Currently, over three quarters of our optometric technicians are certified.

Speaker 4: Turning next to slide 7 and our plan for furthering the digitization of our stores and corporate offices, as well as enhancing our omni-channel capabilities. As part of our remote care rollout, we've begun to implement electronic health records in our stores. A key learning that we gained with our initial rollout of this initiative is the ability to access our stores and our offices.

Speaker 4: has been the productivity ramp and learning curve needed for many doctors as they get used to working with the new platform.

Speaker 4: Given this, enhanced training for doctors has been implemented. While these additional costs and length of productivity ramps will be short-term margin drag, we believe the digitization of patient records is a necessity for today's operating environment that should provide longer-term patient and customer experience benefits.

Speaker 4: as well as more efficient store flow. To further support our stores and growing business, we expect to start a back office ERP implementation for our corporate office in late 2023.

Speaker 4: capabilities and other enhancements to the customer experience which are showing initial encouraging results.

Speaker 4: As seen on slide 8, we remain focused on our significant white space opportunity for store growth.

Speaker 4: We continue to believe we have an opportunity to grow at least 2,150 stores with similar economics to the existing days. And in 2023, we expect to open approximately 65 to 70 new stores.

Speaker 4: Our planned openings reflect anticipated supply chain and permitting delays and secondarily doctor recruitment timing.

Speaker 4: In summary, while the macro pressures continue to weigh on our core budget-conscious, uninsured customers, we are navigating this backdrop while taking actions to improve exam capacity. Further the digestation of our stores and corporate office, leverage our Army channels, capabilities, and continue to capitalize on our white space opportunity as we move into 2023.

Speaker 4: While early, we've been encouraged by the results today from Dr. retention and recruiting initiative.

Speaker 4: While we expect profitability in 2023 to be impacted by cost pressures, as Melissa will discuss, we believe the initiatives we have in place will position us well for long-term success and a return to the consistent financial performance we have demonstrated historically as we've seen on fly done.

Speaker 4: I'll now turn the call over to Melissa for more detailed discussion of our financial results in the 2023 public.

Speaker 5: Thank you, Reed, and good morning, everyone.

Speaker 5: Turning to slide 11, net revenue for the fourth quarter decreased 1.9 percent compared to the prior year due to macroeconomic headwinds pressuring traffic and constraints to exam capacity. The end of slide 11, net revenue for the fourth quarter decreased 1.9 percent compared to

Speaker 5: The timing of unearned revenue negatively impacted revenue growth by 2.9%.

Speaker 5: The 40 basis point revenue loss in the third quarter as a result of Hurricane Ian was recovered in the fourth quarter.

Speaker 5: During the quarter, we have been 23 new American Best Stores for a 1.7% increase in total store count sequentially over the third quarter at 2022.

Speaker 5: For our America's Best in Eyeglass World growth brands combined, unit growth increased 5.9% over the total store base last year and we ended fiscal 2022 with 1,354 stores.

Speaker 5: Adjusted comparable store sales growth declined 2.4% compared to an increase of 1.2% in the fourth quarter of 2021.

Speaker 5: The fourth quarter, St. Source Sales decline over 2021, was driven by lower traffic, which was partially offset by an increase in average ticket.

Speaker 5: Turning to slide 12, as a percentage of net revenue, cost applicable to revenue increased a 180 basis point driven by the leverage of optometrists related costs.

Speaker 5: lower eyeglass mix and lower eyeglass margin. This is better than our expectations of a 300 basis point to 325 basis point increase due to a more stable average ticket than we had anticipated.

Speaker 5: Adjusted SGMA expense as a percent of net revenue increased 300 basis points compared to 2021.

Speaker 5: The key factors behind this increase were timing of unearned revenue, higher corporate office expenses, which included a one-time investment in our associate of $5 million for retention bonuses, and increased occupancy expense.

Speaker 5: Partially offset by lower advertising expense.

Speaker 5: Adjusted operating income was a loss of $6.8 million compared to adjusted operating income of $16.8 million in the prior year period.

Speaker 5: Adjusted operating margin decreased 490 basis points driven primarily by the timing of unearned revenue recognition, which negatively impacted adjusted operating income by $10.7 million, as well as the increased cost we incurred in the quarter.

Speaker 5: Adjust the deluded EPS was a loss of 8 cents compared to earnings of 13 cents per share in the prior year period.

Speaker 5: Turning to full year 2022 results on slide 13.

Speaker 5: Net revenue decreased approximately 3.6% versus 2021 with adjusted operating income of $87.8 million and adjusted deluded EPS of $0.65 per share.

Speaker 5: Now turning to slide 14 and 15. Our balance sheet and liquidity remains strong. We ended the year with a cash balance of $229 million and total liquidity of approximately $523 million, including available capacity from our revolving credit facility.

Speaker 5: We have total debt outstanding of $568 million with no mandatory principal payments due until the term one matures in July of 2024.

Speaker 5: That debt to adjusted EBITDA was 1.9 times. For the year, we generated operating cash flow of $119 million. We invested $114 million in capital expenditures, primarily focused on new store openings in customer-facing technology investments. Slightly below our expectations due to supply chain related delays.

Speaker 5: We expect improved operating cash flows in 2023 and capital expenditures to be in a range of $115 million to $120 million to reflect our continued investment in key growth initiatives including new store openings as well as acceleration in technology investments including remote care and elect

Speaker 5: to your repurchase authorization.

Speaker 5: Inventory per store declines 6% on a year-over-year basis.

Speaker 5: We believe our current inventory levels are sufficient and can support our 2023 growth plan.

Speaker 5: Our merchandising and distribution teams continue to execute well to help us manage through the current supply chain challenges.

Speaker 5: Overall, in this environment, we believe the strengths of our balance sheet and our strong cash flows are a competitive advantage and enable us to continue to invest in our key growth initiatives to further strengthen the customer experience and our market position. Turning now to our Outlook slide, 16.

Speaker 5: adjusted comparable store sales growth of 0 to 3 percent.

Speaker 5: Our expectation to open between 65 and 70 new stores this year.

Speaker 5: In addition, for 2023, we currently expect adjusted operating income between $48 million and $66 million.

Speaker 5: and adjusted diluted EPS between 42 cents and 60 cents per share, assuming approximately 80 million weighted average diluted shares.

Speaker 5: Given the current uncertainty around the consumer and the macro environment for this year, our outlook reflects the wider degree of potential results.

Speaker 5: The high end of our guidance assumes continued success in addressing Dr. Capacity constraint and a gradual return to a more normal optical purchasing cycle.

Speaker 5: as well as improved consumer sentiment.

Speaker 5: The low end assumes prolonged and increased pressure on our budget-conscious consumer and less success in addressing exam capacity constraints.

Speaker 5: While it is not our practice to provide quarterly guidance with respect to the first quarter, we expect adjusted comparable store sales growth to be approximately slapped.

Speaker 5: As Reed mentioned, we have been encouraged by the results to date from Dr. Retention and Recruiting Initiatives.

Speaker 5: Though the year has started stronger than expected, we remain cautious as March is a pivotal month due to the timing of tax refunds.

Speaker 5: The midpoint of our annual adjusted operating margin outlook reflects an operating margin decline of approximately 170 basis points versus 2022.

Speaker 5: This reflects the expectation of approximately 100 basis points of gross margin headwinds balanced between expected higher product costs in investments and doctors. We have recently taken peripheral prices, which offset the portion of the cost increases expected this year. The remainder of the expected operating margin decline is largely due to the deleveraging of S&P.

Speaker 5: Turning to slide 17. As we look longer terms, we expect the benefits from our key initiatives, as well as an improved macroeconomic backdrop to result in a return of comparable store sales growth to the mid-single-digit levels we have historically delivered.

Speaker 5: With this more normalized conference, we expect to begin to leverage the higher product, wage, and incentive compensation costs we are experiencing this year. In addition, while we expect remote care to be profitable in 2023, we believe as we move beyond the implementation phase, there is significant opportunity to continue to branch the productivity of the highly accreted exam technology.

Speaker 5: where there is not a physical doctor present or in locations that need additional capacity to meet patient demand.

Speaker 5: We expected the remote exam technology and store digitization implementation to be substantially completed by mid to late 2024 and fully productive in 2025, enabling our expectation of a return to mid-single digit adjusted operating profit margin profile.

Speaker 5: We also continue to see the opportunity to expand margins beyond this point as we leverage sales growth and drive further productivity improvements across the organization. In closing, the pandemic era affected the optical industry significantly.

Speaker 5: But we believe we have a strong foundation in place and are excited to continue the expansion of our healthcare focus through remote medicine capabilities, one of the largest doctor networks in the US, and digital transformation of our stores and corporate office.

Speaker 5: We believe the solutions to address exam capacity constraints through investment in remote medicine and doctor scheduling options will continue to drive incremental revenue of profits into the future and will allow us to win in this environment.

Speaker 5: At this point, I'll turn the call back to Reid. Thank you, Melissa.

Speaker 4: point I'll turn the call back to Reid. Thank you, Melissa. In summary...

Speaker 4: This chapter of the pandemic era has created significant changes to the optical category.

Speaker 4: Inflation that is pressures of spending power and effect is a person's cycle of our more budget conscious, uninsured consumer base. Created a shortage of optimistic capacity for us and across the category and increased our product costs.

Speaker 4: We believe the purchase cycle and the cost environment will improve with time and are taking aggressive, targeted actions necessary to address the situation, both short term and long term.

Speaker 4: Short term, we're implementing peripheral pricing changes that will offset some but not all of the product cost pressures we're experiencing, especially as it relates to the commoditized, easily shoppable contact lens category that represents the minority of our business and profits.

Speaker 4: Aggressive actions are being taken to address the new reality of the optometry labor market with more scheduling options, variable compensation program updates, and continued investment in remote medicine initiatives.

Speaker 4: We are encouraged by the initial results of all these efforts.

Speaker 4: Additionally, we are investing in a variety of digitization efforts, both customer facing and back office to improve our customer offerings and create cost efficiencies.

Speaker 4: While these efforts create margin pressure in the near term, we are convinced these are the right actions to position our business for long term success.

Speaker 4: With that, I'll turn it over to the operator for Q&A.

Speaker 2: Thank you ladies and gentlemen. If you have a question or a comment at this time, please press star 11 on your touchdown telephone. If your question has been answered, wish to move yourself from the queue. Please press star 11 again. And we ask that you limit yourself to one question and one follow up, one number for our first question.

Speaker 4: Our first question comes from Michael Lasser with UBS. Your line is open. Good morning. Thanks a lot for taking my question. Read as you diagnose national vision performance in 2022. How much of the comp shortfall would you attribute to some of these execution challenges like increase, a pometrist turnover?

Speaker 4: not having the full roll out of remote medicine versus just a difficult macroeconomic environment for your consumer. And as part of that, you mentioned you are starting to see more of a trade down. Are you surprised that at this point in the cycle that the trade down hasn't been Critical? You're right.

Speaker 4: even greater and offset some of these challenges in your core customer base. Got it Michael. Thank you very much. Good morning to you. So two pieces. We think overall the comp softness last year was pretty balanced between

Speaker 6: consumer-related and Dr. Capacity-related challenges. I do want to point out, you know, that we are consumer about two-thirds of our consumer base is does not have insurance that helps them with their optical purchases. So, they're cash pay, they're out of...

Speaker 6: out of pocket and the other third is insured customers. And I wanted to point out the insured customers comped positively for both the quarter and the year consistently throughout. So that is that piece. But really in terms of

Speaker 6: The things we can control, it's a story of of doctor capacity. I wanted to point out a number we mentioned in there that that the 1st time we shared this that our, our retention of doctors ranges between 80 and 90%. So it is a very healthy.

Speaker 6: in this day and age, but we still have customers who want to come to us and we do not have the exams, the exam capacity. We don't have the doctor there to to give them the exam they want from us. So there's demand that we cannot fill. We think remote is going to be a great unlock for this and provide us with incremental capacity. We also think the scheduling options we talked about are going to help.

Speaker 6: So that is coming along. It's, it's, it's hard to have exact expectations of it, but it is occurring just like we saw in the recession of, of, oh, eight or no, not. Okay. My follow-up question is, how dependent is...

Speaker 4: is your goal of getting back to a mid-single digit adjusted operating margin on a mid-single digit increase in comparable store sales growth. And the reason why I ask that is because there's been a longstanding debate about the national vision model as the low cost.

Speaker 4: provider, could it be uniquely negatively impacted in an environment where the availability of doctors is limited and that low cost model might not work in that environment because it's going to have the company will have to continue to pay up.

Speaker 4: for the important talent and is it possible that's just coming to fruition which will weigh on the structural margin of national vision? Thank you. I'm going to have Melissa do the first part of that and then I'd like to follow on to the second part of that. Okay, great. Hi. So we are investing currently and we're focused on driving long term...

Speaker 5: a key unlock for us as we think about growth in the future. The investments that we're making currently will enable us to be able to handle the capacity constraints that we have currently. The demand will be there, the doctors will be there, we'll be able to span across geography in time to be able to service the demand that we have at the time that we have it.

Speaker 5: And so, as I said, Missing will digit comfortable store sales growth. At that point, we'll begin to leverage the higher cost that we're experiencing this year. And from there, once you have the remote care and electronic health record implementation, completed substantially mid to late 2024 and fully productive in 2025, we expect approximately 100.

Speaker 5: basis point improvement on our operating margins, and then from there we would expect to further take the opportunity to expand and leverage through sales growth in addition to driving productivity improvements across the organization based on the investments that we're putting in place today.

Speaker 6: And to the second part of that, Michael, there is nothing wrong with our business model. The only challenge is our ability to execute our business model, which is about having the doctor in the store. If we have the doctor in the store, the consumer demand is there. We think our business foundation is strong.

Speaker 6: Great, Trent, that actually won. One with remote medicine, we believe more and more doctors are going to want to practice that way in the future. Two, we think that doctors in general, healthcare workers in general, and frankly all workers in general are seeking greater flexibility in their working world. The scheduling options we have.

Speaker 6: challenges, our ability to execute the business model that consumers really, really want, and we think our actions of remote medicine and scheduling options will tap into the way up conscious, want to practice now and we'll ever more so going forward.

Speaker 2: Our next question comes from Zach Fattam with Wells Fargo. Your line is open.

Speaker 4: Hello, such guys. We're taking my question. This is a family pitchfitting for Zach. Wanting to dig a bit deeper on lower eyeglass margins and maybe parse out the effects of trade-down versus step-up costs.

Speaker 6: Could you repeat that, Sam? I'm sorry. Could you just repeat your question one more time?

Speaker 4: Sure, absolutely. So I just wanted to dig a bit deeper on eye glass margins during the quarter and maybe parse out any effects from trade down versus theft of costs. Yes, is it related to eyelash margins? We still believe that our margins are healthy. We are experiencing some product cost increases as we look forward to 2023.

Speaker 5: However, we are seeing some trade down from our consumers, from the higher income consumers, as we believe some of the lower income consumers have left the market at this moment. We do believe that the continued trade down, those customers are really targeting more of the higher end products that we have in place and their managed care benefits.

can get them farther at our stores than they can at our competition. Yeah, and Sam, just to be clear, because we've used the word trade down in two different ways, I just want to clarify. One, we are seeing trade down of wealthier consumers to our business. And two, which I think may have been where you were going, we are not seeing trade down

trade down within our frame categories to shifting to less expensive product. We're finding that, say, the percentage that take our entry offer is about even to where it was before. So those are the two aspects.

the two ways we use the term trade down in the company. Hope that's awesome. Yeah, I was referring to the latter, so that's super helpful. And then maybe just one quick follow up, embedded within your 2023 guidance. Can you talk to the trajectory for insured versus uninsured consumers, apologies if I missed, but will uninsured still be a drag on cops?

So two things, we do believe that our managed care percentage will continue to grow as a percentage of our business as it was growing.

Consistently in the years before the pandemic. And then it has been growing recently as well. So, so the growth in managed care consumers has been.

steady for years and should continue and we're great with that. I believe that on the other side of your question, in terms of the uninsured consumers, I think the answer to that is, to the extent to which we continue to retain the doctors we have, recruit more doctors, and leverage things like remote, then we should be able to generate a lot of

Adrienne Yoo with Barclays, your line is open. Great, thank you very much. Reid, I guess I'm kind of back on the trade down, the literal trade down where you're seeing sort of the higher household income kind of coming in. So I know you historically I think you've talked about better cars in the parking lot, but I'm sure that there's some

strength of that trade down happening.

How is the like the the lack of optometrist capacity that's the walk-ins that come in one adopter in the office and he's not there or like if there are capacity to hold on to that consumer by you know giving them other options or coming in at a later date or something like that. Can you retain that that potential loss?

our assessment in 0809 was literally about store managers telling us that there were nicer cars in the parking lot, okay, because we did not have data on that. We do now, as you say, we can say what percentage of our customers are coming in from.

from over $100,000 income households. And we have seen steady improvements in that since, I wanted to call it since about this time last year, since about March of March April last year when the economy started to get tighter. So, but yes, that is very data driven, and in 0809, it was not.

in terms of capacity. So let me take you through the patient journey. So I'm out the whole patient journey is, you know, first you start to realize you're not seeing street signs as well or menus as well. And then you go to a period of denial where you are, trying to think it will go away and trying not to think they're getting older.

you can make appointments online and you try to find an appointment that's convenient for you. Generally what we find is people would really like to get an appointment in the next few days once they get to that point. And again, it can be hot to be online, it can be through calling your source, a nice mix of both those things with our customer base. But if you are in the mood to act and you can't find an appointment.

near term, you might think of other options. In addition, there is the walk-in piece, because every day there are walk-ins to all of our store brands, almost all of whom are seeking an IxM so that they can update their prescription and start the process. And people tend to buy their glasses before they get their eyes examined. It's just how that...

Our next question comes from Kate McShing with Goldman Sachs, who line is open.

Hi, thanks. Good morning. I know a lot of some mentioned about the macro environment and exam capacity, but we wondered what you're thinking about the competitive environment. Do you see any changes there or any increased competition for maybe the mass channel that might be having an impact.

And then we just wondered from housekeeping standpoint, how many remote locations will be rolled out in fiscal year 23? So in terms of big trends since we last spoke or recently, the only big trend is sort of the trend of return to stores. You know during the pandemic era there was growth in the e-commerce phase and actually we've been seeing that there has been a return to stores overall and a diminishment of that share. And again, this is a stores purchase, the vast vast vast majority of all purchases.

of value statements over time. And that trend, which we've been talking about for years, we've been continuing to believe is gonna be the ongoing trend going forward. Pat, did you wanna add anything to that? Yeah, let me take the most real lot of plans. Good morning, take. So we had a great year in 2022. We got this rolled out to over 300 stores. There was lots of good effort, lots of good results and lots of good learnings this year. Similar to last year, we're starting out the year guiding it but they don't have monitored Sriwaiti so that they would add new content if they are able to Fishhead to take it allegory.

So that will probably taper our number sound a bit. We think that's the right thing to do. Remotes going to be a key unlock. It always has been already more so we can get this in, the more flexibility we have. Thank you. Thank you.

So that will probably taper our numbers down a bit. Oh, we see that. We see that. So the right thing to do. We're most going to be a key unlock. It always has been already more so we can get this in and more flexibility we have. Thank you. One moment for our next question.

Our next question comes from Simi and Gordon. And your line is open. Hey everyone. I have a quick question on the optometric or the optometrist market and then one on prices. You mentioned that it's a tough market. Is that because people, consumers can't get appointments because there's a shortage or is it because that in your segment?

There's a lot of square footage growth and there's more of a chase to hire as opposed to being like a national shortage where we're just underserved where demand is greater than the supply. Sidney and Dan, good morning. There is a national shortage of a pometrist. So what happened during the pandemic year was many more retired than normally would have. And again, we're seeing this that what we're talking about here is the same for a lot of different types.

healthcare workers. So this is part of a broad healthcare trend. So there were more retirements and then those that continued to practice, there was like I think it's called the great rethink, where they said you know I've been practicing for five days but really maybe four maybe three days and a cut back on the number of days that people are retiring. So what it means is that the number of exams out there in in America in any given week is less than it was. The schools do not graduate any higher number of students.

So, flat number of students coming in and less doctors practicing and then less days per doctor. And this is something that is discussed throughout the industry at all levels.

Great, and then the follow-up is on the pricing. You made a change during the COVID time frame out of necessity and pragmatism. Have you debated this again? I know you have a competitive set that there is an opening price point and it is part of that value orientation.

but is the pricing structure something that you hope changes or you just can't move at this point given where you compete? We are constantly watching to make sure that there's a nice mode between us and our competition in terms of price. So it's something that we pay a lot.

to glasses less so around, you know, contact lenses, very transparent, very commoditized product. So that is not one where we like to, you know, where we pull the pricing lever much. But so there is still opportunity there and still able to keep our most. And we watch this very judiciously and make decisions here and there about very

Our next question comes from Taji Phillips, which Jeff Reeserline has opened. Good morning and thanks for taking my question. So first I have a question on just adjusted comparable store sales growth this year. The midpoint suggests 1.5% growth. And I'm just curious what's informing this improved outlook relative to last year's.

is it a matter of easy comps or are we actually seeing that positive flow through just with the improved macro environment and then after I have one follow up? Hi, Todd, good morning. So the midpoint of our guidance is we're going out with larger ranges just due to the...

uncertainty around the environment and the high end of our range assume as I laid out in our prepared comments, the high end of the range assumes that the macroeconomic backdrop has improved slightly, customer sentiment has improved slightly, and we see the continued improvement on the the capacity constraints that we've been working through. And the low end of that range assumes that there's continued pressure on our core.

value conscious consumers and we don't, we are not as successful at managing that doctor capacity constraint that we are seeing and the midpoint is just the mass between the two. And I'll say you know for for the first two months of this year we've been performing better than our original expectations we you know March is such an important part month for us because of its tax return season whenever our customer gets.

found money like from a tax return, it's generally very good for us, so we don't want to get too excited by the first two months until we see how March plays out, because that's really defining for us in Q1. Great, thanks. And then, just referencing your commentary, I think I remember hearing you say that to make sure that you're promoting flexibility for optometrics, right? You've had the restrict hours to improve.

Optometrist recruitment and retention. Just curious, how do you balance that decision right between just a lack of availability in time from restricting hours and then also making sure that you're able to effectively recruit more optometrist? What does that flow through look like? Has that directly impacted your ability to recruit optometrist? Yeah, so what what so it used to be we were very

in why people left us. So now we have a menu of options of which days they are able to practice with us and it's a greater variety there. We do tend to, you know, we've always paid additional for weekends and holidays and found that the resulting sales inflow through justify that incremental expense.

As doctors sort of trade off and say, I'd like to take some Saturdays off and maybe work Wednesday instead of Saturday, we try to fill in the Saturday and there's expense related to that. It is expense that is fully justified and paid out and it will fill flow through. But that's what we're talking about here is offering options to shift what days you work around your lifestyle and your schedule and trying to fill in where there's customer demand if that's what they trade.

in two four of last year and we made some, we said, wow, this is encouraging for us and we decided to put another chunk of stores into it later in the year and then early this year decided, hey, let's...

Thank you for your time. Great. Thanks for the information.

Great. Thanks for the information. One moment for our next question.

The next question comes from Dylan Cardin with William Blair. Your line is open. We cannot hear you. I'm sorry. Dylan. I'm hereby. Fairly, but go ahead. We'll try. I'm curious.

How are you thinking about the laps and snap benefit as you're looking to your guidance as well as timing around laps customers? We defer the purchase in 2022 kind of coming back in 23

Dylan, can you repeat your question, please? Yeah, if you can't hear me, maybe I can take it offline. I'm just curious about the lapse in SNAP benefits as it relates to your guidance and how you're thinking about that, and then lapse customers in 2022 coming back to the business in 2023, kind of what the expectations are there. Yeah, it's regarding the SNAP benefits, it's another pressure on our lower income.

An insured customer, but it's right there. They've been pressured on a variety of different fronts. So it's just another headache there. We do not think it's going to have a dramatic impact on us. And then terms of last customers of things that, you know, in terms of percentage of customers who are. And then terms of percentage of customers who are.

Thank you very much for everyone who joined the call. Thank you to our shareholders and stakeholders for your ongoing support. We look forward to speaking to you again when we report our first quarter results. Thank you all. Well, ladies and gentlemen, this concludes today's presentation. You may not just connect and have a wonderful day.

The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 11.

I have.

I.

Good day and thank you for standing by. Welcome to the Q4 2022 National Vision Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.

Please be advised today's conference is being recorded. I would like to hand the conference over to your speaker today, Kaitlyn Churchill. Investor Relations, please go ahead. Thank you and good morning everyone. Welcome to National Vision's fourth quarter 2022 earnings call. Joining me on the call today are Reid Fause, CEO , Melissa Rasmussen, CFO , Patrick Moore, COO is also with us and will be available during the Q&A portion of the call.

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 website, nationalvision.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 1995. 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, the

and our filings with the Securities and Exchange Commission. The release and today's presentation also includes certain non-GAAP measures. Reconciliation of these measures is 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 full-relooking statements and non-GAAP measures. As a reminder, National Vision provides investor presentations and supplemental materials for investor reference on the Investors section of our website. Now, let me turn the call over to read.

Thank you, Caitlin. Good morning, everyone. Thank you all for joining us today. I thought I'd start today with an overview of what we're going to take you through to provide context and a framework for the further details that Melissa and I will then be providing.

As we've discussed before, the pandemic disrupted the historically consistent optical purchase cycle. In addition, it impacted global supply chains leading to increased costs and inflation and created a challenging labor market, especially impacting doctor availability, as seen in other areas, especially healthcare as well. While we believe that we will return to a more normalized purchase cycle and cost environment, we Looking To Measureature

We're addressing the new reality of the Optometrist market and overall business environment in which we are operating today. As we will discuss, Optometrist and our network are now being offered a greater variety of scheduling options and improved variable compensation program. And we are progressing the remote medicine initiative that we've been discussing in our last few cold.

We are also resetting our management short-term incentive plan to ensure that we keep our team highly incentivized to perform. In addition, like all companies, we must evolve our systems to support our growing business and gain advantages and efficiencies of ongoing digitization. As we enter 2023, while the actions we are continuing to take will have an impact on our operating margins in the near term, and the macroeconomic factors remain challenging.

We are intently focused on continuing to further adapt and transform our business to excel in the post-pandemic new normal business environment.

Before I discuss our plans and initiatives for 2023 in more detail, let me first review highlights from our fourth quarter and full year performance. Turning to slide 4, 2022 was a challenging year for the optical industry overall and for National Vision. The end of the year in line with our guidance expectations.

while navigating a difficult macroeconomic environment, which especially impacted our core budget-conscious, uninsured customer base, and we contended with exam capacity constraints in certain markets. I continue to be very proud of our entire team and their commitment to providing exceptional patient care and customer service while also remaining focused on our strategic initiatives. These include the rollout of remote care and electronic health record capabilities to over 300 locations.

and the opening of 80 new stores despite many supply chain obstacles. For the fourth quarter, specifically, net revenue declined 1.9% and adjusted comparable stores sales declined 2.4% compared to the prior year period. We delivered adjusted saluted EPS of negative 8 cents for the period inclusive of a 10-cent negative impact from under-end revenue as well as a $5 million investment in retention bonuses for our associates. Importantly, underlying these results was a strong finish to the quarter.

particularly with respect to our managed care sales, as we saw a notable improvement in the last week of the year, traditionally a very important time in optics as various annual insurance benefits end. These trends help to also support positive cost growth for both the quarter and the year in our managed care business, representing an increase in customers with vision insurance. In short, customers are less sensitive to the elevated, inflationary, and macro pressures facing our uninsured customers. In addition, we continue to see evidence of trade down in fourth quarter from higher income consumers in our stores.

Now, turning to slide five, our plans for 2023 continue to focus on our transformation with the expansion of our remote care offering, strategic investments in optometric recruiting and retention initiatives, our omni-channel capabilities, the further digitization of our stores and corporate office, as well as continued store openings based on the significant white space opportunities still ahead. During slide six, as I explained, the pandemic created unprecedented and unique challenges in the optical industry.

days they work each week. Accordingly, changes were needed to continue to maintain healthy retention rates and recruit new talent to our doctor network. Dr. Retention rates have historically ranged between 80 and 90 percent. We were pleased with the improvement we saw in 2022 in our recruitment efforts.

including delivering the best year ever for our Poundless Student Recruiting. In 2023, we believe there is an opportunity to build on this improvement in momentum through investments in a number of additional initiatives, including increased scheduling options and OD variable compensation program updates. These initiatives were piloted in select markets during the fourth quarter and given early positive results, a strategic decision was made to expand these programs.

throughout our America's Best brand in 2023. In addition to these initiatives, we're also continuing the rollout of remote care capabilities which provide doctors with additional levels of flexibility and expand exam capacity in many areas.

By the end of 2022, we enrolled out remote care capabilities to approximately 300 stores. While this is a nascent program, we're pleased with the initial results and have incorporated key learnings from the rollout related to the productivity ramp and learning curve needed for doctors to transition to the new system. We've implemented new techniques and training to minimize the productivity loss.

We plan to continue to expand this program further in additional America's best locations in 2023, and we're evaluating approaches to remote practice and other brands as well. We see this mode of practice as being highly appealing to our conference now and going forward without sacrificing quality of patient satisfaction. We believe that with the one-two punch of enhanced recruiting and retention initiatives and extended remote capabilities.

We are increasing the competitive mode around our business while significantly improving exam capacity. In addition to the investments in remote technology and Dr. recruiting retention efforts, we remain focused on the important role that our associates play in supporting our business and providing the great customer service that our patients and customers expect. We take pride in training and growing the talent needed to support our white space expansion and are proud that approximately 40% of current store managers started with us in entry-level positions. We've also implemented an Optometric Technician certification program that improves the quality of our technicians and consequently the job satisfaction of the optometrist. Currently, over three-quarters of our Optometric Technicians are certified.

Turning next to slide 7 and our plan for furtherings and digitization of our stores and corporate offices as well as enhancing our omni-channel capabilities. As part of our remote care rollout, we've begun to implement electronic health records in our stores. A key learning that we gained with our initial rollout of this initiative has been the productivity ramp and learning curve needed for many doctors that they get used to working with the new platform. Given that enhanced training for doctors has been implemented, while these additional costs and length of productivity ramps,

will be short-term margin drag. We believe the digitization of patient records is a necessity for today's operating environment that should provide longer-term patient and customer experience benefits as well as more efficient store flow. To further support our stores and growing business, we expect to start a back office ERP implementation for our corporate office in late 2023. In addition, we're continuing to invest in our omnipotent capabilities and other enhancements to the customer experience, which are showing initial encouraging results. As seed on slide 8, we remain focused on our significant white space opportunity for store growth.

We continue to believe we have an opportunity to grow at least 2,150 stores with similar economics to the existing base, and in 2023, we expect to open approximately 65 to 70 new stores. Our planned openings reflect anticipated supply chains and permitting delays and secondarily, doctor recruitment timing. In summary, while the macro pressures continue to weigh on our core budget conscious uninsured customers, we are navigating this backdrop while taking actions to improve exam capacity, further the digitization of our stores and corporate office, leverage our omni-channel capability.

and continue to capitalize on our white space opportunity as we move into 2023. While early, we've been encouraged by the results today from Dr. Retention and Recruiting Initiatives. While we expect profitability in 2023 to be impacted by cost pressures as militable discuss, we believe the initiatives we have in place will position us well for long-term success and a return to the consistent financial performance we have demonstrated historically as lead seen on fly done. I'll now turn the call over to Melissa for more detailed discussion of our financial results in the 2023 public.

Thank you, Reed, and good morning, everyone. Turning to slide 11, net revenue for the fourth quarter decreased 1.9 percent compared to the prior year due to macroeconomic headwinds pressure and traffic and constraints to exam capacity. The timing of unearned revenue negatively impacted revenue growth by 2.9 percent. The 40 basis point revenue loss in the third quarter as a result of Hurricane Ian was recovered in the fourth quarter.

During the quarter, we have been 23 new American Best Stores for a 1.7% increase in total store count sequentially over the third quarter of 2022. For our American Best in-Iglass World Growth Brand combined, unit growth increased 5.9% over the total store base last year, and we ended fiscal 2022 with 1,354 stores. Adjusted profitable store sales growth declined 2.4%, compared to an increase of 1.2% in the fourth quarter of 2021.

25 basis point increase due to a more stable average ticket than we had anticipated.

Adjusted SGMA expense as a percent of net revenue increased 300 basis points compared to 2021. The key factors behind this increase were timing of unearned revenue, higher corporate offence expenses, which included a one-time investment in our associate of $5 million for retention bonuses, and increased occupancy expense, partially offset by lower advertising expense.

Adjusted operating income was a loss of $6.8 million compared to adjusted operating income at $16.8 million in the prior year period. Adjusted operating margin decreased 490 basis points driven primarily by the timing of unearned revenue recognition, which negatively impacted adjusted operating income by $10.7 million as well as the increased cost we incurred in the quarter. Adjusted deleted ETS was a loss of $8.8 million.

compared to earnings of 13 cents per share in the prior year period. 2022 results on slide 13. Net revenue decrease approximately 3.6% versus 2021 with adjusted operating income of $87.8 million and adjusted deluded EPS of 65 cents per share. Now turning to slide 14 and 15.

Our balance sheet and liquidity remains strong. We ended the year with a cash balance of $229 million and total liquidity of approximately $523 million, including available capacity from our revolving credit facility. We had total debt outstanding of $568 million with no mandatory principal payments due until the term-line matures in July of 2024.

That debt to adjusted EBITDA was 1.9 times. For the year, we generated operating cash flow of $119 million. We invested $114 million in capital expenditures, primarily focused on new store openings in customer-facing technology investments. Quietly below our expectations due to supply chain related delays. We expect improved operating cash flows in 2023 and capital expenditures to be in a range of $115 million to $120 million.

to reflect our continued investment in key growth initiatives, including new store openings, as well as acceleration in technology investments, including remote care and electronic health records. In 2022, we returned capital to our stockholders with the repurchase of $2.7 million shares for $80 million under the Share Repurchase Program. It has $50 million remaining under the current Share Repurchase Authorization. Inventory per store declined 6% on a year-over-year

position. Turning now to our Outlook slide 16.

For our 2023 fiscal year, as set forth in greater detail in our earnings release, we currently expect net revenue between $2.075 billion and $2.135 billion. Supported by, adjusted comparable store sales growth of 0 to 3%.

Our expectation to open between 65 and 70 new stores this year. In addition, for 2023, we currently expect adjusted operating income between $48 million and $66 million.

and adjusted deluded EPS between 42 cents and 60 cents per share, assuming approximately 80 million weighted average deluded shares. Given the current uncertainty around the consumer and the macro environment for this year, our outlook reflects the wider degree of potential results. The high end of our guidance assumes continued success in addressing Dr. Capacity constraint.

in a gradual return to a more normal optical purchasing cycle, as well as an improved consumer sentiment. The low end assumes prolonged and increased pressure on our budget conscious consumer and less success in addressing exam capacity constraints. While it is not our practice to provide quarterly guidance with respect to the first quarter, we expect adjusted comparable store sales growth to be approximately slapped.

As Reed mentioned, we have been encouraged by the results to date from Dr. Retention and Recruiting Initiatives. The year has started stronger than expected. We remain cautious as March of the pivotal month due to the timing of tax refunds. The midpoint of our annual adjusted operating margin outlook reflects an operating margin decline of approximately 170 basis points versus 2022. This reflects the expectation of approximately 100 basis points of gross margin headwind.

impact adjusted operating margins by approximately 90 basis points, which we expect to be partially offset by advertising expense leverage. Turning to slide 17. As we look longer terms, we expect the benefits from our key initiatives, as well as an improved macroeconomic fast drop, to result in a return of comparable store sales growth.

We believe as we move beyond the implementation phase, there is significant opportunity to continue to ramp the productivity of this highly accretive exam technology, which we expect to be at least 100 basis points of improvement to adjust it operating margin.

We believe remote care is a key unlock to gain access to more doctors amid industry-wide supply and demand constraints. Our robust remote care technology enables ISM to be provided in locations where there is not a physical doctor present or in locations that need additional capacity to meet patient demand. In addition, we believe storage digitization through EHR implementation will create efficiencies in store flow. We also believe that this is a key unlock to gain access to more doctors amid industry-wide supply and demand constraints.

We expected the remote exam technology and store digitization implementation to be substantially completed by mid to late 2024 and fully productive in 2025, enabling our expectation of a return to mid single digit adjusted operating profit margin profile.

We also continue to see the opportunity to expand margins beyond this point as we've leveraged sales growth and drive further productivity improvements across the organization. In closing, the pandemic era affected the optical industry significantly. So we believe we have a strong foundation in place and are excited to continue the expansion of our healthcare focus through remote medicine capabilities.

What is the largest doctor that works in the US, and digital transformation of our stores and corporate offices? We believe the solutions to address exam capacity constraints through investments in remote medicine and doctor scheduling options will continue to drive incremental revenue of profits into the future and will allow us to win in this environment.

At this point, I'll turn the call back to Reed. Thank you, Melissa. In summary, this chapter of the pandemic era has created significant changes to the optical category. Inflation that has pressures of spending power and affected the person's cycle of our more budget conscious, I'm insurance consumer base.

Created a shortage of optimistic capacity for us and across the category and increased our product costs. We believe the purchase cycle and the cost environment will improve with time and are taking aggressive targeted actions necessary to address the situation, both short term and long term. Short term, we're implementing peripheral pricing changes that will offset some but not all of the product cost pressures we're experiencing, especially as it relates to the commoditized, easily shoppable contact lens category. Soundtrack- farting for forgiveness.

that represents the minority of our business and profits. Aggressive actions are being taken to address the new reality of the Optometry Labor Market, with more scheduling options, variable compensation program updates, and continued investment in remote medicine initiatives. We are encouraged by the initial results of all these efforts.

Additionally, we are investing in a variety of digitization efforts, both customer-facing and back office to improve our customer offerings and create cost efficiencies. While these efforts create margin pressure in the near term, we are convinced these are the right actions to position our business for long-term success. With that, I'll turn it over to the operator for Q&A. Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 11 on your touch-down telephone. If you're a question...

would you attribute to some of these execution challenges like increase, optometrist turnover, not having the full rollout of remote medicine versus just a difficult macroeconomic environment for your consumer. And as part of that, you mentioned you are starting to see more of a trade down. Are you surprised that at this point in the cycle that the trade down hasn't been

even greater and offset some of these challenges in your core customer space. Michael, thank you very much. Good morning to you. So two pieces. We think overall the comp softness last year was pretty balanced between consumer related and Dr. Capacity related challenges. I do want to point out, you know, that we are consumer about two-thirds of our consumer base is does not have insurance that helps them with their optical purchases. So they're

this that our retention of doctors ranges between 80 and 90 percent. So it is a very healthy, a very healthy level, especially when you think about the doctor base. We have many of them are younger and their lives have become geographically settled. So I think a retention rate of 80 to 90 percent

capacity. We also take the scheduling options we talked about are going to help us with retention and recruitment. And again, early signs are encouraging on that. And of course, the variable comp we mentioned that's linked to productivity. So all those things we think are going to play a role in addressing the Dr. Schroek's full component of that. And tray down is gradually happening more and more so that that is.

on a mid single digit increase in comparable store sales growth. And the reason why I asked that is because there's been a long standing debate about the national vision model as a low cost provider. Could it be uniquely negatively impacted in an environment where the availability of doctors is limited. And that low cost model might not work in that environment because the company will have to continue to pay up.

or the important talent. And is it possible that's just coming to fruition, which will weigh on the structural margin of national vision? Thank you. I'm gonna have Melissa do the first part of that, and then I'd like to follow on to the second part of that. Okay, great. Hi. So we are investing currently, and we're focusing on driving long-term success post-pandemic. We believe our business model is strong, and we believe that it will continue into the future. What we have incorporated into our guidance currently anticipates the drag on margins related to these investments. We do believe getting back to mid-single digits will be a key unlock for us.

as we think about growth in the future. The investments that we're making currently will enable us to be able to handle the capacity constraints that we have currently. The demand will be there. The doctors will be there. We'll be able to span across geography and time to be able to service the demand that we have at the time that we have it. And so as I said, missing will digit comfortable store sales growth. At that point, we'll begin to leverage the higher cost that we're experiencing this year. And from there, once you have the remote care and electronic health record implementation completed substantially mid to late 2024 and fully productive in 2025.

We expect a approximately 100 basis point improvement on our operating margins. And then from there, we would expect to further take the opportunity to expand and leverage through sales growth in addition to driving productivity improvements across the organization based on the investments that we're putting in place today. And to the second part of that, Michael, there is nothing wrong with our business model. The only challenge is our ability to execute our business model which is about having the doctor in the store. If we have the doctor in the store, the consumer demand is there. We think our business foundation is strong. The consumer is one...

there's an ongrown trend in the automatic market towards more of an employment model and that is the model that we favor as well. So in short, we feel that the doctor's shortage challenges our ability to execute the business model that consumers really, really want and we think our actions of remote medicine and scheduling options will tap into the way optometrist want to practice now.

and maybe parsed out the effects of trade down versus step-up costs.

Could you repeat that Sam? I'm sorry. Could you just repeat your question one more time?

Sure, absolutely. So I just wanted to dig a bit deeper on eye glass margins during the quarter and maybe parse out any effects from trade down versus theft up costs.

Yes, is it related to eyelash margins? We still believe that our margins are healthy. We are experiencing some product cost increases as we look forward to 2023. However, we are seeing some trade down from our consumers from the higher income consumers.

as we believe some of the lower income consumers have left the market at the moment. We do believe that the continued trade downs, those customers are really targeting more of the higher end products that we have in place and their managed care benefits can get them farther at our stores and they can at our competition.

Yeah, and Sam just to be clear because we've used the word trade down in two different ways. I just want to clarify one we are seeing trade down a wealthier consumers to to our business and two which I think may be aware where you were going. We are not seeing trade down within our friend categories to to cheaper to shifting to less expensive products. We're finding that.

that say the percentages that take our entry offered about even to where it was before. So those are the two aspects, the two ways we use the term trade down in the company. Hope that it's awesome. Yeah, I was referring to the latter, so that's super helpful. And then maybe just one quick follow up, you know, embedded within your 2023 guidance. You know, can you talk to the trajectory for insured versus uninsured consumers, apologies if I missed, but will uninsured, there'll be a drag on comps.

So two things, we do believe that our managed care percentage will continue to grow as a percentage of our business as it was growing consistently in the years before the pandemic and has been growing recently as well. So the growth in managed care consumers has been steady.

for years and should continue and we're great with that. And I believe that on the other side of your question, in terms of the uninsured consumers, I think the answer to that is to the expense which we continue to retain the doctors we have, recruit more doctors and leverage things like remote, then we should be able to generate an

Our next question comes from Adrian, you with Barclays. Your line is open. Great. Thank you very much. Reed, I guess I'm kind of back on the trade down, the literal trade down where you're seeing sort of the higher household income kind of coming in. So I know you in his door, I think you talked about better cars in the parking lot, but I'm sure that there's some sort of.

And then very quickly.

How is the like the the lack of optometrist to pass you that's the walk-ins that come in want a doctor in the office and he's out there or like if there are to pass you to hold on to that consumer by, you know, giving them other options are coming in at a later date or something like that. Can you retain that that potential loss kind of earned in this interim period. Thanks so much. Good. So, so Adrian, what the great thing is.

from over $100,000 income households. And we have seen steady improvements in that since, I wanted to tell you since about this time last year, since about March of March April last year when the economy started to get tighter. So, but yes, that is very data driven. And in 0809, it was not. In terms of capacity, so let me take you through the patient journey.

really need to act now and then you're in the mood to act once you get over that denial and so what you do is go to our go to american best calm and and or or for any of our brands you can make appointments online and you try to find an appointment that can be next to you. Charlie what we find is people would really like to get an appointment in the next few.

other options. In addition, there is the walk-in piece because every day there are walk-ins to all of our store brands, almost all of whom are seeking an IxM so that they can update their prescription and start the process. And people tend to buy their glasses before they get their eyes examined. It's just how that works. So if one does...

Our next question comes from Kate McShing with Goldman Sachseline is open.

Hi, thanks. Good morning. I know a lot of some mentioned about the macro environment and exam capacity, but we wondered what you're thinking about the competitive environment. Do you see any changes there or any increased competition for maybe the mass channel that might be having an impact.

And then we just wondered from housekeeping standpoint, how many remote locations will be rolled out in fiscal year 23? So in terms of a big trend since we last spoke or recently, the only big trend is sort of the trend of return to stores. You know, during the pandemic era there was growth. Right now God has pushed many different businesses with promotes if they are the only claiming the right for helping one another.

in the e-commerce phase and actually we've been seeing that there has been a return to the stores overall and a diminishment of that share. And again, this is the stores purchase, the vast, vast, vast majority of all purchases happen in stores primarily because you need to start with an i-cam, which is why the exam capacity is such...

such an important point. But beyond that, we are not seeing any abnormal or heightened competition. What we're seeing overall is the trends we've been talking about since the IPO, which is the traditional sector of the category that tends to be more expensive, much more expensive, is gradually losing market share to the value segment. And we are one of the winners in the value segment over time.

And that trend, which we've been talking about for years, we've been continuing to believe is going to be the ongoing trend going forward. Pat, did you want to add anything to that? Yeah, let me take the remote roll out plans. Good morning, Tate. So we had a great year in 2022. We got this rolled out to over 300 stores. There was lots of good effort, lots of good results, and lots of good learnings this year. Similar to last year, we're starting out the year guiding it at least 200 stores.

That's kind of where we started out last year. Things got a little better. We were able to upgrade that. The other thing I'll mention on the 200, one of our learnings last year was it's probably better to not be doing the implementation through some of our larger peak volume periods. So we'll be dialing back active implementation of remote in EHR during those peak volume periods. So that will probably taper our numbers down a bit. We think that's the right thing to do. Remote's going to be a key unlock. It has been already. We're very pleased with that.

The more stores we can get this in, the more flexibility we have. Thank you. One moment for our next question. Our next question comes from Simeon Gutton with Morgan Stanley . Your line is open. Hey everyone. Reed, I have a quick question on the optometrist market.

where demand is greater than the supply.

Good morning, there is a national shortage of optometrists. So, what happened during the pandemic year was many more retired than normally would have. And again, we're seeing this. What we're talking about here is the same for lots of different types of healthcare workers. So this is part of a broad healthcare trend. So there were more retirement.

out there in America in any given week is less than it was. The schools do not graduate any higher number of students. So flat number of students coming in and less doctors practicing and then less days per doctor. And this is something that is discussed throughout the industry at all levels.

Great, and then the follow-up is on the pricing. You made a change during the COVID time frame out of necessity and pragmatism. Have you debated this again? I know you have a competitive set that there is an opening price point and it is part of that value orientation.

But is the pricing structure something that you hope changes or you just can't move at this point given where you compete? We are constantly watching to make sure that there's a nice mode between us and our competition in terms of price. So it's something that we pay a lot of attention to. We are...

firmly a value player. We also believe that our willingness to pull a price lever is far less than most other groups in the category overall. We do have opportunities around peripheral pricing, especially as it relates to glasses, less so around contact lenses, very transparent, very commoditized product. So that is not one where we like to, you know, where we pull the pricing lever much.

one on your telephone. One one before our next question.

Our next question comes from Taji Phillips with Jeff Reeser line is open. Good morning and thanks for taking my question. So first I have a question on just adjusted comparable stair, store sales growth this year. The midpoint suggests 1.5% growth and I'm just curious what's informing this improved.

of our guidance is we're going out with larger ranges just due to the uncertainty around the environment and the high end of our range assumes, as I laid out in our prepared comments, the high end of the range assumes that the macroeconomic backdrop has improved slightly, customer sentiment has improved slightly, and we see the continued improvement of theseSunday series that I will be

the capacity constraints that we've been working through. And the low end of that range assumes that there's continued pressure on our core value conscious consumer. And we don't, we are not as successful at managing that doctor capacity constraint that we are seeing. And the midpoint is just the mass between the two.

And I'll say, you know, for the first two months of this year, we've been performing better than our original expectations. We, you know, March is such an important part month for us because of its tax return season, whenever our customer gets found money like from a tax return, it's generally very good for us. So we don't want to get too excited.

You've had to restrict hours to improve optometrist recruitment and retention. Just curious, how do you balance that decision right between...

just a lack of availability in time from restricting hours and then also making sure that you're able to effectively recruit more optometrists. What does that flow through look like? Has that directly impacted your ability to...

recruit optometrist. Yeah, so what, what, so it used to be we were very, very strict and we said, hey, if you want to be a five day doctor with us, these are the five days you're working and you can take Wednesday off and you can take Sunday off, but these are the five days and I'm sorry you have to work every Saturday.

In today's optometric market, given changing demographics and the like, we have found that that was a turnoff to our recruitment efforts and also a factor in why people left us. So now we have a menu of options of which days they are able to practice with us and there's greater variety there. We do tend to, you know, we've always paid additional for weekends and holidays and found that the resulting sales and flow can justify that incremental expense.

that I think is a key part of the workforce going forward that we're all going to be watching. And yes, since we started doing this, we are seeing both recruitment and retention benefits associated with it that have been encouraging. This is something that we started testing in Q4 of last year.

And we made some, we said, wow, this is encouraging for us. And we decided to put another chunk of stores into it later in the year. And then early this year decided, hey, let's just do it across America's Best and we're looking at similar options for our other brands now. And frankly, the last few months of recruitment and retention as we've been.

since we've announced that, has been the best in the past year and a half or so. Great. Thanks for the information. One moment for our next question. Our next question comes from Dylan Cardin with William Blair. Your line is open. We cannot hear you.

I'm sorry Dylan, can you hear me? Fairly, but go ahead, we'll try. But I'm curious how you're thinking about the Laps and Snap benefits as you'll hear guidance, as well as timing around Laps customers.

We defer the purchase in 2022 kind of coming back in 23. Can you hear me? Dylan, can you repeat your questions, please? Yeah, if you can't hear me, maybe I can take it offline. I'm just curious about the lapse and snap benefit as it relates to your guidance and how you're thinking about that.

And then lapsed customers in 2022 coming back to the business in 23, kind of what the expectations are there. Yeah, it's it's regarding the SNAP benefits. It's another pressure on our lower income. Uninsured customer, but it's there they've been pressured on a variety of different fronts. So it's just it's just another it is another headache there. We do not think it's gonna have a.

dramatic impact on us. And then terms of last customers of things that you know in terms of the percentage of customers who are new versus repeat has remained pretty constant. I'll say my other one if I have a bad signal here for all 12. Good, good, thank you. It is a little hard to hear you. So thank you. I hope we got that. Good.

I'm not showing any further questions at the time. I might turn the club back over to read for any closing remarks. Good. Kevin, thank you so much. And thank you very much for everyone who joined the call. Thank you to our shareholders and stakeholders for your ongoing support. We look forward to speaking to you again when we report our first quarter results. Thank you all. You may now just connect and have a wonderful day.