Q2 2023 National Vision Holdings Inc Earnings Call
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.
You will then hear an automated message advising that your hand is raised.
To withdraw your question. Please press star one one again please.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Angie Mccabe Investor Relations. Please go ahead.
Thank you and good morning, everyone and welcome to National Vision's second quarter 2023 earnings call. Joining me on the call today are CEO and Melissa Rasmussen CFO , Patrick Moore C. O O is also with us and will be available during the Q&A portion of the call our earnings release.
This morning, and the presentation to accompany our call are both available in the investors section of our website national vision Dot com.
A replay of the audio webcast will be archived in the investors section 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.
With the Securities and Exchange Commission.
And today's presentation also includes certain non-GAAP measures reconciliation of these measures is 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 provides investor presentation and supplemental materials for investor reference on the investors section of our website.
I'll now turn the call over to Reed Reed.
Thank you Angie good morning, everyone. Thank you all for joining US today as you likely saw on July 26th we announced our preliminary second quarter financial results in conjunction with the news that our partnership with Walmart maybe ending in 2024. This morning I'll provide some highlights from the second quarter update you on the progress were.
Making on our key strategic initiatives with particular emphasis on how were expanding exam capacity and provide some color on the Walmart transition then Melissa will review, our second quarter financial results and 2023 outlook in more detail.
As we communicated two weeks ago, our second quarter 2023 results were largely in line with our expectations and reflected trends similar to what we experienced in the first quarter.
Paired with the second quarter of 2022, we delivered net revenue growth of three 1% and delivered adjusted comparable store sales growth of 1%. We continued to see strength in our managed care business as well as a further shift in the number higher income customers, who traded into our more value priced offerings.
During the second quarter, we opened 24, new stores and remain on track to open approximately 65 to 70 new stores this year.
As I'll discuss later in my remarks, we continue to see tangible results from the execution of our key strategic initiatives. These factors among others that Melissa will discuss resulted in adjusted diluted EPS of <unk> 17 for the second quarter.
Importantly, we believe the adjusted operating income and adjusted diluted EPS will be at or above the midpoint of our fiscal 2023 guidance ranges.
Regarding our Walmart relationship as we detailed in our July 26 press release as of February 23, 2024, we will no longer be managing the 229 vision centers in select Walmart locations, nor will we be providing our related optimistic surfaces for Walmart in California.
Consequently, we made the decision to end the wholesale distribution and e-commerce contact lens services that we provide to Walmart and Sam's club to our AC lens business when our contract ends on June 32024.
While we did not expect this decision from Walmart for well over a decade, we've been focusing on growing our two larger more strategic brands America's best and Eyeglass World driving the revenue from Walmart stores down to about 8% of our net revenue in fiscal 2022.
We have created a dedicated transition team and over the coming months. It will be focused on executing a successful transition of the vision centers. We operate to Walmart. In addition, we are focused on ensuring we align our cost structure with our go forward business model and expect to provide more details on that when appropriate.
As we look ahead as a less complex and more streamlined organization will be able to have even greater focus on the core strategic initiatives that will grow our two large growth brands and returned to a mid single digit adjusted operating margin milestone, while solidifying our leadership position in the marketplace.
We continued to make progress on our strategic initiatives, which underscores our confidence in our ability to adapt our business to thrive in this new and evolving environment.
Our primary strategic focus has been on expanding exam capacity in Q2 as in Q1, the store that achieved our capacity goals produced positive comparable sales growth above our reported consolidated comp.
We are laser focused on improving coverage and are making progress on this front. One example is in dark stores, where there is no in store optometrist coverage or remote exam enablement and America's best Dark stores were at their highest level in the second quarter of 2022, and we are now at less than half that.
Even while we have increased our store base. We are also focused on improving coverage and our dim stores, which are generally stores with some coverage, but well below our desired levels.
Number of Derma stores can fluctuate throughout the year, we've been attacking coverage and continue to attack it through recruiting and retention efforts and deployment of remote technology.
We also continued to drive increased exam capacity through retention of existing optometrists and our network recruitment of new optometrists to our network and deployment of our remote medicine capabilities. We believe that the increase in flexible scheduling options that we now offer to new and existing contracts is one of the key.
Rivers' of improved recruitment and retention levels were pleased that we remain on track to deliver our second consecutive year of improved retention rates as we work towards returning to retention levels at or above where they were prior to the COVID-19 pandemic.
Additionally, we're pleased this year's student recruitment efforts are shaping up to be another record year. We believed a flexible scheduling options offered to graduating optometrist were a key driver of the increase in new graduates joining us now more than ever new and experienced healthcare professionals want more control over their schedules, including.
How and when they decide to practise scheduling flexibility combined with other incentives is resulting in strong levels of interest by new graduates and experienced that contrasts in joining Congress network. Since we launched changes to our recruitment approach and benefits earlier this year.
Another driver of expanding exam capacity is the continued rollout of our remote medicine technology year to date through July one we deployed remote and nearly half of our 200 targeted locations mainly in our America's best locations and remain on track with our rollout target this year, notably more than 40% of our 900.
26 America's Best locations are now enabled with both our remote and electronic health record platforms, we're deploying remote in tandem with electronic health record technology as the two work together to drive expanded capacity improved in store efficiency and importantly, improve the patient experience. The combination of these two initiatives.
This is resulting in added exam capacity in sales that we would not have had otherwise and we remain on track for remote to be EBITDA profitable in 2023.
Many optometrists enjoy practicing via a remote setting which helps support best recruitment and retention efforts, while still in the early innings of our remote program. We remain confident in its ability to continue to expand exam capacity overtime, thereby allowing remote app contest to serve even more patients as we.
We look ahead, we are focused on carefully navigating the evolving and complex state regulatory landscape in future deployment phases.
Before I conclude and turn the call over to Melissa there are a couple of other recent highlights that I wanted to touch on <unk>.
First and as we mentioned in our first quarter earnings call in May We recently undertook a study of our pricing architecture to complement the internal pricing analysis, we do on a regular basis. This study was recently completed and while still early in our evaluation of the findings were already implementing some modest non headline adjustments.
Second we are currently in the midst of back to school season, which is our second largest selling season. After the first quarter when health benefit plans reset and customers receive tax refunds.
During back to school season children are getting eye exams, and glasses and preparation for returning to school and we can currently see a seasonal increase in adult customers.
As has been our historical practice prior to the COVID-19 pandemic of the past several weeks, we conducted robust in person back to school meetings across the country with our store teams, where we listen to our customer facing associates to ensure we're providing them with everything they need to best serve our patients and customers.
We are reinforcing our focus on our field management to improve operations and thereby improve performance.
As we look ahead, we remain encouraged by the progress, we're making across the business with execution of our strategic initiatives. While our model is evolving we remain focused on our mission to help people by making quality eye care and eyewear more affordable and accessible.
I'll now turn the call over to Melissa for a more detailed discussion of our second quarter financial results and our outlook for the remainder of 2023.
Melissa.
Thank you Reed and good morning, everyone.
As you know two weeks ago, along with the news that our partnership with Walmart will be ending in 2024, we announced preliminary second quarter results that were largely in line with our expectations Andrey.
And reaffirmed our fiscal 2020 outlook as.
As we previously communicated on our first quarter earnings call in May.
For the second quarter net revenue increased three 1% compared with the prior year's quarter.
Timing of unearned revenue negatively impacted revenue growth in the period by 90 basis points.
We opened 21, new America's best and three Eyeglass World stores and closed one store in the second quarter.
Unit growth in our America's Best and Eyeglass World brands increased five 1% on a combined basis over the total store base last year.
We ended the quarter with 1381 stores.
As Reade mentioned, we are still on track to open between 65% to 70 stores in 2023.
With our previous guidance.
Adjusted comparable store sales.
1% compared to the second quarter of 2022, driven by an increase in average ticket and an increase in customer transactions supported by the continued strength in our managed care business.
As a percentage of net revenue cost applicable to revenue increased 120 basis points compared with the prior year quarter as.
As we expected we continue to see deleveraging of optometrist related costs. However, this was partially mitigated by an increase in exam revenue driven by managed care strength in pricing action.
The net impact from deleveraging of optometrist related costs and the increase in exam revenue was approximately 50 basis points and in line with our expectations.
In addition, we experienced a 50 basis point headwind due to reduction in other component of service revenue, including decreased warranty planned revenue.
Lastly, the remaining 20 basis point increase was associated with an increase in contact lens product costs, which was partially offset by additional pricing action as well as favorability with freight expense management.
As a reminder for the year. We initially expected a gross margin headwind of approximately 100 basis points balance between higher product costs and investments in doctors.
Given the mitigating actions, we are taking across both product costs as well as overall service cost. We now believe it is best to look at this breakdown as a split between product cost and overall service costs, which include investment in doctors.
Given our year to date results and expectation for the remainder of this year. We now expect that the 100 basis point gross margin headwind for the full year to be skewed to service cost versus product cost.
Adjusted SG&A expense as a percentage of revenue increased 140 basis points compared with the second quarter of 2022.
The increase was primarily driven by higher payroll and performance based incentive compensation as we expected and higher occupancy partially offset by other expenses.
As a reminder, we expected adjusted SG&A to grow in the high single digit range in the second quarter, but saw a slightly lower increase due to the timing of certain expenses that we now expect to incur in the third quarter.
Depreciation and amortization expense decreased one 3% to $24 9 million.
From the prior year period, primarily due to a shift in cloud based software investments that are amortized in SG&A.
Partially offset by our ongoing investments in remote medicine technology, and new store opening.
Adjusted operating income was $16 1 million compared.
Compared to $27 8 million in the prior year period.
Adjusted operating margin decreased 240 basis points to three 1% driven primarily by the factors discussed as well as the $3 $5 million negative impact from the margin on unearned revenue in the period.
Net interest expense was $1 $8 million, which includes mark to market gains and losses on derivative instruments and changes related to amortization of debt discount and deferred financing costs of $1 3 million.
Year over year decline in net interest expense was primarily due to income on cash balances and higher derivative income, partially offset by higher term loan interest expense.
Our effective tax rate in the second quarter was four 7% as we move into the second half of 2023, we continue to expect our tax rate to be more in line with our full year guidance of 26% to 28%.
Adjusted diluted EPS was <unk> 17 cents per share compared to 21 cents per share in the prior year period.
Turning to our financial results for the six months to date as compared with the prior year period net revenue increased approximately 5% driven by new stores and adjusted comparable store sales growth of nearly 1% adjusted.
Operating margin declined 180 basis points compared to the prior year period, driven primarily by the aforementioned factors that impacted the second quarter.
Our balance sheet and liquidity remained strong during the second quarter of 2023, we successfully refinanced our term loan and revolving credit facility, extending our access to $300 million and liquidity through the revolving credit facility for an additional five years through June 13.
2028, we ended the quarter with a cash balance of $254 $6 million and total liquidity of $548 $3 million, including available capacity from our revolving credit facility.
As of July one our total debt outstanding was $565 7 million and for the trailing 12 months through July one 2023, we ended the period with net debt to adjusted EBITDA of one nine times.
Year to date, we generated operating cash flow of $112 $2 million.
In addition for the first six months of fiscal 2023, we invested $54 1 million in capital expenditures, primarily driven by investments in new stores, our lab and distribution center and our remote medicine technology.
We remain on track for capital expenditures to be in the range of $115 million to $120 million in 2023 to support our key growth initiatives.
Moving now to a discussion of our 2023 outlook.
Consistent with what we communicated on July 26, with the exception of our outlook for depreciation and amortization expense, we are reaffirming our previous guidance ranges for fiscal 2023.
Our revenue guidance continues to incorporate ongoing execution of our strategic initiatives focused on expanding exam capacity as well as a range of scenarios pertaining to consumer sentiment.
We believe we are well within our provided range and well positioned to deliver on the expected sales trend improvement in the back half supported by the timing of new doctors, joining and the ongoing execution of our strategic initiatives.
We now expect depreciation and amortization to be in the range of $99 million to 101 million given lower.
Depreciation in the first half of this year, the timing of capital expenditures and the anticipated impact of the intangible asset impairment related to the Walmart exit.
In addition, we expect adjusted operating income and adjusted diluted EPS to be at or above the midpoint of our guidance ranges of $48 million to $66 million.
And 42 per share to <unk> 60 per share respectively.
Our guidance for adjusted diluted EPS assumes approximately 79 million weighted average diluted shares outstanding.
Finally, with respect to our relationship with Walmart as we discussed Walmart contribution to our overall revenue and EBITDA has declined overtime in large part D to our efforts to grow America's best and Eyeglass World.
Consistent with what we communicated two weeks ago, when we announced the ending of our relationship with Walmart.
Our fiscal 2023, we expect the EBITDA contribution from Walmart to be lower in fiscal 2023 in fiscal 2022.
We also expect to record noncash goodwill and intangible asset impairment charges of approximately $60 million and $10 million, respectively. In the third quarter of fiscal 2023.
Given the termination of our Walmart relationship we are taking a close look at our cost structure and remain committed to making the necessary changes to align it with our go forward operating model.
We believe through the elimination of the direct and indirect costs associated with these businesses can.
Combined with our growth in America's Best and Eyeglass World brands, we will be able to mitigate the financial impact from exiting these agreements.
We expect to share more on these plans as appropriate at a later date.
As we look ahead, our focus remains on operational execution.
Delivering further progress on our strategic initiatives and returning to mid single digit adjusted comparable store sales growth and mid single digit adjusted operating margin.
Thank you for your time today I will now turn the call over to Reed for closing remarks before we open the call to your questions Reed.
In closing, let me summarize.
Our second quarter performance was largely in line with our expectations, where we've achieved our exam capacity goals. We've delivered positive comparable store sales growth in excess of our overall consolidated growth retention trends are encouraging recruitment trends are encouraging and remote is expected to be EBITDA profitable this year and poor.
<unk> to be an ever more important part of our exam capacity.
We are reiterating our full year 2023 outlook with adjusted operating income and adjusted diluted EPS to be at or above the midpoint of their respective full year guidance ranges and we look forward to being a far simpler faster growing company with an increased focus on our two strategic growth brands Americas Bev.
<unk> and eyeglass World.
Thank you for your time today, we will now open the call for your questions.
Thank you we will now conduct a question and answer session. As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again please.
Please standby, while we compile the Q&A roster.
Our first question comes from Kate Mcshane with Goldman Sachs. Please proceed.
Hi, Good morning, Thanks for taking my question I, just wondered if you could provide any more detail behind the same store sales trend difference between America's best and Eyeglass World and the performance there.
Thank you Kate I'm happy to do that yes, So America's best.
It was a one 8% comp and eyeglass World was a negative two 8% comp guidance.
I would tell you it's a little bit of the same story managing doctor coverage.
And Jim stores here, we've really been focusing our efforts with remote which has been.
I hope so far on our <unk> stored on America's best stores.
That's where we've been rolling that out and have that going and at some point, we will turn to eyeglass world on that.
Front, but it's really so.
So much the story of capacity constraints, there, but we do believe that we can.
Continue to improve those over time.
And I just wanted to add we did talk about dark stores in our prepared commentary this quarter and as far as the dark stores go. This is something that we're really focused on working through with our remote enablement, but the dark stores were at their worst at second quarter.
2022 at mid single digits, and we're less than half that amount currently and so we'll continue to attack that through our recruiting and retention efforts as well as our remote and.
I'm, sorry, those numbers that I quoted or the percent of Americans Best fleet now that is something like I said that we are working to.
Attacked through recruiting remote and we'll move to the eyeglass World brand what we have.
<unk> established our.
Increases with America's best.
And finally, Kate I think the real story here is as we have been improving.
On the capacity and America's best were seeing the comps improve and as we said in our remarks, where we have the desired level of capacity, we are able to deliver the comps and in line with our historical operating model. So just getting back to making sure we have.
The advanced available for the patients who want to take advantage of them.
Okay.
Thank you.
Thank you please standby for our next question.
Our next question comes from Michael Lasser with UBS. Please go ahead.
Good morning. Thank you so much for taking our question.
Reed Patrick Melissa Angie there are so many moving pieces in your model given what's happened over the last few years along with now.
The divestiture of <unk>.
Walmart business so.
So it would be extremely helpful. If you could.
To help unpack, whether or not national vision can get back to the average adjusted operating income margin got it regularly achieved prior to the pandemic, which was in the six 5% to 7% range and if that is feasible.
What are you going to be the key factors and strategies that allow national vision to get there is it simply just going to be a function.
<unk> generating consistent same store sales growth leveraging expenses.
Especially in light of the investments that you are having to make in order to.
Tract and retain optometrists at this point thank you.
Sure Michael I Love your question.
There are a few moving pieces really brought on by the post COVID-19 marketplace and those those moving pieces are affecting the optical category in general.
Again, what I like to remind you is where we are able to execute our model where we have capacity.
We are driving.
The comps in line with our historical model.
We do believe that mid single digit adjusted operating income margin is our next milestone and we've been talking about how we will get back to that and hope to be back there certainly in 2025 and starts and seeing that in late 2024.
I'll say the elimination of the.
Walmart.
Part of our business here that was pulling down our margins. So that alone is going to help with that and we see that expansion in capacity are.
A key driver in helping us to get there, but also the digitization of our stores further digitization of our corporate office more leveraging of Omnichannel.
Capabilities as well as as more starts as we take advantage of our white space opportunity.
I'll add Michael is that since you've been following us. So long. This time last year I'd say, we were sort of feeling more back for this.
A lot of changes that were affecting us in coming our way and so we are coming to understand the full extent what was happening both to our consumer in the.
Rising inflation environment and to the Doctor capacity within the marketplace also.
We are feeling far more front footed now with the with the <unk>.
<unk>, we've put in place, especially flexibility in terms of driving.
Increased and improved retention and frankly, we think our retention will be at maybe.
The best year post the best year post post Covid.
Record recruitment of students and and the like and we're encouraged with the start of the third quarter.
Back to school season, and back to school season does evolve across the country. So it starts more in the southeast and then it goes north and then across the country, but where it has started we are encouraged by the initial trends we're seeing there.
Okay.
My follow up question is that it's clear that the purchase cycle for new hardware had been disrupted over the last couple of years, given all that's going on and now as you mentioned.
Youre on solid footing.
Firmer footing.
And.
Is is what youre seeing a sign that the there is return to normalization.
Optical purchase cycle.
Or is it more of a sign that national vision is gaining or retracing some of the share that it might have.
Lost over the last couple.
However over the last year that it was contending with some of the constraints that we're dealing with.
I think it's a sign of our improved capacity, allowing us to offer.
Patients the exams, they want to get from US we have not yet seen a normalization in the purchase cycle. It could it could start to happen in the second half, but we are not.
<unk>.
Aiming for that it could start to happen in the second half since it's been about about two years since that big boom.
Optical purchases for us and others that came about when.
When the.
The government gave out so much money to our customers. So it's been about three years ago, various a logic that.
That could.
Could happen, but we are not planning for that is in our guidance.
We are planning that the improved capacity is going to be helping us in the second half.
We believe our market share is.
Is flat to up.
And maybe maybe more up in the managed care segment.
Okay. Thank you very much and good luck.
Thank you Michael.
Okay.
Thank you please standby for our next question.
Yeah.
Okay.
Our next question comes from Anthony <unk> with loop capital markets. Please proceed.
Good morning, Thanks for taking my question for all the helpful information that you've shared so far this morning I guess my question was on dark stores in same stores I just want to make sure I have this correct. So a docs are dark store is not offering any eye exams, and a dim stores offering some but not at a.
100% capacity is that is that the right way.
Dark dark we do not have a doctor and we do not have remote so yes.
Exam fare and a dim store has maybe a day, maybe a couple of days, but not at our desired level.
Got it and so I think it's pretty safe to say that youre dark stores and our stores are doing comps that are significantly lower than company average is that a fair assessment, yes for sure and especially does start to fail.
Our quite a quite a drag.
And.
Again, the fact that we've talked to the dark stores in half as a percentage of our fleet since the lows about this time last year, we're pretty proud of that we think that shows shows nice progress on also remote is helping to ever more exams.
Remote.
Enabled enabled stores, but yes.
And the Congress of what you said Anthony is where we're able to deliver our our model where we are able to offer the eye exams. The comps are doing what what they were doing historically prior to.
Due to Covid.
And.
That's that's encouraging to what it says is hey deliver them all and their patience.
Short for you like they used to.
Got it and just one last question I don't want to Borgwarner Q&A session here, but okay. When you say mitigate the financial impact of losing the Walmart partnership are you talking about we'll be mitigating that impact like literally giving the recapture the $19 million of EBITDA is that.
Way to think about or is it like sort of partially mitigating that.
Hey, Anthony it's Melissa when we're talking about mitigating the impact of Walmart, we do understand that there is a profit hole to fill and so we're going to mitigate that through Q avenues first being the continued increase in store count as we expand our America's best and EW suite and the other.
Portion of that will be through cost reductions related to the Walmart exit there's both indirect costs associated with that indirect costs associated with that that will be taking out of our business. In addition, we're committed to right sizing the structure of our go forward model to the new operating model that we have which is a less complex.
Operating model now that will be exiting the Walmart relationship.
Very helpful. Thank you.
Thank you. Please standby sorry next question.
Sure.
Yeah.
Our next question comes from factories Adams with Wells Fargo. Please go ahead.
Thanks, So much for taking my question. This is Sam Reid pinch hitting for Zach here I wanted to touch on your ongoing relationship with Essilor Luxottica, how does the Walmart contract change or the change in Walmart contract <unk>.
Impacted if at all and is there a risk with the reduction in your volumes post the Walmart exit could be a headwind to this relationship. Thanks so much.
I think we have a very strong long term relationship with ethylene electronic and we have long term contracts in place on the lending side, we talked about last year.
Our fixed.
Price for the length of the contract there and we're still.
Even without Wal Mart, we are.
One of the top couple of largest optical chain in America, and so we're still a big a big customer and a big partner, but that relationship goes back a long way and.
A lot of it is contractual and we are not anticipating any significant change in that.
Great. That's Super helpful. And then one quick follow up if I could can you walk us through some of the non headline price actions you've taken thus far in a bit more detail. It doesn't sound like they have really impacted transaction. So are there any specific areas, where you might have additional run rate to two H and beyond thanks.
Yes.
Hi, Sam it's Melissa.
We have taken price actions, where we have been able to increase that were originally contemplated in our guidance as we have seen continued cost increases we reevaluate the price increases to follow that now some of the things that we've been able to look at for this year, specifically are on private label contact lenses.
For example, and some ancillary exam add ons those are two of the major areas that we've been able to contemplate an increase additional pricing action.
Really helpful. Thanks, so much.
Thank you please standby for our next question.
Okay.
Our next question comes from Brian <unk> with Jefferies. Thank you.
Hey, Good morning, guys I guess just to follow up on some of the Walmart question in your prepared remarks, you alluded to maybe some cost adjustments that youre contemplating just curious what those are.
The timing and the magnitude of.
Cost opportunities that you think you can realize over the next two.
24 months.
Hi, Brian it's Melissa.
The Walmart information that we put out we are ending the Walmart relationship with the stores in February at 24, and with the distribution contract in June of 'twenty, four we are assessing and evaluating our opportunities to exit those cost structures at the same time that will.
Be exiting the revenue stream that we're going to marry those up as closely as possible Thats. What are our planning is working on and the costs that will come out of the business are of course any direct costs related to supporting those relationships and in addition, with our corporate structure you have back office costs you have overhead.
Related to things in the last.
The discussion when we said like insurance things like that those are types of indirect costs tied to the Walmart relationship and the distribution relationship that would look different in the go forward model than they do today.
Got it okay. Thank you for that and then in your prepared remarks, you also alluded to the fact that you've rolled out virtual to about half of the target stores anything you can share with us in terms of the performance that you're seeing or the ramp that you're seeing.
These rollouts mature or.
I think for some of them you are probably not.
I'm not quite a year, but close to a year out now so just curious what youre seeing.
Sure.
Very encouraged by what remote is doing for us.
Reid mentioned earlier in the dark in Dammam conversation, where it's been kind of a just a kind of a game changer.
Even from a new store rollout perspective this year.
We've even opened some new stores, where we have a turnaround at <unk> million doctor, yet with a remote doctor so.
I look back on our decision to start pursuing remote three years ago, and really happy with that timing, because it's playing a pretty big role.
But you're right we've rolled this out to other to about 40% of our brand now higher than that.
We're going to have 500 of ABS equipped by the end of the year. This year, we're evaluating our 2024 claims now but.
Expect to continue to be rolling this out to a vast majority of our ABS overtime and I think more recently, we're going to start we have started testing it and more surgically GW, where I think it can be a benefit there as well.
We're on track with remote.
And then finally I would say our wording has been we expect it to be EBITDA profitable. This year and there is there couldnt be higher confidence around that.
Okay. Thank you.
Thank you for your question.
Please standby for our next question.
Our next question comes from Adrienne <unk> with Barclays. Please go ahead.
Good morning, everyone. This is Mike will do on for Adrienne and thank you very much for taking our questions. So I wanted to start off with a more broad question I know that you mentioned that you saw higher average ticket and an increase in customer transactions would you. Please share some additional color around why you are seeing consumers buying higher ticket.
Is this may be attributable to the new store openings and the additional capacity or are you also seeing any kind of trade down effects.
Hi, Mike fluids that so there are a couple of factors tied to the higher ticket.
First and foremost be managed care strength that we're seeing managed care customers tend to have a higher ticket than the non managed care customers just based on.
Sending somebody else's money versus spending your own money. In addition to that we have seen a continued trade down from the income levels as well.
Higher than $100000.
And with both of those factors combined that's what's driving the higher ticket, we provide value to many customers and with the continued managed care strength, where we believe that they come to see our stores because they get more value for their benefits in our stores.
Perfect. Thank you very much and as a follow up to that I know that you just mentioned the higher household income.
And as we were starting to shortly see repayment of student loans.
I was just wondering whether or not that's going to be positive or accretive related to an increase in customer transactions and the overall business or are you more seeing that is a headwind and what kind of assumptions are you making related to that if any at all since you were just mentioning the 100 came to 125 K range.
So related to the student loans, while there may be a broader consumer sentiment implications, we do expect that with the higher income ban will likely see some additional trade down into our brands because of the value that these consumers can get one of our stores now our target.
Customer.
Our data shows us that a smaller portion of our target consumer has student loan debt.
Oh, Okay awesome. Thank you very much I appreciate you for answering our questions and I'll pass it along.
Thank you for your question. Please standby for a final question.
Our final question comes from Dylan Carden with William Blair. Please proceed.
Thank you just curious if you might be willing to express explicitly.
The data you provided on the Walmart business.
It's accretive from a EBIT.
Net income standpoint, and is the idea here.
Through indirect cost reductions ultimately.
Youll be able to mitigate the margin implications of losing that business next year.
Hi, Dylan it's Melissa.
Yes, you're correct that Walmart is accretive at the EBIT level. It will take some time to sell that profit haul. However that has been a declining portion of our business over the past couple of decades, as we've grown our America's best and Eyeglass World brands and we continue to expand.
Our fleet. So that is a is a factor in the growth. In addition, the Walmart business has lower margins than what our growth brands have so.
Through cost reductions in addition to new store openings will continue to fill that profit hold if we weren't in an intensive investment cycle on our growth brands you wouldn't have seen as much of an accretive.
Margin or I'm, sorry, and then accretive profit hole that we needed to sell because you would have seen more of the margin.
Margin dropped down to the bottom line based on our growth brands, but our investment cycle is a factor in that currently.
So if you were to dial it back to 18 19 pre pandemic.
You would see with the Walmart business be dilutive on the EBIT line is that what you're saying.
I'm not saying you would see it be dilutive on the EBIT level, you would just see it as a lower portion of our overall profit.
Okay.
Then with the doctors that are coming out of the Walmart stores stores and stores.
I'll speak to the capacity for you to retain those doctors.
Hey, David deploy them across the fleet any any commentary about what that might actually do from a capacity standpoint.
Yes.
Our contract has a transition period, where you are.
These groups are able to talk to that.
The doctors there.
Sort of a complex thing because it relates to sort of state by state location location by location Doctor model by Doctor model.
But.
Doctors are going to be making.
A variety of choices based on that.
So it's not sort of an immediate windfall I guess, we should back away from thinking that it might be from a capacity utilization.
I don't think we should think of it as an immediate windfall right you've got to have.
Store nearby a doctor wants to shift over a similar model. So I wouldn't say an immediate windfall, but it will be.
Yes.
Doctors will be making various decisions.
And then last question on the pricing.
The reviews over there.
And you've kind of taken some action here on on the periphery is that it sounds like there still might be similar that you can do kind of going to the back part of this year into next year is that right and how should we sort of think about you know I know that's just a big focus of a lot of investors here your capacity close the gap that you would just kind of speak to what you expect in the coming quarters on the.
No reason for your question.
By the way periphery makes it sound.
Smaller.
Non headline price.
The terms means the same thing, but yes.
We believe.
More pricing actions will come into play in the second half of the year, we're very vigilant about pricing, we mentioned that the study that.
Debt.
Causing us asking a lot of other questions too. So we think there is more.
I would use it in the pricing lever going forward.
Very good thank you guys. Thank.
Thank you.
Thank you at this time I would now like to turn the conference back to Reed for closing remarks.
Thank you all for joining US today, we appreciate your interest and support and we look forward to speaking to you next on our Q3 earnings call. Thank you all very much.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
Okay.
[music].
Okay.
Okay.
[music].