Q4 2023 National Vision Holdings Inc Earnings Call
Operator: Good day, and thanks for standing by. Welcome to the Q4 2023 National Vision Holdings earnings call. At this time, all participants are in a listen only mode.
Good day and thank you for attending by welcome to the Q4 2023 National Vision Holdings earnings 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.
Operator: 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 tarn 11 on your telephone. You will then hear an automated message advising that your hand is raised.
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Operator: To withdraw your question, please press tar 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Caitlin Churchill, investor relations. Please go ahead.
Please be advised that today's conference is being recorded.
Speaker Change: Now I'd like to hand, the conference over to your speaker today.
Cantlin Churchill: Cantlin Churchill Investor Relations. Please go ahead.
Caitlin Churchill: Thank you and good morning, everyone. Welcome to National Vision's fourth quarter 2023 earnings call. Joining me on the call today are Reed Fahs, CEO, and 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 accompanying our call are both available in the investor section of our website, nationalvision.com. A replay of the audio webcast will be archived in the Investors section after the call.
Cantlin Churchill: Thank you and good morning, everyone welcome to National Vision's fourth quarter 2023 earnings call joining.
Cantlin Churchill: Joining me on the call today are <unk>, CEO and Melissa Rasmussen CFO, Patrick Moore CLO is also with us and will be available during the Q&A portion of the call.
Cantlin Churchill: Our earnings release issued this morning, and the presentation accompanying our call are both available in the investors section of our website nationalization dot com.
Cantlin Churchill: A replay of the audio webcast will be archived in the investors section after the call.
Caitlin Churchill: 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 and our filings with the Securities and Exchange Commission.
Cantlin Churchill: 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.
Cantlin Churchill: These risks and uncertainties include but are not limited to the factors identified in the release and our filings with the Securities and Exchange Commission.
Caitlin Churchill: The release and today's presentation also include 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 2 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 in the investor section of our website. I will now turn the call over to Reed. Okay, Reed?
Cantlin Churchill: The release and today's presentation also includes certain non-GAAP measures.
Cantlin Churchill: Reconciliations of these measures is included in our release and the supplemental presentation.
Cantlin Churchill: 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.
Cantlin Churchill: As a reminder, national vision provides investor presentation, and supplemental materials for Investor reference in the investors section of our website.
Cantlin Churchill: I'll now turn the call over to Reed Reed.
Reed Fahs: Thank you, Kaitlin. Good morning, everyone. Thank you all for joining us today. National Vision finished the year quite strong, with top and bottom line results above our expectations for both the quarter and the year. I'd like to sincerely thank our teams for this accomplishment and their efforts throughout the year. Fourth quarter net revenue grew 8%, with adjusted comparable store sales growth of 5.7%. These results reflect ongoing strength within America's Best and sequential improvement in the iGlass world, further supported by crisp execution from our team and successful marketing campaigns at the end of the year. This strong top-line performance, combined with disciplined expense management, enabled us to deliver better than expected adjusted operating income for the quarter and the year. For the year, total net revenue grew 6%, and adjusted comparable store sales grew nearly 3%, resulting in adjusted earnings per share of $0.64 for fiscal 2023.
Reed: Thank you Caitlin and good morning, everyone. Thank you all for joining US today National vision finished the year quite strong with top and bottom line results above our expectations for both the quarter and the year I'd like to sincerely. Thank our teams for this accomplishment and their efforts throughout the year.
Reed: Fourth quarter net revenue grew 8% with adjusted comparable store sales growth of five 7%. These results reflect ongoing strength within Americas best in sequential improvement and eyeglass World further supported by Chris execution from our teams and successful marketing campaigns at the end of the year. This strong top.
Reed: Blind performance combined with disciplined expense management enabled us to deliver better than expected adjusted operating income for the quarter and the year for.
Reed: For the year total net revenue grew 6% and adjusted comparable store sales grew nearly 3%, resulting in adjusted earnings per share of <unk> 64 for fiscal 2023.
Reed Fahs: Underlying our top-line performance in Q4 and full year was ongoing strength in our managed care business, as our traditional budget-conscious customer base continued to feel the impact of inflation and other macro-related headwinds. For the year, managed care represented approximately 35 percent of overall revenues, an increase of approximately 250 basis points compared to our prior historical trend of one-third of sales. This is another indication of the ongoing trade-down behavior we see from customers with higher incomes than our traditional customer base.
Reed: Underlying our topline performance in Q4 and full year with ongoing strength in our managed care business as our traditional budget conscious customer base continues to feel the impact of inflation and other macro related headwinds for the year managed care represented approximately 35% of overall revenues an increase of them.
Reed: Proximately 250 basis points compared to our prior historical trend of one third of sales.
Reed: This is another indication of the ongoing trade down behavior, we see from customers with higher income than our traditional customer base.
Reed Fahs: We believe that managed care will continue to grow as a percentage of our business as we remain underpenetrated in this sector, and we believe more balance between our managed care and cash-pay customers will make our business more resilient overall. 2023 was a year in which we began to transform our business to better compete in today's marketplace. When we started the year, we set out to enhance the foundation of ongoing profitable growth, and we have made great progress. Specifically, we delivered improved retention of optometrists, record optometrist recruitment, and continued success of our remote exam initiative. We successfully expanded exam capacity. This was the second year of improvement in retention and a record year for recruiting more experienced and student hires.
Reed: We believe that managed care will continue to grow as a percentage of our business as we remain underpenetrated in this sector and.
Reed: And we believe more balance between our managed care and cash pay customers will make our business more resilient overall.
Reed: 2023, with a year in which we began to transform our business to better compete in today's marketplace. When we started the year, we set out to enhance the foundation of ongoing profitable growth and we have made great progress specifically, we delivered improved retention of optometrists record optometrist recruitment and continued success.
Reed: Our remote exam initiatives.
Reed: We successfully expanded exam capacity. This was the second year of improvement in retention and a record year in recruiting more experienced and student hires notably over 10% of all optimistic graduate from the entire class of 2023 joined our network in 2023.
Reed Fahs: Notably, over 10% of all optometric graduates from the entire class of 2023 joined our network in 2023. Also, we're happy to welcome 20 doctors that were previously practicing at Walmart Vision Centers under our management. Regarding our remote exam initiative, remote care proved to be possible in its second year of operations, an accomplishment we take pride in, given that remote represents a complex, multidimensional tech startup inside our more traditional bricks-and-mortar company. In 2023, we expanded remote tech capabilities into over 200 additional America's Best locations, and as of year-end, we had nearly 550 America's Best locations remote-enabled. Remote exams now represent over 5% of all exams.
Reed: Also we're happy to welcome 20 doctors that were previously practice thinking of Walmart vision centers under our management.
Reed: Regarding our remote exam initiative remote care proved to be profitable in its second year of operations and accomplishment, we take pride in given the remote represents a complex multi dimensional tech startup inside our more traditional bricks and mortar company in.
Reed: In 2023, we expanded remote capabilities into over 200, additional America's best locations and as of year end, we had nearly 550 America's best locations remote enabled remote exams now represent over 5% of all exam, while it's still evolving and improving with regard to <unk>.
Reed Fahs: While it's still evolving and improving, we regard the remote program as a success and are confident it will continue contributing to our business and profit. We have also continued our stored digitization efforts aimed at improving efficiency and productivity. The rollout of electronic health records, or EHR, in America's best locations continues to advance. And in our corporate office, we began the first phase of implementation of the back-office ERP project to upgrade our financial system.
Reed: Note program as a success and are confident it will continue contributing to our business and profits. We also continued our store digitization efforts aimed at improving efficiency and productivity the rollout of electronic health records or EHR and America's best locations continues to advance and in our corporate office we.
Began the first phase of it from implementation of the back office ERP project to upgrade our financial system.
Reed Fahs: We made progress in our objective to leverage omni-channel capabilities by continuing to test and progress programs that attract consumers across omni-channel offerings. We opened 70 new stores in 2023, including 17 new stores in the fourth quarter, continuing to capitalize on white space opportunities as store openings remain an important part of our strategic growth initiative. And finally, we're very proud that our philanthropic efforts helped 1.4 million people around the world to see this. In addition to this work, we also took actions to adapt our business and cost structure as we enter 2024 and embark on the first chapter of the post-Walmart era. The transition of Walmart stores is now complete.
Reed: We made progress in our objective to leverage omnichannel capabilities, and continuing to test and progressed programs that attract consumers across omnichannel offerings.
Reed: We opened 70, new stores in 2023, including 17, new stores in the fourth quarter continuing to capitalize on white space opportunities as store openings remain an important part of our strategic growth initiatives.
Reed: And finally, we're very proud that our philanthropic efforts helped one 4 million people around the world to see better.
Reed: In addition to this work we also took actions to adapt our business and cost structure as we enter 2024 and embarked on the first chapter of the post Walmart zero the.
Reed: The transition of the Walmart stores is now complete during the fourth quarter, we transitioned four of the 229, Walmart vision centers to Walmart, which prepared us for the smooth transition of the remaining 225 stores last week I am deeply appreciative of the Walmart based associates, an optometrist for their resilience.
Reed Fahs: During the 4th quarter, we transitioned 4 of the 229 Walmart Vision Centers to Walmart, which prepared us for the smooth transition of the remaining 225 stores last week. I am deeply appreciative of the Walmart-based associates and optometrists for their resilience, commitment, and professionalism during this time of transition and for their decades of commitment and service to patients and customer care. In addition, we streamlined our lab network by ending our outsourced lab relationship in China in anticipation of lower lab volumes due to the Walmart contract termination. This will enable us to leverage our fixed cost structure more effectively as we distribute the work between our four domestic labs and our remaining outsourced lab in Mexico, all of which can now match or beat the overall cost of the China lab. Concurrently, this action diminishes our dependency on China, something we have been progressing towards for the past few years.
Reed: <unk> and professionalism during this time of transition and for their decades of commitment and service to patient and customer care.
Reed: In addition, we streamlined our lab network by ending our outsourced lab relationship in China in anticipation of lower landfill volumes due to the Walmart contract termination.
Reed: This will enable us to leverage our fixed cost structure more effectively as we distribute the work between our four domestic labs and our remaining outsourced lab in Mexico, all of which can now matched or beat the all in cost of the China lab.
Currently this action diminishes, our dependency on China, something we have been progressing towards for the past few years.
Reed Fahs: We also implemented the various pricing and cost savings initiatives we discussed last quarter. These actions included approximately $15 million in pricing and a reduction of corporate overhead and other corporate costs, which we expect to result in $10 million of annual cost savings in fiscal 2024. With respect to our AC Lens operations, as discussed in our third quarter release, we will fulfill the remaining commitments in our Walmart and Sam's Club agreements to supply contact lens distribution and related services to the end of June and are on track to streamline our distribution network and wind down these operations by June 30.
Reed: We also implemented the various pricing and cost savings initiatives, we discussed last quarter.
Reed: These actions included approximately $15 million in pricing and a reduction of corporate overhead and other corporate costs, which we expect to result in $10 million of annual cost savings in fiscal 2024.
Reed: With respect to our AC lens operations as we discussed in our third quarter release, we will fulfill the remaining commitments in our Walmart and Sam's club agreements to supply contact lens distribution and related services to the end of June and are on track to streamline our distribution network and wind down these operations by June 30.
Reed Fahs: Finally, as part of our ongoing detailed performance review of all our stores and markets, we found that there would be significant operational efficiencies and increased profitability for the business overall if we focused our California market exclusively on the America's Best brand versus dividing up the markets in the state as we have previously done. We are therefore planning to convert the 20 Eyeglass World California stores to America's Best. This conversion is expected to be complete by the end of the first quarter.
Reed: Finally, as part of our ongoing detailed performance review of all our stores and markets. We found that there would be significant operational efficiencies and increased profit profitability for the business overall, if we focused our California market exclusively on the America's best brand versus dividing up the markets and the state as we have <unk>.
Reed: <unk> done we are therefore planning to convert the 'twenty Eyeglass World, California stores to America's Best.
Reed: This conversion is expected to be complete by the end of the first quarter operational efficiencies will come in the form of reduced field overhead leveraging of national advertising better leveraging of our <unk>.
Reed: <unk> deployment and reduce travel.
Reed Fahs: Operational efficiencies will come in the form of reduced field overheads, leveraging of national advertising, better leveraging of optometrist deployment, and reduced travel. Looking ahead to 2024, we plan to build off the stronger foundation we established in 2023 and remain focused on executing against our initiatives, including expanding exam capacity, furthering our digitization efforts to improve efficiency and productivity, leveraging our omni-channel capabilities, and continuing to capitalize on our white space With respect to expanding exam capacity, we will continue with our recruiting, retention, and remote efforts. We will continue to leverage the recruiting and retention initiatives put in place in 2023, including flexible scheduling options. Regarding our 2024 plans for remote, our remote capabilities are an important tool to leverage, especially amidst the changing optometric landscape. As we look at new store openings, we're taking into consideration the ability to implement the remote offering, especially as we monitor doctor availability in new and fill-in markets.
Looking ahead to 2024, we plan to build off the stronger Foundation, we established in 2023 and remain focused on executing against our initiatives, including expanding exam capacity furthering our digitization efforts to improve efficiency and productivity leveraging our omni channel capabilities and.
Reed: Continuing to capitalize on a white space opportunity.
Reed: With respect to expanding exam capacity, we will continue with our recruiting retention and remote efforts, we will continue to leverage the recruiting and retention initiatives put in place in 2023, including flexible scheduling options.
Regarding our 2024 plans for remote our remote capabilities are an important tool to leverage, especially amidst the changing optimistic landscape as we look at new store openings were taken into consideration the ability to implement the remote offering, especially as we monitor doctor availability in new and fill in markets.
Reed: In 2024, we expect to open 65 to 70, new stores, the vast majority of which will be in our America's best brand again this year.
Reed: As we mentioned on our last call we plan to slow the pace of the rollout in 2024 as we near completion of the heavy initial implementation phase of this program and continue to monitor the evolving regulatory landscape.
Reed: In 2024, we now plan to equip approximately 50 additional stores with remote exam capabilities as Melissa will discuss our plans for expanding our remote technology have evolved over this year, particularly with respect to the timing of our deployment to larger states such as Texas.
Reed Fahs: In 2024, we expect to open 65 to 70 new stores, the vast majority of which will be in our America's Best brand again this year. As we mentioned on our last call, we plan to slow the pace of the rollout in 2024 as we near completion of the heavy initial implementation phase of this program and continue to monitor the evolving regulatory landscape. In 2024, we plan to equip approximately 50 additional stores with remote exam capabilities.
Reed: While we continue to see opportunities to implement remote capabilities beyond the planned 600 stores by the end of 2024, we went to ensure we are taking a measured approach as we assess new states and markets.
Speaker Change: That said, we continue to expect to advance our electronic health records platform to over 400 of our America's best stores by year end and complete the Digitization of our paper records for the entire Americas Best Fleet in 2024, which we believe will drive further efficiencies and productivity in our stores.
Reed Fahs: As Melissa will discuss, our plans for expanding our remote technology have evolved this year, particularly with respect to the timing of our deployment to larger states, such as Texas. While we continue to see opportunities to implement remote capabilities beyond the planned 600 stores by the end of 2024, we want to ensure we are taking a measured approach as we assess new states and markets. That said, we continue to expect to advance our electronic health records platform to over 400 of our America's Best stores by year end and complete the digitization of our paper records for the entire America's Best fleet in 2024, which we believe will drive further efficiencies and productivity in our stores. Additionally, as we discussed last quarter, we have initiated a review of our eyeglass world operations.
Speaker Change: As we discussed last quarter, we have initiated a review of our eyeglass World operations, while we're pleased with the sequential improvement we delivered an eyeglass world in the fourth quarter. There is still more work to be done eyeglass world is not yet performing to our standards and we're taking actions to improve results.
Speaker Change: First we're taking pages from the Americas best playbook with respect to recruiting retention and promote initiatives. While there are distinct differences in the doctor models between America's best and Eyeglass World.
Speaker Change: Of which make a full rollout of remote capabilities less feasible, we will be expanding remote into select eyeglass world locations in 2024 as part of our overall remote deployment strategy and we'll continue to evaluate opportunities over time.
Reed Fahs: While we're pleased with the sequential improvement we delivered in eyeglass world in the fourth quarter, there is still more work to be done. Eyeglass World is not yet performing to our standards, and we're taking actions to improve results. First, we're taking pages from the America's Best playbook with respect to recruiting, retention, and remote initiatives. While there are distinct differences in the doctor models between America's Best and iGlassWorld, which make a full rollout of remote capabilities less feasible, we will be expanding remote capabilities into select iGlassWorld locations in 2024 as part of our overall remote deployment strategy and will continue to evaluate opportunities over time.
Speaker Change: Second we made leadership changes within eyeglass world, including adding one of our most experienced and highly respected America's best leaders, who brings a proven track record of driving results.
Speaker Change: Third we have plans in place to better allocate marketing spend focused on driving results for eyeglass world.
Speaker Change: We believe the leadership changes and marketing adjustments, we are making will drive improvements as we progressed through 2024.
Speaker Change: These operational improvements gained traction we intend to increase the number of eyeglass world New store openings.
Speaker Change: Looking ahead, we also plan to continue our early stage exploration of new technologies and leverage our investment in Tokyo, Inc. A leader in applying AI powered a diagnostic and screening tools to retinal imaging. The eye is a treasure trove of medical information and we look forward to over time potentially play.
Reed Fahs: Second, we made leadership changes within Eyeglass World, including adding one of our most experienced and highly respected America's Best Leaders, who brings a proven track record of driving results. Third, we have plans in place to better allocate marketing spend focused on driving results for eyeglasses. We believe the leadership changes and marketing adjustments we are making will drive improvements as we progress through 2024. As these operational improvements gain traction, we intend to increase the number of Eyeglass World new store openings. Looking ahead, we also plan to continue our early-stage exploration of new technologies and leverage our investment in Toku, Inc., a leader in applying AI-powered diagnostic and screening tools to retinal imaging. The eye is a treasure trove of medical information, and we look forward to, over time, potentially playing an expanded role in our patients' healthcare.
Speaker Change: <unk>, an expanded role and our patients healthcare.
Speaker Change: Before I close I want to provide our current thoughts on the purchase cycle as we head into 2024.
Speaker Change: We and our industry have been waiting for a return to a more normalized purchase cycle, especially for cash pay customers since the COVID-19 disruption of 2020 and 2021 to date. The data has been inconsistent and therefore, it's too soon to say the purchase cycle is normalized.
Speaker Change: While we had some encouraging signs in 2023 with a better back to school season, and strong end of year sales. We are weighting. Our next data point, which will come in March typically our high seasonality period due to tax refunds that said our guidance, which Melissa will sooner view takes into account a softer than expected start to two.
Speaker Change: 24, However, we are encouraged by the sequential improvement in revenues from January into February.
Reed Fahs: Before I close, I want to provide our current thoughts on the purchase cycle as we head into 2024. We and our industry have been waiting for a return to a more normalized purchase cycle, especially for cash-pay customers, since the COVID disruptions of 2020 and 2021. However, to date, the data has been inconsistent, and therefore it's too soon to say the purchase cycle has normalized.
Speaker Change: With that I will turn the call over to Melissa to review our results and outlook in more detail.
Melissa Rasmussen: Thank you Reed and good morning, everyone before I discuss our results I would like to introduce our new head of Investor Relations Tomorrow again.
Tomorrow is an experienced investor relations professional well versed in the consumer sector, having spent time on the sell side coverage broad line retail company. After starting her career in Investor Relations at the home depot.
Melissa Rasmussen: While we had some encouraging signs in 2023 with a better back-to-school season and strong end-of-year sales, we are awaiting our next data point, which will come in March, typically our high seasonality period due to tax refunds. That said, our guidance, which Melissa will soon review, takes into account a softer than expected start to 2024. However, we are encouraged by the sequential improvement of revenues from January into February. With that, I will turn the call over to Melissa to review our results and outlook in more detail. Thank you, Reid, and good morning, everyone.
Melissa Rasmussen: We are excited to have her onboard as we further our investor relations efforts.
Turning now to our results as we said we are pleased to have delivered fourth quarter and full year results that came in ahead of our expectations.
Melissa Rasmussen: Our strong year end results were driven by crisp execution of our strategic initiatives and disciplined expense management driving both top line improvement in our growth brands and better than expected adjusted operating income.
Melissa Rasmussen: Throughout the fiscal year, we made solid progress in improving exam capacity and mitigating the impact of dark and Dennis stores on our result.
Melissa Rasmussen: Before I discuss our results, I would like to introduce our new head of investor relations, Tamara Gonzalez. Tamara is an experienced investor relations professional, well versed in the consumer sector, having spent time on the sell side covering broad-line retail companies after starting her career in investor relations at the Home Depot. We are excited to have her on board as we further our investor relations efforts.
Melissa Rasmussen: For the year on average dark stores represented a low single digit percentage of our America's Best fleet, which is inline with our historical norm and an improvement from the peak mid single digit percentage, we saw in 2022.
Melissa Rasmussen: Dennis stores on average for the year represented a high single digit percentage of the America's Best fleet, reflecting a trend that is still higher than our historical norm.
Melissa Rasmussen: Turning now to our results, as Reed said, we are pleased to have delivered fourth-quarter and full-year results that came in ahead of our expectations. Our strong year-end results were driven by crisp execution of our strategic initiatives and disciplined expense management, driving both top-line improvement in our growth brands and better-than-expected adjusted operating income. Throughout the fiscal year, we made solid progress in improving exam capacity and mitigating the impact of dark and dim stores on our results. For the year, on average, dark stores represented a low single-digit percentage of our America's Best fleet, which is in line with our historical norm and an improvement from the peak mid-single-digit percentage we saw in 2022.
Melissa Rasmussen: Compared to the prior year.
Melissa Rasmussen: As Reade noted store openings remain an important part of our growth plan and doctor and availability as well as remote capabilities are key considerations in our expansion plans as we select locations for new store openings.
Melissa Rasmussen: Now moving on to our fourth quarter results in more detail.
Melissa Rasmussen: For the fourth quarter net revenue increased 8% compared to the prior year driven by adjusted comparable store sales growth of five 7% and growth from new store sales.
Melissa Rasmussen: Adjusted comparable store sales were driven by an increase in customer transactions and to a lesser extent higher average ticket.
Melissa Rasmussen: The timing of the unearned revenue benefited revenue in the period by 20 basis points.
Melissa Rasmussen: We opened 16, new America's Best and one eyeglass World store in the fourth quarter.
Melissa Rasmussen: Thin stores, on average, for the year, represented a high single-digit percentage of America's Best's fleet, reflecting a trend that is still higher than our historical norm but an improvement compared to the prior year. As Reed noted, store openings remain an important part of our growth plan, and doctor availability, as well as remote capabilities, are key considerations in our expansion plans as we select locations for new store openings. Now moving on to our fourth quarter results in more detail. For the fourth quarter, net revenue increased 8% compared to the prior year, driven by adjusted comparable store sales growth of 5.7% and growth from new store sales. Adjusted comparable store sales were driven by an increase in customer transactions and, to a lesser extent, higher average ticket prices.
Melissa Rasmussen: Unit growth in our America's Best and Eyeglass World brands increased four 4% on a combined basis over the total store base last year.
Melissa Rasmussen: And we ended the quarter with 1413 stores.
As a percentage of net revenue cost applicable to revenue increased approximately 140 basis points compared with the prior year quarter, driven primarily by higher optometrist related costs, and a lower service revenue, including warranty revenue as well as other mix and margin effects.
Melissa Rasmussen: Yes.
Melissa Rasmussen: These cost increases were offset by ongoing strength in exam revenue as well as a decrease in freight expense.
Melissa Rasmussen: For the quarter, the net impact from deleverage of optometrist related car in the increase in exam revenue was approximately 90 basis points, which is higher than previous quarters in the year due to timing of benefit related accrual.
Melissa Rasmussen: The timing of unearned revenue benefited revenue in the period by 20 basis points. We opened 16 new America's Best and one Eyeglass World store in the fourth quarter. Unit growth in our America's Best in Eyeglass World brand increased 4.4% on a combined basis over the total store base last year. And we ended the quarter with 1,413 stores.
Melissa Rasmussen: Adjusted SG&A expense as a percentage of revenue decreased 260 basis points compared with the fourth quarter at 2022.
Melissa Rasmussen: The decrease in adjusted SG&A as a percentage of net revenue was primarily driven by lower advertising legal and professional expenses and reflects disciplined expense management, we have taken across the organization.
Melissa Rasmussen: As a percentage of net revenue, cost applicable to revenue increased approximately 140 basis points compared with the prior year quarter, driven primarily by higher optometrist-related costs and lower service revenue, including warranty revenue, as well as other mix and margin effects. These cost increases were offset by ongoing strength in exam revenue, as well as a decrease in freight expense. For the quarter, the net impact from deleveraging of optometrist-related costs and the increase in exam revenue was approximately 90 basis points, which is higher than previous quarters in the year due to the timing of benefit-related accruals. Adjusted SG&A expense as a percentage of revenue decreased 260 basis points compared with the fourth quarter of 2022. The decrease in adjusted SG&A as a percentage of net revenue was primarily driven by lower advertising, legal, and professional expenses and reflects disciplined expense management we have taken across the organization.
Melissa Rasmussen: Depreciation and amortization expense was $24 1 million compared.
Melissa Rasmussen: Compared to $24 7 million in the prior year period, and was slightly better than our expectations, primarily due to the intangible asset impairment recorded as a result of the termination of our Walmart partnership.
Melissa Rasmussen: Adjusted operating income was $3 million compared to an adjusted operating loss of $6 8 million in the prior year period.
Melissa Rasmussen: Adjusted operating margin increased 150 basis points to 1% compared to the prior year period due primarily to factors previously discussed.
Net interest expense was $3 9 million compared to $2 6 million in the prior year period. The year over year interest increase was driven primarily by an increase of $3 $1 million as noncash mark to market charges, which were offset by an inch.
Melissa Rasmussen: Kris and interest income of $1 million and a decrease in interest expense of $8 million compared to the prior year period.
Melissa Rasmussen: Depreciation and amortization expense was $24.1 million compared to $24.7 million in the prior year period and was slightly better than our expectations, primarily due to the intangible asset impairment recorded as a result of the termination of our Walmart partnership. Adjusted operating income was $0.3 million compared to an adjusted operating loss of $6.8 million in the prior year period. Adjusted operating margin increased 150 basis points to 0.1% compared to the prior year period due primarily to factors previously discussed. Net interest expense was $3.9 million compared to $2.6 million in the prior year period.
Melissa Rasmussen: As a reminder, our interest guidance excludes noncash mark to market and deferred financing costs, which totaled $4 $3 million for the period.
Melissa Rasmussen: Excluding these costs interest was a benefit of $4 million.
Melissa Rasmussen: Our effective tax rate in the fourth quarter was 10, 1% primarily due to increases in unfavorable book to tax differences, which offset the tax benefit at the pre tax book loss in the period.
Melissa Rasmussen: Adjusted diluted EPS was negative <unk> <unk> per share in the fourth quarter compared to negative <unk> <unk> per share in the prior year period.
Melissa Rasmussen: Turning to our financial results for fiscal 2023 compared to the prior year period.
Melissa Rasmussen: The year-over-year interest increase was driven primarily by an increase of $3.1 million of non-cash mark-to-market charges, which were offset by an increase in interest income of $1 million and a decrease in interest expense of $0.8 million compared to the prior year period. As a reminder, our interest guidance excludes non-cash mark-to-market charges and deferred financing costs, which totals $4.3 million for the period. Excluding these costs, interest was a benefit of $0.4 million.
Melissa Rasmussen: Net revenue increased 6% driven by new stores and adjusted comparable store sales growth of two 9% the.
Melissa Rasmussen: The timing of unearned revenue positively impacted net revenue by 20 basis points.
Melissa Rasmussen: Adjusted operating margin declined 100 basis points compared to the prior year period, driven primarily by the expected deleverage of optometrist related costs and the normalization of our incentive compensation program.
Melissa Rasmussen: For the year adjusted diluted earnings per share or <unk> 64, compared to <unk> 65 in fiscal 2022.
Melissa Rasmussen: Our effective tax rate in the fourth quarter was 10.1%, primarily due to increases in unfavorable book-to-tax differences, which offset the tax benefit of the pre-tax book loss in the period. Adjusted diluted EPS was negative 2 cents per share in the fourth quarter compared to negative 8 cents per share in the prior year period. Turning to our financial results for fiscal 2023 compared to the prior year period, net revenue increased 6%, driven by new stores and adjusted comparable store sales growth of 2.9%. The timing of unearned revenue positively impacted net revenue by 20 basis points. However, adjusted operating margin declined 100 basis points compared to the prior year period, driven primarily by the expected deleverage of optometrist-related costs and the normalization of our incentive compensation program. For the year, adjusted diluted earnings per share were $0.64 compared to $0.65 in fiscal 2022.
Melissa Rasmussen: Please note our adjusted results for the fourth quarter and full year exclude the impacts associated with one time charges related to the termination of our Walmart partnership and related wind down of the AC lens operation.
Melissa Rasmussen: Cost savings initiatives charges related to our ERP rollout and other nonrecurring items that are detailed in the reconciliation tables found in our press release.
Melissa Rasmussen: Yeah.
Melissa Rasmussen: We are on track to substantially complete the first phase of our ERP project by the end of fiscal 2024.
Melissa Rasmussen: During 2023, we incurred approximately $2 5 million of expenses related to the project of which approximately $2 million was capitalized.
Melissa Rasmussen: We continue to expect to incur approximately $11 million to.
Melissa Rasmussen: To $13 million in one time expenses related to the first phase of the project inclusive of the 2023 expenses.
Melissa Rasmussen: Turning next to our balance sheet, we ended the year with a cash balance of approximately $150 million in total liquidity of $444 million, including available capacity from our revolving credit facility.
Melissa Rasmussen: Please note our adjusted results for the fourth quarter and full year exclude the impacts associated with one-time charges related to the termination of our Wal-Mart partnership and related wind-down of AC Lens operations, cost savings initiatives, charges related to our ERP rollout, and other non-recurring items that are detailed in the reconciliation tables found in our press release. We are on track to substantially complete the first phase of our ERP project by the end of fiscal 2024. During 2023, we incurred approximately $2.5 million in expenses related to the project, of which approximately $2 million was capitalized. We continue to expect to incur approximately $11 million to $13 million in one-time expenses related to the first phase of the project, inclusive of 2023 expenses. Turning next to our balance sheet, we ended the year with a cash balance of approximately $150 million and total liquidity of $444 million, including available capacity from our revolving credit facility. As of December 30th, our total debt outstanding was $465 million, and for the trailing 12 months, we ended the year with net debt to adjusted EBITDA of 1.9 times.
Melissa Rasmussen: As of December 30, <unk>, our total debt outstanding was $465 million and for the trailing 12 months. We ended the year with a net debt to adjusted EBITDA of one nine times.
Melissa Rasmussen: In 2023, we generated operating cash flow of $173 million and invested $116 million in capital expenditures.
Melissa Rasmussen: Primarily driven by investments in new stores, our lab distribution center Doctor equipment and in store lab equipment.
Melissa Rasmussen: As we announced in November we repurchased $100 million of our convertible senior notes for an adequate cash repurchase price inclusive of premium paid of $99 million to $5 million.
Melissa Rasmussen: We continue to maintain a strong balance sheet and healthy cash flow to support our growth and capital allocation priorities.
Melissa Rasmussen: In 2024, our first priority with respect to capital allocation will continue to be the investment in our growth through new store openings and technology investments as we continue to digitize our stores and corporate office.
Melissa Rasmussen: Our second priority will be our focus on our debt structure, giving the pending may 2025 maturity of the convertible note.
Melissa Rasmussen: As we demonstrated with the repurchased in November we plan to take fiscally responsible action with our outstanding balance and are monitoring the market for future opportunistic actions and other potential strategies.
Melissa Rasmussen: In 2023, we generated operating cash flow of $173 million and invested $116 million in capital expenditure, primarily driven by investments in new stores, our labs, distribution center, doctor equipment, and in-store lab equipment. As we announced in November, we repurchased $100 million of our convertible senior notes for an aggregate cash repurchase price inclusive of premium paid of $99.25 million. We continue to maintain a strong balance sheet and healthy cash flow to support our growth in capital allocation priority. In 2024, our first priority with respect to capital allocation will continue to be investing in our growth through new store openings and technology investments as we continue to digitize our stores and corporate offices. Our second priority will be our focus on our debt structure, giving the pending May 2025 maturity as a convertible note.
Melissa Rasmussen: Our third priority is returning excess cash to shareholders.
Melissa Rasmussen: While we do not expect to repurchase shares in the near term given our other stated priorities for 2024, we are pleased to announce a new repurchase authorization of $50 million in place through January 3rd 2026.
Melissa Rasmussen: Given our original repurchase authorization expired on December 30, <unk> 2023.
Melissa Rasmussen: We continue to evaluate opportunities to repurchase shares based on available investment opportunities, our financial position and market conditions.
Melissa Rasmussen: Moving now to the discussion of our 2020 for outlook.
Melissa Rasmussen: For our 2020 for fiscal year. We currently expect net revenue between $1 965 billion.
Melissa Rasmussen: As we demonstrated with the repurchase in November, we plan to take fiscally responsible action with our outstanding balance and are monitoring the market for future opportunistic actions and other potential strategies. Our third priority is returning excess cash to shareholders. While we do not expect to repurchase shares in the near term, given our other stated priorities for 2024, we are pleased to announce the new repurchase authorization of $50 million in place through January 3rd, 2026. We continue to evaluate opportunities to repurchase shares based on available investment opportunities, our financial position, and market conditions. Moving now to the discussion of our 2024 Outlook. For our 2024 fiscal year, we currently expect net revenue between $1.965 billion and $2.005 billion. Supported by adjusted comparable store sales growth of 2 to 4% in new store sales based on our expectation to open between 65 and 70 new stores this year. With respect to profitability, for 2024, we expect adjusted operating income between $61 million and $76 million. This includes a range for depreciation and amortization of $95 million to $100 million.
Melissa Rasmussen: 2.005 billion.
Melissa Rasmussen: Supported by adjusted comparable store sales growth of 2% to 4% and new store sales based on our expectation to open between $65 million 70, new stores this year.
Melissa Rasmussen: With respect to profitability for 2024, we expect adjusted operating income between $61 million and $76 million. This.
Melissa Rasmussen: This includes the range for depreciation and amortization at $95 million to $100 million.
Melissa Rasmussen: We expect adjusted diluted EPS to be between <unk> 50 per share is <unk> 65 per share, which assumes approximately 79 million weighted average diluted shares outstanding.
Melissa Rasmussen: Our guidance range includes the expected revenue and profitability from Walmart and AC lens operations through their respective contract terms.
Melissa Rasmussen: As laid out on slide 15 of our earnings presentation. We expect legacy segment revenue of approximately $16 million and adjusted operating income of $5 million in the first quarter.
Melissa Rasmussen: <unk> AC lens is expected to deliver approximately $129 million of revenue and $2 million of adjusted operating income in the first half of the year.
Melissa Rasmussen: Split evenly across first and second quarter.
Melissa Rasmussen: In addition, our outlook for fiscal 2024 assumes a range of scenarios with respect to consumer sentiment.
Melissa Rasmussen: We expect adjusted diluted EPS to be between $0.50 per share and $0.65 per share, which assumes approximately 79 million weighted average diluted shares outstanding. Our guidance range includes the expected revenue and profitability from Walmart and AC loans operations through their respective contract terms. As laid out on slide 15 of our earnings presentation, we expect legacy segment revenue of approximately $16 million and adjusted operating income of $0.5 million in the first quarter. And AC Lens is expected to deliver approximately $129 million of revenue and $2 million of adjusted operating income in the first half of the year, split evenly across the first and second quarters.
Melissa Rasmussen: <unk> success with our America's Best brand and performance improvement and Eyeglass World.
Melissa Rasmussen: As Reade noted the year started softer than expected, but we have seen sequential improvement as the quarter has progressed.
Speaker Change: While it is not our practice to provide quarterly guidance, given where we are in the quarter, we felt it appropriate to provide some direction for modeling purposes.
Speaker Change: We expect first quarter adjusted comparable store sales to be flat to slightly negative compared to the prior year. This expectation incorporates a 40 to 50 basis point drag from Walmart performance.
Speaker Change: The high end of our full year guidance assumes further strengthening in trends as the year progresses supported by continued strong performance in America's best and improved performance and eyeglass world as well as improved consumer backdrop.
Melissa Rasmussen: In addition, our outlook for fiscal 2024 assumes a range of scenarios with respect to consumer sentiment, ongoing success with our America's Best brand, and performance improvement in the eyeglass world. As Reed noted, the year started softer than expected, but we have seen sequential improvement as the quarter has progressed. While it is not our practice to provide quarterly guidance, given where we are in the quarter, we felt it appropriate to provide some direction for modeling purposes. We expect first quarter adjusted comparable store sales to be flat to slightly negative compared to the prior year.
Speaker Change: The low end of our guidance assumes a weaker consumer environment impacting demand trends and a less success in improving eyeglass world performance through the operational changes <unk> discussed.
Speaker Change: As we discussed on our last call the profit gap created by the Walmart partnership termination would be addressed through non headline pricing and expense actions, which were implemented before the end of fiscal 2023, allowing us to realize the full year benefit in 2024, which more than <unk>.
Speaker Change: Offset this headwind.
Speaker Change: The pricing actions focused on Standalone exams, and targeted product offerings, which are expected to benefit 2024 by approximately $15 million.
Melissa Rasmussen: This expectation incorporates a 40 to 50 basis point drag from Walmart performance. The high end of our full-year guidance assumes further strengthening in trends as the year progresses, supported by continued strong performance in America's Best and improved performance in Eyeglass World, as well as an improved consumer backdrop. The low end of our guidance assumes a weaker consumer environment, impacting demand trends, and less success in improving eyeglass world performance through the operational changes discussed. As we discussed on our last call, the profit gap created by the Walmart partnership termination would be addressed through non-headline pricing and expense actions, which were implemented before the end of fiscal 2023, allowing us to realize the full year benefit in 2024, which more than offsets this headwind. The pricing actions focus on standalone exams and targeted product offerings, which are expected to benefit HP by approximately $15 million in 2024.
Speaker Change: In addition to the pricing actions, we also streamlined corporate overhead and third party spend in the fourth quarter of 2023, which we expect will result in approximately $10 million of annualized cost savings in 2024.
Speaker Change: At the midpoint of our guidance range, we expect to deliver an adjusted operating income margin in line with fiscal 2023.
Speaker Change: Which came in ahead of expectations due to operational improvements and America's best and disciplined expense management.
Speaker Change: We also expect gross margin expansion of approximately 200 basis points for the year. This assumes benefits from the pricing action margin expansion as we exit the lower margin, Walmart and AC lens businesses and improved productivity.
Speaker Change: In addition, we expect adjusted SG&A to deleverage approximately 150 basis points, primarily driven by the year over year decline in revenue given the termination of Walmart business.
Speaker Change: This expectation also considers the $10 million of annualized cost savings as well as increased levels of annual operating expense related to cloud amortization and ongoing investments in our growth.
Melissa Rasmussen: In addition to the pricing actions, we also streamlined corporate overhead and third-party spend in the fourth quarter of 2023, which we expect will result in approximately $10 million of annualized cost savings in 2024. At the midpoint of our guidance range, we expect to deliver an adjusted operating income margin in line with fiscal 2023, which came in ahead of expectations due to operational improvements in America's Best and Disciplined Expense Management. We also expect gross margin expansion of approximately 200 basis points for the year. This assumes benefits from the pricing action, margin expansion as we exit the lower margin Walmart and AC Lens businesses, and improved productivity. In addition, we expect adjusted SG&A to deleverage approximately 150 basis points, primarily driven by the year-over-year decline in revenue given the termination of Walmart's business.
Speaker Change: We expect marketing expense dollars to be below 2023, but as reade noted we will be shifting marketing dollars to focus on driving improved eyeglass growth performance, while continuing to leverage the strong national presence that America's best poll.
Speaker Change: Looking further ahead, we believe we are well positioned to achieve our mid single digit adjusted operating margin target in 2025. However, the composition of how we expect to get there has evolved.
Speaker Change: <unk> is now more fully embedded in our normal course of business and as we have discussed is an important tool and delivering improved results within the America's best brand as reflected in our 2023 performance.
Speaker Change: We expect this capability to continue to be a healthy contributor to our overall financial results going forward and its benefit is incorporated in our 2024 guidance along with our updated plans for deployment, which REIT reviewed.
Melissa Rasmussen: This expectation also considers the $10 million of annualized cost savings, as well as increased levels of annual operating expense related to cloud amortization and ongoing investments in our growth. We expect marketing spend dollars to be below $2023, but as Reid noted, we will be shifting marketing dollars to focus on driving improved eyeglass world performance while continuing to leverage the strong national presence that America's Best holds. Looking further ahead, we believe we are well positioned to achieve our mid-single-digit adjusted operating margin target in 2025. However, the composition of how we expect to get there has evolved.
Speaker Change: In addition to remote or 2025 margin target also included expectations related to returning to mid single digit adjusted comp performance, driven by expanding exam capacity and improving consumer sentiment.
Speaker Change: We have been and continue to be acutely focused on the factors occur that we can control with respect to exam capacity and pricing and are continuing to monitor the evolving trends within the optical purchase cycle that <unk> discussed.
Speaker Change: Given these current views on remote and the progress we are making in driving improved top line results. We now expect future margin expansion to come primarily from improved productivity.
Melissa Rasmussen: Remote is now more fully embedded in our normal course of business, and as we have discussed, is an important tool in delivering improved results within the America's Best brand, as reflected in our 2023 performance. We expect this capability to continue to be a healthy contributor to our overall financial results going forward, and its benefit is incorporated in our 2024 guidance, along with our updated plans for deployment, which Reid reviewed. In addition to remote, our 2025 margin target also included expectations related to returning to mid-single-digit adjusted comp performance driven by expanding exam capacity and improving consumer sentiment. We have been and continue to be acutely focused on the factors of comp that we can control with respect to exam capacity and pricing and are continuing to monitor the evolving trends within the optical purchase cycle that Reid discussed.
Speaker Change: This margin expansion and expense leverage across the company through 2024 and into 2025.
Speaker Change: As illustrated on slide 17, with the strong progress made in 2023, and assuming we deliver at least the midpoint of our 2020 for expectations for adjusted operating margin, we will be well positioned to achieve mid single digit adjusted operating margin in 2025.
Speaker Change: As we have always said our 2025 objective is not our end goal and we will continue to drive further margin improvement going forward.
Speaker Change: I am proud of our team's dedication and focus on driving our initiatives to date and believe we remain well positioned to deliver our objectives, including driving value for our shareholders.
Speaker Change: Thank you for your time today I will now turn the call over to Reid for closing remarks before we open the call for questions.
Melissa Rasmussen: Given these current views on remote and the progress we are making in driving improved top-line results, we now expect future margin expansion to come primarily from improved productivity, gross margin expansion, and expense leverage across the company through 2024 and into 2025. As illustrated on slide 17, with the strong progress made in 2023 and assuming we deliver at least the midpoint of our 2024 expectations for adjusted operating margin, we will be well positioned to achieve a mid-single-digit adjusted operating margin in 2025. However, as we have always said, our 2025 objective is not our end goal, and we will continue to drive further margin improvement going forward. I am proud of our team's dedication and focus on driving our initiatives to date and believe we remain well-positioned to deliver our objectives, including driving value for our shareholders. Thank you for your time today. I will now turn the call over to Reed for closing remarks before we open the call for questions.
Speaker Change: <unk>.
Reid: Thank you Melissa to summarize our stronger than expected and for the year was driven by crisp execution, including expanded exempt capacity disciplined expense management continued strength in our managed care business and effective marketing campaigns for the full year, we delivered on our initiatives and growth.
Reid: Drawn improvement as America's best.
We executed on cost and pricing actions, which will benefit 2024 and more than offset the profitability gap from the Walmart partnership termination.
Reid: In 2024, we're committed to building off the stronger Foundation, we established in 2023, we remain focused on executing against our initiatives, which have a proven track record as demonstrated in the progress we've made with America's best.
Reid: We plan to continue to build on this progress in America's Best and drive improvement in Eyeglass World All of which is incorporated in our guidance.
Reid: We believe through this work, we are well positioned to drive long term profitable growth create value for shareholders and further our mission to make quality eye care and eyewear more affordable and accessible for all and.
Speaker Change: And with that we will now turn the call over to the operator for questions.
Reed Fahs: Thank you, Melissa. To summarize, our stronger-than-expected end of the year was driven by crisp execution, including expanded exam capacity, disciplined expense management, continued strength in our managed care business, and an effective marketing campaign. For the full year, we delivered on our initiatives and made a strong improvement as America's best. We executed on cost and pricing actions, which will benefit 2024 and more than offset the profitability gap from the Walmart partnership termination. In 2024, we're committed to building off the stronger foundation we established in 2023. We remain focused on executing against our initiatives, which have a proven track record, as demonstrated in the progress we've made with America's Best.
Speaker Change: And in order to ask a question. These trash SAR one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Please Ken by while we compile the Q&A roster.
Speaker Change: And our first question comes from the line of Michael Lasser with UBS. Your line is now open.
Michael Lasser: Good morning. Thank you so much for taking my question given the comp performance at <unk>.
Michael Lasser: <unk> World along with your decision to rebrand the 20 locations in California.
Michael Lasser: <unk> on the performance of that business, especially given that it had been a strong performer historically.
Speaker Change: Thank you Michael So two things let me, let me first unpack, the California Eyeglass World piece, a little bit. So we had 76 America's best stores has 76 America's best stores in California, and 'twenty Eyeglass World stores, and the 'twenty Eyeglass World stores works.
Operator: We plan to continue to build on this progress at America's best and drive improvement in our glass world, all of which is incorporated in our guidance. We believe through this work, we are well positioned to drive long-term profitable growth, create value for shareholders, and further our mission to make quality eye care and eyewear more affordable and accessible for all. And with that, we'll now turn the call over to the operator. In order to ask a question, please press TAR11 on your telephone and wait for your name to be announced. To withdraw your question, please press TAR11 again.
Speaker Change: Split between Southern California, San Diego, and Northern California, Sacramento. So they were really far away from from one another and we have no America's best stores in either Sacramento or San Diego, There was no overlap and it's a pretty big step and so converting the 20 eyeglass world stores over to America's Best helps us reduce fee.
Speaker Change: Overheads leveraged national advertising leverage.
Speaker Change: Our pumps or deployment reduce travel it makes the space more profitable and the company more profitable, but it's a very unique situation there in California, California, Eyeglass World stores work, where underperformance versus the average of the fleet, but we're really focused on profitability and this was a way to.
Operator: Please stand by while we compile the Q&A roster. And our first question comes from the line of Michael Lasser with UBS. Your line is now open. Good morning.
Michael Lasser: Thank you so much for taking my question. Given the comp performance at Eyeglass World, along with your decision to rebrand the 20 locations in California, what's the outlook for the performance of that business, especially given that it had been a strong performer historically? Thank you, Michael. So, I have two things. Let me first unpack the California Eyeglass World piece a little bit. So, we had 76 America's Best stores in California and 20 Eyeglass World stores. And the 20 Eyeglass World stores were split between Southern California, San Diego, and Northern California, Sacramento. So they were really far away from one another.
Speaker Change: Help profits, while concurrently becoming more competitive in the state overall now to your other question about eyeglass World in General again.
Speaker Change: Positive comps in Q4 sequential growth in Q4, so that that's nice, but we do think eyeglass world is not yet performing to standard and we don't have the coverage levels. We want yet are there and it's a little different from Americas Bev America's best.
Speaker Change: Our unemployment model and.
Speaker Change: And I got it.
Speaker Change: Pretty much split between employment model and a lease model and so we're working on various ways of recruiting retaining and putting in remote and other things to address the coverage cells. There as we mentioned we've just put in our leadership teams there and we're shifting marketing dollars because I think maybe we were under.
Reed Fahs: And we had no America's Best stores in either Sacramento or San Diego. There was no overlap. And it's a pretty big state. And so, converting the 20 Eyeglass World stores over to America's Best helps us reduce field overhead, leverage national advertising, leverage a punctual deployment, and reduce travel. It makes the state more profitable and the company more profitable. But it's a very unique situation there in California.
Speaker Change: Under spending a bit behind.
Speaker Change: Behind that but the outlook assumes a few scenarios and eyeglass world, where we think we still have some work to do yes. It was a consistent strong performer sort of from from the time, we bought it up through 2021, and we're getting it back on it.
Speaker Change: Pete again with the actions I just went through.
Speaker Change: Okay.
Speaker Change: Question is on the return to mid single digit margin in 2025.
Speaker Change: What com.
Speaker Change: <unk> theory in order to achieve that outcome and.
Reed Fahs: And those California Eyeglass World stores were underperformers versus the average of the fleet. But we're really focused on profitability, and this was a way to help profits while concurrently becoming more competitive in the state overall. Now, to your other question about Eyeglass World in general, again, positive comps in Q4, and sequential growth in Q4. So, that's nice. But we do think Eyeglass World is not yet performing at the standard. We don't have the coverage levels we want yet there. And it's a little different from America's Best.
Speaker Change: You do see a sluggish underlying optical retail market, how is that mid single digit expectation sensitized, meaning.
Speaker Change: Would there be other accident, you could take to still achieve that outcome. Even if your comps are a bit slower. Thank you.
Speaker Change: Okay.
Speaker Change: Hi, Michael Yes, the return to mid single digit in 2025 has a couple of factors tied into that as we think about the return to mid single digit operating margin. The comp that we have factored into that also includes a mid single digit comp range.
Reed Fahs: America's Best is an employment model, and Eyeglass World is pretty much split between an employment model and a lease model. And so, we're working on various ways of recruiting, retaining, putting in remote and other things to address the coverage challenge there. As we mentioned, we've just put in a leadership change there, and we are shifting marketing dollars because I think maybe we were underspending a bit behind that. But the outlook assumes a few scenarios in Eyeglass World, but we think we still have some work to do.
Speaker Change: We expect to get to that point based upon the initiatives that we started last year and continue to accelerate into this year, which include the AR.
Speaker Change: The improved recruiting and retention and the remote.
Speaker Change: Benefit that we've been experiencing to date, though with all of that combined we expect that to lead to the mid single digit range in 2025.
Melissa Rasmussen: Yes, it was a consistent, strong performer from the time we bought it up through 2021, and we're getting it back on its feet again with the actions I just mentioned. Thank you. My follow-up question is on the return to a mid-single-digit margin in 2025. What comp is necessary in order to achieve that outcome? And if you do see a sluggish underlying optical retail market, how is that mid-single-digit expectation skewed? Meaning, would there be other actions you could take to still achieve that outcome, even if your comps are a bit slower?
Speaker Change: Thank you. Thank you so much and good luck.
Speaker Change: Thank you Michael.
Speaker Change: Your next question comes from the line of Anthony Docomo with loop capital markets. Your line is now open.
Anthony Chukumba: Good morning, Congrats on a strong finish to the year.
Anthony Chukumba: So I guess my first question in terms of.
Anthony Chukumba: The slow start that 2024 has gotten off to.
Anthony Chukumba: Certainly encouraging to hear that you're seeing sequential improvement, but is there any one or two things that you would sort of point to that you think.
Michael Lasser: Thank you. Hi Michael. Yes, the return to mid-single-digit in 2025 has a couple of factors tied into that. As we think about the return to mid-single-digit operating margin, the comp that we have factored into that also includes a mid-single-digit comp range. And we expect to get to that point based upon the initiative that we started last year and continue to accelerate into this year, which includes the improved recruiting and retention and the remote benefit that we've been experiencing to date. So, with all of that combined, we expect that to lead to the mid-single-digit range in 2025. Thank you so much and good luck!
Anthony Chukumba: Our driving that slow start, particularly coming off such a strong finish to.
Anthony Chukumba: 2023.
Speaker Change: Yes, I mean certainly be.
Speaker Change: I called the Arctic blast of our early January was it was a big factor for us and so that was one we don't think it's a market share related we think thats a remains healthy.
Speaker Change: Yes.
Speaker Change: The weather piece was a large component of that again, we're seeing sequential improvement into February.
Speaker Change: Got it and I remember that Arctic blast, well I, probably wouldn't have gone out and gotten.
Speaker Change: New glasses, and then either I guess my second question one other thing I'd add one other thing Anthony.
Speaker Change: Sure.
Speaker Change: We're all reading about.
Anthony Chukumba: Thank you, Michael. Your next question comes from the line of Anthony Chukumba with Blue Capital Markets. Your line is now open. Good morning.
Speaker Change: Slow and delayed tax refund information.
Speaker Change: Tax refunds getting to our customers.
Speaker Change: Driver for US Q1 performance is when that those tax refunds get into the hands of our consumer base.
Reed Fahs: Congratulations on a strong finish to the year. So I guess my first question, in terms of, you know, the slow start that 2024 has gotten off to, and it's certainly encouraging to hear that you've seen sequential improvement, but is there any one or two things that you would sort of point to that you think are driving that slow start, particularly after such a strong finish to 2023? Yeah, I mean, certainly what they call the Arctic blast of early January was a big factor for us, and so that was fun.
Speaker Change: Got it that all makes perfect sense and then just one follow up question.
Speaker Change: What what are your expectations in terms of uptime interest.
Speaker Change: <unk> pressure in 2024, and it is certainly encouraging to hear about the improvements in our recruitment and retention, but just wanted to see what your thoughts were there. Thank you.
Speaker Change: Hi, Anthony we have seen.
Speaker Change: The low single digits in <unk>.
Anthony Chukumba: We don't think it's market share related. We think that remains healthy, but yeah, the weather piece was a large component, and again, we're seeing sequential improvement into February. Got it. And I remember that Arctic blast well. I, you know, probably wouldn't have gone out and gotten new glasses then either.
Speaker Change: Inflation in optometrist related cost bumped up to mid single digits in 'twenty, three and we expect that to continue into 'twenty four and beyond we will have continued pressure based on that however, with pricing initiatives that we've put in place with exam, we feel that we'll be able to offset some of that pressure.
Melissa Rasmussen: I guess my second question. Can I add one other thing? Anthony? You know, we're all reading about the slow and delayed tax refund information, you know, tax refunds getting to our customers. And a driver for us of Q1 performance is when those tax refunds get into the hands of our customers. Got it.
Speaker Change: Okay.
Speaker Change: Got it. Thank you so much keep up the good work.
Speaker Change: Thank you.
Speaker Change: And your next question comes from the line of Kate Mcshane with Goldman Sachs. Your line is now open.
Kate Mcshane: Peter are you there.
Kate Mcshane: Okay.
Kate Mcshane: Your line is now open.
Kate Mcshane: Okay.
Speaker Change: Okay, maybe maybe we'll move on and see if Jay wants to come in later.
Speaker Change: Alright.
Anthony Chukumba: That all makes perfect sense. And then just one follow-up question, you know: what are your expectations in terms of optometrist wage pressure in 2024? It is, you know, certainly encouraging to hear about the improvements in recruitment and retention, but I just wanted to see what your thoughts were there. Thank you. Hi Anthony, we have seen the low single-digit inflation rate in optometrist related costs bump up to mid single digits in 23, and we expect that to continue into 24 and beyond. We'll have continued pressure based on that. However, with pricing initiatives that we've put in place with exams, we feel that we'll be able to offset some of that pressure. Thank you so much.
Speaker Change: Your next question.
Speaker Change: This comes from the line.
Speaker Change: Paul Lewis with.
Paul Lewis: With Citi. Your line is now open Paul.
Speaker Change: Hi, everyone. This spring Cheatham on for Paul Thanks for taking a question or two.
Cheatham: And also lastly, unlike America's best versus our glass World. If we could dig in on that do you think there's any cannibalization between the two brands.
Speaker Change: And then I understand.
Cheatham: The decision to convert somebody eyeglass worlds and California to America's Best Thus, hoping if thats successful you might look at doing them in other states or regions.
Cheatham: Okay.
Speaker Change: Thank you for that and a few things first of all to be clear in California. There was clearly no cannibalization because America's best and Eyeglass World, We're not there's no overlap in the markets there.
Speaker Change: Second we have found in general these two brands can coexist in the same trading area well.
Speaker Change: Because they do have sort of their they have a different positioning one is designed really for people who are very low cost driven the free exam absolute price absolute money out of pocket on the other has has a broader assortment more and more designer frames and are more us.
Reed Fahs: Keep up the good work. Thank you. And your next question comes from the line of Kate McShane with Goldman Sachs. Your line is now open. Hey, are you there?
Time conscious consumer.
Speaker Change: Consumers are there is differentiation that that goes on there are between them and we think that our California.
Operator: Okay, your line is now open. Okay, maybe we'll move on and see if Kate wants to come in later. All right, moving on. You're welcome. Your next question. I'm just going to go line off. Paul Lejuez.
Speaker Change: Is it was a pretty unique situations that we're not currently discussing and thinking about doing this elsewhere.
Speaker Change: Got it thanks.
Speaker Change: The pricing change that you took on Standalone exams can you detail the timing on that.
Operator: Good City Airline is now open, Paul. Hey, everyone, this is Brandon Cheatham on behalf of Paul. Thanks for taking our question. I wanted to also ask about America's Best versus Eyeglass World, if we could dig in on that. Do you think there's any cannibalization between the two brands?
Speaker Change: Juicy consumers.
Speaker Change: Kind of shifting their purchasing behavior. After you took the pricing on that.
<unk> advantage more of the two four.
Speaker Change: Two pairs of glasses or exam for $70 million.
Brandon Cheatham: And then, you know, I understand the decision to convert some of the eyeglass worlds in California to America's Best. Is that something, you know, if that's successful, you might look at doing in other states or regions? Thank you for that. A few things. First of all, to be clear, in California, there was clearly no cannibalization because America's Best and IGLOT's World were not; there was no overlap in the markets there.
Speaker Change: So we took.
Speaker Change: Our pricing action for eyeglass World in <unk>.
Speaker Change: November pricing for America's Best in December on an exam pricing and let me, let me point out something on that debt.
Reed Fahs: Second, we have found, in general, these two brands can coexist in the same trading area well because they have a different positioning. One is designed really for people who are very low-cost driven, the free exam, the absolute price, and absolute money out of pocket. The other has a broader assortment, more designer frames, and is for more time-conscious consumers.
Speaker Change: That it's a minority of people, who end up paying for an exam and the America's best experience. If you buy two parity exam is free the managed care customers, who are now up to about 35% of the business. There their eye exam is paid for by their insurance.
Speaker Change: So those who it affects.
Speaker Change: Individually are pretty small in that way we also.
Speaker Change: Sort of took some pricing action in the area of various medical services better optometrist provide that was in the summer that we did that and that was we just realized that we were under under the market on that and.
Reed Fahs: So there is differentiation that goes on between them, and we think that California is and was a pretty unique situation. So we're not currently discussing and thinking about doing this elsewhere. Got it. Thanks. And the pricing change that you took on standalone exams, can you detail the timing on that? And did you see consumers kind of shift their purchasing behavior after you took that pricing change? Did they, you know, kind of take advantage of more of the two, four, two pairs of glasses I exam for $79. So, we took pricing action for Eyeglass World in November and for America's Best in December on sort of exam pricing. And let me point out something about that, that it's a minority of people who end up paying for an exam in the America's Best experience. If you buy two pairs, the exam is free.
Speaker Change: That was one of the findings from the pricing study that we talked about in prior calls and so so again medical services.
Speaker Change: In summer.
Speaker Change: Eyeglass World November and America's Best in December.
Speaker Change: Got it thanks, very much and good luck.
Speaker Change: Okay.
Speaker Change: Mark Goldman for the next question.
Speaker Change: Yes.
Speaker Change: And your next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is now open.
Simeon Ari Gutman: Hey, Good morning, everyone. Mike My first question, it's on the adjusted operating income for the year at the midpoint, it's still lower than the prior year and even if you net out.
Simeon Ari Gutman: Savings to $25 million some of that needs to annualize I think I get that versus what's being lost I guess at the midpoint. There is still year over year decline of pressure Melissa mentioned amortization costs, maybe still weighing on it but can you give us what's inside the core even with the pricing actions it looks like still declining year over year.
Reed Fahs: The managed care customers, who are now up to about 35% of the business, have their eye exam paid for by their insurance. So, those who it affects individually are pretty small in that way. We also sort of took some pricing action in the area of various medical services that our optometrists provide. That was in the summer when we did that, and we just realized that we were under the market on that. And that was one of the findings from the pricing study that we talked about in prior calls. And so, again, medical services in summer, Eyeglass World in November, and America's Best in December. Got it. Thanks very much and good luck.
Simeon Ari Gutman: So if you can talk about the drivers behind that please.
Speaker Change: Hi, Simeon.
Speaker Change: If you refer to page 17, Youll see that the midpoint of our guidance range is three 4% and we ended 2023 with an adjusted operating margin of three 4%.
Speaker Change: Okay.
Speaker Change: Oh, yes, I was referring to the dollars.
Brandon Cheatham: Thank you. One moment for the next question. And your next question comes from the line-up, Simeon Gutman with Morgan Stanley. Your line is now open. Hey, good morning, everyone.
Speaker Change: Oh, yes, the the dollars up.
With the dollar as we have worked in a range of scenarios and with the loss of the Wal Mart.
Simeon Ari Gutman: My first question is on the adjusted operating income for the year. At the midpoint, it's still lower than the prior year. And even if you net out the savings, the $25 million, some of that needs to annualize, I think I understand that, versus what's being lost.
Speaker Change: With the loss of the Walmart AC lens business, while the adjusted margin will improve we do have some.
Speaker Change: Some factors incorporated in there with the top line.
Speaker Change: With the topline revenue loss that overall guide takes into consideration several scenarios at the high end, which include improved consumer sentiment.
Simeon Ari Gutman: I guess at the midpoint, there's still year-over-year decline or pressure. Melissa mentioned amortization costs, maybe still weighing on it, but can you give us what's inside, like the core, even with the pricing actions, it looks like it's still declining year-over-year. So if you can talk about the drivers behind that, Hi Simeon.
Speaker Change: And the productivity expansion.
Speaker Change: And.
Improvement in our eyeglass World performance on the low end we have.
Melissa Rasmussen: If you refer to page 17, you'll see that the midpoint of our guidance range is 3.4%, and we ended 2023 with an adjusted operating margin of 3.4%. Oh, yeah. I was referring to the dollar. Oh, yes, the dollars. With the dollars, we have worked out a range of scenarios, and with the loss of the Walmart and AC Lenz business, while the adjusted margin will improve, we do have some factors incorporated in there with the top-line revenue loss. The overall guide takes into consideration several scenarios at the high end, which include improved consumer sentiment, productivity expansion, and improvement in our eyeglass world performance. On the low end, we have the opposite of that as far as decreased consumer sentiment, which may lead to demand issues and less traction in improving our eyeglass world brand.
Speaker Change: The opposite of that as far as decrease consumer sentiment, which may lead to demand issues and less traction in improving our eyeglass World brand, we've rationalized, our home office and taken out.
Speaker Change: Various expenses as we said we would last year to offset the Walmart profit loss. In addition is taking.
Speaker Change: This increases and with the two of those were more than offset it. However, we have in.
Speaker Change: In fact.
Speaker Change: Mark that business, which is a top line.
Speaker Change: Impact.
Speaker Change: And maybe as a follow up and I apologize. If this was asked on any of the headline pricing items I don't know if anyone else if thats exam or product and are you seeing any elasticity of negative elasticity on some of these actions.
Melissa Rasmussen: We've rationalized our home office and taken out various expenses, as we said we would last year, to offset the Walmart profit loss, in addition to taking price increases. And with the two of those, we've more than offset it. However, we have, in fact, lost that business, which is a top line. Impact And maybe as a follow-up, and I apologize if this was asked, on any of the headline pricing items, I don't know if anyone asked if that's an exam or product, and are you seeing any elasticity or negative elasticity on some of these items? When we refer to the headline price, that's the 2 for 79 offer.
Speaker Change: When we refer to headline.
Speaker Change: Headline price Thats, the $2 79.
Speaker Change: Offer that is the key headline price offer America's best and we are not believing that that has affected our track.
Speaker Change: Okay. Thanks, guys. Good luck. Thank you Simeon.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of.
Ian Jon Cohen with Jefferies. Your line is now open.
Simeon Ari Gutman: That is the key headline price for America's Best, and we are not believing that that has affected our track. Okay, thanks guys. Thank you, Simeon. Your next question comes from the line of Brian Tanquilut, The Jeffreys. Your line is now open. Good morning. You have Taji Phillips on for Brian.
Speaker Change: Good morning, <unk> on for Brian. Thank you for taking my question. So my first question has to do with the guidance for same store comps for the year I. Appreciate the call out that Q1 will be softer right, but just curious if you could provide some commentary on how we should be thinking about the ramp throughout the year.
Brian Gil Tanquilut: Thank you for taking my question. So, my first question has to do with the guidance for same-store comps for the year. Appreciate the call out that Q1 will be softer, right? But just curious if you could provide some commentary on how we should be thinking about the ramp throughout the year. Yes. Hi Taji.
Speaker Change: Yes, hydrology the ramp throughout the year.
Speaker Change: First quarter is historically, a very strong quarter for us, it's an important quarter for the overall year and with that coming in flat to slightly negative that has been factored into the overall guidance range with that we historically have seen increased comp as the year progresses and that too has been built in.
Melissa Rasmussen: The ramp throughout the year, the first quarter is historically a very strong quarter for us. It's an important quarter for the overall year, and with that coming in flat to slightly negative, that has been factored into the overall guidance range. With that, we historically have seen increased comp as the year progresses, and that too has been built into the range of scenarios. Okay, great.
Speaker Change: <unk>.
Speaker Change: The range of scenarios.
Speaker Change: Okay, Great and then kind of looking to.
Melissa Rasmussen: And then kind of looking to page 17, appreciate the breakdown of the margin progression through 2025. As we think about the three key drivers of that improvement, right? I'm just curious if you could bucket them by importance or by influence on the margin, which is the most important or key to actually drive that mid-single digits, or is it essentially a split between all?
Speaker Change: Page 17 appreciate the breakdown of the margin progression through 2025.
Speaker Change: As we think about the three key.
Speaker Change: The drivers of that improvement right. Just curious if you could bucket them by important or by influence on the margin, which is the most important or most key to actually drive that mid single digits.
Speaker Change: Or is it essentially is a split between all three.
Taji Phillips: Yeah, so the path to mid-single-digit adjusted comparable store sales is an important factor, as is gross margin expansion and expense management. So, all three of the factors are certainly important in the path to mid-single-digit operating margins in 25. Got it. And just one more question, if I can, I wanted to clarify Michael's question earlier. When he was asking about, like, what, to reach your 2025 target, was that an application to Eyeglass World specifically, where you're saying, like, a mid-single-digit need for Eyeglass World to bridge to 2025? Do I have that right?
Speaker Change: Yes, so the path to mid single digit.
Speaker Change: Adjusted comparable store sale is an important factor as is gross margin expansion and.
Speaker Change: Expense.
Speaker Change: Management. So all three of the factors are certainly important in the in the path to mid single digit operating margin and 25.
Speaker Change: Got it and just one more question if I can I wanted to clarify on Michael's question earlier.
Speaker Change: When he was asking about what improvement and mid single digit comp mid in the comps as necessary to reach our 2025 target was that an application to eyeglass world, specifically, where you're saying.
Speaker Change: Like mid single digits for Eyeglass World to bridge to 2025, so I have that right no that is for overall national vision. Okay understood. Thank you.
Melissa Rasmussen: No, that is for the overall National Vision. Okay, understood. Thank you. Thank you. Your next question comes from the line of Adrienne Yih with Barclays. Your line is now open. Good morning, Reid. I just have a couple of ones for you.
Speaker Change: Thank you. Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Adrienne <unk> with Barclays. Your line is now open.
Adrienne: Good morning, Reed, just a couple ones for you.
Adrienne Eugenia Yih: The average managed care kind of percentage from an industry standpoint, how should we be thinking about that? Maybe, you know, amongst your other competitors, are there any accelerants to kind of doing that, getting that managed care higher, and what was the impetus sort of for the double, you know, the 250 basis point improvement to 35%. And I'm all day; I'm all for you.
Adrienne: Average managed care.
On a percentage from an industry standpoint, how should we be thinking about that maybe amongst your other competitors are there any accelerant to kind of doing that getting that managed care higher and what was the impetus for the double digit.
Adrienne: 250 basis point improvement to 35%.
Reed Fahs: So, absolutely, thank you. So, we have always been underpenetrated versus the category in managed care for a few reasons. One is because we're overdeveloped in cash pay because when it's your money and you don't have vision insurance, you seek out great value, and that's what we provide. In addition, when we bought America's Best in 2005, they didn't even accept insurance at that point in time, so we started from a base of zero.
Adrienne: And the most viable for you as well.
Speaker Change: Absolutely. Thank you up so we have always been underpenetrated versus the category in managed care.
Speaker Change: A few reasons one is because we're over developed in cash pay because when it's your money and you don't have vision insurance you seek out.
Speaker Change: Great value and Thats, what we provide in addition, when we bought America's best in 2005, they didn't even accept insurance at that point in time. So we started from a base of zero for the majority of the category, especially the independence, especially the more.
Reed Fahs: For the majority of the category, especially the independents, especially the more mid- to high-end retailers, it is the majority of their business. Hence, we are under-penetrated.
Speaker Change: The more mid to high end.
Speaker Change: Retailers. It is the majority of their of their business.
Speaker Change: So we are Underpenetrated, we're pleased that it's been progressing in the way it has and I think what that shows is that consumers are realizing that their managed care dollars go further with us than with other places we do some some marketing to reinforce that and then of course, there is a really nice word of mouth component to this.
Reed Fahs: We're pleased that it's progressing in the way it has, and I think what that shows is that consumers are realizing that their managed care dollars go further with us than with other places. We do some marketing to reinforce that. And then, of course, there's a really nice word-of-mouth component to this business, because you tend to have the same insurance as the person sitting next to you in your office or that you work with, so you can spread the word in that way.
Speaker Change: Our business because you tend to have the same insurances. The person sitting next to me in your office or that you work with or you can spread the word.
Reed Fahs: So, it's been steadily increasing for years, increased even more last year, and we think that it should continue to increase as a percentage of our sales. And I think that what's especially nice about that is that as that grows, it makes us ever more resilient to difficult economic times. But we've got a long way to go before we're anywhere near a category. Absolutely And is there typically, I know last year, the cash comp customer, the cash comp was a little bit under pressure. Seems like the fourth quarter was an inflection point for both.
Speaker Change: In that way so it's been steadily increasing for years increased even more last year and we think that it should continue to increase as a percentage of our sales and I think that's what especially nice about that is that as that grows it.
Speaker Change: Makes us ever more resilient to.
Speaker Change: <unk> two <unk>.
Speaker Change: <unk> economic.
Speaker Change: At times, but we've got a long way to go before we're anywhere near it category averages.
Speaker Change: Absolutely and is there typically I know last year, the cash part test of our the cash comp a little bit under pressure. It seems like the fourth quarter was an inflection in those well managed care probably accelerate but is this the inflection point in the cash comp cash cut as well.
Adrienne Eugenia Yih: Well, managed care probably accelerated, but is this the inflection point for cash comps and cash customers? Well spotted. Good job. Yes, indeed, in Q4, we did have positive comps for cash pay consumers also. So, yes, it was both.
Speaker Change: Well spotted good good job, yes, yes. Indeed Q4, we did have positive comps for cash pay consumers also so yes. It was both so that was that was.
Adrienne Eugenia Yih: So that was very nice as well. Good catch. And again, what it reinforced, Q4 was based on, it was primarily driven by transactions, not average ticket. And we do like to grow by customer accounts. That is the best way to be growing our business and the way we've historically done it, primarily through transactions more than average sales. Absolutely. Through transactions.
Speaker Change: Very nice.
Speaker Change: As well good good good Kathryn again, what it reinforced.
Speaker Change: Q4 was based on.
Speaker Change: It was primarily driven by transactions not average ticket and we do like to grow by customer account for that is is the best way to be.
Speaker Change: Our business in the way, we've historically done majority through transactions more than that.
Speaker Change: Totally on the transactions.
Melissa Rasmussen: Melissa, for you, the one Q comp guidance. So, I guess when you guys have looked at sort of correlation to tax refunds, I assume that they're down, right? They're kind of double digits.
Speaker Change: Melissa for you the <unk>.
Melissa Rasmussen: <unk> comp guidance. So I guess when you guys have looked at sort of correlation to tax refunds I assume that they're down right. There kind of double digits that will fix itself over time kind of due to the delay.
Adrienne Eugenia Yih: That'll fix itself over time, kind of due to the delay. So, how highly correlated is that? And I think the answer is highly highly correlated. So, that's number one. And then any help kind of on that flat to slightly negative comp, how should we think about de-leverage, the gross margin? Should it be more kind of measured over the four quarters? Or is it pretty even over the fourth quarter?
Melissa Rasmussen: Are they correlated to that and I think the answer is highly.
Melissa Rasmussen: That's number one and then any help on that flat to slightly negative comp how should we think about deleverage in gross margin should it be more kind of measured over the four quarters or is it pretty even over the fourth quarter, we could start kind of like layering that in in Q1 to offset the comp deleverage. Thanks, so much.
Melissa Rasmussen: We could start kind of like layering that in and Q1 to offset the comp de-leverage. Thanks so much. Hi Adrienne.
Speaker Change: Hi, Adrian everything about the first quarter and we we do certainly factor in tax refunds in that guidance, which we've got ranges factored into that.
Dylan Carden: As we think about the first quarter, we do certainly factor in tax refunds in that guidance, which we've got ranges factored into that outlook that we've provided, and we feel comfortable with the first quarter guidance that we've provided. Now, with that being said, if the first quarter comes in on the lower end, it is harder to leverage that cost structure that we have in place. As you move into the back half of the year, all of the gross margin expansion will come in the back half of the year once we have exited the Walmart and AC Lens business. So, for modeling purposes, that's where you should see the gross margin improvement. And your next question comes from the line of Dylan Carden, with the volume there. Your line is now open.
Speaker Change: The outlook that we've provided and we feel comfortable with the first quarter guidance that we've provided now with that being said if.
Speaker Change: First quarter comes in on the lower end it is harder to leverage that cost structure that we have in place as you move into the back half of the year all of the gross margin expansion will come in the back half of the year. Once we have exited the Walmart and AC lens business model.
Speaker Change: Link purposes, that's where you should.
Speaker Change: <unk> gross margin improvement.
Speaker Change: Your next question comes from the line of Dylan Carden with William Blair. Your line is now open.
Patrick R. Moore: I'm just trying to understand the deceleration in remote care rollout and the seeming discrepancy between about 60% of America's best. Now having remote capacity and only 5% of exams, if I had that statistic right, is the deceleration... More a result of cost consciousness in this sort of year of some noise around costs, or is it that you're seeing better progression on dim and dark stores from a recruitment standpoint? Thank you. Hey, hey, Dylan.
Dylan Carden: Appreciate it.
Dylan Carden: Just trying to understand the deceleration and remote care rollout and I guess with the seeming discrepancy between about 60% of America's best.
Dylan Carden: Stores now, having remote capacity and only 5% of exams. If I have the statistic right is the deceleration.
More result of cost consciousness in this sort of year of noise around costs or is it that youre seeing better progression.
Dylan Carden: On them and dark stores from a recruitment standpoint.
Speaker Change: I guess, maybe let's start there.
Dylan Carden: It's Patrick. Good morning. You know, you're right. Remote has been a really important and high-impact program for us. You get a couple of my stats, which were 5% of all exams, and in states where we are running remote, it's significantly higher.
Speaker Change: Hey, Don it's Patrick good morning.
Don: Youre right remote has been a really important and high impact program for us to get a couple of months that which was 5% of all exams.
Patrick R. Moore: And in the states, where we are running promoted significantly higher.
Patrick R. Moore: The slowdown in the rollout this year, or the deployment, is really a function of our comfort level with taking our remote model into specific states. And so, by the end of 2023, we have taken it into all states that we consider effectively green go states. There are a few large ones that we would really like to go to, but they're still in the yellow zone.
Patrick R. Moore: Slowdown in the rollout this year or the deployment is really a function of our comfort level or taking a remote model into specific states.
Patrick R. Moore: So as of the end of 2023, we had taken it into all states that we consider effectively green goes statements. There are a few large loans that we would really want to go too, but they are still in the yellow zone.
Patrick R. Moore: We're monitoring that closely, and over time, as telemedicine laws and approaches remain fluid, I think we'll have a shot at that. So this is really all about where do we feel good about taking our remote exams and doing that lawfully and according to state rules and regulations. I will say this, even in light of us only taking it to 50 more AVs this year, and that's basically mostly new stores, there will be a few EGWs in there, you know, we will continue to reap the benefits of getting better and better at remote for those 500 plus that we've already rolled it out. So, we've made great advances this year in terms of making remote way of life, it's having nice impacts for the business, but even in stores that have been running it for a year or so, hey, there's still, there's still low hanging fruit to grab there as our store teams get more and more comfortable and our doctors get more and more comfortable. Well, I guess that's where I was going to go with this as you as you do slow the pace of the rollout.
Patrick R. Moore: Modern prune that closely and over time as telemedicine evolves and approaches remain fluid I think we will have a shot at that so this is really all about where do we feel good about taking our remote exams.
Patrick R. Moore: And doing that lawfully and according to.
Patrick R. Moore: St rules and regulations.
Speaker Change: I'll take this.
Speaker Change: Even in light of us only taking it to 50 more this year and Thats basically.
Speaker Change: Mostly new stores, there will be a few <unk> zamir.
Speaker Change: We will continue to reap the benefits of getting better and better at removes for those 500, plus that we've already rolled it out so.
Speaker Change: So we've made great advances this year in terms of making remote way of life.
Speaker Change: As having nice impacts for the business, but even the stores that had been running it for a year or so hey, they're still there still low hanging fruit to grab there as our store teams get more and more comfortable and our doctors get more and more productive.
Speaker Change: Well I guess, that's what I was going to go with this as you as you do slow the pace of the rollout.
Dylan Carden: It's always felt to me like a pretty not insignificant margin opportunity in that you're sort of cutting down on that share time, which I think you run higher than the industry average. I mean, should you, is there any sort of embedded benefit this year or next to the mid single-digit target sort of from maturing the remote capabilities that you can either quantify or speak towards? There are definitely benefits to be gained from the guidance.
Speaker Change: Just always felt to me like a pretty not insignificant margin opportunity and that you are sort of cutting down on the chair time, which I think you ran higher than the industry average I mean should you is there any sort of embedded benefit this year or next to the mid single digit target sort of from maturing the remote capabilities. So you can either quantify or speak towards.
Speaker Change: There are definitely benefits included in the guidance.
Patrick R. Moore: We expect to see increasing levels of remote doctor productivity based on us getting kind of the supply and demand balance better aligned. And frankly, Dylan, we've seen some really nice improvements thus far this year that we think will aid our performance. And that's included in what Melissa said. And finally, just on pricing, it sounds, I know you've taken the headline price up in the last couple of years as America's best, but on the more recent late 23 price, and that sounds almost entirely related to exams, any update or thinking around maybe sort of peripheral product price opportunity? You know, we did that study last year.
Speaker Change: Expect to see increasing levels of remote doctor productivity based on us getting kind of the supply and demand balance better aligned and frankly, given we've seen some really nice improvements there.
Speaker Change: Thus far this year that we bring full ADR performance and Thats included and what models this year.
Speaker Change: Got it.
Speaker Change: And then finally, just on pricing it sounds I know you've taken headline price up in the last couple of years as America's best but on more recent late 'twenty three pricing that sounds almost entirely.
Speaker Change: Related to exams.
Speaker Change: We update our thinking around maybe sort of peripheral product price opportunity.
Speaker Change: Yes.
Speaker Change: We did that study last year.
Reed Fahs: Pricing is a lever we use. We're always looking at different pieces. We thought the lowest-hanging fruit came in the exam and medical services areas since we provide real life added value there and where we are relative to competition, but we do not have, nor are we planning on taking action right now. We're sort of just sitting on what we've done and continuing to watch and learn. There was one lens opportunity we also did take, so we got it.
Speaker Change: Pricing is a lever we use we're always looking at different pieces, we thought the lowest hanging fruit came in the exam and medical services areas. Since we provide real nice added value there and where we are relative to competition, but we are we do not have.
Speaker Change: We do not we're not planning on taking action right now we're sort of.
Speaker Change: Sitting on what we've done and continuing to watch and learn there was there was a one lens opportunity. We also did take wholesale.
Dylan Carden: Yeah. Great. All right. And then on new openings, I mean, Yeah, well, it's more skewed now to America's Best, it sounds like, but just, you know, a lot going on in the business to kind of keep that number stable, just how you're thinking about, particularly as you're now at a relatively significant scale, why maybe that continues to make sense to maintain that level of new operations. Hey, it's Patrick.
Speaker Change: Got it.
Speaker Change: Yes.
Speaker Change: Great Alright, and then on new openings I mean.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: More skewed not America's best it sounds like but just a lot going on in the business to kind of keep that number stable just how youre thinking about particularly as you are now at a relatively significant scale.
Speaker Change: Why maybe that continues to make sense to maintain that level of new openings.
Patrick R. Moore: I'll take that one. You know, unit growth remains a major component of our core strategy. We still have a lot of white space out there for AP and EGW, and we will continue to open stores. We opened 70 last year.
Speaker Change: Hey, guys, Patrick I'll take that one unit growth remains a major component of our core strategy. We still have a lot of white space out there for AP <unk> and we will continue to open stores. We opened 70 last year, we're driving it.
Patrick R. Moore: We're driving to, and the National Business Forum. Thank you. Thank you, and thank you to all of our panelists. We're going to go to the next slide. So we've got a new year, the year before last, so I'm going to go ahead and show the slides. So we're going to go ahead, and you can see that we're in a little bit of a hazardous situation with COVID-19. We had about 75 to 70 this year, and so this is still a big part of our growth and market share expansion plan. This year, we expect it to be heavily skewed towards AB. We also expect the year to be fairly relatively spread across the first and second half. We were a little more skewed to the second half last year due to some timing delays, but we're expecting less of those this year, so it should be fairly smooth. But make no mistake; unit growth remains a full part of the strategy. We're happy with how our new store performed last year. We're still seeing those stores hit the overall profitability metrics that we need, and there's no signals telling us not to.
Speaker Change: 65 to 70 this year.
Speaker Change: And so this is still a big part of our growth and market share expansion plan. This year, we expect it to be heavily skewed towards a b.
Speaker Change: We also expect the year to be fairly ratably spread across first and second half we were a little more skewed.
Speaker Change: Second half last year due to some timing delays, but we were expecting less of those this year. So it should be fairly smooth.
Speaker Change: Make no mistake unit growth remains a core part of the strategy.
Speaker Change: We're happy with how our new stores performed last year, we're still seeing those stores. The overall profitability metrics that we need and there is no signals, telling us not particularly robust.
Speaker Change: Great. Thank you very much.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: And we have no further questions at this time I will now turn the call back over to meet page.
Meet Page: Thank you very much for your help today and thank you to all of you for joining US today. We appreciate your interest and support and look forward to talking to you next on our Q1 earnings call. Thank you all very much.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: Okay.
Operator: Thank you very much. Thank you. And we have no further questions at this time. I will now turn the call back over to Reed Pond. Phyllis, thank you very much for your help today and thank you to all of you for joining us today. We appreciate your interest and support and look forward to talking to you next on our Q1 earnings call. Thank you all very much. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change:
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
[music].
Speaker Change: Hum.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Jim.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].