Q1 2024 National Vision Holdings Inc Earnings Call
[music].
Okay.
Good day, and thank you for standing by.
Speaker Change: Welcome to the Q1 2024 National Vision earnings Conference call.
At this time, all participants are in listen only mode.
After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question. During this session you will need to press star one one or your telephone you would be in here an automated message advising your hand is raised.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: Please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today Tomorrow.
Tomorrow Gonzales: Tomorrow Gonzales head of Investor Relations. Please go ahead.
Tomorrow Gonzales: Thank you and good morning, everyone and welcome to National Vision's first quarter 2024 earnings call.
Tomorrow Gonzales: Joining me on the call today are the Faas CEO and Melissa CFO.
Tomorrow Gonzales: CFO Patrick more C. O M is also with us and it'll be available during the Q&A portion of the call.
Tomorrow Gonzales: Earnings release issued this morning, and the presentation accompanying our call are both available in the investors section of our website national vision Dot com.
Tomorrow Gonzales: A replay of the audio webcast will be archived in the investors section after the call.
Tomorrow Gonzales: 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.
Tomorrow Gonzales: These statements are subject to risks and uncertainties.
Tomorrow Gonzales: Is that could cause actual results to differ materially from our expectations and projections.
Tomorrow Gonzales: 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.
Tomorrow Gonzales: The release and today's presentation also includes certain non-GAAP measures.
Tomorrow Gonzales: Alliaceous. These measures is included in our release and the supplemental presentation.
Tomorrow Gonzales: We would also like to draw your attention to slide two in today's presentation for additional information about forward looking statements and non-GAAP measures as.
Tomorrow Gonzales: As a reminder, national vision provides investor presentation, and supplemental materials to our investor reference in the investors section of our website.
Re Rate: Now I'll turn the call over to re rate.
Re Rate: Thank you Tamara and good morning, everyone. Thank you for joining US today as you saw in our release. This morning, we delivered first quarter top line results in line with our expectations are relatively flat adjusted comparable store sales growth and we're pleased to reported total company adjusted diluted earnings per share of 32 cents, which.
Re Rate: Reflects our team's continued disciplined approach to expense management on.
Re Rate: On a continuing basis first quarter net revenues increased four 2% and adjusted comparable store sales increased 4%, primarily driven by ongoing strength in our managed care business a growth within Americas best.
Re Rate: On our last call we shared that the softer start to the year was related to weather. During January this along with the slower start to the tax refund season adversely impacted sales and transactions in the quarter as consumers remain cautious in their spending.
Re Rate: During the quarter. We also saw higher average ticket and higher exam revenues driven by pricing actions. We have taken in addition, the greater percentage of managed care purchases resulted in a mix shift between our two pair offer and single payer eyeglass sales as Melissa will discuss.
Re Rate: Our business remains in the midst of a transformation that we began in earnest last year and we've made significant progress over that time, thus, giving us a stronger foundation for future growth we.
Re Rate: We remain keenly focused on our customers, while maintaining a disciplined approach to expense management by closely managing our cost structure, both in the stores and at the corporate level. We are continuing to adapt our model to meet the realities of our industry today and the needs of our customers.
Re Rate: With that I'd like to share my thoughts on the quarter in terms of what went well and where we see opportunities to improve let's start with our.
Re Rate: Our key focus for the past year has been on ensuring that eye exams are available for our customers when they want them to.
Re Rate: To accomplish this we've focused on retention and recruitment of optometrists and leveraging remote exam technology from this perspective things went well in the first quarter, our retention levels remain healthy and recruitment remains on track with our 2024 goals and on the remote exam front, we made some real progress.
Re Rate: Recall that our remote technology allows doctors working from other locations to perform an eye exam on a patient in the store we find that recruiting doctors is easier with the remote model given the flexibility it offers them.
Re Rate: On our last call we shared that our rollout efforts were hampered by certain large states that restrict or do not permit teller optometry. We shared that we believe the general evolution will be towards authorizing more telemedicine options, but that certain states have not yet adopted the practice, we specifically mentioned, Texas is a state where we could really.
Re Rate: Use remote to help improve exam capacity.
Re Rate: Since our last call based on recent updates to the regulatory environment. We're pleased to say that we're moving forward with remote in Texas. This year. In addition to our original locations planned for the year.
Re Rate: Since we began piloting remote exam technology in our America's Best stores, just three years ago. We've enabled over 550 locations as of the end of 2023 on our last call. We shared that we plan to enable 50 additional locations with remote this year and complete the expansion of electronic health records or EHR.
Re Rate: The America's best.
Re Rate: These latest positive developments, we now expect to add remote to at least 150 stores. This year and allow the EHR rollout completions fall into next year. Therefore, we anticipate ending the year with approximately 700 remote enabled stores.
Re Rate: Note that in the first quarter remote exams represented over 7% of all exams provided and then remote enabled states. They were in the low double digit percentage range.
Re Rate: Recall that our rollout of remote is dependent on the state by state regulatory environment, and we intend to continue adding select locations, where feasible and advantageous.
Re Rate: Accordingly remote doctors now performed approximately the same number of exams as optometrist practicing live in the store per day. Additionally, several stores are already at the point, where they can perform as many exams a day with only remote options as they do with life doctors, which gives us further confidence in the benefits of our remote model.
Re Rate: In summary on this point, we feel quite good about how our efforts in retention recruitment and remote helped to drive an improvement in exam capacity in the first quarter compared to the prior year moves.
Re Rate: Moving on to where we see opportunities youre, well aware of the challenging macroeconomic environment. The retail industry is up against especially for retailers like us who appeal to lower income consumers as such we've seen the kind of pressure on our business that you would expect in this environment, our comparable store sales remain below our target of mid single digit growth and.
Re Rate: Our number one focus.
Re Rate: Last quarter, we shared that we were waiting for March results as a data point for normalization.
Re Rate: The purchase cycle following the green shoots we saw in the second half of last year. However March did not prove to have as robust of a demand backdrop as we would've hoped however, with much of the year still ahead, we remain focused on executing on our goals and we are reaffirming our earnings outlook for the year.
Re Rate: Melissa will go into more detail on our outlook in just a moment the data remains inconsistent and we believe it is still too soon to declare that the optical purchase cycle has normalized particularly as our core uninsured customer faces ongoing macro related headwinds are lower income consumers remains stressed given persistent high inflation. This.
Re Rate: As reflected in the lower contribution of our cash pay customers to our overall sales as this group raised daily purchases, such as groceries and gas with the necessity to see clearly.
Re Rate: As such we did not see the growth in cash paid customers as we did in the fourth quarter. We did continue to see strength in managed care, which as of the end of last year represents about 35% of our business.
Re Rate: While we cannot control the macro factors impacting our business. We believe the actions. We are taking provides us with a strong foundation for growth.
Re Rate: I am pleased with the execution our teams are delivering against this challenging backdrop.
Re Rate: We also continue to tackle inflationary pressures on our business with pricing in fact on a continuing basis exam net revenue fully offset doctor costs during the quarter for the first time in the past 12 months, reflecting the price increases we took at the end of the fourth quarter as well as increased Dr. Productivity, we will continue to look.
Re Rate: For ways to offset inflation with pricing, where we see the opportunity to do so.
Re Rate: As we shared last quarter Eyeglass World is not performing to our standards. We're pleased with the actions the new leadership team has taken to improve that business and Reenergize. The brand. The primary focus has been to standardized operations by taking a page from our America's best Playbook, which includes improving coverage to better align.
Re Rate: Days in times of coverage to meet our patients' needs. We began implementing remote technology inflect stores. This quarter also as we mentioned on our last call. We reallocated marketing dollars to provide eyeglass world with higher advertising this year to improve brand awareness during.
Re Rate: During the quarter, we largely completed the previously announced conversion of the 'twenty Eyeglass World, California stores to America's Best.
Re Rate: We're early in that conversion and some opportunities remain but overall things are going well. Our training teams are doing an amazing job, helping to staff and doctors transition to the new model. Additionally, we recently equipped California stores with EHR and plan to use remote and at least some of those stores fulfilling coverage.
Re Rate: Before closing I'd like to share with you an update on our white space opportunity and some exciting AI developments at Tokyo.
Re Rate: During the quarter, we completed a detailed analysis of our white space opportunity. The new analysis is based on updated modeling by a third party real estate data analytics provider that we've used for many years based on these results we increased the white space opportunity for America's best by an additional 350 locations for a new <unk>.
Re Rate: Total of at least 1650 America's best locations.
Re Rate: Our analysis assumes maintaining eyeglass world total white space opportunity of at least 850 locations as we work to improve performance in that brand. Our total updated white space opportunity is now believed to be at least 2500 stores, which is more than double that of our current store count.
Re Rate: As we think about opportunities in our new store opening plans. It is important to note that two thirds of the America's best stores and our new White space opportunity are in currently remote enabled states.
Re Rate: That will increase over time as we enter more states.
Re Rate: Further the majority of our new stores opened with full Dr coverage, most would life doctors or some form of hybrid live in remote Dr coverage.
Re Rate: For the year, we continue to expect to open 65 to 70, new stores and we will continue to provide detail on our annual new store opening plans at the beginning of each year.
Re Rate: Looking ahead, we are excited about the many opportunities AI brings to the optical industry.
Re Rate: While still early stage, we're pleased with the progress being made by <unk>, Inc. The AI startup we have invested in this quarter. We were excited to be the first retailer in the U S to launch a pilot of bio age Tokyo's wellness product that utilizes retinal images to determine a person's biological age which can give an indication.
Re Rate: Asian of their overall health. We are currently piloting this in a handful of stores.
Re Rate: <unk> was also granted a second breakthrough designation by the FDA. This time for its chronic kidney disease assessment, AI, which follows the designation granted for its cardiovascular assessment AI late last year.
Re Rate: Both of these products can use retinal images collected at routine eye exams, which further demonstrates that <unk> offers a window into broader health and.
Re Rate: And with that I will turn the call over to Melissa to review our results in more detail.
Melissa: Thank you Reed and good morning, everyone. As Reade noted, we delivered first quarter adjusted comparable store sales in line with our expectations on both the total company and a continuing operations perspective.
Melissa: And we have continued to progress our initiatives, including expanding exam capacity by addressing both dark stores.
Melissa: Given the termination of the Walmart management and services agreement in the first quarter. Our historical legacy segment is now presented as discontinued operations for the current and prior year period.
Melissa: As you review our financial statement note that the earnings impact from the termination of the Walmart management and services agreement can be found in one line item entitled discontinued operation.
Melissa: Today My review, our first quarter results will be focused on continuing operations unless otherwise noted.
Melissa: Now moving on to first quarter results in more detail.
Melissa: Our first quarter net revenue increased four 2% compared to the prior year driven primarily by growth from new store sales, which was partially offset by a slight drag from the conversion of the 'twenty eyeglass world stores in California.
Melissa: The converted stores were closed for a short period of time prior to reopening as America's best locations.
Melissa: These stores will continue to be reflected in total net revenue performance and will be added to the comp base in the 13th full fiscal month. Following the completion of the conversion, which is consistent with our methodology.
Melissa: Adjusted comparable store sales growth for the quarter was 4% driven by an increase in average ticket supported by the pricing actions taken at the end of last year.
Melissa: Partially offset by a decrease in customer transactions.
Melissa: The timing of unearned revenue benefited revenue in the period by 50 basis points.
Melissa: <unk> opened 14, new America's best and converted toward the eyeglass World stores to America's best in the first quarter.
Melissa: Unit growth in our America's Best and Eyeglass World brands increased six 5% on a combined basis over the total store base last year, and we ended the quarter with 1201 stores.
Melissa: As a percentage of net revenue cost applicable to revenue increased approximately 60 basis points compared with the prior year quarter, driven primarily by a 110 basis point decrease in product gross margin offset by a 50 basis point expansion in service gross margin.
Melissa: The decrease in product gross margin was largely attributable to the mix shift in revenue given the strength in managed care in the under utilization of the two pair offer as the cash pay consumer remains stressed.
Melissa: The 50 basis point expansion in service gross margin was driven by increased exam revenue due to pricing actions and growth in exam, count, which more than offset the deleverage in optometrist related cost.
Melissa: This is detailed on slide eight in our presentation.
Melissa: Adjusted SG&A expense as a percentage of revenues decreased 70 basis points compared with the first quarter of 2023.
Melissa: The decrease in adjusted SG&A as a percentage of net revenue was primarily driven by a decrease in performance based incentive compensation, partially offset by increased occupancy and other operating expenses.
Melissa: We continue to be very disciplined with expense management and have implemented efficiencies to streamline processes and reduce costs.
Melissa: For example, during the quarter, we modified our store staffing program to better align store performance and demand without sacrificing customer service.
Melissa: Depreciation and amortization expense was $23 6 million compared to $22 $7 million in the prior year period.
Melissa: Adjusted operating income was $35 8 million compared to $33 $9 million in the prior year period.
Melissa: Adjusted operating margin increased 10 basis points to six 6% compared to the prior year period due primarily to the factors previously discussed.
Melissa: Net interest expense was $4 $3 million compared to $4 $9 million in the prior year period.
Melissa: As a reminder, our interest guidance excludes noncash mark to market and deferred financing costs, which totaled $3 $3 million for the period.
Melissa: Excluding these costs interest expense was $1 million.
Melissa: Adjusted diluted EPS increased to 30 per share in the first quarter of fiscal 2024 from 27 cents per share a year ago Andrew.
Melissa: And reflect an effective tax rate of approximately 31%.
Melissa: As a reminder, our adjusted results exclude the impact associated with one time charges, including the wind down of AC land.
Melissa: Cost savings initiatives.
Melissa: Charges related to our ERP and CRM implementations among other items detailed in the reconciliation tables in our earnings release for our adjusted results on both a total company and continuing operations basis.
Melissa: As it relates to the ERP project work streams are progressing well and we are on track to substantially complete the first phase of the project by the end of fiscal 2024.
Melissa: Turning next to our balance sheet, we ended the quarter with a cash balance of approximately $150 million and total liquidity of $444 million.
Melissa: Including available capacity from our revolving credit facility.
Melissa: As of March 30th our total debt outstanding was $459 million net of unamortized discounts for the trailing 12 months. We ended the year with net debt to adjusted EBITDA of two times.
Melissa: During the quarter, we generated operating cash flow of $24 million and invested $20 million in capital expenditures, primarily focused on new store openings and investments in technology.
Melissa: We continue to maintain a strong balance sheet and healthy cash flow to support our growth and capital allocation priorities as detailed on slide 10 of our earnings presentation.
Melissa: Moving now to the discussion of our 2020 for outlook for the total company, which includes the impact from discontinued operations as well as continuing operations for the full year.
Melissa: As stated in our press release, we are reaffirming our outlook for fiscal 2024.
Melissa: The expected effect of Walmart in AC Luz operations on fiscal 'twenty 'twenty four results are reflected on slide 13 of our earnings presentation.
Melissa: Walmart store operations now reflected in discontinued operations delivered $18 million in revenue and an adjusted operating loss of $800000 for the first quarter of fiscal 2024.
Melissa: These results include $3 million from unearned revenue and the impact of additional cost incurred after the contract termination not assumed in our original outlook.
Melissa: As a reminder, our AC lens operations will remain in continuing operations results through June 30th.
Melissa: We now expect AC lens to deliver approximately $122 million of revenue and $2 million of adjusted operating income in the first half of the year.
Melissa: Half of which was achieved in the first quarter.
Melissa: 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 our Eyeglass World brand.
Melissa: As Reade noted, we experienced a less than robust tax refund season, while March and April both comped positively in the low single digit range, we would need to see a greater improvement in adjusted comparable store sales growth trends as we progress through the year to achieve topline results towards the higher end of our guidance range.
Melissa: That said it is still early in the year and we are controlling all aspects of performance that we can control we remain acutely focused on executing our strategic initiatives to drive top line growth, which includes expanding our remote exam capabilities into Texas.
Melissa: We believe expanding remote exam capabilities into Texas will benefit sales in the second half of the year.
Melissa: In addition, we continue to believe that the pricing actions. We took at the end of last year as well as our ongoing focus on disciplined expense management will support our profitability objectives.
Melissa: As I mentioned, we have evolved our store staffing guidelines to better adapt to changing consumer trends and we are continuing to benefit from the cost savings actions, we implemented late last year.
Melissa: As a reminder, at the mid point of our guidance. We would expect operating income margins relatively in line with fiscal 2023, driven by gross margin expansion of approximately 200 basis points, which is expected to be entirely weighted to the second half of the year given the timing of the transition.
Melissa: And out of the lower margin, Walmart and AC lens businesses.
Melissa: Adjusted SG&A as a percentage of revenue is expected to deleverage by approximately 150 basis points.
Melissa: Merely driven by the year over year decline in revenue in the second half of the year, given the termination of the Walmart and AC lens businesses.
Melissa: Looking further ahead as we have previously discussed fiscal 'twenty 'twenty four results in a return to mid single digit adjusted comparable store sales growth are critical steps in achieving our fiscal 2025 target of a mid single digit adjusted operating margin.
Melissa: While we cannot control the macro environment, which continues to pressure our core and an uninsured consumer as reflected in our slower start to 2024, we remain committed to controlling all aspects of business performance within our control by taking the appropriate actions to improve productivity, while driving growth.
Melissa: Margin expansion and expense leverage.
Melissa: We remain focused on achieving our objectives and delivering value to our shareholders.
Melissa: 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.
Melissa: Reed.
Reed: Thank you Melissa to summarize we're pleased to have delivered sales in line with our guidance on our last call. We remain intently focused on disciplined expense management, which led to stronger than expected profits in the quarter.
Reed: Our doctor retention and recruitment levels during the quarter remain on track and we're excited to move forward with enabling our stores in Texas with remote technology, which will allow us to improve coverage in that important state and our eyeglass world team is making progress to improve and Reenergize the brand.
Reed: While the macroeconomic environment remains uncertain the national vision culture remains strong. It gives me great Joy to see the passion associates and doctors bring to our stores every day to serve our customers. We're keenly focused on the areas of business that we can control and are committed to continuing to make progress on our strategic initiatives to drive shareholder value.
Speaker Change: And with that we'll now turn the call over to the operator for questions.
Speaker Change: Thank you.
Speaker Change: At this time will be conducted a question and answer session.
Speaker Change: As a reminder to ask a question you to read the press Star one on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Our first question comes from Michael Lasser from UBS. Please go ahead.
Michael Lasser: Good morning. Thank you so much for taking my question.
Speaker Change: Given the underperformance of the eye.
Speaker Change: Glass World segment.
Michael Lasser: Which tends to cater to a slightly higher income demographic. It does seem like you are seeing different trends.
Michael Lasser: Bye.
Michael Lasser: Classes.
Michael Lasser: Income demographic.
Michael Lasser: Are there other factors at play that are weighing on sales outside of just the macro in your view.
Speaker Change: Yes, Michael Thank you for that yes, and you're right. There's eyeglass world does appeal to a slightly higher demographic, but we don't really think that that's what is.
Speaker Change: Is the key challenge for our Eyeglass World business.
Speaker Change: We really think that we've got a few things that aren't quite in alignment there that the.
Speaker Change: The coverage situation and eyeglass World has not been as strong we have a few different models. There that we're trying to get to the point of the of having the coverage we need to handle the consumer demand there, where we think that we've been under marketing that and we've been we're returning to.
Speaker Change: Healthier marketing levels, and we think that there is some operational Christmas that we can improve also and so we really we think that there are more internal factors associated with this then really the.
Speaker Change: External.
Speaker Change: Then the consumer than consumer segments with Banfield to I will say, we are adding remote to a number of eyeglass world stores now so that's going to it should be should be helpful to us in the near future.
Speaker Change: Okay. Thank you very much for that and my follow up question is you do.
Speaker Change: You discussed the low single digit comp.
Speaker Change: <unk> been seeing in March and April.
Speaker Change: That continues you would take out the high end of the comp range for the year, how should we think about the flow through or where you would land on the profitability side. If you come in at the lower end of your sales range for the year.
Speaker Change: Hi, Michael the way that we were considering the guidance with the comp trajectory that we've seen so far while the March and April comps came in in the low single digit that's more in line with the bottom end of our range and we were hoping for a more robust.
Speaker Change: March and what we saw that being said there are some levers that we're planning to pull related to revenue one of which being the rollout of remote into Texas, Texas is the largest state with America's best present in it that we do expect a.
Speaker Change: Meaningful impact to the back half of the year related to the remote enablement. There. In addition, we're looking to implement some patient access initiatives.
Speaker Change: In the coming weeks that we also expect will be a benefit to revenue with both of those factors. We were we were confident in reaffirming the guidance range now, Texas, we're expecting to make up some lost ground from the slower.
Speaker Change: The slower start of the year.
Speaker Change: And with the overall performance at the bottom line, we did see some benefit from disciplined expense management, but we also had an impact related to incentive compensation.
Speaker Change: Year over year, we're accruing lower incentive compensation that was built into the plan to some extent however, based on the slower startup performance you did see a bigger benefit of that this quarter then youll see in subsequent quarters. We do expect that that will continue to mitigate expenses to the extent possible inter continue.
Speaker Change: Looking for efficiencies to implement and will maintain our disciplined expense management.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Simeon Siegel from BMO. Please go ahead.
Simeon Avram Siegel: Thanks, Good morning, everyone.
Simeon Avram Siegel: Could you just back on the March April for a second how is ticket versus transactions in that period and maybe how are you thinking about the transactions playing out over the course of the year.
Simeon Avram Siegel: I know this is early but just any any early learnings you can share on the performance of the converted stores. How are their openings are the ramps youre seeing how they compare to new store openings.
Simeon Avram Siegel:
Simeon Avram Siegel: So there are three parts there.
Speaker Change: So the.
Speaker Change: That.
Speaker Change: March and April period.
Speaker Change: He is a little bit more.
Speaker Change: More transaction driven than ticket driven we think.
Speaker Change: Little different in the two quarters, there, we're going to we're going to check that for sure right now.
Speaker Change: The converted stores are transitioning rather 20 eyeglass world.
Speaker Change: Converted stores are theyre transitioning we're teaching the new model just at the end of the quarter, we got to the.
Speaker Change: The point, where they've got to the new model now we're training all the stores and how to do the new model and it is a very different model. So.
Speaker Change: That's coming along as we had.
Speaker Change: We had expected.
Speaker Change: And there was a fair thanks.
Speaker Change: Well it was just thinking through how you'd expect transactions to progress over the year with them up in Ireland.
Speaker Change: I will say right right now the category itself is slow right now overall.
Speaker Change: It seems from everything we can we're hearing from all of the different vendor communities that the category is right now going through a slow patch, we do think and we think thats all related.
Speaker Change: Consumer sentiment there is not much in the headlines out there that are very encouraging and.
Speaker Change: We will.
Speaker Change: But but we do think we have some strong programs that should help us to drive sales going forward capacity driving programs like like Melissa just mentioned, we have some new product introductions that we think are pretty exciting and we're gonna be trialing, some new messaging as well, which we're hopeful that can help us in the in the second half of the year, it's like a few quarters of the year and we are.
Speaker Change: We're still very encouraged by managed care, which just keeps keeps delivering well for us.
Speaker Change: I just wanted to clarify that for overall for the quarter, we did see a higher ticket and lower transactions that offset that higher ticket to a slight extent that being said, we did increase the pricing at the end of 'twenty, three which helped contribute to that increased ticket that you were seeing in first quarter.
Speaker Change: Alright that makes sense. Thanks, so much guys best of luck for the rest of year.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Anthony Chinonye Chukumba: Our next question comes from Anthony to Cumber.
Anthony: Capital markets. Please go ahead.
Anthony: Good morning, Thanks for taking my question on the risk of getting too granular.
Anthony: In terms of Texas can you just give us some order of magnitude in terms of the number of dark in DM stores there.
Speaker Change: Hey, Anthony it's Patrick a couple of things I'll mentioned in Texas.
Patrick R. Moore: It's a really big market opened at 10 years ago and has been critical we have more stores in the state of Texas any other states in the U S and certainly theres going to be some proportionate level of dark and dam there we're going to be lighting up a 100 plus locations now this year sooner.
Patrick R. Moore: Possible.
Speaker Change: And to help remediate any of those.
Speaker Change: List.
Speaker Change: And so it's going to be it's a really powerful tool and we'll be deploying nuclear soon.
Speaker Change: Got it that's helpful. And then just quickly changing gears here in terms of Tokyo and this bio age is that.
Speaker Change: What's the charge for that and is that.
Speaker Change: Is that covered by insurance or is that something that.
Speaker Change: As far as how to pay for out of pocket.
Speaker Change: So.
Speaker Change: It is a we bundle it in with a few other tests.
Speaker Change: It is not covered by insurance.
Speaker Change: The way. It works is that you get a result that gives you your biological age and and if your if youre biological age is five years or more older older than your chronological age than we really suggest you go seek medical help and.
Speaker Change: I have been frankly pleasantly surprised by.
Speaker Change: The uptake.
Speaker Change: But again, it's just a handful of stores and it's early days in what we're doing with all of these things with AI as we're learning our way through this and and the bio age thing does not require FDA approval, but the big the big news will be when the FDA.
Speaker Change: The lesson is both.
Speaker Change: Cardiovascular and the kidney AI.
Speaker Change: Estimates because I think that really will be something that can play a role in the health care of our patients.
Speaker Change: We're learning through this but AI is a big new exciting world. We wanted to find a variety of different ways that it can impact both our our patient and customer facing side of our business as well as our back office.
Speaker Change: That's very helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: For our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Simeon Gutman from Morgan Stanley. Please go ahead.
Simeon Ari Gutman: Hey, good morning, everyone.
Simeon Ari Gutman: Reade I wanted to ask first on remote we talked a bit about Texas.
Simeon Ari Gutman: Dams and driving some sales can you give us maybe a preview of our tour of how remote.
Reade: So it shows up on the P&L, obviously sales.
Simeon Ari Gutman: Do we have the embedded cost I guess theres fixed cost of optometrists already in your P&L or are there other technology other more rollout costs or where at the embedded run rate and now it's all the benefits start to accrue once you roll it out to more markets.
Speaker Change: Hi, Simeon we can be remote rollout.
Simeon Ari Gutman: Largely the benefit that similar as in lane versus remote there are some puts and takes that go into that now to implement the remote technology. There is an incremental cost associated with that you have the capital expenditure. In addition to the teams that are deploying this.
Simeon Ari Gutman: Technology, we do have it embedded into our run rate now that we have been doing remote in earnest.
Simeon Ari Gutman: You know 2022, we have been incurring the ongoing expense and seeing the ongoing benefit did that provides to us we do see a lift in productivity as the store has them at the store and the Doctor has become more comfortable with that technology and overall, we are seeing positive.
Simeon Ari Gutman: Margin and operating margin related to the remote technology as a whole.
Simeon Ari Gutman: And I do think this this quarter was another step change in our evolution on remote overall I think the Texas nuisance wonderful. It was a surprise it was far earlier than we expected. So that was great and that's why we're raising the number of stores, we're going to enable this year, but also just the fact that that the doctors are.
Simeon Ari Gutman: As productive and now we've got several stores that that can do remote in a way that allows them to do as many events as they did with a life Doctor all those things combined you just take us to a new level and see it see it achieving its potential.
Simeon Ari Gutman: More so we think it was a really good quarter for remote all around.
Speaker Change: Okay, and then follow up just two parts the price increases on exams I am assuming you are competitive within the market, but any other competitive changes on price sorry.
Speaker Change: You had a value to the market.
Speaker Change: Oh, yes.
Speaker Change: Oh, sorry go ahead.
Speaker Change: I'm going to say of course, we did we did a lot of analysis and checking and we're still a really great value the.
Speaker Change: The exam price is $69 for the exam by the way for an extra $10 you can get.
Speaker Change: Two pairs of glasses.
Speaker Change: That value look even more exciting but yes.
Speaker Change: It's still a great value relative to what youre going to find almost any place else.
Speaker Change: And then the incentive comp I think Melissa said that you were accruing a certain amount, but you took it down a little further can you quantify that and will that benefit remain the entirety of that 100 basis points I guess it depends on sales but.
Speaker Change: Roughly what Youre accruing now does that hold.
Speaker Change: Good Guy now to the P&L for the rest of the year.
Speaker Change: Hey, Simeon with the incentive compensation year over year, we did take down the accrual in 2023 with the year being better than we had originally expected we did pay out a bit above target. Our plan. This year contemplated that we would accrue incentive compensation at Targa.
Simeon: So there was a little bit of a benefit baked into the plan anyway now what we did see as we went into the first quarter was with the soft start there was more of a benefit than what was originally baked into the plan I would expect that youll continue to see some benefit in each quarter as the year progresses, but not to expect it to.
Simeon: See as large as it was in the first quarter.
Speaker Change: Thanks, Good luck.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Adrian.
Adrian: From Barclays. Please go ahead.
Adrian: Great. Thank you very much.
Adrian: So read I guess I'm going to kind of more broad questions. So it sounds like you.
Adrian: Have even more confidence on sorry, the remote uptake and believe in it very very strongly over the long term just trying to figure out how you think about sort of walmart's virtual health exit I know theres still running 3000 vision care centers, but they talked about sort of the increasing cost and perhaps not seen as much uptake.
Adrian: Hardly any stores out there, but that's kind of your thoughts on that how you marry it to the vision care and then with your broad.
Adrian: You increase indeed kind of white space opportunity can you talk about the competitive backdrop in the white space are you entering markets, where there really isn't anybody.
Adrian: Filling in space the other camp, though so any color on that would be great. Thank you.
Adrian: Thank you Adrian and yes of course, we've all ran how Walmart has exited their major health care initiative, which of which Tele health, which was actually I think we're just one of the offerings that they had it was it was.
Adrian: It's more elaborate offering as you know on that.
Adrian: For us I think telling optometry.
Adrian: We do it is very different from.
Adrian: From traditional telehealth traditional telehealth is about a consumer sitting at home and interacting with with.
Adrian: Their optical provider. This is the same customer journey, our patient journeys that.
Adrian: Has always been the case for our stores and for the category, where the patient walking into an exam environment that Phil is filled with expensive equipment that is used to.
Adrian: First fair eye health.
Adrian: And and determined that a prescription the patient experience is the same with the exception that the doctor is on a screen a few feet from them live and synchronous, but they are still sitting sitting in the store. So I don't think that bears.
Adrian: I don't think its a real analogy to what Walmart telehealth.
Adrian: Experience.
Adrian: Was overall, but all I know is this this is working well for us it is solving our.
Adrian: Our challenge is the fact that that there are optimistic shortages throughout the country, we are able to hire doctors pretty easily for for this.
Adrian: Good practice patients are good way there are stores that have figured out how to work with it. So we are just real proud and real optimistic and.
Adrian: We're not trying to predict where this will go we're going to lap some of the marketplace predict.
Adrian: What percentage is achieved but the fact that it's in.
Adrian: Low double digits already and we're so relatively new to it I think it all says that when we started out on this one we said we want this to be a solve for our.
Adrian: Our our Dr capacity challenges and we are ever more believers in that.
Adrian: And then.
Speaker Change: White space question Good morning, Adrian It's Patrick.
Patrick R. Moore: Good morning.
Patrick R. Moore: We recently updated our wide spaced the last time, we updated it with surety was 2020 and across the pandemic era, we looked at it once more but there was just so much volatility across that era.
Patrick R. Moore: We waited until now to kind of update it and re chaired those stats with your own repeat them.
Patrick R. Moore: And what I'll say is I think of we think the white space is kind of a theoretical potential target and then as we think about actual entries, we take a variety of things into consideration youre absolutely right.
Adrian: Is it a new market is an existing market is it a highly competitively intensive market.
Adrian: What our Doctor capacity challenge is do we have remote in that market what are rents et cetera. So all of that factors in as we create or kind of updated annual plan, who actually where we're taking stores and that would also include brands, which brands will be opening in and which markets are cut.
Speaker Change: Two things I'll add to it.
Adrian: Really changed over time.
Adrian: We have improved exam capacity and while there are still pockets of that that we've got to improve remote as a backup is actually has actually become a very powerful tool. This is true of existing stores as well as new stores. So our remote enabled stores gives us more confidence heading into and realized.
Adrian: And converting that white space due to profit generating stores for us.
Speaker Change: Fantastic very great color. Thank you so much.
Speaker Change: Thank you.
Speaker Change: For our next caller.
Speaker Change: Our next question comes from Brian <unk>.
Brian: From Jefferies. Please go ahead.
Brian: Hey, good morning, guys.
Brian: Maybe reed just thinking about how you're highlighting how managed care penetration helps or has it been helping drive the comp right. So as we think about initiatives, you're rolling out or what are you doing maybe a better question to drive increased managed care penetration number one and also.
Speaker Change: Parsing that out between the American stuff and.
Speaker Change: Eyeglass World in terms of strategies to push managed care penetration.
Speaker Change: Two different brands.
Speaker Change: So so what is nice about the managed care piece is you generally have the same I mean, you have the same insurance is all your your co workers. So there is a very nice word of mouth element to that you see someone in new bus as you comment and.
Speaker Change: And do both so you have the same insurance and and so that is helpful. So there is a strong word about component we do have various marketing initiatives that we put in place to try to.
Speaker Change: To try to boost the that part of the business and again, it's been a consistent grower for us for years, now and with very very healthy healthy comps there and we expect that to continue going forward.
Speaker Change: And in terms of.
Speaker Change: It's been strong for both eyeglass World and for America's Best in terms of growth, but we do believe we're we're growing share in the managed care.
Speaker Change: <unk>.
Speaker Change: And so I think it's it.
Speaker Change: It is the discovery that your money goes further with US here are managed care funds go further with us than they do in most places.
Speaker Change: That makes sense and then maybe going back to the token question. So.
Speaker Change: We think about longer term I mean, your vision for how <unk> or AI factors into the strategy right. So is this something that will eventually evolve to where youre, hoping or looking for managed care reimbursement for this screening or is it always going to be a consumer out of <unk>.
Speaker Change: <unk> type of service offering.
Speaker Change: So this is a longer term innovation you pointed you pointed that out we have what we believe is the largest employee network of Optometrists in America and they are tied together on a common EHR platform and we think that that is a significant asset, especially.
Speaker Change: In an era of it.
Speaker Change: Not just optimistic shortages out there there their health care provider shortages throughout the.
Speaker Change: Third droughts.
Speaker Change: American medicine, or we find that the.
Speaker Change: Back in the eyes of the treasure trove of medical information and we have a retinal cameras in all of our stores and we think this combination of large network of employees Doctor is common EHR amongst them the advancements in AI and the shortages of healthcare professionals trough.
Speaker Change: The land, we think that those things should come together to allow us to perhaps play a broader role in the health care of our patients lives and perhaps.
Speaker Change: Participate in ways that that.
Speaker Change: Insurance companies and pharmaceutical companies might find beneficial and so we don't really think this will be a.
Speaker Change: As much cash pay oriented we do think that we'd like to over time find partnerships.
Speaker Change: With with insurers and other health care providers, where we can be playing a role in helping them save money, while keeping their patients are healthier.
Speaker Change: Value based healthcare.
Speaker Change: <unk> and.
Speaker Change: A growing trend in America, we think that keeping people healthier.
Speaker Change: As a key piece of that value based care. So again its long range in nature. You have heard me list sort of all the elements that we think should be able to combine together to create value for patients and create value for insurers.
Speaker Change: And we're still in the early stages of figuring out and talking to lots of different groups to see how we can add value to what they're trying to do relative to their patient care.
Speaker Change: Awesome. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Zachary Fathom from Wells Fargo. Please go ahead.
Zachary Robert Fadem: Hey, good morning, Reed, starting with your core lower income consumer and if theres any extra color you could describe.
Zachary Robert Fadem: On the incremental behaviors, you're seeing in terms of trade down versus.
Zachary Robert Fadem: Deferral of purchase and then do you think there was any impact at all in light of some of the recent pricing actions you've taken.
Zachary Robert Fadem: So so in terms of trade down the majority of that relates to our growth in managed care those are.
Zachary Robert Fadem: Generally better off consumers. So that's the biggest factor there and in terms of the pricing actions. We did a lot of study work to make sure that that.
Zachary Robert Fadem: We are still providing really great value and still very very competitive.
Zachary Robert Fadem: And the markets in which we compete and these are still really great price of $69 for an eye exam is really a great price and and so so we feel pretty good about about those decisions.
Speaker Change: Got it and then circling back on the March April acceleration was this more about tax refund catch ups or did you start to see any.
Speaker Change: Incremental traction on dart to den stores or Doctor availability and then as you think about the current low single digit run rate is this the right way to think about Q2 as a whole as well as the rest of the year or is there anything else we should keep in mind.
Speaker Change: So we all know that the Tam.
Speaker Change: Tax refunds.
Speaker Change: Were delayed and again, we find consistent positive low single digit comps in March and April were hoping for a more robust tax season, and we know where the category really really saw that which we think relates.
Speaker Change: Primarily to consumer sentiment and but we are hopeful that some of the initiatives that we can put in place in some of the things that we've referenced life like Texas remote and other pieces.
Zachary Robert Fadem: We can get some acceleration for the rest of the year, but it's a very uncertain time in our crystal balls are not our cloudier than they normally are and this and this strange macro environment.
Speaker Change: Got it thanks for the time.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Zachary Robert Fadem: Our next question comes from Dylan Carden from William Blair. Please go ahead.
Dylan Douglas Carden: Thank you.
Zachary Robert Fadem: Yes.
Dylan Douglas Carden: Simplify this a little bit looking at your 10-K disclosures you've added.
Dylan Douglas Carden: 1000 doctors in the last two years.
Dylan Douglas Carden: You've added about 120 stores over that same period. So just the overall exam capacity has increased rather meaningfully and if youre kind of looking at stack trends I know, there's sort of inclination here is to blame some of the macro but just relative to yourself.
Dylan Douglas Carden: Why what would be the answer to why youre not seeing that flow through.
Dylan Douglas Carden: More demand generation at this point thanks.
Dylan Douglas Carden: So where we have coverage in demand, we are strong and healthy where we have coverage and low demand. We're still positive where we are lacking in coverage things are tough.
Dylan Douglas Carden: Have remote that is helping us and is going to help us ever more and we are we continue to work on recruitment and retention, which again is progressing.
Dylan Douglas Carden: But we do think that that we are getting ever better at having the coverage we need and now we are looking for macro demand.
Dylan Douglas Carden: Hey.
Dylan Douglas Carden: Patrick the other thing I would just add to that is.
Patrick R. Moore: Whereas in 2019, a doctor or was the Doctor was a doctor.
Patrick R. Moore: They were all working five days a week.
Patrick R. Moore: Certain hours.
Patrick R. Moore: Very different world now and we have we have.
Patrick R. Moore: Brito doctors, and importantly, doctors and find their doctors, we have doctors, we have casual part time doctors, we have a lot more doctors, but they're working on.
Patrick R. Moore: Were varied.
Patrick R. Moore: Kind of work schedule than say they were in 2019 and that also contributes to that.
Patrick R. Moore: So thats.
Speaker Change: Alright, John.
John: Just when I when I talk to people and other aspects of healthcare sort of vague liberally say things like yes. If you have if you have doctor in front of your name your working less days than you were in 2019.
John: And that's true in a lot of health care.
Speaker Change: And certainly two from.
Speaker Change: Yeah, no that makes sense that you are seeing that's part of the answer but then I guess the question at Central medicines. So what's the ramifications for the model at that point, right, Youre, saying that less efficiency.
Speaker Change: And your Doctor base and cost of doctors going up.
Speaker Change: How does that flow through if you are not seeing the demand and this is why we are emphasizing the successes that we had with remote in the first quarter because AA.
Speaker Change: It's very flexible.
Speaker Change: Remote Dr. Never has a no show they appear where they are needed they appear where a patient.
Speaker Change: But these these advances in remote where where we are able to recruit where theyre ever more doctors who want to.
Speaker Change: We do this.
Speaker Change: This is this is the piece that really we think.
Speaker Change: Is it going to be the big sold for this and allows us to deliver our model in ways that we can if we don't have a lot of Dr. <unk> our store historically.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: When we Brian next question.
Speaker Change: Our next question comes from Paul <unk> from Citi. Please go ahead.
Paul: Hey, everyone.
Speaker Change: I'm on for Paul.
Paul: You mentioned the remote doctors see the same number of patients.
Paul: <unk> I guess I do find that a little surprising as you just mentioned I would've thought they would have better throughput because they don't have missed appointments is a factor. So do you expect that to increase over time.
Speaker Change: How much of a factor if any is that achieving your mid single digit EBIT margin target in 2020 Bucks.
Speaker Change: Hi, It's Patrick I'll take the first part of that question. So.
Patrick R. Moore: Our remote doctors as we were ramping up the startup there was just there were long ramps.
Patrick R. Moore: Learning and training and we were trading out some equipment and software optimizing and frankly, it took us a while to get to a point that we were comfortable with the overall machine those doctors are now doing.
Patrick R. Moore: At the same amount of exams per day, then in mind Doctor is doing we still believe.
Speaker Change: And that can exceed that are in line for the reasons. You said, we're not quite there yet, but I can tell you in the last six months, we have made a ton of progress and doing the right things balancing supply and demand and for doctors.
Speaker Change: Doctors, and giving them as frictionless easy of a process and Dr. Remote exam. So I have every.
Speaker Change: Pension hope in the world.
Speaker Change: We're going to be at a point.
Speaker Change: Near term medium term, where our gift to say our remote doctors are performing even more exams and are in line for exactly the reasons you cite were not there yet while I think we've made some great progress in the last two quarters.
Speaker Change: Got it and I mean, how much of a factor is that in achieving the mid single digit EBIT margin in 2025.
Speaker Change: Yeah. So we're now is certainly a factor in achieving the mid single digit operating margin in 2025, when we laid out our plan we had a multitude of scenarios built into that rollout has really become embedded into our overall business and the benefits of remote has been factored into our guidance.
Speaker Change: As a whole one thing that we did see some benefit.
Speaker Change: We're expecting some incremental benefit from is the remote rollout in Texas, while that was not built into our guide necessarily from the start of the year because at the beginning of the year, we were expecting to go into Texas, We do expect to be able to make up some revenue ground from the beginning of the year, starting with lower than expected.
Speaker Change: So we do have line of sight to the 2025 mid single digit adjusted operating margin and <unk>.
Speaker Change: Joel and we plan to continue to pull the levers that we've talked about and do a tightly disciplined expense management and expect to be able to get there.
Joel: Got it thanks that makes sense and then I was just wondering if you could talk about what surprised you to the positive side or the negative side in the quarter due to America's best performed better than you expected and eyeglass World was a little worse and then sounds like March was below your expectations do you expect that.
Speaker Change: Paul to also kind of get back to mid single digit comp.
Speaker Change: That sounds.
Speaker Change: Great.
Speaker Change: We're expecting things to grow.
Paul: Yeah. So I'll start with we had hoped to see a more robust.
Paul: Tax return season.
Paul: <unk>.
Paul: We're pleased that we came in on our guide, but we aim to hope to beat it we would hope to have another data point of OCA and things are getting a bit back to normal and I think that with what's happening overall in the economy in the world with consumer sentiment that did not come about in March and April.
Paul: However, we are still comping positively for that that is that is encouraging from that front in the quarter. The things that went well for us with Uber.
Paul: All aspects of remote or went well for us and that was a really encouraging in terms of our long term future. We like the reaffirmation that the white space analysis suggests that America needs ever more stores.
Speaker Change: From us and we like the fact that the pricing initiatives seems to have worked out.
Speaker Change: Well for us, but what saddens us with just the category with slower than we had anticipated.
Speaker Change: Yeah.
Speaker Change: I appreciate it thanks and good luck thank.
Speaker Change: Thank you very much.
Speaker Change: Thank you.
Speaker Change: This concludes the Q&A session.
Speaker Change: I will now turn it back over to re faas for closing remarks.
Speaker Change: Antoine Thank you for your help today and thank you to the rest of you for joining US today. We appreciate your interest and support and looking forward to talking to you next on our on our Q2 earnings call. Thank you all very much have a great day.
Re Faas: Thank you.
Speaker Change: For your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.