Q2 2024 National Vision Holdings Inc Earnings Call
Tamara Gonzalez: Thank you, and good morning, everyone. Welcome to National Vision's second quarter 2024 earnings. Our earnings release issued this morning and the presentation accompanying our call are both available in the Investors section of our website, nationalvision.com. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and needs. Reconciliation of these measures is included in our release and the accompanying materials.
Unknown Executive: Thank you and good morning, everyone.
Unknown Executive: Welcome to National Vision's second quarter 2024 Earnings Call. Joining me today are Reed Faz, the EO, and Melissa Rasmussen, CSO.
Unknown Executive: Our earnings relief issues this morning, and the presentation accompanying our calls are both available in the investor's section of our website, NationalVision.com. A replay of the audio webcast will be archived in the investor's section after the call.
Unknown Executive: Before we begin, let me remind you that our earnings materials and today's presentation includes 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.
Unknown Executive: The release and today's presentation also includes certain non-GAAP measures. Reconciliation of these measures is included in our release and the supplemental presentation. We would like to draw your attention to slide two in today's presentation for additional information about forward-looking statements and non-GAAP measures. Further, please note that all financial measures in today's commentary are based on a continuing operation basis unless otherwise noted.
Unknown Executive: We would like to draw your attention to Slide 2 in today's presentation for additional information about forward-looking statements and non-GAAP measures. Further, please note that all financial measures in today's commentary are based on a continuing operations basis, unless otherwise. As a reminder, National Vision provides investor presentations and supplemental materials for investor reference in the Investors section of our website. Thank you, Tamara, and good morning, everyone.
Unknown Executive: As a reminder, National Vision provides investor presentations and supplemental materials for investor reference in the investor's section of our website.
Tamara Gonzalez: I will now turn the call over to Reed. Reed.
Reed Faz: Thank you, Tamara, and good morning, everyone. Thank you for joining us today. Over the past two years, we've been working to rapidly adapt to new market realities. This included the successful launch and expansion of remote exam capability, changes to how we approach Dr. scheduling, various pricing actions, and increased digitization of key parts of our business. While these initiatives have brought valuable changes to the way we operate, we acknowledge that we are not yet delivering the financial results we anticipated at this point in the year. In addition to the transformation activities we've had underway, we are taking new actions to accelerate improvement and strengthen our foundation.
Unknown Executive: Thank you for joining us today. Over the past two years, we've been working to rapidly adapt to new market realities. This included the successful launch and expansion of remote exam capability, changes to how we approach doctor scheduling, various pricing actions, and increased digitization of key parts of our business. Comp sales from cash-paid customers were essentially flat to last year at America's Best, a notable improvement from the low single-digit negative levels we saw in the first quarter.
Reed Faz: We've initiated a comprehensive review of our store fleet, and we are welcoming new leadership to our team to bring fresh eyes and perspectives.
Reed Faz: Before we dive into that discussion, I will briefly review our second quarter highlights. Melissa will then discuss our financial results and outlook in more detail before we open the call for questions. Remedies in the second quarter were $452 million, up 4.6% over this time last year. Adjusted comparable store sales improved from the first quarter to 2.4% due to improved performance in America's Best, which increased 2.9%. Adjusted operating income increased 13.8% to $14.1 million. This resulted in adjusted deluded earnings per share of 15 cents. Our Eyeglass World brand continues to make progress. We saw sequential improvement in store sales from the first to second quarter as efforts to energize the brand begin to have an impact.
Reed Faz: We continue to see quite healthy traffic from managed care customers. This is particularly evident at America's best, where we saw high single-digit comps for managed care. I believe this performance reflects growing knowledge amongst managed care customers that their money goes further shopping with us. Comp sails from cash paid customers was essentially flat to last year at America's Best. An notable improvement from the low single-digit negative levels we saw in the first quarter. That said, we saw heightened macro consumer pressure. And as a result, our second quarter sales results, while positive, needed to be higher to give us confidence that the back half would accelerate and deliver full year comparable store sales growth in the mid single digit range, as our original guidance contemplated.
Reed Faz: As such, we have revised our guidance accordingly. This revision reflects results year to date and a change in our expectations in the back cap, which now assumes current trends generally continue.
Reed Faz: Melissa will review this in more detail in her remarks.
Reed Faz: Now, let me turn to discuss our strategic initiatives and the areas in which we're accelerating our transformation. Since establishing our key strategic initiatives two years ago, we've made significant progress to strengthen our foundation for growth, including rapidly expanding and evolving our remote exam capabilities, implementing more flexible schedule options for optometrists, executing various pricing actions and promotions, implementing EHR and digitized patient records, and right-sizing cost structure and connection with the exit of the low-margin Walmart partnership and AC lands operation. But we need to do more to accelerate both the pace and rigor of our transformation to drive profitable growth.
Reed Faz: This brings us to our recent announcements with respect to leadership and store optimization. I'll start with recent leadership changes. First, Patrick Moore, our chief operating officer and former chief financial officer, announced his intention to retire at the end of this year. From our pre-IPO days dating back to 2014 through today, Patrick has been instrumental in leading our business, and we're deeply grateful for his partnership, counsel, and contributions of the last 10 years. Patrick will soon shift to an advisory role focused on supporting the leadership transitions. Next, I would like to extend a warm welcome to Alex Wilkes, who's been named as National Vision's president and will be joining us on August 19th.
Reed Faz: Alex is an exceptional leader and brings a depth of experience across all areas of the optical industry. Alex joins us from CooperVision, where he served as President of the Americas. He was formerly General Manager of Pearl Vision and previously held an optometric leadership position with Lens Crafters. He's held executive positions at two of our largest suppliers, CooperVision and EssilorLuxottica. This coupled with his proven track record of driving sales and profit growth and an ability to develop market-shifting strategies will be tremendously additive to our go-forward transformation efforts. And last month, we announced our new Chief Storage Operator, Mark Bannon.
Reed Faz: Mark is deeply experienced in retail operations and categories requiring consultative selling, like optical, and in leading sales and real estate teams, both of which are critical elements to our transformation plan. He shares our people-oriented belief in culture as a competitive advantage. And in the month or so since he joined us, he's really hit the ground running. Between Alex and Mark, there's a wealth of talent and fresh perspective that we're bringing to the National Vision team. Both will work very closely with myself and Patrick to make sure the transition is seamless.
Reed Faz: As we look to strengthen our foundation, we are actively reviewing all stores to optimize our fleet to drive growth and profitability. We are approaching this review with heightened scrutiny in light of the current operating environment and in a disciplined, thoughtful manner. Following our review, we will act on stores that are not meeting our profitability objectives by either closing, converting, or implementing improvement plans, among other measures. The initial screen of the stores is less than five percent of our total fleet. Our comprehensive review will consider many factors beyond financial impacts, including market and long-term strategy, to ensure all actions taken will be accretive to both short- and long-term profitability and strategic goals.
Unknown Executive: As we look to strengthen our foundation, we are actively reviewing all stores to optimize our fleet to drive growth and profitability. Concurrently, we're planning for 2025 and considering new store openings at a level appropriate for incremental free cash flow generation and healthy growth. We'll have more to share on this in the coming quarters as well. In the second quarter, exam schedules at America's best locations were updated to increase the number of appointments at the end of the day.
Reed Faz: We will provide updates next quarter as this initiative progresses. Concurrently, we are planning for 2025 and considering new store openings at a level appropriate for incremental free cash flow generation and healthy growth. We will have more to share on this in the coming quarters as well.
Reed Faz: Our most important near-term priority is to continue to strengthen our core business. We are committed to doing this in a disciplined manner, and this is particularly important as we move to capitalize on our white space opportunity longer term.
Reed Faz: The next aspect of our transformation involves new initiatives to continue to add to our exam capacity. This includes adding late-day exam appointments, remote exam expansion, recruitment and retention initiatives. In the second quarter, exam schedules at America's best locations were updated to increase the number of appointments at the end of the day. Results to dates have been positive. We are seeing more patients when they want to be seen. Additionally, our remote technology solution continues to progress well in helping address capacity issues. We have officially enabled nearly 600 stores across 28 states. We hit a milestone when the 500,000th remote exam was conducted, and remote doctor productivity levels continue to improve.
Unknown Executive: Results to date have been positive. We're seeing more patients when they want to be seen. Additionally, our remote technology solution continues to progress well in helping address capacity issues.
Reed Faz: Remote exams now represent about 12% of exams in remote-enabled states. We expect this to continue to grow. And as we shared last quarter, we began implementing remote in Texas, and I'm pleased to report that early results are encouraging. With that said, we do expect some of the benefits from our Texas expansion to be offset by lower than expected results with this year's OD recruitment class, which we did not have a full picture on until early summer based on the timing of new grad recruiting and acceptance seasonality. We're being prudent in our assumptions for this impact and trends in OD retention into the back half of the year, which are reflected in our guidance.
Unknown Executive: With that said, we do expect some of the benefits from our Texas expansion to be offset by lower than expected results with this year's OD recruitment class, which we did not have a full picture on until early summer, based on the timing of new grad recruiting and acceptance seasonality. We're actively investing in technology, tools, and initiatives to optimize and expand capacity. As I reflect on the past few years, I'm very pleased with the additional exam capacity that our remote care technology has added, and I believe it can play an ever larger role moving forward.
Reed Faz: Aligning exam capacity to patient demand remains a top priority for our teams. We're actively investing in technology tools and initiatives to optimize and expand capacity. As I reflect on the past few years, I'm very pleased with the additional exam capacity that our remote care technology has added, and I believe it can play an ever larger role moving forward.
Reed Faz: During the quarter, we also rolled out and are investing in new sales driving initiatives that we mentioned on our last call, which are showing early signs of success as reflected in the increased traffic and slight improvement in exam conversion that we saw in the quarter.
Unknown Executive: During the quarter, we also rolled out and are investing in new sales driving initiatives that we mentioned on our last call, which are showing early signs of success as reflected in the increased traffic and slight improvement in exam conversion that we saw in the quarter. In the middle of the funnel, we spend on social and display ads. At the bottom of the funnel, we spend on multiple platforms like Google, designed around getting people to book an exam appointment, primarily search-related spending. We likewise are confident about our bottom of the funnel as our share of voice across the exam and optometric terms outstrips our competitive set.
Reed Faz: With that said, let me share a bit more about our approach to marketing overall. We're a full funnel marketer with the majority of our spend in the upper funnel focused on awareness and the lower funnel primarily focused on exam appointment generation. So you should think of our spend as sort of an hourglass shape. At the top of the funnel, we spend on both traditional national network TV and on streaming and online video platforms like YouTube. In the middle of the funnel, we spend on social and display ads. At the bottom of the funnel, we spend on multiple platforms like Google designed around getting people to book an exam appointment, primarily search-related spending.
Reed Faz: We feel good about our top of funnel as our awareness in the second quarter hit a record high level for us. We likewise are confident about our bottom of the funnel as our share avoids across the exam and optimistic terms outtaces our competitive set. We continue to balance our marketing investments in key channels that have driven the highest returns while stimulating demand by testing new promotional messaging and events, such as a recent launch of our wide by sales events. The event launched at the end of June and involves limited time sales promotions such as a first time ever offer on progressive glasses at two for 129.95 and a roll back to our historical base offer of two for 69.95 for single vision glasses.
Reed Faz: We believe events such as these can further attract new and existing customers and are pleased with the initial results they have contributed.
Unknown Executive: We believe events such as these can further attract new and existing customers and are pleased with the initial results they have contributed. We continue to actively evaluate AI technologies and solutions in both the optical and healthcare industries and continue to be pleased with our investment in the AI startup Toku, Inc. One final point before I turn it over to Melissa. Last week, we announced the appointment of Caitlin Zula to our Board of Directors.
Reed Faz: As we think about the future possibilities, I often say that the eyes are a window in the broader health, and the role that vision care plays in a person's general health is vital. We continue to actively evaluate AI technologies and solutions in both the optical and healthcare industries and continue to be pleased with our investment in the AI startup Toku Inc. When it comes to applying AI to healthcare, national vision is built a unique and valuable asset. We have one of the largest employee doctor networks in the country, including one of the largest networks of installed retinal cameras.
Reed Faz: We're moving to a common set of electronic health records and are playing a role in the innovative AI solutions to serve patients. While in the near term, we are navigating an uncertain macro environment. We are continuing to invest in our future and taking actions to ensure our foundation is strong. We are welcoming new leadership and taking a disciplined approach to our store fleet, while also executing on strategic initiatives to drive demand and expand exam capacity. I remain confident in the opportunity that lies ahead.
Reed Faz: One final point before I turn it over to Melissa. Last week, we announced the appointment of Caitlyn Zula to our Board of Directors. Caitlyn is an outstanding executive, and I'm very pleased to have someone of her caliber on our board. She brings a unique perspective to our boardroom that combines a broad understanding of the healthcare continuum and financial expertise, all of which will be helpful to us as we move forward.
Unknown Executive: Caitlin is an outstanding executive, and I'm very pleased to have someone of her caliber on our board. She brings a unique perspective to our boardroom that combines a broad understanding of the healthcare continuum with financial expertise, all of which will be helpful to us as we move forward. In closing, I want to especially thank our store teams and doctors for the dedication to patient and customer care they exhibit every day. Thank you, Reed, and good morning, everyone.
Melissa Rasmussen: In closing, I want to especially thank our store teams and doctors for the dedication, the patient and customer care they exhibit every day. And with that, I'll turn the call over to Melissa.
Melissa Rasmussen: Melissa? Thank you, Reed, and good morning, everyone. As Reed shared, we are implementing new actions to drive improved performance amidst the challenging consumer environment.
Melissa Rasmussen: As Reed shared, we are implementing new actions to drive improved performance amidst the challenging consumer environment. Please refer to our supplemental earnings presentation, which includes the unaudited results recast by quarter for 2023 and 2024. For the second quarter, net revenue increased 4.6% compared to the prior year, driven primarily by new store sales and comparable store sales growth.
Melissa Rasmussen: Before I discuss our outlook, let me review our second quarter results in more detail. As we have now completed the exit of our Walmart and AC Lens businesses, my remarks today will be focused on continuing operations, unless otherwise noted. Please refer to our supplemental earnings presentation, which includes the unaudited results recapped by quarter for 2023 and 2020. For the second quarter, net revenue increased 4.6% compared to the prior year, driven primarily by new store sales and comparable store sales growth. Utic growth in our American best in eyeglass world brand increased 6% on a combined basis over the total store base last year, and we ended the quarter with 1,216 stores.
Melissa Rasmussen: Unit growth in our America's Best and Eyeglass World brands increased 6% on a combined basis over the total store base last year, and we ended the quarter with 1,216 units. These trends reflect sequential improvement from the first quarter, with June being our strongest month of the period as our newly launched sales initiative started gaining traction. We continue to see strength in managed care trends as growth in managed care sales continues to outperform cash pay sales.
Melissa Rasmussen: 34% driven by 1.9% increase in customer transactions and a 44% increase in average ticket. These trends reflect the quintal improvement from the first quarter, with June being our strongest month of the period as our newly launched sales initiatives started gaining traction. We have added historical average ticket and traffic data in our second quarter earnings supplemental presentation posted on our website. We continue to see strength in managed care trends as growth in managed care sales continues to outperform cash pay sales growth. Our cash pay sales comp continues to be driven by positive ticket, but we have seen our cash pay customers tighten their spending with fewer add-on purchases like lens upgrades and ancillary exam purchases.
Melissa Rasmussen: As a percentage of net revenue, cost applicable to revenue increased approximately 110 basis points compared with the prior year quarter. This resulted in gross margin decrease of approximately 110 basis points driven primarily by a decrease in eyeglass revenues, offset by increased I exam revenues. This mixed shift from eyeglasses to exam was primarily driven by lower utilization of our two pair offer in American Best in part due to other product provisions during the quarter and fewer lens upgrades and add on offering. Exam revenues were aided by pricing actions in growth in extreme count and more than offset the delivery in optometrist-related costs.
Melissa Rasmussen: This resulted in a gross margin decrease of approximately 110 basis points, driven primarily by a decrease in IGLAS revenues, offset by increased I-exam revenues. This mixed shift from eyeglasses to exams was primarily driven by lower utilization of our two-pair offer in America's Best.
Melissa Rasmussen: In part, due to other product promotions during the quarter and fewer lens upgrades and add-on offers. Exam revenues were aided by pricing actions and growth in exam count and more than offset the deleverage in optometrist-related costs. Adjusted SG&A expense as a percentage of revenue decreased 120 basis points. Depreciation and amortization expense was $22.7 million compared to $22.1 million.
Melissa Rasmussen: Adjusted SG&A expense as a percentage of revenue decreased 120 basis points compared with the second quarter of 2023. The decrease in adjusted SGNA as a percentage of net revenue was primarily driven by a decrease in performance-based incentive compensation based on underperformance of current year expectations in lower advertising expense. These lower costs were partially offset by increased occupancy and other operating expenses. Depreciation and amortization expense was 22.7 million dollars compared to 22.1 million dollars. Adjusted operating in terms with 14.1 million dollars compared to 12.4 million dollars, and adjusted operating margin increased approximately 20 basis points to 3.1 percent compared to the prior year period due primarily to the factors previously discussed.
Melissa Rasmussen: Adjusted operating income was $14.1 million compared to $12.4 million, and adjusted operating margin increased approximately 20 basis points to 3.1%, compared to the prior year period, due primarily to the factors previously discussed. As a reminder, our interest guidance includes non-cash mark-to-market and deferred financing costs, which total $3.5 million. Including these costs, interest income was $0.3 million.
Melissa Rasmussen: Net interest expense was 3.2 million dollars compared to 1.8 million dollars in the prior year period. As a reminder, our interest guidance excludes non-tash market and deferred financing costs, which total 3.5 million dollars. Excluding these costs, interest income was $0.3 million. Adjust the deleted EPS increase to 15 cents per share in the second quarter of fiscal 2024 from 12 cents per share a year ago, and reflect an effective tax rate of approximately 18%, which is consistent with the prior year. Turning for our year-to-date financial results on a continuing basis, net revenue increased approximately 4.2% driven by new stores and adjusted comfortable store sales growth of 1.3%.
Melissa Rasmussen: Adjusted diluted EPS increased to $0.15 per share in the second quarter of fiscal 2024 from $0.12 per share a year ago and reflects an effective tax rate of approximately 18%, which is consistent with the priority. Turning to our year-to-date financial results, on a continuing basis, net revenue increased approximately 4.2%, driven by new stores and adjusted comparable store sales growth of 1.3%. Adjusted operating margin increased 10 basis points compared to the prior year period.
Melissa Rasmussen: Adjusted operating margin increased 10 basis points compared to the prior year period, driven primarily by the same factors which impacted the second quarter that I just reviewed.
Melissa Rasmussen: Moving to discontinued operations, as noted in our press release, beginning in the second quarter, those Walmart stores in ACLens operations are now accounted for in discontinued operations. Year-to-date, Walmart store operations delivered approximately $18 million in revenue and its adjusted operating loss of approximately $600,000. ACLens operations delivered approximately $114 million in revenue and adjusted operating income of $1.3 million. During the second quarter, to support a new transition and maintain required service level, we transition ACLens operations in a same manner beginning in early June, which negatively impacted revenue in the second quarter. Please refer to the second quarter earning supplemental presentations posted on our website for additional details regarding our discontinued operations.
Melissa Rasmussen: As noted in our press release, beginning in the 2nd quarter, both Walmart stores and AC Lens operations are now accounted for in discontinued operations. Year-to-date, Walmart store operations delivered approximately $18 million in revenue, and it had an adjusted operating loss of approximately $600,000.
Melissa Rasmussen: And AC Lenz operations delivered approximately $114 million in revenue and adjusted operating income of $1.3 million during the second quarter to support a smooth transition and maintain required service levels. We transitioned AC Lens operations in a phased manner beginning in early June, which negatively impacted revenue in the second quarter. Please refer to the second quarter earnings supplemental presentation posted on our website for additional details regarding our discontinued operation. Please see our press release for detailed reconciliations of our quarter and year-to-date adjusted results to the most comparable gaps. Turning next to our balance. As of the end of the quarter, our total debt outstanding was 456.8 million dollars, net of unamortized debt.
Melissa Rasmussen: Please be our press release for detailed recommendations of our quarter and year-to-date adjusted results to the most comfortable gap measures. Turning next to our balance sheet, we ended the quarter with a cash balance of approximately $179.5 million. The total liquidity of $473 million, including available capacity from our resolving credit facility. As at the end of the quarter, are told that outstanding with $466.8 million net unamortized discount and for the trailing 12 months net debt to adjusted EBITDA with 1.9 times. Our available liquidity allows us to have flexibility as we actively evaluate settlement options for the convertible notes maturing in May of 2025.
Melissa Rasmussen: Year-to-date, we generated operating cash flow at $75.4 million and invested $39.6 million in capital expenditures, primarily focused on new store openings and investments in remote technology. We continue to maintain a strong balance sheet and healthy cash flow to support our growth in capital allocation priorities.
Melissa Rasmussen: Year-to-date, we generated operating cash flow of $75.4 million and invested $39.6 million in capital expenditures, primarily focused on new store openings and investments in remote technology. We continue to maintain a strong balance sheet and healthy cash flow to support our growth in capital allocation priorities. Turning now to our fiscal 2024 revised outlook for continuing operations, which includes our owned and host and corporate other segments. One e-commerce website, DiscountContacts.com, previously operated by AC Lens, was retained under the National Vision umbrella and will continue to be recorded in corporate other segments.
Melissa Rasmussen: Turning now to our fiscal 2024 revised outlook for continuing operations, which includes our owned and host and corporate other segments. One e-commerce website, DiscountContact.com, previously operated by AC Lens, was retained under the National Vision umbrella and will continue to be recorded in corporate other segments. When we last spoke on our first quarter earnings call, we discussed that we would need to see a greater improvement in comp trends as we progressed through the year to deliver results towards the high end of our guidance range. While we have seen an increase in the improvement in trends from the start of the year, we did not see the degree of improvement in the second quarter; it was necessary to give us confidence that we would see an acceleration in comps contemplated in our original second half expectations.
Melissa Rasmussen: While we have seen an improvement in trends from the start of the year, we did not see the degree of improvement in the 2nd quarter that was necessary to give us confidence that we would see an acceleration in comps contemplated in our original 2nd half expectations. As such, we are revising our outlook to reflect year-to-date trends and updated expectations for the remainder of the year. And there are many factors that contribute to planning. However, achieving this objective remains a top priority.
Melissa Rasmussen: As such, we are revising our outlook to reflect your today trends and updated expectations for the remainder of the year. With adjusted comparable store sales of 1.3% to date, achieving the low end of our prior range would imply a mid-single digit comp trend level for the remainder of the year, which we have not seen in the current environment. While we are seeing early positive results with the remote expansion in Texas and other new sales initiatives, given our performance to date in our expectations for the second half, we are taking a prudent approach in revising our guidance accordingly.
Melissa Rasmussen: Our guidance reflects our most current views for customer and patient demand, exam capacity, and various sales improvement initiatives. On a continuing basis, we now expect revenue to be in the range of $1.82 billion to $1.84 billion based on an adjusted comparable sales growth range of 0.5% to 1.5%. We now expect adjusted operating incomes to be in the range of $57 million to $62 million, and for adjusted deleted EPS to be in the range of $0.45 per share to $0.50 per share. As you look at your models for the back half on a continuing basis, we expect adjusted operating margins to be slapped up approximately 50 basis points.
Melissa Rasmussen: We expect to see a relatively similar level of year-over-year growth margin contraction and adjusted FGNA leverage that we delivered in the first half of this year, given the trend we have seen to date, including the impact of lower performance-based incentive compensation. As a reminder, our fourth quarter is historically our smallest quarter of the year, and therefore we would expect sales growth and operating margins performance to be more heavily weighted to the third quarter.
Melissa Rasmussen: Please refer to our press release and supplemental slide deck for additional details on our outlets. Looking further ahead, as we have previously discussed, achieving our mid-single-digit operating margin target for fiscal 2025 is predicated on fiscal 2024 results reaching the mid-point of our original guidance and a return to mid-single-digit adjusted comparable store sales growth. Given our updated outlets for fiscal 2024 and assuming no change to the macro environment. We expect to target a similar adjusted operating margin profile in 2025 that is now expected for 2024. While our return to mid-single digit operating margins is taking longer than planned, and there are many factors that contribute to planning, achieving the subjective remaining top priority, we will share formal 2025 guidance in connection with our fourth quarter result.
Melissa Rasmussen: As we shared, while we constantly review our store fleet, our threshold for underperforming stores has intensified, and we are planning to be increasingly discriminant in our expansion plans for 2025 to ensure we are maximized in performance. We look forward to sharing more on our plans once our review is completed in the coming quarter.
Reed Foss: We look forward to sharing more on our plans once our review is completed in the coming quarter. 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. Thank you, Melissa. During the second quarter, our transformation entered a new phase. We announced new leadership, bringing fresh eyes to our business who will complement our tenured team. And we're conducting a review of our store fleet to advance our profitability objectives and ensure we have a strong foundation for future growth.
Melissa Rasmussen: While we continue to navigate near-term challenges, I want to reiterate our confidence in the long-term opportunity we see ahead, and believe the action we are undertaking today will strengthen our foundation so we can better tap it alive on the growth going forward. Thank you for your time today.
Reed Faz: I will now turn the call over to Reed for closing remarks before we open the call for questions.
Reed Faz: Reed. Thank you, Melissa. During the second quarter, our transformation entered in new phase. We announced new leadership, bringing fresh eyes on our business. Who will complement our tenured team, and we're conducting a review of our store fleet to advance our profitability objectives and ensure we have a strong foundation for future growth. We're taking new actions to drive sales, improve efficiencies, and expand exam capacity. While this transformation will take some time, we are grounded in the reality of the effort ahead, and our confidence we are investing in the right resources and have the right talent to ensure success.
Reed Foss: We're taking new actions to drive sales, improve efficiencies, and expand exam capacity. While this transformation will take some time, we are grounded in the reality of the effort ahead and are confident we are investing in the right resources and have the right talent to ensure success. My confidence in the future of National Vision is unwavering.
Reed Faz: My confidence in the future of national vision is unwavering. We are intently focused on long-term shareholder value; the successful execution of these initiatives will be the driver of that value.
Operator: We are intently focused on long-term shareholder value. The successful execution of these initiatives will be the driver of that value. Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw a question, please press star 1 1 again.
Unknown Executive: With that, I'll turn the call over to the operator for your questions. Thank you.
Unknown Executive: At this time, we'll be conducting a question and a session. As a reminder, to ask a question, you need to press star 11 on your telephone and wait for your name to be announced. To withdraw the question, please press star 11 again.
Unknown Executive: Please be advised. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Michael Lasser: Our first question comes from Michael Lasser from UBS. Please go ahead.
Michael Lasser: Good morning. Thank you so much for taking my question. So, read if you look back prior to the pandemic, throughout the early to mid-2000s and 2000s and teens. National Vision has a long history of growing its same-store sales in a mid-single digit.
Michael Lasser: National Vision has a long history of growing its same store sales in the mid-single digits. What has changed either about the industry or National Vision that has made returning to that consistent pace of growth more difficult? Because that track record occurred both during good economic periods and not so good economic periods, about 5%. Overall, that, Operator, is there a drain check over there? Yes, there seems to be an echo.
Michael Lasser: What has changed either about the industry or national vision that has made return to that consistent pace of growth more difficult because that track record occurred both during good economic periods and not so good. The economic period. About five percent of all that time. I'll pray to your Sir. Yes, this seems to be an echo. I don't think it's here. Good. It may. It may have gone away. Good.
Reed Faz: I'm going to start again then. Yes. Yes, Michael. We had a long, consistent track record of a comparable store sales growth consistently in the mid single digit range. What changed post-pandemic was three things. There was a disruption in the purchase cycle that occurred because so many people, especially our customer with the stimulus money they got, bought in 2021. And that that disrupted the purchase cycle or customer about the best pair of glasses they had ever had at that point in time. Also, as we've so many other healthcare professions, medical people retired early and cut back the number of days that they traditionally worked.
Reed Faz: And, and so that led to for us. And op the metric shortage. We had always said that we never have as many doctors as we want to have, but the situation became more challenging after COVID. And then finally, the inflationary trends trends increased significantly over the recent year and a half two years. And that affected our customer significantly. What we did at that point in time was that was when we started to really get behind remote medicine as a way to counteract the challenges related to our doctor coverage. And boy, am I glad we did.
Reed Faz: And that just keeps going from strength to strength and helps us ever more in that area. Now we implemented flexible schedules to help to increase retention. We executed various pricing actions to help us keep up with the inflationary pressures on our business. And we digitized various aspects of our business, including our medical records and sort of an EHR system for our doctors, which also, which they also like.
Reed Faz: So, to answer your questions succinctly, there were a lot of industry factors that require us to transform our business to adjust to the new realities. We have been doing that and have been pleased with those results, but we need to accelerate that now given we haven't hit our targets yet to get back to the mid single-digit comps and operating income margin that we are creating there.
Michael Lasser: And my follow-up question is based on all those answers; it seems like the cost of doing business is going up through having to invest more in a promise of wages, marketing more, and being more promotional. So, with that being said, is that the reason why you think next year's operating margin rate is going to be flat to this year? And if the business can't get to back back to a mid single digit, same store sales growth rate, what else can be done to improve the profitability? How much of there is there an opportunity to improve the profitability from rationalizing the store portfolio.
Melissa Rasmussen: And my follow-up question is, based on all those answers, it seems like the cost of doing business is going up because of having to invest more in optometrist wages, marketing more, and being more promotional. So with that being said, is that the reason why you think next year's operating margin rate is going to be flat with this year? And if the business can't get back to a mid single-digit same store sales growth rate, what else can be done to improve profitability? How much of there is there an opportunity to improve profitability from rationalizing the store portfolio? Thank you very much. Hey Michael.
Melissa Rasmussen: Hey, Michael. Yes, the cost to do business has certainly increased, and we're seeing that with Dr. Wages, in addition to other associate wages and just cost of, you know, benefits and things like that. So yes, we are, in fact, seeing those higher costs to do business. And we do operate a high fixed cost model. And where we've historically been at missing little digits to leverage that cost model. We're always looking for ways to make that more efficient and be able to leverage our cost structure at less than a mid single digit. And that's through technology advancements and other initiatives that have been put in place.
Melissa Rasmussen: Yes, the cost to do business has certainly increased, and we're seeing that with Dr. Wages, in addition to other associate wages and just the cost of, you know, benefits and things like that. So, yes, we are, in fact, seeing those higher costs to do business, and we do operate a high fixed cost model, and where we've historically been at mid single digits to leverage that cost model. We're always looking for ways to make that more efficient and be able to leverage our cost structure at less than a mid single digit, and that's through technology advancements and other initiatives that have been put in place. And so with that, you know, to reach this point, we have worked on the implementation and digitizing our stores.
Melissa Rasmussen: And so with that, you know, to the point we have worked on the EHR implementation and digitizing our stores in addition to some back office. As we look to become more and more efficient, we expect that we would be able to reduce our cost structure in such a way to be able to leverage at less than a mid single digit range in the future.
Operator: In addition to some back office, as we look to become more and more efficient, we expect that we would be able to reduce our cost structure in such a way to be able to leverage at less than a mid single-digit range. One moment for our next question. Do you, what is the range of sales productivity across the fleet? I'm just wondering, is there a notable divergence?
Unknown Executive: Thank you.
Simeon Siegel: Our next question comes from Simeon Siegel from BMO Capital Markets. Please, please go ahead.
Simeon Siegel: Thanks.
Simeon Siegel: Hey, good morning, everyone. Hope you're having a nice summer. How is the range of sales productivity across the fleet? I'm just wondering if there are notable divergences across maybe the quartiles for average revenue per box, maybe unit level economics. So just as you're thinking about the store optimization, like, how are you approaching that? And do you already know that there's some discrepancies across, and then congrats on the higher exam revenues?
Simeon Siegel: Could you quantify the order magnitude there of that growth and maybe simplistic question, but just when you think about like, are you at full capacity, just trying to think through the trajectory of the improving exam revenues versus the goal to improve exam capacity.
Simeon Siegel: Thank you.
Reed Faz: Hi, Simeon. So yes, there is a divergence across the fleet that we see. We have clearly had the America's best fleet has performed the best. And our eyeglass world brand to our previous comments is needing to be improved, and we're working intently on getting performance improvements in place there. That being said, for the quarter, we saw America's best comp at 2.9% and CGW, while at a negative 0.5%. That was a sequential improvement from the prior quarter. So some of the operational efficiencies that we're putting in place are certainly gaining traction in that brand. And as we looked to do the high, or I'll move on now to the higher exam revenue, we put in place some exams pricing increases in December of last year.
Reed Faz: Part of that was to offset some of the profitability gap that we were seeing from our evolving business. And now that we have gotten past the Walmart and Acylens exit, we're still seeing the lift in that exam revenue. However, we are seeing a divergence in revenues throughout the product and services line. So we're seeing some behavior changes as it relates to our cash pay consumers. And some of that's related to promotions that we've been running, in addition to different purchasing desires. So we're seeing less add-on purchases when people come in and purchase glasses versus the exam pricing that has been sticking relatively well.
Simeon Siegel: Great. Thank you. That's really helpful. Just follow up on the first one.
Unknown Executive: Great, thank you. That's really helpful. Just to follow up on the first one. Sorry, I actually meant more within each brand's specific fleet. Is there, is there a divergence?
Simeon Siegel: Sorry, I actually met more within each brand specific fleets. Are there there are divergence? So, as you think through, as you're looking across and you're going to do this. You're going to look at all of your stores. I was just wondering if there's a big divergence in each individual brand's average revenue per box and their own profit contribution. Yeah, as far as each individual brand, it largely boils down to capacity. Capacity and demand where we're seeing the capacity meet the demand that we have. We're seeing more success in those stores. And that's one of many factors that we'll keep looking at while we do our fleet review.
Unknown Executive: So as you think through, as you're looking across, and you're going to do this, you're going to look at all of your stores. I'm just wondering if there's a big divergence between each individual brand's average revenue per box and their own profit contribution. Yeah, as far as each individual brand, it largely boils down to capacity and demand. Where we're seeing the capacity meet the demand that we have, we're seeing more success in those stores.
Unknown Executive: And that's one of the many factors that we'll be looking at while we do our fleet review. Fleet optimization has an array of factors that we'll be evaluating, and matching the product or the doctor capacity with patient demand is certainly one of the factors that we'll be paying close attention to. Great. Thanks so much.
Simeon Siegel: This lead optimization has a array of factors that will be evaluating and matching the product or the doctor, the doctor capacity with the patient demand is certainly one of the factors that will be paying close attention to. Great. Thanks so much. That's a lot for the rest of the year. Thank you.
Anthony Chukumba: Our next question comes from Anthony Tsukamba from Loop Capital Markets. Please go ahead.
Operator: Best of luck for the rest of the year. Thank you. Thank you. One moment for our next question. Our next question comes from Anthony Chukumba from Loop Capital Markets. Please go ahead.
Anthony Chukumba: Good morning. Thanks for taking my question as well. I guess my first question is just on what you're seeing the third quarter to date, particularly at the start of the, you know, of back to school, and how that, you know, how your current promotion has kind of played into that. So the two pairs of eyeglasses were 695, and two pairs of breast were 41295.
Anthony Chukumba: I guess my first question is just on what you're seeing in the third quarter to date, particularly at the start of the back to school season, and how that, you know, your current promotion has kind of played into that. So the two pairs of eyeglasses for 6995 and two pairs of progressive lenses for one. So, Anthony, thank you.
Anthony Chukumba: So, Anthony, thank you. So, you know, July looks like, you know, like so many others out there, we were impacted by weather and the global IT challenges. So it was a little weaker than June, but still still comping positively, but that's sort of the fact that July was not demonstrating the inflection point was another factor in our decision to lower guidance. And it's still, it's too early to really say anything about back to school. Got it fair enough. And then just clarification. So you mentioned in terms of, you know, this potential store rationalization, you know, it's like sort of a mid single digit percentage or fleet, you know, just high level.
Unknown Executive: So, you know, July looks like, like so many others out there, we were impacted by weather and the global IT challenges. So, it was a little weaker than June, but still, still comping positively. But that's sort of the fact that July was not demonstrating the inflection point was another factor in our decision to lower guidance. And it's still too early to really say anything about back to school.
Unknown Executive: Got it. Fair enough. And then just clarification. So you mentioned in terms of, you know, this potential store rationalization, you know, it's like sort of a mid single-digit percentage of your fleet, you know, just a high level, like, is there a correlation between, I guess, those underperforming stores and optometrist capacity? I'm assuming there's a correlation between those underperforming stores and optometrist capacity because I' Hi Anthony, that's one of the many assumptions going into this rationalization.
Anthony Chukumba: Well, like, is there a correlation between, I guess, those underperforming stores and I'm assuming there's a correlation between those underperforming stores and uptime just capacity and I'm assuming a lot of those stores are dark or dim stores that are reasonable assumption. Hi, Anthony. That's one of many assumptions going into the rationalization; there are a mix of reasons. Our fleet review is an ongoing exercise. And based on where we are with this current macro environment and company profitability, the purchase cycle disruption that was encountered through the pandemic and now post-pandemic seems to be the reality of where we are in today's environment.
Unknown Executive: There are a mix of reasons. Our fleet review is an ongoing exercise, and based on where we are with this current macro environment and company profitability, the purchase cycle disruption that was encountered through the pandemic and now post-pandemic seems to be the reality of where we are in today's environment. And so with that, we are tolerant of how long it would take a store to recover from that period of time or return to historical profitability. And so we're looking to evolve the brand and make sure that we have heightened scrutiny as we go through this fleet review. And again, there will be many factors. It'll be dark and dim.
Anthony Chukumba: And so with that, we are tolerant for how long it would take a store to recover from that period of time or return to the historical profitability has changed. And so we're looking to evolve the brand and make sure that we have heightened scrutiny as we go through this week review. And again, it'll be many factors; it'll be darkened in, it'll be market driven, it'll be performance of stores, individual operational changes, one of many factors. That's helpful.
Unknown Executive: It'll be market driven. It'll be the performance of stores, individual operational changes, or one of many factors.
Unknown Executive: That's helpful. Thank you. Thank you. One moment for our next question. Our next question comes from Kate McShane from Goldman Sachs. Please go ahead. Hi, good morning.
Unknown Executive: Thank you.
Unknown Executive: One more for our next question.
Katharine McShane: Our next question comes from Kate McShane from Goldman Sachs. Please go ahead.
Katharine McShane: Hi, good morning. Thanks for taking our questions. This has been asked somewhat a little bit already, but what we're trying to figure out is, at this point, with the amount of self-help that you've done with the rollout of remote and other initiatives that you have with marketing and the doctor's scheduling, how much of the comp weakness is a macro factor versus leaving sales on the table? Yeah, so there's a combination, certainly, there, Kate, and we're working to match our level of capacity to match patient demand. And that is the purpose of the remote technology. While we continue to evolve that remote technology, we'll be able to balance the demand with the capacity.
Katharine McShane: Thanks for taking our questions. This has been asked somewhat a little bit already, but what we're trying to figure out is, at this point, with the amount of self-help that you've done with the rollout of remote and other initiatives that you have with marketing and doctor scheduling, how much of the comp weakness is a macro factor versus leaving sales on the table? Thank you.
Katharine McShane: And with doctors working less hours or less days, that's something that we're constantly having to balance. And we're always looking for the most efficient manner to deliver exams for our patients. So it is a mix bag. It is a combination of the two. And you know, in this environment, we focus on what we can control there. And there are levers that we can use to remote technology as one. I just want to point out that the late appointment program that we put in place. That's also a lever that was net positive in terms of overall capacity for us.
Katharine McShane: Thank you.
Unknown Executive: And if we could just follow up on Texas and the remote rollout there, can you update us on if that's been fully rolled out? And are there any expectations for things to change in other states that will unlock more remote rollout in the future? Yeah, the Texas rollout, we started with the dark and dense stores; there were 25 dark and dense stores in Texas, all have been enabled with remote capabilities. There's a total of, you know, a little bit over 140 stores in Texas; we will continue to implement all of those stores.
Katharine McShane: And if we could just follow up on Texas and the remote rollout there, can you update us on if that's been fully rolled out? And are there any expectations for things to change in other states that unlock remote rollout in the future? Yeah, the Texas rollout. We started with the dark and dense stores. There were 25 dark and dense stores in Texas. All have been enabled with remote capabilities. There's a total of, you know, a little bit over 140 stores in Texas. We will continue to implement all of those stores. However, like I said, we started with the dark and dense.
Unknown Executive: However, like I said, we started with the dark and dense, and we've seen early positive traction on those stores, and we'll continue to roll that out. We expect to have all of Texas completed by the end of the year, and there are other states as well that we'll be focused on. Again, it goes back to the legislation in specific states, that where states become favorable to remote sensing, we'll continue to deploy our technology. Thank you.
Reed Faz: We've seen early positive traction on those stores. And we'll continue to we'll continue to roll that out, expect to have all of Texas completed by the end of the year. And there are other states as well that will be focused on. Again, it goes back to the legislation in specific states that where states become favorable to remote will continue to deploy our technology. Thank you.
Operator: One moment for our next question. Our next question comes from Zach Fadem from Wells Fargo. Please go ahead. Hey, good morning. Reed, another history question.
Zachary Fadem: Our next question comes from Zach Fatem from Wells Fargo. Please go ahead.
Zachary Fadem: Hey, good morning. Read another history question. As this business generated both mid-single-digit comps as well as another, call it low-to-mid-single-digit sales contribution from new stores.
Zachary Fadem: Is this business generated, both by mid-single-digit comps, as well as another, call it, low to mid-single-digit sales contribution from new stores. And now that times have evolved, curious what you think the right go-forward sales algorithm for this business should be, both in terms of industry growth, your comps, and then the new store contribution. And then how should we think about the path back to this normalized level? Hi
Zachary Fadem: And now that times have evolved, curious what you think the right go forward, sales algorithm for this business should be, both in terms of industry growth, your comps, and then the new store contribution.
Reed Faz: And then how should we think about the path back to this normal life?
Reed Faz: Love. Hi, back. The algorithm has certainly evolved. The market, the overall competitive landscape, it looks like the industry is growing at about three percent. With our new store growth and our established store growth, we're always looking to optimize that growth. Historically, it was in mid-single digits where we leverage our cost structure. And like I said previously, we expect to continue to find efficiencies to continue to look for ways to leverage that cost structure at a lower comp level.
Melissa Rasmussen: The algorithm has certainly evolved. The market, the overall competitive landscape, and it looks like the industry is growing at about 3%. With our new store growth and our established store growth, we're always looking to optimize that growth. Historically, it has been mid-single digits where we leverage our cost structure. And like I said previously, we expect to continue to find efficiencies and look for ways to leverage that cost structure at a lower comp level.
Melissa Rasmussen: That being said, we still need to improve on top lines to get back to the same store sales and be able to deliver the profitability that we want to deliver. And part of that is where we're going to be implementing the technologies that we've been working through to match patient demand with the capacity that we have with our remote program. And we'll continue to focus on recruiting and retention as well.
Melissa Rasmussen: That being said, we still need to improve on the top line to get back to the same store sales and be able to deliver the profitability that we want to deliver, and part of that is where we're going to be implementing the technologies that we've been working through to match patient demand with the capacity that we have. With our remote program, and we'll continue to focus on recruiting and retention as well. Got it.
Melissa Rasmussen: Yeah, thanks, Melissa.
Unknown Executive: Thanks, Melissa. And you also talked about lower utilization of your base offer due to other offers. And I don't know if I ever remember this being the case in the past. Has this ever happened before?
Melissa Rasmussen: And you also talked about lower utilization of your base offer due to other offers.
Melissa Rasmussen: And I don't know if I ever remember this being the case in the past. Has this ever happened before?
Melissa Rasmussen: And then when you think about the softness in cash-based customers, is this an industry-wide issue or do you think it's more so a change in your market share or mix? Yeah, so with our makeup of customers, we've continued to have strength in our managed care business. We've been growing at, you know, the single-digit, positive comp in managed care business. With the lower take rate on our two-payer offer, we ran some promotions during the quarter, which contributed to that. We were with us permission to go with to increase traffic and awareness among the lower income consumer.
Unknown Executive: And then when you think about the softness in cash-based customers, is this an industry-wide issue? Or do you think it's more of a change in your market share or mix? Yeah, so with our makeup of customers, we've continued to have strength in our managed care business. We've been growing at, you know, mid-single digit positive comp in the managed care business. With the lower take rate on our two-payer offer, we ran some promotions during the quarter, which contributed to that.
Unknown Executive: We were, with those promotions, the goal was to increase traffic and awareness among the lower-income consumer. And we certainly saw a pick-up in traffic. We did see some changes in their purchasing patterns, which, you know, in part was due to the single-payer offer promotion that we were running. And managed care consumers don't typically participate in the two-payer offer because that's not something that managed care insurance pays for.
Melissa Rasmussen: And we certainly saw the pickup in traffic. We did see with that some changes in their purchasing patterns, which, you know, in part would do to the single-payer offer promotion that we were running. And managed care consumers don't typically participate in the two-payer offer because that's not something that managed care insurance pays for. And on your industry question, yes, the cash pay customer is a factor for the industry. It's more of a factor for us because we're underdeveloped in the managed care segment. Again, managed care segment, high single-digit, a positive comp in Q2, but we're still underdeveloped relative to the industry.
Unknown Executive: And on your industry question, yes, the cash-pay customer is a factor for the industry. It's more of a factor for us because we're underdeveloped in the managed care segment. Again, the managed care segment had high single-digit positive comps in Q2, but we're still underdeveloped relative to the industry. And it's easier if you have the majority of your business coming from managed care because that customer is not as cash-focused since the insurance is paying for so much. Got it. Thanks for the time.
Melissa Rasmussen: And it's easier if you have the majority of your business coming from managed care because that customer is not as cash-focused since the insurance is paying for so much of their purchase.
Unknown Executive: Got it.
Unknown Executive: Thanks for the time.
Unknown Executive: Thank you. One moment for our next question.
Operator: Thank you. One moment for our next question. Our next question comes from Simeon Gutman from Morgan Stanley. Please go ahead. Hi everyone.
Simeon Gutman: Our next question comes from Simeon Gutman from Morgan Stanley. Please go ahead.
Simeon Gutman: Hi everyone. There's a lot of questions about historic average margin. If we look at some of the offshore stores, Rita Melissa, can you talk about where four-wall margins land in some markets that are, I would call, more successful, meaning if it's an issue of potentially overbuilding stores, and there is a rationalization, might we get back to those type of productivity or profitability level? Yeah, as we go through the fleet optimization reviews, we'll be looking to evaluate a multitude of factors. The formal margin on our individual store has been healthy overall. However, we do have some stores that are not meeting our profitability objective, and those stores will be evaluated as part of this exercise.
Simeon Gutman: There are a lot of questions about historic average margin. If we look at some of the mature stores, Rita, Melissa, can you talk about where, you know, four-wall margins land in some markets that are, I would call, more successful? Meaning, if it's an issue of, you know, potentially overbuilding stores and there is a rationalization, might we get back to those type of productivity or profitability levels? Yeah, as we go through the fleet optimization review, we'll be looking to evaluate a multitude of factors. The four-wall margin on our individual stores has been healthy overall. However, we do have some stores that are not meeting our profitability objectives, and those stores will be evaluated as part of this exercise.
Unknown Executive: And there'll be a multitude of options that come out of this exercise as far as whether that's closure, conversion, or operational changes within the store base, increased advertising, for example. And so some of those are things that we'll be looking at, but overall, we have seen healthy margins in both of our store bases. And we aren't thinking of this as an overbuilding of stores. We're thinking of this as places where there are coverage issues or real estate dynamics or operational execution, consistency, things of that nature, but we don't, we aren't seeing this as an overbuilding situation. Okay, and then, Reed, this is the age-old debate.
Melissa Rasmussen: And there will be a multitude of options that come out of this. It's exercised as far as whether that closure conversion or operational changes within the store base increase advertising, for example. And so some of those are things that we'll be looking at, but overall we have seen healthy margins in both of our store base. And we aren't, we aren't thinking of this as an over building of stores. We're thinking of this as places where there are coverage issues or real estate dynamics or operational execution, consistency, things of that nature, but we don't we aren't seeing this as an over building situation.
Melissa Rasmussen: Okay, and then every. This is the age-old debate. We've talked about pricing, and you've raised price a bit in the past. What's keeping you from either evaluating or raising prices now? Is there a governor around the price point in the industry that prevents you from taking price up again? Yeah, the city is so we are evaluating pricing that is something that we've looked at consistently. That being said, we have taken price in various places over the past several years, and we balance those pricing actions with where we are in the marketplace. We look to make sure that we balance our pricing and growth appropriately, and we've run promotions to ensure that we can continue to take price or if we have has maybe taken too much price.
Unknown Executive: We've talked about pricing, and you've raised prices a bit in the past. What's keeping you from either evaluating or raising prices now? Is there a governor around the price point in the industry that prevents you from taking prices up again?
Unknown Executive: Yeah, so we are evaluating pricing. That is something that we look at consistently. That being said, we have taken prices in various places over the past several years, and we balance those pricing actions with where we are in the marketplace. We look to make sure that we balance our pricing and growth. Appropriately, and we run promotions to ensure that we can continue to take prices or if we have maybe taken too much price.
Unknown Executive: We've seen that customers, however, are making purchasing decisions. We want to stay attractive to those customers, and while they're making purchasing decisions to potentially not upgrade as much or purchase add-ons, we, we are through their evaluation. That makes the most sense at our pricing level. Okay, thank you.
Melissa Rasmussen: We've seen that customers, however, are maybe purchasing decisions. We want to stay attractive to those customers, and while they're making purchasing decisions to potentially not upgrade as much or purchase add-ons, we are through their evaluating what makes most of our pricing levels.
Unknown Executive: Okay, thank you.
Unknown Executive: Thank you. One more for our next question.
Operator: Thank you. One moment for our next question. Our next question comes from Brian Tanquilut. From Jefferies, please go ahead. Hey, good morning.
Brian Tanquilut: Our next question comes from Brian Tankwillett from Jeffries. Please go ahead.
Brian Tanquilut: Hey, good morning. Maybe just to follow up on that last question about being over-stored, and I hear your point, read. As we think about expansion plans in the future, I mean business also means that we should expect maybe a slowdown in new builds going forward, and from a cat-backs perspective or free cash perspective, there should be a little bit of a lift down the road. Yeah, so Brian, we've talked about previously that our new store plans have a long runway because of the amount of time that it takes to securely build a store.
Brian Tanquilut: Maybe just to follow up on that last question about, you know, being overstored, and I hear your point, Reid. So, as we think about expansion plans in the future, does this also mean that we should expect maybe a slowdown in new builds going forward, and that from a CapEx perspective or a free cash perspective, there should be a little bit of a lift down the road? Yes, Brian, we've talked about previously that our new store plans have a long runway because of the amount of time that it takes to secure a lease and build a store.
Reed Faz: That being said, you know, with the current macro environment looking at our new store growth, we have determined that we will likely be bringing that down in the future. As far as the exact number, I can share more on that once we have finalized our 25 plans, but we do expect that a part of not growing as many stores in 25 would lead to additional cash flow generations, and we'll continue to look for ways to produce healthy, profitable growth. And we think our right space opportunity remains the same. It's just given the current environment. This now it's just a matter of the of the pacing to get there.
Brian Tanquilut: That being said, you know, with the current macro environment, looking at our new store growth, we have determined that we will likely be bringing that down in the future. As far as the exact number, I can share more on that once we have finalized our twenty-five plans, but we do expect that part of not.
Melissa Rasmussen: Growing as many stores in 25 would lead to additional cash, free, cash flow generation, and we'll continue to look for ways to produce healthy, profitable growth. Yeah, and we think our white space opportunity remains the same. It's just given the current environment; this now it's just a matter of the pacing to get there. That makes sense.
Melissa Rasmussen: That makes sense, and then Melissa, maybe anything you can share with us as we think about the 2025 notes coming up for maybe refinancing. Yeah, so our balance, our strong balance sheet in our cash position, and the unutilized revolving credit facility that we have provides us with some flexibility as we actively look for settlement options for the upcoming notes. We currently have enough liquidity on hand and that we can continue to evaluate and take action when it makes sense to do so.
Melissa Rasmussen: And then, Melissa, maybe anything you can share with us as we think about the 2025 notes coming up for maybe refinancing? Yeah, so our balance, our strong balance sheet in our cash position, and the unutilized revolving credit facility that we have provide us with some flexibility as we actively look for settlement options for the upcoming notes. We currently have enough liquidity on hand that we can continue to evaluate and take action when it makes sense to do so. Awesome, thank you.
Melissa Rasmussen: Thank you.
Unknown Executive: Thank you one more before our next question.
Operator: Thank you. One moment for our next question. Our next question comes from Paul Lesuey from Citi. Please go ahead. Hey, everyone, this is Brandon Cheatham on behalf of Paul.
Paul Lesway: Our next question comes from Paul Lesway from City. Please go ahead.
Paul Lesway: Everyone in this brand and sheet of one for Paul. Let's open and go back to the end of performing stores that you've identified. 5% in your initial screen. Anything you need that you've been able to parse out about the world performing stores. Are they a certain vintage, certain location, or been suburban, and you are a majority of those eyeglass world. And how have the eyeglass world that you switched in California to American Best performed? Yeah, so the overall assessment that we're looking to evaluate with this store optimization is less than 5% of our total store fleet, and that's across all of our brand.
Brandon Cheatham: I was hoping to go back to the underperforming stores that you've identified, the 5% in your initial screen. Is there anything unique that you've been able to parse out about those lower-performing stores? Are they a certain vintage, certain location, urban versus suburban? Are a majority of those eyeglass stores?
Unknown Executive: And how has the eyeglass world that you switched in California to America's Best performed? Yeah, so the overall assessment that we're looking to evaluate with this store optimization is less than 5% of our total store fleet, and that's across all of our brands. That being said, there's a mix between, you know, America's Best, EGW, etc.
Reed Faz: That being said, there's a mix between, you know, American best, EGW, et cetera, as we look to evaluate that there's not a specific geography or location. It's a variety of factors and will evaluate each individual store based on what makes sense for that specific location. As far as the converted stores in California, they've only been converted; they've been converted for one entire quarter now. And as we look at that performance, we are seeing some improvements in some of the stores. We've seen some EBITDA listed in some of those stores. However, as with any new store, you have a ramp period, and these stores are still in that ramp period.
Unknown Executive: As we look to evaluate that, there's not a specific geography or location. It's a variety of factors. And we'll evaluate each individual store based on what makes sense for that specific location. As far as the converted stores in California, they've only been converted. They've been converted for one entire quarter now, and as we look at that performance, we are seeing some improvements in some of the stores. We've seen some EBITDA lifts in some of those stores. However, as with any new store, you have a ramp period. And these stores are still in that ramp period. We are; they didn't have brand recognition in that market.
Reed Faz: We are; they didn't have brand recognition in that market. And so we are increasing brand recognition and looking for other opportunities to invigorate the results going into those stores, but we do expect that there will be some ramp period.
Unknown Executive: And so we are increasing brand recognition and looking for other opportunities to invigorate the results going into those stores. But we do expect that there will be some ramp periods.
Melissa Rasmussen: Thank you. That's helpful.
Unknown Executive: Thank you. That's very helpful. I was hoping that you could help quantify what changed in your second half outlook? I understand recent trends are a little bit weaker than you expected. But how much of it is, you know, a renewed view on what you expect demand to be maybe lower trade down or repurchase cycle that is not as strong as you expected versus, you know, second half doctor availability? Sounds like that also might be a factor.
Melissa Rasmussen: I was hoping that you could help quantify what changed in your second half outlook. I understand recent trends are a little bit weaker than expected, but how much of it is, you know, for the mood view on what you expect demand to be maybe lower trade down or we purchase cycle that's not as strong as you expected versus, you know, second half doctor availability sounds like that also might be effective. Because just wondering if you can help quantify, you know, which pocket is really driving the reduction and compound. Yeah, so as far as the Outlook revision, there were a combination of factors.
Unknown Executive: Just wondering if you can help quantify, you know, which bucket is really driving the reduction in comp out? Yeah, so as far as the Outlook revision, there were a combination of factors. There was year-to-date performance, the heightened macro concerns, and we had some recruiting and retention trends that were a little bit lower than we had expected. All three of these factors impacted our view of the back half.
Melissa Rasmussen: There was year-to-date performance, the heightened macro concerns. If we had some recruiting and retention trends that were a little bit lower than we had expected. All three of these factors impacted our view of the back half. That being said, we have expanded exam capacity with our remote rollout in Texas, the late day appointments that we've put in place. And then the sales initiatives that we've put in place are also generating some positive momentum. We had a flood start to the year, and we had said last quarter that we needed to see an improvement. While we did see an improvement as we went into the second quarter, and specifically June was strong, we did not see the degree of improvement that we needed in order to meet the back half of our guidance.
Unknown Executive: That being said, we have expanded exam capacity with our remote rollout in Texas, the late-day appointments that we've put in place, and then the sales initiatives that we've put in place are also generating some positive momentum. We had a slow start to the year, and we said last quarter that we needed to see an improvement. While we did see an improvement as we went into the second quarter, and specifically June was strong, we did not see the degree of improvement that we needed in order to meet the back half of our guidance. That being said, we are being prudent in view of the back half and lowering our guidance range for the year. I appreciate your time. Thanks and good luck.
Melissa Rasmussen: That being said, we are being prudent in the view of the back half and lowering our guidance range for the year.
Unknown Executive: Appreciate the time.
Unknown Executive: Thanks.
Unknown Executive: Good luck.
Unknown Executive: Thank you. One moment before our next question.
Operator: Thank you. One moment for our next question. Our next question comes from Adrienne Yeh, from Barclays. Please go ahead.
Adrienne Yih: Our next question comes from Adrienne Gay from Carclays. Please go ahead.
Adrienne Yih: Great. Thank you very much.
Adrienne Yih: Great. Thank you very much. Reed, I guess my question's on the macro pressure that you're seeing on the cash customer. There was a point a couple of years ago, a few years ago, where we thought that they were deferring and then they would come back into the market. What do you think the dynamic is here? Where are they going? Are they foregoing? Or do you think there's a deferral and then another cycle that comes on the back of that?
Reed Faz: Reed, I guess my question's on the macro pressure that you're seeing in the cash customer. There was a point a couple of years ago, a few years ago, where we thought that they were deferring and then would come back into the market. What do you think the dynamic is here? Where are they going? Are they forgoing? Or do you think there's a deferral and then another cycle that comes in the back of that?
Melissa Rasmussen: And then Melissa, what is the average leaf life of your kind of pre-existing fleet? Well, I think that's great.
Unknown Executive: And then, Melissa, what is the average lease life of your pre-existing fleet? As we think about the permanency of OD costs continuing to go up, I understand the IR hurdle's higher bar, but is there any thought that across the chain there's a permanent four-wall pressure on the overall contribution? Thank you. Good. Thank you.
Reed Faz: As we think about kind of the permanency of OD cross sort of continuing to go up, I understand the IR hurdle sort of, you know, higher bar, but is there any thought that sort of like across the chain that they're sort of a permanent, you know, for wall pressure on the overall contribution. Thank you. Good. Thank you. So, as we said about the cash pay consumer, sort of the comps of the cash pay consumer was essentially flat in Q2 versus low single digit negative in Q1, but as Melissa referenced, sort of their coming in, but they're not buying as many as many features as they had in the past.
Unknown Executive: So, as we said about the cash pay consumer, sort of the comps for the cash pay consumer were essentially flat in Q2 versus a low single-digit negative in Q1. But, as Melissa referenced, sort of they're coming in, but they're not buying as many features as they had in the past. We do think we are maintaining market share, excluding the Walmart stores that we have exited. And these programs that we're doing, the sort of Wi-Fi programs that we talked about, the progressives' offer, the rollback, the temporary rollback to the two for 69, they're all designed to drive traffic from value-seeking customers. And we've been encouraged by those, especially the progressives' offer. And hey, Adrienne.
Reed Faz: We do think we are maintaining market share, excluding the Walmart stores that we have exited and these programs that we're doing, the sort of Wi-Fi programs that we talked about, the progressives offer, the rollback to the temporary rollback to the 2 for 69. They're all designed to drive traffic from value-seeking customers, and we've been encouraged by those, especially the progressives offer. And Adrian, so our for wall profitability has certainly seen pressure, but it's still healthy. We continue to balance pricing with cost increases that we're seeing, and overall our lease terms, to your question, they range between five and 10 years, depending on the specifics of that location.
Melissa Rasmussen: So our four walls, Profitability has certainly seen pressure, but it's still healthy. We continue to balance pricing with cost increases that we're seeing. And overall, our lease terms, to your question, they range between 5 and 10 years, depending on the specifics of that location.
Melissa Rasmussen: Okay, and then my follow-up is just a, I guess I'm just a counting question. The telehealth, the infrastructure for the telehealth, is it just an investment in CAPEX, or is there an ongoing kind of margin implication within the P&L or the four wall of the store? Thanks. Yeah, so that's a mixed bag: the initial investment in technology. Technology is capitalized, but we do have a per click fee for exams that are offered through the remote Technology. So it's a combination of both, but the large, the large expenditure is an upfront capital expenditure.
Unknown Executive: Okay, and then my follow-up is just a, I guess, an accounting question. The telehealth, you know, the infrastructure for the telehealth, is it just an investment in CapEx, or is there an ongoing kind of margin impact within the P&L or the floor wall of the store? Thanks. Yeah, so that's a mixed bag.
Unknown Executive: The initial investment in technology is capitalized, but we do have a per-click fee for exams that are offered through the remote technology. So, it's a combination of both, but the large, the large expenditure is an upfront capital expenditure. Okay, thank you very much and best of luck.
Unknown Executive: Okay, thank you very much, and best of luck.
Dylan Carden: Thank you, one more for our next question. Our next question comes from Dylan Carden from William Blair. Please go ahead.
Operator: Thank you. One moment for our next question. Our next question comes from Dylan Carden of William Blair. Please go ahead.
Dylan Carden: Thanks a lot. What's the best guess here as to why? You're not Team Marvel. Dylan, could you repeat that? You were breaking up.
Dylan Carden: Thank you. What's the best guess here as to why you're not too much of a purchase label? So could you repeat that? You were breaking up?
Unknown Executive: You said, "What's your best guess on, and then we couldn't hear the end of the question, the important one: your best guess as to why you're not seeing more of a research-type work? Yeah, more of a repurchase cycle is the question. The answer is that our consumer base is cash strapped right now. I mean, this is not us.
Dylan Carden: You said, "What's your best guess on" and then we couldn't hear what the end of the question. Yeah, best guess is why you're not being more of a purchase label. Yeah, more of a repurchase cycle with the question. The answer is that our consumer basis is cash strapped right now. I mean, this is not us you're seeing it everywhere, but it's just ongoing pressure, and consumers are trying to stretch purchases out. And I read about it in other sectors in the Wall Street Journal every day. It's out there. That's what's happening again. And look at our managed care business.
Unknown Executive: You're seeing it everywhere. There's just ongoing pressure, and consumers are trying to stretch purchases out. And, you know, I read about it in other sectors in the Wall Street Journal every day. It's out there.
Unknown Executive: That's what's happening. Again, and look at our managed care business, high single-digit comps from the managed care side, where it's not so much their money. And, again, we are pleased with the improvement in cash-pay customers, and this is why we're testing a lot of different promotions along the way to try to really capture the value seekers and, again, initially encourage them. And I guess sort of blending that into the conversation around sort of the margin. I mean, it seems like it.
Dylan Carden: I single digit comps from the managed care side where it's not so much their money. And again, we were pleased with the improvement in the cash pay customers. And this is why we're testing a lot of different promotions along the way to try to really capture the value seekers. And again, they initially encouraged. And I guess sort of one night with conversation around for the marginal. I mean, it seems like you're kind of extrapolating current trends out.
Unknown Executive: You're kind of extrapolating current trends out, and whereas if you were to put yourself back to where you kind of gave initial guidance, you were maybe hoping for more of a reflection of the focus. You know, I guess the real question is, what's the underlying cause of the sanctions in not being able to, Dylan, you were a little hard to hear there, so I'm going to answer what I think you asked, and But basically, with the slower start to the year and the heightened macro concerns and the recruiting and retention trends coming in a little bit lower than we had anticipated, we were seeing that we just didn't have the improvement in comps that we had expected in the first half, making the back half. That making the back half implied a comp of a mid single digit, just based on where the year started.
Dylan Carden: And whereas if you were to put yourself back where you kind of gave initial guidance, you were maybe hoping for more than what. I guess the real question, what's the unveiling.
Melissa Rasmussen: So Dylan, you are a little hard to hear there. So I'm going to answer what I think you ask. And if that's not the question, let me know. But basically, with the slower start to the year and the, you know, heightened macro concerns and the recruiting and retention, transcending it a little bit lower than we had anticipated. We were seeing that we just didn't have the improvement in comps that we had expected in the first half, making the back half. And. Making the back hats imply comp of a mid-single digit. Just based on where the year started, we've not seen those trends to date.
Unknown Executive: We've not seen those trends yet. So, we have seen positive trends, and we'll continue to expect to see positive trends as the year progresses. However, they have just not been as strong as we would have expected or liked them to be.
Melissa Rasmussen: So, we've seen positive trends and will continue to expect to see positive trends as the year progresses. However, it has just not been as strong as we would have expected or liked it to be. We have to reach point scenes and improvement in many of the things that we're putting in place. So, the promotions that we put in place has been driving increased traffic. Some of those cash pay consumers that may have been sitting out like we came during the promotion that we did in second quarter, and then some of the promotions that we'll be doing in third quarter have also seemed to have been increased traffic.
Unknown Executive: We have to reach a point where we see some improvement in many of the things that we're putting in place. So the promotions that we've put in place have been driving increased traffic. Some of those cash-pay consumers that may have been sitting out likely came during the promotion that we did in the second quarter.
Unknown Executive: And some of the promotions that we'll be doing in the third quarter have also seemed to have some increased traffic. We've also expanded exam capacity at the end of the day so that we can see patients at a time that they want to be seen. And we've seen some initial positive momentum coming out of the remote implementation in Texas. So with all of those factors combined, we feel that the revision is a true look at what our back half will be. Thanks. And I guess if you can hear this one, just just curious, you know, remote care when you kind of first launched it.
Reed Faz: We've also expanded exam capacities at the end of the day so that we can see patients at a time that they want to be seen. And we've seen some initial positive momentum coming out of the remote implementation in Texas. But with all of those factors combined, we feel that the revision is a true look at what our back hat will be.
Reed Faz: If you can hear this one, just curious, remote care when you first launched it, which thought to be incremental benefits of the model, and now it feels like it's just helping you cut water. It's just still a thought that long-term remote incremental positive revenue and margin. Yeah, you were breaking up, but I think I've got it. So, we see remote as an important factor for where we are and where we're going. We think it is an important factor in expanding our exam capacity, and we wouldn't be performing as we are without it. I'll add that to some of the earlier questions about the costs and the margins related to it.
Unknown Executive: We're thought to be the sort of incremental benefit to the model, and now it feels like it's kind of just helping you cut water. Is there still a thought that long-term remote or incremental positive revenue and margin from a remote or incremental revenue and margin standpoint is a normalized environment? Yeah, you were breaking up, and I think I've got it.
Unknown Executive: You know, so we see remote as an important factor for where we are and where we're going. We think it is an important factor in expanding our exam capacity, and we wouldn't be performing as we are without it. I'll add that to some of the earlier questions about the costs and the margins related to it. Since we began this, remote has become ever more efficient for us in a variety of ways. And we believe that will continue again. Remote was a high-tech startup inside a traditional retailer.
Reed Faz: Since we began, this remote has become ever more efficient for us in a variety of ways, and we believe that will continue. Again, remote was a high-tech startup inside a traditional retailer, and it's been steadily progressing as we've learned more and just gotten better at it, and we think that will continue. It is profitable, and we're happy when there's a live doctor, and there's a remote doctor, and we're happy to use it where it's dark, but it's just an expansion of capacity, and you're going to be hearing more of it going forward because this net incremental benefit, and this is a great tool in addressing the OD situation that is currently in our industry.
Unknown Executive: And it's been steadily progressing as we've learned more and just gotten better at it. And we think that will continue. And it is profitable.
Unknown Executive: And we're happy when there's a live doctor and there's a remote doctor, and we're happy to use them where it's dark, but it's just an expansion of capacity. And you're gonna be hearing more of it going forward because of just the net incremental benefit. And this is, this is a great tool in addressing the OD situation that currently exists in our industry. Thanks. Thank you. At this time, the question and answer session is closed.
Unknown Executive: Thanks, Barbara. Thank you.
Unknown Executive: I'll now turn it back over to Reed Foss for closing remarks. Thank you, Antoine. And thank you all for joining us today. We appreciate your interest and support. And we're looking forward to speaking to you on our Q3 call. Thank you all very much. This does conclude the program. You may now disconnect. Thank you for watching!
Unknown Executive: At this time, the question and answer session is closed.
Reed Faz: I will now turn it back over to Reid Faas for closing remarks. Thank you, Antoine, and thank you all for joining us today. We appreciate your interest and support, and we're looking forward to speaking to you on our Q3 call.
Unknown Executive: Thank you all very much.
Unknown Executive: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.