Q1 2025 National Vision Holdings Inc Earnings Call

Good day, and thank you for standing by. Welcome to the Q1 2025 National Vision Holdings Earnings Conference Call. At this time, all participants are in a listen-only mode.

After the speaker's presentation, there will be a Q&A session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised.

To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today. Tamara Gonzalez, please go ahead.

Thank you and good morning, everyone. Welcome to National Vision's first quarter 2025 earning calls. Joining me on the call today are VFA's CEO , Alex Wilkes, President, and Chris Layden, CFO .

A replay of the audio webcast will be archived in the investor's section after the call.

Before we begin, let me remind you that our earnings materials and today's presentations include forward-looking statements as defined in the private security 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. [inaudible]

These risks and uncertainties include that are not limited to the factors identified in the release and our filings with the securities and exchange commission.

The release in today's presentation also includes certain non-GAAP measures .

Reconciliation of these measures is included in our release in 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-GAF measures. Further, please note that all financial measures in today's commentary are based on a continuing operation spaces and less otherwise noted.

As a reminder, National Vision provides investor presentations and supplemental materials for investor reference in the investor's section of our website. I will now turn the call over to Read. Read.

Reid: Thank you, Tamara, and good morning, everyone. Thank you for joining us today.

Reid: Last week, Alex and I met with over 1,200 store managers, along with our field and Optometric Leadership to ensure that they are all fully enrolled, engaged and aligned with our transformation strategies and tactics.

Reid: As so many of the company's leaders were uniquely all in one place, it was an ideal time to share the news of our CEO succession plans, live and in person. That as of August 1, Alex Wilkes will be succeeding me as CEO and I will be transitioning to the role of executive chair.

Reid: The Board, Alex and I have done a lot of research and have a lot of mindful conversations about best practices associated with the EO transition. That combined with Alex and my natural compatibility and chemistry has helped us to ensure a smooth and orderly transition.

Reid: As such on this, my last earnings call after 23 years and 30 earnings calls as the EO, I'm pleased to be able to share that the strengths of our first quarter result are further evidence that National Vision's transformation is working and should continue to be successful well into the future.

Reid: Our entire team's disciplined approach to executing on our strategic initiatives.

Reid: was evident in the strong continued growth we saw this quarter in our three target customer cohorts.

Reid: Managed Care, Progressive, and Outside RX customers, leading to a return to mid-single-digit conference performance and achieving solid bottom-line performance.

Reid: We are pleased with the ongoing moment of we've seen and are confident we are headed in the right direction. We believe that our value offering positions thus well, particularly in this environment, and the results in the quarter reinforce our confidence in the long-term potential of our Go Forward strategy and initiatives.

Reid: Recall that the National Vision Transformation began following the many changes in the marketplace and the business that started in 2022. Thank you.

Reid: We address the emergent optometrist shortage through a variety of efforts, including enhanced flexibility, recruiting improvements, and the implementation of remote exam capability. [inaudible]

Reid: While there remain plenty of opportunities to further optimize the efficiency of the network, we believe we now have a strong foundation of optimistic coverage in place.

Reid: With this foundation, we kicked the transformation into a higher gear last year, which included the recruitment of new leaders with fresh perspectives to help develop and implement a multi-year transformation agenda.

Reid: That's when we recruited Alex Wilkes, an industry veteran from Ethel or Laxatica and Cooper Vision, and Mark Banner, who was new to our industry, but brought enlightened insights from his analogous consultative selling retail experiences with sleep number and sales.

Reid: A month ago, we also added Chris Laden to the team as CFO . Chris worked alongside Alex as head of finance during their transformation of Pearl Vision for Ethelur Laxatica.

Reid: Most recently, he was CFL of Community Veterinary Partners, a business similar to optical, given its reliance on medical professionals.

Welcome, Chris.

Speaker Change: Last fall, the new team performed a deep dive analysis on our customer and our business, and developed a simple providing strategy that we shared with you last quarter.

Speaker Change: Our new strategy involves tightening our attention to segmentation, personalization, and digitization in our messaging, product, pricing architecture, and customer experience. [inaudible]

Speaker Change: with a special focus on our three target customer cohorts that represent about half of our customers, but a disproportionately large percentage of our sales. [inaudible]

Speaker Change: These segments, while already significant to us, and growing faster than the rest of the business, are also segments where we are significantly underdeveloped versus the category. Thus focusing on them should help to expand our addressable market.

Speaker Change: Plus, they each in their own way help to insulate us more from the impact of difficult macroeconomic times. [inaudible]

Speaker Change: We began to see initial evidence of this during the first quarter where America's best-sought positive compensates sales from higher income groups offsetting negative trends from lower income consumers. This was true with managed care customers and those self-paying in these income brackets.

Speaker Change: While these segments are receiving heightened attention, we remain mindful of maintaining focus on the value we provide to our more purely budget-oriented customers, especially in an environment where all consumers, especially cash consumers, are ever more value seeking.

Speaker Change: The initial program, springing from this new strategy, helped us to deliver a strong quarter. After I take you through first quarter results, Alex will provide more details on our ongoing transformation programs and programs.

Speaker Change: With that, I'll turn to the highlights in the first quarter. [inaudible]

Sales in the first corner rose $5.7% to $510 million. $1.

Speaker Change: Adjusted comparable store sales growth of 5.5% represented the ninth consecutive quarter of positive growth. Solidely in the mid-single digit range, thanks to positive traction on our initiatives with every brand delivering positive growth.

Speaker Change: America's best type of store sales were 5.9% on top of 1.2% in last year's first quarter, an eyeglasser of Comp Store sales of 3.1% its best quarter since 2021.

Speaker Change: All three of our target customer segments delivered double-digit comps. And while strong comp was due to average ticket, we were encouraged to see traffic turn positive for the quarter.

Speaker Change: Importantly, while we experience average ticket gains, we continue to see exam-to-i-glass purchase conversions hold steady and healthy net promoter scoring. This is a confirmation that our pricing actions are accepted by customers.

Speaker Change: Adjusted operating income increased 21.8% to $41.3 million, and adjusted deluded earnings for share increased to $34.

Speaker Change: As stated previously, exam capacity remains in good shape. Retention remains healthy, and our recruitment efforts are in line with expectations. Remote technology is enabled in approximately two-thirds of the storm base and is now embedded in our operation.

Speaker Change: We are encouraged that this strong momentum continue as we enter the second quarter, which gives us further confidence in our transformation program.

Speaker Change: And with that, let's turn to guidance. The strength of our first quarter results gives us the confidence to raise our guidance from the year. Chris will take you through our outlook in more detail.

Speaker Change: While we're confident in our strategy and seeing strong response to our mission is, we believe in this environment it's hard to get consumer demand. Thus, our focus on cost-efficiency couldn't be time-lear.

And with that, I'll turn the call over to Alex.

Alex Wilkes: Thank you, Reed, and thank you for the partnership over these past nine months and going forward. I'll start with saying just how honored I am to be given the opportunity to lead National Vision during this important time of transformation.

Alex Wilkes: I've shared that I've always been impressed by the remarkable growth of National Vision by our special culture and by the strength of our brands. [inaudible]

Alex Wilkes: This was especially evident at our store manager, Dr. and Field Leadership Meeting last week. I'm privileged to lead the company as we define our next chapter of growth. I also recognize that I am in a unique position to continue to benefit from reads involvement in the business as executive chairman. [inaudible]

Alex Wilkes: These past few months, we're closely to prepare for this next phase of our transformation.

Alex Wilkes: With this in mind, I'd like to take a moment to give you a sense for how I'm thinking about National Vision and what my priorities will be SEO.

Alex Wilkes: National Vision is uniquely positioned to capitalize on the growing need for a value that we see across income demographics particularly in this environment. Thank you very much.

Alex Wilkes: National Vision has truly differentiated characteristics. Our fantastic Optometry Network provides patients with an eye exam experience that we believe is unmatched, including using industry-leading exam technology both for in-store and remote exams.

Alex Wilkes: We are unique in how we go to market with our optometrist network and in the phenomenal quality of the exams they provide. When you pair this up with our scale and market recognition as a leading value provider, you have a winning combination.

Alex Wilkes: With these characteristics and the strength of the team we have in place, I'm confident in our ability to drive sales and improve our profitability going forward. Over the past two quarters, we've outlined specific initiatives to achieve these goals. The strength of our first quarter results and continued momentum is a proof point of their success. Thank you very much.

Alex Wilkes: My priority at CEO is to continue the transformation strategy that we've put in place and that has shown success.

Alex Wilkes: This involves heightened segmentation, personalization, and digitization across our messaging, assortment and pricing architecture and our in-store experience.

Alex Wilkes: Our strategic initiatives are focused on growing our business around this expanding customer review.

Alex Wilkes: We're defining value propositions, concentrated more on our high-quality customers, and creating an improved customer and storage experience, all while being intently focused on discipline, expense management.

Alex Wilkes: This approach places national vision in a position of strength as we pursue profitable growth.

Alex Wilkes: Importantly, the investments we're making are faced over the course of this year, and we believe they have a long runway of future benefits.

Alex Wilkes: As we look ahead to the balance of the year, we are on track with the initiatives we laid out for you last quarter.

Alex Wilkes: In-store, this shift is taking place on a few fronts, most notably in our pricing actions, product offerings, and selling approach that are giving us meaningful traction in growing average tickets.

Alex Wilkes: We started evolving our pricing structure to better match our customer profile with pricing actions in the fourth quarter.

Alex Wilkes: These have been well received by customers as they have grown average ticket with no degradation in conversion or NPS.

Alex Wilkes: Pricing isn't especially important competency to strengthen in a world of heightened tariffs.

Alex Wilkes: Over the last two quarters, we've demonstrated runway on ticket with conversion flat increasing, giving us confidence that we have room as needed to mitigate tariffs. Price and will be an ongoing and robust capability as we've proven that the price and we've taken a day is holding strong. [inaudible]

Alex Wilkes: Average ticket is of course a function of both price and mix.

Alex Wilkes: So along with pricing actions, we're currently in the process of evolving our product assortment

Alex Wilkes: We are rapidly moving from a focus on a wide selection of lower price rates to wider assortment that attracts a broader customer base. After the second quarter, the percent of our frame mix over $99 will be two times what it was at the end of 2024.

Alex Wilkes: We've already started this with the deliberate cadence of new, on-trend, branded frames that will be rolling out throughout the year. [inaudible]

Alex Wilkes: Lamb is one of Sepaddy's line of artworks that reflects the blend of luxury and attitude, styling, and fills a market void for edgy and inclusive styling.

Alex Wilkes: Ted Baker is a global lifestyle brand known for its modern fine tailoring, a great addition to our stores that brings luxury styling without the luxury price point.

Alex Wilkes: Additionally, as of the end of April , we began our Raven meta-pilot in select stores in New York and Atlanta markets. In May, we will begin piloting nuanced audio glasses on all in one vision and hearing solutions.

Alex Wilkes: Key to making pricing actions in branded product launches work. It's store, associate, enrollment and training. [inaudible]

Alex Wilkes: At the core of this is heightened and social understanding of our consumer segments, heightened personalization and lifestyle selling, and heightened focus on overall value and not just price.

Alex Wilkes: We started this in the fourth quarter and went a lot deeper at our store manager meetings last week. [inaudible]

Alex Wilkes: This work will be ongoing, but clearly this is already contributing to our improved average ticket.

Alex Wilkes: As a shopping experience is enhanced for the higher value customer, the experience is enhanced for all customers. We will have more to offer where they have aspirational spend.

Alex Wilkes: The key takeaway is that customers are responding to what we're doing. We're seeing strong momentum in our initiatives.

Alex Wilkes: To deliver, enhance selling and increased personalization requires the individual tools to demonstrate the benefits of the products we carry.

Alex Wilkes: At the end of April , we began the roll-out of an instant wrap that demonstrates the advantages of the latest lens technologies, as well as the benefits of advanced progressive lens. [inaudible]

Alex Wilkes: This is an important milestone as we enhance the in-store experience by digital selling tools and we have other innovations on the horizon to delight our various customer segments with more personalized in-store experiences. This is an important milestone as we enhance the in-store experience by digital selling tools and

Alex Wilkes: But the digitization of the consumer experience also involves how we attract them and maintain their loyalty.

Alex Wilkes: As we discussed our last call, we're making rapid enhancements to transform our digital marketing and Army channel capabilities by a partnership with Adobe involving our CRM system and e-commerce platform.

Alex Wilkes: We're looking forward to our next key milestone with the goal of our new CRM in the second half of this year.

Alex Wilkes: As a reminder, these will allow us to create new personalized journeys for all our customers and significantly enhance our customers' experiences online, particularly when combined with our new marketing approach.

Alex Wilkes: The work that VML, our new agency of record, is doing to redefine our communication and brand platforms. It's underway and we're excited by the early progress to refresh, modernize and create a more personalized experience for our customers.

Alex Wilkes: Before I turn the call over to Chris to take you through our look, an important reminder is that while we are focused on our initiatives, we are making significant changes to lower the cost of doing business.

Alex Wilkes: This started with 12 million corporate costs takeoff at the beginning of this year.

Chris Layden: We are working with Accenture on other types of cost savings, measures going forward, and we look forward to updating you on future calls. And with that, I'll turn the call over to Chris. Chris?

Chris Layden: Thank you, Alex, and good morning everyone. I'm excited to be joining the team and talking with you today. I look forward to meeting many of you in the weeks to come.

Chris Layden: Over the past month, I've been immersed in the business and getting to know all of our team members. I've admired National Vision and its leadership position in the optical industry for some time, and I'm excited to be joining at such a pivotal time for the organization while also partnering once again with Alex.

Chris Layden: I'm also grateful to be able to continue work with Reed in his new capacity.

Speaker Change: Reed, I only have 29 rings of calls to go to catch up to your record with NBI. Let's jump right in.

Speaker Change: For reference, my comments today will focus on comparisons to the prior year period, unless otherwise noted.

Speaker Change: For the first quarter, net revenue increased 5.7% to 510 million driven by adjusted comparable store sales growth of 5.5% and growth from new store sales partially offset by 150 basis point negative impact from the timing of unearth revenue.

Speaker Change: The spread between net revenue and adjusted comfortable sales was impacted by the timing of store activity.

Speaker Change: During the quarter, we opened nine new America's best stores, while also executing our fleet optimization plan by closing three America's best stores and nine Fredmeyer stores to end the quarter with a total of 1,237 stores, reflecting a 3% increase in store count year-rear.

Speaker Change: Adjusted comparable store sales were driven by an increase in average ticket of 4.5 percent, supported by our transformation initiatives, including the price connections we've taken, modernization of our customer experience, and enhanced selling techniques.

Speaker Change: The positive response to these initiatives from both store teams and customers have heard faster than our original estimates, resulting in a larger impact to average ticket.

Speaker Change: As we've mentioned, exam to purchase conversion rates remained consistent. In addition, customer transactions increased 0.7%, recovering from the February depliance we noted when we last reported. And as mentioned, we continue to see strength from our three

Speaker Change: As a percentage of net revenue cost applicable to revenue decreased 30 basis points to 40.2%.

Speaker Change: The resulting increase in growth margin reflected a higher than anticipated growth in average ticket driven largely by the strong reception to the aforementioned initiatives.

Speaker Change: This benefits the product margin more than offset the dilution and conduct lenses product margin and increase in optometrist related costs.

Speaker Change: Adjusted SDNA expense as a percentage of net revenue decreased to 50 basis points compared with the first quarter of 2024.

Speaker Change: Depreciation and amortization expense of $23 million was relatively flat compared to $23.2 million in the prior year period.

Speaker Change: Adjusted operating income increased 21.8% to 41.3 million compared to 33.9 million in the first quarter last year.

Speaker Change: Adjusted operating margin increased 110 basis points to 8.1 percent due primarily to the factors mentioned above.

Speaker Change: The net change in margin on honored revenue negatively impacted net income from continuing operations by 4.1 million and adjusted operating income by 5.5 million. [inaudible]

Speaker Change: Adjusted EPS increased to $0.34 per share in the first quarter of 2025, from $0.29 per share a year ago.

Speaker Change: Please refer to today's press release for reconcilations of non-GAAP financial measures to their most comparable GAAP financial measures.

Speaker Change: Turning next to our balance sheet, we ended the quarter with a cash balance of approximately 80 million and total liquidity of 374 million, including available capacity from our revolving credit facility.

Speaker Change: As of March 29th, our total debt outstanding net of unamortized discounts was 346 million, and for the trailing 12 months, our net debt to adjusted evena was 1.6 times.

Speaker Change: During the quarter, we generated an operating cash flow of 32.2 million and invested 20.2 million in capital expenditures. [inaudible]

Speaker Change: Primarily driven by investments in remote exam technology and new and existing stores.

Speaker Change: Additionally, the investments we've made in our new ERP are bearing fruit, as we successfully went live with the first phase of our ERP in April .

Speaker Change: We continue to maintain a strong balance sheet and healthy cash flow to support our growth and capital allocation priorities.

Speaker Change: We have 84.8 million remaining on our convertible notes which mature on May 15th of this year. We intend to settle those notes with cash on hand and borrowings from our revolving credit facility. Thank you very much.

Speaker Change: Moving now to the discussion of 2025 Outlook, which includes the 53rd week.

Speaker Change: We estimate that the 53rd week will add approximately 35 million of net revenue and approximately 3 million of adjusted operating income.

Speaker Change: As a reminder, adjusted comparable store sales growth is calculated on a 52-week, comparable basis to the prior year.

Speaker Change: With respect to tariffs, we have evaluated a variety of scenarios since the April 2nd policy announcements.

Speaker Change: The situation is of course highly fluid, and is a potential impact to NBI and our customers.

Speaker Change: As a result, we have models of variety of outcomes, and based on what we know today.

Speaker Change: We believe that we can mitigate central higher tariff costs with pricing actions and cost reduction efforts to neutralize the tariff impact on ALI.

Speaker Change: To keep our outlook consistent, we have not included the impact of these tariffs nor are planned mitigation responses in our guidance. [inaudible]

Speaker Change: That said, we estimate that the tariffs communicated as of May 1st would result in approximately 10 to 15 million in incremental product costs for the balance of the year.

Speaker Change: For our 2025 fiscal year, while we continue to take a cautious view given the uncertainty with the potential impact policies and tariffs may have on consumer spending.

Speaker Change: We are raising the low end of our adjusted comparable store sales guidance, range to reflect the strength and first quarter results, and ongoing momentum through the start of the second quarter.

Speaker Change: In addition, we are raising our AOI expectations in line with our first quarter results, and the performance of our initiatives positively impacting average ticket.

Speaker Change: Our guidance now assumes that approximately two-thirds of our adjustable, comparable source sales growth will come through increases in average ticket, which more closely reflects the composition we saw in the first quarter.

Speaker Change: For the year, we currently expect net revenue between 1.919 billion and 1.955 billion supported by adjusted comparable store sales growth of 1.5% to 3.5%. A new store sales based on our expectation to open approximately 30 to 35 new stores this year.

Speaker Change: We expect our new store opening cadence to be relatively equally split across the first and second half of the year, with about one third of the openings currently slated for Q4.

Speaker Change: We expect to close seven America's best stores this year, five in the second quarter, and two in the fourth quarter, as part of our continuous management of our real estate portfolio. Thank you very much.

Speaker Change: Given the stronger than anticipated reception to our initiatives through the start of the year, particularly with respect to the resulting increase in average ticket, we now expect adjusted operating income between 81 million and 92 million, which includes a range for depreciation and amortization of 93 million to 96 million.

Speaker Change: We expect adjusted saluted EPS to be between $0.59 and $0.67 per share, which assumes approximately 79 million weighted average saluted shares upstanding.

Speaker Change: This outlook range assumes fiscal 2025 adjusted operating margin to increase approximately 60 to 110 basis points relative to fiscal 2024, entirely driven by SCNA leverage. Simeon, Simeon Siegel, Brian Tanquilut, Simeon Siegel,

Speaker Change: This reflects the discipline to actions we've taken, including the 12 million and S.V.A. savings discussed last quarter. The majority of which is expected to benefit the back half of the year.

Speaker Change: As a reminder, the additional cost savings we are working on with Accenture are not yet quantified, and as such, not factored into our outlook.

Speaker Change: For the year, we expect Rose Margin to be similar to Viscual 2024. [inaudible]

Speaker Change: We expect improvement in the first half, driven by eyeglass margins, to be offset in the second half of the year. Primarily due to headwinds expected in the fourth quarter, as we lapped the benefit we saw last year due to a one-time doctor-incentive true-up.

Speaker Change: We have not changed our expectation with respect to depreciation and amortization, interest expense, tax rate, and capital expenditures. [inaudible]

For more information visit www.FEMA.gov

To summarize, we are operating in a dynamic environment.

Speaker Change: As Reid and Alex discussed, we are confident in our ability to drive continued success with our transformation initiatives, while remaining diligent to respond to changes in external factors.

Speaker Change: I will now turn the call back over to Reed before we open our call for your questions. Reed?

Thank you, Alex and Chris.

Reed Fahs: In summary, I hope you took away that we feel our Q1 results are further confirmation that the strategy the new team has developed and is in the early stages of implementing involving targeting our most valuable segments has put us back on the right course.

Of course, we believe it's both durable and sustainable.

Reed Fahs: I hope you took away that although terrorists may end up being disruptive to the macro, that we have plans at the ready to mitigate their impact, and we believe we are among the best positioned in our category to handle them. [inaudible]

Reed Fahs: I hope you took away that through methodical study of best practices coupled with mutual respect and natural chemistry between Alex and I, that we are implementing a successful transition of leadership.

Reed Fahs: I'm just so pleased that I'm transitioning the leadership to a person and a team who've proven they can get National Vision back on the sort of long-term growth trajectory that we enjoyed for so long. It feels great to be transitioning during such an upswing.

Reed Fahs: As mentioned previously, this will be my last call at CEO . I would like to sincerely thank our analysts and the entire investment community. When we went public, I was told that you all, with your probing questions, would make us better. And you did just that, and for that, I'm appreciative.

Reed Fahs: But mostly I want to end the call by saying that it's been an honor to serve in this role with National Vision for the past 23 years.

Reed Fahs: I leave proud of the millions of patients whose lives and vision have been saved and improved by the thousands of optometrists practicing alongside our stories. Optometry is such an admirable profession and I'm pleased with the work we do to help enable them to provide the patient care they do.

Reed Fahs: I leave proud of the tens of millions of customers who we have helped save money while improving their lives and self-images, with great eyeglasses and contacts.

Reed Fahs: I leave proud of the tens of thousands of associates who have found life-giving fulfillment working here and advanced up our career ladder. That's helping them to have happier, more successful lives.

Reed Fahs: And I leave proud of the millions of ultra-low-income people in American abroad who we have helped to see, again, film properly.

Reed Fahs: I have witnessed the multiple ways this has improved their lives, their families' lives, and their communities. [inaudible]

Speaker Change: Over the years, I have delighted in saying that National Vision is a people business. We just happen to be selling eye exams, eye glasses, and contact lenses. [inaudible]

Speaker Change: Our people make the business successful, and the people we serve and care for are what makes it life-giving for all of us.

Speaker Change: I move on in my new role, please, and confident in the knowledge that all this and more will continue in National Vision's future chapters.

And with that, I'll turn it over for questions.

Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Speaker Change: Our first question comes from Simeon Gutman with Morgan Stanley . Your line is now open.

Hey, good morning, everyone. Reed and Alex, congratulations.

Simeon Gutmann: My first question is if you assume, I'm sorry for the noise, if you assume no conversion degradation, like you said, like you're getting a ticket, is the run rate for what ticket can become in the next couple quarters? Are we seeing it or should accelerate given the mixed changes that are still occurring? Thanks.

are

Speaker Change: Good morning and thanks for the question. Thanks for the congratulations. Certainly a big day for all of us at National Vision.

Simeon Gutmann: Yeah, look, you know, we're super happy with the ticket acceleration that we've seen in both the fourth quarter and the first quarter. And...

Simeon Gutmann: You know, logically, you look at the things that we're going to do, go forward. You know, we said that pricing is an ongoing muscle and we have not yet kind of achieved. Thank you.

Simeon Gutmann: The point on the elasticity curve where we're seeing degradation in conversion. So we think there's runway ticket expansion has been. Let's go ahead and see what we can do.

Fairly proliferated across the category over the last several years.

Simeon Gutmann: We have not necessarily kept up with the market. Now I think we're leveraging our strength, and we're seeing positive response. Again, super proud of the fact that we're...

Simeon Gutmann: We're seeing ticket grow without degradation, not only in conversion, but also in the MPS rate. So, our customers are saying, guys, we appreciate what you're doing. We like the stuff that you're introducing and we're seeing a high-take rate on it. So, yeah, we absolutely think we have runway left.

Speaker Change: As a follow-up, if you decompose the revenue growth between managed care and customer pay.

Speaker Change: Are you now optimizing some of the managed care budgets that you just weren't fully optimizing before? Or is it customer pay side that's driving it as a customer has more choice and potentially higher price points to choose from? [inaudible]

Speaker Change: Yeah, I think it's actually a bit of both. So, you know, certainly by introducing some more premium product, it's product that the managed care customer is hungry for. And introducing those products and those capabilities.

Speaker Change: Is actually raising the experience for the totality of our customer base.

Speaker Change: So we know that the managed care customer has a higher degree of spending power.

Speaker Change: And that's giving us the right to introduce some products that really benefits our customer base in totality, the progressive customer, the outside direct customer, those three segments that we know have a higher resiliency in the market. And frankly again, we're seeing great response there. Thank you very much.

Okay, good quarter, good luck. Thank you.

Thank you.

Zachary Fadum: Our next question comes from Zachary Fadem, with Wilkes Fargo. Your line is now open.

Zachary Fadum: Good morning. First of all, it's been a pleasure wishing you all the best. Alex and Chris congrats to you. So first of all, as you think through all the drivers of your Q1 comp, particularly the nearly 6% at America's best.

Zachary Fadum: First of all, could you walk us through the cadence in the quarter and then perhaps any color on income demographics and whether the gap between your cash pay customers and manage care customers widened or narrowed in the quarter? [inaudible]

Zachary Fadum: Petulier, which happened to be right before our call and so on that we said that that made us cautious on our on our last call and then March came back strong so we had a weird anomaly of two weeks in February that just happened to coincide with our last last earnings call. [inaudible]

Zachary Fadum: And as we suggested, healthy trends have continued into April . In terms of the demographic side, we did see a trade into us of higher income customers, so more higher income customers and some of the lower income customers dropping out, which...

Zachary Fadum: It happens in tough economic times. We've seen that before, but it was very much offsetting and the key thing is we are providing great value to all. This is the moment when people are seeking a value and that's who we are and that's what our brand has always been known for. This is the moment when people are seeking a value and that's who we are and that's what our brand has always been known for.

Speaker Change: On that note, we had always talked about Reed. Reed.

Speaker Change: An out-performer in terms of growth relative to the rest of the industry. And as you think about all the opportunities across the business today, how will you compare industry growth rates across some of the new buckets like managed care, progressive, et cetera, relative to your core value offering? All right.

Speaker Change: So, you know, the key thing about our three segments, the managed care, the progressives and the outside Rx's, we are underdeveloped to the category in all of those. We do think that sort of when we hit 40% last year, it was sort of a tipping point and thus having sort of designing things a bit more for that managed care customer made a lot of sense and a lot of things, Alex and the team are doing to bring in new products to make sure that you are there.

Speaker Change: The people are getting their full benefits worth, is helping us and we see that continuing to help us going forward. So, overall one, yes, value should continue to be an ever more important trend as the macro gets more uncertain and two, we have picked the right segments where we're underdeveloped and are showing great growth with them and great success.

I'm sorry. I'm sorry. I'm sorry. I'm sorry.

Appreciate the time. Thanks so much.

Speaker Change: Subscribe to our channel for more of the romance and drama from Becca's season of The Bachelorette!

Speaker Change: Thank you. Our next question comes from Paul Lejuez with City. Your line is now open.

Speaker Change: Hey everyone, this is Brandon Cheatham on Purple. I read all of my congratulations. It's been great working with you and Alex also, congratulations on your new rule. Thank you very much.

Paul LeHouze: I was wondering if you could share where your private label product is made and how much of your third party product might be exposed to China tariffs. [inaudible]

Paul LeHouze: You know, the thing on what happens, you have the ability to switch away from, you know, third-party trains that might be made in China and carry something else and then.

Paul LeHouze: You know, the product cost increases, you mentioned the $15 million. How much of that is private label versus third-party firms?

Speaker Change: We said that less than 10% of our cost of goods is exposed to China. We've done a really nice job over the last several years to reduce our reliance on China.

Speaker Change: Move our supply chain around some of the rest of Asia to mitigate some of the risks that we're not seeing. So I think, you know, great job by the team having the foresight to work on this over a number of years. Thank you.

Speaker Change: You know, in terms of the mix, you know, it's something we really don't go into to a huge degree of detail publicly.

Speaker Change: As it pertains to private label, that is where we have made the majority of our sourcing shifts over the last several years.

Speaker Change: And as I said, we're pleased with several countries which gives a bit of diversity.

Okay.

Speaker Change: Yeah, I know this might be hard to force out, but...

Speaker Change: You know, the ticket performance during the quarter, you know, how much of that is driven by some of the pricing action you take in?

Speaker Change: Better, you know, frames kind of going up that value ladder versus like, you know, the selling practices that you implemented and being able to kind of cater more so that managed care customer to be trying to expand on it. Where do you think you are and kind of. [inaudible]

Speaker Change: Getting your sales force up that curve of, you know, approaching that managed care customer with better selling practices. [inaudible]

Speaker Change: Yeah, Brian , actually, we're quite pleased that all the actions that we put in place are contributing to the expansion of ticket. Approximately two-thirds of the ticketing freeze is attributable to the no-regress pricing decisions that we introduce in Q4 and Q1. Then I talked about it a bit more. We'll be right back.

Speaker Change: in detail, last quarter, and the remaining third is coming from assortment changes and through the selling behaviors and the selling techniques that we're introducing at the store level.

Speaker Change: So again, we're super pleased that really it's all of those things pulling in the right direction and delivering, frankly, as expected. That's it.

Appreciate it. Good luck.

Speaker Change: Thank you. Our next question comes from Kate McShane with Goldman Sachs. Your line is now open.

Kate Mcshane: Hi, good morning. Thanks for taking our question. I just wanted to clarify one thing on the tariff commentary. I think you'd mentioned 10 to 15 million in incremental product costs for the year as of today or May 1st tariffs. And I also think you said this is not guidance, but...

Speaker Change: Is it right to think that this would be fully mitigated based on what your earlier comments were before? No more?

Speaker Change: Hey, Kate, this is Chris Lane. Yeah, confirming that your commentary is accurate. The terror of guidance is based off of the main first terror policies that are in place. [inaudible]

Speaker Change: I mean, back to the balance, the enlargement in the second half, and we do believe that we can not set the rental cost there either with additional actions, increased average ticket, as well as other cost mitigation efforts.

and none of those are in guidance. [inaudible]

Speaker Change: Okay, thank you. And then unrelated. We wanted to ask about remote exams. We wondered if there was a way to quantify how remote exams did during the quarter or how they come relative to the company comp. [inaudible]

Speaker Change: It sounds like profitability there too is still lower, so how much of a headwind is that from the mix?

Speaker Change: Yes, remote is now, or thank you, Kate, by the way, remote is now sort of an ongoing part of how we do business.

Speaker Change: And it's, you know, in terms of percentage of exams, it was roughly the same as it was in Q4. And it is just part of how we do things now. We do think, so what we're trying to communicate is we think we've got our coverage under control, and you're not going to be hearing us talk about being hurt by exam coverage. We have less than, less than, yeah, less than five stores or totally...

and a few other things we're trying here and there. [inaudible]

Thank you.

Speaker Change: Thank you. Our next question comes from Robert Elms with Bank of America. Your line is now open.

Robert Ohms: Hey, thanks for taking my question, rain, congrats on, you know, just an unbelievable career in the industry in 23 years at National Vision, and I'm...

Speaker Change: And I hope you have a great, happy birthday next week. And we have the same birthday. That's why I always remember your birthday. And Chris and Alex, welcome. You know, a couple of questions. Just the first question is. Let's go.

Just on the low income consumer weakness.

Speaker Change: I mean, obviously, it's, you know, the position they're in, are they going somewhere else? Or are they just deferring? And in general, are you seeing any change in, you know, replacement or exam cycles across different demographics? Perfect.

Speaker Change: So a few things. One, Robbie, I will have a happy birthday because we're paying off our convertible loans on that day, so that will be a real nice, a real nice milestone. I don't know what you're doing to celebrate. We're paying off $85 million in debt. That's great. And Robbie, thank you. You've been with us since the beginning in 2017. Our very first road show in Salt Lake City, which is a really great and exciting time for us. So thank you. Thank you for that. So the low income can.

Speaker Change: Sumer is a tighter and more strapped in this environment than ever. We do believe that there are increasing trends in terms of the number of people who are insured in terms of total insured lives out there. So it's a shift into managed care product of a broader trend that actually is just another proof point as to why insurance.

Speaker Change: And the managed care purchase cycle remains quite normal along the way. But again, even managed care customers are seeking value and we provide great value for them which is why we've had a steady ongoing increase there.

Speaker Change: That's helpful. And then maybe for Alex, can you just talk a little bit more about the recruitment and retention things you're doing and maybe weave into that, how the optometrist cost outlook, it looks from here.

Speaker Change: Matt's going very well, so both those are good along the way and costs are in line, nothing, we aren't seeing increases there.

Terrific, thank you.

Thank you. One moment for our next question.

Adrienne Yee: Our next question comes from Adrienne Yih from Barclays. Your line is now open.

Adrienne Yee: Hi, this is Angus Keller on Fragerian, you congrats, Reed and Alex and Chris, congrats on your first joint call. My question is, you know, given that...

Adrienne Yee: What, given the testing of smaller format America's best stores and learning from the fleet review?

Adrienne Yee: What early insights can you share about optimal store economics and potential changes to store growth trajectory and the penetration of remote enabled capabilities at these smaller locations? Let's go to the next panel.

Adrienne Yee: Yeah, so we shared last call that we have a couple new prototype stores we're testing smaller square foot.

Adrienne Yee: Design. We look to understand the results of that better as the year plays out. You know one of the things that we are currently evaluating is our is our store design and our store. [inaudible]

Katharine Billed in Totality, so we have...

Adrienne Yee: Simeon Agreement with the world-class design firm to help us review our store design, store footprint of the future. Again, that's a more forward-looking statement than something impacting 25. But certainly our working hypothesis is that there is opportunity for a smaller store footprint than what we have historically built. [inaudible]

Speaker Change: Got it. Great. Thanks. And then I think he touched on this in the prepared remarks, but what's been the feedback from doctors regarding the shift the target managed care customers? And, you know, how do you see this playing out over time and at scale? Yeah.

Speaker Change: Yeah, I mean, I think our doctors are super excited about the direction that we're going in general and...

Speaker Change: The ability to see more managed care of patients that also have...

And an insurance benefit for...

That allows him to...

Speaker Change: Visit us more frequently. The managed care consumer purchase cycle is generally shorter than the cash pay consumer. They tend to be more.

Speaker Change: Compliant Patience, which is something doctors love, right? I mean doctors love the idea of patience. Thank you very much.

Speaker Change: that believe in an annual eye exam. And the managed care plans are architected around that. So there's really great alignment between, you know, what the managed care providers are, are allowing in terms of benefit and the beliefs that doctors have, just how important an annual eye exam is. [inaudible]

Got it. Thank you.

Thank you.

Simeon Siegel: Our next question comes from Simeon Siegel, with BMO. Your line is now open.

Please see the complete disclaimer at https://sites.google.com

Simeon Siegel: Hi, this is John Elias on Simeon. Also adding our congratulations to Reed, Alex and Chris. Can you elaborate on the improved product margins from eyeglass frames and lenses? How much of the benefit was mixed shifts versus light for light improvements? And how do you think about product margins going forward? And how do you think about product margins going forward? And how do you think about product margins going forward?

Speaker Change: Yeah, it's really a combination of both. The ticket impact that we saw in the first quarter, as Alex said, about two-thirds overall is driven by price increases about a third mix.

Speaker Change: As we've introduced new products into the assortment, and this makes this shifted there a bit, driving the ticket. All those makeshifts have been at a minimal margin per cent as neutral, if not a credo. [inaudible]

Speaker Change: So, we feel good about the directory there. What we are going to be copying in the back half of the field is the one time non-recuring event in Q4, which is why our outlook for the total year is flat. But we are seeing the benefit we expected through the first quarter and expect to see through the first half. We are seeing the benefit we expected through the first quarter and expect to see through the first quarter.

Speaker Change: Great. Nice for my follow-up. How are you thinking about advertising expense for the rest of the year?

Yeah.

Speaker Change: So it's previously shared, we're super excited about having a new agency of record to bring a fresh perspective on our creative platform.

Speaker Change: We generally aren't making any plans to reduce or accelerate our advertising investment. That being said, we are in the process of...

We are...

Speaker Change: Strongly going to consider ways to evolve our media mix to become more efficient purchasers of media and point our marketing investment.

Speaker Change: to the channels that are yielding the highest return. The historically we haven't talked much about this but we are also taking a harder look at our media mix model and really making decisions on how we're going to invest across linear, how we're going to invest across digital and search and continuously optimizing. Thank you.

Also, from a channel makes perspective.

Speaker Change: You know, we do know that once we have our CRM platform go live second half of the year, that's really going to make all of our marketing investment just work so much harder for us. So,

Speaker Change: Again, we feel great about what we're doing from a marketing strategy perspective and as we evolve our media mix go forward given that we're going to have stronger capabilities to help us drive consumer acquisition loyalty. Thank you very much.

Thanks for the color and all the best.

Anthony Chikumba: Thank you. Our next question comes from Anthony Chukumba with Loop Capital. Your line is now open.

Anthony Chikumba: Good morning. Thanks for taking my questions. You know, congrats on the strong start to the year. And you know, Alex, you know, and Chris, welcome to the to the party. And obviously read, you know, thank you for everything that you've done over the last 23 years for the company. Thank you very much.

Anthony Chikumba: So my first question, as I looked at your comms, obviously the average ticket, their increase in average ticket, they're encouraging. But I was pleasantly surprised by the increase in traffic, the 0.7% increase in traffic. What do you attribute that to? What was the driver there?

Anthony Chikumba: Yeah, I think it's a combination of things. I think it is...

Anthony Chikumba: Really leaning into these customer segments that we spoke of.

You know, we're doing a better job being...

Anthony Chikumba: A place of consumption for the managed care customer, for the outside or ex-customer, and for the progressive customers. So seeing the growth in those segments.

Anthony Chikumba: is frankly contributing to that overall traffic or that overall customer account number. So, really, first up was around, how do we become more relevant to that consumer that, you know, as we've talked about, we've been attracting that consumer anyway, but now that we're distorting some effort against them, we think we have a right to win, and I think that is exactly showing up in that 0.7% increase in traffic.

Anthony Chikumba: During which a time which, you know, we all know it's an uncertain time with a lot of macro headwinds. [inaudible]

Speaker Change: Anthony, I really do appreciate you calling out on that. We're incredibly proud of that 0.7% customer increase, especially given the uncertainty that we live in today.

Speaker Change: Also, you know, last point here, you know, our value offering and our value messaging resonates across customer types. And again, we think that that is something that in this particular moment matters a lot. Thank you very much.

Speaker Change: God, if that's a very helpful perspective. And then just one follow-up, you know, I know in the past, you sort of, you know, at least directly talked about the difference between your managed vision care comp versus your cash paid comp.

Speaker Change: You know, like I said before, that the cash pay has not quite shown the resiliency of the other customer segments. Managed care continues to grow at or above. [inaudible]

The...

Speaker Change: The high single digit range that we've talked about in the past. Simeon Gutman, Simeon Simeon,

Speaker Change: You know that the cash pay consumer is certainly more strapped. But again, that is a bit of a dynamic too of the managed care ecosystem has grown year over year. Here, um.

Speaker Change: By a good margin as well. So there is some degree of the cash pay consumer pool, shrinking the managed care pool. [inaudible]

Speaker Change: Increasing, but we still have seen, even on the ticket side, the cash pay consumer has also traded up, and we're seeing some of the ticket benefit with our cash pay consumers as well.

That's helpful, thank you.

Thank you.

Speaker Change: Thank you. Our next question comes from Michael Lasser with UBS. Your line is now open.

Speaker Change: Good morning. Thank you so much for taking my question and best of luck to everybody.

Speaker Change: You raised the midpoint of your top on guidance by $9 million, you raised your operating income

Speaker Change: Is it reasonable and realistic for us to expect that type of flow through, moving forward? And at what point does National Vision need to make further investments, especially as it attracts this new customer base? [inaudible]

Speaker Change: That arguably is going to have higher expectations that will need to be met. Thank you very much.

Speaker Change: Thanks for that questioning. Good morning. We did raise our guidance on A.O.I. for the balance of the year. That was largely attributed to the performance we saw in the first quarter.

Speaker Change: You know, the initiatives that were put in place in queue for super happy to report that they actually were adopted both by our store teams and our consumers at a faster pace than we had initially projected. So a lot of what you're seeing in the AI guidance increase.

is driven by that accelerated performance.

Speaker Change: I think you're absolutely right as we think through the balance of year from a capital investment perspective. We're going to continue to contemplate.

Speaker Change: What issues we have on the table that are going to drive the highest ROI and are certainly open as we introduce our new CRM Activity in the second half to invest more if we're seeing the results drive out. On the flip side rate, we're operating in an uncertain environment, so we want to make sure that we're balancing. [inaudible]

Speaker Change: The positive moment we've seen with the uncertainty in a second half of the year. [inaudible]

Speaker Change: My follow question is the pattern you described on how the quarter played out is not just similar to what many other retailers have experienced over the last few months. So the question is, is there any evidence that you're seeing that the consumer is trying to. [inaudible]

Speaker Change: Go in and get a pair of eyeglasses ahead of what would be a more inflationary environment as the tariffs take hold. And so when would you expect, when would you expect to see that play out if indeed there is some pull forward? [inaudible]

Speaker Change: You know, it's a great question, and we looked at internally as well, and this answer is no. We haven't seen a change in the customer purchase cycle, and we don't believe that our first quarter traffic change was driven by any pull forward of a purchase cycle. [inaudible]

Thank you very much and good luck. Thank you very much.

Thank you.

Speaker Change: Thank you. Our next question is from Dylan Carden with William Blair. Your line is now open.

Dylan Carden: Thanks. Kind of, I guess, a related question. The five and a half percent comp in the first quarter relative to the full-year guide, I'll be at raised. Can you sort of speak to the conservatism that seems to be embedded over the next three quarters? Is that just the environment we're in, or is there something else that's sort of new ones there? [inaudible]

Dylan Carden: No, that's exactly it. It's really largely attributable to the uncertainty environment. Consumer competence has been reported down months over months, and we just want to make sure that we are being recruited about our expectations for the second half given a lot of uncertainty from the macro perspective.

Speaker Change: There, and the news tour openings this year, are you closer to understanding maybe what the cadence would be? Go forward. Go forward.

Goodbye.

Speaker Change: Yeah, look, we've said that we believe that half of the story will be open in the first half of the year, half of the new story between the second half. We typically see Q4 a little bit of heavier in the second half, but we're still guiding the 35 new stories opening in the year. [inaudible]

Coming years what you might open per year. [inaudible]

Speaker Change: Oh, I apologize. Missing your question. Missing your question. No, we don't have guidance yet in terms of 26 forward. There's a new store opening.

Great. All right, thank you.

Thank you.

Speaker Change: Our final question comes from Brian Tanquilut with Jeffries. Your line is now open.

Speaker Change: Good morning, this is Megan Holtzahn from Brian . I'd like to reiterate our congratulations to read an Alex as well. Just for our first question, as a tariff situation likely puts some pressure on some of your peers, do you think there's opportunity for you guys to capture some additional market share?

Speaker Change: Our country of origin and country of sourcing and not be so heavily reliant on one market. So, we are very, very thankful for that approach that we took. [inaudible]

Speaker Change: So, yeah, I mean, we absolutely think the work that we've done best positions us to potentially take advantage of the coming, the coming tariffs.

Speaker Change: Thank you. And then just as I follow up on the labor commentary, you know, some job theater has pointed to a little bit of elevated wages in the mid-single digit range for optometry. Is that similar to the labor wage rate that you guys are seeing internally?

Speaker Change: Yeah, I'll just quick comment here. I don't think we have any excessive concerns about any wage rate compression on optometrist, and again, I'll rate or rate something we shared earlier.

Speaker Change: To reach out to this, we're super happy with the fact that, you know, we've driven our dark sores down to really just a handful of stores. So, we're always managing Dr. Pay.

Speaker Change: And in sentence, of course, it's a balance to make sure that we're attracting...

Speaker Change: You know, the best doctors to join our, to join our company, and we think that strategy is working again is evident by, you know, seeing. Thank you.

Speaker Change: Practice in a hybrid world, they can practice in a remote world and they can practice in-store.

Speaker Change: And we provide them great opportunities for career advancement. You know, one thing I'll just share this and sorry, I'll share this on Reads behalf last week when we were at our meeting with all of our eyeglass world and VISTA and military and America's best associates. Thank you.

Speaker Change: Reeve was able to share the team. How great is it that in this organization we have a doctor who is now the general manager of one of our brands? Yes, it is.

Speaker Change: So talk about a great place for optometrist to build their career. We allow them to practice in the mode.

Speaker Change: They want to practice and we provide opportunities for them to sit at the executive table and to lead one of our biggest brands in the company. So I think it's just a testament to how we feel about doctors within our organization. Thank you.

Thank you and congrats on a good quarter.

Speaker Change: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Reid Fawz for closing remarks.

Reed Fahs: Thank you. Hope and thank you all for your ongoing support. Over the years, Alex, Chris and Tamara will be back with you in August . Thank you all. Bye-bye.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.