Q2 2026 Kits Eyecare Ltd Earnings Call
Speaker #1: Good morning, everyone, and thank you for joining Kits Eyecare's second quarter 2026 earnings call. With me on today's call are Roger Hardy, Chief Executive Officer; Joseph Thompson, Chief Operating Officer; and Abraham Camar, Chief Financial Officer.
Speaker #1: Before we begin, I am required to provide the following statement respecting forward-looking information. Which is made on behalf of Kits and all of its representatives on this call.
Speaker #1: Certain statements made on this call will contain forward-looking information. These forward-looking statements generally can be identified by the use of words such as "intend," "believe," "could," "expect," "estimate," "forecast," "may," "would," and other words of similar meaning.
Speaker #1: This forward-looking information is based on management's opinions, estimates, and assumptions, in light of their experience and perception of historical trends. Current conditions and expected future developments as well as factors that are currently believed or appropriate and reasonable in the circumstances.
Speaker #1: Actual results could affirmatively from a conclusion forecast, expectation, belief, or projection in the forward-looking information. Uncertain material factors and assumptions were applied in drawing a conclusion.
Speaker #1: We're making a forecast or projection as reflected in the forward-looking information. Management cautions investors not to rely on forward-looking information. Additional information about the material factors that could cause actual results could affirmatively from the conclusion forecast or projection in the forward-looking information and material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information or contain in Kits filings with Canadian Provincial Security Regulators.
Speaker #1: During today's call, all figures are in Canadian dollars unless otherwise stated. With that, I will turn the call over to Roger.
Speaker #2: Thanks, operator, and thank you to everyone for joining us today. When we set out to build Kits, the mission was simple: make Eyecare easy easy to buy, easy to afford, and easy to get glasses and contacts fast.
Speaker #2: Everything we've built since our own vertically integrated lab, our own beautiful frames, optician AI, our auto ship program, exists in service of that mission.
Speaker #2: And the second quarter is what it looks like when more than a million customers respond to it. Revenue for the quarter was $58.4 million up 17.8% year over year, and 17.9% in constant currency, bringing our first half revenue to $115.9 million or up 20.5%.
Speaker #2: Glasses reached $11.1 million, up 54%, and now represent almost 19% of our business, up from just 14.5% a year ago. Net income in the quarter was $1.5 million, compared to a loss of $0.7 million in the prior year period.
Speaker #2: Operating cash flow was a standout and was a record $7.8 million. And we ended the quarter with 27.4 million in cash and no debt.
Speaker #2: Our 15th consecutive quarter of positive adjusted EBITDA. With the strongest balance sheet in our history. Coming into 2026, we made a deliberate decision to point the company's acquisition and merchandising effort at building out the glasses business.
Speaker #2: The reason is simple: we designed the frames, we cut the lenses in our factory, and we ship made-to-order products, often the same day. When you own every step, each incremental pair carries more margin and gets the customers faster.
Speaker #2: This quarter validated those decisions. $148,300 pairs of glasses were delivered. Up 32.4%. Premium lens upgrades were 45.2% of glasses revenue. And new glasses customers spent 50% more on their first order than the same cohort a year ago.
Speaker #2: On identical entry-level pricing, not one thing did that, but customers are taking more pairs. They're upgrading their lenses, they're buying into categories we've added, like progressive readers and anti-fatigue lenses, and they're finding all of it faster.
Speaker #2: Because of tools like optician AI, they help customers make the right choice, the easy choice. Has nothing to do with price increases. It's just been good product and guidance compounding.
Speaker #2: In fact, glasses customers acquired this year are generating first-order revenue that exceeds the multi-year cumulative revenue of glasses customers we acquired in earlier years.
Speaker #2: The newest cohorts are our best cohorts. And the gap is widening. Making Eyecare easy shows up in the P&L as bigger, baskets. The trade-off stated plainly: total revenue growth decelerated from Q1's pace that was the cost of the glasses focus and we knew it going in.
Speaker #2: Glasses are a higher consideration purchase. You acquire fewer customers per marketing dollar, but each one is worth substantially more, as we talked about at the end of Q1.
Speaker #2: We acquired 90,800 new customers in the quarter. And their first-order economics are the strongest in any cohort of our history. In the back half, we plan to rebalance.
Speaker #2: We will keep the glasses momentum, which is increasingly organic, driven by cross-sale and repeat purchasing. And we'll put the full weight of acquisition back behind contact lenses.
Speaker #2: Which remains the most proven customer generation engine we have. And the front door through which most Kits relationships begin. Both engines will run solidly in the back half the durable part of the business is what happens after the first order.
Speaker #2: Repeat customers contributed 65.5% of revenue up from 60.6% a year ago. 38.3 million dollars of repeat revenue. An increase of 8.2 million. Put another way, our installed base on its own grew 27% year over year, faster than the business as a whole.
Speaker #2: And new customer revenue grew as well. So the mixed shift reflects repeat growing faster, not new shrinking. Our two-year active customer base is 1.1 million up 15.2%.
Speaker #2: Our auto ship is now at 24.6 million dollar annuity that costs almost nothing to maintain. Our average order value was $213 up 15.8%. Customers come to us for contacts, then buy glasses, then buy their second and third pair.
Speaker #2: $78,500 pairs went to repeat customers this quarter, up 51%. They do this because the model works for them. Quality value and speed in a combination nobody else in the category delivers.
Speaker #2: Because nobody else owns the full stack from design to lab to doorstep. We earn the first order and our model earns the rest. How big's the opportunity?
Speaker #2: Eyecare is an enormous category. Still early in its shift online, and we're one of the only vertically integrated direct-to-consumer platforms operating at scale in North America.
Speaker #2: Every new customer lands on infrastructure we already own and enters a cohort that historically spends more each year they stay with us. Its growth that funds itself on a fixed asset base in a market this size.
Speaker #2: That presents asymmetric upside. This is the model working as designed. A vertically integrated platform where growth funds itself, consider the combination in these results.
Speaker #2: First half constant currency growth of 22%, positive and growing net income, and operating cash flow equal to 13% of revenue in the quarter. Very few companies grow at this rate and even cash.
Speaker #2: We're fortunate to be one of them. The business is now paying for its own acceleration and continues to compound. Looking ahead to Q3, we expect continued momentum with revenue projections in the range of $62 million to $64 million.
Speaker #2: And an adjusted EBITDA margin between 4% and—To Joe, to share more on the operational highlights. Joe?
Speaker #3: Thanks, Roger. In addition to posting record results, the team was also hard at work building new products and innovation that we believe will power revenue and earnings.
Speaker #3: In the quarters to come. Let's start with our premium lens portfolio, which already represented 45.2% of glasses revenue this quarter. In Q2, we launched anti-fatigue lenses designed to reduce eye strain during screen time and close-up work.
Speaker #3: Also, in Q2, we expanded our Pangle and smart glasses into the sports category, taking a product that proved itself with early adopters and pointing it at an audience that trains, rides, and runs in their eyewear every day.
Speaker #3: Our vertically integrated model helps us here. Each one of these launches lands on infrastructure we've already built, adding revenue on a fixed design, lab, and fulfillment asset base.
Speaker #3: Second, we widened the front door. For many Canadians, Eyecare starts with their insurance plan. This quarter, we expanded our Canadian insurance program to add manual life.
Speaker #3: One of the largest insurers in the country, to our direct billing platform, integrated with Tellus Health eClaims. Manual life group benefit members can verify their vision coverage in real time.
Speaker #3: Reduce upfront out-of-pocket costs and eliminate manual claim submission, pointing putting seamless coverage in reach of millions of members. And third, late in Q2, we launched our Kits Toronto retail location.
Speaker #3: A physical front door in the largest optical market in Canada. Building on the success of our Kits Beach location in Vancouver, our Queen Street West flagship offers an opportunity for everyone in Toronto to experience the Kits brand.
Speaker #3: Kits Toronto is off to a strong start and we believe this unique concept and location will build awareness, traffic, and trial for Kits for years to come.
Speaker #3: While creating a halo effect that lifts digital demand across the surrounding region. In Q2, the Kits flywheel continued to spin with more invention, more reach, and even more to come in the second half of 2026.
Speaker #3: With that, I'll turn it over to Ibrahim for the financials.
Speaker #4: Thank you, Joe. And good morning, everyone. I'll recap the P&L briefly and then spend most of my time on the balance sheet as that's where this quarter really stands out.
Speaker #4: Gross margin expanded 160 basis points to 37.9%. And this quarter's expansion was organic. No tariff refund benefit just continued execution across the team. Adjusted EBITDA was 2.9 million or 5% of revenue, up 14.3% year over year, and our 15th consecutive positive quarter.
Speaker #4: Net income was $1.5 million, or $0.04 per share, compared to a net loss of $700,000, or a loss of $0.02 per share a year ago.
Speaker #4: On operating expenses, marketing represented 17.4% of revenue, up year over year from 15.2%. As Roger noted, this was a deliberate returns-driven investment into customer acquisition, mainly in glasses and we added $90,800 new customers in the quarter.
Speaker #4: Fulfillment was 10.9% of revenue, up modestly from 10.7% in Q2 2025 on higher fuel surcharges. Though it improved to 10.7% for the first half of 2026 as automation and order consolidations efficiencies offset those pressures.
Speaker #4: G&E was 7.6% of revenue compared to 7.3% in Q2 2025. Excluding share-based compensation, G&E improved to 5.3% of revenue, down from 6.1% in Q2 2025 as revenue growth continued to outpace our infrastructure costs.
Speaker #4: Now to the balance sheet. We ended the quarter with $27.4 million in cash, up from $19 million at the end of Q1. And zero debt.
Speaker #4: Including our fully undrawn $15,000,000 ABL facility with the Bank of Montreal, we have roughly $42.4 million of accessible liquidity and a $5 million uncommitted accordion.
Speaker #4: Several things drove that step up. First, cash generation. Operating cash flow was a record 7.8 million, about $2.7 times adjusted EBITDA, and free cash flow was 6.4 million.
Speaker #4: Reflecting the working capital normalization, we flagged in our Q1 disclosure. Including optimization of inventory levels and collection of the tariff receivable. Second, we cleaned up the capital structure.
Speaker #4: We repaid the remaining $290,000 promissory note, retiring the last of our legacy debt. And we exited our Bitcoin ETF treasury position. Third, we began returning capital, repurchasing and canceling $89,200 shares for $1 million at an average of $11 per share under our normal course issuer bid.
Speaker #4: The takeaway is flexibility. We can continue to invest in glasses and customer acquisition where the returns are there, absorb seasonal working capital swings, and return capital to shareholders.
Speaker #4: All from internally generated cash, with no debt and ample liquidity. We entered the second half with a strong balance sheet, a growing and increasingly loyal customer base, and a glasses business that is inflecting.
Speaker #4: Operator, we're now ready for questions.
Speaker #1: Thank you, ladies and gentlemen. If you'd like to ask a question, please press star one on your telephone keypad. If you'd like to wet dry a question, press star two.
Speaker #1: One moment, please, for your first question. Your first question comes from Luke Annen from Canaccord Generity. Please go ahead.
Speaker #2: Thanks, and good morning, everyone. My first question is a bit of a long one with many parts, so apologies for that. But really what I'm trying to unpack is what the margin bridge is going to be for the balance of the year, taking into consideration the guidance for Q3.
Speaker #2: And specifically what I'm looking to hear a little bit more on is how the contact growth, which you called out, that should accelerate in the second half because of there being a bit more of a focus there.
Speaker #2: But I'm curious to know what the progression will look like when it comes to marketing spends, what you expect for fuel surcharges, and then similarly the stock-based comp, which was called out in the G&A line.
Speaker #2: I'm curious to know how that's expected to trend for the balance of the year. Thank you.
Speaker #3: Good morning, Luke. And thanks for the question. So maybe we'll tackle it piece by piece. Starting with gross margin, which you saw was elevated again in the quarter.
Speaker #3: To 37.9%, it was up about 160 basis points year-on-year, which is a great starting point. And underneath that, we see a continued march up over time of the gross margin line.
Speaker #3: Now maybe going into the marketing spend, you know, and as we've talked, this was a deliberate investment in the first half. In prescription glasses.
Speaker #3: And starting in Q2, we gradually reduced spend throughout the quarter. Ending at levels back similar to historical levels. So moving forward, you know, the base is set in the mid-teen level.
Speaker #3: But we'll continue to evaluate this on a quarter-by-quarter basis. Reacting to some of the cohort performance that we've seen. So strong gross margin, stabilized and flexible marketing spend.
Speaker #3: And then, you know, if you look back, fulfillment has continued to be a leverage point over the past couple quarters and over the past couple years.
Speaker #3: Maybe I'll turn to Eve to talk a little bit about what we saw in the quarter in the first half on fulfillment and G&A.
Speaker #4: Good morning, Luke. Great question. Fulfillment, yeah, we did see up modestly from Q2 2025, reaching 10.9% of revenue this quarter. Portion of that was driven, as you mentioned, by the fuel surcharges.
Speaker #4: In Q1, we started seeing our partners introduce fuel surcharges across their networks. We did make a deliberate decision not to increase or pass any of these charges to our customers instead.
Speaker #4: We're managed it directly with our carrier partners and absorbing such costs through fulfillment efficiencies as we continue to optimize and leverage our vertically integrated manufacturing as volume scales.
Speaker #4: For H1 overall, you could see the support to that approach. H1 fulfillment expenses was down year over year to 10.7% of revenue, despite the fuel surcharges headwinds.
Speaker #4: And just to touch base here on your share-based comp, you know, equity compensation is an important part of our compensation plan and how we retain management team.
Speaker #4: That's what the management team that has delivered this level of performance. You know, we view this as the right kind of increase. The equity we use to retain this team is worth more today because shareholders who’ve been with us have participated in that same appreciation.
Speaker #4: Yeah, overall G&A was 7.6% of revenue compared to 7.3% last year. Usually Q2 is unusually elevated due to the timing of when these options are granted.
Speaker #4: But overall, we're seeing it to be consistent with previous years and to be sub 2% for the year.
Speaker #2: That's great. Thanks. And then for my follow-up, and then I'll pass the line. I'm curious to know, just on the Toronto store rollout and the marketing, that you would have incurred around that.
Speaker #2: I'm just curious to know, I guess what you have learned from that, if the marketing that you deployed, was that in line with your previous on this town strategy or do you pilot anything new that allowed you to learn something incremental about your customer or how you go to market and maybe does that inform or change your approach rather for how you plan on deploying your own this town initiative moving forward?
Speaker #3: Sure. Yeah, sure, Luke. Excited to talk about our Toronto flagship. So it's important to note, the Toronto flagship on Queen Street West, it's soft open right at the end of Q2.
Speaker #3: So the results which have been strong, since the opening, are not in the Q2 numbers. But we expect to it to continue to contribute in Q3, Q4, and beyond.
Speaker #3: The space is a great one as you saw at our event last month, over 2,500 square feet right on the corner at 735 Queen Street West.
Speaker #3: It's about two times the size of our Vancouver flagship. And it's already contributing even in the first month at levels above our expectations. So you know, for us, Vancouver was a proof of concept.
Speaker #3: Stores amplifying brand awareness. And then really haloing the entire region with digital performance. The investment in the market of Toronto really builds on, as you would expect, the learnings of Vancouver, which have been very strong.
Speaker #3: And so you know, expect a thoughtful expansion from us here on future stores. And you know, as you would expect, each market will learn from the previous one and will get more efficient.
Speaker #2: Understood. Thanks very much. I'll pass the line.
Speaker #1: Your next question comes from Martin Landry from Stifel. Please go ahead.
Speaker #5: Hi, good morning. I would like to dig a little bit in your marketing expenses. You know, I understand the comments that they're a little higher because you're trying to acquire glasses customers.
Speaker #5: So I understand that strategy, and those glasses customers are supposedly a little bit more lucrative. But we don't see that manifest in your profitability when we look at your EBITDA margin.
Speaker #5: It's stable on a year-over-year basis. So I assume there's a customer lifetime value angle here. That is hard for us to capture. And so I was wondering if you could provide a little bit more color on that.
Speaker #5: And if you could compare and contrast maybe the customer lifetime value of a glasses customer versus a lenses customer.
Speaker #3: Yeah, good morning, Martin. Maybe I'll start on this one and then pass the line to Eve or Roger to see if there's more to add.
Speaker #3: So, you know, thanks for bringing it forward. We did see, as we've talked, a real shift towards glasses cohorts and disproportionately premium glasses cohorts.
Speaker #3: So to your LTV question that you know, two things that we look for and have been delighted with the results in previous years is the Y intercept.
Speaker #3: So, where does the initial first order revenue come in, and the slope over time for each of these cohorts? And so, on the glasses customers—generating first order revenue in the quarter—that was about 50% higher than the Q2 2025 cohort.
Speaker #3: On you know, with everything else being relatively similar, on the pricing level. So we're seeing the recent cohorts come in at a higher Y intercept.
Speaker #3: And what we've seen in previous cohorts, that we believe will continue, is the continued slope progression of these customers as they come back. Now, you mentioned the comparison to contact lenses.
Speaker #3: I think this quarter was a real testament to the annuity of that business with you know, an investment in new customer growth and still seeing over 65% of the revenue come in from repeat customers.
Speaker #3: So this is something that we have a lot of experience in. We're very confident in the active customer base that we have, which grew again over 15% in the quarter.
Speaker #3: To over 1.14 million customers. And we see them in all of the data that we see coming back again and again. So maybe I'll stop there and see Roger or Eve if I missed anything.
Speaker #2: Yeah, thanks, Joe. I think you covered most of it. I think it's important to note, every acquisition dollar is underwritten by cohort data that our marketing department is tracking daily, weekly.
Speaker #2: So externally, you can see it in the repeat revenue climbing as a share of sales. You can see double-digit growth in the two-year active customer base.
Speaker #2: And you can see the AOV moving up again and again. Underneath that data, you see a contacts customer who's cross-selling into glasses. And their worth materially more than just a contacts only customer.
Speaker #2: Our more recent cohorts are also ramping faster than any prior cohort or generation. So the strong paybacks are encouraging us to continue to invest.
Speaker #2: And our acquisition strategy has shifted deliberately towards this type of quality customer. Our new customer revenue was 34.5% of the quarter, and that was at meaningfully higher first order values. So we've got a lot of the repeat business doing a lot of the work, and that business makes up 65.5% of business with 80% to 90% cohort retention.
Speaker #2: So you know, we're not reliant on the acquisition of the business for these quarters to continue to compound. We've got such a nice healthy base of customers that continues to fund our growth and fund and demonstrate the growth.
Speaker #2: So yeah, hopefully that covers your question, Martin. Thank you.
Speaker #5: Yeah, I mean, and maybe it's maybe the segue is into your guidance for Q3. You know, we're seeing your revenue growing rapidly. But your guiding for an EBITDA margin of 4 to 6%, which you know, at the midpoint is also going to be stable to down on a year-over-year basis.
Speaker #5: So I'm trying to understand why we're not seeing a little bit more of a pickup in profitability on a percentage basis given your revenues are growing rapidly and you should get some fixed cost absorption.
Speaker #3: Yeah, thanks, Martin. We, you know, did see strong growth in Q2 and then, importantly, on the gross margin line, an increase of 160 basis points to 37.9%.
Speaker #3: I think you know, as we think about Q3, it will be you know, continued growth on new customers on the glasses side. But as you heard us in the prepared remarks in the first few questions, really having a balanced weighting behind both growth on glasses and contact lenses.
Speaker #3: And so, I think the guidance of $62 to $64 million in Q3 from a revenue standpoint reflects both engines running. And, you know, over the past six months, we've seen glasses growing very healthily—over 50%.
Speaker #3: But growing contact lens is something we've been doing at industry leading rates for over four years. So that's in our DNA. And the team is excited at delivering higher growth here in the back half.
Speaker #3: You know, to your question on some of the operating lines, you know, I think Ibrahim talked very well about you know, some of the short-term pressures that we've that we've been seeing in Q2.
Speaker #3: Some you know, some fuel surcharges. And I think you know, we'll continue to talk about quarter on quarter numbers. But we'll continue to look at it on the arc of a year or multiple years.
Speaker #3: So, as we think about our progress on adjusted EBITDA: in 2023, 2%; 2024, 4%; 2025, 5.8%; and then, year-to-date in 2026, just over 6%.
Speaker #3: So you know, as you mentioned, industry leading growth, which you know, we expect to continue in Q3. And then a steady progress on adjusted EBITDA with you know, with awareness on a quarter by quarter basis of you know, maybe some short-term things that you know, that we're aware of and managing.
Speaker #2: Yeah, I'd probably just add, Joe, you know, we did talk about acquiring these better cohorts. And you know, near-term EBITDA is actually a little bit in tension with that.
Speaker #2: The cohort payback improves over time. So when we look at, for example, 2021 cohort, you know, the value of those surviving customers is materially higher over time.
Speaker #2: So the value lands many quarters after you've acquired them. So to your EBITDA question, really, you've seen our marketing go up as a percent of revenue from you know, 13.5, 14% to 17 to 19.
Speaker #2: So that explains the you know, the not a move in EBITDA in the immediate term. But over time, we see that you know, our expectation is these cohorts are performing better.
Speaker #2: Initially, and that will convert to EBITDA. Down the road. Thank you.
Speaker #5: Okay. And then my last question, I mean, we're seeing your balance sheet improve. It's in the best shape it's been. In the past, you have alluded to M&A as being perhaps a way to deploy capital I was wondering if M&A is still on your radar.
Speaker #2: Yeah, Martin, thank you. We've continued to look at a number of different opportunities, but none that has connected so far. So you know, we'll keep looking.
Speaker #2: And find things that are creative for shareholders. Thank you.
Speaker #5: Perfect. Thank you, and best of luck.
Speaker #1: Your next question comes from Gianluca Tucci from Hayward Securities. Please go ahead.
Speaker #4: Good morning, guys. Congrats on a nice print. If I could just ask about CapEx, looks like you spent over $1 million in the quarter.
Speaker #4: And have commitments to spend almost 3 million more. Can you unpack that for us? Is it going into equipment to support higher volumes in the lab?
Speaker #4: Any color there would be helpful, guys. Thank you.
Speaker #3: Good morning, Gianluca. Great question. We did spend some CapEx earlier in H1 and related to supporting our lab as well. You know, I think you've been to the Toronto store.
Speaker #3: So some of that CapEx went to our retail. And overall, we do have some small commitments for the rest of the year. But overall, we're on track to hold 2023, 2024, and 2025 CapEx to be below 2% as we continue to invest in our operations.
Speaker #4: Okay. Thank you. And if I could just ask one question on glasses. So it's scaled from 14 to almost 20 now. Like looking forward 12 months, how do you see that percentage of sales evolving?
Speaker #4: Like should it be in the low 20s next year? Just Roger, how are you thinking about how the glasses as business evolves as a percentage of overall revenue?
Speaker #4: Thanks, guys, and congrats again.
Speaker #2: Yes, thanks, Gianluca. How we're thinking about glasses—you're right, it has become almost 20% of the business, you know, nearing a $50 million run rate.
Speaker #2: So it's a real business at this point. Margins continue to be very healthy. Return rates, as we talked about, customers returning are quite strong.
Speaker #2: The cohort spend is high. So it's still early. But we're running the same playbook that's built our contact lens business, which is you know, lean on our vertical integration, lean on a frictionless entry pricing, and then you know, offer customers a premiumization.
Speaker #2: So you saw premium lens upgrades are over 40% of glasses revenue. Our digital progressives are growing 65%+, and returning customers now make up a growing majority of glasses orders.
Speaker #2: So there's a ton of momentum in that business. And you know, it's really just a balance as we go forward this year. To continue to invest at the right rate, continue to secure the best customers, and you know, we're very optimistic about where that glasses business is going.
Speaker #2: It remains very, very early. And in this large category. Thank you, Gianluca.
Speaker #1: Your next question comes from Frédéric Tremblay from Desjardins Capital Markets. Please go ahead.
Speaker #4: Thank you. Good morning. I wanted to ask about the premium lens upgrades. That represented over 45% of glasses revenue in the quarter. I just wanted to get your thoughts on how much runway is left in that product category.
Speaker #4: And if you could provide a rough indication of the margin benefits of getting those lens upgrades, that'd be great. Thank you.
Speaker #3: Yeah, good morning, Fred. And I think, you know, thanks for the question. I think we see a lot of runway ahead. I think we're—as Roger said—we're very early days.
Speaker #3: Some of the stars, in Q2, were digital progressive lenses and the introduction of our anti-fatigue lens. Which is a premium lens package on single vision.
Speaker #3: Also, eligible on progressive. And so we expect both of these areas, as well as thinner lens, photochromatic, SunRX, to continue to expand. And then importantly, we expect to launch new areas of premium lenses.
Speaker #3: So for you know, for our team, I think we view this as still very much even in the first inning. Of the of our expansion in glasses and on the premium lenses.
Speaker #3: And so, you know, on the gross margins side, we did see these premium glasses cohorts coming in and positively impacting gross margin, which you saw in the numbers.
Speaker #3: And you know, that's exciting. And gave the team even more confidence on what's to come. And the back half of the year in 2027 and beyond.
Speaker #4: Great. And just my last question. On pricing relative to the fuel surcharges that you're absorbing now, was the decision to keep pricing stable? Was that a deliberate to provide friction less entry into the products?
Speaker #4: Or is there anything from the competitive perspective that's sort of leading you to raise prices at this point? Thank you.
Speaker #3: Sure, Fred. Maybe I'll start. I think, really, I would just echo the comment Roger made a few minutes ago. This is really, you know, as opposed to us looking around at the market, this is really us looking internally, on our vision to make eye care easy.
Speaker #3: And to offer customers the best value. And so, you know, we do see occasional surcharges come across our business. In this instance, as Ibrahim mentioned before, and in many instances, we made the deliberate choice not to pass that increase through to the customer.
Speaker #3: Instead, we're managing this directly with our carrier partners. And absorbing it within our broader fulfillment efficiency. You know, you I know you'll appreciate this having walked through the lab.
Speaker #3: And you know, you see both the scale of the facility now. And the benefits that scale will provide to us as we continue to grow into that invested capex.
Speaker #3: And that fulfillment network—that's been built over years. And so, that really gives us the confidence to say, let's work together with our partners to keep costs down.
Speaker #3: And while we do that, let's not burden the customer with surcharges at this moment. Let's continue to acquire the customers that we are acquiring.
Speaker #3: And we know that you know, that trust will be repaid to us with you know, continued performance on the repeat cohorts for years to come.
Speaker #4: Great. Thank you.
Speaker #1: Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Your next question comes from Matt Koranda from Roth Capital.
Speaker #1: Please go ahead.
Speaker #4: Hi guys. Thanks. Nice quarter. I guess wanted to hear a little bit about learnings from the Toronto store. I know it's obviously early days.
Speaker #4: And the recent grand opening just happened. But anything that you've learned incrementally since the opening? And sort of how would that inform, I guess, a broader.
Speaker #4: Store expansion over time? If you're starting to think about that for next year and beyond.
Speaker #3: Good morning, Matt. Yeah, thanks for asking about the Toronto store. You know, the team's been incredibly excited about the performance in very early days.
Speaker #3: So, what are we seeing? Well, you know, we're seeing a lot of exploration in the store — you know, customers coming in. And we're seeing a lot of the ingredients that we tested and developed and refined in Vancouver really helping us out of the gate in Toronto.
Speaker #3: So having a cafe and a coffee shop right in there, you know, customers can meet with friends, have a coffee, and have a no-pressure environment to explore.
Speaker #3: Get their eyes tested. And, you know, as has been mentioned, we have a very accessible price point to enter into a category that's traditionally been fraught with complexity and cost.
Speaker #3: And so I think you know, it's still very early days, of course. We're you know, weeks into the launch of our Toronto store. But some of the early feedback that we've been getting from our fantastic team and from the data is one, excitement and exploration.
Speaker #3: Two, we're seeing a number of customers come back you know, almost immediately with friends. To explore. And then three, is the data footprint in the digital footprint that we're seeing in the extended area grow.
Speaker #3: We saw, you know, this is just one data point, but we're seeing branded searches increase significantly on Kits in July versus even June.
Speaker #3: And that's and that's even more enhanced in the Toronto area. So maybe that's a couple of the things that keep us very excited about it.
Speaker #3: I'll pass on to Roger or Eve to see if I missed anything there.
Speaker #2: You know, I think you covered it quite well, Joe. But I guess we're, you know, just to reiterate, we've been quite excited with the Toronto launch.
Speaker #2: I think the you know, the early May weekends were at you know, kind of year three of Kitsilano. So the fact that there is brand awareness in the community, the fact that we have contact lens customers there, that we can invite in to experience the glasses offering, it's a real confirmation that you know, opening some of these flagships puts us right where our customers want us to be.
Speaker #2: And so I think it's validating the thesis for us. It's letting us look into the back half at some additional flagship locations in other cities.
Speaker #2: And so that's kind of—it's been an exciting launch. I guess I'll turn it back over to Eve in case he wants to throw anything in there.
Speaker #2: Thank you.
Speaker #5: No, I think you covered it. Yeah, I think great success with the Toronto stores. And we're seeing amazing results, like looking at where we projected the payback to be.
Speaker #5: And it's we're going to get quicker payback.
Speaker #4: Okay. Good to hear, guys. Thank you for that. And then on glasses, I noticed obviously a very good AUR there. And it sounds like a lot of that may have been premium lens mix.
Speaker #4: As you guys alluded to in the prepared remarks, and some of the Q&A, I guess I'm wondering, in terms of branded frames and also on the smart glasses front, how those might have contributed to AUR in the second quarter.
Speaker #4: And then, just how any of that mix that happened in the second quarter might have informed the growth of glasses for the rest of this year.
Speaker #3: Yeah, sure, Matt. So you know, we did see performance really across all parts of the glasses business. And branded frames was a part of it.
Speaker #3: The kits frames continues to be the vast, vast majority of units and dollars. And continues to be leading the growth. But definitely strong the on smart glasses, you know, we it is still very early days.
Speaker #3: We continue to see more trial and more exploration in the category. And, you know, we continue to be in a ready position for smart glasses to grow.
Speaker #3: And for us, that means continuing to offer the widest selection for customers, and really being the prescription lens engine for the category.
Speaker #3: And so, you know, I will caveat that by saying it's early days in smart glasses. Our Pangolin lineup continues to perform and continues to sell out as we introduce more and more iterations of it.
Speaker #3: But you know, there wasn't one hero in the Q2 results. It was really a balanced performance across premium lenses, across kits frames, and across branded frames.
Speaker #3: And across smart glasses.
Speaker #4: Okay. Very helpful. If I could sneak one more in on the margin guidance. I know it's been kind of covered in pretty good detail for the third quarter.
Speaker #4: In terms of the drag, I guess, from the higher contact growth—can you just speak to the range that you build? I guess the 4% to 6%.
Speaker #4: Is the high end versus low end sort of swing factor just a mixed consideration between contact versus glasses growth? Or are there other elements maybe marketing campaigns that you're considering that could drive you toward the lower end?
Speaker #4: Maybe just speak to sort of the swing factors there.
Speaker #3: Yeah, sure, Matt. You know, we're excited about a really the balanced growth that you know, the team is building plans behind in the second half with contact and glasses.
Speaker #3: You know, we talked about the revenue guidance, 62 to 64 percent Q3. And then you know, quarter to quarter, allowing the team flexibility to deliver for the customer.
Speaker #3: Acquire these high value cohorts. While you know, while looking across an annual basis on performance. So you know, we've really seen you know, just this steady buildup of adjusted EBITDA from 2023 all the way through to 2026 year to date.
Speaker #3: Despite this, investment in glasses acquisition still, with adjusted EBITDA year to date just over 6%. Which is an increase, you know, versus our 2025 adjusted EBITDA number of 5.8%.
Speaker #3: So really you know, allowing some short-term flexibility for the business to continue to invest for the long term and for customers is I think that's mostly what you see.
Speaker #4: Okay, appreciate it, guys. I'll leave it there. Thank you.
Speaker #1: Your next question comes from Doug Cooper from Beacon Securities. Please go ahead.
Speaker #5: Hey, good morning, everybody, and terrific work on the quarter and the guidance. A couple of things: You talked about Manulife signing on to your insurance program.
Speaker #5: What percentage of the Canadian market is now covered by your insurance partnerships?
Speaker #3: Hey, good morning, Doug. Yeah, so you know, what we see in the U.S. market, which is the best kind of overall market data we have, is that roughly two-thirds of customers use some form of vision insurance.
Speaker #3: We have industry data for parts of Canada, but not all. However, it appears to be representative. In the US, about two-thirds of customers are using some form of vision insurance.
Speaker #3: And you know, with our customers and our data set, that is consistent. So with the Manulife addition, which is really exciting for the team, that adds another seven million consumers who have access to the platform that the team has built.
Speaker #3: And over the last two, three years now, what was exciting about the Manulife performance out of the gate was that you know, in the first month, it demonstrated a faster one-month build of customer acceptance than you know, than we've seen on any platform that we've onboarded through Canada.
Speaker #3: So again, early days—it launched in Q2. And so we're looking at, you know, just a month or a month and a bit of data, but very strong performance.
Speaker #3: And you know, we think a very high base of customers, about two-thirds that are going to be looking for this product in years to come.
Speaker #5: Okay. Are there any major insurance companies in Canada that you still have to reach an agreement with?
Speaker #3: Yeah, the team has a checklist. And there's really a couple layers of that checklist. There's building in the integration levels that we have. And then finding partners as we've launched previously that have full API integration, which is really you know, the gold standard of customer support.
Speaker #3: Where a customer can, you know, go onto kits.ca, enter their plan information, and see right away how much coverage they have, apply it right in the checkout, and have no out-of-pocket.
Speaker #3: And we manage it all with the carrier in the background. And, you know, the Net Promoter Score feedback on those interactions is, you know, just off the charts.
Speaker #3: And so, we're both onboarding more carriers and then deepening the partnership with all the carriers that we do have on the platform.
Speaker #3: And then, you know, expanding into the US with the software layer that really allows anyone across most of the policies to access the information they need.
Speaker #3: This is what customers are asking for. How can I know what's covered? You know, I don't want this to be a question mark. And how can I get your help to fill in all of the information needed and process the paperwork on my behalf so that I very quickly get compensated?
Speaker #3: From the carrier.
Speaker #5: Okay. Thanks for that. Fatigue lens. I'm not familiar with the category. Is this a new category? Can you talk a little bit about the target demographic of that lens?
Speaker #5: And the size and growth of that category?
Speaker #3: Sure, Doug. Yeah, it's a new one for us. And it's a relatively new technology in lenses. What's exciting for us is that this is really a lens that's available for any consumer.
Speaker #3: And specifically for consumers that are doing a lot of work on screens. And so, again, we get feedback consistently from customers.
Speaker #3: And what our customers are asking for is more help to avoid eye strain. This is a product that performs very well against that and is available as an add-on to almost any prescription.
Speaker #3: And so you know, you'll see it embedded in the site. And but it's a great product. I'm wearing it right now. And you know, and we expect it to continue to do well and to launch others alongside it for as we grow our premium lens category.
Speaker #5: I think you said it's single vision. Is it available in progressives, or just single vision?
Speaker #3: The technology is available on single vision and digital progressives. And we're continuing to build that out across all of our lens offerings as we see the strong success out of the gate.
Speaker #5: Okay. And my last question is:
Speaker #2: Yeah, Doug, think of it as a baby. You know, it's a baby step towards a progressive lens. So you're getting a small boost zone at the bottom of the lens.
Speaker #2: Typically, you know, a quarter to one and a quarter diopters of added power gives your eyes a slight assist when focusing up close.
Speaker #5: Okay, and then, final one, guys—just on the store rollout. You were obviously open with one store here in 2026. I'm assuming there's no plans for another one in 2026?
Speaker #5: But just talk about the cadence, given the early success in Canada and the success in Vancouver. What do you think the cadence may be?
Speaker #5: And are you targeting cities with, say, two million-plus people, or maybe just a bit more color on what you think the market opportunity in Canada and the US is for such flagship stores?
Speaker #5: Thanks.
Speaker #3: Sure. Yeah, maybe I'll start on this one and then pass the line. So, you know, a very strong—you heard Eve's excitement a few moments ago on the strong financial start that the stores had.
Speaker #3: That gives us confidence to, you know, continue this expansion. What's exciting for us is not just the performance of the store; it's really the digital halo.
Speaker #3: And the surrounding area. So, you know, Greater Toronto Area—just over seven million folks—that we have the opportunity to really grow significant awareness with.
Speaker #3: But you know, continue to expect a thoughtful expansion from us here. You know, perhaps you know, with continued success identifying you know, two approximately two new locations in the back half of 2026.
Speaker #3: And then progressing from there.
Speaker #5: Okay. And just as a reminder, what was the CapEx total for store build-out plus working capital to open a store this size?
Speaker #3: Morning, Doug. Actually, the Toronto build-out was not the material cost. It was about sub $1 million of CapEx for a location roughly double the footprint of what we have in the Vancouver showroom.
Speaker #3: You know, we were able to do that efficiently because we took learnings from Vancouver, invested more thoughtfully in specific areas, including optometry lanes as well as in-store fitting lab.
Speaker #3: So yeah, it's pretty much, roughly, like yes, sub a million dollars.
Speaker #5: Okay. Perfect. Thanks to everybody.
Speaker #3: Thanks.
Speaker #2: Thanks, Doug.
Speaker #1: Thank you. Sorry. Your next question comes from Gianluca Tucci from Haywood Securities. Please go ahead.
Speaker #2: All right, guys. Just one more here for Roger. Average order value is scaling here and continues to show good growth. It seems to be pushing new highs.
Speaker #2: In your experience, Roger, how much more upside organically is there in your AOV figure from these levels?
Speaker #5: Wow, Gianluca, back with a second great question here. You know, you've seen AOV growing very consistently over the last couple of quarters and years.
Speaker #5: So, you know, it remains early. How high is up? You know, glasses AOV is up 60%. It's driven by progressives, designer frames, customers buying multiple pairs.
Speaker #5: So and even our progressive customers are already averaging you know, one and a half or more units. So these gains are coming from serving existing demand as well as new customers.
Speaker #5: So, there's just a lot of opportunity to continue to scale AOV. It's obviously our highest-margin growth as well. It arrives with no acquisition cost attached.
Speaker #5: So, it's one of the most interesting levers as we go forward. So, between multi-pair, progressives, we heard about anti-fatigue, and then even back to the contact lens business.
Speaker #5: You know, to the extent we can supply a full year's supply in contacts, that also lifts that AOV. So, it's a long, long runway ahead.
Speaker #5: And, you know, again, we're just getting started. Hopefully, you're hearing from the discussion this morning that lots of levers remain as we continue to grow the business.
Speaker #5: And, you know, the main focus is, you know, are we making sure we're serving customers? We're making people happy. They're getting great value. They're wowed by the speed.
Speaker #5: The execution of our team and I think you know, that's showing through in the numbers. So lots of opportunity in that AOV. Thanks for the question, Gianluca.
Speaker #1: And there are no further questions at this time. I will turn the call back over to Rogers for closing remarks.
Speaker #5: Thanks, operator. Let me close with where we are going. Eyecare is one of the largest and most universal needs across the world, and yet it remains one of the last great consumer categories that no one has quite made easy.
Speaker #5: Beautiful and affordable—all at once. That is the opportunity in front of Kits, and it's the one we are building toward every day. Every decision we make, the lab we built, the brand we're creating, the trust we earn one order at a time—serves a single idea.
Speaker #5: The company that obsesses most over its customers and compounds that trust the longest will win. Q2 is another quarter of evidence that this is working.
Speaker #5: A record top line, a growing glasses business, best-in-class retention, and a balance sheet that continues to get stronger. And we believe we're still very, very early in this story.
Speaker #5: To our team, thank you. This was your quarter, and the standard you set is our real advantage. To our shareholders, thank you for playing the long game alongside us.
Speaker #5: We are just getting started. Thank you, operator.
