DULUTH, Ga.—National Vision Holdings, Inc. (NASDAQ: EYE) yesterday reported its financial results for the third quarter ended September 28, 2024. Net revenue increased 2.9 percent to $451.5 million, compared with the third quarter of 2023 and was primarily driven by growth from new store sales, adjusted comparable store sales growth and the effect of unearned revenue, partially offset by the effect of converted and closed stores and lower e-commerce revenue, the company said. Net loss from continuing operations was $8.4 million in the third quarter of 2024, compared with $0.4 million in the third quarter of 2023.

As part of its ongoing transformation initiative, National Vision also announced yesterday the results of its comprehensive store fleet review. During yesterday's earnings call, the company said it plans to close 39 stores by the end of fiscal year 2026 in order to improve profitability and overall performance. This follows a comprehensive store fleet review that the company discussed during its first half earnings call in August when they reported a net loss of $3.1 million in the second quarter and revised its fiscal 2024 net revenue outlook from a range of $1.825 billion to $1.865 billion to a range of $1.820 billion to $1.840 billion. At that time, the company stated that it had identified an initial list of less than 5 percent of its total fleet that were not meeting its profitability thresholds and said it was considering potential actions for those underperforming stores.
 
During the earnings call, the company said it plans to take action on 43 stores, including closing 39 stores (21 America’s Best, nine Eyeglass World, nine Fred Meyer stores) by the end of fiscal 2026 and converting four Eyeglass World stores to America’s Best by the end of fiscal 2024. Further, the company announced that in fiscal year 2025 it will temporarily moderate new store openings to 30-35 new stores, after which time it expects to return to its more recent store opening cadence as its initiatives begin to take hold.

“Active, continuous management of our portfolio has always been a priority and is necessary to maintain a healthy business. We have taken a hard look at our current store fleet to assess our operations and ensure that our real estate investments meet higher standards in this environment,” said Reade Fahs, National Vision’s CEO. “Following this review, we have identified areas across the business that we can address to improve operational execution and drive comparable store sales improvement. We believe the actions we are taking will better position the company to optimize growth and profitability for the long-term.

“We are working closely with impacted stores to ensure that this is a seamless transition for our patients and customers who rely on us. We intend to retain associates and affiliated optometrists in affected stores, wherever possible, by facilitating transfers to new roles or other stores,” he said.

Other strategic initiatives announced by the company that are focused on transformation include implementing traffic-driving initiatives, including execution of promotions and new product introductions; continuing to expand exam capacity and efficiency through remote capabilities; and implementing operational improvements to enhance the overall patient and customer experience. In September of this year, as reported in VMAIL, National Vision and Pair Eyewear partnered on America’s Best product expansion. In August, in an exclusive retail partnership with National Vision’s America’s Best brand, Florence by Mills featuring actor Millie Bobby Brown entered the eyewear market, as reported in VMAIL.

“We are encouraged by the progress we are making against key elements of our transformation, including completing the review of our store fleet, implementing new traffic-driving initiatives, continuing to expand exam capacity and remote exam efficiency, and benefiting from new perspectives through our deepened executive bench,” said Fahs. “During the quarter, we experienced top line trends consistent with prior quarters as America’s Best continued to drive our sales performance supported by strength in our managed care business."

Fahs continued, “In addition, customers responded well to our new Wise Buys eyeglass promotion that helped to enhance our value offering and attract new customers. We continued to leverage our remote capabilities (currently 30 remote-enabled stores) to expand exam capacity as well as provide doctors with convenient new ways to practice. While we continue to execute on our transformation, we are pleased to reiterate our guidance for the year and remain committed to positioning National Vision for long-term success.”

“We are committed to disciplined growth with a focus on maximizing returns,” added Melissa Rasmussen, National Vision’s CFO. “As such, we are temporarily moderating new store growth next year and plan to open between 30-35 new stores. Importantly, this moderation enables us to allocate capital in fiscal 2025 to increase investments in enhancing the overall patient and customer experience. Additionally, by opening fewer stores in fiscal 2025, we intend to focus on the best locations for new stores that meet our strategic objectives of improving profitability and enhancing our overall competitive position.”

Comparable store sales growth in the third quarter was reported as 1.4 percent and adjusted comparable store sales growth was 0.9 percent, both reflecting a higher average ticket and an increase in customer transactions.

The company opened 18 new stores during the third quarter and closed two America’s Best and one Military store as a result of the host partner’s decision to cease its overall operations at the location, and ended the quarter with 1,231 stores. Overall, store count grew 4.9 percent from September 30, 2023 to September 28, 2024, the company said.

“The investments made in the exam experience, including our remote capabilities, are a true differentiator for us and for our patients and customers,” said Alex Wilkes, National Vision’s newly-appointed president, on an earnings call. “I’ve also been deeply engaged with our management team. We’re taking a hard look at all aspects of demand generation and cost efficiency.”

Costs applicable to revenue increased 3.3 percent to $189.9 million compared with the third quarter of 2023. As a percentage of net revenue, costs applicable to revenue increased 20 basis points to 42.1 percent compared with the third quarter of 2023 and were primarily driven by an increase in optometrist-related costs as well as other mix and margin effects, according to the company. As a percentage of net revenue, these increased costs were partially offset by higher exam revenue.

Selling, general and administrative expenses (SG&A) increased 2.8 percent to $234.0 million compared with the third quarter of 2023.

For the first nine months of 2024, the company reported that net revenue increased 3.8 percent to $1,386.0 million compared with the prior-year period and was primarily driven by growth from new store sales, adjusted comparable store sales growth and the effect of unearned revenue, partially offset by the effect of converted and closed stores and lower e-commerce revenue. Comparable store sales growth was 1.7 percent and adjusted comparable store sales growth was 1.2 percent, primarily due to higher average ticket and an increase in customer transactions.

Thus far in 2024, the company opened 49 new stores, closed four America’s Best stores, one Eyeglass World store, and one Military store, as a result of the host partner’s decision to cease its overall operations, and converted 20 Eyeglass World stores to America’s Best stores, and ended the period with 1,231 stores. Overall, store count grew 4.9 percent from September 30, 2023 to September 28, 2024.

SG&A increased 3.9 percent to $705.5 million compared with the same period in 2023. Adjusted SG&A increased 2.1 percent to $677.3 million compared with the same period in 2023.

Depreciation and amortization expense of $68.6 million increased 3.1 percent from the prior-year period, primarily driven by new store openings and investments in remote medicine technology, partially offset by lower depreciation of labs and distribution center.

Adjusted operating income increased 9.9 percent to $62.3 million compared with the same period of 2023. Adjusted operating margin was 4.5 percent compared with 4.2 percent for the same period in 2023.

National Vision’s cash balance was $81.2 million as of September 28, 2024. The company reported no borrowings under its $300.0 million first lien revolving credit facility, exclusive of letters of credit of $6.4 million.

The company repurchased $218 million of 2025 Notes for an aggregate cash purchase price of $215 million, which was funded with $115 million of incremental term loans and $100 million of cash. Total debt was $353.8 million as of September 28, 2024, consisting of outstanding first lien term loans, 2.50 percent convertible senior notes due on May 15, 2025, and finance lease obligations, net of unamortized discounts.

Cash flows from operating activities for the first nine months of 2024 were $103.4 million compared with $153.3 million for the same period in 2023. Capital expenditures for the first nine months of 2024 totaled $63.5 million compared with $82.0 million for the same period in 2023.

National Vision announced the completion of its comprehensive store fleet review and actions to address identified stores. The company also said that it plans to open 30 to 35 new stores in fiscal 2025 and invest capital in existing operations to enhance the overall store experience.

The company reaffirmed its previously provided outlook for its key operating metrics for fiscal 2024, including anticipated net revenue in the range of $1.820 billion to $1.840 billion.

National Vision is one of the largest optical retail companies in the U.S. with more than 1,200 stores in 38 states and Puerto Rico. The company operates four retail brands: America’s Best Contacts & Eyeglasses, Eyeglass World, and Vista Opticals inside select Fred Meyer stores and on select military bases, and an e-commerce website DiscountContacts.com. The company was ranked third on Vision Monday’s 2024 list of Top U.S. Optical Retailers and ended 2023 with 1,413 U.S. optical locations, and a total U.S. optical revenue of $2,126 million.