National Vision (EYE 41.07, -1.42, -3.34%) is trading roughly flat after reporting Q3
earnings this morning. EYE made its IPO debut in October 2017. The company is
one of the largest optical retailers (eye exams, eyeglasses, and contact
lenses) in the US with a focus on the value segment (cost-conscious and
low-income consumers) as
it offers an opening price point that strives to be among the lowest in the
industry. EYE operates 1,000+ retail stores across five brands. Its
flagship brand is America's Best, which operates close to 600 optical stores in
high-traffic strip centers.
EYE believes its bundled offerings represent among the lowest price offerings of any national chain. Examples of these include 2-pairs of eyeglasses plus an eye exam for $69.95 at America's Best and 2-pairs of eyeglasses for $78 at Eyeglass World.
Value chains are gaining market share in the optical retail industry. Larger optical retailers have gained market share from independent practitioners over the past 20 years. There is still room for more growth since the top ten optical retailers still have a relatively small share of the overall market.
Turning to the Q3 results, non-GAAP EPS rose 20% yr/yr to $0.12 while revenue rose 11.9% yr/yr to $387.4 mln. EPS was in-line with market expectations but there was some revenue upside. In addition, the company expects revenue to be above its prior guidance, partly due to an expanded Walmart relationship.
The real standout metric to us was the same store comps, which came in at a robust +7.0% (+6.8% adjusted). It was not quite as strong as in Q2, which came in at +10.4% (+8.8% adjusted), but it was still quite good. We think investors should always pay close attention to same store comps as it shows how strongly the company is growing. It's easy to grow sales by adding more stores, but comps filter out new stores and shows how well existing stores are doing.
While comps are important, EYE also wants to take market share by opening more stores. It opened 18 stores in Q3 and it's on track to achieve its 2018 store opening plans. In addition to new stores, EYE expanded its contact lens distribution relationship with Walmart in September and it recently signed a multi-year extension of its lens purchasing agreement with Essilor.
In sum, the quarter came in pretty much as expected. The stock has been on a bit of a roller coaster since its IPO debut last year. Over the long term, EYE should benefit from several secular growth trends, including an aging population that may require more vision correction after the age of 40. The company may also benefit from a frequent replacement cycle, increased usage of computer and mobile screens and a growing focus on health/wellness.
We also think focusing on cost-conscious and low-income consumers is the smart way to go in order to gain market share. The private practice segment of the market is quite pricey and seems ripe from which to steal shares. A company with scale like EYE is a good candidate to do just that.
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