Good afternoon, everybody. Welcome to the afternoon session of our day one of our UBS Consumer and Retail Conference. Unfortunately, it all goes downhill from here, because this is as good as it's going to get with the National Vision team. We are so excited to have-
Wow.
Reade Fahs, who has become an institution as part of our UBS Consumer Conference. It's great to get an update. Reade Fahs has been at National Vision as CEO since 2002.
Yeah.
He started when he was four years old. Melissa Rasmussen, who's been with National Vision since 2019, and more recently, has been promoted into the Chief Financial Officer role for a couple of years now.
At the beginning of twenty-
Time flies when you're having fun.
It indeed does.
There is a new Vice President of Investor Relations, Tamara Gonzalez, who it will be a great resource for all of us in the investment community. Did you want to read a quick disclaimer?
Everyone, that we will be
I'll also share that they no longer let me do disclaimers because I try to inject levity into them, and they don't like that.
That's one area, you know-
That's right.
that the lawyers get a little worked up about that.
Right. Right.
That totally makes sense, as well.
Used to be such fun.
I will remind everybody that on the app for the conference, there's an ability to submit questions, and we'll include those in our conversation for anything that you want us to talk about, but we certainly have no shortage of things to talk about. It's been an interesting journey, as I'm sure you will agree, Reade, both for National Vision over the longer term, but also in the last few years. You know, kind of going on some of the volatility of the core consumer, where do you see the health of National Vision's customer today? And you know, how have their purchasing patterns evolved over the last few years?
Good. I'd love to talk about that. First of all, I do know that the biggest question from the crowd is probably about your socks. And yes, yes-
They are.
Michael is wearing National Vision socks. Those are two years ago. This is this year's National Vision sock collection, but we appreciate that, and they look great on you there. Yeah.
These are retro.
Yeah, yeah, retro National Vision socks. So, you know, our consumer is generally making under $100,000, and our consumer has been strapped by this economy, by the inflation. There's an article in this morning's Wall Street Journal about what the price of food is doing to folks, and our consumer is strapped in that way. About 35% of our business comes from managed care consumers. That is a different situation in that that tends to be a wealthier consumer, and for them, it's not really as much their money that they're spending. So that part of our business has been going up very, very nicely. But our consumer is feeling pretty strapped right now.
Pretty strapped.
Yeah.
It's been an interesting last few years because 2020, a lot of optical retail stores closed. 2021, there was a reopening. It was an injection of capital that the consumer got-
Yeah
... and it made a lot of sense for them to go and get a new pair of glasses. That arguably pulled forward some demand or disrupted the purchasing cycle.
Mm-hmm.
That was witnessed in part of 2022. And then at the same time, this, optometrist, who is so critical to the model of-
Yeah
of the industry, has seen some ebbs and flows as well, and some constraints. So give us a state of affairs where you feel you stand today, especially from the purchasing cycle.
Yeah
- standpoint.
Yeah. So within our conference rooms, we refer to the new reality. And the new realities were that our customer in 2021 had never been richer. We between the savings they had by not going out during the COVID closure period, and then our generous government giving out so much money that our customer had a lot of found money. And we've always said, when our customer has found money, they come and spend it with us. That's why tax return season is generally our highest seasonality period. So our consumer had found money in 2021. They came in, they bought a great pair of glasses, as they generally spent more than they normally would have on that. And then soon thereafter, several new realities hit.
The new reality of the optometric market, where optometrists, like almost every other healthcare professional out there, had sort of a big rethink and wanted to work less days, and that affected the market in large ways. And so that was one new reality, sort of a less optometrists and from a few retirements, but mostly less capacity due to less days. The next reality was the consumer inflation affecting our core consumer and our business. Then the third reality for us was the end of our Walmart partnership, which... The mantra around our offices is, "We are rapidly adapting the business to thrive amidst these new realities." We have been doing that very aggressively throughout 2023.
I would say that all these changes hitting at once to a consistently predictable and steady category, and the category had been very consistent and predictable for several decades prior to COVID. And then, post-COVID, especially in 2022, these new realities changed a lot, and there was a lot of what is happening to our category, a lot of change. And I would say 2022, we were pretty back footed during that period of time. 2023, I think we became much more forward footed, and I feel that we've been that way pretty much since early last spring.
... first, the investment community is using that same mantra, so that's a little ironic. 2, do you feel like the industry is now back or approaching back to where it was historically, where it's nice and steady, mid-single digit or low to mid-single digit growth, and then, National Vision takes market share?
What we have here is two data points that are encouraging.
Yep.
Our back-to-school season was much more like that which we were used to pre-COVID, and our December and end-of-year experience was much more like pre-COVID, and we feel it's nice to see two encouraging data points. The next data point will come when we report Q1, and we can talk about what's happening with March.
Yeah.
But I would say that the industry is sort of waiting and holding its breath to see whether this purchase cycle is going to begin to normalize. And again, to the extent to which your business is majority managed care, as some businesses are out there, you're better insulated, and to the extent to which it's less than half managed care, like ours is, 35%, it's you're dependent on that uninsured consumer.
In your mind, is there any reason why the industry wouldn't go back to the way it was?
This has been such a consistent, predictable industry for a long time because of the biology of the human eye. Human eyes deteriorate with age. It's just how we all are, and as we age, our eyes get worse, and that is why the category has been so predictable. I think that combined with actually we're all on screens a lot more, the aging of the population, it should come back and be normalized. It's just exactly when that's gonna happen is the hard thing to predict.
And also we-
But we believe it will.
It will. We tend to look at the optical retail market, similar to where the pharmacy market was 20 years ago. A lot of independent players, very fragmented. Is there any reason... Are there any differences in the optical retail market that would not mean that there would be a similar trend to what happened in the pharmacy, where the larger players get larger?
I think that's a good analogy, and no, I'm not seeing anything different. I think those broad trends in pharmacy, we will see it continuing. That's for, again, for the many years prior to COVID, what we saw was the chains getting bigger, the independent share eroding. Independents have trouble differentiating and have to be inherently, they have to be higher priced because they have no economies of scale. We've seen overall trends towards heightened value in the category, and we think that should continue.
We're in this, like, unusual economic environment where everyone feels pressured, but people have jobs. And normally, the way National Vision characterizes when it does see that trade-down benefit-
Yeah
is nicer cars in the parking lot.
Right.
You know, some of these, some of these folks come to-
Nice cars.
On American Express.
Right. Yeah.
And, um-
Actually, actually, some people this morning in our meetings were saying that.
I was really psyched.
You are not our target audience, but I was really psyched to hear it. Yeah.
There's a lot of owl lovers in this audience.
Okay. Okay.
Yeah. But the point is, you know, give us a sense for, are you seeing that trade-down? I think the way you described it recently on your call was a little different than how you might have seen it in the past.
Right.
Maybe people are buying a little bit nicer.
So, 2008, 2009-
Yeah
... where we were, comping consistently through 2008, 2009, it was a jobless, economic retrenchment, which was different than what we're seeing now. We are seeing trade-down from wealthier consumers, and part of that does relate to the managed care consumer and the managed care growth. I think more and more consumers are seeing that their managed care dollars go further with us than, than with many other places, and that means a lot to them also.
Absolutely.
If our managed care comps were our overall comps, we'd be drinking a lot of champagne right now.
Well, we could still do it nonetheless. You mentioned March. This is an important season for National Vision, if only because the consumer gets an infusion of cash from their tax refund.
Yeah.
Tax refunds have been kinda funky. That's a technical term. A little bit slower.
Yeah.
So, but what-
Do you mind, do you mind discussing?
Yeah.
Melissa, do you wanna-
Yeah, so what we've been seeing with the tax refunds so far is, while individual tax refunds have been slightly higher than last year, overall, tax refunds seem to be lagging what last year was bringing in. And so when we released guidance in February, we had talked about different scenarios built into our first quarter, flat to negative comp, slightly negative comp that we talked about. And we still expect that, with the sequential improvement that we saw from January into February, we still expect to see improvement as we progress through March. And that, you know, the level of tax refund tied to that can vary and still fall within that range we released.
Right. And I will say, when the stores start feeling the tax returns coming in, like, the word rushes through our hallways, "They're starting! They're starting.
Yeah.
So that's an exciting time for us. But I think a key thing to take away that Melissa was just referencing is, given all that's happening in the macro, our guidance is planning for a lot of different scenarios.
Yeah.
I love that McKinsey published something they just referred to, that we're in a period of fundamental uncertainty.
Mm-hmm.
That there's just so many different options, more so than any, harder to predict, and our guidance is saying, "Okay, a range of, a range of things could occur, and we want to make sure we're covering those on our guidance.
You know, you mentioned previously that there's two good data points so far about...
Yeah
... the normalization of the purchase cycle. In your mind, what are you waiting for for that third? Do you have to get past this season, get into the deeper part of spring to say, and even if the deeper part of spring might be a little volatile, it's still gonna be on the right trajectory?
We will be as we're describing March-
Yeah.
We will be describing if that's a third data point for us, that will be comforting. Like to have a little bit more time before we declare that the purchase cycle has normalized-
Yeah
Just because we've never seen anything like this.
No doubt. Well, we can all stand around the Atlanta headquarters and hear those noises coming down the hall that they're coming, they're coming.
Yeah.
On the optometrist recruiting efforts.
Yeah
This has been a new element to the story because National Vision has really been an employer of choice for an optometrist for a while. For an optometrist who's coming out of optometry school, to not have to worry about payroll and administrative things and dealing with reimbursement-
Yeah
really attractive. Now, with that being said, there has been more challenges, I think, across the recruitment market-
Yeah, sure.
- for optometrists.
Got a lot tighter in-
Yeah
- 2022.
What drove that? Was it just the optometrist said, "Hey, my priorities are changing?" And how is National Vision addressing it?
Two, two factors. Factor one is there were more retirements in 2020 and 2021, but the bigger factor is something that's happening across healthcare. They call it the great rethink, where people, where healthcare professionals, especially those with, with a lot of, you know, advanced degrees, advanced years of education, are saying, "I want to work less days." And it's happening-
The investment community is doing the same thing.
Right. But it, it's happening throughout healthcare, and so the average number of days that an optometrist works is less. I mean, it used to be, again, that during what I call sort of the rigid phase of our company, you came to work for us, you worked five days a week, and your days off were Wednesday and Sunday. Those were the days off you got. Well, that actually became a hindrance to our ability to recruit, and so, last year, we started offering a variety of different flexible packages, and that helped us immensely with retention and with recruitment.
And again, we've always been, especially for the new grads, an employer of choice because we've gotten very good at saying, "Hey, come with us, and you will become a better doctor through learning how to practice from our more experienced doctors." And we're pleased that over 10% of the graduates of all 24 schools chose us last year. And we think that the employment mode of practice that we have always been behind, and I think we're the largest employer of optometrists out there. We think the employment model is becoming ever more popular because of a few things. What you said, of people not wanting to have all the burdens of running a practice.
It used to be in the earlier era that a young doctor would join an older doctor's practice and gradually buy it as the doctor shifted to retirement. Now, with the number of private equity roll-ups out there, the odds of that doctor turning the practice over to a younger person has gone down a lot. Then the mindset of late twenty-somethings coming out of optometry school is far more of a work-to-live mode. The expression that you—I hear the most is: We like working for National Vision and America's Best, because at the end of the day, I get to leave without a care in the world. That's it. Leave without a care in the world, because we're doing all the other pieces.
They're doing what, what they're trained to do, which is patient care. That's why they went to optometry school. That's what they learned there. They did not learn. There are not business courses there. They did not learn how to run a business. They come in, they do the patient care, and then, and then at the end of the day, they get to leave without a care in the world.
Sounds like this job site.
In my next career.
Sounds good.
Very good.
I have two, I have two follow-up questions on this. Number one is, you hired 10% of all optometrist graduates in the most recent year. What, what's the capacity for National Vision? Can it, can that get to 20%? Is that necessary, especially as you satisfy the operational aspirations for continuing to open 70+ units per year?
We actually said over 10%.
Yeah.
That's the case. Let's do some quick math. We have over 2000 optometrists in the network practicing into and next to our stores. We've said that our retention rate ranges from low 80s in bad times, like 2022, to high 80s in good times. And that we said we've been steadily improving since 2022. And so if you think of that and over 2000 doctors, you will inherently, I mean, I think it's a good retention rate at that level, especially when you're dealing with people who are in their late 20s and early 30s. Their lives have not settled, so you need a certain amount just from that retention.
We build 70 stores a year, so you need, you need those 70. And then frankly, a lot of stores, as they ramp, you go from needing one doctor to needing another doctor. So there is need out there, and but recruitment's improving, retention is improving, and our remote medicine options have helped us a great deal in the deployment of doctors to where they're most needed.
Let's dig into the remote medicine concept a bit, because A, I think there's still a bit of a misunderstanding-
Yeah, yeah
about what it, what it is, and it's gonna be a great chance to, to clear it up. If... I'll describe it, and you tell me how-
Okay
Wrong, wrong. I am.
Great.
It is as flexible as someone sitting in Naples, Florida, can visualize the eye exam for a customer sitting in a store in Delaware.
Yes.
You know, it's a pretty seamless experience because you'll have either an assistant or an associate who's managing the physical patient experience, while all the medical decisions and analytics are taking place remotely in a distant location.
Right. And just to make sure there's 100% clarification, in your example, the optometrist was sitting in Naples, and the patient was sitting in our store environment, surrounded by diagnostic equipment, where we've taken a lot of test data and sent it digitally to the doctor sitting in their home office, in another place. And as long as the doctor is licensed in the place the patient is sitting, then it's a good legal eye exam.
Is there synchronous interaction?
Yes, that. And that is the key part. There's synchronous interaction to the point that the doctor is saying, "Which do you like better, number 1 or number 2?" And when you say, "Oh, I like number 2," the doctor presses the button at home and changes the lenses in the store, which always gets a really nice, "Ooh!" thing from the patient.
I always feel like I got that wrong.
Yeah.
You know how one, I never can tell the difference between a one or two. It see better?
Yeah.
Then what is the customer response?
I think we have all come to realize that our lives are going to be ever more through a digital interface-
Yeah
in so many different ways. You know, we're all spending so much more time in virtual meetings, and I think, I mean, so, about two weeks ago, I was driving to work, pulled off the road into a parking lot, and had a tele-exam with my GP to get my statins renewed.
Mm-hmm.
And I'm thinking, "This is amazing." And before that, it was I always would have to go to the doctor, and it was always like, I thought, a tremendous waste. The fact that halfway through my commute in a parking lot, I can have this interaction, and I loved it. It was clear the doctor's office thought this was the way of the future, and I think all of us are going to be participating in digital medicine ever more in coming years. And I think it can be very advantageous. You don't have enough healthcare providers to provide the healthcare to everyone. You've got to deploy them ever more efficiently, and telemedicine does that.
How has been the response for the optometrists? The optometrists, in general, may have moved a little further in their career, so they were not initially adaptive to some new technology, so it took some time. Where does that stand today?
Good. I think it's fair to say that in general, your average optometrist is a late adopter-
Mm-hmm
of technologies, often a little concerned about what it will mean for them, and that's been true for decades also. So we started talking about remote medicine years ago, and then sort of a year later, we talked about, "Oh, we're gonna, like, try it." And then a year later, "Let's tell you how that's been working." So that by the time we went to get behind it, they were socialized to it. And frankly, it is the part of our business that's very easy to recruit for.
Is it?
Plenty of doctors would like to work remotely, and I was very pleased that one of the heads of one of the largest optometry schools said that he had tried all the different remote options, and he thought ours was the best.
That's awesome.
So, yeah.
Well, my Uncle Kenny is an optometrist, and he still uses a flip phone. So further evidence of slow adoption.
Yeah.
Where does remote medicine stand today, and where can it go over time? Can you give us a sense for how this is increasing the capacity of the organization?
Yeah. Right. So we currently have 550 enabled stores. We've plans to add another 50, and if some legislative things open up, maybe more after that. We have to see how the laws evolve in the various states. We've said it is over 5% of all of our eye exams, including the non-enabled states, eye exams, so that's good and progressing positively. And I think it was about mid-last year, maybe it was the last time we were hanging out, I was referring to how remote medicine is in early innings.
Yeah.
I'd say we're, like, into the start of the middle innings now.
Yeah.
But I think there's a lot of improvement and added advantage that this can give us over time. You know, we were sort of a pretty analog company prior to COVID. We were not a cutting-edge technological company. And so launching an Uber-like delivery system of exams inside a very traditional retailer, there's not much in our DNA that would have said that we could be good at that. You know, all startups are a little tough. But I am real pleased with where that stands now. It has great, great momentum around it, and I just like how it's working in with our network, and I see ever more advantages to it going forward.
Who said you can't teach an old dog new tricks, right?
There we go. There we go, right.
What percentage of states allow for this?
I don't remember-
This is a ballpark.
Percentage.
We're in about two-thirds of the states where we have remote capabilities.
Okay. And the only thing that's preventing the last third is regulations?
There are one or two states where we just have plenty of coverage.
Got you.
So-
Yeah
... so that we don't invest in it there. And we do believe telemedicine laws are all gonna go to more pro-consumer pieces. So we think eventually the difficult states will be more open.
One other way that you've been addressing the retention and recruitment efforts by investing in some wages, both for your optometrists and then across the organization. Where does that stand, and do you feel confident that your wage rates right now are, you know, where they need to be relative to the market?
We do. We offer competitive pay, especially with our optometrist population. When they're coming out of school, and they're, you know, offered different opportunities, we have been competitive. We have historically seen inflation in the low single-digit range with optometrist wages. That's inched up to the mid-single digit range, and we wouldn't expect that to be declining anytime soon. So we have also put in place different types of compensation, such as incentive compensation, that's tied to their level of productivity. So that's variable, and the more productive a doctor is, the more incentive compensation they receive. So our guidance incorporates the assumption that mid-single digits is roughly where we'll end up with wage inflation for the doctors going forward.
In an environment where there is more inflationary pressure from wages and other areas, doesn't it make sense to continue to at least examine the pricing power-
Yes.
that, that National Vision has? And you, you've already been able to flex that muscle, flex that muscle in a way that has retained the core value proposition.
Mm-hmm.
You still get two pairs of glasses and an eye exam for a very-
Seventy-nine dollars.
Yeah, a very-
Yep
... compelling price. How much more room and opportunity do you think you have to push the pricing lever, especially in an environment where your competitors are using this?
Mm-hmm.
I know, Reade, one of the principles that you extolled from the very first time we met was, "We really don't want to do this," but hasn't the world changed a little bit that you need to have that muscle and use it occasionally to make, you know, sure that you're offering your customer a good experience?
I'm gonna start, and then you'll provide the detail there. Yes, whatever since we went public, we said, "Real men and women drive their business through footfall.
Yeah.
That shows that customers like you, and they tell their friends. So that is, we are always prefer to and have pretty much consistently driven our business more from footfall than from average sale. However-
We have pulled and do pull the pricing lever. We try to not pull the headline pricing lever, and we've done that one time in the past, you know, 17 years, when we took that price, the headline price up in 2022. With that, we look to always offset cost increases that we take from our suppliers and vendors through pricing actions. Those are just on the non-headline pricing factors, where we exercise more pricing there.
So, you know, I'm guessing there's 500 frames in a typical. No.
More than, like, 1,200.
Oh, I'm sorry for-
Right.
I didn't know I was, you know, shortchanging you by so choice.
In an America's Best.
In America's Best .
And more and more in an Eyeglass World.
Eyeglass World. And presumably, you know, on the tail, you still have more room to take pricing up. Is that gonna be the strategy?
So, you know, we referenced the in our call, sort of we did take some product pricing on, you know-
Yeah
... a lens here or there, things like that. Every now and then, we'll look at, we have various tiers. Every now and then, we'll look at that, but also sort of areas like exam services, things like you come in with pink eye, and-
Yeah
...you need a prescription. You'd be surprised how much foreign body removal we do when either something is in somebody's eye or they've lost their contacts, things like that, which don't necessarily affect the core offer. But we brought in a boutique pricing firm last year, and they sort of said, "Hey, here are some things you might not have thought about," and we have put several of those in place recently.
Got you. If pivoting over to the competitive landscape-
Yeah.
It does seem like this is an environment where consumers are gravitating to familiar, familiar brands. What are you seeing with respect to the competitive landscape? Is there... Is pricing becoming, and promotions becoming more intense? Are there any changes that are taking place from, from the, in the landscape?
Yeah, so, and actually, often a subtext of that question is about online-
Yep
related penetration
Right
...and competition. And conveniently, just yesterday morning, the Vision Council came out with some data that said that the penetration of online purchases has not changed in two years. So that has been flat for two years. Of course, during COVID, there was a bit of a spike.
Yeah.
Then there was a decline, and then it's been flat for two years. So again, as you can see from some of the players who started out saying they were gonna be big e-commerce players, this is a category that people still buy in stores. We know that many of the more high-end players are far more pull the pricing lever a lot more than we do. And we generally see that that's a. We believe that that's more short-term benefit than long-term, and we try to manage always more forward to the long term there. And so we're careful about that, and again, we compete in the value category.
Our customers need to leave us saying, "Hey, I got products I really like, and I feel good about what I paid.
Yeah.
Um, yeah.
Have you seen any changes with the independents? Independents kind of had ebbed and flowed during 2020. Some of them had closed up, and maybe some of them came back.
I think the key factor in the independent category is the presence of private equity-
Mm
... several different groups rolling up the better independent practices. And that was going on for several years prior to COVID, and that will continue, and I do think that's a factor in just ongoing sort of erosion of the independent sector, as you were talking about, as in pharmacy over the long term.
Yeah. If so many things pushing this consolidation should be good for a large player, like-
The bigger getting better.
Yeah.
Better.
Without a doubt.
Yeah.
I want to pivot the conversation. I think the discussion around profitability has become-
Mm-hmm
-more in focus. You were kind enough to give us a roadmap for how National Vision's profitability is gonna unfold. You gave some margin targets this year and next. What are the risks to you being able to achieve those margin goals? Is it simply a function of the top line, or are there other factors that investors should consider when they're thinking about how your profitability is gonna unfold from here?
Yeah.
Yeah. So when we laid out the guidance in our call, the profitability that we had talked about, when we get to 2025, we're expecting at that point to have the impact of our top line growth based on the initiatives that we started last year, the recruiting, the retention, the remote initiatives, all of that to continue to take to gain traction and grow the top line. So we would expect the top line to come to mid-single digits as we go into 2025. And then, assuming that we reach the midpoint of our guidance range this year, we would also expect that our operating margins would also follow coming to the mid-single-digit range in 2025 as well.
Got you. So it sounds like it's very volume dependent. You have good line of sight into the initiatives driving sales, and any surprises along the way, you know, outside of the top line, growths are, you know, seemingly manageable. Is that a-
Yes. The... We, we expect that we would have some margin expansion throughout 2024, and we had talked about that on our call as well. With the, the Walmart and AC Lens exit, we expect to see the 200 basis points of gross margin benefit, that we talked about being all back half related. And to unpack that a little bit more for the, the first half of the year, we expect that the first quarter specifically, is going to be a little more pressured than what we've seen in the past. And we, mentioned on the call that there's a, drag of about 50 basis points related to the Walmart business.
The Walmart activity didn't come in like we had expected in January, and so there will be about a 50 basis point drag, and that'll also flow through the P&L as well. That would carry through to growth margin and SG&A impacts as well, because as we've exited that business, the revenue ended mid-February, and the costs continued through the end of the month related to the Walmart business. So first quarter is going to be more pressured than we've seen in the past, and in the back half, you'll see the gross margin improvement. You'll see SG&A deleverage from a dollar perspective- or I'm sorry, from a percent perspective-
Right
... but the dollars will be declining, and that's just a function of the top line change that we'll experience with the exit of Walmart and AC Lens.
You're making it easy for us. We love the straightforward discussion. So just to, just to clarify and unpack.
Yeah.
The Walmart relationship, and it's kind of winding down.
Mm-hmm.
There's different elements to it.
The stores ended mid-February-
Stores ended, AC Lens, you-
And June.
Just to put a button around on that, National Vision was supplying some contact lenses for-
Yeah
-that were sold through Walmart. That piece of the business is gonna end mid-February?
No, the store business-
Store business
-ends mid-February.
Got you.
So anything that you would have seen previously in our legacy segment, in our financial statements, that's what ends in February. The corporate other segment is where we had recognized the distribution component of the,
AC Lens
... the Walmart and Sam's Club activity. That's AC Lens, and that will be ending mid-June.
Okay.
I'm sorry, end of June. And once we end that, that's where you'll see the gross margin.
Got you.
Yeah.
So once you get rid of AC Lens, then gross margin's up 200 basis points in the second half of the year. Are there any other factors that are driving the gross margin expansion?
You know, a disciplined execution is certainly a factor. As we exited fourth quarter, we had crisp operational execution, and so we've carried that forward, and like I said, other than the first half of the year being pressured based on the transition, then we expect the back half to be much better.
Aside from discipline being Reade Fahs's middle name, what, in terms of your execution, what does discipline mean? Does it mean you're more aligning your optometrist hours with the customers in the store? You're doing a better job of selling the right product to the customer. Are those examples of-
Yeah
Where gross margin comes from?
Right, and it's just crisp execution throughout our operations.
Got it.
That's, you know, what are we trying to do? Just to have a consistent experience in all the stores.
Yeah. And had that not been the case in the last couple of years?
No, it's just the day-to-day slog of a retailer forever.
Yeah. For sure.
It's just trying to keep consistency. Yeah.
Yeah. And as remote gets more mature, the productivity of those doctors increases, and that also contributes to some gross margin expansion.
Got you. So you feel like you have good line of sight to the gross margin expansion in the back half?
Yeah.
And then stepping up from my, what-
It's important for people to understand just those two Walmart factors.
Mm-hmm.
Yeah
... that's coming through. Yeah.
And then, taking it a step further, how do you go from your guidance this year to mid-single digit margins next year?
Going from this year to mid-single digit next year?
Yeah.
We expect to see, like I said, top line growth, where we would expect to be at mid-single digits on the top line.
You lap some of the Walmart dynamic-
Yes
-this year.
Yes, we will lap some of the Walmart dynamic as we go into 2025, and then the increased productivity, discipline, those are all factors that will help drive that operational margin back to the mid-single digits.
Right.
Then that's just a stake in the ground. That's not where our end goal is. Once we get to 2025, we expect from there to continue to leverage the initiatives that we've been putting in place. So the digitization of the stores, 'cause we've continued to roll out EHR, so the stores will be digitized and then-
Electronic Health Records.
Yes, Electronic Health Records.
Yeah.
And then the digitization of our back offices as well. We'll expect to recognize the benefits of that productivity and efficiency as well.
Reade, maybe you could touch on this as well, because, you know, while National Vision has been a very efficient organization in the past, you need to do different things today to realize efficiencies-
Yeah
... like Electronic Health Records-
Right.
and other technology to, you know, to continue on this glide path for the margin productivity, because that is one of the areas that the investment community is focused on. This is a business that had been nicely profitable in the past.
Yeah. Mm-hmm.
How can you get back there? And it seems like you've got a pretty good blueprint for it.
This business is a lot of fun when we're delivering mid-single digit comps.
Mm-hmm.
We delivered mid-single-digit comps consistently for 18 years.
Yep.
We did that, in retrospect, by being a fairly rigid, somewhat analog replicator of a winning concept, and since COVID, we have shifted to be a flexible innovator, a flexible digital innovator along the way, and things like our remote efforts are one aspect of that, and electronic health records is another aspect, and upgrading our CRM system is another aspect. When the world changed on us, we have adapted as well.
Yeah. And speaking of adaptation, it seems like while Eyeglass World had been a strong performer for-
Yeah
... a long period of time, it’s falling behind a little bit from the-
It's falling short of our standards.
Yeah.
That's for sure.
Can you, A, for those who are a little familiar with-
Yeah
... you know, less familiar with this story, just give some of the contrast between America's Best and Eyeglass World, and then tell us why it's fallen short as of late, and what's going to be done about it?
Yeah, yeah. You know, so dimensionally, round numbers, 950 America's Best stores and 135 Eyeglass World stores at the end of the quarter.
Yeah.
America's Best is free eye exam when you buy two pairs of glasses. The eye exam is generally bundled in with the cost of product. Eyeglass World is a larger store with a lab, providing same-day service, a broader selection of product, but a model where you pay for your eye exam, which is more traditionally out there. Both brands were comping very nicely quarter in, quarter out, going into COVID. And frankly, 2021 was fantastic for both brands, and especially Eyeglass World had a great 2021.
Then in 2022, when we were dealing with the disruptions, frankly, I think we were just focusing our time on our biggest brand there, and a few things got out of line on Eyeglass World, and it is, as we said, performing below our standard now, although it did comp positively in Q4. But we think that there are a few large issues. One, it does have doctor coverage issues, which are made more complex, that there are three different doctor models there versus the one with America's Best.
Can you explain that?
Sure, sure, sure. We have some stores that are employed, some stores that are leased with either one doctor, one store, or one doctor in two stores, and then we have one master lessee who's got 40-something stores. And so you've got three different flavors, and you have to manage them differently. And in the America's Best model, we just have more control over that. So it's a different conversation and different approach with the leasing doctors. With our employed situations, we can just go in and put in remote. If we want, we have different conversations with a lot of long-term leaseholders on that front, but they also are having the stresses of trying to find doctors, but we are saying: "You need to deliver 40 hours of coverage.
Yeah.
That's how this works. So, coverage issues was one. I actually think we underspent on marketing last year, and we're making up for that now. And the third piece is, I think our operations were not as crisp, and we just had some operational leadership changes and have brought in one of our best, America's Best, operators. And we are-
And, you mentioned that it did comp positive in the fourth quarter-
Yeah
... which is great.
Right.
How long does it take to get EGW to a point of where it needs to be?
It's not an overnight thing.
Yeah.
But I think we will get there.
Yeah.
The concept is a winner. People like to get their glasses fast. Labs in stores have a consumer segment, and that's what we're trying to own there. And again, it's a little bit more designer product. So yeah, we will get there, and generally, once you get your coverage right, life works.
Life works.
Yeah.
Yeah. It's more for guys like me.
And it is more for guys like you. And as we said, where throughout the franchise, where we have the coverage we want, we are delivering comps at the historical levels.
That's great. Last couple minutes, I want to talk a little bit about advertising, because that has been one of the key factors-
Yeah. Yeah, yeah
... to both banners' success. So what, what's gonna be done differently this year? Seems like advertising is a nice lever that National Vision can pull in order to to drive traffic. And so not only how much are you spending or what's the the general school of thought, but where are you spending, and how are you able to optimize the productivity of that spend?
All right. We are becoming ever more digital. Guess what? People are watching a lot of streaming shows.
Apparently.
Who knew? Who knew? There we go.
When Reade gets on TikTok, it's over.
But you know, as our media plans over the years have been shifting to ever more digital in both top of funnel and bottom of funnel. So that's been consistent. I'd also say we're starting to broaden our message a little bit, and all of our ads are available online and on our website, in the investor section there. And we're starting to just a little bit talk to a few other audiences about exams, about value in different ways that I think are gonna be good for us. You know, we've said the same thing in a variety of ways for a very long time, and I think we're expanding the message just a little bit.
You know, there are independent ways of assessing the ads, and the new ads are scoring very high in that way.
Are we getting away from the owl?
Yeah. No, no, that will not, that will not happen, no.
Please, I almost insulted his child there. I'm sorry.
Yeah, it is a very popular icon.
Yeah.
Yeah.
Without a doubt. Well, please join me in thanking Reade, Melissa, Tamara, Kalyn. This has been great-
Yeah
... and we really appreciate and are excited to see what's to come from the National Vision story.
Okay.