I would say good afternoon, everybody, and thank you for joining us. I'm Adrienne Yih, Barclays Specialty Retail Apparel and Footwear analyst, and it is my intense pleasure to welcome Alex Wilkes, CEO of National Vision, and Chris Laden, CFO. I usually give a little bit of bio just so we can get a lay of the land. Alex, you joined National Vision in 2024, and were promoted to Chief Executive Officer in early 2025, after having served at CooperVision, and then a long tenure at EssilorLuxottica. The one point that I want to bring up here is that you helped drive the expansion of Pearle Vision, which I think is extraordinarily relevant in this situation.
Chris, you then joined National Vision in 2025 as CFO, and prior to that, you bring extensive experience in scaling growth businesses, operational discipline with profitability among healthcare and vision care companies, also including Pearle Vision. I've always thought that National Vision was a little bit misunderstood. It is not necessarily just an optical retailer, but what you're creating is a vision care/healthcare platform. Many investors still view you through the lens of that traditional value retailer selling glasses. Today, I'd like to focus on five key areas. Number one, why fundamentally different. Number two, National Vision's evolving business model and your competitive moat. Three, the drivers of market share gains profitably. Fourth, the structural margin opportunities. Finally, what National Vision will and can become over the next five years as you execute your transformation strategy.
Before we start, we've been asking all of our companies the macro backdrop and the health of the consumer, your favorite topic. How would you characterize it today versus the beginning of the year? We just had a new spike heading toward 100, gas over $4, very similar to April. Compare how your customer reacted, the lower-end value and the higher end during that period, and if you're seeing any similarities now.
Yeah, we're not really seeing any difference now than we saw in what we reported in Q2 in terms of the value-seeking consumer still sitting a little bit on the sideline. Again, we're seeing it actually across all income demographics. It's not necessarily lower income households that are sitting out or participating less. It's really those consumers across all income demographics that would raise their hand and say, "We're value seekers." They're sitting out at the moment. We haven't necessarily seen any change as we've gone into Q3. Certainly, we believe it's tied to energy prices.
Right. Is there typically a lag in terms of that pump price and then feeling it over some period of time?
We saw it almost immediately once we
Okay
start to see the energy prices go up in the beginning of Q2. When we look back at our data, that is when we started to see some of the delay in purchase cycle of the cash pay consumer in particular.
Great. Optical sits at the intersection of healthcare and consumer spending. Does that make demand inherently more resilient than traditional discretionary retail? Where does that resilience hold versus where customers can still defer purchases?
Yeah, for sure. We see almost 7 million Americans every year for eye care. You asked a question about what makes us so different. We employ over 2,000 optometrists. Close to half of our customer base, I think it is like 42% now, use some form of insurance in their purchase journey with us. That is a really fundamental difference from traditional retail, but it also makes us a lot more resilient. The managed vision care customer in particular who has an annual benefit that is use it or lose it, they are incentivized through their insurance plan to get an annual eye exam. They are incentivized through their insurance plan to deploy some of their benefit dollars against an optical purchase. That has really strengthened the resiliency of that consumer type.
On the healthcare side, having doctors that are building one-to-one relationships with their patient base, that creates a lot more stickiness between brand and consumer or patient than what you see in traditional retail. So we are a much more resilient business than, I would say, a traditional discretionary business is, because of those healthcare aspects.
Fantastic. So you kind of touched on, I wanted to go into our kind of optical retail 101. When we first met, you gave me a
Yeah.
Let us get the lay of the land here. So you touched upon some of those, and why the category is largely misunderstood. When you meet investors for the first time, other than what you just described, and maybe that is it, but what do they consistently misunderstand about the optical category?
Specifically, what I think today we are even having a lot of conversations around is the opportunity for mix and ticket evolution in this business. In traditional retail, you make some changes to the assortment, and maybe you get a year lap out of it, and then you have to do something new. In this business, because so much of it is employee driven, as associates get more comfortable and confident in selling anti-reflective lenses and selling more premium progressive lenses, and helping the consumer through a consultative journey on frames, it is almost as their competence and confidence grows with the new product introduction, you see ticket expansion, and that does not just happen in a year. In lenses in particular, it takes multiple years for your selling team to get really good and really confident at selling some of the more advanced materials.
I think that is a bit misunderstood, just like how long of a tail some mix-driven ticket strategies have to play out in this category. I think in particular, what is missed in our business is frankly, how far behind we were when Chris and I joined the company. We were laggards in almost every aspect of premiumization in the category. Although we had managed to, as I said, grow our managed care mix to over 40% of our customer base, we were not even matching those consumers well with the purchasing power that they had in their plans. That is a significant difference, I think, from us versus, again, discretionary typical retail. It is the healthcare component. It is the role that the doctor plays in the transaction.
It is the role that the store associate plays in the transaction, helping consumers find products that meet their lifestyle needs from a lens perspective.
It is still a highly fragmented business.
Super. Yeah.
that you're in. Once you get that customer to come to you, there's the managed care aspect of it, but they can kind of move that back and forth. How, through your customer experience and your store model, do you retain them?
Yeah, it's a great question, and we have historically retained them because we were relying on the one kind of trick of being the low-value or low-cost destination within the category. In recent years, we've made investments and significant investments in upgrading our CRM platform, upgrading our brand platform. Just this year, believe it or not, we didn't have the capability last year to appoint patients for their next eye exam. In any healthcare experience that you have, you cannot leave the doctor's office without getting your next appointment, right? You're not leaving without your next dentist appointment, your next orthopedic appointment for your knee, your next appointment with your primary care physician. In our locations, you would leave the store without having your next appointment for eye care, and that was largely because we had a technical limitation.
We implemented a much more sophisticated CRM platform, and in Q4 of last year, we started the process of appointing people for their annual eye exam. That will have a significant impact on our retention and then ultimately on our traffic go forward, too, because we now have mechanisms in place to lean into that retention element of the annual eye exam story.
Great. Let's stay on kind of the technological upgrade, and I want to get something out of the way from a couple.
Sure.
of quarters ago. It was the CRM, the e-commerce platform, the shift, and there was some disappointment on the sales during that quarter. I completely understand that there's a learning process when you transform onto a new platform. So explain to us where we are in that. Is that now behind us, and can we move forward?
Absolutely. In Q2, we essentially did a heart transplant of our e-commerce platform. We moved to the Adobe e-commerce platform, all of our brands, America's Best, Eyeglass World, and DiscountContacts.com. What that is ultimately going to enable us to do is be a much more prolific omnichannel retailer in the future. Internally, we use the word unified commerce, which I think we'll talk a little bit later about how we're reinventing the company. Actually, from a technical perspective, we didn't have any challenges.
The learning for us was about half of our eye exams that we see get booked online, and what we weren't doing well is sending the signals back from the site to the search company saying, "All right, go find us more of these." It really broke some of our search algorithms and made our cost per acquisition significantly more expensive than our historical norms. We decided to actually pull back on marketing investment because we had this inefficiency in Q2. All that being said, and this is what I've been reminding folks since we reported Q2, in the second quarter, we grew positive comps. We expanded our operating income by 140 basis points, and we took the most significant leap forward that the company has ever taken in terms of technological transformation of the enterprise.
Again, I could not be prouder of what we have done and what we've been able to accomplish through the first half of the year. Then we'll dive a little bit more into really the future and what unified commerce is going to enable us to do to, from our perspective, leapfrog the category, from a consumer interaction perspective.
Yeah. Just to kind of level set and put things into perspective, before you came, and I'd been covering the stock for quite some time, we talk about National Vision having been an analog business. Frankly, it worked because you comped every year. The firm comped, the company comped every year, literally every year.
20 years.
Including JOC. There was no reason to transform it. I think when you came in, it was just a light went on that you didn't need to confine the business model to the preexisting past 20 years. I mean, the aperture has opened, the TAM has opened, and I think that's kind of what all these investments that are being made today are for the next five to 10 years.
That's spot on. What we found when we came into this business was great supply chain, great infrastructure, incredible doctor experience. Our real estate that was well-maintained, well-positioned, but a business model that was requiring a commercial transformation. Also, this notion of being an analog replicator, all focused on one consumer type, one message, one operating model, yet the consumer had kind of evolved. We had this opportunity to not only catch up, and we've talked a lot about this, too, post Q2. Over the years, we'd accumulated a lot of customers that were only participating at the kind of base offer of the business, so our two-pair offer. Love those patients too, to be clear, and we're not walking away from that message.
But we had over-indexed the organizational resource pointed at that consumer that was ultimately a lower value transaction and a lower profitability transaction for us. Starting to think through the lens of segmentation, through optimizing the business. Chris and I have been joking a lot about this lately, that if you thought of our business as a manufacturing business and not a retail business, you would actually view our strategy in a different light. That we are trying to get the highest degree of yield out of our assets, our doctor assets, our real estate assets, our store employees, and our optical supply chain.
Fantastic. That is a great segue into the business model shift. Historically, investors focus on traffic. That is a retail, that is how we are trained, and transaction counts. Today, the discussion that you just opened up here, it increasingly centers around customer quality, the relationship with the optometrist, wallet expansion, and profitability. You are one of the only, I believe the only, that employs the optometrists.
So, explain that as a competitive advantage and how this model, soup to nuts, on a 360 basis
Yeah.
Is changing.
Historically, National Vision employed our optometrists because it was the way that we could offer an eye exam as part of our consumer commercial model. Because if you do not employ the doctors, you cannot include the service, or you cannot mandate what a physician would charge for the services. The company went through a huge amount of legal and structural and investment work to have an employed doctor model, and that served us really well for those 20 years. But now with 40-plus percent of the business being managed care, where this notion of a free eye exam or a bundle eye exam is not as powerful as it once was, but we still have this incredible asset. We also know that there is a huge group of consumers who would like to interact with a brand, not necessarily in a brick-and-mortar format.
We are thinking, all right, how do these assets actually work together in a way where they are very complementary? Part of the reason that we have made the significant investment in our e-commerce re-platforming is actually tied to our asset that we have with our employed doctor model. I like to say imagine a world, right? Imagine a world where you can go online to americasbest.com. You can buy prescription eyewear, and if you need to see a doctor, we got your back. You can come into one of our locations, and we will get you in to see one of our doctors. We can get you in front of our opticians to make any adjustments.
Imagine a world where a patient comes to see one of our doctors, gets a prescription, buys eyewear, and three months later, we can retarget that consumer with a message of, "Hey, we have prescription sunglasses available in the same style and designs you like. You can make one-click purchase here." But because we own the prescription information at the corporate entity level, you can basically order those lenses or those frames online through one click through a CRM message. It is taking our employed doctor model, which was previously a means to an end to the free eye exam, and now transforming it into something much more noble. Which is to provide truly a scaled, unified commerce business model where customers who interact with us online, if they need to see us in store, they can. They can see the doctor.
For consumers who interact with us in store and see a doctor, they can then make secondary purchases online in a much more seamless way. That is what we are building towards.
Great. Chris, I am going to bring you into. That was the sort of the strategic direction. On the model itself, those optometrists were, if not the, but one of the biggest fixed costs within the P&L structure. When you are holding the top line, constraining the top line, you bear the burden of the inflation in that. Talk about the model under this new format and the ability to leverage both store expenses, fixed expenses, but really this unique salaried that goes through the COG line and has this way of depressing GM or expanding it.
It is a unique business model for retail, where our story of we are looking at driving average ticket at a faster pace than traffic, and by the way, gross margin percentages might depress. These are two things that usually throw up red alarms for folks who follow retail stocks. For us, it is actually a really healthy position to be in. To unpack the category a bit, as you move up the premium scale on lens materials, on lens add-ons, like anti-reflective coating or Transitions, and even up on more premium frames, typically what you see is higher dollar transaction, higher gross margin dollars, but those are typically dilutive to our historical business model. As we can unpack what our five-year journey looks like, we expect to grow 50 to 150 basis points of operating margin expansion every year.
100%, if not more than 100%, of that will come through levering SG&A. As we have higher value transactions come through, certainly the doctor labor, which sits in gross margin, will better lever, but the offset on the product side is going to outpace that to a degree. I think the simplest example that folks can digest on the frame side is you can imagine our input cost for smart eyewear is substantially different than a typical piece of plastic injected mold from East Asia. The price point is higher, but it is not disproportionately higher from a percentage perspective. That is kind of true as you go through the entire kind of frame portfolio and also true on the lens side. What we are telling folks, guys, expect gross margin to be flat to dilutive over the five-year period.
Look at operating margin, make sure we are expanding there because as we drive more premium transactions through, it is really not going to require any incremental SG&A to make that happen.
Great. Also in this new business model, you have highlighted managed care customers, progressive wearers, outside prescription customers as particularly attractive cohorts. What did you discover about the customer economics that led you to prioritize these customers?
Yeah. Those customers are worth multiple times more in terms of profit contribution than our historical kind of bundle consumer. The progressive wearers in particular, those progressive wearers with a managed care benefit, those transactions can be worth hundreds of dollars more than a bundle customer. Because generally, they are choosing lenses that provide them not only a great benefit, but it is actually maximizing their managed care benefit. That is one of the things that we had to work on in recalibrating our store teams to help them understand that managed care members in particular, they are paying for that benefit out of their paycheck, and they expect that they are getting a differential out of it.
A member out of pocket on a tier 4 progressive lens can actually still be hundreds of dollars that that person is paying out of their pocket, plus the hundreds of dollars that come from the plan, but they have paid the premium throughout the course of the year, which ultimately is also giving them a $500 to $600 differential on that product. If you take the most premium progressive lens and the most premium frame that we sell, if you were to apply that on a total uninsured basis, that could be a $1,000 transaction. Even for a managed care transaction, that could be a $600 transaction for that managed care member, but in their minds, they are getting a $400 discount on what someone without that insurance product would pay.
That's when I talk about getting our teams competent and confident to really talk to the consumers, especially that managed vision care consumer, about the benefit that they get through the virtue of their payroll contributions against the healthcare plan. It's a completely different muscle. Even in that silly example, you can imagine the profitability on a $600 net managed care transaction on a premium lens is far more valuable from a flow-through perspective than a two pair for $95, including a free eye exam. That doesn't even include any of the reimbursement that comes through the back end from the health insurance plan.
I think one of the other cohorts you mentioned are outside Rx, just to unpack that's folks who got a prescription from a doctor outside the four walls of a National Vision doctor. I think going back to your point on leveraging doctor payroll, that is a category where we've historically under-indexed in terms of our percent of our mix of that customer cohort. I think we've got a better right to win than anyone else in the category, given our relative price points on the product side.
In terms of opportunities for leverage, historically, when you've spent nearly all of your marketing assets, a customer acquisition strategy that says two pair plus a free eye exam, a managed care consumer or an outside Rx consumer might go, "Well, that offer's not for me because I either get my exam through my insurance for free, or I already have my prescription in hand." That puts America's Best maybe not in the consideration set, when in reality, America's Best should be towards the top of that consideration set because of the value proposition that they offer for the products that we sell. That's a little bit of the-
Yeah.
Repositioning of America's Best brand assets to make sure it resonates with these consumers where we're under-indexing.
It is interesting that when we talk about reinvention, reinventing the brand components, reinventing the supply chain, reinventing the mechanical stuff, that is what Chris and I and Ana, our Chief Merchant do. We also have our President of America's Best. His name is Mark Banner, and Mark is leading the charge to reinvent the experience in the store. Historically, if you were to walk into an America's Best store, you were greeted with the following: "Hi, welcome to America's Best. What time is your eye exam?" Because there was always this assumption that the eye exam was the part that was bundled in with the purchase. So Mark and his team have been leading even the kind of orchestration and the retail theater, if you will, within the stores, to just not start like that. To start with, "Welcome to America's Best. How can we help you?
If you have a prescription from an outside doctor, let me go ahead and show you the frame board." Our pricing architecture, if you are an outside Rx customer, was really hard to understand because you are like, "I already got a prescription. This thing has value. I do not understand it in context of your pricing." As we have taken pricing decisions and got more sophisticated there, it was not just and has not been about rising AUR through pricing. It is around creating a pricing architecture that makes sense in a broader ecosystem of consumers and how they want to engage with our brands. I think, Adrienne, when you and I first met in New York a couple of years ago, we were at the chat in some restaurant.
Yeah.
I think I said, our first step on pricing was no regrets pricing. Our second step was how do we begin to optimize pricing around managed care transactions? Step three on pricing is, how do we evolve our pricing architecture to make sense for all customer cohorts, including being more shoppable for that outside Rx customer? We are now entering that phase 3 of pricing evolution.
Great. So it sounds like all of these are ways to create a moat, right? Generally barriers to entry to retail are pretty low, but you are creating a lot of long-term infrastructure, human capital investments that make it really hard to penetrate. So talk to us about what you think the moat is.
Yeah.
If we gave somebody an open-ended capital, what could they do and what couldn't they do to replicate your model?
Immediately finding 2,000 optometrists and wrapping them under all of the dozens of legal entities that you have to have in 40 different states that all have different flavors of regulation is really, really hard. We have built that out, and again, we have this asset that's now going to be pointed at this unified commerce vision. That's certainly a moat. The infrastructure that we've built, again, great real estate positioning, well-maintained stores. I do want to give a huge amount of credit to the prior management team. It was always a sense of pride that we had well-maintained, clean stores with great doctors and the most up-to-date doctor equipment.
If you haven't been to one, I can totally attest to that. I did my exam 3 months ago, and they were some of the cleanest stores I've ever been in.
Amazing and the most up-to-date.
But they weren't necessarily joyful, right? It was very functional, very prideful, but not necessarily very joyful from a merchandising and from an experience perspective. That's kind of the pieces we're bringing in. But that's part of our moat, too. So it's the doctors, our positioning, our supply chain, and our domestic labs where we produce lenses. We buy the pucks, and then all the value-added components are generated in our labs. We have a lab and supply chain network that just this year, as we introduce product segmentation, we could do it really, really fast because in our model, we run a showroom model. So when you buy glasses, you don't actually walk out of the store with the glasses you tried on. They go back on the shelf, and you get a brand-new pair of glasses from our central lab.
That also allowed us to be super efficient from an inventory perspective. So when we're making inventory change-outs, we don't have to sell through two, three pieces of backstock per store. We have one piece per store, and then we have less than, as you can imagine, one piece per store in central inventory. So as we make inventory changes, as we've moved into segmentation, we can be highly efficient from an inventory and inventory investment perspective on our balance sheet. That was also something that was historically built. So I really love this story because we're taking the best of what was built over 20 years during this analog replicator phase, and overlaying digitization and segmentation, and just a greater sophistication of the business model. And that's, I think, some of the strength that you've seen from this management team deliver over the past six quarters.
Great. So we've kind of touched on pockets of this unified commerce, and building this ecosystem. I want to give you the opportunity to kind of bring it all together.
Yeah.
What becomes possible under the new platform? And so just to level set, unified commerce is omnichannel, plus the doctors, plus the healthcare ecosystem. So I just want to make sure that we understand the definition of that. Connecting the eye exams, the prescriptions, the doctors, the managed care, the retail locations, and digital.
Adrienne, that's perfect. I'm going to take you on the road with me.
Yeah.
That's a better articulation than I think I've given.
Tell us what becomes possible.
That's exactly right. It is the possibility of having consumers who shop in store and then make subsequent purchases online, knowing that if they ever need to see that doctor, if they ever need to go in a store, giving them that confidence that we got their back on a medical device purchase. Whether we like it or not in this category, 80% of consumers view optical as a medically necessitated purchase. Yes, there are those 20% who buy for fashion, but the vast majority view this as a medically necessitated category. That doesn't mean that we shouldn't be able to serve them through a lower touch channel in a much more efficient and joyful way.
This idea of being able to serve a consumer with a doctor, and then allowing them to make repeat purchases, to stay connected to our brand, but knowing that they always have our brick-and-mortar locations to rely on when they need us most, we think that is a powerful differentiator. We think the ability to attract consumers who might want to make purchases online, but again, with this idea of, "If you need to come to see us in store, we got your back." It is, as you know, generally a longer cycle purchase category. Contact lens customers, call it maybe once every 12 months, spectacle wearers every two years, the managed care member, somewhere in between. It's a really long time between purchase. There's a lot that happens in your eyes and with your eyes during that timeframe.
Unlocking the ability for more frequent interactions, be it online, be it in store, that's what unified commerce gives us, is a way to always stay top of mind as a trusted destination for eye care, no matter how you want to engage with a brand. Again, we think we're really unique in that regard because we are the only ones to have the assets of 1,200 points of physical distribution, a truly advanced leading e-commerce platform now that we have stood that up, and our employed doctor network. That's what we're working to in the next year or so, is get that pulled together, get all those use cases running, and get the consumer to think about us in those regards.
Fantastic. With our final few minutes, all of that in a nutshell. I'm going to have Chris tell us what vectors of top line, customer acquisition, TAM expansion, retain customers spending more wallet share. Drivers of the top line, structural drivers of the margin expansion. Explain to us how all that flows through the P&L and what's the future look like tomorrow?
Yeah. Absolutely. I think you nailed the top-line expansion opportunities. One thing we have not unpacked a ton here today just yet is the white space still available for us across the country. We today operate just under about 1,280 stores in 40 states. The lovely state we're sitting in today, we do not operate in yet. There's still significant expansion opportunities for us from a pure four-wall perspective. We've made an intentional decision to slow down on new store growth. We've still been a net grower of stores for the last couple of years, but we needed to get the operating model right. We needed to get the new store concepts designed and ready to go with the new brand assets to then re-accelerate store growth.
As we think about long-term drivers of growth, and particularly on traffic, as we re-accelerate store growth, we certainly expect to see some positive tailwinds from a traffic perspective. Look, I think in aggregate, the things we are doing are going to drive higher average transaction value, with the addition of our unified commerce approach, again, tailwinds to overall transaction growth. We do expect to see gross margin dilution from a percentage perspective and significant leverage in SG&A. We have been very focused in the last two years on SG&A and cost out, and that has largely come through, I would say, some optimization of our home office, but largely on the backs of just professionalizing our procurement and sourcing processes and really leaning into our strategic partners who want to be part of this new growth trajectory for the business.
We are very, very glad the partners met us where we needed them to. As we look in out years, I think there is still more, let us say, internal optimization to be done in terms of better matching supply and demand, ultimately yielding to 50 to 150 basis points of operating margin expansion on average for the next five years. It is just a really exciting time to be part of the business. When I came in, we had finished 2024 around 3.5% operating margin. The midpoint of our guide for this year is going to double our operating margin dollars from 2024 through 2026. How many opportunities do you get to say that when you join a company? We still feel great about the operating margin expansion.
It is something that Alex has brought in a great team that is truly uniquely focused on doing what is right for the customer, but putting National Vision first as well and making sure that we are driving operating margin as a key priority for the business.
Just remind us what your longer term goals are in terms of an algorithm.
Yeah. We think over the five-year period, we expect an average of high single-digit revenue growth, mid-single digit comps, and operating margin expansion from 50 to 150 basis points. We are expecting to re-accelerate new store growth in 2028 back up to the 60 plus range, whereas last year, this year, what we projected for next year was closer to the 30, 35 range.
I think learnings from this year has been, as we stay really focused on driving the right type of traffic, that we have actually seen acceleration of our operating income growth even beyond our original expectations. Because I think that is also one of the nuances of this business versus traditional retail. It is like your mix of traffic type matters a lot. Just where we started the conversation, we are much more focused on the quality of our traffic mix versus the aggregate traffic number because of the significant delta in profit contribution depending on the type of traffic you are driving in.
Yeah. With that, we are at the end of time, but just to wrap it all up in very simple economic terms, every marginal revenue dollar is creating more marginal profit dollar. Thank you so much, Alex and Chris.
Great point. Thank you so much. Thanks for having us.