National Vision Holdings, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the National Vision Fourth Quarter Fiscal 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to one of your speakers today, Mr. David Mann, Vice President, Investor Relations. Sir, please go ahead.

Thank you and good morning, everyone. Welcome to National Vision's fourth quarter 2020 earnings call. Joining me on the call today are Reid Fahs, Chief Executive Officer, and Patrick Moore, Chief Financial Officer. Our earnings release issued this morning and the presentation which will be referenced during the call are both available on the investor section of our website, nationalvision.com. and a replay of the audio webcast will be archived on the investor's page after the call. Before we begin, let me remind you that our earnings materials in today's presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the release and in our filings with the Securities and Exchange Commission. The release in today's presentation also includes certain non-GAAP measures. Reconciliation of these measures are included in our release and the supplemental presentation. We also would like to draw your attention to slide two in today's presentation for additional information about forward-looking statements and non-GAAP measures. As a reminder, National Envision expects to provide certain supplemental materials or presentations for investor reference on the investor section of our website. Now, let me turn the call over to Reed.

Thank you, David. Good morning, everyone. I'd like to thank you all for joining us today. I hope you're all staying healthy and safe. Turning to slide four, as I reflect on 2020 in general and the fourth quarter in particular, I could not be more pleased with how the National Vision team rallied to serve our patients and customer needs while maintaining a safety-first focus. Our key priority throughout the pandemic remains the health and well-being of our associates and network of doctors, our patients, and our customers. The strong execution of our store teams since the reopening of our stores in June has been remarkable. For the period from June through December, we generated a 12.6% comp, the best seven-month comp in at least the past 18 years. Our partnership with Walmart, now in its 31st year, was extended for another three years through 2024. We continue to generate positive results at the five additional Walmart Vision Centers that we added in 2020. We celebrated the opening of our 1200th store in Deerfield Beach, Florida. We strengthened our board with the addition of three new independent board members, Naomi Kelman, Susan Somersville-Johnson, and Jose Armario, with Jose joining us in February. This group of accomplished executives with diverse backgrounds bring skills and experiences across multiple disciplines, such as marketing, technology, and business operations. We finished the year with a stronger balance sheet and the lowest debt leverage in our public company history. For the year, we generated record operating cash flow despite our stores being closed for over two months. And in early February, Moody's upgraded the credit rating on our debt, which returned National Vision to the rating that Moody's ascribed to our debt immediately prior to the onset of COVID. Our balance sheet positions us well to continue to make investments to further strengthen our competitive moat. Finally, in 2020, we embarked on a journey toward developing a more formal ESG strategy. We published our first philanthropic impact report and progressed our diversity, equity, and inclusion initiatives. We conducted a materiality risk assessment and look forward to sharing more details of our ESG strategy in 2021. 2020 may have been the most difficult and eventful year of our careers. Yet despite a once-in-a-century pandemic, a record economic downturn, and many societal challenges, we expanded our footprint, grew market share, achieved record profitability, and continued to invest in our business for further growth. Importantly, this was all accomplished with decisions consistent with our company culture, values, and long-term orientation. Our life-giving culture and our people are our core strength, and this year we saw their very best. Our teams were truly tested in a variety of ways by COVID, and we rose to its many challenges. Turning to slide five and a summary of Q4 results, I'm pleased with the way we finished 2020 and continue to navigate the pandemic. Q4 was another outstanding quarter for us and further highlights the strength and resilience of our business model. Net revenue for the quarter increased over 23%. Adjusted operating income increased 281%, and adjusted EPS increased to 45 cents versus 9 cents last year, which established a record for our fourth quarter profit as a public company. Adjustable comparable store sales growth increased 10.6% in the quarter. COMPs were once again led by our growth brands with a 17.6% increase at iGlass World and a 12.2% increase at America's Best. I'll speak more to the COMP trends in a few minutes. We opened five new stores during the quarter and ended with 1,205 locations, or a 4.7% increase in store count in the past year. With our exceptional performance, we're pleased to have exceeded our fiscal 2020 outlook, and we enter fiscal 2021 with good operating momentum. In a few minutes, Patrick will take you through our Q4 results and our 2021 outlook in more detail. Turning to slide six, as the chart shows, our business has a history of strength and resilience through a variety of economic and external challenges. We're pleased with our continued strong comps this quarter and our second consecutive quarter of double-digit comps. This made for the best half-year comps in my 18 years with National Vision. Our Q4 comps were consistent with the third quarter trend on a two-year stacked basis, even despite rising COVID cases, post-election uncertainty, and the lack of additional government stimulus. We believe these strong results were aided by pent-up demand from our patients and customers and by our low-cost eye care and eyewear offerings seeming to be even more in need during this pandemic economy. The duration of this heightened level of demand is difficult to predict. We continue to expect it to moderate over time. The continued momentum in eyeglass world is especially noteworthy and encouraging. as the brand's 2020 comps declined only 2.7% despite being closed for nearly 10 weeks of the year. Eyeglass World has really found its moment in the post-COVID period, emerging with consistently strong performance week in and week out. Thus far, 2021, despite the recent weather disruptions, is off to a solid start, likely aided by the refresh of vision insurance benefits and a second round of direct stimulus payments, in late 2020. We're fortunate to be in a category where the purchase is tied to a medical necessity. Based on industry data, we're confident we have grown share in 2020. The optical industry remains highly fragmented, and we believe that the current environment is hastening the trend that favor larger, better capitalized value retailers like National Vision. Shifting to slide seven. As we move into 2021, we are looking to capitalize on our momentum and plan to continue executing on our core growth initiatives and further investing to strengthen our competitive advantages. After a brief pause in openings early in the pandemic, new stores remain a primary focus given our sizable white space opportunity. We plan to return to normalized growth in 2021 and open approximately 75 stores. We have a solid pipeline of specific locations for this year and into 2022. Our relationships with landlord partners are strong, and our results this year highlight that patients and consumers continue to seek physical locations for their optical needs. As noted in today's press release and on slide eight, we increased the white space target for our America's Best and Eyeglass World growth brands to at least 2,150 stores, or an additional 1,000. 300 locations. Based on updated modeling by a third-party real estate data analytics provider and our internal team, we have identified this additional runway for expansion. Our updated white space target is over 2.4 times our current network for our growth brands, with at least 1,300 stores identified for America's Best and at least 850 Eyeglass World stores. We now see an even larger opportunity in front of us. Additionally, our strong performance this quarter would not have been possible without the tireless hard work and commitment of our network of optometrists. We continue to invest in our optometrist recruitment and retention programs to keep our high retention rates near record levels. With healthy doctor coverage, we're able to meet strong customer demand for eye exams with a safety-first approach. In terms of marketing, we had quite an unusual year with much lower spending in 2020. initially due to cost containment and then due to the decreased marketing given robust consumer demand. We return to our normal cadence of investment in the fourth quarter, in part to fulfill pre-pandemic commitments, and we plan for 2021 to be more in line with our historical level. Our focus will be across television and digital media to ensure that our brands are always top of mind for consumers wherever they are on their purchase journey. During this period of economic stress, we believe optical consumers are even more attracted to our extreme value, such as the introductory offer for our two growth brands, two for $69.95 at America's Best, including a free comprehensive eye exam, and two for $78 at Eyeglass World with glasses available that same day. We believe that the combination of low prices and excellent customer service leads to satisfied repeat customers and positive word of mouth as customers tell their friends how little they spent and the great service they received at our stores. In 2020, approximately two-thirds of customers in mature stores were existing customers. Late last year, we invested in market and consumer research to further understand the optical consumer. The research further confirmed our strategies, and we're continuing to use these insights to improve engagement with optical consumers. We continue to experience healthy revenue growth tied to our managed care partnerships. In 2020, revenues tied to Vision Insurance represented approximately one-third of net revenue, and we remain underdeveloped relative to the category. We continue to see an ongoing opportunity here as managed care dollars and co-pays tend to go further in our stores than elsewhere. Regarding our supply chain, our lab teams have continued to adeptly handle the elevated business volumes in 2020 Our lab network is well positioned with the capacity in place to handle the projected 2021 needs and remains a key reason that we are a low-cost provider. We currently face 15% tariffs on products imported from China, which for us are predominantly eyeglass frames. With the new administration, we are monitoring any ongoing developments while continuing to progress our tariff mitigation efforts. Our digital and omnichannel initiatives continue to progress, We experienced an acceleration in e-commerce orders compared to pre-COVID levels. The trend towards omnichannel purchases also accelerated during the pandemic as we experienced a significant increase in ship-to-home orders in 2020. For the year, our combined e-commerce and omnichannel sales rose to about 12% of net revenue, up from 10.3% in 2019. Lastly, our efforts in remote medicine are continuing as well, and we're pleased with their progress. Overall, despite the pandemic, we focused on improving our business operations and competitiveness as we invested towards expanded capacity to see patients as well as initiatives to improve customer engagement throughout the customer journey that are supported by insights from updated consumer and market research. Before I turn the call over to Patrick, Let me say that we are very pleased with our Q4 and 2020 performance in this environment. The events of the past year really showcased our strong positioning as an essential healthcare retailer with thoughtful safety protocols in place to operate through the duration of the pandemic. Our proven team of optical veterans executing our initiatives with both thoroughness and rigor. Our resilient business model as the low price seller of a medical necessity with the potential for even larger opportunity on the other side of this pandemic and our great network of optometrists that are associated with the company. A new year brings new hope, but challenges and uncertainty persist. Yet we're entering 2021 knowing that we have what it takes to navigate the rest of this pandemic and beyond. and I am confident National Vision will emerge an ever-stronger company. Now to Patrick.