National Vision Holdings, Inc.

good day and thank you for standing by welcome to the third quarter 2023 national visions holdings earnings conference call at this time all participants are in a listen-only mode after the speaker's presentation it will be a question and answer session to ask a question during session you need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question please press star one one again please be advised that today's conference is being recorded I would now like to hand the conference over to speaker today, Caitlin Churchill, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to National Vision's third quarter 2023 earnings call. Joining me on the call today are Reid Fahs, CEO, and Melissa Rasmussen, CFO. Patrick Moore, COO, is also with us and will be available during the Q&A portion of the call. Our earnings release issued this morning and the presentation accompanying our call are are both available in the Investors section of our website, nationalvision.com. A replay of the audio webcast will be archived in the Investors section after the call. Before we begin, let me remind you that our earnings materials and 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 our filings with the Securities and Exchange Commission. The release and today's presentation also include certain non-GAAP measures. Reconciliation of these measures is 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 Vision provides investor presentations and supplemental materials for investor reference in the investor section of our website. I will now turn the call over to Reid. Reid?

Thank you, Caitlin. Good morning, everyone. Thank you all for joining us today. This morning, we will begin with a review of highlights from our third quarter, including ongoing progress on our strategic initiatives. We will then provide an update on the upcoming end of our Walmart partnership, as well as our plans to position National Vision for long-term profitable growth as we look ahead to operating a more streamlined and less complex business model. Then, Melissa will review our third quarter financial results and updated outlook in more detail. Turning to our results, we are pleased with our third quarter performance, which reflected ongoing strength from our managed care business and was supported by the continued progress we were making with expanding eye exam capacity particularly within America's Best. For the quarter, we delivered net revenue growth of 6.6%, including comparable store sales growth of 4.3%, and we delivered adjusted diluted EPS of 15 cents. We saw strength, particularly in America's Best, which was partially offset by softness in our eyeglass world business. While we've continued to contend with an exam capacity constraint across both our growth brands, our initiatives to date have been predominantly focused on our largest brand, America's Best. Given the improvement we've seen in our America's Best locations, we are applying and incorporating the learnings from that playbook to improve our eyeglass world performance. As we discussed on our last earnings call, we were encouraged with the early trends we were seeing with the back-to-school season, and we're pleased to see that performance continued through the period. In addition, we continue to see strength from our managed care business which is one indicator of the trade-down behavior that is occurring with many customers as we continue to navigate a dynamic macro environment. As I mentioned, the quarter also benefited from ongoing progress on our strategic initiatives, particularly focused in our America's Best business. We have continued to see improvement with stores that do not have optimal coverage, which we refer to as dark and dim locations, to expanding exam capacity from our recruiting, retention, and remote initiatives. we are pleased to continue to see much lower levels of dark stores compared to the peak we saw last year and are seeing slower but steady progress addressing our dim stores as well. As a reminder, we define dark stores as locations that do not have doctor coverage and dim stores as those locations that have less than three days of doctor coverage. We remain focused on executing our initiatives to continue to drive improvement across our fleet. And as I discussed last quarter, where we have the desired level of capacity, stores are delivering comps more in line with our historical operating model. We remain on track to deliver a second year of record recruiting and have contracted more new graduates this year than in any previous year. In addition, we continue to expect to deliver improved retention rates this year. These trends are driven in part by the schedule flexibility options that have been made available to the doctors. Our remote initiative is also helping us to expand exam capacity and has been a major factor in improving dark and dim store performance, enabling a double-digit productivity lift in sales. As of the end of Q3, more than half of our America's Best locations have been enabled with remote exam capabilities and electronic healthcare records, reflecting the progress we've made through the initial heavy implementation phase over the past two years. We remain on track to roll remote capabilities out to at least 200 stores this year, and as we look ahead, given the work done to date, as well as the evolving state regulatory landscape, we expect the pace of our implementation of remote to slow in 2024. We continue to believe in the opportunity there is for remote exam capabilities across our stores, and we'll continue to monitor the regulatory landscape and assess our plans accordingly. With respect to our EHR rollout, we remain on pace to have EHR installed at all America's best locations by the end of 2024. Turning next to our digitization plans for our corporate office, we have begun to implement the first phase of our ERP project focused on finance system upgrades. We are taking a measured approach to this project and plan to evaluate each phase appropriately to mitigate risk and maintain our focus on disciplined capital allocation. Finally, With respect to our white space opportunity, we remain on track to open 65 to 70 new stores this year and opened 21 new stores in the third quarter. Now let me provide an update on our transition plans with the pending end of our Walmart partnership beginning early next year. We are committed to ensuring the continuity of our Walmart business through the end of our contracts and actions have been taken to support the retention of the associates and doctors during this time. I'm very appreciative of how our teams have continued to operate with discipline and focus on customer care amidst this transition. As we've previously discussed, the Walmart business has continued to become a smaller piece of our overall performance over the last decade and carries a much lower margin than our larger growth brands. Moving beyond the termination dates of the contracts, we will operate a far more streamlined and less complex model. As detailed in our press release this morning, In conjunction with the termination of our Walmart partnership, we will be winding down our remaining AC Lens operations. In doing so, we will be closing our Ohio Distribution Center, which largely supports the wholesale distribution and e-commerce contact lens services that we provide to Walmart and Sam's Club. While this is a difficult decision, it is a prudent one for our organization. We are continuing to work with Walmart on the transition of the Vision Center Associates and ODs, and currently expect approximately 7% of our total associate headcount to be impacted by this decision and termination of the Walmart partnership, the vast majority of whom will be Walmart Vision Center and AC Lens roles. In addition, given the changes in our go-forward operating model, we have conducted a comprehensive review of our cost structure and will be implementing expense savings initiatives focused on streamlining corporate overhead as well as reducing travel expenses and third-party spend. We believe these decisions, combined with benefits from our pricing actions we plan to take on the heels of the pricing study completed earlier this year, will more than offset the profitability gap created by the termination of the Walmart partnership. Through this work and our ongoing execution of our strategic initiatives focused on driving revenue and enhancing performance in our two strategic growth brands, we are well positioned to deliver operating margin expansion and thus drive increased shareholder value. Melissa will discuss details of these actions and anticipated financial impact in a moment. In closing, we remain committed to our mission of making quality eye care and eyewear more affordable and accessible. While we continue to maintain a conservative approach to our outlook, given the ongoing challenging macro environment that has continued to pressure our core uninsured customer, we remain on track to deliver on our objectives for this year as reflected in the narrowing of our guidance. I will now turn it over to Melissa.