National Vision Holdings, Inc.

Good day and thank you for standing by. Welcome to the Q1 2024 National Vision earnings conference call. At this time, our participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you need to press star one one on your telephone. You would 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 not like to hand the conference over to your first speaker today. Tamar Gonzalez, head of investor relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to National Vision's first quarter 2024 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 both available in the investor section of our website, nationalvision.com. A replay of the audio webcast will be archived in the investor 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 of the Securities and Exchange Commission. The release in today's presentation also includes certain non-GAAP measures. Reconciliation of these measures is included in our release and the supplemental presentation. We would also 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 investors, presentations, and supplemental materials for investor reference in the Investors section of our website. I will now turn the call over to Reid. Reid?

Thank you, Tamara, and good morning, everyone. Thank you for joining us today. As you saw in our release this morning, we delivered first quarter top-line results in line with our expectations of relatively flat adjusted comparable store sales growth. and we're pleased to report total company adjusted diluted earnings per share of $0.32, which reflects our team's continued disciplined approach to expense management. On a continuing basis, first quarter net revenues increased 4.2%, and adjusted comparable store sales increased 0.4%, primarily driven by ongoing strength in our managed care business and growth within America's Best. On our last call, we shared that the softer start to the year was related to weather during January. This, along with a slower start to the tax refund season, adversely impacted sales and transactions in the quarter as consumers remained cautious in their spending. During the quarter, we also saw higher average ticket and higher exam revenues driven by pricing actions we have taken. In addition, the greater percentage of managed care purchases resulted in a mixed shift between our two-payer offer and single-pair eyeglass sales, as Melissa will discuss. Our business remains in the midst of a transformation that we began in earnest last year, and we've made significant progress over that time, thus giving us a stronger foundation for future growth. We remain keenly focused on our customers while maintaining a disciplined approach to expense management by closely managing our cost structure both in the stores and at the corporate level. We are continuing to adapt our model to meet the realities of our industry today and the needs of our customers. With that, I'd like to share my thoughts on the quarter in terms of what went well and where we see opportunities to improve. Let's start with what went well. Our key focus for the past year has been on ensuring that eye exams are available for our customers when they want them. To accomplish this, we've focused on retention and recruitment of optometrists and leveraging remote exam technology. From this perspective, things went well in the first quarter. Our retention levels remain healthy, and recruitment remains on track with our 2024 goals. And on the remote exam front, we made some real progress. Recall that our remote technology allows doctors working from other locations to perform an eye exam on a patient in the store. We find that recruiting doctors is easier with the remote model, given the flexibility it offers them. On our last call, we shared that our rollout efforts were hampered by certain large states that restrict or do not permit teleoptometry. We shared that we believe the general evolution will be toward authorizing more telemedicine options, but that certain states had not yet adopted the practice. We specifically mentioned Texas as a state where we could really use remote to help improve exam capacity. Since our last call, based on recent updates to the regulatory environment, we're pleased to say that we're moving forward with remote in Texas this year, in addition to our original locations plan for the year. Since we began piloting remote exam technology in our America's Best stores just three years ago, we've enabled over 550 locations as of the end of 2023. On our last call, we shared that we plan to enable 50 additional locations with remote this year and complete the expansion of electronic health records, or EHR, throughout America's Best. With these latest positive developments, we now expect to add remote to at least 150 stores this year and allow the EHR rollout completion to fall into next year. Therefore, we anticipate ending the year with approximately 700 remote-enabled stores. Note that in the first quarter, remote exams represented over 7% of all exams provided, and in remote-enabled states, they were in the low double-digit percentage range. Recall that our rollout of remote is dependent on the state-by-state regulatory environment, and we intend to continue adding select locations where feasible and advantageous. Importantly, remote doctors now perform approximately the same number of exams as optometrists practicing live in the store per day. Additionally, several stores are already at the point where they can perform as many exams a day with only remote options as they do with live doctors, which gives us further confidence in the benefits of our remote models. In summary on this point, we feel quite good about how our efforts in retention, recruitment, and remote helped to drive an improvement in exam capacity in the first quarter compared to the prior year. Moving on to where we see opportunities. You're well aware of the challenging macroeconomic environment the retail industry is up against, especially for retailers like us who appeal to lower-income consumers. As such, we've seen the kind of pressure on our business that you'd expect in this environment. Our comparable store sales remain below our target of mid-single digit growth, and this is our number one focus. Last quarter, we shared that we were waiting for March results as a data point for normalization in the purchase cycle following the green shoots we saw in the second half of last year. However, March did not prove to have as robust of a demand backdrop as we would have hoped. However, with much of the year still ahead, we remain focused on executing on our goals and we are reaffirming our earnings outlook for the year. Melissa will go into more detail on our outlook in just a moment. The data remains inconsistent, and we believe it is still too soon to declare that the optical purchase cycle has normalized, particularly as our core uninsured customer faces ongoing macro-related headwinds. Our lower income consumers remain stressed given persistent high inflation. This is reflected in the lower contribution of our cash pay customers to our overall sales as this group raised daily purchases such as groceries and gas with the necessity to see clearly. As such, we did not see the growth in cash pay customers as we did in the fourth quarter. We did continue to see strength in managed care, which as of the end of last year represents about 35% of our business. While we cannot control the macro factors impacting our business, We believe the actions we are taking provide us with a strong foundation for growth. I'm pleased with the execution our teams are delivering against this challenging backdrop. We also continue to tackle inflationary pressures on our business with pricing. In fact, on a continuing basis, exam net revenue fully offset doctor costs during the quarter for the first time in the past 12 months, reflecting the price increases we took at the end of the fourth quarter, as well as increased doctor productivity. we will continue to look for ways to offset inflation with pricing where we see the opportunity to do so. As we shared last quarter, Eyeglass World is not performing to our standards. We're pleased with the actions the new leadership team is taking to improve that business and re-energize the brand. The primary focus has been to standardize operations by taking a page from our America's Best Playbook, which includes improving coverage to better align days and times of coverage to meet our patients' needs. We began implementing remote technology in select stores this quarter. Also, as we mentioned on our last call, we reallocated marketing dollars to provide eyeglass world with higher advertising this year to improve brand awareness. During the quarter, we largely completed the previously announced conversion of the 20 eyeglass world California stores to America's best. We're early in the conversion and some opportunities remain, but overall things are going well. Our training teams are doing an amazing job helping the staff and doctors transition to the new model. Additionally, we recently equipped California stores with EHR and plan to use remote in at least some of those stores for filling coverage. Before closing, I'd like to share with you an update on our white space opportunity and some exciting AI developments at TOKU. During the quarter, we completed a detailed analysis of our white space opportunity. The new analysis is based on updated modeling by a third-party real estate data analytics provider that we've used for many years. Based on these results, we increased the white space opportunity for America's Best by an additional 350 locations for a new total of at least 1,650 America's Best locations. Our analysis assumes maintaining Eyeglass World's total white space opportunity of at least 850 locations as we work to improve performance in that brand. Our total updated white space opportunity is now believed to be at least 2,500 stores, which is more than double that of our current store count. As we think about opportunities and our new store opening plans, it's important to note that two-thirds of the America's Best stores in our new white space opportunity are in currently remote-enabled states, a figure that will increase over time as we enter more states. Further, the majority of our new stores open with full doctor coverage, most with live doctors or some form of hybrid live and remote doctor coverage. For the year, we continue to expect to open 65 to 70 new stores and will continue to provide details on our annual new store opening plans at the beginning of each year. Looking ahead, we are excited about the many opportunities AI brings to the optical industry. While still early stage, we're pleased with the progress being made by Toku, Inc., the AI startup we have invested in. This quarter, we were excited to be the first retailer in the U.S. to launch a pilot of BioAge, Toku's wellness product that utilizes retinal images to determine a person's biological age, which can give an indication of their overall health. We are currently piloting this in a handful of stores. Toku was also granted its second breakthrough designation by the FDA, this time for its chronic kidney disease assessment AI, which follows the designation granted for its cardiovascular assessment AI late last year. Both of these products can use retinal images collected at routine eye exams, which further demonstrate that the eye offers a window into broader health. And with that, I will turn the call over to Melissa to review our results in more detail.