Duluth, Ga. -- Mar. 8, 2018 -- National Vision Holdings, Inc. (NASDAQ: EYE) (“National Vision” or the “Company”) today reported its financial results for the fourth quarter and fiscal year ended December 30, 2017 and is providing its outlook for fiscal 2018.
Fourth Quarter Summary:
Fiscal 2017 Summary:
Reade Fahs, chief executive officer, stated, “The fourth quarter represented a strong finish to another record year of revenues and profitability for National Vision. The team delivered its 64th consecutive quarter of positive comparable store sales growth, once again driven by increases in customer transactions, with same store sales gains in all of our brands. Our fourth quarter results reinforce our belief that our strong value message continues to resonate with our cost-conscious patients and customers. We successfully opened 17 stores this quarter and continue to see a long runway for store growth. Every day our nearly 11,000 associates, including our 2,000 optometrists practicing in or next to our over 1,000 stores, work hard to make quality eye exams, eyeglasses and contact lenses more affordable in communities throughout the United States. We continue to believe that, as long as we provide great prices and great service to our patients and customers, we should be well-positioned in 2018 and beyond.”
This release uses the measures adjusted comparable store sales growth, adjusted EBITDA, adjusted EBITDA margin, adjusted net income and EBITDA, which are not measures recognized under generally accepted accounting principles (“GAAP”). Please see “Non-GAAP Financial Measures” and “Reconciliation of GAAP to Non-GAAP Financial Measures” below for more information.
Fourth Quarter 2017 Highlights
Fiscal 2017 Highlights
Balance Sheet and Cash Flow Highlights as of December 30, 2017
Fiscal 2018 Outlook
The Company is providing the following outlook for the fiscal year ending December 29, 2018:
~75 New Stores
Adjusted Comparable Store Sales Growth
3 - 5%
$1.485 - $1.515 billion
$172 - $177 million
Adjusted Net Income
$52 - $56 million
Depreciation and Amortization
$72 - $73 million
$37 - $38 million
$100 - $105 million
The fiscal 2018 outlook information provided above includes Adjusted EBITDA and Adjusted Net Income guidance, which are non-GAAP financial measures management uses in measuring performance. The Company is not able to reconcile these forward-looking non-GAAP measures to GAAP without unreasonable efforts because it is not possible to predict with a reasonable degree of certainty the actual impact of certain items and unanticipated events, including taxes and non-recurring items, which would be included in GAAP results. The impact of such items and unanticipated events could be potentially significant.
The fiscal 2018 outlook is forward-looking, subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the control of the Company and its management, and based upon assumptions with respect to future decisions, which are subject to change. Actual results may vary and those variations may be material. As such, the Company’s results may not fall within the ranges contained in its fiscal 2018 outlook. The Company uses these forward looking metrics internally to assess and benchmark its results and strategic plans.
Conference Call Details
A conference call to discuss the fourth quarter 2017 financial results is scheduled for today, March 8, 2018, at 11:00 a.m. Eastern Time. The U.S. toll free dial-in for the conference call is 866-754-6931 and the international dial-in is 636-812-6625. The conference passcode is 1679439. A live audio webcast of the conference call will be available on the “Investor” section of the Company’s website www.nationalvision.com/investors, where presentation materials will be posted prior to the conference call.
A telephone replay will be available shortly after the broadcast through Thursday, March 15, 2018, by dialing 855-859-2056 from the U.S. or 404-537-3406 from international locations, and entering conference passcode 1679439. A replay of the audio webcast will also be archived on the “Investors” section of the Company’s website.
About National Vision Holdings, Inc.
National Vision Holdings, Inc. is one of the largest optical retail companies in the United States with over 1,000 retail stores in 44 states plus the District of Columbia and Puerto Rico. With a mission of helping people by making quality eye care and eyewear more affordable and accessible, the Company operates five retail brands: America’s Best Contacts & Eyeglasses, Eyeglass World, Vision Centers inside select Walmart stores, and Vista Opticals inside Fred Meyer stores and on select military bases, offering a variety of products and services for customers’ eye care needs.
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934. These statements include, but are not limited to, statements contained under “Fiscal 2018 Outlook” as well as other statements related to our expectations regarding the performance of our industry, growth strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. You can identify these forward-looking statements by the use of words such as “outlook,” “guidance,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties, including our ability to open and operate new stores in a timely and cost-effective manner and to successfully enter new markets; our ability to maintain sufficient levels of cash flow from our operations to grow; our ability to recruit and retain vision care professionals for our stores; state, local and federal vision care and healthcare laws and regulations; our relationships with managed vision care companies, vision insurance providers and other third-party payors; our operating relationships with our host and legacy partners; the risk of loss or disruption in our distribution centers and optical laboratories; risks associated with vendors and suppliers from whom our products are sourced; competition in the optical retail industry; risks associated with information technology systems and the security of personal information and payment card data collected by us and our vendors; macroeconomic factors and other factors impacting consumer spending beyond the Company’s control; our growth strategy’s impact on our existing resources and performance of our existing stores; our ability to retain senior management and attract new personnel; our ability to manage costs; the success of our marketing, advertising and promotional efforts; risks associated with leasing substantial amounts of space; product liability, product recall or personal injury issues; risks associated with managed vision care laws and regulations; our increasing reliance on third-party coverage and reimbursement; issues regarding inventory management; risks related to our e-commerce business; seasonal fluctuations in our business; technological advances that may reduce demand for our products; we may incur losses arising from our investments in technological innovators in the optical retail industry; legal regulatory risks, including adverse judgments or settlements from legal proceedings; our ability to protect our intellectual property; the impact our leverage has on our ability to raise additional capital to fund our operations; our credit agreement contains restrictions that limit our flexibility in operating our business; risks related to our debt agreements; our ability to comply with requirements to design and implement and maintain effective internal controls; and risks related to being a controlled company. Additional information about these and other factors that could cause National Vision’s results to differ materially from those described in the forward-looking statements can be found in filings by National Vision with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, which are accessible on the SEC’s website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the SEC. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
Non-GAAP Financial Measures
To supplement the Company’s financial information presented in accordance with GAAP and aid understanding of the Company’s business performance, the Company uses certain non-GAAP financial measures, namely “EBITDA,” “Adjusted EBITDA,” “Adjusted EBITDA Margin” and “Adjusted Net Income.” We believe EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Management believes these non-GAAP financial measures are useful to investors in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. Management uses these non-GAAP financial measures to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures. Management supplements GAAP results with non-GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.
To supplement the Company’s comparable store sales growth presented in accordance with GAAP, the Company provides “Adjusted Comparable Store Sales Growth,” which is a non-GAAP financial measure we believe is useful because it provides timely and accurate information relating to the two core metrics of retail sales: number of transactions and value of transactions. Management uses Adjusted Comparable Store Sales Growth as the basis for key operating decisions, such as allocation of advertising to particular markets and implementation of special marketing programs. Accordingly, we believe that Adjusted Comparable Store Sales Growth provides timely and accurate information relating to the operational health and overall performance of each brand. We also believe that, for the same reasons, investors find our calculation of Adjusted Comparable Store Sales Growth to be meaningful.
EBITDA: We define EBITDA as net income, plus interest expense, income tax provision and depreciation and amortization.
Adjusted EBITDA: We define Adjusted EBITDA as EBITDA, further adjusted to exclude stock compensation expense, costs associated with debt refinancing, asset impairment, non-cash inventory write-offs, management fees, new store pre-opening expenses, non-cash rent, litigation settlement and other expenses.
Adjusted EBITDA Margin: We define Adjusted EBITDA Margin as Adjusted EBITDA divided by net revenue.
Adjusted Net Income: We define Adjusted Net Income as net income, plus stock compensation expense, costs associated with debt refinancing, asset impairment, non-cash inventory write-offs, management fees, new store pre-opening expenses, non-cash rent, litigation settlement, amortization of acquisition intangibles and deferred financing costs and other expenses, tax legislation adjustment, less the tax effect of these adjustments.
Adjusted Comparable Store Sales Growth: We measure Adjusted Comparable Store Sales Growth as the increase or decrease in sales recorded by the comparable store base in any reporting period, compared to sales recorded by the comparable store base in the prior reporting period, which we calculate as follows: (i) sales are recorded on a cash basis (i.e. when the order is placed and paid for, compared to when the order is delivered), utilizing cash basis point of sale information from stores; (ii) stores are added to the calculation in their 13th full month; (iii) closed stores are removed from the calculation for time periods that are not comparable; (iv) sales from partial months of operation are ignored when stores do not open or close on the first day of the month; and (v) when applicable, we adjust for the effect of the 53rd week. Quarterly, year-to-date and annual adjusted comparable store sales are aggregated using only sales from all whole months of operation included in both the current reporting period and the prior reporting period. When a partial month is excluded from the calculation, the corresponding month in the subsequent period is also excluded from the calculation.
EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Comparable Store Sales Growth are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) or the ratio of net income (loss) to net revenue as a measure of financial performance, cash flows provided by operating activities as a measure of liquidity, comparable store sales growth as a measure of operating performance, or any other performance measure derived in accordance with GAAP. Additionally, these measures are not intended to be a measure of free cash flow available for management’s discretionary use as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. The presentations of these measures have limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company.
Please see “Reconciliation of GAAP to Non-GAAP Financial Measures” below for reconciliations of non-GAAP financial measures used in this release to their most directly comparable GAAP financial measures.
National Vision Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 30, 2017 and December 31, 2016
In Thousands, Except Par Value
As of December 30, 2017
As of December 31, 2016
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Trademarks and trade names
Other intangible assets, net
Total non-current assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Other payables and accrued expenses
Current maturities of long-term debt
Total current liabilities
Long-term debt, less current portion and debt discount
Other non-current liabilities:
Deferred income taxes, net
Total other non-current liabilities
Commitments and contingencies
Common stock, $0.01 par value; 200,000 shares authorized; 74,654 and 56,202 shares issued and outstanding as of December 30, 2017 and December 31, 2016, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings (accumulated deficit)
Treasury stock, at cost; 28 shares as of December 30, 2017 and December 31, 2016
Total stockholders’ equity
Total liabilities and stockholders’ equity
Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three Months and Years Ended December 30, 2017 and December 31, 2016
In Thousands, Except Earnings Per Share
Three Months Ended
December 30, 2017
December 31, 2016
Fiscal Year 2017
Fiscal Year 2016
Net product sales
Net sales of services and plans
Total net revenue
Costs applicable to revenue (exclusive of depreciation and amortization):
Services and plans
Total costs applicable to revenue
Selling, general and administrative expenses
Depreciation and amortization
Other expense, net
Total operating expenses
(Loss) earnings from operations
Interest expense, net
Debt issuance costs
(Loss) earnings before income taxes
Income tax (benefit) provision
Net income (loss)
Earnings (loss) per share:
Weighted average shares outstanding:
Comprehensive income (loss):
Change in unrealized gain (loss) on hedge instruments
Tax (provision) benefit of change in unrealized gain (loss) on hedge instruments
Comprehensive income (loss)
Consolidated Statements of Cash Flows
For the Years Ended December 30, 2017, December 31, 2016, and January 2, 2016
Fiscal Year 2015
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation of property and equipment
Amortization of intangible assets
Amortization of loan costs
Deferred income tax (benefit) expense
Non-cash stock option compensation
Non-cash inventory adjustments
Bad debt expense
Changes in operating assets and liabilities:
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment
Purchase of investments
Net cash used for investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Proceeds from issuance of common stock
Proceeds from exercise of stock options
Principal payments on long-term debt
Dividend to stockholders
Net cash provided by (used for) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information ($000’s):
Cash paid for interest
Cash paid (received) for taxes
Property and equipment accrued at the end of the period
Fixed assets acquired under capital lease obligations
Non-cash issuance of common shares
Non-cash repurchase of common shares
Reconciliation of GAAP to Non-GAAP Financial Measures
Reconciliation of Net Income to EBITDA, Adjusted EBITDA, and Adjusted Net Income
For the Three Months and Fiscal Years Ended December 30, 2017 and December 31, 2016
Three Months Ended December 30, 2017
Three Months Ended December 31, 2016
Stock compensation expense (a)
Debt issuance costs (b)
Asset impairment (c)
Non-cash inventory write-offs (d)
Management fees (e)
New store pre-opening expenses (f)
Non-cash rent (g)
Litigation settlement (h)
Adjusted EBITDA/ Adjusted EBITDA Margin
Note: Percentages reflect line item as a percentage of net revenue
Amortization of acquisition intangibles and deferred financing costs (j)
Tax legislation adjustment (k)
Tax effect of total adjustments (l)
Adjusted Net (Loss) Income
(a) Non-cash charges related to stock-based compensation programs, which vary from period to period depending on the timing of awards.
(b) Includes $1.8 million of fees associated with the refinancing of our first line credit agreement during the fourth quarter of fiscal year 2017 and $2.7 million of fees associated with the borrowing of $175.0 million in additional principal under our first lien credit agreement during the first quarter of fiscal year 2017.
(c) Non-cash write-downs of capitalized software and property and equipment for the three months ended December 30, 2017 and non-cash charges related to a complete write-off of a cost-based investment during fiscal year 2017. Non-cash charges related to impairment of long-lived assets, primarily goodwill in our wholly-owned Arlington Contact Lens Service, Inc. subsidiary during three months ended December 31, 2016 and fiscal year 2016.
(d) Write-offs of inventory relating to the expiration of a specific type of contact lenses that could not be sold and required disposal.
(e) Management fees paid to Sponsors in accordance with our monitoring agreement with them in fiscal year 2017 including management termination fees paid in connection with the IPO during three months ended December 30, 2017.
(f) Pre-opening expenses, which include marketing and advertising, labor and occupancy expenses incurred prior to opening a new store, are generally higher than comparable expenses incurred once such store is open and generating revenue. We believe that such higher pre-opening expenses are specific in nature and amount to opening a new store and as such, are not indicative of ongoing core operating performance. We adjust for these costs to facilitate comparisons of store operating performance from period to period. Pre-opening costs are permitted exclusions in our calculation of Adjusted EBITDA pursuant to the terms of our existing credit agreement.
(g) Consists of the non-cash portion of rent expense, which reflects the extent to which our straight-line rent expense recognized under GAAP exceeds or is less than our cash rent payments. The adjustment can vary depending on the average age of our lease portfolio, which has been impacted by our significant growth in recent years. For newer leases, our rent expense recognized typically exceeds our cash rent payments, while for more mature leases, rent expense recognized under GAAP is typically less than our cash rent payments.
(h) Amounts accrued related to settlement of litigation.
(i) Other adjustments include amounts that management believes are not representative of our operating performance, including our share of losses on equity method investments of $0.3 million, $0.4 million, $1.0 million and $1.4 million for the three months ended December 30, 2017 and December 31, 2016 and fiscal years 2017 and 2016, respectively; the amortization impact of adjustments related to the acquisition of the Company by affiliates of KKR in March 2014 (the "KKR Acquisition") (e.g., fair value of leasehold interests) of $(0.1) million, $(0.1) million, $(0.3) million and $(0.7) million for the three months ended December 30, 2017 and December 31, 2016 and fiscal years 2017 and 2016, respectively, related to prior acquisitions; expenses related to preparation for being an SEC registrant that were not directly attributable to the IPO and therefore not charged to equity of $1.1 million, $1.8 million and $2.0 million for the three months ended December 31, 2016 and fiscal years 2017 and 2016, respectively; differences between the timing of expense versus cash payments related to contributions to charitable organizations of $(0.3) million for three months ended December 30, 2017 and December 31, 2016, and $(1.0) million during fiscal years 2017 and 2016; costs of severance and relocation of $0.4 million, $0.2 million, $1.4 million, and $1.1 million for the three months ended December 30, 2017 and December 31, 2016 and fiscal years 2017 and 2016 respectively; non-cash write-down of property and equipment of $0.4 million, $0.2 million, $0.4 million and $0.2 million for for the three months ended December 30, 2017 and December 31, 2016 and fiscal years 2017 and 2016, respectively; and other expenses and adjustments totaling $0.1 million, $0.1 million, $0.6 million, and $0.6 million for the three months ended December 30, 2017 and December 31, 2016 and fiscal years 2017 and 2016, respectively.
(j) Amortization of the increase in carrying values of definite-lived intangible assets resulting from the application of purchase accounting to the KKR Acquisition of $1.9 million for the three months ended December 30, 2017 and December 31, 2016 and $7.4 million for fiscal years 2017 and 2016; and 2) Amortization of debt discounts associated with the March 2014 term loan borrowings in connection with the KKR Acquisition and, to a lesser extent, amortization of debt discounts associated with the May 2015 and February 2017 incremental first lien term loans and the November 2017 first lien term loan refinancing, aggregating to $4.0 million, $1.0 million, $7.1 million and $3.9 million for the three months ended December 30, 2017 and December 31, 2016, and fiscal years 2017 and 2016, respectively.
(k) The adjustment represents re-measuring and reassessing the net realizability of our deferred tax assets and liabilities related to the Tax Act during fiscal year 2017.
(l) Income tax effect of the total adjustments at our estimated effective tax rate.
Reconciliation of Adjusted Comparable Store Sales Growth to Total Comparable Store Sales Growth
Comparable store sales growth (a)
Owned & host segment
Total comparable store sales growth
3.5 - 5.5%
Adjusted comparable store sales growth(b)
3 - 5%
(a) Total comparable store sales calculated based on consolidated net revenue excluding the impact of (i) corporate/other segment net revenue, (ii) sales from stores opened less than 12 months, (iii) stores closed in the periods presented, (iv) sales from partial months of operation when stores do not open or close on the first day of the month, and (v) if applicable, the impact of a 53rd week in a fiscal year. Comparable store sales growth for America's Best, Eyeglass World, Military, and Fred Meyer is calculated based on cash basis revenues consistent with what the Chief Operating Decision Maker reviews, and consistent with reportable segment revenues presented in Note 14. "Segment Reporting" in our consolidated financial statements, with the exception of the legacy segment, which is adjusted as noted in (b) (ii) below.
(b) There are two differences between total comparable store sales growth based on consolidated net revenue and adjusted comparable store sales growth: (i) adjusted comparable store sales growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in a decrease of 1.0% and an increase of 0.3% from total comparable store sales growth based on consolidated net revenue for the three months ended December 30, 2017 and December 31, 2016, respectively, and a decrease of 0.7% and 0.4% from total comparable store sales growth based on consolidated net revenue for fiscal year 2017 and fiscal year 2016, respectively, (ii) adjusted comparable store sales growth includes retail sales to the legacy partner’s customers (rather than the revenues recognized consistent with the management and services agreement), resulting in a decrease of 0.1% and 0.2% from total comparable store sales growth based on consolidated net revenue for the three months ended December 30, 2017 and December 31, 2016, respectively, and a decrease of 0.2% and 0.4% from total comparable store sales growth based on consolidated net revenue for fiscal year 2017 and fiscal year 2016, respectively, and (iii) with respect to the Company's 2018 Outlook, adjusted comparable store sales growth includes an estimated 0.5% impact for the effect of deferred and unearned income as if such revenues were earned at the point of sale and retail sales to the legacy partner's customers (rather than the revenues recognized consistent with the management and services agreement).
National Vision Holdings, Inc.
David Mann, CFA, Vice President of Investor Relations
Kristina Gross, Director of Communications