DULUTH, Ga.--(BUSINESS WIRE)--National Vision Holdings, Inc. (NASDAQ: EYE) today reported its financial results for the second quarter ended June 27, 2020.

“The second quarter represented one of the most eventful periods in our Company's history and our respective careers,” stated Reade Fahs, chief executive officer. “Following our March closings, we are pleased to have safely reopened our stores by early June. With our many new protocols in place, we believe we have an effective, safety first approach to serve patients and customers in a COVID-19 environment. While we expect the macro environment will continue to evolve, we believe we are well positioned to continue operations throughout the remainder of the COVID-19 pandemic.”

Mr. Fahs further commented, “Since reopening, our stores have experienced consistently strong demand from our patients and customers. June comps increased over 19%, the best reported comp increase in my 18 years at National Vision, with similar momentum continuing throughout July. Results were likely helped by pent-up demand during the lock-down and benefits from government stimulus payments. But performance also reflects successful macro and micro navigation of this dynamic situation by our operations and product teams. As our stores provide essential healthcare services and products, and given the state of the economy, we believe ever more consumers are drawn to our affordably priced eye exams, eyeglasses, and contact lenses.”

Mr. Fahs continued, “In May, we took the financial steps to strengthen our balance sheet and are confident in our financial flexibility and liquidity to navigate the remainder of the pandemic. In July, we were pleased to extend our 30-year partnership with Walmart for another three years into 2024. This contract extension comes on the heels of the successful transition of the five additional Vision Centers that Walmart granted in January. We have been encouraged by the initial results at these stores to date and see tremendous future potential for them as well.”

Mr. Fahs concluded, “As matters of diversity and inclusion are ever more on the minds of both consumers and associates, especially relative to the Black community, they remain a priority at National Vision as we strive to be an ever more inclusive workplace. In the second quarter, we established a Diversity, Equity and Inclusion Council to give a stronger voice to our Black associates and other minorities within the National Vision family. And, as we continue to strive to provide a life-giving culture for our associates and doctors who practice alongside our stores, we made investments in our people including a one-time $250 ‘appreciation’ bonus to our front line associates and network of doctors for their exceptional work under difficult circumstances over the past several months. I derive constant inspiration by the work and determination of the extended National Vision team. While there remains uncertainty about the future, I am confident that we will emerge stronger and better from this extraordinary experience.”

Adjusted Comparable Store Sales Growth, Adjusted EBITDA, Adjusted Operating Income, Adjusted Diluted EPS, Adjusted Operating Margin, Adjusted EBITDA Margin, and EBITDA are not measures recognized under generally accepted accounting principles (“GAAP”). Please see “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP to GAAP Financial Measures” below for more information.

COVID-19 Response Update

The Company continues to take actions to manage its business through the dynamic and challenging environment resulting from the COVID-19 pandemic. Following temporary store closures to the public in March 2020, the Company completed the process of reopening stores with enhanced safety and cleaning protocols in early June 2020. In addition, the Company continues to take actions to manage the business that the Company believes are prudent in these circumstances, including:

• In May 2020, the Company completed the issuance of $402.5 million aggregate principal amount of 2.50% convertible senior notes due 2025;
• In May 2020, the Company and the lenders under its credit facility entered into an amendment to the facility. This amendment is intended to prevent the effects of the COVID-19 pandemic, including the temporary closure of stores, from creating uncertainty relative to the Company’s ability to comply with certain financial covenants and allow it to focus on prudent management of the business over the quarters ahead. The amendment suspends certain financial maintenance covenants contained in the facility until testing at the end of the second fiscal quarter of 2021;
• In connection with the reopening to the public of its retail stores, the Company returned to previous levels of compensation and work hours across the organization, and the respective base salaries of executive officers were reinstated to pre-COVID-19 levels effective as of June 7, 2020;
• In May 2020, the Company resumed unit growth and expects to open between 50 and 55 new stores in 2020. In addition to new store openings, as previously announced, the Company transitioned five additional Vision Centers in Walmart stores to its management during the second quarter of 2020; and

• The Company recorded a credit of $10.8 million as a reduction of costs applicable to revenue and selling, general and administrative expenses ("SG&A") as a result of the employee retention credits made available under the Coronavirus Aid, Relief and Economic Security Act (CARES Act).

Given the uncertainties, dynamic nature, resurgence, and unknown duration of the pandemic, the Company is continuing to evaluate additional operational and financial measures that may be taken as the Company continues to respond to the impact of COVID-19 on its business.

Second Quarter 2020 Summary

• Netrevenue decreased 39.5% to $260.0 million from $429.5 million for the second quarter of 2019.
• Net revenue was negatively impacted by 10.0% due to the timing of unearned revenue, which also resulted in material impacts to profitability. The Company experienced an increase in unearned revenue of $34.4 million in the second quarter compared to a decrease in unearned revenue of $8.5 million for the same period of 2019. The increase in unearned revenue resulted from the temporary store closures at the end of the first quarter of 2020 as well as stronger sales at the end of the second quarter of 2020.
• Comparable store sales growth was (44.7)% and Adjusted Comparable Store Sales Growth was (36.5)%.
• In light of the temporary store closures, the Company is providing certain additional comparable store sales growth information. For the respective months ended April 25, 2020, May 30, 2020, and June 27, 2020:
  • Comparable store sales growth was (83.9)%, (56.6)% and 14.3%; and
  • Adjusted Comparable Store Sales Growth was (86.6)%, (38.5)% and 19.3%.
• The Company opened 12 new stores, transitioned five Vision Centers in Walmart stores to its management, closed five stores, and ended the quarter with 1,185 stores. Overall, store count grew 5.1% from June 29, 2019 to June 27, 2020.
• Costs applicable to revenue decreased 30.5% to $140.8 million from $202.5 million for the second quarter of 2019. As a percentage of net revenue, costs applicable to revenue increased 690 basis points to 54.1% from 47.2% for the second quarter of 2019. This increase as a percentage of net revenue was primarily driven by optometrist costs incurred during store closures and increased contact lens mix.
• SG&A decreased 25.1% to $136.6 million from $182.3 million for the second quarter of 2019. As a percentage of net revenue, SG&A increased 1,010 basis points to 52.5% from 42.4% for the second quarter of 2019. This increase as a percentage of net revenue was primarily driven by store and corporate payroll and occupancy costs incurred during store closures, partially offset by lower advertising investment. SG&A for the second quarter of 2020 includes $2.5 million of incremental costs directly related to adapting the Company's operations during the COVID-19 pandemic.
• Net income decreased 527% to a net loss of $43.8 million compared to net income of $10.3 million for the second quarter of 2019.
• Diluted earnings (loss) per share decreased 533% to $(0.55) compared to $0.13 for the second quarter of 2019. Adjusted Diluted EPS decreased 325% to $(0.41) compared to $0.18 for the second quarter of 2019. The net change in margin on unearned revenue negatively impacted Adjusted Diluted EPS by $(0.30).

• Adjusted EBITDA decreased 130% to $(14.4) million compared to $48.1 million for the second quarter of 2019. Adjusted EBITDA Margin decreased 1,670 basis points to (5.5)% from 11.2% for the second quarter of 2019.
• Adjusted Operating Income decreased 218% to $(34.4) million compared to $29.1 million for the second quarter of 2019. Adjusted Operating Margin decreased 2,000 basis points to (13.2)% from 6.8% for the second quarter of 2019. The net change in margin on unearned revenue negatively impacted Adjusted EBITDA and Adjusted Operating Income by $(32.5) million.

Six-Month Period Highlights

• Netrevenue decreased 18.1% to $729.7 million from $890.7 million for the same period of 2019.
• Net revenue was negatively impacted by 1.7% due to the timing of unearned revenue.
• Comparable store sales growth was (23.0)% and Adjusted Comparable Store Sales Growth was (22.6)%.

• The Company opened 35 new stores, transitioned five Vision Centers in Walmart stores to its management, closed six stores, and ended the period with 1,185 stores.
• Costs applicable to revenue decreased 13.3% to $359.3 million from $414.5 million for the same period of 2019. As a percentage of net revenue, costs applicable to revenue increased 270 basis points to 49.2% from 46.5% for the same period of 2019. This increase as a percentage of net revenue was primarily driven by optometrist costs incurred during store closures as well as increased contact lens mix, partially offset by higher eyeglass margin.
• SG&A decreased 12.2% to $330.3 million from $376.2 million for the same period of 2019. As a percentage of net revenue, SG&A increased 310 basis points to 45.3% from 42.2% for the same period of 2019. This increase as a percentage of net revenue was primarily driven by store and corporate payroll and occupancy expense, partially offset by lower advertising investment. SG&A for the first six months of 2020 includes $3.1 million of incremental costs directly related to adapting the Company's operations during the COVID-19 pandemic.
• Net income decreased 223% to a net loss of $34.1 million compared to net income of $27.7 million for the same period of 2019.
• Diluted earnings (loss) per share decreased 225% to $(0.42) compared to $0.34 for the same period of 2019. Adjusted Diluted EPS decreased 126% to $(0.13) compared to $0.49 for the same period of 2019. The net change in margin on unearned revenue negatively impacted Adjusted Diluted EPS by $(0.11).
• Adjusted EBITDA decreased 57.3% to $46.7 million compared to $109.3 million for the same period of 2019. Adjusted EBITDA Margin decreased 590 basis points to 6.4% from 12.3% for the same period of 2019.
• Adjusted Operating Income decreased 94.9% to $3.6 million compared to $71.7 million for the same period of 2019. Adjusted Operating Margin decreased 760 basis points to 0.5% from 8.1% for the same period of 2019. The net change in margin on unearned revenue negatively impacted Adjusted EBITDA and Adjusted Operating Income by $(11.9) million.

Balance Sheet and Cash Flow Highlights as of June 27, 2020

• The Company’s cash balance was $256.3 million as of June 27, 2020. The Company had no borrowings under its $300.0 million first lien revolving credit facility, exclusive of letters of credit of $5.7 million.
• Total debt was $648.2 million as of June 27, 2020, consisting of outstanding first lien term loans, convertible senior notes and finance lease obligations, net of unamortized discounts.
• As noted above, in May 2020, the Company completed the issuance of $402.5 million aggregate principal amount of 2.50% convertible senior notes due 2025. The Company received proceeds from the offering of $390.9 million, net of underwriting fees and other issuance costs. The Company used $294.3 million of the net proceeds to repay the full amount outstanding under the revolving credit facility and $75.0 million to partially repay the term loans.
• Cash flows from operating activities for first six months of 2020 were $71.4 million compared to $119.3 million for the same period of 2019.
• Capital expenditures for the first six months of 2020 totaled $25.8 million compared to $52.1 million for the same period of 2019, primarily due to the postponement of capital projects.
• The Company believes it has sufficient liquidity to fund operations for at least the next 12 months, given cash on hand, cash expected to be generated from operations, and the cash available through its revolving credit facility.

Recent Developments

• In July, the Company granted a one-time $250 cash bonus to front-line associates and the Company's network of doctors in recognition of their hard work and dedication toward safely serving patients and customers.
• In July, the Company entered into an amendment to its existing Management & Services Agreement ("MSA") with Walmart Inc. that extended the current term and economics of the MSA by three years to February 23, 2024.

Fiscal 2020 Outlook

As previously disclosed, given the uncertainty surrounding the magnitude and duration of the COVID-19 pandemic, the Company withdrew its fiscal 2020 outlook on March 27, 2020 and is not providing an earnings outlook at this time. However, the Company is providing the following updated assumptions for fiscal 2020:

About National Vision Holdings, Inc.

National Vision Holdings, Inc. is one of the largest optical retail companies in the United States with over 1,100 retail stores in 44 states plus the District of Columbia and Puerto Rico. With a mission of helping people by making quality eyecare 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, Vista Opticals inside select Fred Meyer stores and on select military bases, and several e-commerce websites, offering a variety of products and services for customers’ eyecare needs.