EYE - NASDAQ

Welcome to the National Vision Q1 Earnings Conference Call. My name is John. I'll your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder the conference is being recorded. Now I'll now turn the call over to David Mann.

Thank you, and good morning, everyone. Welcome to National Vision's first quarter 2022 earnings call. Joining me on the call today are Reade 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 Investors 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 and 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 2, in today's presentation, for additional information about forward-looking statements and non-GAAP measures. As a reminder, National Vision expects to provide certain supplemental materials or presentations for investor reference on the Investors section of our website. Now, let me turn the call over to Reade.

Thank you David. Good morning, everyone. Thank you all for joining us today. I hope you all are staying safe and healthy. The pandemic era has brought swings of both opportunity and challenge. There have been multiple chapters. And with our resilient business model along with our dedicated management team, we have successfully navigated and adapted to each one. The chapter we are in now is one of the challenging chapters. The historically consistent optical category is experiencing the impact from macro headwinds and a temporary disruption to the purchase cycle. The headwinds including the recent surge in inflation and weaker consumer confidence are leading to demand softness for our lower income predominantly uninsured customers especially when compared to record demand last year. Since our last call, we believe macro headwinds have caused a real shift in our consumers' behavior. Additionally emerging constraints to our exam capacity affected customer traffic in many of our stores. While we have delivered a record level of optometrist hiring thus far this year, our exam capacity is temporarily out of sync with our needs. This is primarily due to the impact of a modestly lower level of optometrist retention coupled with the start date of many new hires occurring later in the year. Both of these challenges are substantially consequences of the COVID era and had significant impact on our first quarter performance and updated outlook for fiscal 2022. For the first quarter, net revenue decreased 1.2% versus our record Q1 sales last year and adjusted comparable store sales declined 6.8% compared to the strong 35.8% increase in the first quarter of 2021. And we delivered adjusted EPS of $0.33. Patrick will provide more detail on our results and outlook in a moment, but I want to emphasize that we believe that the challenges we are facing are temporary. Our team is laser focused on overcoming these headwinds. And we're taking recruitment and retention actions to improve exam capacity including the acceleration of our remote medicine initiative. We believe remote medicine will help to address our ever-present need for optometrists to keep up with the demand for eye exams at our locations. The optical category has a history of consistency over time. And we believe that the future will see a return to a more stable and predictable environment. Our long-term confidence in the health of our model remains unchanged as we remain a low-cost provider of a medical necessity. Turning to slide 5. As the chart shows prior to the pandemic, our business demonstrated consistent performance over time even amidst broader economic challenges. During the great recession of 2008 and 2009, our business generated comps in the positive low to mid-single digits. So in this current environment of higher inflation and lower consumer confidence, we believe that our value offering should be even more appealing to an even larger slice of the American public. And we believe that once consumers have tried our value-priced products, it will be hard for them to ever go back to paying higher prices again. I would note that this week, after a significant consideration, we implemented our first pricing change to America's Best signature offer in over 15 years. We now offer two pairs of eyeglasses, including a free eye exam for $79.95. I would also add that the signature offer at Eyeglass World, was increased to two for $89 during the first quarter. We feel these actions are appropriate, given the current inflationary environment. Even with these increases, we're proud to continue to deliver industry-leading value to our consumers. On Slide 6, the chart of quarterly comps highlights, the volatile comp performance caused by the pandemic over the last two years. Turning to Slide 7. The comp volatility was especially pronounced in the first quarter, as the chart in the upper left corner shows, but it is also equally if not more volatile in the second quarter. During the pandemic era, the consistency and predictability of the optical purchase cycle was disrupted and this trend continued in the first quarter. As we noted on our last call, our store operations and customer traffic this, quarter were negatively impacted by the COVID surge at the beginning of the year. Since our call, we believe optical consumer demand was further affected by inflationary pressures, and a decline in consumer confidence as well as lapping government stimulus from last year. The softness is noticeably more pronounced for our predominantly uninsured customers, who are paying out of pocket for our products and services. We believe that this slowdown in demand has been felt in most of the category in March and April. Those of you who have been following us for years, have heard us say, that we are always seeking more optometrists, as the optical consumer journey typically begins with an eye exam. This has been more true recently. In the first quarter, we experienced constraints in exam capacity in some locations. And by that, I mean specifically, that in some locations we could not fulfill exam demand that is there, due to the lack of available optometrists. Some of these constraints relate to pandemic factors such as scale backs, in days worked by individual optometrists, or a modest downtick in optometrist retention -- and some relates to the mix and timing of new optometrist arrivals. Although, our level of optometrist retention has declined since the record high pre-pandemic, it still remains within historical bands. We have multiple recent initiatives to drive retention, which are being executed by a new level of clinical management and the early signs that these initiatives are encouraging. In terms of, hiring we've been investing more heavily in recruiting programs. These efforts are leading to enhanced hiring trends as this year, thus far has been a record year for the hiring of optometrists. However, many of the new hires will not begin to practice until late this summer. Thus, there is a timing lag between hiring and start dates. We currently expect these disruptions to impact our business performance, for the next couple of quarters. Our team is working hard, to quickly expand our exam capacity to mitigate this impact. Amidst this, we see our remote medicine initiative as a way to address our exam capacity constraints and thus we are accelerating its rollout. We are now targeting to operate remote medicine in up to 300 stores by year-end, up from the previous goal of at least 200 announced last quarter. We are extremely pleased with the increasing exam capacity, being added by remote medicine and the role it can play in serving more patients across both geography and time. So despite the temporary challenges facing our business, we remain confident in the long-term strength of our business model based on the following. Our business has shown tremendous consistency and resiliency, over long periods of time. This is a benefit of being a low-cost provider of a medical necessity. We operate in a highly fragmented industry, with ongoing positive trends such as an aging population, and increased eye strain from such things as increased screen usage. And our customers need to see, to get through their lives. As their eyes continue to worsen over time, vision correction issues eventually need to be addressed. Similar to past periods of volatility, we expect the category will eventually revert to its historical cycles. Shifting to Slide 8. In addition,n to our exam capacity and remote medicine efforts, we continued to progress our core growth initiatives. New stores remain a primary focus, as we continue to see a sizable white space opportunity. We are off to a solid start with 17 openings in the first quarter, including two Eyeglass World locations, as we ramp up expansion of this brand. We continue to plan to open at least 80 stores in 2022, and currently have a solid pipeline of specific locations for this year and into 2023. Marketing, along with the positive word of mouth from happy patients and customers, continues to be a key factor in driving traffic to our stores. We compete in a marketing-intensive category, given the infrequent purchase cycle for eyeglasses. We believe our value messaging will resonate with consumers in an environment of high inflation. While we aggressively invested last year to maximize share growth, as well as run marketing tests, in 2022 our team is more focused on optimizing our marketing investment. Our participation in vision insurance programs continues to be a positive revenue driver, especially in the current environment. In the first quarter we experienced solid growth in sales tied to vision insurance, as insured consumers, because the insurance funds most or all of their purchases, are not deterred from shopping in a tight economy. Our comps related to managed care grew in the positive low single digits. Let me repeat that. In the first quarter our comps related to managed care grew in the positive low single digits. We remain underdeveloped relative to the category and continue to see an ongoing opportunity here, as managed care dollars and co-pays tend to go further in our stores than elsewhere. At this point, let me turn the call over to Patrick for a more detailed discussion of our financial results and the 2022 outlook.

Thanks, Reade, and good morning, everyone. First, I want to echo Reade's confidence in the underlying health of our business and that we view the current issues as shorter term in nature. In the interim, the team is focused on what we can control: continuing to invest in key growth initiatives and appropriately realigning cost to our revenue outlook. Now let's turn to slide 10. As a reminder, the first quarter of 2021 results had the tailwinds to revenue and profitability from pent-up demand from store closures, the benefit of government stimulus in an elevated average ticket. In Q1, 2022, net revenue decreased 1.2% compared to 2021 due to the Omicron impact, macroeconomic headwinds, the constraint to exam capacity and the exceptional growth last year. The timing of unearned revenue benefited revenue growth by 0.2%, which was better than expected due to the volume of sales in the final week of the quarter. Compared to 2019 net revenue increased 14.4%. During the quarter, we opened 15 new America's Best stores and two Eyeglass World stores for a 5% increase in store count. For our America's Best and Eyeglass World growth brands combined, unit growth increased 6.8% over the last year. Adjusted comparable store sales declined 6.8% versus 2021 compared to a record 35.8% increase in the first quarter of 2021. Q1 comparable store sales were impacted primarily by a decline in customer transactions. Average ticket declined slightly year-over-year, but increased sequentially from the Q4 ticket level. We are encouraged by the fact that our average ticket has stabilized, primarily helped by pricing actions and successful product introductions like Blue Light. Turning to slide 11. As a percentage of net revenue cost applicable to revenue increased 260 basis points or slightly above our expectations for a 220 to 240 basis point increase. The increase was driven by deleverage of optometrist-related costs, decreased eyeglass mix and lower eyeglass margin associated with the year-over-year decline in average ticket. Adjusted SG&A expense percent of net revenue increased 110 basis points. The key factors behind this increase were the deleveraging of advertising, store payroll and occupancy expenses from lower revenue, partially offset by lower incentive compensation. We expect advertising in 2022 to be maintained at a similar percentage of revenue as 2021, with the potential to be slightly leveraged for the year. Adjusted operating income decreased 33% to $45 million and adjusted diluted EPS decreased 32% to $0.33. Compared to 2019, despite the challenges this quarter, adjusted operating income and adjusted diluted EPS were up 6% and 7% respectively. Now turning to slide 12. Our balance sheet and liquidity remains strong. At the end of the first quarter, our cash balance was approximately $315 million and total liquidity exceeded $600 million, when including available capacity from our revolver. We ended the quarter with total debt of $578 million. Net debt to adjusted EBITDA was 0.9 times compared to 1.2 times at the end of the first quarter of 2021. We funded $28 million in capital expenditures that were primarily focused on new store and customer-facing technology investments and remain on track for 2022 CapEx in the range of $110 million to $115 million as we continue to invest in key growth initiatives. With our free cash flows and considerable cash position, we continued in our shareholder return program. Year-to-date through May 6, we repurchased 0.5 million shares for $19 million and have $111 million remaining under the current share repurchase authorization. Since the inception of our share repurchase program last November, we have repurchased 1.9 million shares for $89 million. Regarding our inventory position, we are comfortable with the current level and its ability to support our 2022 growth plans. Our efforts to mitigate supply chain disruption continued to be effective to-date. At the end of the quarter inventories were $127 million and inventory per store grew less than 2% on a year-over-year basis. Our merchandising and distribution teams continued to execute extremely well to help us manage through the current challenging supply chain environment. Overall, we believe that our financial strength and our commitment to invest in our business remain a competitive advantage. Turning now to our outlook on slides 13 and 14. I'll conclude with some commentary regarding our updated 2022 outlook, which we included in today's earnings release. The operating and macro environments are extremely uncertain. The updated fiscal 2022 outlook reflects the currently expected impacts related to macroeconomic factors including the ongoing COVID-19 pandemic inflation, geopolitical instability and risk of recession as well as constraints on exam capacity. The outlook assumes no material deterioration in the company's current business operations as a result of such factors. The current environment is difficult for forecasting as visibility is quite challenged. As a result, we have taken a more conservative posture to the updated outlook and have incorporated wider ranges reflecting specific planning scenarios. The wider range of assumptions are driven by the unprecedented market conditions that reduce our ability to protect demand with a normal level of certainty given the real shift in the consumer and the disruption of the purchase cycle. Against the backdrop of what we know today our updated 2022 outlook projects; net revenue between $2.01 billion and $2.07 billion; adjusted comparable store sales growth compared to last year in the range of negative 4% to negative 7%; adjusted operating income between $85 million and $105 million; and adjusted diluted EPS between $0.65 and $0.80, assuming 82 million weighted average diluted shares. Let me share some underlying assumptions in our outlook. The high end and the low end of the comp and revenue ranges represent two potential scenarios for consumer demand for the rest of the year. At the high end of the ranges, we are assuming a modest level of recovery for consumer demand in the second half including the back-to-school season as well as improvement in exam capacity. At the low end of the ranges, our comparable store sales and revenue assumptions essentially reflect very limited demand recovery as well as a lower degree of exam capacity improvement. In terms of operating expenses, we've taken smart tactical actions to align costs with the revised revenue outlook primarily in store payroll advertising and corporate overhead. However, we are continuing to invest in the business and key initiatives and our store growth and capital expenditure plans remain unchanged. Our ongoing commitment to investment is further evidence of our confidence in the future prospects of the business. As we have done in the past I would like to provide additional color given the unique comparison to 2021. In the second quarter we are facing a continued grow-over challenge from the record results and government stimulus last year. Also quarter-to-date revenue trends have been negatively impacted given the macro headwinds and exam capacity. Our outlook assumes comps in the negative low-teens and modest profitability for the second quarter. For the second half we now expect comps to be in a range of negative low single digits to positive low single digits due to easier comparisons, moderating average ticket pressure and increased exam capacity. Store openings this year will continue to be predominantly America's Best locations, coupled with a doubling of Eyeglass World openings. We are on track to open at least 80 stores and the openings are expected to be evenly spread over the year. We project a few closings as is typical each year. Let me share a couple of other factors assumed in our outlook for 2022. We are excited about the accelerated rollout of our key remote medicine and EHR initiatives and continue to anticipate incremental dilution in the range of $6 million. We continue to expect the timing of unearned revenue will have a negative impact in 2022. We currently estimate this impact to adjusted operating income to be about $9 million. As a reminder unearned revenue recognition is a seven-to-ten-day timing impact that can affect our quarter-to-quarter and annual comparisons. For full year 2022 as a percentage of net revenue, we expect cost applicable to revenue to increase 350 to 375 basis points versus last year primarily due to the deleverage of fixed costs, as well as the lapping of last year's record performance that benefited from product mix, shift and an elevated ticket. For Q2 cost attributable to revenue are expected to increase about 400 to 450 basis points versus last year. In terms of expenses, we would expect 2022 adjusted SG&A to increase between 125 to 150 basis points as a percentage of net revenue year-over-year. The SG&A increase primarily reflects sales deleveraging and to a lesser extent higher levels of wage investments. To assist with modeling, we have also provided additional assumptions on depreciation and amortization, interest and tax rates. As Reade stated earlier, we have successfully navigated several unique chapters during the pandemic. And while the current chapter is one of the more challenging, I have every confidence in our business model, value proposition and our management team to take the necessary actions now to return the business to a growth trajectory. At this point I'll turn the call back to Reade.

Thank you, Patrick. Turning to Slide 16 and our Moment of Mission. As we continue our ESG journey, we are continuing to invest in our associate experience to ensure that National Vision is providing a life-giving fulfilling workplace. We received the results of our first associate experience survey this quarter. This is an important additional way for us to have an ongoing dialogue with our associates and to continuously improve our work environment in the ways that will matter most to our associates. We were quite pleased with the results and encouraged to confirm that associates feel we are doing many things well already. Some quick highlights, 92% of associates are proud to work for National Vision, 90% feel good about the ways we contribute to the community, 93% clearly understand how their job contributes to achieving the goals of National Vision. And importantly 90% have confidence in the future of National Vision which is significantly above US benchmarks. In these highlights and throughout the survey results we see tremendous alignment among associates on some of the core values that we feel make National Vision successful. I'd like to conclude by sharing my heartfelt appreciation to the entire National Vision team for their continued resilience, hard work and their commitment to patient care and customer service during these challenging and dynamic times. In summary, the key takeaways from today's call are these: after 18 years of consistency and predictability, the pandemic era has temporarily made the optical market and consequently our business more volatile. We believe that the marketplace overtime should return to trends more consistent with the pre-COVID era especially as our customers' vision only continues to get worse with time and we remain a low-cost provider of this medical necessity. We believe that several initiatives including our remote medicine rollout should help us to get our exam capacity more in line with the demand that is there for exams at our stores. Thus, although we are currently in one of the challenging COVID era chapters our confidence in our mid and longer-term prospects remain unchanged. With that I'd like to turn the call back to the operator to start the question-and-answer portion of the call.

[Operator Instructions] Our first question is from Simeon Gutman from Morgan Stanley. Go ahead, Simeon with your question.

Operator, it seems we have a problem with that question. Can we go to the next question and we'll come back to Simeon.

Yeah. So our next question is from Michael Lasser from UBS.

Good morning. Thanks a lot for taking the question. Can you quantify or frame how much of the challenge is associated with macro pressure on the lower-income consumer versus the capacity constraints that you spoke to? Perhaps you could do it in the context of the guidance for the second quarter, which is obviously going to -- for the comp which is obviously going to be much lower than the first quarter despite having less of this difficult stimulus comparison in this period?

Yeah. Yeah, Michael. Thank you. Thanks for the question there. So we would say it was somewhat balanced between the economic factors and the OD capacity factors. And in Q2, we took that into account when we're up against the higher stimulus for Q2. Recall that last year our Q2 comp was 77%. So we are -- that was a combination of the closures from the prior year and the stimulus of the stimulus overall. I would say some of these things are interrelated. But we -- the consumer, especially in March and April, really slowed down, especially our lower income uninsured consumers.

Understood. My follow-up question is to the extent that pressure on the availability of optometrists persist, to what degree does that structurally pressure National Vision's margins over the long-term? And how will you manage through that? Will you continue to need to raise prices in order to offset it? And what type of elasticity do you expect to see in response to the price increase for your core offer? Thanks.

Hey. Michael, it's Patrick. I'll take the bulk of that. And then, if Reade would like to add anything that's good. We've managed through several years of OD wage pressure. And it generally never comes in a ubiquitous national fashion. It generally comes in specific markets even specific cities. So I think we've gotten pretty decent at being able to work through those. I would assume that we're going to continue to see a little more of that as we have over the last few years. And frankly, as we've done at that time, we've looked to offset those pressures across other areas of the P&L. For example, we pick up some degree of economic of scale benefits in our lab costs each year. So this will not be a new game. In fact, this is what happens. Second, I would just mention we did make -- we did take some steps last year and made wage adjustments for our optometrists. We kind of discussed that in November. In terms of how I think about the pricing and elasticity, we've certainly modeled all of that in the guidance. We are going to expect some modest degree of short to medium-term demand impact. Although, I will say as we rolled out our EGW increases, we really didn't see that. So we have modeled in some degree of elasticity and that's in our guidance.

Yeah. And Michael, can I build on what Patrick said there? First of all, we expect capacity to improve. As I said, we have record hiring. That retention versus the end of the year is encouraging. And I'd like to emphasize key -- one of the key things that we're excited about in our remote medicine initiatives is how that addresses localized OD concerns because ODs sort of more fungible over space and time. And that's why we accelerated. I think last quarter, we talked about 200 remote openings this year, and we expect to be up, or close to 300 by the end of the year with that. So again, we expect capacity to improve. We also are seeing the beginnings of trade down. I think many people have heard the expression that we used during the recession – the last recession where we'd call stores and ask why are they doing so well. And a frequent thing we heard was the term nicer cars in the parking lot. We are starting to see the beginnings of nicer cars in the parking lots as happened the last time of economic uncertainty and challenge.

Thank you very much and good luck.

Our next question is from

Hey, good morning. Can you talk through the moving parts around the added 130 basis points of gross margin pressure versus your initial expectations last quarter? And how do you square the positive impacts of price increases with the added pressures you're seeing from optometrist costs, the remote medicine investment and the other deleveraging items to bridge that gap?

Yeah. Good morning,

Got it. And can you talk a bit more about the thought process behind changing the America's Best Signature offer? Why is now the right time to pull this lever? And can you also talk about after implementing this change to what extent does your price competitiveness now change in the market versus your peers?

Good. So the decision to raise the headline prices under – been under review and discussion for a while here. Frankly, it also takes a while to execute something that complicated between all the marketing messages all the signage and that sort of thing. So we have been considering this and working on this for a while now. We are still a great value leading low-cost provider of a medical necessity. We believe that, the market gap between us and our competitors is going to widen further in an inflationary environment, because we are generally the slowest to pull the pricing lever versus most others in our category. To reinforce, this has been our headline price for over 15 years, okay? Over 15 years. And as Patrick said, we have built in the expectation of potential near-term impacts to traffic, but we did not see that, with our Eyeglass World move.

Thanks, Reade, appreciate the time.

Our next question is from Simeon Gutman from Morgan Stanley.

Hi. This is Jackie on for Simeon. Can you guys hear me okay?

Yes, we can Jackie.

Perfect. Sorry about that. We were having some technical difficulties. So our first question, if we were thinking about bridging from 2019 to 2022 what are the incremental costs coming in and out of the base?

I think 2022 Jackie becomes a difficult year to bridge to. I mean, just quite frankly, we have seen fairly significant impacts from the factors that we called out, which is stressing in Q1 deleveraging some cost. The – in general, if I think about what costs have risen over that time frame, we've seen some incremental wage pressure for associates, which is fairly consistent with most retailers. We spent a little more on advertising as a percentage of revenue last year. I think this year we still have a good shot to be flat to last year maybe even leverage a bit. The – all of the cost of sale elements are frankly the same. We have long-term contracts with vendors, and have not experienced any significant pressure there. So probably the number one item is just wrestling with some of the wage pressures that we've seen across in retail.

Got you. That makes a lot of sense. And just as a quick follow-up is the price increase built into top-line guidance? And are there any further increases planned? Thanks again.

Yes. The top-line increase is built. And think about it this is one of many offers this is our core base offer now the two for $79. We've talked about what percentage of our customers take that over time. It's not a tiny number. It's not a huge number. We're looking at about a solid half year or so impact to that. So yes it's in guidance. It's not spinning the needle in any huge way this year.

Got you. Thanks so much.

Our next question is from Chris Neamonitis from Jefferies.

Great. Thanks everyone. Just wanted to ask quickly about the exam constraints. So could you maybe go a bit deeper into that and maybe quantify how many of your optometrists are currently at capacity? And then maybe one more to add on. Are you expecting that that blocked out demand works its way through throughout the balance of the year? I mean that you'd expect it to catch up? Are you expecting consumers to forego their eye exams?

Yes. So to be clear the exam capacity is not about individual doctors achieving capacity. It's about not having enough doctors for the demand we have. It is a very nice problem having the consumer demand again value price low price provider of a medical necessity. And so it's about having doctors -- incremental doctors there in the geographies where we need them in order to fill the consumer demand that is there for us even in these challenging times economically. And then, yes, we expect capacity to improve. Record hiring, but start dates more later in the summer. And remote medicine is going to help us as well as we have more and more stores there that is a great way of adding capacity. Just for perspective at that how this work. When we open a store historically prior to remote we'd have -- we'd open it with one lane and one doctor and an empty room next door. As the store ramps, we fill the second room with exam equipment and the doctor goes back and forth and is more efficient. As the volumes continue to ramp we put in a second doctor. Occasionally, even the third doctor we're putting in remote medicine now which will help with stores. When we can't find a second doctor that will help on the doctor's days off if someone calls in sick vacations whatever. So remote is a very versatile solution to something we've been talking about since our IPO road show where I -- we have been saying we never have enough optometrists and you're probably never going to hear from us that we have enough optometrists. But with remote who knows? We may be able to get close to that state.

Hey, Chris, I would also add as we've looked at remote watched our initial results we did announce today that we're accelerating from being in 200 locations this year to 300. That really tells you we're pretty happy with what we're seeing. We're happy with the initial economics. In fact note that we're moving from 200 to 300, but we did not update the dilution figure of about $6 million. So we're really pleased with how that's going internally. We continue to resource that and even accelerate it. And we think that's going to play a really large role in capacity going forward. .

Yes. That's great. And I think that's a great proof point for remote. But maybe another maybe on just the lower consumer confidence. It sounds like ticket actually improved quarter-over-quarter. So I guess I'm surprised why that didn't come down as well. And then maybe why wouldn't the trade-down effect you talked about earlier why wouldn't that serve to offset some of that lost volume in the quarter and maybe April to-date?

So our Q1 our average ticket was above 2019 and showed an increase versus Q4, but were up against just stimulus infused spending last year which did grow the average ticket. We're pleased. So since the stimulus decline our average sale did decline, but it stabilized at a place that we were happy with. We also took some partial pricing actions in Q4 that also helped to stabilize that as well. And in terms of sort of the nicer cars and the parking lots, it's not really a light switch. It's sort of a gradual thing or low-income uninsured consumers sort of. Their piece was more like switch like in terms of as they saw throughout March, as sort of the ground war in Europe played on and worries about gas and seeing that at the pump and worried about food prices and seeing that at the grocery store they got – that consumer got very concerned. We think the nicer cars is a gradual thing that we're starting to see the beginnings of and that we have historical precedent for to continue to expect progress there.

Great color. Thank you.

Our next question is from Paul Lejuez from Citi.

Hey, thanks, guys. Can you talk about the stores where you've already rolled out the telemed docs and how the performance might be different in those stores versus the rest of the fleet? Just how far along are you in rolling those out? And then second, we can see the change on the core offering on both America's Best and Eyeglass World. But curious what sort of price increases are happening in the rest of the assortment. And Patrick, could you just remind us the percentage of your business that's typically done in that opening offer? I have 20% in my head but if you could just remind us of that. Thanks.

And when you say the rest of the assortment there what – do you mean in the rest of our other brands or in the category?

The rest – if 20% of your business is done at that opening offer price point and we could see the change that you're making from a price point perspective on that what's happening in the rest of the business?

Yes. I think just in the industry we are seeing multiple competitors raise price. It's not surprising. Paul, you're right. We disclosed that figure a while back. It was less than 20%. I think you're still in the guardrails there as you think about that kind of high-teens figure that's probably a good place for you to be.

High-teens figure but higher for the uninsured consumers.

And in terms of remote rollout our remote teams can tell you we're measuring that every way possible. We like what we're seeing. We're clearly able to identify incremental capacity and incremental utilization of the remote. Now while we're rolling it out, it does – in the store that it's being rolled out in it can slow things down for a little bit as you get people trained. And then a new remote doctor doesn't immediately become particularly productive as a remote doctor for some period of time. So there is a gradual ramp curve in terms of store moving from okay, it's now remote and EHR enabled to it is very capable. And that's weeks kind of a curve there. So we've been happy with what we've seen and hence the acceleration.

And a reminder, when we roll out remote we also put in electronic health records, so the store becomes fully digitized. But there is again a couple of week adjustment period which you'd expect.

Right. Just to clarify you're taking your – that opening price point up by a double-digit percentage increase. Is that fair to assume that you've taken the entire assortment up by double-digit as well across all price points?

No. No. It's – yes that's just no. The other pricing has been very peripheral in nature.

Okay. Thanks, good luck.

Our next question is from Rob Drbul from Guggenheim Securities.

Hi, good morning. Just a couple of questions for me. Can you talk about the trends in the legacy segment and just sort of what you're seeing there, if it's any different from your core AB or EGW? And then on the remote initiative are those – in terms of your – adding those to stores are those also going into some of the legacy segments? Just curious if you could help us understand that a little bit better. Thanks.

Remote is starting in AB. And we also have some of it in America's Best and we have some of it in Eyeglass World. We have small early-stage experiments in Walmart-related pieces but it's all – that's all small. When we talk about the expansion of -- the aggressive expansion of remote, you should see that as primarily America's Best. But we do anticipate that, over time it will be just a part of, how we do business overall. Our legacy group, our Walmart Group performed a little better in Q1, than America's Best and Eyeglass World. Their compares weren't quite as steep there. And frankly, while we're talking about hosts, I'd like to point out, I know we almost never talked about Fred Meyer. Fred Meyer, did comp positively in the quarter. And I only bring that up, because Fred Meyer has the highest managed care business for us and that was what drove that.

Okay. Great. And then just one other follow-up. In terms of the industry, are you seeing sort of a re-expansion or the independents where you saw a contraction in the industry of independent optometrists, is that part of the challenge in terms of you're meeting the OD demand that you need? Is there a change going on in the industry or around that ballpark, or is it essentially, just more competitiveness of the industry on the OD side of it?

In general, the industry trends overall are in line with what we've been talking about, for the past several years. That chains are growing value chains are growing. And that has been -- that's been ongoing. I do -- it's hard to get data on the pricing of independents. I know they're not getting any more competitive, value-wise. But I know the independents in general, are facing a lot of staffing issues. That's a big challenge for them. So when I say that I believe, that in this environment the gap between us and the rest of the market, is going to remain or expand in terms of the value, we provide it is my estimate that the independents are going to be pulling the pricing lever a lot more.

Thank you

I would just add. I think the other thing, that you have to think about is really not just last year, but the year before, what were those other companies or independents doing at that time. So you'll see, reports where independents are trading up. And you have to quickly ask, what -- how do I think about that over the last two years? Is it a really easy comp? Is it harder comp? I think that some things that are affecting our doctors are obviously, affecting independents.

Yes.

Thank you, Reade.

Our next question is from Adrienne Yih from Barclays.

Good morning. Great. I guess, I'm trying to figure out, what was the risk the working assumption a quarter ago about the optometrists and how they would -- what capacity utilization would have on them. And what changed during the quarter? And then kind of wrap up on that would be the increase in the 100 stores as the remote utilization. Will that make up for the shortfall, that you're now seeing? So on balance, we would be similar to the optometrist usage that we were sort of at the beginning of the year? So, that's my first question.

It was a little hard to hear sound quality wise, but I think I've got that. So sort of a little bit was what's changed relative to OD since our last call. Q1 was an especially challenging time to be reading sort of OD capacity and the like. In the early part of the quarter, we had doubled the number of optometrists out, with COVID versus the highs of the first wave of COVID. So we had -- and again optometrists, we have we had double number of associates as well. It's just -- it was just math. It wasn't anything about the optometry in general. But -- and then frankly, in March, we also saw vacations of optometrists at twice the rate that we had that we would normally expect. And all of this we were amid seeing the strongest hiring year-to-date that we've had. And although the retention was not at the 2019 record levels, it was still very much within historical band. I will say sort of in terms of a little bit of the psychology of this and I think we're seeing this for all manner of workers. But a lot of optometrists were thinking about work-life balance asking for another -- a day off, maybe wanting to work four days instead of five days. Again that's something that affects capacity. And again one of our key excitements about remote is it really does tie into sort of post-COVID trends. I wouldn't be surprised if many of you are working from home right now sort of, people wanting more flexibility in the geography of where they practice and remote allows people -- optometrists to practice for the first time ever from their den or home office or whatever. So, all this ties together in that way.

Okay. And then the second part of that question was the additional 100 stores, does that fill the gap? And if those are successful, how quickly can you ramp? I know you have this theory of 440, 400. This would get you close to that. How quickly can you ramp faster than that?

We -- so as Patrick, sort of, mentioned a moment ago we launched it and it's a few weeks to get used to it in the stores and the doctors themselves take a few weeks to get used to it. But again we were at 200 that we said a quarter ago and we think we'll be as much as 300 for this year now. So, we are excited by this and behind it in a nice way. And again in terms of addressing the problem we have now, sort of, the new hires, again, record number of new hires. But they don't start to more like mid to late summer so that will the category will be arriving then.

Okay. And then my final topic is just on demand. Was there a point at which you saw demand fall off? I mean clearly in general consumer, April was the month where it became very evident. It was late March and then April, it became very evident that something happened. I'm wondering if that pattern was true for you? And this managed care piece of the business that maybe can fill in some of the demand weakness at the uninsured level what can you do? What are you doing to increase penetration there? What programs are accelerating managed care? Thank you very much.

By the way the first question, especially, was a great question. Yes, we saw some slowing in late March, but something happened in April. Something happened to the optical category overall in April that was noticeable. And so we're sitting here saying as we're trying to put together this earnings call, so how long does it last? And our guidance is based on -- in a world like this, you got to sit there and say, I don't know when the war ends, I don't know when inflation ends. I do know the nicer cars are coming, that's good. I do know the ODs are showing up later in the year. But my peers and I in April were saying something just happened. And what that means a broader? I don't -- I can only speak about the optical category. I do know this about the optical category. The eye -- the biology of the eyes gets worse. The biology of the eye does not care about ground wars in Europe. As the biology of the eye does not care about, what's happening in inflationary trends. The biology of the eye is the eyes get worse over time and eventually need to be addressed. And this is why, as the low-cost provider of a medical necessity, we believe that this will right itself. And we will eventually get to a more consistent and period more like the 18 years leading up to the pandemic than the weird volatility that we've been experiencing since the pandemic.

Great. The managed care? Sorry.

No, no, no. I'm sorry. Yes. Managed care I can help. There are some things we can do to drive that. It is growing. Our managed care did have positive comps in the quarter. And so there are actions we can take to improve that. Yes, I don't like to share that for competitive reasons overall.

Fair enough. Thank you, very much and best of luck.

Thank you. Good question.

Our next question is from Molly Baum from Bank of America.

Hi guys. Thank you for taking my question. I'm on for Robbie. He's at the Investor Day today. But I wanted to just ask a few follow-ups on some of the questions about trade down and what you guys have been seeing. There's been a mix this earnings season with retailers and whether or not they've seen trade down. I'm just curious, if there's any quantifiable ways to measure, what trade down you've seen or if it's still kind of too early. And then, within your existing customer cohort are you seeing trade down to the introductory offer or is that not something you've really seen either? Thank you.

Let me talk about trade down from a customer perspective, again sort of in the -- in sort of the year following our reopenings, sort of the drive was more driven by our lower income customer who is very flush with cash from the stimulus. And now, we are, as we said, starting to see the beginnings of wealthier customers than normal coming back and becoming a larger part of our mix. And in terms of -- we're not seeing any unusual mix within the store of what people are buying right now, except for as we did launch Blue Light about 1.5 years ago and people are buying that in nice amounts. But nothing unusual in terms of what people are purchasing mix shift. So we've talked in the past about, how people are buying nicer contact lenses. That's more driven by new technologies and optometrist excitement and new modalities. But that's been an ongoing trend for like a couple of years.

Got it. Thank you. Its very helpful.

And we have no further questions at this time.

Well, John, thank you very much for your management of this call and for all of you who listen this morning. We'd like to thank you all for joining us here today and to thank all of our stakeholders for your continued support. We look forward to speaking to you again, when we report our second quarter results. Thank you all very much.