National Vision Holdings Stock

National Vision Holdings, Inc. and its consolidated subsidiaries (National Vision) operate as an optical retailer in the United States ('U.S.') and a leader in the attractive value segment of the U.S. optical retail industry.

National Vision conducts substantially all of its activities through its indirect, wholly-owned subsidiary, National Vision, Inc. ('NVI'), and NVI's subsidiaries. The company reaches its customers through a diverse portfolio of retail stores across five brands and 13 consumer websites as of December 30, 2023.

Business

As one of the largest purchasers of eyeglass frames, eyeglass lenses and contact lenses in the U.S., the company also benefits from centralized procurement efforts and purchasing economies of scale.

America's Best Brand

America's Best strives to be the value leader in virtually every market in which it operates. Its signature offer of "two pairs of eyeglasses for $79.95, including a free eye exam," is typically priced significantly lower than the competition and provides customers with a wide selection of frame choices at this entry point. In America's Best stores, vision care services are provided by optometrists employed either by the company or by independent professional corporations or similar entities. This model facilitates the brand's bundled offer and its Eyecare Club programs, which offer two free eye exams per year for the duration of the membership plus a discount on contact lenses and eyeglasses. By leveraging the company's efficient centralized laboratory network, America's Best stores are able to minimize processing costs and drive significant economies of scale. These stores typically stock eyeglass frame imports from low-cost overseas manufacturers, higher-margin private label brands and discounted well-known frame brands. America's Best stores are primarily located in high-traffic strip centers next to other value-focused retailers.

Eyeglass World Brand

Eyeglass World also offers a value price point for customers, with an opening offer of 'two pairs of eyeglasses for $89.' This brand is positioned as an eyeglass superstore with a broad selection of designer brands and price points and offers a highly personalized level of service. The company sources eyeglass frames for the company's Eyeglass World stores from leading designer brands, private label manufacturers and low-cost overseas manufacturers. Eyeglass World locations offer eye exams, primarily from independent optometrists and optometrists employed by independent professional corporations or similar entities and have on-site laboratories that enable stores to quickly fulfill customer orders and make repairs on site. Lens orders that are not completed in store are completed by the company's centralized laboratory network. These stores are primarily located in freestanding or in-line locations near high-foot-traffic shopping centers.

Partner Brands

The company has two continuing partner brands consisted of 54 Vista Optical locations on military bases and 29 Vista Optical locations within select Fred Meyer stores as of December 30, 2023. The company's partner brands all compete within the value segment of the U.S. optical retail industry. These brands combine a broad selection of products and attentive customer service with the convenience of one-stop shopping. These brands also utilize the company's centralized laboratories and provide eye exams principally by independent optometrists in nearly all locations.

As of December 30, 2023, the company's partner brands also included the operation of 225 Vision Centers in select Walmart stores through the Management & Services Agreement by and between NVI and Walmart Inc. ('Walmart'), dated as of May 1, 2012 (as amended, supplemented or otherwise modified from time to time, the 'Walmart MSA'). On July 20, 2023, the company received a notice of non-renewal from Walmart of the Walmart MSA (the 'MSA Termination'). In accordance with the terms of the Walmart MSA and the notice, the agreement terminated on February 23, 2024 and the company no longer operate Vision Centers for Walmart.

Omni-Channel and E-Commerce Platforms

The company offers its customers an engaging digital shopping experience through an established platform of omni-channel store websites, and dedicated e-commerce consumer websites. The company's omni-channel store websites augment its America's Best, Eyeglass World and Vista Optical in military brands and provide a customer experience that extends across the company's in-store, mobile and e-commerce channels. The company offers a range of services to customers, including eyeglass purchasing, online scheduling and appointment reminders, contact lens purchasing, 'buy-in-store and ship-to-home' capabilities and online frame browsing, among others. The company's omni-channel offerings work in concert with these brands to enhance the overall quality of the customer experience.

As of December 30, 2023, the company's dedicated e-commerce websites were managed by the company's subsidiary, AC Lens. AC Lens has historically operated proprietary, branded websites and operated and provided support services for third-party websites owned by other companies, including Walmart and Sam's Club. Following the receipt of the MSA Termination, AC Lens delivered notices of non-renewal of the agreements it has with Walmart and Sam's Club regarding wholesale contact lenses distribution and related services, such that these agreements will terminate as of June 30, 2024, unless an earlier date is agreed by the parties and the company will wind down its remaining AC Lens operations, including the closure of its Ohio distribution center, which largely supported the wholesale distribution and e-commerce contact lens services that the company provided to Walmart and Sam's Club. The company's e-commerce platform related to websites associated with the company's store brands will continue to operate, as will certain websites historically managed by AC Lens. The company is planning to transition the order fulfillment functions handled by AC Lens to a third-party vendor.

In the aggregate, sales from the company's omni-channel and e-commerce platforms, which include 'buy-in-store and ship-to-home' transactions, represented approximately 9.9% of net revenue in the year ended December 30, 2023.

Reportable Segments

As of December 30, 2023, the company had two reportable segments: Owned & Host and Legacy.

The company's Owned & Host segment includes its two owned brands, America's Best and Eyeglass World, as well as the company's partner brands, Vista Optical locations within select Fred Meyer stores and Vista Optical locations on select military bases. The company's Legacy segment consisted of the company's partnership with Walmart to operate Vision Centers in select Walmart stores that ended on February 23, 2024.

Other operations not classified in reportable segments include:

The company's wholly-owned subsidiary, FirstSight Vision Services, Inc. ('FirstSight'), which is licensed as a single-service health plan under California law, issues individual vision plans in connection with the company's America's Best operations in California. Until February 23, 2024, it also arranged for the provision of optometric services at optometric offices next to certain Walmart stores throughout California.

The company's e-commerce platform, which is managed by its wholly-owned subsidiary, AC Lens, serves the company's proprietary e-commerce websites and the e-commerce websites of third parties, including Walmart, Sam's Club and Giant Eagle. AC Lens handles site management, customer relationship management ('CRM') and order fulfillment and also sells a wide variety of contact lenses, eyeglasses and eye care accessories.

Products and Services

Within the company's store brands, the company primarily offers two products and one service: eyeglasses, contact lenses and eye exams. Nonetheless, the company's diverse product portfolio encompasses many brand names and thousands of stock keeping units ('SKUs'). Offerings include both brand name designers, like Ray-Ban, Coach and Calvin Klein, and private label options at attractive prices. The company's brand-name frame offerings are manufactured by market leaders and the company partners with several overseas factories to direct source the company's private label products. The company also offers a broad portfolio of lenses, including single vision and bifocal lenses, with a variety of treatments to enhance vision. Through one-on-one consultative-selling, the company's sales associates have a number of opportunities to share information about value-added lenses, including thinner, higher-quality lenses and photochromatic options, which carry higher margins. As a result, a significant number of America's Best customers and Eyeglass World customers who purchase eyeglasses choose upgraded lenses and/or frames instead of each brand's signature or opening offer. The company also offers in its America's Best and Eyeglass World stores accessories and contact lenses from all major contact lens manufacturers, including the company's own private label brands (Sofmed and Natural Eyes HydraWear, made by CooperVision). Collectively, the company's broad product offerings deliver consistent financial results and reduce the company's reliance on any individual product, style or trend.

Eye exam services are provided by optometrists employed by the company, or by professional corporations or similar entities owned by eye care practitioners with whom the company has contractual arrangements or by independent optometrists with whom the company has contracted. In addition, as part of the company's efforts to provide quality, accessible eye care, the company has deployed a telehealth solution in certain locations that allows optometrists working remotely to provide eye exam services to patients. Through this remote medicine platform, patients still visit the company's stores for eye care services, but instead of seeing the optometrists in person, the patients are connected with optometrists licensed in their state through video conferencing technology. The optometrists work with trained optometric technicians and clinical assistants to collect preliminary data, and then the optometrists control the optometric equipment remotely to conduct the refractions and eye health examinations while communicating with the patients in real time via 2-way synchronous audio and visual connection. As of December 30, 2023, this technology had been enabled in over 500 of the company's America's Best locations. Remote medicine not only helps provide quality, accessible eye care to more patients, but also helps address constraints in exam capacity from optometrist availability in store. As part of the rollout, the company has also invested in the transition to an electronic health record ('EHR') platform. The company anticipates continuing to invest in these capabilities, including implementing the EHR platform in all America's Best locations by the end of 2024.

Within the company's Owned & Host segment, America's Best offers its Eyecare Club programs primarily to its contact lens customers. As of December 30, 2023, the Eyecare Club had approximately 1.6 million active members. Eyecare Club members receive two free eye exams per year and 10% off all contact lenses and eyeglasses for the duration of the three-year membership, as well as other periodic benefits and discounts, for a one-time fixed payment. Memberships can be purchased in stores or on the company's America's Best website. There is a high adoption rate of Eyecare Club membership by America's Best customers who are not part of a managed care program and who visited an America's Best store for a contact lens examination. The disposable nature of contact lenses means that customers must replenish their contacts frequently and, in order to refill their prescriptions, contact lens users must have a current prescription. For a prescription to be current, customers generally need to have an eye exam every one or two years, depending on the state in which they reside. The multiyear nature of these memberships, which customers pay in full at the time they join, facilitates repeat traffic to America's Best stores for exams and contact lens purchases and builds customer loyalty.

Customers

The company's customers need to see their best to perform their jobs, care for their families and contribute to their communities. Purchasing decisions are based on value, quality of service, fashion, location and eye health, among other factors.

Sales and Marketing

The company developed its marketing strategy based on the in-depth knowledge the company has of its customers. The company's brands are positioned to stand for low prices and great value, both of which resonate with the company's target consumers and leave a lasting impression that is distinct from the competition.

A significant portion of America's Best and Eyeglass World's advertising investments are on awareness-driving video advertisements, network television and digital platforms, which the company leverages broadly across multiple stores in each market to gain a larger share of voice, and in turn, drive traffic and margins. The company continues to benefit from America's Best national advertising campaigns, which help raise the company's brand awareness in both new and existing markets. Additional advertising investments include digital media, search engine, direct mail, email and local store marketing. The company is continually tracking consumer media consumption behaviors and adjusting the company's media plan accordingly.

For the company's Host brands, the company relies on its Host partners' marketing initiatives to drive traffic into their stores. The company then develops and executes highly targeted local marketing campaigns within stores to create awareness of the company's service and product offerings.

The company's CRM system is used to collect customer demographic data. With this information and the third-party data that the company uses to supplement the customer information, the company enhances its customer relationships with communications based on their individual vision needs and interests to help improve existing customer retention. The company is also in the early stages of an upgrade to its CRM capabilities.

In addition to the company's CRM program, digital advertising is a critical component of the company's media mix, as both of these programs generate a high rate of return. Potential customers gain awareness of the company's brands through paid and organic digital efforts via content, video and social media that lead them to the company's websites.

Sourcing and Supplier Relationships

The company purchases its frame merchandise from a wide variety of vendors, with a limited number of vendors supplying the majority of the company's eyeglass lenses and contact lenses. The company is a large customer for all of the company's suppliers and the company strives to form meaningful, long-lasting and mutually beneficial relationships with the company's vendors. The company has long-term contracts with certain of its key suppliers, including Essilor and CooperVision. Under the company's agreement with Essilor, Essilor has the sole and exclusive right to supply certain eyeglass lenses to the company. The term of the company's agreement with Essilor runs through May 2026.

The company is collaborative in its vendor negotiations so as to develop a partnership with the company's vendors and, in time, a sense of loyalty to National Vision. The company focuses on sourcing low-cost products, including well-known frame brands, secondary frame brands, direct import and private label frames and private label contact lenses. The company's well-developed capability of direct-to-factory sourcing and importing of frames allows the company to offer high-quality, low-priced frames while generating strong margins.

Optical Laboratories and Distribution Network

The company uses a highly efficient mix of four domestic, company-operated processing facilities and have two outsourcing relationships with international, third-party facilities. The company has state-of-the-art lens processing capabilities in the company's geographically diverse, company-operated production facilities in Lawrenceville, Georgia; St. Cloud, Minnesota; Plano, Texas; and Salt Lake City, Utah. The company's centralized optical laboratories handle all aspects of customizing eyeglass lenses, and have digital capabilities for grinding, coating and edging to customer prescription and eyeglass frame specifications. The company has developed a high-volume, low-cost lens processing model to provide seven-day turnaround service through the company's domestic owned laboratories and the company's international partner laboratories. This network was created through significant investment by the company and is leveraged across the company's portfolio of brands to provide efficiency and scale. The company routes eyeglass orders to both the company's owned and outsourced laboratories through an automated decision tree that incorporates information on (i) the nature of the job; (ii) the technical capabilities of each laboratory; (iii) the capacity of each laboratory; (iv) the inventory at each laboratory; and (v) the cost of that particular job at each laboratory.

In addition, the company's Eyeglass World stores are equipped with on-site laboratories, which typically process less complicated customer orders with same-day service. All lens orders that are not processed or completed in store are processed or completed by the company's centralized laboratory network.

As of December 30, 2023, the company had a 118,000 square foot distribution center in Lawrenceville, Georgia and a 52,000 square foot distribution center in Columbus, Ohio, the latter of which is expected to be closed in 2024 as part of the aforementioned wind down of AC Lens operations. The company utilizes third-party carriers to transport products from these centers to customers and store locations.

Managed Vision Care

The company's managed care business relates to vision care programs and associated benefits provided by stand-alone vision insurance entities, healthcare plans and government programs. National Vision participates as a provider of both vision care and related vision product solutions, including eyeglasses and contact lenses, and primarily participates in private managed care programs. While the company's managed care business has continued to grow, the company is underpenetrated in the managed care market relative to the broader optical retail industry, and this continues to represent a growth opportunity.

Through the company's point-of-sale system and the company's back-office electronic data interchange, or EDI, capabilities, the company attempts to create a seamless transactional experience for the company's managed care customers. The company has assisted a number of its larger vision care insurance payors to either implement or improve claims transmission processes via application programming interfaces.

Competition

In the broader optical retail industry, the company competes with large national retailers, such as LensCrafters, Pearle Vision, and Visionworks, both in physical retail locations and online.

Seasonality

The company's business is moderately seasonal in nature. Historically, the company's business has realized a higher portion of net revenue, operating income and cash flows from operations in the first half of the year (year ended December 2023), and a lower portion of net revenue, operating income and cash flows from operations in the fourth fiscal quarter. The first half seasonality is attributable primarily to the timing of the company's customers' income tax refunds and annual health insurance program start/reset periods. Many customers in the company's target market are value seeking and lower income consumers who rely on tax refunds to pay for eyewear and eye care. A delay in the issuance of tax refunds can accordingly have a timing impact on the company's quarterly financial results in the first half of the year. Consumer behavior with respect to the utilization of tax refund proceeds is also subject to change.

With respect to the company's fourth quarter results, compared to other retailers, the company's products and services are less likely to be included in consumers' holiday spending budgets, therefore reducing spending on personal vision correction during the weeks preceding December 25th of each year. Additionally, although the period between December 25th and the end of the company's fiscal year is typically a high-volume period, the net revenue associated with substantially all orders of prescription eyeglasses and contact lenses during that period is deferred until January due to the company's policy of recognizing revenue only after the product has been accepted by the customer, further contributing to higher revenue results in the first half of the year.

Intellectual Property

The company owns a number of registered and common law trademarks and pending applications for trademark registrations in the U.S., primarily through the company's subsidiaries.

Government Regulation

In connection with the company's sales of contact lenses, the company must comply with the Fairness to Contact Lens Consumers Act (FCLCA), and its implementing regulations, including the Contact Lens Rule, promulgated by the Federal Trade Commission ('FTC'), which establish a national uniform standard in the U.S. with regard to issuing, releasing and verifying contact lens prescriptions.

The company's e-commerce business must comply with various federal and state laws, most notably the Fairness to Contact Lens Consumers Act. The company's online business must also be registered in various states as a non-resident contact lens seller.

The company is engaged in managed vision care, both as a managed care entity and as a provider to managed care payors and insurers. In California, the company's subsidiary, FirstSight, a specialized health maintenance organization ('HMO'), is subject to the managed care laws of the State of California and is licensed and comprehensively regulated by the California Department of Managed Health Care (the 'DMHC'). These regulations contain operating, disclosure, reporting and financial viability requirements, among others. Material changes to the operations of FirstSight, including the opening of America's Best locations outside of defined service areas, must be approved by the California Department of Managed Health Care.

As a health care provider and as a business associate to health care providers, the company is subject to federal and state laws governing privacy and security, including the Health Insurance Portability and Accountability Act of 1996 ('HIPAA') and its implementing regulations, such as the Privacy Rule, the Security Rule and the Breach Notification Rule. The Health Information Technology for Economic and Clinical Health Act of 2009 (the 'HITECH Act') extends the Privacy Rule and the Security Rule directly to business associates. The company is also subject to comparable state health privacy laws to the extent they are more protective of individual privacy than the Privacy Rule.

The company's participation in federal reimbursement programs, such as Medicare and Medicaid, subjects the company to state and federal laws and regulations with respect to anti-kickback, false claims and physician self-referral, among other similar areas.

The company engages in certain manufacturing, repackaging and relabeling activities at the company's optical laboratories and in certain Eyeglass World stores, which subject the company to the Federal Food and Drug Administration's registration, listing and quality requirements. The company is required to register its centralized laboratories with the Federal Food and Drug Administration.

The company sources a significant portion of its products from outside of the U.S. The Foreign Corrupt Practices Act and other similar anti-bribery and anti-kickback laws and regulations generally prohibit companies and their intermediaries from making improper payments or offering anything of value to non-U.S. officials for the purpose of obtaining or retaining business. The company's policies and its code of conduct mandate compliance with applicable laws and regulations, including these.

In particular, the company is subject to the requirements of Occupational Safety and Health Administration and other federal and state agencies that address employee health, including from infectious diseases and safety.

History

National Vision Holdings, Inc. was founded in 1990. The company was incorporated in Delaware in 2014.