National Vision Holdings, Inc. — Form 10-Q summary
Period clarification: The request identifies 2020 Q2, but the filing is for the 13 weeks and six months ended July 3, 2021. Comparisons are with periods ended June 27, 2020.
Business context and reporting period
National Vision is a U.S. value optical retailer and eye-care provider. At July 3, 2021, it operated 1,249 stores across its Owned & Host and Legacy businesses, up from 1,184 a year earlier. The Legacy segment manages Vision Centers in Walmart stores; the agreement runs through February 23, 2024.
Financial performance
| Metric | Three months ended July 3, 2021 | Six months ended July 3, 2021 |
|---|---|---|
| Revenue | $549.5 million, up 111.3% | $1,083.7 million, up 48.5% |
| Operating income | $54.8 million; 10.0% margin | $116.3 million; 10.7% margin |
| Net income | $37.6 million; 6.8% margin | $81.0 million; 7.5% margin |
| Diluted EPS | $0.42 | $0.89 |
| Adjusted EBITDA (non-GAAP) | $87.7 million; 16.0% margin | $177.1 million; 16.3% margin |
For the quarter, product sales were $458.2 million and services and plans revenue was $91.3 million. Costs applicable to revenue were 42.9% of revenue, versus 54.1% in the prior-year quarter; SG&A was 42.6%, versus 52.5%. Results improved from a prior-year loss, when temporary COVID-19 store closures materially affected operations. Revenue growth also reflected strong demand, government stimulus, new-store growth and maturation. Management cautions that these comparisons are affected by the unusual prior-year closures.
Six-month operating cash flow was $189.8 million, compared with $71.4 million; capital expenditures were $38.8 million, compared with $25.8 million. Financing activities used $116.5 million, primarily reflecting voluntary term-loan repayments. Cash and cash equivalents were $408.3 million at July 3, 2021, compared with $373.9 million at January 2, 2021.
At July 3, 2021, the company had $200.0 million of term loans and $402.5 million principal amount of 2.50% convertible notes due 2025. The balance-sheet carrying amount of long-term debt and finance lease obligations, net of debt discount and current maturities, was $616.2 million. Revolver availability was $293.6 million, including $6.4 million of outstanding letters of credit. The company reported compliance with debt covenants.
Material changes, outlook and risks
- During the second quarter, the company prepaid $117.4 million of term-loan principal. It amended its credit agreement, including interest-rate margins and leverage and interest-coverage covenants; no further mandatory term-loan principal payments are due before the July 2024 maturity.
- The company early adopted ASU 2020-06. Adoption increased reported net income by $3.0 million for the quarter and $6.0 million for the six months, largely by reducing reported interest expense. Diluted EPS was unchanged under the adoption comparison. The notes are currently convertible; the initial conversion rate equates to approximately 12.9 million shares, with up to 16.5 million shares reserved for potential issuance.
- Management expects to open approximately 75 stores in fiscal 2021, subject to health, safety and economic conditions. It stated that cash, expected operating cash flow and revolver availability should fund anticipated needs for at least the next 12 months. No specific revenue or earnings guidance is provided in the filing.
- COVID-19, resurgence and variants, consumer behavior, possible store restrictions, supply-chain disruption and product availability remain uncertainties. Other disclosed risks include recruiting vision-care professionals, wage and other cost inflation, competition, managed-care relationships, regulation, supplier concentration, technology and cybersecurity, and significant indebtedness.
- Store-asset impairment was $0.5 million for the quarter and $1.5 million for the half-year, primarily relating to stores with lower-than-projected sales. FirstSight agreed to settle a class action with named plaintiffs after mediation on July 6, 2021. A separate wage-and-hour settlement, with a maximum amount of $895,000, received final approval on July 13, 2021.
Most important facts for investors to verify
- Confirm the intended reporting period: the supplied filing covers Q2 2021, not Q2 2020.
- Assess how much of the sharp year-over-year revenue and margin improvement reflects recovery from prior-year store closures, stimulus and timing effects rather than sustainable underlying growth.
- Review the convertible notes’ potential dilution and the accounting effects of ASU 2020-06 when evaluating earnings and EPS.
- Monitor debt, variable-rate exposure, covenant headroom, and the company’s ability to sustain cash generation while funding store openings and other capital spending.
- Track COVID-19 and supply-chain developments, store-level performance and impairment risk, and the resolution and cost of legal matters.