National Vision Holdings, Inc. — Form 10-K Summary
Period clarification: The filing is an annual report for the 53 weeks ended January 2, 2021, not a 2019 fourth-quarter filing. The comparable fiscal 2019 period ended December 28, 2019 and had 52 weeks.
Business context
National Vision is a U.S. value-focused optical retailer selling eyewear, contact lenses and eye exams through 1,205 stores across five brands, e-commerce sites and its Walmart Vision Center management arrangement. Its reportable segments are Owned & Host and Legacy. COVID-19 led to temporary store closures from March 19 through the reopening process completed June 8, 2020.
Financial and operating results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net revenue | $1,711.8 million | $1,724.3 million |
| Income from operations | $87.0 million | $73.6 million |
| Net income | $36.3 million | $32.8 million |
| Diluted EPS | $0.44 | $0.40 |
| Operating margin | 5.1% | 4.3% |
| Net margin | 2.1% | 1.9% |
| Adjusted EBITDA (non-GAAP) | $218.3 million; 12.8% margin | $194.1 million; 11.3% margin |
| Cash from operating activities | $235.0 million | $165.1 million |
| Capital expenditures | $76.8 million | $101.3 million |
Revenue declined 0.7% despite $32.2 million attributed to the extra fiscal week. Comparable-store sales fell 5.6% (adjusted comparable-store sales fell 6.1%), reflecting store closures. The company ended the year with 1,205 stores, up from 1,151. Costs applicable to revenue were 46.0% of revenue versus 46.8%; SG&A was 42.1% versus 43.2%. Management cited improved eyeglass margins and lower advertising spend, partly offset by contact-lens mix and optometrist costs during closures.
Cash and cash equivalents were $373.9 million at year-end, compared with $39.3 million a year earlier. The company reported $293.6 million available under its revolving facility, net of letters of credit. Year-end debt principal was $719.9 million: $317.4 million under the term loan and $402.5 million of 2.50% convertible notes due 2025. Operating lease liabilities totaled approximately $385.7 million on a present-value basis.
Material changes and unusual items
- May 2020 issuance of $402.5 million convertible notes; proceeds repaid the revolving facility and $75 million of term-loan principal. Interest expense increased 44.7% to $48.2 million, including convertible-note discount amortization and derivative losses.
- COVID-19-related employee retention credits reduced expenses by $11.0 million. The filing also reports $8.6 million of incremental pandemic-related operating costs.
- Asset impairment expense rose to $22.0 million from $8.9 million, primarily for store assets and right-of-use assets, including a $1.1 million software write-off. A $4.4 million litigation-settlement expense was recorded.
- Operating cash flow benefited from working-capital movements, including lower inventory and higher accounts payable and other liabilities; $12.8 million of deferred employer payroll taxes contributed to the liability increase.
- Walmart-related revenue represented 8.3% of consolidated net revenue in FY2020; the filing also reports $268.6 million of Walmart revenue across Legacy and Corporate/Other activities.
Outlook, risks and contingencies
Management said the duration and financial effects of the pandemic remained uncertain. It expected cash on hand, operating cash flow and revolver availability to fund requirements for at least 12 months. FY2021 capital expenditures were estimated at $100–$105 million, primarily for new stores and information technology. Management described approximately 75 annual store openings as sustainable for the foreseeable future, while noting plans could change with health, safety and economic conditions. No specific revenue or earnings guidance is provided in the supplied filing text.
The credit agreement temporarily suspended specified financial maintenance covenants through testing at the end of FY2021’s second quarter, with modified leverage and interest-coverage tests to resume thereafter. Restrictions during the suspension period include limits on dividends, borrowing and certain transactions. Principal risks include renewed pandemic disruption, consumer demand, recruiting optometrists, supplier concentration (89% of spectacle-lens expenditures from one vendor), Walmart and payor concentration, regulation, competition, store leases and leverage. A California class action against FirstSight remained partly active after a February 2021 court ruling; the company said it intended to defend the claims. The auditor issued unqualified opinions on the financial statements and internal controls.
Investor verification points
- Confirm the reporting period and account for the 53rd week when comparing growth and margins.
- Assess whether comparable-store sales recover after closures and whether the extra week obscures underlying revenue trends.
- Review debt service, covenant compliance after covenant tests resume, and potential dilution or settlement choices for the convertible notes, initially convertible into 12.9 million shares and with a stated maximum issuance of 16.5 million.
- Monitor cash-flow quality, including the effects of working-capital movements, deferred payroll taxes and pandemic relief credits.
- Track Walmart agreement economics and renewal terms, supplier concentration, impairment assumptions and the status or cost of legal contingencies.