National Vision Holdings, Inc. — FY2023 Form 10-K
Period: Fiscal year ended December 30, 2023 (52 weeks), compared primarily with the 52 weeks ended December 31, 2022. The request references 2022 Q4, but the supplied filing is the FY2023 annual report; it does not provide clear standalone Q4 financial results.
Business context
National Vision is a value-focused U.S. optical retailer selling eye exams, eyeglasses and contact lenses. At year-end it operated 1,413 stores across its brands. Walmart gave notice that it would not renew the Vision Center management agreement; that arrangement ended February 23, 2024. Related Walmart and Sam’s Club contact-lens distribution and services agreements are scheduled to end June 30, 2024, with AC Lens operations winding down.
Key financial metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net revenue | $2,126.5 million | $2,005.4 million |
| Operating income (loss) | $(46.8) million | $61.3 million |
| Net income (loss) | $(65.9) million | $42.1 million |
| Diluted EPS | $(0.84) | $0.52 |
| Adjusted EBITDA (non-GAAP) | $165.3 million | $180.3 million |
| Adjusted EBITDA margin (non-GAAP) | 7.8% | 9.0% |
| Cash provided by operating activities | $173.0 million | $119.2 million |
| Capital expenditures | $114.8 million | $113.5 million |
Revenue rose 6.0%. Comparable store sales increased 3.1% (adjusted comparable store sales growth was 2.9%), reversing declines in FY2022. Costs applicable to revenue increased to 47.1% of revenue from 46.2%; SG&A rose to 46.6% from 45.6%. The resulting GAAP operating margin was (2.2%), versus 3.1% a year earlier. The FY2023 net loss included $82.4 million of asset impairment, principally associated with the Walmart exit. Adjusted diluted EPS was $0.64, compared with $0.65 in FY2022; these non-GAAP measures exclude specified items and are not substitutes for GAAP results.
Operating cash flow improved by $53.8 million, with working-capital and other balance-sheet changes contributing $81.9 million of year-over-year benefit, partly offset by lower earnings and noncash adjustments. Investing cash outflow was $115.8 million and financing cash outflow was $136.8 million. Cash and cash equivalents were $149.9 million at year-end, down from $229.4 million.
At year-end, principal debt was $448.7 million: $302.5 million of 2.50% convertible notes due May 15, 2025, and $146.3 million of variable-rate Term Loan A due in 2028, subject to springing maturity provisions. The company had $293.6 million available under its revolving facility, net of letters of credit. Management stated that cash, operating cash flow and available revolver capacity should be sufficient for the next 12 months and foreseeable future. Operating lease obligations were $462.2 million on a present-value basis.
Material changes and outlook
- The Walmart transition is a major change: Walmart-related revenue recognized across the Legacy segment and Corporate/Other was $297.1 million in FY2023. The Legacy segment represented 7.1% of consolidated FY2023 revenue; AC Lens sales tied to Walmart and Sam’s Club distribution represented 6.9%. The filing warns that lost revenue, profit and cash flow could be material.
- The company recorded $79.7 million of impairment related to the Walmart partnership, including $60.1 million of Legacy goodwill, $9.1 million of contracts and relationships, and $10.5 million of property and equipment. Total Walmart-exit costs recognized in FY2023 were $86.7 million. Management expects approximately $8 million of additional exit-related costs in FY2024; further impairment charges remain possible.
- Management plans to transition AC Lens order fulfillment to a third party, close its Ohio distribution center, and seek to replace lost business through new America’s Best and Eyeglass World stores and other measures. Success is not assured.
- The company opened 70 stores in FY2023 and enabled remote medicine in more than 500 America’s Best locations. It expects to continue investing in remote medicine, electronic health records, ERP and store growth. FY2024 capital expenditures are estimated at $110–$115 million. No clear FY2024 revenue or earnings guidance is provided.
Risks, contingencies and other notable items
- Management cited softer customer demand and changes in purchasing behavior amid inflation and economic uncertainty, as well as continued wage pressure and constraints in optometrist availability. Wage and optometrist-related costs pressured margins.
- Managed-care payors accounted for approximately 35% of revenue; a relatively small number of payors represent most managed-care revenue. Supplier concentration is also significant: one vendor represented 89% of lens expenditures and three vendors 92% of contact-lens expenditures.
- The 2025 Notes create a near-term refinancing or repayment requirement and potential dilution if settled in shares. Variable-rate debt and the July 2024 maturity of the interest-rate collar are additional financing considerations. The company reported compliance with debt covenants at year-end.
- Pending matters include California wage-and-hour and representative-action claims and a securities class action. The company disputes the allegations; the filing does not provide a clear estimate of potential losses.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified Eyeglass World goodwill and trademark valuation as a critical audit matter because of significant valuation assumptions.
Important facts for investors to verify
- Post-transition results: actual revenue, profitability, cash flow and cost savings after the Walmart and AC Lens exits, including whether remaining transition costs or impairment charges arise.
- Repayment, refinancing or conversion strategy for the $302.5 million of 2025 Notes, and the effect on liquidity and potential share dilution.
- Whether margin pressure from labor, optometrist availability and product costs moderates, and whether comparable-store growth is sustained.
- Execution and returns on planned store openings, remote medicine, EHR and ERP investments, against the stated FY2024 capital expenditure range.
- Non-GAAP adjustments underlying adjusted EBITDA and adjusted EPS, alongside GAAP earnings and operating cash flow.
- Developments in the disclosed wage-and-hour and securities litigation, and any resulting financial exposure.