Good day, and thank you for standing by. Welcome to the National Vision Holdings Q2 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Tamara Gonzalez, Vice President, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to National Vision's Second Quarter 2025 Earnings Call. Joining me on the call today are Alex Wilkes, CEO; and Chris Laden, CFO. Our earnings release issued this morning and the presentation accompanying our call are both available in the Investors section of our website, nationalvision.com. A replay of the audio webcast will be archived in the Investors section after the call. Before we begin, let me remind you that our earnings materials and 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 our filings with the Securities and Exchange Commission. The release and today's presentation also include certain non-GAAP measures. Reconciliation of these measures is included in our release and the supplemental presentation. We would like to draw your attention to Slide 2 of today's presentation for additional information about forward-looking statements and non-GAAP measures. Further, please note that all financial measures in today's commentary are based on a continuing operations basis, unless otherwise noted. As a reminder, National Vision provides investor presentations and supplemental materials for investor reference in the Investors section of our website. I will now turn the call over to Alex. Alex?

Thank you, Tamara, and good morning, everyone. Thank you for joining us today to discuss our second quarter results. I'm excited to be speaking with you for the first time as CEO, having officially stepped into this position on August 1. Before diving into our results, I'd like to express my sincere gratitude to Reade for his tremendous leadership over the past 23 years and for his continued support as Executive Chairman. I feel privileged to lead National Vision at this time of significant transformation and accelerated growth. We are thrilled with the continued positive response we are seeing with our customers and throughout our organization to the changes we are making to rapidly modernize the company. Our second quarter results demonstrate that our initiatives are working and progressing at a faster pace than we had planned. We attribute this ongoing early success to the commitment of our teams who are enthusiastically delivering results. We have a few exciting initiatives underway for the back half of the year. Last week, we introduced our new National Vision branding. And next week, we are launching a transformational campaign for America's Best. Every Eye Deserves Better, and we're excited for you to see it. We believe that this modern positioning of our largest brand, along with implementing a powerful new CRM platform will serve us well to attract new customers and retain our existing customer base. Given our strong year-to-date performance, we are raising our full year outlook while maintaining a prudent view on the remainder of the year against a noisy macro backdrop. And now on to our Q2 results. We delivered the highest second quarter results that we've seen in recent years, including the 10th consecutive quarter of positive comp store sales growth. This quarter, we saw stronger-than-expected top and bottom…

Thank you, Alex, and good morning, everyone. With a full quarter now under my belt, I am even more energized by the progress we are making and our clear path forward. As a team, we have an unwavering commitment to deliver on our stated objectives, operate the business with enhanced discipline and drive sustainable, profitable growth. As part of this commitment, we are focused on driving efficiencies across the business, leveraging our cost structure and ongoing customer value creation, resulting in ticket expansion that we believe has a multiyear trajectory. As Alex said, we look forward to sharing more on this during our upcoming Investor Day. Now I'll turn to our second quarter results as compared to the prior year period. Please refer to today's press release for reconciliations of non-GAAP financial measures to their most comparable GAAP financial measures. For the second quarter, net revenue increased 7.7%, driven by adjusted comparable store sales growth of 5.9% and growth from new store sales. The timing of unearned revenue benefited revenue in the period by approximately 60 basis points. During the quarter, we opened 8 new America's Best stores and closed 5 America's Best stores. We ended the quarter with a total of 1,240 stores. Adjusted comparable store sales growth in the period was driven by an increase in average ticket of 6.6%, which reflects the impact of price increases implemented in late 2024 and Q1 of this year as well as the benefit from our refreshed merchandising mix and new selling methods. The increase in average ticket was partially offset by a 0.4% decline in overall customer transactions as we anniversaried last year's promotions. Overall, eye exam conversion to eyeglass sales remained consistent with prior quarters, signaling customer acceptance of our new merchandising and pricing architecture, and we have continued…

[Operator Instructions] And our first question comes from Simeon Gutman with Morgan Stanley.

Good quarter. My first question is on the managed care expansion. Can you talk about, is there a visibility in the number of -- or the percentage of new plans that you could get into as we go through contract renewal season, maybe that's done? And any framework of number of plans or percentage new plans and then where you are in penetration by plan so we can get a sense of what the runway looks like in managed care?

Simeon, thanks for the question. Yes, again, we're really happy with our managed care growth in the quarter. We grew managed care up in the low double-digit range. So continue to see nice traction there. We haven't really talked and we won't talk specifically about individual plans and plan participation. I will say that we are continuing on our North Star of managed care growth and mix is around the 50% range, and we're continuing to push right along that path.

Okay. And then thinking about the cash customer, is there a line of sight on getting volumes to positive, not just ticket -- I'm sorry, traffic, not just ticket? How do you think about that?

Yes. No, great question. So there's a couple of dynamics to think about here. One is the cash pay cohort is continuing to shrink as more cash pay consumers become managed care customers. So our data would suggest there was about a 2% mix shift from the cash pay cohort into managed care year-over-year. So that's one dynamic to think about. So that being said, we're looking to control our own destiny with the cash pay cohort. It's primarily one of the reasons we're reinventing our America's Best approach to marketing, both our campaign assets and our approach to CRM is really rooted in this idea that we're going to control our own destiny on the cash pay consumer that has not been as resilient as the managed care customer kind of in the post-COVID period. So our -- we're pleased with what's occurring. We're pleased that the cohort of cash pay is comping positive once you aggregate both traffic and ticket. And we're looking to drive our -- like I said, drive our own destiny as it pertains to that cohort through our marketing activities.

And our next question comes from Michael Lasser with UBS.

As you unpack the America's Best comp from the second quarter, how much of the growth came from like-for-like price increases on same SKUs? How much came from elevating the assortment to a greater percentage of your SKUs above $100? And did the first 2 factors contribute to the traffic decline that was experienced in the second quarter?

So as we look at both Q2 and year-to-date results, we're seeing improvements in ticket driven by both the price actions we've taken and mix. The majority of the impact was driven by price actions. But keep in mind that we're continually refreshing our assortment. So we haven't had a lot of these frame board assortment in place for the entire quarter. As we think through the second half of the year, we expect to see a continued evolution of that mix. In terms of the traffic impact, what we're -- the interesting that we're seeing both on managed care and on cash pay is that consumers are actually trading up into these more premium frame assortments as well as some of our more premium lens assortment. So what's telling us is the changes we're making are resonating with both cash pay and managed care consumers, and we don't have any reason to believe that the assortment changes we're making are getting cash pay customers to opt out.

Okay. My follow-up question is on the margin outlook for the business. National Vision's operating margin is on track to be 4.5% to 5% this year. Historically, the company has achieved an operating margin in the 6.5% to 7% range. So how quickly do you think you can recapture that 200 basis points of gap between what you're expecting this year and where it's been historically? And should we think about the historic peak as an upward bound of where National Vision's margin can go? Or alternatively, just given all the actions that have been taken along with the elevated assortment, there can be a new peak margin opportunity on the horizon.

Look, I think margin expansion is a primary focus for this management team. We're really excited about the margin expansion we saw through the first half and what we're guiding to. Without speaking to kind of multiyear outlook, what I can say is that we'll provide a little more context in our Investor Day coming up here in a few months. But the actions we're taking both on the assortment changes on some of the CRM activity, on the cost controls that we're implementing in our partnership with Accenture are all hyper focused on expanding our operating margin rate.

Our next question comes from Paul Lejuez with Citi.

A couple of questions. Can you talk about what your actual average price point is to the cash paying customer and what it is for the managed care customer and how each has changed year-over-year, what you're seeing this quarter? And I guess even bigger picture, do you think the cash pay customer is pushing off purchases? Or are they shopping somewhere else? Curious if you think you might be losing share to someone in that demographic. And then last, just if you can talk about any regional differences, strengths, weaknesses?

Paul, so yes, first and foremost, we do see that the managed care transaction is generally a higher transaction than the cash pay transaction, right? I mean these are folks that generally have a higher degree of benefit that also points them to leverage their benefit and use it against some higher-quality lenses and some higher quality frames. So yes, so the ticket on the managed care consumer generally outstrips that of the cash pay customer. And certainly, we think that's a significant tailwind in our business. And again, one of the reasons that we're so focused on that managed care consumer cohort. One of the things as it relates to the cash pay consumer, and Chris touched on this a little bit, this last quarter, we actually chose not to anniversary our promotion from last year, which was really a promotion focused at a heavily value-seeking cash pay consumer. So with our small decline in traffic, we're actually really pleased with that result, given the choice to not chase that really low-end kind of cash pay consumer with a really sharp promotional message that we had last year. So I think, all in all, a really nice result there. That being said, we still see, like I mentioned, a little bit less resiliency on the cash pay consumer from a purchase cycle perspective. It hasn't changed markedly from previous quarters. But again, this is why we're making the investments we are in marketing and acquisition to once again kind of control our own destiny and reactivate that consumer that has been a bit more latent.

And then just the regional differences to call out?

No, we don't see really any significant regional differences. I said this before related to kind of seasonality in this business. We see moguls not mountains. I think the same thing holds true for geographic differences. I mean there's some minor differences related to different managed vision care plan participation, different kind of socioeconomic factors to consider. But generally, we don't see any major regional differences in strength or weaknesses. That being said, I've talked about this previously, one of the reasons that we are going to continue to invest in our tech stack, specifically around merchandising ERP is to take advantage of nuances in the market where there could be different desires for different assortments. Again, we're not there today, but we do anticipate to be there in the back half of '26, where we can do some tailor market assortment of product by market, and we do think that will play. Again, not really a strength or weakness by geography, but I think it certainly speaks to our opportunity to be a bit more hyper segmented to where individual kind of consumer wants and desires lie.

Just one follow-up. You mentioned a $130, I think, spending power when you're talking about the managed care customers. Did I hear that right? And I was just trying to understand where your average ticket is with that customer relative to that number.

Yes. So the $130 is kind of the average mark of what plans pay for -- allow managed care consumers to get where there's 0 out-of- pocket on the frame component of the transaction. And again, I mean, it's -- the math on this is pretty straightforward, right? The average plan pays $130. The 20% of our mix was $99 and above, and we're moving to 40% of our mix being $99 and above to more closely match our mix of managed care consumers and basically serve them better frames at a price point to let them take better advantage of what their plans allow them to enjoy.

Our next question comes from Adrienne Yih with Barclays.

Congratulations on the great start to the year. My question is, typically, the eye care, the vision care sort of on an annual or biannual basis is pretty sticky. You get kind of people who have their doctor or wherever they go. How are you actually targeting and marketing the $75,000 to $100,000 cohort? Where are you doing it? How are you reaching out to them? And how easy, I'll put that in air quotes, is it to kind of get them to transact to move kind of the records and all that stuff to kind of America's Best? And then secondarily, can you comment on sort of like the dark, dim locations, sort of how you've been able to incorporate the telehealth and increase the capacity utilization of the optometrists?

You got it. And Adrienne, thanks so much for the commentary. Yes, I mean, your point is spot on. It's one of the reasons we are significantly reinventing how we approach marketing within the company. Historically, we have done really, really well at advertising on linear TV and pumping a bunch of money into search marketing. And that was a good strategy for a time when we were chasing the cash pay consumer and when a large majority of our customer was not in that cohort group that we're chasing today. So as we shift our campaign strategy to be a bit more elevated, to be a bit sharper, to be more joyful, to be more modern, we're also going to be shifting our approach to media. So where historically, we've spent -- I'd like to talk about the marketing funnel kind of historically, we invested in the shape of a barbell, right? So a lot in upper funnel and a lot in lower funnel, and we didn't do a whole bunch in mid. This new campaign is going to allow us to do more in social. It's going to allow us to do more in digital, and that's specifically the channels that we believe those consumer cohorts sit. So new campaign will allow us to be better, sharper in mid-funnel marketing, which we haven't historically been. So that's one component to it. The second piece is around -- when I talk about CRM and the evolution that it's going to allow us to take, historically, our CRM messages have been one to many. If we have 10 consumers step foot in our door, historically, those 10 consumers were getting the same message when they were kind of due to be in the repurchase cycle. Go forward, we will have…

Great. And then one follow-up for Chris. On the last -- you said that, obviously, the new tariff regime, meaning the China 145% to 30%, I think that happened right after you reported like a week after. So previously, you had said $10 million to $15 million of unmitigated and it was not included in the outlook. Now that it's at 30%, is this now -- I guess it's kind of inconsequential. Is that a fair way to think about it?

Yes, that's exactly right. Between updates in the regulatory environment as well as, frankly, conversations with our strategic partners about what tariff impact on our supplies that we would or would not be willing to accept. It's really something that we've incorporated in the guidance. It's fractional compared to our last estimate, and we've put in place a few cost mitigation strategies in our outlook to offset any impact of the incremental tariffs.

Our next question comes from Kate McShane with Goldman Sachs.

We wanted to ask about Eyeglass World. I know it's a smaller part of the business, but you mentioned in the prepared comments, there's been some new leadership changes there. And we're just wondering how you think about this banner in the context of the transformational strategy and what goals you have set for that banner?

No. Great question, Kate. And again, I'll reemphasize how we couldn't be more pleased with the change in direction we're seeing in Eyeglass World. Our new leader of that brand has just working with an incredible urgency, has the team rallied and is making the significant changes and has a great road map for the next couple of years to drive improved results. So second quarter positive comps at 2.8% at Eyeglass World. It's the best first half of Eyeglass World that we've seen since 2021. Again, I think a proof point that it's working. We've recently made a significant shift and change to our doctor model in Florida. So Florida is about 40 of our 120 or so Eyeglass World locations where we had a doctor model concentrated with kind of one master sublease, and we've changed that doctor model to more closely mimic what we do at America's Best in terms of having an employee structure. So we think all of those things have really positioned Eyeglass World well. As I said, we're launching new America's Best campaign next week. And once we kind of get that under our belt and stabilize, and we feel good about all of our creative assets and our brand direction there, we've asked the agency to -- their next remit is to look at Eyeglass World and think about the brand, think about how do we modernize Eyeglass World, how do we think about our positioning? How do we think about where we invest our media dollars at EGW. So again, really nice progress, great kind of early innings results, super happy with what we've seen in the first half of the year and with layering on additional investments and additional thought into how the brand evolves, just feel great about the direction that Eyeglass World has.

And as a second question, we just wanted to ask about going forward real estate strategy. Just as you think about moving your business more towards a managed care customer, can we expect any kind of meaningful change in terms of how you source your real estate locations versus what you have already built out today?

Yes. So I wouldn't say it's going to inform a wholesale shift in our real estate strategy. Certainly, I think we will be including data points go forward that we might not have in the past around like concentration of managed care lives as an input into our real estate model. That's something that historically hasn't been considered as much as it will be go forward. But in terms of types of real estate and where we look to invest, we're still focused on regional power centers anchored by strong national retail brands. That will not change. We think, obviously, those are great centers to be co-located in. But in terms of where we might expand into markets and additional geographies, certainly, we will be considering concentration of managed care lives as one of the factors in our decision criteria.

Our next question comes from Dylan Carden with William Blair.

Two for me. One, just curious on the closures, kind of what kind of stores you're closing and the sort of strategy there as far as how many more in the fleet you think you can rationalize? And the demand environment, where you think we are in the repurchase cycle? Has that recovered? And I guess the context for that question is I feel like there either is confusion or risk of confusion as to whether or not you're walking away from kind of the core lower income consumer. And it sounds like there's more deliberate action in which you're keeping that consumer, maybe yielding them up to some capacity. Anything there would help.

Yes. Great question. Thanks, Dylan. Look, when we think about our store closures, we're rationalizing the fleet, looking at a couple of areas: a, just overall ability to generate profitability and whether that profit is accretive to the portfolio in general; b, right, as demographics are shifting, as populations are shifting, we're looking at are we able to recruit a doctor in that location to provide the best experience possible. And then, c, I mean, we're really just looking at where do we want to be from a concentration perspective in the future. So opportunistically, as leases are renewing, we're taking a look at is this a place that we want to continue to operate in the long term. And if it's not solving for being part of what we see as our -- aligned to our future initiatives, then we'll take the action to close the store. These are all largely aligned to what we communicated in Q4 of 2024 in terms of our rationalization strategy. We still feel great about the footprint that we have. So I wouldn't expect any massive changes or significant upticks in the pace of our closures. We still feel like the overall balance of the portfolio is very healthy.

Yes. And Dylan, I'll take the one on the demand environment. So from a cash pay perspective, again, we're still not seeing that return to pre-COVID purchase cycle that we all love. But that being said, our cash pay -- everything we're doing is related to lifestyle selling, assortment, pricing is also having a strong benefit on the cash pay consumer. We've seen the cash pay customers raise their hands and opt into better product, better frames, better lenses and better lens attachment, all coming through our kind of lifestyle selling approach. So your point and your question around are we generating additional yield out of that cash pay consumer? The answer is absolutely yes. And we're really pleased that, that cash pay consumer is migrating along with the kind of holistic strategy that we put in place.

Our next question comes from Brian Tanquilut with Jefferies.

This is Cameron Harbilas on for Brian Tanquilut. I guess the question I had was your comps growth guidance, you pulled up for the second half. But after 2 quarters of comps growth in excess of 5%, it seems like you're guiding towards a bit of a slowdown. Can you talk about like what the back half looks like for comps growth and just what the driving factor there is?

Yes. I'd say 2 main driving factors. First, we want to be prudent as there's still, I believe, a lot of noise in the macroeconomic environment and what that may -- how that may impact consumer behavior. I mean, look, we feel confident that we've got a right to win when the economy is strong, and we feel great that we've got the right to win when the economy is not strong. But at this point, we just want to be very prudent about our expectations for the second half. On the demand side, trying to be pragmatic, we are really excited about our new CRM capabilities that are coming online in the second half of the year. We're very excited about the new America's Best brand assets. And frankly, I want to see proof points that those are driving consumer impact before we take the step of rolling a potential benefit into the guide. On the second piece on the ticket perspective, we took our price increases largely Q4 and Q1 of this year. Our guide currently does not assume that we're taking any incremental price actions in Q4 as we anniversary the timing of last year's price increases. We're going to sit tight and evaluate how our new merchandising mix and how our pricing architecture to date has been impacting consumer behavior. And as we have a few more months of data under our belt, we'll take a decision as to when the next step is for additional pricing actions.

And then as a follow-up on the comps growth, it sounded like America's Best comps growth was mostly price increases, but you saw low double digits on managed care and it was positive both from volumes and pricing. Can you talk about the split there on the managed care book and comps growth?

Yes. So no, you're exactly right. The managed care cohort grew both from a footsteps basis and from a ticket basis. So again, nice growth there. Again, if you break it down further, obviously, then that leaves us to the cash pay consumer that from a ticket perspective was up and then from a traffic perspective was down. So again, I don't think we're going to break out specifics regarding the composition of that. But directionally, that's absolutely right. Traffic growth on the managed care consumer, ticket expansion on the managed care consumer, ticket expansion on cash pay and the footsteps on cash pay remain largely in line with what we saw in Q1.

And our next question comes from Matt Koranda with ROTH Capital.

So just curious to get a little bit of a deeper dive on the pricing discussion you guys have had so far. You mentioned sort of the optimized assortment and sort of the goal of getting to 40% of the mix of frames priced above $99. I guess our checks would suggest you're kind of already there at America's Best. So maybe just curious about sort of is there further iteration at the other banners that needs to happen? Maybe a little bit more there. And then how do we think about sort of lens pricing optimization and other avenues for price over time?

Yes. No, I appreciate that, Matt. And we've made a considerable amount of change to our assortment really throughout Q1 and kind of really as we are closing out Q2. So some of the frame brands that we introduced were late in the quarter, and this is a little bit to Chris' point earlier that super early stages and seeing how it actually pulls through. But obviously, we think the strategy is sound, and we have a great degree of optimism there. That being said, we do believe that there is further room to go here, especially with the encouraging signs that our cash pay consumers are opting into these products. The fact that the products we're introducing at a higher AUR are turning at a higher rate than our historical inventory norms. Again, we think those are all really good signs that we're on to something here, and that is that we can continue to expand our assortment, both from a raw price-taking perspective and from skewing our assortment a bit more premium. All of those things are working together, lifestyle training, frame evolution and the consumer is raising their hand and saying, yes, this makes sense. This makes sense for me. So again, super, super encouraging there. As it pertains to lens pricing, frankly, we're just scratching the surface there. There is a lot of opportunity in lens pricing. Lens pricing is not as straightforward. It's a much more complicated endeavor than frames, but we do believe we have opportunity there. And when we talk about long-term growth for evolution of mix and price, it certainly includes our aspirations for what we're going to do in lens as well. And that's something we anticipate to be more -- that we'll unpack more in future quarters.

Okay. I appreciate all that detail. And then maybe just as my follow-up, on store productivity, I'm curious how much runway you guys think we have for improvement there? I assume the majority of it is going to come from sort of the pricing optimization exercise we're going through. But how much benefit could you also get from sort of trimming some of the underperforming stores in the base?

Yes. Look, I think there's still some runway ahead in terms of optimizing our fleet, both in terms of some additional closures as well as just reinvesting and gaining leverage in the stores that we have. The price changes are definitely going to help drive 4-wall store operating profit for us. And look, as we continue to -- we've spoken quite a bit about our remote exam capabilities. We just celebrated our 1 millionth remote exam. We feel great about where we're at, and we still feel like there's runway ahead in terms of improving the productivity of how we leverage that technology and ultimately kind of see that flow through the P&L.

And our next question comes from Anthony Chukumba with Loop Capital Markets.

I guess my first question is on the Ray-Ban and the Nuance, the pilots. I was just wondering what the early results have been and if based on the early results, you're going to -- you're thinking about rolling those products out to additional stores.

Yes. Anthony, great question. And so far, I think we are live with these products in about 50 or so locations. And what we're seeing so far is super encouraging. Our associates are excited about the product. Our customers are excited about the product. And from our data, we believe that we are selling at the same average rate that the category is even in these early innings. That being said, this is a completely different category of product to sell. And when we -- before we take it to scale, we want to ensure that we have the right training, the right talk track, the right ability for our team members to articulate the benefit to the consumer. Again, this is a -- as you can imagine, it's a completely new product category with new requirements, new approaches of sales to the consumer. And think about this first 50 really is not -- this is not a pilot of are we going to. It is a pilot of how do we figure out how to best take it to scale. We will absolutely be playing in this category. We believe in this category. Early innings suggest that we can win here. So we're using this as a test bed to understand how do we best take this to scale and what can we learn to make that as smooth and easy for our 14,000 team members as possible.

Got it. That's helpful. And then just a quick follow-up. So you mentioned not anniversarying a promotion. I guess 2 related questions. One, can you just remind us what that promotion was? And then secondly, do you think -- obviously, kind of a counterfactual, but do you think that if you had anniversaried that promotion, you would have -- your traffic would have been positive this quarter?

Yes. It was the Wise Buys promotion from last year where we had dropped the intro combo offer by approximately $10. And that was -- we know that was traffic driving in 2024. However, it was traffic driving of that kind of consumer cohort that was coming in shopping exclusively for that 2 pair for $69 and the free eye exam offer. So from a profit contribution perspective, it just wasn't that strong. So we do believe that it drove traffic in '24. We intentionally chose not to repeat it based on the marginality of the incrementality of traffic that it generated in '24. And again, we think that's also part of the recipe of our success for the quarter and why we saw such strong basis points accretion at the EBIT line.

Got it. By the way, I love the new logo and looking forward to the Analyst Day. Keep up the good work guys.

Thank you.

We do as well. I think, Anthony, honestly, thank you for that. And it is -- if you could just see the level of enthusiasm and excitement not just you have, but really the entire organization has about the new mark for National Vision and where we're going with America's Best. It is a super energizing time for our team members really embracing this kind of new visual identity and the direction that we're headed. So thank you, Anthony.

And this concludes the question-and-answer session. I would now like to turn it back to Alex for closing remarks.

Thanks so much, and thanks, everyone, for your time this morning. As you can probably tell, we're really excited about the momentum we have within the company. We think there's lots and lots of runway over the next several years as we layer in initiatives that will drive continued performance of our store base and of our brands. I want to thank everyone again for their time, and we'll talk to you next quarter. Thanks so much.

And thank you for your participation in today's conference. This does conclude the program. You may now disconnect.