National Vision (EYE) Up 3.5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for National Vision (EYE). Shares have added about 3.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is National Vision due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

National Vision’s Q3 Earnings Top Estimates, View Raised

National Vision Holdings Inc.’s third-quarter 2019 adjusted earnings per share of 18 cents surpassed the Zacks Consensus Estimate by 50%. The figure improved 63.6% year over year.

The adjustments include certain non-recurring charges related to loss on extinguishment of debt and asset impairment and expenses on stock compensation.

However, on a GAAP basis, the company’s earnings of a penny per share reflect an 83.3% drop from the year-ago quarter.

Revenues in Detail

Net revenues in the quarter totaled $431.9 million, beating the Zacks Consensus Estimate by 1.4%. Moreover, revenues rose 11.5% from the year-ago quarter on strength in AC Lens contact distribution business. However, the top line was adversely impacted by the timing of unearned revenues, and to some extent, higher optometrist costs.

Comparable store sales grew 5.7% in the reported quarter (adjusted comparable store sales growth was 6.2%). The upside was primarily led by a 6.7% comparable sales growth in America’s Best and 5.2% comparable sales growth in Eyeglass World.

Per management, this was the 71st consecutive quarter of positive comparable store sales growth.

National Vision opened 17 new stores in third-quarter 2019 and exited the quarter with 1,145 stores. The company, however, did not close any store in the reported quarter.

Margin Update

Gross margin contracted 22 basis points (bps) year over year to 52.7% in the quarter under review. Selling, general and administrative expenses rose 2.8% year over year to $190.3 million.

Adjusted operating margin (without depreciation and amortization, asset impairment and certain other non-recurring expenses) expanded 348 bps to 8.6% from the year-ago quarter.

Financial Details

National Vision exited the third quarter of 2019 with cash and cash equivalents of $94.1 million compared with $82.8 million in the preceding quarter (a jump of 13.6%).

Year-to-date net cash provided by operating activities increased 47.4% to $170.9 million from $115.9 million.

Guidance Updated

For 2019, the company raised its net revenue outlook to a range of $1.705-$1.712 billion (earlier $1.675-$1.705 billion). The projection includes an estimated $27 million of incremental net revenue from AC Lens contact lens distribution business. The Zacks Consensus Estimate for the same is pegged at $1.70 billion, which is below the guided range.

Adjusted comparable store sales growth is projected in the band of 5-5.5%, up from the previously mentioned 3-5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -1300% due to these changes.

VGM Scores

At this time, National Vision has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, National Vision has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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