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National Vision (EYE) Down 11.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for National Vision (EYE). Shares have lost about 11.1% in that time frame, underperforming the S&P 500.

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

National Vision Q2 Earnings Lag Estimates, Margins Down

National Vision Holdings Inc.’s second-quarter 2019 adjusted earnings per share (EPS) of 20 cents, missed the Zacks Consensus Estimate by a penny. However, the figure was flat year over year. Reported EPS was 13 cents, showing an 18.8% decline from year-ago 16 cents.

Revenues in Detail

Net revenues in the quarter totaled $429.5 million, beating the Zacks Consensus Estimate by 2%. Moreover, revenues rose 11.4% from the year-ago quarter. The upside was primarily led by increased net revenues from AC Lens contact distribution business and to some extent, higher optometrist costs.

Comparable store sales grew 4.4% in the reported quarter (adjusted comparable store sales growth was 3.8%). The upside was led by a 0.3% comparable increase in Military brand. However, there has been a decline in all other brands (America’s Best, Eyeglass World and Fred Meyer) from the year-ago period.

Per management, this was the 70th consecutive quarter of positive comparable store sales growth.

Business Development

National Vision opened 24 new stores and closed one in second-quarter 2019. The company exited the quarter with 1,128 stores.

Margin Update

Gross margin contracted 123 basis points (bps) year over year to 52.8% in the quarter under review. Selling, general and administrative expenses rose 10.1% year over year to $182.3 million. Adjusted operating margin (without depreciation and amortization, asset impairment and certain other non-recurring expenses) declined 71 bps to 10.4% from the year-ago quarter.

Financial Details

National Vision exited the second quarter of 2019 with cash and cash equivalents of $82.8 million compared with $72.5 million a year-ago (a jump of 14.2%). In the second quarter, net cash provided by operating activities increased 43.7% to $119.3 million from $83 million a year ago.

Guidance Issued

For 2019, the company reaffirmed its net revenue outlook at $1.68-$1.71 billion. The projection includes an estimated $20-25 million of incremental net revenues from the extension of the contact lens distribution business with Walmart, among others. The Zacks Consensus Estimate for the same is pegged at $1.70 billion, at the high end of the guided range. Also, total comparable store sales growth is expected in the band of 3.5-5.5% (adjusted comparable store sales growth within 3-5%).

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted 6.67% due to these changes.

VGM Scores

Currently, National Vision has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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

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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