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National Vision (EYE) Gains on Volume Growth Amid Margin Woes

National Vision Holdings, Inc. EYE is gaining from new store openings across America's Best and Eyeglass World brands. However, dull sales and stiff competition raise apprehension. The stock currently carries a Zacks Rank #3 (Hold).

National Vision reported better-than-expected earnings for the first quarter of 2022. The company’s first-quarter results benefited from pent-up demand from store closures. The timing of unearned revenues, resulting from the sales volume in the final week of the reported quarter, also aided the top line. The notable store count growth for America's Best and Eyeglass World brands instills optimism. The partnership extension with Walmart through 2024 looks encouraging.

The company opened 17 new stores during the first quarter and ended with a total of 1,292 stores. The store count increased 5% from the previous year’s figure. To address the capacity constraints related to eye examinations, National Vision continued to expand its remote medicine initiative in the quarter under review.

National Vision plans to continue executing its core growth initiatives and further investing in strengthening competitive advantages. The company had a strong start, with 17 openings in the first quarter of 2022. During the reported quarter, the company noted that it intends to open at least 80 stores in 2022. Currently, it has a solid pipeline of specific locations for this year and 2023. For 2022, the company is focused on new initiatives related to optometrists' compensation and recruiting. The company has raised its target to operate remote medicine in up to 300 stores by the end of 2022, up from the previous goal of at least 200 stores. The company is also focused on being a key low-cost provider.

National Vision Holdings, Inc. Price

National Vision Holdings, Inc. Price
National Vision Holdings, Inc. Price

National Vision Holdings, Inc. price | National Vision Holdings, Inc. Quote

In the first quarter, the company incurred $28 million in capital expenditures, primarily focused on new stores and customer-facing technology investments. The company is also on track for capital expenditures in the range of $110-$115 million in 2022 as it continues to invest in key growth initiatives.

On the flip side, National Vision’s revenues for the first quarter missed the Zacks Consensus Estimate and declined year over year. The decline is primarily attributable to the Omicron impact, macroeconomic challenges, exam capacity constraints and unfavorable comparison with a very strong 2021. In the reported quarter, the company’s store operations and customer traffic were negatively impacted by the resurgence of COVID-19 cases during the start of 2022.

The ongoing inflationary pressure, weakening consumer confidence and the lapping of the government stimulus from last year further impacted optical consumer demand. Given the current inflationary environment, the company implemented the first pricing change to America's Best signature offer in over 15 years.

National Vision has been witnessing a volatile comp performance due to the pandemic over the past two years. In first-quarter 2022, adjusted comparable-store sales fell 6.8% year over year, impacted by a decline in customer transactions. The company’s outlook for full-year 2022 assumes comps growth in the negative low teens. National Vision projects adjusted comparable store sales growth to decline in the range of 4%-7% this year.

Contraction of both margins on escalating expenses is discouraging. The company’s lowered outlook for 2022 raises apprehension.

Over the past six months, National Vision’s shares have underperformed the industry it belongs to. The stock has declined 45.4% compared with the industry’s 34% fall.

Key Picks

A few better-ranked stocks in the broader medical space are Alkermes plc ALKS, AMN Healthcare Services, Inc. AMN and Medpace Holdings, Inc. MEDP.

Alkermes has an estimated long-term growth rate of 25.1%. Alkermes’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alkermes has outperformed the industry in the past year. ALKS has gained 15.2% against the industry’s 44.2% decline in the said period.

AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently sports a Zacks Rank #1.

AMN Healthcare has outperformed its industry in the past year. AMN has gained 4.9% against the industry’s 54.7% fall.

Medpace has a historical growth rate of 27.3%. Medpace’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%. It currently has a Zacks Rank #2 (Buy).

Medpace has outperformed its industry in the past year. MEDP has declined 25.3% compared with the industry’s 54.7% fall.

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