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National Vision (EYE) Rides on Positive Comps Amid Cost Woes

Zacks Equity Research

On Mar 20, we initiated a research report on National Vision Holdings, Inc. EYE. The company has been continuously witnessing positive comparable store sales (comps) growth. However, rising costs can exert pressure on the bottom line of this Rank #3 (Hold) company.

It has been witnessing positive comps on increased customer transaction over the last 68 sequential quarters, which makes us optimistic on the stock. In fourth-quarter 2018, comps increased 4.3% with a 2.9% rise in adjusted comparable store sales growth. Comps growth was backed by rising average ticket and customer transactions.

During the quarter, National Vision witnessed solid comps in its popular brands. Consequently, America's Best and Eyeglass World recorded year-over-year gain of 5.9% and 2.3%, respectively. Involvement in vision insurance programs continues to be a positive comps driver for the company. For fiscal 2019, National Vision expects adjusted comparable store sales growth of 3-5%.

The company’s focus on expanding total number of stores in 2019 encourages us. Following the formula-based approach, National Vision plans to open around 75 stores in fiscal 2019. Management announced a few locations in its pipeline for fiscal 2019 and 2020.

The company intends to open majority of the new stores focusing on America’s Best brand. National Vision also plans to open some new stores for its Eyeglass World brand.

Meanwhile, this leading and rapidly growing optical retailer in the United States has been underperforming its industry over the past three months. The stock has gained 12.3% in comparison with the industry’s 19.6% rally.

National Vision plans to continuously spend on television advertising and digital marketing in order to maintain the comps growth trend. Rising costs have been putting pressure on its bottom line. National Vision’s net margin trend has remained negative over the past two years. Escalating costs are putting pressure on margins, which remain a concern for this company.

Moreover, the company’s high dependence on a limited number of suppliers exposes it to concentration of supplier risk.

Key Picks

Some better-ranked stocks in the broader medical space are Integer Holdings Corporation ITGR, Veeva Systems Inc. VEEV and Hologic, Inc. HOLX.

Integer Holdings projects an earnings growth rate of 31.2% for the first quarter. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Veeva Systems’ long-term earnings growth rate is projected at 14.8%. The stock currently carries a Zacks Rank of 2 (Buy).

Hologic’s long-term earnings growth rate is projected at 8.9%. The stock presently has a Zacks Rank #2.

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