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National Vision's (EYE) Q3 Earnings Top Estimates, View Raised

Zacks Equity Research

National Vision Holdings Inc.’s EYE third-quarter 2019 adjusted earnings per share (EPS) 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.

National Vision Holdings, Inc. Price, Consensus and EPS Surprise

 

National Vision Holdings, Inc. Price, Consensus and EPS Surprise

National Vision Holdings, Inc. price-consensus-eps-surprise-chart | National Vision Holdings, Inc. Quote

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%.

Our Take

National Vision exited the third quarter with better-than-expected results. The company has been witnessing positive comparable growth on increased customer transaction over the past 71 straight quarters. National Vision’s efforts to execute on its core growth drivers in 2019 buoy optimism. The company is optimistic about maintaining the growth momentum at its Legacy segment, which witnessed 5.7% growth in the third quarter.

In this regard, the company reiterated its store count guidance. The company is also steadily progressing with its omni-channel efforts to enhance customer experience and operating efficiency.

However, the decline in the gross margin is concerning.

Zacks Rank & Key Picks

Currently, National Vision carries a Zacks Rank #3 (Hold).

A few better-ranked medical device companies, which posted solid results this earnings season, are ResMed Inc RMD, NuVasive, Inc NUVA and Thermo Fisher Scientific Inc TMO.

ResMed, with a Zacks Rank #2 (Buy), reported first-quarter fiscal 2020 adjusted EPS of 93 cents, surpassing the Zacks Consensus Estimate by 6.9%. Its revenues of $681.1 million outpaced the consensus mark by 3.7%.

NuVasive’s third-quarter 2019 adjusted EPS of 59 cents surpassed the Zacks Consensus Estimate by 9.3%. Its revenues totaled $290.8 million, which surpassed the consensus estimate by 2.4%. The stock currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, with a Zacks Rank #2, delivered third-quarter 2019 adjusted EPS of $2.94, beating the Zacks Consensus Estimate by 2.1%. Its revenues of $6.27 billion beat the Zacks Consensus Estimate by 1.3%.

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