NATIONAL VISION HOLDINGS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The following contains management's discussion and analysis of our financial
condition and results of operations and should be read together with the
unaudited condensed consolidated financial statements and the related notes
thereto included elsewhere in this Form 10-Q (this "Form 10-Q") and the audited
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission (the "SEC") on
January 1, 2022 (the "2021 Annual Report on Form 10-K.") This discussion
contains forward-looking statements that reflect our plans, estimates and
beliefs and involve numerous risks and uncertainties, including, but not limited
to, those described in the "Risk Factors" section of the 2021 Annual Report on
Form 10-K and in the "Risk Factors" section of this Form 10-Q, as such risk
factors may be updated from time to time in our periodic filings with the
SEC. Actual results may differ materially from those contained in any
forward-looking statements. You should carefully read "Special Note Regarding
Forward-Looking Statements" in this Form 10-Q.

Insight

We are one of the largest and fastest growing optical retailers in the United
States and a leader in the attractive value segment of the U.S. optical retail
industry. We believe that vision is central to quality of life and that people
deserve to see their best to live their best, regardless of their budget. Our
mission is to make quality eye care and eyewear affordable and accessible to all
Americans. We achieve this by providing eye exams, eyeglasses and contact lenses
to value seeking and lower income consumers. We deliver exceptional value and
convenience to our customers, with an opening price point that strives to be
among the lowest in the industry, enabled by our low-cost operating platform. We
reach our customers through a diverse portfolio of 1,292 retail stores across
five brands and 18 consumer websites as of April 2, 2022.

COVID-19[feminine]

The COVID-19 pandemic continued to cause business impacts in the first quarter
of 2022 primarily driven by the emergence of the Omicron variant in late 2021,
and its further spread in early 2022, which caused a surge in COVID-19 cases
globally, and resulted in increased associate and vision care professional
absences, adjusted work schedules and reduced consumer traffic for our
operations.

The ultimate impact of COVID-19 on our operations and financial performance in
future periods remains uncertain and will depend on future pandemic-related
developments, including the duration of the pandemic, potential subsequent waves
of COVID-19 infection or potential new variants, the effectiveness and adoption
of COVID-19 vaccines and therapeutics, supplier impacts and related government
actions to prevent and manage disease spread, including the implementation of
any federal, state, local or foreign vaccine mandates, all of which are
uncertain and cannot be predicted. In addition, we could experience disruptions
of product deliveries as a result of supply chain issues caused by the COVID-19
pandemic, including as a result of the temporary shutdowns in countries which
support our supply chain. Prolonged periods of shutdown in these countries or a
deterioration of conditions in other countries that are part of our supply chain
as well as increasing strains on international and domestic supply chain
infrastructure could result in product and equipment availability delays, as
well as increased costs to obtain and ship these items to meet customer demand.
We have made, and may continue to make, inventory forward buys to help manage
potential supply chain disruptions. We continue to monitor and evaluate
additional measures that we may elect to take as a response to the COVID-19
pandemic and the several macroeconomic effects resulting from the pandemic.
There can be no assurance whether or when any such measures will be adopted. For
a discussion of measures we have previously taken in response to the pandemic,
and the impact of the COVID-19 pandemic on our operations and performance,
please see Part I. Item 1A. "Risk Factors" and Part II. Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Company's 2021 Annual Report on Form 10-K.

Overall economic situation

Changes in economic conditions, supply chain constraints, logistics challenges,
labor shortages, the conflict in Ukraine, and steps taken by governments and
central banks in response to the pandemic as well as other stimulus and spending
programs, have led to higher inflation than previously experienced or expected.
Consumer preferences and demand, as well as spending habits, including for our
goods and services, are impacted by the prevailing macroeconomic conditions,
inflation, salaries and wages, consumer confidence and consumer perception.

Business impact

The COVID-19 pandemic, increasing macroeconomic uncertainty of the U.S. economy
and emerging constraints to exam capacity adversely affected our sales in the
first quarter of 2022 and may continue to impact our performance going forward.
Early in the first quarter of 2022, the Omicron variant led to reduced customer
demand and constrained the exam capacity of vision care professionals due to
labor shortages in an already competitive market

                                       20
--------------------------------------------------------------------------------
  Table of Contents
for vision care professionals and preferences for adjusted work schedules. Exam
capacity, which encompasses the overall availability of vision care
professionals, is impacted by several factors including retention, hiring,
remote medicine coverage and work schedules. During the quarter, adverse
macroeconomic conditions such as inflation also impacted consumer demand and
created a temporary challenging environment for our business. We remain focused
on our strategy to provide our customers and patients reliable and quality low
cost eye care and eyewear, and are taking certain actions to enhance our exam
capacity through recruitment, retention and remote medicine initiatives.

The disclosures contained in this Form 10-Q are made only as of the date hereof,
and we undertake no obligation to publicly update or revise any forward-looking
statement as a result of new information, future events or otherwise, except as
required by law. For further information, please see "Forward-Looking
Statements."

Brand and segment information

Our activities consist of two reportable segments:

•Owned & Host - As of April 2, 2022, our owned brands consisted of 852 America's
Best Contacts and Eyeglasses retail stores and 127 Eyeglass World retail stores.
In America's Best stores, vision care services are provided by optometrists
employed by us or by independent professional corporations or similar entities.
America's Best stores are primarily located in high-traffic strip centers next
to value-focused retailers. Eyeglass World locations primarily feature eye care
services provided by independent optometrists and optometrists employed by
independent professional corporations or similar entities and on-site optical
laboratories that enable stores to quickly fulfill many customer orders and make
repairs on site. Eyeglass World stores are primarily located in freestanding or
in-line locations near high-foot-traffic shopping centers. Our Host brands
consisted of 54 Vista Optical locations on select military bases and 29 Vista
Optical locations within select Fred Meyer stores as of April 2, 2022. We have
strong, long-standing relationships with our Host partners and have maintained
each partnership for over 22 years. These brands provide eye exams primarily by
independent optometrists. All brands utilize our centralized laboratories. This
segment also includes sales from our America's Best, Eyeglass World, and
Military omni-channel websites.

•Legacy - We manage the operations of, and supply inventory and laboratory
processing services to, 230 Vision Centers in Walmart retail locations as of
April 2, 2022. This strategic relationship with Walmart is in its 32nd year.
Pursuant to a January 2020 amendment to our management & services agreement with
Walmart, we added five additional Vision Centers in Walmart stores in fiscal
year 2020. On July 17, 2020, NVI and Walmart extended the current term and
economics of the management & services agreement by three years to February 23,
2024. Under the management & services agreement, our responsibilities include
ordering and maintaining merchandise inventory; arranging the provision of
optometry services; providing managers and staff at each location; training
personnel; providing sales receipts to customers; maintaining necessary
insurance; obtaining and holding required licenses, permits and accreditations;
owning and maintaining store furniture, fixtures and equipment; and developing
annual operating budgets and reporting. We earn management fees as a result of
providing such services and therefore we record revenue related to sales of
products and product protection plans to our Legacy partner's customers on a net
basis. Our management & services agreement also allows our Legacy partner to
collect penalties if the Vision Centers do not generate a requisite amount of
revenues. No such penalties have been assessed under our current arrangement,
which began in 2012. We also sell to our Legacy partner merchandise that is
stocked in retail locations we manage pursuant to a separate supplier agreement,
and provide centralized laboratory services for the finished eyeglasses for our
Legacy partner's customers in stores that we manage. We lease space from Walmart
within or adjacent to each of the locations we manage and use this space for
vision care services provided by independent optometrists or optometrists
employed by us or by independent professional corporations or similar entities.
During the three months ended April 2, 2022, sales associated with this
arrangement represented 8.0% of consolidated net revenue. This exposes us to
concentration of customer risk.


                                       21
--------------------------------------------------------------------------------
  Table of Contents
Our consolidated results also include the following activity recorded in our
Corporate/Other category:

•Our e-commerce platform of 14 dedicated websites managed by AC Lens. Our
e-commerce business consists of five proprietary branded websites, including
aclens.com, discountglasses.com and discountcontactlenses.com, and nine
third-party websites with established retailers, such as Walmart, Sam's Club and
Giant Eagle as well as mid-sized vision insurance providers. AC Lens handles
site management, customer relationship management and order fulfillment and also
sells a wide variety of contact lenses, eyeglasses and eye care accessories.

•AC Lens also distributes contact lenses wholesale to Walmart and Sam's Club. We
incur costs at a higher percentage of sales than other product categories. AC
Lens sales associated with Walmart and Sam's Club contact lenses distribution
arrangements represented 6.7% of consolidated net revenue.

•Managed care business conducted by FirstSight, our wholly-owned subsidiary that
is licensed as a single-service health plan under California law, which arranges
for the provision of optometric services at the offices next to certain Walmart
stores throughout California, and also issues individual vision plans in
connection with our America's Best operations in California.

•Unallocated corporate overhead expenses, which are a component of selling,
general and administrative expenses and are comprised of various home office
expenses such as payroll, occupancy costs, and consulting and professional fees.
Corporate overhead expenses also include field services for our five retail
brands.

Reportable segment information is presented on the same basis as our condensed
consolidated financial statements, except reportable segment sales which are
presented on a cash basis including point of sales for managed care payors and
excluding the effects of unearned and deferred revenue, consistent with what our
CODM regularly reviews. Reconciliations of segment results to consolidated
results include financial information necessary to adjust reportable segment
revenues to a consolidated basis in accordance with U.S. GAAP, specifically the
change in unearned and deferred revenues during the period. There are no revenue
transactions between reportable segments, and there are no other items in the
reconciliations other than the effects of unearned and deferred revenue. See
Note 10. "Segment Reporting" in our condensed consolidated financial statements
included in Part I. Item 1. of this Form 10-Q.

Deferred revenue represents the timing difference of when we collect the cash
from the customer and when services related to product protection plans and eye
care club memberships are performed. Increases or decreases in deferred revenue
during the reporting period represent cash collections in excess of or below the
recognition of previous deferrals. Unearned revenue represents the timing
difference of when we collect cash from the customer and delivery/customer
acceptance, and includes sales of prescription eyewear during approximately the
last seven to 10 days of the reporting period.

Trends and other factors affecting our business

A variety of trends and other factors will affect or have affected our operating results, including:

Impact of COVID-19

The COVID-19 pandemic has had far-reaching impacts, directly and indirectly, on
our operations. We continue to monitor the evolving situation as there remain
many uncertainties regarding the pandemic and more recent outbreaks of variants,
including anticipated duration, vision care professional availability, related
healthcare authority guidelines and efficacy of vaccination initiatives,
including the impact of, and associated risks regarding, federal, state and
local vaccination and testing programs. We continue to monitor potential impacts
on our stores and exam capacity, lab network, and potential disruptions of
product and equipment deliveries. To date, we have been able to meet customer
demand with operations at our laboratories and our supply chain partners.
However, prolonged shutdowns in countries which support our supply chain or a
deterioration of conditions in such countries and others or increasing strains
on international and domestic supply chain infrastructure could result in
product and equipment availability delays in the future. We could experience
further material impacts as a result of COVID-19, including, but not limited to,
charges from additional asset impairments and deferred tax valuation allowances.
We will continue to evaluate additional measures that we may elect to take as a
response to the pandemic, including, where appropriate, future action to reduce
store hours and patient appointments, temporarily close stores or make
additional forward buys. There can be no assurance whether or when any such
measures will be adopted. For a discussion of significant risks that have the
potential to cause our actual results to differ materially from our
expectations, refer to Part II. Item 1A. "Risk Factors" in this Form 10-Q and
Part I. Item 1A. "Risk Factors," included in our 2021 Annual Report on Form
10-K.


                                       22
--------------------------------------------------------------------------------
  Table of Contents
Overall economic trends, consumer preferences and demand

Our business depends on consumer demand for our products and, consequently, is
sensitive to a number of factors that influence consumer confidence and
spending, such as general economic conditions, consumer disposable income,
energy and fuel prices, recession and fears of recession, unemployment, minimum
wages, availability of consumer credit, consumer debt levels, conditions in the
housing market, interest rates, tax rates and policies, inflation, consumer
confidence in future economic conditions and political conditions, war and fears
of war (including the recent Russian invasion of Ukraine), inclement weather,
natural disasters, terrorism, outbreak of viruses or widespread illness and
consumer perceptions of personal well-being and security. Over the past few
years, global markets and economic conditions have been challenging,
particularly in light of the COVID-19 pandemic. During periods of economic
downturn and uncertainty, our customers especially benefit from our low prices.
The long-term effects of the COVID-19 pandemic and other macroeconomic and
geopolitical events on consumer preferences and demand remain uncertain. We
believe, but cannot be certain, our business model of providing exceptional
value and convenience to customers, enabled by our low-cost operating platform
will mitigate these impacts to a certain extent; however uncertainties and risk
exposures may be exacerbated by the immediate and ongoing impacts of these
factors.

Recruitment of eye care professionals, coverage and expanded offers

Our ability to continue to attract and retain qualified vision care
professionals affect exam capacity and is critical to our operations. Our
operations, like those of many of our competitors, depend on our ability to
offer both eyewear and eye exams. We compete with other optical retail
companies, health systems and group practices for vision care professionals. We,
as well as the professional corporations or similar entities that employ
optometrists in certain of our retail locations, could face difficulties
attracting and retaining qualified professionals if we or such corporations fail
to offer competitive compensation and benefits. Increased compensation for
vision care professionals could raise our costs and negatively affect our
margins. We believe the impacts of the COVID-19 pandemic on vision care
professional availability, including a competitive recruiting market and
preferences for adjusted work schedules, and the demand for optometrists
exceeding supply in certain areas in the first quarter of 2022 have caused
constraints in exam capacity. Due to these factors the costs to employ or retain
optometrists may increase, potentially materially, from current levels. We are
investing in recruitment and retention initiatives along with continuing our
implementation of remote medicine technologies.

Pricing strategy

We are committed to providing our products to our customers at low prices. We
generally employ a simple low price/high value strategy that consistently
delivers savings to our customers without the need for extensive promotions.
Inflationary pressures, including wage investments, consumer confidence and
preferences and increased raw material costs, could impact our profitability and
lead us to attempt to offset such increases through various pricing actions.
Effective May 9, 2022 we changed the price of our America's Best signature offer
to "two pairs of eyeglasses for $79.95, including a free eye exam" from its
original $69.95 price. Effective March 14, 2022, we changed the price of our
Eyeglass World opening offer to "two pairs of eyeglasses for $89" from its
original price of $78. We believe that this change will enable us to continue to
offer the best possible value and service to our customers at prices that allow
us to maintain our brands' strong value propositions in the marketplace.

Same store sales growth

Comparable store sales growth is a key driver of our business and our value
proposition will continue to drive comparable store sales growth as we attract
new customers and increase loyalty with existing customers. During the three
months ended April 2, 2022 comparable store sales growth was negatively impacted
due to the Omicron COVID-19 variant, constraints on exam capacity and other
overall economic trends impacting consumer preferences and demand. We believe
our business model of providing exceptional value and convenience to customers,
enabled by our low-cost operating platform will mitigate these impacts to a
certain extent. Our strategies to mitigate these effects include, but are not
limited to, investing in recruitment and retention initiatives along with
continuing our implementation of remote medicine technologies and optimizing our
marketing investments. The impact of the COVID-19 pandemic, constraints on exam
capacity and macroeconomic factors on our comparable store sales growth remains
uncertain, and effects and relevant risk exposures may be exacerbated in the
future.

Intermediate results and seasonality

Historically, our business has realized a higher portion of net revenue,
operating income, and cash flows from operations in the first half of the fiscal
year, and a lower portion of net revenue, operating income, and cash flows from
operations in the fourth fiscal quarter. Consumer behavior driven by the
COVID-19 pandemic, impacts on overall economic trends, consumer preferences and
demand has resulted in a departure from seasonal norms we

                                       23
--------------------------------------------------------------------------------
  Table of Contents
have experienced in recent years and we expect it will continue to disrupt the
historical quarterly cadence of our results of operations for an unknown period
of time.

Other factors

We remain committed to our long-term view and continue to position ourselves to make progress against our key initiatives while balancing the near-term challenges and uncertainty presented by the COVID-19 pandemic and other macroeconomic factors. We believe the following factors may continue to influence our results in the short and long term:

•Opening of new stores;

•Managed care and insurance;

•Inflation;

•Investment in infrastructure;

•Our ability to source and distribute products efficiently; and

• Competition and industry consolidation

How we assess the performance of our business

We consider a variety of financial and operating measures in assessing the
performance of our business. The key measures we use to determine how our
consolidated business and operating segments are performing are net revenue,
costs applicable to revenue, and selling, general, and administrative expenses.
In addition, we also review store growth, Adjusted Comparable Store Sales
Growth, Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA,
Adjusted EBITDA Margin and Adjusted Diluted EPS.

Net revenue

We report as net revenue amounts generated in transactions with retail customers
who are the end users of our products, services, and plans. Comparable store
sales growth and new store openings are key drivers of net revenue and are
discussed below. Also, the timing of unearned revenue can affect revenue
recognized in a particular period.

Costs applicable to revenue

Customer tastes and preferences, product mix, changes in technology, significant
increases or slowdowns in production, and other factors impact costs applicable
to revenue. The components of our costs applicable to revenue may not be
comparable to other retailers.

Selling, general and administrative expenses

SG&A generally fluctuates consistently with revenue due to the variable store,
field office and corporate support costs; however, some fixed costs slightly
improve as a percentage of net revenue as our net revenues grow over time.

New store openings

The total number of new stores per year and the timing of store openings has,
and will continue to have, an impact on our results. We expect to open at least
80 stores in the current year. We will continue to monitor and determine our
plans for future new store openings based on health, safety and economic
conditions.

                                       24
--------------------------------------------------------------------------------
  Table of Contents
Adjusted Comparable Store Sales Growth

We measure Adjusted Comparable Store Sales Growth as the increase or decrease in
sales recorded by the comparable store base in any reporting period, compared to
sales recorded by the comparable store base in the prior reporting period, which
we calculate as follows: (i) sales are recorded on a cash basis (i.e., when the
order is placed and paid for or submitted to a managed care payor, compared to
when the order is delivered), utilizing cash basis point of sale information
from stores; (ii) stores are added to the calculation during the 13th full
fiscal month following the store's opening; (iii) closed stores are removed from
the calculation for time periods that are not comparable; (iv) sales from
partial months of operation are excluded when stores do not open or close on the
first day of the month; and (v) when applicable, we adjust for the effect of the
53rd week. Quarterly, year-to-date and annual adjusted comparable store sales
are aggregated using only sales from all whole months of operation included in
both the current reporting period and the prior reporting period. When a partial
month is excluded from the calculation, the corresponding month in the
subsequent period is also excluded from the calculation. There may be variations
in the way in which some of our competitors and other retailers calculate
comparable store sales. As a result, our adjusted comparable store sales may not
be comparable to similar data made available by other retailers.

Adjusted Comparable Store Sales Growth is a non-GAAP financial measure, which we
believe is useful because it provides timely and accurate information relating
to the two core metrics of retail sales: number of transactions and value of
transactions. We use Adjusted Comparable Store Sales Growth as the basis for key
operating decisions, such as allocation of advertising to particular markets and
implementation of special marketing programs. Accordingly, we believe that
Adjusted Comparable Store Sales Growth provides timely and accurate information
relating to the operational health and overall performance of each brand. We
also believe that, for the same reasons, investors find our calculation of
Adjusted Comparable Stores Sales Growth to be meaningful.

Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS (collectively, the “Company Non-GAAP Measures”)

The Company Non-GAAP Measures are key measures used by management to assess our
financial performance. The Company Non-GAAP Measures are also frequently used by
analysts, investors and other interested parties. We use the Company Non-GAAP
Measures to supplement U.S. GAAP measures of performance to evaluate the
effectiveness of our business strategies, to make budgeting decisions, to
establish discretionary annual incentive compensation and to compare our
performance against that of other peer companies using similar measures. See
"Non-GAAP Financial Measures" for definitions of the Company Non-GAAP Measures
and for additional information.

                                       25
--------------------------------------------------------------------------------
  Table of Contents
Results of Operations

The following table summarizes the major components of our results of operations for the periods indicated, in dollars and as a percentage of our net revenues.

                                                                          Three Months Ended
In thousands, except earnings per share, percentage and store
data                                                                              April 2, 2022               April 3, 2021
Revenue:
Net product sales                                                             $             433,253       $             443,067
Net sales of services and plans                                                              94,458                      91,113
Total net revenue                                                                           527,711                     534,180
Costs applicable to revenue (exclusive of depreciation and
amortization):
Products                                                                                    164,219                     159,691
Services and plans                                                                           71,818                      64,999
Total costs applicable to revenue                                                           236,037                     224,690
Operating expenses:
Selling, general and administrative expenses                                                228,554                     223,593
Depreciation and amortization                                                                25,151                      23,555
Asset impairment                                                                                406                         959
Other expense (income), net                                                                     231                        (65)
Total operating expenses                                                                    254,342                     248,042
Income from operations                                                                       37,332                      61,448
Interest expense (income), net                                                              (4,144)                       6,330
Earnings before income taxes                                                                 41,476                      55,118
Income tax provision                                                                         11,329                      11,686
Net income                                                                    $              30,147       $              43,432

Operating data:
Number of stores open at end of period                                                        1,292                       1,230
New stores opened during the period                                                              17                          25
Adjusted Operating Income                                                     $              45,304       $              67,668
Diluted EPS                                                                   $                0.34       $                0.48
Adjusted Diluted EPS                                                          $                0.33       $                0.48
Adjusted EBITDA                                                               $              68,583       $              89,350

Percentage of net revenue:
Total costs applicable to revenue                                                           44.7  %                     42.1  %
Selling, general and administrative                                                         43.3  %                     41.9  %
Total operating expenses                                                                    48.2  %                     46.4  %
Income from operations                                                                       7.1  %                     11.5  %
Net income                                                                                   5.7  %                      8.1  %
Adjusted Operating Income                                                                    8.6  %                     12.7  %
Adjusted EBITDA                                                                             13.0  %                     16.7  %


                                       26

————————————————– ——————————

Contents

Three months completed April 2, 2022 compared to the three months ended April 3, 2021

Net revenue

The following presents, by segment and by brand, comparable store sales growth,
stores open at the end of the period and net revenue for the three months ended
April 2, 2022 compared to the three months ended April 3, 2021.

                                     Comparable store sales growth(1)                 Stores open at end of period                                   

Net sales(2)

                                     Three Months         Three Months
In thousands, except                    Ended                 Ended                                             April 3,            Three Months Ended             Three Months Ended
percentage and store data           April 2, 2022         April 3, 2021        April 2, 2022                      2021                April 2, 2022                  April 3, 2021
Owned & Host segment
America's Best                              (7.3) %             35.3  %              852                           796           $  370,038       70.1  %       $  382,356       71.6  %
Eyeglass World                              (6.3) %             48.3  %              127                           121               58,774       11.1  %           60,775       11.4  %
Military                                    (4.1) %             19.4  %               54                            54                5,985        1.1  %            6,239        1.2  %
Fred Meyer                                   1.4  %             17.0  %               29                            29                3,122        0.7  %            3,077        0.5  %
Owned & Host segment total                                                         1,062                         1,000           $  437,919       83.0  %       $  452,447       84.7  %
Legacy segment                              (4.3) %             29.8  %              230                           230               42,158        8.0  %           43,582        8.2  %
Corporate/Other                                -                   -                   -                             -               61,697       11.7  %           61,218       11.5  %
Reconciliations                                -                   -                   -                             -              (14,063)      (2.7) %          (23,067)      (4.4) %
Total                                       (4.9) %             18.2  %            1,292                         1,230           $  527,711      100.0  %       $  534,180      100.0  %
Adjusted Comparable Store
Sales Growth(3)                             (6.8) %             35.8  %


(1)We calculate total comparable store sales based on consolidated net revenue
excluding the impact of (i) Corporate/Other segment net revenue, (ii) sales from
stores opened less than 13 months, (iii) stores closed in the periods presented,
(iv) sales from partial months of operation when stores do not open or close on
the first day of the month and (v) if applicable, the impact of a 53rd week in a
fiscal year. Brand-level comparable store sales growth is calculated based on
cash basis revenues consistent with what the CODM reviews, and consistent with
reportable segment revenues presented in Note 10. "Segment Reporting" in our
unaudited condensed consolidated financial statements included in Part I. Item
1. of this Form 10-Q, with the exception of the Legacy segment, which is
adjusted as noted in clause (ii) of footnote (3) below.
(2)Percentages reflect line item as a percentage of net revenue, adjusted for
rounding.
(3)There are two differences between total comparable store sales growth based
on consolidated net revenue and Adjusted Comparable Store Sales Growth: (i)
Adjusted Comparable Store Sales Growth includes the effect of deferred and
unearned revenue as if such revenues were earned at the point of sale, resulting
in a decrease of 1.8% and an increase of 13.8% from total comparable store sales
growth based on consolidated net revenue for the three months ended April 2,
2022 and April 3, 2021, respectively, and (ii) Adjusted Comparable Store Sales
Growth includes retail sales to the Legacy partner's customers (rather than the
revenues recognized consistent with the management & services agreement with the
Legacy partner), resulting in a decrease of 0.1% and an increase of 3.8% from
total comparable store sales growth based on consolidated net revenue for the
three months ended April 2, 2022 and April 3, 2021, respectively.

Total net revenue of $527.7 million for the three months ended April 2, 2022
decreased $6.5 million, or 1.2%, from $534.2 million for the three months ended
April 3, 2021. The decrease was driven primarily by reduced comparable store
sales growth, partially offset by growth from new store sales and recognition of
deferred revenue.

In the three months ended April 2, 2022, we opened 15 new America's Best stores
and two Eyeglass World stores and closed three America's Best stores; Overall,
store count grew 5.0% from April 3, 2021 to April 2, 2022 (56, and six net new
America's Best and Eyeglass World stores were added, respectively).

Comparable store sales growth and Adjusted Comparable Store Sales Growth for the
three months ended April 2, 2022 were (4.9)% and (6.8)%, respectively, primarily
due to a decrease in customer transactions and, to a lesser extent, lower
average ticket. Comparable store sales growth and Adjusted Comparable Store
Sales Growth were negative during the three months ended April 2, 2022 due to
the Omicron COVID-19 variant impacting customer transactions, emerging
constraints affecting exam capacity and other overall economic trends impacting
customer demand.

Net product sales comprised 82.1% and 82.9% of total net revenue for the three
months ended April 2, 2022 and April 3, 2021, respectively. Net product sales
decreased $9.8 million, or 2.2%, in the three months ended April 2, 2022
compared to the three months ended April 3, 2021, primarily due to a $12.8
million, or 4.1% decrease in eyeglass sales which was partially offset by a $2.2
million, or 2.3% increase in contact lens sales.

Net sales of services and plans increased $3.3 million, or 3.7%, driven by a
$3.7 million, or 22.7% increase in product protection plan revenue and a $1.5
million, or 2.9% increase in eye exam revenue that were partially offset by
lower management fees from our Legacy partner.

                                       27
--------------------------------------------------------------------------------
  Table of Contents
Owned & Host segment net revenue. Net revenue decreased $14.5 million, or 3.2%,
driven primarily by negative comparable store sales growth partially offset by
new store openings.

Legacy segment net revenue. Net income decreased $1.4 millionor 3.3%, due to negative comparable store sales growth.

Corporate/Other segment net revenue. Net sales increased $0.5 millionor 0.8%, due to increased wholesale execution.

Net revenue reconciliations. The impact of reconciliations positively impacted
net revenue by $9.0 million in the three months ended April 2, 2022 compared to
the three months ended April 3, 2021. Net revenue was positively impacted by
$1.0 million due to the timing of unearned revenue. Net revenue was positively
impacted by $8.0 million due to lower sales of product protection plan and club
memberships in the three months ended April 2, 2022.

Costs applicable to revenue

Costs applicable to revenue of $236.0 million for the three months ended April
2, 2022 increased $11.3 million, or 5.1%, from $224.7 million for the three
months ended April 3, 2021. As a percentage of net revenue, costs applicable to
revenue increased from 42.1% for the three months ended April 3, 2021 to 44.7%
for the three months ended April 2, 2022. This increase as a percentage of net
revenue was primarily driven by higher optometrist-related costs, lower eyeglass
margin and reduced eyeglass mix.

Costs of products as a percentage of net product sales increased from 36.0% for
the three months ended April 3, 2021 to 37.9% for the three months ended April
2, 2022, primarily driven by lower eyeglass margin and reduced eyeglass mix.

Owned & Host segment costs of products. Costs of products as a percentage of net
product sales increased from 26.3% for the three months ended April 3, 2021 to
28.2% for the three months ended April 2, 2022 driven by lower eyeglass margin
and reduced eyeglass mix.

Legacy segment costs of products. Costs of products as a percentage of net
product sales decreased from 46.9% for the three months ended April 3, 2021 to
46.7% for the three months ended April 2, 2022. The decrease was primarily
driven by a higher mix of managed care customer transactions versus non-managed
care customer transactions. Legacy segment managed care net product revenue is
recorded in net product sales while revenue associated with servicing
non-managed care customers is recorded in net sales of services and plans.
Eyeglass and contact lens product costs for both managed care and non-managed
care net revenue are recorded in costs of products. Increases in managed care
mix decrease costs of products as a percentage of net product sales and have a
corresponding negative impact on costs of services as a percentage of net sales
of services and plans in our Legacy segment.

Costs of services and plans as a percentage of net sales of services and plans
increased from 71.3% for the three months ended April 3, 2021 to 76.0% for the
three months ended April 2, 2022. The increase was primarily driven by higher
growth in optometrist-related costs which were partially offset by higher eye
exam revenue.

Owned & Host segment costs of services and plans. Costs of services and plans as
a percentage of net sales of services and plans increased from 70.8% for the
three months ended April 3, 2021 to 82.0% for the three months ended April 2,
2022. The increase was primarily driven by higher optometrist-related costs
which were partially offset by higher eye exam revenue.

Legacy segment costs of services and plans. Costs of services and plans as a
percentage of net sales of services and plans increased from 38.3% for the three
months ended April 3, 2021 to 42.8% for the three months ended April 2, 2022.
The increase was primarily driven by higher growth in optometrist-related costs.

Selling, general and administrative expenses

SG&A of $228.6 million for the three months ended April 2, 2022 increased $5.0
million, or 2.2%, from the three months ended April 3, 2021. As a percentage of
net revenue, SG&A increased from 41.9% for the three months ended April 3, 2021
to 43.3% for the three months ended April 2, 2022. The increase in SG&A as a
percentage of net revenue was primarily driven by higher advertising, store
payroll and occupancy expenses, partially offset by lower performance-based
incentive compensation. SG&A for the three months ended April 2, 2022 and April
3, 2021 includes $0.2 million and $0.4 million, respectively, of incremental
costs directly related to adapting the Company's operations during the COVID-19
pandemic.

Owned & Host SG&A. SG&A as a percentage of net revenue increased from 33.1% for
the three months ended April 3, 2021 to 36.0% for the three months ended April
2, 2022, driven primarily by higher advertising, occupancy and store payroll
expenses.

                                       28
--------------------------------------------------------------------------------
  Table of Contents
Legacy segment SG&A. SG&A as a percentage of net revenue increased from 32.8%
for the three months ended April 3, 2021 to 35.8% for the three months ended
April 2, 2022 driven primarily by higher payroll expenses.

Depreciation and amortization

Depreciation of $25.2 million for the three months ended April 2, 2022 increased $1.6 millioni.e. 6.8%, of $23.6 million for the three months ended April 3, 2021 mainly driven by new store openings.

Asset impairment

We recognized $0.4 million for impairment of tangible long-lived assets and ROU
assets associated with our retail stores during the three months ended April 2,
2022 compared to $1.0 million recognized during the three months ended April 3,
2021. The store asset impairment charge is primarily related to our Owned & Host
segment and is driven by lower than projected customer sales volume in certain
stores, and other entity-specific assumptions. We considered multiple factors
including, but not limited to: forecasted scenarios related to store performance
and the likelihood that these scenarios would be ultimately realized; and the
remaining useful lives of the assets. Asset impairment expenses were recognized
in Corporate/Other.

Interest expense (income), net

Interest expense (income), net was $(4.1) million for the three months ended
April 2, 2022, compared to $6.3 million for the three months ended April 3,
2021. The change was primarily driven by gains on our interest rate collar as a
result of increasing interest rates.

Provision for income tax

Our effective tax rates for the three months ended April 2, 2022 and April 3,
2021 were 27.3% and 21.2%, respectively, reflecting our statutory federal and
state rate of 25.5% and effects of other permanent items as well as a stranded
tax effect of $2.1 million associated with our matured interest rate swaps
during the three months ended April 3, 2021.

Non-GAAP Financial Measures

Adjusted operating profit, adjusted operating margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin and adjusted diluted EPS

We define Adjusted Operating Income as net income, plus interest expense
(income), net and income tax provision (benefit), further adjusted to exclude
stock compensation expense, loss on extinguishment of debt, asset impairment,
litigation settlement, secondary offering expenses, management realignment
expenses, long-term incentive plan expenses, amortization of acquisition
intangibles, and certain other expenses. We define Adjusted Operating Margin as
Adjusted Operating Income as a percentage of net revenue. We define EBITDA as
net income, plus interest expense (income), net, income tax provision (benefit)
and depreciation and amortization. We define Adjusted EBITDA as net income, plus
interest expense (income), net, income tax provision (benefit) and depreciation
and amortization, further adjusted to exclude stock compensation expense, loss
on extinguishment of debt, asset impairment, litigation settlement, secondary
offering expenses, management realignment expenses, long-term incentive plan
expenses, and certain other expenses. We define Adjusted EBITDA Margin as
Adjusted EBITDA as a percentage of net revenue. We define Adjusted Diluted EPS
as diluted earnings per share, adjusted for the per share impact of stock
compensation expense, loss on extinguishment of debt, asset impairment,
litigation settlement, secondary offering expenses, management realignment
expenses, long-term incentive plan expenses, amortization of acquisition
intangibles, amortization of debt discounts and deferred financing costs of our
term loan borrowings, amortization of the conversion feature and deferred
financing costs related to our 2025 Notes when not required under U.S. GAAP to
be added back for diluted earnings per share, losses (gains) on change in fair
value of derivatives, certain other expenses, and tax benefit of stock option
exercises, less the tax effect of these adjustments. We adjust for amortization
of costs related to the 2025 Notes only when adjustment for these costs is not
required in the calculation of diluted earnings per share according to U.S.
GAAP.

EBITDA and the Company Non-GAAP Measures can vary substantially in size from one
period to the next, and certain types of expenses are non-recurring in nature
and consequently may not have been incurred in any of the periods presented
below.

                                       29
--------------------------------------------------------------------------------
  Table of Contents
EBITDA and the Company Non-GAAP Measures have been presented as supplemental
measures of financial performance that are not required by, or presented in
accordance with U.S. GAAP, because we believe they assist investors and analysts
in comparing our operating performance across reporting periods on a consistent
basis by excluding items that we do not believe are indicative of our core
operating performance. Management believes EBITDA, and the Company Non-GAAP
Measures are useful to investors in highlighting trends in our operating
performance, while other measures can differ significantly depending on
long-term strategic decisions regarding capital structure, the tax jurisdictions
in which we operate and capital investments. We also use EBITDA and the Company
Non-GAAP Measures to supplement U.S. GAAP measures of performance in the
evaluation of the effectiveness of our business strategies, to make budgeting
decisions, to establish discretionary annual incentive compensation and to
compare our performance against that of other peer companies using similar
measures. Management supplements U.S. GAAP results with Non-GAAP financial
measures to provide a more complete understanding of the factors and trends
affecting the business than U.S. GAAP results alone.

EBITDA and the Company Non-GAAP Measures are not recognized terms under U.S.
GAAP and should not be considered as an alternative to net income or income from
operations as a measure of financial performance or cash flows provided by
operating activities as a measure of liquidity, or any other performance measure
derived in accordance with U.S. GAAP. Additionally, these measures are not
intended to be a measure of free cash flow available for management's
discretionary use as they do not consider certain cash requirements such as
interest payments, tax payments and debt service requirements. In evaluating
EBITDA and the Company Non-GAAP Measures, we may incur expenses in the future
that are the same as or similar to some of the adjustments in this presentation.
Our presentation of EBITDA and the Company Non-GAAP Measures should not be
construed to imply that our future results will be unaffected by any such
adjustments. Management compensates for these limitations by primarily relying
on our U.S. GAAP results in addition to using EBITDA and the Company Non-GAAP
Measures.

The presentations of these measures have limitations as analytical tools and
should not be considered in isolation, or as a substitute for analysis of our
results as reported under U.S. GAAP. Some of these limitations are:

•they do not reflect costs or cash outlays for capital expenditures or
contractual commitments;
•they do not reflect changes in, or cash requirements for, our working capital
needs;
•EBITDA, Adjusted EBITDA and Adjusted Operating Income do not reflect the
interest expense (income), or the cash requirements necessary to service
interest or principal payments, on our debt;
•EBITDA, Adjusted EBITDA and Adjusted Operating Income do not reflect period to
period changes in taxes, income tax provision or the cash necessary to pay
income taxes;
•they do not reflect the impact of earnings or charges resulting from matters we
consider not to be indicative of our ongoing operations;
•although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and
EBITDA and Adjusted EBITDA do not reflect cash requirements for such
replacements; and
•other companies in our industry may calculate these measures differently than
we do, limiting their usefulness as comparative measures.

Because of these limitations, the Company’s EBITDA and non-GAAP measures should not be considered measures of discretionary cash available to invest in business growth or to reduce indebtedness.

The following table reconciles our adjusted operating income, adjusted operating margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin and net income; and adjusted diluted EPS for the periods presented:

                                                                        Three Months Ended
In thousands                                                           April 2, 2022                   April 3, 2021
Net income                                                                               $ 30,147          5.7  %       $ 43,432        8.1  %
Interest expense (income)                                                                  (4,144)        (0.8) %          6,330        1.2  %
Income tax provision                                                                       11,329          2.1  %         11,686        2.2  %
Stock compensation expense (a)                                                              3,734          0.7  %          2,988        0.6  %
Asset impairment (b)                                                                          406          0.1  %            959        0.2  %
Amortization of acquisition intangibles (c)                                                 1,872          0.4  %          1,873        0.4  %
Other (f)                                                                                   1,960          0.4  %            400        0.1  %
Adjusted Operating Income / Adjusted Operating Margin                                    $ 45,304          8.6  %       $ 67,668       12.7  %

Note: Percentages reflect line item as a percentage of net revenue, after rounding

Some of the percentage totals in the table above do not add up due to rounding differences


                                       30

————————————————– ——————————

  Table of Contents
                                                                         Three Months Ended
In thousands                                                            April 2, 2022                   April 3, 2021
Net income                                                                                $ 30,147          5.7  %       $ 43,432        8.1  %
Interest expense (income)                                                                   (4,144)        (0.8) %          6,330        1.2  %
Income tax provision                                                                        11,329          2.1  %         11,686        2.2  %
Depreciation and amortization                                                               25,151          4.8  %         23,555        4.4  %
EBITDA                                                                                      62,483         11.8  %         85,003       15.9  %

Stock compensation expense (a)                                                               3,734          0.7  %          2,988        0.6  %
Asset impairment (b)                                                                           406          0.1  %            959        0.2  %
Other (f)                                                                                    1,960          0.4  %            400        0.1  %
Adjusted EBITDA / Adjusted EBITDA Margin                                                  $ 68,583         13.0  %       $ 89,350       16.7  %
Note: Percentages reflect line item as a percentage of net revenue, adjusted for
rounding
Some of the percentage totals in the table above do not foot due to rounding
differences


                                                                          Three Months Ended
In thousands, except per share amounts                                          April 2, 2022           April 3, 2021
Diluted EPS                                                                   $         0.34          $         0.48
Stock compensation expense (a)                                                          0.04                    0.03
Asset impairment (b)                                                                    0.00                    0.01
Amortization of acquisition intangibles (c)                                             0.02                    0.02
Amortization of debt discount and deferred financing costs (d)                          0.00                    0.00
Losses (gains) on change in fair value of derivatives (e)                              (0.10)                  (0.02)
Other (i)                                                                               0.02                   (0.02)
Tax benefit of stock option exercises (g)                                               0.00                    0.00
Tax effect of total adjustments (h)                                                     0.00                   (0.01)
Adjusted Diluted EPS                                                        

$0.33 $0.48

Weighted average diluted shares outstanding                                           94,904                  96,025

Note: Some of the totals in the table above do not add up due to rounding differences


(a)Non-cash charges related to stock-based compensation programs, which vary
from period to period depending on the timing of awards and performance vesting
conditions.
(b)Reflects write-off of property, equipment and lease-related assets on closed
or underperforming stores.
(c)Amortization of the increase in carrying values of finite-lived intangible
assets resulting from the application of purchase accounting following the
acquisition of the Company by affiliates of KKR & Co. Inc.
(d)Amortization of deferred financing costs and other non-cash charges related
to our long-term debt. We adjust for amortization of deferred financing costs
related to the 2025 Notes only when adjustment for these costs is not required
in the calculation of diluted earnings per share under U.S. GAAP.
(e)Reflects losses (gains) recognized in interest expense (income), net on
change in fair value of de-designated hedges.
(f)Other adjustments include amounts that management believes are not
representative of our operating performance (amounts in brackets represent
reductions in Adjusted Operating Income, Adjusted Diluted EPS and Adjusted
EBITDA), which are primarily related to excess payroll taxes on stock option
exercises, executive severance and relocation and other expenses and
adjustments, including losses on other investments of $0.3 million for the three
months ended April 2, 2022.
(g)Tax benefit associated with accounting guidance requiring excess tax benefits
related to stock option exercises to be recorded in earnings as discrete items
in the reporting period in which they occur.
(h)Represents the income tax effect of the total adjustments at our combined
statutory federal and state income tax rates.
(i)Reflects other expenses in (f) above, including the impact of stranded tax
effect of $2.1 million for the three months ended April 3, 2021 associated with
our interest rate swaps that matured in 2021.
                                       31

————————————————– ——————————

Contents

Cash and capital resources

Our primary cash needs are for inventory, payroll, store rent, advertising,
capital expenditures associated with new stores and updating existing stores, as
well as information technology and infrastructure, including our corporate
office, distribution centers, and laboratories. When appropriate, the Company
may utilize excess liquidity towards debt service requirements, including
voluntary debt prepayments, or required interest and principal payments, if any,
as well as repurchases of common stock, based on excess cash flows. We continue
to prioritize cash conservation and prudent use of cash, while safely conducting
normal operations. The most significant components of our operating assets and
liabilities are inventories, accounts receivable, prepaid expenses and other
assets, accounts payable, deferred and unearned revenue and other payables and
accrued expenses. While we have historically exercised prudence in our use of
cash, the COVID-19 pandemic has required us to closely monitor various items
related to cash flow including, but not limited to, cash receipts, cash
disbursements, payment terms and alternative sources of funding. We continue to
be focused on these items in addition to other key measures we use to determine
how our consolidated business and operating segments are performing. We believe
that cash on hand, cash expected to be generated from operations and the
availability of borrowings under our revolving credit facility will be
sufficient to fund our working capital requirements, liquidity obligations,
anticipated capital expenditures, and payments due under our existing debt for
the next 12 months and thereafter for the foreseeable future. Depending on our
liquidity levels, conditions in the capital markets and other factors, we may
from time to time consider the refinancing or issuance of debt, issuance of
equity or other securities, the proceeds of which could provide additional
liquidity for our operations, as well as further modifications to our term loan
where possible. However, our ability to maintain sufficient liquidity may be
affected by numerous factors, many of which are outside our control. We
primarily fund our working capital needs using cash provided by operations. Our
working capital requirements for inventory will increase as we continue to open
additional stores.

From April 2, 2022we have had $314.6 million in cash and cash equivalents and
$293.6 million availability under our revolving credit facility, which includes $6.4 million in outstanding letters of credit.

From April 2, 2022we have had $150.0 million term loan outstanding under our credit agreement. We were in compliance with all of our long-term debt covenants at April 2, 2022.

The following table summarizes cash flows provided by (used for) operating
activities, investing activities and financing activities for the periods
indicated:

                                                                       Three Months Ended
In thousands                                                  April 2, 2022           April 3, 2021
Cash flows provided by (used for):
Operating activities                                        $       47,117          $       97,652
Investing activities                                               (28,077)                (16,374)
Financing activities                                                (9,941)                 (1,089)

Net increase in cash, cash equivalents and restricted cash $9,099

$80,189

Net cash from operating activities

Cash flows provided by operating activities decreased $50.5 million from $97.7
million during the three months ended April 3, 2021 to $47.1 million for the
three months ended April 2, 2022 as a result of $13.3 million lower net income
as compared to the three months ended April 3, 2021 and a decrease of non-cash
expense adjustments of $7.7 million and changes in net working capital and other
assets and liabilities, which used $29.6 million in cash compared to the three
months ended April 3, 2021.

Working capital was most significantly impacted by changes in other liabilities,
accounts payable, deferred and unearned revenue, accounts receivable,
inventories, and other assets. Decreases in other liabilities during the three
months ended April 2, 2022 used $13.5 million in year-over-year cash primarily
due to timing of compensation related accruals and payroll taxes. Decreases in
accounts payable during the three months ended April 2, 2022 used $9.9 million
in year-over-year cash, primarily due to timing of payments. Decreases in
deferred and unearned revenue used $9.2 million in year-over-year cash,
primarily as a result of lower sales of product protection plans and club
memberships in the current period. Increases in accounts receivable used $3.9
million in year-over-year cash primarily due to increases in managed care
receivables. Offsetting these items were decreases in inventories which
contributed $3.9 million in year-over-year cash, primarily due to timing of
purchases. Decreases in other assets during the three months ended April 2, 2022
contributed $2.1 million in year-over-year cash consisting primarily of prepaid
tax-related items.

                                       32
--------------------------------------------------------------------------------
  Table of Contents
Net Cash Used for Investing Activities

Net cash used for investing activities increased by $11.7 million, to $28.1
million, during the three months ended April 2, 2022 from $16.4 million during
the three months ended April 3, 2021. The increase was primarily due to
increased capital investments in doctor and remote medicine equipment.
Approximately 80% of our capital spend is related to our expected growth (i.e.,
new stores, optometric equipment, additional capacity in our optical
laboratories and distribution centers, and our IT infrastructure, including
omni-channel platform related investments).

Net cash used for financing activities

Net cash used for financing activities was $9.9 million during the three months
ended April 2, 2022 as compared to the use of cash of $1.1 million during the
three months ended April 3, 2021. The increase in cash used for financing
activities was primarily due to increases in purchases of treasury stock of $9.2
million during the three months ended April 3, 2021.

Power to repurchase shares

In the three months ended April 2, 2022the Company repurchased approximately 0.2 million of its common shares for $7.1 million under the share buyback program. After these redemptions, $123.0 million remains available under the authorization to buy back shares.

Material cash needs

There were no material changes outside the ordinary course of business in our
material cash requirements and commercial commitments from those reported in the
2021 Annual Report on Form 10-K.

We follow U.S. GAAP in making the determination as to whether or not to record
an asset or liability related to our arrangements with third parties. Consistent
with current accounting guidance, we do not record an asset or liability
associated with long-term purchase, marketing and promotional commitments, or
commitments to philanthropic endeavors. We have disclosed the amount of future
commitments associated with these items in the 2021 Annual Report on form 10-K.
We are not a party to any other material off-balance sheet arrangements.

Significant Accounting Policies and Estimates

Management has evaluated the accounting policies used in the preparation of the
Company's unaudited condensed consolidated financial statements and related
notes and believes those policies to be reasonable and appropriate. Certain of
these accounting policies require the application of significant judgment by
management in selecting appropriate assumptions for calculating financial
estimates. By their nature, these judgments are subject to an inherent degree of
uncertainty. These judgments are based on historical experience, trends in the
industry, information provided by customers and information available from other
outside sources, as appropriate. The most significant areas involving management
judgments and estimates may be found in the 2021 Annual Report on Form 10-K, in
the "Critical Accounting Policies and Estimates" section of "Management's
Discussion and Analysis of Financial Condition and Results of Operations." There
have been no material changes to our critical accounting policies as compared to
the critical accounting policies described in the 2021 Annual Report on Form
10-K.

Adoption of new accounting standards

There have been no material changes due to recently issued or adopted accounting
standards since those disclosed in our Annual Report on Form 10-K for the fiscal
year ended January 1, 2022.

© Edgar Online, source Previews

Comments are closed.