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Better Visibility: Positive Reports from Prescription Eyewear Retail

Thomas Paulson
May 12, 2023
Better Visibility: Positive Reports from Prescription Eyewear Retail

This week, LensCrafters, America’s Best, and Warby Parker all reported a better start to 2023 (as we previewed after their Q4 2022 updates). At that time, we shared that 2022 had been a difficult year for the industry as it was faced the difficult comparisons to a large pull-forward during 2021 that was afforded that year by fiscal stimulus. That stimulus was more utilized by less affluent households, and so it is the brands that serve those households that were most impacted such as America’s Best. That can be seen in the improvement in America’s Best comp and traffic trend. LensCrafters’ more affluent customers were less influenced by those stimulus dollars, and as a consequence, its trend has been more stable. While Warby Parker has a more affluent customer than LensCrafters on average, that in part is due to its footprint being more coastal and urban, where incomes are in general higher; however, the past two years of results have demonstrated that changes in the macro environment can also have a significant impact on a large segment of its customers (a sensitivity that we didn’t appreciate in our CRE tenant overview report on the brand).

Warby’s e-commerce business was down 8% YoY and the company said it was performing in-line with its e-commerce competitors; that soft market is likely the consequence of a pullback from the more budget-conscious consumer, a consumer that wants to touch and feel the merchandise before putting their money down.

Another headwind for the industry was the large number of prescription eyewear professionals that retired during the pandemic, which led to a lower level of eye exam capacity, which in turn led to fewer new prescription glasses being sold. The pandemic also led more prescription eyewear professionals to set up their own practice which resulted in the majors losing exam capacity. To compensate, prescription eyewear retailers increased optometrist compensation and created more working hour flexibility and the ability to do exams remotely. This quarter, all three companies described progress in adding more exam capacity and the results show that more exams were made.

April was a softer month for this category, with America’s Best noting, “While April was somewhat softer than we previously anticipated, we're beginning to see encouraging signs of progress from the actions we are taking (discussed below), which is giving us confidence in reaffirming our 2023 guidance at this time.”

Warby Parker

Warby Parker reported a nice bounce-back of +870 basis points in sales per store at its brick & mortar locations. If this trend continues, it will put the sales per store at $2.1M and $1,345 per square feet for the year. Not unexpectedly, e-commerce revenue continues to decline (-8%) as the company has shifted its marketing to support the brick & mortar business at the expense of its e-commerce business given the more favorable customer lifetime value and unit economics of the physical channel. Co-CEO Neil Blumenthal noted that, “2023 is off to an encouraging start as many of the positive trends we experienced across our business late last year accelerated in the first quarter, driving operating results that surpassed expectations.”

Given that shift, the business’ margins, profitability, and cash generation all continue to improve. Q1 2023 EBITDA was $17M, and for the year, it is likely to be above $50M (compared to $21M in 2022). Q1 free cash flow was a loss of -$4M versus a loss of -$26M for Q1 2022. For the year, cash generation should be near breakeven compared to consuming $50M in 2022.

Warby Parker’s footprint increased to 204 stores (six new locations offset by two closures) with the plan to add 40 new locations annually. (Last year’s pace was 40 and the long-term target is to exceed 900 locations.) Co-CEO David Gilboa reiterated, “New stores continue to pay back [their investment] within 20 months and generate strong 4-wall adjusted EBITDA margins in line with our target of 35%.”  


LensCrafter’s holding company EssilorLuxottica is a global multi-business entity which makes for less transparency on the LensCrafters business (1,013 locations in the U.S.) and more qualitative. According to CFO Stefano Grassi, traffic and conversion rates improved, and LensCrafters posted comps "that were in the low single-digit territory, very much driven by our managed vision care clients and with tele-optometry.”

National Vision

National Vision’s (holding company of America’s Best) CEO Reade Fahs stated:

“Overall, the quarter reflected a similar sales mix to what we saw in Q4 2023 with an even stronger performance from our managed care business. Our managed care business is less pressured by inflation since the insurance company pays most of the customers' bill. Managed care business is typically strongest in the fourth quarter as insured customers are using benefits before they expire and in the first quarter due to benefit plan reset timing. In addition, during the quarter, we continued to see a greater shift in the number of higher-income customers who traded into our more value-priced offerings as tends to happen in a tough economy. These two trends helped mitigate the sales impact of inflation on our core budget-conscious uninsured customers as well as the impact from continued exam capacity constraints.

National Vision is moving rapidly down the path to adapt our business to thrive amidst the new realities facing our business and the industry.
These new realities include exam capacity constraints and persistent inflationary pressures on our business and our customers' wallets. Let's start with exam capacity. On the whole, in stores where we are achieving capacity objectives, comps are positive, thus demonstrating the strength of our business model. There are three components to achieving optimal exam capacity. The first is better retention of the optometrists who currently practice in and alongside our stores...Given our healthy Q1 retention levels, we expect to see another step-up in retention in 2023 over 2022.

The second is the recruitment of new optometrists to our network. We are pleased that our recruitment efforts are off to a strong start this year. Both recruitment and retention have been aided by the addition of a menu of more flexible scheduling options available to optometrists in our network… We continue to learn how best to optimize the new schedule management that goes along with this program and balance customer-desired shopping patterns with the flexibility desired by the optometrist.

Third, we're deploying our remote medicine capabilities to help improve exam capacity. Remote medicine provides patients with greater access to care and optometrists with the ability to see patients across geographies. This is because remote optometrists can be licensed in multiple states and see patients in remote-enabled exam rooms across the country where they are licensed…We remain on track with our expansion into at least an additional 200 remote-enabled stores this year, taking into account planned pauses expected for peak volume periods for our stores."

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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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