Prescription eyewear has continued to recover following a disappointing 2022. LensCrafters, America’s Best Contacts & Eyeglasses, and Warby Parker all reporting top-line growth for Q2 (continuing trends that started earlier this year). Warby Parker’s Co-CEO Neil Blumenthal said, “Our stores are playing an increasingly important role in attracting new consumers to our brand and extending the reach and availability of our holistic vision offering. Equally important, our stores continue to generate strong margins and high returns on capital even as the optical industry has recently experienced demand headwinds. We opened 13 new stores in the second quarter, remain on track to open 40 new stores this year, and believe we have the potential to reach at least 900 locations over time.” New store performance improved, overall topline growth accelerated to +17%, profitability continued to step higher, and the business generated cash during the first half of the year. With its results, Warby Parker nudged up is outlook for the year.
As the chart below shows, all three major prescription eyewear chains have demonstrated an improvement in visits per location during 2023, with December and January winning large gains as consumers returned to their optometrists to burn off remaining insurance and HSA benefits. Recall that LensCrafters is the price leader for the category and that pricing/sales mix is a larger driver of comparable-store sales for its business. While traffic was down for them in the quarter (for stores where Placer has coverage), comparable sales were higher. Additionally, management noted that margin progression ought to be helped by additional price increases across products in the second half of the year.
EssilorLuxottica reported solid growth for its LensCrafters and Target Optical businesses. CFO Paul du Saillant noted, “Clearly, whether you look at it from the lens, from the optical frames, from the retail, as we have always explained, it is a resilient need. People can delay a little bit sometimes with the replacement of their prescription, but they really come and need new eyewear and new lenses. In front of that, we have a very good portfolio of product at work with great new innovation going to market.”
Interestingly, the company also announced its expansion into the hearing aid solutions market, following the acquisition of Nuance Hearing. Management noted that rationale for the acquisition includes the strong structural growth drivers of the category, including an aging population and lower category penetration in hearing aids than prescription eyeglasses. The new product, which will discreetly embed hearing technology within eyeglasses, is expected to launch in the second half of 2024. The product is initially focused on mild-to-moderate hearing loss (versus severe hearing loss). On distribution, that is to come via traditional hearing aid distribution channels, its own retail network (including LensCrafters and Target), and via select optical wholesale customers.
National Vision reported slightly stronger results for its America’s Best segment (against easier comparisons), but it dropped a bomb with the news that Walmart was leaving its partnership (which spanned 229 locations and wholesale). CEO Reade Fahs stated, “We look forward to beginning a new chapter as a more streamlined company ever more focused on delivering value to our stakeholders through our mission of making eyewear and eye care more affordable and accessible. We are grateful for and thank all our associates and associated optometrists who have been part of our Walmart journey.” Analysts peg the loss at around a -10% hit to the company's EBITDA.
On the quarter, Fahs shared, “We continue to see strength in our managed care business as well as a further shift in the number of higher income customers who traded into our more value-priced offerings…Our primary strategic focus has been on expanding exam capacity in Q2 2023. As in Q1 2023, the stores that achieved our capacity goals produced positive comparable sales growth above our reported consolidated comp.” (Recall that a large wave of optometrists' early retirement and exits during the pandemic resulted in a significant slowdown in exams in 2022, which pushed the prescription eyewear industry into decline.) While Fahs' comments on higher income customers may be true for exams, fittings, and sales, Placer data shows that visits are up the most for “cash customers": those with household incomes below $75K. That makes intuitive sense given that it was this segment that really curtailed visits and spending during 2022.