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Why Is National Vision (EYE) Up 18.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for National Vision (EYE - Free Report) . Shares have added about 18.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is National Vision due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

National Vision Q1 Loss Narrower Than Estimates, Margin Falls

National Vision delivered adjusted loss per share of 41 cents in the second quarter of 2020 against earnings per share (EPS) of 18 cents in the prior-year quarter. However, the figure was narrower than the Zacks Consensus Estimate of a loss of 57 cents.

The adjustment excludes the impact of certain non-recurring charges like asset impairment, losses on change in fair value of derivatives, amortization of acquisition intangibles, and amortization of debt discount and deferred financing costs, among others.

GAAP loss per share for the quarter was 55 cents a share against EPS of 13 cents in the year-earlier quarter.

Revenues in Detail

Revenues in the second quarter totaled $260 million, beating the Zacks Consensus Estimate by 6.9%. However, the top line declined 39.5% from the year-ago number. Moreover, the company noted that 10% of the decline in second-quarter revenues was due to the timing of unearned revenues. The top line also suffered due to temporary store closures.

In the second quarter, National Vision witnessed an uptick in unearned revenues of $34.4 million versus a drop in unearned revenues of $8.5 million in the prior-year quarter. This increase primarily resulted from temporary store closures at the end of the first quarter of 2020 along with stronger sales at the end of the second quarter of 2020.

Comparable store sales declined 44.7% in the reported quarter (adjusted comparable store sales growth was down 36.5%) due to the temporary closing down of stores.

National Vision opened 12 new stores in second-quarter 2020, transitioned five Vision Centers in Walmart stores to its management and closed five stores. The company exited the quarter with 1,185 stores. Overall, store count grew 5.1% year over year.

Margins

Gross profit in the reported quarter was $119.2 million, down 47.5% from the prior-year quarter. Gross margin of 45.9% contracted 699 basis points (bps).

Meanwhile, selling, general and administrative expenses contracted 25.1% to $136.6 million. The company incurred incremental COVID-19 related expenses of $2.5 million in the reported quarter, primarily for the initial acquisition of personal protective equipment supplies.

Adjusted operating loss totaled $17.4 million against prior-year quarter’s operating income of $44.7 million.

Financial Position

National Vision exited the second quarter with cash and cash equivalents of $256.3 million compared with $263.2 million at the end of the first quarter. Long-term debt and finance lease obligations (including current maturities) in the second quarter was $648.2 million, compared with $716.8 million in the year-ago period.

Cumulative net cash flow from operating activities at the end of the second quarter was $71.4 million compared with $119.3 million a year ago.

In the reported quarter, the company authorized 200,000 shares of common stock and issued 81,342 shares as of Jun 27, 2020. Total shares outstanding as of Jun 27, 2020, were 80,415.

2020 Guidance

National Vision, in the wake of uncertainties arising from the pandemic and its duration and impact on the United States, is not providing its 2020 earnings outlook.

However, the company anticipates incurring incremental COVID-19 expenses of approximately $8 million during the year.

The company also anticipates opening 50-55 stores during the year.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 737.5% due to these changes.

VGM Scores

Currently, National Vision has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, National Vision has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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