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National Vision (EYE) Hurt by Rising Costs, Vendor Dependency
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National Vision Holdings, Inc.'s (EYE - Free Report) high dependence on a limited number of vendors is a concern. Mounting expenses and tough competition raise apprehension. The stock currently carries a Zacks Rank #4 (Sell).
Over the past six months, National Vision’s shares have underperformed the industry it belongs to. The stock has declined 28.7% compared with the industry’s 14% fall.
During fourth-quarter 2021, selling, general and administrative expenses increased 12.5% year over year on higher corporate overhead in payroll and higher advertising investment. The company’s escalating expenses exerted pressure on the bottom line. Margins contracted during the reported quarter.
National Vision procures almost all its merchandise from domestic and international vendors. Moreover, the company has ties with a very limited number of suppliers for the majority of its eyeglass frames, eyeglass lenses and contact lenses. Thus, high dependence on a limited number of suppliers exposes it to supplier concentration risk. As a matter of fact, the company has entered into an agreement to purchase nearly all its spectacle lenses from one vendor.
During 2019, 92% of contact lens expenditure was with three vendors, 51% of frame expenditure was with two and 88% of lens expenditure was with one vendor. This exposes the company to vendor concentration risks. Thus, in tough times, the company may find it difficult to look for an alternative source of procurements in a timely or cost-effective manner.
Added to this, National Vision operates in a highly competitive optical retail industry. The companies within the industry generally compete based on recognition of the brand name, price, convenience, selection, service and product quality. National Vision competes with national retailers like LensCrafters, Pearle Vision and Visionworks in the broader optical retail industry. Competition exists in physical retail locations along with e-commerce platforms. The company also faces a competitive threat from online sellers of contact lenses and eyewear. A number of firms are focused on selling eyeglasses in the online market like Warby Parker and Zenni Optical.
On a positive note, National Vision plans to continue executing core growth initiatives and further investing in strengthening competitive advantages. The company had a strong start with 16 openings in the fourth quarter. On the third-quarter earnings call, the company raised its annual growth target and stated that it intends to open at least 80 stores in 2022, with plans to double the unit growth of Eyeglasses World.
For 2022, the company is focused on new initiatives related to optometrists' compensation and recruitment. Further, in 2022, the company plans to expand the remote medicine offering and expects to have a total of at least 200 store locations by year-end. The company is also focused on being a key low-cost provider.
The company projects 2022 capital expenditure in the range of $110-$115 million, indicating higher store openings as well as an acceleration in technology investments such as remote medicine and electronic health records.
Key Picks
A few better-ranked stocks in the broader medical space are Henry Schein, Inc. (HSIC - Free Report) , McKesson Corporation (MCK - Free Report) and IDEXX Laboratories, Inc. (IDXX - Free Report) .
Henry Schein has an estimated long-term growth rate of 11.8%. HSIC’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%. It currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Henry Schein has outperformed the industry over the past year. HSIC has gained 34.8% compared with the industry’s 10.9% rise over the past year.
McKesson has a long-term earnings growth rate of 11.8%. MCK’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 20.6%, on average. It presently carries a Zacks Rank #2.
McKesson has outperformed the industry over the past year. MCK has gained 59.8% in the said period compared with 10.9% growth of the industry.
IDEXX has a long-term earnings growth rate of 13%. The company’s earnings surpassed estimates in the trailing four quarters, delivering an average surprise of 18.6%. IDXX currently has a Zacks Rank #2.
IDEXX has outperformed its industry in the past year. IDXX has gained 16.8% compared with the industry’s 1.2% growth in the same period.
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National Vision (EYE) Hurt by Rising Costs, Vendor Dependency
National Vision Holdings, Inc.'s (EYE - Free Report) high dependence on a limited number of vendors is a concern. Mounting expenses and tough competition raise apprehension. The stock currently carries a Zacks Rank #4 (Sell).
Over the past six months, National Vision’s shares have underperformed the industry it belongs to. The stock has declined 28.7% compared with the industry’s 14% fall.
During fourth-quarter 2021, selling, general and administrative expenses increased 12.5% year over year on higher corporate overhead in payroll and higher advertising investment. The company’s escalating expenses exerted pressure on the bottom line. Margins contracted during the reported quarter.
National Vision procures almost all its merchandise from domestic and international vendors. Moreover, the company has ties with a very limited number of suppliers for the majority of its eyeglass frames, eyeglass lenses and contact lenses. Thus, high dependence on a limited number of suppliers exposes it to supplier concentration risk. As a matter of fact, the company has entered into an agreement to purchase nearly all its spectacle lenses from one vendor.
During 2019, 92% of contact lens expenditure was with three vendors, 51% of frame expenditure was with two and 88% of lens expenditure was with one vendor. This exposes the company to vendor concentration risks. Thus, in tough times, the company may find it difficult to look for an alternative source of procurements in a timely or cost-effective manner.
National Vision Holdings, Inc. Price
National Vision Holdings, Inc. price | National Vision Holdings, Inc. Quote
Added to this, National Vision operates in a highly competitive optical retail industry. The companies within the industry generally compete based on recognition of the brand name, price, convenience, selection, service and product quality. National Vision competes with national retailers like LensCrafters, Pearle Vision and Visionworks in the broader optical retail industry. Competition exists in physical retail locations along with e-commerce platforms. The company also faces a competitive threat from online sellers of contact lenses and eyewear. A number of firms are focused on selling eyeglasses in the online market like Warby Parker and Zenni Optical.
On a positive note, National Vision plans to continue executing core growth initiatives and further investing in strengthening competitive advantages. The company had a strong start with 16 openings in the fourth quarter. On the third-quarter earnings call, the company raised its annual growth target and stated that it intends to open at least 80 stores in 2022, with plans to double the unit growth of Eyeglasses World.
For 2022, the company is focused on new initiatives related to optometrists' compensation and recruitment. Further, in 2022, the company plans to expand the remote medicine offering and expects to have a total of at least 200 store locations by year-end. The company is also focused on being a key low-cost provider.
The company projects 2022 capital expenditure in the range of $110-$115 million, indicating higher store openings as well as an acceleration in technology investments such as remote medicine and electronic health records.
Key Picks
A few better-ranked stocks in the broader medical space are Henry Schein, Inc. (HSIC - Free Report) , McKesson Corporation (MCK - Free Report) and IDEXX Laboratories, Inc. (IDXX - Free Report) .
Henry Schein has an estimated long-term growth rate of 11.8%. HSIC’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%. It currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Henry Schein has outperformed the industry over the past year. HSIC has gained 34.8% compared with the industry’s 10.9% rise over the past year.
McKesson has a long-term earnings growth rate of 11.8%. MCK’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 20.6%, on average. It presently carries a Zacks Rank #2.
McKesson has outperformed the industry over the past year. MCK has gained 59.8% in the said period compared with 10.9% growth of the industry.
IDEXX has a long-term earnings growth rate of 13%. The company’s earnings surpassed estimates in the trailing four quarters, delivering an average surprise of 18.6%. IDXX currently has a Zacks Rank #2.
IDEXX has outperformed its industry in the past year. IDXX has gained 16.8% compared with the industry’s 1.2% growth in the same period.