National Vision Holdings, Inc. (EYE) Q4 2022 Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Q4 2022 National Vision Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. Please be advised, today's conference is being recorded. I would now like to hand the conference over to your speaker today, Caitlin Churchill, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to National Vision's Fourth Quarter 2022 Earnings Call. Joining me on the call today are Reade Fahs, CEO; Melissa Rasmussen, CFO; Patrick Moore, COO, who is also with us and will be available during the Q&A portion of the call. Our earnings release issued this morning and the presentation, which will be referenced during the call, are both available on the Investors section of our website nationalvision.com. A replay of the audio webcast will be archived on the Investors page after the call. Before we begin, let me remind you that our earnings materials and today's presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to, the factors identified in the release and our filings with the Securities and Exchange Commission. The release and today's presentation also include certain non-GAAP measures. Reconciliation of these measures is included in our release and supplemental presentation. We also would like to draw your attention to Slide 2 in today's presentation for additional information about forward-looking statements and non-GAAP measures. As a reminder, National Vision provides investor presentations and supplemental materials for investor reference on the Investors section of our website. Now, let me turn the call over to Reade.

Thank you, Caitlin. Good morning, everyone. Thank you all for joining us today. I thought I'd start today with an overview of what we're going to take you through to provide context and a framework from the further details that Melissa and I will then be providing. As we've discussed before, the pandemic disrupted the historically consistent optical purchase cycle. In addition, it impacted global supply chains, leading to increased costs and inflation and created a challenging labor market, especially impacting doctor availability as seen in other areas of specialty healthcare as well. While we believe that we will return to a more normalized purchase cycle and cost environment, we're addressing the new reality of the optometrist market and overall business environment in which we're operating today. As we will discuss, optometrists in our network are now being offered a greater variety of scheduling options and improved variable compensation programs, and we're progressing the remote medicine initiative that we've been discussing in our last few calls. We're also resetting our management's short-term incentive plan to ensure we keep our team highly incentivized to perform. In addition, like all companies, we must evolve our systems to support our growing business and gain advantages and efficiencies of ongoing digitization. As we enter 2023, while the actions we are continuing to take will have an impact on our operating margins in the near term and the macroeconomic factors remain challenging, we are intently focused on continuing to further adapt and transform our business to excel in the post-pandemic new normal business environment. Before I discuss our plans and initiatives for 2023 in more detail, let me first review highlights from our fourth quarter and full year performance. 2022 was a challenging year for the optical industry overall and for National Vision. We ended the year in line with our guided expectations while navigating a difficult macroeconomic environment, which especially impacted our core budget-conscious uninsured customer base, and we contended with capacity constraints in certain markets. I continue to be very proud of our entire team and their commitment to providing exceptional patient care and customer service while also remaining focused on our strategic initiatives. These include the rollout of remote care and electronic health record capabilities to over 300 locations and the opening of 80 new stores despite many supply chain obstacles. For the fourth quarter specifically, net revenue declined 1.9% and adjusted comparable store sales declined 2.4% compared to the prior-year period. We delivered adjusted diluted EPS of negative $0.08 for the period inclusive of a $0.10 negative impact from unearned revenue, as well as a $5 million investment in retention bonuses for our associates. Importantly, underlying these results was a strong finish to the quarter, particularly with respect to our managed care sales, as we saw a notable improvement in the last week of the year, traditionally a very important time in optics, as various annual insurance benefits end. These trends helped to also support positive comp growth for both the quarter and the year in our managed care business, representing an increase in customers with vision insurance. Insured customers are less sensitive to the elevated inflationary and macro pressures facing our uninsured customers. In addition, we continued to see evidence of trade down in the fourth quarter from higher-income consumers in our stores. Our plans for 2023 continue to focus on our transformation, with the expansion of our remote care offering, strategic investments in optometric recruiting and retention initiatives, our omnichannel capabilities, the further digitization of our stores and corporate office, as well as continued store openings based on the significant whitespace opportunities still ahead. The pandemic created unprecedented and unique challenges to the optical industry, by not only impacting the historically consistent purchase cycle, but also optometrist availability. This has significantly impacted eye exam capacity for the industry. Of these factors, the one that we believe we can influence the most is recruiting and retaining doctors in an effort to expand exam capacity, albeit with increased levels of investment. We believe that the pandemic led to more doctors retiring from the field or significantly cutting back the number of days they work each week. Doctor retention rates have historically ranged between 80% and 90%. We've been pleased with the improvement we saw in 2022 in our recruitment efforts, including delivering the best year ever for optometrist student recruiting. In 2023, we believe there is an opportunity to build on this improvement in momentum through investments in a number of additional initiatives, including increased scheduling options and OD variable compensation program updates. These initiatives were piloted in select markets during the fourth quarter and, given early positive results, a strategic decision was made to expand these programs throughout our America's Best brand in 2023. In addition to these initiatives, we're also continuing to rollout our remote care capabilities, which provide doctors with additional levels of flexibility and expand exam capacity in many areas. By the end of 2022, we had rolled out remote care capabilities to approximately 300 stores. While this is a nascent program, we're pleased with the initial results and have incorporated key learnings from the rollout related to the productivity ramp and learning curve needed for doctors to transition to the new system. We've implemented new techniques and training to minimize the productivity loss. We plan to continue to expand this program further in additional America's Best locations in 2023 and we're evaluating approaches to remote practice in other brands as well. We see this mode of practice as being highly appealing to optometrists now and going forward without sacrificing quality of patient satisfaction. We believe that with the one-two punch of enhanced recruiting and retention initiatives and expanded remote capabilities, we are increasing the competitive moat around our business while significantly improving exam capacity. In addition to the investments in remote technology and doctor recruiting and retention efforts, we remain focused on the important role that our associates play in supporting our business and providing great customer service that our patients and customers expect. We take pride in training and growing the talent needed to support our whitespace expansion and are proud that approximately 40% of current store managers started with us in entry-level positions. We've also implemented an optometric technician certification program that improves the quality of our technicians and consequently the job satisfaction of optometrists. Currently, over three-quarters of our optometric technicians are certified. Turning next to our plan for furthering the digitization of our stores and corporate offices, as well as enhancing our omnichannel capabilities. As part of our remote care rollout, we've begun to implement electronic health records in our stores. A key learning that we gained with our initial rollout of this initiative has been the productivity ramp in learning curve needed for many doctors as they get used to working with the new platform, given that enhanced training for doctors has been implemented. While these additional costs and length of productivity ramp will be short-term margin drag, we believe the digitization of patient records is a necessity for today's operating environment that should provide longer-term patient and customer experience benefits, as well as more efficient store flow. To further support our stores and growing business, we expect to start a back-office ERP implementation for our corporate office in late 2023. In addition, we're continuing to invest in our omnichannel capabilities and other enhancements to the customer experience, which are showing initial encouraging results. As seen on Slide 8, we remain focused on our significant whitespace opportunity for store growth. We continue to believe we have an opportunity to grow at least 2,150 stores with similar economics to the existing base. In 2023, we expect to open approximately 65 to 70 new stores. Our planned openings reflect anticipated supply chain and permitting delays and secondarily doctor recruitment timing. In summary, while the macro pressures continue to weigh on a core budget-conscious uninsured customer, we are navigating this backdrop while taking actions to improve exam capacity, further the digitization of our stores and corporate office, leverage our omnichannel capabilities and continue to capitalize on our whitespace opportunity as we move into 2023. While early, we've been encouraged by the results to date from doctor retention and recruiting initiatives. While we expect profitability in 2023 to be impacted by cost pressures, as Melissa will discuss, we believe the initiatives we have in place will position us well for long-term success and a return to consistent financial performance we have demonstrated historically. I'll now turn the call over to Melissa for a more detailed discussion of our financial results and the 2023 outlook.

Thank you, Reade, and good morning, everyone. Turning to Slide 11. Net revenue for the fourth quarter decreased 1.9% compared to the prior year due to macroeconomic headwinds pressuring traffic and constraints to exam capacity. The timing of unearned revenue negatively impacted revenue growth by 2.9%. The 40-basis points revenue loss in the third quarter as a result of Hurricane Ian was recovered in the fourth quarter. During the quarter, we opened 23 new America's Best stores for a 1.7% increase in total store count sequentially over the third quarter of 2022. For our America's Best and Eyeglass World growth brands combined, unit growth increased 5.9% over the total store base last year, and we ended fiscal 2022 with 1,354 stores. Adjusted comparable store sales growth declined 2.4% compared to an increase of 1.2% in the fourth quarter of 2021. The fourth quarter same-store sales decline over 2021 was driven by lower traffic, which was partially offset by an increase in average ticket. Turning to Slide 12, as a percentage of net revenue, cost applicable to revenue increased 180 basis points, driven by deleverage of optometrist-related costs, lower eyeglass mix and lower eyeglass margin. This is better than our expectations of 300 basis points to 325 basis points increase due to a more stable average ticket than we had anticipated. Adjusted SG&A expense as a percent of net revenue increased 300 basis points compared to 2021. The key factors behind this increase were timing of unearned revenue, higher corporate office expenses, which included a one-time investment in our associate of $5 million for retention bonuses, and increased occupancy expense, partially offset by lower advertising expense. Adjusted operating income was a loss of $6.8 million compared to adjusted operating income of $16.8 million in the prior-year period. Adjusted operating margin decreased 490 basis points, driven primarily by the timing of unearned revenue recognition, which negatively impacted adjusted operating income by $10.7 million as well as the increased costs we incurred in the quarter. Adjusted diluted EPS was a loss of $0.08 compared to earnings of $0.13 per share in the prior year period. Turning to full year 2022 results on Slide 13. Net revenue decreased approximately 3.6% versus 2021, with adjusted operating income of $87.8 million and adjusted diluted EPS of $0.65 per share. Now turning to Slides 14 and 15. Our balance sheet and liquidity remained strong. We ended the year with a cash balance of $229 million and total liquidity of approximately $523 million, including available capacity from our revolving credit facility. We have total debt outstanding of $568 million with no mandatory principal payments due until the term loan matures in July of 2024. Net debt to adjusted EBITDA was 1.9 times. For the year, we generated operating cash flow of $119 million. We invested $114 million in capital expenditures, primarily focused on new store openings and customer-facing technology investments, slightly below our expectations due to supply chain-related delays. We expect improved operating cash flows in 2023 and capital expenditures to be in a range of $115 million to $120 million to reflect our continued investment in key growth initiatives, including new store openings, as well as acceleration in technology investments, including remote care and electronic health records. In 2022, we returned capital to our stockholders with the repurchase of 2.7 million shares for $80 million under the share repurchase program and have $50 million remaining under the current share repurchase authorization. Inventory per store declined 6% on a year-over-year basis. We believe our current inventory levels are sufficient and can support our 2023 growth plan. Our merchandising and distribution teams continue to execute well to help us manage through the current supply chain challenges. Overall, in this environment, we believe the strength of our balance sheet and our strong cash flows are a competitive advantage and enable us to continue to invest in our key growth initiatives to further strengthen the customer experience and our market position. Turning now to our outlook, Slide 16. For our 2023 fiscal year, as set forth in greater detail in our earnings release, we currently expect net revenue between $2.075 billion and $2.135 billion, supported by adjusted comparable store sales growth of 0% to 3%, and our expectation is to open between 65 and 70 new stores this year. In addition, for 2023, we currently expect adjusted operating income between $48 million and $66 million, and adjusted diluted EPS between $0.42 and $0.60 per share, assuming approximately 80 million weighted average diluted shares. Given the current uncertainty around the consumer and the macroenvironment for this year, our outlook reflects a wider degree of potential results. The high end of our guidance assumes continued success in addressing doctor capacity constraints and a gradual return to a more normal optical purchasing cycle, as well as an improved consumer sentiment. The low-end assumes prolonged and increased pressure on our budget-conscious consumer and less success in addressing exam capacity constraints. While it is not our practice to provide quarterly guidance, with respect to the first quarter, we expect adjusted comparable store sales growth to be approximately flat. As Reade mentioned, we've been encouraged by the results to date from doctor retention and recruiting initiatives. Though the year has started stronger than expected, we remain cautious as March is a pivotal month due to the timing of tax refunds. The midpoint of our annual adjusted operating margin outlook reflects an operating margin decline of approximately 170 basis points versus 2022. This reflects the expectation of approximately 100 basis points of gross margin headwind balanced between expected higher product costs and investments in doctors. We have recently taken peripheral pricing, which offsets a portion of the cost increases expected this year. The remainder of the expected operating margin decline is largely due to the deleveraging of SG&A, driven by the return to a more normalized incentive compensation structure this year. We expect this normalization of incentive compensation to negatively impact adjusted operating margin by approximately 90 basis points, which we expect to be partially offset by advertising expense leverage. As we look longer term, we expect the benefits from our key initiatives, as well as an improved macroeconomic backdrop, to result in a return of comparable store sales growth to the mid-single digit levels we have historically delivered. With this more normalized comp growth we expect to begin to leverage the higher product, wage and incentive compensation costs we are experiencing this year. In addition, while we expect remote care to be profitable in 2023, we believe as we move beyond the implementation phase, there is a significant opportunity to continue to ramp the productivity of this highly accretive exam technology, which we expect to be at least 100 basis points of improvement to adjusted operating margin. We believe remote care is a key unlock to gain access to more doctors amidst industry-wide supply and demand constraints. Our robust remote care technology enables eye exams to be provided in locations where there is not a physical doctor present or in locations that need additional capacity to meet patient demand. In addition, we believe store digitization through EHR implementation will create efficiencies in store flow. We expect the remote exam technology and store digitalization implementation to be substantially completed by mid to late 2024 and fully productive in 2025, enabling our expectation of a return to mid-single-digit adjusted operating profit margin profile. We also continue to see the opportunity to expand margins beyond this point as we leverage sale growth and drive further productivity improvements across the organization. In closing, the pandemic era affected the optical industry significantly, but we believe we have a strong foundation in place and are excited to continue the expansion of our healthcare focus through remote medicine capabilities, one of the largest doctor networks in the U.S., and digital transformation of our stores and corporate office. We believe these solutions to address exam capacity constraints through investments in remote medicine and doctor scheduling options will continue to drive incremental revenue and profits into the future and will allow us to win in this environment. At this point, I'll turn the call back to Reade.

Thank you, Melissa. In summary, this chapter of the pandemic era has created significant changes to the optical category; inflation that has pressured the spending power and affected the purchase cycle of our more budget-conscious uninsured consumer base, created a shortage of optometric capacity for us and across the category and increased our product cost. We believe the purchase cycle and the cost environment will improve with time and are taking aggressive targeted actions necessary to address the situation, both short-term and long-term. Shorter term, we're implementing peripheral pricing changes that will offset some but not all of the product cost pressures we are experiencing, especially as it relates to the commoditized, easily shoppable contact lens category that represents the minority of our business and profit. Aggressive actions are being taken to address the new reality of the optometry labor market, with more scheduling options, variable compensation program updates, and continued investment in remote medicine initiatives. We're encouraged by the initial results of all these efforts. Additionally, we are investing in a variety of digitalization efforts, both customer-facing and back-office, to improve our customer offerings and create cost efficiencies. While these efforts create margin pressure in the near term, we are convinced that these are the right actions to position our business for long-term success. With that, I'll turn it over to the operator for Q&A.

Thank you. Our first question comes from Michael Lasser with UBS. Your line is open.

Good morning. Thanks a lot for taking my question. Reade, as you diagnose National Vision's performance in 2022, how much of the comp shortfall would you attribute to some of these execution challenges like increased optometrist turnover not having the full rollout of remote medicine versus just a difficult macroeconomic environment for your consumer? And a part of that, you mentioned you are starting to see more of a trade down. Are you surprised that at this point in the cycle that the trade down hasn't been even greater and offset some of these challenges in your core customer base?

Thank you, Michael. Good morning. Regarding the comp softness last year, we believe it was fairly evenly distributed between consumer-related issues and challenges related to doctor capacity. It's important to note that about two-thirds of our consumer base does not have insurance for their optical purchases, meaning they are paying out of pocket. The remaining third are insured customers, who have consistently shown positive contributions for both the quarter and the year, which is noteworthy. When it comes to what we can manage, the focus is on doctor capacity. I want to highlight that our retention rate for doctors falls between 80% and 90%, which is quite strong, especially considering that many of our doctors are younger and their lives are still settling geographically. However, we still have customers wanting to see us, and we lack the exam capacity to meet that demand. We believe that remote services will be a significant solution for us in increasing capacity. Additionally, the scheduling options we've discussed should aid in retention and recruitment, and we are seeing promising early results. Finally, the variable compensation linked to productivity will also contribute to addressing the gap in doctor availability. We are noticing a gradual shift towards more consumers trading down, although it's challenging to predict the exact impact of this trend, it is similar to what we observed during the recession of 2008 and 2009.

My follow-up question is how reliant is your objective of returning to a mid-single-digit adjusted operating margin on achieving a mid-single-digit growth in comparable store sales? I'm asking this because there has been an ongoing discussion regarding the National Vision model as a low-cost provider. Could it be adversely affected in a situation where the availability of doctors is limited, which might hinder the effectiveness of that low-cost model? The company may need to keep investing in attracting crucial talent, and could this be a reality we are starting to see, which may affect the structural margin of National Vision? Thank you.

I'm going to have Melissa do the first part of that. And then, I'd like to follow on to the second part of that.

Okay, great. Hi. So, we are investing currently and we're focused on driving long-term success post-pandemic. We believe our business model is strong and we believe that it will continue into the future. What we have incorporated into our guidance currently anticipates the drag on margins related to these investments. We do believe getting back to mid-single digits will be a key unlock for us, as we think about growth in the future. The investments that we're making currently will enable us to handle the capacity constraints that we have currently. The demand will be there, the doctors will be there, we'll be able to span across geography in time to service the demand that we have at the time that we have it. As I said, mid-single-digit comparable store sales growth at that point, we'll begin to leverage the higher costs that we're experiencing this year. And from there, once we have the remote care and electronic health record implementation completed substantially mid to late 2024 and fully productive in 2025, we expect approximately 100 basis point improvement on our operating margin. Then from there, we would expect to further take the opportunity to expand and leverage through sales growth, in addition to driving productivity improvements across the organization based on the investments that we're putting in place today.

And to the second part of that, Michael, there is nothing wrong with our business model. The only challenge is our ability to execute our business model, which is about having the doctor in the store. If we have the doctor in the store, the consumer demand is there. We think our business foundation is strong. Consumers want to come to us, and we believe that the actions that we're taking are solving this great challenge of the doctor piece. We think that there are two great trends that we are tapping into in our actions or three great trends actually. One, with remote medicine, we believe more and more doctors are going to want to practice that way in the future. Two, we think that doctors in general, healthcare workers in general, and frankly, all workers in general are seeking greater flexibility in their working world. The scheduling options we have put in place are addressing that. And thirdly, we think there is an ongoing trend in the optometric markets toward more of an employment model, and that is the model that we favor as well. So, in short, we feel that the doctor shortage challenges our ability to execute the business model that consumers really, really want, and we think our actions of remote medicine and scheduling options will tap into the way optometrists want to practice now and will even more so going forward.

Thank you very much.

One moment for our next question. Our next question comes from Zach Fadem with Wells Fargo. Your line is open.

Thanks, guys, for taking my question. This is our Sam Reid sitting for Zach. Wanted to dig a bit deeper on lower eyeglass margins and maybe parse out the effects of trade down versus stepped-up costs.

Could you repeat that, Sam? I'm sorry, could you just repeat your question one more time?

Sure, absolutely. So, I just want you to dig a bit deeper on eyeglass margins during the quarter and maybe parse out any effects from trade down versus stepped-up costs.

Yes. As it relates to eyeglass margins, we still believe that our margins are healthy. We are experiencing some product cost increases as we look forward to 2023. However, we are seeing some trade down from our consumers, from the higher-income consumers as we believe some of the lower-income consumers have left the market at the moment. We do believe the continued trade down, those customers are really targeting more of the higher-end product that we have in place, and their managed care benefits can get them farther at our stores than they can at our competition.

Yes. And, Sam, I want to clarify that we have used the term trade down in two distinct ways. First, we are observing wealthier consumers moving towards our business. Second, we are not experiencing a shift within our product categories towards cheaper options. The percentage of customers opting for our entry-level offers remains consistent with previous levels. So, those are the two contexts in which we use the term trade down in our company.

Awesome. Yes, I was referring to the latter. So, that's super helpful. And then, maybe just one quick follow-up. Embedded within your 2023 guidance, can you talk through the trajectory for insured versus uninsured consumers? Apologies if I missed, but will uninsured still be a drag on comps?

So, two things. We do believe that our managed care percentage will continue to grow as a percentage of our business, as it was growing consistently in the years before the pandemic, and then it has been growing recently as well. So, the growth in managed care consumers has been steady for years and should continue, and we're great with that. As for the uninsured consumers, to the extent to which we continue to retain the doctors we have, recruit more doctors, and leverage things like remote, we should be able to generate positive comps on the uninsured side of our business as well.

That's super helpful, guys. Really appreciate it. Will pass it along.

Thank you, Sam.

One moment for our next question. Our next question comes from Adrienne Yih with Barclays. Your line is open.

Thank you very much. Reade, I want to ask about the trade down phenomenon, particularly concerning the higher household income segment. I know you have mentioned before that there are better cars in the parking lot, but I'm curious about any credit card or geographic analysis you might be using to assess this situation. How do you determine that it's happening, and is there an acceleration in this trend? Compared to 2008 and 2009, how would you describe the speed, duration, and strength of this trade down? Additionally, regarding the lack of optometrist capacity, are walk-in patients seeking a doctor who isn’t available? Can you preserve this potential loss by offering other options or rescheduling them? Thank you very much.

Good. So, Adrienne, the positive aspect of this situation is that it highlights how much more advanced we are now compared to 2008 and 2009. Back then, our understanding was limited to store managers mentioning that nicer cars were in the parking lot, as we lacked data. Now, we can track the percentage of our customers coming from households with incomes over $100,000, and we've observed consistent improvements since around this time last year, particularly since the economy began to tighten around March or April. This analysis is very data-driven, unlike in '08 and '09 when it wasn't. Regarding capacity, let me explain the patient journey. Initially, individuals notice they're having difficulty reading street signs or menus, leading to a phase of denial where they hope it will go away and resist accepting their age. After several weeks, they realize they need to take action, and that prompts them to visit americasbest.com or our other brands to schedule appointments based on convenience. Generally, people prefer to book appointments within the next few days once they reach that realization. They can do this online or by calling a store, and we have a balanced mix of both methods among our customers. However, if someone wants to take action but can't find an immediate appointment, they may consider other options. Additionally, we always accommodate walk-ins at our store brands, most of whom are looking for an eye exam to update their prescriptions and start the process, as many tend to purchase their glasses prior to having their exams. Thus, if there isn't an available exam in the immediate future, people may start thinking about alternative options.

Okay. That's super helpful. Thank you very much.

One moment for our next question. Our next question comes from Kate McShane with Goldman Sachs. Your line is open.

Hi, thanks, good morning. I know a lot has been mentioned about the macroenvironment and exam capacity. But we wondered what you're thinking about the competitive environment. Do you see any changes there, any increased competition from maybe the mass channel that might be having an impact? And then, we just wondered from a housekeeping standpoint, how many remote locations will be rolled out in fiscal year '23?

So, in terms of big trends since we last spoke or recently, the only big trend is sort of the trend of return to stores. During the pandemic era, there was growth in the e-commerce phase and actually, we've been seeing that there has been a return to stores overall and a diminishment of that share. And again, this is a store's purchase, the vast majority of all purchases happened in stores, primarily because you need to start with an eye exam, which is why the exam capacity is such an important point. But beyond that, we are not seeing any abnormal or heightened competition. What we're seeing overall is the trends we've been talking about since the IPO, which is the traditional sector of the category that tends to be more expensive, much more expensive is gradually losing market share to the value segment and we are one of the winners in the value segment over time. And that trend, which we've been talking about for years, we continue to believe is going to be the ongoing trend going forward. Patrick, do you want to add anything there?

Yes. Let me take the remote rollout plans. Good morning, Kate. So, we had a great year in 2022. We got this rolled out to over 300 stores. There was lots of good effort, lots of good results and lots of good learnings. This year, similar to last year, we're starting out the year guiding at least 200 stores. That's kind of where we started out last year. Things got a little better, we were able to upgrade that. The other thing I'll mention on the 200, one of our learnings last year was, it's probably better to not be doing implementations during some of our larger peak volume periods. So, we'll be dialing back active implementation of remote and EHR during those peak volume periods. So, that will probably taper our numbers down a bit. But we think that's the right thing to do. Remote is going to be a key unlock. It has been already. The more stores we can get this in, the more flexibility we have.

Thank you.

One moment for our next question. Our next question comes from Simeon Gutman with Morgan Stanley. Your line is open.

Hey, everyone. Reade, I have a quick question on the optometric or the optometrist market, and then one on prices. You mentioned that it's a tough market. Is that because consumers can't get appointments, because there is a shortage? Or is it because in your segment, there's a lot of square footage growth and there's more of a chase to hire, as opposed to being like a national shortage where we're just underserved where demand is greater than the supply?

Good morning, Simeon. There is a national shortage of optometrists. During the pandemic, more optometrists retired than usual. This situation is similar for many other healthcare workers. There were increased retirements, and those who continued to practice reassessed their schedules, choosing to reduce their working days. As a result, the number of exams conducted weekly in America is lower than before. The schools are not graduating a higher number of students, which means we have a consistent number of incoming graduates, fewer practicing doctors, and fewer days worked by each doctor. This issue is widely discussed across the industry.

Great. And then, the follow-up is on the pricing. You made a change during the COVID timeframe, out of necessity and pragmatism. Have you debated this again? I know you have a competitive set that there is an opening price point and it is part of that value orientation. But is the pricing structure something that you hope changes or you just can't move at this point given where you compete?

We are always monitoring to ensure that there is a strong barrier between us and our competitors in terms of pricing, which we focus on closely. We consider ourselves a value-oriented company. We believe that we are less inclined to adjust our prices compared to many other companies in our sector. There are opportunities for pricing adjustments, particularly with glasses, but less so with contact lenses, which are very clear-cut and widely available products. We are cautious about changing prices in that area. Nonetheless, there are still opportunities, and we are able to maintain our competitive edge while carefully evaluating pricing decisions for the different products we provide.

Okay. Thanks, Reade. Good luck in '23.

Thank you. We'll continue to be doing that on an ongoing basis going forward.

One moment for our next question. Our next question comes from Taji Phillips with Jefferies. Your line is open.

Good morning, and thanks for taking my question. So first, I have a question on just adjusted comparable store sales growth this year. The midpoint suggests 1.5% growth, and I'm just curious what is informing this improved outlook relative to last year's negative growth? Is it a matter of easy comps, or are we actually seeing that positive flow through just with the improved macro environment? And then after I have one follow-up.

Hi, Taji. Good morning. The midpoint of our guidance reflects larger ranges due to the uncertainty in the environment. The high end of our range indicates a slight improvement in the macroeconomic backdrop and customer sentiment, along with ongoing progress in resolving capacity constraints we’ve been facing. Conversely, the low end suggests ongoing challenges with our value-conscious consumers and less success in managing the capacity constraints. The midpoint represents the average between these two scenarios.

For the first two months of this year, we've been performing better than our original expectations. March is such an important part month for us because it's tax return season. Whenever our customer gets found money like from a tax return, it's generally very good for us. So, we don't want to get too excited by the first two months until we see how March plays out because that's really defining for us in Q1.

Great. Thanks. And then, Reade, just referencing your commentary, I think I remember hearing you say that to make sure that you're promoting flexibility for optometrists, right, you have to restrict hours to improve optometrist recruitment and retention. Just curious how do you balance that decision right between just a lack of availability in time from restricting hours and then also making sure that you're able to effectively recruit more optometrists? Like, what does that flow-through look like? Has that directly impacted your ability to recruit optometrists?

We used to have a very strict policy where we required doctors to work specific days, including every Saturday, with only the option to take Wednesdays and Sundays off. However, we found that this approach was off-putting for potential recruits and contributed to some departures. Now, we offer a variety of options for doctors regarding which days they can work. By providing more flexibility, we have noticed that compensating extra for weekends and holidays leads to justified increased sales and profits. When doctors adjust their schedules to take Saturdays off and work instead on Wednesdays, we ensure that we find coverage for the Saturdays affected, which incurs additional costs that are compensated by the resulting sales growth. Our focus is on giving doctors more choices in their work schedules to align with their personal lifestyles while also meeting customer demand. Over the last few months, we’ve seen our recruitment and retention efforts yield the best results we've had in the past year and a half.

Great. Thanks for the information.

One moment for our next question. Our next question comes from Dylan Carden with William Blair. Your line is open.

I'm curious how you're thinking about the lapse in SNAP benefit as it relates to your guidance, as well as timing around lapsed customers who deferred the purchase in 2022 kind of coming back in '23? Can you hear me?

Dylan, can you repeat your question, please?

Yes. I'm just curious about the lapse in SNAP benefit as it relates to your guidance and how you're thinking about that, and then lapsed customers in 2022 coming back to the business in '23 kind of what the expectations are there?

Yes. Regarding the SNAP benefits, this adds pressure on our lower-income, uninsured customers. They have been facing challenges from various directions, so this is just another issue for us. However, we do not anticipate a significant impact. Additionally, the ratio of new customers to repeat customers has remained fairly stable.

Okay. I'll save my other one for offline. Thank you.

Good. Thank you. It is a little hard to hear you. So, thank you. I hope you got that. Good.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Reade for any closing remarks.

Good. Kevin, thank you so much. And thank you very much for everyone who joined the call. Thank you to our shareholders and stakeholders for your ongoing support. We look forward to speaking to you again when we report our first quarter results. Thank you, all.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.