Good day, and thank you for standing by. Welcome to the Fourth Quarter 2024 National Vision Holdings Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Tamara Gonzalez, VP of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to National Vision's fourth quarter and fiscal 2024 earnings call. Joining me on the call today are Reade Fahs, CEO; Alex Wilkes, President; and Melissa Rasmussen, CFO. Our earnings release issued this morning and the presentation accompanying our call are both available in the Investors section of our website, nationalvision.com. A replay of the audio webcast will be archived in the Investors section after the call. We will review our 2024 results, then Alex will discuss our 2025 strategic priorities, and then Melissa will provide our financial results and details on our outlook for 2025. 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 in today's presentation also includes certain non-GAAP measures. Reconciliation of these measures is included in our release and the supplemental presentation. We would like to draw your attention to Slide 2 in today's presentation for additional information about forward-looking statements and non-GAAP measures. Further, please note that all financial measures in today's commentary are based on a continuing operations basis unless otherwise noted. As a reminder, National Vision provides investor presentations and supplemental materials for investor reference in the Investors section of our website. I will now turn the call over to Reade.

Thank you, Tamara, and good morning, everyone. Thank you for joining us today. Before we begin our review of the fourth quarter and fiscal 2024 results, I'd like to take a moment to extend our appreciation to Melissa Rasmussen. Last month, we announced that Melissa is stepping down as CFO and will be taking an opportunity in another industry. Melissa has been instrumental in key aspects of our transformation to date, and we thank her for her dedication to National Vision during the over 5 years she's been with us. I've enjoyed our time working together and wish her the very best in her future endeavors. Earlier today, we announced the appointment of Chris Laden as our new CFO, who will begin on March 31. Chris joins us from Community Veterinary Partners, where he served as Chief Financial Officer. He brings with him nearly 2 decades of experience in both health care and optical retail, having also held leadership positions at Pearle Vision, a division of EssilorLuxottica, including Head of Finance. We're thrilled to welcome Christopher to the NVI team. To assist with the transition, Patrick Moore, who currently serves as a special adviser and who was recently our COO for just over 2 years and our former CFO for 8 years, will serve as interim CFO. Patrick will work closely with Christopher to ensure a smooth transition. 2024 was an important year for National Vision as we took increasingly aggressive actions to transform the business. We implemented meaningful change throughout the organization, including adding new members to our leadership team, who bring deep optical and retail expertise and new approaches that will help accelerate our transformation efforts, particularly across managed care, pricing, and our field leadership organization. The early success of these results is evident in our strong fourth quarter results. Sales in the fourth quarter increased 3.9% to $437.3 million, and we delivered our eighth consecutive quarter of positive adjusted comparable store sales. For the quarter, adjusted comparable store sales were plus 1.5%, supported by America's Best comparable store sales growth of plus 2%, which was on top of a 7.2% comp in last year's fourth quarter. This was offset by Eyeglass World's comparable store sales decline of negative 1.7%, as the brand was disproportionately affected by Hurricane Helene in October, and approximately 35% of its stores are located in Florida. Our stronger-than-expected top line performance was driven by actions started mid-quarter, including new selling methods and targeted pricing actions, which together drove increases in average ticket. Importantly, while average ticket rose, conversion held steady, which is an encouraging sign of consumer acceptance of the price changes. Sales in the quarter also continued to benefit from strong managed care sales, which comped high single digits throughout the year, offsetting continued relative softness in cash-pay sales. With respect to profitability, adjusted operating income increased to $3.2 million, and adjusted diluted earnings per share was a loss of $0.04. These results led to full year top line performance that came in as expected and bottom line performance above our expectations. For the year, fiscal 2024 net revenue increased 3.8% to $1.823 billion, and adjusted comparable store sales increased 1.3%, driven by continued strength in managed care sales. In 2024, managed care grew to approximately 40% of our revenues. Adjusted operating income of $65.5 million increased 21.5%, resulting in adjusted diluted earnings per share of $0.52. With that, let me review the progress we're making on our transformation initiatives. Over the past 2 years, we've made great strides in evolving and strengthening the foundation of our operations, improving exam capacity through recruiting and retention initiatives and expanding our remote exam capabilities. We've also made meaningful progress in enhancing our systems to further digitize our stores and corporate office. These efforts resulted in ending 2024 with doctor capacity on solid footing. Doctor retention squarely in line with historical ranges of between 80% and 90%. And for the third consecutive year in a row, we recruited at least 10% of the 2024 graduating class of all the optometry schools in the U.S. In addition, we ended 2024 with over 730 locations enabled with remote technology, with remote exams representing about 12% of exams in remote-enabled states for the year, and with remote doctor patients seen per day exceeding that of in-store doctors in the second half of fiscal 2024. We also launched our hybrid remote pilot in 2024, enabling in-store optometrists to perform exams in other stores based on availability and demand. Turning to our investments in technology, which continued in 2024. We invested in a finance ERP, which will go live in the second quarter, as well as the new Adobe CRM platform, which we expect to go live in the second half of this year. Thus, we're entering 2025 on a healthier footing relative to exam capacity and the tools we need to improve efficiencies and customer marketing strength. In terms of store operations, we identified areas where we can improve operational execution to drive comparable store sales and improve profitability. We completed a comprehensive review of our store fleet and announced that we will be taking action on 43 stores through fiscal year 2026 to improve the underlying foundation of our core business. In addition, we are incorporating learnings from the review into our go-forward store growth plans and testing a few smaller-sized store formats for America's Best. Finally, during the year, we began to use new and different promotional approaches such as a progressive bundle and a single payer offer. We entered 2025 ready to accelerate the next phase of our transformation, which we began to lay the groundwork for in the second half of fiscal 2024. Alex will go into more specifics, but in a sentence, the next phase of our transformation involves a strategic shift in focus to our more valuable current customer segments while maintaining our traditional base. Historically, our business was built for cash pay, highly budget-conscious consumers with our messaging and customer journeys heavily emphasizing the lowest out-the-door price. Despite our messaging and offering speaking more directly to this customer segment, we also attracted managed care customers, progressive lens wearers, and those who came to us with a prescription already in hand, looking for a solution for their eyewear needs. This group of customers over time has grown to represent about half of our customer base and a significantly higher percentage of our sales today. They find value in the quality of eye care we offer, our accessibility, and our broad range of product offerings to solve their needs rather than just the absolute lowest price. Given the significance that this group has on our business today and the opportunity we see, our efforts going forward will focus on creating enhanced journeys and experiences for these types of customers and personalizing messaging to their different motivations. With this approach, we believe we can grow our share of these more valuable customers and ultimately more profitably expand our customer base. Alex will go into more detail on how we're approaching the shift in mindset and selling strategy, but we're very encouraged by the early results we saw in the fourth quarter from the initial efforts underway. Concurrent with this customer-facing aspect of our transformation, we're maintaining strong discipline across expense management. We're attacking SG&A by driving operational efficiencies and better aligning our cost structure to reinvest in the patient and customer experience. Before I turn the call over to Alex, I'd like to give some commentary on our guidance range. January sales were quite strong for us. But more recently, we experienced negative traffic trends beginning the second week of February. While we believe it's too soon to determine the cause for this, we've observed significantly colder weather than normal across the country. And of course, we've all seen news about the uncertainty around consumer sentiment. Given this, we believe a wider range is appropriate to cover a broader set of scenarios. Melissa will go into this more in more detail after Alex shares more of our 2025 priorities.

Thank you, Reade, and good morning, everyone. I'll start by saying just how encouraged I am by the momentum we saw during the fourth quarter. Our teams are embracing our strategic priorities with excitement, and that is evident in both the stores and our retail support center. I'm impressed with the way in which our teams are engaged to drive improvement. And as Reade mentioned, the entire team is executing with a transformation mindset. Since joining the team in August, I spent my time with our team developing a framework that aligns our investment decisions with our operational action plan. We're getting the organization focused on creating an improved store experience and building our brand around our expanded customer view, all with an intense focus on disciplined expense management to improve profitability. As we shared on our third quarter call, 2025 will be a year to continue to strengthen our core business and to accelerate long-term growth. We are being thoughtful and focused on all aspects of demand generation and cost efficiency in the next phase of our transformation. Our priorities for 2025 begin with our customer in mind and their journey with us. We know that we attract a wider audience than we have historically targeted and one that is much more skewed to middle-income households, similar to that of the U.S. population. We are making rapid advances to ensure we provide value across this wide audience that is unique to each of our customer segments, with an emphasis on managed care, our fastest-growing customer cohort. Over the years, we have seen a broadening of our customer base, demonstrating that America's Best has diverse appeal and importantly, validates our go-forward approach to targeting value-seeking consumers across need basis and income demographics. As we continue to enhance our customer segmentation, we are defining a value proposition focused on our highest value customers. As Reade said, we know our highest value customers generate a disproportionate level of sales, and going forward, we expect to tailor messages and offers to them. While not walking away from our price-seeking segments, we will evolve our approach to the customer segments that are not as price-sensitive as our historical target. With this perspective and building on the work we've accomplished throughout 2024 for the next phase of the transformation, we've outlined the following key strategic priorities for 2025. First, our pricing strategy has historically been architected around the cash-paid customer, which made sense at a time when Managed Vision Care represented a smaller portion of our customer base. Fast forward, as managed care continues to supply a larger portion of our customers, now 40% and growing high single digits, we are adapting accordingly with attractive products at price points better suited to the managed care customer. Separately, during the fourth quarter, we implemented a set of tactical pricing actions on frames. This, along with sales force training, is reflected in our higher average ticket performance. And during the first quarter of 2025, we increased our headline two-pair offer by $10 at both Eyeglass World and America's Best. Second, we are implementing targeted initiatives to enhance the customer and patient experience to drive both ticket and traffic. We are evolving our selling model and enhancing our training to provide more emphasis on solving customers' needs rather than primarily providing the lowest possible price point. As Reade mentioned, this effort began in the fourth quarter, and although in early stages, we're seeing encouraging results and expect this to be an increasing benefit as the year progresses and we ramp up our efforts. And as we expand our Managed Vision Care customer base, we're evaluating technologies and processes that will both streamline the customer and patient experience and improve collections as well as implementing associate training programs to delight our insured customers. Over the past year, we've been actively working to evolve our product assortment to better align with the preferences of our customers. As this effort continues in 2025, it will also help our objective of better serving our higher-income consumers. Customers will start to see a better balance of high-quality, low-cost frames with an expanded assortment of more fashion-forward and branded frames at higher prices. Our success with the exclusive launches of Pair and Florence by Mills are some examples as both target a strong fashion value proposition. And we're excited to test two innovative new products, the Nuance all-in-one hearing glasses and the Ray-Ban Meta glasses starting in the second quarter. Nuance audio glasses will be available in 50 America's Best and Eyeglass World stores. Nuance is an exciting and innovative solution for those with mild to moderate hearing loss affecting approximately 30 million people in the U.S. alone. We're also thrilled to announce that the Ray-Ban Meta glasses will be available in approximately 50 stores in the second quarter of '25. And we continue to make progress at the intersection of Eye Care and Healthcare by bringing innovation to our patients. Our investment in Toku Inc., a leader in applying AI-powered diagnostic and screening tools to retinal imaging, continues to be a unique and valuable asset. We've expanded our pilot of BioAge, Toku's wellness product that utilizes retinal images to determine a person's biological age, which can give an indication of their overall health. BioAge is currently in 117 stores across 5 states, including New York. Third, complementing these initiatives are the investments we are making to transform our marketing and omnichannel capabilities. We have made intentional investments in the business to position us for growth. In addition to the Adobe CRM implementation in the second half of this year, we are investing in upgrading our e-commerce platform to strengthen our omnichannel experience. This will allow us to create new personalized journeys for all of our customers and significantly enhance how our customers experience us online. We're moving the organization to better leverage digital marketing and made the decision to change advertising agencies to one that specializes in the entire digital marketing ecosystem. Our new agency of record, VML, is tasked with helping us redefine our communication and brand platforms. We intentionally partnered with an agency that has deep marketing capabilities and a proven track record of maximizing investments in digital marketing technologies, particularly with Adobe platforms. Customers will get a refreshed, modern, and more personalized experience from America's Best and Eyeglass World marketing and messaging. Throughout 2025, we will continue to roll out behavior-based training in addition to investments in digital capabilities, product assortment refreshes, marketing, and CRM investments as we move towards a future where we can personalize our experience and offerings to customers' individual needs. To support these efforts, during the fourth quarter, we established a partnership with Accenture to help us redefine the customer experience and our online presence. Our teams will be working closely together as we enhance our digital experience and implement the tools and capabilities needed to modernize our offering. This work is well underway. Our primary key performance indicators to determine the success of these initiatives this year are improving comparable store sales and improving our profitability. To help drive this transformation, we reorganized our leadership to better align with our strategic approach and promote growth in strategic areas. In January, we announced a new leadership structure with heightened ownership and clarity around accountability. One great example of this is what we did with managed care, which now has one leader driving strategy and revenue cycle management under one umbrella for this key strategic growth priority. We now have focused and devoted leadership responsible for transforming both the America's Best brand and strengthening Eyeglass World. America's Best has a dedicated and experienced leader overseeing enhancements to the customer journey and in-store experience. During 2024, we took several actions to get Eyeglass World on a path towards stabilization, including applying learnings from America's Best. Under dedicated leadership in 2025, we're focused on continuing to stabilize operations while developing a go-forward strategy and an updated brand identity with the help of our new agency of record, all with a focus on how we deliver the customer experience and how we deliver our service promise. These leadership changes are an important step to move the business forward. As we look to increase efficiencies, we are attacking excess costs throughout the business. In 2025, disciplined expense reductions are expected to come in two steps. The first includes $12 million of expense reduction in '25, which is reflected in our guidance for the year. To facilitate this expense reduction, we made a tough decision to eliminate just over 10% of our existing corporate support positions. Although this was difficult, it was necessary for two reasons: one, we are aligning our talent with our strategic priorities, and we'll reinvest some of the savings from impacted positions into areas where we are growing and enhancing the customer experience; and two, we have taken disciplined expense actions to create a stronger, more profitable business. Our cost reduction initiatives will also be supported through our partnership with Accenture, and we will share more on this work as we move through the year. In summary, we are excited about the opportunities that lie ahead. We have a clear game plan to grow our customer base. We've taken bold decisions to invest in our transformation agenda while remaining disciplined with respect to our cost structure. And with that, I'll turn the call over to Melissa to review our financial results.

Thank you, Alex, and good morning, everyone. As discussed, we are pleased to have delivered a strong end to the year, reflecting the acceleration of our transformation effort. While the first phase of our transformation initiatives has been critical in stabilizing the foundation of our business, this next phase will enhance focus on accelerating demand generation and aligning our pricing and cost structure to reinvigorate the organization. The team is building a stronger foundation for sustainable long-term growth through the actions currently underway, and our fourth quarter results provide the team with conviction as they move forward. Before we review our outlook, let me provide more details on our fourth quarter results. For the fourth quarter, net revenue increased 3.9% compared to the prior year driven by growth from new store sales and adjusted comparable store sales growth of 1.5%, partially offset by the effect of converted and closed stores and lower revenue from our DiscountContacts.com website as expected. The timing of unearned revenue benefited revenue in the period by 80 basis points. Unit growth in our America's Best and Eyeglass World brands increased 4.4% on a combined basis over the total store base last year. During the quarter, we opened 20 new America's Best stores while also executing our fleet optimization plans by closing 7 America's Best stores and 4 Eyeglass World stores. In addition, we converted 4 Eyeglass World stores to America's Best stores, and we ended the quarter with a total of 1,240 stores. For the year, on average, dark stores continue to represent a low single-digit percentage of our America's Best fleet, while dense stores on average continue to represent a high single-digit percentage of the America's Best fleet. As a reminder, we define dark stores as stores that do not have doctor coverage and are not remote enabled, and dense stores are not remotely enabled and have less than 3 days of doctor coverage. Adjusted comparable store sales were driven by an increase in average ticket of 3%, supported by price increases and new selling methods implemented during the quarter. Encouragingly, conversion rates remained consistent as we implemented new pricing adjustments. The increase in average ticket was partially offset by a 1.1% decline in customer transactions, primarily due to the calendar shift resulting in a shorter selling season during our peak year-end week. In fact, leading up to the customer holiday, customer transactions were up 1.1%. As a percentage of net revenue, cost applicable to revenue decreased approximately 150 basis points compared with the prior year quarter, resulting in a gross margin increase of approximately 150 basis points. The improvement in gross margin was driven primarily by lower optometrist-related costs and higher eyeglass margins resulting from the pricing actions taken during the quarter. Adjusted SG&A expense as a percentage of revenue increased 40 basis points compared with the fourth quarter of 2023. The increase in adjusted SG&A as a percentage of net revenue was primarily driven by higher legal and professional fees related to the initial investment in our partnership with Accenture that Alex reviewed, as well as higher payroll expense and amortization of cloud-based software investments, partially offset by lower advertising expense. Depreciation and amortization expense of $22.7 million decreased slightly compared to $23.4 million in the prior year period. Adjusted operating income was $3.2 million compared to an adjusted operating loss of $2.7 million in the prior year period. Adjusted operating margin increased 140 basis points to 0.7% compared to the prior year period due primarily to the factors mentioned above. Net interest expense was $4.6 million compared to $3.9 million in the prior year period. The year-over-year increase was driven primarily by lower interest income on cash balances of $2 million, partially offset by $0.7 million of lower derivative income and a decrease in interest expense of $0.5 million compared to the prior year period. As a reminder, our guidance excludes noncash mark-to-market and deferred financing costs, which totaled $0.4 million for the period. Excluding these costs, interest expense was $4.2 million for the quarter compared to a benefit of $0.4 million last year. Noncash mark-to-market charges for the prior year were $3.6 million, which did not repeat in the fourth quarter of 2024 as the derivative hedge matured in July. Adjusted EPS was negative $0.04 per share, the same as the prior year period. Turning now to our financial results for fiscal 2024 as compared with fiscal 2023. Net revenue increased approximately 3.8%, driven by new stores and adjusted comparable store sales growth of 1.3%. The timing of unearned revenue positively impacted net revenue by 50 basis points. Adjusted operating margin increased 50 basis points to 3.6% compared to the prior year period, driven primarily by the decrease in adjusted SG&A as a percentage of revenue given the decline in incentive compensation and improved flow through due to the pricing actions already discussed. For the year, adjusted diluted earnings per share were $0.52, which exceeded the high end of our prior guidance range by $0.02 in the prior year by $0.05. Please note, our adjusted results for the fourth quarter and full year exclude one-time nonrecurring exit charges related to store optimization plans as well as charges related to our ERP and CRM rollout among other nonrecurring items that are detailed in the reconciliation tables found in our press release. Adjusted EPS excludes an after-tax noncash impairment charge of $18.6 million for our Eyeglass World brand following the comprehensive fleet review and actions taken. Turning next to our balance sheet. We ended the year with a cash balance of approximately $74 million and total liquidity of $368 million, including available capacity from our revolving credit facility. As of December 28, our total debt outstanding net of unamortized discount was $350 million and for the trailing 12 months, we ended the year with net debt to adjusted EBITDA of 1.8x. In 2024, we generated operating cash flow of $134 million and invested $96 million in capital expenditures primarily driven by investments in new and existing stores and remote exam technology. We continue to maintain a strong balance sheet and healthy cash flow to support our growth and capital allocation priorities. In 2025, our first priority with respect to capital allocation will continue to be investing in growth through new store openings and technology investments as we continue to digitize our stores and corporate office. Our second priority is on our debt structure, given the May 2025 maturity of our convertible notes of approximately $85 million. As we demonstrated with the repurchase in August, we plan to take fiscally responsible actions with the outstanding balance and are monitoring the markets for future opportunistic actions and other potential strategies. Before I discuss our outlook, I'll share how we expect to manage anticipated tariffs in 2025, as we have been closely monitoring these fluid developments. Less than 10% of our costs applicable to revenue are directly subject to tariffs from China. Regarding Mexico, we have mitigation plans in place if tariffs are imposed there. Where our exposure relates to our outsourcing relationships with our third-party laboratory. Including mitigation plans, we estimate that less than 1% of our cost applicable to revenue are subject to tariffs in Mexico. Moving now to the discussion of our 2025 outlook, which includes the 53rd week. We estimate that the 53rd week will add approximately $35 million of net revenue and approximately $3 million of adjusted operating income. In addition, as Reade mentioned, our outlook contemplates the strong performance in January as well as the recent change in traffic trends we have seen in February. Given the noise with weather, policy changes, and updates in consumer sentiment, we believe it is prudent to widen the range of scenarios underlying our outlook. For our 2025 fiscal year, we currently expect net revenue between $1.901 billion and $1.955 billion, supported by adjusted comparable store sales growth of 0.5% to 3.5%, and new store sales based on our expectation to open approximately 30 to 35 new stores this year. As a reminder, adjusted comparable store sales growth is calculated on a 52-week comparable basis to the prior year. With respect to profitability for 2025, we expect adjusted operating income between $73 million and $88 million, which includes a range for depreciation and amortization of $93 million to $96 million. We expect adjusted diluted EPS to be between $0.52 per share and $0.64 per share, which assumes approximately 79 million weighted average diluted shares outstanding. At the midpoint, this outlook assumes fiscal 2025 adjusted operating margins to increase approximately 50 basis points relative to fiscal 2024, more than entirely driven by SG&A leverage, reflecting the disciplined actions we have taken and will continue to take. Before I turn the call over to Reade, I wanted to acknowledge the National Vision team as they continue to work tirelessly and embrace change to drive results and execute our initiatives. We believe the initiatives being put in place are the right actions to take for the health of the business, controlling what can be controlled. While I look forward to my next chapter, I will miss being part of this organization and will be cheering for the team as they continue to position National Vision for long-term success. Thank you for your time today. I will now turn the call over to Reade before we open the call for questions.

In summary, we hope you are taking away a greater understanding of our transformation game plan and the tangibility of how we have been and will continue to bring it to life at National Vision. The first phase of our transformation involves addressing our exam capacity constraints via retention, recruitment, remote and hybrid remote initiatives. This next phase, which started to impact the fourth quarter, involved significantly heightening segmentation, personalization, and digitization in our messaging, experience, and product offerings. We are targeting the segments of our customer base where we've already shown growth and success in recent years, especially managed care, which is now 40% of our customer base and growing at high single-digit comps. The segments that are most insulated from today's economic challenges and the segments that are the most valuable to us as they currently represent 50% of our customers, but a much higher percentage of our sales. We are doing this in ways that we think should broaden our appeal to new potential customers. We're doing this in ways that we believe will allow us to concurrently maintain our historical target of the most price-driven and budget-conscious customers. We're doing this with the help of world-class partners like Accenture, Adobe, and a new highly digitally focused ad agency, and we're doing this in a way that is ever watchful of keeping our costs and expenditures under control. Most importantly, the organization is embracing this as the right way forward for us to expand and profitably grow in 2025 and the years to come. We think our results in the fourth quarter demonstrate encouraging green shoots and momentum that we hope to build upon throughout 2025. And with that, I'll open the line for questions.

Our first question comes from Michael Lasser with UBS.

Reade, can you give us a sense of how you have factored in any resources and risks from what seems like a significant pivot not away from your core more need-based customer to this more moderate middle-income type consumer? In addition, how do you balance the expectations of what's probably a higher expectation consumer as you expand the focus for the model?

Thank you, Michael. The positive aspect of our approach is that we are addressing a substantial portion of our existing customer base. These are customers who have discovered us and appreciate the value we provide. As mentioned, our managed care customers, progressive customers, and those who come to us with a prescription have various options to benefit from our competitive prices on a range of products. The fact that we are utilizing about half of our current customer base gives us confidence that we are headed in the right direction. These segments are all experiencing growth. Our goal is to enhance their experience, which is part of the customer experience initiatives that Alex has discussed. We are achieving this through improved training, product enhancements, and a thorough evaluation of their customer journeys to ensure we make it better for them.

My follow-up question is, can you give us a little bit more context on what you've seen quarter-to-date? Has it been broad-based, more specific to certain geographies? And if it persists over the course of the year, how should we think about the achievability of your full-year guidance?

I'm sorry, were you talking about our reference in the last 2 weeks of February?

Yes, sir.

Sorry, there was a little breakup in the line there. Yes. So again, Q4 was really encouraging. We put in a lot of programs mid-quarter and saw them take root. So we're happy with that. January was quite strong, so we were very encouraged by that. The last 2 weeks were choppy and a little surprising. So that's why we decided to call that out. We're pretty sure we're not alone in that. We're hearing that from our category, and we're hearing that throughout a lot of consumer retail. We think our initiatives are the right initiatives, but we just wanted to be a little bit more conservative in our guide given the audit of the past 2 weeks.

Our next question comes from Andy Chukumba with Loop Capital Markets.

I wanted to clarify that the guidance midpoint indicates an expansion of 50 basis points. Initially, although it was very preliminary, you expected our operating margin to remain flat year-over-year. I'm trying to understand if the 50 basis points is solely the result of the $12 million cost reduction, or if there are additional factors involved.

Anthony, it's Melissa. Apologies in advance. I'm a little under the weather. Yes, as far as the 50 basis point expansion, when we had referred to the flat operating margin year-over-year, that was taking into consideration the things that we had announced at the time. We had talked about our fleet optimization, and we had talked about the incentive compensation growth. We had also talked about we expected our initiatives to be upside from that. Those were the factors that were incorporated into that discussion. With that, we had also subsequently, taken out about $12 million in reductions in expense primarily focused on SG&A. So with that, that is what gets you to that midpoint of that 50 basis point improvement in profitability year-over-year.

Got it. That's helpful. And then you also talked about the fact that you now offer remote over 730 stores. What's the plan for a remote rollout in 2025?

We'll continue to open wherever laws allow and that sort of thing as we progress and fill in where we need to. And of course, our new stores in the states where it's allowable will be remote enabled. And this is a balancing act, so as we have retention of doctors, we don't need to use the remote as much, but where we need it, we use it. The nice thing is, and I'd certainly like to make this clear, we now define this as just part of our business. We've rolled it out, and we're using it, that this is now just an ongoing part of our offering. So we're probably not going to be talking about the ingest a whole lot because we've done it. We put it in.

Got it. And Melissa, good luck on your newest opportunity.

Thank you, Anthony.

Our next question comes from the line of Zachary Fadem with Wells Fargo.

This is Taylor Bernard on for Zach. Can you elaborate on the drivers of comps in 2025? And what was implied in the top and bottom of the guide? And any color on cadence expected throughout the year?

It's Alex. Thanks so much for the question. Yes, as we look at the composition of comp going into '25, we think it's equal parts traffic and equal parts average ticket. Again, as we mentioned in our prepared statements, we've seen nice growth on ticket from the initiatives that we've put in place in Q4, and we're seeing those hold as well as our conversion rates. So we feel incredibly bullish about our ticket and the actions that we've taken there. But again, we started Q1 in January pretty strong; in the last couple of weeks, as Reade mentioned, we saw some wobble in the consumer. But going forward, we're super bullish on what we're going to achieve through both ticket and through customer count growth.

Okay. Great. And then for my follow-up, how do you think about integration policy potential impacts? And how is that reflected in your guide if it is reflected in your guide?

We see immigration as one of the many factors affecting consumer sentiment out there, and so it's part of the combination package of trying to assess just the direction of the consumer. One factor.

Our next question comes from Paul Lejuez with Citi.

Brandon Cheatham on for Paul. I was just wondering; can you break out how you're thinking of managed care in 2025 in terms of top line guidance versus your cash-paying customer? We think about managed care as 40% of the business growing high single digits. That would seem to imply if those trends kind of continue, that's roughly like 3%. So I'm just wondering if you can help us parse out managed care versus cash paying in '25?

So managed care is now 40% of the business, growing at high single-digit comps. Managed care customers are just more insulated from the challenging economic times we live in because so much of the purchase is covered by their insurance. We believe this will keep growing. And again, the cash-pay consumer is the one that is most challenged. So we're saying that we think the next milestone is 50% for managed care, but we aren't saying when we think we'll get there. I just want to reinforce, though, even though we're talking about these higher-value consumer groups and segments, we still love our core cash-pay, budget-conscious consumer. We are still there for them, and they are still a key part of what we are. We just see the opportunity, especially in this economic moment, of riding the momentum that we've shown that we can drive with the higher value of consumers to us.

Got it. And my follow-up is, just anything in January that made you feel encouraged that maybe the repurchasing cycle was coming back? And then beginning in on the last 2 weeks of February, I understand it's choppy. There's some weather concerns. Were there any differences by geography? I think the West was not nearly as cold as the rest of the nation. So was the West segment also choppy?

So again, January was quite positive, and it's positive on a 2-year stack basis also. So that was really encouraging, and we saw that continued momentum from the programs we put in place in the middle of the quarter. And yes, in the past 2 weeks, there was some variable geographically. And again, we think weather was a component of the past 2 weeks, we just aren't ready to say that was the only component in the past 2 weeks. So we're just being cautiously prudent.

Our next question comes from the line of Simeon Gutman with Morgan Stanley.

I would like to inquire about the improvement in core EBIT in '25, excluding the extra week. Can you explain how much of this improvement is attributed to the operating businesses, such as America's Best and Eyeglass World, compared to the benefits gained from corporate overhead reduction? I'm interested in understanding the sources of growth and upside in core EBIT.

Yes, Simeon, as it relates to the improvement in EBIT year-over-year, a substantial portion of that improvement is coming from the SG&A takeout that we had talked about, that $12 million of improvement. As we had talked about the overall year-over-year performance, we had expected that things would be relatively flat when we factored in the initiatives that we had discussed last year. We do expect that we have some upside related to these initiatives that we're putting in place this year. And we expect that we'll continue to see improvement based on those actions. With that, we continue to mitigate costs where we can and be financially prudent in taking out expenses where it makes sense to do so without cycling ongoing growth.

That's helpful. Is there a way to quantify the comp that's either required on either side of the business, America's Best or Eyeglass World, where the margin expansion I expect? Yes, there is some leverage in gross margins as well. But what's the comp that allows the margins of each of the individual segments to start levering or to start expanding?

Well, what we had historically talked about was the mid-single digit. However, we had also talked about taking actions to ensure that we could leverage on less than a mid-single-digit comp. We are looking at it holistically from a business. Obviously, America's Best is our larger of the two brands, and the movement within that brand drives more profitability just from the sheer size of the brand. With that, we'll put more information out as the year unfolds between brands, but we do expect that our Eyeglass World initiatives will provide some upside as well. However, again, America's Best is the larger of the two brands.

Our next question comes from Brian Tanquilut with Jefferies.

This is Meghan Holtz on for Brian. Just want to start with things and good luck to Melissa on your next venture. The question we want to ask is about Toku BioAge. How is this reimbursed? Is this something that could gain traction with commercial insurance plans? And then as a quick follow-up to the managed care question that was asked earlier, how are you proactively driving that penetration to get to that 50% target?

Okay. I'll take the first part, and then Alex will take the managed care piece. So Toku BioAge is sort of our first step into the world of using AI to scan for a variety of diseases. The disease states. The key thing that Toku is trying to do is get FDA approval for their AI scan for cardiovascular issue assessment and kidney issue assessment. While we await that, we're trying to build some muscle memory by offering a product in our stores where a patient or a customer can get an assessment of their biological age, biological age as opposed to chronological age. This is something that you read about in the press a lot; people have a lot of interest in it. The Wall Street Journal has covered this sort of thing, a lot of part of the longevity movement. So people are paying to get that assessment. It is not reimbursable. There's no insurance; this is all consumer cash pay. We've been pleased with the uptake, but primarily, this is about developing the muscle memory on how to use AI scans of the retinal images we take in all our stores.

Great. I’ll address the managed care question. There are two main approaches we will take to manage care for consumers. First, we plan to enhance our marketing capabilities to deliver personalized messages tailored to managed care consumers. We haven’t done this effectively in the past, so being able to communicate with specific messages relevant to their plans will be a significant advantage for us. Second, as we develop our products and services, we will invest in options that are more appealing to managed care consumers. This means we will not only communicate with them differently but also provide unique experiences. We believe these two strategies will greatly expand our Managed Vision Care consumer base.

And Meghan, it's just a great example of when we talk about segmentation, personalization, and digitization in our messaging, customer experience, and product offering; managed care is a great example of how we're going to do that.

Our next question comes from Adrienne Yih with Barclays.

Great to see the progress. Congratulations, Melissa, and thank you for all your help over the years. My question is about the managed care aspect. We've discussed how the transaction size is larger compared to cash pay, but the margin implications may not be as profitable. Can you explain the gross margin drivers we've observed over the past three quarters, particularly considering the Walmart exit? Where do you see gross margins headed from here, and what will be the key drivers? Additionally, regarding store rationalization, can you clarify how many of those stores will be Eyeglass store closures versus AB?

Adrienne, in regard to gross margin, there have been numerous factors impacting it in 2024. Notably, the margin profile has shifted due to the Walmart exit and the AC Lens wind-down, leaving us with our core business. You might notice fluctuations between quarters related to promotions we offered, such as a 1-pair versus a 2-pair offer, which alters the margin profile. When we issued our guidance for 2025, margins appeared to be stable year-over-year. There may be slight deleverage, but we anticipate compensating for that as the year progresses. Considering our fleet closures, those affect our operating margins more significantly than our gross margins. The November press release regarding our fleet optimization provided details on the anticipated revenue decline and the operating margin enhancement from those closures. Looking ahead to 2025, we expect quarterly performance to be similar to 2024, based on a continuing operations perspective.

Okay. And just very quickly, there's no issue with your leverage to the Easter Spring break transition occurring between March and April based on what you said?

With spring break, we don't typically see a significant change based on spring break. Our historical seasonality period, we have managed care at the beginning of the year and the rush at the end of the year. We have a slight bump with back-to-school season. Those are really what our busy periods are. And with that spring break, sometimes you have kids coming in because they're out of school. But for the most part, those other seasons that I just mentioned are when we have high seasonality. The store closures, for 2025, we expect that we'll still have 3 America's Best stores closing, and Fred Meyer, we will be closing 9 stores. Those are primarily going to be focused in the first quarter for Fred Meyer. Again, the release that we put out in November has the detail of the revenue reduction and then the operating margin improvement based on those closures.

Our next question comes from Molly Baum with Bank of America.

So I just wanted to get a little bit of additional color on the optometrist recruiting. I know you mentioned that for the third year now you've recruited at least 10% of the graduating class. But in the 2Q of this year, you had also talked about a little bit of a softer-than-expected optometrist recruiting for the year. So can you just kind of talk about where you stand in that process? What your expectations are for 2025? And then maybe at a higher level, do you need to recruit as many doctors now that you have kind of increasing penetration of remote?

Great questions, Molly. Yes, on the recruitment side, we've successfully recruited at least 10% of students for the third consecutive year, which we are pleased with. This reflects the strength of our model, reputation, brand, and the flexible programs we've introduced. You pointed out that we discussed a slower pace in recruitment mid-year, but our team responded well and ended the year on a positive note. Regarding the use of remote doctors, while they currently represent only 12% of exams, they provide us with greater flexibility. We still prefer live doctors, but incorporating remote options helps us maintain a good balance. Overall, we have finished the year and started the new one in a strong position concerning exam capacity, thanks to years of effort, and we are happy with our current standing.

That concludes today's question-and-answer session. I'd like to turn the call back to Reade for closing remarks.

Good. Elizabeth, thank you so much for your help with this. And thank you all for your time and attention to the call and to our business. We look forward to updating you on the progress of our transformation and our Q1 release in May. Thank you all so much.

This concludes today's conference call. Thank you for participating. You may now disconnect.