National Vision Holdings Inc
NASDAQ:EYE
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National Vision Holdings Inc
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Good day, ladies and gentlemen, and welcome to the National Vision's Second Quarter Fiscal Year 2019 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. David Mann, Vice President of Investor Relations. You may begin.
Thank you, and good morning, everyone. Welcome to National Vision's Second Quarter 2019 Earnings Call. Joining me on the call today are Reade Fahs, Chief Executive Officer; and Patrick Moore, Chief Financial Officer. 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, and a replay of the audio webcast will be archived on the Investors page after the call.
Before we begin, let me remind you 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 and are not limited to the factors identified in the release and in our filings with the Securities and Exchange Commission. The release and today's presentation also include certain non-GAAP measures. Reconciliation of these measures are included in our release and the 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 expects to provide certain supplemental materials or presentations for investor reference on our Investors section of our website.
Now let me turn the call over to Reade.
Thank you, David, and good morning, everyone. It's a pleasure to be speaking to you today to share our second quarter results.
If you turn to Slide 4. Overall, National Vision delivered another solid quarter and a healthy first half performance. Q2 net revenue increased over 11%. We opened 24 new stores in Q2 and ended the quarter with 1,128 stores for a 7.4% increase in store count in the past year. Q2 represented our 70th consecutive quarter of positive comparable store sales growth. That's over 17 years of consistently healthy quarterly comps. The team is quite proud of the consistency of this track record.
Q2 adjusted comparable store sales growth was up 3.8%, despite a shorter peak selling season. Comps were once again led by our growth brands with a 4.5% comp increase at America’s Best and 5.2% comp increase at Eyeglass World, respectively. The results are especially solid when you consider that both brands were comping against comp growth of approximately 10% in last year's second quarter. These results speak to our store execution every day in every store, one patient and one customer at a time.
We closely monitor Net Promoter Scores as another sign of customer satisfaction and ambassadorship. Our overall NPS increased year-over-year with improvement at our growth and legacy brands. Adjusted EBITDA increased over 7%, and adjusted net income improved nearly 4%.
Subsequent to quarter end, we announced 2 significant developments: first, we completed the refinancing of our existing credit agreement that lowered our borrowing costs and expanded our capacity; second, we announced the addition of Heather Cianfrocco to our Board. Heather is the CEO of UnitedHealthcare Community & State, a wholly owned subsidiary of UnitedHealthcare, America's largest provider of medical insurance. She is an experienced and accomplished health care executive, who brings a deep understanding of both strategic and operational aspects of managed health care. We were seeking a Board member who has the sort of in-depth knowledge of the U.S. medical insurance chessboard and landscape that we have of the U.S. optical chessboard and landscape. Heather fulfills that criteria perfectly. I'm quite pleased to welcome Heather to the Board and expect she will be a key asset and make many contributions that will be helpful to National Vision in the future.
Separately, during the quarter, Felix Gernburd of KKR completed his director term and did not stand for re-election to the Board. I'd like to thank Felix for his service and significant contributions over the last 5 years.
Turning to Slide 5. It was another quarter of positive comps, further demonstrating the consistency in-store performance and comp store sales gains. The graph highlights our 70 consecutive quarters of comparable store sales growth. Comps in the quarter were driven by increases in both average ticket and customer transaction. Our comps during this 17-year streak have fluctuated quarter-to-quarter but have been consistent over longer periods of time, which we believe is one of the nice benefits of a purchase tied to a medical necessity. Internally, we find it more useful to look at our trends over half a year and note that first half comps increased 5.3%. When we last spoke in early May, you may recall that we shared that we were off to a softer start to Q2. I'm pleased to report we've experienced a steady improvement in our revenue and comp trends since then. Coincidentally, sales seemed to have picked up very soon after our May call.
Overall, our consistent positive comp results continued to reflect the benefits of operating in a growing segment of an attractive industry, having a leadership team of optical experts that focus on customers and patients, new store growth as well as comparable store sales growth in our more mature stores as customers just keep coming back. With our double-digit net revenue growth in Q2, we believe that we continue to gain share in the fragmented $36 billion optical retail market with our value-oriented business model.
As we look ahead, we remain optimistic about our prospects for the second half of 2019 and are reaffirming our 2019 outlook. In a few minutes, Patrick will walk you through more details of our outlook.
Turning to Slide 6. Let me update you on our core drivers of growth. First, new stores are a primary focus as we continue to see a sizable white space opportunity, given our current footprint. We continued our store opening cadence and opened another 24 locations in the second quarter of 2019. Year-to-date, we've opened 50 stores and are well on our way to open about 75 stores again this year. Our real estate team is executing well to find locations that fit the formulas that have worked for us in the past. The pipeline of locations remains solid for the remainder of the year 2020 and beyond.
Optometrists play a key role in our ongoing success, and we continue to work hard to fill our ever-growing patient demand for eye exams. As you have heard me say before, attracting and retaining optometrists is a key focus area for us. As part of this, in June, we held our annual optometrists conference, where we got to spend time with over 1,000 optometrists while concurrently help them to fulfill their continuing education requirement. At this time of year, we're excited to welcome newly graduated optometrists to the National Vision family. We strive to offer an attractive environment for these new graduates as well as experienced optometrists to practice.
One of our key mantras at National Vision is we're committed to creating environments where optometrists will want to spend their entire career. We believe that these investments are paying off as our overall optometrist retention rate remains at remarkably strong levels. Our team expects to continue to drive comparable store sales growth in 2019, even as we lap strong multiyear comparisons. Our key comp drivers are the comp waterfall from maturing new stores, marketing and vision insurance initiatives and the positive word-of-mouth from happy patients and customers.
Our new stores gain traction as customer awareness builds. It can take time for potential customers to find a store after it opens as the infrequent purchase cycle for eyeglasses averages 2 to 3 years. Thus, in the first 2 years, it's pretty much all new customers, with years 3 and 4 achieving the multiplier of returning customers. When our customers are in the market, we strive to deliver incredible values that attract them to our stores. Our introductory offer at America's Best, 2 pairs of eyeglasses for $69.95, including a free comprehensive eye exam, hasn't changed in over a decade. At Eyeglass World, the offer of 2 pairs of glasses for $78, along with the opportunity of same-day service from our in-store labs, is also among the best values in the industry.
We believe that the combination of low prices and excellent customer service leads to satisfied repeat customers and positive word-of-mouth as customers tell their friends how little they've spent and the great service they received at our store. Marketing continues to be a key factor in attracting customers and driving traffic to our stores. Television advertising remains our primary marketing vehicle, and our Owl and Mr. World marketing campaigns continue to resonate with our customers.
Last quarter, we noted the launch of our first Hispanic media campaign. We continue to test various Hispanic media initiatives and are optimistic about its role in future marketing efforts. Overall, we believe that our investments in marketing are paying off and a factor in our market share gain.
Participation in vision insurance programs remains a positive comp driver. Strong net revenue growth tied to these partnerships continued in the second quarter. We remain underpenetrated relative to the industry for the percentage of our business coming from vision insurance. Net revenue tied to vision insurance, while fast-growing, remains a minority of our revenue. Thus, we see continued opportunity for growth.
In terms of operating productivity, we can't be everyday low price without being everyday low cost. We believe that our centralized lab network is a world-class manufacturing operation that provides a true competitive cost advantage. We're pleased with the continued progress for operations at our new state-of-the-art lab in Texas. The lab is running on track for its production ramp-up goal. Our new Texas Lab is a prime example of growth investments we are making today that we believe will drive future performance.
We continue to progress our omnichannel efforts to improve the customer experience and operating efficiency. One of our key omnichannel initiatives has been the online and mobile scheduling of eye exams, which continued its solid growth trend in Q2.
Let me take a moment to comment on last week's announcement regarding additional products being subject to a 10% China tariff. To date, eyeglass cases have been the only item affected by the imposed tariffs, and the impact has been -- has not been material. As previously disclosed, we estimate that products imported from China represent less than 16% of costs applicable to revenue, and these products would be subject to the 10% tariffs that are to be imposed on September 1. As I noted on prior calls, our team has been diligently developing initiatives to mitigate the impact of potential tariff. We've been working with our suppliers, looking at all areas of our supply chain as well as reviewing our pricing and cost structures. While we're not going to go into more detail of our initiatives for competitive reasons, we remain focused on operating a cost-efficient supply chain and maintaining our commitment to our industry-leading low price strategy. As a result, we're positioned to offset the impact of the potential 10% tariff this year if they are imposed.
Overall, we're pleased with our first half performance. The momentum in the business is solid. Optical retailing remains a very attractive industry, and we're executing our growth strategy to continue to build the business for the long term.
At this point, let me hand the call over to Patrick.
Thanks, Reade, and good morning, everyone.
Turning to Slide 8. As Reade noted, our business continued to perform well in the second quarter and the first half. During the quarter, we opened 24 new stores and closed one store or a 7.4% year-over-year increase in unit growth, with the openings entirely in our America's Best and Eyeglass World brands. For these 2 growth brands combined, unit growth increased 11% over the last 12 months. We're pleased with our store opening cadence this year, having opened 50 stores year-to-date compared to 40 last year at this time. Thus, we are on track to open approximately 75 new stores in 2019.
Store openings will continue to be predominantly America's Best locations, with the remainder being Eyeglass World stores. We project a few closings as is typical each year. This quarter, you will note that we had one closing, and it was in the legacy segment. This vision center was located within an older host store that was closed by Walmart. Our 2019 store growth will be skewed towards existing markets as well as further infill in newer markets. In our newer markets, we continue to expand our store base and invest where our new stores are ramping and building awareness. We note that the majority of our new stores have historically taken approximately 3 to 5 years to mature and pay back invested capital. We remain very positive about these newer markets and see a lot of our potential customers there.
The chart of adjusted comparable store sales growth presents our comps calculated on a cash basis. Same-store sales increased 3.8% versus the 8.8% increase in the second quarter last year. The comp growth was driven by increases in both average ticket and customer transactions. More importantly, eyeglass sales were primarily driven by increases in customer transactions. We are very pleased with how our business has shown steady improvement since our last call.
In the second quarter, we generated solid comps in our growth brands as America's Best and Eyeglass World produced gains of 4.5% and 5.2%, respectively. Legacy comps increased 0.4% in the second quarter compared to the strong 4.4% comp in the second quarter last year. Of this growth, we estimate 180 basis points of benefit were incremental eye exam revenues tied to a shift in optometrist from our FirstSight subsidiary to the Legacy segment in the fourth quarter of 2018.
Turning to income statement highlights on Slide 9. As a result of the solid comp and unit growth, net revenue increased 11.4%. The growth in net revenue from the AC Lens contact lens distribution business contributed approximately 260 basis points of the increase. Cost applicable to revenue increased 14.4% or an increase of 130 basis points as a percentage of net revenue versus last year, which was within the range of expectations that we provided last quarter. Most of the increase or 110 basis points was due to the contact lens distribution business growth. The remainder of this increase primarily reflected higher optometrist costs that were partially offset by a higher mix of reimbursed eye exam sales as a result of our growing managed care business. The increase in optometrist-related cost primarily related to expanded store coverage.
SG&A expenses increased 10.1% or a decrease of 60 basis points as a percentage of net revenue versus last year. This decrease was primarily driven by the net revenue from our contact lens distribution business growth and store payroll leverage, partially offset by investment in advertising. Adjusted SG&A expenses increased 9.3% in the second quarter versus last year. As a percent of net revenue, this measure decreased 70 basis points, reflecting the same factors that affected GAAP SG&A expenses.
Adjusted EBITDA increased 7.2%, and adjusted EBITDA margin declined 50 basis points to 11.6% in the quarter. The decline in adjusted EBITDA margin was primarily due to our investment in advertising and the impact from the contact lens distribution growth, partially offset by the net change in margin on unearned revenue. Adjusted net income increased 3.6% in the quarter. Adjusted diluted EPS was $0.20 and unchanged from last year.
Turning to Slide 10 and first half results. We were pleased with our first half results, with adjusted comparable store sales growth of 5.3%, net revenues up 12% and adjusted EBITDA growth up about 6%. The net change in margin from unearned revenue negatively impacted our 6% year-over-year adjusted EBITDA growth rate by 240 basis points. Similar to last quarter, we have included an explanatory slide on unearned revenue, which you will find in the Appendix section on Slide 24. This illustration is intended to help unpack how unearned revenue is somewhat unique to our service-based business model versus other retailers as well as the typical seasonal impact on our income statement.
As we noted on our last call, the peak selling season was shorter this year and did not extend into the second quarter. Despite this, we delivered consistent results over the first half. Adjusted EBITDA margin decreased 80 basis points to 12.7%. Our adjusted EBITDA grew at a slower rate than net revenue due to investment in advertising, the impact from the contact lens distribution growth and the net change in margin on unearned revenue.
Turning to Slide 11. At the end of the second quarter, our total debt was $588 million, our cash balance was $83 million or up nearly $50 million year-over-year. Net debt-to-adjusted EBITDA was 2.8x, an improvement from 3.2x in the second quarter last year. With our pre-IPO ratio at 6x, the substantial progress in the last 2 years indicates our clear commitment to deleveraging our balance sheet. Year-to-date, we invested $52 million in capital expenditures with the majority of the CapEx focused on growth initiatives. Cash flow provided by operating activities increased $39 million versus last year. We are encouraged with the prudent cash flow characteristics of our business.
We're on track with our CapEx plan for $100 million to $105 million for the year, which would be equal to or below our 2018 CapEx level of $104.5 million. With our current outlook for top line growth and relatively stable CapEx, we expect to reduce our capital intensity in 2019, which is an ongoing strategic focus.
Turning to Slide 12. As Reade mentioned, we refinanced our outstanding debt last month as we continue our efforts to improve our capital structure. Specifically, we increased our Term Loan A debt to $420 million, we expanded our revolver to $300 million, and we utilized the proceeds of the new Term Loan A loans and $148 million in revolver borrowings to repay our existing Term Loan A and B debt. As a result, we lowered our borrowing cost on approximately $360 million in debt by 100 basis points, and we increased our overall borrowing capacity by approximately $60 million. Overall, the debt refinancing represents an important milestone for the company.
Turning now to our outlook on Slide 13. As noted in the earnings release today, we are reaffirming our fiscal 2019 outlook. We also updated our interest range to $34 million to $35 million to reflect the debt refinancing. As a reminder, our outlook includes the impact from a couple of items that we've outlined previously. First, we continue to expect that the revenue growth from the incremental contact lens distribution business will dampen our adjusted EBITDA margin by increasing our costs applicable to revenue and leveraging our SG&A expense. Driven by this growth, we would expect our GAAP cost applicable to revenue to increase 80 to 100 basis points in fiscal 2019 compared to fiscal 2018, a slight tightening of the range that we provided last quarter. For modeling purposes, the margin pressure should moderate in the third quarter with impact of approximately 60 to 80 basis points to costs applicable to revenue, and then we will fully anniversary the impact in Q4.
Second, we continue to expect to spend approximately $4 million this year in incremental investments in cybersecurity.
Let me briefly revisit China tariffs in the context of our outlook. As Reade highlighted, we have been working diligently on initiatives to mitigate the impact of potential tariffs. As a result of these actions and plans, if the 10% tariffs go into effect in September, we remain confident in our 2019 outlook at this time. Overall, we continue to expect to deliver generally stable adjusted EBITDA margin in 2019 before the impact of the incremental contact lens distribution business growth while investing to drive future growth. We continue to expect solid adjusted EBITDA growth this year with a higher growth rate in the second half.
In summary, while our business can experience fluctuations quarter to quarter based on timing and other factors, it has delivered highly consistent results over time. We are focused on executing our 2019 strategic growth initiatives and look forward to delivering another year of consistent growth.
At this point, I'll turn the call back to Reade.
Thank you, Patrick. Turning to Slide 14. I have 2 items to share for our moments of mission. First, Eyeglass World launched its new philanthropic outreach program in June. It's Made Locally, Given Globally program, which provides customers at its more than 100 retail locations the opportunity to buy a pair and give a pair. When an Eyeglass World customer buys a pair of eyeglasses, another pair will be handcrafted at the in-store lab for donation to someone with vision impairment around the world. With an immaterial financial impact to us, we are pleased that we will have a meaningful impact for those in need and play an expanded role in addressing the global vision crisis.
Secondly, we're pleased to share that our store in Wilkes-Barre, Pennsylvania reopened during the quarter. The store was closed last summer after being devastated by a tornado. After reopening, one of its loyal customers brought a cake into the store to welcome back our associates. It's just another great example of the sort of enduring connections that our optometrists and associates create with our patients and customers.
In summary, I'm pleased with our second quarter and first half results and with the fact that we remain confident in our year as reflected in our reaffirmed guidance. I want to thank our entire team at National Vision, including the over 2,000 optometrists who provide much-needed medical services to patients at our over 1,100 storefronts every day. We continue to strive to be the best at providing low-priced exams, glasses and contact lenses, while both at home and abroad, we work to bring glasses and consequently sight and improved quality of life to those who would be unable to see well otherwise.
As I've noted in the past, this is why we believe optical retailing is a noble profession. With that, I'd like to turn the call back to the operator to start the question-and-answer portion of the call.
[Operator Instructions] And our first question comes from Michael Lasser with UBS.
Two questions. First on the flow-through. Did incremental advertising restrain some of the flow-through this quarter? And as part of that, how do you think about the flow-through over the long run? So if you consistently comp up 3% to 4%, what should we expect the type of leverage that the model's going to produce in more of a steady state environment? And then I have a follow-up.
Okay, great. Michael, it's Patrick. In the quarter, we did call out advertising, and that was really more of a function of the softer start to the quarter as we looked at the advertising in dollars spent relative to revenue. We didn't spend a whole lot more on advertising than originally planned. As I look at overall flow-through and think about that at a -- let's just say, at a gross margin level first, the main impact that we continue to feel through the end of the second quarter is the new AC Lens Walmart contact lens distribution business. That's been a factor since the late third quarter of last year. We saw a little more [ lead ] cost in the quarter, which we've been seeing, and we expect to see some improvement in that and improvement in growth in the second half. We're still growing over some cyber expense in terms of the overall EBITDA margin. I do feel like we're setting a good foundation for margin expansion at some point in the future, especially as we lap the cyber and frankly, lap the AC Lens contact lens distribution business.
And Patrick, did the whole tariff situation get in the way of that? You mentioned you think it's manageable for 2019, but given where we are in the year, this is going to impact you late in the year, but the heart of it will really come into play next year. So should we expect that this will drive some incremental margin pressure as we look towards 2020 from the tariff situation?
Michael, this is Reade. We weren't surprised by these tariffs, we've been planning for this. We have developed a playbook for this, and we think we're well positioned to offset the tariffs, even if they increase from here, we have playbooks in place for all options.
And I'll just add. We reaffirmed guidance today and have good confidence in the rest of the year under the 10% tariffs. I probably won't speculate and get ahead of [ Mike's keys ] in terms of 2020 or what if it goes from 10% to 25%, but we've not put the project down. We continue to work very hard to come up with good mitigation alternatives. And again, for this year with relative to guidance, we feel confident that if the tariffs go into place on September 1, we're prepared to mitigate that for the year, and we will continue to work to mitigate future scenarios.
The team overall is very good at scenario planning.
Okay. Oh, speaking of scenario planning, my last question is if you were to find an opportunity to sharply increase the amount of business you were doing with one of your existing partners, do you have the capacity, both the financial and operational capacity, to scale up quickly and make some substantial investments in what would be necessary to take on additional business from one of your partners?
As I said, we're always scenario planning and thinking through options for growth, both incremental and significant. And I think one of the things we're very good at operationally is execution.
Our next question comes from Simon Gutman (sic)[ Simeon Gutman ] with Morgan Stanley.
This is Josh Kamboj on for Simeon. Looking back on the quarter, it seems like maybe the sales accelerated as the quarter went on. Could you perhaps diagnose some of the softness you saw in the beginning? Is it just tax refund and weather-related? Or are you perhaps starting to see some changes in the competitive landscape?
Yes, Josh, great question. Because it's awfully coincidental that it seems like almost right after our call, our momentum shifted very positively. And we've had good healthy momentum since then. We look at April and say, we did have a shorter peak selling season this year, then the timing of robustness of tax refunds for our specific target audience, we think, was affected. But we also believe there were, just in talking to a lot of folks in our industry, that the market just wasn't as robust for optical goods in April. But we see that as a short-term fluctuation, a short-term blip. We are a consistent business. As I said earlier, we think it's better to look at us in terms of halves versus quarters. And we find that sort of April, May period is always just a funny period, and we think that the 5-plus percent first half was a really healthy on-trend number.
Understood. And then if you -- looking ahead to 2020, can you maybe talk about some of the margin drivers that you expect to have the greatest impacts next year? Is it reasonable to expect margins to expand?
Well, I would say -- it's Patrick. We -- I think we've successfully maintained relatively stable core margins while continuing to make the right investment decisions to drive future growth and future market share take. We have had to live with new pubco grow-over cost and now [ fiber ] this year. We continued to invest in -- time to time in advertising optometrists. We've opened our fourth state-of-the-art lab this year, that Reade mentioned, that's had a little drag. At the same time, we've been managing through wage inflation, like most U.S. retailers. We continuously focus on good ways to reduce costs. I think we'll clear the drag on the new lab this year, expect to see productivity gains over time from that investment. I expect to see some moderation of SG&A growth even in the second half of this year and would expect that we would continue to leverage corporate and advertising. So I've kind of used this expression before, I'll use it again. I firmly believe we're setting the right foundation in '17 and '18 to realize some incremental margin expansion at some point in the future. And -- but those are kind of the key factors that I think about as I look at the puts and takes.
Our next question comes from Paul Lejuez with Citigroup.
Two questions. I'm curious, through your partnership with Walmart on the stores you're running for them, do you have an understanding whether the optical segment will be one that they put more or less marketing dollars behind in future quarters? And then second, I'm curious if you've seen any noticeable pickup in your stores that are located near to other stores that have closed, like Sears, Kmart, Shopko. Could you maybe speak to that?
So on the first question, Walmart does not tell us their marketing plans overall, so we cannot comment on them. That would be a question for them. Secondly, in terms of pickup, the best benefit when those stores close is when we pick up a doctor. And because the doctor, of course, gets dislocated, and we have several examples where that has been really great for us. But in general, it's a fragmented industry, but if there's a value player nearby, that's always very encouraging.
Got you. And then just one follow-up on the optometrists. I think you mentioned in your remarks that the drag on the optometrists cost had to do with something like adding another doctor, adding another track. I'm curious if, on a like-for-like basis, if you've seen a stabilization in terms of the cost per optometrist. Is that level of inflation has kind of flattened out on a year-over-year basis?
Paul, it's Patrick. We continue to see inflationary -- just slightly above inflationary cost increases for our optometrists, which is not a surprise. We've been seeing that for a while. It's not gotten worse as we look at a kind of a per capita view on that. We did call out coverage in the quarter. And again, I'll make the same comment with optometrist, Paul, that I made with advertising, which is that soft start for the first 4 to 5 weeks kind of skewed our costs as a percentage of revenue there. And that was probably the largest factor in the quarter related to the cost of optometrists. And when we say coverage, it's not ubiquitous. There's places where we've got a little more coverage than we need temporarily, there's new stores that don't ramp perfectly linear where you put a second doctor in and then we build up a book for the second doctor. But in general, the overall average salary continues to rise at a rate that we don't consider alarming at this point and more inflationary. But we do have coverage puts and takes from time to time.
Our next question comes from Robbie Ohmes with Bank of America Merrill Lynch.
Actually, I just wanted to follow up on the competitive environment. I was curious on a couple of things. The shorter selling season, it sounded like you did a little bit more advertising? And maybe a little more detail, what did you guys do? And also, how did your competitors respond, generally speaking, to the selling season? And then maybe also, what are you seeing these days competitively from the online players?
Big picture, let me talk for a second on that. And that is when we went public almost 2 years ago, we sort of described a category that we thought had sort of an ongoing shift to chains, an ongoing shift to value and that we were sort of the biggest share recipient of that. And we continue to see those trends occurring in sort of the way we laid out. On the online front, again, as we said around the IPO, eyeglasses have been sold online for -- I think it started 16 years ago, and we've had 17 years of positive comparable store sales trends and market share gains. So sort of the presence of online eyeglasses isn't new, and the presence of online contact lenses is even older. Those have been for sale for over 20 years now. So it's a piece of the category, but there's been no dramatic change there.
I think in terms of -- I think we were pretty aggressive in addressing sort of the shortfall and jump-starting our momentum in with our marketing, and we think that, that has been to our gain. And sadly, our competitors don't tell us their exact results, and we're the only public folk out there. So I really can't tell you exactly how that worked otherwise. And given time lags for these things, we don't have the information on competitive spending just yet.
Our next question comes from Andrew Roberge with Guggenheim.
I guess kind of shifting to the store base, you guys crossed 700 stores in America's Best, and you guys are approaching kind of 80% of your target: 1,000. I guess as we maybe think about the shift towards Eyeglass World openings, in terms of the capital requirement given the larger footprint and in-store lab, maybe how should we think about long-term CapEx, I know maybe a year or 2 away, but any color on that would be helpful.
Yes. Well, again, approaching sort of the 700 stores, we're approaching 70% of our -- of the stated number that we thought America would like to have from us. And yes, the Eyeglass World stores are more expensive currently than the America's Best stores. But actually, we're looking at a lot of things around how to potentially improve that and improve the ROIC related to that for the moment when we shift over to be investing more heavily against the Eyeglass World. But as you know, the Eyeglass World comps were pretty darn good there, in fact beating the America's Best comps. We have strong internal competition here between the 2 brands in terms of growth along the way.
Our next question comes from Zack Fadem with Wells Fargo.
This is Eric on for Zack. I was just wondering if you could discuss some of the store throughput opportunities that you've looked at in the past and just sort of tell us where you are in those initiatives? And how you see them sort of playing out over the next couple of years?
Eric, it's Patrick. Did you -- I missed the word you used, did you say throughput opportunities?
Yes, the store throughput.
Store throughput. Okay. Well, as we think about our stores, especially for America's Best and EGW, we're formula people. We think about customer flow and throughput on a nonstop basis. And in fact, on a nice busy Saturday, our store manager is essentially an air traffic controller. We have strived to optimize that over a very long period of time. We do our best to make sure that we have all the doctor capacity that we need to handle that flow. And so I don't expect that there's going to be huge new plateaus to achieve in terms of throughput efficiency because it's already pretty darn good. If you take the time to go to one of our stores and a few competitors, I think you're going to see us handling a lot of customers. A lot of our investments that we think about in terms of improving the company focus a great deal on and have focused a great deal on improved advertising, improved CRM and customer touch points. Those come back into the store as we drive traffic into the store. But overall, we're very happy with throughput today. We continue to adjust dials here and there. We're also careful with the formula. But it's part of our reinvesting for growth to continue to drive growth and take on incremental market share.
And building on that, I think a key part of managing throughput is what I referred to earlier in my remarks about attracting and retaining optometrists, and it's something that is a good -- strong competency for us, both those pieces. As I mentioned sort of, we're very pleased with the record levels of optometrist retention that we've been seeing. And our recruitment group has been doing a great job this year also. And people like our offerings and want to get their exams and glasses and contacts from us, and making sure there's always a doctor there to sort of receive the demand is a key part of making that throughput work for us.
Okay. And then just secondly, we've seen a pickup in some of the M&A activity in this space. Just wondering what sort of your appetite would be for acquiring stores and maybe converting to the America's Best or Eyeglass World or even acquiring a new brand?
It would be naive of us not to look at anything that's out there and to figure out how that could fit into our long-term plans. I think we know who we are and what we do well and have done a good job of sticking to the things we know and do well. So I'm not saying us getting far afield from value optical retail in the U.S., but we're open-minded to different ways to win in U.S. optical retail. And so as things come out, we look at them.
And we also think overall consolidation helps us and favors us. And there's nothing that's happened recently that has been concerning or even out of our framework for how we think the category is developing.
Our next question comes from Anthony Chukumba with Loop Capital Markets.
So first question, I watch entirely too many YouTube videos, and I've seen a lot of America's Best pre-roll commercial, so the Owl commercial. The one I like in particular is the one with the guy working out where he says, "You got ripped," and then he says "You got ripped off." So I was just wondering, is that -- could it just be like cookies on my computer? Or are you significantly increasing your YouTube commercials?
I don't want to comment specifically on that other than to say, that is really a great commercial, isn't it? We're really pleased with that. And I guarantee we are not targeting analysts specifically. So that is not happening. We do have a robust digital marketing group, and we get better, ever better at that, everything from sort of managing search to managing online video. I can't comment, and like -- I'm not sure specifically why you are seeing more of them. But I will say our advertising is very effective. I think the campaign is amongst the best the category has seen in years. And it resonates because as you said, it both communicates our message of great value in optical retailing. And concurrently, it does it in a fun and enjoyable manner that's sort of fun to watch. So I'm glad you liked the spots. We are finding ever better digital means of communicating to consumers, and we think that is working for us. And we think that's part of the continued strong momentum that we are seeing.
Got it. And I'll work on my YouTube addiction. I was almost wondering if it was due to the fact that I actually am an eyeglass -- or America's Best customer, but I guess not. So second question, just kind of on the numbers a bit. So you maintained your net sales guidance or EBITDA guidance or tax rate guidance. But your interest expense guidance did come down by about $2 million. So I'm wondering why your net income guidance is the same given the fact your interest expense guidance came down by $2 million. And as far as I can tell, nothing else really kind of changed.
Sure, Anthony, it's Patrick. So I'll give you a quantitative response and a qualitative response. On the quant side, the benefit to adjusted net income of the interest update is around $1 million after taking tax into consideration and deferred financing costs. So there was a $1 million lift there. The qualitative piece, I'd say, is we held the range, we're at midyear, we want to be prudent, we want to have a lot of confidence. And frankly, we want to see how the tariffs play out more broadly for the overall U.S. market and economy over the next couple of months. So you could chalk it up to just trying to take a careful posture here at midyear. But you are right. The math, there's a little difference there. And I'm really glad you asked that question so I could hopefully clear that up for you and lots of others.
We were happy [ we were able ] to be in a position to reiterate. We saw the soft start to the April quarter, we saw great momentum for the quarter. That put us in the position to feel comfortable about reiterating our guide.
[Operator Instructions] And we have a question from Dylan Carden with William Blair.
Just curious if there's any read-through on some of the Board changes here on whether or not you're going to go after -- you mentioned you are underpenetrated in the insurance revenue. Whether or not that's an area for you to go after a little more aggressively, particularly given sort of greater cost concerns in that channel?
So yes, it was very intentional to bring in Heather, a senior person from UnitedHealthcare. My key thought was American health care is changing in a lot of ways, optical is a small subset of that. I think given the depth of experience we have in our leadership team, we really get the optical, the U.S. optical chessboard and the U.S. optical landscape and know that in depth. And we just always want to keep track of and understand how things that are affecting overall U.S. health care might affect us. So we wanted to bring in an expert on U.S. -- the U.S. medical chessboard and landscape. Heather, in particular, understands how that works for lower-income folks as she's sort of an -- as she's an expert on Medicare and Medicaid. So that's a real treat. And we do see insurance as a nice grower for us and a continued part of our growth into the future and think her expertise on our Board will be quite helpful. So we're real excited. And this was a very -- we had a very specific brief as to what sort of skill sets and background we wanted for that Board seat, and she checked every box on it.
Great. And then just another one here if I may. The incremental ad spend seems to have been sort of largely focused on Spanish language TV spots and maybe some online marketing. I know it's early days but any sort of anecdotal, are you getting a new customer here that you maybe weren't reaching before? Or did your research, I guess, on the front end of deciding to sort of launch those ads suggests that there was maybe sort of a broader market that you maybe weren't touching before? Maybe just any comment there would be appreciated.
I would say that to say it was largely focused on Hispanic is probably inaccurate on Hispanic marketing. I would say that we added a sort of a bigger component of Hispanic marketing to our mix, but we haven't done much in the past. We do have strong development amongst Hispanic consumers and believe there's more to be had there. Most of our stores have at least one Spanish speaking associate. So the Hispanic customer has been a part of our customer base forever, ever since I got here. And so it's an additive thing to further a develop customer trend that has always been there. And this is just part of our always -- sort of trying to take fresh looks at our marketing efforts.
Our next question comes from Alex Maroccia with Berenberg.
So just a quick one on the geographies and the new store openings. Were you mainly adding to existing -- an existing local footprint? Or were these mainly greenfield regions?
It's Patrick. This year, we've taken a focus mainly on infill of existing markets as well as in some of our newer markets. There's a higher or much higher mix this year of stores that are not in brand-new markets. So a little heavier in-fill mix, and I probably see that being fairly balanced as we move forward.
Okay, got it. And then just one on the balance sheet. The receivables as a percentage of sales has picked up in the past couple of quarters. I'm just wondering if this is a good point to look at it because of the AC Lens distribution? I'm assuming, given the wholesale value, you probably have worse payment terms with Walmart?
The receivables uptick, really, it's kind of a follow the money. Overall revenue growth has grown. But inside of that, managed care continues to be a good grower for us, and our relationships with the managed care providers also drives some of the receivables up as we process. In addition, our new Walmart volumes related to contact lens distribution have also affected that as well. And that will normalize as we get to the end of Q3.
I'll put it like this. There's nothing going on with receivables that I look at and bring up in management team meetings, it's simply a function of the mix of revenue right now and new managed care and the contact lens distribution.
Our next question comes from Kate McShane with Goldman Sachs.
This is Chandni Luthra on behalf of Kate McShane. Part of this was alluded to earlier but more specifically talking about the Luxottica/Essilor merger now that it's been 3 quarters since it's been completed. Has anything changed for you? More specifically, we know that they acquired GrandVision last month. I guess, what are you seeing from their scale standpoint, and how are things developing for you?
Great. Yes. So 2 parts to that. There were no surprises in our EssilorLuxottica relationship. We've had long-term relationships with Essilor and Luxottica going back 17 years. I've -- many years ago, I used to work for Luxottica, so we have -- everyone knows everybody. And we -- so there are no surprises relative to that, and we have sort of long-term agreements in place with various parts of the organization. So no surprises. The GrandVision news that they were going to acquire GrandVision, it's not quite done yet. It's sort of been announced. It really is -- that is something that will have more impact to the rest of the world than it does to the United States. GrandVision has only about 100 stores in the United States. Their holding here is like the -- I think, the 19th largest chain. So I don't think that's going to change much in terms of the retailer, the chain's landscape here, assuming it all goes through. So we do not believe that either the EssilorLuxottica merger or the EssilorLuxottica, GrandVision merger is going to have much difference for us. We're one of their largest and fastest-growing customer. And I think all around, everyone feels we have great relationships.
Great. And if I could squeeze one more in. I mean, macro-wise, basically, big picture. Has anything changed for the low-end consumer, especially given all this noise around tariffs and volatility in the markets? Just what are you seeing from a customer behavior standpoint?
We're not economists. So I can't sort of do a lot on that. I know that we're feeling strong comp momentum that began pretty darn soon after our last call and feel -- are happy with the demand we're seeing for our products. We're -- this is that benefit of being the low-cost provider of a medical necessity. People need our product to be able to get by in life, and we provide great value, and people know that, and we're known for that. So I'm not seeing anything right now or since our last call that is any way discouraging for us relative to our consumers and their demand for our product. And I'm pretty encouraged.
And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Reade Fahs for any closing remarks.
Thank you, Katherine. In closing, I'd like to congratulate our team on their milestone: 70th consecutive positive comp quarter. We're feeling real nice momentum in our business, and despite tariffs, we're feeling good about the year and positive about our long-term future. We'd like to thank you all for joining us today and for your interest in National Vision, and we look forward to talking to you again later this fall when we report our third quarter results. Thank you very much.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now all disconnect. Everyone, have a great day.