National Vision Holdings Inc
NASDAQ:EYE
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National Vision Holdings Inc
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Ladies and gentlemen, thank you for standing by, and welcome to the National Vision Second Quarter Fiscal 2020 Financial Results Conference Call. [Operator Instructions]
I would now like to hand the conference over to your host, David Mann, Vice President of Investor Relations. Please go ahead, sir.
Thank you, and good morning, everyone. Welcome to National Vision's Second Quarter 2020 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 that our earnings materials and today's presentation includes 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 in our filings with the Securities and Exchange Commission. The release in today's presentation also includes 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 the Investors section of our Web site.
Now let me turn the call over to Reade.
Thank you, David. Good morning, everyone. I'd like to thank you all for joining us today. We hope that everyone is doing well and staying safe during these adverse times.
Turning to Slide 4; the second quarter represented one of the most eventful periods in our company's history and our respective careers. The key highlight to our quarter was the successful, safe and gradual reopening of our stores that was completed by early June. All of our stores were closed to the public for about six weeks beginning in mid-March, during which time, our cross-functional safety committee developed the protocols to operate safely and remain open during this pandemic. These protocols include heightened cleaning and disinfecting procedures, personal protective equipment, social distancing in stores and expanded health and safety training. Also, we have adopted a face coverings required policy in all of our stores.
We believe that we have implemented an effective safety-first approach to serve patients and customers in a COVID-19 environment that has been successfully integrated into our store operations and while some adjustments may be needed as the environment dictates, we believe that we are well positioned to continue our store operations through the remainder of the COVID-19 pandemic regardless of its duration.
Turning to Slide 5; since early June, our stores have been open and returned toward more normal operations. We've brought back furloughed associates and normalized hours and compensation across the organization, including executive officers. We have also resumed the opening of new stores after a temporary pause in activity. In May, we significantly improved our liquidity with a highly successful convertible note offering in the week following our last earnings release. With our strengthened balance sheet, we are confident in our financial flexibility and liquidity to navigate this pandemic.
During the last several months, we have focused on our decisions and actions toward our successful reopening and the long-term return of our business. Another example of this focus was our decision in July to pay a onetime $250 appreciation bonus to our front-line associates and network of doctors for their exceptional work under difficult circumstances over the past few months. We believe that this payment is consistent with our ongoing goal of providing life-giving and appreciative culture for our people.
Turning to Slide 6, let me briefly touch on trends in the second quarter. Our results reflected the significant impact of the temporary store closures during the pandemic. Q2 net revenues decreased nearly 40% with 10% of this decline due to the timing of unearned revenue. Adjusted EPS decreased to a $0.41 loss versus a profit of $0.18 last year. Adjusted comparable store sales growth was down 36.5% in the quarter. Our performance improved each month as we reopened stores, culminating with a 19.3% increase in June for the best reported comp increase in my 18 years at NVI. I'll speak more to the comp trends in a few minutes.
During the quarter, we ended our pause in new store growth and opened 12 stores. Our store network is now approaching 1,200 locations. Let me take a moment to talk about our Walmart partnership. Two weeks ago, we extended our contract with Walmart for another three years with the current economic terms. We are honored and excited to extend our long-standing relationship with Walmart into 2024. For 30 years, Walmart has been a great partner for our company and our mission, and we look forward to that continuing long into the future.
During Q2, we transitioned the five additional Walmart Vision Centers, which Walmart granted us in January, to NVI management. This was the first time that Walmart added stores to our contract in over 25 years. We were pleased to welcome these stores to the NVI family. We're encouraged by the initial early results of these stores to date and see tremendous future potential for them as well.
Turning to Slide 7, as the chart shows, our business has a history of health even amid broader economic challenge. During the Great Recession of 2008 and 2009, our business generated comps in the positive low- to mid-single digits each quarter. We do believe, as the low-cost provider of a medical necessity, we are well positioned to attract an even larger slice of the American public during the upcoming economic challenges.
Our introductory offers for our two growth brands, two for $69.95 at America's Best, including a free comprehensive exam; and two for $78 at Eyeglass World with glasses available that same-day, represents incredible values that have historically attracted patients and customers to our stores and we believe that once they have tried our value-priced products, it will be hard for them to ever go back to paying higher prices again.
Another factor underpinning our consistency over the last two decades has been the optical industry shift in favor of chains and the value segment in particular. The optical retail industry remains highly fragmented. We believe that the current environment should hasten these trends and favor larger, better-capitalized value retailers like National Vision. We also would not be surprised if, overall, there were fewer optical locations in the U.S. next year than there were prior to COVID. Thus, as I noted last quarter, we continue to see a large opportunity in front of us and potentially, an even larger opportunity than before.
Turning to S8 and our 2020 comp trends. The temporary closing of our stores turned our Q2 results into another tale of 2 periods. In the first two months of the quarter, comps declined 86.6% and 38.5%, respectively, resulting from stores being locked to the public for the entire month of April and most of May. Once our store network was fully opened, stores experienced consistently strong demand from our patients and customers, which was reflected in June comps of 19.3%. Our business rebounded strongly in June, and we're pleased to see similar sales momentum continue throughout July.
The recent trends that we have experienced after reopening are a testament to the essential health care role we play in the communities we serve. Our attractive value offerings, given the state of the economy, and the combined macro and micro operational navigation by our long-tenured management team. In terms of geographic performance, customer demand has remained generally consistent across markets, even in COVID-19 hotspots. And consistent with our safety-first mentality, in a modest subset of stores in COVID hotspots, we have made temporary adjustments to our operations.
As we've analyzed our recent results, we have come away with the following insights. First, we believe that the strong sales results have been helped by pent-up demand during lockdowns as well as the benefits from government stimulus payments. While the duration of these factors is hard to predict, we would expect our comps to normalize as these benefits moderate. Second, these comps also resulted from the planning and precise execution of our reopening, including day-by-day operational navigation down to store level adjustments. We remain confident that we can operate both safely and effectively during the duration of the pandemic. Finally, recognizing that we are operating in a world of social distancing, we believe the demand and purchase behavior of our patients and customers demonstrate that they are comfortable with our store-based environments as well as our new operating protocols.
Shifting to Slide 9. Let me update how we are navigating our business and our core initiatives to adapt to the pandemic. First, after we paused our new store openings in mid-March, we resumed our real estate efforts and opened 12 stores this quarter. Year-to-date, we've opened 35 new stores and now expect to open a total of between 50 and 55 stores this year. All of these respective store counts do not include the additional 5 Vision Centers that we transitioned this quarter from Walmart. We are pleased with, and appreciative of, the support we've received from our real estate partners, including while our stores were closed. As we look ahead, given the dynamic retail real estate landscape, we believe our pipeline is solid for the remainder of the year and into 2021.
Turning to comparable store sales growth. Our stores have reopened to operate in an unprecedented consumer environment. However, the strong customer response to our reopened stores has been a reminder of the fact that the medical services and optical products we offer truly are an essential medical necessity. As we emerge beyond the COVID pandemic, we expect to continue to enjoy multiple levers to drive comparable store sales growth.
On past calls, you've heard me share that optometrists play a key role in our success and our mission to deliver improved eye care throughout the U.S. This fact became ever more evident as we reopened stores to robust demand from patients and customers. Our network of optometrists continues to rise to this challenge.
We continue to invest in our optometrist recruitment and retention programs. Our decision to continue to compensate optometrists during the store closure as well as our safety-first focus further demonstrate that we are an optometrist-centric company. We believe that the fact that our optometrist retention rates remain high at near-record levels reinforces the value of the investments we made in maintaining our optometrists' salaries and not furloughing ODs during the pandemic.
As we noted last quarter, we significantly curtailed our marketing efforts while stores were closed and have only very gradually begun to ramp up advertising again beginning in June. The organic demand we were seeing in June and July meant that we did not have to spend nearly as much in advertising as we had been pre pandemic. We will continue to monitor the environment and customer demand and would expect to increase our marketing investments gradually when warranted.
In terms of managed care, we continued to see strong revenue growth tied to these partnerships in June as we reopened. Net revenue tied to vision insurance remains a minority of our net revenue, and thus, we are underdeveloped relative to the category. We continue to see an ongoing opportunity here as managed care dollars and co-pays tend to go further in our stores than elsewhere.
In terms of other aspects of our operations, our lab network remains a key reason that we have been a low-cost provider. As business rebounded, our lab networks adeptly ramped up to meet the demand. Last quarter, we noted that we experienced a spike in e-commerce orders while our stores were closed. While the order rate has moderated as stores reopened, we continue to experience an acceleration from pre-COVID levels. In addition, our remote medicine pilots are continuing as well, and we are pleased with their progress.
Before I turn the call over to Patrick, let me say that we are quite happy to be reporting our initial success in safely reopening our stores to serve the many patients and customers who have been awaiting our return. To summarize, I hope that you take away the following from listening to this call. Our store reopening has been a success. We're well positioned as an essential retailer with the safety protocols in place to operate during the pandemic regardless of duration. We have solidified our financial resources and liquidity position.
We have a proven team of optical veterans executing our initiatives with both thoughtfulness and rigor and we operate a business that has been resilient in previous downturns as the low-priced seller of a medical necessity and see the potential for a larger opportunity on the other side of this pandemic. For all these reasons, I'm confident as we navigate through an uncertain environment that National Vision will emerge from the pandemic a stronger company.
Now to Patrick.
Thanks, Reade, and good morning, everyone. Although the impacts of COVID-19 weighed heavily on our second quarter performance, we were pleased by our rapid sales recovery since reopening, our actions to strengthen the balance sheet and our demonstrated ability to navigate the pandemic.
Turning to slide 11. Let's dive into Q2 results. After entering Q2 with the pause in our real estate development activity, we resumed unit growth in May. We opened 11 new America's Best stores, one Eyeglass World store, added the five Walmart Vision Centers and closed five stores. We ended the quarter with 1,185 stores for a 5.1% increase in store count in the past year. For our America's Best and Eyeglass World growth brands combined, unit growth increased 6.3% over the last 12 months.
The chart of adjusted comparable store sales growth presents our comps calculated on a cash basis. Same-store sales decreased 36.5% during the quarter, driven by the decline in customer transactions due to store closures, partially offset by an increase in average ticket. By category, we experienced stronger contact lens revenue growth in Q2 compared to eyeglasses, as expected, since contact lens customer transactions were less impacted by the store closures.
As Reade noted, we were pleased with the strong recovery in our business in June and continued momentum through July. While we typically do not provide monthly comp detail, given the unique situation due to COVID-19, I'd like to share a little more context about the June comps specifically. In June, our comps were driven by increases in both average ticket and customer transactions. By product, we experienced positive comps in both the eyeglasses and contact lens categories as the product mix of eyeglasses sales to contact lens sales normalize toward historical levels.
June eyeglass comps were driven by increases in customer transactions and, to a lesser extent, average ticket. We believe the increase in eyeglass average ticket is being aided by customer purchase behavior and the government stimulus. The contact lens category continued to see growth in average ticket as our contact lens customers are increasingly adopting newer technology lenses that have higher prices, which is a trend that we expect will continue.
Turning to income statement highlights on slide 12. As you see from today's press release, our Q2 results reflect the significant impact from the temporary store closures and the impact of timing of unearned revenue. As would be expected, given the negative comps, net revenue decreased 39.5%. About 10% of the decline in net revenue growth resulted from the change in unearned revenue. This impact to net revenue and profitability was unusually significant this quarter as a result of store closures and lack of revenue in the final days of the first quarter that would have typically been recognized in the second quarter and the strong sales near the end of the second quarter.
We would expect this impact to reverse and the timing of unearned revenue to benefit the third quarter. To help unpack how unearned revenue is somewhat unique to our service-based business model versus more traditional retailers, we have again included an explanatory slide in the Appendix section. Cost applicable to revenue decreased 30.5% or an increase of 690 basis points as a percentage of net revenue versus last year. The increase as a percentage of net revenue primarily reflected the continued optometrist compensation incurred during the temporary store closures as well as increased contact lens revenue mix.
Adjusted SG&A expenses decreased 25.4% in the second quarter versus last year or an increase of 970 basis points as a percent of net revenue. The key factor behind this increase was the deleveraging of store payroll, corporate payroll and occupancy costs due to the store closures, partially offset by lower advertising investment. The company incurred incremental COVID-related expenses of $2.5 million in the quarter primarily for the initial acquisition of PPE supplies. Adjusted EBITDA decreased to negative $14.4 million and adjusted EBITDA margin was negative 5.5% in the quarter.
Adjusted operating income decreased to negative $34.4 million and adjusted operating margin decreased to negative 13.2%. The decrease in adjusted operating margin was driven by our deleveraging of optometrists and store payroll expenses related to store closures, higher depreciation and amortization growth as well as the change in margin on unearned revenue. The net change in margin on unearned revenue reduced both adjusted EBITDA and adjusted operating income by $32.5 million. Adjusted diluted EPS decreased to a loss of $0.41 versus $0.18 in income last year with a $0.30 negative impact from the net change in margin on unearned revenue.
Turning to Slide 13. Our first half results reflect the impact of store closures and, to a lesser extent, the timing of unearned revenue. Adjusted comparable store sales growth was down 22.6%, net revenues down 18% and adjusted operating income declined 95%. Adjusted diluted EPS declined to a loss of $0.13 from $0.49 in earnings per share last year.
Now turning to Slide 14 and our balance sheet. At the end of the second quarter, our total debt was $648 million, and our cash balance was $256 million. Net debt to adjusted EBITDA was 3 times, a slight increase from the 2.8 times in the second quarter of last year. Year-to-date, we invested $26 million in capital expenditures. The lower level of CapEx versus last year generally resulted from the postponement of capital projects, including the pause in store openings.
With the restarting store openings and the strength of our performance as well as our improved liquidity, we are essentially back on track with our investment plans. We believe that our ability to invest now in the business is a competitive advantage. We would expect CapEx to increase in the second half of the year relative to the first half spend and plan for total 2020 CapEx in the range of $65 million to $75 million.
Turning to Slide 15 and the recent changes to our capital structure. As Reade mentioned, we executed a successful financing transaction and raised $402.5 million in convertible senior notes. These notes carry a coupon of 2.5% and mature in 2025. We utilized the proceeds of the new notes to repay the entire $294 million in revolver borrowings as well as $75 million in existing term loan A debt.
We have no debt maturities on our term loan or revolving credit facility until 2024. In addition, as a result of debt prepayments, the company now has no repayment obligations until maturity. As I mentioned last quarter, we received strong support from our bank group and entered into an amendment under our credit facility that suspended certain financial maintenance covenants through our fiscal quarter ending in March 2021. At the end of the second quarter of 2020, we were in compliance with all covenants under our credit agreement.
Turning to Slide 16. At the end of Q2, we are in a strong financial position with $550 million of liquidity from our cash balances and available capacity from our revolver. We believe that we have sufficient liquidity to manage our operations, continue to invest in our business and continue to successfully navigate the pandemic. As we emerge from this period of uncertainty, balance sheet improvement will remain a top priority. As for the remainder of 2020, we're not providing an earnings outlook at this time given the continued uncertainty regarding the pandemic. Contributing to this uncertainty includes macroeconomic factors, social distancing measures, current and future quarantine measures and the tapering of government stimulus benefits.
Given this backdrop, we're pleased by the initial momentum in July, but we expect our comps to normalize as pent-up demand moderates. We would anticipate that unearned revenue will reverse in Q3 due to the strong sales at the end of Q2 and have a positive impact on net revenue and profitability. As noted in the earnings release, we are providing the following updated assumptions for 2020; new store openings in the range of 50 to 55 new stores; CapEx in the range of $65 million to $75 million.
Depreciation and amortization is expected in the range of $94 million to $95 million. We expect interest in the range of $33 million to $34 million given our higher amount in cost of debt; and lastly, we expect to continue to incur incremental COVID-related costs. At this point, we would project 2020 cost of approximately $8 million and Q3 costs in the $4 million range primarily due to the onetime $250 appreciation bonus. We estimate ongoing costs should be around $1 million per quarter.
In summary, in light of the dynamic environment, I'm very pleased with the tremendous amount accomplished this quarter and the way in which the management team has executed. I want to reiterate what Reade said earlier. We believe this company will effectively navigate this challenge and emerge as an even stronger business.
At this point, I'll turn the call back to Reade.
Thank you, Patrick. Turning to Slide 17 and Moment of Mission. As matters of diversity, equity and inclusion are ever more on the minds to both consumers and associates, this is the topic I thought I'd speak about today and share recent actions at National Vision.
In June, as our country was grappling with a sudden heightened consciousness of age-old racial injustices and inequities, our messaging on social media and internal communications highlighted our commitment to equity in our company and broader society. We established a Diversity, Equity and Inclusion Council in order to give a stronger voice to blacks and other minorities within the NVI family.
We became a founding co-sponsor of Black Eyecare Perspective's IMPACT HBCU program, a program designed to attract black students to the field of optometry. We are pleased to support Black Eyecare Perspective in their goal of, to increase the number of black optometrists to 13% from the current 2% level. These actions further reinforce our ongoing commitment to enhance diversity and inclusiveness throughout our organization. We look forward to sharing more in the future as we strive to be an ever more inclusive workplace and corporate citizen.
In summary, I want to thank the entire team at National Vision, including the over 2,000 optometrists who have risen to the adversity that this COVID era presents. As I think about the events of the last several months and how the entire National Vision team performed, I could not be more proud and appreciative of their inspiring endurance.
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] Our first question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open.
My first question is on comps. I want to ask, you mentioned you expect comps to normalize going forward. Do you think there's a new normal for what normalize means, or is it the old normal? And I know you mentioned pent-up demand is helping. But Reade also mentioned the backdrop is going to be tough, and there's going to be some closures of some of, competitors independent. So curious if normalized means you mean what historic national vision comps have been running at?
Well, Simeon, thank you for that and we're still sort of, we're still trying to figure that out as we go. At some point, the pent-up demand does start to taper off, and was sort of to be determined on what's going to happen with stimulus and for us, of course, back-to-school is a factor, and we're really early in the back-to-school season. So it's a little hard to predict, which is why we're not giving much guidance there. But we are real pleased with the June results. We're pleased to see similar momentum in July and I think what we're showing is that we can, our stores can accommodate the sort of demand, high demand even in the COVID season.
That's fair and then can I ask, it's a little bit related, right? So the path toward whatever normalization for gross margin and SG&A, does that path normalize as comps do? Or do we get back to prior levels on a different schedule?
So as we think about, hey, Simeon. Good morning. It's Patrick. As we think about the margins in the business and think about those going forward, obviously, the gross margin has seen some volatility during the period of time when our stores were closed and now open again. I would expect to see those returning toward normal levels. The thing that swung those so much in the early part of the quarter was the continued payment of our optometrists, as well as the mix. The contact lens mix spiked up a bit during the period when our stores were closed. But now that we're open again, mix has returned much closer to normal levels.
I would expect to see gross margins continue to look like they did pre COVID. On the SG&A, we've been through periods of deleverage in the first couple of months of the quarter to a period of very high leverage in June. And again, I think there are going to be some minor incremental costs related to COVID and PPE, but overall, even coming off a period of time when our stores were closed, we're expecting for things to get back closer to normal, sooner than later.
Thank you. And our next question comes from the line of Robby Ohmes with Bank of America Securities. Your line is open.
I think a follow-up on Simeon's question, and Reade, you mentioned your stores are handling it fine. But I'm just curious how, if you, you're now two months into a 19% comp. I think this is one of the busiest times of the year for you guys typically for back-to-school. Just how do you have the capacity to do that? What are you doing? Are you hiring more optometrists to handle this potential bottleneck? And how are the lab facilities dealing with that kind of jump? Were you guys expecting this? And then kind of a follow-up is, what are you seeing your competitors doing as they're reopening? Do you think they're seeing similar types of comps? And are any trying to match your value offerings?
So thank you, Robby. First of all, were we expecting this? Robby, I would say we live in a world where I just don't know what to expect anymore. You just, I wasn't expecting a pandemic this year. I wasn't expecting a lot of things this year. So it is a little harder to predict things. Luckily are things like our lab model and our supply chain are well designed for scaling and scaling up where needed.
So while certainly busy, and certainly, I'm sort of pleased and impressed, I would not describe stress in our system relative to that. And overall, sort of we've been able to manage our exam books in such a way that we can spread the business out a bit as the pent-up demand is there. Pent-up demand is people who are really excited to get in to see us. And it's sort of -- when we opened, it happened immediately. Again, best reported comp in my 18 years here.
I'd like to point out, because your question is sort of about execution that sort of, yes, pent-up demand was a -- is a factor. And yes, government simulation -- stimulus is a factor. I'd like to add sort of -- this sort of thing doesn't just happen. It requires probably a more sophisticated level of planning and execution that have been called from us in the past.
And when I think about sort of all the different phases of Q2, managing sort of being close to the public, managing the public -- again, we say close to the public because our doors were locked for the public. But we still were answering phones. We still had a skeleton crew in the stores. We were still triaging the medical -- urgent medical pieces and then to the phase of the gradual reopening with tremendous training on safety protocols and then to dealing with this explosive demand. It's called on everything we have in a good way.
And I was thinking as I was driving to work today, thinking about this, I was thinking this quarter, in terms of just our group's skill at navigating this, it was one of our finest-hour moments. It called on everything we had. I'm so pleased we had a team who had so much experience. We've worked together so long. The communication and coordination was there, and it was very -- dealing with comps like this required heightened execution, coordination and teamwork. And I think you look at June and July, and you say that the team sort of came through with flying colors on that.
So again, I'm sort of real proud of how we did it because it's not just, "Oh, open the doors and the pent-up demand and the stimulus drives in everyone and it's just hunky dory." It required a lot of thinking that I don't think every team could have pulled off. And then you talked about competition. It's sort of all over the board what you're seeing. There's not a lot of consistency there. I do believe we are continuing to gain share as we were before. And our view of this is that now and going forward, we're seeing a hastening of the trends that we were enjoying and benefiting from for the past, say, four or five years. And we believe that's going to continue to play in our favor in the next months and years.
Our next question comes from the line of Paul Lejuez with Citi.
I think you mentioned that you pulled back on marketing spend a little bit. I'm curious if you altered your promotional plans. As stores have opened again, are you having to do anything to lure customers back from a promotional standpoint? I'm curious what you're seeing from competitors as well on the promotional front and what your outlook is there? And then second, just curious what percent of your business is kids and how that's trended over the, over the past several years and if you see that changing going forward?
The marketing pullback was because we were getting so much demand, why would you pay for more. It was coming in on its own and so we were saying, Why spend to take it further? We're pretty nicely content with 19% comps, and so our marketing will only return very gradually. We're not at full throttle. Now we see ourselves as historically sort of everyday low price. The offers that we have in our stores today were the same offers that we've had for years.
So for me, when I think of a promotion, it's you get this now, but it's limited time offer. We don't tend to do that. That's really not a part of our toolkit. So no change there. We continue to be who we are, execute who we are consistently and know and nothing surprising or too interesting on the competitive front, nothing different in terms of that.
Kids, I don't think we share our kids percentage. I would say that I'm fairly confident, without knowing the details, that our kids percentage is higher than most of our competitors, and it is seasonal in nature. There's a higher thing in back-to-school. But so there's sort of two parts to the kids thing, on the one hand, where a lot of people will spend a little bit more for their glasses and a little bit less for kids' glasses and so even some people who want the latest fancy designers will still bring their kids in to us.
They know kids are going to break them. They're going to lose them, and that sort of stuff. So we tend to always be higher with kids in that way. But also, kids bring in their parents and a lot of people come to us saying, Oh, great. I'm going to save money for my kids, and then see the deals we have and see the products and services we have, and then the parents get converted too. But we are overdeveloped, have been forever, will be going forward, and it's especially true around back-to-school season.
And our next question comes from the line of Adrienne Yih with Barclays.
Reade, I was wondering if we could talk about sort of the digital aspect of it. The consumer, obviously, in a post-COVID world is shifting much more to digital. But eyeglass exams and fitting doesn't naturally lend itself to that format. Are there technology, technological developments that you have either implemented or foresee implementing that can accelerate that shift, whether it's telehealth or virtual reality? Any comments there?
Then on the onetime pent-up demand, can you see how many new customers you've acquired during this two month period? I know it's very short and for Patrick, my last question is I know I haven't, we haven't gotten this before, but any color on four-wall economics of new store openings? Any change from history? Probably the most important metric we're looking for is what's the non-comp productivity in year one and how many years does it take typically to ramp and any changes?
Adrienne, thank you. So let's see, in terms of e-commerce, our e-commerce business, of course, jumped in, during the period where we were closed to the public. Again, mostly contact lenses, people wanting refills and things like that. So our contact lenses were, online, were pretty thriving, and that was both in our pure-play e-commerce websites and in our store brands and it does still represent a small percentage of our sales overall. And what's interesting is our customers still very much lean toward picking up the phone and calling our stores.
I don't think there were a lot of groups like ours where we felt compelled to, when the stores were closed, have them be locked to the public but have them staffed to answer the phone calls and put in ship-to-home orders for customers who wanted the contact lenses shipped to their houses along the way. It's still a default mode and we're happy to be there for a customer in whatever way they want to interact with us in that way.
In terms of technological pieces, we, we've been very interested in aspects of telehealth, and that's because we think that the customers that we can sort of get heightened doctor efficiencies and coverage to places that maybe we can't find an optometrist who wants to live, via tele-exams, this is still a patient sitting in a chair in a store but with the doctor being remote and I think, so we are testing that, and we're finding encouraging things, but it's still early days for us and the entire industry in that way and just one other thing on the e-commerce.
I'm sorry, one other thing on the e-commerce side. Yes, e-commerce is growing. It's still a very small part of our industry. People are still stores-based in our industry to a massive degree. It is hard to buy these products online and we've been competing against online players for the past 15, 16 years, and we continue to grow share along the way. In terms of new customers and pent-up demand, overall, if you look at the business in general, the skew of new to past customers has been very, it's been sort of fairly consistent post COVID and pre COVID with one thing that stood out.
With Eyeglass World, we are noticing a big jump in new customers, a jump-in. I think this shows that the same-day service that we offer there, the one-trip shopping there has been -- I think, is more relevant in a post-COVID world. And so that's been encouraging for Eyeglass World. And I think you can sort of see it in the math. But post reopening, Eyeglass World has actually done a bit better than America's Best, just a little bit, but noticeably better. So that's been nice for Eyeglass World. And then I think Patrick has a four-wall economics.
Adrienne, so yes, a couple of comments. Obviously, new stores felt the same disruptions as mature and existing stores during the store closure period. But honestly, prior to that point and since, we've seen a normalization of ramps. It was almost like if you take that six to eight week period out and you were to delete it in the trends, you would see very similar ramps. So overall, we have typically seen AB in the 65% new store productivity level and EGW, just a shade below that. Those brands, the overwhelming majority of stores mature somewhere in the three to five year period, and there's a lot of factors inside of that range of two years there.
So I'm not expecting to see significant changes in store ramps. This has been a big part of our growth. That machine is back and now on position. We opened 12 new stores in the quarter, plus we added the five Walmarts. We have revised our capital plans upward a little bit as we've seen cash flows stabilize and actually grow and gives us the confidence to continue to invest in the business. So headline is no change to store ramp, still going to be very important. We are back in the on position in terms of opening new stores and have our sights set on a good year in 2021 and have most of those locations already preidentified.
Our next question comes from the line of Zach Fadem with Wells Fargo. Your line is open.
Could you talk about any throughput constraints you're experiencing, particularly around doctor visits given the heightened demand? And aside from virtual visits, what other initiatives are you putting in place to maintain social distance without impacting the customer experience?
So I think that the 19% comp in June shows that we're managing the throughput well. And again, I think there's a very methodical, regimented approach to doing it. But I would say, I think the takeaway is we can handle high levels of demand even while we're executing the safety protocols. And then, you said -- there was a question beyond -- so in terms of what we're doing on the safety side there, we're following the CDC and AOA protocols. There's a lot of screening done when we're doing the social distancing. We have the floor stickers out.
We are doing face coverings for all, have been doing that for a while now and then there's just a lot of cleaning protocols, both in our exam room and every time you try on a frame, you put it in personal bin that we've given you and every frame is disinfected before it gets back on the shelf. So, and again, we're, I think we're particularly good at execution and execution when dealing with the sort of demand our stores get, and we've been able to implement these protocols and keep the patients and customers going through the stores in a very similar manner.
June comp levels were certainly exceptional and overall flow-through was exceptional as well. You, we basically saw mix returning more toward normal in terms of glasses and contacts. We leveraged the optometrist and the lab costs. Well, heck, we actually leveraged all fixed costs throughout the business and as Reade mentioned earlier, we were, we're still not full throttle on advertising. So flow through levels for the month of June, in high contrast to April and May, were also very high and well correlated to those high comps. So we were happy to see the good top line results and just as happy, maybe happier, to see the flow through coming through as well.
I was just trying to confirm whether there weren't any issues getting doctor visits for customers. But it doesn't sound like there is. So that's great and then Patrick, could you walk us through the P&L mechanics in a little more detail around the convert and how we should think about the share count and impact of hedging transactions going forward?
So the P&L implications around the, I missed one word, but it was very...
The converts.
First, I thought you were saying, actually, I thought you were saying that the twofer. We sell two glasses for $69, and a free exam.
The convert, we get it, yes.
Yes, the convertibles...
Must be the speakerphone issue.
I was glad I wasn't the only one that's hearing twofer. Yes. So we issued $402.5 million. We immediately put $391 million of that to work, paying down $75 million on the TLA and the revolver balance that had grown to of $391 million, 2.5% coupon and we were delighted with the timing and the results that we got out of that deal in the market. That matures in 2025. The convertible price was $31.17.
There's a lot of kind of parameters around when investors can execute those options. But in general, we expect to see most of that in the 90 days prior to that five year maturity. There are other reasons and certainly, David and I can take you through that, but I won't take care everybody through that.
Bottom line, this was a really successful capital raise for us. It put the company in a wonderful position of not having to think about liquidity and only thinking about getting these stores reopened, getting them opened safely, taking care of patients, customers, associates and doctors and it was the, we've done several restructurings here in my tenure, and this was by far the most impactful and just a really successful one.
Our next question comes from the line of Bob Drbul with Guggenheim.
Couple of questions, just on the gross margin line, when you look forward to sort of, I don't know, the next few quarters and especially Q4 and Q1 of next year, when you think about the results that you had pre COVID, Q4, Q1 of last year, can you talk through just the drivers of the gross margin strength that you saw then? Like, should they be able to be replicated in the fourth quarter? In the coming quarters? I'm just trying to think of the different puts and the takes on the gross margin going forward.
Let me kind of lay out how I'm thinking about that. Just so I'll hit Q3, and then I'll just kind of hit margins in general. So the Q3 start, it all starts with momentum and as we mentioned, we've seen good momentum coming out of June into July, strong customer demand because we're selling an important medical necessity product at a really low price. We think that, that's going to be a good place to be in general over the coming months and years, especially if we see a little economic stress coming off the more intense COVID period. We do expect comps to normalize toward more historical levels coming off stimulus and pent-up demand.
One item I'd note for Q3, Bob, is the unearned revenue and the net margin on unearned revenue should swing back to a positive. We'll, of course, normalize that away so you can understand the business and then in general, the more volumes we do, the more we leverage our lab costs, the more we leverage the investments in our optometrists. We are seeing a little higher level of spend related to COVID. In Q4, there will be about $4 million, and about $3 million of that was, frankly, related to the appreciation bonus that Reade mentioned, and about $1 million of that is the PPE, and that will be ongoing.
So as I think about gross margins going forward, I'm hoping that we see a little bit of moderation in some of the wage pressure that we've seen and in gross margin, that's going to be the doctors. I think we're going to be back on track in terms of seeing improved efficiencies in the lab. We're two years outside of opening that, our last Texas lab. So that lab is, has been coming on nicely for quite a while. OD availability, we think, is going to be a little better if there's a prolonged impact on the economy.
Now we're down into SG&A. I'm thinking advertising and rent. We could also see some moderation there and so honestly, I see coming out of COVID, obviously, the incremental cost, but really more, maybe more potential opportunity. If you go back, Bob, to the period of last year, Q3 and Q4, we saw a really nice margin expansion. We were also seeing that same expansion through the first 10 weeks, nine weeks of the quarter until we closed all the stores. So what I hope to be able to start to point out soon is really the continuation of that story.
From time to time, you're going to also hear us talk about some investments in terms of improving our offering, service levels, omni-channel, fueling managed care growth. So there will still be a balanced store going forward. But I think the management team is fairly optimistic that we can get right back on that same track that we were on margins overall, and that may have been more of an answer than you were looking for there. But I wanted to unpack that as clearly as possible.
Our next question comes from the line of Anthony Chukumba with Loop Capital Markets. Your line is open.
I wanted to talk a little bit about the Walmart Vision Centers. First off, congrats on extending the agreement. I guess, we won't be seeing any sale reports from firms I never heard of before saying that, that's going to be pulled from you. So we have that going for us, which is nice. Specifically, so you have -- you've converted the 5 Vision Centers. Would love to just get a little bit more color in terms of the early results and, based on those results, how you think about -- I know it's very, very early, and maybe you can't even talk about it public on this call, but just any color you could give in terms of how you think about whether that means that Walmart could potentially give you additional Vision Centers to manage going forward. Thank you.
Anthony, thank you for that question. I was thinking we've gone pretty far into this call without a question about Walmart. So I'm really appreciative of that. And yes, we are pleased with the 3-year extension that brings us into 2024. And again, I believe that our relationship has been extremely strong. So it wasn't something I was sweating about, but I was pleased that -- to take it off the table for the market who doesn't sort of as deeply understand our strong 30-year partnership with Walmart.
Yes. We transitioned all 5 over. That went smoothly. It was a really nice process. Walmart was a great partner in doing that and assigning people to make sure that went smoothly, and we are very encouraged by the initial results at these stores. We see a tremendous future for them. And I'll say we're encouraged by the results we've had so far. And I can assure you we are just getting started. We are just sort of in the early stages of the good work we can be doing to improve these stores and get them sort of up to the sales levels that our stores tend to achieve inside Walmart.
I'm pleased they're right here in Georgia. They're all over Georgia and Georgia is where Walmart Health & Wellness group likes to test its innovations and new approaches. And my feeling over the past 18 years in my job as the Walmart account executive, is that you keep doing good work. And when Walmart gives you something, you do it well and serve the Walmart customer well, and that's what makes the partnership be so strong and keep going. And beyond that, I really can't conjecture on the future other than I think we continue to have a nice long future with them.
And our last question comes from the line of Steph Wissink with Jefferies. Your line is open.
Many of our questions have already been asked, but I want to go back to just a couple of topics that you've already talked a bit about. I think Adrienne asked you about kind of recruitment opportunity or your unrealized recruitment opportunity on some of the pent-up demand. Is there a way to look at that based on the percentage of your bookings that were canceled that you've already rebooked and executed? Again, just trying to go back to think about what customers haven't necessarily been activated that would have been visitors to your stores during the close-down period?
Yes. So I would say we did keep track, the most frequent phone call we had while the stores were closed is when are you going to reopen, and please call me so I can book an appointment. So that was a very common thing. But I'd say we worked through all that in the first few weeks of June and sort of late June and July, we're seeing sort of it's beyond, it's beyond that. We sort of worked through our list very early on. So again, it's encouraging to see just the demand keeps coming in that way.
And then speaking of June, that 19% comp was impressive and I think, Patrick, you mentioned that it had nice pass-through, too. You also made some comments about your lab starting to deliver some productivity. So at that level of capacity utilization, a nearly 20% comp, how should we think about the store level capacity utilization and then the lab level capacity utilization? Is that a good benchmark for us to look at in terms of kind of the full utilization or pivot point in your utilization that gets you to the incremental margins that you'd like to see?
Well, I certainly don't project 19% going forward. We do expect to see those moderate and in general, Steph, we have typically seen 1.5% to 2.5% of productivity improvements each year is coming out of our lab. In terms of the stores, with the degree of volume that we have coming through, we are bending curves there in terms of margins. So I probably don't have anything specific in terms of margins or basis points of care.
In the past, we've talked about inside of our prior comp guidance range of 3% to 5%, where we start to definitely leverage the entire business toward the middle and upper end of that range. So if you set it 4% to 5%, you're seeing good leverage. At 19%, it's sensational leverage. So, and I would expect, again, to head back toward historical levels at some point.
As I looked at June P&L, really below the gross margin line, Steph, the only thing that was flexing up was incentives. We compensate our, many in our stores in terms of volumes, and they were, the high sales volumes are driving incentives, which is a great expense that we'd like to pay. So I do see it heading back toward more normalized levels in the future and, but I do think there's the ability for us to continue to leverage store profitability.
And Steph, I'd just like to add also, just in terms of the utilization we are seeing after sort of we went through the sort of list of folks, we even waited 'til to turn on our online booking system, which we think is a really nice offering to our customers. We waited to do that for a few weeks. But when we put that back on, it was, again, helpful to continuing the trends we saw in the first few weeks of June.
I'll now turn the call back over to Reade Fahs for closing remarks.
Good. Thank you very much, Bridget. We'd like to thank you all for joining us this morning and for your continued interest in and support of National Vision. We look forward to speaking to you again when we report our third quarter results. Thank you very much.
Ladies and gentlemen, this does conclude program. Thank you for participating. Enjoy your day.