National Vision Holdings, Inc. (EYE) Earnings Call Transcript & Summary

Good noon, everybody. Welcome to the afternoon session of our day 1 of our UBS Consumer and Retail Conference. And fortunately, it all goes downhill from here because this is as good as it's going to get with the National Vision team. We're so excited to have Reade Fahs, who has become an institution as part of our UBS Consumer Conference. It's great to get an update. Reade Fahs has been at National Vision as CEO since 2002, he started when he was 4 years old. Melissa Rasmussen, who's been with National Vision since 2019 and more -- most recently has been promoted into the Chief Financial Officer role for a couple of years now.

At the beginning of '20.

Time flies when you haven't time.

Always, indeed.

There is a new Vice President of Investor Relations, Tamara Gonzalez, who will be a great resource for all of us in the investment community. Did you want to read a quick disclaimer.

We'll be [Audio Gap]

I also share that they no longer let me do disclaimers because I try to inject levity into them. They don't like that.

I think that's one area that the lawyers get a little work done to make that right. That totally makes sense. Well.....

It used to be such fun.

I will remind everybody that on the -- after the conference, there's an ability to submit questions, and we'll include those in our conversation for anything that you want us to talk about, but we certainly have no shortage of things to talk about.

It's been an interesting journey, as I'm sure you will agree, Reade, both for National Vision over the longer term, but also in the last few years, kind of, going on some of the volatility of the core consumer, where do you see the health of National Vision's customers today? And how are their purchasing patterns evolved over the last few years?

Good. I'd love to talk about that. First of all, I do know that the biggest question from the crowd is probably about your socks, and yes, Michael is wearing National Vision sock. So there was 2 years ago. This is this year's National Vision sock collection, but we appreciate that, and they look great on you there. Yes.

These are retro.

Yes. Yes, retro National Vision sock. So our consumer is generally making under $100,000, and our consumer has been strapped by this economy, by the inflation as the article in this morning's Wall Street Journal about what the price of food is doing to folks. And our consumer is strapped in that way. About 35% of our business comes from managed care consumers. That is a different situation in that, that tends to be a wealthier consumer and for them, it's not really as much of their money that they're spending. So that part of our business has been going up very nicely. But our consumer is feeling pretty strapped right now.

Pretty strapped.

Yes.

And it's been an interesting last few years because 2020, a lot of optical retail stores closed. In 2021, there was a reopening. It was an injection of capital that the consumer got, made a lot of sense for them to go and get a new pair of glasses. And that arguably pulled forward some demand or disrupted the purchasing cycle that was witnessed in part of 2022. And then at the same time, this optometrist who is so critical to the model of the industry had seen some ebbs and flows as well and some constraints. So give us a state of affairs, where you feel you stand today, especially from the purchasing cycle standpoint?

Yes. So within our conference rooms, we refer to the new reality and the new realities were that our customer in 2021 had never been richer the way they -- between the savings they had by not going out during the COVID closure period, and then our generous government giving out so much money that our customer had a lot of found money, and we've always said when our customer has found money they come and spend it with us. That's why tax return season is generally our highest seasonality period. So our consumer had found money in 2021. They came in. They bought a great pair of glasses. They generally spent more than they normally would have on that. And then soon thereafter, several new realities hit. The new reality of the optometric market, where optometrists like almost every other health care professionals out there had sort of a big rethink and wanted to work less days and that affected the market in large ways. And so that was one new reality, sort of less optometrists from a few retirements, but mostly less capacity due to less days. The next reality was the consumer inflation affecting our core consumer and our business. And then the third reality for us was the end for Walmart partnership, which -- and the mantra around our offices is we're rapidly adapting the business to thrive amidst these new realities. And we have been doing that very aggressively throughout 2023. I would say that all these changes hitting at once to a consistently predictable and steady category. And the category had been very consistent and predictable for several decades prior to COVID and then post-COVID, especially in 2022, these new realities changed a lot, and there was a lot of what is happening to our category, a lot of change. And I would say 2022, we were pretty back-footed during that period of time. 2023, I think we became much more forward-footed and I feel that we've been that way pretty much since early last spring.

First, the investment community is using that same mantra, so that's a little ironic. Two, do you feel like the industry is now back or approaching back to where it was historically, where it's nice and steady mid-single-digit -- low to mid-single-digit growth and then National Vision takes market share.

So what we have here is two data points that are encouraging. Our back-to-school season was much more like that, which we're used to pre-COVID. And our December and end of year experience was much more like pre-COVID, and we feel it's nice to see two encouraging data points. The next data point will come when we report Q1, and we can talk about what's happening with March. But I would say that the industry is sort of waiting and holding its breath to see whether this purchase cycle is going to begin to normalize. And again, to the extent to which your business is majority managed care as some businesses are out there, you're better insulated and to the extent to which it's less than half managed care like ours is 35%. It's -- you're dependent on that uninsured consumer.

In your mind, is there any reason why the industry wouldn't go back to the way it was?

This has been such a consistent predictable industry for a long time because of the biology of the human eye. Human eyes deteriorate with age. It's just how we all are. And as we age, our eyes get worse and that is why the category has been so predictable. I think that combined with actually were all on screens a lot more of the aging of the population. It should come back and be normalized. It's just exactly when that's going to happen. It's a hard thing to predict.

And also ...

But we believe it will.

It will. We tend to look at the optical retail market similar to where the pharmacy market was 20 years ago, a lot of independent players very fragmented. Is there any reason -- are there any differences in the optical retails markets that would not mean that there would be a similar trend to what happened in the pharmacy, where the larger players get larger?

I think that's a good analogy. And no, I'm not seeing anything different. I think those broad trends in pharmacy, we will see continuing. That's for -- again, for the many years prior to COVID, what we saw was the chains getting bigger, the independent share eroding, independents have trouble differentiating and have to be -- inherently, they have to be higher priced because they have no economies and scale. We've seen overall trends towards heightened value in the category, and we think that should continue.

Where is this like a usual economic environment, where everyone builds pressure, but people have jobs? And normally, the way National Vision characterizes when it does see that trade-down benefit is nicer cars in the parking line. Some of these folks come to......

Nice cars. Yes, right.

On American ride. And.....

Actually, some people were explaining that you're meeting -- they were saying that I was really tight, you're not our target audience, but I was really like to hear it.

Yes, there's a lot of auto lovers in this audience. So....

Okay. Okay. Yes.

But the point is, give us a sense for, are you seeing that trade now? And I think the way you described it recently on your call was a little different than how you might have seen it in the past, maybe people are buying a little bit nicer.

So '08, '09, where we were comping consistently through '08, '09. It was a jobless of economic retrenchment, which was different than what we're seeing now. We're seeing trade down from wealthier consumers and part of that does relate to the managed care consumer and the managed care growth. I think more and more consumers are seeing that their managed care dollars go further with us than with many other places. And that means a lot to them also.

Absolutely.

If our managed care comps were our overall comps, we'd be drinking a lot of champagne right now.

Well, we could still do nonetheless. And you mentioned March. This is an important season for National Vision, if only because the consumer gets an infusion of cash from their tax refund. Tax refunds have been kind of funky that's the technical term, a little bit slower. So....

Melissa, do you want to discuss.....

Yes. What we've been seeing with tax refunds so far is while individual tax refunds have been slightly higher than last year, overall, tax refunds seem to be lagging what last year was bringing in. And so when we released guidance in February, we had talked about different scenarios built into our first quarter, flat to negative comp, slightly negative comp that we talked about. We still expect that -- with the sequential improvement that we saw from January into February, we still expect to see improvement as we progress through March. And that -- the level of tax refund tied to that can vary and still fall within that range we released.

And I will say when the stores start feeling the tax returns coming in, like the word rushes through our hallway, they're starting -- they're starting. So that's an exciting time for us. But I think a key thing to take away that Melissa was just referencing is, given all that's happening in the macro, our guidance is planning for a lot of different scenarios. I love the McKinsey published something they just referred to that we're in a period of fundamental uncertainty that there's just so many different options, more so than any, harder to predict and our guidance is saying, okay, a range of things could occur, and we want to make sure we're covering those in our guidance.

And you mentioned previously that there's two good data points so far about the normalization of the purchase cycle. Can you remind what are you waiting for, for that third? Do you have to get tax this season, get into the deeper part of spring to say -- and even if the deeper part of spring might be a little volatile, it's still going to be on the right trajectory?

We will be -- as we're describing March, we will be describing if that's a third data point for us. That will be comforting like to have a little bit more time before we declare that the purchase cycle has normalized just because we've never seen anything like this.

No doubt. Well, we can all stand around the Atlanta headquarters. And here those noises coming down the hall that they're coming, they're coming. On the optometrist recruiting efforts, this has been a new element to the story because National Vision has really been an employer of choice for an optometrist for a while. For an optometrist, who's coming out of optometry school do not have to worry about payroll and administrative things and dealing with reimbursement, really attractive. Now with that being said, there has been more challenges, I think, across the recruitment market for optometrist.

Yes. Sure. We got a lot tighter in 2022.

Where does it seem to -- what drove that? Was it just the optometrist said, "Hey, my priorities are changing", and how is National Vision addressing it?

Two factors. Factor one is there were more retirements in 2020 and 2021. But the bigger factor is something that's happening across health care. They call it the great rethink, where people -- where health care professionals, especially those with a lot of advanced degrees, advanced years of education are saying, "I want to work less days." And it's happening.....

Investment community is doing the same thing.

But it's happening throughout the health care. And so the average number of days that an optometrist works is less. I mean, it used to be, again, during what I call sort of the rigid phase of our company, you came to workforce, you worked 5 days a week and your days off for Wednesday and Sunday. Those were the days off you got. Well, that actually became a hindrance to our ability to recruit. And so last year, we started offering a variety of different flexible packages, and that helped us immensely with retention and with recruitment. And again, we've always been, especially for the new grads an employer of choice because we've gotten very good at saying, "Hey, come with us and you will become a better doctor through learning how to practice from our more experienced doctors," and we're pleased that over 10% of the graduates of all 24 schools chose us last year. And we think that the employment mode of practice that we're -- we've always been behind. And I think we're the largest employer of optometrists out there. We think the employment model is becoming ever more popular because of a few things, what you said of people not wanting to have all the burdens of running a practice. It used to be in the earlier era that a young doctor would join an older doctor's practice and gradually buy it as the doctor shifted to retirement. Now with the number of private equity roll-ups out there, the odds that doctor turning the practice over to a younger person has gone down a lot. And then the headset of 20 -- late 20 something is coming out of optometry school is far more of a work to live mode. The expression that I hear the most is, we like working for National Vision and America's Best because at the end of the day, I get to leave without a care in the world. That's it. Leave without a care in the world because we're doing all the other pieces. They're doing what they're trained to do, which is patient care. That's why they went to optometry school. That's what they learned there. They did not learn -- they were not business courses there. They did not learn how to run a business. They come in, they do the patient care. And then at the end of the day, they get to leave for other care in the world.

Sounds like the.....

And my next career.

Okay. I have 2 follow-up questions on this. Number one is you hired 10% of all optometrists graduates in the most recent year. What's the capacity for National Vision, can you connect it to 20%? Is that necessary, especially as you satisfy the aspirations for continuing to open 70-plus units per year.

So totally you actually said over 10%. So that's the case. So let's do some quick math. We have over 2,000 optometrists in the network practicing into next to our stores. We've said that our retention rate ranges from low 80s in bad times, like 2022 to high 80s in good times. And that we said we've been steadily improving since 2022. And so if you think of that and over 2,000 above optometrist, you inherently -- I think it's a good retention rate at that level, especially when you're dealing with people who are in their late 20s and early 30s, their lives have not settled. So you need a certain amount just from that retention. We build 70 stores a year, so you need those 70. And then, frankly, a lot of stores as they ramp, you go from needing one doctor to needing another doctor. So there is need out there and -- but recruitment is improving, retention is improving, and our remote medicine options have helped us a great deal in the deployment of doctors where they're most needed.

And let's dig into the remote medicine concept a bit because, a, I think there's still a bit of a misunderstanding about what it is and it would be a great chance to clear it up. I'll describe it and you tell me how wrong I'm. It is as flexible as someone sitting in Naples, Florida, can visualize the eye exam with an optometrist, an eye exam for a customer sitting in a store in Delaware. And it's a pretty seamless experience because you'll have either an assistant or an associate who's managing the physical patient experience, while all the medical decisions and analytics are taking place remotely in a distant location.

Right. And just to make sure there's 100% clarification, in your example, the optometrist was sitting in Naples and the patient was sitting in our store environment surrounded by diagnostic equipment, where we've taken a lot of test data and sent it digitally to the doctor sitting in their home office in another place. And as long as the doctor is licensed in the place the patient is sitting, then it's a good legal eye exam.

Is there a synchronous interaction?

Yes. And that is the key part. There's synchronous interaction to the point that the doctor is saying, which do you like better, #1 or #2. And when you say, "Oh, I like #2, the doctor presses the button at home and changes the lenses in the store," which always gets a really nice thing from the patient.

I always feel like I got that wrong. You know how, one, I never can tell the difference between #1 or #2. I see better. Then what is the customer response?

I think we have all come to realize that our lives are going to be ever more through a digital interface in so many different ways. We're all spending so much more time in virtual meetings. And I think that -- I mean -- so about 2 weeks ago, I was driving to work, pulled off the road into a parking lot and had a tele-exam with my GP to get my statins renewed. And I'm thinking, this is amazing. And before that, it was I always would have to go to the doctor, and it was always like, I thought it was a tremendous waste. The fact that halfway through my commute in a parking lot, I can have this interaction. And I loved it. It was clear that the doctors always thought this was the way of the future. And I think all of us are going to be participating in digital medicine ever more in coming years. And it could be very advantageous. If you don't have enough health care providers to provide the health care to everyone, you've got to deploy them ever more efficiently until telemedicine does that.

And how has been the response for the optometrists? Optometrists in general, they've moved a little further in their career. So they were not initially adaptive to some new technology. So it took some time, where does it stand today?

I think it's fair to say that in general, your average optometrist is a late adopter of technologies, often a little concerned about what it will mean for them, and that's been true for decades also. So we started talking about remote medicine years ago and then sort of a year later, we talked about, "Oh, we're going to like try it and then a year later, let's tell you how that's been working so that by the time we wanted to get behind it, they were socialized to it." And frankly, it is the part of our business that's very easy to recruit for. It did lot -- plenty of doctors would like to work remotely, and I was very pleased that one of the heads of one of the largest optometry schools said that he had tried all the different remote options and he thought ours was the best.

Well, my uncle Kenny is an optometrist and he still uses a flip phone. So it's a further evidence of slow adoption. Where does remote medicine stand today and where can it go over time? Can you give us a sense for how this is increasing the capacity of the organization?

Yes. Right. So we currently have 550 enabled stores. We plan to add another 50. And if some legislative things open up, maybe more after that, we have to see how the laws evolve in the various states. We've said it is over 5% of all of our eye exams, including the non-enabled states eye exam. So that's good and progressing positively. And I think it was about mid last year, maybe it was the last time we were hanging out I was referring to how remote medicine is in early innings. And I'd say we're like into the start of the middle innings now, but I think there's a lot of improvement and added advantage that this can give us over time. We were sort of a pretty analog company prior to COVID. We were not a cutting-edge technological company. And so doing -- launching an Uber-like delivery system of exams inside a very traditional retailer, there was not much in our DNA that would have said that we could be good at that. And all start-ups have there -- are a little tough, but I'm real pleased with where that stands now. It has great, great momentum around it. And I just like how it's working in with our network, and I see ever more advantages to it going forward.

Who said you can't teach an old dog new trick, right?

There we go, right.

What percentage of states allow for this?

And this is in the ballpark.

We're in about 2/3 of the states where we have [Audio Gap] remote capabilities.

Okay. And the only thing that's preventing the last 1/3 is regulations. There are 1 or 2 states where we just have plenty of coverage so that we don't invest in it there. And we do believe telemedicine laws are all going to go to more pro-consumer pieces. So we think eventually the difficult states will be more opened.

And one other way that you've been addressing the retention and recruitment efforts by investing in some wages. Both for your optometrist and then across the organization. Where does that stand? And do you feel confident that your wage rates right now are where they need to be relative to the market?

We do. We offer competitive pay, especially with our optometrist population. When they're coming out of school and they're offered different opportunities, we have been competitive. We had historically seen inflation in the low single-digit range with optometrist wages that's inched up to the mid-single-digit range, and we wouldn't expect that to be declining anytime soon. And so we have also put in place different types of compensation such as incentive compensation that's tied to their level of productivity. So that's variable and the more productive a doctor is, the more incentive compensation they receive. And so our guidance incorporates the assumption that mid-single digits is roughly, where we'll end up with wage inflation for the doctors going forward.

And in an environment where there is more inflationary pressures from wages, rent, other areas doesn't it make sense to continue to at least examine the pricing power that, that National Vision has. And you've already been able to flex that muscle, flex that muscle in a way that has retained the core value proposition, still get 2 pair of glasses and an eye exam for a very...

$79.

Yes. Very compelling price. How much more room and opportunity do you think you have to push the pricing lever, especially in an environment where your competitors are using this? And I know one of the principles that you had stalled from the very first time we met was, we really don't want to do this. But hasn't the world changed a little bit that you need to have that muscle and use it occasionally to make sure that you're offering your customer a good experience?

I'm going to start and then you provide the detail there. Yes, what -- ever since we went public, we said real men and women drive their business through footfall. That shows that customers like you and they tell their friends. So that is, we're always prefer to and have pretty much consistently driven our business more from footfall than from average sale. However...

We have pulled and do pull the pricing lever. We tried to not pull the headline pricing lever, and we've done that one time in the past 17 years when we took that price -- the headline price up in 2022. With that, we looked to always offset cost increases that we take from our suppliers and vendors through pricing actions. Those are just on the non-headline pricing factors, where we exercise more, more pricing there.

So I'm guessing, there's 500 frames in a typical -- no.....

It's more than like 1,200.

I'm sorry for -- I didn't want you changing now by, so...

In an America's Best, and more than in a Eyeglass World.

Eyeglass World. And presumably, you -- on the tail, you still have more room to take pricing up. Is that going to be the strategy?

So we referenced in our call sort of we did take some product pricing on lens here or there, things like that every now and then. We'll look at -- we have various tiers every now and then we'll look at that. But also sort of areas like exam services, things like you come in with pinkeye and you need a prescription and you'd be surprised how much foreign body removal we do when either -- when something is in somebody's eye or they've lost their contacts, things like that, which don't necessarily affect the core offer, but we brought in a boutique pricing firm last year, and they sort of said, "Hey, there are some things you might not have thought about," and we have put several of those in place recently.

Got you. Pivoting over to the competitive landscape. It does seem like this is an environment, where consumers are gravitating to familiar brands. What are you seeing with respect to the competitive landscape? Is there -- is pricing becoming and promotions becoming more intense? Are there any changes that are taking place from -- in the landscape?

Yes. So -- and actually, often a subtext of that question is about online related penetration and competition. And conveniently, just yesterday morning, the Vision Council came out with some data that said that, that the penetration of online purchases has not changed in 2 years. So that, that has been flat for 2 years. Of course, during COVID, there was a bit of a spike, then there was a decline and then it's been flat for 2 years. So again, as you can see from some of the players, who started out saying they were going to be big e-commerce players, this is a category that people still buy in stores. We know that many of the more high-end players are far more -- pool of pricing lever a lot more than we do. And we generally see that that's -- we believe that that's more short-term benefit than long term, and we try to manage always more forward to the long term there. And so we're careful about that. And again, we compete in the value category. Our customers need to leave us saying, "Hey, I got products I really like, and I feel good about what I paid."

Yes. And have you seen any changes with the independents, independents kind of had an ebb and flow during 2020, some of them had closed up and maybe some of them came back?

I think the key factor in the independent category is the presence of private equity, several different groups rolling up the better independent practices. And that was going on for several years prior to COVID, and that will continue. And I do think that's a factor in, just ongoing sort of erosion of the independent sector as you were talking about as in pharmacy over the long term.

Yes. It's opening, pushing this consolidation should be good for a large player like the bigger getting better without doubt. I want to pivot the conversation. I think the discussion around profitability has become more in focus. You were kind enough to give us a road map for how National Vision's profitability is going to unfold, you gave some margin targets this year and next. What are the risks to you being able to achieve those margin goals? Is it simply a function of the top line? Are there other factors that are -- investors should consider when they're thinking about how your profitability is going to unfold from here?

Yes. So when we laid out the guidance in our call, the profitability that we had talked about when we get to 2025, we're expecting at that point to have the impact of our top line growth based on the initiatives that we started last year, the recruiting, the retention, the remote initiatives all of that to continue to take -- to gain traction and grow the top line. So we would expect the top line to come to mid-single digits as we go into 2025. And then assuming that we reach the midpoint of our guidance range this year, we would also expect that our operating margins would also follow coming to the mid-single-digit range in 2025 as well.

Got you. So it sounds like it's very volume dependent. You have good line of sight into the initiatives driving sales and any surprises along the way. Outside of the top line growth are seemingly manageable. Is that ...

Yes. We expect that we would have some margin expansion throughout 2024. And we had talked about that on our call as well. With the Walmart and AC Lens exit, we expect to see the 200 basis points of gross margin benefit that we talked about being all back-half related. And to unpack that a little bit more for the first half of the year, we expect that the first quarter specifically is going to be a little more pressured than what we've seen in the past. And we mentioned on the call that there is a drag of about 50 basis points related to the Walmart business. The Walmart activity didn't come in like we had expected in January. And so there will be about a 50 basis point drag. And that will also flow through the P&L as well. That would carry through to gross margin and SG&A impacts as well because as we've exited that business, the revenue ended mid-February and the costs continued through the end of the month related to the Walmart business. So first quarter is going to be more pressured than we've seen in the past. And in the back half, you'll see the gross margin improvement. You'll see SG&A deleverage from a dollar perspective -- I'm sorry, from a percent perspective, but the dollars will be declining. And that's just a function of the top line change that we'll experience with the exit of Walmart and AC Lens.

You're making it easy for us. We love the straightforward discussion. So just to clarify and unpack. So the Walmart relationship, and it's kind of winding down. There's different elements to it.....

The stores ended mid-February and June.

Just to put a button around on that. National Vision was supplying some contact lenses for -- that were sold through Walmart. That piece of the business is going to end mid-February?

No. The store business ends mid-February. So anything that you would have seen previously in our legacy segment and our financial statements, that's what ends in February. The corporate other segment is where we had recognized the distribution component of the Walmart and Sam's Club activity, that's AC Lens, and that will be ending mid-June. And -- I'm sorry, end of June. And once we end that, that's where you'll see the gross margins.

Got you. Yes. And so once you get rid of AC Lens, then gross margins up 200 basis points in the last -- in the second half of the year. Are there any other factors that are driving the gross margin expansion?

Disciplined execution is certainly a factor. As we exited fourth quarter, we had crisp operational execution. And so we've carried that forward and like I said, other than the first half of the year being pressured based on the transition, then we expect the back half to be much better.

Aside from discipline being Reade Fahs' middle name, what in terms of your execution, what does discipline mean? Does it mean you're more aligning your optometrist hours with the customers in the store, you're doing a better job of selling the right product to the customer? Are those examples of where gross margin comes from?

Yes. Right. And it's just crisp execution throughout our operations. Again, that's what we're trying to do just to have a consistent experience in all the stores.

Yes. And had that not been the case in the last couple of years?

No. It's just the day-to-day slog of a retailer forever. Yes. We're just trying to keep consistency. Yes.

And as remote gets more mature, the productivity of those doctors increases, and that also contributes to some gross margin expansion.

Got you. So you feel like you have good line of sight to the gross margin expansion in the back half. And then stepping up from...

What I want people to understand just those 2 Walmart factors that almost coming through.

And then taking a step further, how do you go from your guidance this year to mid-single-digit margins next year?

So going from this year to mid-single digit next year, we expect to see, like I said, top line growth, where we would expect to be at mid-single digits on the top line.

You will lap some of the Walmart dynamics this year.

Yes. Yes, we will lap some of the Walmart dynamic as we go into 2025. And then the increased productivity, cost discipline. Those are all factors that will help drive that operational margin back to the mid-single digits. And then that's just a stake in the ground. That's not where our end goal is. What's [Audio Gap] May '25, we expect from there to continue to leverage the initiatives that we've been putting in place. So the digitization of the stores because we've continued to roll out EHR. So the stores will be digitized.

Electronic health records.

Yes, electronic health records and then the digitization of our back offices as well. We'll expect to recognize the benefits of that productivity and efficiency as well.

And Reade, maybe you could touch on this as well because while National Vision has been a very efficient organization in the past, you need to do different things today to realize efficiencies like EHR....

Electronic health records.

And other technology to continue on this glide path for the margin productivity because that is one of the areas that the investment community is focused on is a business that had been nicely profitable in the past, how can you get back there? And it seems like you've got a pretty good blueprint for it.

This business is a lot of fun when we're delivering mid-single-digit comps, and we delivered mid-single-digit comps consistently for 18 years. We did that in retrospect by being a fairly rigid somewhat analog replicator of a winning concept. And since COVID, we have shifted to be a flexible innovator, flexible digital innovator along the way and things like our remote efforts are one aspect of that and a variety of different and electronic health records is another aspect and upgrading our CRM system is another aspect. And when the world changed on us, we have adapted as well.

Yes. And speaking of adoption, it seems like while Eyeglass World had been a strong performer for a long period of time, it's falling behind a little bit....

Falling short of our standard. Yes, that's for sure.

Yes. So can you, a, for those who are a little familiar -- less familiar with the story, just give some of the contrast between America's Best in Eyeglass World? And then tell us why it's falling short as of late and what's going to be done about it?

Yes. And so dimensionally round numbers or 950 America's Best stores and 135 Eyeglass World stores at the end of the quarter and America's Best is free eye exam when you buy 2 pairs of classes, the eye exam is generally bundled it with the cost of product. Eyeglass World is a larger store with a lab, providing same-day service, a broader selection of product, but a model where you pay for your eye exam, which is more traditionally out there. Both brands were comping very nicely quarter in, quarter out, going into COVID and frankly 2021 was fantastic for both brands and especially Eyeglass World had a great 2021. Then in 2022, when we were dealing with the disruptions, frankly, I think we were just focusing our time on our biggest brand there. And a few things got out of the line on Eyeglass World. And it is, as we said, performing below our standard now, although it did comp positively in Q4. And -- but we think that there are a few large issues. One, it does have doctor coverage issues, which are made more complex that there are 3 different doctor models there versus the 1 with America's Best.

Can you explain that?

Sure. Sure. We have some stores that are employed. Some stores that are leased with either 1 doctor, 1 store or 1 doctor in 2 stores and then we have 1 master lease, who's got 47 stores. And so you've got 3 different flavors and you have to manage them differently and in the America's Best model, we just have more control over that. So it's a different conversation and different approach with the leasing doctors with our employed situations. We can just go in and put in remote if we want. We have different conversations with a lot of long-term leaseholders on that front, but they also are having the stresses of trying to find doctors, but we're saying you need to deliver 40 hours of coverage to sell this work. So coverage issues was one. I actually think we underspent on marketing last year, and we're making up for that now. And the third piece is, I think our operations were not as crisp and we just had some operational leadership changes and have brought in one of our best -- America's Best operators.

And you mentioned that it did comp positive in the fourth quarter, which is great. How long does it take to get EGW to a point where it needs to be?

It's not an overnight thing, but I think we will get there. The concept is a winner people like to get their glasses fast. Labs in stores have a consumer segment, and that's what we're trying to own there. And again, it's a little bit more designer product. So yes, we will get there. And generally, once you get your coverage, right, life works.

Life works, Yes. More for guys like me.

And it is more for guys like you and as we said, where -- and throughout the franchise, where we have the coverage we want, we're delivering comps at the historical levels.

That's great. Last couple of minutes, I want to talk a little bit about advertising because that has been one of the key factors you both banner success. So what's going to be done differently this year? It seems like advertising is a nice lever that National Vision can pull in order to drive traffic. And so not only how much are you spending? Or what's the general school of thought, but where are you spending? And how are you able to optimize that productivity of that spend?

All right. We're becoming ever more digital. Guess what? People are watching a lot of streaming shows.

Here we do. Who knew. There we go. When, Reade, we gets on TikTok, it's over.

But as we've been -- our media plans over the years have been shifting to ever more digital in both top of funnel and bottom of funnel. So that's been consistent. I'd also say we're starting to broaden our message a little bit, and all of our ads are available on our website in the Investor section there. And we're starting to just a little bit talk to a few other audiences about exams, about value in different ways that I think are going to be good for us. We've said the same thing in a variety of ways for a very long time. And I think we're expanding the message just a little bit, and there are independent ways of assessing the ads and the new ads are scoring very high in that way.

We're getting away from the Owl?

No. That will not happen. No.

Please, I almost insulted a child. I'm sorry.

It is a very popular icon.

Yes. Without a doubt. Well, please join me in thanking Reade, Melissa, Tamara, [ Calin ], this has been great, and we really appreciate and are excited to see what's to come from the National Vision story.

Good.

Thank you for the time.