National Vision Holdings, Inc. (EYE) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to National Vision's First Quarter 2018 Earnings Conference Call. My name is Brian, and I will be your operator for today. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question-and-answer session and our instructions will be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded for replay purposes. It is now my pleasure to hand the conference over to Mr. David Mann, Vice President, Investor Relations. Sir, you may begin.

Thank you, Brian, and good morning, everyone. Welcome to National Vision's first quarter 2018 earnings call. Joining me on the call today are Reade Fahs, Chief Executive Officer; and Patrick Moore, Chief Financial Officer. Jeff McAllister, our Chief Operating Officer, is also on the call and will be available during the question-and-answer portion of the call. Our earnings release issued this morning and the supplemental presentation, which will be referenced during the call, are both available on the Investors section of our website, nationalvision.com. In addition, a replay of this morning's conference call will be available later today. The replay number as well as access code can be found in the earnings release. A replay of the audio webcast will also be archived on the Investors section of our website. Before we begin, let me remind you, our earnings release and today's presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the release and in our filings with the Securities and Exchange Commission. The release and today's presentation also includes certain non-GAAP measures. Reconciliation of these measures are included in our release and the supplemental presentation, which can be found on our website. 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. In addition, from time to time, National Vision expects to provide certain supplemental materials or presentations for investor reference on our Investors section of our website. Turning to Slide 3. On today's call, Reade will discuss recent business' highlights. Patrick will then review our first quarter 2018 financial performance and our fiscal 2018 outlook. Following these prepared remarks, we will open the call for questions. Now let me turn the call over to Reade.

Thank you, David. Good morning, everyone. It's a pleasure to be speaking with you today on my birthday to share our first quarter results. I’d like to turn to Slide 4. We are pleased to report our 65th consecutive quarter of positive comparable store sales growth. This streak began over 16 years ago when many members of our current management team started National Vision. We are certainly proud of the consistency of this track record. Q1 adjusted comparable store sales growth was up 4.6%. This result was at the higher end of our full year comp guidance range. The growth was led by Eyeglass World with a 6.3% comp and America's Best with a 4.6% comp. During the quarter, Eyeglass World successfully launched its Mr. World advertising campaign, and America's Best continued the national advertising of its catchy Owl Campaign. Our sales strength was broad-based, with positive comps at all of our brands. This is in the second consecutive quarter that our teams delivered positive comps in all of our store brands. We're pleased with the improved execution that we're achieving at the store level. In the end, retail is about store level detail, and we remain focused on making sure that each and every patient and customer receives great eye exams and customer service on their glasses and contact lens purchases in each of our brands every day in every store. Comparable store sales growth was driven by increases in both customer transactions and average ticket. Another sign of customer satisfaction is Net Promoter Scores, which we track closely. In the quarter, our Net Promoter Scores improved on a consolidated basis led by America's Best. We opened 15 stores during Q1 to end the quarter with 1,027 locations or a 6.8% increase in store count over the first quarter last year. All of the openings were in our America's Best brand. The unit growth and comparable store sales growth combined to drive a 10.3% increase in net revenue. Adjusted EBITDA increased 3.7% and adjusted net income grew 15.5%. As we noted on our last call, we expected first quarter EBITDA growth to be more modest relative to growth expected for the year, primarily due to timing of certain expenses and the incremental costs associated with operating as a public company that collectively impacted adjusted EBITDA growth by approximately 500 basis points. Based upon our performance to-date, we are reaffirming our 2018 outlook, which Patrick will take you through in a few minutes. So why don't you turn to Slide 5 now. Our business continues to demonstrate consistency in store performance and comp store sales gain. That graph highlights our 65 consecutive quarters of comparable store sales growth across the economic cycle during both strong and weak economic times. As I mentioned earlier, our comp growth was driven by both gains in customer count and average ticket. When we last spoke in March, we are in the middle of our peak selling season. As many of you endured personally, there were four nor'easters in the month, three of which fell on weekends. But we are fortunate to be in a category where the purchase and tied to a medical necessity. Based on our experience over the years, impacts from weather generally only postponed purchases and balance out over time. As I like to say, during a bad storm, people just stay home, but their vision continues to get worse. We are essentially seeing the year-to-year business pattern similar to last year, with some of our peak traffic flowing into the second quarter. Our consistent positive comp results highlight the benefits of operating in a growing industry, having a leadership team of optical experts, new store growth as well as comparable store sales growth in our more mature stores as customers keep coming back. We continue to believe that we're gaining market share with our low-price operating model, and our highly-experienced management team continues to focus on executing every day, one patient and one customer at a time. Turning now to Slide 6. We remain focused on leveraging our competitive advantages and capitalizing on the significant growth potential that exists for National Vision. First, new stores our primary focus, given the significant white space opportunity relative to our current footprint. We opened 15 stores in the first quarter and continue to plan to open 75 stores this year, executing on the formulas that have worked well for us in the past. Our pipeline of locations remained strong to this year and into 2019. The majority of our openings will be in the America's Best brand with the remainder in Eyeglass World. Store growth is expected to skew slightly more towards openings in new versus existing markets. We're excited to offer more patients and consumers the opportunity to save money on eye exams, glasses and contacts. Optometrists continue to play a key role in our Company's success and then our mission to deliver improved eye care to communities throughout the U.S. Simply put, we want to be the best place for optometrists to practice. Overall, our optometrist's retention rates remained stable to last year, and we remain highly focused on selling our need for new optometrists. Our team expects to continue to drive comparable store sales growth in 2018, even with lapping with strong multi-year comparisons. Our key comp drivers are the comp orders both from maturing stores as well as vision insurance and marketing initiative. Our new stores take several years to fully mature as customer awareness builds. With an infrequent purchase cycle for eyeglasses, it can take time for potential customers to find a store after it opens. But when they do, we believe they love what they find. We strive to ensure that our customer gets the best value around, and we believe that our growth brands deliver incredible value. Our customers can buy two pairs of eyeglasses for$69.95, including a free comprehensive eye exam at America's Best or two pairs of glasses for $75 at Eyeglass World and get them the same day. We believe that this combination of extreme value backed by excellent customer service leads to satisfied repeat customers and positive word-of-mouth. Participation in vision insurance programs remain a positive comp driver. We've experienced strong growth in net revenue from these partnerships, which continued in the first quarter, and we believe there are still our opportunity to expand relationships and increased penetration with vision insurance providers. We continue to believe that we remain underpenetrated relative to the industry in the presence of our business coming from vision insurance. Marketing also remains a key factor in attracting customers and driving traffic to our stores. And given that eyeglasses are relatively infrequent purchase, television advertising plays an important role for us. We continue to utilize television advertising to catch our customer's attention whenever they are in the market. Our Owl TV campaign differentiates the America's Best brand, and the reach to national advertising now reminds consumers throughout the country that they paid too much if they didn't shop at an America's Best. In the first quarter, we launched new television advertising in Eyeglass World. We're very encouraged by the early customer response to this Mr. World campaign, which we believe was a factor in the brand's strong 6.3% comp sales in the first quarter and are extending the footprint of the campaign to cover all the Eyeglass World stores. We have owned Eyeglass World since acquiring it [indiscernible] in 2009. We turned around the concept and it continues to be a solid performer. Eyeglass World has a new brand leadership for almost two years now bringing fresh energy to the brand. I really like what the current team is doing. We're delivering a more consistent store experience. Eyeglass World also now has the benefit of a TV campaign that better communicates the brand and experience to consumers. As the tag line says, Eyeglass World is the world's best rate of eyeglasses. I'm more excited than ever before about the Eyeglass World opportunity for future growth. In terms of operating productivity, as a value retailer, we promote a low-cost culture. We can't beat everyday low price without being everyday low cost. Our centralized lab network is a key reason that we are everyday low cost. Within our labs, we operate what we believe as a world-class manufacturing operation that provides a true competitive advantage. We are currently working to open our fourth domestic lab in Texas, which will bring our network total to six labs. This new lab will add the necessary capacity to keep up with our growth, feature the latest state-of-the-art equipment and processes that further lower our unit costs and provide the security of economic diversity. We remain on schedule to be operational in time for the first quarter next year. Last week, we announced the transition of our lab and supply chain leadership. Charlie Foell will downshift from his role as SVP of Manufacturing and Distribution as of June 30, and will remain at the company to focus on special projects. Bob McKenzie will receive Charlie as Senior Vice President of Manufacturing and Supply Chain. Bob has over 30 years of experience in the optical manufacturing industry and has been working closely with Charlie for the past 12 years. We are fortunate to have a deep bench of experience of optical experts at National Vision. Lastly, regarding our omni-channel investments and capabilities, we are starting to leverage our one view of the customer. In addition, we continue to see improvements in the online scheduling of eye exam. Online penetration into the optical and retail sector remains modest, especially for eyeglasses. However, we believe that an omni-channel or blended channel approach is going to be an ever more important part of the optical buying process in future years, and we aim to be ahead of this curve. At this point, let me turn the call over to Patrick for a more detailed discussion of our financial results.

Thanks, Reade, and good morning, everyone. Turning to Slide 8. And as Reade noted, our business continued to perform well on the first quarter and is likewise well positioned for the balance of 2018. The two fundamental revenue drivers of our business are new store growth and comparable store sales growth. During the quarter, we opened 15 new stores and closed one location, all in our America's Best brand. Over the last 12 months, we have added 65 net new stores or a 6.8% year-over-year increase, with the openings almost entirely in our America's Best and Eyeglass World brands, where these two growth brands, unit growth increased 10% in the quarter. Our 2018 planned openings are skewed towards nearer markets, and we continue to expand our store base and invest in these markets where our new stores are still ramping and building awareness. We have noted that new stores can take approximately three to five years to mature. We are excited about these markets and see a lot of our potential customers there. The chart of adjusted comparable store sales growth presents our comps calculated on a cash basis. Same-store sales growth increased 4.6% versus the 4.4% increased in the first quarter of last year. The comp growth was at the high end of our 2018 outlook and driven by increases in customer transactions and average ticket. During the first quarter, we again generated positive comps in all five brands. Eyeglass World and America's Best drove the growth with gains of 6.3% and 4.6%, respectively. Legacy comps increased to 3.3% in the first quarter. Of this growth, we estimate 205 basis points of benefit from incremental eye exam revenues tied to resulting volume shift from FirstSight. Excluding the benefit of this transition, we are encouraged that the underlying business results in the Legacy segment continue to be positive. Additionally, we're pleased with the positive comp trends at our smaller Military Fred Meyer host brands. Our legacy and host businesses were benefiting from improved store execution. Turning to income statement highlights on Slide 9. Net revenue increased 10.3% to $408.0 million. During the first three quarters of 2018, the company will experience the elimination of approximately $6 million in revenues and costs associated with FirstSight operational changes that occurred in 2017. In the first quarter, the impact was a reduction to net revenue of $1.8 million, which had the effective lowering revenue growth by 50 basis points over the nonmaterial impact on profitability. As Reade mentioned, compared to the first quarter last year, we experienced a higher level of store closing days from weather with the most pronounced impact in March. Adjusted EBITDA increased 3.7% and adjusted EBITDA margin fell 90 basis points to 15% in the quarter. As indicated on our last call, we expected slower EBITDA growth as well as margin deleveraging in the first quarter due to the timing of the net change in unearned revenue, new public company costs and the timing of incentive compensation. The impact of these items was approximately $3 million. Our first quarter EBITDA growth would have been approximately 500 basis points higher, excluding the impact of these three items. As a reminder, net revenue and adjusted EBITDA results do not include amounts reflected as deferred revenue. Recall that deferred revenue is cumulated from our eye care club and eyeglass warranty programs and provides current period cash benefits not reflected in our income statement. For the first quarter of 2018, there was a $4.3 million net increase in deferred revenue. Cost applicable to revenue increased 8.8% or a decrease of 60 basis points as a percentage of net revenue versus last year. The decrease was primarily driven by $2 million inventory write-off in the first quarter of 2017. We also continue to experience higher optometrist-related expenses due to expanded coverage and wage inflation in certain geographic markets. For our optometrists, we are glad to pay competitive salaries for the good work that they do. We work very hard to attract and retain optometrists, and compensation is honestly an important part of this equation. SG&A expenses increased 13.5% or an increase of 120 basis points as a percentage of net revenue versus last year. This increase was primarily driven by store and corporate payroll and to a lesser extent, advertising, occupancy and performance-based incentive compensation. The three items mentioned earlier, the net change in earned revenue, public company costs and incentive compensation, all contributed to the deleveraging of SG&A expenses. Depreciation and amortization expense increased $3.3 million compared to the first quarter of last year. The growth reflects our ongoing investments in new stores, our network of optical laboratories and our omnichannel-related investments that were capitalized in the fourth quarter of 2017. Interest expense decreased $2.2 million versus the first quarter of last year. This represents a $3.4 million reduction due to lower debt levels driven by the $360 million IPO debt paydown in the fourth quarter of last year, partially offset by an incremental interest of $1.5 million associated with our derivatives. Our effective tax rate was 17.4% compared to 33.1% for the first quarter of 2017 as the company's federal statutory rate decreased to 21% as a result of the 2017 Tax Act. Also included in the income tax provision to the quarter was an approximate $2.7 million income tax benefit from stock option exercises, which decreased our effective tax rate to by 8.9%. Adjusted net income was $26.9 million compared to $23.3 million in the first quarter of 2017 and excluded in the income tax benefit from the option exercises. Adjusted diluted EPS was $0.35 compared to $0.40 last year, which reflects the increase in shares from our initial public offering. On Slide 10, at the end of the first quarter, our total debt was $569 million and our cash balance was $58 million. Our balance sheet now reflects the impact from the required implementation of new revenue recognition rules. The new standard requires acceleration of revenue earlier in eye care club contract period. The new revenue guidance will have a minimal ongoing impact to our annual revenue recognition. However, there was a reduction of our deferred revenue liability for our eye care club sales of approximately $26 million at the end of the first quarter. We expect the standard to have a favorable impact on total 2018 annual revenues of approximately $1 million. For the quarter, we invested $22.8 million in capital expenditures, with the majority of the CapEx focused on growth initiatives. Cash flow provided by operating activities increased over $30 million. Our cash flow will be aided by the ongoing cash benefit from tax reform during 2018. Let me provide an update of our view of usage for this cash flow. Given that we have been consistently reinvesting at a high rate over the last several years, we believe that we are in a great position at this time and are well positioned for continued growth. We continue to assess growth investments, including improvements in our customer-facing technologies for stores and online. We approach any potential new investment with the strict capital discipline we have always employed, with a goal to deliver investment returns that drive shareholder value. We are also continuing to evaluate options that would result in balance sheet enhancements over time. Turning to Slide 11, based on our performance year-to-date, we are reaffirming our fiscal 2018 outlook as follows: Net revenues of $1.485 billion to $1.515 billion. Adjusted comparable store sales growth in a range of 3% to 5%, opening approximately 25 new stores; adjusted EBITDA between $172 million and $177 million and adjusted net income between $52 million and $56 million. We continue to believe it is prudent and responsible to plan the business in a 3% to 5% comp range. Store openings this year will predominantly be America's Best locations with the remainder being Eyeglass World stores, similar to the mix of openings between these brands during 2017. The timing of the America's Best openings will follow a relatively consistent cadence across the year, while the Eyeglass World openings are generally planned in the second half. We project a couple of closings as is typical each year. Consistent with our reaffirmed outlook, we continue to expect the rate of adjusted EBITDA growth to improve as the year progresses, with stronger adjusted EBITDA growth in the second half of 2018. We expect adjusted EBITDA margin to be relatively stable on a year-over-year basis despite over $2 million in incremental public company costs this year. We are highly focused on managing costs in an environment of rising wages, and we continue to reinvest in growth and build out our omnichannel capabilities. For modeling purposes, we continue to expect our full year 2018 tax rate to be approximately 26%, including the impact of stock option exercises, which could cause some fluctuations in our quarterly tax rates. Finally, we estimate annual interest expense of $37 million to $38 million, depreciation and amortization of about $72 million to $73 million and capital expenditures between $100 million and $105 million. In summary, we remain confident in our financial commitments for 2018. We are focused on executing our 2018 growth initiatives, and we believe we are well positioned for the balance of the year. Now I'll turn the call back over to Reade.

Thank you, Patrick. Turning to Slide 12. Before we open the call up to questions, let me take a moment to share a recent customer interaction in one of our Walmart Vision Centers. In late April, we received a letter from a mother of a 12-year-old boy who was struggling with headaches. During a routine comprehensive eye exam, the optometrist diagnosed an extremely dangerous blood pressure condition that needed immediate medical attention. She took her son to a nearby hospital where he subsequently received emergency kidney surgery. His mother wrote to us saying, "Thank you for saving my son's life." Once again, we are reminded of how our comprehensive eye exams are routine until they're not. I want to thank all of the nearly 11,000 person team at National Vision, which includes the 2,000 optometrists that service patients at/or near our stores every day and over 1,000 storefronts they provide a much-needed medical service that helps to improve and change the lives of thousands of Americans. And sometimes, we even save lives, too. This is a team to be proud of. We're fortunate to have a fast-growing business engine whose success can fuel our profit efforts. We continue our dedication to progressing the work of the ecosystem of optical social enterprises and philanthropies. A New York Times article on May 6 stated that untreated vision problems are the biggest health crisis you've never heard of. Eyeglasses are simple way to improve 1 billion lives worldwide. We strive to be the best at providing low-priced eye exams, glasses and contact lenses while those at home and abroad, we work to bring glasses and consequently sight to those who would be unable to see well otherwise. This is why we believe optical retailing is a noble profession. This concludes our prepared remarks. And at this time, I'll turn the call back to Brian to start our Q&A session.

Thank you, sir. [Operator Instructions] And our first question will come from the line of Paul Lejuez with Citi. Your line is now open.

Thanks guys. I’m curious as you look at the quarter as a whole, I think in total, it came in line with your expectations, your reiterated guidance for the year. I'm curious, what were the positive and negative surprises, even as small as they might be, can you guys during the quarter and how that might influence and if you're thinking about the rest of the year? That's my first one. Thanks.

Good. Well, let's see, on the positive side, we like that we had another positive consecutive quarter and that still driven by customer accounts. We like the Mr. World campaign success. And what we do with those things as we sort of we hold out control markets and do test markets. And the fact that, that worked well and we expanded it, we like that our Net Promoter Scores continued to improve, all positives. We like that we sort of came through on the new store openings and all, so all good things there. On the more -- on the negative side, I'd say that sort of weather has been a weird one of late. We had all the nor'easters in March, which sort of lengthened out our peak selling season. And I'd say sort of the tax refund stuff was about the same time as last year, and it sort of lengthened out the peak selling season. I'll say that there's a plus side to the lengthening of our peak selling season. It means that there's sort of less stress on our optometrists and on our labs versus a more concentrated selling system. It makes for sort of season and so thanks for happier customers and patients and happier associates along the way that not everyone is coming in the door at the same time. So we like the lengthening that took place there. So those are pluses and minuses.

Got you. And any quantification of what the negative whether did do you guys in the quarter and what sort of an impact do you expect in 2Q maybe from some pent-up demand there?

We don't comment on our current quarter, but we did lose about 400 store days in Q1. So that's -- that was real impact. And it also matters when those store days are. And when their weekends and big selling days, that hurts even more. As I mentioned earlier, though, our customers stay at home, their eyes gets worse and they need to come eventually.

Got you. And then just last one for me. Deferred revenue was a bit lower in 1Q versus last year. And I think you said that was partly driven by slower growth in warranty programs sales and eye care club membership sales. Just wondering what was the reason for the slower sales on those two items, if that was expected, and how we should be thinking about that line item going forward.

Yes. So on the deferred revenue side, the eye care club sales are being affected by our increased penetration in managed care programs. So, Paul, as we saw the customers that have managed care, the eye exams are separate. And in the club, we obviously are offering the option to get three exams – or multiple exams over few years. So as we increased our managed care business, we decreased those club sales. Warranty is growing a little less than overall late in the revenue growth but still relatively good growth there in warranty.

Got you. Thanks, guys. Good luck, Reade, happy birthday.

Thank you, Paul.

Thank you. And our next question will come from the line of Dan Binder with Jefferies. Your line is now open.

Hi, it's Dan Binder, and happy birthday from me as well.

Thanks.

My question was around the vision insurance programs and your penetration. If you could just give us a little bit of an update on how much that has improved year-over-year, how much more do you think there is to get. And then a second question just around gross margin rate and expenses. Just curious if those line items came in as expected or if there were any surprises in there.

So on the managed care front, we have said historically that we are underpenetrated in managed care relative to most of the industry -- for most of the industry, the majority of their traffic comes from managed care, and it's less than that for us and is growing nicely. We were underpenetrated for a few reasons. When we bought America's Best, they weren't even taking insurance, so that's one reason. And frankly, a lot of our target consumers are uninsured. So they don't have insurance, and so they're out there seeking the absolute best value, not being directed to a specific network, but it's growing nicely. We continue to see opportunities in the growth of managed care. There are plans that we are not yet in. I'd said it here and there in the past that it's episodic in nature, sort of present your potentials to plans. And now and then on an episodic basis, you get into plans that you're not in, and that's always incremental traffic along the way. So underpenetrated relative to the industry, the market and our competitors, growing nicely, still plenty of opportunities for continued expansion of managed care.

And then – hey, Dan, it's Patrick. In terms of the gross margins, yes, those teams in generally where we expected at a overall level, gross margins were up about 60 bps. But as we disclosed, we had a $2 million inventory write-off last year in Q1 to help that. If we kind of zeroing on owned and post, you'll see the gross margins are down around 30 bps, and that's what we're seeing there in terms of a little bit of wage pressure for only even associates offset by increased level of just eye exams. But in general, pretty consistent with what we expected and what we expect.

Great. The expense side was more or less in line, too?

Would you please repeat that?

I was just saying, was the expense side more or less in line as well?

Yes. On the SG&A side, we were up around 120 basis points, and a little over half of that was the three items that we called out. The three key items that I actually referred to on the Q4 call back in early March that I said will affect the quarter. I want to simply get pop code rollover impact of having that $2 million plus this year. The second was really timing of incentive comp, and that was a more about being very low in 2017 versus 2018. And then finally, the unearned revenues were a negative impact in the quarter, and we had guided on all of that as we've discussed the quarter back at the end of the fourth quarter. As the year moves on, we expect that to moderate a little bit. We also discussed that we expect the profitability levels a little stronger in the second half. So I think that will all come in line.

Great, thank you.

Thank you. And our next question will come from the line of Zack Fadem with Wells Fargo. Your line is now open.

Hey, good morning, guys. Could you walk us through your expectations for the comp in a little more detail? Specifically for America's Best, where do you expect the comp to be on your 3% to 5% guidance range? And as we move throughout the year, do you expect to remain within that range for each quarter this year? Are there any quarters you anticipate to be above or at the low end of the range?

Hey, good morning. It's Patrick. So in terms of the comp guidance for the year, we not -- we probably aren't guiding at the brand level. The 3% to 5% comp range is in the annual big year we do, if you've seen, we have some quarter-to-quarter fluctuations at time, but we took the – nice consistency over a longer period of time. If you look out at the rest of the year, Reade's kind of mentioned -- discussed Q1 talked a little bit about peak season extending somewhat in Q2. Q3, we have a little integral. But we have the strong impacts last year, but we communicated those now. And then obviously, Q2 will be little tougher. So that’s probably a little bit of insight in terms of comp cadence for the rest of the year.

Okay, that’s helpful. And I’m curious, if you could speak to brand awareness in your markets. First of all, how do you track improvements in this metric internally? And when comparing your newer markets to existing market, how does brand awareness typically trend? And do you anticipate improvement with the new ad campaign going forward?

We have on a periodic basis, track brand awareness, and so we’re watching that, but we’re pretty consistent advertiser. We don’t have massive fluctuations because we believe that people come into this category pretty evenly throughout the year. So we generally keep marketing pretty evenly throughout the year. Last year, we started national advertising at the beginning of the year. And so our belief is that more people are aware of us, even if our stores are not there yet. My aunt [ph] in New York city, she say that they see all the time, and so we believe we’re building awareness in markets that we’ve yet to open stores in.

Got it. And if I could ask just one more, could you update us a little bit on the relationship with Walmart? Any anticipated evolution there one way or the other in the segment? And are there any factors we should consider when modeling out the expected performance this year?

We continue to strive to be the best partner Walmart ever had. We’ve been working with them for 27 years. I’ve been their account executive for 16 years, I’ve managed that relationship personally for 16 years. We don’t have any updates on that, but I’d say the relationship is very strong, very good place.

Great. Thanks, Reade. Appreciate the time.

Yup. Thank you.

Thank you. And our next question will come from the line of Matt Fassler with Goldman Sachs. Your line is now open.

Thanks so much, and good morning. First question relates to Eyeglass World. The comp there held up rather well relative to trend. And curious whether you think the new ad campaign for that brand is starting to have a material impact on sales in that -- for that brand? And if you could talk also about when during the quarter that really start to take hold.

Yes. So advertising in this category, strong advertising in this category tends to have a pretty immediate effect. You see it very quickly, and that’s a real plus. And we started the ads in the beginning of the quarter, and we’re encouraged pretty quickly by them. So I think they played a role, but it wasn’t yet in all markets, so there’s expansion in the control markets we had there. Overall, I think that we’ve got a real strong leadership team at Eyeglass World, and we have a real strong product, real strong labs in the stores. We’re about to add a nice traffic component to it also, and what we’re looking for is that brick of strong advertising. I think, I’ve said it here and there overtime that I’ve been quite pleased with the Eyeglass World advertising ever since we bought it ever since we bought it years ago, and now I’m pleased. I think we have a strong campaign, and the stores are rallying around it and excited by it, and they have start of all sorts of fun contests going and involving Mr. World and getting pictures taken with Mr. World also in places. You can just feel when there is a real nice sprit to a brand and the group at the end of last year, we had store managers conference where we introduced the Mr. World campaign to them, and there’s excitement in the air at Eyeglass World. That’s just clear to us.

Hi, this is Jeff. I’ll just add I think back the team with the new ad campaign creating world’s happiest customers really has to be brought to life. It can’t be an ad without first in play. I think they’re creating most substance to demonstrate that we are, in fact, the best place for our customers to actually shop and buy their eyewear. And I think you can see that show up in the sales in the NPS and the overall performance. So couldn’t be more delighted with the way it’s showing up.

If I could ask a second question back to America’s Best. So this is a brand that have been comping on average about 10% on an annual basis over the last four years. You’re up against this subdue compare understand on the tax reform -- on tax refund, that is, from a year ago. That said, you cycled it, I think, the lowest quarterly comp you put out certainly in the past two years plus, and it sounds like 400 store days are probably put through the map is less than a percentage point impact, assuming that that’s allocated evenly across the businesses. Is there anything else going on in the America’s Best ecosystem? Are there competitively cycling? Any accomplishments some might have help propelled that business. The curve has been so consistent for so long. I just wanted to dig a little deeper and see if there’s any reason why that comp couldn’t make its way and not guiding to that level back to the trend that we’ve seen for so long?

There’s nothing competitively out there that is any different or raises concerns for us in that way. And I think it was more the factors that we talked about, the extension of the peak season, the weather impact, the fact that you’re looking at a Q4 that was positively influenced by the storms in Q3 last year and spilling over. But no, the -- it’s still coming along.

Gotcha. And then one very quick final one. I believe in the Q, there was some reference to vendor credits in the quarter. I just wonder if that was material to the point where it’s worth qualifying?

We -- actually, there are vendor credits and rebates that flow across the entire year in every quarter, and it didn’t look like something would normalize out. Pretty routine for us to hit certain marks at certain points of the year and we’re seeing some funds on vendors.

Gotcha. Thank you so much guys.

Thank you. And our next question will come from the line of Bob Drbul with Guggenheim Securities. Your line is now open.

Hi, good morning. Reade, happy birthday.

Thank you.

The questions that I have on New York and California, as you’ve entered those stage, can you just talk a little bit about the performance there and I guess the percentage of openings in those areas? And then second question that I’d like to ask is around, I think you talked about some of the wage pressure in the business, but can you specifically just update us on the wage pressure or the ability to attract the optometrists, where that is as -- especially it relates to the expansion program underway from new stores?

We are not commenting about specific market performance due to competitive reasons. And I'll say for the markets you mentioned, I will point out that over 70% of them haven't been opened for even a year yet, so there's – also not allowed to report there. But we're not commenting on specific markets because every market has a competitive ecosystem.

Yeah. And I’ll just comment a bit about our optometrist. Again, we're delighted with our performance and we're delighted with the fact we're able to attract and retain our doctors. Feel like we have to be competitive wages. It actually goes beyond that it has to be one with like the environment really supports their tier and their practice. And we think we really dialed that up to ensure that we are at the best place for them to practice for their entire career, so feeling very optimistic about the optometrists being attracted to National Vision.

Hey. And it’s Patrick. I’ll just add a little more on the kind of on the store performance. So, as we’ve stated in the past, new stores take three to five years around every markets are a little different, every stores are a little different. We’re very focused on getting those markets up to speed so that they'll be contributing we're obviously taking share there. And we're excited to be in these markets. We see a lot of existing and potential customers in our new markets.

Great. Thank you very much.

Thank you, Bob.

Thank you. And our next question will come from the line of Robbie Ohmes with Bank of America Merrill Lynch. Your line is now open.

Thanks, Reade, Happy Birthday for me as well. So I want to ask the question again on just the same-store sales. Can you remind us as you are coming up against tougher comparison, how we should think about the drivers to comps maintaining and as the comparisons get tougher?

Hey, Robbie. It’s Patrick. I’ll give you some insights there. We still aren’t able to keep driving comps with traffic. This quarter, we have some traffic, and a little bit of ticket, but it’s down to the eyeglass level absolutely driven by traffic. In Q2 and Q4 are tougher comp quarters, but we have remark seen some flow in from Q1 into Q2 and as I think about Q3, we’re not planning for hurricanes or two hurricanes in Q3. And so we think that will be a little easier. We have strong confidence in the guidance range of 3% to 5% and feel comfortable to deliver that.

And then on the new greater New York stores, was the weather impact enough that it’s too early for us to really know whether you’re tracking above or below expectations on those stores?

We’re not commenting on specific markets. And so we’re – as I said before, we’re not doing for competitive reasons, but still relatively small process in New York anyway.

Fairly early.

Yeah. It’s fairly early in the New York, right.

Got it.

If you look at the store count, it’s a lot in northern New Jersey is what we’ve tended to so far.

Got it. All right. Thanks guys.

Thank you. [Operator Instructions] And our next question will come from the line of Simeon Gutman with Morgan Stanley. Your line is now open.

Hey, it’s Joshua Weber. I’m presuming today. Question on the EGW versus the America’s best spread. So EGW will come to ABC for the first time, how much would you attribute to advertising? And are you seeing a sales pickup at EGW in a similar fashion that they did once you rolled out the Owl Campaign?

I consider advertising is certainly a factor there, but it’s not the only one. This works when you have your traffic drivers like advertising and managed care, it’s our driving people in the stores when you’ve got the right store manager and district manager and make me sure you’ve got the right things happening in the store. And when you’ve got the right product, in the stores, I think we’ve got all three of those engines running in Eyeglass World. And when it all comes together in that way, you definitely get much results.

Okay. There are chances that you could…

Hey, it’s Patrick. I’ll just want to add the comps that we referenced earlier for last year, I think there were 6.9 for 2018. 2017 was the year where we had essentially a two and a half month, where there was just as gap in sales. We had a tax reform delay, so ad did that comp with about 9.5 good weeks out of a 12-week quarter. So, we can title back at that and say, it was 6.9, that probably understates the AP performance in th quarter last year. So, we are looking three years back there, they kind of normalized since getting close to profit 30%.

All right.

And coming to your question that I got real – had a tougher – I’m sorry, Josh, sorry, they did 3.9% in the first quarter of last year. So a little lighter comparison, first is mix that often…

Okay. And then unrelated and you mentioned eye exam held the legacy comp is the contribution from exams similar in the America's Best and Eyeglass World business?

Ask that question one more time, I wanted to…

I’m just curious we’re trying to break out the spread between eye exam comp growth and product comp growth?

Right, it’s the first like business transfers. And in terms of legacy, backlogs are plus $1.2 million coming in. And a little lesser amount in terms of cost, but that transferred over from the corporate other segment is skewing legacy.

Okay. Thank you.

Thank you. I’m showing no further questions at this time. So now, I’d like to wish a very happy birthday to Mr. Reade Fahs, Chief Executive Officer, and hand the call back over to him for some closing comments and remarks.

Thank you, Brian. We want to thank you all for joining us today for you interest in what you’re doing. If you have a moment, we invite you to go online and watch our television ads for both America’s Best and Eyeglass World, we’ve included a link on Page 21 of your presentation. We thought you’d like to know that we thought all your questions were quite cool and that none of them were in any way boring. And we remain very excited about developing 2018. We look forward to talking to you again later this summer about our second quarter results.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program. You may all disconnect. Everybody, have a wonderful day.