National Vision Holdings, Inc. (EYE) Q2 2021 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the National Vision Second Quarter 2021 Earnings Call. At this time, all participants are in a listen only mode. After the speaker’s presentation, there will be a question and answer session. [Operator Instructions] I would now like to hand today's conference over to your speaker, Vice President of Investor Relations, David Mann. Please go ahead.

Thank you, and good morning, everyone. Welcome to National Vision's Second Quarter 2021 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 in 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 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 two 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 website. Now let me turn the call over to Reade.

Thank you, David. Good morning, everyone. I would like to thank you all for joining us today. Let's begin by thanking our National Vision team for continuing to rise to the challenge due to our collective hard work, dedication and commitment to patient care, our results over the past year have been remarkable. And for the first time in our Company's history, our trailing 12-month net revenue surpassed $2 billion. Turning to Slide four and a summary of Q2 results. As noted in our press release, our results today are being compared to the second quarter of fiscal 2019 due to the significant impact from the extended voluntary closure of our operations in the spring of 2020, we believe 2019 is a more helpful basis for comparison. As you read in our earnings release this morning, we delivered exceptional top and bottom line performance in the second quarter. Net revenue increased 28% over the second quarter of 2019 with adjusted comparable store sales growth of 23.5% over the same period. The top line strength was broad-based and led by our growth brands, America's Best and iPass World with strength at our legacy segment as well. The outsized growth that we have experienced over the last year is further evidence that COVID has hastened the industry trends that we have been benefiting from for many years. We are confident that we are continuing to grow market share and believe that this should continue. We opened 20 new stores during the quarter and ended with 1,249 locations. Adjusted operating income increased 125% and adjusted EPS increased 163% to $0.48, which established another record for our second quarter profit. Finally, we continue to progress in our ESG journey and published our first greenhouse gas inventory this week. Q2 quite simply exceeded our expectations, while the pandemic is clearly not over, our year-to-date momentum gives us confidence to raise our full-year outlook. In a few minutes, Patrick will take you through our Q2 results and our updated 2021 outlook in more detail. Turning to Slide 5. As the chart shows, our business has demonstrated remarkable consistency over the past two decades with 72 quarters of positive comparable store sales growth prior to our COVID closing with an instant return to an even healthier comp performance since reopening in June last year. This results from a number of factors, including being the value priced provider of a medical necessity. Also, industry trends continue to favor larger, better-capitalized value retailers like National Vision. According to a leading industry source, the market share of the top 10 optical retailers grew nearly 500 basis points last year to exceed 40%. Yet the optical industry remains highly fragmented, and we are confident we have a significant opportunity to continue to grow our market share. Q2 started out strong and likely benefited from government stimulus checks. As the quarter continued, our business remained healthy in May and June as rising vaccination rate can increase mobility likely played a role in bringing more patients and customers back to stores. Our store teams remain focused on safely meeting this heightened demand for low-cost eye exams, glasses and contact lenses. We continue to believe that our safety-first mindset and our rigorous safety protocols have resonated with patients and customers and have been a factor in our strong performance during the pandemic. We are pleased with our momentum as we exited June with positive transaction trends compared to last year's record performance. In terms of Q3 in the second half, we expect this positive transaction trend to continue. The back-to-school season has begun amidst the ongoing uncertainties of COVID and its variants. And while it is still quite early, we have seen a ramp in back-to-school traffic that is more aligned with pre-COVID trends than with 2020. Shifting to Slide 6. We see a path to continued growth and sustained market share gains. Based on the latest industry data, we believe that we were the second largest optical retailer by sales in North America last year and among the fastest growing. Let me provide an update on our core growth initiatives and how we plan to maximize our opportunities and further strengthen our competitive advantages. New stores remain a primary focus as we continue to see a sizable white space opportunity with the potential to nearly double our current total store footprint. We opened 45 stores year-to-date and are well on our way to open about 75 stores in 2021. We currently have a solid pipeline of specific locations for this year and into 2022. Our real estate team is executing well to find locations that fit the formula that is worked for us in the past, including sites to support our plan for a modest acceleration in Eyeglass World openings next year due to their ongoing success. We are fortunate to have two very attractive growth engines in America's Best and Eyeglass World. Both brands have achieved new highs during the pandemic. We are excited by the strong sales gains delivered across our store network at both newer and mature stores. Notably, at our highest volume locations, we saw a significant jump in the number of stores with an annual net revenue exceeding $3 million, thus showing the potential of what our growth brand boxes can achieve. Our strong performance this quarter and over the last year would not have been possible without the admirable hard work and commitment to patient care of our network of over 2,200 optometrists. We continue to invest in our optometrist recruitment and retention programs to keep our high retention rates near record levels. One program worth noting with the successful education symposium that we held for doctors in June. We provided continuing education and networking opportunities to over 1,500 participating optometrists from our network. This is just another example of what makes us an ever more optometric-centered and optometric friendly healthcare company. As you have heard me say before, we are always seeking more optometrists. At this time of year, we are excited to welcome newly graduated optometrists to the National Vision family and believe we are one of the top destinations for these new grads. In terms of marketing, we returned to a more typical level of spend this quarter. Marketing continues to be a key factor in attracting customers and driving traffic to our stores. Our advertising investment in both television and digital channels is consistent with our strategy to grow market share and maximize opportunities during the pandemic and beyond. As a result, we are pleased to have acquired many new customers in Q2. We believe the positive word of mouth from happy patients and customers continues to play a key role in driving comps that the combination of low prices and excellent customer service leads to satisfied repeat customers and positive word-of-mouth referrals. Additionally, we believe that our safety first approach and protocols have resonated with patients and customers during the pandemic. Participation in vision insurance programs remains a positive comp driver. Strong net revenue growth tied to these partnerships continued in the second quarter. We remain underdeveloped relative to the category and continue to see an ongoing opportunity here as managed care dollars and co-pays tend to go further in our stores than elsewhere. Regarding our supply chain, our lab teams have continued to adeptly handle elevated eyeglass volumes. Our lab network is well positioned with the capacity in place to handle projected future needs and remains a key reason that we are a low-cost provider. Merchandise inventories remain in a solid position despite the record sales trends. Our merchandise teams have worked hard in this environment to maintain inventory flows. To-date, we have not been impacted by any of the significant supply chain disruptions that are impacting other sectors. In terms of our digital and Omni-channel initiatives, we continue to advance efforts to expand capacity to see patients as well as opportunities to improve engagement throughout the customer journey. Our efforts in remote medicine are continuing, and we are pleased with the progress and the additional flexibility that remote exams provide. Before I turn the call over to Patrick, let me say that we could not be more pleased with our Q2 performance in this environment. Results like these are due to the consistent execution and hard work of the entire National Vision team, their commitment to safety, patient care and customer service every day and in every store, one patient and one customer at a time. I could not have more respect for how the team has risen to the many challenges of the pandemic. Looking ahead, we appreciate that the environment remains volatile with growing risks of COVID variance and a potential uneven economic recovery, given our consistent performance since reopening last year and our safety-first approach, we are confident in our ability to navigate the challenging and dynamic environment and remain in a position of strength. Now I will turn the call over to Patrick.

Thanks, Reade, and good morning, everyone. I would also like to express my appreciation to the team for their enduring hard work and dedication. Their efforts over the last year have truly been remarkable. We were extremely pleased with our second quarter sales and earnings results as the business performed ahead of our expectations. Our performance was driven by positive traffic trends excellent store level execution and solid cost leverage. In addition, we continue to reinvest in the business to maximize our opportunity to grow share while significantly reducing our debt. As a reminder, the comparability of our reported results was affected by the temporary store closures last year. Thus, we have shared results versus both 2020 and 2019. As Reade noted, our comments today are being primarily made to 2019, which we believe is a more helpful comparison. Now let's turn to Slide 8. Our Q2 results reflect the continued strong momentum in our business. Net revenue increased 28% over 2019 or a 2-year compound growth rate of over 13%. The timing of unearned revenue was immaterial versus 2019. During the quarter, we opened 18 new America's Best stores and two Eyeglass World stores and closed 1 store for a 5.5% increase in store count. For our America's Best and Eyeglass World growth brands combined, unit growth increased 7.6% over the last 12 months. Adjusted comparable store sales growth was up 23.5% over 2019 and 76.7% over 2020. Shifting to unpack the comp components. The Q2 same-store sales growth over 2019 and 2020 was driven primarily by increases in customer transactions. We experienced higher transaction counts throughout the quarter, including June when we lacked record opening results last year. The strong positive comps were broad-based for both eyeglasses and content lenses and driven by increases in customer transactions. Turning to margin highlights on Slide 9. As a percentage of net revenue, cost applicable to revenue decreased 430 basis points versus 2019 or about 300 basis points ahead of our expectations. This decrease was driven by lower growth in optometrist costs, increased eyeglass mix and higher eyeglass margin. Adjusted SG&A expense percent of net revenue decreased 60 basis points compared to 2019. The key factors behind this decrease were the leverage of corporate overhead and occupancy expenses from the strong sales, which was partially offset by higher performance-based incentive compensation and advertising investment. We were pleased with the leverage achieved this quarter while continuing to reinvest in the business for growth. Adjusted operating income increased 125% to $65.6 million and adjusted operating margin increased 510 basis points to 65.6 million f11.9%. The increase in adjusted operating margin was driven by the strong comp leverage of fixed cost, higher eyeglass mix and eyeglass margin and lower depreciation and amortization. As a result of these factors, we experienced another unusually strong quarter of flow-through and are thrilled with our margin performance in Q2 and for the last four quarters. Adjusted diluted EPS increased 163% to $0.48. By all measures, the company delivered another exceptional quarter. Turning to Slide 10. Year-to-date as compared to 2019, net revenue increased nearly 22% to $1.1 billion with adjusted operating income of $133 million. Adjusted diluted EPS increased 96% to $0.97 per share, which already exceeds our adjusted EPS for all of 2020. Now turning to Slide 11 and our balance sheet. At the end of the second quarter, our total debt was 620 million, and our cash balance was 408 million. Net debt to adjusted EBITDA was 0.6x or our lowest net leverage point as a public company. Year-to-date, we invested 39 million in capital expenditures. Primarily for our new store and customer-facing technology investments and continue to project 2021 CapEx in the range of $100 million to $105 million. With our updated outlook for top line growth and relatively stable CapEx, we expect our 2021 capital intensity to decline to approximately 5% of net revenue, a significant improvement over the past few years. Turning to Slide 12. Given our performance and the resulting strong cash flows, we repaid 117 million of term loan A debt in June. Also, we amended our credit agreement to reduce the applicable margin for interest rates and also modify certain financial covenants back to pre-COVID levels. And as Reade noted, Moody's upgraded our corporate credit rating to BA2. We are delighted with these improvements for our capital structure. We continue to be in a very strong financial position with over 700 million of liquidity from our cash balances and available capacity from the rule offer. We believe that our financial strength and our ability to invest remain a competitive advantage. Turning now to our outlook on Slides 13 and 14. Today, given the strength of our year-to-date performance, we are raising our fiscal 2021 outlook. While the operating and macro environments remain uncertain, our consistent performance over the last year gives us heightened confidence in our business. Our outlook reflects the currently expected impacts related to COVID. However, we anticipate potential significant volatility driven by ongoing uncertainty related to the pandemic and variants. The outlook currently assumes no material deterioration to the company's current business operations as a result of COVID, government actions or regulations. As a reminder, fiscal 2021 is comparing to the 53-week period in 2020. Against the backdrop of what we know today, our 2021 outlook now projects net revenue between 2.01 billion and 2.06 billion; adjusted comparable store sales growth over last year in the range of 19% to 22%. Adjusted operating income between 180 million and 187 million, and adjusted diluted EPS between $1.28 to $1.33 assuming 96.3 million weighted average diluted shares. Compared to 2019, the midpoint of our outlook represents a net revenue increase of nearly 18% and an adjusted diluted EPS increase of 74%. Our guidance reflects the flow-through of the strong second quarter results as well as a slightly more positive view for the second half of the year than when we last spoke in May. Our outlook now projects net revenue in the second half to be generally flat with last year due to significant grow-over challenges and the 53rd week benefit. Compared to 2019, this would represent growth in the mid- to higher teens. In terms of comps, we expect generally flattish comps in both the third and fourth quarters, driven by continued positive transaction growth. Over time, we continue to expect the underlying level of heightened demand to further moderate. Our outlook continues to project a decline in profitability in the second half as we lap the exceptional margin expansion in 2020, but would still represent a strong double-digit increase in profitability compared to 2019. For modeling purposes, we continue to expect the quarterly cadence of results to be more in line with 2019 with net revenue and profitability higher in Q3 than in Q4. For full-year 2021, as a percentage of net revenue, we expect cost applicable to revenue to decrease 140 to 160 basis points versus last year. As a reminder, our record performance in the second half of 2020 benefited from product mix shifts and an elevated ticket that we expect to both normalize in the next two quarters with some expected cost pressure as well. Our outlook continues to assume tariffs on products that we import from China. For Q3, cost of foot book to revenue are expected to increase about 190 to 210 basis points versus last year. In terms of expenses, we would expect 2021 adjusted SG&A to increase between 80 and 100 basis points as a percentage of net revenue year-over-year. The SG&A increase primarily reflects higher performance-based incentive compensation, marketing spend that is projected to return to a more normalized percent of net revenue and higher levels of wage inflation. Against this backdrop, we will continue to tightly manage growth in corporate expenses. As a result, we estimate an adjusted operating margin of approximately 9% at the midpoint of our guidance range or approximately 120 basis points above the 2020 level and approximately 240 basis points above 2019. To assist with modeling, we have also provided additional assumptions on depreciation and amortization, interest and tax rates. Lastly, we would remind everyone that unearned revenue recognition timing can affect our quarter-to-quarter comparisons. We would expect the year-over-year change in unearned revenue in Q3 to be generally immaterial. As always, we have included an explanatory slide on unearned revenue in the Appendix section of today's earnings presentation, and we will clearly communicate the even to 10-day accounting timing impact so that investors can always understand the underlying cash momentum of the business. To summarize, I would like to reiterate how pleased we are with our continued momentum in the first half of fiscal 2021. Our Q2 performance exceeded our expectations and underscored the strength and resilience of our business model and our initiatives. We remain confident that we are well positioned to effectively navigate this evolving environment and continue to strengthen our business. At this point, I will turn the call back to Reade.

Thank you, Patrick. Turning to Slide 15 and our moment of mission. We are continuing to live out our mission every day both close to home and at a global scale. We are moving forward in our commitment to corporate responsibility internally by better aligning our governance with best practices, the management proposals approved at our June annual meeting do just that. On an environmental front, our initial greenhouse gas inventory is an important first step in assessing our environmental impact and identifying viable goals for improvement. You can access the inventory, along with other information about our corporate responsibility efforts on the Corporate Responsibility page of the National Vision website. We are pleased with our several external unsolicited accolades that came our way in Q2. National Vision was included in Forbes 2021 list of America's best employers for women and 50/50 Women on Board bestowed top honors to us because we have a gender balance among our independent Board members and achievement only 6% of Russell 3000 Index companies can claim. Big things are happening globally as well. In July, the United Nations General Assembly passed a resolution to include Vision Care for everyone in the UN's sustainable development goals, thus committing the international community to making eye care accessible to everyone by 2030. There are 1.1 billion people living in the world with preventable vision problems. National Vision has the unique ability to support this site to end the global vision crisis, and we are fully committed to do our part. Finally, we are very proud of our Eyeglass World team. They are made locally, given globally program, which began just a few years ago in 2019 and has hit the milestone of surpassing 100,000 eyeglass donations to people in need around the world via our partnership with restoring vision. In summary, the key takeaway from today's call is this: we have demonstrated the ability to operate and outperform amid pandemic conditions. We are growing market share in the recovering optical retail market and are benefiting from the hasting of trends that favor National Vision, and we continue to believe we have a bigger opportunity beyond the pandemic. With that, I would like to turn the call back to the operator to start the question-and-answer portion of the call.

[Operator Instructions] Our first question is from Michael Lasser with UBS.

You are guiding to flattish comps for the third and fourth quarter yet. It did sound fairly encouraging on the trends that you have been seeing quarter-to-date. So how do you reconcile what seems to be very conservative guidance with the momentum in the business. Are you factoring in that you are going to see a slowdown because of the rise of the virus or some other factors?

Hey good morning. It is Patrick. We were pleased with our exit rate coming out of the quarter. We have made some incremental comments about seeing some degree of back-to-school. Certainly, at this point, just like where we were back in February and May, we are taking a prudent and conservative posture, Michael. I think it is just part of the environment that we live in. The guide assumes some flattish comps in the third and fourth quarter, respectively. And what I would say is just to keep in mind that we are growing over like 11% and 12% comps coming off last year. So we were pleased with the exit rate. We have got flattish comps. That is still going to be really nice looking on a two-year stack. But we are continuing to be prudent and conservative based on the overall environment. We essentially also are expecting to continue to see some mild ticket decline as it gets a little back to normal trends. But we are also thinking that the normal probably has a higher degree of blue light attachment. So there may be some lasting benefit on ticket that will play out as well.

Okay. My follow-up question is on your gross margin. You now had four consecutive quarters for your gross margin being above 56%. Why wouldn't that continue moving forward? What's going to structurally changing about your business that is going to put it back to where it was prior to the pandemic?

Well, if we think about it, there was benefit to ticket, there was benefit to eyeglass mix. We are seeing those boats slowly moderate back towards normal levels, not at all fully back there yet. Across the last four quarters, I agree. It is been exceptional margins. We have seen a little lower growth in optometrist costs. We think that with wage inflation, we could see that either remain there or maybe return closer to normalized levels. We expect margin mix to normalize. So I would put it in the same category of we are expecting to see some moderation across ticket and mix, and we have baked that in as an area of being cautious.

Thank you so much.

Thank you. Our next question comes from Paul Lejuez with Citi Group.

Hey, thank you guys. Can you - just going back to the transactions versus ticket size, can you talk about any differences between your two growth concepts as you think about those metrics versus 2019? And then I think you mentioned just as a second question. The supply chain, no issues. I think you called out. Are you seeing any cost inflation on the product side and if so, how you might be expecting to navigate that?

Good. Yes. So we had an increase in transactions sort of throughout Q2, it is been positive and coming from both our growth brands. So That is been really encouraging. And yes, it is coming in both ways, and we expect that to continue. And do you want to talk about the inflation?

Yes. On the inflation, Paul, we have got long-term contracts in place across all major areas of our cost of sales. Those contracts are typically three to four years in nature. We are not expecting or guiding towards any forms of inflation as it relates to gross margin in the guidance. I haven't started talking about 2022. But again, it is really nice to have long-term partners in those key vendor relationships and benefit from long-term contracts.

And I think you said it, but we are not seeing major disruptions to our supply chain like many others are out there that we are under control there and our inventories are good and happened.

And I will just add with the benefit from the business's growth flow through cash flows where it made sense. Paul, we prepurchased some things to make sure that we wouldn't be talking about supply chain shocks either at the gross margin level or frankly in the core growth engine of our business, which is building and launching new stores. So we have tried to be well out in front of those curves.

Right. And kudos to our merchandise team for just great planning there. And our labs also are handling the elevated volumes and we feel that we have the capacity we need to handle the projected needs.

Got it. Thank you. Good luck guys.

Thanks.

Our next question comes from Simeon Gutman with Morgan Stanley.

This is Michael Kessler on for Simeon. And first, I wanted to follow up on Michael's question on the outlook to the back half. And just wondering if you could maybe even put a finer point on your expectations and what you are already seeing from back-to-school, how that is built into your guidance? Anything from the child care tax credits? And then just kind of bigger picture on the comp. I guess, how are you viewing the way that the comp and the sales trends have kind of progressed through the year, do you kind of view it as over-comping? Do you feel it under-comping in any way? And I guess, leading into next year. Is there any reason to think that based on the trends, I know there is a lot of puts and takes here that you wouldn't be able to necessarily compound on the kind of the baseline that is being raised out or this year?

Why don't I start there, Reade, if there are things that you think would be enlightening, feel free to jump in. In terms of the second half, outlook. We kind of talked about those comps be flattish. We commented earlier that we have seen the beginnings of a back-to-school ramp, looks somewhere in between 2020 and 2019, but not nearly as flat as 2020 was. It is early. We are in the kind of southern state waves of back-to-school. And I think we have got weeks of that remaining before we can really point at it and say, here is how we felt about back-to-school. In terms of the child tax credit, we are open to see benefit from that, can't really say that we have a comment there either way at this point. That is still very early as well. Usually, any and all stimulus helps lower income Americans, and we have generally benefited from that in the past. In terms of the comp sales progression, it is still been kind of a wacky year of [indiscernible] where they were strong coming off of periods when we closed our stores, we were pleased that. We saw positive transaction growth for the month of June. June was when we reopened last year to lines of people outside, lines of people on websites, lines of people on the phones, and it was just an extraordinary period of time for serving customers and frankly, doing so in a way, in a brand-new mode of execution. So we did see positive surplus of positive transactions across June. And again, exit rate coming out of the quarter, feel real good about it.

Great. Maybe just a quick follow-up on -- you talked about a little bit about the inflationary pressures in the second half and the continued expectation on the labor front. I guess how is that evolved over the past quarter. I would say maybe more on the associate side but also on the optometry side. Has that -- has it been more of a pressure point that you expected maybe going into the year or a quarter ago? And I guess what you are seeing there would be helpful.

I don't think there have been any surprises inside of the year. We have seen -- if we go to a bigger picture, we have seen some degree of modest wage inflation for our doctors. We are happy to pay them competitive rates because they do a lot of work here for us and for patients. That has moderated a bit across the last year, and we have been happy to see that moderation. But we also understand that it is a supply-demand equation in every market. It is not -- they are not ubiquitous supply demand challenges for optometrists, but we do that in every market. So I would expect to see some degree of continued wage inflation there. In terms of our associates, it really it is a function of what our state is doing with minimum wages what are we doing relative to market changes. We have guided that we are not immune to wage inflation. We expect to see some of that. It is absolutely included in our guide. So really more of the same. We are expecting a little more associate inflation, which is in the guide. But again, in terms of our associates, Well, Reade, why don't...

Yes. I just to say the thing you have got to always keep in mind is the National Vision team regards ourselves as optical professionals. And when we think about -- when our -- Our store associates are thinking about their career, they are thinking about it relative to other optical firms primarily. They aren't saying, "gosh, I wonder what I should make at the Amazon distribution center down the street." They think of themselves as optical people. And we -- and That is an important part of the -- component of managing our labor.

Okay. Thank you guys.

Our next question is from Zach Fadem with Wells Fargo.

Hey good morning guys. Can you talk a bit more about the contribution of new versus existing customers? And specifically, with respect to the new customer gains. Have you seen any change in the mix of these customers relative to your legacy customers, particularly when you think about Vision Care versus cash pay, average ticket size or demographics? Any color there would be helpful.

Good. Yes. Thank you, Zach. We experienced gains in both existing and new customers at our growth brands, both versus last year, of course, and versus in 2019. We think we are getting our share of new customers at both customers and America's Best with a little higher growth in new customers at Eyeglass World, but frankly, in Q2, the America's best growth in new customers was an improvement versus a weaker trend. So we think, frankly, our investment in marketing is driving growth in new customers.

Got you. And for Patrick, I just want to make sure I heard the Q3 margin color correctly. I think you said you are expecting gross margins down roughly 200 basis points and then SG&A deleverage of 100 basis points. So first of all, I want to make sure that that is right. And then second, like this would represent a fifth consecutive quarter of double-digit EBIT margin performance. And I recognize the environment is a big driver here, but curious if you could talk to long-term sustainability of double-digit margins and how we should think about changing dynamics as we look to 2022.

Yes. so to kind of clarify Q3, on the gross margin side, we are expecting a decrease in the 200 plus or minus basis point range. And that is based a little bit on seasonality, product mix, as we said earlier, about moderation on ticket. We didn't specifically guide on Q3 SG&A, but the toggles there are going to be leveraging of corporate expense, probably a little bit of wage inflation, advertising being back in normal ranges. So we didn't guide specifically on that. I have been so pleased with what we have seen in the last year in terms of revenue growth, comp growth, flow-through and margin expansion. And I have to reiterate, there have been some rather exceptional circumstances that I think we have talked about 100 times. We do expect to see some nearer-term margin moderation that is baked into the guide. It is less so at the upper end of the range. But looking ahead on the positive side, I still think that there is probably less industry capacity, which could be helpful in terms of comps and leverage. We get productivity gains in our labs year in and year out. We have seen some nice leveraging of corporate overheads over the last year, expect that to continue. And then longer term, we continue to expect some advertising leverage. I think the things that we are doing our best to work around are this wage inflation, which thus far, we have not had to signal huge implications there, we have managed through that really well, not expecting that to continue to change to a large degree. But it will be curious to see kind of how states play out. So bottom line, I think - we have made great gains, maybe not 100% of that is permanent. And so we will see a little moderation, but the management team here is keenly focused on growing margins and doing it in a smart way, at the same time, continuing to invest. The business is strong today. We want it to be strong in three years and five-years. And so even inside of that, we will continue to make the right investments.

Got it. I appreciate the time.

Thank you. Our next question comes from Adrienne Yih with Barclays.

Congratulations on the solid quarter. Reade, this is a longer-term question about sort of the telehealth opportunity and the utilization in exam scheduling. I guess is a couple-fold. Can you tell how many independents maybe have not made it through COVID? Maybe those optometrists are looking for a new home as a result of the pandemic. And then the optometrist costs were down or better to the better Patrick had said, I think. So is that transitory or something of a more long-term trend? And then quickly for Patrick, I know it is tough to answer, given all the volatility, but where should we think about the breakeven comp on fixed cost as we go into kind of move away from this period of ups and downs?

Great. Adrienne, I'm going to try to make sure I have covered the various pieces there. Let me start with the industry data suggest that 2% to 3% of independent doctors closed their doors last year, not to reopen and other industry data suggests that chains closed hundreds of stores as well that, a, not to reopen, I think, some stores plan to reopen sometime, but they are in malls and that sort of thing. So there are less doors out there. And that is one of the -- we keep talking about the hasting of trends that have been benefiting us, and that is another trend that is been hastened by COVID. Again, I think that was part of a longer-term trend that has been benefiting us for a while. In terms of telemedicine. We do think there are opportunities in that area, and we have a number of pilot programs going on that have been -- that we have been encouraged with their progress and we believe that remote medicine, which we describe as a patient sitting in our chair amidst all the any equipment that we have in our exam room with a doctor remotely getting all the data and doing the exam. We believe that, that should be able to be helpful to us in expanding capacity over time and making our stores overall more productive, helping with flexible scheduling and maybe Sundays and hard-to-fill locations and that sort of thing. So that is -- those two pieces, and then Patrick is going to cover a few more, go ahead.

Yes. I would say, in more linear times, where we had good periods of growth growing over prior year, good periods of growth. That comp leverage point was probably in the 4-ish range for us. I still think it is tough to give you a new updated figure that works now for this year, good growth year, growing over last year, rather exceptional second half. o I'm going to probably pull off from other than to say we are certainly not linear over linear growth. I do think it is important to mention that the guide reflects double-digit growth for top line and bottom line margins versus 2019. So we do expect to continue to see really good growth over that period. And incrementally, slightly more positive on the back half, as I sit here today versus where we were a few months ago. So we have seen slightly improved our guide on the second half based on the performance and the consistency of the business thus far this year.

Thank you very much. Well done.

Thank you.

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

Goo morning. Thanks for taking my question. Congrats on a really strong quarter as well. Just two quick questions: Number one, any update on Walmart and that relationship with those five vision centers that you converted? And then second, just any update in terms of optometrist turnover trends?

Yes. Thank you, Anthony. So Walmart, we have great relationship with Walmart. We have I think that is our 31st year. Reminder, we, last year, extended the contract for several more years. And they gave us the first new stores that they have granted us in probably a decade. And those stores are -- we are very encouraged by the results. Those stores, and we think we can still see some opportunities for even better results on those stores. And so it is a great honor to operate 230 stores inside Walmart, and we are just real pleased with that relationship.

Got it. And then just automates trends or turnover trends?

Yes, we are still near record highs on retention of doctors, and you can't deliver results like we delivered in Q2 if you don't have strong doctor coverage throughout. So yes, that there is a good correlation there. And yes, but we are still near record highs on retention.

And our next question comes from Robbie Ohmes with Bank of America Securities.

Good morning. I just had a follow-up question, Reade. Just on the industry capacity and maybe what the competitors are doing. Can you give a little more color on -- so that 2% to 3% left, is there an accelerating capacity from competition coming on? Is there any kind of price competition going on that is starting up as you move into back to school? And are you guys doing -- Can you give color on anything new you might be doing on the marketing side, specifically targeting keeping some of these customers that you have gotten over the last six-months?

Yes. So there is not a lot of new on the competitive front and not new on the price competition front. It is past 20-years, it is been a competitive category, there are admirable competitors out there, but we seem to be able to navigate through that consistently over time. And aside from sort of less doors, we are not seeing any big changes there. Again, we have said it a lot of times, the hastening of trends overall. And in terms of new marketing to keep the new customers, yes, we have strong CRM programs that we are always optimizing and getting better at and we would like to build long-term relationships with our customers, and we have a great variety of programs, the nice thing about CRM efforts is they are very quantifiable. You can figure out what works and we are always testing new approaches to get ever better at that. But the best way to keep a new customer is make them really happy with their experience, based on money and have them leave the store knowing that they received great value and great service. And again, I think that the results in Q2 show that we are doing that.

Got you. And then just 1 quick follow-up. You guys are not being impacted by supply and just chain disruptions. Are you saying relative to your industry there or people within your industry that are being pretty impacted by disruptions and you guys are not or do you mean relative to other industries?

I think we are saying relative to other industries and competitors don't really call us much and talk about things like that. So I don't know what our competitors are may or may not be feeling in that area, but it is not an issue for us and the comment was based on -- there seem to be a lot of macro trends that we aren't being affected by.

That is really helpful. Congrats.

Our next question comes from Bob Drbul with Guggenheim.

Just two quick questions for me. I think the first 1 is like as you look to more of a normalization of trends a little bit throughout the business, I think one of the ones where you have had some flexibility has been on the marketing expense line. And I guess just trying to understand how you are finding the right level through the pandemic and where we are today, just given how strong the business is. Do you think maybe you could pull back a little bit further, given how much success you have had? Or just trying to understand how you find that right a little on the marketing side. And I think the second question I have is, as you continue the unit growth - you talked a lot about labor and I think wages pressures. I'm just wondering if you are seeing any challenges in terms of staffing outside of the ODs in your stores?

Yes. On the marketing level, last year, it is sort of in the second half of the year, we closed weigh back on marketing just because of the droves of folks that were coming in. So we did pull back. We have been normalizing our marketing spend. And frankly, this is a disruptive environment, and we are trying to take advantage of this market opportunity to continue to gain share and expose new customers to our services and our value. And I would also say the great thing about the digital marketing world is there is just a lot of things you can be testing and learning about and investing in for the future. And we are doing that, too. We are doing that to make sure that we are ever optimizing when you have got such successes we have had, it is a great time to make sure get some learning in too. So that is what is happening there in terms of staffing challenges. We are not immune to macro trends, but the impact to us on staffing challenges is mild relative to what we are all sort of hearing about and reading about in much of retail in the service industry. And again, I think that relates to the fact that we are an environment of optical professionals who define themselves as optical professionals who have their to make careers in optics and the - given our success, we are considered a great and very secure place to have your optical career. I mean, the nice thing about the growth that we had, it provides lots of opportunity for career development here. And I think a lot of people see that and say, "wow, I can really build a career here." The more stores you have build, the more district managers you need, the more regional vice presidents you need. So the ads promoting and getting promoted and growing a career here are quite strong.

Our last question comes from Stephanie Wissink with the Jefferies.

I wanted to just follow up with two really quick tactical questions. I think, Reade, you mentioned that your marketing or Patrick, your marketing spend in the back half is going to be consistent with historic levels. I'm wondering if you can just give us a sense of what historic levels you are referencing? And then a similar question on the fourth quarter. I think you are guiding to flat comp. I just wanted to verify that 13-week versus 13-week and doesn't take into account the 53rd week.

I will take that one first, Stephanie. So yes, it is a true comp. It is good to think about that 53rd week as it relates to net revenue. But yes, on the comp, you are exactly right. In terms of my comment on marketing normalizing, I would say back to those levels that we were seeing in -- across 2019, specifically probably the second half of 2019 on a percentage of revenue basis. We monitor very closely what our competitors doing, where are they spending, how are they spending? We have an incredible degree of data analytics capabilities now on the search side. And we try our best to kind of titrate that to get it just right. It is an advertising-driven category. These are not every three-month purchases. They are every year or two or 2.five-years. So it remains a category where marketing spend is part of the machine. We do look to leverage that over a longer term.

Okay. That is great. And then just to double click on that really quickly. If you think about your marketing effectiveness, it seems like your transactions just continue to rise every year. Are you finding that your marketing is activating incremental new customers? Or is it frequency of visit? Maybe talk a little bit about connecting the transaction outperformance to the marketing activation.

It is much more new customer-driven than frequency of visit. Our customer base is very budget conscious. So it is a purchase. Again, it is a medical necessity purchase. It is not, "oh, let me get the latest fashion." I would say, my vision is going, I need to be able to see. And so that is the trigger. And we want to be there and ready and top of mind when that moment occurs. There is still a lot of opportunity. We still think our brand awareness is not what it should be. There is just a lot of different opportunities there, and we plan to see them.

Very helpful. Thank you.

Thank you. And I would love to turn the call back to Reade Fahs for his final remarks.

Carmen, thank you very much. And I would like to once again just congratulate the entire NVI team. Results like this just don't happen. They require just great execution, great patient care, great customer care and so kudos all around there. And we would like to thank you all for joining us this morning and for your continued interest in and support of National Vision, and we look forward to speaking to you again with our third quarter results in a few months. So thank you. Thank you all very much.

Thank you. And this concludes today's conference call. Thank you for your participation, and you may now disconnect.