National Vision Holdings Inc (EYE) 2021 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the National Vision's First Quarter 2021 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, David Mann, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to National Vision's First 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 2 in today's presentation for additional information about forward-looking statements and non-GAAP measures. As a reminder, National Vision expects to provide certain supplemental materials or presentations for investor reference on the Investors section of our website.

Now let me turn the call over to Reade.

Thank you, David. Good morning, everyone. I'd like to thank you all for joining us today. I hope you are all staying healthy and safe. Turning to Slide 4 and a summary of Q1 results. We've been saying since we reopened last June that COVID has hastened the industry trends that we've been benefiting from for many years. Our Q1 results are further evidence of this.

This, combined with the great execution of our store teams, who rose to the challenge of serving the increased demand for our low-cost eye exams, glasses and contact lenses, made Q1 another outstanding quarter for us. Net revenue increased nearly 14%. Adjustable comparable store sales growth increased 35.8% in the quarter, with comps once again led by our 2 growth brands. Eyeglass World delivered a 48.3% increase, and America's Best delivered a 35.3% increase. The Legacy segment had a nearly 30% comp increase, and we continue to generate positive results at the 5 additional Walmart Vision Centers that we added last year.

We opened 25 new stores during the quarter and ended with 1,230 locations for a 4.9% increase in store count versus last year. Adjusted operating income increased 78% and adjusted EPS increased nearly 73% to $0.48, which established another record for our first quarter profit as a public company.

Finally, we continue to progress in our ESG journey. Most recently, we shared our ESG framework and launched a corporate responsibility section on our website. Q1 quite simply exceeded our expectations. While the pandemic is 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 Q1 results and our updated 2021 outlook in more detail. Turning to Slide 5. As the chart shows, our business has a consistent history of strength and resilience through a variety of economic and external challenges. We're pleased with our continued strong comps this quarter, which we believe are due to several factors. First, we believe the strong results were likely helped by the interplay of the continued hastening of industry trends that have been helping us for a long time and pent-up consumer demand.

These trends favor larger, better capitalized value retailers like National Vision. The optical industry remains highly fragmented, and we're confident that we continue to outpace the industry and grow market share. Second, we believe our results were aided by the additional rounds of government stimulus, and finally, we 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.

As we noted on our last call, severe weather negatively impacted customer traffic in February. However, in March, we more than recovered the lost sales from these weather-related disruptions. As we've demonstrated over the years, this highlights the benefit of operating in a category where the purchase is tied to a medical necessity.

Patients and customers are choosing to visit our stores at robust levels, attracted ever more to our low-cost eye care and eyewear. Thus far, Q2 is off to a strong start with continued sales momentum in April. While the duration of this heightened level of demand remains difficult to predict, we would expect it to moderate over time.

Shifting to Slide 6. Let's review our core drivers of growth and how we plan to capitalize on our momentum 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 double our current total store footprint.

We are off to a strong start with 25 openings in the first quarter, and we continue to plan to open about 75 stores in 2021. We currently have a solid pipeline of specific locations for this year and into 2022. We're fortunate to have had 2 very attractive growth engines in America's Best and Eyeglass World. Both brands, especially Eyeglass World, have been performing at an extremely high level since reopening last June.

The consistent strong performance and improved return profile of Eyeglass World gives us the confidence to modestly accelerate our opening plans for the brand in 2022. Optometrists play a key role in our ongoing success, and we have a great network of over 2,200 optometrists associated with the company. Our strong performance this quarter would not have been possible without their tireless hard work and commitment to patient care.

As I've said in the past, we can always use more optometrists, and we continue to invest in our top optometrist recruitment and retention programs to keep our high retention rates near record levels.

With healthy doctor coverage, we're able to meet strong patient demand for eye exams with a safety-first approach. In terms of marketing, we returned to a more typical level of spend this quarter. Marketing, both television and digital, continues to be a key factor in attracting customers and driving traffic to our stores. We're progressing our efforts to be ever more full-funnel marketers, and we're pleased to have acquired many new customers in Q1.

In April, we launched new advertising to highlight our exclusive Privé Revaux assortment. The new campaign features our owl with actor and Privé Revaux co-founder, Jamie Foxx. The commercials are viewable on our investor website and via a link on the last page of the presentation.

As a reminder, we expanded our partnership with Privé Revaux last year and are pleased to offer their fun and stylish celebrity-endorsed assortment to America's Best customers at an attractive value.

And we remain the only U.S. optical retail chain that can offer their prescription optical products, given our continued exclusive relationship this year.

Another key comp driver is positive word of mouth. We believe that optical retail is a fair category, where those who take the best care of their patients and customers tend to win. During the pandemic, we believe optical consumers are even more attracted to our extreme values such as the introductory offers for our 2 growth brands, 2 for $69 at America's Best, including a free comprehensive eye exam; and 2 for $78 at Eyeglass World with glasses available that same day.

We also think that word-of-mouth on our safety protocols give the patients and customers great comfort and security. Participation in vision insurance programs remain a positive comp driver. Strong net revenue growth tied to these partnerships continued in the first 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 rallied to handle the elevated eyeglass volumes during the first quarter. We believe our lab networks capacity positions us well to handle continued consumer demand and its efficiency remains a key reason that we're able to be a low-cost provider.

Merchandise inventories remain in a solid position as well despite the record sales trends. To date, we have not been impacted by any significant supply chain disruptions or port slowdowns that are impacting other sectors. In terms of our digital and omnichannel initiatives, we continue to progress efforts to expand capacity to see patients as well as opportunities to improve customer engagement throughout the customer journey, all supported by insights from updated consumer and market research.

Our efforts in remote medicine are continuing and remain encouraging. Before I turn the call over to Patrick, let me say that we're very pleased with our Q1 performance in this environment. Of course, our performance is, at its core, a testament to the store-level execution of our teams and their commitment to safety, patient care and customer service every day, in every store, one patient and one customer at a time.

Looking ahead, we appreciate that the environment remains volatile with risks of COVID variants and a potential uneven economic recovery. At the same time, with continued progress with vaccinations, we remain hopeful that we are on our way to establishing what a new normal can look like. We continue to believe that we're well positioned in an attractive industry and are confident in our growth strategies and ability to build the business for the long term.

Now I'll turn the call over to Patrick.

Thanks, Reade, and good morning, everyone. We're excited to be starting fiscal 2021 on such a positive note as the business performed well ahead of our expectations. Before I share some further color on our strong first quarter results and the upward revisions to our 2021 outlook, let me begin with one item to help frame today's discussion. The comparability of our reported sales results this year, especially in the first half, will be affected by the temporary store closures last year and the one we shift forward in our fiscal reporting calendar this year caused by the 53rd fiscal week in 2020.

Thus, we believe that it is more indicative to look at a 2-year compound annual growth rate compared to 2019 for sales and comps. Now let's turn to Slide 8. We opened 23 new America's Best stores and 2 Eyeglass World stores to end the quarter with 1,230 stores for a 4.9% increase in store count in the past year.

For our America's Best and Eyeglass World growth brands combined, unit growth increased 6.1% over the last 12 months. Our store growth rate was impacted by the temporary pause in new store openings during the second quarter last year. The chart of adjusted comparable store sales growth presents our comps calculated on a cash basis. Same-store sales increased 35.8% during the quarter. In our growth brands, comps at Eyeglass World increased 48.3% and America's Best was up 35.3%.

Looking at comps on a 2-year basis, our Q1 adjusted comparable store sales growth represented a high single-digit compound annual growth rate over 2019. Shifting to unpack the components, Q1 same-store sales were driven primarily by increases in customer transactions and to a lesser extent, by an increase in average ticket.

We experienced positive comps in both eyeglasses and contact lens with increases in customer transactions and average ticket in both categories. Turning to income statement highlights on Slide 9. Our Q1 results reflect the continued strong momentum in our business this year as well as the cycling of temporary store closures last year.

Net revenue increased 13.7% for the quarter. On a 2-year basis, net revenue increased at a 7.6% compound annual growth rate over 2019. Net revenue growth in the quarter was reduced 7.4% due to the timing of unearned revenue recognition. The significant year-over-year increase of unearned revenue reflects the strong sales near the end of this quarter compared to lower sales at the end of Q1 2020 when our stores were temporarily closed. To help unpack how unearned revenue is somewhat unique to our service-based business model versus more traditional retailers, we have again included an explanatory slide on unearned revenue in the appendix section of today's earnings presentation. Cost applicable to revenue increased 2.8% or a decrease of 440 basis points as a percentage of net revenue versus last year.

The decrease as a percentage of net revenue reflected both higher eyeglass mix and eyeglass margin as well as lower growth in optometrist cost, which continued the trends we experienced in the second half of last year.

Adjusted SG&A expenses increased 15.8% in the first quarter versus last year or an increase of 70 basis points as a percent of net revenue. The key factor behind this increase was the impact from unearned revenue, which resulted in approximately 250 basis points of expense deleveraging.

Otherwise, we leveraged store payroll and advertising expenses from the strong sales, which more than offset higher performance-based incentive compensation. Adjusted operating income increased nearly 78% to $67.7 million, and adjusted operating margin increased 460 basis points to 12.7%. 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. Adjusted diluted EPS increased 73% to $0.48 on a diluted share count of 96 million shares, which reflects the fully converted impact of the convertible senior notes using the if-converted method of accounting. By all measures, the company delivered a remarkable quarter.

Now let's turn to Slide 10 and our balance sheet. At the end of the first quarter, our total debt was $738 million or an increase of approximately $83 million from year-end. As we noted last quarter, this increase is tied to our early adoption of the new accounting standard regarding accounting for convertible notes and represents the reclassification of conversion feature balances tied to our convertible notes from equity to debt.

Our cash balance was $454 million, or an increase of approximately $80 million from year-end 2020. Net debt to adjusted EBITDA was 1.2x or a 48% decrease from 2.3x in the first quarter last year, and represents our lowest net leverage point as a public company.

In the quarter, we invested $16 million in capital expenditures primarily for new store investments and continue to project 2021 CapEx in the range of $100 million to $105 million. With our current outlook for top line growth and relatively stable CapEx, we expect our 2021 capital intensity to now decline to approach 5% of net revenue.

In our progression as a public company, we have sharpened our strategic focus on capital allocation and intensity. These efforts have been more formally aligned with our 2021 incentive compensation plans, which now incorporate adjusted operating income and return on invested capital as performance metrics.

As outlined in our recently published 2021 proxy statement, the Board of Directors took into account feedback from stockholders and the evolution of our public reporting and fiscal outlook measures in transitioning to these new performance metrics. We continue to be in a very strong financial position with nearly $750 million of liquidity from our cash balances and available capacity from our revolver. We believe that our financial strength and our ability to invest remain a competitive advantage.

As we proceed this year, we will look to balance a conservative cash posture amidst this period of continued uncertainty with our key stated priority of balance sheet improvement. In that regard, we are exploring opportunities in the capital markets to favorably amend our credit facility.

Turning now to our outlook on Slides 11 and 12. Today, based on our strong performance in Q1 and April, we are raising our fiscal 2021 outlook. While the operating and macro environments remain uncertain, our consistent performance since reopening our stores 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. The outlook currently assumes no material deterioration in 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 $1.975 billion and $2.025 billion; adjusted comparable store sales growth in the range of 16% to 19%; adjusted operating income between $155 million and $162 million; adjusted EPS between $1.07 and $1.12, assuming 96 million weighted average diluted shares, reflecting the treatment of our convertible notes under the if-converted method.

At the midpoint of our outlook, this represents a nearly 21% increase over 2020 adjusted diluted EPS. We continue to expect strong net revenue and profit growth in the first half compared to 2020, and our guidance does not reflect material changes in our view for the back half of the year. As a reminder, we will face significant grow-over challenges in the second half from record double-digit comps and exceptional margin expansion following the reopening of our stores that is not expected to be sustained. Thus, we continue to project second half net revenue growth to be generally flat with a meaningful decline in profit metrics.

For modeling purposes, we continue to expect the quarterly cadence of results to be more in line with 2019. As Reade noted, we're off to a strong start to the second quarter with continued momentum in April. While we would project first half comps to benefit from negative year-over-year comparisons, we continue to expect the underlying level of heightened demand to moderate further over time.

For full year 2021, as a percentage of net revenue, we expect cost applicable to revenue to decrease 50 to 70 basis points versus last year, compared to our initial outlook of a 50 to 70 basis point increase. Our record performance in 2020 benefited from product mix shifts that we expect to normalize in 2021 with some expected cost pressure in the second half. Our outlook continues to assume 15% tariffs on products that we import from China.

For Q2, we expect cost applicable to revenue to be down 800 to 820 basis points as we grow over a period affected by store closures. In terms of expenses, we would expect adjusted SG&A to increase 90 to 110 basis points as a percentage of net revenue in our outlook. The SG&A increase versus our previous outlook primarily reflects higher performance-based incentive compensation in Q1, marketing spend that is projected to return to a more normalized percentage of net revenue and higher levels of wage inflation in the back half of the year.

Against this backdrop, we will continue to tightly manage growth in corporate expenses. As a result, we estimate an adjusted operating margin of approximately 7.9% at the midpoint of our guidance range or approximately 10 basis points above the 2020 level and approximately 130 basis points above 2019. We continue to project depreciation and amortization in the range of $97 million to $98 million and interest expense of approximately $28 million. Our fiscal 2021 tax rate is estimated to be approximately 26% and does not consider the tax benefit due to the impact of stock option exercises that may occur in fiscal 2021.

Lastly, we would remind everyone that unearned revenue recognition timing can affect our quarter-to-quarter comparisons. We expect a year-over-year decrease in unearned revenue in Q1 of approximately $35 million to at least partially reverse in the second quarter of 2021. As always, we will clearly communicate a 7 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 say how pleased we are with our momentum thus far in fiscal 2021. We remain confident that we are well positioned to effectively navigate this challenge and emerge as an even stronger business.

At this point, I'll turn the call back to Reade.

Thank you, Patrick. Turning to Slide 13 and our moment of mission. Since our last call, we've made significant progress on our ESG initiatives and developed a far more structured corporate responsibility approach. We now have a formal framework to further focus our ESG efforts. This framework, which we call SEE + G, that's spelled S-E-E, as you might expect from an optical retailer, represents 3 key pillars of social, employees, environment. The foundation supporting these pillars is the G for governance.

Our social focus starts with our mission. We can improve lives by providing access to affordable eye care and eyewear, and this is our everyday work in our business. But we extend our impact to provide sight to those who would not otherwise be able to afford it in communities where we operate and throughout the world through our many philanthropic partnerships.

We work with a variety of other groups to try to address what the New York Times referred to as the largest public health crisis you've never heard of, which is the lack of access to affordable eyeglasses for the roughly 1.1 billion people on the planet who have vision problems that could be corrected by a simple pair of glasses.

Our efforts involve extensive partnerships, both in America and around the world. For instance, in America, we recently announced a new collaboration with Americares and our long-standing partner, RestoringVision, through which we intend to provide free glasses to hopefully 0.5 million low-income Americans via Americares' free clinics throughout the country. Our most recent initiative internationally has been through a new partnership with a group called Grace for Impact, which we mentioned last quarter. We've been collecting new frames from a variety of industry connections for a while now and just recently gave hundreds of thousands of frames to Grace for Impact for them to use in clinics serving the poor in Nigeria, Ghana, Madagascar, Tanzania and outside of Africa, in Mexico. This year, we hope to play a role in getting glasses to over 1 million low-income people around the world.

The second section of our 3-part framework involves employees. Internally, we always use the word associates, but employees makes the optical acronym work and is so much more fun for us. The way we think about this is that we want our associates and doctors to live better lives because they are associated with National Vision. This effort takes a variety of forms from training and development to financial literacy to an emergency crisis relief fund that since its founding 2 years ago, has distributed just shy of [$1 billion] to associates in need.

For a while now, we focused effort in this pillar on DEI initiative. Interestingly, over 50% of our associates and 45% of optometrists in our network identify as BIPOC. Just last week, I signed a CEO action for diversity and inclusion pledge, fully committing us to a set of recognized protocols, most of which we already had in place. Our efforts in this area were recently independently recognized by Forbes Magazine, who included us in their listing of Best Employers for Diversity in 2021.

The third of the 3 pillars is environment. In this area, we're conducting an initial greenhouse gas inventory to provide us with a baseline measurement to assess the impact of future initiatives. A surprise accolade came our way recently in this regard when Office Depot chose us as an Elite Leadership in Green Purchasing award based on the fact that our purchases were more eco-conscious than 99% of their largest customers last year.

Governance is the foundation focus area in our new framework. This involves identifying and implementing best practices and standards to promote quality, safety and compliance. For example, our 2021 proxy statement includes proposals to declassify the Board and remove certain supermajority charter provisions. These proposals follow through on the Board's commitment to sunset these issues following the transition from private equity ownership.

To help stakeholders to better understand and track our many ESG initiatives, we're further formalizing our communications of these efforts. We recently launched a dedicated area of the National Vision website titled Corporate Responsibility, where you can find more information about our ESG strategy and the SEE + G framework.

So with that, I'll just summarize. We had a heck of a quarter. Industry trends continue to favor our value offerings. Our store teams and optometrists are executing well and keeping our stores safe for us and our patients and customers. Our growth brands continue to overperform and win market share. We think there's white space to potentially still double our store count. We're starting to modestly increase the number of Eyeglass World stores will be -- will build, reflecting their tremendous success over the past 10 months since reopening.

Our ESG efforts are really kicking into gear and being recognized. And we feel well poised for future success on a variety of fronts. With that, I'd like to turn the call back to the operator to start the question-and-answer portion of the call.

(Operator Instructions) Our first question comes from the line of Steph Wissink with Jefferies.

I have a housekeeping question and then my real question. The first one, I think, Patrick, probably best for you. In your script, I think you mentioned that your comp was driven by transactions, which was a bit of a surprise. I was expecting a little bit more from the average transaction value just given the stimulus. If you can maybe break that apart for us a bit and just talk about how that compared to your internal expectations would suggest that you're picking up quite a bit of market share in new customers. Just wanted to understand that a little bit better.

And then, Reade, the question for you is on Eyeglass World. This is, I think, the first quarter in quite a number of quarters where it sounds like the tinkering on that model is coming to a point where you feel really confident in accelerating the growth. So can you just remind us what within the operating model you have changed? What are the KPIs that are being measured that give you that conviction to start rolling out those stores in a more aggressive way?

Yes. Steph, just to make it easier for Patrick. I'm going to take both those questions. All right?

Sounds good. Sounds good.

Yes. Right. So in both traffic and ticket -- and, of course, traffic was, of course, a factor versus closings of last year. So I mean, you're going to get traffic. But still, both were encouraging. We are getting nice growth from new customers and returning customers, and we are seeing average ticket benefits relating to the fact that our consumer has more money in their pockets.

So it is both pieces and also, as we said in the past, contact lenses and sort of people seem to be -- optometrists seem to be prescribing and people seem to be preferring sort of more premium contact lenses. And again, that helps with that transaction value. On the Eyeglass World front, yes, so we have really been feeling great about Eyeglass World since reopening 10 months ago. It just came right out of the chute very strong. I think our operations team has been sort of -- again, we've been sort of getting the right people in the right place, and I think that all really came together for us just on concurrent with the timing of reopening.

We think also the resonance of same-day shopping had a little extra resonance in COVID. And it's a bigger store, so nice feeling of safety. Within the stores, we've been focusing our marketing efforts ever more on the benefits associated with same-day service. So that's been a plus as well. And generally, sort of we find there are moments where just everything comes together and you get to a higher plane. And that happened with Eyeglass World coming out of the chute in June, has been consistent ever since. It's nice to have 2 growth engines. It's nice. As we mentioned, we're going to be building a few more of those Eyeglass World stores. We've gotten the ROI sort of right in that range of America's Best. So we're just really encouraged. And again, further confidence that we'll be able to double our store count versus what we have now and keep building tons of stores for 15, 16 years, I think, is our latest projection.

Steph, I'd like to add, I think I like that word tinkering. It's a nice summary way to think about it. But in general, we've seen, over the last couple of years, you all have seen the robust growth in EGW. What you don't explicitly see is the margin expansion that's incurred in -- has occurred in that brand. So on top of the comp growth, it's been -- even in quarters superior to AB, we've seen nice margin expansion. That's put us in a very different place in terms of returns on invested capital. And now we have 2 brands that are essentially in the same zone of ROIC, making it a little easier for us to consider them as equal growth brands. Yes.

But hats off to the operations team, hats off to the strategy team and the marketing team there. It's been great to cheer them on in that way.

Our next question is from Adrienne Yih with Barclays.

Congratulations on another stellar quarter. So Reade, my first question is a 35% adjusted comp in '18 reported comp, it would seem that the capacity utilization of maybe the exam aspect, the optometrist time, it seems like they might be being booked pretty close to all the time.

So I guess the question is, how far is it stretching the system? Are you staffing these longer hours to service demand and can that keep going? And then for Patrick, my question for you is third consecutive quarter of solid double-digit margin. Pre-pandemic, we were looking at kind of mid to high single-digit margin, op margin. How much of that is structural? And should we be thinking about a different long-term margin? And I know you haven't given an LRP. So just early days of thinking about that.

Good. So thank you for that. Again, I just want to point out, to sort of achieve these numbers takes really strong execution on a great many fronts. I mean, just have the labs keeping up, the distribution standard, the store teams. But as you mentioned, sort of your -- patients were choosing our eye exams in far greater numbers. We do think that there's still capacity there for ongoing growth, and we have -- we're always working on different ways to make sure the flow through the store is as efficient as possible so that our doctors can do what they do best, which is sort of do the good eye exam.

And we have a lot of people sort of helping to get them the data they need to be great optometrists along the way. But we do think -- we aren't feeling that there's tremendous capacity constraints for us. We do think the industry is seeing some capacity constraints. Many independents, especially, have reduced their store hours. We have not reduced our store hours. Many are seeing a lot less exams per hour.

And we have been focusing very much on a safety-first mindset with cleaning and cleaning and cleaning and social distancing, masks and all of those pieces. But we think we're benefiting from the reduced industry capacity. We think that's been one of the helps. But we think we're still well poised to continue at strong high levels, continued growth.

And I'll pick up from there, Adrienne. So yes, we are seeing a continuation of a rather exceptional margin expansion period that started essentially when we reopened our stores. We benefited from robust demand. We benefited from tickets that have elevated partially due to stimulus. We benefited from eyeglass mix versus contact lens. There was a period of time where we weren't advertising as much. That has moved much closer to normal now. So there have been many factors in terms of the margin expansion.

What of that remains versus what has been more transitory in nature is to be seen. We are -- we have been highly focused on margin expansion and even from 2018 to '19, I think we improved operating margins 30 or 40 basis points. So it remains a strategic focus. I would say we are expecting comps to begin to normalize. We did comment that they were very strong first quarter and through April. That was part of our guide lift, obviously, the flow-through of Q1 and then the strength of Q2 that we're seeing through April. But we do expect to see some moderation in those comps over time. We don't think that ticket is going to remain this elevated. And in terms of our business model, we really don't want it to remain this elevated. We want folks to remember that they got a great deal and then come back in, in a year or 2. The parts of our margin going forward that I think we really got some -- where we have some additional opportunity is always looking for some incremental benefits of lab productivity, incremental benefits potentially of advertising and rent cost and then the leveraging of corporate overhead.

So I think I still see some opportunity beyond some of the more exceptional transitory margin impact that we felt, and we're focused on getting that.

Our next question comes from the line of Simeon Gutman with Morgan Stanley.

Nice quarter. My first question is on your assumption around mix shifts, product mix shifts throughout the rest of the year. Can you remind us what they were in 2020, the positive ones? And why do you think they revert? I'm asking because looking across the cross-section of the retailers and all the sub-segments we cover, most are really not expecting a lot of sort of category or mix reversion and a lot of the margin trends to stay in place. So curious why your assumptions make it a little different there?

I'll start and add a few comments and then Reade can certainly weigh in. As we think about what drove the shift during the period of time when our stores were closed, we were still open. We would just have locked doors. We were selling contact lens. There were some online eyeglasses. So that really started the mix shift. We have seen a much higher or substantially higher degree of eyeglass mix.

And our assumption that mix reverts closer to normal over time is just a function of managing the business for so long. We've seen periods of time where mix bounced around a little. But in general, it does follow some fairly consistent norms. So we are expecting, as we think about the second half, to see that approaching closer back to where we were in terms of standard mix.

Yes. And just building on that, it was just easier to buy contact lenses. Even when our doors were shut, you could call the stores, you could go online and buy from us. So that wasn't as disrupted. And of course, people -- some were a little insecure about supply chains and things like that and bought up into the future sort of past [reloading]. And I'd say also just in terms of mix, we're finding things like computer glasses, blue light glasses. We're all spending more time in front of screens than I think we ever wanted to. And so our sales of blue light lenses are going very strong, and that's a factor also.

People want to make sure they're protecting their eyes and seeing their best and even, frankly, looking their best on a screen. So that's been a smaller factor in all this as well.

Okay. That's helpful. And then the follow-up is on, I guess, the margin outlook for the rest of the year, inclusive of the second quarter. It looks like you still have some -- it looks like deferred revenue catch-up, like a good guy into the P&L to reverse what happened this quarter. But in the back half of the year, if you retain, like you said, flattish for the back half, if you retain most of the bump that you got the prior year, the 2-year stack, it would be similar to what this business has been doing historically. Why the reversal in margin? Can you talk about -- because your volumes overall will still be higher? I guess, you mentioned some costs that are going to come back up, inflation in wages, et cetera, in the back half. But is there any reason why the flow-through shouldn't be a little bit better since there's just higher levels of volume overall in the business?

Yes. Simeon, I would say it starts with our position on planning sales and comps. And although the environment is certainly better. We have better visibility. It's still nothing like, say, we had pre-pandemic. So we continue to take a prudent posture towards planning. As you think about the second -- or the first half, we're growing over store closure periods from last year. The second half, we're growing over robust growth. So yes, in terms of the guidance raised for today, that was a result of Q1 that's in the books. And then what we're now expecting is a little lift in Q2 versus where we were back in February.

Second half, we're still holding pretty close to where our plans were. Maybe we'll see some incremental stimulus benefit. Maybe we'll exceed that. But those comps were double-digit in Q3, in Q4, and so we're being a little cautious as we approach that. And in general, our plans assume that we see some normalization of comps, some normalization of ticket, maybe not back to pre-pandemic levels, but certainly not at the highs that we've experienced.

And then, yes, thanks for the plug on unearned revenue. I always like to talk about that. We do expect that to reverse to a high degree for second quarter and become more of a positive than a negative this time. And as always, that's a 7- to 10-day timing thing. And I always like to look at the business kind of putting that aside. But in general, the margins for second half, we expect them to -- not fully revert, but at least start re-approaching the margin profile with more normalized comps, more normalized mix.

Our next question comes from the line of Paul Lejuez with Citigroup.

Two questions. One, on EGW, I'm curious if you're leaning more towards using independent doctors versus those employed by you. Is there anything that changed on the doctor side that factored into your ability to accelerate the growth there? Is it more driven by the sales traction that you're seeing? And I guess along those lines, all the disruption that you're seeing in the market, is the share up for grabs a little bit more in that EGW demographic versus ABC? So that's the first question. Second question, I'm just kind of curious what the plan is from a marketing perspective. I think it was a point of leverage in 2020. Just curious how you're planning marketing this year and how does that compare ABC versus EGW?

Good. Okay. So succinctly, no real change to the doctor model in EGW, that was not a factor. And we have a mix, some stores have employed doctors. Some stores have leased doctors. We're pretty agnostic. You look at the laws of the state, of course. But we're pretty agnostic as to how that works. And so really, no new news on the doctor side of Eyeglass World. Your question of market share up for grabs with the EGW demographic. Yes, maybe that -- I would -- if a factor, probably a smaller factor versus a larger factor. But yes, I wouldn't be surprised. I mean, overall, both of our brands are -- or all of our brands are benefiting from the hastening of the trends of the shift from independents to chains, from malls to non-malls, from traditional and more expensive to more value-oriented. So I think those are bigger factors for all of our businesses, especially Eyeglass World and America's Best than others.

In terms of marketing planning, we do believe marketing spend is going to normalize as sort of the world we live in normalizes. We're expecting that to get back to normal levels. Having said that, we're getting ever more digital in our marketing orientation for both our brands. And we're pleased that we think we're really getting the hang of that. And I think the biggest difference between America's Best and Eyeglass World is just America's Best benefits from the fact that we've been on network TV now for a few years. That helps us when we open a store. People know who we are and have heard of us and understand our benefits. So that's a plus. And I guess I'll point out just one other thing right now, sort of our America's Best brand has that advertising that we mentioned in our call comments. We have the exclusive, Jamie Foxx, Privé Revaux frames. And I bet, Paul -- in particular, I think you would really enjoy the ad. So please do watch that. But in general, more digital AB. American's Best has network advertising and normalizing of spend through the balance of the year.

Our next question comes from the line of Robby Ohmes with Bank of America.

Congrats on another great quarter. Just maybe a follow-up, Reade, on just when you look forward, are you seeing threat of more significant wage pressures either for the optometrists and/or the store associates? And also, maybe not seeing it a lot yet, but are there potential inflation issues in the supply chain, either on the lens side or frame side?

Yes. Okay. Thank you, Robby. Let me answer your questions backwards. Our lenses, we have nice long contracts with fixed cost to them. Our frames, again, we're not seeing anything significant in terms of inflationary forces there.

We operate in the same world everyone else does. And labor is tighter than it was at this particular moment in time, sort of from the big stimulus checks. So to us, this COVID thing has been about different chapters and chapters change, and we are in a chapter now of tight labor. And we like to pay competitively and make sure that our folks are well compensated. So that's something we're watching and managing carefully.

Our next question comes from the line of Kate McShane with Goldman Sachs.

Just a quick one from us with regards to new stores and rents. Are you starting to see more favorable rents in '21? Or was that kind of already locked in? And should we look towards 2022 when you can maybe see something more favorable? And then finally, are you looking to do any relocations to take advantage of maybe the potential with lower rents?

Kate, so really, what we observed on the rent market, as Reade said, we've had some chapters. We had a chapter in 2020 where we saw some benefits in terms of renewals and even new store rents. I'm seeing now renewals that are in the flat, maybe a couple down, a couple up. So I would say we've kind of moderated. I'm not expecting because of the types of places we like to be are high-traffic value shopper. Those rents on a per square foot basis have held up far better that even the scale, the size of the store that we're after, this 3,000 to 4,000 square feet, is in a sweet spot.

So I think there are a lot of vacant former big-box stores where rents have collapsed. We're really not seeing that in our markets and don't expect to. We have benefited from some construction cost declines over the last year or so, and we still feel good about where those costs are this year because so many of our store build projects are 7 to 9 months in duration. So a lot of those costs are already baked in. So that's kind of how we're viewing the real estate market. In general, we expect to continue to put 75 new stores out there for a long period of time, every year and have been pleased with what we're seeing in terms of the cost profiles.

Our next question comes from the line of Michael Lasser with UBS.

Recognizing that it's really hard to size the impact from the stimulus in your first quarter results, if you had to quantify how much the contribution was from the acceleration in the business starting in mid-March at the time you checked it, how much was that? And to what extent do you think that, that has released pent-up demand in -- throughout the industry? And you noted that trends have remained strong through April. Is there a reason why you just mentioned through April and not to the middle of May where we stand today?

Let's see, a few pieces. It is hard to pick apart what exactly is stimulus driven. Yes, the average sale has gone up, but it started going up last June. So again, I think all economic indicators out there are suggesting that consumers, especially our target consumer, is feeling pretty cash flush and has been for a while now. I think the Wall Street Journal was talking about the credit card debt being all-time lows or very low historically.

So it's hard to pick that piece apart. We do believe also that pent-up demand is still a factor. I'd be surprised if all of you for the past 10 months have been going to the dentists as regularly as you used to. Well, similarly, people weren't going to get eye exams similarly. So we do feel there is still pent-up demand there. But I do think the bigger factor relates to the hastening of trends that we've been talking about for several years now, ever since we went public and before internally.

And that, that has been hastened. I do think that sort of the independent sector is having less eye exams than they were before. And I think we are the beneficiary of that in Q1 and in -- yes, and in April. And we just picked April because we were writing -- we were -- we published -- yes, we started writing this stuff last week. But it was a big deal for us to even give you like a month into a quarter, just given parting by weeks seemed a little much. And you mentioned March. So February, we had that weather issue that we mentioned on the last call. We're -- because we're in the midst of that bad weather then.

But then, of course, the business came back in March as it always does. For us, we always reference the restaurant model that snow storm means that restaurant has lost that meal. You're never going to have last night's dinner again. With us, the person stays in home, their eyes get worse and they just come once the snow melts. And so that was the factor for us in March. I hope that answered your question. It is hard to pick all this apart.

And of course then, there's that other factor of tax season this year is so weird. Tax season is always a big benefit for us, and that one is just a hard one to sort of sort out given all that's going on with the IRS in all of this year. So there's just a lot of -- I think we used the word interplay in our press release. So there's -- the interplay is just a number of forces coming together. Overall, like it was strongly beneficial to us. So yes, a plentiful number of good things.

My follow-up question is, what is your current capacity to open stores? You've hovered around the 75 range for a while. You've mentioned that you're going to accelerate the growth of EGW. Presumably, this is not going to come at the expense of slowing the store growth for America's Best. What do you feel comfortable with? And is it just that now that your overall store base is bigger, you need to have an increased absolute number of openings to maintain the same level of growth? Or can you actually start to see an increasingly overall level of growth from the contribution from new stores?

Yes. So you're getting to a good point. We saw a little more impact this quarter on comp composition from our comping stores versus new stores, and that was probably because we didn't open this many last year. We have guided to open 75 this year. So you can probably take that to the bank. We've not determined what we're going to do beyond 2021. I certainly understand your point. But we really do like our new store opening machine. We're very good at opening 75 on a very specific cadence with good success. It's about real estate. It's about getting the store ready, and it's about getting the doctor in place so that, that store can open strong. So it's 75 in this year. Beyond this year, we'll certainly take all those factors into account as we think about 2022 and beyond.

And our final question comes from the line of Dylan Carden with William Blair.

Really appreciate it. I just want to follow-up on a couple of items there. Reade, you mentioned kind of this reduction in industry capacity at present. I'm just curious how much of that you think is permanent? And then on pricing and sort of inflation, I'd like to come at it from a different angle. Can you just remind us of your pricing philosophy? I know the entry level is more or less sacred. But how much of your business could you take price if you wanted to? Or would you just sort of use that more to sort of strengthen the value proposition in the market?

Good. So how much of the industry capacity decline that we benefited from is permanent? Hard to tell. I have a gut meter that it's probably more so than -- the [plug-out] will have some long-lasting effects. That's a gut meter there. Again, it's hard to predict because you're talking about decisions made by large numbers of independents. But we do know or there's an industry stat out there that the independents have about 3% less doors than they did before. There's been door closure.

We also know there's been sort of other door closure out there. And I tend to suspect that a lot of independents sort of have grown used to a new case for themselves, but who knows? I can't predict that. Who knows? Pricing philosophy. Our pricing philosophy is we like our customers to know that they've saved a lot versus other places they might go. We like them to walk out the door saying, wow, that was -- I spent less here. That was a great value. I pulled less money out of my pocket. We like that to be a noticeable difference. We don't tend to take major pricing actions.

We do -- and our entry-level price, as you mentioned, is, I think, in place at America's Best for 15, maybe 20 years, and there's not much to talk about changing that. Sometimes, you can peripherally sort of make a change to sort of a lens package here and there. Last time we did that was 2019, and we don't do that very frequently or talk about that very much. But in general, we like our customers to have saved money by choosing us.

I would now like to turn the call back over to Reade for closing comments.

Thank you. Thank you, Towanda. We'd like to thank you all for joining us this morning, for your continued interest in and support of National Vision. We're proud as heck of Q1, and we're looking forward to speaking to you again when we report our second quarter results. Thank you all very much for your attention today. Bye-bye.

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