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Operator: Good day, and thank you for standing by. Welcome to the Q4 2022 National Vision Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there’ll be a question-and-answer session. Please be advised, today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Caitlin Churchill, Investor Relations. Please go ahead.

Caitlin Churchill: Thank you, and good morning, everyone. Welcome to National Vision’s Fourth Quarter 2022 Earnings Call. Joining me on the call today are Reade Fahs, CEO; Melissa Rasmussen, CFO; Patrick Moore, COO, is also with us and will be available during the Q&A portion of the call. Our earnings release issued this morning and the presentation, which will be referenced during the call are both available on the Investors section of our website nationalvision.com. And a replay of the audio webcast will be archived on the Investors page after the call. Before we begin, let me remind you that our earnings materials and today’s presentation 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 our filings with the Securities and Exchange Commission. The release and today’s presentation also include certain non-GAAP measures. Reconciliation of these measures is included in our release and 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 provides investor presentations and supplemental materials for investor reference on the Investors section of our website.

Now, let me turn the call over to Reade.

Reade Fahs: Thank you, Caitlin. Good morning, everyone. Thank you all for joining us today. I thought I’d start today with an overview of what we’re going to take you through to provide context and a framework from the further details that Melissa and I will then be providing. As we’ve discussed before, the pandemic disrupted the historically consistent optical purchase cycle. In addition, it impacted global supply chains, leading to increased cost and inflation and created a challenging labor market, especially impacting doctor availability as seen in other areas of specialty healthcare as well. While we believe that we will return to a more normalized purchase cycle and cost environment, we’re addressing the new reality of the optometrist market and overall business environment in which we’re operating today.

As we will discuss, optometrists in our network are now being offered a greater variety of scheduling options and improved variable compensation programs, and we’re progressing the remote medicine initiative that we’ve been discussing in our last few calls. We’re also resetting our management’s short-term incentive plan to ensure that we keep our team highly incentivized to perform. In addition, like all companies, we must evolve our systems to support our growing business and gain advantages and efficiencies of ongoing digitization. As we enter 2023, while the actions we are continuing to take will have an impact on our operating margins in the near term and the macroeconomic factors remain challenging, we are intently focused on continuing to further adapt and transform our business to excel in the post-pandemic new normal business environment.

Before I discuss our plans and initiatives for 2023 in more detail, let me first review highlights from our fourth quarter and full year performance. Turning to Slide 4. 2022 was a challenging year for the optical industry overall and for National Vision. We ended the year in line with our guided expectations while navigating a difficult macroeconomic environment, which especially impacted our core budget-conscious uninsured customer base, and we (ph) capacity constraints in certain markets. I continue to be very proud of our entire team and their commitment to providing exceptional patient care and customer service, while also remaining focused on our strategic initiatives. These include the rollout of remote care and electronic health record capabilities to over 300 locations and the opening of 80 new stores despite many supply chain obstacles.

For the fourth quarter specifically, net revenue declined 1.9% and adjusted comparable store sales declined 2.4% compared to the prior-year period. We delivered adjusted diluted EPS of negative $0.08 for the period inclusive of a $0.10 negative impact from unearned revenue, as well as a $5 million investment in retention bonuses for our associates. Importantly, underlying these results was a strong finish to the quarter, particularly with respect to our managed care sales, as we saw a notable improvement in the last week of the year, traditionally, a very important time in optics, as various annual insurance benefits end. These trends helped to also support positive comp growth for both the quarter and the year in our managed care business, representing an increase in customers with vision insurance.

Insured customers are less sensitive to the elevated inflationary and macro pressures facing our uninsured customers. In addition, we continued to see evidence of trade down in the fourth quarter from higher income consumers in our stores. Now, turning to Slide 5. Our plans for 2023 continued to focus on our transformation, with the expansion of our remote care offering, strategic investments in optometric recruiting and retention initiatives, our omnichannel capabilities, the further digitization of our stores and corporate office, as well as continued store openings, based on the significant whitespace opportunities still ahead. Turning to Slide 6. As I’ve explained, the pandemic created unprecedented and unique challenges to the optical industry, by not only impacting the historically consistent purchase cycle, but also optometrist availability.

This has significantly impacted eye exam capacity for the industry. Of these factors, the one that we believe we can influence the most is recruiting and retaining doctors in an effort to expand exam capacity, albeit with increased levels of investment. We believe that the pandemic led to more doctors retiring from the field or significantly cutting back the number of days they work each week. Accordingly, changes were needed to continue to maintain healthy retention rates and recruit new talent to our doctor network. Doctor retention rates have historically ranged between 80% and 90%. We were pleased with the improvement we saw in 2022 in our recruitment efforts, including delivering the best year ever for optometrist student recruiting. In 2023, we believe there is an opportunity to build on this improvement in momentum through investments in a number of additional initiatives, including increased scheduling options and OD variable compensation program updates.

These initiatives were piloted in select markets during the fourth quarter and, given early positive results, a strategic decision was made to expand these programs throughout our America’s Best brand in 2023. In addition to these initiatives, we’re also continuing to rollout our remote care capabilities, which provide doctors with additional levels of flexibility and expand exam capacity in many areas. By the end of 2022, we had rolled out remote care capabilities to approximately 300 stores. While this is a nascent program, we’re pleased with the initial results and have incorporated key learnings from the rollout related to the productivity ramp and learning curve needed for doctors to transition to the new system. We’ve implemented new techniques and training to minimize the productivity loss.

We plan to continue to expand this program further in additional America’s Best locations in 2023 and we’re evaluating approaches to remote practice in other brands as well. We see this mode of practice is being highly appealing to optometrists now and going forward without sacrificing quality of patient satisfaction. We believe that with the one-two punch of enhanced recruiting and retention initiatives and expanded remote capabilities, we are increasing the competitive moat around our business while significantly improving exam capacity. In addition to the investments in remote technology and doctor recruiting and retention efforts, we remain focused on the important role that our associates play in supporting our business and providing the great customer service that our patients and customers expect.

We take pride in training and growing the talent needed to support our whitespace expansion and are proud that approximately 40% of current store managers started with us in entry-level positions. We’ve also implemented an optometric technician certification program that improves the quality of our technicians and consequently the job satisfaction of optometrists. Currently over three-quarters of our optometric technicians are certified. Turning next to Slide 7, and our plan for furthering the digitization of our stores and corporate offices, as well as enhancing our omnichannel capabilities. As part of our remote care rollout, we’ve begun to implement electronic health records in our stores. A key learning that we gained with our initial rollout of this initiative has been the productivity ramp in learning curve needed for many doctors as they get used to working with the new platform, given that, enhanced training for doctors has been implemented.

While these additional costs and length of productivity ramp will be short-term margin drag, we believe the digitization of patient records is a necessity for today’s operating environment that should provide longer-term patient and customer experience benefits, as well as more efficient store flow. To further support our stores and growing business, we expect to start a back-office ERP implementation for our corporate office in late 2023. In addition, we’re continuing to invest in our omnichannel capabilities and other enhancements to the customer experience, which are showing initial encouraging results. As seen on Slide 8, we remain focused on our significant whitespace opportunity for store growth. We continue to believe we have an opportunity to grow at least 2,150 stores with similar economics to the existing base.

And in 2023, we expect to open approximately 65 to 70 new stores. Our planned openings reflect anticipated supply chain and permitting delays and secondarily doctor recruitment timing. In summary, while the macro pressures continue to weigh on a core budget-conscious uninsured customer, we are navigating this backdrop while taking actions to improve exam capacity, further the digitization of our stores and corporate office, leverage our omnichannel capabilities and continue to capitalize on our whitespace opportunity as we move into 2023. While early, we’ve been encouraged by the results to date from doctor retention and recruiting initiatives. While we expect profitability in 2023 to be impacted by cost pressures, as Melissa will discuss, we believe the initiatives we have in place will position us well for long-term success and a return to consistent financial performance we have demonstrated historically, as we see on Slide, 9.

I’ll now turn the call over to Melissa for a more detailed discussion of our financial results and the 2023 outlook.

Melissa Rasmussen: Thank you, Reade, and good morning, everyone. Turning to Slide 11. Net revenue for the fourth quarter decreased 1.9% compared to the prior year due to macroeconomic headwinds pressuring traffic and constraints to exam capacity. The timing of unearned revenue negatively impacted revenue growth by 2.9%. The 40-basis points revenue loss in the third quarter as a result of Hurricane Ian was recovered in the fourth quarter. During the quarter, we opened 23 new America’s Best stores for a 1.7% increase in total store count sequentially over the third quarter of 2022. For our America’s Best and Eyeglass World growth brands combined, unit growth increased 5.9% over the total store base last year, and we ended fiscal 2022 with 1,354 stores.

Adjusted comparable store sales growth declined 2.4% compared to an increase of 1.2% in the fourth quarter of 2021. The fourth quarter same-store sales decline over 2021 was driven by lower traffic, which was partially offset by an increase in average ticket. Turning to Slide 12, as a percentage of net revenue, cost applicable to revenue increased 180 basis points, driven by deleverage of optometrist-related costs, lower eyeglass mix and lower eyeglass margin. This is better than our expectations of 300 basis points to 325 basis points increase due to a more stable average ticket than we had anticipated. Adjusted SG&A expense as a percent of net revenue increased 300 basis points compared to 2021. The key factors behind this increase were timing of unearned revenue, higher corporate office expenses, which included a one-time investment in our associate of $5 million for retention bonuses, and increased occupancy expense, partially offset by lower advertising expense.

Adjusted operating income was a loss of $6.8 million compared to adjusted operating income of $16.8 million in the prior-year period. Adjusted operating margin decreased 490 basis points, driven primarily by the timing of unearned revenue recognition, which negatively impacted adjusted operating income by $10.7 million as well as the increased costs we incurred in the quarter. Adjusted diluted EPS was a loss of $0.08 compared to earnings of $0.13 per share in the prior year period. Turning to full year 2022 results on Slide 13. Net revenue decreased approximately 3.6% versus 2021, with adjusted operating income of $87.8 million and adjusted diluted EPS of $0.65 per share. Now turning to Slides 14 and 15. Our balance sheet and liquidity remained strong.

We ended the year with a cash balance of $229 million and total liquidity of approximately $523 million, including available capacity from our revolving credit facility. We have total debt outstanding of $568 million with no mandatory principal payments due until the term loan matures in July of 2024. Net debt to adjusted EBITDA was 1.9 times. For the year, we generated operating cash flow of $119 million. We invested $114 million in capital expenditures, primarily focused on new store openings and customer-facing technology investment, slightly below our expectations due to supply chain-related delays. We expect improved operating cash flows in 2023 and capital expenditures to be in a range of $115 million to $120 million to reflect our continued investment in key growth initiatives, including new store openings, as well as acceleration in technology investments, including remote care and electronic health records.

In 2022, we returned capital to our stockholders with the repurchase of 2.7 million shares for $80 million under the share repurchase program and have $50 million remaining under the current share repurchase authorization. Inventory per store declined 6% on a year-over-year basis. We believe our current inventory levels are sufficient and can support our 2023 growth plan. Our merchandising and distribution teams continue to execute well to help us manage through the current supply chain challenges. Overall, in this environment, we believe the strength of our balance sheet and our strong cash flows are a competitive advantage and enable us to continue to invest in our key growth initiatives to further strengthen the customer experience and our market position.

Turning now to our outlook, Slide 16. For our 2023 fiscal year, as set forth in greater detail in our earnings release, we currently expect net revenue between $2.075 billion and $2.135 billion, supported by adjusted comparable store sales growth of 0% to 3%, our expectation is to open between 65 and 70 new stores this year. In addition, for 2023, we currently expect adjusted operating income between $48 million and $66 million. And adjusted diluted EPS between $0.42 and $0.60 per share, assuming approximately 80 million weighted average diluted shares. Given the current uncertainty around the consumer and the macroenvironment for this year, our outlook reflects a wider degree of potential results. The high end of our guidance assumes continued success in addressing doctor capacity constraints and a gradual return to a more normal optical purchasing cycle, as well as an improved consumer sentiment.

The low-end assumes prolonged and increased pressure on our budget-conscious consumer and less success in addressing exam capacity constraints. While it is not our practice to provide quarterly guidance, with respect to the first quarter, we expect adjusted comparable store sales growth to be approximately flat. As Reade mentioned, we’ve been encouraged by the results to-date from doctor retention and recruiting initiatives. Though the year has started stronger than expected, we remain cautious as March is a pivotal month due to the timing of tax refund. The midpoint of our annual adjusted operating margin outlook reflects an operating margin decline of approximately 170 basis points versus 2022. This reflects the expectation of approximately 100 basis points of gross margin headwind balanced between expected higher product costs and investments in doctors.

We have recently taken peripheral pricing, which offsets a portion of the cost increases expected this year. The remainder of the expected operating margin decline is largely due to the deleveraging of SG&A, driven by the return to a more normalized incentive compensation structure this year. We expect this normalization of incentive compensation to negatively impact adjusted operating margin by approximately 90 basis points, which we expect to be partially offset by advertising expense leverage. Turning to Slide 17. As we look longer term, we expect the benefits from our key initiatives, as well as an improved macroeconomic backdrop, to result in a return of comparable store sales growth to the mid-single digit levels we have historically delivered.

With this more normalized comp growth we expect to begin to leverage the higher product, wage and incentive compensation costs we are experiencing this year. In addition, while we expect remote care to be profitable in 2023, we believe as we move beyond the implementation phase, there is a significant opportunity to continue to ramp the productivity of this highly accretive exam technology, which we expect to be at least 100 basis points of improvement to adjusted operating margin. We believe remote care is a key unlock to gain access to more doctors amidst industry-wide supply and demand constraints. Our robust remote care technology enables eye exams to be provided in locations where there is not a physical doctor present or in locations that need additional capacity to meet patient demand.

In addition, we believe store digitization through EHR implementation will create efficiencies in store flow. We expected the remote exam technology and store digitalization implementation to be substantially completed by mid to late 2024 and fully productive in 2025, enabling our expectation of a return to mid-single-digit adjusted operating profit margin profile. We also continue to see the opportunity to expand margins beyond this point, as we leverage sale growth and drive further productivity improvements across the organization. In closing, the pandemic era affected the optical industry significantly, but we believe we have a strong foundation in place and are excited to continue the expansion of our healthcare focus through remote medicine capabilities, one of the largest doctor networks in the U.S., and digital transformation of our stores and corporate office.

We believe these solutions to address exam capacity constraints through investments in remote medicine and doctor scheduling options will continue to drive incremental revenue and profits into the future and will allow us to win in this environment. At this point, I’ll turn the call back to Reade.

Reade Fahs: Thank you, Melissa. In summary, this chapter of the pandemic era has created significant changes to the optical category; inflation that has pressured the spending power and affected the purchase cycle of our more budget-conscious uninsured consumer base, created a shortage of optometric capacity for us and across the category and increased our product cost. We believe the purchase cycle and the cost environment will improve with time and are taking aggressive targeted actions necessary to address the situation, both short-term and long-term. Shorter term, we’re implementing peripheral pricing changes that will offset some but not all of the product cost pressures we are experiencing, especially as it relates to the commoditized, easily shoppable contact lens category that represents the minority of our business and profit.

Aggressive actions are being taken to address the new reality of the optometry labor market, with more scheduling options, variable compensation program updates, and continued investment in remote medicine initiatives. We’re encouraged by the initial results of all these efforts. Additionally, we are investing in a variety of digitalization efforts, both customer-facing and back-office to improve our customer offerings and create cost efficiencies. While these efforts create margin pressure in the near term, we are convinced to these are the right actions to position our business for long-term success. With that, I’ll turn it over to the operator for Q&A.

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Operator: Thank you. Our first question comes from Michael Lasser with UBS. Your line is open.

Michael Lasser: Good morning. Thanks a lot for taking my question. Reade, as you diagnose National Vision’s performance in 2022, how much of the comp shortfall would you attribute to some of these execution challenges like increased optometrist turnover not having the full rollout of remote medicine versus just a difficult macroeconomic environment for your consumer? And a part of that, you mentioned you are starting to see more of a trade down. Are you surprised that at this point in the cycle that the trade down hasn’t been even greater and offset some of these challenges in your core customer base?

Reade Fahs: Got it. Michael, thank you very much. Good morning to you. So, two pieces. We think overall the comp softness last year was pretty balanced between consumer-related and doctor capacity-related challenges. I do want to point out that our consumer — about two-thirds of our consumer base is — does not have insurance that helps them with their optical purchases, so with cash paid, they’re out of pocket and the other third is insured customers. And I’d point out the insured customers’ comp positively for both the quarter and the year consistently throughout, so that is . But really in terms of the things we can control, it’s a story of doctor capacity. I wanted to point out a number we mentioned in there, that — because it’s the first time we share this that our retention of doctors ranges between 80% and 90%.

So, it is a very healthy level and especially when you think about the doctor base we have, many of them are younger and their lives haven’t become geographically settled. So, I think a retention rate of 80% to 90% is healthy in this day and age, but we still have customers who want to come to us and we do not have the exam capacity. We don’t have the doctor there to give them the exam they want from us. So, there is a demand that we cannot fill. We think remote is going to be a great unlock for this and provide us with incremental capacity. We also think the scheduling options we talked about are going to help us with retention and recruitment. And again, early signs are encouraging on that and, of course, the variable comp we mentioned that’s linked to productivity.

So, all those things we think are going to play a role in addressing the doctor shortfall component of that. And trade down is gradually happening more and more. So that is coming along, it’s hard to sort of have exact expectations of it, but it is occurring just like we saw in the recession of ’08 and ’09.

Michael Lasser: Okay. My follow-up question is how dependent is your goal of getting back to a mid-single-digit adjusted operating margin on a mid-single-digit increase in comparable store sales growth? And the reason why I ask that is, because there has been a longstanding debate about the National Vision model as the low-cost provider. Could it be uniquely negatively impacted in an environment where the availability of doctors is eliminated and that low-cost model might not work in that environment, because it’s going to — the company will have to continue to pay off for the important talent, and is it possible that just coming to fruition which will weigh on the structural margin of National Vision? Thank you.

Reade Fahs: I’m going to have Melissa do the first part of that. And then, I’d like to follow on to the second part of that.

Melissa Rasmussen: Okay, great. Hi. So, we are investing currently and we’re focused on driving long-term success post-pandemic. We believe our business model is strong and we believe that it will continue into the future. What we have incorporated into our guidance currently, anticipate the drag on margins related to these investments. We do believe getting back to mid-single digits will be a key unlock for us, as we think about growth in the future. The investments that we’re making currently will enable us to be able to handle the capacity constraints that we have currently. The demand will be there, the doctors will be there, we’ll be able to span across geography in time to be able to service the demand that we have at the time that we have it.

And so, as I said, mid-single-digit, comparable store sales growth, at that point, we’ll begin to leverage the higher costs that we’re experiencing this year. And from there, once we have the remote care and electronic health record implementation completed substantially mid to late 2024 and fully productive in 2025, we expect approximately 100 basis point improvement on our operating margin. And then from there, we would expect to further take the opportunity to expand and leverage through sales growth, in addition to driving productivity improvements across the organization based on the investments that we’re putting in place today.

Reade Fahs: And to the second part of that, Michael, there is nothing wrong with our business model. The only challenge is our ability to execute our business model, which is about having the doctor in the store. If we have the doctor in the store, the consumer demand is there. We think our business foundation is strong. Consumers want to come to us and we believe that the actions that we’re taking are solving this great challenge of the doctor piece, we think that there are two great trends that we are tapping into in our actions or three great trends actually. One, with remote medicine, we believe more and more doctors are going to want to practice that way in the future. Two, we think that doctors in general, healthcare workers in general, and frankly, all workers in general, are seeking greater flexibility in their working world.

The scheduling options we have put in place are addressing that. And thirdly, we think there is an ongoing trend in the optometric markets toward more of an employment model and that is the model that we favor as well. So, in short, we feel that the doctor shortage challenges our ability to execute the business model that consumers really, really want and we think our actions of remote medicine and scheduling options will tap into the way optometrists want to practice now and will ever more so going forward.

Michael Lasser: Thank you very much.

Operator: One moment for our next question. Our next question comes from Zach Fadem with Wells Fargo. Your line is open.

Sam Reid: Thanks, guys, for taking my question. This is our Sam Reid sitting for Zach. Wanted to dig a bit deeper on lower eyeglass margins and maybe parse out the effects of trade down versus stepped-up costs.

Reade Fahs: Could you repeat that, Sam? I’m sorry, we’re just — could you just repeat your question one more time?

Sam Reid: Sure, absolutely. So, I just want you dig a bit deeper on eyeglass margins during the quarter and maybe parse out any effects from trade down versus stepped-up costs.

Melissa Rasmussen: Yes. As it relates to eyeglass margins, we still believe that our margins are healthy. We are experiencing some product cost increases as we look forward to 2023. However, we are seeing some trade down from our consumers, from the higher-income consumers as we believe some of the lower-income consumers have left the market at the moment. We do believe the continued trade down, those customers are really targeting more of the higher-end product that we have in place and their managed care benefits can get them farther at our stores than they can at our competition.

Reade Fahs: Yes. And, Sam, just to be clear because we used the word trade down in two different ways, I just want to clarify. One, we are seeing trade down of wealthier consumers to our business. And two, which I think may have been like where you were going, we are not seeing trade down within our frame categories to cheaper — to shifting to less expensive products. We’re finding that, say that, a percentage to take our entry offers about even to where it was before. So, those are the two aspects. The two ways we use the term trade down in the company. Hope that…

Sam Reid: Awesome. Yes, I was referring to the latter. So, that’s super helpful. And then, maybe just one quick follow-up. Embedded within your 2023 guidance, can you talk through the trajectory for insured versus uninsured consumers? Apologies if I missed, but will uninsured still be a drag on comps?

Reade Fahs: So, two things, we do believe that our managed care percentage will continue to grow as a percentage of our business, as it was growing consistently in the years before the pandemic, and then — and it has been growing recently as well. So, the growth in managed care consumers has been steady for years and should continue and we’re great with that. And I believe that on the other side of your question, in terms of the uninsured consumers, I think the answer to that is, to the extent to which we continue to retain the doctors we have, recruit more doctors and leverage things like remote, then we should be able to generate positive comps on the uninsured side of our business as well.

Sam Reid: That’s super helpful guys. Really appreciate it. Will pass it along.

Reade Fahs: Thank you, Sam.

Operator: One moment for our next question. Our next question comes from Adrienne Yih with Barclays. Your line is open.

Adrienne Yih: Great. Thank you very much. Reade, I guess, I’m kind of back on the trade down, the literal trade down where you’re seeing sort of the higher household income kind of coming in. So, I know, historically, I think you’ve talked about better cars in the parking lot, but I’m sure that there is some sort of credit card like zip code analysis that you’re doing. How do you know that’s happening? And is it happening at an accelerating rate? Relative to 2008 and 2009, how is this sort of trade down the speed, the duration, the strength of that trade down happening? And then, very quickly how is the — like the lack of optometrist capacity, is that the walk-in that come in want a doctor in the office and he is not there? Or is there a capacity to hold on to that consumer by giving them other options or coming in a later date or something like that? Can you retain that potential loss kind of (ph) in this interim period? Thanks so much.

Reade Fahs: Good. So, Adrienne, the great thing is — about this moment is it reminds us just how much more sophisticated we are versus ’08 and ’09 when, in truth, our assessment in ’08, ’09 was literally about store managers telling us that were nicer cars in the parking lot, okay, because we did not have data on that. We do now, as you say, we can say what percentage of our customers are coming in from over $100,000 income households and we have seen steady improvements in that since — why don’t we call it, since about this time last year, since about March, April last year when the economy started to get tighter. So, yes, that is very data-driven, and in ’08, ’09, it was not. In terms of capacity, so let me take you through the patient journey.

So, the whole patient journey is, first you start to realize you’re not seeing street signs as well or menus as well, and then you go through a period of denial where you are trying to think it will go away and trying not to think you’re getting older, and then over the course of several weeks, you get to the point where you say, “Wow, I really need to act now,” and then you’re in the mood to act once you get over that denial. And so, what you do is go to our — go to americasbest.com and or for any of our brands, you can make appointments online and you try to find an appointment that convenience for you. Generally, what we find is people would really like to get an appointment in the next few days once they get to that point. And again, it can be online, it can be through calling a store, it’s a nice mix of both those things with our customer base.

But if you’re in the mood to act and you can’t find an appointment near term, you might think of other options. In addition, there is a walk-in piece, because every day there are walk-ins to all of our store brand, almost all of whom are seeking an eye exam, so that they can update their prescription and start the process. And people tend to buy their glass before they get their eye exams. It’s just how that works. So, if one does not have an exam available in the coming few days, then oftentimes there can be people think about — probably think about other options.

Adrienne Yih: Okay. That’s super helpful. Thank you very much.

Operator: One moment for our next question. Our next question comes from Kate McShane with Goldman Sachs. Your line is open.

Kate McShane: Hi, thanks, good morning. I know a lot has been mentioned about the macroenvironment and exam capacity. But we wondered what you’re thinking about the competitive environment. Do you see any changes there, any increased competition from maybe the mass channel that might be having an impact? And then, we just wondered from a housekeeping standpoint, how many remote locations will be rolled out in fiscal year ’23?

Reade Fahs: So, in terms of big trends since we last spoke or recently, the only big trend is sort of the trend of return to stores, during the pandemic era, there was growth in the e-commerce phase and actually, we’ve been seeing that there has been a return to stores overall and a diminishment of that share. And again, this is a store’s purchase, the vast, vast, majority of all purchases happened in stores, primarily because you need to start with an eye exam, which is why the exam capacity is such an important point. But beyond that, we are not seeing any abnormal or heightened competition. What we’re seeing overall is the trends we’ve been talking about since the IPO, which is the traditional sector of the category that tends to be more expensive, much more expensive is gradually losing market share to the value segment and we are one of the winners in the value segment overtime.

And that trend, which we’ve been talking about for years, we continue to believe is going to be the ongoing trend going forward. Patrick, do you want to add anything there?

Patrick Moore: Yes. Let me take the remote rollout plans. Good morning, Kate. So, we had a great year in 2022. We got this rolled out to over 300 stores. There was lots of good effort, lots of good results and lots of good learnings. This year, similar to last year, we’re starting out the year guiding at least 200 stores. That’s kind of where we started out last year. Things got a little better, we were able to upgrade that. The other thing I’ll mention on the 200, one of our learnings last year was, it’s probably better to not be doing implementations during some of our larger peak volume periods. So, we’ll be dialing back active implementation of remote and EHR during those peak volume periods. So, that will probably taper our numbers down a bit. But we think that’s the right thing to do. Remote is going to be a key unlock. It always — it has been already. The more stores we can get this in, the more flexibility we have.

Kate McShane: Thank you.

Operator: One moment for our next question. Our next question comes from Simeon Gutman with Morgan Stanley. Your line is open.

Simeon Gutman: Hey, everyone. Reade, I have a quick question on the optometric or the optometrist market, and then one on prices. You mentioned that it’s a tough market. Is that because like people, like consumers can’t get appointments, because just — there is a shortage? Or is it because that in your segment, there’s a lot of square footage growth and there’s more of a chase to hire, as opposed to being like a national shortage where we’re just underserved where demand is greater than the supply?

Reade Fahs: Simeon, good morning. There is a national shortage of optometrists. So, what happened during the pandemic year was many more retired than normally would have. And again, we’re seeing this — what we’re talking about here is the same for lots of different types of healthcare workers. So, this was part of a broad healthcare trend. So, there were more retirements. And then, those that, that continued to practice, there was, I think, it’s called a great rethink, where they said, “You know, I’ve been practicing for five days, but really maybe four, maybe three days, and I’ll cut back on the number of days that people are retiring. So, what it means is that the number of exams out there in America in any given week is less than it was.

The schools do not graduate any higher number of students. So, flat number of students coming in and less doctors practicing, and then less days per doctor. And this is something that is discussed throughout the industry at all levels.

Simeon Gutman: Great. And then, the follow-up is on the pricing. You made a change during the COVID timeframe, out of necessity and pragmatism. Have you debated this again? I know you have a competitive set that there is an opening price point and it is part of that value orientation. But is the pricing structure something that you hope changes or you just can’t move at this point given where you compete?

Reade Fahs: We are constantly watching to make sure that there is a nice moat between us and our competition in terms of price, so it’s something that we pay a lot of attention to. We are firmly a value player. We also believe that our willingness to pull a price lever is far less than most other groups in the category overall. We do have opportunities around peripheral pricing, especially as it relates to glasses, less so around contact lenses, very transparent, very commoditized products. So that is not one where we’d like to — where we pull the pricing lever much. But — so there is still opportunity there and still able to keep our moat and we watch this very judiciously and make decisions here and there about various aspects of the products we offer.

Simeon Gutman: Okay. Thanks, Reade. Good luck in ’23.

Reade Fahs: Thank you. We’ll continue to be doing that on an ongoing basis going forward.

Operator: One moment for our next question. Our next question comes from Taji Phillips with Jefferies. Your line is open.

Taji Phillips: Good morning, and thanks for taking my question. So first, I have a question on just adjusted comparable store sales growth this year. The midpoint suggests 1.5% growth, and I’m just curious what is informing this improved outlook relative to last year’s negative growth? Is it a matter of easy comps, or are we actually seeing that positive flow through just with the improved macro environment? And then after I have one follow-up.

Melissa Rasmussen: Hi, Taji. Good morning. So, the midpoint of our guidance is we’re going out with larger ranges just due to the uncertainty around the environment. And the high end of our range assumes — as I laid out in our prepared comments, the high end of the range assumes that the macroeconomic backdrop has improved slightly, customer sentiment has improved slightly, and we see the continued improvement on the capacity constraints that we’ve been working through. And the low end of that range assumes that there is continued pressure on our core value-conscious consumer and we don’t — we are not as successful at managing that doctor capacity constraints that we are seeing. And the midpoint is just the math between the two.

Reade Fahs: And I’ll say, for the first two months of this year, we’ve been performing better than our original expectations. We — March is such an important part month for us, because it’s tax return season. Whenever our customer gets found money like from a tax return, it’s generally very good for us. So, we don’t want to get too excited by the first two months until we see how March plays out because that’s really defining for us in Q1.

Taji Phillips: Great. Thanks. And then, Reade, just referencing your commentary, I think I remember hearing you say that to make sure that you’re promoting flexibility for optometrists, right, you have to restrict hours to improve optometrist recruitment and retention. Just curious how do you balance that decision right between just a lack of availability in time from restricting hours and then also making sure that you’re able to effectively recruit more optometrists? Like, what does that flow through look like? Has that directly impacted your ability to recruit optometrists?

Reade Fahs: So, what — so it used to be, we were very, very strict and we said, “Hey, if you want to be a five-day doctor with us, these are the five-days you’re working, and you can take Wednesday off, and you can take Sunday off, but these are the five days. And I’m sorry, you have to work every Saturday.” In today’s optometric markets, given changing demographics and the like, we have found that was a turn-off to our recruitment efforts and also a factor in why people left us. So, now we have a menu of options of which days they are able to practice with us. And if its greater variety there, we do tend to — we’ve always paid additional for weekends and holidays and found that the resulting sales and flow through justify that incremental expense.

As doctors sort of trade off and say, I’d like to take some Saturdays off and maybe work Wednesday, instead of Saturday, we tried to fill in the Saturday, and there is expense related to that. It is expense that is fully justified and pays out with sales flow through. But that’s what we’re talking about here is offering options to shift what days you work around your lifestyle and your schedule and trying to fill in where there is customer demand if that’s what they trade-off. And this is part of flexibility that I think is a key part of the workforce going forward that we’re all going to be watching. And yes, since we started doing this, we are seeing both recruitment and retention benefits associated with it, that have been encouraging. This is something that we started testing in Q4 of last year and we made some — we said, wow, this is encouraging for us.

And we decided to put another chunk of stores into it later in the year. And then, early this year decided, hey, let’s just do it across America’s Best and we’re looking at similar options for other brands now. And frankly, the last few months of recruitment and retention as we’ve been announcing or since we’ve announced that has been the best in the past year and half or so.

Taji Phillips: Great. Thanks for the information.

Operator: One moment for our next question. Our next question comes from Dylan Carden with William Blair. Your line is open.

Dylan Carden:

Reade Fahs: We cannot hear you. I’m sorry, Dylan.

Dylan Carden: Can you hear me now?

Reade Fahs: Barely, but go ahead. We’ll try.

Dylan Carden: Sorry. I’m curious how you’re thinking about the lapse in SNAP benefit as it relates to your guidance, as well as timing around lapsed customers who deferred the purchase in 2022 kind of coming back in ’23? Can you hear me?

Melissa Rasmussen: Dylan, can you repeat your question, please?

Dylan Carden: Yes. If you can’t hear me, maybe I can take it offline. I’m just curious about the lapse in SNAP benefit as it relates to your guidance and how you’re thinking about that, and then, lapsed customers in 2022 coming back to the business in ’23 kind of what the expectations are there?

Reade Fahs: Yes. It’s regarding the SNAP benefits, it’s another pressure on our lower-income, uninsured customers. But it’s — they’ve been pressured on a variety of different fronts. So, it’s just another — it is another headache there we do not think it’s going to have a dramatic impact on us. And then, in terms of lapsed customers, things — in terms of the percentage of customers who are new versus repeat has remained pretty constant.

Dylan Carden: Okay. I’ll save my other one, just I have a bad signal here, for offline. Thank you.

Reade Fahs: Good. Thank you. It is a little hard to hear you. So, thank you. I hope you got that. Good.

Operator: And I’m not showing any further questions at this time. I’d like to turn the call back over to Reade for any closing remarks.

Reade Fahs: Good. Kevin, thank you so much. And thank you very much for everyone who joined the call. Thank you to our shareholders and stakeholders for your ongoing support. And we look forward to speaking to you again when we report our first quarter results. Thank you, all.

Operator: Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day.