National Vision (EYE)

Optical retailer National Vision (NYSE:EYE) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 5.7% year on year to $510.3 million. The company’s full-year revenue guidance of $1.94 billion at the midpoint came in 0.7% above analysts’ estimates. Its non-GAAP profit of $0.34 per share was 10.5% above analysts’ consensus estimates.

Company Overview

Operating under multiple brands, National Vision (NYSE:EYE) sells optical products such as eyeglasses and provides optical services such as eye exams.

Some retailers try to sell everything under the sun, while others—appropriately called Specialty Retailers—focus on selling a narrow category and aiming to be exceptional at it. Whether it’s eyeglasses, sporting goods, or beauty and cosmetics, these stores win with depth of product in their category as well as in-store expertise and guidance for shoppers who need it. E-commerce competition exists and waning retail foot traffic impacts these retailers, but the magnitude of the headwinds depends on what they sell and what extra value they provide in their stores.

Competitors offering vision products and services include EssilorLuxottica (ENXTPA:EL) and Warby Parker (NYSE:WRBY). Private companies include Zenni Optical and MyEyeDr.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $1.85 billion in revenue over the past 12 months, National Vision is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.

As you can see below, National Vision’s 2.6% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was sluggish as it closed stores.

This quarter, National Vision reported year-on-year revenue growth of 5.7%, and its $510.3 million of revenue exceeded Wall Street’s estimates by 1.5%.

Looking ahead, sell-side analysts expect revenue to grow 5.1% over the next 12 months, an acceleration versus the last six years. This projection is commendable and indicates its newer products will spur better top-line performance.

Number of Stores

National Vision operated 1,237 locations in the latest quarter. Over the last two years, the company has generally closed its stores, averaging 3.8% annual declines.

When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.

Same-Store Sales

The change in a company's store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

National Vision’s demand has been healthy for a retailer over the last two years. On average, the company has grown its same-store sales by a robust 2.7% per year. Given its declining store base over the same period, this performance stems from a mixture of higher e-commerce sales and increased foot traffic at existing locations (closing stores can sometimes boost same-store sales).

In the latest quarter, National Vision’s same-store sales rose 4.1% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

National Vision has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 56.4% gross margin over the last two years. That means for every $100 in revenue, only $43.59 went towards paying for inventory, transportation, and distribution.

National Vision’s gross profit margin came in at 59.8% this quarter, in line with the same quarter last year and exceeding analysts’ estimates by 1%. Zooming out, National Vision’s full-year margin has been trending up over the past 12 months, increasing by 3.7 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold.

Operating margin is a key profitability metric because it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

National Vision was roughly breakeven when averaging the last two years of quarterly operating profits, inadequate for a consumer retail business. This result is surprising given its high gross margin as a starting point.

Analyzing the trend in its profitability, National Vision’s operating margin decreased by 1.5 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. National Vision’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, National Vision generated an operating profit margin of 5.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

National Vision has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.7%, subpar for a consumer retail business.

Taking a step back, an encouraging sign is that National Vision’s margin expanded by 1.6 percentage points over the last year. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

National Vision’s free cash flow clocked in at $12.01 million in Q1, equivalent to a 2.4% margin. This result was good as its margin was 1.5 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

National Vision historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3%, lower than the typical cost of capital (how much it costs to raise money) for consumer retail companies.

National Vision reported $80.02 million of cash and $805.1 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $162.9 million of EBITDA over the last 12 months, we view National Vision’s 4.5× net-debt-to-EBITDA ratio as safe. We also see its $7.36 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by National Vision’s optimistic full-year EPS guidance, which blew past analysts’ expectations. We were also glad its EBITDA outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock remained flat at $13.33 immediately following the results.

Updated: June 23, 2025 at 10:27 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in National Vision.

National Vision doesn’t pass our quality test. For starters, its revenue growth was uninspiring over the last six years. And while its admirable gross margins are a wonderful starting point for the overall profitability of the business, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its declining physical locations suggests its demand is falling.

National Vision’s P/E ratio based on the next 12 months is 37.6x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $20.40 on the company (compared to the current share price of $22.69), implying they don’t see much short-term potential in National Vision.