National Vision Drops 13% Despite Topping Q3 Results

American optical retail company National Vision Holdings, Inc. (EYE) has reported better-than-expected third-quarter results, as both earnings and revenue surpassed estimates.

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However, shares of the company fell 13.1% to close at $55.22 on November 10 after the company’s guidance fell below analysts’ expectations.

Better-Than-Expected Results

The company reported adjusted earnings of $0.38 per share, down 28.5% year-over-year, but higher than the Street’s estimate of $0.25 per share.

Moreover, net revenue climbed 6.7% year-over-year to $518 million, outpacing consensus estimates of $511.64 million.

During the quarter, EYE’s Comparable Store sales grew 3.4% year-over-year. The company opened 14 new stores and closed one store, raising the overall store count by 5.1% against the same quarter last year.

Management Comments

Commenting on the results, Reade Fahs, the CEO of National Vision, said, “Despite Delta variant concerns and a decline from an elevated average ticket last year, we delivered a slight comp increase against 2020 on continued growth in customer transactions… Looking ahead, as sales trends and customer demand continue to normalize from record levels during the COVID-19 pandemic, we believe we remain in a position of strength to continue to deliver sustainable growth.”

Additionally, the company’s Board of Directors also approved a $50 million stock buyback program and prepaid $50 million of its term loan, aided by strong cash flows.

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Updated Guidance

Based on the current business momentum and assuming no further deterioration from the COVID-19 pandemic, the company updated its full-year 2021 outlook.

For FY21, EYE forecasts net revenue to be between $2.04 million and $2.06 billion, marginally lower than the consensus estimate of $2.07 billion.

Further, while adjusted earnings are projected to fall in the range of $1.28 per share to $1.33 per share, the consensus estimate for the same is pegged at $1.34 per share.

Analysts’ Take

Impressed by National Vision’s quarterly performance, Wells Fargo analyst Zachary Fadem maintained a Buy rating on the stock and lifted the price target to $65 (17.71% upside potential) from $60.

Fadem said, “The post-pandemic transition period continues to evolve, with 2H comps modestly positive, strong Q3 profitability, and limited supply chain pressures the notable highlights. But the go forward message reflects a business that’s still normalizing into tougher compares, with higher wage/ad spend and incremental Q4 headwinds.”

Having said that, the analyst is encouraged by EYE’s ongoing share gains, and fifth straight quarter of double-digit positive earnings before interest and tax (EBIT) margins. Backed by the recent pullback in shares and a conservative outlook, Fadem sees a good entry point into the stock and is optimistic about EYE’s long-term growth potential.

Based on 6 Buys and 2 Holds, the stock commands a Strong Buy consensus rating. The average National Vision price target of $63.75 implies 15.45% upside potential to current levels. Shares have gained 20.9% over the past year.

Smart Score

Markedly, National Vision has a “Perfect Score” on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.