National Vision CEO Reade Fahs Sees Strong Sales, in Spite of Retailers' Woes

Discount eyewear retailer National Vision Holdings Inc. (EYE) went public on Thursday, Oct. 26, betting on "retail 2.0" and value-focused consumers. 

National Vision priced its IPO at $22 per share, ahead of the $18 to $20 per share forecast on Wednesday. Shares opened at $28.75, 30.7% above the offering price and 51.3% over the midpoint of the previously expected range. Shares were trading at $27.83, up 26.5%, midday.

The company operates 980 retail stores in the United States, including the America's Best and Eyeglass World wholly-owned brands. It also operates vision centers in Walmart Stores Inc. (WMT) locations. E-commerce sales, including on its own websites and on e-commerce platforms from partners Walmart, Sam's Club and CVS Health Corp. (CVS) , accounted for 4% of 2016 sales.

National Vision has reported 63 consecutive quarters of same-store sales.

National Vision is backed by private equity firms Kohlberg Kravis Roberts & Co. LP (KKR) and Berkshire Partners LLC, which post-IPO still control the company.

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"On the roadshow, a lot of people were suggesting they hadn't seen a 63 consecutive quarter streak like this, CEO Reade Fahs said by phone. "We thought that was the longest-running streak in optical in the U.S., and a lot of investors say they've not seen that with any retailer in America."

All those quarters have taken place "amidst this retail landscape," he noted, and the company is not concerned about overall upheaval in the sector. "We're the low-cost provider of a medical necessity," Fahs said. "People save money by coming to our stores."

As a provider of optical exams in addition to retail goods, National Vision is one example of what "retail 2.0 [may] look like," Fahs said, adding that he expects the combination of services and products at a "deep value" price point will remain attractive.

2016 earnings of $14.8 million more than quadrupled from 2015, while 2016 net revenue of $1.2 billion rose 12.6% year over year.

An e-commerce-focused competitor, startup Warby Parker, was valued at $1.2 billion as of a 2015 Series D round raising $100 million, but mutual fund company John Hancock Investments in April marked down its Warby Parker stake to an implied valuation of under $900 million. As National Vision has beefed up its e-commerce offerings, Warby Parker has begun opening brick-and-mortar locations, Fahs pointed out: "Their discovery is ours: that these are products that in some way, shape or form customers want to go into the store and have a relationship with. We agree with them on that front."

National Vision is also investing in technology startups, including an early-stage eyeglasses 3-D printing company, a startup that makes eye exams more productive and Ditto, an e-commerce site that allows customers to simulate trying on glasses, and  available, too, on America's Best's website.

National Vision CEO Reade Fahs 

E-commerce is also a recent Walmart priority.

"Walmart has been a marvelous partner for the past 27 years and we see that continuing," Fahs said. "We're darn impressed with Walmart, especially these days. They really have their mojo on and are doing exciting, interesting thing...We think the next few years are going to be more exciting than ever to be Walmart's partner."

Nonetheless, National Vision is "not seeing a lot of growth" in its Walmart partnership. "We grow our freestanding businesses and we continue to be a good partner," Fahs said.

KKR acquired a majority stake in National Vision on Feb. 7, 2014, from Berkshire, which retained a minority stake. KKR's pre-IPO stake of 76.97% will fall to 58.24% to 60.15%, depending on the exercise of the underwriters' options, while Berkshire's pre-IPO stake of 18.01% will fall to 13.62% to 14.07%.

National Vision plans to use its initial IPO proceeds of $347.6 million to pay down debt, which totaled $922.4 million as of Sept. 30.

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