National Vision Holdings, Inc. (NASDAQ:EYE) Q1 2019 Earnings Conference Call May 9, 2019 10:00 AM ET
David Mann - Vice President, Investor Relations
Reade Fahs - Chief Executive Officer
Patrick Moore - Chief Financial Officer
Conference Call Participants
Zach Fadem - Wells Fargo
Simeon Gutman - Morgan Stanley
Paul Lejuez - Citi
Andrew Roberge - Guggenheim
Marisa Sullivan - Bank of America
Matthew McClintock - Barclays
Michael Lasser - UBS
Steph Wissink - Jefferies
Good day, ladies and gentlemen, and welcome to the National Vision First Quarter 2019 Financial Results Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] And as a reminder, today's conference call is being recorded.
I'd now like to turn the conference over to David Mann, Vice President of Investor Relations. Please go ahead.
Thank you and good morning, everyone. Welcome to National Vision's first quarter 2019 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 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 and 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 our Investor section of our website.
Now, let me turn the call over to Reade.
Thank you, David. Good morning, everyone. It's a pleasure to be speaking with you today to share our first quarter results.
Please turn to slide 4. Q1 reflected another solid quarter and a great start to 2019. Q1 net revenue increased 13%. We opened 26 new stores in Q1 and ended the quarter with 1,105 stores. That's a 7.6% increase in store count versus last year.
Q1 was our 69th consecutive quarter of positive comparable store sales growth. We are quite proud of the consistency of this track record. Q1 adjusted comparable store sales growth was up 6.7%, our strongest first quarter comp since 2015. Comps were led by our growth brands with an 8.2% comp increase at America's Best and a 6.5% comp increase at Eyeglass World.
Adjusted EBITDA increased 4.2% and adjusted net income improved approximately 1%. Excluding the timing impact of unearned revenue changes each of these measures would have increased by over 10%. Another sign of customer satisfaction and ambassadorship is net promoter scores, which we track closely.
Our overall NPS increased year-over-year with growth at our top four retail brands. We're pleased that S&P upgraded our debt rating to double BB minus, which will help to lower our borrowing costs. We successfully opened our fourth domestic lab in Texas that will help support our continuing growth and overall lab efficiency.
Turning to slide 5. It was another quarter of positive comps further demonstrating the consistency in store performance and comp store sales gains. The graph highlights our 69 quarters of comparable store sales growth. Our comps during the 17 year streak have fluctuated quarter-to-quarter, but have been consistent over longer periods of time which we believe is one of the nice benefits of a purchase tied to a medical necessity.
Comps were driven by increases in both average ticket and customer transactions. In our last two investor calls, we noted that five stores were closed as a result of severe weather. We are now happy to share that only one of those stores remained closed.
Overall, our consistent comp results highlight the benefits of operating in a growing segment of an attractive industry, having the leadership team of optical experts focused on customers and patients, new store growth as well as comparable store sales growth in our more mature stores as customers just keep coming back.
With our double-digit net revenue growth in Q1, we continue to believe that we are gaining share in the fragmented $35 billion optical retail market with our value-oriented business model. Our highly experienced management team continues to focus on executing every day, one patient and one customer at a time.
As we look forward, we remain optimistic about our prospects and are reaffirming our 2019 outlook. You will recall last year, we benefited from an extended peak selling season into Q2 that in part was driven by tax refund timing. And we delivered strong 8.8% comp growth. This year, we're off to a softer start in Q2. In addition to the stronger Q2 comparison last year, we believe the timing and magnitude of tax refunds this year is a key factor, but it’s still early in Q2 and we're focused on driving the things within our control.
As you've heard us say before, while our business can experience short-term fluctuations in demand, over time we experience the benefits of providing a low-cost medical necessity. Importantly, we are reaffirming our 2019 outlook and we remain committed to executing our growth strategies in 2019 and beyond.
Turning to slide 6 let me update you on our core drivers of growth. First, new stores remain a key focus as we continue to see a sizable wide space opportunity given our current footprint. We are off to a strong start with 26 openings in the first quarter of 2019 versus 15 openings in the first quarter last year.
We continue to plan to open about 75 stores again this year executing on the formulas that have worked well for us in the past. We have a solid pipeline of locations for this year and into 2020. Optometrists play a key role in our ongoing success.
Simply put, we are focused on creating environments where optometrists want to practice their entire career. We continue to invest in recruiting and retention programs this quarter and are pleased that our overall optometrist retention rate remains at strong levels.
As I said before, we always need more optometrists and we're looking forward to many new graduates joining us over the next few months as it's typical for this time of year. Our team expects to continue to drive comparable store sales growth in 2019, even as we lap a strong multi-year comparison.
Our key comp drivers are the comp waterfall from maturing new stores, marketing and vision insurance initiatives and the positive word of mouth from happy patients and customers.
Our new stores take several years to mature as customer awareness builds. It can take time for potential customers to find a store after it opens due to the infrequent purchase cycle for eyeglasses that averages two years to three years. But when they do we believe that they love what they find.
Our customers are cost conscious consumers who live on a budget and seek value in their purchases. We strive to make their lives better by ensuring their eyes are healthy and by helping them save money on their eye exams glasses and contact lenses. We want to be known as the low cost provider of this medical necessity.
Our customers can buy two pairs of eyeglasses for $69.95 including a free comprehensive eye exam at America's Best or two pairs of glasses for $78 at Eyeglass World with most of them able to receive their glasses the same day. We believe that this combination of extreme value backed by excellent customer service leads to satisfied repeat customers and positive word of mouth.
Marketing continues to be a key driver in attracting customers and driving traffic to our stores. In the first quarter, we rolled out new commercials of our Owl and Mr. World marketing campaign, including for the first time an Owl ad in Spanish for Hispanic markets.
Our customers often say how much they like the Owl in our ads. We think you will too and encourage you to take a moment to watch the ads, our 2019 commercials can be found on the Investors page of our website and a link is also provided on the last page of our investor presentation. Overall, we believe that our investments in marketing are paying off and a significant factor in our market share gain.
Participation in vision insurance programs remains a positive comp driver, strong net revenue growth tied to these partnerships continued in the first quarter. We remain underpenetrated relative to the industry for the percentage of our business coming from vision insurance.
Net revenue tied to vision insurance while fast-growing remains a minority of our revenue. In terms of operating productivity, as a value retailer, we promote a low cost culture. We can't be everyday low price without being everyday low-cost. Our centralized lab network is a key reason we are everyday low-cost.
We're pleased with the first quarter of operations at our new state-of-the-art lab in Texas. The lab successfully and seamlessly joined our lab network and is running on track for its production ramp up goal. Our new Texas lab is a prime example of growth investments we are making today that we believe will drive future performance.
We continue to progress our omni-channel efforts to improve the customer experience and operating efficiency. One of our key omni-channel initiatives has been the online and mobile scheduling of eye exams, which continued to trend higher in Q1. Overall, we remain well-positioned in a very attractive industry and are confident in our growth strategies.
At this point, let me hand the call over to Patrick.
Thanks, Reade and good morning, everyone. Turning to slide eight. As Reade noted our business continued to perform well in the first quarter. The two fundamental revenue drivers of our business are new store growth and comparable store sales growth.
During the quarter we opened 26 new stores and closed three stores or a 7.6% year-over-year increase in unit growth, with the openings entirely in our America's Best and Eyeglass World brands. For these two growth brands combined, unit growth increased 11.2% over the last 12 months.
We are on track to open approximately 75 new stores in 2019. Store openings will continue to be predominantly America's Best locations with the remainder being Eyeglass World stores. We project a few closings as is typical each year.
Our 2019 store growth will be skewed towards existing markets, as well as further infill and newer markets. In our newer markets, we continue to expand our store base and invest where our new stores are ramping and building awareness. We note that the majority of our new stores have historically taken approximately three to five years to mature and payback invested capital. We remain excited about these newer markets and see a lot of our potential customers there.
The chart of adjusted comparable store sales growth presents our comps calculated on a cash basis. Same-store sales increased 6.7% versus the 4.6% increase in the first quarter last year. As Reade remarked, this is our strongest first quarter comp since 2015.
The comp growth was driven by increases in both average ticket and customer transactions. In the first quarter, we generated strong comps in our growth brands as America's Best and Eyeglass World generated gains of 8.2% and 6.5%, respectively. Legacy comps increased 1.8% in the first quarter.
This brand benefited from a shift in optometrists from our FirstSight subsidiary to the legacy segment in the fourth quarter of 2018, similar to the transaction that occurred in the third quarter of 2017. While this completed the transfer of optometrists from FirstSight to legacy segment this benefit will continue for the remainder of 2019.
Excluding the benefit of this transition, legacy comps were essentially flat. And we're pleased with this segment's improvement from the performance in the fourth quarter. As a reminder our comp methodology adds new stores to our comp calculation during the 13th full fiscal month following the stores' opening. And this methodology has been consistent since long before our IPO. We did address our minor inconsistency in wording in one footnote in our recent 10-K filing to conform to the comp definition that we have consistently followed over time.
Turning to income statement highlights on slide nine. As a result of the solid comp and unit growth, net revenue increased 13%. The net revenue from the AC Lens contact lens distribution business with Walmart contributed approximately 270 basis points of the increase.
Cost applicable to revenue increased 17.5% or an increase of 180 basis points as a percentage of net revenue versus last year. Nearly three quarters of the increase or 130 basis points was due to the contact lens distribution growth with Walmart. The remaining 50 basis points of this increase primarily reflected higher optometrists costs that were partially offset by a higher mix of eye exam sales as a result of our growing managed care business.
SG&A expenses increased 13.6% or an increase of 20 basis points as a percentage of net revenue versus last year. The increase was driven by non-recurring management realignment expenses and associated stock compensation expense and performance-based incentive compensation.
This increase was partially offset by increased net revenue from our AC Lens contact lens distribution business with Walmart, store payroll leverage and secondary offering expenses last year that did not repeat in the first quarter.
In today's press release and the appendix of our presentation, please note the inclusion of a new supplemental reconciliation table for adjusted SG&A which we believe should be helpful for investors to better understand and assess our operating expense performance.
Adjusted SG&A increased 11.5% in the first quarter versus last year. As a percentage of net revenue, this measure decreased 60 basis points, which reflected the leveraging benefit from increased net revenue from the expanded contact lens distribution revenue as well as the leveraging of store payroll.
Adjusted EBITDA increased 4.2% and adjusted EBITDA margin declined 120 basis points to 13.7% in the quarter. Adjusted EBITDA growth was negatively impacted by the timing of certain items previewed on our last earnings call. The largest item was the net change in margin on unearned revenue, which reversed from Q4 and negatively impacted adjusted EBITDA growth by 590 basis points.
Excluding the timing of unearned revenue changes, adjusted EBITDA would have increased slightly over 10%. As previously noted, changes in unearned revenue can impact our quarter-to-quarter income statement, but is simply a short-term timing difference which we will further discuss in just a moment.
Adjusted net income increased approximately 1% in the quarter with a negative impact of about 1,000 basis points from the net change in margin on unearned revenue. Excluding the timing of unearned revenue changes, adjusted net income would have increased approximately 11%. Adjusted diluted EPS was $0.33 compared to $0.34 last year and reflected a 4.7% increase in weighted average diluted shares outstanding.
On the topic of unearned revenue on slide 10, this illustration is intended to help unpack how unearned revenue is somewhat unique to our service-based business model versus other retailers as well as the typical seasonal impact on our income statement.
Unearned revenue represents the cash basis sales of prescription eyewear for approximately the last seven days to ten days of the reporting period and is the timing difference of when we collect the cash from the customer and when the customer picks up the order in the next reporting period.
The seasonality of unearned revenue typically follows the quarterly hiatus presented on slide 10 subject to changes in cash basis sales and customer behavior. Unearned revenue can affect our reported results. But again, this is only a short-term timing difference between quarters.
Turning to slide 11. At the end of the first quarter, our total debt was $587 million, our cash balance was $73 million, net debt to adjusted EBITDA was 2.9 times, an improvement from 3.2 times in the first quarter last year. For the quarter, we invested $26 million in capital expenditures with the majority of the CapEx focused on growth initiatives.
CapEx increased 14% from the first quarter of 2018 as we opened 11 more stores compared to the prior period. We are on track with our CapEx plan for $100 million to $105 million for the year, which would be equal to or below our 2018 capital spending level of $104.5 million. With our current outlook for top line growth and relatively stable CapEx, we expect to reduce our capital intensity in 2019, which is an ongoing strategic focus.
Finally, on January 1 2019, we adopted the new lease accounting standards we recorded a right of use asset in our corresponding liability in an amount of $349 million with no material impact on our cash flows or profitability.
Turning now to our outlook on slide 12. Today, we are reaffirming our fiscal 2019 outlook. As a reminder, our outlook includes the impact from three items that we outlined last quarter. First, we continue to expect that the growth of the AC Lens contact lens distribution business will dampen our adjusted EBITDA margin by increasing our cost applicable to revenue and leveraging our SG&A expenses. Driven by this growth, we would expect our GAAP cost applicable to revenue to increase 75 basis points to 100 basis points in fiscal 2019 compared to fiscal 2018.
For modeling purposes, let me outline the expected impact of this wholesale distribution growth over the rest of the year. In the second quarter, we will experience another full quarter's impact and would expect our GAAP cost applicable to revenue to increase 110 to 130 basis points over the second quarter of 2018. The margin pressure should moderate in the third quarter with the impact for two months of the quarter. And then we will fully anniversary the impact in Q4.
Second, we plan to spend approximately $4 million in incremental investment in cyber security this year. And lastly, the Texas lab is ramping in production and cost as expected and our projection through a modest operating drag this year has not changed, we remain excited about the potential benefit to lower our unit costs over time from this lab.
Overall, we continue to expect to deliver generally stable adjusted EBITDA margin in 2019 before the impact of the incremental contact lens distribution business, all while investing to drive future growth. As Reade noted, we have experienced a softer Q2 start against a robust 8.8% comp comparison last year, but it's still early in Q2 and we're focused on driving our business. We are reaffirming our 2019 outlook and continue to expect solid adjusted EBITDA growth this year.
In summary, while our business can experience fluctuations quarter-to-quarter, based on timing and other factors, it has delivered highly consistent results over time. We are focused on executing our 2019 strategic growth initiatives and look forward to delivering another year of consistent growth.
At this point, I'll turn the call back to Reade.
Thank you, Patrick. Turning to slide 14 and our Moment of Mission. Before we open the call up for questions, I'd like to share our recent patient interaction that occurred in one of our America's Best stores. A deaf patient came in for an eye exam to one of our Cleveland America's Best locations. Dr. Orluzia Bradshaw [ph] performed a comprehensive eye exam, utilizing American Sign Language.
Dr. Bradshaw had taken it upon herself to learn sign language, so as to be able to provide care to deaf patients. When this customer went to the sales floor to shop Dr. Bradshaw continued to help by using sign language to help the customer select their glasses and stayed with the customer the entire visit. In the past Dr. Bradshaw used signing ability to provide exams to the deaf on missions abroad. This is a great example of the sort of caring optometrists we treasure here at National Vision.
I want to thank our entire team at National Vision. The 12,000 plus associates, including over 2,000 optometrists such as Dr. Bradshaw, who provide much needed medical services to patients at our over 1,100 store fronts every day. We continue to strive to be the best at providing low price exam, glasses and contact lenses. While both at home and abroad we work to bring glasses and consequently sight and improved quality of life to those who would be unable to see well otherwise.
With that, I'd like to turn the call back to the operator to start the question-and-answer portion of the call.
Thank you. [Operator Instructions] And our first question comes from Zach Fadem of Wells Fargo. Your line is now open.
Hey, good morning. Reade, I wanted to follow up on your comments about gaining share. Curious if you could talk through some of the moving parts here in terms of competitive landscape, value versus premium category and maybe update us on what's going on with online competition and perhaps your competitors who are also consolidating or going out of business.
Great. Okay. Yeah, happy to do that. So we believe the industry is continuing to shift to the value segment overall, which has been going on for a while. Yes. There have been a few changes in the host segment. Yes, I think, we're all following sort of the Sears and sort of the changes happening there and they used to have over 400 stores. I think they have few under 160 now and Shopko had some recently. They -- Shopko is liquidating, but they are trying to shift some optical to standalone. But maybe less stores than they used to have.
The -- if you look at sort of VisionWatch data the industry is growing a couple of percent. And in terms of -- and we are gaining market share from that our formulas continue strong in that way. In terms of online, it's believed now that about 5% of the market in terms of dollars is online and online has been around for a long time and we've been growing throughout that.
And again our strong Q1 comps are 8.2% for America's Best, 6.5% for Eyeglass World. So I think our stores are still the way and still of course all the – so the key way people are buying glasses and getting their eyes examined and the like. So, again, we still feel like the trends are in our favor, trends are in favor of value. And, yes, so things feel consistent with what we've been saying for a long time.
Okay. And then for your stores, specifically just given the limitations around optometrist time and the number of days and their typical work week. Could you talk about how many optometrists are typically working at a time at your high volume stores and maybe walk through some of the things that you're doing to improve throughput and productivity here?
Sure, well. First of all, I'd like to point out that our retention of ODs is quite strong and we're pleased with and proud of that. Because ODs are a key part of what we do and so the fact that they're excited to stay with us says we're doing the right things. We want to be the most optometric centric organization in our industry and continue to be the best place for optometrists to spend their entire career that's been our mantra for a long time into the way our formulas work is we open our store with one doctor in one lane, but an empty lane room next to the doctor and then as the store grows we put in the second lane and have the doctor go back and forth between the rooms, which makes them much more efficient.
And then as it continues to grow, we add a second doctor and in some cases more than that, and I was with a lot of doctors yesterday, I had lunch with about 20 of our newer doctors they've been with us about three months now and they were talking about how our process, our investments in technology, how we figured out the patient flow through a store allows them to be much more productive than in other environments they've been at.
Thank you. And our next question comes from Simeon Gutman of Morgan Stanley. Your line is now open.
Thanks, good morning, everyone. A short-term and then one long-term question. On the short-term, can you remind us or just give us a sense without giving us monthly comp detail, which I don't think you'll do anyway.
Can you give us a sense of the variability in this business over the course of months because you mentioned the soft start to Q2? Curious why you even mentioned that since the business does tend to be pretty stable over time. And then I'm guessing it should rebound, but just give us a sense of variability so maybe some I guess comfort any fears, soft start wouldn't necessarily rebound?
We've always said this is a very consistent business over time, but sometimes we've always referred to the quarter-to-quarter fluctuations that we have and again strong Q1 and reaffirming outlook.
Last year we had a 8.8% comp with a special strength in the first part of the quarter and we think a lot of that relates to sort of the timing and size of the tax refunds last year versus this year. But we're certainly expecting our record streak of positive comps that continue into Q2.
Okay. And then longer term question is on Eyeglass World. And so can you the value proposition is very clear as far as America's Best goes given it's almost at the lowest end of the spectrum, and it delivers the utmost value to the customer. Talking about Eyeglass World. It's clear, it's a similar level of proposition. But it's a little bit more crowded from a competitive landscape position. So can you clarify exactly where it sits in the totem pole in terms of value and then what you're seeing in terms of the ramp up? Does it feel any different as far as America's Best or should it be along that same trajectory over time?
So Eyeglass World is America's Best, it’s traditional superstore in that way. We have labs in the store, providing same-day service, a broader selection of frames and more brand names out there. So it is a differentiated proposition in that way. And I think that if you – I’d like to say that if you didn't have America's Best comps this long comp streak you would want Eyeglass World long comp streak. So it is -- we think it's a real strong grower and that it does provide a unique combination of brand, fast turnaround and value that is differentiated in the marketplace.
Thank you. And our next question comes from Paul Lejuez of Citi. Your line is now open.
Hi, thanks, guys. I just want to go back to the comment about the soft start. Were you referring to it being softer than the 1Q comp or were you actually saying it's softer than last year meaning negative at the beginning quarter-to-date. And if you could provide any color about where you are up against quarter-to-date relative to the 8.8% comp that you did for the full quarter.
And then just secondly just bigger picture curious if you could maybe talk about the ramp that you're seeing in stores that are in the comp base for the first year compared to what year one comps look like in last year's cost of stores in year one and also curious if you could talk about mature store comps? Thanks.
So, again, on the Q2 front, the first question you have there we expect our record streak positive comps to continue in Q2. It's just a little softer than we had anticipated. Because I think again the timing of the tax refunds and the size which I think is we are all looking at the same IRS data out there and we've seen lower average refunds out there. Tax season just hasn't been as robust, but we don't comment on months, we don't comment on quarters, but we are a consistent group that consistently delivers positive comps.
Okay and then I'll provide some color on comp ramp. So, we are careful around talking about specific vintages or markets for competitive reasons. Having said that, in our newer markets, we've taken a great degree of market share and those stores continue to ramp as we build awareness. And you guys are aware we've typically historically taken three years to five years to mature and get the payback that we desire there.
The other thing I would mention is we're seeing a very similar comp composition profile Paul with regard to the overall comps and what percentage of that is coming from the maturing stores versus what is coming from the older stores. That remains very balanced. I think we've been floating around the 50-50 mark for quite a while and we're continuing to see that those trends as well.
The other thing I would add just coming out of Q1 a great quarter and we saw really nice results across all the spectrum of store agents. We didn't see a huge mark off as we got back to the older much more mature stores. So, a very strong quarter across the Board.
Thank you. And your next question comes from Andrew Roberge of Guggenheim. Your line is now open.
Hi, great. Thanks for taking our question. I guess just first on the softer performance commentary. Is that broad-based across the company specific to any brand and across the U.S. as well. Is there any pockets or regions I think that would be helpful. Thanks.
Yes, again, we think it has to do with macro trends and that makes it pretty broad-based on both those dimensions.
Okay, great. And then just quickly on the composition of ticket and traffic that AB and EGW, was there any discrepancy between the two at those two brands or is that again fairly similar?
I don't think we -- we don't just drill down in that way, but again that the Eyeglass comps which is the important one to look at was pretty evenly balanced there between ticket and transactions.
Thank you. And your next question comes from Robby Ohmes of Bank of America. Your line is now open.
Hey good morning. It's Marisa Sullivan on for Robby Ohmes. I just want to ask about the optometrist wage pressures and see. Is there anything that you guys have been doing to mitigate this aside from retention or are there other initiatives that you have in-store to try to drive productivity improvements?
In general we are always looking for different ways to get productivity improvement and we have some initiatives out there and again we find the optometrist wage pressure is something that often is very geographic in nature along the way. But so we are retention and recruitment are key to us and we think we're in ever more attractive place to practice Optometry and that seems to be borne out with what we hear back from optometrists these days.
Got you. And then just a quick follow-up. On your store openings in newer markets how are they performing versus your expectations? And are you seeing the store ramps or the new store economics similar to the company average or are you seeing some variation there?
I said just a few moments ago we've taken a great deal of market share out of those newer markets. We are pleased with what we are getting there. We continue to ramp. We continue to build awareness. I would say that the newer markets the new stores are above the historical range and historical average. And that's just a function of the markets that we're in. So those stores continue to ramp and we continue to see a lot of our potential customers in those market.
Thank you. And our next question comes from Matthew McClintock of Barclays. Your line is now open.
Hi. Yes. Good morning everyone. Reade you announcing that you are now doing the Owl ad in Spanish for Hispanic market, it actually got me thinking overall demographics for your company. Just how large is the Hispanic segment or Hispanic markets for the company?
We don't like to go in specifics for that for competitive reasons. But in general we're over developed in minority communities when you look down on a specific geography. Our customer looks a lot like sort of the emerging America but we think that's a good long-term trend.
That sounds like a growth opportunity for sure. If I could switch the conversation a little bit differently. Just the credit upgrade the rating upgrade and just thinking longer-term capital structure as we think about interest expense as a line item going forward. Is there the potential over the next several years to see further relief in terms of interest rates from just the overall leverage ratios going down or the credit agencies getting more comfortable with your long-term algorithm?
Yeah. We got a short-term benefit from the most recent upgrade in and I think that upgrade timing was we had two within about a four to five month period that provided an immediate 25 basis point step down in the term loan B tranche. We continue to look at how to optimize the capital structure. Those are ongoing discussions. And I am very interested to see if there are smart ways to reduce the interest exposure over time and improve our net income growth. So that is a focus of the company.
Thank you. And our next question comes from Michael Lasser of UBS. Your line is now open.
Good morning. Thanks a lot for taking my question. Reade I think in your comments and in you mentioned that ticket was the first driver of comps and then traffic was the second driver of comps or you did though in just that order so presumably ticket was a slightly bigger driver than traffic. Historically, you said that your comps are driven by traffic so what has been driving the increases in ticket and has traffic become more volatile over the last few quarters?
Just to clarify what I said a moment ago. It was balance between ticket and traffic for Eyeglass comps which is the important one three monitoring. So it was about equal this time in the first quarter.
That's helpful. But historically the model is still being driven by traffic. So what has been driving the increase in ticket over the last couple of quarters and has traffic become more volatile?
I would not say that traffic has become more volatile. I will say that here and there episodically over the years we take a little bit of peripheral pricing on peripheral things. We've done that here and there over the years and that is probably a component for the Q1 performance.
Thank you. [Operator Instructions] And our next question comes from Steph Wissink of Jefferies. Your line is now open.
Hi, good morning, everyone. I just wanted to do a quick follow-up on the prior question on ticket versus traffic. I think your responses maybe with respect to Eyeglass World. But can you talk a little bit about the AV business as well, ticket versus traffic and what you're seeing in terms of trend lines there?
So to be clear, we don't drill down on that. So we give you sort of the whole company basis. And so my statement of Eyeglass comps being evenly balanced between ticket and traffic was for the whole company. And we don't tend to go into the specifics on that beyond that.
Steph I'll just add. So what Reade said, where we were balanced for eyeglasses and then if we bifurcate that from content lens. We've said in the past that the contact lens ticket is really driven by customer behavior. We're not upselling the contact lens that's a doctor patient decision. So you can also give some impact there based on what customers choose.
Okay that makes sense. And then just a bigger picture question. You've head your new marketing programs in the market now for several quarters. I'm wondering if you can talk a little bit about customer retention or repeat purchases within your customer profile. Is that market improving to not only drive new traffic, but also repeat traffic?
So marketing does talk to both groups. So we do feel it talks about growth we sort of publish numbers on this annually. So at the end of last year and sort of our customer sort of our customer base was 64%, existing customers 36% new that changes very gradually over time. And if you look at it gradually overtime new has been queuing up in an encouraging way.
Thank you. And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Reade Fahs for closing remarks.
Good. Thank you very much, Cander. So we appreciate your help with us today and we want to thank you all so much for joining us for your continued interest in National Vision and we look forward to speaking you again this summer where we report our second quarter results. Thank you very much.
Ladies and gentlemen thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.