National Vision Holdings, Inc.
Q1 2020 Earnings Call Transcript

Published: 12 May 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the National Vision First Quarter Fiscal 2020 Financial Results Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]After a few moments of silence, I would now like to turn the call over to Mr. David Mann, Vice President of Investor Relations. Just one moment.

[David Mann:]

Thank you and good morning, everyone. Welcome to National Vision's First Quarter 2020 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 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 in our filings with the Securities and Exchange Commission. The release and today's presentation also include 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 the Investors section of our website.Now let me turn the call over to Reade.

[Reade Fahs:]

Thank you, David. Good morning, everyone. I'd like to thank you all for joining us. We hope that everyone is doing well and staying safe during these adverse times.Given the circumstances, we think it will be more relevant to you if we start by discussing our response to the COVID-19 pandemic and how we are navigating the near-term uncertainty, then we will shift to our first quarter results.Turning to Slide 4. As safety concerns mounted in mid-March, we acted rapidly with the temporary closing of our stores to protect the safety of our optometrists, store teams, patients, customers and communities. While the doors to our stores were locked to the public, we continued to staff our stores with skeleton crews to meet the essential eye care and eyewear needs of our patient and customer base, facilitating contact lens orders, managing broken or lost glasses and connecting patients with emergency medical needs to one of our associated optometrists.At the same time, we experienced a spike in e-commerce orders and calls into our customer call center. The past 7 weeks have been a vivid reminder of the fact that the medical services and optical products we offer truly are an essential medical necessity. Each week, I receive many stories of exceptional patient and customer care amidst adverse circumstances, for which our store and call center teams deserve great praise.Concurrently, our leadership team got to work planning for the safe and gradual reopening of our stores, and those were the words we kept repeating

[Patrick Moore:]

Thanks, Reade. And good morning, everyone.I'd like to take a few moments now to cover our first quarter results and then discuss our plans to address COVID-19 headwinds and finally to provide a context in terms of how we are thinking about the coming months.Turning to Slide 10, let's dive into Q1 results. During mid-March, we opened 23 new stores and closed one store, to end the quarter with 1173 stores for a 6.2% increase in store count in the past year. For our America's Best and Eyeglass World growth brands combined, unit growth increased 8.7% over the last 12 months.The chart of adjusted comparable store sales growth presents our comps calculated on a cash basis. Same-store sales decreased 10.3% during the quarter, driven by the decline in customer transactions due to store closures. As Reade noted, we were pleased with the continued top-line momentum in our business in January and February, when our comps were primarily driven by an increase in customer transactions.By category, we experienced stronger contact lens revenue growth compared to eyeglasses, as contact lens customer transactions were less impacted by the store closures. The contact lens category continued to see growth in average ticket, as our contact lens customers are increasingly adopting newer technology lenses that have higher prices, which is a trend that we expect will continue.Turning to income statement highlights on Slide 11. Net revenue increased 1.8%. Net revenue growth benefited by 6% from the change in unearned revenue. This benefit to net revenue as well as profitability was unusually large this quarter as a result of the store closures and lack of revenue in the final days of the quarter that would have typically increased unearned revenue. We would expect this benefit to reverse in the second quarter.To help unpack how unearned revenue is somewhat unique to our service-based business model versus more traditional retailers, we have again included an explanatory slide on unearned revenue in the appendix section. Costs applicable to revenue increased 3.1% or an increase of 50 basis points as a percentage of net revenue versus last year. The increase as a percentage of revenues primarily reflected the deleveraging of optometrist costs due to the temporary store closures as well as higher contact lens revenue growth partially offset by higher eyeglass margin.Adjusted SG&A expenses increased 1.1% in the first quarter versus last year or a decrease of 30 basis points as a percentage of net revenue. The key factor behind this improvement was the benefit from unearned revenue as well as lower performance-based incentive compensation, partially offset by deleveraging of store payroll due to the store closures. Adjusted EBITDA decreased 0.3%, and adjusted EBITDA margin decreased 30 basis points to 13% in the quarter.The net change in margin on unearned revenue lifted adjusted EBITDA growth by 34%. Adjusted operating income decreased 10.8%, and adjusted operating margin decreased 110 basis points to 8.1%. The decrease in adjusted operating margin was primarily due to our deleveraging of optometrist and store payroll expenses related to store closures and higher depreciation and amortization growth, partially offset by the net change in margin on unearned revenue and higher eyeglass margin.The net change in margin on unearned revenue lifted adjusted operating income growth by 48%. Again, we would expect that this timing benefit will reverse in the second quarter of 2020. Adjusted diluted EPS decreased $0.03 to $0.28 versus $0.31 last year with a $0.19 benefit from the net change in margin on unearned revenue.Now turning to Slide 12 and our balance sheet. At the end of the first quarter, our total debt was $717 million, and our cash balance was $263 million. In March, we drew down the remaining $146 million in available funds from our revolving credit facility as a precautionary measure.Net debt-to-adjusted EBITDA was 2.3 times, an improvement from 2.9 times in the first quarter last year. We have no debt maturities on our term loan or revolving credit facility until 2024. And as a result of our prepayment of debt principal in 2019, the Company does not owe principal payments on its term loan in 2020 and 2021 other than a potential repayment from the proceeds of any new capital market transactions we complete in the coming months.Moving to CapEx. We invested $13 million in capital expenditures in the quarter. The lower level of CapEx versus last year resulted from planned timing and the postponement of a significant amount of capital projects, including the pausing of store openings.Turning to Slide 13 and our financial positioning to address the COVID-19 headwinds. As Reade noted, we believe we have taken decisive actions in response to the COVID-19 pandemic challenge. We have implemented multiple initiatives to reduce expenses and defer CapEx and are committed to remain agile given the dynamic environment. We have significantly reduced our cash needs and will continue to maintain a conservative posture on costs and cash preservation while our stores ramp back to higher volumes.We have reviewed multiple planning scenarios but recognize that this is a very challenging time to forecast as conditions remain fluid. We expect to utilize a portion of our current cash balances while stores ramp over the next few quarters and believe that we have sufficient liquidity to operate our business through the end of the year.As of the end of the first quarter, we were in compliance with all covenants under our credit agreement. As I mentioned earlier, I am pleased to share that we have entered into an amendment under our credit facility which will suspend certain financial maintenance covenants through our fiscal quarter ending in March 2021.This amendment will allow the Company to focus on the business of safely returning stores to normal operations and serving our patients and customers. We are appreciative of the vote of confidence that this represents. We are continuing to evaluate additional measures that we may elect to undertake in order to improve our liquidity position in light of the COVID-19 pandemic, including potentially accessing the capital markets to obtain additional debt or equity capital.We will keep you updated on these measures when we are able to do so. As for the rest of 2020, we previously withdrew our fiscal outlook given the uncertainty regarding COVID-19 and its ongoing impact. We note the following actions and insights to consider regarding the potential impacts of COVID-19 on our business. We have just begun the gradual reopening of our stores, which were generally closed for the month of April.With stores not open that month, we will have limited revenues and would expect significantly negative comps. We expect our store recovery could be gradual with social distancing in place and a potential for lengthened or additional stay-at-home orders. Contact lens growth outpaced eyeglasses growth in Q1, and this trend could continue with reduced margin implications. We would expect that unearned revenue will reverse in Q2 and have a negative impact on net revenue and profitability.We intend to appropriately fit our capital investment decisions to evolving business conditions. We would expect higher levels of net debt in the near term and, as a result, higher interest expense. We also would note that we are a team with a history of deleveraging, as demonstrated over the last few years. As our business improves, balance sheet improvement will remain a top priority. Lastly, we would anticipate that we will incur incremental costs of doing business in a post-COVID world.In summary, I'm very pleased with the actions that we've taken and in the way in which the management team has executed. And I want to reiterate what Reade said in his closing, that we believe this company will effectively navigate this challenge and emerge as an even stronger business.At this point, I'll turn the call back to Reade.

[Reade Fahs:]

Thank you, Patrick. We have traditionally ended these calls with a moment of mission. We have done this to give you a better sense of who we are as a company, what we do and our ambitions for how we do it. COVID tested us and all organizations in ways that made a company's culture even more vivid, pronounced and apparent to all. One of the expressions we repeated often during the past few weeks of COVID trial was it's better to light a single candle than to curse the darkness.NVI's candle lighting took many forms. We donated 40,000 protective face masks to the Georgia emergency management agency to support the efforts of health care workers treating COVID patients. While everyone in the Company was working at reduced income and many have been furloughed, associates came together and selflessly contributed over $190,000 out of their own pockets to our associate crisis relief fund. Even the presence of such a fund, which many companies our size have never set up, is a reflection of a value system, but the fact that in a time of financial sacrifice and hardship so many associates would be so generous to fellow associates that they don't even know says a lot about the types of people that we've been lucky enough to attract to National Vision.And finally, every week, while our doors have been locked, there have been numerous individual examples that highlight associates' dedication to patient and customer care. Some involved doctors addressing urgent medical needs that involved coming into the office for emergencies. Some involved handling broken glasses issues and getting customers contact lens orders, sometimes involving pickup and delivery to customers' porches. Some involved assisting frontline health care workers with their urgent optical needs so that they could continue on with their vitally important jobs.I've been so heartened by the steady stream of these stories and want to thank our entire team for providing so much inspiration over the past 7 weeks. As a business, we are, of course, pleased that despite locked doors we still managed to care for the medical and product needs of so many patients and customers, thus ensuring their ongoing loyalty, but as an organization, we're even more proud and fulfilled by the spirit of care and generosity that's been demonstrated by the NVI team. We've often mentioned the nobility of the work that we think is involved in providing low-cost medical care and optical products. How the team has risen to the challenges presented by COVID makes me even more confident of that sentiment.In closing, as I think about the events of the last several weeks and how the entire National Vision team performed, I could not be more proud and appreciative of their inspiring endurance amidst shared sacrifice and strife. While the road ahead remains uncertain, I'm confident that the National Vision team will emerge from this extraordinary experience stronger from the adversity we will have overcome together.With that, I'll turn the call back to the operator to start the question-and-answer portion of the call.

[Operator:]

[Operator Instructions] Our first question today will come from Stephanie Wissink with Jefferies. Please go ahead

[Stephanie Wissink:]

Thank you. Good morning everyone and Thanks, Reade, for sharing some positive news again today on your missions that you're doing. I have two question or two-part question related to customer and optometrist acquisition and retentions because those seem to be bright spots. So can you talk a little bit about the '08, '09 financial crisis and what you saw in terms of your ability to acquire customers either through marketing or at the time if there was some sort of kind of CRM advancement? And then you also mentioned the optometrist recruitment efforts being strong, so maybe just talk a little bit about how you're seeing the pipeline of new talent coming into your stores.

[Reade Fahs:]

Sure. So in terms of customer acquisition during the recession of '08, '09. And I'd like to say, when I called stores during that time and say, why are you doing so well? one of the frequent answers was something along the lines there seem to be nicer cars in our parking lot. And in short, during that time, there were more and more consumers looking for value and great prices. And when people are seeking value and great prices in optics, they tend to find us.And so we saw nice customer acquisition during that time, and we believe they stayed with us afterwards. Or sort of once you've found out you can pay a lot less for a product, you tend to stick with that. Since then, I'd say, our brands have only gotten stronger. If I could show you the advertising reel for both America's Best and Eyeglass World since that time, anyone would look at that reel of the history of those ads and say, wow, it's gotten a lot better. And I think you see that in sort of the period 2015 to now, if you look at our comp chart on slide seven. You say, oh, yes, and but we see that in a lot of ways.Our brands are stronger. We're known even more for value there. In terms of optometrists, what happens during tight financial times is it's harder to be an independent. If you're close to retirement, you might say, all right, maybe I'll shut my practice and go get an employed gig. I mean we have really great salaries. We have great benefits. We have paid vacation where you don't have to find your replacement.We have free continuing education. It's really a great package. And sort of we found again a continuing trend over the years has been the greater acceptance and appreciation of the benefits of the employment model where you get to practice pure optometry. You don't have to run a business. So it's good in that way. And I see that, that should continue on the other side of that, maybe even more so the ability to attract optometrists. We're again, we're seeing it now. We talk to students who talk about how, some of their fellow students who had offers with independent practices, their offers are being rescinded. So that's on the student side.And I alluded to in the comments there my bet is there just aren't going to be as many optical doors out there on even in the next few months, but ongoing, I think a lot of folks are going to say this is a tougher time, especially if your business model was based on higher prices, especially if you were in a mall-related or in the wrong host environment.So again I just see a lot of nice trends coming together. There's that Elon Musk term about hastening the inevitable. He talked about how his life is hastening the inevitable. I see that these that what COVID is going to do to the optical category is there are a lot of trends that were chugging along, growth of chains, growth of value, low-price chains, all these pieces and the employment model of doctors.And I think they're all just going to be hastened in a way that plays to our strengths and the equities we've built up over the years, both brands relative to consumers and as an employer relative to optometrists and optical professionals.

[Operator:]

Our next question will come from Simeon Gutman with Morgan Stanley.

[Simeon Gutman:]

My first question is in within the new operating backdrop with distancing, sanitizing. Is there any reason your stores can't reach similar throughput with similar amount of resources?

[Reade Fahs:]

So I a word as I mentioned, sort of the two words that we have been using are safe and gradual, okay? And again, we're 1.5 weeks in. We started opening our stores a week ago, Monday. We're going to continue to be opening throughout the month. And safe is all the things we put in place to make it safe for optometrists, safe for our associates, safe for our patients, safe for our customers.And if any of you would like, I can elaborate on that in great depth because it was done very, very thoroughly and gradual. And what I'm saying to the teams is, hey, we're developing some new muscles. I think the fundamental business formulas are what they are. So we're just injecting more safety protocols to those, but my bet is our teams are going to be able to evolve nicely and get better and better and better by the day, week and month. And we're just saying to them let's learn gradually. Share best practices as rapidly and progress in that way.

[Simeon Gutman:]

Fair enough. I guess, I mean, just to clarify. It's not as simple as you can extend the store hours by an hour or two if you were trying to get the same throughput if you're right, if you had to put more distance or time in-between appointments, et cetera. It's not as simple as that, I assume.

[Reade Fahs:]

I actually, what was your last sentence? I didn't hear your last sentence there. I got most of it, just the last sentence...

[Simeon Gutman:]

Just putting more time in a day in an operating schedule in order to get similar throughput, yes.

[Reade Fahs:]

I mean one can always do that if one wants to, if required. That is a possibility and or you could open more stores on Sundays and the like if one wanted to. But we're good process people. We're good at sort of sorting out process and workflow. That's really been one of our competencies over the years. And we're just -- we're adding some pieces to it, but we're good at sorting through things like that.

[Simeon Gutman:]

Fair enough. And then can you just share? You mentioned you're expecting a lot of pent-up demand. I think we've spoken maybe a month or so earlier about all the interest that's coming through the website, et cetera. Can you frame it up? I mean this should be a release of pent-up demand like we've never seen. Or it's going to come gradual, as social distancing, et cetera.

[Reade Fahs:]

Yes. So the nice thing about our business, we always like to say, versus a restaurant, if there was a snowstorm and you can't get to a restaurant last night, you're never going to have last night's dinner again. With us, of course, your eyes just get worse. The eyes don't care about the economy. I would said they just deteriorate with time. And so for the past 7 or so weeks, our customers have been at home, staring probably too much at screens, and their eyes have just been getting worse. And I think 7 or 8 weeks is about 15% of the year. Just -- that's just the math of weeks to the year. And our seasonality is -- it would be such that there are going to be a lot of people that need eye exams and a lot of people who need glasses and contacts because their prescription have changed. So I think pent-up demand is going to be real. And yes, you said sort of on the -- we're finding different parts of the country are viewing this situation differently. I mean that we all see that just in the fact that different governors are approaching it differently. And in some states there is much more openness to getting out and doing things after so many weeks of being cooped up, but we think that it's going to be a gradual, nice build, but people's eyes have been going bad. So I -- pent-up demand will be very real.

[Simeon Gutman:]

Thanks, Reade

[Operator:]

Thank you. Our next question will come from Anthony Chukumba from Loop Capital Markets. Please go ahead.

[Anthony Chukumba:]

Thanks for taking my question. I really appreciate it. I know we talk about unearned revenue sort of every quarter. And there's obviously puts and takes between quarters, but the impacts on this quarter's results are just so dramatic. I mean, can you just sort of almost do -- I don't want to say unearned revenue 101, but just if you can just kind of walk us through why -- exactly the mechanics of why it was so much more dramatic this quarter. I understand it was your stores closed and how that's going to impact over the next quarter. We -- I just want to make sure that we get the modeling right given that it's had such a disproportionate impact this time.

[Patrick Moore:]

Hey, Anthony. Good morning. It's Patrick. I'll point everyone to Page 26. I'm not going to drain that slide, but I'll give you a high-level sense of it. Unearned -- the timing of unearned revenue has always swung our results a little bit quarter-to-quarter. We always purposefully disclose what that amount is. And if you think about it, it's all about that last 7 to 9 days of the quarter where people have come in and paid us for eyeglasses, but they're not delivered yet, so we can't recognize it. So at the end of whatever period you're looking at, whether that be a month or a quarter or a year, that last 7 to 9 days is really critical. And most of the sales in that period are moved into that unearned revenue account. As you get into the next period, those flow into the account. So as we look at Q1 and unpack that, we had all of those revenues coming in from Q4 that were unearned in Q4. However, we were closed in that last seven- to nine-day period. And so there were very little or no sales, especially of eyeglasses, and thus there was nothing that was going out into that unearned categorization.So you've got this very real accounting timing thing. On a cash basis, there it was there was not a lot of impact, but you have a big help this time in that you weren't pushing the normal revenues out at the end of the quarter. That will reverse to a great degree in Q2. And I will guess, by the end of the year, when we look at the year in general, it will probably look a lot more normal. That is a complex topic, so I do want to stop and see if that helped.

[Operator:]

Our next question will come from Michael Lasser with UBS. Please go ahead

[Michael Lasser:]

Good morning. Thanks a lot for taking my call. Reade, what percentage of your sales come from deferrable transactions? And the question comes about because you offered some evidence that you think this category will hold up well during a recession given what happened the last time. Although, last time around, your store volumes were probably half what they are today, and the demographic of those who are being affected by the labor market weakness does line up with your core customer demographic. So is it possible that, if for example, in the past someone might have gone in for an eye exam every 12 months, that could extend out to 13 months? And what percentage of your sales would be affected by that?

[Reade Fahs:]

All right. And so deferrable transactions, and I'm going to take that as to something a customer can delay. Frankly, we think that our customers in general I, in my mind, sort of see two sets of customers. Customer one is just a total price consumer. They often can't be even they couldn't afford to go anyplace else. So they are really they this is for them because they can't afford to go anyplace else. And then the other customer is the value shopper, the Marshalls and T.J. Maxx shopper who knows a good deal, value hunter out there looking for a good deal.So the price customer has already deferred, and that's always been an experience with us. They're waiting till the last minute because they are so living paycheck to paycheck, the value shoppers, yes. And there could be a little of that. I don't think that's going to be a big factor, Michael, if that's what you're saying, especially given this pent-up demand of 15 weeks, along the way. And then we've got to also factor in the managed care consumer.Managed care consumer often is dealing with their benefits, their annual benefits. So they'll they get access to an eye exam, a pair of glasses annually. So they might defer, but they won't defer out of the year. So I'm that's I would consider that a minor, smaller factor and yes.

[Michael Lasser:]

My second question is, how should we think about these incremental costs of doing business that Patrick alluded to? And maybe you could put it in the context of if your store volumes were to fully recover in 2021 because that's really what the equity market is focused on in a more "normalized year." How would your P&L, how would your margins look if with these incremental costs that you're probably going to incur indefinitely from here?

[Patrick Moore:]

Michael, I would first emphasize we have just started reopening stores. And I think Reade said earlier we are we consider ourselves being pretty decent process people. We are working our way through that and feeling our way through that. I do view those costs as incremental. I don't have a scale to put on that yet. And we're also thinking about not necessarily there's going to be this period where we've got all these incremental costs and then those all go away at some point. We may simply be in another chapter where those are way of life.I think that, again going back to the process question, we're in very early innings. I think we will figure out how to do this effectively and affordably. And I would I can't get into longer-term guidance, but again I would expect that to be more on the very incremental side longer term. In the short term, as we learn to play this game effectively, it could be a little heavier than just light incremental. So does that give you some perspectives?

[Operator:]

Our next question will come from Zach Fadem with Wells Fargo.

[Zach Fadem:]

So good morning Reade, I'm curious if you could update us on the state of the competitive landscape as a result of the pandemic and how you think about the potential for industry consolidation or perhaps consumers pivoting more online in the category and how you think you're positioned.

[Reade Fahs:]

Sure. The category is the same trends are going to be continuing, chains growing at the expense of independents. I think now we'd have to add in well-capitalized chains are growing at the while independents will lose share, we believe. Non-mall-dependent chains will do better. Value chains will do better. We think that that's all going to continue and plays to our strengths. We think the consumers are going to be seeking price now more than ever.While we expect our managed care business to continue to grow, more unemployment means less people having managed care benefits. When it's your money, you come find us. When it's your money and you're tight on money, you come find us. I think that certain host environments, especially mall host environments, are we can read in the newspaper are looking tougher. And I think it will be harder to be any sort of a mall-based optician, and most malls have a couple of opticians in them. And I do think there are going to be less doors. You hear all sorts of different estimates on that as to how many people won't be opening up, but we are hearing about 1-, 2-, 3-door practices that are just saying that it's time to retire. It's time to throw in the towel. And then there's -- I think, a few months from now, there is going to be a lot of cash flow surprises in the independent sector as well. So we think those are the big trends, but again I think they played who we are. I think that's why we've been doing well for a long time, and I think that will continue.

[Zachary Fadem:]

Got it. Thanks for that Reade. And for Patrick

[Patrick Moore:]

Sure. As we think about the store ramp, again early innings. We're taking a very gradual and safe approach. We expect the recovery curve to be gradual. We are thinking that there is pent-up demand and maybe longer-term opportunity for less other doors out there, but this could take multiple quarters to recover. As I think about how to think about the ongoing profitability, in the short term, we are going to have some incremental costs of doing business. However, we think that this could yield some of the -- some relief from some of the wage pressures that we've been feeling in recent years. We think that our optometrist availability is going to be good, maybe very good. Generally, in these environments you see some advantages for businesses like us regarding advertising and rent. So I think there's an opportunity for us to continue to be a share grower as a low-cost provider of a medical necessity. As it relates back to SG&A

[Zachary Fadem:]

Got it. Appreciate the time.

[Operator:]

Thank you. Our next question will come from Adrienne Yih with Barclays. Please go ahead.

[Adrienne Yih:]

Good morning. I'm glad everybody is doing well. Reade, I guess my first question for you is kind of going back to the same -- Stephanie's question about the 2009 recovery. What was the cycle of recovery? How long were comps negative? And then how long did it take to recover to prerecession levels? And then Patrick, my follow-up is, can you talk about the e-commerce trends? I know it is a small piece of the business. Thanks for giving us monthly color. The period of March closures, the back half, it would -- implied -- I just want to get this correct, imply a down 90, which makes sense. And I'm assuming we should use that for April and the duration of whenever the stores through mid-May, so for essentially half the quarter, with a slow recapture even once you open. I just want to make sure that that's sort of the right logic.

[Reade Fahs:]

Adrienne, I think I registered your question being back in '08, '09. We never had negative comps...

[Adrienne Yih:]

So yes.

[Reade Fahs:]

The team here has never the team that came together 18 years ago has in that 18 years never had a negative quarter. So that and in the first two months of this year, every one of our brands was positive, except for Fred Meyer which was flat. But all our growth brands were nicely positive in that way and...

[Patrick Moore:]

I'll take the second question. And Adrienne, if I miss the mark on this, let me know, but it was e-commerce has never been a huge component of our business. We've disclosed that our e-commerce revenues are in the mid-single digits in terms of overall revenue. We remain a physical presence business, an optometrist-centric business and but there's always been a component. At the during the time period when our stores were closed, when customers and patients really couldn't come in and get eye exams or glasses, they could, however, maybe get contact lens orders billed or maybe get a prescription extended.And so we've seen a far heavier mix of contact lens sales just because our doors were closed. We still had a skeleton crew in our stores to take care of those customer requests and even sometimes connect them then to a doctor for a more urgent need. I think we'll continue to see that as the stores are reopening, but the more stores we open, the more that we start seeing patients again from an eye exam perspective, again gradually, safely, I think we'll see a return to that kind of prior mix of glasses versus content lens. It's simply been heavier now because of the physical constraints of the door being closed.

[Adrienne Yih:]

And then Patrick, just a maybe quick one. What is the minimum CapEx minimum maintenance CapEx that you could have for fiscal 2020?

[Patrick Moore:]

We have we still use this heuristic of 25-or-so percent of our annual CapEx is maintenance oriented. And I'm glad you asked that. We've if you noted, our CapEx was fairly light on the quarter, as compared to last year. Part of that was timing just of when we plan to spend the capital of the year. And part was we delayed opening some stores and put some projects on pause. As I think about CapEx for the rest of the year, we're in a very feel out the next four, six, eight weeks mode right now.And if we need to, we can certainly break keep the breaks on CapEx, but hey, look, if things start to improve, if we see that we're able to thrive during this and see patients safely and gradually, then we can go back into the on position in terms of even opening stores in the second half of the year. Maybe not at the original pace intended, but we are taking a very agile approach to the deployment of capital, and we'll get more clues every week.

[Operator:]

Our next question will come from Alex Maroccia with Berenberg.

[Alex Maroccia:]

We've unfortunately seen an uptick in retail bankruptcies, although I think it could be an opportunity for your brands in certain markets. Can you just give us your thoughts on this new retail real estate environment and where it benefits you the most?

[Reade Fahs:]

We think overall real estate is going to be more plentiful and cheaper than it was. That's how it worked in the last recession. And we think that the real estate market is another thing that will play to our favor in the coming years.

[Alex Maroccia:]

And going off the Zach's question from earlier and how it applies to online

[Reade Fahs:]

All right. They were put in place temporarily. We see potential viability to help us. We can access that as well, and we do not see that as a large threat to us.

[Operator:]

Our next question will come from Paul Lejuez with Citigroup.

[Paul Lejuez:]

I'm curious what percent of industry doors are in malls. And also curious. Can you just shifting over to your own real estate, can you maybe just remind us of your climate of co-tenants? And how many of your locations, what percent do you have co-tenancy clauses in place? And what percent of those do you actually have co-tenancy with a retailer that is really struggling that might trigger something for you on the co-tenancy side?

[Reade Fahs:]

So Paul, you're a little hard to hear, but I think I can do it. I again, we don't have an exact percentage of how many of the doors are in malls, but most malls have several optical doors in them historically. So a couple freestanding and a couple hosts. Macy's and JCPenney both have opticals in them. Sears did up until February, where that sort of ended there because it became less fun, I think, to be a host there in that environment. So that's that.And then I think your other question was how many co-tenancy clauses are there in our contracts. I would say I don't have that number top of mind, but it's a lot but, I think, in good ways like that can favor us. And of course, we're perceived as an ever better tenant, and there could be some things that would benefit us, depending on what happens to other major tenants.

[Patrick Moore:]

And I would also add that in general we like to put our real estate in these value-oriented shopping complexes. And I suspect that those centers will continue to do a little better than some of the more premium upscale.

[Reade Fahs:]

But as we list other tailwinds, that could be a tailwind for us, some of the things in the contracts there.

[Paul Lejuez:]

Got you. I mean on that, can you just remind us? What are the drivers of the higher margins that you saw in Q1 on the eyeglass side? Any how long do you expect those tailwinds to continue?

[Patrick Moore:]

Yes. In terms of the eyeglass margins, we're still benefiting on a year-over-year basis from the improved lens contract. We've also seen in the early part of the quarter, obviously, that new Texas lab up and running and out of the more -- not dilutive but the less-profitable phase. So those are 2 substantial factors, Paul, that helped us on the eyeglass side.

[Paul Lejuez:]

And when do you anniversary those 2 things, Patrick?

[Patrick Moore:]

That contract went into place in June.

[Paul Lejuez:]

Okay. Thank you.

[Operator:]

Thank you. Our next question will come from Kate McShane with Goldman Sachs. Please go ahead.

[Katharine McShane:]

Thank you for taking my questions. Just 2 quick questions. One, I wondered if you have seen any change in demand as a result of the stimulus checks that started to hit in mid-April. And my second question--

[Patrick Moore:]

The stores are closed.

[Katharine McShane:]

Well, I know that. But just in terms of some of your e-commerce, which I know is small, but just wondered if it had any kind of impact. And then also wondered if you were doing anything different with the 4 new Walmart stores that you now are responsible for, yes.

[Reade Fahs:]

So 2 things. We actually did see a slight and -- sort of a noticeable but a slight uptick from the stimulus checks. We actually expect that to continue because not everyone has received their checks. Lots of people haven't received their furlough benefits and unemployment benefits yet. So again in terms of short-term tailwinds, we think that money is going to keep coming in consumers' pockets from delays in government's execution. That should be a short-term help. And the other Walmart 4, it's really just about the time for Walmart to transfer things to us. And they're juggling a few parties right now in their stores as they try to sort of feed and support America. So that's only delayed because of that piece, but all is going well there.

[Katharine McShane:]

Thank you.

[Operator:]

Thank you. And our final question today will come from Michael Lasser with UBS.

[Michael Lasser:]

Thanks a lot for taking my question. It's on the overall optometrist. Have you seen any indication that -- of the willingness to come back? I know you mentioned that retention rates have been high, but the willingness to come back to work, is it going to be an impediment to your business getting back up and running? And for those stores that you've reopened in the Walmart locations, what has been the initial response, recognizing it's only been in a week?

[Reade Fahs:]

So in terms of willingness to come back, we're seeing strong return rates. The only watch out is for sort of people over 65, some of them; and it's a very small percentage of our overall doctor group. Some of them are staying not at this time, but it's small, not significant. That's one. And the other question was --we're talking about a week's worth of results. And we never like to talk about it within quarters, so we're looking forward to sharing all that with you on the next quarterly call, but sharing one week's results are yes.

[Patrick Moore:]

Yes.

[David Mann:]

Operator, it's the top of the hour, so if there are any other folks in the call list

[Reade Fahs:]

And Cherie, thank you so much. I think you found, those who have been following us, we're a consistent and predictable team in a consistent and predictable industry, resulting in a company that delivers consistent, predictable results. COVID has certainly been disruptive, but we believe the future continues to play to our strength, perhaps even more so. I thank you all for your attention today and for your ongoing support. My congratulations to the NVI team. Such an inspiration this team has been to me over the past seven weeks. And we look forward to sharing news of our reopening of all our stores with you on the next call. Thank you all very much.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.