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National Vision Holdings, Inc. (NASDAQ:EYE)
Q1 2020 Earnings Call
May 9, 2020, 8:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the National Vision First Quarter Fiscal 2020 Financial Results Call. [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 -- Vice President, Investor Relations

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 two 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 -- Chief Executive Officer

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 four. 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 seven 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 amid 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: safe and gradual. We established a cross-functional safety office that developed COVID-19 operating protocols that adhere to CDC and American Optometric Association guidelines. The safety office has been closely monitoring federal, state and local government and public health announcements. These protocols include heightened cleaning procedures, personal protective equipment, social distancing in stores and expanded health and safety training.

Then we developed a detailed gradual approach to reopening by both brand and geography across the country. Last week, we began selectively reopening stores to address essential eye care needs of our patients and customers. The first store openings were Walmart, Fred Meyer and military-based locations. This week, we launched an initial group of America's Best and Eyeglass World stores. We intend to have all of our stores open by early June. Turning to slide five. We are operating in an uncertain and dynamic environment. As such, we've also been focused on ensuring that we have the liquidity and financial flexibility to weather the storm regardless of its duration. Upon temporarily closing our stores, we rapidly shifted to solidifying our financial well-being. We reduced compensation across the organization, led by senior management, and subsequently made the difficult decision to furlough a significant portion of associates. We paused our new store openings and postponed a significant amount of capital expenditures.

We reduced discretionary spending, including near-term marketing and travel. We're working with our vendors and landlords to extend terms and modify contracts where possible. We elected to draw down the remaining available funds under our revolving credit facility as a precautionary measure. We are evaluating potential applicable tax-related benefits under the CARES Act, and we'll look to implement them where we can. And as we will discuss later on, we reached agreement with our credit facility lenders to suspend our financial covenants through March 2021, giving us additional runway to navigate the challenges resulting from the COVID-19 pandemic. All of these actions have been taken to manage our costs and increase our financial flexibility so that our patients and customers can continue to depend on us for their low-cost eye exams, eyeglasses and contact lens needs long into the future. While short term in nature, all spending cuts were very much made with an eye toward the successful reopening of our stores and the long-term recovery of our business.

When we spent money, it was an investment in a variety of long-term relationships. Our operating model has a history of business recovery after major external events. As the low-cost provider of a medical necessity, we believe we are well positioned to recover as our stores reopen. Our overarching focus is to do whatever is needed to thrive on the other side of this pandemic. Turning to slide six, let me briefly touch on trends in the quarter. Q1 net revenue increased 1.8% with a six percentage point benefit to growth from unearned revenue. Adjustable comparable store sales growth was down 10.3% due to the temporary store closing. The closing of our stores in March turned our quarterly results into a tale of two periods. Pre COVID, in January and February, our business was robust with continued sales momentum following our strength in the latter half of 2019. Comps in January and February increased 5.7%, driven predominantly by customer traffic. As the COVID-19 pandemic gradually became a factor in consumer behavior in March, our business began to slow. Our March comps declined nearly 40%, mostly resulting from stores being locked to the public for the last 10 days.

Adjusted EPS decreased to $0.28 versus $0.31 last year. One noteworthy event to share since quarter end is the transition to NVI management of the first of the five additional Walmart Vision Centers. As noted last quarter, the amendment to our existing contract with Walmart added additional vision centers for the first time in over 25 years. We are working with Walmart regarding the logistics to take over the operations of the other four vision centers, which we expect to occur this summer. Our Walmart partners have been supportive and understanding of our March decision to also temporarily close the vision centers that we operate. Most of our vision centers have now reopened to patients and customers. Regarding the current contract, our conversations with Walmart continue. Turning to slide seven. Well, I'm sorry to report that our much-touted record number of 72 consecutive positive comp quarters came to an end in Q1. It took nothing short of a global pandemic and the shutting down of most all of American retail to bring this streak to an end.

As we exited February, the team was on target to deliver our 73rd consecutive quarter of positive comps, and as of as late as mid-March, I still thought we had a shot at delivering another positive comp quarter. As the chart shows, our business has a history of health even amid broader economic challenge. During the Great Recession of 2008 and 2009, our business generated comps in the positive low to mid-single digits each quarter. We are, of course, in unprecedented times, and we're not looking to forecast near-term performance here today, but we do believe that our reputation for low prices should be even more appealing to an even larger slice of the American public during the upcoming economic challenges. And we believe that, once they have tried our value-priced products, it will be hard for them to ever go back to paying higher prices again. Another factor underpinning our consistency over the last two decades has been the optical industry shift in favor of chains and the value segment in particular. The optical retail industry remains highly fragmented.

We believe that the current environment should hasten these trends; and favor larger, better-capitalized value retailers like National Vision. We also would not be surprised if there were fewer optical locations in the U.S. next year than there were prior to COVID. Thus, we continue to see a large opportunity and potentially an even larger opportunity than before in front of us. We look forward to starting another long, consistent positive comp quarter streak like this again. Shifting to slide eight. Prior to COVID-19, we had solid strategic plans for 2020, and we're off to a strong start. Let me share how we are navigating our business and our core initiatives to adapt to the current uncertainty. First, we paused our new store openings.

After opening 23 stores in the first quarter, we have most current real estate projects on hold. And we can restart quickly as the environment warrants, but we do not rule out that we might open as many as 25 more stores this year, depending on how we see the recovery evolving. Turning to comparable store sales growth. Our stores are reopening to operate in an uncertain consumer environment. Some of these uncertainties include macroeconomic factors, consumer shopping patterns, social distancing and current and future quarantine measures. As this is a dynamic situation, there are a broad range of outcomes of how our business will perform in the coming months depending on how the pandemic evolves. We continue to leverage our decades of experience as optical veterans and we're controlling what we can control. Recall our glasses business is primarily driven by a steady decline in our consumers' vision, so while people have been sheltering in place, their eyesight has continued to get worse.

As with other disruptive events in our history, we believe there will be some level of pent-up demand as our stores reopen. And as we emerge beyond the COVID pandemic, we expect to continue to enjoy multiple levers to drive comparable store sales growth. On past calls, you have heard me share that a key to our success is the ability to retain the optometrists we have and attract new ones. During the pandemic, optometrists remain a key focus. As a result of our continued investment, we feel that we are perceived by the doctors as having truly put our money where our mouths have been during this crisis. We believe our actions further demonstrate that we are an optometrist-centric company. As we begin the process of reopening our stores, our optometric retention rate remains at record levels. On the recruitment front, our secure, predictable employed positions with great benefits and paid vacation now seem to be even more attractive than they were before the crisis. We are encouraged by the response that we are seeing to our recent recruitment efforts during our period of store closure, including the return of some ODs who left us previously and now wish to return.

As I noted earlier, we adjusted our marketing efforts and significantly reduced TV advertising while our stores have not been open. To help restart our operations, we have a robust CRM database to connect with existing customers, and we'll look to increase marketing investments appropriately as the environment improves. We believe that, as the low-cost provider of a medical necessity, we are well positioned to attract value-seeking consumers. Our introductory offers for our two growth brands, two for $69.95 at America's Best, including a free comprehensive eye exam, and two for $78 at Eyeglass World, with glasses available that same day, represent incredible values that have historically attracted patients and customers to our stores. In terms of managed care, we continued to see revenue growth tied to these partnerships in January and February before we closed. Net revenue to the vision insurance remains a minority of our net revenue, and thus we are underdeveloped relative to the category. We continue to see an ongoing opportunity here, as managed care dollars and co-pays tend to go further in our stores than elsewhere.

Let me share an update on inventory and supply chain. We remain comfortable with our current inventory position. As we carry predominantly traditional and basic styles of frames, as opposed to fashion-dependent frames, we do not believe that we have exposure to any material inventory obsolescence risk. Regarding COVID-19 and our supply chain, most of our frame suppliers in China are back in business. We're not particularly worried about supply chain issues at this time. Our lab network remains a key reason that we've been a low-cost provider. We've scaled back our cost structure there as well, and the lab group is prepared to ramp as needed. This gradual ramping has already begun. Our remote medicine pilots are continuing as well. In March, we announced our partnership with Salus University to educate optometry students on remote eye exam technology, and we're involved in other testing and development in this area as well.

Before I turn the call over to Patrick, let me say that we are excited to be in the process of safely reopening our stores to serve the many patients and customers who have been awaiting our return. We believe we are quite well positioned to recover. We have a proven resilience in prior downturns. We're a low-priced provider of a medical necessity, and we have a proven team of optical veterans executing our initiatives and deep multiyear relationships throughout the company. For all these reasons, I'm confident in our teams, as we navigate an uncertain environment, that we will emerge stronger on the other side of this crisis.

Now over to Patrick.

Patrick R Moore -- Chief Financial Officer

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 1,173 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 -- Chief Executive Officer

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 healthcare 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 healthcare 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 seven 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 amid 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.

Questions and Answers:

Operator

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

Stephanie Wissink -- Jefferies -- Analyst

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 -- Chief Executive Officer

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.

Stephanie Wissink -- Jefferies -- Analyst

Thank you.

Operator

Thank you. Our next question will come from Simeon Gutman with Morgan Stanley. Please go ahead

Simeon Gutman -- Morgan Stanley -- Analyst

Good morning, everyone. 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 -- Chief Executive Officer

So I a word as I mentioned, sort of the two words that we have been using are safe and gradual, OK? 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 -- Morgan Stanley -- Analyst

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, etc.. It's not as simple as that, I assume.

Reade Fahs -- Chief Executive Officer

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 -- Morgan Stanley -- Analyst

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

Reade Fahs -- Chief Executive Officer

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 -- Morgan Stanley -- Analyst

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, etc.. 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, etc....

Reade Fahs -- Chief Executive Officer

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 seven 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 seven or eight 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 -- Morgan Stanley -- Analyst

Thanks, Rob.

Operator

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

Anthony Chukumba -- Loop Capital Markets -- Analyst

Thanks for taking my question and 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 R Moore -- Chief Financial Officer

Anthony, 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 seven to nine 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 seven to nine 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.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Yes. No, that's exactly what the color I was looking for. Thank you. Thank you. Our next question will come from Michael Lasser with UBS. Please go ahead

Michael Lasser -- UBS -- Analyst

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 -- Chief Executive Officer

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 -- UBS -- Analyst

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 R Moore -- Chief Financial Officer

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?

Michael Lasser -- UBS -- Analyst

Yes, it does. Thank you very much and see thing

Operator

Thank you. Our next question will come from Zach Fadem with Wells Fargo. Please go ahead

Zach Fadem -- Wells Fargo -- Analyst

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 -- Chief Executive Officer

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 one-, two-, three-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.

Zach Fadem -- Wells Fargo -- Analyst

Got it. And for Patrick: As stores begin to reopen and the understanding that sales could vary, curious if there are any guardrails that you can give us on how to think about the Q2 P&L and SG&A in particular given the unearned revenue headwinds, coupled with incremental costs as well as the actions you've taken to manage costs in this environment.

Patrick R Moore -- Chief Financial Officer

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: We manage our store labor in a very careful and almost a matrix fashion. And we are taking these first two to four weeks to really get a feel of what new normal is, what's going to what that's going to feel like, but ultimately we're a company that likes to grow revenues and grow profits and open stores. And we look forward to returning to that position as soon as we can.

Zach Fadem -- Wells Fargo -- Analyst

Got it. Appreciate the time.

Operator

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

Adrienne Yih -- Barclays -- Analyst

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 -- Chief Executive Officer

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

Adrienne Yih -- Barclays -- Analyst

So yes.

Reade Fahs -- Chief Executive Officer

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 R Moore -- Chief Financial Officer

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 -- Barclays -- Analyst

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

Patrick R Moore -- Chief Financial Officer

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.

Adrienne Yih -- Barclays -- Analyst

Great, thank you very much.

Operator

So well thank you. Our next question will come from Alex Maroccia with Berenberg. Please go ahead

Alex Maroccia -- Berenberg -- Analyst

Hey, good morning and thanks for taking my questions. 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 -- Chief Executive Officer

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 -- Berenberg -- Analyst

Okay, got it. And going off the Zach's question from earlier and how it applies to online: We saw some FDA initiatives in early April that allowed people to update prescriptions and get vision tests online while the optical centers were closed. Did these measures benefit your brands at all in April? And do you see any risk that these could remain in place even after the shutdowns end?

Reade Fahs -- Chief Executive Officer

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.

Alex Maroccia -- Berenberg -- Analyst

All right, great, thanks guys. Thank you. Our next question will come from Paul Lejuez with Citigroup. Please go ahead

Paul Lejuez -- Citigroup -- Analyst

Hey guys, thanks for taking the question. 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 -- Chief Executive Officer

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 R Moore -- Chief Financial Officer

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 -- Chief Executive Officer

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

Paul Lejuez -- Citigroup -- Analyst

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? And how long do you expect those tailwinds to continue?

Patrick R Moore -- Chief Financial Officer

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 two substantial factors, Paul, that helped us on the eyeglass side.

Paul Lejuez -- Citigroup -- Analyst

And when do you anniversary those two things, Patrick?

Patrick R Moore -- Chief Financial Officer

That contract went into place in June.

Paul Lejuez -- Citigroup -- Analyst

Thank you.

Operator

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

Kate McShane -- Goldman Sachs -- Analyst

Thank you, for taking my question. Okay. Just two 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 R Moore -- Chief Financial Officer

The stores are closed.

Kate McShane -- Goldman Sachs -- Analyst

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 four new Walmart stores that you now are responsible for, yes.

Reade Fahs -- Chief Executive Officer

So two 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 four, 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.

Kate McShane -- Goldman Sachs -- Analyst

Thank you.

Operator

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

Michael Lasser -- UBS -- Analyst

Thanks 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 -- Chief Executive Officer

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 oh, yes, 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 R Moore -- Chief Financial Officer

Yes.

David Mann -- Vice President, Investor Relations

Operator, it's the top of the hour, so if there are any other folks in the call list: I will be available to answer questions, and they can feel free to reach out to me. I'm going to turn it back to Reade to conclude the call.

Reade Fahs -- Chief Executive Officer

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

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

David Mann -- Vice President, Investor Relations

Reade Fahs -- Chief Executive Officer

Patrick R Moore -- Chief Financial Officer

Stephanie Wissink -- Jefferies -- Analyst

Simeon Gutman -- Morgan Stanley -- Analyst

Anthony Chukumba -- Loop Capital Markets -- Analyst

Michael Lasser -- UBS -- Analyst

Zach Fadem -- Wells Fargo -- Analyst

Adrienne Yih -- Barclays -- Analyst

Alex Maroccia -- Berenberg -- Analyst

Paul Lejuez -- Citigroup -- Analyst

Kate McShane -- Goldman Sachs -- Analyst

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