What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-27 compared with 2023-03-01 · 240 added, 248 removed, 534 unchanged (48% of the section changed)

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in a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations.

References herein to “fiscal year 2022” relate to the 52 weeks ended December 31, 2022, references herein to “fiscal year 2021” relate to the 52 weeks ended January 1, 2022 and references herein to “fiscal year 2020” relate to the 53 weeks ended January 2, 2021.

References herein to “fiscal year 2023” relate to the 52 weeks ended December 30, 2023, references herein to “fiscal year 2022” relate to the 52 weeks ended December 31, 2022 and references herein to “fiscal year 2021” relate to the 52 weeks ended January 1, 2022.

The disclosures contained in this Form 10-K are made only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law.

For further information, please see “Risk Factors” and “Forward-Looking Statements.”

We are one of the largest optical retailers in the United States and a leader in the attractive value segment of the U.S.

We are one of the largest optical retailers in the United States (the “U.S.”) and a leader in the attractive value segment of the U.S.

optical retail industry.

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Brand and Segment Information

Our operations consist of two reportable segments:

• Owned & Host – As of fiscal ye ar end 2022, our owned brands consisted of 905 America’s Best Contacts and Eyeglasses (“America’s Best”) retail stores and 136 Eyeglass World retail stores.

As of December 30, 2023, our operations consisted of two reportable segments:

• Owned & Host – As of fiscal ye ar end 2023, our owned brands consist ed of 957 Am erica’s Best Contacts and Eyeglasses (“America’s Best”) retail stores an d 148 Eyeglas s World retail stores.

In America’s Best stores, vision care services are provided by optometrists employed by us or by independent professional corporations or similar entities.

America’s Best stores are primarily located in high-traffic strip centers next to value-focused retailers.

Eyeglass World locations primarily feature eye care services provided by independent optometrists and optometrists employed by independent professional corporations or similar entities and on-site optical laboratories that enable stores to quickly fulfill many customer orders and make repairs on site.

Eyeglass World locations offer eye exams, provided primarily by independent optometrists and optometrists employed by independent professional corporations or similar entities, and have on-site optical laboratories that enable stores to quickly fulfill many customer orders and make repairs on site.

Eyeglass World stores are primarily located in freestanding or in-line locations near high-foot-traffic shopping centers.

Our Host brands consisted of 54 Vista Optical locations on select military bases and 29 Vista Optical locations within select Fred Meyer stores as of fiscal year end 2022.

We have strong, long-standing relationships with our Host partners and have maintained each partnership for over 20 years.

O ur Host brands consisted of 54 Vista O ptical locations on select military bases a nd 29 Vista O ptical locations within select Fred Meyer stores as of fiscal year end 2023.

We have strong, long-standing relationships with our Host partners and have maintained each partners hip for over 20 years.

These brands provide eye exams primarily by independent optometrists.

All brands utilize our centralized laboratories.

All brands utilize ou r centralized laboratories.

This segment also includes sales from our America’s Best, Eyeglass World, and Military omni-channel websites.

• Legacy – We manage the operations of, and supply inventory and laboratory processing services to, 230 Vision Centers in Walmart retail locations as of fiscal year end 2022.

This strategic relationship with Walmart is in its 33rd year.

Pursuant to a January 2020 amendment to our management & services agreement with Walmart, we added five additional Vision Centers in Walmart stores in fiscal year 2020.

Our current management & services agreement with Walmart expires on February 23, 2024, and will automatically renew for a three-year period unless, no later than July 2023, either party gives written notice of non-renewal ;

• Legacy – As of fiscal year end 2023, we managed the operations of, and supplied inventory and laboratory processing servi ces to, 225 Vision Centers in Walmart retail locations .

On July 20, 2023, we received a notice of non-renewal from Walmart of the Walmart MSA.

The Walmart MSA terminated on February 23, 2024 and we no longer operate Vision Centers for Walmart.

Refer to Note 2.

“Segment Reporting” included in Part II.

“Termination of Walmart Partnership” included in Part II.

of this Form 10-K for further information.

Under the management & services agreement, our responsibilities include ordering and maintaining merchandise inventory;

arranging the provision of optometry services;

providing managers and staff at each location;

training personnel;

providing sales receipts to customers;

maintaining necessary insurance;

obtaining and holding required licenses, permits and accreditations;

owning and maintaining store furniture, fixtures and equipment;

and developing annual operating budgets and reporting.

We earn management fees as a result of providing such services and therefore we record revenue related to sales of products and product protection plans to our Legacy partner’s customers on a net basis.

Our management & services agreement also allows our Legacy partner to collect penalties if the Vision Centers do not generate a requisite amount of revenues .

No such penalties have been assessed under our current arrangement, which began in 2012.

We also sell to our Legacy partner merchandise that is stocked in retail locations we m anage pursuant to a separate supplier agreement, and provide centralized laboratory services for the finished eyeglasses for our Legacy partner’s customers in stores that we manage.

We lease space from Walmart within or adjacent to each of the locations we manage and use this space for vision care services provided by independent optometrists or optometrists employed by us or by independent professional corporations or similar entities.

During the fiscal year 2022, sales associated with this arrangement represented 7.6% of consolidated net revenue.

This exposes us to concentration of customer risk.

Our consolidated results also include the following activity recorded in our Corporate/Other category:

• Our e-commerce platform of 12 dedicated websites managed by AC Lens.

Our e-commerce business consists of five proprietary branded websites, including aclens.com, discountglasses.com and discountcontactlenses.com, and seven th ird-party websites with established retailers, such as Walmart, Sam’s Club and Giant Eagle as well as mid-sized vision insurance providers.

AC Lens handles site management, customer relationship management and order fulfillment and also sells a wide variety of contact lenses, eyeglasses and eye care accessories.

During fiscal year 2023, sales associated with this arrangement represented 7.1% of consolidated net revenue.

Our consolidated results for all periods presented in this Form 10-K also include the following activity recorded in our Corporate/Other category:

• Our e-commerce platform managed by AC Lens comprising multiple proprietary branded websites and third-party websites with established retailers and mid-sized vision insurance providers.

AC Lens handles site management, CRM and order fulfillment and also sells a wide variety of contact lenses, eyeglasses and eye care accessories.

In 2024, we will wind down AC Lens operations, including the closure of the Ohio distribution center, which largely supported the wholesale distribution and e-commerce contact lens services that the Company has provided to Walmart and Sam’s Club.

We are reviewing our portfolio of websites and deciding how best to position the portfolio after the wind down of the AC Lens operations.

• Wholesale contact lenses distribution to Walmart and Sam’s Club by AC Lens.

We incur costs at a higher percentage of sales than other product categories.

AC Lens sales associated with Walmart and Sam’s Club contact lenses distribution arrangements represen ted 7.0% of c onsolidated net revenue during fiscal year 2022 .

• Managed care business conducted by FirstSight, our wholly-owned subsidiary that is licensed as a single-service health plan under California law, which arranges for the provision of optometric services at the offices next to certain Walmart stores throughout California, and also issues individual vision plans in connection with our America’s Best operations in California.

AC Lens sales associated with Walmart and Sam’s Club contact lenses distribution arrangements represented 6.9% of consolidated net revenue during fiscal year 2023 .

In connection with the MSA Termination, AC Lens has delivered notices of non-renewal of the agreements it has with Walmart and Sam’s Club such that those agreements are expected to terminate on June 30, 2024.

• Managed care business conducted by FirstSight, our wholly-owned subsidiary that is licensed as a single-service health plan under California law, which issues individual vision plans in connection with our America’s Best operations in California and, until the termination of the agreement between FirstSight and Walmart on February 23, 2024, arranged for the provision of optometric services at the offices next to certain Walmart stores throughout California.

• Unallocated corporate overhead expenses, which are a component of selling, general and administrative expenses and are comprised of various home office expenses such as payroll, occupancy costs and consulting and professional fees.

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We have remained focused on our long-term growth initiatives despite the ongoing macroeconomic uncertainty.

We opened 80 new stores in 2022, and as of December 31, 2022 enabled remote medicine in approximately 300 stores.

We opened 70 new stores in 2023, and as of December 30, 2023 enabled remote medicine in over 500 stores.

Our core growth initiatives include, but are not limited to, continuing with the expansion of our remote medicine capabilities;

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We operate in the highly competitive and fragmented U.S.

optical retail industry.

optical retail in dustry.

We face competition from mass merchants, specialty retail chains, online retailers and independent eye practitioners and opticians, along with large national retailers.

Increased consolidation activity in the industry may enable our competitors to benefit from purchasing advantages and the ability to leverage management capabilities across a larger business base.

Along with our competitors, we are affected by a number of various trends and factors, including, but not limited to, economic conditions, inflation, consumer preferences and demand, and the COVID-19 pandemic.

The overall economic environment continues to be challenging and macroeconomic factors that may affect customer spending patterns, and thereby our results of operations, include employment rates, business conditions, changes in the housing market, the availability of credit, interest rates, tax rates and fuel and energy costs.

Rising inflation can result in increased materials costs and greater profitability pressure for us.

Changes in raw materials prices did not materially impact our costs applicable to revenue in fiscal year 2022.

We anticipate that pressures from increases to our raw materials prices could have an impact on our costs applicable to revenue in fiscal year 2023.

Such an inflationary environment and labor market challenges can also result in wage pressures in certain markets.

Wage investments as a result of inflation and an increasingly competitive recruiting market for vision care professionals due to the pandemic and related effects have had, and may continue to have, an impact on our profitability.

Targeted wage investments, including increases in compensation for optometrists and associates, impacted costs applicable to revenue and selling, general and administrative expenses in fiscal year 2022.

We anticipate that wage pressures in certain markets will continue in 2023.

For example, retention bonuses granted to associates in the fourth quarter of fiscal year 2022 resulted in a $5.0 million impact .

Wage investment pressure, increases to costs applicable to revenue from increases in raw materials prices and potential freight price increases in fiscal year 2023 may not be able to be fully offset by leverage from revenue growth, productivity efficiency and, as appropriate, various pricing actions.

As part of our growth strategy we have invested in remote medicine capabilities, and as of December 31, 2022 this new technology has been enabled in approximately 300 of our America’s Best locations.

Along with our competitors, we are affected by a number of various trends and factors, including, but not limited to, economic conditions, availability of vision care professionals, inflation, consumer preferences and demand.

The overall economic environment continues to be challenging and macroeconomic factors that may affect customer spending patterns, and thereby our results of operations, include inflation, employment rates, business conditions, changes in the housing market, the availability of credit, interest rates, tax rates and fuel and energy costs.

As part of our growth strategy we are investing in the digitization of our stores, including remote medicine capabilities and an EHR platform.

As of December 30, 2023, remote medicine technology has been enabled in over 500 of our America’s Best locations.

We believe remote medicine not only helps provide more access to eye care for patients, it also helps address constraints in exam capacity.

Additionally, as part of the remote medicine rollout, we also invested in the transition to an EHR platform as locations became remote enabled.

We anticipate continuing the investment in these capabilities primarily in America’s Best stores in the near term.

Training our personnel to efficiently use these new technologies may increase our costs and negatively impact our profitability even if exam capacity increases.

We estimate that optical consumers typically replace their eyeglasses every two to three years, and contact lens customers order new lenses every six to 12 months, reflecting the predictability of these recurring purchase behaviors;

however, the effects of the current economic environment and the impact of the COVID-19 pandemic on consu mer preferences resulted in reduced customer demand in 2022.

The predictability of recurring purchase behavior for the future remains uncertain.

Additionally, resurgences of COVID-19 cases and the emergence of new variants have led to reduced consumer confidence and changes in shopping patterns, which have adversely impacted store traffic.

A significant recession could also negatively impact our results if consumers faced widespread layoffs that resulted in the loss of employer-subsidized managed vision care insurance.

We also continue to monitor any potential COVID-19 related impacts on our domestic labs and our outsourced third party optical laboratories in China and Mexico, and potential disruptions of product deliveries.

To date, we have been able to meet customer demand with operations at our laboratories.

We source merchandise from suppliers located in China and a significant amount of domestically-purchased merchandise is manufactured in China.

We have partnered with our suppliers and third party laboratories to mitigate any potential significant delays in delivery

of merchandise.

We have made, and may continue to make, inventory forward buys to help manage potential supply chain disruptions.

In addition to central factors impacting our business outlined above, we have identified the following key drivers, challenges and risks on which we are focused and which are detailed below .

Vision Care Professional Recruitment, Coverage and Expanded Offerings

Our ability to continue to attract and retain qualified vision care professionals affect exam capacity.

We have also invested in the transition to an EHR platform.

We anticipate continuing the investment in these capabilities primarily in America’s Best stores in the near term, including implementing the EHR platform in all America’s Best locations by the end of 2024.

While the remote medicine and EHR platforms have increased exam capacity, revenue and profitability, we have experienced higher costs applicable to revenue as a percentage of revenue, when compared with in-store exams.

Our ability to continue to attract and retain qualified vision care professionals may affect exam capacity.

Our operations, like those of many of our competitors, depend on our ability to offer both eyewear and eye exams.

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Targeted wage investments, including increases in compensation for our optometrists and associates, and flexibility initiatives have impacted our costs applicable to revenue and selling, general and administrative expenses.

We anticipate that wage pressures in certain markets will continue in 2024.

Wage investment pressure and increases to costs applicable to revenue from increases in raw materials prices may not be able to be fully offset by leverage from revenue growth, productivity efficiency and, as appropriate, various pricing actions.

We are continuing to strategically invest in recruitment and retention initiatives, including flexible adjusted work schedules, along with continuing our implementation of remote medicine technologies, which has expanded our offerings while also increasing costs.

While there are ranges of customer behaviors based on demographics and other factors, it is estimated that optical consumers typically replace their eyeglasses every two to three years and their contact lenses every six to 12 months, reflecting the predictability of these recurring purchase behaviors;

however, the effects of the current macroeconomic environment and geopolitical uncertainty, as well as the ongoing effects of the COVID-19 pandemic, resulted in reduced customer demand in 2023 and have caused shifts in consumer behaviors and preferences, which impact the demand for our products.

As a result, the predictability of recurring purchase behavior for the future remains uncertain.

In addition to the central factors impacting our business outlined above, we have identified the following key drivers, challenges and risks on which we are focused and which are detailed below .

Rising inflation can result in increased costs and greater profitability pressure for us.

While pressures from increases to the price of our raw materials have had an impact on our costs applicable to revenue in fiscal year 2023, we have been able to offset these pressures with efficiencies in our laboratory network, pricing actions and lower freight costs.

We anticipate that pressures from increases to our raw materials prices could have an impact on our costs applicable to revenue in fiscal year 2024.

Such an inflationary environment and labor market challenges can also result in wage pressures in certain markets.

New Store Openings

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The performance of new stores is dependent upon factors such as the time of year of a particular opening, the amount of store pre-opening costs, labor and occupancy costs in the specified market, level of participation in managed care plans, and location, including whether they are in new or existing markets.

The impact of the COVID-19 pandemic on our ability to open new stores, the multi-year maturation process of our stores and customer purchasing behaviors and patterns remain uncertain and effects and relevant risk exposures may be exacerbated by the ongoing COVID-19 pandemic.

Comparable Store Sales Growth

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An increasing percentage of our customers receive vision care insurance coverage through managed care payors.

Our participation in these programs represent an increasingly significant portion of our overall revenues and represented approximately one third of our

overall revenues in fiscal year 2022.

While we have relationships with almost all vision care insurers in the United States and with all of the major carriers, currently, a relatively small number of payors comprise the majority of our managed care revenues, subjecting us to concentration risk.

Our participation in these programs represent an increasingly significant portion of our overall revenues and represented approxima tely 35% of our overall revenues in fiscal year 2023 .

While we have relationships with almost all vision care insurers in the U.S.

and with all of the major carriers, currently, a relatively small number of payors comprise the majority of our managed care revenues, subjecting us to concentration risk.

As our participation in managed care programs continues to expand, we have incurred and expect to incur additional costs related to this area of our business.

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Infrastructure Investment

Our historical results of operations reflect the impact of our ongoing investments in infrastructure to support our growth, including additional investments in remote medicine and EHR platforms.

We have made significant investments in information technology systems, including our point-of-sale system and enterprise resource planning (ERP), supply chain systems, marketing, and personnel, as well as experienced industry executives, and management and merchandising teams to support our long-term growth objectives.

Our historical results of operations reflect the impact of our ongoing investments in infrastructure to support our growth.

We have made and continue to make significant investments in information technology systems, including those to support our point-of-sale system, ERP, supply chain systems, marketing, and personnel, as well as experienced industry executives, and management and merchandising teams to support our long-term growth objectives.

We intend to continue to make targeted investments in our infrastructure to support our growth and continue the digitization of our stores and corporate office.

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Interim Results and Seasonality

Historically, our business has realized a higher portion of net revenue, operating income, and cash flows from operations in the first half of the fiscal year, and a lower portion of net revenue, operating income, and cash flows from operations in the fourth fiscal quarter.

The seasonally larger first half of the fiscal year is attributable primarily to the timing of our customers’ income tax refunds and annual health insurance program start/reset periods.

Because our target market consists of value seeking and lower income consumers, a delay in the issuance of tax refunds or changes in the amount of tax refunds can have a negative impact on our financial results.

Consumers could also alter how they utilize tax refund proceeds.

With respect to our fourth quarter results, compared to other retailers, our products and services are less likely to be included in consumer’s holiday spending budgets, therefore reducing spending on personal vision correction during the weeks preceding December 25th of each year.

Additionally, although the period between December 25th and the end of our fiscal year is typically a high-volume period, the net revenue associated with substantially all orders of prescription eyeglasses and contact lenses during that period is deferred until the following fiscal period due to our policy of recognizing revenue only after the product has been accepted by the customer.

Consumer behavior driven by the COVID-19 pandemic has resulted in a departure from seasonal norms we have experienced in recent years and may continue to disrupt the historical quarterly cadence of our results of operations for an unknown period of time.

For fiscal years 2022 and 2021, approximately 23% of our revenue was recorded in the fourth quarter, but approximately 26% and 25% of annual SG&A costs were recorded in the respective fourth quarters of these fiscal years.

Historically, our business has realized a higher portion of net revenue, operating income, and cash flows from operations in the first half of the fiscal y ear, and a lower portion of net revenue, operating income, and cash flows from operations in the fourth fiscal quarter.

The first half seasonality is attributable primarily to the timing of our customers’ income tax refunds and annual health insurance program start/reset periods.

We believe that many customers in our target market are value seeking and lower income consumers who rely on tax refunds to pay for eyewear and eye care.

A delay in the issuance of tax refunds or changes in the amount of tax refunds can accordingly have a negative impact on our quarterly financial results in the first half of the year.

Consumer behavior with respect to the utilization of tax refund proceeds is also subject to change.

With respect to our fourth quarter results, compared to other retailers, our products and services are less likely to be included in consumers’ holiday spending budgets, therefore reducing spending on personal vision correction during the weeks preceding December 25th of each year.

Our quarterly results may also be affected by the timing of new store openings and store closings, the amount of sales contributed by new and existing stores, the timing of certain holidays, and the timing of weather-related store closures.

Changes in consumer behavior driven by lingering effects of the COVID-19 pandemic have resulted in a departure from seasonal norms we have experienced in recent years and may continue to disrupt the historical quarterly cadence of our results of operations for an unknown period of time.

For fiscal years 2023 and 2022, approximately 24% and 23% of our revenue was recorded in the fourth quarter, but approximately 25% and 26% of annual SG&A costs were recorded in the respective fourth quarters of these fiscal years.

Walmart partnership termination

The termination of the Walmart partnership and related wind down of AC Lens operations will impact our revenues and profitability.

Effective as of February 23, 2024, the Company has completed the transition of 229 Walmart Vision Center stores.

Additionally, the agreements governing our provision of contact lens distribution and related services to Walmart and Sam’s Club will terminate effective as of June 30, 2024.

The Company will wind down its remaining AC Lens operations, including the closure of its Ohio distribution center, which largely supported the whole distribution and e-commerce contact lens services that we provided to Walmart and Sam’s Club.

We are planning to transition the order fulfillment functions currently handled by AC Lens to a third-party vendor.

While we are seeking to reduce costs and replace lost business with new America’s Best or Eyeglass World stores and by other means, including non-headline pricing actions, we may not be successful in our efforts, which could impact our revenues and profitability.

In fiscal year 2023, we have incurred costs in connection with the MSA Termination and related wind down of AC Lens operations.

We anticipate that we will incur approximately $8 million of additional costs in fiscal year 2024.

How We Assess the Performance of Our Business

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The total number of new stores per year and the timing of store openings has, and will continue to have, an impact on our results.

In an effort to conserve cash early in the COVID-19 pandemic, we temporarily paused new store openings during a portion of fiscal year 2020.

We open ed 80 stores during fiscal year 2022.

We opened 70 stores during fiscal year 2023.

We will continue to monitor and determine our plans for future new store openings based on health, safety and economic conditions.

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Asset impairment 82,413 5,783 4,427

Other income, net (2,552) (2,505) (445)

Other expense (income), net

(164) (2,552) (2,505)

Total operating expenses 1,172,384 1,018,542 999,809

Income from operations 61,275 174,937 87,007

Income (loss) from operations

(46,826) 61,275 174,937

Interest expense, net 14,339 462 25,612

Earnings before income taxes 60,813 149,325 38,680

Loss on extinguishment of debt

Earnings (loss) before income taxes

(61,764) 60,813 149,325

Income tax provision 4,137 18,691 21,081

Net income $ 42,122 $ 128,244 $ 36,277

Net income (loss)

$ (65,901) $ 42,122 $ 128,244

Supplemental operating data:

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$ 165,322 $ 180,263 $ 294,350

Fiscal years 2022 and 2021 include 52 weeks.

Fiscal year 2020 includes 53 weeks.

(1) Refer to Non-GAAP Financial Measures section below for our presentation of Adjusted Operating Income, Adjusted Diluted EPS and Adjusted EBITDA.

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Total operating expenses 55.1 % 50.8 % 48.1 %

Income from operations 3.1 % 8.4 % 5.1 %

Net income 2.1 % 6.2 % 2.1 %

Income (loss) from operations

(2.2) % 3.1 % 8.4 %

Net income (loss)

(3.1) % 2.1 % 6.2 %

Adjusted Operating Income 3.4 % 4.4 % 9.8 %

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(3) There are two differences between total comparable store sales growth based on consolidated net revenue and Adjusted Comparable Store Sales Growth:

(i) Adjusted Comparable Store Sales Growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in an increase of 0.7% from total comparable store sales growth based on consolidated net revenue for fiscal year 2021 and (ii) Adjusted Comparable Store Sales Growth includes retail sales to the Legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement with the Legacy partner), resulting in a decrease of 0.1% and a decrease of 0.1% from total comparable store sales growth based on consolidated net revenue for the fiscal years 2022 and 2021, respectively.

Total net revenue of $2,005.4 million for fiscal year 2022 decreased $74.1 million, or 3.6%, from $2,079.5 million for fiscal year 2021.

The decrease was driven primarily by reduced Adjusted Comparable Store Sales Growth and to a lesser extent the negative impact of unearned revenue, partially offset by growth from new store sales and recognition of deferred revenue.

During fiscal year 2022, we opened 69 new America’s Best stores and 11 new Eyeglass World stores and closed four America’s Best stores.

(i) Adjusted Comparable Store Sales Growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in a decrease of 0.1% and an increase of 0.7% from total comparable store sales growth based on consolidated net revenue for fiscal years 2023 and 2022, respectively, and (ii) Adjusted Comparable Store Sales Growth includes retail sales to the Legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement with the Legacy partner), resulting in a decrease of 0.1% and a decrease of 0.1% from total comparable store sales growth based on consolidated net revenue for the fiscal years 2023 and 2022, respectively.

Total net revenue of $2,126.5 million for fiscal year 2023 increased $121.1 million, or 6.0%, from $2,005.4 million for fiscal year 2022.

The increase was driven by approximately 55% from growth from new store sales, 40% from Adjusted Comparable Store Sales Growth, 10% by our AC Lens business, partially offset by closed stores and effects of deferred and unearned revenue.

During fiscal year 2023, we opened 58 new America’s Best stores and 12 new Eyeglass World stores and closed six America’s Best stores and one Legacy store as a result of our Legacy partner’s decision to cease its overall operations at the location.

During the fourth quarter of 2023, we also transitioned four Legacy stores to Walmart leading up to the MSA Termination.

The total net new locations in fiscal year 2023 for America’s Best and Eyeglass World are 52 and 12, respectively.

Overall, store count grew 4.4% from the end of fiscal year 2022 to the end of fiscal year 2023.

Comparable store sales growth and Adjusted Comparable Store Sales Growth for fiscal year 2022 were (7.5)% and (7.6)%, respectively, primarily due to a decrease in customer transactions, and to a lesser extent, lower average ticket.

The decreases in comparable store sales growth and Adjusted Comparable Store Sales growth during fiscal year 2022 reflect overall economic trends impacting customer demand, constraints affecting exam capacity in certain markets and the Omicron COVID-19 variant impacting customer transactions.

Comparable store sales growth and Adjusted Comparable Store Sales Growth for fiscal year 2023 were 3.1% and 2.9%, respectively, both reflecting an increase in customer transactions and higher average ticket.

Net product sales comprised 82.0% and 82.2% of total net revenue for fiscal years 2023 and 2022, respectively.

Net product sales decreased $70.0 million, or 4.1% during fiscal year 2022 compared to fiscal year 2021, primarily due to a $80.7 million, or 6.7%, decrease in eyeglass sales, which was partially offset by a $6.4 million, or 1.7%, increase in contact lens sales and a $4.3 million, or 3.2%, increase in wholesale fulfillment.

Net sales of services and plans decreased $4.1 million, or 1.1%, driven primarily by a $7.1 million, or 16.9%, decrease in management fees from our Legacy partner, which was partially offset by a $5.6 million, or 2.9%, increase in exam revenues.

Net product sales increased $95.8 million, or 5.8% during fiscal year 2023 compared to fiscal year 2022, primarily due to a $71.8 million, or 6.4%, increase in eyeglass sales, a $16.1 million, or 4.2%, increase in contact lens sales and a $6.6 million, or 4.7%, increase in wholesale fulfillment.

Net sales of services and plans increased $25.2 million, or 7.1%, driven primarily by higher exam revenues of $30.9 million, or 15.8%, increase which was partially offset by a $4.1 million, or 11.7%, decrease in management fees from our Legacy partner and a $3.1 million, or 4.1%, decrease in product protection plan revenues.

Owned & Host segment net revenue.

Net revenue declined $66.3 million, or 3.9%, driven primarily by negative comparable store sales growth partially offset by new store openings.

Net revenue increased $112.7 million, or 7.0%, driven primarily by new store openings and comparable store sales growth.

Legacy segment net revenue.

Net revenue declined $13.6 million, or 8.2%, driven by negative comparable store sales growth.

Net revenue decreased $1.0 million, or 0.6%, driven primarily by negative comparable store sales growth.

Corporate/Other segment net revenue.

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The impact of reconciliations negatively impacted net revenue by $0.2 million during fiscal year 2023 compared to fiscal year 2022.

Net revenue was negatively impacted by $14.2 million due to the timing of unearned revenue.

The balance of unearned revenue reflected increased sales in the last week of fiscal year 2022 compared to the same period in 2021.

Net revenue was positively impacted by $13.5 million due to higher sales of product protection plan and club memberships in fiscal year 2021 compared to fiscal year 2022, thus causing recognition of previous deferrals to exceed cash collected for sales in fiscal year 2022.

Net revenue was positively impacted by $5.0 million due to the timing of unearned revenue.

Net revenue was negatively impacted by $5.2 million due to higher sales of club memberships and product protection plans, and lower recognition of product protection plan revenue in fiscal year 2023 compared to fiscal year 2022.

Costs applicable to revenue

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As a percentage of net revenue, costs applicable to revenue increased from 46.2% for fiscal year 2022 to 47.1% for fiscal year 2023.

This increase as a percentage of net revenue was primarily driven by higher growth in optometrist-related costs, reduced eyeglass mix and lower eyeglass margin.

Costs of products as a percentage of net product sales increased from 36.8% for fiscal year 2021 to 38.6% for fiscal year 2022 primarily driven by reduced eyeglass mix and lower eyeglass margin.

This increase as a percentage of net revenue was primarily driven by higher growth in optometrist-related costs of 150 basis points and by 60 basis points due to reduction in components of service revenue, including product protection plan revenue, and other mix and margin effects.

These costs were partially offset by a 90-basis point effect from higher exam revenue and a 30-basis point effect from increased eyeglass mix and higher eyeglass margin.

Costs of products as a percentage of net product sales decreased from 38.6% for fiscal year 2022 to 38.1% for fiscal year 2023 primarily driven by increased eyeglass mix and higher eyeglass margin.

Owned & Host segment costs of products.

Costs of products as a percentage of net product sales increased from 27.4% for fiscal year 2021 to 28.9% for fiscal year 2022 primarily driven by reduced eyeglass mix and lower eyeglass margin.

Costs of products as a percentage of net product sales decreased from 28.9% for fiscal year 2022 to 28.7% for fiscal year 2023 primarily driven by increased eyeglass mix and higher eyeglass margin.

Legacy segment costs of products.

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Costs of services and plans as a percentage of net sales of services and plans increased from 81.0% for fiscal year 2022 to 88.0% for fiscal year 2023.

The increase was primarily driven by higher growth in optometrist-related costs, which were partially offset by higher eye exam revenue.

The increase was primarily driven by higher growth in optometrist-related costs, lower product protection plan revenues and lower management fees from our Legacy partner, partially offset by higher eye exam revenue.

Owned & Host segment costs of services and plans.

Costs of services and plans as a percentage of net sales of services and plans increased from 88.6% for fiscal year 2022 to 93.1% for fiscal year 2023.

The increase was primarily driven by higher growth in optometrist-related costs, which were partially offset by higher eye exam revenue.

The increase was primarily driven by higher growth in optometrist-related costs, partially offset by higher eye exam revenue.

Legacy segment costs of services and plans.

Costs of services and plans as a percentage of net sales of services and plans increased from 44.9% for fiscal year 2022 to 50.6% for fiscal year 2023.

The increase was primarily driven by higher growth in optometrist-related costs.

The increase was primarily driven by lower management fees from our Legacy partner and growth in optometrist-related costs.

Selling, general and administrative

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As a percentage of net revenue, SG&A increased from 45.6% for fiscal year 2022 to 46.6% for fiscal year 2023.

The increase in SG&A as a percentage of net revenue was primarily driven by increases in store payroll, other corporate overhead, including legal, professional, travel and entertainment, and occupancy expense, partially offset by lower performance-based incentive compensation and lower advertising expense.

The Company paid $5.0 million of discretionary bonuses during fiscal year 2022.

SG&A for fiscal year 2022 and fiscal year 2021 includes $0.6 million and $1.5 million, respectively, of incremental costs directly related to adapting the Company’s operations during the COVID-19 pandemic.

The increase in SG&A as a percentage of net revenue was primarily driven by higher performance-based incentive compensation of 70 basis points, higher payroll of 50 basis points, as well as 50 basis points of other expenses, such as stock-based compensation and expenses related to the termination of the Walmart partnership, partially offset by lower advertising expense of 50 basis points and other operating expenses of 20 basis points.

Owned & Host segment SG&A.

SG&A as a percentage of net revenue increased from 36.7% for fiscal year 2021 to 38.9% for fiscal year 2022 driven primarily by higher payroll and occupancy expense, partially offset by lower advertising expense.

SG&A as a percentage of net revenue decreased from 38.9% for fiscal year 2022 to 38.7% for fiscal year 2023 driven primarily by lower advertising expense, partially offset by higher payroll.

Legacy segment SG&A.

SG&A as a percentage of net revenue increased from 35.0% for fiscal year 2021 to 38.3% for fiscal year 2022 driven primarily by higher payroll expense.

SG&A as a percentage of net revenue decreased from 38.3% for fiscal year 2022 to 37.6% for fiscal year 2023 driven primarily by lower payroll and lower advertising expense.

Depreciation and amortization

Depreciation and amortization expense of $100.0 million for fiscal year 2022 increased $2.9 million, or 3.0%, from $97.1 million for fiscal year 2021 primarily driven by new store openings and investments in remote medicine.

Depreciation and amortization expense of $98.3 million for fiscal year 2023 decreased $1.7 million, or 1.7%, from $100.0 million for fiscal year 2022 primarily driven by a decrease in amortization of intangible assets as a result of impairing the Walmart contracts and customer relationship asset during fiscal year 2023 and a shift to cloud-based software investments that are amortized in SG&A, partially offset by investments in remote medicine technology and new store openings.

Asset impairment

We recognized $5.8 million for impairment primarily of tangible long-lived assets and ROU assets associated with our retail stores in fiscal year 2022 compared to $4.4 million recognized in fiscal year 2021.

The store asset impairment charge is primarily related to our Owned & Host segment and is driven by lower than projected customer sales volume in certain stores and other entity-specific assumptions.

We recorded impairment charges of $82.4 million for fiscal year 2023 compared to $5.8 million recognized in fiscal year 2022.

The majority of the impairment charges in the current period were recorded in connection with the termination of the Walmart partnership and included impairments at our Legacy and AC Lens operating segments.

Refer to Note 2 “Termination of Walmart Partnership” included in Part II.

of this Form 10-K for further information.

In addition, we recorded impairment charges of $2.8 million related to tangible long-lived assets and ROU assets associated with our Owned & Host segment for fiscal year 2023, which were driven by lower than projected customer sales volume in certain stores, and other entity-specific assumptions.

We considered multiple factors including, but not limited to:

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and the remaining useful lives of the assets.

The asset impairment expense for fiscal year 2021 also includes $0.8 million, related to a write-off of certain software assets that were deemed to be obsolete.

Asset impairment expenses were recognized in Corporate/Other.

Other expense (income), net

We recognized a gain of $2.7 million and $2.4 million in Other expense (income), net in fiscal years 2022 and 2021, respectively, in connection with the acquisition of our equity method investee by a third party.

Other expense (income), net was $(0.2) million for fiscal year 2023 compared to $(2.6) million for fiscal year 2022.

This change was primarily a result of a gain of $2.7 million in Other expense (income), net in fiscal year 2022 that did not occur in fiscal year 2023 in connection with the acquisition of our equity method investee by a third party.

“Business and Significant Accounting Policies” for further details.

Interest expense, net

Interest expense, net, of $0.5 million for fiscal year 2022 decreased $25.2 million, or 98.2%, from $25.6 million for fiscal year 2021.

The decrease was primarily a result of lower derivative costs of $19.0 million on our interest rate derivatives, reduced term loan outstanding balance and income on cash balances.

Interest expense, net, of $14.3 million for fiscal year 2023 increased $13.9 million, or 3001%, from $0.5 million for fiscal year 2022.

The increase was primarily a result of lower derivative income of $15.8 million and higher Term Loan A expense of $5.4 million, partially offset by higher income on cash balances of $6.8 million.

Income tax provision

Our effective tax rate for fiscal year 2022 was 30.7%, reflecting our statutory federal and state rate of 25.4% and effects of other permanent items.

Our effective tax rate for fiscal year 2021 was 14.1%, reflecting a benefit of $16.5 million primarily from the exercise of stock options and stranded tax effect associated with our matured interest rate swaps during the first quarter of 2021 .

Our effective tax rates for fiscal year 2023 and fiscal year 2022 were (6.7)% and 30.7%, respectively.

The change in effective tax rates reflects our statutory federal and state rate of 25.2% and 25.4%, respectively, the disallowance of the Legacy segment goodwill impairment loss for income tax purposes and other permanent items.

Fiscal Year 2022 compared to Fiscal Year 2021

As a result of the COVID-19 pandemic, our retail stores closed to the public beginning on March 19, 2020.

We began reopening our stores to the public on April 27, 2020 and on June 8, 2020, we announced the successful completion of the reopening process.

Comparisons of fiscal year 2021 results to fiscal year 2020 results reflect the material and unprecedented impact of these temporary store closures.

Fiscal year 2021 consists of 52 weeks compared to 53 weeks in fiscal year 2020.

The following presents, by segment and by brand, comparable store sales growth, stores open at the end of the period and net revenue for fiscal year 2021 compared to fiscal year 2020.

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(7.6) % 23.0 %

Fiscal year 2021 includes 52 weeks.

Fiscal year 2020 includes 53 weeks.

(1) We calculate total comparable store sales based on consolidated net revenue excluding the impact of (i) Corporate/Other segment net revenue, (ii) sales from stores opened less than 13 months, (iii) stores closed in the periods presented, (iv) sales from partial months of operation when stores do not open or close on the first day of the month and (v) if applicable, the impact of a 53rd week in a fiscal year.

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(3) There are two differences between total comparable store sales growth based on consolidated net revenue and Adjusted Comparable Store Sales Growth:

(i) Adjusted Comparable Store Sales Growth includes the effect of deferred and unearned revenue as if such revenues were earned at the point of sale, resulting in an increase of 0.7% and a decrease of 0.4% from total comparable store sales growth based on consolidated net revenue for fiscal year 2021 and fiscal year 2020, respectively, and (ii) Adjusted Comparable Store Sales Growth includes retail sales to the Legacy partner’s customers (rather than the revenues recognized consistent with the management & services agreement with the Legacy partner), resulting in a decrease of 0.1% and a decrease of 0.1% from total comparable store sales growth based on consolidated net revenue for the fiscal years 2021 and 2020, respectively.

Total net revenue of $2,079.5 million for fiscal year 2021 increased $367.7 million, or 21.5%, from $1,711.8 million for fiscal year 2020.

Of the increase approximately 90% was driven by comparable store sales growth driven by customer demand, primarily the effect of our stores being temporarily closed to the public for a portion of fiscal year 2020 and government stimulus, approximately 20% was driven by new store growth and maturation and was partially offset by $32.2 million (or approximately 10%) of net revenue attributable to the 53rd week in fiscal year 2020.

During fiscal year 2021, we opened 69 new America’s Best stores and six new Eyeglass World stores and closed two America’s Best stores.

The total net new locations in fiscal year 2021 for America’s Best and Eyeglass World are 67 and six, respectively.

Total net revenue of $2,005.4 million for fiscal year 2022 decreased $74.1 million, or 3.6%, from $2,079.5 million for fiscal year 2021.

During fiscal year 2022, we opened 69 new America’s Best stores and 11 new Eyeglass World stores and closed four America’s Best stores.

The total net new locations in fiscal year 2022 for America’s Best and Eyeglass World are 65 and 11, respectively.

Overall, store count grew 5.9% from the end of fiscal year 2021 to the end of fiscal year 2022.

Comparable store sales growth and Adjusted Comparable Store Sales Growth for fiscal year 2021 were 22.4% and 23.0%, respectively.

The increases in comparable store sales growth and Adjusted Comparable Store Sales Growth were primarily driven by an increase in customer transactions and, to a lesser extent, higher average ticket as a result

of customer demand, primarily the effect of our stores being temporarily closed for a portion of fiscal year 2020 and government stimulus.

Net product sales comprised 82.2% and 82.6% of total net revenue for fiscal years 2022 and 2021, respectively.

Net product sales increased $300.1 million, or 21.2% during fiscal year 2021 compared to fiscal year 2020, primarily due to a $255.3 million, or 27.0% increase in eyeglass sales and to a lesser extent, a $35.0 million, or 10.3% increase in contact lens sales.

Net sales of services and plans increased $67.7 million, or 23.1%, primarily driven by a $38.4 million, or 25.4% increase in eye exam revenue and a $15.9 million, or 26.4% increase in product protection plan revenue, primarily the effect of our stores being temporarily closed for a portion of fiscal year 2020.

Owned & Host segment net revenue.

Net revenue increased $341.3 million, or 25.4%, driven primarily by comparable store sales growth and new store openings.

Net revenue declined $66.3 million, or 3.9%, driven primarily by negative comparable store sales growth partially offset by new store openings.

Legacy segment net revenue.

Net revenue grew $23.5 million, or 16.5%, driven by comparable store sales growth.

Net revenue declined $13.6 million, or 8.2%, driven by negative comparable store sales growth.

Corporate/Other segment net revenue.

Net revenue increased $1.9 million, or 0.8%, due to increases in wholesale fulfillment.

Net revenue increased $6.5 million, or 2.8%, driven primarily by increases in wholesale fulfillment.

Net revenue reconciliations.

The impact of reconciliations positively impacted net revenue by $1.1 million during fiscal year 2021 compared to fiscal year 2020.

Net revenue was positively impacted by $7.6 million due to the timing of unearned revenue.

The balance of unearned revenue as of fiscal year 2020 reflected pent-up demand following the temporary closure of our stores to the public.

Net revenue was negatively impacted by $6.5 million due to higher product protection plan and club membership deferred revenue balances in current period compared to the prior year period.

Product protection plan and club membership deferred revenue balances were lower in the prior year, primarily due to the effect of our stores being temporarily closed for a portion of fiscal year 2020.

The impact of reconciliations negatively impacted net revenue by $0.7 million during fiscal year 2022 compared to fiscal year 2021.

Net revenue was negatively impacted by $14.2 million due to the timing of unearned revenue.

The balance of unearned revenue reflected increased sales in the last week of fiscal year 2022 compared to the same period in 2021.

Costs applicable to revenue

Costs applicable to revenue of $925.6 million for fiscal year 2022 increased $20.8 million, or 2.3%, from $904.8 million for fiscal year 2021.

As a percentage of net revenue, costs applicable to revenue decreased from 46.0% for fiscal year 2020 to 43.5% for fiscal year 2021.

This decrease as a percentage of net revenue was primarily driven by increased eyeglass mix and lower growth in optometrist-related costs, primarily due to the effect of our stores being temporarily closed for a portion of fiscal year 2020 not experienced in fiscal year 2021.

Costs of products as a percentage of net product sales decreased from 38.9% for fiscal year 2020 to 36.8% for fiscal year 2021 primarily driven by increased eyeglass mix and higher eyeglass and contact lens margin, primarily the effect of our stores being temporarily closed for a portion of fiscal year 2020 not experienced in fiscal year 2021.

As a percentage of net revenue, costs applicable to revenue increased from 43.5% for fiscal year 2021 to 46.2% for fiscal year 2022.

This increase as a percentage of net revenue was primarily driven by higher growth in optometrist-related costs, reduced eyeglass mix and lower eyeglass margin.

Costs of products as a percentage of net product sales increased from 36.8% for fiscal year 2021 to 38.6% for fiscal year 2022 primarily driven by reduced eyeglass mix and lower eyeglass margin.

Owned & Host segment costs of products.

Costs of products as a percentage of net product sales decreased from 28.0% for fiscal year 2020 to 27.4% for fiscal year 2021 driven by increased eyeglass mix and higher eyeglass margin, primarily the effect of the temporary store closures in fiscal year 2020.

Costs of products as a percentage of net product sales increased from 27.4% for fiscal year 2021 to 28.9% for fiscal year 2022 primarily driven by reduced eyeglass mix and lower eyeglass margin.

Legacy segment costs of products.

Costs of products as a percentage of net product sales decreased slightly from 47.8% for fiscal year 2020 to 47.7% for fiscal year 2021.

The decrease was primarily driven by the effect of the temporary store closures in fiscal year 2020, which was partially offset by a lower mix of managed care customer transactions versus non-managed care customer transactions.

Costs of products as a percentage of net product sales decreased from 47.7% for fiscal year 2021 to 46.8% for fiscal year 2022.

The decrease was primarily driven by a higher mix of managed care customer transactions versus non-managed care customer transactions.

Legacy segment managed care net product revenue is recorded in net product sales while revenue associated with servicing non-managed care customers is recorded in net sales of services and plans.

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Increases in managed care mix decrease costs of products as a percentage of net product sales and have a corresponding negative impact on costs of services as a percentage of net sales of services and plans in our Legacy segment.

Costs of services and plans as a percentage of net sales of services and plans decreased from 80.0% for fiscal year 2020 to 75.2% for fiscal year 2021.

The decrease was driven by lower growth in optometrist-related costs and higher eye exam revenue, primarily due to the impact of the temporary store closures to the public in fiscal year 2020 not experienced in fiscal year 2021.

These improvements were partially offset by the deferred revenue effects mentioned above.

Costs of services and plans as a percentage of net sales of services and plans increased from 75.2% for fiscal year 2021 to 81.0% for fiscal year 2022.

The increase was primarily driven by higher growth in optometrist-related costs, which were partially offset by higher eye exam revenue.

Owned & Host segment costs of services and plans.

Costs of services and plans as a percentage of net sales of services and plans decreased from 86.0% for fiscal year 2020 to 80.1% for fiscal year 2021.

The decrease was driven by lower growth in optometrist-related costs and higher eye exam revenue, primarily the impact of the temporary store closures to the public in fiscal year 2020.

Costs of services and plans as a percentage of net sales of services and plans increased from 80.1% for fiscal year 2021 to 88.6% for fiscal year 2022.

The increase was primarily driven by higher growth in optometrist-related costs, which were partially offset by higher eye exam revenue.

Legacy segment costs of services and plans.

Costs of services and plans as a percentage of net sales of services and plans decreased from 46.5% for fiscal year 2020 to 40.7% for fiscal year 2021.

The decrease was primarily driven by higher management fees from our Legacy partner and lower growth in optometrist-related costs, the effect of the temporary store closures to the public in fiscal year 2020.

Costs of services and plans as a percentage of net sales of services and plans increased from 40.7% for fiscal year 2021 to 44.9% for fiscal year 2022.

The increase was primarily driven by higher growth in optometrist-related costs.

Selling, general and administrative

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As a percentage of net revenue, SG&A increased from 43.3% for fiscal year 2021 to 45.6% for fiscal year 2022.

This increase as a percentage of net revenue was primarily driven by increases in advertising and performance-based incentive compensation partially offset by decreases in store payroll and occupancy expenses, which were primarily due to the effect of temporary store closures to the public in fiscal year 2020 not experienced in fiscal year 2021, and an individual one-time cash bonus paid in fiscal year 2020 to our front-line associates and doctors.

The Company paid $5.0 million of discretionary bonuses during fiscal year 2022.

of these costs, $0.6 million were reflected as adjustments for the Company’s presentation of non-GAAP measures below for fiscal year 2020.

Owned & Host segment SG&A.

SG&A as a percentage of net revenue increased from 36.5% for fiscal year 2020 to 36.7% for fiscal year 2021.

This increase as a percentage of net revenue was primarily driven by higher advertising expense partially offset by payroll and occupancy leverage, the effect of the temporary store closures to the public in fiscal year 2020.

Legacy segment SG&A.

SG&A as a percentage of net revenue decreased from 36.5% for fiscal year 2020 to 35.0% for fiscal year 2021 primarily driven by payroll and occupancy leverage, the effect of the temporary store closures to the public in fiscal year 2020.

SG&A as a percentage of net revenue increased from 35.0% for fiscal year 2021 to 38.3% for fiscal year 2022 driven primarily by higher payroll expense.

Depreciation and amortization

Depreciation and amortization expense of $97.1 million for fiscal year 2021 increased $5.5 million, or 6.0%, from $91.6 million for fiscal year 2020 primarily driven by new store openings.

Asset impairment

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and the remaining useful lives of the assets.

The asset impairment expense for fiscal years 2021 and 2020 also includes $0.8 million and $1.1 million, respectively, related to a write-off of certain software assets that were deemed to be obsolete.

The asset impairment expense for fiscal year 2021 also includes $0.8 million, related to a write-off of certain software assets that were deemed to be obsolete.

Asset impairment expenses were recognized in Corporate/Other.

Other expense (income), net

We recognized a gain of $2.4 million in Other expense (income), net in fiscal year 2021 in connection with the acquisition of our equity method investee by a third party.

“Business and Significant Accounting Policies” for further details.

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Interest expense, net, of $0.5 million for fiscal year 2022 decreased $25.2 million, or 98.2%, from $25.6 million for fiscal year 2021.

The decrease was primarily driven by lower derivative costs of $10.9 million, reduced term loan outstanding balance and credit facility utilization, and lower interest expense on the 2025 Notes as a result of the adoption of ASU 2020-06.

The decrease was primarily a result of lower derivative costs of $19.0 million on our interest rate derivatives, reduced term loan outstanding balance and income on cash balances.

Income tax provision

Our income tax provision for fiscal year 2021 reflected our statutory federal and state rate of 25.5% , offset by a benefit of $16.5 million primarily from the exercise of stock options and stranded tax effect associated with our interest rate swaps that matured in the first quarter of 2021.

In comparison, the income tax provision associated with fiscal year 2020 reflected our statutory federal and state rate of 25.5% combined with a benefit of $8.0 million associated primarily with the stock option exercises.

Our effective tax rate for fiscal year 2022 was 30.7%, reflecting our statutory federal and state rate of 25.4% and effects of other permanent items.

Non-GAAP Financial Measures

Adjusted Operating Income, Adjusted Operating Margin, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Diluted EPS

We define Adjusted Operating Income as net income, plus interest expense (income), net and income tax provision (benefit), further adjusted to exclude stock based compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, amortization of acquisition intangibles and certain other expenses.

We define Adjusted Operating Income as net income, plus interest expense (income), net and income tax provision (benefit), further adjusted to exclude stock-based compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, amortization of acquisition intangibles, ERP implementation expenses and certain other expenses.

We define Adjusted Operating Margin as Adjusted Operating Income as a percentage of net revenue.

We define EBITDA as net income, plus interest expense (income), net, income tax provision (benefit) and depreciation and amortization.

We define Adjusted EBITDA as net income, plus interest expense (income), net, income tax provision (benefit) and depreciation and amortization, further adjusted to exclude stock based compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, and certain other expenses.

We define Adjusted EBITDA as net income, plus interest expense (income), net, income tax provision (benefit) and depreciation and amortization, further adjusted to exclude stock-based compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, ERP implementation expenses and certain other expenses.

We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of net revenue.

We define Adjusted Diluted EPS as diluted earnings per share, adjusted for the per share impact of stock-based compensation expense, loss on extinguishment of debt, asset impairment, litigation settlement, secondary offering expenses, management realignment expenses, long-term incentive plan expenses, amortization of acquisition intangibles, amortization of debt discounts and deferred financing costs of our term loan borrowings, amortization of the conversion feature and deferred financing costs related to our 2025 N otes when not required under U.S.

GAAP to be added back for diluted earnings per share, losses (gains) on change in fair value of derivatives, certain other expenses, and tax benefit of stock option exercises, less the tax effect of these adjustments.

We adjust for amortization of costs related to the 2025 Notes only when adjustment for these costs is not required in the calculation of diluted earnings per share according to U.S.

GAAP to be added back for diluted earnings per share, derivative fair value adjustments, ERP implementation expenses, certain other expenses, and tax expense (benefit) from stock-based compensation, less the tax effect of these adjustments.

EBITDA and the Company Non-GAAP Measures can vary substantially in size from one period to the next, and certain types of expenses are non-recurring in nature and consequently may not have been incurred in any of the periods presented below.

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Net income $ (65,901) (3.1) % $ 42,122 2.1 % $ 128,244 6.2 %

Interest expense 462 0.0 % 25,612 1.2 % 48,327 2.8 %

Interest expense, net

14,339 0.7 % 462 0.0 % 25,612 1.2 %

Income tax provision 4,137 0.2 % 18,691 0.9 % 21,081 1.0 %

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20,174 0.9 % 13,512 0.7 % 14,886 0.7 %

Asset impairment (b)

Loss on extinguishment of debt (b)

599 0.0 % — — % — — %

Litigation settlement (c)

Asset impairment (c)

82,413 3.9 % 5,783 0.3 % 4,427 0.2 %

Amortization of acquisition intangibles (d)

Litigation settlement (d)

— — % — — % 1,500 0.1 %

Amortization of acquisition intangibles (e)

5,251 0.2 % 7,488 0.4 % 7,488 0.4 %

ERP implementation expenses (h)

484 0.0 % — — % — — %

10,825 0.5 % (263) (0.0) % 1,511 0.1 %

Adjusted Operating Income / Adjusted Operating Margin $ 72,321 3.4 % $ 87,795 4.4 % $ 204,749 9.8 %

Fiscal years 2022 and 2021 include 52 weeks.

Fiscal year 2020 includes 53 weeks.

Percentages reflect line item as a percentage of net revenue, adjusted for rounding.

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Net income $ (65,901) (3.1) % $ 42,122 2.1 % $ 128,244 6.2 %

Interest expense 462 0.0 % 25,612 1.2 % 48,327 2.8 %

Interest expense, net

14,339 0.7 % 462 0.0 % 25,612 1.2 %

Income tax provision 4,137 0.2 % 18,691 0.9 % 21,081 1.0 %

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20,174 0.9 % 13,512 0.7 % 14,886 0.7 %

Asset impairment (b)

Loss of extinguishment of debt (b)

599 0.0 % — — % — — %

Litigation settlement (c)

Asset impairment (c)

82,413 3.9 % 5,783 0.3 % 4,427 0.2 %

Litigation settlement (d)

— — % — — % 1,500 0.1 %

ERP implementation expenses (h)

484 0.0 % — — % — — %

10,825 0.5 % (263) (0.0) % 1,511 0.1 %

Adjusted EBITDA / Adjusted EBITDA Margin $ 165,322 7.8 % $ 180,263 9.0 % $ 294,350 14.2 %

Fiscal years 2022 and 2021 include 52 weeks.

Fiscal year 2020 includes 53 weeks.

Percentages reflect line item as a percentage of net revenue, adjusted for rounding.

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0.26 0.17 0.15

Asset impairment (b)

Loss on extinguishment of debt (b)

Asset impairment (c)

1.05 0.07 0.05

Litigation settlement (c)

Amortization of acquisition intangibles (d)

Litigation settlement (d)

Amortization of acquisition intangibles (e)

0.07 0.09 0.08

Amortization of debt discounts and deferred financing costs (e)

Amortization of debt discounts and deferred financing costs (f)

0.04 0.04 0.02

Losses (gains) on change in fair value of derivatives (f)

Derivative fair value adjustments (g)

0.12 (0.20) (0.03)

ERP implementation expenses (h)

0.14 (0.00) (0.01)

Tax benefit of stock option exercises (h)

Tax expense (benefit) from stock-based compensation (j)

0.02 (0.00) (0.15)

Tax effect of total adjustments (i)

Tax effect of total adjustments (k)

(0.23) (0.04) (0.08)

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Weighted average diluted shares outstanding 78,313 80,298 96,134

Fiscal years 2022 and 2021 include 52 weeks.

Fiscal year 2020 includes 53 weeks.

Some of the totals in the table above do not foot due to rounding differences.

(a) Non-cash charges related to stock-based compensation programs, which vary from period to period depending on the timing of awards and performance vesting conditions.

(b) Reflects write-off of primarily property, equipment and lease related assets on closed or underperforming stores.

(d) Amortization of the increase in carrying values of finite-lived intangible assets resulting from the application of purchase accounting to the KKR Acquisition.

(e) Amortization of deferred financing costs and other non-cash charges related to our long-term debt, including amortization of the conversion feature related to the 2025 Notes of $10.0 million for fiscal year 2020.

(b) For fiscal year 2023, reflects the extinguishment loss related to the repurchase of $100 million of the 2025 Notes on November 14, 2023.

(c) Reflects write-off related to impairment of long-lived assets, primarily goodwill of the Legacy Segment, Walmart contracts and relationship asset, property and equipment at Walmart stores and associated with our AC Lens business, and impairment of property, equipment and lease-related assets on closed or underperforming stores.

(d) Expenses associated with settlement of certain litigation.

(e) Amortization of the increase in carrying values of finite-lived intangible assets resulting from the application of purchase accounting following the KKR Acquisition.

(f) Amortization of deferred financing costs and other non-cash charges related to our long-term debt.

We adjust for amortization of deferred financing costs related to the 2025 Notes only when adjustment for these costs is not required in the calculation of diluted earnings per share under U.S.

(f) Reflects losses (gains) recognized in interest expense on change in fair value of de-designated hedges.

(g) Other adjustments include amounts that management believes are not representative of our operating performance (amounts in brackets represent reductions in Adjusted Operating Income, Adjusted Diluted EPS and Adjusted EBITDA), which are primarily related to excess payroll taxes on stock option exercises, executive severance and relocation and other expenses and adjustments, including our share of (gains) losses on equity method investments of $(2.7) million and $(2.4) million for fiscal years 2022 and 2021, respectively, and losses on other investments of $0.3 million for fiscal year 2022.

(h) Tax benefit associated with accounting guidance requiring excess tax benefits related to stock option exercises to be recorded in earnings as discrete items in the reporting period in which they occur.

(i) Represents the income tax effect of the total adjustments at our combined statutory federal and state income tax rates.

(j) Reflects other expenses in (g) above, including the impact of stranded tax effect of $(2.1) million for fiscal year 2021 associated with our interest rate swaps that matured in 2021, and $0.1 million and $0.2 million of debt issuance costs for fiscal years 2021 and 2020, respectively.

(g) The adjustments for the derivative fair value (gains) and losses have the effect of adjusting the (gain) or loss for changes in the fair value of derivative instruments and amortization of AOCL for derivatives not designated as accounting hedges.

This results in reflecting derivative (gains) and losses within Adjusted Diluted EPS during the period the derivative is settled.

(h) Costs related to the Company’s ERP implementation.

(i) Other adjustments include amounts that management believes are not representative of our operating performance (amounts in brackets represent reductions in Adjusted Operating Income, Adjusted Diluted EPS and Adjusted EBITDA), which are primarily related to the termination of the Walmart partnership of $7.0 million for fiscal year 2023, costs associated with the digitization of paper-based records of $2.2 million for fiscal year 2023, excess payroll taxes on vesting of restricted stock units and exercises of stock options, executive severance and relocation and other expenses and adjustments, including our share of (gains) losses on equity method investments of $(2.7) million and $(2.4) million for fiscal years 2022 and 2021, respectively, and losses on other investments of $0.3 million for fiscal year 2022.

(j) Tax expense (benefit) associated with accounting guidance requiring excess tax expense (benefit) related to vesting of restricted stock units and exercises of stock options to be recorded in earnings as discrete items in the reporting period in which they occur.

(k) Represents the income tax effect of the total adjustments at our combined statutory federal and state income tax rates excluding Walmart goodwill impairment charges of $60.1 million for fiscal year 2023.

(l) Reflects other expenses in (i) above, including the impact of stranded tax effect of $(2.1) million for fiscal year 2021 associated with our interest rate swaps that matured in 2021, and $0.2 million and $0.1 million of debt issuance costs for fiscal years 2023 and 2021, respectively.

Liquidity and Capital Resources

Our primary cash needs are for inventory, payroll, store rent, advertising, capital expenditures associated with new stores and updating existing stores, as well as information and remote medicine technology and infrastructure, including our corporate office, distribution centers and laboratories.

When appropriate, the Company may utilize excess liquidity towards debt service requirements, including voluntary debt prepayments, or required interest and principal payments, if any, as well as repurchases of common stock, based on excess cash flows.

The most significant components of our operating assets and liabilities are inventories, accounts receivable, prepaid expenses and other assets, accounts payable, deferred and unearned revenue and other payables and accrued expenses.

We exercise prudence in our use of cash and closely monitor various items related to cash flow including, but not limited to, cash receipts, cash disbursements, payment terms and alternative sources of funding.

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We believe that cash on hand, cash expected to be generated from operations and the availability of borrowings under our revolving credit facility will be sufficient to fund our working capital requirements, liquidity obligations, anticipated capital expenditures and payments due under our existing debt for the next 12 months and thereafter for the foreseeable future.

Depending on our liquidity levels, conditions in the capital markets and other factors, we may from time to time consider the refinancing or issuance of debt, issuance of equity or other securities, the proceeds of which could provide additional liquidity for our operations, as well as modifications to our term loan where possible.

Depending on our liquidity levels, conditions in the capital markets and other factors, we may from time to time consider the prepayment, refinancing or issuance of debt, issuance of equity or other securities, the proceeds of which could provide additional liquidity for our operations, as well as modifications to our term loan where possible.

However, our ability to maintain sufficient liquidity may be affected by numerous factors, many of which are outside of our control.

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Net increase (decrease) in cash, cash equivalents and restricted cash $ (79,597) $ (76,252) $ (68,283)

Fiscal years 2022 and 2021 include 52 weeks.

Fiscal year 2020 includes 53 weeks.

Net Cash Provided by Operating Activities

Cash flows provided by operating activities increased by $53.8 million to $173.0 million, during fiscal year 2023 from $119.2 million during fiscal year 2022 as a result of changes in net working capital and other assets and liabilities, which contributed an additional $81.9 million in cash, partially offset by a decrease in net income and non-cash reconciling items of $28.0 million as compared to fiscal year 2022.

Working capital was most significantly impacted by changes in other liabilities and accounts receivable.

Increases in other liabilities contributed $54.6 million in year-over-year cash primarily due to increases in compensation related accruals.

Decreases in accounts receivable balances contributed $17.0 million in year-over-year cash primarily due to payments of deferred social security taxes in fiscal year 2022 pursuant to the CARES Act that did not recur in fiscal year 2023, and a decrease in managed care receivables due to timing.

Cash flows provided by operating activities decreased by $139.7 million to $119.2 million, during fiscal year 2022 from $258.9 million during fiscal year 2021 as a result of a $86.1 million decrease in net income, changes in net working capital and other assets and liabilities, which used an additional $39.9 million in cash and a decrease in non-cash expense adjustments of $13.7 million, in each case, as compared to fiscal year 2021.

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Decreases in inventory contributed $13.0 million in year-over-year cash primarily due to increased purchases, including inventory forward buys, during 2021.

Cash flows provided by operating activities increased by $24.0 million to $258.9 million, or 10.2%, during fiscal year 2021 from $235.0 million during fiscal year 2020 as a result of net income of $92.0 million, offset by a decrease in non-cash expense items of $13.2 million, and changes in net working capital and other assets and liabilities, which used an additional $54.8 million in cash compared to fiscal year 2020.

Working capital was most significantly impacted by changes in inventories, accounts payable, other liabilities, and accounts receivable.

Increases in inventory and decreases in accounts payable, which used $26.3 million and $24.6 million in year-over-year cash, respectively, were primarily due to increased purchases including inventory forward buys and other payments during 2021.

Decreases in other liabilities used $17.8 million in year-over-year cash primarily due to decreases in compensation related accruals of $17.1 million including payment of CARES Act deferred employer payroll taxes and lease concessions and deferrals of $5.9 million, partially offset by lower payments of litigation settlements and increases in advertising and promotional efforts during the year.

Offsetting these items were decreases in accounts receivable balances, which contributed $14.9 million in year-over-year cash, primarily due to year-over-year decreases in outstanding credit card receivables as a result of lower sales in the last week of fiscal year 2021 when compared to the same period of 2020.

Net Cash Used for Investing Activities

Net cash used for investing activities increased by $4.9 million, to $115.8 million, during fiscal year 2023 from $110.9 million during fiscal year 2022.

The increase was primarily due to increased capital investments in remote medicine and new store openings.

The increase was primarily due to investments in our labs and distribution centers, and store remodeling costs, partially offset by decreased investments in remote medicine.

We purchased $114.8 million in capital items during fiscal year 2023.

Approximately 80% to 85% of o ur capital spend is related to our expected growth (i.e., new stores, remote medicine infrastructure, EHR, optometric equipment, additional capacity in our optical laboratories and distribution centers, and our IT infrastructure, including omni-channel platform related investments).

Approximately 80% to 85% of our capital spend is related to our expected growth (i.e., new stores, remote medicine infrastructure, EHR, optometric equipment, additional capacity in our optical laboratories and distribution centers, and our IT infrastructure, including ERP and omni-channel platform related investments).

Net cash used for investing activities increased by $18.0 million, to $110.9 million, during fiscal year 2022 from $92.9 million during fiscal year 2021.

The increase was primarily due to new store openings, offset partially by proceeds of $2.4 million in connection with the sale of the Company’s equity method investee.

Refer to Note 1.

“Business and Significant Accounting Policies” for more information on the sale.

The increase was primarily due to increased capital investments in remote medicine and new store openings.

We purchased $113.5 million in capital items during fiscal year 2022.

Net Cash Provided by (Used for) Financing Activities

Net cash used for financing activities increased $52.3 million, from $84.6 million use of cash during fiscal year 2022 to $136.8 million use of cash during fiscal year 2023.

The increase in cash used for financing activities was primarily due to a repurchase of $100.0 million aggregate principal amount of the 2025 Notes for an aggregate cash repurchase price of $99.3 million in fiscal year 2023, partially offset by decreases in purchases of treasury stock of $56.0 million during fiscal year 2023 as compared with 2022.

Net cash used for financing activities decreased $149.8 million, from $234.3 million use of cash during fiscal year 2021 to $84.6 million use of cash during fiscal year 2022.

The decrease in cash used for financing activities was primarily due to voluntary term loan prepayments of $167.4 million in fiscal year 2021 that did not recur in fiscal year 2022, partially offset by increases in purchases of treasury stock of $11.1 million and decreases in proceeds from issuance of common stock of $8.1 million during fiscal year 2022.

Net cash provided by (used for) financing activities decreased $410.6 million, from $176.3 million provision of cash during fiscal year 2020 to $234.3 million use of cash during fiscal year 2021.

The decrease was primarily due to the prepayment of our term loan of $167.4 million and increases in purchases of treasury stock of $72.6 million during fiscal year 2021 compared to proceeds of $548.8 million from the issuance of the 2025 Notes and borrowings on our revolving credit facility partially offset by principal payments on long-term debt of $369.3 million during fiscal year 2020.

Long-term Debt

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2025 Notes, due May 15, 2025 Fixed $ 302,497 $ —

Term loan, due July 18, 2024 Variable 150,000 —

Revolving credit facility, due July 18, 2024 (1)

Term Loan A, due June 13, 2028

Variable 146,250 —

Revolving Loans, due June 13, 2028 (1)

Variable — 293,619

Total $ 448,747 $ 293,619

(1) At December 30, 2023, the amount available under our revolving credit facility reflected a reduction of $6.4 million of letters of credit outstanding.

(2) The interest rate on the term loan and revolving credit facility pursuant to the Credit Agreement is at an Applicable Margin range from 1.25% to 2.00% for LIBOR Loans with LIBOR to not be lower than 0.00% in any period, and an Applicable Margin range from 0.25% to 1.00% for ABR Loans, as of fiscal year end 2022.

(2) Refer to Note 5.

Long-term Debt for the interest rates used on the term loan and revolving credit facility.

The 2025 Notes pay interest semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 2020, at an annual rate of 2.50%.

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On February 23, 2022, our Board of Directors authorized a $100 million increase to the share repurchase authorization, for a total authorization of $200 million.

Repurchases may be made from time to time in the Company’s discretion through one or more open market or privately negotiated transactions, and pursuant to pre-set trading plans meeting the requirements of all applicable securities laws and regulations.

Shares may be repurchased under the program through December 30, 2023.

During fiscal years 2023, 2022, and 2021, the Company repurchased 1.1 million shares of its common stock for $25.0 million, 2.7 million shares of its common stock for $80.0 million, and 1.4 million shares of its common stock for $69.9 million, respectively, under the share repurchase program.

The Company’s original share repurchase authorization expired on December 30, 2023, and had remaining capacity of $25 million.

Effective February 23, 2024, the Board authorized the Company to repurchase up to $50 million aggregate amount of shares of the Company’s common stock until January 3, 2026.

The authorization permits the Company to make purchases of its common stock from time to time in the open market or privately negotiated

transactions, and pursuant to pre-set trading plans meeting the requirements of all applicable securities laws and regulations.

The timing and amounts of any such repurchases will depend on a variety of factors, including the market price of the Company’s shares, general market and economic conditions, legal requirements and tax implications.

The Company expects to fund the share repurchases using cash on hand.

During fiscal years 2022 and 2021, the Company repurchased 2.7 million shares of its common stock for $80.0 million, and 1.4 million shares of its common stock for $69.9 million, respectively, under the share repurchase program.

After these repurchases, approximately $50 million remains available under the share repurchase authorization as of December 31, 2022.

Capital Expenditures

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Total $ 114,774 $ 113,547 $ 95,515

Fiscal years 2022 and 2021 include 52 weeks.

Fiscal year 2020 includes 53 weeks.

We expect capital expenditures in fiscal year 2023 to be approximately between $115 million and $120 million and to be used primarily in supporting the Company’s growth through investments in new stores, remote medicine, EHR, optical laboratories, and IT infrastructure.

We expect capital expenditures in fiscal year 2024 to be approximately between $110 million and $115 million and to be used primarily in supporting the Company’s growth through investments in new and existing stores, remote medicine, EHR, optical laboratories, and IT infrastructure, including ERP.

We expect to fund capital expenditures with cash flows from operations, but may also use existing cash balances or funds available through our revolving credit facility.

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“Long-term Debt” for more information on our revolving credit facility.

(d) We have estimated our interest payments on our term loan based on LIBOR as of the end of fiscal year 2022.

Amounts and timing may be different from our estimated interest payments due to potential voluntary prepayments, borrowings, interest rate fluctuations and the expected discontinuation of LIBOR.

(d) We have estimated our interest payments on our term loan based on Term Secured Overnight Financing Rate as of the end of fiscal year 2023.

Amounts and timing may be different from our estimated interest payments due to potential voluntary prepayments, borrowings and interest rate fluctuations.

Expected obligations on our hedging instruments are excluded from estimated interest presented in the table above.

Refer to Note 1.

“Business and Significant Accounting Policies” for more information on the cessation of LIBOR.

(e) We lease our retail stores, optometric examination offices, distribution centers, office space and all of our optical laboratories with the exception of our St.

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We follow U.S.

GAAP in making the determination as to whether or not to record an asset or liability related to our arrangements with third parties.

GAAP in making the determination as to whether to record an asset or liability related to our arrangements with third parties.

Consistent with current accounting guidance, we do not record an asset or liability associated with long-term purchase, marketing and promotional commitments, or commitments to philanthropic endeavors.

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All unearned revenue at the end of a reporting period is recognized in the next fiscal period.

A one day increase in our estimate of the average days needed to process delivery would have affected revenues in fiscal year 2022 by approximately $ 5 million, which would ultimately have been recorded in the next fiscal year.

A one-day increase in our estimate of the average days needed to process delivery would have affected revenues in fiscal year 2023 b y approximately $5 million, which would ultimately have been recorded in the next fiscal year.

The Company considers its revenue from managed care customers to include variable consideration and estimates such amounts associated with managed care customer revenues using the history of concessions provided and cash receipts from managed care providers;

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Developing the estimates and assumptions used in our recovery and impairment evaluations require significant judgment.

The cash flows used in estimating fair value were discounted using market rates from 7.5% to 10% in fiscal year 2022.

The cash flows used in estimating fair value of property and equipment and ROU assets were discounted using market rates from 7.8% to 11.5% in fiscal year 2023.

We had $362.6 million of property and equipment, net, and ROU assets of $406.6 million as of December 30, 2023.

Changes in estimates and assumptions used in our impairment testing of property and equipment could result in future impairment losses, which could be material.

We recognized impairments of $5.8 million, $4.4 million and $22.0 million in fiscal years 2022, 2021 and 2020, respectively, primarily related to our long-lived tangible store assets and ROU assets.

We recognized impairments of property and equipment and ROU assets of $13.3 million, $5.8 million and $4.4 million in fiscal years 2023, 2022 and 2021, respectively.

The impairment charges in fiscal year 2023, were primarily related to impairments related to the termination of the Walmart partnership.

The impairment charges in fiscal years 2022 and 2021 were primarily related to our long-lived tangible store assets and ROU assets.

Refer to Note 2.

“Termination of Walmart Partnership” and Note 10.

“Fair Value Measurement” included in Part II.

of this Form 10-K for further information on impairments recognized in fiscal year 2023 .

Impairment of Goodwill and Intangible Assets

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These assumptions are sensitive to future changes in the business profitability, changes in our business strategy, customer concentration risk and external market conditions, among other factors.

“Goodwill and Intangible Assets” to our consolidated financial statements included in Part II.

“Goodwill and Intangible Assets” included in Part II.

of this Form 10-K for further detail on goodwill impairment.

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Significant judgments and assumptions are required in our impairment evaluations.

In our most recent goodwill impairment test, the fair value of our Legacy segment, to which $60.0 million of goodwill is allocated, exceeded its carrying value by approximately 9%.

Our Legacy segment has been affected by the challenging macroeconomic environment.

Considering the challenging environment, the fair value of our Legacy segment assumes lower levels of profitability in the near term than the Legacy segment has historically experienced, followed by a gradual improvement in profitability to the low end of the Legacy segment’s historical profitability range.

The fair values of our other reporting units exceeded their respective carrying values by at least 60%.

We determined that the various terminations of agreements with Walmart Inc.

as well as the subsequent decision to consolidate our distribution network and close the distribution center in Ohio constituted triggering events, and accordingly, performed impairment tests on our Legacy and AC Lens operating segments during the year ended December 30, 2023 on assets related to the Walmart partnership.

“Termination of Walmart Partnership” included in Part II.

of this Form 10-K for further information.

The fair values of our reporting units with goodwill exceeded their respective carrying values by at least 30%.

Future changes in a reporting unit’s business profitability, expected cash flows, changes in business strategy and external market conditions, among other factors, could require us to record an impairment charge for goodwill.

A 100 basis point increase in discount rates used to estimate the fair value of the Company’s reporting units would result in an approximate $3 million impairment of the Company’s goodwill balance in the Legacy segment at the end of fiscal year 2022.

The Legacy segment’s operations are sensitive to customer concentration.

A 100 basis point increase in discount rates used to estimate the fair value of the Company’s reporting units would not result in an impairment of goodwill at fiscal year-end.

When evaluating indefinite-lived, non-amortizing trademarks and trade names for impairment, we use the relief-from-royalty method to estimate fair value, whereby an estimated royalty rate is determined based on comparable licensing arrangements, which is then applied to the revenue projections for the subject asset.

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We record an impairment charge as the excess of carrying value over estimated fair value.

A 100 basis point increase in discount rates used to estimate the fair value of the Company’s trademarks and trade names would not result in an impairment at fiscal year-end.

The fair value of the Eyeglass World trade name asset exceeded its carrying value by approximately 10%;

changes to the growth assumptions or future strategy for this brand may negatively affect the fair value of this asset.

A 100 basis point increase in discount rates used to estimate the fair value of the Company’s trademarks and trade names would not result in an impairment of these assets at fiscal year-end.

A 10 basis point decrease in the royalty rates used in the analyses would not result in an impairment of these assets at fiscal year-end.

If impairment indicators related to finite-lived, amortizing intangible assets are present, we estimate cash flows expected to be generated over the remaining useful lives of the related assets based on current projections.

If the projected net undiscounted cash flows are less than the carrying value of the related assets, we then measure impairment based on a discounted cash flow model and record an impairment charge as the excess of carrying value over the estimated fair value.

A 100 basis point increase in the discount rate used to estimate the fair value of the Company’s Legacy segment contracts and relationships asset would not result in an impairment at fiscal year-end.

Calculations and assessments of uncertain tax positions involve estimates and complex judgments because the ultimate tax outcomes are uncertain and future events are unpredictable.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis