The following contains management's discussion and analysis of our financial
condition and results of operations and should be read together with the
unaudited condensed consolidated financial statements and the related notes
thereto included elsewhere in this Form 10-Q (this "Form 10-Q") and the audited
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission (the "SEC") on
January 1, 2022 (the "2021 Annual Report on Form 10-K.") This discussion
contains forward-looking statements that reflect our plans, estimates and
beliefs 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. These forward-looking statements
involve numerous risks and uncertainties, including, but not limited to, those
described in the "Risk Factors" section of the 2021 Annual Report on Form 10-K
and in the "Risk Factors" section of this Form 10-Q, as such risk factors may be
updated from time to time in our periodic filings with the SEC. Actual results
may differ materially from those contained in any forward-looking statements.
You should carefully read "Special Note Regarding Forward-Looking Statements" in
this Form 10-Q. Overview We are one of the largest and fastest growing optical retailers in the United
States and a leader in the attractive value segment of the U.S. optical retail
industry. We believe that vision is central to quality of life and that people
deserve to see their best to live their best, regardless of their budget. Our
mission is to make quality eye care and eyewear affordable and accessible to all
Americans. We achieve this by providing eye exams, eyeglasses and contact lenses
to value seeking and lower income consumers. We deliver exceptional value and
convenience to our customers, with an opening price point that strives to be
among the lowest in the industry, enabled by our low-cost operating platform. We
reach our customers through a diverse portfolio of 1,314 retail stores across
five brands and 17 consumer websites as of July 2, 2022. 

Ongoing macroeconomic uncertainty of the U.S. economy, constraints to exam
capacity and the COVID-19 pandemic continued to adversely affect our sales in
the second quarter of 2022 and may continue to impact our performance going
forward.

 Consumer preferences and demand, as well as spending habits, including for our
goods and services, are impacted by the prevailing macroeconomic conditions and
uncertainty, inflation, salaries and wages, consumer confidence and consumer
perception. The U.S. economy is experiencing high inflation because of changing
economic conditions, labor shortages, supply chain constraints, logistics
challenges, the conflict in Ukraine, and steps taken by governments and central
banks in response to the pandemic as well as other stimulus and spending
programs. These overall economic trends continued to impact consumer demand and
adversely impact our sales in the second quarter of 2022. Exam capacity, which encompasses the overall availability of vision care
professionals, is impacted by several factors including retention, hiring,
coverage and work schedules, and continued to be constrained in the second
quarter of 2022. We remain focused on our strategy to provide our customers and
patients reliable and quality low cost eye care and eyewear, and are taking
certain actions to enhance our exam capacity through recruitment, retention and
remote medicine initiatives. As a result of the emergence of the Omicron variant and subvariants, the
COVID-19 pandemic resulted in increased associate and vision care professional
absences, adjusted work schedules and reduced consumer traffic to our stores in
2022. The ultimate impact of COVID-19 on our operations and financial
performance in future periods remains uncertain and will depend on future
pandemic-related developments, including the duration of the pandemic, potential
subsequent waves of COVID-19 infection or potential new variants, the
effectiveness and adoption of COVID-19 vaccines and therapeutics, supplier
impacts and related government actions to prevent and manage disease spread,
including the implementation of any federal, state, local or foreign vaccine
mandates, all of which are uncertain and cannot be predicted. 22
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Brand and Segment Information 

Our operations consist of two reportable segments:

 •Owned & Host - As of July 2, 2022, our owned brands consisted of 872 America's
Best Contacts and Eyeglasses retail stores and 129 Eyeglass 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 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 July 2, 2022. We have
strong, long-standing relationships with our Host partners and have maintained
each partnership for over 22 years. These brands provide eye exams primarily by
independent optometrists. All brands utilize our 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
July 2, 2022. This strategic relationship with Walmart is in its 32nd 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. On July 17, 2020, NVI and Walmart extended the current term and
economics of the management & services agreement by three years to February 23,
2024. 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 manage 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 six months ended July 2, 2022, sales associated with this arrangement
represented 7.7% of consolidated net revenue. This exposes us to concentration
of customer risk. 23
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Our consolidated results also include the following activity recorded in our
Corporate/Other category: •Our e-commerce platform of 13 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 eight
third-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. •AC Lens also distributes contact lenses wholesale to Walmart and Sam's Club. 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 represented 6.9% of consolidated net revenue. •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. •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.
Corporate overhead expenses also include field services for our five retail
brands. Reportable segment information is presented on the same basis as our condensed
consolidated financial statements, except reportable segment sales which are
presented on a cash basis including point of sales for managed care payors and
excluding the effects of unearned and deferred revenue, consistent with what our
CODM regularly reviews. Reconciliations of segment results to consolidated
results include financial information necessary to adjust reportable segment
revenues to a consolidated basis in accordance with U.S. GAAP, specifically the
change in unearned and deferred revenues during the period. There are no revenue
transactions between reportable segments, and there are no other items in the
reconciliations other than the effects of unearned and deferred revenue. See
Note 10. "Segment Reporting" in our condensed consolidated financial statements
included in Part I. Item 1. of this Form 10-Q. Deferred revenue represents the timing difference of when we collect the cash
from the customer and when services related to product protection plans and eye
care club memberships are performed. Increases or decreases in deferred revenue
during the reporting period represent cash collections in excess of or below the
recognition of previous deferrals. Unearned revenue represents the timing
difference of when we collect cash from the customer and delivery/customer
acceptance, and includes sales of prescription eyewear during approximately the
last seven to 10 days of the reporting period. 

Trends and Other Factors Affecting Our Business

Various trends and other factors will affect or have affected our operating
results, including:

Overall economic trends, consumer preferences and demand

 Our business depends on consumer demand for our products and, consequently, is
sensitive to a number of factors that influence consumer confidence and
spending, such as general economic conditions, consumer disposable income,
energy and fuel prices, recession and fears of recession, unemployment, minimum
wages, availability of consumer credit, consumer debt levels, conditions in the
housing market, interest rates, tax rates and policies, inflation, consumer
confidence in future economic conditions and political conditions, war and fears
of war (including the Russian invasion of Ukraine), inclement weather, natural
disasters, terrorism, outbreak of viruses or widespread illness and consumer
perceptions of personal well-being and security. Over the past few years, global
markets and economic conditions have been challenging, particularly in light of
the COVID-19 pandemic. During periods of economic downturn and uncertainty, our
customers especially benefit from our low prices. The long-term effects of the
COVID-19 pandemic and other macroeconomic and geopolitical events on consumer
preferences and demand remain uncertain. We believe, but cannot be certain, our
business model of providing exceptional value and convenience to customers,
enabled by our low-cost operating platform will mitigate these impacts to a
certain extent; however uncertainties and risk exposures may be exacerbated by
the immediate and ongoing impacts of these factors. 

Vision care professional recruitment, coverage, and expanded offerings

Our ability to continue to attract and retain qualified vision care
professionals affect exam capacity and is critical to our operations. Our
operations, like those of many of our competitors, depend on our ability to
offer both eyewear and eye exams. We compete with other optical retail
companies, health systems and group practices for vision care

 24
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professionals. We, as well as the professional corporations or similar entities
that employ optometrists in certain of our retail locations, could face
difficulties attracting and retaining qualified professionals if we or such
corporations fail to offer competitive compensation and benefits. Increased
compensation for vision care professionals could raise our costs and negatively
affect our margins. We believe the impacts of the COVID-19 pandemic on vision
care professional availability, including a competitive recruiting market and
preferences for adjusted work schedules, and the demand for optometrists
exceeding supply in certain areas in the first half of fiscal year 2022 have
caused constraints in exam capacity. Due to these factors the costs to employ or
retain optometrists may increase, potentially materially, from current levels.
We are investing in recruitment and retention initiatives along with continuing
our implementation of remote medicine technologies. 

Impact of COVID-19

 The COVID-19 pandemic has had far-reaching impacts, directly and indirectly, on
our operations. We continue to monitor the evolving situation as there remain
many uncertainties regarding the pandemic and more recent outbreaks of variants,
including anticipated duration, vision care professional availability, related
healthcare authority guidelines and efficacy of vaccination initiatives,
including the impact of, and associated risks regarding, federal, state and
local vaccination and testing programs. We continue to monitor potential impacts
on our stores and exam capacity, lab network, and potential disruptions of
product and equipment deliveries. To date, we have been able to meet customer
demand with operations at our laboratories and our supply chain partners.
However, prolonged shutdowns in countries which support our supply chain or a
deterioration of conditions in such countries and others or increasing strains
on international and domestic supply chain infrastructure could result in
product and equipment availability delays in the future. We could experience
further material impacts as a result of COVID-19, including, but not limited to,
charges from additional asset impairments and deferred tax valuation allowances.
We will continue to evaluate additional measures that we may elect to take as a
response to the pandemic, including, where appropriate, future action to reduce
store hours and patient appointments, temporarily close stores or make
additional forward buys. There can be no assurance whether or when any such
measures will be adopted. For a discussion of significant risks that have the
potential to cause our actual results to differ materially from our
expectations, refer to Part II. Item 1A. "Risk Factors" in this Form 10-Q and
Part I. Item 1A. "Risk Factors," included in our 2021 Annual Report on Form
10-K. 

Pricing strategy

 We are committed to providing our products to our customers at low prices. We
generally employ a simple low price/high value strategy that consistently
delivers savings to our customers without the need for extensive promotions.
Inflationary pressures, including wage investments, consumer confidence and
preferences and increased raw material costs, could impact our profitability and
lead us to attempt to offset such increases through various pricing actions.
Effective May 9, 2022 we changed the price of our America's Best signature offer
to "two pairs of eyeglasses for $79.95, including a free eye exam" from its
original $69.95 price. Effective March 14, 2022, we changed the price of our
Eyeglass World opening offer to "two pairs of eyeglasses for $89" from its
original price of $78. We believe that these changes will enable us to continue
to offer the best possible value and service to our customers at prices that
allow us to maintain our brands' strong value propositions in the marketplace. 

Comparable store sales growth

 Comparable store sales growth is a key driver of our business and our value
proposition will continue to drive comparable store sales growth as we attract
new customers and increase loyalty with existing customers. During the six
months ended July 2, 2022 comparable store sales growth was negatively impacted
due to overall economic trends impacting consumer preferences and demand,
constraints on exam capacity in certain markets and the Omicron COVID-19
variant. We believe our business model of providing exceptional value and
convenience to customers, enabled by our low-cost operating platform will
mitigate these impacts to a certain extent. Our strategies to mitigate these
effects include, but are not limited to, investing in recruitment and retention
initiatives along with continuing our implementation of remote medicine
technologies and optimizing our marketing investments. The impact of
macroeconomic factors, the COVID-19 pandemic and constraints on exam capacity on
our comparable store sales growth remains uncertain, and effects and relevant
risk exposures may be exacerbated in the future. 

Inflation

 Substantial increases in product costs due to increases in materials cost or
general inflation could lead to greater profitability pressure as we may not be
able to pass costs on to consumers. To date, changes in materials prices and
general inflation have not materially impacted our business. However, targeted
wage investments, including increases in compensation and other expenses for our
optometrists and associates, have impacted our costs applicable to revenue and
selling, general and administrative expenses. Any further wage investments,
along with increased raw materials costs as a result of inflation or supply
chain issues, increases in energy and fuel prices and lease and utility costs,
would increase our costs applicable to revenue or selling, general and
administrative 25
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expenses. Such cost increases may not be offset by leverage from revenue growth,
productivity efficiency and, as appropriate, various pricing actions which could
impact our profitability and results of operations. 

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. Consumer behavior driven by the
COVID-19 pandemic, impacts on overall economic trends, consumer preferences and
demand has resulted in a departure from seasonal norms we have experienced in
recent years and we expect it will continue to disrupt the historical quarterly
cadence of our results of operations for an unknown period of time. 

Other factors

We remain committed to our long-term vision and continue to position ourselves
to make progress against our key initiatives while balancing the near-term
challenges and uncertainty presented by the COVID-19 pandemic and other
macroeconomic factors. We believe the following factors may continue to
influence our short-term and long-term results:

•New store openings;

•Managed care and insurance;

•Infrastructure investment;

•Our ability to source and distribute products effectively; and

•Industry competition and consolidation

How We Assess the Performance of Our Business

 We consider a variety of financial and operating measures in assessing the
performance of our business. The key measures we use to determine how our
consolidated business and operating segments are performing are net revenue,
costs applicable to revenue, and selling, general, and administrative expenses.
In addition, we also review store growth, Adjusted Comparable Store Sales
Growth, Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA,
Adjusted EBITDA Margin and Adjusted Diluted EPS. 

Net Revenue

 We report as net revenue amounts generated in transactions with retail customers
who are the end users of our products, services, and plans. Comparable store
sales growth and new store openings are key drivers of net revenue and are
discussed below. Also, the timing of unearned revenue can affect revenue
recognized in a particular period. 

Costs Applicable to Revenue

 Customer tastes and preferences, product mix, changes in technology, significant
increases or slowdowns in production, and other factors impact costs applicable
to revenue. The components of our costs applicable to revenue may not be
comparable to other retailers. 

Selling, General and Administrative

 SG&A generally fluctuates consistently with revenue due to the variable store,
field office and corporate support costs; however, some fixed costs slightly
improve as a percentage of net revenue as our net revenues grow over time. 

New Store Openings

 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. We expect to open at least
80 stores in the current year. We will continue to monitor and determine our
plans for future new store openings based on health, safety and economic
conditions. 26
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Adjusted Comparable Store Sales Growth We measure Adjusted Comparable Store Sales Growth as the increase or decrease in
sales recorded by the comparable store base in any reporting period, compared to
sales recorded by the comparable store base in the prior reporting period, which
we calculate as follows: (i) sales are recorded on a cash basis (i.e., when the
order is placed and paid for or submitted to a managed care payor, compared to
when the order is delivered), utilizing cash basis point of sale information
from stores; (ii) stores are added to the calculation during the 13th full
fiscal month following the store's opening; (iii) closed stores are removed from
the calculation for time periods that are not comparable; (iv) sales from
partial months of operation are excluded when stores do not open or close on the
first day of the month; and (v) when applicable, we adjust for the effect of the
53rd week. Quarterly, year-to-date and annual adjusted comparable store sales
are aggregated using only sales from all whole months of operation included in
both the current reporting period and the prior reporting period. When a partial
month is excluded from the calculation, the corresponding month in the
subsequent period is also excluded from the calculation. There may be variations
in the way in which some of our competitors and other retailers calculate
comparable store sales. As a result, our adjusted comparable store sales may not
be comparable to similar data made available by other retailers. Adjusted Comparable Store Sales Growth is a non-GAAP financial measure, which we
believe is useful because it provides timely and accurate information relating
to the two core metrics of retail sales: number of transactions and value of
transactions. We use Adjusted Comparable Store Sales Growth as the basis for key
operating decisions, such as allocation of advertising to particular markets and
implementation of special marketing programs. Accordingly, we believe that
Adjusted Comparable Store Sales Growth provides timely and accurate information
relating to the operational health and overall performance of each brand. We
also believe that, for the same reasons, investors find our calculation of
Adjusted Comparable Stores Sales Growth to be meaningful. 

Adjusted Operating Income, Adjusted Operating Margin, Adjusted EBITDA, Adjusted
EBITDA Margin and Adjusted Diluted EPS (collectively, the “Company Non-GAAP
Measures”)

 The Company Non-GAAP Measures are key measures used by management to assess our
financial performance. The Company Non-GAAP Measures are also frequently used by
analysts, investors and other interested parties. We use the Company Non-GAAP
Measures to supplement U.S. GAAP measures of performance to evaluate the
effectiveness of our business strategies, to make budgeting decisions, to
establish discretionary annual incentive compensation and to compare our
performance against that of other peer companies using similar measures. See "Non-GAAP Financial Measures" for definitions of the Company Non-GAAP Measures
and for additional information. 27
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Results of Operations 

The following table summarizes key components of our results of operations for
the periods indicated, both in dollars and as a percentage of our net revenue.

 Three Months Ended Six Months Ended
In thousands, except earnings per share,
percentage and store data July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Revenue:
Net product sales $ 421,600 $ 458,206 $ 854,853 $ 901,273
Net sales of services and plans 87,955 91,283 182,413 182,396
Total net revenue 509,555 549,489 1,037,266 1,083,669
Costs applicable to revenue (exclusive
of depreciation and amortization):
Products 163,361 167,028 327,580 326,719
Services and plans 71,206 68,918 143,024 133,917
Total costs applicable to revenue 234,567 235,946 470,604 460,636
Operating expenses:
Selling, general and administrative
expenses 227,829 234,235 456,383 457,828
Depreciation and amortization 25,245 24,025 50,396 47,580
Asset impairment 3,509 519 3,915 1,478
Other expense (income), net 34 (65) 265 (130)
Total operating expenses 256,617 258,714 510,959 506,756
Income from operations 18,371 54,829 55,703 116,277
Interest expense (income), net 3,963 10,188 (181) 16,518
Earnings before income taxes 14,408 44,641 55,884 99,759
Income tax provision 4,674 7,040 16,003 18,726
Net income $ 9,734 $ 37,601 $ 39,881 $ 81,033 Operating data:
Number of stores open at end of period 1,314 1,249 1,314 1,249
New stores opened during the period 22 20 39 45
Adjusted Operating Income $ 27,780 $ 65,581 $ 73,084 $ 133,249
Diluted EPS $ 0.12 $ 0.42 $ 0.47 $ 0.89
Adjusted Diluted EPS $ 0.21 $ 0.48 $ 0.53 $ 0.97
Adjusted EBITDA $ 51,153 $ 87,735 $ 119,736 $ 177,085 Percentage of net revenue:
Total costs applicable to revenue 46.0 % 42.9 % 45.4 % 42.5 %
Selling, general and administrative 44.7 % 42.6 % 44.0 % 42.2 %
Total operating expenses 50.4 % 47.1 % 49.3 % 46.8 %
Income from operations 3.6 % 10.0 % 5.4 % 10.7 %
Net income 1.9 % 6.8 % 3.8 % 7.5 %
Adjusted Operating Income 5.5 % 11.9 % 7.0 % 12.3 %
Adjusted EBITDA 10.0 % 16.0 % 11.5 % 16.3 % 28

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Three Months Ended July 2, 2022 compared to Three Months Ended July 3, 2021

Net revenue

 The following presents, by segment and by brand, comparable store sales growth,
stores open at the end of the period and net revenue for the three months ended
July 2, 2022 compared to the three months ended July 3, 2021. Comparable store sales growth(1) Stores open at end of period 

Net revenue(2)

 Three Months Three Months
In thousands, except Ended Ended July 3, Three Months Ended Three Months Ended
percentage and store data July 2, 2022 July 3, 2021 July 2, 2022 2021 July 2, 2022 July 3, 2021
Owned & Host segment
America's Best (13.0) % 81.8 % 872 813 $ 336,366 66.0 % $ 372,846 67.9 %
Eyeglass World (9.1) % 67.6 % 129 123 54,228 10.6 % 58,061 10.6 %
Military (6.1) % 65.0 % 54 54 5,640 1.1 % 6,007 1.1 %
Fred Meyer (9.8) % 61.1 % 29 29 2,924 0.6 % 3,243 0.6 %
Owned & Host segment total 1,084 1,019 $ 399,158 78.3 % $ 440,157 80.1 %
Legacy segment (12.9) % 58.2 % 230 230 37,837 7.4 % 43,600 7.9 %
Corporate/Other - % - % - - 61,885 12.1 % 61,520 11.2 %
Reconciliations - % - % - - 10,675 2.1 % 4,212 0.8 %
Total (11.0) % 99.1 % 1,314 1,249 $ 509,555 100.0 % $ 549,489 100.0 %
Adjusted Comparable Store
Sales Growth(3) (12.4) % 76.7 % (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. Brand-level comparable store sales growth is calculated based on
cash basis revenues consistent with what the CODM reviews, and consistent with
reportable segment revenues presented in Note 10. "Segment Reporting" in our
unaudited condensed consolidated financial statements included in Part I. Item
1. of this Form 10-Q, with the exception of the Legacy segment, which is
adjusted as noted in clause (ii) of footnote (3) below. (2)Percentages reflect line item as a percentage of net revenue, adjusted for
rounding.
(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 a decrease of 1.2% and a decrease of 21.6% from total comparable store sales
growth based on consolidated net revenue for the three months ended July 2, 2022
and July 3, 2021, 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 0.2% and a decrease of 0.8% from
total comparable store sales growth based on consolidated net revenue for the
three months ended July 2, 2022 and July 3, 2021, respectively. Total net revenue of $509.6 million for the three months ended July 2, 2022
decreased $39.9 million, or 7.3%, from $549.5 million for the three months ended
July 3, 2021. The decrease was driven primarily by reduced Adjusted Comparable
Store Sales Growth, partially offset by growth from new store sales and
recognition of deferred revenue. In the three months ended July 2, 2022, we opened 20 America's Best stores and
two Eyeglass World stores. Overall, store count grew 5.2% from July 3, 2021 to
July 2, 2022 (59 and six net new America's Best and Eyeglass World were added,
respectively). Comparable store sales growth and Adjusted Comparable Store Sales Growth for the
three months ended July 2, 2022 were (11.0)% and (12.4)%, respectively,
primarily due to a decrease in customer transactions and, to a lesser extent,
lower average ticket. Comparable store sales growth and Adjusted Comparable
Store Sales Growth were negative during the three months ended July 2, 2022 due
to overall economic trends impacting customer demand and constraints affecting
exam capacity in certain markets. 29
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Net product sales comprised 82.7% and 83.4% of total net revenue for the three
months ended July 2, 2022 and July 3, 2021, respectively. Net product sales
decreased $36.6 million, or 8.0%, in the three months ended July 2, 2022
compared to the three months ended July 3, 2021, driven primarily by a $37.0
million decrease in eyeglass sales. Net sales of services and plans decreased
$3.3 million, or 3.6%, driven primarily by a $2.3 million decrease in management
fees from our Legacy partner. Owned & Host segment net revenue. Net revenue decreased $41.0 million, or 9.3%,
driven primarily by negative comparable store sales growth partially offset by
new store openings. 

Legacy segment net revenue. Net revenue decreased $5.8 million, or 13.2%, driven
by negative comparable store sales growth.

Corporate/Other segment net revenue. Net revenue increased $0.4 million, or
0.6%, driven primarily by higher online retail business.

 Net revenue reconciliations. Net revenue was positively impacted by $6.5 million
due to the timing of unearned revenue and recognition of deferred revenue for
the three months ended July 2, 2022 compared to the three months ended July 3,
2021. Net revenue was positively impacted by $1.0 million due to the timing of
unearned revenue during the three months ended July 2, 2022. Net revenue was
positively impacted by $5.5 million due to lower sales of product protection
plan and club memberships during the three months ended July 2, 2022. 

Costs applicable to revenue

 Costs applicable to revenue of $234.6 million for the three months ended July 2,
2022 decreased $1.4 million, or 0.6%, from $235.9 million for the three months
ended July 3, 2021. As a percentage of net revenue, costs applicable to revenue
increased from 42.9% for the three months ended July 3, 2021 to 46.0% for the
three months ended July 2, 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 36.5% for
the three months ended July 3, 2021 to 38.7% for the three months ended July 2,
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 increased from 27.3% for the three months ended July 3, 2021 to
29.2% for the three months ended July 2, 2022. The increase was 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 from 48.1% for the three months ended July 3, 2021 to
47.3% for the three months ended July 2, 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.
Eyeglass and contact lens product costs for both managed care and non-managed
care net revenue are recorded in costs of products. 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
increased from 75.5% for the three months ended July 3, 2021 to 81.0% for the
three months ended July 2, 2022. The increase was primarily driven by higher
growth in optometrist-related costs. Owned & Host segment costs of services and plans. Costs of services and plans as
a percentage of net sales of services and plans in the Owned & Host segment
increased from 79.3% for the three months ended July 3, 2021 to 89.3% for the
three months ended July 2, 2022. The increase was primarily driven by higher
growth in optometrist-related costs. Legacy segment costs of services and plans. Costs of services and plans as a
percentage of net sales of services and plans in the Legacy segment increased
from 38.6% for the three months ended July 3, 2021 to 43.5% for the three months
ended July 2, 2022. The increase was primarily driven by higher growth in
optometrist-related costs. 30
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Selling, general and administrative SG&A of $227.8 million for the three months ended July 2, 2022 decreased $6.4
million, or 2.7%, from the three months ended July 3, 2021. As a percentage of
net revenue, SG&A increased from 42.6% for the three months ended July 3, 2021
to 44.7% for the three months ended July 2, 2022. The increase in SG&A as a
percentage of net revenue was primarily driven by payroll and occupancy expense,
partially offset by lower performance-based incentive compensation, stock-based
compensation and advertising expense. SG&A for the three months ended July 2,
2022 and July 3, 2021 includes $0.2 million and $0.3 million, respectively, of
incremental costs directly related to adapting the Company's operations during
the COVID-19 pandemic; these costs were not reflected as adjustments for the
Company's presentation of non-GAAP measures below. Owned & Host SG&A. SG&A as a percentage of net revenue increased from 36.1% for
the three months ended July 3, 2021 to 39.1% for the three months ended July 2,
2022, driven primarily by increases in payroll and occupancy expense. Legacy segment SG&A. SG&A as a percentage of net revenue increased from 33.9%
for the three months ended July 3, 2021 to 39.0% for the three months ended July
2, 2022, driven primarily by higher payroll expense. 

Depreciation and amortization

Depreciation and amortization expense of $25.2 million for the three months
ended July 2, 2022 increased $1.2 million, or 5.1%, from $24.0 million for the
three months ended July 3, 2021 primarily driven by new store openings.

Asset Impairment

 We recognized $3.5 million for impairment of tangible long-lived assets and ROU
assets associated with our retail stores during the three months ended July 2,
2022, compared to $0.5 million recognized during the three months ended July 3,
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 considered multiple factors
including, but not limited to: forecasted scenarios related to store performance
and the likelihood that these scenarios would be ultimately realized; and the
remaining useful lives of the assets. Asset impairment expenses were recognized
in Corporate/Other. 

Interest expense (income), net

 Interest expense, net, of $4.0 million for the three months ended July 2, 2022
decreased $6.2 million, or 61.1%, from $10.2 million for the three months ended
July 3, 2021. The decrease was primarily driven by gains on our interest rate
collar. Income tax provision Our effective tax rates for the three months ended July 2, 2022 and July 3, 2021
were 32.4% and 15.8%, respectively, reflecting our statutory federal and state
rate of 25.5% and effects of other permanent items. 31

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Table of Contents

Six Months Ended July 2, 2022 compared to Six Months Ended July 3, 2021

Net revenue

 The following presents, by segment and by brand, comparable store sales growth,
stores open at the end of the period and net revenue for the six months ended
July 2, 2022 compared to the six months ended July 3, 2021. Comparable store sales growth(1) Stores open at end of period Net revenue(2) Six Months
In thousands, except Six Months Ended Ended July 3, Six Months Ended Six Months Ended
percentage and store data July 2, 2022 July 3, 2021 July 2, 2022 2021 July 2, 2022 July 3, 2021
Owned & Host segment
America's Best (10.1) % 54.9 % 872 813 $ 706,404 68.1 % $ 755,201 69.7 %
Eyeglass World (7.6) % 57.1 % 129 123 113,002 10.9 % 118,836 11.0 %
Military (5.1) % 38.1 % 54 54 11,625 1.1 % 12,246 1.1 %
Fred Meyer (4.3) % 36.1 % 29 29 6,046 0.6 % 6,321 0.6 %
Owned & Host segment total 1,084 1,019 $ 837,077 80.7 % $ 892,604 82.4 %
Legacy segment (8.6) % 42.6 % 230 230 79,995 7.7 % 87,182 8.0 %
Corporate/Other - - - - 123,582 11.9 % 122,738 11.3 %
Reconciliations - - - - (3,388) (0.3) % (18,855) (1.7) %
Total (8.0) % 48.9 % 1,314 1,249 $ 1,037,266 100.0 % $ 1,083,669 100.0 %
Adjusted Comparable Store
Sales Growth(3) (9.6) % 53.3 % (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. Brand-level comparable store sales growth is calculated based on
cash basis revenues consistent with what the CODM reviews, and consistent with
reportable segment revenues presented in Note 10. "Segment Reporting" in our
unaudited condensed consolidated financial statements included in Part I. Item
1. of this Form 10-Q, with the exception of the Legacy segment, which is
adjusted as noted in clause (ii) of footnote (3) below.
(2)Percentages reflect line item as a percentage of net revenue, adjusted for
rounding.
(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 a decrease of 1.4% and an increase of 4.4% from total comparable store sales
growth based on consolidated net revenue for the six months ended July 2, 2022
and July 3, 2021, 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 0.2% from total comparable store
sales growth based on consolidated net revenue for the six months ended July 2,
2022. Total net revenue of $1,037.3 million for the six months ended July 2, 2022
decreased $46.4 million, or 4.3%, from $1,083.7 million for the six months ended
July 3, 2021. The decrease was driven primarily by reduced Adjusted Comparable
Store Sales Growth, partially offset by growth from new store sales and
recognition of deferred revenue. In the six months ended July 2, 2022, we opened 35 new America's Best stores and
four Eyeglass World stores, and closed three America's Best stores; Overall,
store count grew 5.2% from July 3, 2021 to July 2, 2022 (59, and six net new
America's Best and Eyeglass World stores were added, respectively). Comparable store sales growth and Adjusted Comparable Store Sales Growth for the
six months ended July 2, 2022 were (8.0)% and (9.6)%, respectively, primarily
due to a decrease in customer transactions and, to a lesser extent, lower
average ticket. Comparable store sales growth and Adjusted Comparable Store
Sales Growth were negative during the six months ended July 2, 2022 due to
overall economic trends impacting customer demand, constraints affecting exam
capacity in certain markets and the Omicron COVID-19 variant impacting customer
transactions. Net product sales comprised 82.4% and 83.2% of total net revenue for the six
months ended July 2, 2022 and July 3, 2021, respectively. Net product sales
decreased $46.4 million, or 5.2%, in the six months ended July 2, 2022 compared
to the six months ended July 3, 2021, primarily due to a $49.8 million, or 7.8%
decrease in eyeglass sales which was partially offset by a $2.3 million, or 1.2%
increase in contact lens sales. Net sales of services and plans for the six months ended July 2, 2022 did not
change materially compared to the six months ended July 3, 2021, as higher
product protection plan revenue was offset by lower management fees from our
Legacy partner. 32
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Owned & Host segment net revenue. Net revenue decreased $55.5 million, or 6.2%,
driven primarily by negative comparable store sales growth partially offset by
new store openings. 

Legacy segment net revenue. Net revenue decreased $7.2 million, or 8.2%, driven
by negative comparable store sales growth.

Corporate/Other segment net revenue. Net revenue increased $0.8 million, or
0.7%, driven primarily by increases in wholesale fulfillment.

 Net revenue reconciliations. The impact of reconciliations positively impacted
net revenue by $15.5 million in the six months ended July 2, 2022 compared to
the six months ended July 3, 2021. Net revenue was positively impacted by $1.9
million due to the timing of unearned revenue. Net revenue was positively
impacted by $13.5 million due to lower sales of product protection plan and club
memberships in the six months ended July 2, 2022. 

Costs applicable to revenue

 Costs applicable to revenue of $470.6 million for the six months ended July 2,
2022 increased $10.0 million, or 2.2%, from $460.6 million for the six months
ended July 3, 2021. As a percentage of net revenue, costs applicable to revenue
increased from 42.5% for the six months ended July 3, 2021 to 45.4% for the six
months ended July 2, 2022. This increase as a percentage of net revenue was
primarily driven by higher optometrist-related costs, reduced eyeglass mix and
lower eyeglass margin. 

Costs of products as a percentage of net product sales increased from 36.3% for
the six months ended July 3, 2021 to 38.3% for the six months ended July 2,
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 increased from 26.8% for the six months ended July 3, 2021 to
28.7% for the six months ended July 2, 2022 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 from 47.5% for the six months ended July 3, 2021 to
47.0% for the six months ended July 2, 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.
Eyeglass and contact lens product costs for both managed care and non-managed
care net revenue are recorded in costs of products. 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
increased from 73.4% for the six months ended July 3, 2021 to 78.4% for the six
months ended July 2, 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 increased from 74.9% for the six
months ended July 3, 2021 to 85.5% for the six months ended July 2, 2022. The
increase was primarily driven by higher 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 increased from 38.5% for the six
months ended July 3, 2021 to 43.1% for the six months ended July 2, 2022. The
increase was primarily driven by higher growth in optometrist-related costs. 

Selling, general and administrative

 SG&A of $456.4 million for the six months ended July 2, 2022 decreased $1.4
million, or 0.3%, from the six months ended July 3, 2021. As a percentage of net
revenue, SG&A increased from 42.2% for the six months ended July 3, 2021 to
44.0% for the six months ended July 2, 2022. The increase in SG&A as a
percentage of net revenue was primarily driven by store payroll and occupancy
expense, partially offset by lower performance-based incentive compensation.
SG&A for the six months ended July 2, 2022 and July 3, 2021 includes
$0.4 million and $0.7 million, respectively, of incremental costs directly
related to adapting the Company's operations during the COVID-19 pandemic. 

Owned & Host SG&A. SG&A as a percentage of net revenue increased from 34.6% for
the six months ended July 3, 2021 to 37.5% for the six months ended July 2,
2022
, driven primarily by higher payroll and occupancy expense.

 33
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Legacy segment SG&A. SG&A as a percentage of net revenue increased from 33.4%
for the six months ended July 3, 2021 to 37.3% for the six months ended July 2,
2022 driven primarily by higher payroll expense. 

Depreciation and amortization

 Depreciation and amortization expense of $50.4 million for the six months ended
July 2, 2022 increased $2.8 million, or 5.9%, from $47.6 million for the six
months ended July 3, 2021 primarily driven by new store openings. 

Asset impairment

 We recognized $3.9 million for impairment of tangible long-lived assets and ROU
assets associated with our retail stores during the six months ended July 2,
2022 compared to $1.5 million recognized during the six months ended July 3,
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 considered multiple factors
including, but not limited to: forecasted scenarios related to store performance
and the likelihood that these scenarios would be ultimately realized; and the
remaining useful lives of the assets. Asset impairment expenses were recognized
in Corporate/Other. 

Interest expense (income), net

 Interest expense (income), net was $(0.2) million for the six months ended July
2, 2022, compared to $16.5 million for the six months ended July 3, 2021. The
change was primarily driven by gains on our interest rate collar as a result of
increasing interest rates. Income tax provision Our effective tax rates for the six months ended July 2, 2022 and July 3, 2021
were 28.6% and 18.8%, respectively, reflecting our statutory federal and state
rate of 25.5% and effects of other permanent items as well as a stranded tax
effect of $2.1 million associated with our matured interest rate swaps during
the six months ended July 3, 2021. 

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 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 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 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 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
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 Notes 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. 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. 34
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EBITDA and the Company Non-GAAP Measures have been presented as supplemental
measures of financial performance that are not required by, or presented in
accordance with U.S. GAAP, because we believe they assist investors and analysts
in comparing our operating performance across reporting periods on a consistent
basis by excluding items that we do not believe are indicative of our core
operating performance. Management believes EBITDA, and the Company Non-GAAP
Measures are useful to investors in highlighting trends in our operating
performance, while other measures can differ significantly depending on
long-term strategic decisions regarding capital structure, the tax jurisdictions
in which we operate and capital investments. We also use EBITDA and the Company
Non-GAAP Measures to supplement U.S. GAAP measures of performance in the
evaluation of the effectiveness of our business strategies, to make budgeting
decisions, to establish discretionary annual incentive compensation and to
compare our performance against that of other peer companies using similar
measures. Management supplements U.S. GAAP results with Non-GAAP financial
measures to provide a more complete understanding of the factors and trends
affecting the business than U.S. GAAP results alone. EBITDA and the Company Non-GAAP Measures are not recognized terms under U.S.
GAAP and should not be considered as an alternative to net income or income from
operations as a measure of financial performance or cash flows provided by
operating activities as a measure of liquidity, or any other performance measure
derived in accordance with U.S. GAAP. Additionally, these measures are not
intended to be a measure of free cash flow available for management's
discretionary use as they do not consider certain cash requirements such as
interest payments, tax payments and debt service requirements. In evaluating
EBITDA and the Company Non-GAAP Measures, we may incur expenses in the future
that are the same as or similar to some of the adjustments in this presentation.
Our presentation of EBITDA and the Company Non-GAAP Measures should not be
construed to imply that our future results will be unaffected by any such
adjustments. Management compensates for these limitations by primarily relying
on our U.S. GAAP results in addition to using EBITDA and the Company Non-GAAP
Measures. The presentations of these measures have limitations as analytical tools and
should not be considered in isolation, or as a substitute for analysis of our
results as reported under U.S. GAAP. Some of these limitations are: •they do not reflect costs or cash outlays for capital expenditures or
contractual commitments;
•they do not reflect changes in, or cash requirements for, our working capital
needs;
•EBITDA, Adjusted EBITDA and Adjusted Operating Income do not reflect the
interest expense (income), or the cash requirements necessary to service
interest or principal payments, on our debt;
•EBITDA, Adjusted EBITDA and Adjusted Operating Income do not reflect period to
period changes in taxes, income tax provision or the cash necessary to pay
income taxes;
•they do not reflect the impact of earnings or charges resulting from matters we
consider not to be indicative of our ongoing operations;
•although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the future, and
EBITDA and Adjusted EBITDA do not reflect cash requirements for such
replacements; and
•other companies in our industry may calculate these measures differently than
we do, limiting their usefulness as comparative measures. 

Because of these limitations, EBITDA and the Company Non-GAAP Measures should
not be considered as measures of discretionary cash available to invest in
business growth or to reduce indebtedness.

The following table reconciles our Adjusted Operating Income, Adjusted Operating
Margin, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin to net income; and
Adjusted Diluted EPS for the periods presented:

 35

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 Table of Contents Three Months Ended Six Months Ended
In thousands July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Net income $ 9,734 1.9 % $ 37,601 6.8 % $ 39,881 3.8 % $ 81,033 7.5 %
Interest expense (income) 3,963 0.8 % 10,188 1.9 % (181) 0.0 % 16,518 1.5 %
Income tax provision 4,674 0.9 % 7,040 1.3 % 16,003 1.5 % 18,726 1.7 %
Stock compensation expense (a) 3,638 0.7 % 7,213 1.3 % 7,372 0.7 % 10,201 0.9 %
Asset impairment (b) 3,509 0.7 % 519 0.1 % 3,915 0.4 % 1,478 0.1 %
Amortization of acquisition
intangibles (c) 1,872 0.4 % 1,871 0.3 % 3,744 0.4 % 3,744 0.3 %
Other (f) 390 0.1 % 1,149 0.2 % 2,350 0.2 % 1,549 0.1 %
Adjusted Operating Income /
Adjusted Operating Margin $ 27,780 5.5 % $ 65,581 11.9 % $ 73,084 7.0 % $ 133,249 12.3 %

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

 Some of the percentage totals in the table above do not foot due to rounding differences Three Months Ended Six Months Ended
In thousands July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
Net income $ 9,734 1.9 % $ 37,601 6.8 % $ 39,881 3.8 % $ 81,033 7.5 %
Interest expense (income) 3,963 0.8 % 10,188 1.9 % (181) 0.0 % 16,518 1.5 %
Income tax provision 4,674 0.9 % 7,040 1.3 % 16,003 1.5 % 18,726 1.7 %
Depreciation and amortization 25,245 5.0 % 24,025 4.4 % 50,396 4.9 % 47,580 4.4 %
EBITDA 43,616 8.6 % 78,854 14.4 % 106,099 10.2 % 163,857 15.1 % Stock compensation expense (a) 3,638 0.7 % 7,213 1.3 % 7,372 0.7 % 10,201 0.9 %
Asset impairment (b) 3,509 0.7 % 519 0.1 % 3,915 0.4 % 1,478 0.1 %
Other (f) 390 0.1 % 1,149 0.2 % 2,350 0.2 % 1,549 0.1 %
Adjusted EBITDA / Adjusted
EBITDA Margin $ 51,153 10.0 % $ 87,735 16.0 % $ 119,736 11.5 % $ 177,085 16.3 %
Note: Percentages reflect line item as a percentage of net revenue, adjusted for rounding
Some of the percentage totals in the table above do not foot due to rounding differences Three Months Ended Six Months Ended
In thousands, except per share amounts July 2, 2022 

July 3, 2021 July 2, 2022 July 3, 2021
Diluted EPS

 $ 0.12 $ 0.42 $ 0.47 $ 0.89
Stock compensation expense (a) 0.05 0.08 0.08 0.11
Asset impairment (b) 0.04 0.01 0.04 0.02
Amortization of acquisition intangibles (c) 0.02 0.02 0.04 0.04
Amortization of debt discount and deferred
financing costs (d) 0.01 0.01 0.01 0.01
Losses (gains) on change in fair value of
derivatives (e) (0.01) 0.02 (0.11) 0.00
Other (i) 0.00 0.01 0.02 (0.01)
Tax benefit of stock option exercises (g) 0.00 (0.04) 0.00 (0.05)
Tax effect of total adjustments (h) (0.03) (0.04) (0.02) (0.05)
Adjusted Diluted EPS $ 0.21 $ 0.48 $ 0.53 $ 0.97 Weighted average diluted shares outstanding 80,403 96,082 94,109 96,044

Note: 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 property, equipment and lease-related assets on closed
or underperforming stores.
(c)Amortization of the increase in carrying values of finite-lived intangible
assets resulting from the application of purchase accounting following the
acquisition of the Company by affiliates of KKR & Co. Inc. 36
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(d)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. GAAP.
(e)Reflects losses (gains) recognized in interest expense (income), net on
change in fair value of de-designated hedges.
(f)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 losses on other investments of $0.3 million for the six
months ended July 2, 2022.
(g)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.
(h)Represents the income tax effect of the total adjustments at our combined
statutory federal and state income tax rates.
(i)Reflects other expenses in (f) above, including the impact of stranded tax
effect of $(2.1) million for the six months ended July 3, 2021 associated with
our interest rate swaps that matured in 2021. 

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. We continue to prioritize cash conservation and prudent use of cash,
while safely conducting normal operations. 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. We continue to be focused on these items in addition to
other key measures we use to determine how our consolidated business and
operating segments are performing. 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 further 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 our control. We primarily fund our working capital needs using
cash provided by operations. Our working capital requirements for inventory will
increase as we continue to open additional stores. 

As of July 2, 2022, we had $254.4 million in cash and cash equivalents and
$293.6 million of availability under our revolving credit facility, which
includes $6.4 million in outstanding letters of credit.

As of July 2, 2022, we had $150.0 million of term loan outstanding under our
credit agreement. We were in compliance with all covenants related to our
long-term debt as of July 2, 2022.

 The following table summarizes cash flows provided by (used for) operating
activities, investing activities and financing activities for the periods
indicated: Six Months Ended
In thousands July 2, 2022 July 3, 2021
Cash flows provided by (used for):
Operating activities $ 88,031 $ 189,808
Investing activities (55,694) (38,790)
Financing activities (83,608) (116,529)

Net change in cash, cash equivalents and restricted cash $ (51,271)

$ 34,489

Net Cash Provided by Operating Activities

 Cash flows provided by operating activities decreased $101.8 million from $189.8
million during the six months ended July 3, 2021 to $88.0 million for the six
months ended July 2, 2022 as a result of $41.2 million lower net income as
compared to the six months ended July 3, 2021 and a decrease of non-cash expense
adjustments of $18.2 million and changes in net working capital and other assets
and liabilities, which used $42.4 million in cash compared to the six months
ended July 3, 2021. Decreases in other liabilities during the six months ended
July 2, 2022 used $15.5 million in year-over-year cash primarily due to
compensation related accruals, partially offset by increases in payroll and
income taxes payable. Decreases in deferred and unearned revenue used $15.5
million in 37
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year-over-year cash, primarily as a result of lower sales of product protection
plans and club memberships in the current period. Increases in accounts
receivable used $11.1 million in year-over-year cash primarily due to other
receivables. Decreases in accounts payable during the six months ended July 2,
2022 used $7.1 million in year-over-year cash, primarily due to timing of
payments. Offsetting these items were decreases in inventories which contributed
$3.0 million in year-over-year cash, primarily due to timing of purchases.
Decreases in other assets during the six months ended July 2, 2022 contributed
$3.4 million in year-over-year cash consisting primarily of decreases in income
tax related receivables. 

Net Cash Used for Investing Activities

 Net cash used for investing activities increased by $16.9 million, to $55.7
million, during the six months ended July 2, 2022 from $38.8 million during the
six months ended July 3, 2021. The increase was primarily due to increased
capital investments in remote medicine, information technology and new store
openings. Approximately 80% of our capital spend is related to our expected
growth (i.e., new stores, optometric equipment, additional capacity in our
optical laboratories and distribution centers, and our IT and remote medicine
infrastructure, including omni-channel platform related investments). 

Net Cash Used For Financing Activities

 Net cash used for financing activities was $83.6 million during the six months
ended July 2, 2022 as compared to the use of cash of $116.5 million during the
six months ended July 3, 2021. The decrease in cash used for financing
activities was primarily due to voluntary term loan prepayments of $117.4
million during the six months ended July 3, 2021 that did not recur in the
current period, partially offset by increases in purchases of treasury stock of
$82.2 million during the six months ended July 2, 2022. 

Share Repurchase Authority

 During the six months ended July 2, 2022, the Company repurchased approximately
2.7 million shares of its common stock for $80.0 million under the share
repurchase program. After these repurchases, $50.0 million remains available
under the share repurchase authorization. 

Material Cash Requirements

 There were no material changes outside the ordinary course of business in our
material cash requirements and commercial commitments from those reported in the
2021 Annual Report on Form 10-K. 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. 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. We have disclosed the amount of future
commitments associated with these items in the 2021 Annual Report on form 10-K.
We are not a party to any other material off-balance sheet arrangements. 

Critical Accounting Policies and Estimates

 Management has evaluated the accounting policies used in the preparation of the
Company's unaudited condensed consolidated financial statements and related
notes and believes those policies to be reasonable and appropriate. Certain of
these accounting policies require the application of significant judgment by
management in selecting appropriate assumptions for calculating financial
estimates. By their nature, these judgments are subject to an inherent degree of
uncertainty. These judgments are based on historical experience, trends in the
industry, information provided by customers and information available from other
outside sources, as appropriate. The most significant areas involving management
judgments and estimates may be found in the 2021 Annual Report on Form 10-K, in
the "Critical Accounting Policies and Estimates" section of "Management's
Discussion and Analysis of Financial Condition and Results of Operations." There
have been no material changes to our critical accounting policies as compared to
the critical accounting policies described in the 2021 Annual Report on Form
10-K. 

Adoption of New Accounting Pronouncements

 There have been no material changes due to recently issued or adopted accounting
standards since those disclosed in our Annual Report on Form 10-K for the fiscal
year ended January 1, 2022.

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