Kits Eyecare Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2026

Key Takeaways

  • Positive Sentiment: Q2 revenue rose 17.8% year over year to CAD 58.4 million, while net income improved to CAD 1.5 million from a prior-year loss and operating cash flow reached a record CAD 7.8 million.
  • Positive Sentiment: The glasses business continued to accelerate, with revenue up 54%, delivered pairs up 32.4%, and premium lens upgrades reaching 45.2% of glasses revenue. Management said stronger first-order values, cross-selling, and repeat purchases are producing increasingly attractive customer cohorts.
  • Positive Sentiment: Kits ended the quarter with CAD 27.4 million in cash, no debt, and approximately CAD 42.4 million of accessible liquidity, while repurchasing CAD 1 million of shares. Gross margin expanded 160 basis points to 37.9%, and the company maintained its 15th consecutive quarter of positive Adjusted EBITDA.
  • Neutral Sentiment: Management plans to rebalance marketing in the second half, maintaining glasses momentum while directing more acquisition spending toward contact lenses. Q3 guidance calls for revenue of CAD 62 million-CAD 64 million and an Adjusted EBITDA margin of 4%-6%, with near-term profitability potentially constrained by customer-acquisition investment and fulfillment costs.
  • Positive Sentiment: The Toronto flagship store launched near the end of Q2 and reportedly exceeded early expectations, with management citing stronger brand searches and a digital “halo” effect. Kits is considering a thoughtful expansion that could include approximately two additional locations in the second half of 2026.
AI Generated. May Contain Errors.
Earnings Conference Call
Kits Eyecare Q2 2026
00:00 / 00:00

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Operator

Good morning everyone. Thank you for joining Kits Eyecare's second quarter 2026 earnings call. With me on today's call are Roger Hardy, Chief Executive Officer, Joseph Thompson, Chief Operating Officer, and Ibrahim Kamar, Chief Financial Officer. Before we begin, I am required to provide the following statement respecting forward-looking information, which is made on behalf of Kits and all of its representatives on this call. Certain statements made on this call will contain forward-looking information. These forward-looking statements generally can be identified by the use of words such as intend, believe, could, expect, estimate, forecast, may, would, and other words of similar meaning. This forward-looking information is based on management's opinions, estimates, and assumptions in light of their experience and perception of historical trends, current conditions, and expected future developments, as well as factors that are currently believed are appropriate and reasonable in the circumstances.

Operator

Actual results could differ materially from a conclusion, forecast, expectation, belief, or projection in the forward-looking information. Certain material factors and assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Management cautions investors not to rely on forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast, or projection in the forward-looking information and material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in Kits' filings with Canadian Provincial Securities Regulators. During today's call, all figures are in CAD unless otherwise stated. With that, I will turn the call over to Roger.

Roger Hardy
CEO at Kits Eyecare

Thanks, operator. Thank you to everyone for joining us today. When we set out to build Kits, the mission was simple: make eyecare easy to buy, easy to afford, and easy to get glasses and contacts fast. Everything we've built since, our own vertically integrated lab, our own beautiful frames, OpticianAI, our Autoship program exists in service of that mission. The second quarter is what it looks like when more than a million customers respond to it. Revenue for the quarter was CAD 58.4 million, up 17.8% year-over-year, and 17.9% in constant currency, bringing our first half revenue to CAD 115.9 million, or up 20.5%. Glasses reached CAD 11.1 million, up 54%, and now represent almost 19% of our business, up from just 14.5% a year ago.

Roger Hardy
CEO at Kits Eyecare

Net income in the quarter was CAD 1.5 million, compared to a loss of CAD 0.7 million in the prior year period. Operating cash flow was a standout and was a record CAD 7.8 million. We ended the quarter with CAD 27.4 million in cash and no debt, our 15th consecutive quarter of positive Adjusted EBITDA, with the strongest balance sheet in our history. Coming into 2026, we made a deliberate decision to point the company's acquisition and merchandising effort at building out the glasses business. The reason is simple. We design the frames, we cut the lenses in our factory, and we ship made-to-order products, often the same day. When you own every step, each incremental pair carries more margin and gets to customers faster. This quarter validated those decisions. 148,300 pairs of glasses were delivered, up 32.4%.

Roger Hardy
CEO at Kits Eyecare

Premium lens upgrades were 45.2% of glasses revenue. New glasses customers spent 50% more on their first order than the same cohort a year ago on identical entry level pricing. Not one thing did that, but customers are taking more pairs. They're upgrading their lenses. They're buying into categories we've added, like progressive readers and anti-fatigue lenses. They're finding all of it faster because of tools like OpticianAI. They help customers make the right choice, the easy choice. Has nothing to do with price increases. It's just been good product and guidance compounding. In fact, glasses customers acquired this year are generating first order revenue that exceeds the multi-year cumulative revenue of glasses customers we acquired in earlier years. The newest cohorts are our best cohorts. The gap is widening. Making eye care easy shows up in the P&L as bigger baskets.

Roger Hardy
CEO at Kits Eyecare

The trade-off stated plainly, total revenue growth decelerated from Q1's pace. That was the cost of the glasses focus. We knew it going in. Glasses is a higher consideration purchase. You acquire fewer customers per marketing dollar, but each one is worth substantially more, as we talked about at the end of Q1. We acquired 90,800 new customers in the quarter. Their first order economics are the strongest in any cohort of our history. In the back half, we plan to rebalance. We will keep the glasses momentum, which is increasingly organic, driven by cross-sale and repeat purchasing. We'll put the full weight of acquisition back behind contact lenses, which remains the most proven customer generation engine we have, and the front door through which most Kits relationships begin. Both engines will run solidly in the back half.

Roger Hardy
CEO at Kits Eyecare

The durable part of the business is what happens after the first order. Repeat customers contributed 65.5% of revenue, up from 60.6% a year ago. CAD 38.3 million of repeat revenue, an increase of CAD 8.2 million. Put another way, our installed base on its own grew 27% year-over-year, faster than the business as a whole. New customer revenue grew as well. The mix shift reflects repeat growing faster, not new shrinking. Our two-year active customer base is 1.1 million, up 15.2%. Our Autoship is now a CAD 24.6 million annuity that costs almost nothing to maintain. Our average order value was CAD 213, up 15.8%. Customers come to us for contacts, then buy glasses, then buy their second and third pair. 78,500 pairs went to repeat customers this quarter, up 51%. They do this because the model works for them.

Roger Hardy
CEO at Kits Eyecare

Quality, value, and speed in a combination nobody else in the category delivers, because nobody else owns the full stack, from design to lab to doorstep. We earn the first order. Our model earns the rest. How big is the opportunity? Eye care is an enormous category, still early in its shift online. We're one of the only vertically integrated direct-to-consumer platforms operating at scale in North America. Every new customer lands on infrastructure we already own and enters a cohort that historically spends more each year they stay with us. It's growth that funds itself on a fixed asset base in a market this size. That presents asymmetric upside. This is the model working as designed, a vertically integrated platform where growth funds itself. Consider the combination in these results.

Roger Hardy
CEO at Kits Eyecare

First half constant currency growth of 22%, positive and growing net income, and operating cash flow equal to 13% of revenue in the quarter. Very few companies grow at this rate, and even fewer do it while generating cash. We're fortunate to be one of them. The business is now paying for its own acceleration and continues to compound. Looking ahead to Q3, we expect continued momentum, with revenue projections in the range of CAD 62 million-CAD 64 million, and an Adjusted EBITDA margin between 4%-6%. With that, I'll turn the call over to Joe to share more on the operational highlights. Joe?

Joseph Thompson
COO at Kits Eyecare

Thanks, Roger. In addition to posting record results, the team was also hard at work building new products and innovation that we believe will power revenue and earnings in the quarters to come. Let's start with our premium lens portfolio, which already represented 45.2% of glasses revenue this quarter. In Q2, we launched anti-fatigue lenses designed to reduce eye strain during screen time and close-up work. Also in Q2, we expanded our Pangolin smart glasses into the sports category, taking a product that proved itself with early adopters and pointing it at an audience that trains, rides, and runs in their eyewear every day. Our vertically integrated model helps us here. Each one of these launches lands on infrastructure we've already built, adding revenue on a fixed design, lab, and fulfillment asset base. Second, we widened the front door. For many Canadians, eye care starts with their insurance plan.

Joseph Thompson
COO at Kits Eyecare

This quarter, we expanded our Canadian insurance program to add Manulife, one of the largest insurers in the country, to our direct billing platform, integrated with TELUS Health eClaims. Manulife group benefit members can verify their vision coverage in real time, reduce upfront out-of-pocket costs, and eliminate manual claims submission, putting seamless coverage in reach of millions of members. Third, late in Q2, we launched our Kits Toronto retail location, a physical front door in the largest optical market in Canada. Building on the success of our Kits Beach location in Vancouver, our Queen Street West flagship offers an opportunity for everyone in Toronto to experience the Kits brand.

Joseph Thompson
COO at Kits Eyecare

Kits Toronto is off to a strong start, and we believe this unique concept and location will build awareness, traffic, and trial for Kits for years to come while creating a halo effect that lifts digital demand across the surrounding region. In Q2, the Kits flywheel continued to spin with more invention, more reach, and even more to come in the second half of 2026. With that, I'll turn it over to Ibrahim for the financials.

Ibrahim Kamar
CFO at Kits Eyecare

Thank you, Joe, good morning, everyone. I'll recap the P&L briefly then spend most of my time on the balance sheet, as that's where this quarter really stands out. Gross margin expanded 160 basis points to 37.9%. This quarter's expansion was organic. No tariff refund benefit, just continued execution across the team. Adjusted EBITDA was CAD 2.9 million or 5% of revenue, up 14.3% year-over-year at our 15th consecutive positive quarter. Net income was CAD 1.5 million or CAD 0.04 per share compared to a net loss of CAD 700,000 or a loss of CAD 0.02 per share a year ago. On operating expenses, marketing represented 17.4% of revenue, up year-over-year from 15.2%. As Roger noted, this was a deliberate, returns-driven investment into customer acquisition, mainly in glasses. We added 90,800 new customers in the quarter.

Ibrahim Kamar
CFO at Kits Eyecare

Fulfillment was 10.9% of revenue, up modestly from 10.7% in Q2 2025 on higher fuel surcharges. Though it improved to 10.7% for the first half of 2026 as automation and order consolidation efficiencies offset those pressures. G&A was 7.6% of revenue compared to 7.3% in Q2 2025. Excluding share-based compensation, G&A improved to 5.3% of revenue, down from 6.1% in Q2 2025, as revenue growth continued to outpace our infrastructure costs. To the balance sheet. We ended the quarter with CAD 27.4 million in cash, up from CAD 19 million at the end of Q1, zero debt. Including our fully undrawn CAD 15 million ABL facility with the Bank of Montreal, we have roughly CAD 42.4 million of accessible liquidity a CAD 5 million uncommitted accordion. Several things drove that step up. First, cash generation.

Ibrahim Kamar
CFO at Kits Eyecare

Operating cash flow was a record CAD 7.8 million, about 2.7x Adjusted EBITDA. Free cash flow was CAD 6.4 million, reflecting the working capital normalization we flagged in our Q1 disclosure, including optimization of inventory levels collection of the tariff receivable. Second, we cleaned up the capital structure. We repaid the remaining CAD 290,000 promissory note, retiring the last of our legacy debt. We exited our Bitcoin ETF treasury position. Third, we began returning capital, repurchasing and canceling 89,200 shares for CAD 1 million at an average of CAD 11 per share under our normal course issuer bid.

Ibrahim Kamar
CFO at Kits Eyecare

The takeaway is flexibility. We can continue to invest in glasses and customer acquisition where the returns are there, absorb seasonal working capital swings, return capital to shareholders, all from internally generated cash with no debt ample liquidity. We entered the second half with a strong balance sheet, a growing and increasingly loyal customer base, a glasses business that is inflecting. Operator, we're now ready for questions.

Operator

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad. If you'd like to withdraw your question, press star two. One moment, please, for your first question. Your first question comes from Luke Hannan from Canaccord Genuity. Please go ahead.

Luke Hannan
Luke Hannan
Research Analyst at Canaccord Genuity

Thanks. Good morning, everyone. My first question is a bit of a long one with many parts, so apologies for that. Really what I'm trying to unpack is, what the margin bridge is going to be for the balance of the year, taking into consideration the guidance for Q3. Specifically, what I'm looking to hear a little bit more on is how the contacts growth, which you called out, that should accelerate in the second half because of there being a bit more of a focus there. I'm curious to know what the progression will look like when it comes to marketing spends, what you expect for fuel surcharges, and then similarly, the stock-based comp, which was called out in the G&A line. Curious to know how that's expected to trend for the balance of the year. Thank you.

Joseph Thompson
COO at Kits Eyecare

Morning, Luke. Thanks for the question. Maybe we'll tackle it piece by piece, starting with gross margin, which you saw was elevated again in the quarter to 37.9%. It was up about 160 basis points year-on-year, which is a great starting point. Underneath that, continued march up over time of the gross margin line. Maybe going into the marketing spend. As we've talked, this was a deliberate investment in the first half in prescription glasses. Starting in Q2, we gradually reduced spend throughout the quarter, ending at levels back similar to historical levels. Moving forward, the base is set in the mid-teen level, but we'll continue to evaluate this on a quarter-by-quarter basis, reacting to some of the cohort performance that we've seen. Strong gross margin, stabilized and flexible marketing spend.

Joseph Thompson
COO at Kits Eyecare

Then, if you look back, fulfillment has continued to be a leverage point over the past couple of quarters and over the past couple of years. Maybe I'll turn to Ib to talk a little bit about what we saw in the quarter in the first half on fulfillment and G&A.

Ibrahim Kamar
CFO at Kits Eyecare

Morning, Luke. Great question. On fulfillment, we did see up modestly from Q2 2025, reaching 10.9% of revenue this quarter. A portion of that was driven, as you mentioned, by the fuel surcharges. In Q1, we start seeing our partners introducing fuel surcharges across their networks. We did make a deliberate decision not to increase or pass any of these charges to our customers. Instead, we're managing it directly with our carrier partners and absorbing such costs through fulfillment efficiencies as we continue to optimize and leverage our vertically integrated manufacturing as volume scales. For H1 overall, you could see the support to that approach. H1 fulfillment expenses was down year-over-year to 10.7% of revenue, despite the fuel surcharges headwind. Just to touch base here on your share-based comp.

Ibrahim Kamar
CFO at Kits Eyecare

Equity compensation is an important part of our compensation plan and how we retain the management team that has delivered this level of performance. We view this as the right kind of increase. The equity we use to retain this team is worth more today because shareholders who've been with us have participated in that same appreciation. Overall G&A was 7.6% of revenue compared to 7.3% last year. Usually, Q2 is unusually elevated due to the timing of when these options are granted. Overall, we're seeing it to be consistent with previous years and to be sub 2% for the year.

Luke Hannan
Luke Hannan
Research Analyst at Canaccord Genuity

That's great. Thanks. For my follow-up, then I'll pass the line. I'm curious to know, just on the Toronto store rollout and the marketing that you would have incurred around that. I'm just curious to know, I guess, what you have learned from that. If the marketing that you deployed, was that in line with your previous Own This Town strategy, or do you pilot anything new that allowed you to learn something incremental about your customer or how you go to market? Maybe does that inform or change your approach rather for how you plan on deploying your Own This Town initiative moving forward?

Joseph Thompson
COO at Kits Eyecare

Sure. Sure, Luke. Excited to talk about our Toronto flagship. It's important to note, the Toronto flagship on Queen Street West, it soft opened right at the end of Q2. The results, which have been strong since the opening, were not in the Q2 numbers. We expect it to continue to contribute in Q3, Q4, and beyond. The space is a great one, as you saw at our event last month. Over 2,500 sq ft, right on the corner at 735 Queen Street West. It's about two times the size of our Vancouver flagship, and it's already contributing, even in the first month, at levels above our expectations. For us, Vancouver was a proof of concept. Stores amplifying brand awareness, then really haloing the entire region with digital performance.

Joseph Thompson
COO at Kits Eyecare

The investment in the market of Toronto really builds on, as you would expect, the learnings of Vancouver, which have been very strong. So, expect a thoughtful expansion from us here on future stores. As you would expect, each market will learn from the previous one and will get more efficient.

Luke Hannan
Luke Hannan
Research Analyst at Canaccord Genuity

Understood. Thanks very much. I'll pass the line.

Operator

Your next question comes from Martin Landry from Stifel. Please go ahead.

Martin Landry
Martin Landry
Analyst at Stifel

Hi. Good morning. I would like to dig a little bit in your marketing expenses. I understand the comments that they're a little higher because you're trying to acquire glasses customers. I understand that strategy and that those glasses customers are supposedly a little bit more lucrative. We don't see that manifest in your profitability when we look at your EBITDA margin. It's stable on a year-over-year basis. I assume there's a customer lifetime value angle here that is hard for us to capture. I was wondering if you could provide a little bit more color on that. If you could compare and contrast maybe the customer lifetime value of a glasses customer versus a lenses customer.

Joseph Thompson
COO at Kits Eyecare

Good morning, Martin. Maybe I'll start on this one and then pass the line to Ib or Roger to see if there's more to add. Thanks for bringing it forward. We did see, as we've talked, a real shift towards glasses cohorts and disproportionately premium glasses cohorts. To your LTV question that, two things that we look for and have been delighted with the results in previous years is the Y-intercept. Where does the initial first order revenue come in, and the slope over time for each of these cohorts. On the glasses customers, generating first order revenue in the quarter, that was about 50% higher than the Q2 2025 cohort with everything else being relatively similar on the pricing level. We're seeing the recent cohorts come in at a higher Y-intercept.

Joseph Thompson
COO at Kits Eyecare

What we've seen in previous cohorts that we believe will continue is the continued slope progression of these customers as they come back. Now, you mentioned the comparison to contact lenses. I think this quarter was a real testament to the annuity of that business with an investment in new customer growth and still seeing over 65% of the revenue come in from repeat customers. This is something that we have a lot of experience in. We're very confident in the active customer base that we have, which grew again over 15% in the quarter to over 1.14 million customers. We see them in all of the data that we see coming back again and again. Maybe I'll stop there and see Roger or Ib if I missed anything.

Roger Hardy
CEO at Kits Eyecare

Thanks, Joe. I think you've covered most of it. I think it's important to note every acquisition dollar is underwritten by cohort data that our marketing department is tracking daily, weekly. Externally, you can see it in the repeat revenue climbing as a share of sales. You can see double-digit growth in the two-year active customer base, and you can see the AOV moving up again and again. Underneath that data, you see a contacts customer who's cross-selling into glasses, and they're worth materially more than just a contacts-only customer. Our more recent cohorts are also ramping faster than any prior cohort or generation. The strong paybacks are encouraging us to continue to invest. Our acquisition strategy has shifted deliberately towards this type of quality customer. Our new customer revenue was 34.5% of the quarter, and that was at meaningfully higher first-order values.

Roger Hardy
CEO at Kits Eyecare

We've got a lot of the repeat business doing a lot of the work, and that business makes up 65.5% of business with 80%-90% cohort retention. We're not reliant on the acquisition of the business for these quarters to continue to compound. We've got such a nice, healthy base of customers that continues to fund our growth and demonstrate the growth. Hopefully that covers your question, Martin. Thank you.

Martin Landry
Martin Landry
Analyst at Stifel

Maybe the segue is into your guidance for Q3. We are seeing your revenue growing rapidly, but you are guiding for an EBITDA margin of 4%-6%, which at the midpoint is also going to be stable to down on a year-over-year basis. I am trying to understand why we are not seeing a little bit more of a pickup in profitability on a percentage basis, given your revenues are growing rapidly, and you should get some fixed cost absorption.

Joseph Thompson
COO at Kits Eyecare

Thanks, Martin. We did see a strong growth in Q2, importantly on the gross margin lines, an increase of 160 basis points to 37.9%. As we think about Q3, it will be continued growth on new customers on the glasses side. As you heard us in the prepared remarks and in the first few questions, really having a balanced weighting behind both growth on glasses and contact lenses. I think the guidance of CAD 62 million-CAD 64 million in Q3 from a revenue standpoint reflects both engines running. Over the past six months, we have seen glasses growing very healthily over 50%. Growing contact lenses is something we have been doing at industry-leading rates for over four years. That is in our DNA and the team is excited at delivering higher growth here in the back half.

Joseph Thompson
COO at Kits Eyecare

To your question on some of the operating lines, I think Ibrahim talked very well about some of the short-term pressures that we have been seeing in Q2. Some fuel surcharges, I think we will continue to talk about quarter-on-quarter numbers, but we will continue to look at it on the arc of a year or multiple years. As we think about our progress on Adjusted EBITDA, 2023, 2%, 2024, 4%, 2025, 5.8%, year-to-date in 2026, just over 6%. As you mentioned, industry-leading growth, which we expect to continue in Q3, a steady progress on Adjusted EBITDA with awareness on a quarter-by-quarter basis of maybe some short-term things that we are aware of and managing.

Roger Hardy
CEO at Kits Eyecare

I would probably just add, Joe, we did talk about acquiring these better cohorts and near-term EBITDA is actually a little bit in tension with that. The cohort payback improves over time. When we look at, for example, a 2021 cohort, the value of those surviving customers is materially higher over time. The value lands many quarters after you have acquired them. To your EBITDA question, really, you have seen our marketing go up as a percent of revenue from 13.5%, 14% to 17%-19%. That explains the not a move in EBITDA in the immediate term, but over time, we see that our expectation is these cohorts are performing better initially, and that will convert to EBITDA down the road. Thank you.

Martin Landry
Martin Landry
Analyst at Stifel

My last question, we're seeing your balance sheet improve. It's in the best shape it's been. In the past, you have alluded to M&A as being perhaps a way to deploy capital. I was wondering if M&A is still on your radar.

Roger Hardy
CEO at Kits Eyecare

Yeah, Martin. Thank you. We've continued to look at a number of different opportunities, but none that has connected so far. We'll keep looking and find things that are accretive for shareholders. Thank you.

Martin Landry
Martin Landry
Analyst at Stifel

Perfect. Thank you and best of luck.

Operator

Your next question comes from Gianluca Tucci from Haywood Securities. Please go ahead.

Gianluca Tucci
Gianluca Tucci
Analyst at Haywood Securities

Good morning, guys. Congrats on a nice print. If I could just ask on CapEx, looks like you spent over CAD 1 million in the quarter and have commitments to spend almost CAD 3 million more. Can you unpack that for us? Is it going into equipment to support higher volumes in the lab? Any color there would be helpful, guys. Thank you.

Ibrahim Kamar
CFO at Kits Eyecare

Good morning, Gianluca. Great question. We did spend some CapEx earlier in H1 and related to supporting our lab as well. I think you've been to the Toronto store. Some of that CapEx went to our retail. Overall, we do have some small commitments for the rest of the year, but overall, we're on track to hold similar to 2023, 2024, and 2025 CapEx to be sub 2% as we continue to invest in our operations.

Gianluca Tucci
Gianluca Tucci
Analyst at Haywood Securities

Okay, thank you. If I could just ask one question on glasses. It scaled from 14 to almost 20 now. Looking forward 12 months, how do you see that percentage of sales evolving? Should it be in the low 20s next year? Just Roger, how are you thinking about how the glasses business evolves as a percentage of overall revenue? Thanks, guys, and congrats again.

Roger Hardy
CEO at Kits Eyecare

Yes. Thanks, Gianluca. How we're thinking about glasses, you're right, it has become almost 20% of the business, nearing a CAD 50 million run rate. It's a real business at this point. Margins continue to be very healthy. Return rates, as we talked about, customers returning are quite strong. The cohort spend is high. It's still early, but we're running the same playbook that's built our contact lens business, which is lean on our vertical integration, lean on a frictionless entry pricing, and then offer customers a premiumization. You saw premium lens upgrades are over 40% of glasses revenue. Our digital progressives are growing 65% plus, returning customers now making up a growing majority of glasses orders.

Roger Hardy
CEO at Kits Eyecare

There's a ton of momentum in that business, and it's really just a balance as we go forward this year to continue to invest at the right rate, continue to secure the best customers, and we're very optimistic about where that glasses business is going. It remains very, very early in this large category. Thank you, Gianluca.

Operator

Your next question comes from Frederic Tremblay from Desjardins Capital Markets. Please go ahead.

Frederic Tremblay
Analyst at Desjardins Capital Markets

Thank you. Good morning. I wanted to ask on the premium lens upgrades that represented over 45% of glasses revenue in the quarter. Just wanted to get your thoughts on how much runway there is left in that product category, and if you could provide a rough indication of the margin benefits of getting those lens upgrades. That'd be great. Thank you.

Joseph Thompson
COO at Kits Eyecare

Good morning, Fred. Thanks for the question. I think we see a lot of runway ahead. I think we're, as Roger said, we're very early days. Some of the stars in Q2 were digital progressive lenses, and the introduction of our anti-fatigue lens, which is a premium lens package on single vision, also eligible on progressive. We expect both of these areas, as well as thinner lens, photochromic, SunRx, to continue to expand. Importantly, we expect to launch new areas of premium lenses. For our team, I think we view this as still very much even in the first inning of our expansion in glasses and on the premium lenses.

Joseph Thompson
COO at Kits Eyecare

On the gross margin side, we did see these premium glasses cohorts coming in and positively impacting gross margin, which you saw in the numbers, and that's exciting and gave the team even more confidence on what's to come in the back half of the year in 2027 and beyond.

Frederic Tremblay
Analyst at Desjardins Capital Markets

Great. Just my last question, on pricing relative to the fuel surcharges that you're absorbing now, was the decision to keep pricing stable, was that deliberate to provide frictionless entry into the products? Or is there anything from a competitive perspective that's sort of leading you to not raise prices at this point? Thank you.

Joseph Thompson
COO at Kits Eyecare

Sure, Fred. Maybe I'll start. I think, really, I would just echo the comment Roger made a few minutes ago. This is really, as opposed to us looking around at the market, this is really us looking internally on our vision to make eyecare easy and to offer customers the best value. We do see occasional surcharges come across our business. In this instance, as Ibrahim mentioned before, and in many instances, we made the deliberate choice not to pass that increase through to the customer. Instead, we're managing this directly with our carrier partners, and absorbing it within our broader fulfillment efficiency.

Joseph Thompson
COO at Kits Eyecare

I know you'll appreciate this, having walked through the lab and you see both the scale of the facility now and the benefits that scale will provide to us, as we continue to grow into that invested CapEx and that fulfillment network that's been built over years. That really gives us the confidence to say, let's work together with our partners to keep costs down. While we do that, let's not burden the customer with surcharges in this moment. Let's continue to acquire the customers that we are acquiring. We know that that trust will be repaid to us with continued performance on the repeat cohorts for years to come.

Frederic Tremblay
Analyst at Desjardins Capital Markets

Great. Thank you.

Operator

Ladies and gentlemen, as a reminder, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from Matt Koranda from ROTH Capital. Please go ahead.

Matt Koranda
Matt Koranda
Analyst at ROTH Capital

Hey, guys. Thanks, nice quarter. wanted to hear a little bit about learnings from the Toronto store. I know it's obviously early days the recent grand opening just happened, anything that you've learned incrementally since the opening and sort of how would that inform a broader store expansion over time, if you're starting to think about that for next year and beyond?

Joseph Thompson
COO at Kits Eyecare

Morning, Matt. Yeah, thanks for asking about the Toronto store. The team's been incredibly excited about the performance in very early days. What are we seeing? We're seeing a lot of exploration in the store. Customers coming in, we're seeing a lot of the ingredients that we tested and developed and refined in Vancouver really helping us out of the gate in Toronto. Having a cafe and a coffee shop right in there, so customers can meet with friends, have a coffee, have a no-pressure environment to explore, get their eyes tested. As has been mentioned, have a very accessible price point to enter into a category that's traditionally been fraught with complexity and cost. I think, it's still very early days, of course. We're weeks into the launch of our Toronto store.

Joseph Thompson
COO at Kits Eyecare

Some of the early feedback that we've been getting from our fantastic team and from the data, is one, excitement and exploration. Two, we're seeing a number of customers come back almost immediately with friends to explore. Three, is the data footprint, and the digital footprint that we're seeing in the extended area grow. We saw, and this is just one data point, but we're seeing branded searches increase significantly on Kits in July versus even June. That's even more enhanced in the Toronto area. Maybe that's a couple of the things that keep us very excited about it. I'll pass on to Roger or Ib to see if I missed anything there.

Roger Hardy
CEO at Kits Eyecare

I think you covered it quite well, Joe, I guess just to reiterate, we've been quite excited with the Toronto launch. I think the early May weekends were at kind of year three of Kitsilano. The fact that there is brand awareness in the community, the fact that we have contact lens customers there that we can invite in to experience the glasses offering, it's a real confirmation that opening some of these flagships puts us right where our customers want us to be. I think it's validating the thesis for us. It's letting us look into the back half at some additional flagship locations in other cities. It's been an exciting launch. I guess I'll turn back over to Ib in case he wants to throw anything in there. Thank you.

Ibrahim Kamar
CFO at Kits Eyecare

No, I think you covered it. I think great success with the Toronto stores. We're seeing amazing results, like looking at where we projected the payback to be, it seems we're gonna get quicker payback.

Matt Koranda
Matt Koranda
Analyst at ROTH Capital

Good to hear, guys. Thank you for that. On glasses, I noticed obviously a very good AUR there, and it sounds like a lot of that may have been premium lens mix, as you guys alluded to in the prepared remarks and some of the Q&A. I guess I'm wondering, in terms of branded frames and also on the smart glasses front, how those might have contributed to AUR in the second quarter, and then just how any of that mix that happened in the second quarter might inform the growth of glasses for the rest of this year.

Joseph Thompson
COO at Kits Eyecare

Yeah, sure, Matt. We did see performance really across all parts of the glasses business, and branded frames was a part of it. The Kits frames continues to be the vast majority of units and dollars, and continues to be leading the growth, but definitely strong performance across. On smart glasses, it is still very early days. We continue to see more trial, more exploration in the category, and we continue to be in ready position for smart glasses to grow. For us, that means continuing to offer the widest selection for customers and really being the prescription lens engine for the category. I will couch that by saying it's early days in smart glasses. Our Pangolin lineup continues to perform and continues to sell out as we introduce more and more iterations of it. There wasn't one hero in the Q2 results.

Joseph Thompson
COO at Kits Eyecare

It was really a balanced performance across premium lenses, across Kits frames, across branded frames, and across smart glasses.

Matt Koranda
Matt Koranda
Analyst at ROTH Capital

Okay. Very helpful. If I could sneak one more in on the margin guidance. I know it's been covered in pretty good detail for the third quarter, in terms of the drag, I guess, from the higher contacts growth. Can you just speak to the range that you built, I guess the 4%-6%? Is the high end versus low end swing factor just a mix consideration between contacts versus glasses growth, or are there other elements, maybe marketing campaigns that you're considering that could drive you towards the lower end? Maybe just speak to the swing factors there.

Joseph Thompson
COO at Kits Eyecare

Yeah, sure, Matt. We're excited about really the balanced growth that the team is building plans behind in the second half with contacts and glasses. We talked about the revenue guidance 62%-64% in Q3. Quarter to quarter, allowing the team flexibility to deliver for the customer, acquire these high-value cohorts while looking across an annual basis on performance. We've really seen just the steady buildup of Adjusted EBITDA from 2023 all the way through to 2026 year to date. Despite this investment in glasses acquisition still with Adjusted EBITDA year to date just over 6%, which is an increase versus our 2025 Adjusted EBITDA number of 5.8%. Really allowing some short-term flexibility for the business to continue to invest for the long term and for customers is, I think that's mostly what you see.

Matt Koranda
Matt Koranda
Analyst at ROTH Capital

Okay. Appreciate it, guys. I'll leave it there. Thank you.

Operator

Your next question comes from Doug Cooper from Beacon Securities. Please go ahead.

Doug Cooper
Doug Cooper
Analyst at Beacon Securities

Hey, good morning, everybody, and terrific work on the quarter and the guidance. A couple of things. You talked about Manulife signing on to your insurance program. What percentage of the Canadian market is now covered by your insurance partnerships?

Joseph Thompson
COO at Kits Eyecare

Hey, good morning, Doug. What we see in the U.S. market, which is the best kind of overall market data we have, is that roughly 2/3 of customers use some form of vision insurance. We have industry data for parts of Canada, not all, but it looks to be representative of the U.S., about 2/3 of customers are using some form of vision insurance. With our customers and our data set, that's consistent. With the Manulife addition, which is really exciting for the team, that adds another seven million consumers to have access to the platform that the team has built over the last two, three years now. What was exciting about the Manulife performance out of the gate was that in the first month, it demonstrated a faster one-month build of customer acceptance than we've seen on any platform that we've onboarded throughout Canada.

Joseph Thompson
COO at Kits Eyecare

Again, early days, it launched in Q2, we're looking at just a month or a month and a bit of data, very strong performance, and we think a very high base of customers, about two-thirds that are going to be looking for this product in years to come.

Doug Cooper
Doug Cooper
Analyst at Beacon Securities

Okay. Any major insurance companies that you still have to reach an agreement with in Canada?

Joseph Thompson
COO at Kits Eyecare

Yeah, the team has a checklist, there's really a couple layers of that checklist. There's building in the integration levels that we have, finding partners, as we've watched previously, that have full API integration, which is really the gold standard of customer support. Where a customer can go on to kits.ca, enter their plan information, see right away how much coverage that they have, apply it right in the checkout, have no out-of-pocket, we manage it all with the carrier in the background. The net promoter score feedback on those interactions is just off the charts. We're both onboarding more carriers deepening the partnership with all the carriers that we do have on the platform, expanding into the U.S. with a software layer that really allows anyone across most of the policies to access the information they need.

Joseph Thompson
COO at Kits Eyecare

This is what customers are asking for. How can I know what's covered? I don't want this to be a question mark. How can I get your help to fill in all of the information needed and process the paperwork on my behalf so that I very quickly get compensated from the carrier?

Doug Cooper
Doug Cooper
Analyst at Beacon Securities

Okay. Thanks for that. Fatigue lens. I'm not familiar with the category. Is this a new category? Can you talk a little bit about the target demographic of that lens and the size and growth of that category?

Joseph Thompson
COO at Kits Eyecare

Sure, Doug. Yeah. It's a new one for us, it's a relatively new technology in lenses. What's exciting for us is that this is really a lens that's available for any consumer, specifically for consumers that are doing a lot of work on screens. Which is feedback, again, we get feedback consistently from customers, what our customers are asking for is more help to avoid eye strain. This is a product that performs very well against that and is available as an add-on to almost any prescription. You'll see it embedded in the site. It's a great product. I'm wearing it right now. We expect it to continue to do well and to launch others alongside it as we grow our premium lens category.

Doug Cooper
Doug Cooper
Analyst at Beacon Securities

I think you said it's single vision. Is it available in progressives or just single vision?

Joseph Thompson
COO at Kits Eyecare

The technology is available on single vision and digital progressives, we're continuing to build that out across all of our lens offerings as we see the strong success out of the gate.

Doug Cooper
Doug Cooper
Analyst at Beacon Securities

Sure.

Roger Hardy
CEO at Kits Eyecare

Yeah, Doug, think of it as a baby step towards a progressive lens. You're getting a small boost zone at the bottom of the lens, typically 0.25 to 1.25 diopters of added power. Gives your eyes a slight assist when focusing up close.

Doug Cooper
Doug Cooper
Analyst at Beacon Securities

Okay. Final one, guys. Just on the store rollout, you obviously opened one store here in 2026. I'm assuming there's no plans for another one in 2026, but just talk about the cadence given the early success in Canada and the success in Vancouver. What do you think the cadence may be, and are you targeting cities with, say, 2 million plus people, or maybe just a bit more color on what you think the market opportunity in Canada, in the U.S. is for such flagship stores? Thanks.

Joseph Thompson
COO at Kits Eyecare

Sure. Yeah, maybe I'll start on this one and then pass the line. Very strong, as you heard Ib' excitement a few moments ago on the strong financial start that the stores had. That gives us confidence to continue this expansion. What's exciting for us is not just the performance of the store, it's really the digital halo in the surrounding area. Greater Toronto area of just over 7 million folks that we have the opportunity to really grow significantly awareness with. Continue to expect a thoughtful expansion from us here. Perhaps, with continued success, identifying approximately two new locations in the back half of 2026, and then progressing from there.

Doug Cooper
Doug Cooper
Analyst at Beacon Securities

Okay. Just as a reminder, what was the CapEx total for the store build-out plus working capital to open a store this size?

Ibrahim Kamar
CFO at Kits Eyecare

Morning, Doug. Actually, the Toronto build-out was not a material cost. It was about sub million dollars of CapEx for a location roughly double the footprint of what we have in the Vancouver showroom. We were able to do that efficiently because we took learnings from Vancouver, invested more thoughtfully in specific areas, including optometry lanes, and as well as in-store fitting lab. Yeah, it's pretty much roughly, I guess, sub a million dollars.

Doug Cooper
Doug Cooper
Analyst at Beacon Securities

Okay, perfect. Thanks to everybody.

Roger Hardy
CEO at Kits Eyecare

Thanks, Doug.

Operator

Sorry. Your next question comes from Gianluca Tucci from Haywood Securities. Please go ahead.

Gianluca Tucci
Gianluca Tucci
Analyst at Haywood Securities

All right, guys, just one more here for Roger. Average order value scaling here continues to show good growth, seems to be pushing new highs. In your experience, Roger, how much more upside organically is there in your AOV figure from these levels?

Roger Hardy
CEO at Kits Eyecare

Wow, Gianluca, back with a second great question here. You've seen AOV growing very consistently over the last couple of quarters and years, so it remains early. How high is up? Glasses AOV is up 60%. It's driven by progressive designer frames, customers buying multiple pairs. Even our progressive customers are already averaging one and a half or more units. These gains are coming from serving existing demand as well as new customers. There's just a lot of opportunity to continue to scale AOV. It's obviously our highest margin growth as well. It arrives with no acquisition cost attached, so it's one of the most interesting levers as we go forward. Between multi-pair, progressives, we heard about anti-fatigue, and then even back to the contact lens business, to the extent we can supply a full year supply in contacts, that also lifts that AOV.

Roger Hardy
CEO at Kits Eyecare

It's a long, long runway ahead. Again, we're just getting started. Hopefully you're hearing from the discussion this morning, lots of levers remain as we continue to grow the business. The main focus is, are we making sure we're serving customers, we're making people happy, they're getting great value, they're wowed by the speed, the execution of our team, and I think that's showing through in the numbers. Lots of opportunity in that AOV. Thanks for the question, Gianluca.

Gianluca Tucci
Gianluca Tucci
Analyst at Haywood Securities

Thanks.

Operator

There are no further questions at this time. I will turn the call back over to Roger for closing remarks.

Roger Hardy
CEO at Kits Eyecare

Thanks, operator. Let me close with where we are going. Eyecare is one of the largest and most universal needs across the world, and yet it remains one of the last great consumer categories that no one has quite made easy, beautiful, and affordable all at once. That is the opportunity in front of Kits, and it's the one we are building toward every day. Every decision we make, the lab we build, the brand we're creating, the trust we earn one order at a time serves a single idea. The company that obsesses most over its customers and compounds that trust the longest will win. Q2 is another quarter of evidence that this is working. A record top line, a growing glasses business, best-in-class retention, and a balance sheet that continues to get stronger. We believe we're still very, very early in this story.

Roger Hardy
CEO at Kits Eyecare

To our team, thank you. This was your quarter, and the standard you set is our real advantage. To our shareholders, thank you for playing the long game alongside us. We are just getting started. Thank you, operator.

Operator

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

Executives
    • Roger Hardy
      CEO
    • Joseph Thompson
      COO
    • Ibrahim Kamar
      CFO
Analysts
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