Kits Eyecare Eyes Glasses-Led Growth as Margins Expand and Capacity Ramps

Key Points

• Glasses are driving higher margins: KITS says glasses revenue has grown more than 60% in recent quarters and carries gross margins of about 50% or more, compared with 30%–35% for contact lenses. Total gross margin increased from roughly 25% at its 2021 IPO to 37%–39% in the first half of the year.
• Significant manufacturing capacity remains available: KITS’ Vancouver facility is operating at approximately 35% utilization but can support about CAD 500 million in revenue, versus roughly CAD 202 million generated over the past year. The company is prioritizing faster shipping rather than near-term capacity expansion.
• Management is pursuing long-term expansion: KITS has more than 1.1 million active customers, with over 60% of quarterly revenue coming from repeat buyers, and plans to expand its Vancouver-style flagship stores across North America. Its targets include CAD 500 million in revenue by 2029 and adjusted EBITDA margins of 15%–20%.

Kits Eyecare TSE: KITS is targeting further growth in the online optical market by expanding its higher-margin glasses business, increasing brand awareness through select physical locations and leveraging a manufacturing operation that management says has substantial unused capacity.

Speaking at a company event, Olivia Evans, Director of Corporate Development and Investor Relations, described the U.S. vision-correction market as a roughly $70 billion category, while putting the global market at about $100 billion. She said the company was founded in 2018 to reduce costs and friction associated with conventional optical retail, where consumers typically visit stores for exams and may wait weeks for glasses.

KITS sells contact lenses and prescription glasses through e-commerce in Canada and the United States, with about two-thirds of revenue generated in the U.S., Evans said. The company’s model is designed to eliminate intermediaries and pass savings to customers, offering prescription glasses starting at $28, according to Evans.

Glasses Growth Supports Margin Expansion

Evans said KITS began with contact lenses, a lower-margin and highly repeat-purchase category, as a way to acquire customers who also need glasses. The company subsequently invested in its own lens manufacturing capabilities before significantly expanding its glasses offering.

Using proceeds from its 2021 initial public offering and capital from its co-founders, KITS built a laboratory that Evans said can support approximately CAD 500 million in revenue. The company reported approximately CAD 202 million in revenue in the past year and bottom-line profitability of 5.8%, she said.

KITS recently issued preliminary, unaudited third-quarter figures showing revenue of approximately CAD 63.7 million and a bottom-line margin of just over 4.5%, Evans said. She added that glasses revenue has grown more than 60% in recent quarters.

The company remains heavily weighted toward contact lenses, which account for roughly 80% to 85% of revenue, according to Evans. However, management views glasses as an increasingly important driver of profitability.

• Contact lenses generally carry gross margins of about 30% to 35%, Evans said.
• Glasses generate gross margins of approximately 50% or more on average.
• KITS’ total gross margin has risen from about 25% at the 2021 IPO to between 37% and 39% in the first half of the year, according to Evans.

Evans said the company sells prescription glasses for an average of CAD 38 to CAD 58, while it costs about CAD 20 to manufacture frames and complete associated design work. As volumes increase, she said KITS expects greater operating leverage in general and administrative costs and fulfillment.

Automation, Returns and Capacity

Management attributed its return rates to its automated production process. Evans said customers upload prescriptions online, allowing KITS’ equipment to receive information on the prescription, frame and pupillary distance without manual re-entry of data.

According to Evans, the company’s return rate on single-vision glasses is about half the industry average of roughly 10%. For progressive lenses, where the industry average is approximately 20%, KITS’ rate is also about half that level, she said.

The Vancouver manufacturing facility is operating at around 35% capacity utilization, Evans said. The company recently invested in machinery for premium lenses, including digital progressive and polarized products, but does not anticipate significant near-term capacity additions. Management is prioritizing shipping speed, Evans said, even if that means maintaining available capacity.

Customer Retention and Retail Strategy

KITS has surpassed 1.1 million active customers, Evans said, and more than 60% of quarterly revenue has come from repeat customers since the IPO. She characterized the recurring contact-lens purchases and repeat glasses activity as creating an annuity-like revenue profile.

The company has also opened two physical stores in Vancouver. Evans said the locations, which include coffee shops, are intended primarily as brand-awareness and customer-engagement tools rather than a broad return to traditional optical retail.

KITS expects to add several more flagship locations, initially in Canada, before potentially expanding to the U.S. West Coast and then moving eastward. Evans said a network of approximately 15 flagship stores across North America would represent a strong position for the company.

Balance Sheet and Long-Term Targets

Evans said KITS has about CAD 30 million of cash, no debt and limited anticipated capital-expenditure needs. The company generated approximately CAD 7.7 million in operating cash flow in the most recent quarter, she said.

The company has approximately 34 million shares outstanding, with insiders owning about 62%, according to Evans. KITS has not completed transactions since its 2021 IPO, when it raised approximately CAD 55 million.

Management is assessing a potential U.S. uplisting but has not set a timetable, Evans said. She noted that the company could move through the multijurisdictional disclosure system process relatively quickly, though management is weighing the costs of a dual listing. KITS has stated long-term targets of approximately CAD 500 million in revenue by the end of 2029 and adjusted EBITDA margins of 15% to 20%.

About Kits Eyecare (TSE:KITS)

KITS TSX: KITS is one of the world's fastest growing eyecare providers, offering high-quality, affordable prescription glasses and contact lenses through its vertically integrated digital platform. With advanced in-house lens manufacturing, an industry-leading digital fit experience powered by OpticianAI, and thousands of 5-star customer reviews, KITS is redefining how Canadians experience eyecare. Designed in Canada. Delivered worldwide.

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