Small-cap Summary Small-cap summary:
Kits Eyecare Ltd. reported mixed results for its latest quarter.
After markets closed on Wednesday, the company said revenue increased by 20 per cent to a record $53.9-million in the fourth quarter compared to $44.8-million a year earlier. The result was in line with expectations.
“The quarter was anchored by the company’s strongest-ever sales week during the Black Friday and Cyber Monday, which generated approximately $5.8 million in revenue and underscored the growing consumer awareness of the KITS brand,” the company stated.
Adjusted EBITDA of $2.8-million was down slightly from $2.9-million a year earlier and ahead of expectations of $2.4-million.
Net income of $264,000 or a penny per share was below expectations of 4 cents per share and down from $2.7-mllion or 8 cents a year earlier.
The company also reaffirmed its financial guidance for the first quarter ending March 31, as originally issued on Feb. 17.
Canaccord Genuity analyst Luke Hannan maintained his “buy” rating and $23 target after the report.
“Management shed more light on the productivity of their investments in marketing, which, as a percentage of revenue, came in at 16.3% of revenue for the quarter,” he wrote in a note.
He also said the company is well-positioned to benefit from smartglasses.
“Management called out AI as being an accelerant of consumers’ shift into smartglasses, mentioning that the optical category is undergoing the most important shift in the last 100 years,” he wrote.
“In our view, the structural drivers of KITS’ long-term growth algorithm remain firmly on track. Though marketing spend has increased of late, we believe it’s justified considering the higher returns and the expanded LTV of newly acquired customers when compared to KITS’ existing customers. Accordingly, we’re coming away from the quarter remaining positive on the stock.”
Stifel analyst Martin Landry, who has a “buy” and $24 target, wrote in a note that he’s not making material changes to his forecasts post-earnings.
“We view KITS as a disruptor in the eyewear industry, with its rapid turnaround times and low prices,” he wrote. “In addition, the company is at the forefront of emerging trends with already 18 months of successful experience with AI glasses. Management sees significant opportunity to increase brand awareness in Ontario with the opening of a store in Toronto in late spring.”
Added Mr. Landry: “In our view, KITS has a long growth runway as the US$50 billion North American optical industry shifts online. Management is accelerating growth, given healthy returns on customer acquisition costs and healthy retention rates, which have translated into high customer lifetime value exceeding $400 within 5 years.”