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Writer's picturefitzgeraldfliam

I spy profits: KITS Eyecare continues to grow

Updated: Aug 8



Business Overview 


Kits Eyecare (TSX: KITS) is a retailer that offers a comprehensive range of eyewear products under their own KITS brand as well as a large, curated portfolio of designer frames and contacts.


Why I like KITS Eyecare


Robust Financial Performance


KITS Eyecare has demonstrated a strong track record of sales since its founding in 2018. The company has shown robust revenue growth, increasing from $36.9 million in 2019 to $120.5 million in 2023. In that same period, gross profit improved from $10.8 million to $40.9 million.



Improving Sales Efficiency


Not only are they growing sales in absolute terms, but they're doing so more efficiently. In 2019, Gross Profit as a percentage of Revenue was listed at 29.30%, and by 2023, it was 33.85%




Extra selling points


  1. Efficient optical lab and fulfillment network: KITS has built a unique infrastructure to support its high-growth e-commerce offering, including its own optical lab capable of producing up to 2,000 eyeglass pairs per day and a fulfillment network that can handle over 3,500 contact orders per day. Expansion of manufacturing facility: KITS announced an expansion of its specialty lens manufacturing line with the addition of new, state-of-the-art equipment that the Company expects will expand its manufacturing capacity for digital progressive glasses and prescription sunglasses by an additional 50%.

  2. Vertically integrated model: KITS operates as a fully integrated, digitally native eyecare platform. This allows them to eliminate intermediaries, offer competitive pricing, and provide personalized, made-to-order products with precision and care.

  3. Technology-driven approach: The company leverages cutting-edge technologies to enhance customer experience, including online eyewear fitting tools, virtual try-on (VTO) for glasses, and integrated online vision tests.  In Q1 2024, KITS recorded a 96% increase in VTO sessions.

  4. Wide product selection: With a multi-brand strategy, KITS offers access to more than 40,000 contact lens products and over 890 styles of glasses, including their own exclusive KITS designed products.

  5. B2B partnerships: KITS has developed partnerships with insurance providers, such as Green Shield Canada, which provides access to a large customer base and represents a significant growth opportunity.

  6. Fast and reliable delivery: The company offers quick shipping options, with one-day or two-day shipping available to over 85% of its customers.

  7. Recurring revenue model: KITS benefits from repeat customers, with over 60% of revenue in Q4 2022 coming from repeat business.

  8. Secular tailwinds: The proportion of older adults in the U.S. and Canadian population is expected to increase and as people age, the prevalence of visual refractive errors grows. There is also a growing preference for online shopping, with BCG estimating e-commerce to capture 41% of global retail sales by 2027, up from 18% in 2017.


Risks


  • Fashion Risk: The company's eyeglass business carries a form of fashion risk, particularly given its focus on the female aged 25-45 demographic

  • E-commerce Dependence: As a primarily online retailer, KITS is heavily dependent on e-commerce trends and technology. Any disruptions or shifts in online shopping behaviour could impact the business.

  • Growth Sustainability: While the company has shown strong growth, there's a risk that this growth rate may not be sustainable in the long term.

It's important to note that while these risks exist, KITS Eyecare also has strengths and opportunities that could mitigate these risks. Potential investors should conduct thorough research and consider their risk tolerance before making investment decisions.

Conclusions


Although fashion risk, e-commerce dependence, and growth sustainability risks are impacting the eyecare market, KITS seems to be shrugging off these risks and their internal improvements are bearing fruit.


KITS recent strategic initiatives have been instrumental in the positive momentum investors see across the firm’s profitability scores. Looking outside the company, KITS record VTO sessions and sustainable upward trend in sales and gross margin improvements demonstrate the immediate future is certainly bright for KITS, not to mention supportive macroeconomic themes and KITS recent facility expansion. 


Taking the above into consideration, I anticipate 2025 will be a very exciting year for KITS and I will look to purchase some stock shortly as a result. 


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