The analyst still loves Kits Eyecare

Beacon Securities analyst Doug Cooper said preliminary first-quarter results from Kits Eyecare (Kits Eyecare Stock Quote, Chart, News, Analysts, Financials TSX:KITS) point to a breakout year in the company’s higher-margin glasses category, even if the headline revenue figure came in slightly below initial guidance.

He maintained his “Buy” rating and $25.00 target.

Kits reported preliminary first-quarter revenue of $57.4-million, up 23% year over year and 6.5% from the prior quarter, along with glasses revenue of $10.8-million, up 61% year over year and 25% sequentially.

The company also said EBITDA margin is expected to exceed 6%.

While total revenue came in below Kits’ earlier guidance range of $58-million to $60-million, Cooper said, the more important metrics were better than expected.

“We believe the results are very positive and exceeded initial targets in the key areas that investors should be most focused,” he said in his April 7 report.

Cooper said investors should pay closest attention to the glasses segment because it is a larger long-term opportunity and carries higher margins than contact lenses. Glasses accounted for nearly 19% of total revenue in the quarter, up 270 basis points sequentially and 440 basis points from a year earlier. He said that richer mix appears to be lifting gross margin and, in turn, EBITDA margin.

That overall revenue growth of 23.2% marked Kits’ 14th straight quarter of year-over-year growth above 20%, while quarterly revenue has more than doubled organically from $26.2-million in the fourth quarter of fiscal 2022 to $57.4-million in the first quarter of fiscal 2026. He added that first-quarter glasses revenue topped $10-million for the first time, equivalent to a roughly $40-million annualized pace.

The analyts also said the current momentum in glasses comes before the opening of Kits’ Toronto storefront, which he expects will expand the company’s reach into Canada’s largest optical market. In his view, that store could help extend the growth already seen in the category.

With the stock falling about 13% on the headline revenue “miss,” Cooper said the market reaction overlooks the stronger underlying mix and margin picture. If Kits had reported $59-million of revenue and a six% EBITDA margin, it would have generated roughly $3.54-million of EBITDA. Based on the company’s updated outlook of $57.4-million in revenue and EBITDA margin above 6%, he said Kits should produce about the same EBITDA.

Cooper thinks Kits should generate Adjusted EBITDA of $18.6-million on revenue of $251.3-million in fiscal 2026, adding that the company remains one of Canada’s strongest growth stories at what he sees as an attractive valuation.

-30-