KITS Eyecare is the right stock for price-sensitive times, analyst says

Haywood Securities analyst Gianluca Tucci says KITS Eyecare’s (KITS Eyecare Stock Quote, Chart, News, Analysts, Financials TSX:KITS) Q3 pre-release confirmed the company’s growth narrative.

In an Oct. 7 update, Tucci reiterated his “Buy” rating and $24.00 target on KITS.

The company pre-announced Q3 revenue of about $63.7-million, up 21.6% year-over-year and ahead of the 17.8% growth reported in Q2.

Tucci said KITS crossed a $250-million annualized revenue run rate for the first time.

The key data point was glasses revenue, which rose 59.3% year-over-year to about $11.3-million. Tucci said the result shows KITS is broadening beyond contacts without sacrificing profitability or the balance sheet.

“KITS is one of the more compelling risk/reward setups in Canadian tech-enabled retail,” Tucci said.

The analyst said KITS has delivered 16 consecutive quarters of positive Adjusted EBITDA, crossed one million active customers, generated free cash flow and maintained no long-term debt, while accelerating growth in its higher-margin glasses segment.

Q3 Adjusted EBITDA was more than $2.9-million, implying a margin of at least 4.6%. KITS ended the quarter with about $30.7-million of cash and no debt.

Tucci said glasses now represent about 18% of revenue, up from about 13.5% a year earlier. Non-glasses revenue, including contacts and other categories, grew about 16%, suggesting the core business remains healthy.

He said KITS is funding growth internally, with spending on glasses, marketing and its Toronto retail store while still producing positive Adjusted EBITDA and adding cash.

Tucci said cohort performance also supports the lifetime-value case, with the Q3 2022 cohort reaching 187% net revenue retention at 48 months.

The analyst argued that KITS should benefit as consumers shift toward value, given that optical spending is largely non-discretionary.

“KITS’s value proposition, quality glasses at a fraction of Luxottica prices, is winning in an environment where consumers are increasingly price sensitive,” Tucci said.

Tucci said KITS could become a sought-after acquisition target if the stock does not re-rate to a premium revenue multiple.

The analyst expects KITS to generate Adjusted EBITDA of $14.5-million on revenue of $244.8-million in fiscal 2026, improving to Adjusted EBITDA of $21.1-million on revenue of $292.5-million in fiscal 2027.

Tucci said he expects to revisit his forward estimates when KITS reports full Q3 results in November.

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