Kits Eyecare Q4 & Annual Results

Average-to-good quarter overall

Kits Eyecare reported their Q4 and annual results March 6 and it was an average-to-good quarter overall in my opinion.

In the quarter there was a year-over-year (YoY) slow-down in revenue growth to approximately 20% vs the 30%+ they had been achieving in the last few quarters; this could be why they didn’t release preliminary results like in prior quarters.

We continue to see operating leverage as fulfilment and G&A costs become lower proportions of revenue (Good).

Here is the segmented information for the year showing nice growth across all segments:

Working capital

Another interesting thing I noticed is Kits’ working capital management – their cash balance of $16M is completely offset by their accounts payable and accrued liabilities of $16M (with a similar offset in the prior year).

So even though it looks like they have a lot of cash on hand, really their significant cash balance is set aside for payments to vendors. By delaying payments to vendors it allows them to be more nimble with their cash planning.

On the other side of the equation, Kits’ receivables are collected instantly since customers pay directly for their glasses, with credit cards or PayPal, before they are ever made.

Collecting from customers right away and putting off payments to vendors leads to favourable working capital and cash flow.

Technically they could reinvest the $16M in something like additional marketing, and it might even be good ROI, but I agree with their finance team - it’s better to be resilient by keeping the cash on hand.

News release: KITS Eyecare Reports Fourth Quarter and Full Year 2023 Results (newswire.ca) 

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Disclaimer: As of March 24, 2024, I am a shareholder of Kits Eyecare Ltd at an average cost base of $3.34. My plan at the time of writing is to hold these shares long-term, but I may have sold my position by the time you’re reading this. This is not a purchase recommendation and I can only hope that I’m right on 3 out of 5 (60%) investments I make — this could be one I’m wrong on. Please do your own research and double-check my data & findings.