Australian Optometry TAM stands at $4.

2bn

We estimate the Australian optometry market to be $4.2bn in 2022. The optometry sector can be
divided into two categories – optical and non-optical. For optical, we arrive at the market size by
taking into account the population in Australia that have eye defects which can be corrected by
optometry businesses. According to Australian Institute of Health and Welfare, 7.2m and 6.3m
people in Australia have hyperopia (far-sightedness) and myopia (near-sightedness), respectively.
Additionally, 1.4m and 0.7m have astigmatism (defect in eye’s curvature) and presbyopia (vision
defects mainly due to ageing), respectively. These conditions can be treated with corrective glasses
and thus form the target addressable market for Your Specs. Assuming 15.6m people need some
form of eye correction, and they purchase one product every 2 years at an average price of $250 for
2 pairs (based on price range with most listed products on Specsavers), we get a market size of
$1950m for optical segment.

For non-optical segment, we look at population in the range of 10-65, who spend time outdoor and
are most likely to purchase sun glasses. Based on recent census estimate (Australian Bureau of
Statistics), 18m come under this category. Using the same assumption of a purchase every 2 years at
an average price of $250 for 2 pairs we get a TAM of $2250m for non-optical segment.

Challenging competitive environment due to presence of world-leading omini-channel players

The Australian optometry industry is largely fragmented with three main categories – offline chains,
independent stores and online retailers. The sector is dominated by global leaders EssilorLuxottica
and Specsavers. OPSM, owned by EssilorLuxottica, is the largest player by store count (also has
online presence) with c.400 stores across Australia and New Zealand. EssilorLuxottica also operates
Sunglass Hut (omni-channel) and Clearly (online-only) in Australia, along with non-optical brand
outlets such as Ray-Ban and Oakley. Specsavers is another major omni-channel player with 359
stores across Australia, generating revenue of £684m ($1180m) in FY21/22. In comparison, Your
Specs is much smaller with just 80 stores and $100m in revenue. Based on our market size estimate
Your Specs accounts for c.2% of the market versus Specsavers at 27%.

Online channel – a real threat to pure-play offline retailers

Over the years, online players are taking market share from offline stores, mainly from independent
retailers owing to better customer service, wide assortment of products, and low prices due to
economies of scale. Leading players in terms of website visits (Similar Web) are – Specsavers (1m
visits in June), OPSM (415k), Optically (305k), Clearly (96k) and Framesbuy (72k).

Non-optical category (think sun glasses) is the easiest to disrupt and likely to have very high online
penetration going forward as customers can get wide variety of selections and good deals online
along with easy return options. Among the users of optical products, Myopia customers are more
likely to shift to online platforms for purchase as they require simple lenses and test in not very
complicated. On the other hand, it would be difficult to disrupt the market for presbyopia customers
as they require more accurate measurements, are more expensive and tests need to be done in
person, thereby discouraging online purchase. Whilst pandemic has accelerated the shift to online
channel, a couple of advantages offline retailers have over them is the need for recurring eye exams
and a prescription for purchase. Nonetheless, the current competitive environment appears
extremely challenging for Your Specs as it has to compete with market leaders who have robust
product portfolio, wider presence and superior brand names.
Favourable structural trends to support growth

The optometry industry is a structurally strong story driven by ageing population, increasing rates of
myopia and presbyopia, growing population of diabetics (need regular eye check-ups) and higher
usage of mobile/computer screen which may lead to vision defects. The medical nature of the
business makes it non-discretionary and relatively immune to cyclicality of economy. However, we
do note the non-optical segment is more discretionary in nature and thus be affected during cyclical
downturns. The perception of eyewear has also evolved over the years from need-based to being
called fashion accessories, with consumers now preferring to purchase branded and innovative
products as a way to express themselves, thereby reducing average life of the product. These strong
structural factors couple with fragmented nature of the industry gives substantial growth
opportunities for Your Specs to expand store count and take share from independent stores.

Margins

For an industry that is dominated by big global chains and prone to disruption from online players, it
is difficult to forecast long-term sustainable margins.

Favourable structural trends to support growth

The optometry industry is a structurally strong story driven by ageing population, increasing rates of
myopia and presbyopia, growing population of diabetics (need regular eye check-ups) and higher
usage of mobile/computer screen which may lead to vision defects. The medical nature of the
business makes it non-discretionary and relatively immune to cyclicality of economy. However, we
do note the non-optical segment is more discretionary in nature and thus be affected during cyclical
downturns. The perception of eyewear has also evolved over the years from need-based to being
called fashion accessories, with consumers now preferring to purchase branded and innovative
products as a way to express themselves, thereby reducing average life of the product. These strong
structural factors couple with fragmented nature of the industry gives substantial growth
opportunities for Your Specs to expand store count and take share from independent stores.

Margins

For an industry that is dominated by big global chains and prone to disruption from online players, it
is difficult to forecast long-term sustainable margins.

Favourable structural trends to support growth

The optometry industry is a structurally strong story driven by ageing population, increasing rates of
myopia and presbyopia, growing population of diabetics (need regular eye check-ups) and higher
usage of mobile/computer screen which may lead to vision defects. The medical nature of the
business makes it non-discretionary and relatively immune to cyclicality of economy. However, we
do note the non-optical segment is more discretionary in nature and thus be affected during cyclical
downturns. The perception of eyewear has also evolved over the years from need-based to being
called fashion accessories, with consumers now preferring to purchase branded and innovative
products as a way to express themselves, thereby reducing average life of the product. These strong
structural factors couple with fragmented nature of the industry gives substantial growth
opportunities for Your Specs to expand store count and take share from independent stores.

Margins
For an industry that is dominated by big global chains and prone to disruption from online players, it
is difficult to forecast long-term sustainable margins.

Favourable structural trends to support growth

The optometry industry is a structurally strong story driven by ageing population, increasing rates of
myopia and presbyopia, growing population of diabetics (need regular eye check-ups) and higher
usage of mobile/computer screen which may lead to vision defects. The medical nature of the
business makes it non-discretionary and relatively immune to cyclicality of economy. However, we
do note the non-optical segment is more discretionary in nature and thus be affected during cyclical
downturns. The perception of eyewear has also evolved over the years from need-based to being
called fashion accessories, with consumers now preferring to purchase branded and innovative
products as a way to express themselves, thereby reducing average life of the product. These strong
structural factors couple with fragmented nature of the industry gives substantial growth
opportunities for Your Specs to expand store count and take share from independent stores.

Margins

For an industry that is dominated by big global chains and prone to disruption from online players, it
is difficult to forecast long-term sustainable margins.

Favourable structural trends to support growth

The optometry industry is a structurally strong story driven by ageing population, increasing rates of
myopia and presbyopia, growing population of diabetics (need regular eye check-ups) and higher
usage of mobile/computer screen which may lead to vision defects. The medical nature of the
business makes it non-discretionary and relatively immune to cyclicality of economy. However, we
do note the non-optical segment is more discretionary in nature and thus be affected during cyclical
downturns. The perception of eyewear has also evolved over the years from need-based to being
called fashion accessories, with consumers now preferring to purchase branded and innovative
products as a way to express themselves, thereby reducing average life of the product. These strong
structural factors couple with fragmented nature of the industry gives substantial growth
opportunities for Your Specs to expand store count and take share from independent stores.

Margins

For an industry that is dominated by big global chains and prone to disruption from online players, it
is difficult to forecast long-term sustainable margins.

Favourable structural trends to support growth

The optometry industry is a structurally strong story driven by ageing population, increasing rates of
myopia and presbyopia, growing population of diabetics (need regular eye check-ups) and higher
usage of mobile/computer screen which may lead to vision defects. The medical nature of the
business makes it non-discretionary and relatively immune to cyclicality of economy. However, we
do note the non-optical segment is more discretionary in nature and thus be affected during cyclical
downturns. The perception of eyewear has also evolved over the years from need-based to being
called fashion accessories, with consumers now preferring to purchase branded and innovative
products as a way to express themselves, thereby reducing average life of the product. These strong
structural factors couple with fragmented nature of the industry gives substantial growth
opportunities for Your Specs to expand store count and take share from independent stores.

Margins
For an industry that is dominated by big global chains and prone to disruption from online players, it
is difficult to forecast long-term sustainable margins.

Favourable structural trends to support growth

The optometry industry is a structurally strong story driven by ageing population, increasing rates of
myopia and presbyopia, growing population of diabetics (need regular eye check-ups) and higher
usage of mobile/computer screen which may lead to vision defects. The medical nature of the
business makes it non-discretionary and relatively immune to cyclicality of economy. However, we
do note the non-optical segment is more discretionary in nature and thus be affected during cyclical
downturns. The perception of eyewear has also evolved over the years from need-based to being
called fashion accessories, with consumers now preferring to purchase branded and innovative
products as a way to express themselves, thereby reducing average life of the product. These strong
structural factors couple with fragmented nature of the industry gives substantial growth
opportunities for Your Specs to expand store count and take share from independent stores.

Margins

For an industry that is dominated by big global chains and prone to disruption from online players, it
is difficult to forecast long-term sustainable margins.

Favourable structural trends to support growth

The optometry industry is a structurally strong story driven by ageing population, increasing rates of
myopia and presbyopia, growing population of diabetics (need regular eye check-ups) and higher
usage of mobile/computer screen which may lead to vision defects. The medical nature of the
business makes it non-discretionary and relatively immune to cyclicality of economy. However, we
do note the non-optical segment is more discretionary in nature and thus be affected during cyclical
downturns. The perception of eyewear has also evolved over the years from need-based to being
called fashion accessories, with consumers now preferring to purchase branded and innovative
products as a way to express themselves, thereby reducing average life of the product. These strong
structural factors couple with fragmented nature of the industry gives substantial growth
opportunities for Your Specs to expand store count and take share from independent stores.

Margins

For an industry that is dominated by big global chains and prone to disruption from online players, it
is difficult to forecast long-term sustainable margins.

Store count, same store sales growth and EBIT margins are the key metrics to analyse optometry
businesses

We try to identify the key metrics investors should look at when analysing optometry businesses. As
in any business the two main criteria investors need to consider would be future growth and
profitability. For an offline optometry business which generates revenue through its physical stores,
store count is the first factor that drives growth. Companies usually give out annual and medium-
term targets along with their quarterly earnings. These targets need to be assessed in terms of how
realistic they are and how the company has performed vis-à-vis the past targets. Second criteria to
assess growth potential would be the growth in same store sales. As these companies keep adding
new stores every year, looking at same store sales growth helps in making like-for-like comparison.
Lastly, investors need to monitor EBIT margins to understand how the company’s core operations
are preforming. It also helps to see whether top line growth is margin accretive or dilutive. When
assessing EBIT margins, it is important to also understand the underlying expenses which
drive/impact margins. Margin analysis could also involve looking at profitability at store level
(average revenue per store minus expenses per store). A decline here could mean the company is
reducing prices to compete with online portals which offer steep discounts.

We assign under-weight rating at a price target of $0.56/share

We are under-weight on Your Specs based on our price target of $0.56 per share, which is 30%
below its current price. We arrive at our target price using blended valuation of EV/EBIT and
EV/Sales multiples in equal weights. We apply the average multiples of peer set, comprising
Australian consumer durables & apparel industry, to Your Specs’ EBIT and Sales, which gives us
enterprise value of the company, and on adjusting for net debt we arrive at the target price. Your
Specs is currently trading at 10.0x EV/EBIT and 0.9x EV/Sales compared to peer average of 7.5x and
0.6x, respectively. This compares to global eyewear companies, which are trading at average
multiples of 19.1x and 2.0x, respectively.