Feb. 24--Highmark Inc. has its eyes on Baby Boomers as it looks for opportunities to boost its bottom line.
The insurer plans to more than double the number of retail vision stores it owns in the next five years -- a move that will tap into growing demand for eyeglasses from the aging generation.
"As the population ages and optical has become even more of a fashion business ... there's opportunity to grow," said Jim Eisen, president of Visionworks, the Downtown-based company's eyewear business.
Fierce competition among health insurers in Western Pennsylvania and more than $1 billion in spending on Highmark's developing system of hospitals and doctors is expected to pinch its profits, said Jon Reichert, a Highmark analyst with Standard & Poor's in New York.
Though Highmark is a well-known name and dominant health insurer in Western Pennsylvania, its vision business is a major player across the country. Expanding the optical unit is a strategy that provides revenue diversity that could be important to earnings growth.
"With the earnings coming under increasing pressure on the health insurance side, having this division to provide additional growth to the overall earnings picture is certainly a valuable asset for the company," Reichert said.
Highmark's vision company is the country's third-largest retailer of eyeglasses, with 580 stores in 40 states. Ten of its 30 Pennsylvania stores are in the Pittsburgh region. The stores operate under San Antonio-based HVHC Inc.
Highmark acquired HVHC, formerly known as Eye Care Centers of America, in 2006; the division has 9,000 employees. It is rebranding stores to Visionworks this year.
HVHC runs Davis Vision, the nation's third-largest vision insurance provider, with 55 million members. It manufactures eyeglasses at three plants, in Texas, New York and Newtown Square, near Philadelphia.
It made 4.2 million lenses in 2011, the fourth largest output in the industry, the company said, and plans to add a plant, most likely in Texas, Eisen said.
Visionworks falls behind Wal-Mart Stores Inc., which has optical centers in about 3,000 Wal-Mart and Sam's Club stores, and Luxottica, an Italian company with nearly 5,000 stores in North America.
Highmark is trying to close the gap with its rivals. It plans to invest $65 million to add 645 stores across the country, bringing the store count to 1,225 by the end of 2018.
Visionworks plans to add about nine stores in the Philadelphia market this year, and about 40 more in markets where it has a strong presence, such as Texas, Florida and Maryland, Eisen said. From 2014 to 2018, it will add 95 to 125 stores a year, mainly in new markets, he said.
Eisen declined to specify those markets, saying the company is evaluating where to expand.
"We believe we have the ability to build this out and continue to increase our market share," he said. "It's a very competitive market, make no mistake."
Officials with Bentonville, Ark.-based Wal-Mart declined comment on growth plans. Luxottica, which owns Lenscrafters, Sunglass Hut, Pearle Vision and Oakley, could not be reached.
Growth in the retail eyeglasses industry is coming from larger numbers of people needing eyeglasses, according to market-research firm IBISWorld, which pegged the industry's revenue at $9.1 billion in 2012 with projected annual growth of 3.5 percent through 2017.
"The number of senior adults aged 50 and older is forecast to grow at an average annual rate of 1.9 percent over the five years to 2017," IBISWorld said in a November 2012 report. "Because this group makes up the industry's largest market segment, its growth will increase demand."
HVHC contributed vital earnings to Highmark's net income in 2011 and 2010, according to Highmark financial statements. Highmark is expected to release financial results for 2012 at the end of March.
The vision business had net income of $68.2 million in 2011, or 15 percent of Highmark's$444.7 million in net income that year. In 2010, HVHC earned $70.5 million, also 15 percent of Highmark's$462.5 million in profit.
Highmark has not released revenue figures for HVHC since 2008, when it said the division brought in $1.2 billion.
Highmark's net income for 2012 is predicted to be $412.6 million, according to financial projections the insurer has filed with the state as part of its proposal to buy West Penn Allegheny Health System, the five-hospital system in Pittsburgh that is expected to be the core of its medical-provider network.
Net income in 2013 is expected to drop substantially to $106.1 million this year, before starting to climb in later years.
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