Earnings call transcript Q3 2023

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Operator

Good morning, ladies and gentlemen, and welcome to Monro, Inc’s Earnings Conference Call for the Third Quarter of Fiscal 2023. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference call is being recorded and may not be reproduced in whole or in part without permission from the company.

I would now like to introduce Felix Veksler, Senior Director of Investor Relations at Monro. ahead. go Please

Felix Veksler

everyone, this Hello, you joining for Thank call. and on morning's us you. thank

Before get we

Before started, presentation call, website we on we of Investors at will part get the be please corporate.monro.com/investors. note referencing of a section that available as is our that this

those Monro's slide our future If could from could earnings with presentation events or affect of future any significant today. differ update forward-looking about results are Monro's as company statements on except includes Actual comments attention The like otherwise, any results to materially Safe SEC outlined Harbor intention to some our by I result by I'd in the whether in remind revise information, obligation performance. law. a to filings The may that or new and your future factors statement draw disclaims our two, suggested participants required or the that statements most release. forward-looking as

statements discussion Reconciliations measures of and included information management's for of be measures. not GAAP call, supplement, and part today's the our presentation comparable comparable in to include today's be to as non-GAAP on of financial such release. which intended a will Additionally, substitutes are measures earnings GAAP certain supplemental

to like Michael and Chief Broderick. over turn Executive I'd that, to With Officer, call the Monro's President

Michael Broderick

our margin recently across results the despite through serve. on this of our stronger market continued our our progress our Thank sales even a update and you, allocation. implemented and Felix, us service and impacting every an base. creation then third series consumer initiatives inflationary with good an to our categories the position pressures we capital as spend will made and After business. conclude that, the us morning cash in enable outlining call we've I'll walk and we additional customer morning, part of These I'll higher first drive everyone. of initiatives focused store I'll quarter competitor

serving of would the of where I recognize customers their needs the didn't and be remiss if in started, we thank I all in for our teammates efforts our Before get I operate. communities tremendous

we Now of base. starting with implemented focused series across store recently customer our a initiatives

the batteries fraction large batteries. charges battery this, While departure way changes service In checks in is overall free growing. and most we standards, sales, small waiving a we to market installation sell response in have of offer battery are we batteries. our We currently made represent and from industry the now for and

making. is to history enable with customers service us a our a ensure and recommendations order. give their informed customers we've courtesy We Number we several walk know working their Our gives vehicle's best service CARFAX a to priced primary a opportunity vehicle hassle to to integration busy finally, their customer that out that with good budgets. remind service free with existing purchasing competitively in which options new in-store it Number when value addition X, oil employment electrical And oil in safety meet our due. service, to two, concern assess convenience, next package program rolled to their and system entire when are To good, to and while in everything including is they is our these customers demands, a service personal online option options inspection offerings, customers an enhanced the through meet better, oil manufacture service a that service callback to provide needs. tailored system. more battery, install provide personally recalls quality decision updates is and free to

connect service packages to sales our tire offering tire activity Additionally, combined and service categories. in and we to started better momentum

and boost guest our customer experience, initiatives drive service with these locations, aligned us additional balanced as share and commitment an designed we sales enable competitor between in our an outstanding market margin even a stronger approach to us our stores, to traffic profitability maintain to of every tire categories are have higher categories service deliver enhanced market position at our and serve. strategically fulfill delivering While at they to been grow

come. initiatives in we are progress still these days, the be their sure quarters provide our in updates While early to will on to

digit Now, Driven are pressures how and by turning business. to strength inflation X%. delivered our sales third in in our of we approximately the growth the third quarter mid-single consumer results comp impacting store tires, quarter and

about store on underperforming to top sales continue quarter first of XX% or We These digit on of quarter, of overall Which growth growth of delivered our represent a small third is XXX store double approximately stores the the fiscal in half in stores. this base. comp our execute which our improve the strategy to comp year.

three group sales for our Our through that results shows quarters the stores the working. of first is strategy

compared XXXX as continued As XXXX. our customer levels sales is these X% meet comp The initiatives training direct these staffing at a our in sales to to reminder, a allow demand. result decreased stores of better well fiscal acceleration to as strategy store that locations technician fiscal in improve at us

tire at continued sales our stores customers our behavior in quarter. We repositioned broad to third remaining right We trading affect down to in quarter, were assortment store our customers based inflationary priced the on up tire price. lower actively Similar pressures to Comp options. the the tire customer to the right X%. approximately last saw consumer purchasing give

stores levels a more opening points preparation and on expanded price in for opening an tires and established regional system we more relevant point choice season, review allow the staying to for inventory greater are with to an upgraded inventory and our tier price in winter selling altering In and value. offering, daily customers with provide We snow replenishment. raised stock

traffic additional to positive tire units on digits. Encouragingly, brands six tire third rebates quarter our Based industry tire in data, drove lifetime third of the tire with tire free installation on single third the in We party a our customer units syndicated up this in tire replacement sales manufacturer comp high quarter. outperformance U.S. versus our store and contributed through store to package. were the all

continue making also decisions which on of saw categories. sales service stretch pressure in We defer vehicle some put maintenance, our to key consumers

to the our as relationship likely is and of reminder, And we fully with of a to result The in to pass inflationary potential customer already when they're has sale result, indicated relationship. term the customers to time our at them increases a term a longer stretched immediate this strategy. element loss developing not a consumer. longer a raising As is of chose an through our has accept key a voice cost that jeopardize struggling would price

of down trade price opening sales tires. While mix versus tires point our customer service, higher to

Our allowed margin. investment cost expenses pressures in to in impacted control third mid-single price quarter our and a on gross digit cost operating leverage the us comp. our continued labor Prudent

a store enhanced As digit also these service profitability that to we outlined achieve our continue to growth, remain of series delivering consistently I to stores. this of committed comp sales call The balanced outset between at drive allow us we will and the morning mid-single business will of tire approach our expectations. initiatives more stores deliver our That categories. the

challenges. positioned well take to right with is industry of business place term longer advantage Our strategy in the

The the current our our long us in has of on category share properly right to gains macro market stores our staffed, X%. we’ll fiscal to care largely execution, the is January the and capture share categories. keen comp customers. our able market approximately tire sales pricing nondiscretionary to into our focus with continued gives a improve our we continue we momentum with competitive and car are to in with service traffic And tire both needs preliminary store environment as our sales be While and business continue our of that confidence assortment remains store encouragingly, nature serving up driving gain challenging, stores in as our

competitive The and new our on creation update and grow enables for cash is us price long customers capture market allocation. investments labor make of position which in capital term. and cash an a flow Lastly, the to to strength our share and advantage financial

focus creation. As a is reminder, strategy an important our cash of

our led and strength And quarter, continued leveraging our in the to cash We our capital are flow quality vendor of generated our our to by in in to partners operations capital. parallel optimizing the of working continue and of third continuing cash in the to better reductions for we being and parts Excess pursuing stores. cash returning strength us shareholders our unlock our by balance strong strategy. by generate availability, and operating cost tires then to sheet allowed inventory growth

review, of we included stores which quarter, authorizes asset in continue is one program, acquire our the policy agreement add and close to additional of in is our Iowa expected $XXX sharing multiples, with fourth our our acquisition in purchase us stock. third continued of disciplined the This cash to executed During and we common a approach we to million. store through our sales approximately quarter our $X additional which definitive evaluating up share After careful repurchase million to and four dividend annualized expected on standing in shareholders company's long repurchase deploying to the results Illinois. a

fit our significant overall of have businesses strategic into part As plan. strategy, growth capacity our to to acquire we which continue

working. our we small the improve stores have strategy digit our training mid-single benefit of third implemented store in will initiatives our summary, We that quarter, and sales staffing our underperforming initiatives is business. In growth series a delivered through focused comp customer to or

to continue business comp towards categories a drive leverage tire our digit approach service growth us allow and to consistently to cost will structure between more a profitability. mid-single We will balanced with to commitment delivering our enhanced deliver that

an tailwinds. uncertain in take place Although have macro longer the right we we the industry environment, term navigate to advantage continue to of strategy

to We competitive share customers. the pricing to through are driving meet and our and stores focused the market our needs right gaining traffic assortment on of

is for results. Our our execution firmly greatest control our in and remains improving store opportunity in our

reductions healthy flow repurchase shareholders As through improvements take on initiatives we to and and improvements continue capital training Significant dividend hold, share capitalize to operational us to and expect productivity sales as programs, earnings. returning to cash in continue will our allow through well capital acquisitions. working generation and deliver as

the of Brian Brian? I'll third Monro's an color quarter position additional over remainder to fiscal XXXX. of overview call and that, With who provide regarding performance, will financial now strong turn the

Brian D'Ambrosia

morning, you, everyone. Mike, and good Thank

distribution Turning in wholesale in of million first prior decreased quarter. $XXX.X the year-over-year and the to assets fiscal these divested to of the to million due quarter divestiture were the was for our approximately assets XXXX. tire quarter, third eight, year X.X% which sales $XX in slide Sales third

sales When the to from third the Comparable holiday store due quarter timing fourth of and additional the quarter year increased one Christmas selling from X.X%. the the sales to in store increased current sales quarter in $X XXXX XXXX, comparable million. in a fiscal X.X% shift new increased stores for in day adjusted fiscal

year the prior not customer price XX.X%. A the pass Gross that higher we trade margin to parts of to down from decreased percentage well XXX our as consumer of fully in sales as through the did to tires, intentionally locations, material mix retail year. as basis cost a increased prior from points tire inflation opening sales point

future to gross margin of from more In wages and investments the growth in basis support These and from wholesale XX year. labor than current offset labor the distribution addition, the divestiture assets. points incremental our increases costs tire technician, and line to increased prior top benefits

expenses The expenses prudent or to store due a of year sales which sales operating to principally of mid-single to percentage operating sales period. XX.X% prior us as were in cost allowed growth. $XX.X of $XX.X the sales leverage control, Total digit XX.X% as comparable or million was compared on million decrease

the to as the higher rate tax as or our compared same an to of sales This prior or compared year to due million rate. was compared in $XX.X increased to year-over-year $X Income of divestiture in last interest to prior income of wholesale a to tax impact state year to This million expense the or rate X.X% period. tax other $X.X distribution effective $X.X due XX.X% in $X.X Operating rate is XX.X% of an million year. third share tax discrete Net sales. X% higher based from or million tire the declined in was to quarter principally well effective for was $XX.X period. expense assets. as impacts income period million tax the tax awards, related of increase effective and million The interest

this year. to our per in same $X.XX third million Adjusted eight earnings Diluted to earnings Net Please per details for income the EPS last in period $XX.X diluted GAAP fiscal share, was for to quarter regarding of of in $XX compared share non both morning's last compared on costs same adjusted third of earnings million $X.XX measure, per year. share a excluded slide in $X.XX diluted refer earnings to the earnings was in as press $X.XX. quarter the compared This diluted years. period reconciliation adjusted fiscal further and presentation our the of XXXX. release was

slide million the of period. very first on continue our conversion solid by $XX capital compared to XX XXXX, the position. reduced the the cash of $XXX a maintain cycle highlighted financial working cash record we reductions. operations quarter We approximately As of nine, year months during nine a generated has in to end fiscal prior million days at This from third including

held in escrow. Our million expenditures, leases fiscal divestiture in We end quarter of the in of and $XX dividends. the end $X XX% the capital for $XX invested being at million was in $XX proceeds, distributed XXX% to inventory payments are principal million of spent ratio $XX third AP We in million at which versus currently fiscal million XXXX. received financing

stock Lastly, of cumulative under our share board program. $XX were common repurchase repurchases our authorized million approximately

the our and cash quarter, $X.X used nine debt $XXX capital fiscal end At months of have of cash $XX of the cash of net we a the third XXXX. EBITDA debt flow million We bank equivalents during to bank had $XXX to ratio significant million, times. first million of and reduce by invested

million the in sales generated not our of to While your color guidance providing in remainder for $XXX in which remainder about XXXX. for XXXX are comments the fiscal modeling. Note fiscal XXXX, are fiscal we divestiture, to we in factor assist continue the of providing that

As managing taking on opportunistic higher This continue as to we market stores. in that, staffing In gross focused our fiscal expect traffic, margin to pricing levels gaining within pressure of continue focus to sales pricing driving actions. improve maintaining be in will competitive we put to categories on and to margin attract we continue as categories, our appropriate mitigate to order the fourth share on well likely our and mix product to will XXXX. quarter driving service profitability customers

are be fourth quarter Total consistent the a in of expected operating percentage basis. on a expenses to sales year-over-year as

should approximately rate fiscal tax for be XX% XXXX. Our

we fiscal $XX our XXXX. million in $XX expect Regarding approximately to to spend million capital expenditures,

cash meaningfully capital. We value on flow, also of continued to expect continue operating our approach shareholders capital return as completing capital enhancing improving driven returning acquisitions well by balanced our our to will increase reductions, working invested as

over now I'll that, with And back for Mike some turn closing the remarks. call to

Michael Broderick

about optimistic Thanks, our the Brian. and for of fiscal XXXX remainder outlook We're beyond.

long to have our Although and to we execute still important positioned work for deliver do, we remain strategy our well value creation term shareholders. growth

turn With for the that, operator I'll questions. now it over to

Operator

Instructions] Thank you. you. Thank [Operator

for your Please comes ahead. Our open. is from Oppenheimer. Brian, question Nagel go first now Brian line today

Brian Nagel

Hi, good morning.

Michael Broderick

Good morning, Brian.

Brian D'Ambrosia

Good morning, Brian.

Brian Nagel

color. all the for Thanks

is in comp the couple a and potential just in left -- seen? mean, the to questions. much outsized stores stores seen we've we've now So, of off, I a with those some first trend for growth respect performance. underperforming for How improving

Michael Broderick

it's that say would I Mike. part It's of morning. good Brian, our strategy.

was declines now that we that everybody remind starting to to are reverse. Just year-over-year-over-year

strategy at opposite. as would year-over-year-over-year. walking back I the actually these exact look We're stores the So

my my digit expectation forward. to the two next expectation So start field I and team of double this comps that And growth for I reversing. type really know going to years we're our, expect would we say, one the understands expecting

Brian Nagel

merge I'll -- extent, the to it pressures. question. this down at then out my Got you're helpful. patterns amid a consumers And today, second question my you look a Maybe buying kind trade in as of, Mike, follow-up is as so of but together, calling it. -- some result shift That's couple results economic

more tires, for opposed look what a in offering confidence does potentially question demand these more this better customers opening you reacting the gives product as market that gets I just gains the is, have of a Monro? part fact now as that, to share you at So reflect price as existing to expanded to

Michael Broderick

through on Tier being all, point of on we and premium Tier being Tier price First based actually at opening Tier X X, look breakdown we based the see syndicated X. can X tires, tires performance data

actually So our tier. see I can by performance

is focused look cash when we've margin from now, we're right been call sales our the at together creation. on and this Now this on Brian, is, what performance I day

for and with now a it's finally advantages. unit us actually we on and partnership features, I see creation. we're with of really opportunity is point serve. assortment, job up are our coming field on can our just pricing -- years We and the successful customers. deploying that seeing take to better our But really share. the the And the based -- that gain the through is not that assortment decision, activating the seeing have started the stocking we point. part drives We market sell life greatest really for ATD unit markets obviously, that ultimately, to I tire price with we execution and because think opening in come. opportunity But And opening it's we're our that decisions price in benefits field that what And [indiscernible] is, through with activities think is execution's real screen to we're the have

Brian Nagel

That's it. very helpful. I appreciate you. Thank

Michael Broderick

you, Thank Brian.

Operator

Thank you.

next Daniel, line is Imbro of question Inc. from now open. Stephens comes Our Daniel your

Joe Enderlin

Daniel. is Thanks This on Enderlin our guys. for question. taking Hi Joe for

Michael Broderick

course. morning, Joe. Of Good

Joe Enderlin

the monthly provide that right from activity increased through quarter? consumer to December comps think pretty is some from how how year So you stack maybe three accelerated and promotional sequentially the meaningfully. trended January looks color it Could now receiving like the on the maybe you

Michael Broderick

clearly on promotional using the we to we would partners' one. really similar that the very in our I just did take is, competition executed marketplace. say activity supplier that I'll our Joe, promotional what activity,

to support attract vendor drive our incentives. be using approach our in disciplined pricing through very customers able are and we to So

strong although tires in into driven pleased But see it say, strong you and actually I'm would in very can December very by had my month. break margin. with, a flipped January, in December where had tires, I we I actually a January, forward going from that

is but tires, most a we're activities meeting I our of We're service really also back the the that's the trend, customers' not needs, I And also with this like categories. not in of fundamentals go all level. just the leading our So January that not driven at believe actually customers, categories. just but tires, we're to to deploying on ultimately, just see how but to through And just really -- service local business. just we're

We approach. have balanced have to a

have service category growing, service have to us sales. growing that for categories drive brakes We tires and leading our to really profitable

Joe Enderlin

helpful. as maybe super And some That's provide margin thoughts you. rate but then Thank on if not SG&A goal? this maybe at your the maybe growth follow-up, you are comping a you comp or mid-single-digit long-term could year,

Brian D'Ambrosia

Yes, this some south we at where of XX improvement here as QX, maybe relates outlook, just ran I of in gross for ran mid-XX where we that QX in and it is XX. say would our level Brian. -- our QX, is somewhere which expect margin to between in we kind just

that we off So though. QX, of range, somewhere trend expect improvement in to

gross I'm year-over-year. sorry, The expect to we SG&A, be flattish -- about the

month bit volume a volume of on quarter little have lighter or We seasonality. historically a in QX based

a QX. we in run So we where from delever traditionally little bit

run we relates long we're as digit improve been we we've double it our guidance. return that, providing as digits. margins -- to as historically, we said, comp As a longer-term think expect where to growth, both certainly SG&A. path costs as our term, not and But to good us fixed And the gives operating our well that margins to mid-single as achieve they've we've leverage back

Joe Enderlin

That’s Thanks from much so guys. it. me. Got all

Michael Broderick

Joe. you, Thank

Brian D'Ambrosia

you. Thank

Operator

you. Thank

now of line John John, from is Our your Healy next question Northcoast comes open. Research.

John Healy

more dive bit the supply I Guys, to about you. of Thank a side little wanted things. in

and about giving things is talking support manufacturers the on surprised bit some a little that may the you be you guys One me rebates of things. more

So to on roll calendar sales the have see you are gross at I some begin And this just that manufacturers you or how side to the kind just price support love -- any kind this see back least buffer margin starting year? there go maybe could hear beyond of you or or maybe starting are in to changed? what would you field? year And of seen later increases that's to giving actually

Michael Broderick

John, that. It's of I'll care take take Mike. I'll that one.

they're We as not bigger all less it's the parts manufacturers. we side, side. investing with It's And the think -- that's tire I but only Monro. really customer suppliers, fewer about were become behind on a about us. the

the deployed benefited with up, they partnered really is what So what advantage against for suppliers, it we in we quarter really stepped the more us. and it, normally And relevant. marketplace took but became competitors, just of have we our really fewer fourth in really Monro activated

marketplace. the from are of committed the that, teams we actually And things into we in need customer assortment top them our large our in they to. We really stock. On tires. compete the like looking to We what these lived deployed kept a for that that gave Monro. are We suppliers

the a but have merchandising the really basically teams ourselves team, I to days. came field getting credit to really So ready only for over give not our ourselves winter making season XX inventory that organization,

John Healy

to ask feel a was different I then the And pipeline want M&A expecting. just the was than like on commentary bit I just -- maybe Great. little I

has what sellers maybe I So looked are color what that's hear seeing little here, what M&A to in fill you taking how tone love I -- bigger there? because at? I anything it we there, Or any be at you've normally you that the size than to conservative a more -- on would kind come at at bit looking Is of least seemed up kind thought just maybe Are just were least. of thought pipeline you? a guys to of

Brian D'Ambrosia

NDAs XX there's I at we -- really M&A look that signed. we've No. our the have opportunity, more as working, mean activity been we Yes. than

always for to clear with operational we're kind needing evaluate for buyer, have a in stores team's that buyer. to improve us stores disciplined take investments limited really And accretion to to our adding we're that now, very meaning, a disciplined I deals. financial that time continue immediately. think on a of been to We We've those path going very quick

to of that bottom XXX have like We we on continue a our need stores about. lot talked focus. We focus

mid-single-digit improving our We across categories. have real a business, and those profitability our on delivering our of focus improving comps all

and that we be nice with for forward It those we be acquisition QX. for want there in was financially. had deal to a this really look nice and of the operationally forward acquisition a met to approach. announced allowed all that focus, disciplined criteria one our We of So that that quarter. that make closing continued for in we we sense a integration, move But deals will as the us and that M&A

John Healy

Great. Thank you guys.

Michael Broderick

Thank you.

Operator

[Operator from Instructions] question your Our of you. open. now Jefferies. Thank next is comes line Bret Bret, Jordan

Bret Jordan

Hi, good morning, guys.

Michael Broderick

Good morning, Bret.

John Healy

a guess, sort pricing of the and sort for, you at adjust of that the comp traffic the could I car adjusted have moving To a sort tires of moving of about just price to look we lot lower other pieces, versus do parts? point think count day

Brian D'Ambrosia

provide we number -- days. a provided Yes. kind We have don't traffic of even for unadjusted

and Those units, the were both said led positive. to were So tire reported quarter by positive, ticket. was And be we adjusted. continued

Bret Jordan

side service picked then, has anything just it up. the And of service up on service did but maybe like or guess, of more that lack it demand the the the structural anything the you in drove business? I Okay. year weather But January in for the it the a forward pull picked Or Was sort comp? in service January? in negative quarter, or prior surge is or focused either tires sounds of feeling the see

Michael Broderick

talking a so service over to strategy. we've I'd having about years, about of lot our a like the there's say only I that talk of things a changed. it's mean, last because one not would I balanced month, so January it's much continuation and been a lot approach.

a strong when component. I against had last would us December quarter could growth that from we mix that happy continue going say this be to the strong I the tires. double-digit right. we October, in very last important I'm number, And like we service forward about will right. as quarter, continue be year. a And the categories. So get like potentially for balance get a to January in talked This brakes. in going soft expectation double-digit to service a was really that is especially is see

Bret Jordan

you housekeeping there And to Brian, And regional give could monthlies? any Okay. the dispersion the question. is then talk us about?

Brian D'Ambrosia

a weaker but From up, standpoint, all West, not bit the too regional meaningful. in were Yes. a little regions

have to gets X.X%. would relates X.X%. you're November, X.X% been XX.X% X.X% the the it As you monthlies, the in reported, looking December that as October, at in in to if X.X% and December

John Healy

Great. you. Okay. Thank

Michael Broderick

You are welcome.

Operator

further no have for We today. questions

hand CEO, back for to remarks. I'll Broderick So further Michael any

Michael Broderick

All right. Well, thank today. an be joining to you continues time to us exciting part Monro. This of be for

have you on look forward We all to for create I to stakeholders. to strong a build progress. long-term upon value our keeping updated foundation a our Have great day.

Operator

for you joining today's call. Thank

You your lines. may now disconnect

Monro (MNRO) 25 Jan 232023 Q3 Earnings call transcript