MNRO - Earnings call 2 2024

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Operator

Good morning, ladies and gentlemen and welcome to Monro Inc.'s Earnings Conference Call for the second quarter of fiscal 2024. [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. Please go ahead.

Felix Veksler

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

those may results suggested could statements is Investors we that that our corporate.monro.com/investors. about some the be harbor Monro's our we that note differ started, If our materially to referencing I'd with like Actual performance. statement on part affect in presentation Before earnings your please safe call, I as could participants The get from attention remind today. in filings forward-looking results by that website of comments SEC most section are our presentation future factors and of draw the release. this a on Monro's available includes at X, the significant outlined to will Slide future

The as or any statements, or as to a revise future or by of required intention law. otherwise, whether update events any new information, forward-looking result except company disclaims obligation

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

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

Michael Broderick

line inflationary which actions sales higher where top our purchases as part Thank the slowdown stores. tire reduce was is morning, nonproductive you, costs, our reflected majority purchases clearly Felix. our due a overtime regions We pressures And store slowdown in spectrum. including labor that of walking retail tire quarter good to by evidenced the with in impacted of country the This an mitigated across concentrated. hours of like to footprint This to vast call was this of performance, the industry-wide deferring in unit our items morning, the first were I'd persistent ticket spend consumers everyone. through challenged. second results

Despite and macroeconomic also the plans that improved and of earnings environment, industry are consumer-related deliver some sales on our the others gross allowed discuss resiliency our margin business profitability maintain tire tough even headwinds fiscal model despite expand of we year I'll to lower experiencing. a year-over-year volume. in our us our to this a

get I where I thank remiss Before and moment well take contributions all recognize for of the as customers specifics, positive of their needs teammates we our into to operate. I'd dedication if be as to continued serving their communities the didn't the our to Monro, a

second results. our turning to quarter Now

Comp approximately Our sales comparable down in approximately second X% stores locations. store store declined our X%. X% remaining quarter and underperforming smaller down approximately store in our sales XXX were

sales in slowdown evidenced purchases I the tire sales the industry-wide As in is of vast of stated unit results our by challenged quarter our majority deferrals country as tire store consumer of regions concentrated. the by earlier, a were footprint in where

This the pressured led higher-margin supportive sales store in our traffic, service categories to was not quarter. which of to

a down point industry remain quarter. price of opening price overall proportion unit tires dynamics a healthy within the on sales to of of And XX% the optimize down improved consumer While manufacturer our in leveraging trade promotions assortment tire us allowed for the quarter. our were funded strength continued approximately profitability in to led tires focused higher we tire units opening our maintaining lower-margin point while mix

even tire maintain gross year-over-year our overtime us our including hours costs labor sales profitability allowed lower with reduce actions subsidiary from ATD, on market of which were to sequentially. expand based entire margin maintained the XX% in We down tires industry-wide mitigated stores, sell-out year-over-year in our higher-margin This in our retail XX% Torqata, Encouragingly, and nonproductive this slowdown and a we on to data share volumes. tiers.

maximize to to continue will expenses profitability. costs and our We closely manage labor

to with fiscal despite improved choppy concluding a this our Now deliver environment. plans year consumer earnings

improvement staffed for for preliminary our to sales comp down fiscal the longer-term see industry approximately properly are stores on our deliver successfully comp in consumer our X%, will while store can health of repositioned before an the are the fully ready profitability year. back structure need overall even we And the and October we improved have sales. tailwinds, store capitalize on While we half of lower cost to

a growth remain focused tire service between our through growth our improving comp our underperforming competitive accelerating We customer stores and achieving store relentlessly small to pricing in with store and continuously sales experience. categories maintaining will balanced or XXX drive traffic on approach

strive properly to teammates to also through maximize will gross expand training productivity. our margins our We their

pressures current through rationalizing includes also and the which we prudent costs rightsizing cost the on unproductive given consumer, profitability control, fixed our labor. laser-focused are However, on maximizing

While service will long-term our we of not cut labor sacrifice the to take productive model. the actions, at we and standards our detriment of these

vendor business on restore be our margins addition, In back of gross macroeconomic are the and path and cost the tires in we confident to parts pre-COVID a the longer stores. term. closing, create availability, current we operating well by that with over to the In better to positioned, of our will margins strength our partners levels leveraging despite continues environment, double-digit we remain for posed by optimizing our to cash inventory continue quality challenges and and

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

Brian D'Ambrosia

good morning, Thank And everyone. Mike. you,

resulting sales to stores which margin basis increased to sales higher million to points primarily sales technician quarter, to tire from sales offset due of XX compared to X.X% store Sales decreased second X. approximately distribution Turning $XXX.X the unit new a Gross X.X% sales. increased million. a were costs of from Comparable occupancy year-over-year in sales lower costs was material percentage $X.X due a percentage which wage primarily Slide decreased year, and partially lower labor as by as prior higher as as the costs and well percentage inflation. as of

million million This year-over-year $XX.X million or or were or to interest operating sales quarter debt. expense income in compared prior comparable prior Total to million compared sales compared the was in to to sales. Net or the weighted $XX.X Operating lower sales. the of XX.X% in decreased to year sales of sales year. to a store last was million percentage $XX.X as the due X.X% as The as increase X.X% principally declined decrease a $X.X expenses same of second period. principally $XX.X period. of million to XX.X% for due period year is $X.X average in This of

per or compared earnings in period. earnings the or compared same last rate tax as of the in to is to $X.XX compared was for year. period diluted Net share effective was approximately fiscal was XX.X% period prior $X.XX which tax last was rate $X.XX. to $XX.X diluted effective adjusted $XX.X million second earnings XX.X%, Adjusted This compared of income of measure, the an year same tax Income approximately expense $X.X non-GAAP year. $X.X $X.XX per a in million to is million million XXXX. per Diluted the share, of share quarter an

second reconciliation our years. release Slide details earnings excluded Please of further press presentation diluted in earnings morning's fiscal in in EPS this adjusted regarding quarter for and the X items on refer to both of our

$XX during a to capital from fiscal solid X, the Slide XXXX financial half including in generated we reductions. million million of of We position. very first $XX maintain continue As working on operations highlighted cash

cycle our cash compared by period. This end to has XX days the reduced the of year approximately second the conversion at prior quarter

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

up some our to environment, debt reduce repurchasing higher in the pay company's common to program expense $XXX of stock. to which million down shares authorizes the under we of interest quarter the Lastly, opted to given us our versus interest rate second repurchase

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

in year to guidance, While not we assist are modeling. providing we full your are providing color

outsized year-over-year through underperforming expect in We drive sales growth to our or stores. performance small comparable XXX and sales store higher

inclusive sales fiscal is of our fourth of an in extra week quarter. This

distribution We fixed which costs expect sales due actions, base inflation. to drive partially and a our year-over-year be continued will wage of percentage nonproductive pricing and improvements payroll, in lower occupancy our productivity from margin reductions offset labor gross higher from a through sales investments and by improvements as to

and as store of percentage to in Total are sales base impact operating costs increases due expenses of well year-over-year departmental be to inflation. higher a the direct support our to as as expected

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

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

our improving We cash also continue continued working operating by flow capital expect driven reductions. to

to as return invested and shareholders dividends Our increase share completing expected opportunistically capital. balanced our approach through of returning repurchases meaningfully well acquisitions on value-enhancing to is as capital

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

Michael Broderick

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

have to operator for our and well now remain creation Although that, work to shareholders. positioned the turn over we I'll important for to questions. With strategy it value long-term still we deliver execute do growth our

Operator

Wells [Operator David Instructions] line from of And of our is Fargo. today Lantz first question the

David Lantz

your X%. overall the context you the for expectations an Curious the in And balance of being the the And you're about in sales So in comps comparable year. growth guiding if improvement fiscal assumes talk improvement 'XX. down that October any macro. if of can of

Brian D'Ambrosia

for question, David. Thanks Brian. is This the

want week about quarter comp. fourth the half, our to extra you at got annual If in everyone, week just look back that we've I X% an on extra our remind is

around into But growth is is trend we talked about year. improvement factored of the expect downs commentary So do the in and store October. comp off sales that comparable factored for store we growth that that sales into

and will back that what we a that's selling be Tier to by expecting are consumer that tires, we help hope drive And X which to I our weather the inflection. X the tire think in driven season that through half dynamics in supports better

David Lantz

to glide On just double-digit improvement helpful. could from on path EBIT be Got by what could provide And SG&A? it. the margins, That's sort driven what then come getting longer-term low a margins a else you of and can question. gross back

Michael Broderick

see that last under the like control. we get improve. pre-COVID margin would to will do and the like I even David. that margin the down right We continue decisions business. assortment with have done and levels the were feel clearly to over considering to We we a that to months we've a our in can sales, through mix position able to XX of show and this service what much say margin fact very feel in lot start we, our quarter, we where XX and margin, back I'll payroll going improve tire in ourselves

has the team a to and or X wage The to down we've X years. had to it's up environment, last responding mitigating job whether place done that of nice put some the the investments over in

Brian D'Ambrosia

then a percent David, just XXX basis points to material our D&O you points that of and of as and costs add XX about of second that XX.X% that, and combination And if margin a lower was sales. to of think basis improvement about call in for points deleverage driven our year-over-year sales by XX offset quarter, by largely basis labor the on at

the at kind if and that top deleverage true, our to you line around come look is dissipating. D&O assumptions So then flat planning of labor

because operating on put drive from the start focus. to bit look is quarter, much little at if G&A standpoint. we're to flat delevered the into That's in gain as some the of a you and sales But It on focus path you try delivering. to top flat points it our on of basis sales. been a double-digit goal. improvement gross obviously order the year-over-year meaningful our You to get to was G&A our to has continue the in a But G&A flow-through lower year-over-year dollar And XX.X% margin margins. XX

efficiency we've in been And of offset to G&A. with inflation year-over-year so gains able the far, a lot

David Lantz

it. helpful. super Got That's

Operator

the line from Bret Jefferies. Jordan of is today question next of Our

Bret Jordan

ticket comp? to guess, monthly traffic And you versus the on usual a car comp then detail little I Brian, Could in the I breakout. give guess, us the count,

Michael Broderick

would with looked was say digits. And start traffic. back of to down was X% story. for what I'll the the up a Traffic low a lot ticket we the minus tire single going but I at was that but mid-single digits,

mixed Tier on the to just to quarter mixing a was -- sure. X for X. clear profit. we We just be we tire through OPP, like were So which this That down up, drives up

of that to. actually say would count I because And down, tire the was lost we the attachment some

and it. we're Generally, drive to the that back customer drive as on as the right improved waiting consumer we'll transactions forward with the now appropriately along in month look the back November do we coming So coming the well a quarter. of then attachment weather in goes to the event

Brian D'Ambrosia

in by that tire ourselves the was we down quarter regarding X% X.X%, cadence we August down Okay. and that September, and like really up And all then said, the the driven mentioned trends the consistent prepared those July remarks unit data X.X%. on also quarter, were the went comparing industry declines as in Mike with against. was

Bret Jordan

Was there a the much lot kind dispersion, West guys primary better? your markets out I you consumer. the called regional Was of saw from of guess pressure that

Michael Broderick

remarks, definitely to The I better. on West marginally but the East better, our lot But prepared the would Coast. was it's was pressure say a of

Bret Jordan

what with capital left? -- as more an from the model, you balance cash? extract running sort benefit, today could at and sheet we And you like question, what look think what's about Okay. you're one then of working guess the the lighter how when model do inventory is on the we inventory Like think final I

Brian D'Ambrosia

Great question.

to a cycle bit. little reduction. think heard XX inventory We're I Still inventory about still to you the or QX days ratio. ratio QX, look cash if XXX definitely flatten around of metrics to that XXX, you AP conversion to start of out at AP at

existing also volume on showing terms you're come some we're drive new that it's the signed I our vendors definitely we through to but later more extended programs. So there's benefit of for -- get still the think vendors innings, as to and up continue in

I But growth innings. indicative in metrics of the kind in year-over-year is of some think the of the later slowdown

Operator

today Oppenheimer. is Brian Our open. next Nagel Brian, of question from line now the of line your is

Unknown Analyst

for Dawson William is on This Brian.

just to for need pressured. question in pressures you're respect is do remains consumer what and to as comps the to So with ease the down increased trade you traction the consumer. and the that drive What trends deferral see current internally first gain about can the here? And improvement trends us industry, an seeing to

Michael Broderick

Mike. So is this William, I'll it. take

talked this There mix also, of question, lot it. about the in literally reasons Regarding decided your we to we for our to OPP. that QX was first not a shift fact

our we profitable. were way. were wages owned business We a to quality technicians by First expert wasn't cheap of not all, be it spending That's and to the on making able little money, install really tires.

their investments -- the want in customers manage We organization. we other us some that tires category to actually have hurt is a and place. that were attach to profitable whatever oversight the drives And we overtime the we've cars appropriately what expenses We that that and those stores. consumer the to that our on two, able We're wage saw our in number put that profit it. one. who just required fact like it saw of brake able price assortment, we actually on did we so we're specifically buying for our reassorted Xand drives through not did our of business model. and margins actually our mitigate we we even put That's that's though Number some service categories and

QX now we're is So last what coming of through year.

they're this and a lot the through we the have of where We the this in really QX, when in. the see looking have we for When healthy X a we consumer mix, at not they ticket, and see a At starting that's it's I event mix. event X balance deferring. to that about to really point we're basically, weather X. in really stores. a customer We do come time, Tier they're answer weather when into to made get offering say customer We There's your marketplace. high question, growth a our changing Tier wanted the consumer all were balanced change. appropriate in literally, deferring. to second drive coming now

for mitigating into QX, what we're as really where as it a in selling of winter well in actually QX, back it's very now look this short. place normal and we it lot come in QX put positioned going season we to coming QX, comps. to When we well it's in strong We to see see be comes, really at can going as

Unknown Analyst

drive comps, That's very expectations weather business? and traffic? the that the us And for compares are between of follow confidence talk the Yes. the on up about comp, can to full weather improved the gives what the the that guidance can helpful. you year. remind Can of historical Okay. just ask breakdown with and you and the with knowledge also your just ticket full And year you about what

Michael Broderick

We focus the with generally start approach I'll it. and a to on balanced traffic. ticket

coming expect just do have expenses. shifts we have I we we heavy and have which growth tires, manage to event, item. mean we to it a of weather then customer have And the then If large -- count is ticket out a to So a October. also

When But the seeing comp our started a that have course, through we'll December. of and story. included November, do XXrd mitigate QX, a event, -- is seems to in like in I'm that. year, week initiative we we be -- QX, have in We're we a QX that's I tough it And look rest winter able have also this at the for if we going we're the comp to get go going of the which QX. softer comps to

Operator

next question today is of from Our [Operator Daniel line Imbro Instructions] the of Stephens

Daniel Imbro

the start, a But rest and to maybe want about Mike, stores. across XXX maybe been for stores, Or look or those they from from they industry. I the we've struggles do on them, standpoint? What's small at without similar an the same macro improving improvement just are self-help of they're you the generally smaller year, as Obviously, those guess dependent deferrals stores? operationally, they've of here, grow XXX when the a to on those underperforming turnaround? curious, a kind underperforming again, can done I seeing than I'm better industry stores. left In

Michael Broderick

at I subset look that confidence I in lot those a variability double-digit we're large performance, the of growth performing well. the that opportunity of a us. for on performance. I gives store overall that lot focus a when me path. extremely stores a Daniel, on right of see There's as actually stores That those underperforming are

areas. from execution going part the going are I a people, all always people about stores we just stores. These It's with retail located started can why going is I a execution. process, we're I in good And underperforming it's that's about on always storyline to story, all this why identified It's confident of that always feel would something be this of of reason the retail. day all say poor-performing focus stores, grow it's It's organization, it's part the it's our to be we about to story. that company.

Daniel Imbro

That's maybe share Okay. moving helpful. And on market over the then side.

in I the share higher-margin But on your think tire here. didn't here tiers. lower the said retained comment hear commentary I end a you obviously,

So competitors opening point. is it just price on priced that irrational we're that out be seeing some there

know there? So to don't want you share you just retain

guys to share? true? of are maybe tougher? where the bigger become if part next on context, some So larger getting of And share during pressure, that industry few macro industry percentage periods Is the keeps Is I opening quarters could past of maybe then history, that point price for macro based a you a going if the just guess you gains losing sales. would

Michael Broderick

we -- of not back OPP -- first see to over to our don't We definitely share, just sort to stores market decided with all, saw tires. we go

X We when in about that for lot it look of proved when I we on sold about And that I Tier lens. there's QX selling the didn't X lot pricing. too. the year, make was a money just we believe lot of tires, customer position in wasn't last assortment of out market a it. QX at it. trends, do a When in OPP from a a reasons through So of It have that customers

that in that positioned We expect soft did Tier back. comes to not We forecasting we X through expect They come really modeling. our a and well absolutely our have do to this back, our looked business for at demand. X have we're when performance And it. -- when

we that going our that we're lean We stores. a from we down offering, Tier into have and question we that It's priced We it an OPP don't the it just we not in to lean X, into of when consumer. Tier have to trading X, customers make wasn't stop it into right. because X we good it, saw X money. saw to because for wanted unnecessarily It's

Daniel Imbro

up can Hopeful maybe has color. cash. then one, question. do. follow when flow Bret's you Brian, to of talk thinking improves last about sales conversion about stabilized. you're And Cash But how Cash just on uses

guys Another active quarter, on the I were buyback. don't think you

use cash? into fit that you And more what capital of forward your are does priorities? on maybe to looking where Just get guys active that

Brian D'Ambrosia

it's debt we reduction a No. the $XX share been We are terms look capital it's in XX-XX And months being that we debt of total been the led the about to million continue -- it through buyback, invested right retired. and more our much Thanks, balance Daniel. amount at capital first for announced looking invested we repurchase the that X if and reduce at we've to of now. approach. capital balanced approximately. Like as pretty talked so But far look you since

to going going time, our forward, particularly to fulfill that authorization. start debt million balance be of as going get that think to the So continue in the of and lower down I have on over debt continue $XXX pay remaining expense, that's be kind opportunity the diminishes a we interest opportunity balanced to more there's authorization reduce we to $XX of million period and to would to

order to So it's invested going and flow excess to capital. we continue to continue generate to to that balanced be return in cash look that

Operator

the today of of John Our from question Healy Research. is Northcoast line next

John Healy

shortages out or about it's tricky there. reducing to the sounds wanted It especially to a less talent with of productive bit comments and Just on whether do, the like little ask mechanics labor. the location maybe tenure the thing a a or

evaluating thoughts what doing love you're the to at we picture and level? store interpreting get the is thinking how it right you're your just are there? would And the big on way that that labor I So

Michael Broderick

interpreting you're store ready get We're on the No, on the focused focused for making what our the stores staffing years X.X-plus work so we them up it last comes is focused can way. we the payroll. the over we spent shops. very of through -- technicians, We've our very level very on we the training them sure qualified believe tailwinds the our retain industry. that do We're and right keep to

and wages going continue payroll, mitigating sure the with We are definitely focused on talk unproductive lot staffed staffed to sure of When every change. it's about are to wage What focused stores that controlling over I technicians. I be payroll, we're #X is a about my and wage quality our payroll, stores really about and time. the on over mostly through why the expansion making team focused the that's time. talking quarter not focused so mitigating making on way That's is over the we're time and because unproductive

John Healy

And perfect makes then of That question. type just it. kind Got sense. an industry

that like U.S. the replacement into in of me September. double commentary that One U.S. recently Michelin shipments surprised some the of the was low digits were things up

folks pricing, that, industry is the just Just your it odd an are kind relief thought maybe taken is on in maybe you so a sign product? starting that Or sign number. you're that a or get to reaction that some of restocking to was

thoughts that. your of on of curious kind kind Just

Michael Broderick

have about I really support have anything I that it. a don't comment Yes. to

us at we look are to our sure just shipping when require vendors it. making I So

We have with an excellent relationship ATD.

a X, inventories manufacturers, and When in have of and drive to obviously, lot supportive we're very investing have our Tier they're we So that affects, us large just we traffic. time, in in community. down vendor X our X% to a

we good relying the us. and great they customer relationships relationship, that beneficiaries come news will just of to be and continue back, on we vendor vendor the it have is our expect do We'll with partners. So partnership like

Operator

in questions any Michael queue the further to like Monro's back for today, remarks. closing to no Broderick, have so We I'd hand CEO,

Michael Broderick

exciting be today. to of us for part joining time you to continues be an Thank Monro. This

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

Monro (MNRO) 25 Oct 232024 Q2 Earnings call transcript