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Monro, Inc. (MNRO) Q3 2024 Earnings Call Transcript

Monro, Inc. (MNRO)

Q3 2024 Earnings Conference Call

Company Participants

Felix Veksler - Senior Director, Investor Relations

Michael Broderick - President and Chief Executive Officer

Brian D’Ambrosia - Executive Vice President and Chief Financial Officer

Conference Call Participants

David Lantz - Wells Fargo

Bret Jordan - Jefferies

Brian Nagel - Oppenheimer

Joe Enderlin - Stephens Inc.

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to Monro Inc.'s Earnings Conference Call for the Third Quarter of Fiscal 2024. 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'd now like to introduce Felix Veksler, Senior Director of Investor Relations at Monro. Please go ahead.

Felix Veksler

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

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

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

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

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

Michael Broderick

Thank you, Felix and good morning, everyone. I'd like to spend the first part of our call this morning walking through our third quarter performance, which reflected top line results that were challenged.

This was due to milder weather as well as a pressured low to middle income consumer that continued to defer purchases in our high ticket tire category. This was clearly evidenced by an industry-wide slowdown in tire unit sales in the regions of the country where a vast majority of our store footprint is concentrated. We continued to mitigate the impact of this slowdown with actions to reduce non-productive labor costs. Despite a tough macroeconomic environment, the resiliency of our business model and the actions that we've taken allowed us to expand gross margin in the quarter.

I'll also discuss our plans to deliver an improvement in our diluted earnings per share this fiscal year despite some of the consumer related headwinds that we and others in our industry are experiencing.

Before I get started, I'd like to recognize and thank all our teammates for serving the needs of our customers.

Now, turning to our third quarter results. Our third quarter comparable store sales declined approximately 6% from the prior year period. Comp store sales in our 300 small or underperforming stores were consistent with our overall comp in the quarter. As I stated earlier, our sales results in the quarter continue to be challenged by consumer deferrals of tire purchases as evidenced by an industry-wide slowdown in tire unit sales. This led to pressured store traffic which was not supportive to sales of our higher margin service categories in the quarter.

While our tire units were down approximately 14%, leveraging the strength of our manufacturer funded promotions allowed us to optimize our assortment for improved tire profitability in the quarter. And while continued consumer trade down dynamics led to a higher proportion of lower margin opening price point tires within overall industry unit sales, we remained focused on maintaining a healthy mix of opening price point tires in the quarter.

Encouragingly, based on retail sellout data from Torqata, a subsidiary of ATV, our tire market share remained broadly in line with the overall market in our higher margin tiers. We continue to mitigate this industry-wide slowdown in tires with actions to reduce non-productive labor costs, including overtime hours in our stores, which were down 25% year-over-year. This allowed us to expand gross margin even on lower sales volumes. We will continue to closely manage our labor costs and expense to maximize profitability.

Now, concluding with our plans to deliver an improvement in our diluted earnings per share this fiscal year, despite a choppy consumer environment. While our preliminary comp store sales for fiscal January are down approximately 6% due to softness in the first half of the month, comps have accelerated materially in the last two weeks with the return of normal seasonal weather.

We have some easier prior year compares in February and March. But given the current pressures on the consumer, we no longer expect to grow full year sales. However, we do expect full year diluted earnings per share to be higher versus prior year. This will be driven by actions we've taken to successfully reposition our cost structure, as well as expanding our gross margin through properly training our teammates to maximize their productivity and optimizing our tire assortment for improved profitability.

We will continue to remain relentlessly focused on improving our 300 small or underperforming stores, maintaining a balanced approach between our tire and service categories with competitive pricing to drive store traffic, and continuously improving our customer experience. In addition, we will continue to create cash by optimizing inventory and leveraging the strength of our vendor partners for better availability, quality, and cost of parts and tires in our stores....

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