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Monro Reports Record Sales, Margin Expansion

For the fiscal first quarter ended June 29, 2019, Monro Inc. came through with $22.61 million in net income — an increase of 9.5% when compared to the previous year. Similarly, gross profit rose 9.3% to $128.15 million. Gross margin increased 80 basis points to 40.4%, attributable to benefits from the optimization of Monro’s store staffing model and product and service offerings, as well as leverage from higher comparable-store sales.

The company’s sales increased by $21.25 million, or 7.2%, to a record $317.06 million. The growth came from a comp-store sales increase of 0.8% as well as $19.60 million in sales from new stores (including $16.60 million from recent acquisitions). This was partially offset by a $700,000 decrease in sales from closed stores.

It’s worth noting that the company experienced an approximately 100 basis-point impact to comps from the shift of some wholesale volume to non-comp Free Service Tire locations. This created a temporary comp-sales headwind in the first quarter.

Adjusting for this temporary negative impact, Monro’s comp-store sales growth would have been up +1.8% for the first quarter. Nonetheless, it was the sixth consecutive quarter of comp-store sales growth and second consecutive quarter of positive comps on top of positive comps (adjusted for days), attributable to higher average ticket.

In his July 25 discussion with member of the financial community, President and CEO Brett Ponton noted accelerated comp performance in April as Monro entered its spring service selling season. This was followed by temporary softness in May and, to a lesser extent, in June, mainly because of cold and wet spring weather in certain regions. Comps were +4% in April, -1% in May and flat in June.

“We are encouraged that comparable-store sales recovered toward the end of the quarter, despite facing tougher year-over-year comparisons,” Ponton said. “And, we are pleased to report that we have seen continued improvement into July with comparable-store sales up approximately 1% month-to-date.”

By category, comp-store sales …
• Rose 6% for brakes.
• Increased 2% for alignments.
• Grew 1% for tires.
• Declined 1% for front end/shocks.
• Decreased 2% for maintenance services.

Brakes was the strongest-performing category for the fifth consecutive quarter. “Our strategy to provide customers with clearly defined options relevant to all consumer price points drove higher in-store conversion again this quarter,” Ponton pointed out. “Despite lapping the successful launch of our good/better/best merchandising strategy in the first quarter of last year, we continued to see a meaningful year-over-year increase in demand for brakes this quarter. In addition, we remain focused on optimizing our tire assortment to create the best value for our customers and further our goal to becoming the No.-1 destination for tires at any price point.”

“Overall, the optimization of our product and service offering is one of our strategic priorities,” Ponton told analysts. “We will look for opportunities to continue to advance our category management and pricing capabilities going forward.”

OUTLOOK … Monro has revised its fiscal year comp-store sales guidance downward. Management’s previous guidance called for an increase of 2% to 4%. Its new forecast is for comps to increase 1% to 3%. The change reflects unfavorable weather conditions in certain regions that have negatively impacted comps fiscal year-to-date.

Management also has narrowed its fiscal 2020 sales guidance, now calling for between $1.285 billion and $1.315 billion in sales — an increase of 7.1% to 9.6% compared to Monro’s fiscal 2019 sales. The company’s prior sales guidance called for $1.295 billion to $1.325 billion in sales.

CFO Brian D’Ambrosia told analysts that Monro’s guidance assumes stable overall tire and oil cost compared to fiscal 2019. “Amid ongoing macro concerns — including global tariffs and other material cost pressures — our vertically integrated and diversified supply chain continues to drive our cost leadership position and remains a key differentiator in our industry,” D’Ambrosia said.

“As we have mentioned previously, any tire and oil cost increases not mitigated by our differentiated supply chain are expected to be passed on to consumers,” he added. “However, any such costs and related consumer price increases are not assumed in our fiscal 2020 guidance.”

ADDITIONAL INFO … A few other items of interest from Monro’s fiscal first quarter financial results conference call …
Monro is preparing for the final phase of management’s omni-channel build-out, which is scheduled for the second half of fiscal 2020. This will include offering customers the option to view and purchase tires online as well as schedule an appointment for in-store installation.
The company is introducing a new digital phone system which will be rolled out across its store base over the remainder of the fiscal year. “Successfully executing on the phone is critical to driving customers to our stores, and we are confident this new system will drive greater visibility and more consistent phone execution to better serve our customers,” Ponton said. “This is a major step to upgrade our network infrastructure and create a unified communication strategy, which we believe will support the ongoing rollout of our marketing initiatives and, importantly, lead to substantial improvements in the customer experience for years to come.”
Monro is in the process of rolling out its cloud-based training system across its store base. Management is prioritizing newly acquired stores in an attempt to facilitate the onboarding of new employees.
The company is implementing a cloud-based, data-driven store staffing and scheduling system designed to drive staffing efficiency by rebalancing the level of technical skills in each shop. To complement this initiative, Monro also is launching a mobile app that allows employees to pick up shifts.
• Ponton stated that Monro’s quarterly turnover was at the lowest level since fiscal 2016.
• As of June 29, 2019, the company had 1,251 company-operated stores and 98 franchise locations — up from 1,164 company-operated stores and 98 franchise locations a year ago. During the quarter, Monro added 55 company-operated stores and closed one store. The company also opened one greenfield location during the quarter.       — Marc Vincent

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