Q1 2021 Monro Inc Earnings Call
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I would now like to introduce Miss Marine Mahalik Senior Vice President General Counsel and Secretary at Monroe. Please go ahead.
Thank you.
Hello, everyone. Thanks for joining us on this morning's call.
Before we get started please note that it's part of the so called this morning, we will be referencing a presentation that is available on the investor section of our website at corporate Dot Monroe Dot com.
Forward Slash investor forward Slash Investor resources.
If I could draw your attention to the safe Harbor statement on slide two I'd like to remind participants on this morning's call that our presentation include some forward looking statements about monroe's future performance.
Actual results may differ materially from those suggested by our comments today.
Most significant factors that could affect future results are outlined didn't monroe's filings with the FCC and in our earnings release and include the significant uncertainty relating to the duration in scope of the Kobe 19 pandemic and its impact on our customers executive officers and employees.
The company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information.
Sure event 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 to 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 our President and Chief Executive Officer, Brett <unk>, but.
Thank you marine and good morning, everyone. Thanks for joining us.
The last few months, we have seen an unprecedented health economic crisis, and the cobot 19 situation remains extremely fluid.
During this period of uncertainty we have been committed to ensuring the safety and wellbeing of our teammates customers and communities, while maintaining business continuity to support our customers current and future needs.
Our more than 12 under stores have remain open to providing central services since the beginning of the pandemic, we continue to leverage our diversified supply chain without significant disruption I'm immensely proud of our teammates efforts and strong execution. Despite the ongoing challenges and I'm pleased to see that.
Monroe forward initiatives continue to gain traction, which I believe will help us emerged stronger from this crisis.
As highlighted on slide three well reduce those store operating hours at the onset of the pandemic. We have taken a measured approach to gradually return to a more normalized for schedule as the demand environment improves we have received positive feedback from our customers regarding the safety measures we have implemented in our stores.
Including key drop.
In contact with services.
Certainly we continued to see strong teammate engagement as a result for the actions we have taken to protect and support them. During this crisis.
Overall, we are focused on the elements of our business within our control and I've taken the appropriate steps to mitigate near term headwinds and expect to operate on a cash flow positive basis during the cold at 19 pandemic.
Our strategy is underpinned by rigorous financial discipline, and cost management and capital allocation as well as a robust balance sheet and ample liquidity, which we believe provide us with significant financial flexibility.
To safely operate our business and execute our Monroe forward initiatives.
In this context, we have continued to make critical investments in technology to support our future operations and have decided to gradually resume our store rebrand and Reimage initiative and the second quarter.
Lastly.
Acquisitions remain a pillar of our growth strategy, we have a robust pipeline and are evaluating a number of quality potential targets that would fit our strategy, while maintaining strong financial discipline.
Moving on to slide four I would like to take a moment to discuss our first quarter performance and a current trends were experiencing.
Government restrictions to curb the spread of cobot like team drove a substantial decline and tropic, which translated to a 26% decrease in comparable store sales in the first quarter.
Well April represented a low point in our top line performance, we saw resumption in demand driven by improved traffic.
As government restrictions gradually abated throughout the quarter.
With May and June improving sequentially. These encouraging trends continued into fiscal July with our comparable store sales down approximately 12%. Despite the cobot 19 related challenges. We're facing is important to note that we continue to solidify our competitive position in the current environment as evidenced by our performance tracking.
In line or above miles driven and other mobility metrics.
While we experienced the double digit comparable store sales decrease in all product and service categories. During the first quarter. We were encouraged to see that monthly comps improve sequentially across all categories throughout the quarter a trend that has continued in the second quarter based on our preliminary results today.
Importantly, tires, which represents our largest category outperformed all other product and service categories as the rollout of our tire category management and pricing system is gaining traction.
With improved visibility into the price elasticity of demand and competitive dynamics in each market. It has allowed us to optimize our tire assortment well favorably impacting tire volumes and margins during the first quarter.
Geographically, our southern and western markets outperformed our northern markets, where we have had a high concentration of stores as the northeast region was the most severely impacted by the colder 19 pandemic during the first quarter. However, this outperformance has narrowed in recent weeks with strengthening performance in the northeast.
Yes, and a slowdown in recovering page center Southern states as many are increasing restrictions due to higher infection rates.
As mentioned before we're also able to quick and quickly and thoughtfully flex down our cost structure to adapt to the lower demand environment. The pandemic gave us the opportunity to accelerate the pace of some of our transformation initiatives, including our store staffing. We believe we have rightsized our store staffing.
And structurally changed our labor model to consistently have the right mix of technicians.
The appropriate skill level and corresponding compensation aligned with demand and the level of services performed at each store.
In addition, we have tightened our marketing spend an accelerated its shift towards higher ROI digital channels.
Overall, we are encouraged by the cost savings that derived from these initiatives, which we believe set us up well to drive better operating performance going forward.
Despite the challenging operating environment, we're strongly committed to advancing our Monroe forward strategy to position our business for long term sustainable growth.
Turning to slide five I would like to discuss the recent developments in greater detail.
Beginning with our largest strategic initiative, our store rebrand and Reimage program, which focuses on creating more consistent store parents and implementing standardized on store operating procedures to date, we have completed the transformation of more than 200 stores in a number of key markets, including rebranding and approximately 70 stores.
Worse from service branded stores tired branded stores and consolidate in our entire brands to optimize our brand awareness and increase our entire revenues in select markets.
Well, we have pause this initiatives since the onset of the pandemic. We're pleased to report that our rebrand stores comparable store sales continued to outperform our chain average these positive trends reinforced our confidence in our reinvention retail brand portfolio consolidation strategy to drive long term same store sales growth.
In light of our healthy financial position, we have decided to resume this program with the measured and moderated approach in the second quarter.
Accounting for the current pandemic backdrop, our goal is to undertake the refresh of 60 to 120 stores in fiscal 2021.
As part of a onetime real estate portfolio adjustment, we completed the closure of 36 underperforming stores. During the first quarter. In addition to the six stores that were closed in the fourth quarter fiscal 2020.
As we previously noted these store closures were planned in accordance with our analytic models to drive a strong stronger long term performance of our company and we're not in response to cope with 19.
We estimate the closure of these 42 stores will improve operating income by approximately 5.1 million on an annual basis.
Moving onto our customer centric engagement initiatives.
Over the past few years, we've been focused on improving the experience for our customers, which has driven our all time star rating up to 4.6 stars.
Building off these strong results, we've accelerated the strategic shift or our marketing efforts towards higher ROI digital channels since the beginning of the pandemic as part of our digital strategy. We have been focused on optimizing our CEO performance for key product categories like tires.
These efforts have resulted in approximately 50% of our stores now ranking in the top three online search results, which has led to significant improvements in online consumer actions, whether that scheduling and appointment up the store, making phone calls to the score work looking to get directions to women real location.
Importantly.
Our targeted investments in digital marketing and advertising combined with our new digital phone system allow us to acquire and retain customers at a lower cost while driving stronger results.
As part of our broader efforts to create an omnichannel presence for our company. We're excited to announce excited to announce that we have completed the rollout of our collaboration with Amazon with all of our more than 1200 locations and 32 states now providing tire inflation services. We continue to received positive feedback.
And strong customer satisfaction metrics in response to this initiative, which builds upon the success of our other online tire retailer agreements and is an important step in furthering our customer centric engagement efforts.
Turning onto our critical invest.
Turning now skews made to our critical investments in technology, we continued to make tremendous progress on a number of initiatives that we believe will be instrumental in driving long term sustainable topline growth and margin expansion.
During the first quarter, we substantially completed the rollout of our network infrastructure upgrade across the board store base, including the new digital phone system I just mentioned.
Modernize for infrastructure allows us to drive a more sophisticated and consistent approach to customer execution with the ability to measure the results of our marketing efforts during the cold 19 pandemic, we have leveraged our new technology to establish a centralized call center that provides added flexibility and significantly improves our customer response.
This overall, we're encouraged by the early traction of this initiative and confident it will contribute to improve conversion and enhance customer experiences going forward.
As mentioned earlier, we are in the process of rolling out our new tire category management of pricing system across our store base, which we expect to complete by the third quarter fiscal 2021.
This new tool is driving relative strength in our tire category as we're better able to dynamically track demand trends at the market level and make rapid adjustments to our tire pricing and assortment strategy. This allows us to drive higher volume as well as optimize tire pricing to expand margins in this category.
Lastly, our technology based store staffing model has allowed us to seamlessly rightsized and effectively balance our store labor and real time since the beginning of the cobot 19 van den ensuring we have the right mix of skills to match demand each store.
There's also proven critical to our ability to effectively ramp up staffing in our stores to support improving demand trends, which is one of our important priorities right now.
This program positively impacted gross margin first quarter and we are confident it will continue to drive significant store labor efficiency going forward.
As we are rolling out our cloud based store staffing and scheduling software across our store base, which we expect to be completed by the third quarter, we're leveraging our Monroe University platform to train our teammates and have received overwhelmingly positive feedback. So far in addition to supporting the rollout of our strategic initiatives Monroe University.
Has a robust curriculum and it continues to help our teammates grow and advanced their career and technical skill set which has significantly enhanced our employer value proposition as a key differentiator and the current environment.
Overall, we believe these important tools will enhance our competitiveness in the marketplace will be critical to supporting our broader strategy moving forward.
Before passing the call over to Brian I would like to reiterate how proud I am of our team's dedication to safely provided.
Best in class experience to our customers our teammates have demonstrated their ability to quickly adjust to the evolving environment and seamlessly embraced the structural changes we've made across our business to driving improved operating performance and emerge even stronger women's crisis subsides with that I'll turn the call it a bit.
Ryan will provide additional detail on our first quarter performance and strong financial position.
Thank you Brett and good morning, everyone.
Turning to slide six I'd like to provide a more detailed overview of our performance. This quarter sales fell 22.1% year over year to $247.1 million, primarily driven by a 25.8% decline in same store sales as expected the ongoing cobot 19 pandemic substantial.
The impacted our results as government restrictions to curb the spreads significantly decreased traffic in the quarter.
As Brian noted, we were encouraged to see sequential comparable store sales improvement during the quarter across all product and service categories as restrictions have gradually abated in some of our key geographies.
Sales from new stores increased by 12.7 million or 11.1 million from recent acquisitions, partially offset by a decrease in sales from closed stores of approximately $3.1 million. The first quarter fiscal 2021 had 90 selling days inline with the previous year period.
Gross margin decreased 500 basis points to 35.4% in the first quarter of fiscal 2021 from 40.4% in the prior year period. This decrease was primarily due to an increase in distribution and occupancy costs as a percentage of sales as we lost leverage on these largely fixed costs with lower.
Parable store sales. Additionally, we were impacted by lower vendor rebates due to slower inventory turns as well as higher sales mix of tires compared to the prior year period. However, this was partially offset by lower technician labor costs as a percentage of sales directly related to our store technology based staffing model as well.
As we right size labor to match lower demand, while ensuring we had the right mix of necessary skill sets and each store. In addition, gross margin improved within the tire category, which was positively impacted by the partial rollout of our tire category management and pricing tool in the quarter.
Operating expenses for the quarter decreased $15.7 million to $76.1 million or 30.8% of sales as compared with $91.8 million or 28.9% of sales for the prior year period.
As Bret previously mentioned, we took targeted action to streamline our cost structure in the first quarter, most notably we strategically realigned our marketing spend toward her higher ROI digital channels and right size store staffing to match lower demand.
The year over year decrease in operating expenses also reflects lower expenses from an not reduction of four stores compared to the prior year period.
This was partially offset by $2.5 million in store closing costs.
The increase in operating expenses as a percentage of sales compared to the previous year period was driven by a decrease in comparable store sales.
Our operating income for the first quarter was $11.4 million compared to $36.4 million for the same quarter last year as a percentage of sales operating income was 4.6% compared to 11.5% in the prior year period.
Net interest expense for the quarter increased seven point increased to $7.4 million as compared to $7.2 million in the same period last year. The weighted average debt outstanding for the first quarter increased by approximately $486 million as compared to the prior year period.
The increase is primarily related to an increase in debt outstanding under our revolving credit facility to fund the purchase of our acquisitions and to provide financial flexibility during the cobot 19 pandemic.
As well as an increase in finance lease that recorded in connection with our fiscal 2020 acquisitions and Greenfield expansion.
The weighted average interest rate for the first quarter decreased by approximately 350 basis points year over year due to lower LIBOR and prime interest rates as well as lower borrowing rates associated with new leases.
For the first quarter income tax expense was $1 million compared to $6.8 million in the prior year period.
Net income for the first quarter was $3 million compared to net income of $22.6 million in the prior year period diluted earnings per share for the first quarter of fiscal 2021 was nine cents compared to diluted earnings per share of 67 cents in the first quarter fiscal 2020.
Adjusted diluted earnings per share for the first quarter fiscal 2021, a non-GAAP measure was 15 cents, which excludes six cents per share of store closing costs. This compares to adjusted diluted earnings per share of 69 cents in the first quarter of fiscal 2020, which excluded one cent per share.
Sure of costs related to Monroe forward initiatives, and one cents per share of costs related to acquisition due diligence and integration costs.
As of July 29, 2020, the company had 1247 company operated stores and 97 franchise locations as compared with 1251 company operated stores and 98 franchise locations as of June 29, 2019 during the first quarter, we close 36 stores.
A complete bridge comparing our first quarter fiscal 2021 earnings per share performance with the same period last year as presented on slide seven the covert 19 related drop in traffic significantly impacted our performance, resulting in a 25.8% decrease in comparable store sales and a 77, earning.
Earnings per share decline.
As we've previously noted every 1% decline in comparable store sales translates into roughly three cents per share.
Per quarter.
The decrease in gross margin impacted our operations by approximately 20 cents per share.
The net benefit of our cost savings and lower expenses due to a reduction in the number of stores compared to the prior year period allows us to reconcile to our adjusted earnings per share of 15 cents in the quarter.
As previously noted this excludes six cents per share and planned store closing costs.
Turning to slide eight I'd now like to provide an update on our strong financial position beginning with our capital allocation strategy.
We paid down $240.2 million of debt under our revolving credit facility in the first quarter fiscal 2021.
Our capital expenditures were $15.3 million in the first quarter of which approximately 9.9 million was related to our Monroe four initiatives, including our store technology infrastructure upgrade.
Additionally, we paid approximately $7.4 million in dividends during the first quarter as Bret previously noted we have a robust M&A pipeline in are evaluating attractive targets that support our strategy, while maintaining our strong financial discipline.
We also paused our store rebranded Reimage initiative in first quarter, but we plan to resume this program during the second quarter and we'll take a measured and thoughtful approach to ensure we are protecting our financial position.
Overall, we expect our focus on streamlining operations.
And operating costs and bolstering our working capital position to mitigate the impact of near term headwinds and allow us to operate on a cash flow positive basis throughout this pandemic flu.
Finally in June we temporarily amended certain financial restricted covenants of our existing five year revolving credit facility, which we believe will provide us with greater financial flexibility to operate our business.
Moving on to slide nine our balance sheet and liquidity position remains strong and we have confidence that we are well positioned to navigate the current environment, we generated approximately $73 million and operating cash flow during the first quarter fiscal 2021.
At the end of the first quarter, we had not bank debt of $179 million and a net debt to EBITDA ratio of 3.86.
As of July 20, Fiveth 2020, we had cash and cash equivalents of approximately $145 million and availability on our revolving credit facility of approximately $255 million.
Turning to our financial assumptions for fiscal 2021, giving the ongoing uncertainty surrounding covert 19 remains difficult to accurately forecast the impact of the pandemic on our future operations. Therefore, we're not providing fiscal 2021 guidance at this time.
We have provided some financial assumptions on slide 10 to assist with your modeling, which we have updated for our first quarter performance regarding our capital expenditures were increasing our range to approximately $30 million to $50 million in fiscal 2021 to account for the number of stores. We plan on rebranding during the year depending on.
On the environment, the low end of our Capex range assumes the rebranding of approximately 60 stores, while the high end assumes the rebranding of approximately 120 stores.
In addition, we will continue to leverage our diverse and global supply chain and expect tire and oil costs to remain relatively stable to slightly lower year over year.
As we've discussed we completed our plan to store portfolio optimization during the first quarter and as a result, we expect the closure of these 42 stores will benefit our operating income by approximately $3.8 million in fiscal 2021.
Moving onto our actions to reduce costs as we acted quickly to align our costs with the lower demand, we recognize approximately $15 million of cost reductions in the first quarter and for the remainder of the year expect to realize $5 million to $10 million in additional cost benefits.
We anticipate lower cost savings in the second quarter as we intend to shift some of our marketing spend to enhance our recruiting initiatives and quickly wrap on staffing in our stores to match improving demand levels.
And with that I'll now turn the call back the breadth for some closing remarks.
Thanks, Brian overall, we are encouraged by our gradually improving performance throughout the first quarter and second quarter to date and remain cautiously optimistic that demand will continue to improve as this crisis subsides.
This is supported by our belief that consumers will drive more particularly given heightened risk of flying and public transportation further our industry has traditionally been resilient in the face of a recessionary environment as consumers are more likely to visit and aftermarket retailer lakeman Roe to repair the cars that curve.
We own than purchase a new vehicle.
While the environment remains very uncertain I am proud of our organization and how we've responded to these challenges during the quarter. We made a number of changes to streamline our operations, which in combination with the traction we are seeing from our Monroe forward initiatives position us well to navigate the code 19 pandemic and emerge stronger from this.
Crisis, we have maintained our commitment to a strong financial position and remain extremely diligent when it comes to capital allocation during the second quarter, we plan to resume our store rebranded Reimage initiative, which underscores the strength of our business. Despite the volatility in the market in conclusion I'd like to thank everyone at Monroe for there.
Outstanding work to protect health and safety across all aspects of our business and drive continuity for our customers. These priorities further supported by the execution of our Monroe forward strategy position position us well to deliver long term value for our shareholders through co with 19 and beyond with that I'll now turn the call over.
To the operator for questions.
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One moment, please while we call for your question.
Our first question was coming from the line of Brian Nagel of Oppenheimer. Please.
Received with your questions.
Hi, good morning, guys.
Barbara warning.
So first question wanted to ask.
Let me try mortgage correctly, clearly there has been and could be trajectory the business through our fiscal Q1 than probably more Corbett hearing you can get really quite a fiscal Q2.
For the question, what's the what was you look at the business in what's still holding it back the negative 12, and I understand that the Monroe business is not necessarily comparable to what we see out of the the auto parts retailers, you're obviously generally.
As the economy, the auto business has been rebound here with cobot.
We're seeing numbers, there, which we suggest it better than a negative 12. So the good question is what do you think so we'll be.
Holding.
Back and ROIC as pointed and not along a couple to have even stronger chart, which rob will be or even better trajectory in the business.
Would you you might expect round one of the one of the metrics, we really look up pretty closely monitor pretty closely in our business since the onset of this pandemics been vehicle miles traveled.
Looking at that as well as gasoline consumption, cetra and and our performance since the onset of crisis really quarter correlated really pretty positively with with those metrics I.
I think we look at an overall, our our business nationally is tracked pretty pretty much in line with the broader national metrics, but having said that I'm actually very encouraged when you look at this more on a regional level given monroe's high concentration of stores in the northeast than the Baltimore, Washington, The area I think.
Our performance is actually outperformed BMT in those respective areas.
Having said that though I think we certainly have seen in some areas.
A shortage of labor as we ramp our labor models backup we feel like if we.
We're planning on make its a focused investments and improving our recruiting capability in Q2 to ramp up labor faster to match the demand and of course in our business model. As you know every unit of labor is critical to supporting sales because all of our labor for the most part in the stores as sales producing labor.
So I think the topline air brands were encouraged by our performance when looking at it on a regional basis, but feel like we've got still upside as we ramp up labored support improving demand and I just add additional color on the just the positive results. The we're seeing from the shift in our digital marketing spend has driven.
Thanks to increases in our online appointment traffic as well as phone calls to the store that we can measure and thats really allowed us to be much more targeted and where we invest the marketing dollars at a very granular store level to support needs. There, but also helps us identify where we may be have demand.
Be an unfulfilled due to labor issues and in Q2, we're going to refocus our energy to supporting recruiting efforts to better align our labor model with stronger pockets of demand that we're maybe under serving today.
Well, thanks, but thats very helpful. Second question I have an unrelated just I don't know can talk lets euchre counts at all but.
Hopefully the economy started a whole lot of the at least the depth of the coal the crisis any update on your acquisition activity.
Yes, we commented given given how well the team has navigated through I think the crisis from a cash flow point of view in the state of our balance sheet, it's giving us confidence, especially in light of the improving trends that we've seen in the business to restart a couple of major strategic initiatives in our company. One is the rebranding initiatives we too.
Correct about we're going to kick off in do 60 to 120 stores. This year, but we've also reengaged our business development team and we got a pretty robust pipeline of M&A targets and our team is actively engaged right now and evaluating those targets, but like always with Monroe, we're going to take a very disciplined approach and how.
We invest our capital on acquisitions, but we certainly.
In in the mode right now, where we are evaluating adding to our portfolio.
Thank you very much thus the luckier.
Thanks, Brian Thank you.
Thank you. Our next question has come from the line of Jonathan Lamm BMO capital markets. Please proceed with your question.
Good morning.
Good morning warning.
Brian on slide seven.
EPS bridge.
What is the 45 cents and the other bucket.
Yes, that's really driven by largely by the the cost reductions that we described in the script.
And also in the in the.
Footnote to that slide so that's.
About $15 million of reductions that we were able to achieve in the first quarter.
And we moved very aggressively at the beginning of the quarter and really it in March to meet the lower demand that we were seeing in our business with a lower cost structure in our business and we focus really on three areas. When we when we did that we focused on making sure that our labor in our store.
Worse was right size down to meet the lower demand levels.
We also as Brad talked about we focused our marketing on responsive advertising and advertising we could measure.
And eliminated a lot of the other advertising.
And then we also took the opportunity to look at non store overhead such in our warehouses in store support center and adjusted those down as well primarily through Furloughing of some employees. There now as the quarter went on we saw improving demand trends and that in response to the improving demand trends we added back.
Act appropriately to support those higher demand trends across those categories. As we move forward, we talked about $5 million to $10 million of incremental benefit for Aflac 21, and we talked about most of that occurring in the back half of the year and that's because as Bret described.
We are.
Focused in Q2 on spending additional resources to continue to increase our labor in the targeted markets, where we see adding labor will be appropriate to help support improving demand.
Probably the biggest question is what happens outside of up by 21, and what is structural as we move forward out of that those cost savings and.
While it's obviously very fluid and and things change in plans will change as we stand today, what we really see is about $10 million to $15 million of structural cost savings that will be with us going forward as we exit fly 21, and those are again across those three categories roughly 70%.
Coming through the the labor reductions, 20% through the the marketing and another 10% through non store overhead reductions and if you just look at ask why 20, and just assume that your same store same amount of sales enough why 20 that will give you about 150 to 250 basis points.
Of of structural operating margin improvement that we've we've created as we come out of that so long answer, but really within that 45 cents is that cost reduction that I. Just described yes, maybe just if I can add a little color to that to make.
The longer answer longer.
Might add the with these initiatives that we've talked about weren't because of coated.
We were all plan now prior to co. Good as part of our Monroe forward initiatives on all three vectors and we just leveraged good work that the team has done in making good progress on.
Installing some technology enabled us to accelerate I think the pace of those initiatives, we were able to capitalize on throughout cobot. So.
It's the good work to the team when it gets translated the short term benefit into a long term.
Actual benefit to our business going forward.
Okay, Great answer.
Just to confirm one point the Brian said.
$5 million to $10 million incremental benefit.
Speaking as H. too.
Fiscal year 2021 versus H. to fiscal year, 2025 to 10 million year over year right.
That is correct.
Okay. Thank you.
Switching gears to the rebranded stores you have an update on the.
Performance of the rebrand the previously rebranded stores versus the network this quarter.
As we talked about we saw outperformance.
In our rebranded scores versus the others might expect job, but given the regional nature of those stores, where they land geographically speaking well tough to draw comparison.
However, what we have seen is about 500 bips of comp sale improvement versus the chain average coming out of our rebranded stores.
Okay and.
Just on the Amazon topical announcement.
Im curious for the stores that have had Amazon onboard for more than 12 months do you have a.
Same store growth in online orders for that for the quarter or some updated.
Color on.
How significant the economics could be there.
Yes, that's that's something we're going to comment on to that.
Level of specificity, but I would say we've taken a step back John.
But we're pleased despite the challenges with Covre that Weve completed the rollout with Amazon, We're really pleased with relationship there now Alvin.
The installation services available it over 1200 40 stores in our third in two states, but.
Similar to that we're also pleased with our relationships with the other third party installers, where we have seen during goals I can comment on as although maybe not a step function change and.
The increase the entire installations from all of our online tire sellers.
We have seen a pretty significant increase in our online.
Point wants to get tires installed in serviced on at our stores. So we think thats pretty consistent with our broader thesis around tires still pretty confusing category for consumers to shop consumers still see value I think in talking to professionals and experts at the store location and make certainly got the right tire for their vehicles. So.
We think its supportive a broader broader vanished from Monroe and haven't 1200, 50 brick and mortar locations, but also overweight continued relationships to expand our omnichannel presence with online third party resellers as we also continue to pursue our efforts to build out our own E com.
Finally as well.
Thanks, just last question on the rebranded stores I notice that the.
Tired categories significantly outperformed the others this quarter.
Does that reflect the expanded tire departments for the refreshed.
Stores or what would you attribute that to.
Yes, I think there's three things as we look at our business I think if you go back to our Q4 results. One of things we talked about was fairly soft January February start to the year on tires. So I think we did see probably the industry felt a little benefit from some pent up demand from calendar Q1 that rolled into calendar Q2. So that's that's one day.
Dynamic however, really pleased with our team's efforts on rolling out our category management pricing tool, we have that now operationalized covering just under half of our stores right now and as you might expect we picked the highest volume highest impact tire stores with that system being installed.
I think clearly that's helped.
The rebranding of our stores certainly has also been a self help initiatives in the fourth variable we talked about was around the shift to digital marketing and the good work our marketing team has done on improving our STL performance as we've talked about we are now ranked in the top three on online search for.
Core categories and over or right around half of our stores. So those four things I think are coming together.
That's creating outsized performance in acute category like tires.
Thank you for your comments.
Thanks, Thank you.
Thank you. Our next question is coming from an outline of Bret Jordan with Jefferies. Please their questions.
Hey, good morning, guys.
Morning, Breadwinner breadth.
Hi, I guess as you think about the labor issues at the store level do you have a feeling I guess in that that that comp for July how much might have been lost to labor shortage. I mean, I can you quantify I guess, maybe through the digital phone system the number.
Customer request, you get you cancel sale or I guess sort of whats the headwind in the market versus the headwind in your own labor capacity.
Yes, as you might expect it's a little difficult kind of parse that come up with a definitive number I think we feel like.
Credits.
We could have delivered better performance that we underwrite labor obviously to what degree is the question I will say I'd point to the metrics. There what were watch and really closely now that we got the technology to be able to do it is obviously online appointments.
And the phone traffic, we're seeing two stores and we're really encouraged by the level of effort the marketing.
Team has done to translate that into very positive demand signals that we're seeing on the front end.
That's allowing us to pinpoint the investment on addressing labor concerns, but translate that into a comp sale estimates probably a little more difficult for us to do one thing I can point out for you. Though however is we're still operating on a fewer number of stores that are open on Sundays.
In our business pre co bid we had roughly 840 stores are open on Sunday during Q1, we ramp that down to about 400 stores and in July right. Now we're up to 600 that are open on Sunday, but we believe that created a thought a 2% comp headwind in the quarter just by having fewer store.
Doors open on Sunday, so a little easier to quantify that terms of headwind.
But the labor part, we see as an opportunity.
That's that's unmet right now and that's we want our refocusing some of our marketing investment to market for candidates from a recruiting point of view.
As our consumer demand appears to be pretty strong.
Okay could you talk a little bit about the west coast performance on obviously sort of a new market, but you talked about south outperforming the northeast, but how was the west in general.
Yes, you know we're lapping our initial acquisition in California, we are really really pleased with the progress that we're seeing in our acquired stores.
Relatively speaking certainly on a year on year basis, you saw that our results.
The integration of California has all but Don had a few permitting issues on signs out California.
But las Vegas is doing performing extremely well for us relatively speaking. So we're we're just really encouraged by the strength of the platform that we've built now out in California that pivoting and talking about our M&A strategy I think gives us a lot of confidence now too.
Look at a number of targets in our pipeline and give it real strong consideration.
Right. Thank you and then Brian I guess could I didn't get the housekeeping the monthly comps for April through June.
Yes, we were down 41 in April.
24 in May.
14 in June.
And then obviously down 12 in July.
Preliminary bank. Thank you.
Yes, Thanks, Brad.
Thank you. Our next question is coming from the line of Rick Nelson that Stephen. Please proceed with your questions.
Thanks Hello.
Good morning, my follow up on.
Sales trends you were down.
12% to execute could speak Tammy.
Crunch Hill changes.
The much progress are those could clarks.
Narrowing.
Well as we've talked about we exited.
June finished up down 14, so we saw obviously moderating improvement from June July as we've talked about Rick I think it's a tale of two cities. We saw the prudence accelerate in the northeast that was counteracted in the middle part of July with we've got a slowdown of the pace of recovery that we saw in the south.
Exiting July now rolling into what's our fiscal August we're encouraged by continued gradual improvement, but we're seeing in our our business overall.
Perhaps the markets, where we've seen this research.
Covered upgrades to southern states.
Are you, saying any changes and customer behavior or so sales trends there.
Yeah, I think it's consistent what we said thats where were largely CNN slowdown.
To the improvement, we're still seeing improvement, but the pace of the improvement certainly has slowed as we've seen the outbreaks increase pretty tight correlation between those two variables.
Okay carriage.
Certain sub about the independence or how you would say bear.
Performing here during the.
The coveted challenged shows.
Your appetite to stop I make hubs.
On the acquisition front are there more willing sellers.
Less willing sellers.
Governments have valuation so what I think.
I think there's a couple of things a player I think certainly our pipelines robust as we've talked about certainly I think as robust as I've seen in my tenure here.
Monroe as it relates to the health of the independence I think certainly the government programs wrong Paycheck protection certainly helped I think a lot of those operators rich maybe the decline in demand that we have seen during this period of time, so I wouldn't necessarily call out anything.
And in particular, there, but I think the mood and the sentiment I think as consistent and what it was pretty GOGAS I think we've got a lot of independent owners that you lap.
Second generation succession plans for their business and they certainly are interested in exploring options to exit so.
We just feel really good about the the improvement in our business the state of our balance sheet and the attractiveness about the opportunities in our pipeline that we see that.
Gives us confidence the restart the rebranding initiative as well as obviously conversations around acquiring companies going forward.
Yes.
Your expectations for.
Ill start of.
No we've seen some challenge students there I know some as soon as like Google or.
Talks about opening about July 20 equivalent.
There's a correlation between all post foods opening a mild server or.
How do you see that shaping up.
Yes look I think.
Look there's still a lot to unfold air force once we get through the the core crisis or the core pandemic and understand what structural changes take place in the form of consumer behavior, whether it's working in office and commuting their shopping behavior is another area I think goods TBD, but.
So I think it's still uncertain Rick terms, what how that plays out I think what we look also to the countervailing managers as well that's probably in our favor around the shift from mass transit to cars less apt to be on airplanes and drive to more destinations more willingness to have drive away vacation versus Eric.
Travels theres lot of countervailing things I think the creates a positive offset any of the negatives that I give you overlay just the general sentiment around potential recessionary environment, and we've talked about we're pretty defensible here in our business as consumers hold onto their cars longer become a little more value conscience and their behavior.
We feel like Monroe's well position with our supply chain, our cost structure and our store concentration to be well position to capitalize on those future trends if they if they take full.
That.
Quick slots huts. Thanks, good luck.
Thanks, Rick Thanks, Rick.
Thank you. Our next question is coming from the line Benjamin of Suntrust. Please proceed with your question.
Hi, good morning.
Morning.
I was hoping you could speak a bit on some of the new pricing and category management tools that you might have been placed for other category I'm seeing remind me I believe you had some on breaks and tires to what might be the next leg to that stool and then and you could also remind us as we look for this year you know what other initiatives in the macro for its strategy.
The Big focus obviously, you called out that rebranding, but what's the next initiative beyond the rebranding and the tire pricing tool. Thanks.
Yes, Thanks, Stephanie I'll, let Brian handle the second part of the question, but as it relates to.
The category management tools tires is over 50% of our business. The most important category. It's also the category that lends itself to be in.
By consumers and pricing is extremely important so lets reason why we focus there with our.
More sophisticated big data category management system that we're like I mentioned, we're operational now with about 500.
Plus stores they are using the system, we expect that to roll out completely across our store base by Q3.
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Once we get that done certainly the logic will apply for other core categories like breaks and certainly oil, but I will say those categories are less price sensitive with consumers.
Outside of oil I will say breaks and other services in store are normally not shopped, they're usually bought through an in store selling slash conversion process. So.
I think the the premise applies but the degree of improvement that we would expect to see there is probably diminished so categories color clear focus there.
For us key initiatives here near term for us, it's all about rolling out the scheduling system.
Our business that helps us operationalize all the staffing model changes that we made during coded around getting the staffing mix right by installing the cloud based tool, which we now have in pilot in a couple of markets that's going to begin to scale and will be done by the end of Q3 as well.
That just helps us operationalize that create tighter controls over that given the cloud based visibility that we get and allows us to make more refinements real time, given the visibility that we get in our business, but but a lot of the benefits that we saw in Q1 that we expect to translate in the structural changes going forward were due to the strategic moves we may.
Great. That's just now enable in a more efficient way through the cloud based system.
Brian I want to add color on a go forward, yes, I think is it as it relates to the tire category management pricing system very similar roll it will be a continuation of that into Q3, as we continue to roll that out.
Very similar to the timeline on the store staffing and scheduling so so.
The next couple of quarters, we'll be getting those two initiatives.
Firmly in place across our entire store base will also be continuing to.
Leverage our.
The new store network infrastructure upgrade so as we've now got the digital phone system on we'll be looking at other ways to leverage that one of the items that we've talked about is cloud based inspection and or more.
Sophisticated way of interacting with the consumer.
Particularly as it relates to streamlining online appointments and in further improving our omnichannel presence with the consumer now that we've got the in store technology in place and then of course, we're continuing to build out and.
And really fell in our Monroe University platform to continue the career pathing of our technicians, which as we exit this with the right staffing in the workforce, it's going to be imperative for us to make sure that we've got that workforce trained and on a career path, where we can continue to achieve.
The lower levels of turnover that we were experiencing pre cobot based on the investments we've already made in Monroe, you, maybe just to bring it all together I think it literally we laid out with Monroe forward. Our whole objective was to drive sustainable growth in this business organically by creating a scalable platform that strives consistency from store to store and what I'm courage.
Yeah. Our progress team has made is your one and our transformational strategy is about building a foundation its way to install lot of underlying technology to help enable these next generation tools and technology to take hold and this year has been about installing major transformational systems around labor management.
And tire pricing and once those two are largely behind us. It allows us as an organization to March forward I think more aggressively around the M&A front, because we feel like we've got a very scalable platform built on technology with the right operational playbook the guarantees consistency from store to store that gives us.
Lot of confidence to accelerate the M&A portion of our growth strategy going forward.
So we're really pleased with the progress soon the acceleration we were able to do on that during the.
The first quarter of our our business.
Got it thanks, so much for all the color I'll leave it there.
Thanks Seth.
Thank you. Our next question is something in the line of Scott Stember CL King. Please proceed with your question.
Good morning, guys.
Right.
Can you maybe dimensionalize the gap.
Difference if its.
Meaningful in comp performance between the southern stores and.
The northern region source.
Yes.
While we talked about.
About that and I think with we've had you know the we were seeing a slowdown in the south and net debt was about.
Maybe an outperformance of 500 basis points plus in the North and then we saw that narrow Oh, I'm, sorry, underperformance in the north and that we saw that narrow.
As.
With the quarter.
As we exited the quarter in July.
Okay got it and just trying to.
Touch on the point of the underperformance versus the industry. I know you guys talked about store staffing, but maybe talk about the employment trends within your markets Youre.
The.
The customer you have and whether there potentially feeling.
No not so good and.
Delaying some larger ticket purchases such as breaks which were down.
Outsized them out in the quarter.
Yes, I think look I think that's certainly going to be a factor I think going forward.
Scott So once we get through the good core crisis. If you will I think that's going to be the next thing I think we need to be very conscientious about which is how quickly does employment levels bounce back which is a big.
I think variable and driving vehicle miles traveled.
As it relates to comments about that in our markets. So that we probably don't have a ton of granularity around that one of things we did say.
Our last call that applies to this quarter as well as part of our outsized performance. We believe on the tire category given the fact, it's a higher.
Tire or excuse me higher ticket normally would tires, we did see some outperformance in that category around the timeframe, where the stimulus checks were.
Hitting consumers households, so.
So we as we got further away from the stimulus check certainly I think thats tempered performance.
But I think you fairly characterize one element, but we're going to be watching pretty closely which is how quickly employment levels bounce back. That's obviously part of the reason why we haven't provided guidance. It's just the uncertainty still with a bounce around.
Employment levels and vehicle miles traveled post pandemic.
Hi, just lastly can you talk about breaks in the quarter I know that you said that everything improves sequentially as the quarter progressed and maybe just talk about.
Why breaks were down so much it's usually one of the things that you can't the first I'm just trying to get my hands on that.
Yes, I think a couple of things in the quarter, if you looked at.
As we talked about I think that in our Q4 January February we add.
Maybe undersized performance as an industry and tires that that Thats certainly has bounced back into our Q1.
Conversely, if you look at break performance.
The peak demand months for our business is usually exiting the winter months. So put you in the March April may timeframe, and Needless to say that was the peak timeframe, where I think we saw maximum coded impact number one with consumer but also we probably have the tightest.
Labor conditions in our stores during that same period of time so.
I think if you overlay that macro dynamic with also possibly seeing some share of wallet issues with the consumer where.
Do you have to large ticket items that need to be done in your car tires and breaks. Many cases, you will have to choose one of those.
So we would expect to see breaks the recoverable bid.
Later on.
Our year and also Brian and our team is working on secondary financing options I think as well. It is open up more credit availability to consumers that may be getting a little tight with household.
Discretionary funds.
That's all I have thanks, guys.
Thanks, guys.
As a reminder, if you would like to ask the question. Please press star one of your telephone keypad.
There are no further questions in the queue I will now pass the call back over to management for any closing remarks.
Well, thank you for joining us today and for your continued interest in support of Monroe, We wish you a safe and healthy rest of your week. Thank you.
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This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.