Q2 2021 Monro Inc Earnings Call
This time, all participants Arnie listen only mode. Later, we will conduct a question answer session and instructions will follow at that time, if anyone should require operate assistance. During the conference. Please press star zero on your telephone keypad as.
As a reminder, ladies and gentlemen, this conference call is being recorded and may not be reproduced in whole or in part without permission from the company.
I would like to introduce Ms., Maureen <unk> Holland Senior Vice President General Counsel and Secretary at Monroe. Please go ahead.
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 the call. This morning, we will be referencing a presentation that is available on the investors 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 includes some forward looking statements about Monroe its 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 monroe's filings with the FCC and in our earnings release. It could include the significant uncertainty relating to the duration and scope of the COVID-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 future events or otherwise except as required by law.
Additionally, on today's call management statements include a discussion of certain non-GAAP financial measures, which are intended to supplement and not to be substitute for comparable GAAP measures.
Reconciliations for 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 Monroe's Board, Chairman and interim Executive Officer, Chief Executive Officer, Rob Miller Who's joining us this morning remotely during this call Rob.
Thank you Mary and good morning, everyone and thank you for joining us.
Today I'll provide an overview of our second quarter performance and pass the call over to our senior leadership team.
Excuse me, Rob Borkowski, Executive Vice President and Chief operating Officer will walk us through the progress Weve made executing our roll forward strategic initiatives Brian.
Brian de Ambroggi Executive Vice President Chief Financial Officer will discuss our financial performance.
Before we open up the call for questions.
As we continue our path forward I've had the privilege to step into the role.
I'm CEO.
Board worst join identify new permanent CEO as.
As you May know I served on and Rose Board of directors from 2000 to 2007 re joined the board in 2010 before being appointed Board Chair 2017.
Earlier in my career I served for 13 years as chairman of the board and CEO building materials holding Corporation.
Big provider of building materials.
Destruction services to the national home builders and contractors.
I've worked closely with the senior leadership team throughout.
Belamant execution of arm and roll forward strategy and I remain very positive about the opportunities in front of us.
We have built a solid foundation made tremendous progress in our transformational journey to create a scalable platform long term sustainable growth.
As the board chair I have direct insight into the strategic priorities as a board. The continued execution of Monroe forward, that's been the highest priority.
My tenure as CEO is only temporary I'm deeply committed to ensuring continuity.
I also plan to continue in my role as chair after the word appoints a permanent CEO to ensure a smooth transition.
Fortunately, we have a team of highly talented and seasoned senior leaders remain committed to working together to advance its strategic initiatives.
We have [laughter] underway.
Looking back on the second quarter, we saw a meaningful sequential improvement in our comparable same store sales performance compared to the first quarter.
We are encouraged to see that our top line performance continues to track in line with leading industry indicators, including vehicle miles traveled.
Tire retail industry unit sales.
Sure I'll comment on in a moment.
In the ongoing challenges and uncertainties that persist in the current operating environment.
We have remained committed.
Managing our business for maximum profit and cash flow we delivered on this through [noise].
Execution in three key areas.
First.
We right size, our business by actively managing our hours of operation.
Wrapping levels to match the demand environment.
In the second quarter, we continue to operate our stores with reduced hours of operation in line with other aftermarket service providers.
With store opening hours being approximately 13% lower than the same quarter last year, our comparable store sales per hour improved compared to the prior year period during.
During the quarter, we strategically added hours of operation at locations, where demand improved and we continue to assess and adjust our hours.
Against evolving demand trends active.
Actively managing store operating hours to match demand has been instrumental in our profit and cash flow performance.
We have also right sized our business by actively managing staffing levels at our stores.
During the early days of the pandemic, we significantly reduced staffing levels in our stores and have strategically added staffing back as demand has improved since.
Since the beginning of the second quarter, we have added approximately 700, new teammates primarily technicians. We believe we have the right level of staffing across our store base as we enter the higher volume winter months.
The second strategic area of execution has been our ability to drive variable margin improvement in two key categories tires and service labor.
During the second quarter, we expanded our gross profit per tire by over 10% versus the prior year period.
Ongoing roll out of our tire category management tool.
We also improved labor productivity by over 20%.
With our store staffing optimization efforts and our cloud based labor scheduling to.
The variable margin improvements, we have achieved in our tires and service labor categories.
I went straight to significant returns.
We are seeing our Monroe forward technology investments.
The third key area has been our execution of targeted cost reductions in our business. These cost reductions totaled approximately $5 million in the second quarter and resulted from the operator or optimization.
Optimization of store management staffing the improvement of our marketing efficiency and general overhead cost reductions.
Our ability to right size, our business drive improvement in variable margins and reduced fixed costs.
Resulted in our strong second quarter profit and cash flow performance.
We believe the progress we have made in these key areas.
Drive even higher levels of profitability as demand continues to improve earnings.
Earning us more profit for every dollar.
Sales.
Importantly, our financial position remains strong our robust operating cash flow up 57% in the first half of fiscal 2021.
Paired to the prior year period provides us with financial flexibility to fuel our future growth.
And we believe that we are well positioned to deliver strong operating cash flow.
Second half of fiscal 2021.
Our goal remains to generate more profit for every dollar of sales in order to invest the continued execution of our Monroe forward initiatives and attractive acquisition opportunities, while also paying down debt and continuing to pay our dividend.
We are also confident that the continued progress we have made on our roll forward initiatives will allow us to emerge from the current environment.
Stronger competitive position.
We are pleased to have resumed our store rebrand and Reimage initiative.
With about 40 stores transform during the second quarter and we are encouraged to see that this initiative continues to gain traction.
And lastly, I would like to reiterate that our commitment to M&A remains intact as evidenced by today's announcement of a definitive agreement to acquire 17 stores in southern California.
This acquisition is expected to add approximately $20 million in annualized sales.
As we've said in the past M&A is a critical driver of our growth strategy and we will continue to capitalize on attractive acquisition opportunities.
Our industry is extremely fragmented and ripe for further consolidation. We believe we are well positioned to continue to execute on our robust pipeline of quality targets.
Moving on to slide four I.
I would like to provide an overview of our second quarter sales performance and the current trends we're seeing.
Overall, we are encouraged by the gradual improvement in traffic in our markets.
Led to an 11% decrease in comparable store sales in the second quarter, a significant improvement over the 26% decline in the first quarter. We also saw a significantly higher number of stores.
With positive comps in the second quarter compared to the first quarter.
Following relatively consistent same store sales trends in July and August we saw an improvement in September.
This has tempered in October with comparable store sales down approximately 12%.
As you can see on slide five our correlation to vehicle miles traveled is clear as brakes oil changes I just.
Categories, which comprise the vast majority of our sales are all very reliant on miles driven.
Our topline performance in late September and into October was consistent with both lower U.S. tire retail industry unit sales.
Lower vehicle.
Sales travel miles traveled.
That said, we are encouraged that our tire unit sales.
Outperform the U.S. tire retail industry unit sales during this period.
Our second quarter comps improved sequentially in all product and service categories retires outperforming all other categories again this quarter.
As the rollout of our tire category management and pricing system continues to gain traction.
Geographically, our southern and mid Western markets outperformed our northern markets, where we have a higher concentration of stores.
Before returning the call over to Robert Koski, who will provide additional color more of our Monroe forward initiatives I would like to take a moment to thank our.
Teammates for their incredible efforts and outstanding commitment to the safety servicing our customers driving operational excellence despite.
Despite the ongoing challenges in the environment.
With that I'll turn it over to Rob.
Thank you good morning, everyone as an introduction I've been chief operating officer here at Monroe for over a year after spending almost 15 years in the automotive industry across a number of operational and marketing roles in corporate franchisee in franchise or business models.
We have established a clear path for growth at Monroe, and I'm pleased with the significant progress. We have made so far we remain focused on the aspects of our business within our control.
As a reminder, our monro forward strategy is focused on four key pillars number one improve the customer experience number.
Number two enhance the level of engagement with our customers leveraging data driven marketing strategies.
Number three optimize our product and service offerings in store and online.
And number four accelerate our in store productivity and teammate engagement.
Starting with our largest strategic initiative. We are pleased to have resumed our store rebrand and Reimage program.
During the second quarter, we substantially completed the transformation of 43 stores. This included the rebranding of 18 select stores to a tire oriented banner and the remainder related to consolidating our tire brands.
The objective of our store rebranding initiative is to drive higher awareness retires and increased tire sales without sacrificing service revenues to date, we've completed the transformation of approximately 250 stores in a number of key markets, including rebranding approximately 85 star.
Service branded stores to tire oriented banners.
Importantly, our rebranded stores outperformed again this quarter with comparable store traffic trends significantly above our non rebranded stores.
These encouraging results reinforce our confidence in the benefits of our Reimage and retail brand portfolio consolidation strategy and we are on track to transform 100 250 stores in fiscal 2021.
Moving onto our customer centric and engagement initiatives.
As we mentioned before we accelerated the strategic shift of our marketing efforts towards higher ROI digital channels at the onset of the pandemic and we were pleased with the results to date.
Optimization of our LTL performance for key product categories like tires has led to approximately 50% of our stores ranking in the top three online search results.
This has translated into a significant increase in enlighten, unlike consumer actions, which were better able to capitalize on due to our more sophisticated and consistent approach to customer execution.
Turning to the optimization of our product and service offerings. Our goal is to be the number one destination for tires at every price point.
We remain on track to complete the rollout of our new tire category management and pricing system across our store base by the end of the third quarter of fiscal 2021.
This new sophisticated tool is driving relative strength in tires for the second quarter in a row.
We are better able to dynamically track demand trends at the market level and make real time price adjustments to our tire assortment, which allows us to drive volume as well as optimized price to drive margin expansion in our largest category.
Lastly, the implementation of our technology base store staffing model is an important step forward and has been critical to effectively and efficiently manage staffing in our stores to support improving demand trends.
Our goal is to ensure that we had the right number of technicians as well as the right mix of skills to match demand in each store.
As a result, we're driving increased store labor efficiency, which positively impacted gross margin again this quarter.
As we've increased staffing back to our stores, we're leveraging our Monro University platform to onboard and trained our new teammates we expect labor efficiency to continue to improve as our new teammates are fully onboarded and we complete the rollout of our cloud based store staffing and scheduling software.
Across our store base in the third quarter.
Overall, we believe our monro forward strategy and the important steps we've taken since the beginning of the pandemic will enhance our competitiveness in the marketplace and help us emerge even stronger when the pandemic suicides.
Before passing the call over to Brian I'd like to personally recognize our teammates for their outstanding customer service and efforts along the way as they have been instrumental in driving our transformation journey.
With that I'll turn the call over to Brian who will provide additional detail on our recent acquisition and financial performance.
Thank you, Rob and good morning, everyone.
Turning to slide seven I'd like to provide more detail on our definitive agreement to acquire 17 stores in southern California. This acquisition further solidifies our growing presence in this attractive region. These locations are expected to add approximately $20 million in annualized sales, representing a sales mix of 60% tires.
And 40% service.
Additionally, this acquisition is expected to close in the third quarter of fiscal 2021 and be slightly dilutive to diluted earnings per share in fiscal 2021.
We have a robust pipeline in our M&A, including over 10, M.D.A. signed with opportunities ranging from five to 40 stores. We believe we are well positioned to continue to execute on our accretive acquisition opportunities, which is a pillar of our growth strategy.
Moving on to slide eight I'd like to provide a more detailed overview of our second quarter performance given the ongoing challenges and uncertainties that persist in the operating environment. We have remained focused on rightsizing, our store operations driving variable margin improvement in our key categories and executing targeted cost reductions.
Our second quarter results clearly reflect this strategic focus.
Sales fell 11% year over year to $288.6 million, primarily driven by an 11.4% decline in same store sales in response to lower demand levels. We continue to operate at reduced store operating hours in the second quarter down approximately 13% compared to the prior year period.
Sequentially, we were encouraged by our top line performance from the first quarter as we saw strengthening traffic and demand trends sales from new stores increased by $9.4 million, including $8.4 million from recent acquisitions.
This was partially offset by a decrease in sales from closed stores of approximately $6.5 million.
The second quarter of fiscal 2021 had 91 selling days in line with the previous year period.
Gross margin decreased 150 basis points to 36.2% in the second quarter.
From 37.7% in the prior year period within gross margin variable margins benefited from lower technician labor cost as a percentage of sales and higher gross margin in the tire category. These margin benefits resulted from the optimization of store staffing and the ongoing rollout of our tire category management.
Tool. These improvements were offset by a higher sales mix of tires compared to the prior year.
As a reminder, also included in our cost of sales, our distribution and occupancy costs, which are largely fixed in nature.
We were able to reduce these fixed costs, primarily through run concessions from landlords. However, lower comparable store sales outpaced these fixed cost reductions. This caused our fixed costs to increase as a percentage of sales and largely drove our gross margin decrease compared to the previous year period.
Operating expenses for the quarter decreased $8.6 million to $80.1 million or 27.8% of sales as compared with $88.7 million or 27.4% of sales for the prior year period, we saw benefits from our targeted cost reductions, including the realignment.
Of our marketing efforts towards higher ROI digital channels and the Rightsizing of our store management staffing the year over year decrease in operating expenses also reflects lower expenses from a net reduction of 20 stores compared to the prior year period, However, lower comparable store sales outpaced these fixed cost reductions.
And drove a slight increase in our operating expenses as a percentage of sales compared to the previous year period.
Our operating income for the second quarter was $24.4 million compared to $33.4 million for the same quarter last year as a percentage of sales operating income was 8.5% compared to 10.3% in the prior year period.
The decrease in operating margin is due primarily to lower comparable store sales outpacing. The previously discussed fixed cost reductions, causing fixed costs costs to increase as a percentage of sales compared to the previous year period imply.
Importantly, we expect to generate operating margin expansion against this lower fixed cost structure once demand recovers.
Net interest expense for the second quarter increased to $7.3 million as compared to $7 million in the same period last year. The weighted average debt outstanding for the second quarter increased by approximately $237 million as compared to the prior year period.
The increase is partially related to an increase in debt outstanding under our revolving credit facility to provide financial flexibility. During the COVID-19 pandemic. These borrowings are temporary and the company paid down approximately $95 million during the second quarter. In addition to the $240 million paid back in the first quarter.
Bank debt outstanding at the end of the second quarter is $335 million lower than at the end of fiscal 2020.
The remaining increase in weighted average debt is due to an increase in finance lease that recorded in connection with our fiscal 2020 acquisitions in Greenfield expansion as well as we lease renegotiations the weighted average interest rate for the second quarter decreased by approximately 190 basis points year over year, primarily.
Due to lower borrowing rates associated with new leases.
Our effective tax rate was 25.2% for the second quarter compared to 23.6% for the same period last year.
Net income for the second quarter was $12.8 million compared to $20.3 million in the prior year period diluted earnings per share for the second quarter of fiscal 2021 was 38 cents compared to diluted earnings per share of 60 cents in the second quarter fiscal 2020.
Adjusted diluted earnings per share for the second quarter, a non-GAAP measure was 39 cents, which excluded approximately one cents per share related to Monroe forward initiatives and management transition costs. This compares to adjusted diluted earnings per share of 62 cents in the second quarter of fiscal 2020, which is.
Good a two cents per share related to monro forward initiatives and acquisition due diligence and integration costs.
As of September 26, 2020, the company had 1242 company operated stores and 97 franchise locations as compared with 1262 company operated stores and 98 franchise locations as of September 28 2019.
During the second quarter, we added one company operated store and closed six of which five are temporarily closed as a result of damage sustained during hurricane Lora, and Louisiana and tropical storm Sie us in this northeast.
A complete bridge of our second quarter fiscal 2021 earnings per share performance with same stores.
With the same period compared with the same period last year as presented on slide nine.
The 11.4% decrease in comparable store sales resulted in a corresponding 34 cents earnings per share decline.
As we previously noted every 1% decline in comparable store sales translates to roughly three cents in earnings per share loss part.
Partially offsetting the comparable store sales decrease was the benefit of our cost reductions lower expenses due to a year over year reduction in our number of stores and the positive impact of our Noncomp stores. Also included are higher recruiting expenses, which reconciles us to our adjusted earnings per share of 39 cents in the second quarter.
As previously noted this excludes approximately one cents per share related to Monroe forward initiatives and management transition costs.
Turning to slide 10, our financial position remains strong and we have flexibility to execute our growth strategy. As a result of our actions to drive improved business profitability and bolster our working capital position, we generated approximately $126 million and operating cash flow during the first half of film.
2021, compared to $80 million for the same period last year, we invested approximately $24 million in capital expenditures, primarily to support our investments in store and test stores and technology and paid $15 million in dividends to our shareholders as well as paying approximately $15 million.
In principle for financing leases.
We were able to reduce our bank debt net of cash by approximately $71 million. During the fixed first six months of fiscal 2021, we believe that we are well positioned to continue to generate strong operating cash flow in the second half of fiscal 2021.
At the end of the second quarter, we had net bank debt of $150 million and net bank debt to EBITDA ratio of 1.1 times.
As of October 24th 2020, we had cash and cash equivalents of approximately $55 million and availability on our revolving credit facility of approximately $365 million.
Moving onto our financial assumptions for fiscal 2021.
The cobot 19th situation continues to evolve with the resurgence in cases in some regions and a significant amount of uncertainty in the upcoming months. Therefore, it remains difficult to accurately forecast the impact of that pandemic on our future operations and we are not providing fiscal 2021 guidance at this time.
On slide 11, we have provided our updated financial assumptions to assist with your modeling.
We're making solid progress on our rebranding and Reimaging initiatives and now expect the capital expenditure range of approximately $40 million to $50 million, assuming the transformation of approximately 100 to 150 stores.
In addition, we will can you continue to leverage our diverse and global supply chain and expect tire and oil costs to remain relatively stable year over year.
Moving onto our expected cost reductions, we realized approximately $5 million and additional cost savings during the second quarter on top of the $15 million achieved in the first quarter for.
For the second half of the fiscal year, we expect to achieve $5 million to $10 million in additional cost savings overall, we expect lower cost savings during the remainder of the fiscal year as we interrupt reinvest a portion of these savings in our business to drive topline growth. As a reminder, we also expect previously announced store closures.
To benefit our operating income by approximately $3.8 million in fiscal 2021.
Looking beyond fiscal 2021, we anticipate about $15 million to $20 million in annual structural cost savings. In addition to $5 million in annual benefits from store closures.
And with that I will turn it back to Rob Miller for some closing remarks.
Thank you Brian.
We continue to improve our business profitability and generate significant cash flow.
The solid progress.
Some of our most important growth initiatives, including our store rebranded Reimage initiative and the acquisition of 17 stores in Southern California, overall, we remain well positioned to capitalize on improving demand trends.
We have the financial flexibility to execute our strategy to deliver long term value for our shareholders.
Now before turning over policy acumen today I'd like to provide a brief update on our CEO search.
The process is progressing well and the board is assessing both internal and external candidates. Our priority is to find the right leader, who can continue to build upon the momentum that we've seen from our Monroe forward strategy.
We have a number of transformational initiatives underway that.
Are critical to driving sustainable growth.
We believe our next CEO will be well equipped to.
To join with and lead our team on the path towards long term success.
As we have recently.
Onboarded, new teammates I'd like to take this opportunity to highlight our corporate social responsibility efforts, which.
Which are ongoing across our organization.
Rose strives to maintain an environmentally and socially conscious corporate culture.
And our core values have an important role in our strategic planning chief.
Chief among our initiatives is strengthening our relationships with our diverse employee base as well as our customer and communities in which we operate.
And which we know will be an integral part of our success going forward.
With that I'll now turn the call over to the operator for questions.
Thank you.
At this time, we will conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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Our first question comes from Brian Nagel with Oppenheimer. Please proceed with your question.
Hi, Good morning, Thank you for taking my questions.
Good morning, Brian.
So I've got a couple of questions just with with regard to sales and I apologize for the.
Near term nature of the call questions.
Clearly the environments extraordinarily fluid as you mentioned and we've seen elsewhere, but is any any way to explain more in depth what seems to be a sales moderation in the month of October from trends in the quarter.
And then the second question is you talked about within the quarter a number of your stores are a large number of stores are comping positive, but the total comps are still for the company were down 11% or so what explains that very bold is that is that largely virus ur cobot related or are there other factors at play golf between those markets. Thank you.
Yeah, Brian I'll start and I'll, let Rob rakowski out any color.
I think if you look at the at the performance as we've tried it out on slide five of the materials we are clearly.
With our service categories being as you know oil break.
Brakes, and tyres very highly correlated to vehicle miles traveled I think that as you look at October the moderation that we saw in our topline it's very much in line with moderation in that that key indicator.
The do it for me side of the business has been typically more sensitive to those to those vehicle miles traveled I think we saw that not only as we saw a strengthening September with vehicle miles traveled improving but also as it fell off into late September in early October our correlation to that as well.
While we are happy about and encouraged by as we said in our prepared remarks is the outperformance of our key category being tires against a retail other U.S. retail tire unit sales and you can see the correspondence and the correlation between those sales as well again.
Vehicle miles traveled we just did a really good job as a company and really utilizing our new category management tool to what we see as Alps outsized performance in our tire category during that period.
Yeah.
Right to the point around that comp stores I think if we take a step back I think we've seen sequential improvement and growth and the number of comp stores throughout the pandemic as demand has increased.
And we're seeing then I'll call it outsized or percentage of comp stores really coming from our tire entire focus formats and as such the northeast has been outpacing the rest of the country with the.
A number of comp stores due to the nature of other format.
Got it okay very helpful. Thank you.
Thanks, Brad.
Our next question comes from Jonathan Lim with with BMO Capital markets. Please proceed with your question.
Thank you.
Question for Robert Mellor on the CEO search can you tell us which search firm was hired and maybe what length of time, you would consider appropriate for the search.
I think Thats Fair question Spencer Stuart is leading the is leading the search along with our.
Board and.
Obviously recognizing from and.
With.
An Roe in the past we're.
We're actively moving forward and we're in the process of interviewing candidates.
As of the time and so.
So its actively being pursued.
You know it's less.
Search firm and we're.
Fully engaged as.
As to a time line on that I think it's key that we get the right in.
Individual has the qualities that obviously you're familiar with and.
So were not.
Yes.
Which I say rush to judgment, but we are pursuing actively.
We hope in the near future.
Candidate in place.
Okay. Thanks sure.
[music].
And for Rob and Brian on the IP side can.
Can you expand on where the implementations of the two new systems, the new staff scheduling system and the dynamic tire pricing system.
Were in the quarter and maybe for Brian can you give us a sense for how much more room for improvement there might be or the ROI.
You're modeling out from those projects.
Oh, Yeah, absolutely Jonathan.
If you look at the in terms of the where we we have rolled out so far related to the store staffing model were just over 1000 stores rolled out as we sit today the remaining will be completely rolled out by the end of our Q3 so.
So still the benefits still ramping there I think we continue to see as more and more stores.
Move to that new staffing model, we're obviously seeing the benefit ramp through our through our financial performance and our ability to drive efficiency in our labor model and I think we saw more of that in Q2 than we saw in Q1 and I would expect we would see additional benefit in Q3 with more stores on the program.
And obviously anytime you roll something out there will always be continuous improvement that you'll drive off of that and and this now gives us the tool to do that importantly, I think it really positions us well to react to demand going down or up right. We know that there's uncertainty ahead and we're hoping for the best obviously.
In terms of the cobot pandemic, but this really gives us a much tighter control in place to be able to manage demand in either direction as we move forward.
The second one is the tire category management tool has rolled out to more than 800 stores.
As we sit today and those will also be fully rolled out by the end of Q3 and I do think again, it's a very similar commentary, where we expect continued benefits from that as they roll out and also really gives us much better control over a key category that is.
Obviously going to be important to us regardless of the macro demand trend environment.
Thanks, Brian a question on the acquisitions.
For the 17 stores acquired in Q2.
And the groups, where you signed 10 days.
How did the long run margins for those compare to monros existing operations.
Thinking about the.
<unk> operations on the East Coast, where you have owned distribution.
That's a great question, we obviously have.
Invested in a platform out on the West coast, and we did that through a great acquisition out there with certified tire and those stores are performing very well and give us great encouragement to continue to add additional stores to that so I think the primary benefit really there is as we add scale.
And add storefronts out west we will continue to leverage the investment we already made with our initial acquisition. The acquisition of certified out there that will continue to drive profitability across the entire group of California stores.
Relates to it related to distribution, we do have owned distribution out out west through a warehouse we acquired as part of the certified acquisition and that's really allowed us along with really good partnerships with our secondary supply points and manufacturers out there to maintain a pretty consistent.
Our I'm sorry.
Cost of goods sold profile.
Out on the West Coast. So I think we are encouraged by the performance there really.
Performing as expected in our pro Formas and we will expect the same out of the 17 stores that were now acquiring.
Thanks, Brian can you just break out the monthly comps for us and.
The Q2 and Q3 to date.
Yeah, we were down 12% in July 13% in August 8% in September and we said were down 12% for fiscal October.
Thanks, I'll pass the line.
Thanks, Jonathan.
Our next question comes from Bret Jordan with Jefferies. Please proceed with your question.
Hey, good morning, guys.
Warning warning I think you called out the south maybe being the stronger region relative to the north on the East Coast could you give us the spread sort of how many basis points difference and then I guess since we are getting a bigger west coast presence could you sort of.
Give us a ballpark for how that western stores did relative to the company average.
Yeah.
Certainly so it's that the south and the Midwest.
I think we've kind of said last call. They were about 500 basis points performing better than the northeast that's been pretty consistent maybe narrowed a little bit in the second quarter, but pretty consistent as far as the west coast. It's a little more difficult just because we don't have a comparable store sales base to talk at it to it and in the frame of reference of growth.
With year over year, but like I said earlier in my comments, it's performing in line with our pro forma expectations of that business when we when we acquired them.
Okay, and then I guess I understand the pricing system for tires, I mean, you called out that your gross margin in tires was off as a result of that.
I guess I would expect the pricing system that drives volume would be more inclined to cut prices.
Isn't it.
More a identify a tire that generates a higher margins you would offer to the customer when they come in looking for a comparable product or could you maybe describe how that is either adjusting tire prices on a like for like basis or what really about what is driving the margin improvement.
Yes really.
The tool looks at the price less density.
Heres, what we believe the velocity will be in the volume versus the margin and makes decisions on our pricing versus what we're seeing in the.
Competitive market and it'll just and at the end of the day the tool can optimize for volume or margin and currently we have it tweak to make sure that we're competitive cross the line.
But skewed towards increasing the margins and we can do that in real time, all the tool allows us to look at the entire portfolio, which we haven't been able to do in the past to make those real time decisions and changes to our our mix and I think Brad just to add on to that is important.
You saw absolute expansions in our margin percentages for within our tire category and you saw relative strength in our volume compared to what we what we presented as the U.S. tire retail industry unit sales. So I think.
It's accomplishing both and it's going to depend kind of tired by tire whether there is more of a volume or margin opportunity, but I think the tools doing both at the same time, given our performance against the benchmark as well as our margin expansion.
Okay, I guess on that theme you've commented in the past as you see a lot of competitors numbers be a year M&A. What's your take on market share. How do you feel you are doing relative to the underlying market. These last couple of quarters.
Yeah, Great question, and I think our view on that is really kind of looking at the prepared remarks, you know the the information that we prepared a related to vehicle miles traveled in the U.S. tire industry unit sales, it's consistent with what we're seeing in our 10 idea overtime da's that we.
We have signed as well as consistent with what we see from our franchisees in the car EPS model. So we feel that the information we presented on slide five as representative of our view of the industry and I think what you see there is that our trend lines are are at or above on the tire side at least.
Where the industry is that which gives us confidence that we're maintaining our competitive positioning.
Okay, great. Thank you.
Thank you.
Our next question comes from Rick Nelson with Stephens. Please proceed with your question.
Thanks Mark.
Just to follow up on.
Uh huh.
A couple of comments a bump marketshare care.
Curious weve had a number of viral franchise dealers report fair.
September quarter, and we got to turbo some parts.
Oh, sorry same store growth.
Gross kind of looks hard Kevin ROE is tracking well behind our company is particularly if we exclude all right.
Collision repair from their number or something I guess, we pulled tires out of your numbers.
You could speak to that parental what do you think you're losing.
Losing share compared to a franchise dealers and if so.
Yeah. Thanks for the question, Rick I think that if.
If you look at you I think you did a good job there of kind of explaining the two parts of our business and tires and parts I think the other large.
Large difference in Austin, a lot of the the pub other public numbers available as comes down to geography, and you know I've listened obviously do a lot of the same call that you have and you know really what I hear is the themes coming through is a lot of strength and mountain and plains regions and a pro.
Sure in the northeast and mid Atlantic and obviously, we have a disproportionate geographic exposure to the northeast submit mid Atlantic and nearly no exposure to the mountain and planes. So I think as we see there's a lot of differentiation between geographies.
And my sense is that that's driving a large portion of that is consistent with if you look at vehicle miles traveled as well as tire unit sales by geography, we presented a consolidated view to kind of show that we are tracking in line with the national averages, but there is a large amount of disparity in that data between the northeast and mid Atlantic on.
Underperforming against much better looking trends in other parts of the country. So we feel good relative to our performance in our geographic exposure there.
Okay.
It's about how do you get customers comfortable, but you're taking coal tar terms or whatever vehicles.
Yeah, we have from the from the very onset I think we've taken stringent measures that are still in place today stringent managers around cleaning sanitizing shields say shields masks as well as social distancing within the store.
As we continue to communicate that not only to teammates, but communicates those measures that we've taken a digitally and to consumers reassuring them that it is absolutely a safe environment to bring their vehicle in that.
Conduct business with us.
And we continue to do that and I think that helps US also understand if the pandemic continues or takes a different twist, we're well prepared to execute.
Those measures and really communicate those to the guest and our teammates. It's obviously been our number one.
Concern and continues to be that.
Parents from that and I'm not quite sure I'm for about.
Uh huh.
Yeah, Oh do you expect.
Let's turn to Pigeonhole Cemetery Huh.
Existing rebranding reimaging all but.
Strata to support in place with perhaps.
Or are you looking for new.
Yeah, New idea and is E commerce.
Do you see that being a part of a bit of sales, particularly in tires in the future.
Sure, we're not going to diverge from from the strategy that we put in place obviously, it's been successful.
It's been in place for two years three years and I think we're really executing on it very well so we're not.
And do a change mode. If you will.
So I think we're going to continue on on that same path and of course part of the.
The person's qualifications goes without saying or leadership and integrity and working well with it.
Teammates we have.
In place.
As E Commerce I think we've been on a certainly a new follow the company closely in the last two three years, we push forward on technology not only from the sales side, but also from the employee or teammates side in sizing the business.
We benefited greatly.
From that during this.
19.
Curious so we're not going to divert from that I think on E. Commerce, I think thats just going to continue on I mean.
Followed the company Youve seen that Weve push forward on that and I don't see any.
Retreat.
[noise] from that from that path.
It's in place the strategies in place and I think it was.
Well conceived well adopted by.
By the teammates throughout the company and.
Which.
Going back we are just going forward with it and I think we've got a good.
Oh station in place very very crowded.
Feel good about that and as you know we've.
We've certainly put the capex behind that strategy.
If you will E commerce, so I.
I see that going forward.
Right.
Hi, Thanks for those comments I appreciate it.
Good luck parents would push forward.
Thank you thanks right.
Our next question comes from David Belongia with Wolfe Research. Please proceed with your question.
Hey, good morning, Thanks for taking the question.
So worth recognizing that.
So first recognizing that the comp sales decline in Q2 was mostly traffic driven I'm curious on what you're seeing in terms of ticket trends any meaningful changes there are indications of trade down among your customer base.
Yeah, Great question now in Q2 really sequentially over Q1, albeit that the improved performance was driven largely by by traffic we saw consistent ticket.
Quarter over quarter.
Got it and then just following up on a regional currency.
Members underperforming markets like the northeast and then Atlantic are you seeing any early signs of stabilization. There are maybe some indication thats not the same type of recovery curve now beginning to play out in those markets versus what you've seen across other parts of the country.
The ended when we take a step back and look at the markets.
They in September late in the in Q2, it looks like they were recovering.
Very consistent with the tire performance and then in October with the tire retail units dropping that part of the geography has stayed.
Stayed in line with that and has reflected the the tire unit.
The client as well.
Got it thanks to procure.
Thanks, David.
Our next question comes from Stephanie Benjamin with true with please proceed with your question.
Hi, good morning.
Morning morning.
Morning.
I want to discuss on same store sales a little bit I believe in the first quarter and kind of some commentary in July you guys called out headwinds on the top line just from store closures or labor shortages. So wanted to know if you saw anything similar to that in the second quarter and as you kind of.
Good at this environment that weighing down on your out year comp growth.
Yeah, Great question and Yeah, we did talk about the need to.
Increased staffing to respond to some improving demand trends, which as we talked about we did add 700, new teammates primarily technicians in the second quarter. I think you know as we look at it and kind of triangulate those those ads against the demand levels that we saw.
During the quarter, we feel good that you know that the staffing was there to support the demand that was there and there wasn't anything.
Significant if you will left on the table regarding understaffing against against demand So and most importantly, we feel really good about where we are staffed ads.
As of right now as we head into what we hope to be some some colder weather and some snow.
Perfect. Thank you and then I wanted to just talk a little bit on I think with both the store staffing tool and the tire tool to be fully launched on as you said by the end of Threeq. You know just curious what is the next big leg to the story or big investment that we should be looking out for is there an opportunity.
For you do include a pricing tool across another service level or what's going to be the big initiatives at least to be watching out as we get through the third quarter.
Yeah, I think I mean, most importantly in and primarily our big focus both from a resources standpoint, obviously capital will be to continue to Reimage and rebrand our stores technology has been the foundation, which with which Monroe forward is as bill.
But certainly improve we do know that improving the guest experience and driving incremental traffic to our stores is really dependent on IR reimaging, our brand standards and making ourselves more relevant to a large portion of our customers and consumers with a more tire oriented banner so that will.
Remain our focus and really as we exit I think as we talked earlier, there will be continuous improvement around what we've already launched including our Monroe University platform and how do we really drive that to continue to improve teammate productivity as well as our ability to continue to.
You know improve our business overall, so I think those are the big areas. I know Rob is that does have some category work being done outside of tires that I will.
We will also come into focus as we as we move through the year.
Great. Thank you so much.
Thank you.
Thank you at this time I would like to turn the call back over to Mr. Miller for closing comments.
Thank you and thank you all for joining us today and for your continued interest and support of Monroe, When I say Monroe I mean that means your support of all of its teammates.
I will let you know and I'm sure you do know they're doing a terrific job.
It was a very difficult environment. So your support.
Tuning in today is very much appreciated and we look forward to providing you with an update on our progress next quarter.
Also.
Good day and stays healthy and they say.
Take care.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
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