Q3 2021 Monro Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to Monro, Inc. 's earnings conference call for third quarter of fiscal 'twenty and 'twenty. One at this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be will follow at that time.
And if anyone should require operator assistance during the call. Please press star zero on your Touchtone phone.
As a reminder, ladies and gentlemen at this conference call is being recorded and may not be reproduced in whole or in part without permission from the company I would now like to turn to introduce MS. Maureen Mulholland Executive Vice President and Chief Legal Officer at Monro. Please go ahead.
Thank you Hello, everyone and thank you for joining us on this morning's call before we get started and I'd like to remind participants that during the course of this conference call management May make statements about Lin roads future performance that contain forward looking information.
Actual results may differ materially from those suggested by our comments today.
The most significant factors that could affect future results are outlined and monroe's filings with the SEC and in our earnings release and 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 and.
Additionally on today's call management's statements include a discussion of certain non-GAAP financial measures, which are intended to supplement but not to be substitutes for comparable GAAP measures.
Reconciliations of such supplemental information to the comparable GAAP measures will be included in our earnings release.
Rob Miller, Monroe's Board, Chairman and interim Chief Executive Officer, and Brian D Ambrosia, Chief Financial Officer are joining us today.
For the question and answer portion of the call our Chief operating Officer, Rob Lukowski, who will also be available to take questions.
With that I'd like to turn the call over to Rob Miller Rob.
Thank you Maureen and good morning, everyone and thank you for joining us today.
Morning, I will talk about our third quarter results and our positive outlook for our business, we had a tough third quarter, which you can see and our results well there are a number of reasons for this including general market conditions. The principal reason was our earlier success and downsizing our store staffing levels to rely on effective.
Our operations with the impact of the COVID-19 pandemic had on our revenues are prompt and decisive management actions allowed us to stay ahead of the curve and.
At the outset of the pandemic, we focus our efforts on right sizing technician staffing.
And at each store to meet lower demand.
When demand picked up we had to recruit hundreds of technicians and in fact, we have recruited over 700 and technicians since July.
But ramping up this number of new teammates presented a challenge.
Getting our new teammates on board and introducing them to our operating standards and getting them to at full run rate and each store could not be done and a day or even at week.
For new rig.
New recruit takes time before they can become fully productive and some just don't work out.
This was reflected on our October and November of labor productivity levels and directly impacted our topline.
Stores were not able to meet all of the demand and sales opportunities were missed.
During the third quarter, we accomplished the on boarding task and have reversed this trend.
December was the best month of the quarter with earnings only a few cents below our pre COVID-19 December results last year.
Our new technicians are making significant contributions to sales margins and earnings January is looking even better with positive.
Comparable store sales are ahead of last year's pre COVID-19 levels.
We are encouraged by these positive trends and we are well positioned to drive higher same store sales and profitability going forward and.
Importantly, we remain financially strong and well positioned to execute against all of our growth initiatives.
We look forward to fiscal 'twenty and 'twenty, two with confidence our organization is stronger battle hardened and proud of coming through and unprecedented year.
And our initiatives are working.
And I will discuss further in a moment and we look forward with confidence in our business.
And with that I'll turn the call over to Brian who will provide additional detail on all of our financial performance and recent acquisition Brian.
Thank you, Rob and good morning, everybody.
Our performance in the third quarter, particularly in October and November was challenged by general market conditions and lower labor productivity.
The initiatives of Rod just discussed along with improved market conditions drove improved comparable stores comparable store sales trends and December which posted the best monthly comp store sales since the beginning of the COVID-19 pandemic.
This has continued into January with a comparable store sales increase of 3% supported by key sales improvements and our service categories.
And looking at the third quarter results and important takeaway relates to gross margin.
Gross margin decreased 400 basis points to 33, 8% and the third quarter.
Variable gross margin was positively impacted by a 5% increase year over year and gross profit per tire driven by the completed rollout of our tire category management and pricing tool.
This improvement was more than offset by a higher sales mix of tires compared to service categories. As expected service items can be deferred for a short time during periods of economic slowdown.
Additionally, variable margins were negatively impacted by higher technician labor costs as a percentage of sales at <unk>.
Partially in the first two months of the quarter.
This was largely due to the addition of approximately 700, new teammates from July through October as Rob discussed earlier, these new teammates required training to reach full productivity we.
We are pleased at our training initiatives combined with the completed rollout of our data driven store staffing model have driven increased labor productivity as we move through the quarter as a result technician labor costs as a percentage of sales declined steadily and December as well as January.
As a reminder, also included in our cost of sales or distribution and occupancy costs, which are largely fixed in nature, we were able to reduce these fixed costs primarily through run concessions.
The lower bowl lower comparable store sales outpaced these fixed cost reductions, resulting in lower gross margin year over year.
We continue to execute disciplined cost control and saw benefits from our efforts to realign and our marketing spend towards higher ROI digital channels, and rightsize store management staffing and the year over year decrease and operating expenses also reflects lower expenses from 29 fewer stores.
Lower comparable store sales outpaced these fixed cost reductions and drove a slight increase in operating expenses as a percentage of sales, but importantly, while we experienced a decline and operating margin in this quarter, we expect to generate increased operating margin against this lower fixed cost structure and sales improve.
Net interest expense for the third quarter decreased to $6 $8 million. This was driven by a decrease and our weighted average interest rate from lower borrowing rates on new leases, partially offset by an increase of weighted average finance lease debt in connection with our fiscal 2020 acquisitions and <unk>.
Lease renegotiations.
Our effective tax rate was 25, 2% for the third quarter compared to 24, 1% for the same period last year.
Net income for the third quarter was $6 $7 million and diluted earnings per share was <unk> 20.
Adjusted diluted earnings per share for the third quarter of non-GAAP measure was <unk> 22, which excluded approximately <unk> <unk> per share related to monro forward initiatives and a penny per share of benefit related to a reserve for potential litigation that was no longer necessary.
This compares to adjusted diluted earnings per share for the third quarter of fiscal 2020 of 60.
Which excludes <unk> <unk> of costs related to monro forward initiatives and a penny of cost related to acquisition due diligence and integration.
We continue to have ample flexibility to support our operations and execute our growth strategy, we generated $159 million and operating cash flow. During the first nine months of fiscal 2021, representing an increase of 26% compared to 120.
$6 million for the same period last year.
We invested approximately $39 million and capital expenditures, primarily related to our ongoing store rebrand and re image initiatives and investments and technology and paid approximately $18 million for acquisitions.
And we distributed $22 million and dividends to our shareholders and paid approximately $24 million and principal for financing leases.
We were able to reduce our bank debt net of cash by approximately $56 million. During the first nine months of fiscal 2021, we are well positioned to continue to generate strong cash flow from operations and the fourth quarter and beyond.
We substantially completed the rebranding or re imaging of 104 stores during the third quarter to date, we have completed the transformation of approximately 360 stores and a number of key markets, including rebranding 115 service stores to tire branded stores and continue to.
The outperformance of our rebranded and re imaged stores compared to our chain average and.
We now expect of capital expenditure range of approximately 45 million to $50 million, assuming the transformation of approximately 150 stores and fiscal 2021.
At the end of the third quarter, we had net bank debt of $165 million and a net bank debt to EBITDA ratio of one three times.
As of January 23, 2021, we had cash and cash equivalents of approximately $25 million and availability on our revolving credit facility of approximately $376 million.
Yeah.
The impact of the COVID-19 pandemic continues to make it difficult to forecast accurately the impact of the pandemic on our future operations. So we are not providing fiscal 2000 and 'twenty one guidance.
We realized approximately $10 million and additional cost savings during the third quarter on top of the $20 million achieved and the first half of the year.
These cost savings resulted from the optimization of store management staffing the improvement of our marketing efficiency and general overhead cost reductions.
During the fourth quarter, we expect to achieve approximately $5 million and additional cost savings.
As a reminder, our previously announced store closures are expected to benefit our operating income by approximately $3 $8 million and fiscal 2021.
Looking beyond fiscal 2021, we continue to expect approximately $15 million to $20 million and annual structural cost savings. In addition to approximately $5 million and annual benefits from store closures.
I would now like to take a moment to provide and update on our acquisition strategy. We completed the previously announced acquisition of 17 stores in Southern California, and the third quarter, expanding our growing presence and the West Coast region. These locations are expected to add approximately $20 million and annualized sales.
We are particularly excited about the growth prospects for Monro and this attractive and dynamic region.
Despite the impact of the COVID-19 related Lockdowns. This year, we've achieved strong earnings contribution from our previously acquired California, Nevada, and Idaho stores.
Our acquisition pipeline remains robust with over 10 NDA is currently signed for opportunities ranging from 5% to 40 stores strategically.
Strategically located acquisitions at attractive valuations remain of pillar of our growth strategy and we are well positioned to take advantage of the many opportunities for consolidation and our industry.
And with that I will turn the call back to Rob <unk> for some closing remarks.
Thanks, Brian.
We are encouraged at our initiatives are taking hold as evidenced by our strengthening performance late in the third quarter and January and importantly, our strong cash flow and solid balance sheet provide us with the financial flexibility to support our business operations and make strategic acquisitions without substantially increasing our.
Leverage we have always conservatively managed our balance sheet and remain fully committed to doing so at this.
It has allowed us maximum flexibility to execute on our growth strategy for the benefits of our shareholders and we are confident that this will continue to create long term sustainable value.
For opening up the call for questions I would like to take a moment to provide an update regarding our search for a permanent CEO and we continue to make progress and are currently evaluating a number of individuals. We believe have the skills and experience necessary to drive our transformation forward and build upon.
The momentum that our monro forward strategy is created.
We look forward to providing you with a more definitive update as soon as we are able.
During this period of transition I am proud of our senior leadership team for their exceptional commitment to driving our organization forward.
I would also like to recognize the tremendous contributions of Maureen Mulholland who has recently.
Recently promoted to executive Vice President and Chief Legal Officer.
Marine has served as general counsel since 2003 and continues to partner closely with Brian and Rob and support.
The ongoing execution of our monro forward strategy and to ensure continuity across our business operations.
I'd like to also highlight recent steps we've taken to further our corporate social responsibility efforts.
Our execution of Monroe forward naturally incorporates building, our long term strategy and a responsible and sustainable manner, we view of our responsibility to our teammates customers and the communities and which we operate and doing our part to take care of the environment as key components of long term success.
As part of our commitment to being a good neighbor and the communities, where we operate I am pleased to announced at through the support of our customers and teammates we raised over $160000 for feeding America during the third quarter with strong support from our board of directors, we are in the midst.
And of increasing the formalization of our corporate responsibility efforts and are committed to expanding transparency and the coming months and five.
Finally, I would like to extend a sincere. Thank you to our teammates for their incredible contributions to our company and for their ongoing commitment to safety and serving our customers and driving operational excellence, despite the challenges and the environment.
And with that I'll now turn the call over to the operator for.
And for your questions.
Thank you and so you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May press star two if he would like to remove your question from the Q4 of them.
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Our first question is from Jonathan Lamers with BMO capital markets. Please proceed.
Good morning.
Good morning, good morning, Jonathan.
Brian You mentioned the re imaged stores are outperforming the overall comp, but do you have any color on.
How much they're outperforming and.
And the plans for re imaging for next year.
Absolutely Jonathan.
On the <unk>.
Our performance is consistent with what we've described for the last couple of quarters, which is about five points better of 500 bps better in terms of comp outperformance.
Related to the re imaging our plans.
We've done about 140 stores, so far for the year.
We're about we're going to do 10, and Q4 and that's largely due to the fact that we got a lot done in Q3 ahead of winter weather a lot of our re imaging occurs and the northeast and at outside work that can only be done as the weather gets better. So we'll go out west finished shops and stores out there that we need to re image from recently acquired stores.
And then come back and Q1 and be back on pace with what we announced is our pace going forward, which was about 80 stores at quarter end.
As the execution rollout pace. So we're on track and we feel good about our ability to quickly ramped back up on this initiative post taking that pause and Q1.
Okay. So on the January comp improvement.
In October of the message was.
Comp store kind of performing in line with vehicle miles traveled.
<unk> had this big improvement and your labor capacity and productivity.
Vehicle miles traveled continue to be pretty soft I think they were down 11 or 12% for January of last I looked.
Like how would how would you characterize.
That 3% comp relative to the income.
Incline and macro trends, we continue to see and how sustainable would you consider that delta to be.
Sure I think if you look at our performance in January and the improved performance. We saw as we moved from from November to December and then December into into January being up three.
I think you have to look at it through two lenses, one through our tire business and one through our service business and the tire business as.
And as we've talked about we've been in line or outperformed the U S retail tire industry.
Consistently during both Q2 as we discussed and through Q3, and we saw the industry have general market condition softer and October and November and those market conditions improved in December and into January and we performed in line with those improvements and and outperformed.
These improvements.
Slightly at.
If you look through the lens of our service business what impacted the service business primarily in the quarter was as we discussed in our prepared remarks.
The on boarding of our of our new teammates and our service business is heavily dependent on technicians ability to perform in store inspections on vehicles identify needed work and presented at work to the store manager to be able to sell and net takes time to get our technicians fully up to speed to <unk>.
Support the sales and that has impacted our service category sales.
We are happy about is our ability to have completed largely completed that onboarding and training task as we moved through the quarter and that really supported improvements in December and certainly supported even more improvement in the January in our key service categories and net underlying improvement.
And service has been key for our ability to achieve the 3% consolidated comp store sales improvement in January.
Great. Thanks, just to circle up on that could you give us the breakout of the monthly comps for Q3. Please.
Absolutely we were down 12% and October 18% in November.
6% in December and then as we set up 3% in January.
Okay. Thanks.
And on this discussion about potential new duties on tires from South East Southeast Asia.
I know there is some uncertainty there on.
The exact policy timing and.
And and measures to be implemented but if these were implemented how would you think of this as impacting your sales and gross profit.
Over the year.
I would think intuitively this could shift our mix to higher tier tires.
Uh huh.
And I appreciate the question of amid ongoing macro concerns and including the global tariffs and other material cost pressures will continue to leverage our vertically integrated and diversified supply chain, which drives our cost leadership position and Rover and helps us remain a key.
And differentiator in our and our industry, we have contingency plans in place regarding the potential tariffs and the region and we expect our network of multiple supply points to mitigate the exposure.
Lastly.
And entire cost increase not mitigated by our differentiated supply chain were expected to be passed on to the consumers.
Okay Fair enough I'll pass the line. Thank you.
Thanks, Jonathan.
Our next question is from Brian Nagel with Oppenheimer and company. Please proceed.
Hi, good morning.
Good morning, Brian and Brian.
Sorry, if I have one I guess shorter financial question and then a bigger picture question, but I mean in terms of sort of financial question and Brian you talked a lot about the puts and takes on the gross margin and wide.
Clearly weak here in the fiscal third quarter.
I recognize you're not providing guidance I mean, how should we think about.
Just the trajectory of gross margins going forward and how some of those puts and takes might change and.
And then the second bigger picture question I have.
And again, recognizing there's a lot going on here with regard to the Covid disruptions and even the management changes at all at Monroe of it.
Where are we stepping back where are we at the holding of whole monro forward.
And.
And this year for turnaround and repositioning efforts. Thanks.
Yes, thanks, Brian regarding the gross margins, obviously, a relevant question and something that we highlighted in the prepared remarks because of the impact on the quarter.
As we look at the real drivers of the quarter. It's probably helpful to look at those and then and then give a little bit of of forward looking color on how improving top line and the trends and our current trends and our business could affect that and Q4 and beyond.
The first is.
And obviously, the lower overall comparable store sales down 13% and the quarter does put pressure on our fixed costs that reside and gross margin distribution and occupancy costs and.
Any improvement and that and certainly.
Comparable store sales increases.
Flip that because obviously will gate and start to gain leverage on those fixed costs. So the current sales trends we're seeing in January.
And if those continue that could be of meaningful flip and our gross margin profile from a significant headwind with that fixed cost deleverage to fixed cost leverage on higher comparable store sales and that's certainly what we expect as we move forward and drive top line improvement.
The second piece is the mix to tires versus service categories and that impacted our Q3, but with the improvement and our service categories in January.
And we're not all the way there yet we've got a further improvement to make and we expect to do that as we move through the quarter, we would expect that that headwind related to tire mix.
It would start to abate as well.
The good news is we are making strong variable margin improvements with.
And then our tire category related to the rollout of our category management and pricing tool. So while the mix has been running against us the within the category certainly we've seen positive results from the investment we made and net pricing tool.
And then finally as it relates to technician labor, we've already seen that trend turn we saw at turn in December and into January with.
Labor costs as a percentage of sales decreasing and those months versus October and November I ask.
Back back to continue as well so I think it's all positive on the gross margin front, and really driven by and improving topline or mix, improving as service improves and the labor productivity issues and our rearview mirror. So I think the gross margin looks much more positive than what we saw in Q3 and.
And we're on our path to returning to what we've seen historically from that line on the P&L.
And as it relates to the second part of your question Monro forward, we really just completed two of our major initiatives related to the technology upgrades for labor and for our tire category management and while we're seeing the benefits of those and our operations and in our P&L.
We still have a lot more continuous improvement to drive in those and those initiatives. So we would expect that those continue to move us forward and gain gain returns on the investments we've made there and obviously, we're still in early stages of our rollout of our of our store re image.
We've only re imaged about 115 of our service stores and the tire branded stores and we've got a lot of runway three.
Three of 400 stores there that are still.
And have the potential to be rebranded to tire stores, and obviously drive outsized comparable store sales increases so I think as it relates to monro forward.
While we're probably in the middle to later innings in terms of all of the work that we've done to position the company for.
For for.
For the repositioning as you call. It we are and the early innings of having seen the benefit of all of that work and our results and I think that is one of the reasons why we have confidence as Rob mentioned moving forward and our business and Q4 and beyond because we know the return on the significant investments we've made.
And is still not yet fully reflected and our and our results and we're confident that it will be.
That's great very helpful. Thank you.
Yeah. Thanks, Brian.
Our next question is from Bret Jordan with Jefferies. Please proceed.
Good morning, guys.
Good morning, Brian and Britt.
Could you give us I guess, some color on regional performance and other western stores versus south and northeast and I guess in the sense that you get the benefit of through some of your NDA as some competitive information could you talk about where you see either better or worse market share comparison.
Yeah sure sure I appreciate the question.
And if we look at the West first of all of the West isn't included in our comps, but they are performing consistent with our expectations and posting strong earnings.
And if you look at the.
October and November the northeast and Midwest had a at a dip due to tire seasonality.
But had an uptick in December and January as the seasonality reversed and.
And the South really performed similarly, and all of service categories.
With the exception of tires that didn't have the seasonality so all of the markets across the.
Of course, the portfolio perform similarly on the service categories. The only difference really being in the tire categories due to seasonality.
Yeah, and so on a consolidated basis, if you roll up all of the category dynamics, our southern region.
Outperformed the northeast and Midwest by about five points and the quarter.
Net GAAP was was wider as Rob mentioned because of the tire dynamics and the first part of the quarter and October November and at narrowed to be more consistent among the region all of the regions and December and January as business and the northeast and Midwest picked up with the <unk>.
Supporting tire John.
General market conditions as it relates to NDA or other information that we have we talked a little bit about the tire industry and are are kind of meeting or exceeding the performance of the U S tire retail industry and that information is really a a <unk>.
Cumulation of smaller and.
And mid tier change across the country and we cross section of that to our regions to see how we're performing so we feel on the on the tire side like we said we are consistent as it relates to service.
I think as we talked about we had some monro specific challenges related to labor, which probably.
Put us a little bit of a disadvantage early in the quarter with those issues clearly and our rearview mirror, we feel good that we're performing on the service side of the business also at or near where where peers are especially as we as we have moved into January.
Okay, Great and then one question I think you mentioned a couple of times, some rent or lease concessions and the quarter is that and expense that is going to come back would you all of.
Or did you basically negotiate at you will pay any of these concessions back as of results improve or is this sort of of permanent cost reduction.
No I think the ones that I'm talking about related that make their way into our P&L are primarily related to renegotiations of our lease we have extended some terms and extent and in exchange for those extended terms.
And we were able to get lower renewal rates and and a decrease and the rent and the current term. So overall, we still expect that we'll have lower rent expense structurally throughout the period of the renegotiation.
Okay, Great and then one final question, I guess and not to get too granular on the cadence of comps, but could you talk about January given the fact, we're almost through the month.
<unk> III has it continued to improve as the month has gone on or have you seen variability within that plus three.
Without getting into a weekly blow by blow by blow of well, we can do daily leave at that.
Yeah right.
I'm sure you'd like that.
We would we basically would say that we've seen just continued strength from November December and December into January at January number is our full fiscal January which closed on January 23rd this past Saturday. So through this past Saturday, we put of plus 3% on the books.
Obviously, our first comp increase since the COVID-19 pandemic began so.
We're extremely encouraged with that performance and gives us confidence that we did the right things to manage the business through the pandemic and we're doing the right things now to manage the business as demand is his return.
Great. Thank you.
Thanks, Brett.
Our next question is from Rick Nelson with Stephens, Inc. Please proceed.
Correct.
Good morning.
Revenue.
John.
And about technician productivity improvement carry on.
Are we back to normal at Lowe's to approach and C level.
Or is that still something.
Great.
We need to push forward.
I guess, one do you think we will normal loans levels of putting up.
Good day.
Great. Thanks, I appreciate the question.
While we are pleased with the current trend and improvement and our productivity. We certainly have of continuous improvement mindset and we will continue to work hard to improve the current performance moving forward as of 700, plus new technicians have been trained we haven't seen growth across all of the categories and our margin performance and <unk>.
Productivity and.
And encouraged to see that continue as we move forward.
Okay.
Same store sales level, but you need to achieve.
Operating expense items.
January plus three or are you in fact levering operating expense.
Alright.
Absolutely I think I mean, if you look at our quarter, Rick we were down 13% and comparable store sales and our SG&A as a percentage of sales went from 28, 2% to $28 three so and that was driven by a $12 million of adoption and our operating expenses. So.
And we've positioned the cost structure of the business.
And two two to have significant leverage on top line.
Even probably at a breakeven or slightly down comp so of plus three and January will will drive leverage against our new lower fixed cost structure.
Did talk about the cost reductions being $10 million and the Q3 and only $5 million and Q4, and that's really because in Q3 and reaction to the lower comps we did a really good job of of.
Managing our costs to the lower top line as we expect.
On January plus III of higher Q4 performance.
Back $5 million of that cost reduction, which we believe will be needed to support that top line, but still $5 million lower than last year puts us at a pretty low leverage point from a fixed cost standpoint.
Right.
And finally.
Yes.
Frank you talked about the pipeline.
Yes.
The situation of where your progress on the core.
Business.
No.
Did that improve.
Can you break on that.
Some of them.
And if you could speak to two pricing.
Acquisitions of.
On multiples.
Absolutely.
The acquisitions are.
Our strategic and key component of our growth strategy and they continue to be at.
And there is we have a robust pipeline of acquisitions that we feel are very actionable and very much in our core wheelhouse and competencies to be able to execute them and and.
And accretive and beneficial way for our business.
So I do not think that we need to make the either or choice and I think thats evidenced by the fact that we closed on the Allen tire deal in early December.
And.
Despite having executed on that transaction, we still are seeing the improved trends in December and into January so that deal.
And does not look like at had any negative impact on our ability to continue to improve our business and manage our business day to day, we've got adequate resources to action on our acquisitions and operate our business and improve our business and our intention is to continue to do that and we think thats the most meaningful.
Driver for creating long term shareholder value.
As it relates to multiples, we don't comment on those for competitive reasons obviously.
But we are seeing consistent multiples and consistent expectations of sellers.
And with what we've seen historically.
And I think that there is.
And there's nothing that I see that it's causing any any of that two to change and the near term.
Great.
Thanks, a lot and good luck.
Thanks, Rick Thanks, Rick.
Our next question is from David Bellinger with Wolfe Research. Please proceed.
Hey, Thanks for taking the question here.
So you made it clear that labor had a meaningful impact in October and November so now that youre at.
Fully ramped up staffing is there any way to quantify the level of sales and missed out on and quarter.
Comparable sales track call at down mid to high single digits, excluding any of these labor and pack.
Yes, I think that as we talked about earlier, you really look at it through two lenses of the tire dynamic really driven by the general market conditions and.
And the service dynamic really driven by the labor dynamics and as we look at exiting Q3 and.
And into Q4, we have.
More typical general market conditions, particularly in the northeast.
And that that are more comparable to the prior year, whereas earlier in the quarter they were weaker than the prior year and we have labor dynamics and our stores that are.
As good or even better than the prior year in terms of our ability to support growth and our service categories.
To quantify the specifics of where the headwinds were throughout the quarter.
It's probably not as useful as saying that.
Our positioning and both those areas in January.
And our on much better footing, and if general macro economic conditions and.
And general market conditions hold we would expect that our trend and January is much more indicative of where we expect the rest of the quarter to be up versus the trends that we saw and.
And the early part of Q3.
Okay got you and and this is my follow up Doug.
And any significant change and average ticket trend, especially and moved through the quarter at in any normal seasonality within the entire category and are you seeing consumers more willing to spend and maybe engaging more full of repairs of pirate brands now.
Yeah our results.
Throughout the pandemic and certainly in Q3 were led by type of led by ticket versus traffic and that's.
I think it's pretty typical right now where we've seen higher tickets.
And a little bit more pressure on traffic given the given the nature of miles driven and where we're at.
Globally here.
So that has helped by mixing towards tires.
But we're also seeing good ticket out of our out of our service.
<unk> as well, but that ticket and service got better as the quarter went on and.
And Thats, a result of the investments and the training and we did on the labor side.
Yes.
Yeah.
Thank you.
Our next question is from Stephanie Benjamin with Shirley. Please proceed.
Hi, Good morning, Thank you for the question.
Okay.
Thank you good morning, Hi, Stephanie.
And that you kind of beat a dead horse here, but I'm a little curious as you look at the monthly performance and the quarter and a pretty meaningful drop off that you saw and November I'm, just trying to get a sense.
When we last spoke at the end of October.
And you gave at the October number and it was very much kind of of that day.
Correct.
It was pretty much tracking in line with knee vehicle miles driven and and I'm just trying to get an understanding of.
When we saw that pretty steep decline in November and what was going on I mean can you give a little bit of color on what the tire category did of November I'm, just trying to get a sense of obviously this is a pretty tumultuous time and with Covid was and front and center and November I need at start improving for it and I'm just trying to say is I think.
As you did see nice improvement in December and January how much of that was due to maybe.
Pull back in November or on.
Are we out of the woods, yet so maybe any kind of category of different you can give or what you think caused such a day of such a decline and that November month would be helpful.
Yes, absolutely a good great question and in November.
On 18 was really driven by the tire category.
And it was really driven by of tire category in the northeast and and the Midwest.
But yes, even though we were down significantly and that tire category, we still were at or above the.
The U S retail industry. So it was an industry phenomenon really driven by soft market conditions really driven by mild weather and the northeast.
And in the Midwest compared to the prior year November.
So we certainly.
We're disappointed by the weakness that we saw but encouraged by the fact that we drove.
And consistent and outsized performance and our tire category. While also continuing as we talked about on the prepared remarks to expand our gross profit per tire, which ended up being up 5% in the quarter, even though demand was softer earlier on particularly in November.
Got it thank you and our last question from me.
Thank you know across the board, we're hearing that there's a lot of just kind of a supply chain constraints and constraints and just and ability to get needed at automotive part.
Headlines of obviously been very strong and semiconductors. Another part of it has there been any issue from the entire standpoint, and procurement and just being able to have and the inventory to meet any potential.
And acceleration demand.
Stephanie Thanks I appreciate the question.
For us we with our.
Diversified supply chain, we really haven't felt any effects, we have been able to get.
Get product and source product from our various vendors.
Vendors and we do have contingency plans in place.
And if that happens to change but.
And what their network of multiple supply points to mitigate our exposure we haven't felt any ill effects at this point.
Great. Thank you so much.
Thanks.
As a reminder of the star one on your telephone keypad, if he would like to ask a question. Our next question is from Scott <unk> with CL King and Associates. Please proceed.
Good morning, guys and thanks for taking my questions.
Good morning, Scott.
And just looking at the recovery that we've seen of December and into January and seems like.
And then based on your comments a lot of it has to do with.
And with tires and.
And is it fair to assume that everything across the board all of the other segments of rock as well.
And the month of January and or is this more of a tighter dynamic that we're seeing.
Yes, Scott as we talked and talked about.
Earlier, there really is two lenses to at tires is certainly benefiting as we moved from November to December and into January by the firming of the general market conditions, and the tire category and we've maintained and outperformed that that market and the U S industry.
Retail units.
As it relates to the service side, that's really improving because of the better productivity of the technicians that we've on boarded and the quarter at.
And both of those dynamics are contributing to the improvement we've seen over the last three months and into January.
It is it's fair to say that.
We've seen improvements and all of our service categories and.
So and tires.
I'm not saying that every single category is comp positive, but I'm, saying that every single category is contributing to the improved trend that we're seeing.
Yes, Brian.
With the taking of tires out of the equation.
I guess, if you're looking at the service side of the business Theres more.
I guess, the cyclicality or more of a reliance on the underlying markets as <unk>.
Well.
Could you talk about.
Your confidence that.
And a very tough.
Job market and with a lot of your customers and your market is still being on the significant pressure that we won't see some kind of I don't know.
Yes.
Pullback in demand and the next couple of months are you pretty confident that your what youre seeing at the store level with your technicians and the improved utilization of that that should.
And help you continue to move forward.
Yeah, I think as it relates to that Scott I think that we are what we've accomplished and the quarter at the end of the day is that we've gotten our ability.
And we've gotten our capacity much closer to demand. So we had a GAAP and the early part of the quarter between our ability to service the demand and the demand that was there and now as we've moved into January we've moved our ability to service that demand right up to the level of the demand and so we certainly will be affected more.
As we move forward by variations and net demand, but we are constructive on the trends that we're seeing and vehicle miles traveled we're obviously encouraged by the vaccinations that are that are rolling out and while I'm not going to wager a guess on the full behavior of the consumer or of vehicle miles traveled we think.
And that.
<unk>.
Our net uptrend in terms of of what that means for our business. So that gives us confidence as we move forward and and obviously we are hope.
And <unk> hopeful that we still see a firm.
Firmed tire business and tire industry as we move forward, particularly as as we exit the rest of the fourth quarter.
Got it and then last question just a bigger picture every few quarters of so the top of it comes up about.
<unk>.
Exposure to whether and how that can drive your business positively or negatively.
Where do you stand right now and your view of.
On the seasonality of your business from <unk>.
And then tires typically if there's like we saw on October and November and if we don't get on weather.
MS creators and then it can come back a couple of months later is there anything you guys can do to kind of what youre doing at or anything to try to smoothed out.
This volatility.
Okay.
You know I think.
We can't move our stores, Unfortunately, and we do have exposure to the northeast and the Midwest, which are are affected by seasonal changes and we see that in the trends of the U S tug of retail industry and at being part of that industry are trends are correlated to that and so.
But we do have.
Initiatives underway to continue to stimulate tire demand and regardless of the macro backdrop, we want to outperform and take our share of the of the industry forward and we with the fragmentation of the industry. We feel we have an opportunity to to take share and not rely just on the.
The industry going up or down at seasonality changes and we also think it's important as we acquire stores to continue to acquire and the geographies that we have been which has been concentrated in the southeast and and on the West coast, which helps to diversify our business away from.
And northeast tire demand. So we're doing what we can there, but and the short term, we're still going to be influenced by by weather dynamics.
Got it that's all I have thank you.
Thanks, Scott Thanks, Scott.
This does conclude our question and answer session and I would like to turn the call back over to management for closing remarks.
I just wanted to say thank you for joining us today and for your continued interest and support of Monroe, We look forward to providing you with an update on our progress next quarter.
And we all hope you of a safe and great day.
Bye bye.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation. Thank.
Thank you.
Thank you.
Okay.
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