Q3 2022 Monro Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to Monro, Inc. Earnings Conference call for the third quarter of fiscal 2022 at this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
Anyone should require operator assistance during the call. Please press star zero on your telephone keypad.
As a reminder, ladies and gentlemen, this conference is being recorded and may not be reproduced in whole or in part without her permission from the company.
I would now like to introduce Felix vaccine senior director of Investor Relations at Monroe. Please go ahead Sir.
Thank you Hello, everyone and thank you for joining us on this morning's call before we get started please note that as part of this call will be referencing a presentation that is available on the investors section of our website at corporate that Monroe dotcom forward slash investors forward Slash investor resources, if I could draw your attention to this.
Safe Harbor statement on slide two I'd like to remind participants that our presentation includes some forward looking statements about <unk> 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 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. Additionally on today's call management's statements include a discussion of certain non-GAAP financial measures, which are intended to supplement and not be substitutes for comparable GAAP measures reconciliations of such supplemental information to the comparable GAAP measures will be included as part of today's.
Presentation.
Earnings release with that I'd like to turn the call over to Matt Rhodes, President and Chief Executive Officer, Mike Broderick.
Thank you Felix and good morning, everyone. Thanks for joining us.
Let me start off by saying that our monro forward strategy and the meaningful investments. We are making are driving significant change where you are on a journey to transform this great organization and unleash its full potential.
Our accomplishments in the third quarter indicate clear progress towards the achievement of our transformational goals.
Yeah.
As highlighted on slides three and four we delivered another solid quarter and continued our momentum from the first half of the fiscal year Q.
Q3 marks our third consecutive quarter of double digit comparable store sales growth.
Blind performance also exceeded pre pandemic sales levels for the third straight quarter.
We once again posted double digit comp sales growth across all of our regions and categories. Our comp sales growth was led by our key break in alignment service categories, both of which grew 28% in the quarter.
We are confident that normal fall and winter weather in the northeast would have more positively impacted our tire category, which would have helped us to deliver an even stronger top line result.
Encouragingly.
Tire unit sales were in line with the industry trends and variable gross profit per tire increased 9% year over year.
The overall strength of our sales in the third quarter reflects robust demand for our product and service categories as well as the quality of our execution and the continued traction of our monro forward strategy.
We continue to increase the mix of our higher margin service sales, which contributed to the improvement in gross margin during the quarter.
I will discuss the specific progress we made in the critical area of staffing in just a few moments I.
I do want to highlight that in the third quarter, we saw higher technician payroll cost as a percentage of sales. This was largely driven by incremental investments to increase the quantity and strengthen the quality of technicians in our stores.
The investments in technician staffing were critical to delivering improved top line performance in the quarter.
We were staffed and ready for winter and believe topline performance would have been even higher with a more normal weather backdrop.
As I will discuss in greater detail, we will continue to increase our technician staffing levels and ensure that we have the right mix of trained technicians in each of our stores.
We are fully committed to building a best in class service model that our customers can rely on for their car care needs.
Capitalizing on robust industry demand in multi year industry tailwind. This service model will position us for outsized sales and earnings growth.
Moving to our fourth quarter, our preliminary fiscal January comparable store sales increased 1% compared to fiscal January of last year.
And were 4% above pre COVID-19 levels are.
Our incrementals staffing has allowed us to manage through a particularly difficult six weeks with COVID-19 related absences, increasing significantly in our stores.
Our higher staffing levels have allowed us to keep our stores open and our hours of operations normal we expect that once this COVID-19 wave has passed our teammates will once again be fully focused on delivering top line growth.
I'd like to use this as an opportunity to discuss the true impact of Covid on our business.
We've incurred incremental expenses necessary to keep our teammates customers and community safe.
These expenses include items, such as personal protective equipment hand, sanitizer and retrofitting our stores to allow for appropriate social distancing.
Due to the surface based nature of our business the largest impact of the pandemic has been on our teammates co.
Covid has required a high level of resiliency and flexibility from the teammates in our retail commercial and wholesale locations as well as those in our distribution centers and store support center.
We've experienced substantial disruption to our store operations throughout the pandemic and we have always treated the costs associated with this disruption as part of our normal operating results.
These include appropriate investments and necessary adjustments to our in store procedures and business operations.
We recognized Covid as a significant challenge for us to overcome and we believe we are making meaningful progress.
Leveraging the collective experience of our senior leadership team, we have driven double digit topline growth expanded margins significantly grown earnings per share and generated significant amounts of cash.
We've done all this while also completing value, creating acquisitions and positioning our business for the future.
I would be remiss, if I didn't use this as an opportunity to recognize all of our teammates across the country for the incredible job. They have done taking care of our customers needs and providing stability to our business.
Our people are our most important asset and I'm proud and grateful for their perseverance and unwavering dedication to Monroe and our customers.
Now, let's talk about the progress we made on our operational execution in the third quarter.
Moving on to slide five I'd like to update you on the critical in store initiatives, where you referred to as our big five as well as our store re image program. As a reminder, our big five are the key areas of staffing scheduling training attachment selling and outside purchase management. These.
These initiatives along with the investments we are making to support them are the single best path to sustainable comp sales growth and are expected to lead.
Two improvements in gross profit and operating margins and ultimately these improvements allow us to create additional value for our shareholders through enhanced earning per share significant cash generation and higher returns on invested capital.
Starting with the first two which are staffing and scheduling in the third quarter. We added over 200 high quality net new technicians. This is incremental to the more than 250 technicians, we added in the prior quarter embedded within our net new technician ads is a sequential improvement in turnover of approximately 10.
So between the second and third quarter.
This is a significant accomplishments for two reasons.
First the fact that we are adding technician head count during the historically tight labor market demonstrates that we are progressing towards our goal of becoming the employer of choice in the auto service aftermarket industry.
And second the investments we are making in labor, particularly in our low volume stores represents both an important organizational pivot in our central cultural change at Monro.
Let me provide some additional context to this pivot and why this cultural change represents a critical component of monro as future success.
Many of our stores are understaffed with some technicians working upwards of 70 hours per week with little to no time off.
Amongst other things this leads to unwanted turnover experienced technicians. The turnover of these technicians leads to stores that are further understaffed and a customer experience that is inconsistent and far from desirable. This results in lower sales and is a key contributor to inconsistent operating performance.
Yes.
The investments we are making a labor are specifically aimed at addressing and resolving these issues and ensuring a more sustainable business model longer term. This is exactly the pivot and cultural change that we must undertake to assure that we can capitalize on incremental sales opportunities that will ultimately bring more consistency to our op.
Earning results.
Nothing that will deter us from continuing to invest in high quality labor in our stores as we develop a reliable service model that our customers can count on and trust.
This will position us to take disproportionate gains in the future as our business will be better equipped to capitalize on customer demand from multiyear tailwind such as an improvement in vehicle miles traveled and consumers that are holding onto their cars longer.
In lock step with our additions to in store labor. We are also utilizing our scheduling tool to manage and control their ability and labor costs. So that we can match capacity with demand and allocate resources appropriately between front of shop and back to shop activities.
Our focus on staffing and scheduling resulted in a 24% sequential reduction in overtime hours in the third quarter. This reduction along with our pricing power allows us to significantly offset wage pressures.
Next regarding training, we continue to significantly expand our teammate training through our online learning management system Monro University as well as instructor led sessions held virtually and hands on developments done in store.
Serving as a key enabler of future growth training has been embedded in every aspect of our other initiatives, which will ensure we have the right skill set to deliver a best in class service model.
Yeah.
The next item is attachment selling.
Documents all it was a critical factor in driving our comp sales growth in the third quarter, our comp sales performance in alignments. During the quarter is a great example of the headway we are making in this area.
Alignment comp sales grew approximately two five times more than our entire category. This clearly shows how our store teams are more consistently recommending alignments to rguest purchasing new tires and is another example of our improving in store execution.
In addition, courtesy inspections on our customer vehicles were also critical in driving outperformance and our service categories. During the quarter, we look forward to providing more insight into the benefits of our kersey inspections as we continue to make opportunistic investments in this important area of the business.
And lastly on outside purchase management, we are consolidating our purchasing behind our high quality high availability low cost preferred suppliers to gain important economies of scale.
This allows us to build strong partnerships with fewer suppliers. This consolidation along with our pricing power and category management has allowed us to significantly offset cost pressures and tires and parts.
While our focus is on the big five initiatives, we made important advancements in our store re image program, we initiated and substantially completed the re image up 53 of our recently acquired stores on the West coast in the third quarter.
Most of these stores have now been equipped with our consistent approach to merchandising as well as marketing and branding elements such as new digital signage. This new digital signage displays various promotions and seasonal messages with the objective of conveying a modernized look and feel to the in store experience for our customers and.
In addition improvements such as upgraded service parts, the installation of new flooring and brighter lighting.
More comfortable waiting room chairs as well as the bathroom renovations have also created a more inviting guest experience and while still early we are pleased with our customers' initial response to this program.
We are in the process of finalizing a full review of our portfolio of brands and once complete we intend to expand our store re image program to a broader number of stores across the country. We're also continuing to perform a review of the inventory stocking plan needed to support any store level brand changes.
Turning to slide six our strong cash flow and balance sheet continues to position us to capitalize on strategic and value enhancing consolidation opportunities in a fragmented industry.
As part of our growth strategy, we are and will continue to be a key acquirer of successful businesses.
In the third quarter, we completed the previously announced acquisitions of 17 stores with six stores added in southern California, and 11 in Iowa.
As a reminder, these stores are expected to add annualized sales of approximately $25 million and further expands our geographic reach this brings our year to date acquisition total to 47 stores with expected annualized sales of $70 million.
Next I'd like to provide an update on our corporate responsibility and ESG efforts.
In keeping with the Monro forward Responsibly report that we issued last year, we are continuing to integrate elements of ESG into all facets of our business.
Demonstrating the fundamental importance of these efforts our board of directors has been engaged with us as we work to establish measurable ESG goals that not only create value for our shareholders, but also hold us accountable.
Two our teammates customers and the communities, where we do business. Additionally, we have been meeting with investors to take invaluable feedback as we actively incorporate ESG initiatives as a regular part of our operations and further increase the transparency of future disclosures.
And while we are still formalizing our plan. Some examples of ESG topics that we look forward to updating you on in the future quarters and then our next corporate responsibility report include our approach to human capital supply chain and other assessments and vital enhancements being made to our customer experience.
In summary, we have made significant progress this quarter as we continue to drive topline growth and margin improvement. This ultimately enhances our earnings potential and provides higher returns on invested capital as shown on slide seven we are committed to the highest standards of operational excellence that will enable a virtuous cycle of earnings growth and cash flow Gen.
<unk>, allowing us to continue investing in value enhancing acquisitions, we will continue to build a strong scalable platform for long term sustainable growth.
Looking ahead, our focus remains on our teammates customers and in store execution as the critical drivers to realizing the full potential of our monro forward strategy.
Our leadership team and our teammates are aligned with our vision. They are energized by our mission of being a best in class service first organization that prioritizes its customers and the communities. It serves.
Together, we are keenly focused on bringing customers to the professionalism and high quality service. They expect from a national retailer with a convenience and trust of the neighborhood garage.
This focus will maximize the value that we can create for our customers and all of our stakeholders with that I'll now turn the call over to Brian who will provide an overview of Monrose third quarter performance and strong financial position Brian .
Thank you, Mike and good morning, everyone.
Let me take a few minutes to talk about our third quarter performance and the meaningful progress we made in the quarter.
Turning to slide eight sales increased 21% year over year to $341 $8 million in the third quarter up approximately 4% compared to pre COVID-19 levels in fiscal 2020.
Same store sales increased 13, 8% driven by broad based strength across all product and service categories.
<unk> from new stores increased by $18 $5 million, primarily from recent acquisitions.
Gross margin increased 150 basis points from the prior year to 35, 3% accelerating from the 140 basis point improvement in the second quarter.
The year over year increase was due to higher comparable store sales, which resulted in lower fixed distribution and occupancy costs as a percentage of sales.
Also contributing was a higher sales mix of service categories compared to the prior year period.
Variable gross profit was positively impacted by a 9% year over year increase in gross profit per tire, reflecting the ongoing benefits of our tire category management and pricing tool.
We made an incremental investment in technician payroll costs to support current and future top line growth amidst improving consumer demand trends for our product and service categories.
We estimate that this incremental investment and technician payroll, which approximated $5 million impacted gross margin by 150 basis points in the quarter.
As a reminder, we were staff for a more supportive weather backdrop, which we believe would've resulted in higher sales.
We continue to execute disciplined cost controls with total operating expenses of $93 $1 million or 27, 3% of sales as compared to $85 million or 28, 3% of sales in the prior year period.
The dollar increase is due to higher store management payroll and store operating expenses in the quarter to support strong consumer demand. The remaining dollar increase was from the expenses of 43 net new stores.
Operating income for the third quarter grew substantially to $27 $4 million or 8% of sales as compared to $15 $7 million or five 5% of sales in the prior year period.
Net interest expense decreased to $5 $7 million as compared to $6 $8 million in the same period last year. This was principally due to a decrease in weighted average debt.
Income tax expense was $5 $5 million and a tax rate of 25, 3% compared to $2 $3 million and a tax rate of 25, 2% in the prior year period.
Net income was $16 $3 million as compared to $6 $7 million in the same period last year.
Diluted earnings per share was <unk> 48.
Compared to <unk> 20 for the same period last year.
Adjusted diluted earnings per share a non-GAAP measure was <unk> 49 in the quarter and excluded <unk> <unk> per share of costs related to our monro forward initiatives.
This compares to adjusted diluted earnings per share of 22 for the same period last year, which excluded <unk> <unk> per share of costs related to our monro forward initiatives and a benefit related to the reversal of a reserve for potential litigation.
As highlighted on slide nine we continue to maintain a solid financial position to support our operations and enable the execution of our long term growth strategy, we generated $127 million of cash from operations. During the first nine months of fiscal 2022, we maintained our measured approach.
The capital allocation and invested $17 million in capital expenditures paid $83 million for acquisitions and spent $29 million in principal payments for financing leases.
Additionally, we distributed <unk> $26 million in dividends.
Our balance sheet and liquidity position remains strong at the end of the third quarter, we had net bank debt of $185 million and a net bank debt to EBITDA ratio of one time.
We ended the quarter with cash and cash equivalents of $9 $5 million and availability under our revolving credit facility of $375 million.
Last quarter, we amended our credit agreement primarily to reduce our LIBOR interest floor from point, 75% to zero percent. We continue to expect that this will contribute $1 million in annualized interest expense savings at current debt levels.
As we progress through the fourth quarter of fiscal 2022, we remain committed to comp sales growth margin expansion and significant cash creation.
We plan to continue executing operational enhancements across our business to grow sales and expand margins.
These efforts will drive growth in EBITDA and increased cash flow generation.
In addition, we remain focused on working capital improvements and we believe we have additional opportunities in this area spur.
Specifically, we are focused on improving our cash conversion cycle with an emphasis on inventory and payables.
Turning to our outlook on slide 10.
COVID-19 situation remains fluid, which makes it difficult to accurately forecast the impact of the ongoing pandemic on our future operations.
While we are not providing formal guidance for the remainder of fiscal 2022, we remain optimistic given our third quarter momentum and the positive trends in the business in.
In addition, we've provided some financial assumptions to assist you with your modeling.
We expect tire and oil cost to continue to increase year over year, considering the inflationary environment, we will continue to optimize our supply chain leverage our strong strategic partnerships and capitalize on our cost leadership position, we have a long history of managing the business successfully through periods of inflation.
And to reiterate we will continue to invest in high quality labor in our stores as we develop a reliable service model as we make these investments we expect gross margin improvement in the fourth quarter versus prior year as our service category sales strengthened.
Lastly, regarding our capital expenditures, we expect to spend approximately $30 million to $40 million in fiscal 2022.
And with that I will now turn the call back over to Mike for some closing remarks.
Thanks, Brian we're encouraged by our solid performance in the third quarter and optimistic about the outlook of our business for the fiscal fourth quarter and beyond overall, we remain well positioned to capitalize on strong demand, while having the financial flexibility to execute our growth strategy and deliver long term value creation for our shareholders.
Yeah.
With that I will now turn the call over to the operator for questions.
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<unk>.
We'll pause a moment to poll for questions.
Thank you. Our first question comes from the line of Jonathan Lamers with BMO capital markets. Please proceed with your question.
Good morning.
Good morning, John .
So thanks for all the comments on labor and your efforts to.
Increased capacity.
Sequentially did the need for overtime hours increase from Q2 into Q3 and into January .
Yeah. It's a good question because I'm very proud of the work that the team has done.
I would say we addressed overtime was one of the big.
Really margin when we looked at the quality of our teammates and we looked at really addressing our.
Turnover, our retention initiatives and really our people initiatives. We looked at overtime is not only an opportunity for our financials, improving our financials, but also how do we improve our business model. So when I look at the overtime.
Very happy with the 24% reduction where we did invest we did invest additional obviously we spent on overtime. When we're managing really the people agenda as people were dealing with sickness and we definitely saw that over the last six weeks.
We're still investing in over time, so when I look at our performance at 24% improvement I do feel like we still invested in overtime, we could have actually seen.
Actually better results and obviously that would have.
If we didn't have this new pandemic towards the Covid wave upon us.
Okay, and just a follow up on that at 24% reduction versus.
Versus prior year.
Q2.
And thanks, and just Brian is that this is all separate from the investment that.
It was made and payroll costs.
What do you expect that that will reduce overtime further going forward will depend on the cuisine.
Yeah, Jonathan as we continue to invest in the high quality technicians in our stores, we would expect to continue to see over time come down and as Mike said over the last six weeks I think we would have seen.
And even further reduction over time that we than we saw.
But we did augment our our store staffing with overtime just to really manage and get through the COVID-19 related absences that we saw a spike over the last period of time, but on the other side of that that wave will continue to see the trend as we add labor.
Okay I'll pass the line. Thank you.
Thank you.
Thank you. Our next question comes from the line of Bret Jordan with Jefferies. Please proceed with your question.
Hey, good morning, guys.
Good morning, Brian and Brian could you talk about the impact of price versus traffic and the comp in the quarter as well as January .
Yeah, the comp sale was led by ticket.
As it has been.
We're seeing.
Kind of better traffic trends, particularly year over year.
But it was led by by ticket and that has continued into the quarter. Our team has done a really good job.
Executing in store.
When the gas comes in with recommending other needed work and Thats really done through our courtesy inspection, but you need the staffing in store to be able to do that and the training.
And the attachment selling so all of that is really I think coming to life in that in store selling and that is helping to support.
Improvements in ticket.
And that staffing ultimately, we believe will be supportive of our traffic trends going forward.
Since I only get two questions I can all but two of them end of the second one but could you give us the housekeeping numbers on monthly comp for the peer for that for the quarter as well as maybe some regional performance spread between west southeast northeast.
Yeah.
Laid out on slide four the monthly comps, but it was up 13.8 in October 17, five in November and nine in December .
Dan.
And geographically, we saw double digit comps across all of our regions.
Our year over year, but we did see a little bit outperformance in.
You know the the west and in the.
The north a little bit only because of they are still coming out of a more difficult year over year comparisons. Okay. Because your comment about weather impact I would have expected maybe underperformance in the northern markets with it not just with the weather not enough to offset what was an easy year over year compare.
Exactly exactly I do think though if you look at all across our regions. We saw really good performance out of our brake and alignment categories and that really helped to support the top line and us to really deliver the expectation on the top line at least the external expectation our internal was that with the right while they're set up that would have been.
In a normal weather setup tires in the northeast would've would've come to life more than they did in that would've allowed us as we talked about at an even higher top line.
So if there was a category in the in the December quarter that you sort of.
Less strong it was hires related to weather.
Yes, Thats right okay, great. Thank you.
Thank you.
Thank you. Our next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.
Hi, good morning.
Good morning, Brian .
Apologize if my questions a bit of a follow up.
Sure.
So I just understand better.
Response to <unk> question, a moment ago, you talked about the monthly cadence through the fiscal third quarter going into the fourth quarter to underwrite.
The slowdown I mean, theyre going out going from what was a high single digit if not double digits, but the 1% is that is that whether it was some of the cracker quiet.
No, it's about recognizing you're not giving guidance.
The balance of fiscal year, but how should we think about that.
The puts and takes.
With regard to sales over the next several weeks or a couple of months or whatever.
Yeah, I'll take that and obviously, Brian you can add on but the.
I would say looking at the December we were going to get some more difficult comp now we definitely staffed and we had an expectation for the tire category that we would have.
Had a very strong quarter very strong December .
The good news is we were still able to deliver a very strong service comp coming out of December now when you look at the January .
We're competing with stimulus dollars in the first couple of weeks, but when you look at the two year comp. It's one of our strongest two year comps of one on three and then last but not least I want to bring to your attention that the team did this all without us really doing any.
Promotional activity so when I look at the 9% growth in gross profit on an entire category, we really really stuck to.
The position of Hey, look we're going to staff our stores, we're going to develop a very strong retail service organization and we're gonna be a we're going to just be very rational as a competitor in the marketplace.
So that we can manage the demand for the long term.
Okay got it.
And as a follow up I guess, maybe I.
So with regard to sell just stepping back.
I think when we're talking to American environment's very fluid out there, but if you look at just the underlying.
Demand trends within your stores I mean, clearly you have made significant progress.
Improving your operations. So that's helping you to connect better with your consumers, but the real question is how do you view. This on a call like this you know this this this tailwind as the economy has started.
Starting to move away from the Covid crisis.
People getting miles driven stride tick up again, I mean is that is that still a tailwind for your business and to what extent how long should that last.
So I don't know exactly the timing, but I'll tell you I am absolutely view that our tailwind in our business. So what we're doing in the third quarter is really I would say we started in the second quarter really starting to talk about the investments in our people.
We talked about staffing scheduling training and we're getting ready for I would say that <unk> in the industry for their service categories.
Not just tires brakes, but it's as people get back on the road. The failure that we have to it's going to be more it's going to be broader than just tires and brakes and oil change is going to be.
Under Hood check engine light. These are all things that we're bringing to the marketplace new categories that we're going to really emphasize on what that takes though is.
Making sure that we have a qualified.
Service organization to be able to take care of the cars in the markets that we serve.
Yes, we're actually building an organization really from what we see as a significant tailwind to this industry.
Got it appreciate it thank you.
Thank you.
Thank you. Our next question comes from the line of Rick Nelson with Stephens, Inc. Please proceed with your question.
Brian .
To follow up.
It's payroll gross margin headwind.
Headwind.
How long do you pick those stepped up period I've written about spend that was going to be needed.
As we think about gross margin.
For next year do you think tech payroll is bigger.
Bigger.
First time to sale of some fiscal 'twenty three.
Yeah. Good morning, Rick I would say that anything I tell you. It's all like a limiter on the investment I will hire right now all qualified technicians and I'll find a position for them in our stores. So I would say the investment thesis and the focus on driving service categories and making sure that we.
We're ready to be able to take care of the customers that are going to need us.
That's going to be something that we're going to continue to focus on now we do have a plan by store.
But remember as we drive the service categories. It's a higher margin business, we've talked about a 70 margin compared to a tire category that does up 40 margin.
So we do believe these investments are going to be accretive on the margin side as well as on the topline.
Great.
You can do here.
I'm just curious how so you are not where you're able to pass through the wage investment.
So as we look at your sales categories.
Whereas hippies he is kind of maybe where things.
Take care.
No. That's a great question, Rick and I'll divide it in two different categories first and foremost tires.
Being the most of the cost increases on tires, we actually flow through where a rational competitor, we do the necessary price grapes, so that we stay competitive in the marketplace.
When our in this industry the suppliers generally pass along national price increases cost increases so everybody acts very normal. The good news here is we actually grew 9% gross profit on our tire category, we're staying very rational to our competitors.
The position that the industry is in and I like our position in the industry now on the parts side in the service side.
The investment parts are very small part of the repair order. It's most of it is actually in our technician pay when you look at our costs and in the gross profit associated with it and the way we manage that with this local labor rates staying competitive in the marketplace as the industry is investing in technicians. It generally invest in our high.
Labor rate and its an offset so two very different strategies inside of our buildings, but both of which it seems like right now we're able to pass along the cost to our customers.
Thanks for the color Mike Carrel much appreciate it.
Yes.
Thank you Rick.
Thank you. Our next question comes from the line of David Bellinger with Wolfe Research. Please proceed with your question.
Hey, Thanks for taking my question.
And the other one morning further contextualize that good morning, Yeah. Another one to further contextualize that the January comp trends have you seen some type of stabilization in recent weeks.
I know there are a number.
There are companies out there talking about a slower late December early January with just the spread of the new variant, but have you seen anything change in recent weeks or is it or is this more of a continuation with lapping stimulus and the child tax credit disbursements running out just any comment you can make on what you're seeing in the later stages.
January .
Yeah, I think that that dynamic that you just laid out is.
As you know.
Kind of true for us as well you know we saw a top six weeks in general with the Covid related absences debt you know being a service model as Mike said in his prepared remarks, our labor really is our product and to have that in store or to not have that in store because of Cobra related absences and it really puts.
Russia on our topline so we thought that.
The comp trends that we were able to deliver and the team was able to deliver despite that challenge and despite some of the stimulus that you mentioned.
Really.
A great outcome and great effort by the team, but as we move further from the December stimulus and we move.
To lower and lower cases related to omicron, each day that obviously abates that that disruption.
<unk> allows those more supportive longer term trends related to VA and vehicle miles traveled in cars aging out to really come through and the good news is we've got the labor in place to kind of pivot from.
Holding down the four during the challenging period, and really going and playing offense and executing our in store model.
As those challenges.
Become more minimal.
Thanks, Brian that's that's very helpful. And then just my my follow up here on on the sequential improvement in our overtime hours.
So now as you step back how much overtime is still in the system today, and what's the timeframe to reaching call. It a more normalized level of beauty and potentially better flow through to operating margins.
Yeah.
I'll take that David the opportunity that we have with overtime is really developing a service organization I can't keep working people $60 70 hours, a week and think that they're going to stay with me. So the opportunity is honestly that we have more normal work weeks for our teammates with developing a service organization in every store.
But it really gives us the opportunity to flex when the demand actually hits.
And that's where I'm really looking forward to actually spending over time talking to you about the investments and over time, if it comes to life because what we're doing is really investing in the growth and we have an organization, that's ready and prepared for it rather than being just a normal way of doing business. We have a long way to go still I'm very happy with the 24%.
<unk> I'm very happy with the retention improvement.
And the turnover improvement that we're seeing in our organization. The last thing I wanted to do is train our technicians for our competitors. So I like the work that the team is doing.
Do believe that it's setting us up for a strong Q4 and have a great 2023.
As things normalize and that's what I'm, hoping for for everyone, but that is just good retail.
Just making sure that we are best in class service providers, making sure that we have a team ready to go and they are willing to flex up and they want to take that over time, when theres a lot of demand.
Thank you both appreciate it.
Thank you thanks, David.
Thank you. Our next question comes from the line of Scott Steinberg with C. L. King <unk> Associates. Please proceed with your question.
Good morning, guys and thanks for taking my questions.
Good morning, Scott.
Could you guys maybe.
Let us know how much.
Speaker 1: segment underperformed due to weather? Just trying to get a sense of where tire sales could have been and the impact down to the bottom line? Yes.
Higher segment underperformed due to weather just trying to get a sense of where tire sales could have been and the impact on to the bottom line.
Oh, Yes got I'll take this is Bryan good morning.
Speaker 2: Not going to quantify it. I think that if you look at...
I cannot quantify it I think that if you look at.
Speaker 2: the industry trends, particularly in the Northeast, you can see the impact.
The industry trends.
Particularly in the North East you can see the impact.
Speaker 2: Uh, year over year in the units.
Year over year.
And so.
So we were in line with the industry, which are the industry being kind of pressured as it related to northeast weather dynamics. So the what we're what we're happy about though is we continue to grow our average selling price than our average gross profit per tire.
Speaker 1: being kind of pressured as it related to northeast water dynamics. What we're happy about though is we continue to grow our average selling price and our average gross profit per tire as we really lean on and optimize our tire category management tool. So that's been important for us to help manage that dynamic. But I don't think we're disappointed at all in our units relative to the industry. Ok got it. And then my follow up.
We really lean.
Lean on and optimize our our tire category management tool. So that's been important for us to help manage that dynamic, but I don't think.
We are disappointed at all in our units relative to the industry.
Speaker 1: Okay, got it. And then my follow-up, we've been a year and a half to two years into the store reformations and a lot of these new programs going into place. With all this data and all this evidence, is there any way to talk about how those stores on balance over time have performed versus the stores that have not gone through some of these bigger changes?
Okay got it and then my follow up.
Have a good year and a half to two years into.
The store re formations and a lot of these new programs going into place.
With all this data and all this evidence is there any way to talk about how those stores on balance overtime have performed versus the stores that have not gone through some of these bigger changes.
Speaker 2: Yeah, I mean, I think we've said historically that it's been 500 basis points of of our performance on the top line. I can't say there's a lot of things pushing and pulling at these stores. They really are. Remember their individual stores affected by all the things we talked about today. Staffing levels. Weather dynamics, waves, so I mean, there's a lot of, I think.
Yeah, I mean, I think we've said historically that it's been 500 basis points of outperformance on the top line I can say you know theres a lot of things pushing and pulling at these stores. They really are remember their individual stores affected by all the things he talked about today staffing levels, while there are dynamics Covid wave.
So I mean, there's a lot of I think.
Speaker 2: undercurrents that prevent maybe the overall trends from coming all the way through. But because of that, we've kind of not really talked about it anymore in our prepared remarks. But it's been 500 basis points through the last time that we disclosed that.
Undercurrents that prevent maybe the overall trends from coming all the way through but because of that we've kind of not really lots.
Talks about it anymore in our prepared remarks, but it's been 500 basis points through the last time that we disclose that.
Got it thanks again.
Thank you. Thank you.
Speaker 3: Thank you. Our next question comes from the line of Stephanie Moore with Truett Securities. Please proceed with your question.
Thank you. Our next question comes from the line of Stephanie more maturing Securities. Please proceed with your question.
Hi, good morning.
Good morning, good morning Steffen.
Speaker 4: So I did want to follow up on a prior comment. You made Mike, and I think it's clear, noting the strategy to expand further into service categories, but I think you did call out expanding, you know, further with even under-the-hood services. So maybe if you just want to follow up on that comment or expound on the area where you would consider to further expand just your offerings within service.
I did want to follow up on a prior comment you made Mike and I think it's clear, noting the strategy to expand further into service category, but I think you did call out expanding further what's even under the services. So maybe if you can just wanted to follow up on that comment or I found out the area, where you would consider to further expand.
And just you're offering that service.
Speaker 5: No, that's a great question. So yes, just so I can be clear we Monroe in the past has been very focused on I mean we started off with the exhaust, but now we've migrated to heavy tire We've talked about the mix between tire and service heavy tire heavy brake oil change
No. That's a great question. So yes, just so I can be clear we monro in the past has been very focused on I mean, we started off as the exhaust but now we've migrated to heavy tire we've talked about the mix between tire and service have retire heavy break oil change.
Speaker 5: But when you look at a complete car care, check engine light is a big category that I would say has a lot of
But when you look at our complete car care check engine light is a big category that I would say it has.
Speaker 5: we still have a significant opportunity to improve, and that is under hood, where you have the sensors, whether it's O2, and the whole engine management category that's so significant in our industry. One of the things that comes to life is the check engine light, and we are going to continue to build out our organization.
We still have a significant opportunity to improve and that is under hood.
Where you have the sensors.
Whether it's Oh, two and the whole engine management category that so significantly in our industry.
One of the things that comes to life is the check engine light and we are going to continue to build out our organization and that's really important you have to have the technicians to be able to properly diagnose check engine light and that's what we're focused on it's not just tires and brakes I mean, we're still going to do a great job doing that but as our customers come in theres going to be a check engine light theyre going to need.
Speaker 5: And that's really important. You have to have the technicians to be able to properly diagnose.
Speaker 5: check engine light. And that's what we're focused on. It's not just tires and brakes. I mean, we're still going to do a great job doing that. But as our customers come in, there's going to be a check engine light. They're going to need to make sure that we don't let that car come off that lift without making sure that we resolve that check engine light at the same time. And I would say it's a big opportunity for our organization.
Need to make sure that we don't let that car come off that lift without making sure that we resolve that check engine light at the same time and I would say, it's a big opportunity for our organization.
Speaker 5: and I would say it's a category that we've significantly underperformed.
And I would say, it's a category that we've significantly underperformed.
Speaker 4: Got it. No, that's helpful. And then my second question on M&A, can you maybe discuss your current pipeline, any kind of dollar color you can give of what you have kind of lined up here, what competition you're seeing from an M&A standpoint, given the consolidation trends of any M&A color would be helpful. Thank you.
Got it no that's helpful and then my follow up.
And M&A can you maybe discuss your current pipeline 90 kind of dollar cost you can get a lot of what you have kind of lined up here.
Competition, you're seeing from an M&A standpoint, given the consolidation trends of any M&A color would be helpful. Thank you.
Speaker 2: Yeah, I'll take that Stephanie. So obviously we've talked about the 47 stores that we've completed already 70 million in annualized sales. So a healthy rate of acquisition growth already this year through through three quarters and we continue to see a lot of opportunities for some very value enhancing acquisition.
Yeah, I'll take that Stephanie.
So obviously, we've talked about the 47 stores that we've completed already $70 million in annualized sales so healthy.
Rate of acquisition growth already this year through three quarters.
And we continue to see.
A lot of opportunities for some <unk>.
Very value enhancing acquisitions, we have 10, plus NDA signed which is consistent with what we've had and we feel like we're in a really good position to be able to execute on some of those are in order to get our and continue our acquisition growth strategy. We've got a strong balance sheet, we're generating a lot.
Speaker 2: We have 10 plus NDA sign, which is consistent with what we've had. And we feel like we're in a really good position to be able to, you know, execute on some of those in order to get our, and continue our acquisition growth strategy. We've got a strong balance sheet. We're generating a lot of cash.
Speaker 2: And we know that our acquisition growth is a great opportunity to really enhance shareholder value. So we remain focused on it. It's a key pillar of our growth strategy. And I'm sure we'll have more to talk about that on future quarters.
Cash and we know that our acquisition growth is a great opportunity to really enhance shareholder value. So we remain focused on it. It's a key pillar of our growth strategy and I'm sure we'll have more to talk about that.
In future quarters.
Great well thank you so much.
Thank you.
Speaker 3: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Broderick for final
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. <unk> for final comments.
Speaker 5: Thank you for joining us today. This is an exciting time to be part of Monroe. We have a strong foundation to build upon to create long-term value for all our stakeholders. I look forward to keeping you updated on our progress. Have a great day.
Thank you for joining US today. This is an exciting time to be part of Monroe, We have a strong foundation to build upon to create long term value for all our stakeholders I look forward to keeping you updated on our progress have a great day.
Speaker 3: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.