Q2 2024 Monro Inc Earnings Call

Speaker 1: Good morning, ladies and gentlemen, and welcome to Monroe Inc. earnings conference call for the second quarter of fiscal 2024. 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.

Good morning, ladies and gentlemen, and welcome to Monroe incorporated earnings Conference call for the second quarter of fiscal 'twenty to 'twenty four at this time all participants are in a listen only mode.

We will conduct a question and answer session and instructions will follow at that time.

Speaker 1: If anyone should require assistance during the call, please tell Star Zero on your touch-town phone. And as a reminder, this conference call is being recorded and may not be reproduced in whole or in part without permission from the car.

If anyone should require assistance during the Coke freestyle star zero on your Touchtone phone and as a reminder, this conference call is being recorded and may not be reproduced in whole or in part without permission from the company.

Speaker 1: I would now like to introduce Felix Bexler, Senior Director of Investor Relations at Monroe.

I'd now like to introduce Phoenix Senior director of Investor Relations at Monroe. Please go ahead.

Speaker 2: 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 we will be referencing a presentation that is available on the investor section of our website at corporate.monroe.com forward slash investor.

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. We will be referencing a presentation that is available on the investors section of our website at corporate got Munro Dot com forward slash investors, if I could draw your attention to the <unk>.

Speaker 2: If I could draw your attention to the Safe Harbor Statement on slide two, I'd like to remind participants that our presentation includes some forward-looking statements about Monroe's 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 fileings with the SEC and in our earnings release.

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, 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 measure.

Speaker 2: The company disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise except as required by law. Additionally, on today's call, management statements include a discussion of certain non- GAAP financial measures, which are intended to supplement and not be substitutes for comparable GAAP measures .

<unk>, 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 and in our earnings release with that I would like to turn the call over to <unk>, President and Chief executive of.

Speaker 2: Reconciliations of such supplemental information to the comparable GAAP measures will be included as part of today's presentation and in our earnings release. With that, I'd like to turn the call over to Monroe's President and Chief Executive Officer, Michael Broderick.

Officer, Michael Broderick.

Speaker 3: Thank you Felix and good morning everyone. I'd like to spend the first part of our call this morning walking through our second quarter performance, which reflected top line results that were challenged.

Thank you Felix and good morning, everyone.

I'd like to spend the first part of our call. This morning walking through our second quarter performance, which reflected topline results that were challenged.

Speaker 3: This was due to consumers deferring tire purchases as persistent inflationary pressures impacted purchases of higher ticket items across the retail spectrum.

This was due to consumers differing tire purchases as persistent inflationary pressures impacted purchases of higher ticket items across the retail spectrum.

Speaker 3: This was clearly evidenced by an industry-wide slowdown in tire unit sales in the regions of the country where a vast majority of our store footprint is concentrated.

This was clearly evidenced by an industry wide slowdown in tire unit sales in the regions of the country, where a vast majority of our store footprint is concentrated.

Speaker 3: We mitigated the slowdown with actions to reduce non-productive labor costs, including overtime hours in our store.

We mitigated this slowdown with actions to reduce non productive labor cost, including overtime hours in our stores.

Speaker 3: Despite a tough macroeconomic environment, the resiliency of our business model allowed us to expand gross margin and maintain our year-over-year profitability, even on a lower tire sales volume.

Despite a tough macroeconomic environment, the resiliency of our business model allowed us to expand gross margin and maintain our year over year profitability, even on a lower tire sales volume.

Speaker 3: I'll also discuss our plans to deliver improved earnings this fiscal year, despite some of the consumer-related headwinds that we and others in our industry are experiencing.

I'll also discuss our plans to deliver improved earnings this fiscal year. Despite some of the consumer related headwinds that we and others in our industry are experiencing.

Before I get into the specifics I'd be remiss, if I didn't take a moment to recognize and thank all of our teammates for their continued dedication to monro.

Speaker 3: Before I get into the specifics, I'd be remiss if I didn't take a moment to recognize and thank all of our teammates for their continued dedication to Monroe, serving the needs of our customers as well as their positive contributions to the communities where we operate.

Serving the needs of our customers as well as their positive contributions to the communities where we operate.

Now turning to our second quarter results.

Speaker 3: Our second quarter comparable store sales declined approximately 2%.

Our second quarter comparable store sales declined approximately 2%.

Comp store sales were down approximately 1% and our 300 smaller underperforming stores and down approximately 2% and our remaining store locations.

Speaker 3: I was asked stated earlier. Our sales results in the quarter were challenged by consumer deferrals of tire purchases as evidenced by industry-wide slowdown entire unit sales in the regions of the country where a vast majority of our store footprint is concentrated.

As I stated earlier, our sales results in the quarter were challenged by consumer deferrals of tire purchases as evidenced by industry wide slowdown in tire unit sales in the regions of the country, where a vast majority of our store footprint is concentrated.

Speaker 3: This led to pressured store traffic, which was not supportive to sales of our higher margin service categories in the quarter.

Led to pressured store traffic, which was not supportive to sales of our higher margin service categories in the quarter.

Speaker 3: While our tire units were down approximately 10%, leveraging the strength of our manufacturer Fungip Promotions allowed us to optimize our assortment for approved tire profitability in the quarter.

While our tire units were down approximately 10% leveraging the strength of our manufacturer funded promotions allowed us to optimize our assortment for improved tire profitability in the quarter.

Unknown Attendee: Good morning ladies and gentlemen and welcome to Monroe Incorporated's earnings conference call for the second quarter of fiscal 2024. 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.

Speaker 3: And while continued consumer trade down dynamics led to a higher proportion of lower margin opening price point tires within overall industry unit sales, we remain focused on maintaining a healthy mix of opening price point tires in the quarter. Encouraging based on the retail sellout data from Torqueta, a subsidiary of ATD, we maintained our tire market share in our higher margin.

And while continued consumer trade down dynamics led to a higher proportion of lower margin opening price point tires within overall industry unit sales, we remain focused on maintaining a healthy mix of opening price point tires in the quarter.

Unknown Attendee: If anyone should require assistance during the call, please tell star zero on your touch tone phone. And as a reminder, this conference call is being recorded and may not be reproduced in whole or in part without permission from the company.

Encouragingly based on the retail sell out data from tour Kita a subsidiary of ATB, we maintained our entire market share in our higher margin tiers.

Felix Veksler: I would now like to introduce Felix Veksler, Senior Director of Investor Relations at Monroe. Please go ahead. Thank you. Hello everyone and thank you for joining us on this morning's call. Before we get started, please note that as part of this call, we will be referencing a presentation that is available on the investor section of our website at corporate dot Monroe dot com forward slash investors. If I could draw your attention to the safe harbor statement on slide two, I'd like to remind participants that our presentation includes some forward-looking statements about Monroe and Monroe's future performance.

Speaker 3: We mitigated this industry-wide slowdown in tires with actions to reduce non-productive labor costs, including overtime hours in our stores, which were down 26% year-over-year and 14% sequential.

We mitigated this industry wide slowdown in tires with actions to reduce nonproductive labor costs, including overtime hours in our stores, which were down 26% year over year and 14% sequentially.

Speaker 3: This allowed us to expand gross margin and maintain our year over year profitability, even on lower tire sales volume.

This allowed us to expand gross margin and maintain our year over year profitability, even on lower tire sales volumes.

Speaker 3: We will continue to closely manage our labor costs and expenses to maximize profitability.

We will continue to closely manage our labor costs and expenses to maximize profitability.

Felix Veksler: 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. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, on today's call, management statements include a discussion of certain non-gap financial measures, which are intended to supplement and not be substitutes for comparable gap measures. Reconciliation of such supplemental information to the comparable gap measures will be included as part of today's presentation and in our earnings release.

Speaker 3: Now, concluding with our plans to deliver improved earnings this fiscal year, despite a choppy consumer environment.

Now concluding with our plans to deliver improved earnings this fiscal year, despite a choppy consumer environment.

Speaker 3: While our preliminary comp store sales for fiscal October are down approximately 5%, our stores are properly staffed and ready for the back half of the year.

While our preliminary comp store sales for fiscal October are down approximately 5% our stores are properly staffed and ready for the back half of the year.

Speaker 3: And while we will need to see an improvement in the overall health of the consumer, before we can fully capitalize on longer-term industry tailwinds, we have successfully repositioned our cost structure to deliver improved profitability even on lower-com store sales.

And while we will need to see an improvement in the overall health of the consumer before we can fully capitalize on longer term industry tailwind. We have successfully repositioned our cost structure to deliver improved profitability, even on lower comp store sales, we will remain relentlessly focused on achieving comp.

Speaker 3: We will remain relentlessly focused on achieving comp store sales growth through accelerating growth in our 300 small or underperforming stores, maintaining a balanced approach between our tire and service categories with competitive pricing to drive store traffic, and continuously improving our

Door sales growth through accelerating growth in our 300 smaller underperforming stores, maintaining a balanced approach between our tire and service categories with competitive pricing to drive store traffic and continuously improving our customer experience.

Michael Broderick: With that, I'd like to turn the call over to Monroe's president and chief executive officer Michael Broderick. Thank you Felix and good morning everyone. I'd like to spend the first part of our call this morning walking through our second quarter performance, which reflected top line results that were challenged. This was due to consumers deferring tire purchases as persistent inflationary pressures impacted purchases of higher ticket items across the retail spectrum. This was clearly evidenced by an industry-wide slowdown entire unit sales in the regions of the country where a vast majority of our store footprint is concentrated.

Speaker 3: We will also strive to expand our gross margins through properly training our teammates to maximize their productivity.

We will also strive to expand our gross margins through properly training, our teammates to maximize their productivity.

Speaker 3: However, given the current pressures on the consumer, we are also laser focused on maximizing profitability through prudent cost control, which concludes right sizing our fixed costs and rationalizing unproductive labor.

However, given the current pressures on the consumer we are also laser focused on maximizing profitability through prudent cost control, which includes right sizing our fixed costs and rationalizing unproductive labor.

Speaker 3: While we take these actions, we will not cut productive labor at the sacrifice of our standards and to the detriment of our long-term service model.

While we take these actions we will not cut productive labor at the sacrifice of our standards and to the detriment of our long term service model.

Michael Broderick: We mitigated this slowdown with actions to reduce non-productive labor costs, including overtime hours in our stores. Despite a tough macro economic environment, the resiliency of our business model allowed us to expand gross margin and maintain our year-over-year profitability even on a lower tire sales volume. I'll also discuss our plans to deliver improved earnings this fiscal year, despite some of the consumer-related headwinds that we and others in our industry are experiencing.

Speaker 3: In addition, we will continue to create cash by optimizing inventory and leveraging the strength of our vendor partners for better availability, quality, and cost of parts and tires in our store.

In addition, we will continue to create cash by optimizing inventory and leveraging the strength of our vendor partners for better availability quality and cost of parts and tires and our stores Inc.

Speaker 3: In closing, despite the challenges posed by the current macro economic environment, our business continues to be well positioned. And we are confident that we remain on a path to restore our gross margins back to pre-COVID levels with double digit operating margins over the longer term. With that, I'll now turn the call over to Brian , who will provide an overview of Monroe's second quarter performance.

In closing despite the challenges posed by the current macroeconomic environment. Our business continues to be well positioned and we are confident that we remain on a path to restore our gross margins back to pre COVID-19 levels with double digit operating margins over the longer term with that I'll now turn the call over to Brian who will provide.

Michael Broderick: Before I get into this specifics, I'd be remiss if I didn't take a moment to recognize and thank all of our teammates for their continued dedication to Monroe, serving the needs of our customers as well as their positive contributions to the communities where we operate. Now, turning to our second quarter results. Our second quarter comparable store sales declined approximately 2%. Cobb Store sales were down approximately 1% in our 300 small or underperforming stores and down approximately 2% in our remaining store locations.

An overview of Monro as second quarter performance.

Speaker 3: strong financial position, and additional color regarding fiscal 2024.

Strong financial position and additional color regarding fiscal 2020 for Brian.

Speaker 4: Thank you, Mike, and good morning, everyone. Turning to slide eight, sales decreased 2.3% year over year to $322.1 million in the second quarter, which is primarily due to lower tire unit sales.

Thank you, Mike and good morning, everyone.

Turning to slide eight sales decreased two 3% year over year to $322 $1 million in the second quarter, which was primarily due to lower tire unit sales comp.

Speaker 4: Comparable store sales decreased 2.3% and sales from new stores increased approximately 1.2 million dollars.

Comparable store sales decreased two 3% and sales from new stores increased approximately $1 2 million.

Speaker 4: Gross margin increased 30 basis points compared to the prior year, primarily resulting from lower material costs as a percentage of sales, which were partially offset by higher distribution and occupancy costs as a percentage of sales, as well as higher technician labor costs as a percentage of sales due to wage inflation.

Gross margin increased 30 basis points compared to the prior year, primarily resulting from lower material costs as a percentage of sales, which were partially offset by higher distribution and occupancy costs as a percentage of sales as well as higher technician labor costs as a percentage of sales due to wage inflation.

Michael Broderick: As I stated earlier, our sales results in the quarter were challenged by consumer deferrals of tire purchases as evidenced by industry wide slowdown entire unit sales in the regions of the country where a vast majority of our store footprint is concentrated. This led to pressured store traffic, which was not supportive to sales of our higher margin service categories in the quarter. While our tire units were down approximately 10%, leveraging the strength of our manufacturer, Fungit Promotions allowed us to optimize our assortment for approved tire profitability in the quarter.

Speaker 4: Total operating expenses were $92.6 million, or 28.8% of sales, as compared to $93.3 million, or 28.3% of sales in the prior year period.

Total operating expenses were $92 $6 million or 28, 8% of sales as compared to $93 $3 million or 28, 3% of sales in the prior year period.

Speaker 4: The increase as a percentage of sales was principally due to lower year-over-year comparable store sales.

The increase as a percentage of sales was principally due to lower year over year comparable store sales.

Michael Broderick: And while continued consumer trade-down dynamics led to a higher proportion of lower margin opening price point tires within overall industry unit sales, we remained focused on maintaining a healthy mix of opening price point tires in the quarter. Encouragingly, based on the retail sellout data from Torcata, a subsidiary of ATD, we maintained our tire market share in our higher margin tiers. We mitigated this industry wide slowdown in tires with actions to reduce non-productive labor costs, including overtime hours in our stores, which were down 26% year-over-year and 14% sequentially.

Operating income for the second quarter declined to $22 4 million or six 9% of sales. This is compared to $23 5 million or seven 1% of sales in the prior year period.

Speaker 4: Operating income for the second quarter declined to $22.4 million or 6.9% of sales. This is compared to $23.5 million or 7.1% of sales in the prior year period.

Speaker 4: Net interest expense decreased to $4.8 million as compared to $5.7 million in the same period last year. This was principally due to a decrease in weighted average debt.

Net interest expense decreased to $4 8 million as compared to $5 $7 million in the same period last year.

This was principally due to a decrease in weighted average debt.

Speaker 4: Income tax expense was approximately $4.7 million, or an effective tax rate of 26.8%, which is compared to $4.7 million, or an effective tax rate of 26.6% in the prior year period.

Income tax expense was approximately $4 7 million or an effective tax rate of 26, 8%, which is compared to $4 7 million or an effective tax rate of 26, 6% in the prior year period.

Michael Broderick: This allowed us to expand gross margin and maintain our year-over-year profitability even on lower tire sales volumes. We will continue to closely manage our labor costs and expenses to maximize profitability. Now, concluding with our plans to deliver improved earnings this fiscal year, despite a choppy consumer environment. While our preliminary comp store sales for fiscal October are down approximately 5%, our stores are properly staffed and ready for the back half of the year.

Speaker 4: That income was approximately $12.9 million, as compared to $13.1 million in the same period last year.

Net income was approximately $12 $9 million as compared to $13 1 million in the same period last year.

Speaker 4: Diluted earnings per share was $0.40 compared to $0.40 for the same period last year.

Diluted earnings per share was <unk> 40, <unk> <unk>.

Compared to <unk> 40 for the same period last year.

Speaker 4: Adjusted diluted earnings per share a non-gap measure was 41 cents

Adjusted diluted earnings per share a non-GAAP measure was <unk> 41.

Speaker 4: This is compared to adjusted deluded earnings per share of 43 cents in the second quarter of fiscal 2023.

This is compared to adjusted diluted earnings per share of <unk> 43 in the second quarter of fiscal 2023.

Michael Broderick: And while we will need to see an improvement in the overall health of the consumer, before we can fully capitalize on longer-term industry tailwinds, we have successfully repositioned our cost structure to deliver improved profitability even on lower comp store sales. We will remain relentlessly focused on achieving comp store sales growth through accelerating growth in our 300 small or underperforming stores, maintaining a balanced approach between our tire and service categories with competitive pricing to drive store traffic and continuously improving our customer experience.

Speaker 4: Please refer to our reconciliation of adjusted deluded EPS in this morning's earnings press release, and on slide eight in our earnings presentation for further details regarding excluded items in the second quarter of both fiscal year.

Please refer to our reconciliation of adjusted diluted EPS in this morning's earnings press release and on slide eight in our earnings presentation for further details regarding excluded items in the second quarter of both fiscal years.

Speaker 4: As highlighted on slide 9, we continue to maintain a very solid financial position.

As highlighted on slide nine we continue to maintain a very solid financial position.

Speaker 4: We generated 98 million dollars of cash from operations during the first half of fiscal 2024, including 36 million and working capital reduction.

We generated $98 million of cash from operations during the first half of fiscal 2024, including $36 million and working capital reductions.

Speaker 4: This has reduced our cash conversion cycle by approximately 72 days at the end of the second quarter compared to the prior year period.

This has reduced our cash conversion cycle by approximately 72 days at the end of the second quarter compared to the prior year period.

Michael Broderick: We will also strive to expand our gross margins through properly training our teammates to maximize their productivity. However, given the current pressures on the consumer, we are also laser focused on maximizing profitability through prudent cost control, which concludes right sizing our fixed costs and rationalizing unproductive labor. While we take these actions, we will not cut productive labor at the sacrifice of our standards and to the detriment of our long-term service model. In addition, we will continue to create cash by optimizing inventory and leveraging the strength of our vendor partners for better availability, quality, and cost of parts and tires in our stores.

Speaker 4: Our AP to inventory ratio at the end of the second quarter was 191% versus 178% at the end of fiscal 2023.

Our AP to inventory ratio at the end of the second quarter was 191% versus 178% at the end of fiscal 2023.

Michael Broderick: In closing, despite the challenges posed by the current macroeconomic environment, our business continues to be well-positioned, and we are confident that we remain on a path to restore our gross margins back to pre-COVID levels with double digit operating margins over the longer term.

Speaker 4: We received $7 million in divestiture proceeds. We invested $16 million in capital expenditures, spent $20 million in principal payments for financing leases, and distributed $18 million in dividends.

We received $7 million in divestiture proceeds we invested $16 million in capital expenditures spent $20 million in principal payments for financing leases and distributed $18 million in dividends.

Speaker 4: Lastly, given the higher interest rate environment, we opted to pay down some of our debt in the second quarter to reduce interest expense. Versus repurchasing shares under our program, which authorizes us to repurchase up to $150 million of the company's common stock.

Lastly, given the higher interest rate environment, we opted to pay down some of our debt in the second quarter to reduce interest expense versus.

<unk> shares under our program, which authorizes us to repurchase up to $150 million of the company's common stock.

Speaker 4: We have used our significant cash flow to reduce invested capital by $71 million during the first half of fiscal 2024.

We have used our significant cash flow to reduce invested capital by $71 million during the first half of fiscal 2024.

Speaker 4: At the end of the second quarter, we had bank debt of $55 million, cash and cash equivalents of $9 million, and a net bank debt to EBITDA ratio of 0.3 times.

At the end of the second quarter, we had bank debt of $55 million cash and cash equivalents of $9 million and a net bank debt to EBITDA ratio of three times.

Brian: With that, I will now turn the call over to Brian, who will provide an overview of Monroe's second quarter performance, of Strong Financial Position, and Additional Color, regarding Fiscal 2024. Brian? Thank you, Mike, and good morning, everyone. Turning to Slide 8, sales decreased 2.3% year-over-year to $322.1 million in the second quarter, which is primarily due to lower tire unit sales. Comparable store sales decreased 2.3% and sales from new stores increased approximately $1.2 million.

Speaker 4: While we are not providing full year guidance, we are providing color to assist in your modeling.

While we are not providing full year guidance, we are providing color to assist in your modeling.

Speaker 4: We expect to drive higher year over year sales to comparable store sales growth and outsize performance and our 300 small or underperforming stores. This is inclusive of an extra week of sales in our fiscal fourth quarter.

We expect to drive higher year over year sales to comparable store sales growth and outsized performance in our 300 small or underperforming stores. This is inclusive of an extra week of sales in our fiscal fourth quarter.

Speaker 4: We expect to drive your over-year improvements in our gross margin through pricing action.

We expect to drive year over year improvements in our gross margin through pricing actions.

Lower fixed distribution and occupancy costs as a percentage of sales due to a higher sales base.

Brian: Gross margin increased 30 basis points compared to the prior year, primarily resulting from lower material costs as a percentage of sales, which were partially offset by higher distribution and occupancy costs as a percentage of sales, as well as higher technician labor costs as a percentage of sales due to wage inflation. Total operating expenses were $92.6 million or $28.8% of sales as compared to $93.3 million or $28.3% of sales in the prior year period.

Speaker 4: and productivity improvements from our labor investments and reductions from nonproductive payroll, which will be partially offset by continued wage inflation.

And productivity improvements from our labor investments and reductions from nonproductive payroll, which will be partially offset by continued wage inflation.

Total operating expenses as a percentage of sales are expected to be higher year over year due to increases in direct and departmental cost to support our store base as well as the impact of inflation.

Speaker 4: Our tax rate should be approximately 26% for fiscal 2024.

Our tax rate should be approximately 26% for fiscal 2024.

Regarding our capital expenditures, we expect to spend approximately 35% to $45 million in fiscal 2024.

Brian: The increase as a percentage of sales was principally due to lower year-over-year comparable store sales. Operating income for the second quarter declined to $22.4 million or 6.9% of sales. This is compared to $23.5 million or 7.1% of sales in the prior year period. That interest expense decreased to $4.8 million as compared to $5.7 million in the same period last year. This was principally due to a decrease in weighted average debt. Income tax expense was approximately $4.7 million or an effective tax rate of 26.8%, which is compared to $4.7 million or an effective tax rate of 26.6% in the prior year period.

We also expect to continue improving our operating cash flow driven by continued working capital reductions our balanced approach of returning capital to shareholders through dividends and share repurchases as well as opportunistically completing value enhancing acquisitions is expected to meaningfully increase our return on invested capital.

Speaker 3: And with that, I will now turn the call back over to Mike for some closing remarks. Thanks, Brian . We're optimistic about our outlook for fiscal 2024 and beyond. Although we still have important work to do, we remain well positioned to execute our growth strategy and deliver long-term value creation for our shareholders. With that, I'll now turn it over to the operator for questions.

And with that I will now turn the call back over to Mike for some closing remarks. Thanks, Brian we are optimistic about our outlook for fiscal 2024 and beyond although we still have important work to do we remain well positioned to execute our growth strategy and deliver long term value creation for our shareholders with that I'll now turn it over to the operator for questions.

Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad now.

Speaker 1: Thank you. If you would like to ask a question, please press Star Followed by one on your telephone keypad now. If you change your mind, please press Star Followed

Brian: Not income was approximately $12.9 million as compared to $13.1 million in the same period last year. Deluted earnings per share was $0.40 compared to $0.40 for the same period last year. Adjusted deluded earnings per share, a non-gap measure, was $0.41. This is compared to adjusted deluded earnings per share of $0.43 in the second quarter of fiscal 2023. Please refer to our reconciliation of adjusted deluded EPS in this morning's earnings press release and on slide 8 in our earnings presentation for further details regarding excluded items in the second quarter of both fiscal years.

If you change your mind. Please press star followed by two so exiting Q.

Speaker 1: We respectfully ask you to limit yourself to one question and one or two follow-up questions. Finally, when preparing to ask your question, please ensure your phone is unmuted.

We respectfully ask you to limit yourself to one question and one or two follow up questions. Finally, when preparing to ask your question. Please ensure your phone is on muted locally.

Speaker 1: And our first question today is from the line of David Lance of Wells Fargo. David, your line is now open.

And our first question today is from the line of David <unk> of Wells Fargo. David. Your line is now open. Please proceed.

Speaker 5: Hey, good morning guys and thanks for taking my questions. So you're guiding the comparable sales growth in fiscal 24 and in the context of October comps being down 5%, curious if you can talk about your expectations for the balance of the year and if any of that improvement assumes, you know, an overall improvement in the macro.

Hey, good morning, guys and thanks for taking my questions.

You're guiding to comparable sales growth in fiscal 'twenty, four and in the context of October comps being down 5% curious if you can talk about your expectations for the balance of the year and if any of that improvement assumes an overall improvement in the background.

Brian: As highlighted on slide 9, we continue to maintain a very solid financial position. We generated $98 million of cash from operations during the first half of fiscal 2024, including $36 million in working capital reductions. This has reduced our cash conversion cycle by approximately 72 days at the end of the second quarter, compared to the prior year period. Our AP to inventory ratio at the end of the second quarter was 191% versus 178% at the end of fiscal 2023.

Speaker 4: Thanks for the question, David. This is Brian . If you look at our back half, I just want to remind everyone, we've got an extra week in our fourth quarter. That extra week is about 2% on the annual...

Thanks for the question David This is Bryan if.

If you look at our back half I just wanted to remind.

Everyone. We've got an extra week in our fourth quarter.

That for that extra week is about 2% and the annual comp. So that is factored into that commentary around comparable store sales growth for the year.

Speaker 4: So that is factored into that commentary around comparable store sales growth for the year. But we do expect, you know, and it factored into that Comster Sales Growth is improvement off of the down five trend we talked about in October .

But we do.

Expect and in factored into that comp store sales growth. It is improvement off of the down five trend we talked about in October.

Brian: We received $7 million in the vascular proceeds. We invested $16 million in capital expenditures, spent $20 million in principal payments for financing leases, and distributed $18 million in dividends. Williams. Lastly, given the higher interest rate environment, we opted to pay down some of our debt in the second quarter to reduce interest expense, versus repurchasing shares under our program, which authorizes us to repurchase up to $150 million of the company's common stock.

Speaker 4: And I think that's driven by what we hope to be better consumer dynamics in our Tier 1 through 3 tires, which we are expecting that weather and that supports a tire selling season in the back half will help to drive that inflection.

And I think thats driven by.

While we hope to be.

Better consumer dynamics in our tier one through three tires, which we are <unk>.

Expecting that weather.

And that supports a tire selling season in the back half will help to drive that inflection.

Speaker 5: Got it. That's helpful. And then just a longer term question on getting back to the low double digit event margins. Can you provide a glide path on what sort of improvement could be driven by gross margins and what else could come from SG&A?

Got it that's helpful. And then just a longer term question on getting back to the low double digit EBIT margins can you provide a glide path on what sort of improvement could be driven by gross margins and what else could come from SG&A.

Brian: We have used our significant cash flow to reduce invested capital by $71 million during the first half of fiscal 2024. At the end of the second quarter, we had bank debt of $55 million, cash and cash equivalence of $9 million, and a net bank debt to EBITDA ratio of 0.3 times.

Speaker 3: I'll start with the margin, David. I would say that we, even in this quarter, considering our down sales, we were able to show margin improve.

I'll start with the margin David I would say that we even in this quarter considering our down down sales, we were able to show margin improve we do feel like that that will continue to improve through assortment decisions and the right tire and service mix in our business, we feel like we've done.

Speaker 3: We do feel like that will continue to improve through assortment decisions and the right tire and service mix in our business.

Brian: While we are not providing full-year guidance, we are providing color to assist in your modeling. We expect to drive higher year-over-year sales to comparable store sales growth and outsize performance in our 300 small or underperforming stores. This is inclusive of an extra week of sales in our fiscal fourth quarter. We expect to drive year-over-year improvements in our gross margin through pricing actions, lower fixed distribution and occupancy costs as a percentage of sales due to higher sales base, and productivity improvements from our labor investments, and reductions from non-productive payroll, which will be partially offset by continued wage inflation.

Speaker 3: We feel like we've done a lot over the last 12 to 15 months to get ourselves in a position where we can clearly see what margin, and going back to margin of pre-COVID levels, and the fact that we have payroll very much under control. The team has done a nice job responding to the environment, whether it's up or down, and mitigating some of the wage investments that we've had to put in place over the last two to three years.

A lot over the last 12 to 15 months to get ourselves in a position where we can clearly see.

What margin and going back to margin of pre COVID-19 levels and the fact that we have payroll very much under control. The team has done a nice job responding to the environment, whether it's up or down.

Mitigating some of the wage investments that we've had to put in place over the last two to three years.

Speaker 4: And just to add to that, David, if you think about margin at 35.7 for our second quarter, that was driven year over year by 120 basis points of improvement in material costs as a percent of sales, and then offset by about 90 basis points of a combination of our D and O and labor, and largely call that 90 basis points D leverage on the lower sales.

And just to add to that David If you think about margin at 35, 7% for our for our second quarter that was driven year over year by 120 basis points of improvement in material cost as a percent of sales and then offset by about 90 basis points of a combination of our D&O.

Brian: Total operating expenses as a percentage of sales are expected to be higher year-over-year due to increases in direct and departmental costs to support our store base, as well as the impact of inflation. Our tax rate should be approximately 26% for fiscal 2024. Regarding our capital expenditures, we expect to spend approximately $35 to $45 million in fiscal 2024. We also expect to continue improving our operating cash flow driven by continued working capital reductions. Our balanced approach of returning capital to shareholders through dividends and share repurchases, as well as opportunistically completing value enhancing acquisitions, as expected to meaningfully increase our return on invested capital.

Labor and largely call that 90 basis points of deleverage on the lower sales. So if you if if our planning assumptions around the topline to flat comp.

Speaker 4: So if our planning assumptions around the top line to flat come true, then you look at that labor and D&OD leverage is kind of dissipating, you put 90 basis points on top of the 35.7 and you start to get into the meaningful gross margin improvement on the path to double-digit operating margin.

Come true then you look at that labor.

And D&O deleverage as kind of dissipating you put 90 basis points on top of the $35 seven and you start to get into the some meaningful gross margin.

Improvement on the path to double digit operating margins, but G&A has been a focus and if you look at our G&A in the quarter. It was flat year over year from a dollar standpoint.

Speaker 4: But GNA has been a focus. And if you look at our GNA in the quarter, it was flat year over year from a dollar standpoint. It de-levered a little bit because of the lower sales. But our focus is to continue to drive flat GNA year over year in order to try to gain as much.

De levered, a little bit because of the lower sales, but our focus is to continue to drive flat G&A year over year in order to try to.

Michael Broderick: And with that, I will now turn the call back over to Mike for some closing remarks. Thanks, Brian.

Gain as much flow through on the sales we're delivering.

Speaker 4: flow through on the sales we're delivering. That's obviously our goal. And so far, we've been able to offset a lot of the year-over-year inflation with efficiency gains in G&A.

Michael Broderick: We're optimistic about our outlook for fiscal 2024 and beyond. Although we still have an important work to do, we remain well positioned to execute our growth strategy and deliver long-term value creation for our shareholders.

That's obviously, our our goal.

So far we've been able to offset a lot of the year over year inflation with efficiency gains and G&A.

Unknown Attendee: With that, I'll now turn it over to the operator for questions. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two to exit the key. We respectfully ask you to limit yourself to one question and one or two follow-up questions. Finally, when preparing to ask your question, please ensure your phone is unmuted locally.

Got it that's super helpful. Thank you.

Thank you David.

Speaker 1: Our next question is from the line of Brett Jordan of Jeffries. Brett, your line is Namo and please proceed.

Our next question today is from the line of Bret Jordan of Jefferies. Bret. Your line is now please proceed.

Hey, good morning, guys.

Speaker 6: Morning. Good morning. Did you give us a little detail on the car count? I guess ticket versus traffic in the comp. And then I guess Brian , the usual, the monthly comp break out.

Morning, Brian.

Could you give us.

It's a little detail on the car count I guess ticket versus traffic and the comp and then I guess, Brian the usual the monthly comp breakout.

David Lantz: And our first question today is from the line of David Lance of Wells Fargo. David, your line is now open. Please proceed. Hey, good morning, guys. And thanks for taking my questions. So you're guiding the comparable sales growth in fiscal 24, and in the context of October calms being down 5%. Curious if you can talk about your expectations for the balance of the year, and if any of that improvement assumes an overall improvement in the macro.

Speaker 3: I'll start with the traffic. Traffic was down mid-single digits. And.

I'll start with the traffic traffic was down mid single digits.

<unk>.

Speaker 3: The ticket was up, low single digits, but I would say that for a minus two, but a lot of what we looked at was going back to the tire story. So just to be clear on the OPP, this was a tire quarter for sure. We were just down, we mixed up, which we like, mixing up to tier one through three.

The ticket was up low single digits, but I would say.

Our a minus two but a lot of what we looked at was going back to the tire story, so just to be clear on the otp.

This was a tire quarter for sure.

We're just down we mixed up which we like mixing up to tier one through three.

Brian: Thanks for the question, David. This is Brian. If you look at our back half, I just want to remind everyone we've got an extra week in our fourth quarter. That extra week is about 2% on the annual comp. So that is factored into that commentary around comparable store sales growth for the year. But we do expect, you know, and it factored into that comp store sales growth is improvement off of the down 5 trend we talked about in October.

Speaker 3: That drives profit, and I would say that because the tire count was down, we actually lost some of the attachment too, so we do look forward to the consumer coming back in the quarter. Generally, we're waiting on a weather event right now in the month of November to drive the customer coming back, and then we'll appropriately drive the improved transactions as well as the attachment that goes along with it.

That drives profit and I would say that.

Because of the tire count was down we actually lost some of the attachment too. So we do look forward to the consumer coming back.

In the quarter generally we're waiting on a weather event right now in the month of November to drive the customer coming back and then we will appropriately drive the improved transactions as well as the attachment that goes along with it.

Speaker 4: And then regarding the cadence in the quarter, July was up 0.5. August was down 2.5, September down 5. And those trends all really like Mike said driven by Tire Unit declines as the quarter went on. And also consistent with the industry data that we mentioned in the prepared remarks that we were comparing ourselves.

Okay, and then regarding the cadence in the quarter July was up <unk>, 5% August was down 2.5 September down five.

Brian: And I think that's driven by what we hope to be better consumer dynamics in our tier 1 through 3 tires, which we are expecting that whether and the supports a tire selling season in the back half will help to drive that in flux.

And those trends all really like Mike said, driven by tire unit declines as the quarter went on and also consistent with the industry data that we've mentioned in the prepared remarks that we were comparing ourselves against.

Speaker 6: Was there much regional dispersion? I guess you guys kind of called out that your primary market saw a lot of pressure from the consumer. Was the West better?

Was there much regional dispersion I guess, you guys kind of called out that your primary markets saw a lot of pressure from the consumer was the worst better.

Speaker 3: The West was better, but I would say it's marginally better. But to our prepared remarks, a lot of the pressure was definitely on the East Coast.

The west was better, but I would say it's marginally better.

But to our prepared remarks, a lot of the pressure was definitely on the east coast.

Speaker 6: Okay. And then one final question, I guess. The working capital benefit. When you think about how you're running with sort of an inventory lighter model, what do you think is left? Like as we look at the balance sheet today and the model, like what more could we extract from the inventory on cash?

Okay and then one final question I guess, the working capital benefit when you think about how you are running with sort of the inventory lighter model.

Michael Broderick: I'll start with the margin, David. I would say that we, even in this quarter, considering our downed sales, we were able to show margin improve. We do feel like that will continue to improve through assortment decisions and the right tire and service mix in our business. We feel like we've done a lot over the last 12 to 15 months to get ourselves in a position where we can clearly see what margin and going back to margin of pre-COVID levels, and the fact that we have payroll very much under control of the team has done a nice job responding to the environment, whether it's up or down and mitigating some of the wage investments that we've had to put in place over the last two to three years.

What do you think is left with as we look at the balance sheet today and the model like what more can we extract from the inventory on cash.

Speaker 4: Great question. I think if you look at Q1 to Q2, you definitely heard the metrics start to flatten out a little bit. We're still at about 72 days of cash conversion cycle reduction.

Great question I think if you look at Q1 to Q2.

Definitely heard the metrics start to flatten out a little bit we're still at about 72 days of cash conversion cycle reduction still around 90, 190 195 of that inventory to AP ratio, our AP to inventory ratio. So I think youre definitely showing that we're at some of the later innings, but there's still more benefit to come.

Speaker 4: still around 190, 195 of that inventory to AP ratio or AP to inventory ratio. So I think you're, you know, you're, it's definitely showing that we're some of the later innings, but there's still more benefit to come. As we get new vendors signed up for extended terms and also continue to drive volume through our existing vendors on the programs, but I think the slowdown in some of the growth in the year over year metrics is indicative of kind of later innings. Okay.

As we get new vendors signed up for extended terms and also continue to drive volume through our existing vendors on the programs, but I think the slowdown in some of the growth in the year over year metrics as is indicative of kind of later innings.

Michael Broderick: And just to add to that, David, if you think about margin at 35.7 for our second quarter, that was driven year over year by 120 basis points of improvement in material costs as a percent of sales, and that offset by about 90 basis points of a combination of our DNO and labor, and largely called that 90 basis points of deleverage on the lower sales. So if our planning assumptions around the top line to flat come true, then you look at that labor and DNO deleverage is kind of dissipating.

Okay, great. Thank you.

Thank you.

Yes.

Speaker 1: Our next question today is from the line of Brian Nagle, of Oppenheimer.

Our next question today is from the line of Brian Nagel Oppenheimer.

Brian Your line is now open. Please go ahead.

Speaker 4: Hey, this is William Dostodon for Brian . I just take him a question.

Hey, this is William Dossett on for Brian Thanks for taking my question.

Good morning, William So.

Speaker 3: So, the first question is just about the consumer, what can you do internally to drive comps and gain increased traction if the consumer remains pressured? And with respect to the industry, what pressures need to ease for us to see an improvement in the current, you know, trade-down trends and deferral trends that you're seeing here? So...

So.

Michael Broderick: You put 90 basis points on top of the 35.7, and you start to get into the meaningful gross margin improvement on the path to double digit operating margins. But GNA has been a focus, and if you look at our GNA in the quarter, it was flat year over year from a dollar standpoint. It de-lovered a little bit because of the lower sales, but our focus is to continue to drive flat GNA year over year in order to try to gain as much flow through on the sales we're delivering. That's obviously our goal, and so far we've been able to offset a lot of the year over year inflation with the efficiency gains in GNA. Got it, that's super helpful. Thank you. Thank you, David.

So the first question is just about the consumer what can you do internally too.

Drive comps and gain increased traction in the consumer remains pressured.

And with respect to the industry, what pressures need to ease.

For us to see an improvement in the current trade down trends in deferral trends that youre seeing here.

So William this is Mike I'll take it.

Yeah.

Speaker 3: Regarding your first question, we talked about this in Q4 also, the fact that we decided not to literally shift our mix to OPP. There was a lot of reasons for it. First of all, it wasn't profitable. We were making little money, and we were spending quality.

Regarding your first question, we talked about this in Q4 also the fact that we decided not to literally.

Shifting our mix to Otp there was a lot of reasons for first of all it wasn't profitable we were making a little money and we're spending quality.

Speaker 3: Wages on really expert technicians to be able to install, you know, cheap tires. That's not our business Oh, and by the way, we actually saw customers who were buying those tires did not want to attach even though their cars were, you know Required it

Wages on really expert technicians to be able to install cheap tires. So that's not our business owned by the way, we actually saw customers who are buying those tires did not want to attach even though their cars.

Brett Jordan: Our next question today is from the line of Brett Jordan of Jeffries. Brett, your line is number one. Please proceed. Thank you, morning, guys. Morning, Brett. Could you give us a little detail on the car count? I just take it versus traffic in the comp, and then I guess Brian, the usual monthly comp breakout. I'll start with the traffic. Traffic was down, mid-single digits, and the ticket was up low single digits, but I would say that for a minus two, but a lot of what we looked at was going back to the tire story.

Required it.

Speaker 3: And that specifically hurt us on the break category and some of the other service categories that we like and we actually that's our business model

And that specifically hurt us on the brake category and some of the other service categories.

Like when we actually that's our business model.

Speaker 3: That's number one. Number two, so what we did is we put price in and we re-assorted our stores. We actually saw the fact that our assortment, it drives a profitable consumer, that drives profit for our organization, where we build a manager or margins appropriately, and where we build a mitigate whatever expenses that we have just through oversight on overtime and some of the wage investments that we put in place.

That's number one number two so what we did is we put pricing and we reasserted our stores. We actually saw the fact that our assortment is drives a profitable consumer drives profit for our organization, we're able to manage our margins appropriately and we're able to mitigate whatever expenses, we have just through oversight on overtime and <unk>.

Brett Jordan: So just to be clear on the OPP, this was a tire quarter for sure. We were just down, we mixed up, which we like, mixing up to two, one through three, that drives profit, and I would say that because the tire count was down, we actually lost some of the attachment too, so we do look forward to the consumer coming back in the quarter. Generally, we're waiting on a weather event right now in the month of November to drive the customer coming back, and then we'll appropriately drive the improved transactions as well as the attachment that goes along with it.

Some of the wage investments that we've put in place.

Speaker 3: So now what we're coming through is Q3 of last year. We have a lot of this in the marketplace. Q4 we really made the change where we were starting to get a balanced mix. When I say balanced mix, basically we wanted to have healthy growth in tier one through three and the appropriate offering for tier four.

So now what were coming through as Q3 of last year, we have a lot of this in the marketplace Q4, we really made the change where we were starting to get a balanced mix when I say balanced mix basically we wanted to have healthy growth in tier one through three and the appropriate offering for tier four.

Speaker 3: At this point in time, when we're looking at the consumer to answer your second question, it's all about now a weather event to really drive a customer that's coming in. We do not see that customer. Literally they're deferring, there's a high ticket, they're deferring. We see a weather event.

At this point in time, when we're looking at the consumer to answer your second question.

All about now a weather event to really drive a customer that's coming in we do not see that customer literally they're deferring the high ticket, they're deferring, we see a weather event.

Brett Jordan: Okay, and then regarding the cadence in the quarter, July was up 0.5, August was down 2.5, September down 5, and those trends all really like Mike said driven by tire unit declines as the quarter won on and also consistent with the industry data that we mentioned in the prepared remarks that we were comparing ourselves against. With a much regional dispersion, I guess you guys kind of called out that your primary markets saw a lot of pressure from the consumer.

Speaker 3: really changing the consumer and when they come into our stores. We really look at this winter selling season as it's going to be very short. When it comes it's going to come strong and we're well positioned for it really coming into Q3 as well as in Q4. We actually see a lot of what we put in place in Q3 mitigating in Q4 where we can see now back to normal comps.

Really changing the consumer when they come into our stores.

We really look at this winter selling season, as it's going to be a very short when it comes it's going to come strong and we're well positioned for it really coming into Q3 as well as in Q4, we actually see a lot of what we put in place in Q3 mitigating in Q4, where we can see now back to normal comps.

Brett Jordan: Was the West better? The West was better, but I would say it's more generally better. But you are prepared remarks a lot of the pressure was definitely on the East Coast. Okay, and then one final question, I guess the working capital benefit. When you think about how you're running with sort of an inventory lighter model, what do you think is left with? What if as we look at the balance sheet today and the model like what more could we extract from the inventory on cash?

Okay.

Very helpful. Thank you and.

Speaker 7: Follow up on that and ask about the guide until the full year. You're modest what the repairs are with the weather.

To follow up on that and ask you about the guidance for the full year you are modest.

Compares are with the weather.

Speaker 7: And what gives you confidence that the weather can drive improved?

And what gives you confidence that the weather can drive improved comps.

Speaker 7: just historical knowledge of the business and also just with the full year comp can you talk about the breakdown or your expectations between ticket and trap.

Yes, just historical knowledge of the business and also just with the full year comp can you talk about the breakdown of your expectations between ticket and traffic.

Speaker 3: I'll start with the ticket and traffic. We generally focus on a balance approach to it, so we do expect to have me coming out of October if we have a weather event, we have a heavy

I'll start with the ticket and traffic, we generally focus on a balanced approach to it. So we do expect to have.

Brett Jordan: Great question. I think if you look at Q1 to Q2, you know, you definitely heard the metric start to flatten out a little bit. We're still at about 72 days of cash conversion cycle reduction. Still around 190, 190, 195 of that inventory to AP ratio or AP to inventory ratio. So I think you're, you know, you're definitely showing that we're some of the later innings, but there's still more benefit to come.

I mean coming out of October if we have a weather event, we have a heavy.

Speaker 3: heavy customer count growth and then also the it shifts the tires, which is a large ticket item. And then we have to just manage the expenses. When I look at the comp for the rest of the year, I'm seeing that we're going to go through a tough November December . We're going to, if we have a winter event, we'll be able to mitigate our comp story. But Q4, which is

Heavy customer count growth and then also the shifts to tires, which is a large ticket item.

Then we have to just manage the expenses when I look at the comp for the rest of the year I am seeing that we're going to go through a tough November December we're going to have a winter event will be able to mitigate our comp story, but Q4, which is.

Brett Jordan: As we get new vendors signed up for extended terms and also continue to drive volume through our existing vendors on the programs. But I think the slowdown and some of the growth in the year over year metrics is indicative of kind of later innings. Okay, great. Thank you.

Speaker 3: Q4, it seems like we have, we started this mission in Q4 and the comps do get softer in Q4. And of course we have a 53rd week that's also included in that. Q4.

Q4, it seems like we have we started this initiative in Q4 and the comps do get softer in Q4 and of course, we have a 50 <unk> week. That's also included in that.

Brian Nagle: Our next question today is from the line of Brian Nagle of Oppenheimer. Brian, your line is now open. Please go ahead.

Okay. Thank you very much.

Thank you William.

William Dusted: Hey, this is William Dusted on for Brian. Thank you for taking my question. Good morning, William. So, thank you.

Speaker 1: As a reminder, if you would like to ask a question, please tell us about one on your telephone keypad. And our next question today is from the line of Daniel in Broarth Stevens. Daniel, your line is now open.

As a reminder, if you would like to ask a question. Please dial star followed by one on your telephone keypad.

And our next question today is from the line of Daniel <unk> Stephens tenure. Your line is now open.

Michael Broderick: So the first question is just about the consumer. What can you do internally to draw comps and gain increased traction if the consumer remains pressured? And with respect to the industry, what pressures need to ease for us to see an improvement in the current, you know, trade down trends and deferral trends that you're seeing here. So William, this is Mike. I'll take it. Regarding your first question, we talked about this in Q4 also the fact that we decided not to literally shift our mix to OPP.

Yeah, Hey, good morning, guys. Thanks, any other questions.

Speaker 8: I guess I wouldn't start again, Mike, maybe on the 300 small or under performing stores, you know, obviously they're seeing the same maybe deferrals and struggles as the rest of the industry, but I'm curious just operationally when you look across them, we've been improving those for about a year that they've generally done better than the store. Like what's left to do from a self-help standpoint in those smaller stores? Can they grow without an industry turnaround or from here, are they kind of dependent on a similar macro improvement at the 300 under performing more, more ...

I guess I'm wondering.

Again, Mike maybe on the 300 small our underperforming stores, obviously theyre seeing the same maybe deferrals and struggles as the rest of the industry, but I am curious just operationally.

When you look across them, we've been improving those for about a year. They have generally done better than the door. Then what's left to do from a self help standpoint in those smaller stores can they grow without an industry turnaround or from here or are they kind of dependent on a similar macro improvement.

300 underperforming stores.

Speaker 3: Daniel, when I look at the overall store performance, I focus on those underperforming stores as a double-digit growth opportunity for us. There's a lot of variability in that performance.

Dan you want to look at the overall store performance I focus on those underperforming stores as a double digit growth opportunity for us.

Michael Broderick: There was a lot of reasons for it. First of all, it wasn't profitable. We were making little money and we were spending quality wages on really expert technicians to be able to install cheap tires. That's not our business owned by the way. We actually saw customers who were buying those tires did not want to attach, even though their cars, we, you know, required it. And that specifically hurt us on the break category and some of the other service categories that we like and we actually, that's our business model.

There's a lot of variability in that performance.

Speaker 3: I actually see a large subset of those stores that are performing extremely well. That gives me a lot of confidence that we're on the right path. It's a people story. It's a retail execution story. I would say this is always going to be something that we're going to focus on from the day I started with the organization. We always identified underperforming stores, poor performing stores. It's just part of retail.

I actually see.

A large subset of those stores that are performing extremely well.

That gives me a lot of confidence that we're on the right path. It's a people story, it's a retail execution story I would say this is always going to be something that we're going to focus on from the day I started with the organization, we always identified underperforming stores poor performing stores, it's just part of retail.

Michael Broderick: That's number one. Number two, so what we did is we put price in and we re-assorted our stores. We actually saw the fact that our assortment, it drives a profitable consumer that drives profit for our organization. We're able to manage our margins appropriately and we're able to mitigate whatever expenses that we have just through oversight on overtime and some of the wage investments that we put in place. So now what we're coming through is Q3 of last year.

Speaker 3: These stores are located in good areas. It's all about people, it's all about process, it's all about execution, and that's why it's always going to be part of our storyline of the reason why I feel confident that we can grow this company.

These stores are located in good areas. It's all about people. It's all about process is all about execution and that's why it's always going to be part of our storyline.

The reason why I feel confident that we can grow this company.

Yeah.

Speaker 8: Okay, that's helpful. And then maybe move it over on the market share side. I think your commentary said you retain share in the higher margin tire tiers, but I was hitting here comments here in the lower end tier. So is it just that we're seeing some competitors, the price irrational out there on that opening price point? So you just don't know you want to retain share there. And then based on history, just if you could share some context during period the past macro pressure.

Okay. That's helpful and then maybe moving over on the on the market share side I think your commentary said you retain share in the higher margin tire tiers, but honestly I didn't hear commentary on the lower end tiers. So is it just that we're seeing some competitors.

Michael Broderick: We have a lot of this in the marketplace. Q4, we really made the change where we were starting to get a balanced mix. When I say balance mix, basically we wanted to have healthy growth into your one through three and the appropriate offering for tier four. At this point in time, when we're looking at the consumer to answer your second question, it's all about now a weather event to really drive a customer that's coming in.

The price irrational out there on the opening price points and so you just don't know you want to retain share there and then based on his to read just if you could share some context during periods of past macro pressure.

Speaker 8: i would guess opening price point maybe gains you know a larger percentage of industry sales it is that truth is to maybe where you guys are losing share that can be become a bigger part of the industry for the next few quarters at the macro keeps getting tougher

I would guess opening price point maybe gains.

Michael Broderick: We do not see that customer. Literally they're deferring. There's a high ticket. They're deferring. We see a weather event. Really changing the consumer and when they come into our stores. We really look at this winter solenoid season as it's going to be very short. When it comes, it's going to come strong and we're well positioned for it really coming into Q3 as well as in Q4. We actually see a lot of what we put in place in Q3, mitigating in Q4, where we can see now back to normal comfort. Oops.

Larger percentage of industry sales is that truth. So maybe where you guys are losing share or is that going to be become a bigger part of the industry for the next few quarters at the macro keeps getting tougher.

Speaker 3: We don't see, we saw, first of all, just go back to market share. We definitely decided not to oversort our stores.

We don't see we saw first of all just to go back to market share, we definitely decided not to.

Oversold, our stores with Otp tires.

Speaker 3: So it wasn't just about pricing, it was about a sort of a two. And there's a lot of reasons for it. We proved that out in Q4 that when selling in Q3, when we saw last year, when we sold a lot of OPP tires, we didn't make a lot of money on it.

So it wasn't just about pricing it was about our assortment too.

And Theres a lot of reasons for it we prove that out in Q4 that weren't selling in Q3, when we last year. When we sold a lot of otp tires, we didn't make a lot of money on it.

William Dusted: Okay, yeah, that's very helpful. Thank you.

William Dusted: And to follow up on that and just ask about the guidance for the full year. You're modest what the repairs are with the weather. And what gives you confidence that the weather can drive improved comps. Be a just historical knowledge of the business. And also just with the full year comp, can you talk about the breakdown or your expectations between ticket and traffic? I'll start with the ticket and traffic. We generally focus on a balance approach to it.

Speaker 3: When I look at the market trends, I do believe I do believe that tier one through three have a position in The customers from a customer lens. They absolutely have Demand we did not expect to have a soft tier one through three when we looked at this in our really our forecasting and our performance modeling

When I look at the market trends I do believe I do believe that tier one through three have a position in the customers from a customer lens. They absolutely have demand we did not expect to have a soft tier one through three when we looked at this.

Really our forecasting and our performance modeling.

Speaker 3: We do expect that business to come back and when that comes back we're well positioned for it. We have an OPP offering, that tier four we have it in our stores. It's priced right. It's just a question of we're not going to lean into it because when we lean into it we saw that we don't make money. We saw customers trading down from one to three unnecessarily into tier four and we wanted to stop that because it wasn't good for the consumer.

We do expect that business to come back and when that comes back we are well positioned for it we have an <unk> offering that tier four we have it in our stores, it's priced right. It's Jim.

William Dusted: So we do expect to have me coming out of October. If we have a weather event, we have a heavy, heavy customer count growth. And then also the shifts to tires, which is a large ticket item. And then we have to just manage the expenses. When I look at the comp for the rest of the year, I'm seeing that we're going to go through a tough November December. We're going to, if we have a winter event, we'll be able to mitigate our comp story, but Q4, which is Q4, it seems like we have, we started this mission in Q4 and the comps do get softer in Q4. And of course, we have a 53rd week. That's also included in that. Thank you. Thank you very much. Thank you, well, William.

Just a question of we're not going to lean into it because when we lean into it we saw that we don't make money, we saw customers trading down from $1 three unnecessarily into tier four and we wanted to stop that because it wasn't good for the consumer.

Speaker 8: total color and then last one they Brian just the problem on breath question you know cash conversion has stabilized cash flow maybe improves what when sales do but keep talking about how you just think about uses of cash you know another quarter i don't think you guys were active on the buyback just where does that fit into your capital priorities um and maybe what are you guys looking forward to get more active on that use of cash thanks

It's helpful color and then last one maybe Brian just to follow up on Brad's question cash conversion has stabilized cash flow maybe improves when sales do but can you talk about how you just think about uses of cash another quarter. I don't think you guys were active on the buyback so where does that fit into your capital priorities.

And then what are you guys looking forward to get more active on that use of cash. Thanks.

Speaker 4: No, thanks Daniel. We look at it as a balanced approach. Like we are looking to continue to, you know, reduce our invested capital.

Thanks Daniel.

We look at it as a balanced approach like we are looking to continue to.

Unknown Attendee: As a reminder, if you would like to ask a question, please tell staff over one on your telephone keypad.

Reduce our invested capital.

Speaker 4: And we talked about that being $70 million so far through the first six months approximately and it's been more debt led right now. But if you look at the balance since we announced the buyback, it's been pretty much 50-50 in terms of debt reduction and share repurchase for the amount of capital that invested capital that we've retired. So I would think that going forward over a period of time that's going to continue to be balanced.

Daniel: And our next question today is from the line of Daniel in Perth Stevens. Daniel, your line is now open. Yeah, hey, good morning guys. Thanks for having a question. I guess I wouldn't start again, Mike, maybe on the 300 small or underperforming stores. You know, obviously they're seeing the same maybe deferrals and struggles as the rest of the industry, but I'm curious just operationally. When you look across them, we've been improving those for about a year, they've generally done better than the store.

And we talked about that being $70 million so far through the first six months approximately and its been more debt led right now, but if you look at the balance since we announced the buyback it's been pretty much 50, 50 in terms of debt reduction and share repurchase for the amount of total capital that invested capital that we've retired so I.

Daniel: Like what's left to do from a self-help standpoint in those smaller stores? Can they grow without an industry turnaround or from here? Are they kind of dependent on a similar macro improvement at the 300 underperforming stores?

You'd think that going forward over a period of time, that's going to continue to be balanced, particularly as we start to get lower in the debt balance and the opportunity kind of diminishes to continue to pay down debt and reduce.

Speaker 4: Particularly as we start to get lower in the debt balance and the opportunity, you know, kind of diminishes to continue to pay down debt and reduce interest expense. You know, there's going to be more opportunity to fulfill the, the, the remaining authorization that we have a 53 million on our $150 million authorization. So it's going to be balanced and, you know, we look to continue to generate that excess cash flow in order to continue to, to return that invested capital. Lines for Bhagg Full Film DescentCoats?

Interest expense, there's going to be more opportunity to fulfill the required the remaining authorization that we have a $53 million on our $150 million authorization. So it.

Michael Broderick: Daniel, when I look at the overall store performance, I focus on those underperforming stores as a double-digit growth opportunity for us. There's a lot of variability in that performance. I actually see a large subset of those stores that are performing extremely well. That gives me a lot of confidence that we're on the right path. It's a people story. It's a retail execution story. I would say this is always going to be something that we're going to focus on.

It's going to be balanced and we look to continue to generate that excess cash flow in order to continue to to return that invested capital.

Alright, thanks, so much and best of luck going forward.

Speaker 9: Thank you.

Thank you. Thank you.

Speaker 1: Our next question today is from the line of John Healy of North Coast Research. John , your line is now open. Please go ahead.

Our next question today is from the line of John Healy of Northcoast Research. John Your line is now open. Please go ahead.

Michael Broderick: From the day I started with the organization, we always identified underperforming stores, poor performing stores. It's just part of retail. These stores are located in good areas. It's all about people. It's all about process. It's all about execution. That's why it's always going to be part of our storyline of the reason why I feel confident that we can grow this company. Okay, that's helpful.

Speaker 8: Thanks, guys, for taking my question. Just wanted to ask a little bit about the comments. I just want to ask a little bit about the comments on reducing less productive labor. It sounds like a tricky thing to do, whether it's the location or maybe the tenure or the talent, and especially with the shortages and mechanics out there. So we just love to get your big picture thoughts on how you're evaluating that and what you're doing there. And are we interpreting it the right way, thinking that the labor is at the store level?

Thanks, guys for taking my question.

Wanted to ask about the comment on.

Hey, good morning, I, just wanted to ask a little bit about the comment on reducing less productive labor.

It sounds like a tricky thing to do whether it's the location or maybe the tenure of the talent.

And especially with the shortages of mechanics out there. So would just love to get your Big picture thoughts on how you are evaluating that and what Youre doing there Ann.

Unknown Attendee: Then maybe move it over on the market share side. I think your commentary said you retain share in the higher margin tire tiers.

Are we interpreting it the right way of thinking that the labor at the store level.

Speaker 3: Now you're interpreting it the right way. We're very focused on the store level payroll. We've spent over the last two and a half plus years staffing up our stores so we can get ready for the, what we believe is the tailwinds of the industry. We're very focused on training our technicians, very focused on making sure we retain them and we keep them qualified to do the work. That could be...

No you are interpreting that the right way, we're very focused on the store level payroll. We've spent over the last two five plus year staffing up our stores. So we can get ready for the what we believe is the <unk> of the industry.

Unknown Attendee: But I would say didn't hear a comment here in the lower end tiers. So is it just that we're seeing some competitors, the price irrational out there on that opening price point. So you just don't know you want to retain share there.

Unknown Attendee: And then based on history, just if you could share some context during period the past macro pressure. I would guess opening price point maybe gains, you know, a larger percentage of industry sales. Is that true? So maybe where you guys are losing shares, that can maybe become a bigger part of the industry for the next few quarters if the macro keeps getting tougher?

We're very focused on training our technicians very focused on making sure we retain them and we keep them qualified to do the work.

That comes through our shops, what I focused a lot of my <unk>.

Speaker 3: What I focused a lot of my, and the teams focused on is really mitigating wage and the wage expansion and why we're so focused on talking about over time every quarter because that's the number one way that we're controlling payroll.

The team's focused on is really mitigating wage and wage expansion and why we're so focused on talking about overtime every quarter because that's the number one way that we're controlling payroll unproductive payroll, making sure the stores are staffed and mitigating the wages through overtime.

Michael Broderick: We don't see, we saw, first of all, just go back to market share. We definitely decided not to oversort our stores with OPP tires. So it wasn't just about pricing, it was about assortment too. And there's a lot of reasons for it. We proved that out in Q4 that when selling in Q3, when we saw last year, when we sold a lot of OPP tires, we didn't make a lot of money on it.

Speaker 3: Unproductive payroll, making sure the stores are fast and mitigating the wages through over time.

Speaker 3: We definitely are focused on making sure our stores continue to be staffed with quality technicians. That's not going to change. When I talk about unproductive payroll, it's mostly about overtime.

We definitely are focused on making sure our stores continued to be staffed with quality technicians, that's not going to change when I talk about unproductive payroll, it's mostly about overtime.

Speaker 8: That makes perfect sense. And just kind of an industry type question. One of the things that surprised me recently were some of the Michelin commentary that US replacement shipment into the US were up like low double digits in September . Just kind of your reaction to that is that a sign that the industry is restocking or maybe a sign that you're starting to get some relief on pricing so maybe folks are taken in products or you just thought it was a odd number. Just kind of curious kind of your thoughts on that.

Got it that makes perfect sense.

And then just kind of.

Industry type question, one of the things that surprised me recently with some of the Michelin commentary that on U S replacement shipments into the U S were up like low double digits.

Michael Broderick: When I look at market trends, I do believe, I do believe that tier one through three have a position in the customers from a customer lens. They absolutely have demand. We did not expect to have a soft tier one through three. When we looked at this in our, really our forecasting and our performance modeling, we do expect that business to come back. And when that comes back, we're well positioned for it.

In September just kind of your reaction to that is that a sign that the industry is.

Restocking or may be a sign that youre starting to get some relief on pricing. So maybe folks are taken in product or are you just thought it was.

Odd number just kind of curious kind of your thoughts on that.

Speaker 3: I don't have really anything that I have to support a comment about it. So I just look at making sure our vendors are shipping to us.

Michael Broderick: We have an OPP offering, that tier four, we have it in our stores. It's priced right. It's just a question of, we're not going to lean into it because when we lean into it, we saw that we don't make money. We saw customers trading down from one, two, three unnecessarily into tier four. And we wanted to stop that because it wasn't good for the consumer. Total color.

I don't have really anything that I have to support a comment about it. So I just look at making sure our vendors are shipping to us.

Speaker 3: when we require it, we have an excellent relationship with ATD. So we have a lot of our imitories just in time and we have a very supportive vendor community. When we're down 6% and tier 1 through 3, that affects obviously our large manufacturers and their investing in us to drive traffic. So the good news is we have a great relationship.

When we require it we have an excellent relationship with <unk>. So we have a lot of our inventory just in time and we have a very supportive vendor community.

When were down one three down 6% in tier one through three that affects obviously.

Daniel: And then last one, maybe Brian, just a follow-up on Brent's question. Cash conversion has stabilized. Cash flow maybe improves when sales do, but keep talking about how you just think about uses of cash, you know, another quarter.

Our large <unk>.

Manufacturers and they are investing in is to drive traffic. So the good news is we have great relationships.

Brian: I don't think you guys were active on the buyback. Where does that fit into your capital priorities? And what are you guys looking forward to get more active on that use of cash? Thanks. No, thanks, Daniel. We look at it as a balanced approach. Like we are looking to continue to, you know, reduce our invested capital. And we talked about that being $70 million so far through the first six months approximately.

Speaker 3: with our vendor partners, we'll continue relying on that vendor partnership relationship and we do expect the customer to come back and they will be beneficiary areas of it just like us.

With our vendor partners will continue to rely on the vendor partnership relationship and we do expect the customer to come back and they will be beneficiaries of it just like us.

Okay. Thanks, guys.

Thank you.

Okay.

Yeah.

Speaker 1: And we have no further questions in the Q's day, so I'd like to hand back to Monroe CEO , Michael Boderick, for any closing remarks.

And we have no further questions in the queue today, so I'd like to hand back to Monroe CEO for.

For any closing remarks.

Speaker 3: Thank you for joining us today. This continues to be 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. Yes, concludes.

Thank you for joining US today. This continues to be an exciting time to be part of Monro. We are a strong foundation to build upon to create long term value for all our stakeholders. We look forward to keeping you updated on our progress have a great day.

Brian: And it's been more debt led right now. But if you look at the balance since we announced the buyback, it's been pretty much 50-50 in terms of debt reduction and share repurchase for the amount of capital that invested capital that we've retired. So I would think that going forward over, you know, period of time, that's going to continue to be balanced. Particularly as we start to get lower in the debt balance and the opportunity, you know, kind of diminishes to continue to pay down debt and reduce interest expense.

This concludes today's call. Thank you all for joining you may now disconnect your lines.

Okay.

Brian: You know, there's going to be more opportunity to fulfill the remaining authorization that we have a $53 million on our $150 million authorization. So it's going to be balanced and, you know, we've looked to continue to generate that excess cash flow in order to continue to return that invested capital.

Daniel: All right. Thanks so much and best of luck. Go forward. Thank you.

John Haley: Our next question today is from the line of John Haley of North Coast Research. John, your line is now open. Please go ahead. Thanks guys for taking my question. Just wanted to ask a little bit about the comments on eight more. I just wanted to ask a little bit about the comments on reducing less productive labor. It sounds like a tricky thing to do whether it's the location or maybe the tenure or the talent, and especially with the shortages and mechanics out there.

John Haley: So we just love to get your big picture thoughts on how you're evaluating that and what you're doing there and are we interpreting it the right way thinking that the labor is, you know, at the store level. Now you're interpreting it the right way.

Michael Broderick: We're very focused on the store level payroll. We've spent over the last two and a half plus year staffing up our stores so we can get ready for what we believe is the tailwinds of the industry. We're very focused on training our technicians, very focused on making sure we retain them and we keep them qualified to do the work that comes through our shops. What I focused a lot of my and the teams focused on is really mitigating wage and the wage expansion and why we're so focused on talking about over time every quarter because that's the number one way that we're controlling payroll, unproductive payroll, making sure the stores are staffed and mitigating the wages through over time. We definitely are focused on making sure our stores continue to be staffed with quality technicians. That's not going to change when I talk about unproductive payroll, it's mostly about over time. That makes perfect sense.

Unknown Attendee: I did just kind of an industry type question. One of the things that surprised me recently were some of the Michelin commentary that US replacement shipment into the US were up like low double digits in September. Just kind of your reaction to that.

Unknown Attendee: Is that a sign that the industry is restocking or maybe a sign that you're starting to get some relief on pricing? So maybe folks are taken in product or you just thought it was a odd number, just kind of curious kind of your thoughts on that.

Michael Broderick: Yeah, I don't have really anything that I have to support a comment about it. So I just look at making sure our vendors are shipping to us when we require it, we have an excellent relationship with ATD. So we have a lot of our inventories just in time. And we have a very supportive vendor community.

Michael Broderick: When we're down one through six, we're down at six percent in tier one through three that affects obviously our large manufacturers and they're investing in us to drive traffic. So the good news is we have great relationships with our vendor partners. We'll continue relying on that vendor partnership relationship. And we do expect the customer to come back and there will be beneficial areas of it just like us.

Unknown Attendee: Thank you.

Unknown Attendee: And we have no further questions in the key today.

Michael Broderick: So I'd like to hand back to Monroe CEO, Michael Broderick for any closing reps.

Unknown Attendee: Thank you for joining us today. This continues to be 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.

This concludes today's call. Thank you all for joining. You may now disconnect your lines.