Q3 2024 Monro Inc Earnings Call

January 24, 2024

Good morning ladies and gentlemen and welcome to Monroe Inc's earnings conference call for the third 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 monitor Inc's earnings Conference call for third quarter of fiscal 2020 full 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.

If anyone should require assistance during the call, please press 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.

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

I would now like to introduce Felix Fexler, Senior Director of Investor Relations at Monroe. Please go ahead.

I would now like to introduce feed expect solar senior director of Investor Relations at Wal Mart. 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 investors section of our website at corporate got Munro dotcom forward slash investors, if I could draw your attention to the safe Harbor statement on slide two.

Felix Fexler: 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.

Felix Fexler: If I could draw your attention to the Safe Harbor Statement on slide 2, 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 filings with the SEC and in our earnings report.

I would 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.

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.

Felix Fexler: 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. Reconciliations of such supplemental information to the comparable GAAP measures will be included as part of today's presentation and in our earnings report.

On today's call management's statements include a discussion of certain non-GAAP financial measures, which are intended to supplement and not be substitutes for comparable GAAP measures reconciliations of such supplemental information to the comparable GAAP measures will be included as part of today's presentation and in our earnings release with that.

Felix Fexler: With that, I'd like to turn the call over to Monroe's President and Chief Executive Officer, Michael Broderick.

I'd like to turn the call over to <unk>, President and Chief Executive Officer, Michael Broderick.

Michael T. Broderick: Thank you Felix and good morning, everyone I'd like to spend the first part of our call. This morning walking through our third quarter performance, which reflected topline results that were challenged.

Michael T. Broderick: Thank you Felix and good morning everyone. I'd like to spend the first part of our call this morning walking through our third quarter performance which reflected top line results that were challenged

Michael T. Broderick: This was due to milder weather as well as a pressured low to middle income consumer that continued to defer purchases in our high ticket tire category.

Michael T. Broderick: 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.

Michael T. Broderick: 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.

Michael T. Broderick: We continued to mitigate the impact of this slowdown with actions to reduce non-productive labor costs.

Michael T. Broderick: We continued to mitigate the impact of this slowdown with actions to reduce nonproductive labor costs.

Michael T. Broderick: Despite a tough macroeconomic environment, the resiliency of our business model and the actions that we've taken allow us to expand gross margin in the quarter.

Michael T. Broderick: Despite a tough macroeconomic environment, the resiliency of our business model and the actions that we've taken allowed us to expand gross margin in the quarter.

Michael T. Broderick: I'll also discuss our plans to deliver an improvement in our diluted earnings per share this fiscal year, despite some of the consumer-related headwinds that we and others in our industry are experiencing.

Michael T. Broderick: I'll also discuss our plans to deliver an improvement in our diluted earnings per share. This fiscal year. Despite some of the consumer related headwinds that we and others in our industry are experiencing.

Michael T. Broderick: Before I get started.

Michael T. Broderick: Before I get started I would.

Michael T. Broderick: I'd like to recognize and thank all our teammates for serving the needs of our customers.

Michael T. Broderick: I'd like to recognize and thank all of our teammates for serving the needs of our customers.

Michael T. Broderick: Now, turning to our third quarter results.

Michael T. Broderick: Now turning to our third quarter results.

Michael T. Broderick: Our third quarter comparable store sales declined approximately 6% from the prior year period.

Michael T. Broderick: Comp store sales in our 300 small or underperforming stores were consistent with our overall comp in the quarter.

Michael T. Broderick: Comp store sales in our 300 smaller underperforming stores were consistent with our overall comp in the quarter.

Michael T. Broderick: As I stated earlier, our sales results in the quarter continue to be challenged by consumer deferrals of tire purchases as evidenced by an industry-wide slowdown in tire unit sales.

Michael T. Broderick: As I stated earlier, our sales results in the quarter continued to be challenged by consumer deferrals of tire purchases as evidenced by an industry wide slowdown in tire unit sales.

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

Michael T. Broderick: while our tire units were down approximately 14%.

Michael T. Broderick: While our tire units were down approximately 14% leveraging the strength of our manufacturer funded promotions allowed us to optimize our assortment for improved tire profitability in the quarter.

Michael T. Broderick: Leveraging the strength of our manufacturer-funded promotions allowed us to optimize our assortment for improved tire profitability in the quarter.

Michael T. 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.

Michael T. 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.

Michael T. Broderick: Encouragingly, based on retail sellout data from Torqueda, a subsidiary of ATD, our tire market share remained broadly in line with the overall market in our higher margin

Michael T. Broderick: <unk> really based on retail sell out data from tour Qaeda subsidiary up ATV, our tire market share remained broadly in line with the overall market and our higher margin tiers.

Unnamed Host: Good morning, ladies and gentlemen, and welcome to Monroe Inc.'s earnings conference call for the third quarter of fiscal 2024.

Michael T. Broderick: We continue to mitigate this industry wide slowdown in tires with actions to reduce nonproductive labor costs, including overtime hours in our stores, which were down 25% year over year.

Unnamed Host: 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. If anyone should require assistance during the call, please press 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. I would now like to introduce Felix Fexler, Senior Director of Investor Relations at Monroe. Please go ahead.

Michael T. Broderick: This allowed us to expand gross margin even on lower sales volume.

Michael T. Broderick: This allowed us to expand gross margin even on lower sales volumes.

Michael T. Broderick: We will continue to closely manage our labor costs and expense to maximize profitability.

Michael T. Broderick: Now concluding with our plans to deliver an improvement in our diluted earnings per share this fiscal year, despite a choppy consumer environment.

Michael T. Broderick: Now, concluding with our plans to deliver an improvement in our diluted earnings per share this fiscal year, despite a choppy consumer environment.

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. If I could draw your attention to the Safe Harbor Statement on slide 2, I'd like to remind participants that our presentation includes some forward-looking statements about Monroe's future performance

Michael T. Broderick: While our preliminary comp store sales for fiscal January are down approximately 6% due to softness in the first half of the month comps have accelerated materially in the last two weeks with the return of normal seasonal weather.

Michael T. Broderick: We have some easier prior year compares in February and March, but given the current pressures on the consumer, we no longer expect to grow full year sales.

Michael T. Broderick: We have some easier prior year comparison in February and March, but given the current pressures on the consumer we no longer expect to grow full year sales. However, we do expect full year diluted earnings per share to be higher versus prior year.

Michael T. Broderick: However, we do expect full year diluted earnings per share to be higher versus prior year.

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 report. 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.

Michael T. Broderick: This will be driven by actions, we've taken to successfully reposition their cost structure as well as expanding our gross margin through properly training, our teammates to maximize their productivity and optimizing our tire assortment for improved profitability.

Michael T. Broderick: We will continue to remain relentlessly focused on improving our 300 small or underperforming stores, maintaining a balanced approach between our tire and service categories with competitive pricing to drive store traffic.

Michael T. Broderick: We will continue to remain relentlessly focused on improving our 300 small or underperforming stores.

Michael T. Broderick: Maintaining a balanced approach between our tire and service categories with competitive pricing to drive store traffic.

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

Michael T. Broderick: and continuously improving our customers.

Michael T. Broderick: And continuously improving our customer experience.

Michael T. Broderick: 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 sales.

Michael T. Broderick: 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 Inc.

Michael T. Broderick: Thank you Felix and good morning everyone. I'd like to spend the first part of our call this morning walking through our third quarter performance, which reflected top line results that were challenged. This was due to milder weather as well as a pressured low to middle-income consumer that continued to defer purchases in our high-ticket tire category. This was clearly evidenced by an industry-wide slowdown in tire unit sales in the regions of the country where the vast majority of our store footprint is concentrated. We continued to mitigate the impact of this slowdown with actions to reduce non-productive labor costs.

Michael T. 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.

Michael T. 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-19 levels with double digit operating margins over the longer term.

Michael T. Broderick: I'll now turn the call over to Brian who will provide an overview of Monroe's third quarter performance, strong financial position, and additional color regarding the remainder of fiscal 2024. Brian?

Michael T. Broderick: With that I'll now turn the call over to Brian who will provide an overview of Monrose third quarter performance strong financial position and additional color regarding the remainder of fiscal 2020 for Brian.

Brian: Thank you, Mike and good morning, everyone.

Brian: Thank you, Mike, and good morning, everyone.

Brian: Turning to slide 8, sales decreased 5.2% year-over-year to $317.7 million in the third quarter, which was primarily due to lower tire unit sales.

Brian: Turning to slide eight sales decreased five 2% year over year to $317 $7 million in the third quarter, which was primarily due to lower tire unit sales.

Michael T. Broderick: Despite a tough macroeconomic environment, the resiliency of our business model and the actions that we've taken allowed us to expand gross margin in the quarter. I'll also discuss our plans to deliver an improvement in our diluted earnings per share this fiscal year, despite some of the consumer-related headwinds that we and others in our industry are experiencing.

Brian: Comparable store sales decreased 6.1% and sales from new stores increased approximately 1 million dollars.

Brian: Comparable store sales decreased six 1% and sales from new stores increased approximately $1 million.

Brian: Gross margin increased 170 basis points compared to the prior year, primarily resulting from lower material costs and technician labor costs as a percentage of sales, which were partially offset by higher distribution and occupancy costs as a percentage of sales.

Michael T. Broderick: Before I get started, I'd like to recognize and thank all our teammates for serving the needs of our customers.

Michael T. Broderick: Now, turning to our third quarter results. Our third quarter comparable store sales declined approximately 6% from the prior year period.

Brian: Total operating expenses were $91.3 million or 28.7% of sales as compared to $89.6 million or 26.7% of sales in the prior year period.

Brian: Total operating expenses were $91 $3 million or 28, 7% of sales as compared to $89 $6 million or 26, 7% of sales in the prior year period.

Michael T. Broderick: Comp store sales in our 300 small or underperforming stores were consistent with our overall comp in the quarter. As I stated earlier, our sales results in the quarter continue to be challenged by consumer deferrals of tire purchases, as evidenced by an industry-wide slowdown in tire unit sales. This led to pressured store traffic, which was not supportive of sales of our higher-margin service categories in the quarter, while our tire units were down approximately 14%. Leveraging the strength of our manufacturer-funded promotions allowed us to optimize our assortment for improved tire profitability in the quarter, 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.

Brian: The increase in the percentage of sales was principally due to lower year-over-year comparable store sales.

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

Brian: Operating income for the third quarter declined to 21 4 million or six 7% of sales. This.

Brian: Operating income for the third quarter declined to $21.4 million or 6.7% of sales.

Brian: This is compared to $23.8 million or 7.1% of sales in the prior year.

Brian: This is compared to $23 8 million or seven 1% of sales in the prior year period.

Brian: Net interest expense decreased to $5 million as compared to $5.9 million in the same period last year.

Brian: Net interest expense decreased to $5 million as compared to $5 9 million in the same period last year.

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

Brian: Income tax expense was approximately $4.2 million, or an effective tax rate of 25.8%, which is compared to $5 million, or an effective tax rate of 27.6% in the prior year period.

Brian: Income tax expense was approximately $4 2 million.

Brian: Or an effective tax rate of 25, 8%, which is compared to $5 million or an effective tax rate of 27, 6% in the prior year period.

Brian: Net income was approximately $12.2 million as compared to $13 million in the same period last year.

Brian: Net income was approximately $12 $2 million as compared to $13 million in the same period last year.

Michael T. Broderick: Encouragingly, based on retail sellout data from Torqueda, a subsidiary of ATD, our tire market share remained broadly in line with the overall market in our higher margin. We continue to mitigate this industry-wide slowdown in tires with actions to reduce non-productive labor costs, including overtime hours in our stores, which were down 25% year over year. This allowed us to expand gross margin even on lower sales volume.

Brian: Diluted earnings per share was $0.38 compared to $0.41 for the same period last year.

Brian: Diluted earnings per share was 38 <unk>.

Brian: Compared to <unk> 41 for the same period last year.

Brian: adjusted diluted earnings per share, a non-GAAP measure, was 39 cents, and this is compared to adjusted diluted earnings per share of 43 cents in the third quarter of fiscal 2023.

Adjusted diluted earnings per share a non-GAAP measure was 39.

Brian: And this is compared to adjusted diluted earnings per share of <unk> 43 in the third quarter of fiscal 2023.

Brian: Please refer to our reconciliation of adjusted diluted EPS in this morning's earnings press release and on slide 8 in our earnings presentation for further details regarding excluded items in the third quarter of both fiscal years.

Brian: 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 third quarter of both fiscal years.

Michael T. Broderick: We will continue to closely manage our labor costs and expenses to maximize profitability. Now, concluding with our plans to deliver an improvement in our diluted earnings per share this fiscal year, despite a choppy consumer environment.

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

Brian: As highlighted on slide nine we continue to maintain a very solid financial position, we generated $130 million of cash from operations. During the first nine months of fiscal 2024, including $30 million and working capital reductions.

Brian: We've generated $130 million of cash from operations during the first nine months of fiscal 2024, including $30 million in working capital reduction.

Michael T. Broderick: While our preliminary comp store sales for fiscal January are down approximately 6% due to softness in the first half of the month, comps have accelerated materially in the last two weeks with the return of normal seasonal weather. We have some easier prior year comparisons in February and March, but given the current pressures on the consumer, we no longer expect to grow full year sales. However, we do expect full-year diluted earnings per share to be higher versus the prior year. This will be driven by actions we've taken to successfully reposition our cost structure, as well as expanding our gross margin through properly training our teammates to maximize their productivity and optimizing our tire assortment for improved profitability. We will continue to remain relentlessly focused on improving our 300 small or underperforming stores.

Brian: This has reduced our cash conversion cycle by approximately 60 days at the end of the third quarter compared to the prior year period.

Brian: Our AP to inventory ratio at the end of the third quarter was 179% versus 178% at the end of fiscal 2023.

Brian: We received $16 million in divestiture proceeds, and we invested $19 million in capital expenditures, spent $29 million in principal payments for financing leases, and distributed $27 million in dividends.

Brian: We received $16 million in divestiture proceeds and we invested $19 million in capital expenditures spent $29 million in principal payments for financing leases and distributed $27 million in dividends.

Brian: Lastly, repurchases of our common stock were approximately $44 million under our share repurchase program, which authorizes us to repurchase up to $150 million of the company's common stock.

Brian: Lastly repurchases of our common stock were approximately $44 million under our share repurchase program, which authorizes us to repurchase up to $150 million of the company's common stock.

Brian: We've used our significant cash flow to reduce invested capital by $83 million during the first nine months of fiscal 2024.

Michael T. Broderick: Maintaining a balanced approach between our tire and service categories with competitive pricing to drive store traffic and continuously improving our customers. 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 sales. 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. I'll now turn the call over to Brian, who will provide an overview of Monroe's third-quarter performance, strong financial position, and additional color regarding the remainder of fiscal 20

Brian: At the end of the third quarter, we had bank debt of $94 million cash and cash equivalents of $24 million and a net bank debt to EBITDA ratio of five times.

Brian: At the end of the third quarter, we had bank debt of $94 million, cash and cash equivalents of $24 million, and a net bank debt to EBITDA ratio of 0.5 times.

Brian: While we're not providing guidance for the remainder of fiscal 2024, we are providing color to assist in your modeling.

Brian: We expect lower year-over-year full-year sales, inclusive of an extra week in our fourth quarter.

Brian: We expect lower year over year full year sales inclusive of an extra week in our fourth quarter.

Brian: We expect to drive year-over-year improvements in our gross margin through pricing action,

Brian: We expect to drive year over year improvements in our gross margin through pricing actions tire mix optimization.

Brian: Tire Mix Optimization

Brian: and productivity improvements from our labor investors.

Brian: And productivity improvements from our labor investments, which will be partially offset by continued wage inflation.

Brian: which will be partially offset by continued wage inflation.

Brian: 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 and lower sales volume.

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 and lower sales volume.

Brian: Brian?

Brian: Our tax rate should be approximately 25% for fiscal 2024.

Brian: Regarding our capital expenditures, we expect to spend approximately $30 million to $35 million in fiscal 2025.

Brian: Regarding our capital expenditures, we expect to spend approximately 30 million to $35 million in fiscal 2024.

Brian: 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 and with.

Brian: We also expect to continue improving our operating cash flow, driven by continued working capital reduction.

Brian: 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.

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

Brian: Total operating expenses were $91.3 million, or 28.7% of sales, as compared to $89.6 million, or 26.7% of sales, in the prior year period. The increase in the percentage of sales was principally due to lower year-over-year comparable store sales. Operating income for the third quarter declined to $21.4 million, or 6.7% of sales. This is compared to $23.8 million, or 7.1% of sales, in the prior year. Net interest expense decreased to $5 million as compared to $5.9 million in the same period last year. This was principally due to a decrease in weighted average debt.

Brian: That I will now turn the call back over to Mike for some closing remarks.

Mike: Thanks, Brian. We remain laser focused on our initiatives to improve sales, expand margins, and create cash.

Mike: Thanks, Brian we remain laser focused on our initiatives to improve sales expand margins and create cash.

Mike: Although we still have important work to do, we are well positioned to execute our growth strategy and deliver long-term value creation for our shareholders.

Mike: Although we still have important work to do we are well positioned to execute our growth strategy and deliver long term value creation for our shareholders.

Speaker Change: With that, I will now turn it over to the operator for questions.

Speaker Change: With that I will now turn it over to the operator for questions.

Speaker Change: Thank you.

Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you change your mind and wish to withdraw your question, please press star 2. In the interest of time and fairness, we ask all participants to limit themselves to one question and one follow up initially during the Q&A session.

Speaker Change: I would like to ask a question. Please press star one on your telephone keypad. If you change your mind and wish to withdraw your question. Please press star two.

Speaker Change: In the interest of time and fairness, we ask participants to limit themselves to one question and one follow up initially during the Q&A session.

Speaker Change: Our first question comes from David Lance from Wells Fargo. Please go ahead.

Our first question comes from David <unk> from Wells Fargo.

Speaker Change: Please go ahead.

David Bellinger: Hey, good morning, guys. Thanks for taking my questions. So I was just curious if you could talk about the quarter to date comp trends in a bit more detail. It sounds like the first half of January was pretty challenging, but second half has improved a lot. So I was just curious about that.

David: Hey, good morning, guys. Thanks for taking my questions. So I was just curious if you could talk about the quarter to date comp trends in a bit more detail. It sounds like the first half of January was pretty challenging but second half has improved a lot. So was just curious about that.

Brian: Income tax expense was approximately $4.2 million, or an effective tax rate of 25.8%, which is compared to $5 million, or an effective tax rate of 27.6%, in the prior year period. Net income was approximately $12.2 million as compared to $13 million in the same period last year. Diluted earnings per share was $0.38 compared to $0.41 for the same period last year. Adjusted diluted earnings per share, a non-GAAP measure, was 39 cents, and this is compared to adjusted diluted earnings per share of 43 cents in the third quarter of fiscal 2023. Please refer to our reconciliation of adjusted diluted EPS in this morning's earnings press release and on slide 8 in our earnings presentation for further details regarding excluded items in the third quarter of both fiscal years.

David: David Good morning, this is Mike.

David Bellinger: David, good morning. This is Mike. Just to give you clarity on what we're seeing, the first two weeks were very soft, driven by a shift in the holiday. So I basically gained two Sundays but lost two very important Mondays, and I do much more business on Monday. So that contributed to a soft comp. And then it was just a continuum of a weather story and the tire story. As soon as the weather came back, which happened in the last two weeks of the month, everything normalized. Our tire business came back. Our business turned in a very different position. And the way we characterized it was a significant difference between the first two weeks and the second two weeks.

Mike: Give you clarity on what we're seeing the first two weeks were very soft driven by a shift in the holiday. So I basically gained two Sundays, but lost two very important Mondays and I do much more business on Monday, so that contributed to a soft comp and then it was just to continue on a weather story and the tire.

Michael T. Broderick: We continue to mitigate this industry-wide slowdown in tires with actions to reduce non-productive labor costs, including overtime hours in our stores, which were down 25% year-over-year. This allowed us to expand gross margin even on lower sales volumes. We will continue to closely manage our labor costs and expenses to maximize profitability. Now, concluding with our plans to deliver an improvement in our diluted earnings per share this fiscal year despite a choppy consumer environment. While our preliminary comp store sales for fiscal January are down approximately 6% due to softness in the first half of the month, comps have accelerated materially in the last two weeks with the return of normal seasonal weather. We have some easier prior year comparisons in February and March, but given the current pressures on the consumer, we no longer expect to grow full year sales. However, we do expect full-year diluted earnings per share to be higher versus the prior year.

Mike: Story as soon as the weather came back which happened in.

Mike: The last two weeks of the month everything normalized our tire business came back our business.

Mike: And in a very different position and the way we characterize it was.

Mike: A significant difference between the first two weeks in the second two weeks.

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

Speaker Change: Got it that's helpful. And then gross margins were a standout in the quarter. So I was just curious if you could talk through what's structural there and how much how many overtime hours you have to reduce still and what kind of lever that can be.

Mike: Got it. That's helpful. And then gross margins were a standout in the quarter. So I was just curious if you could talk through what's structural there and how many overtime hours you have to reduce still and what kind of lever that could be.

Brian: We generated $130 million of cash from operations during the first nine months of fiscal 2024, including $30 million in working capital reduction. This has reduced our cash conversion cycle by approximately 60 days at the end of the third quarter compared to the prior year period. Our AP to inventory ratio at the end of the third quarter was 179% versus 178% at the end of fiscal 2023. We received $16 million in divestiture proceeds, and we invested $19 million in capital expenditures, spent $29 million in principal payments for financing leases, and distributed $27 million in dividends. Lastly, repurchases of our common stock were approximately $44 million under our share repurchase program, which allows us to repurchase up to $150 million of the company's common stock. We used our significant cash flow to reduce invested capital by $83 million during the first nine months of fiscal 2024.

Mike: Sure, this is Mike again.

Speaker Change: Sure. This is Mike again just.

Mike: When you look at the material margins, that partly was contributed to the decisions we made around the change in our tire assortment. So the team really did a nice job bringing to life our Tier 1 through 3, as we've talked about in the past. That was a more profitable tire, better tire for our customer. Number two is when we look at the tire decline, obviously our service categories drive a higher margin, so that contributed to it. And last but not least, the team did a really great job controlling payroll. When you look at overtime, actually we were down year over year, but sequentially we actually invested in overtime in order to meet some of the customer demands. And I really pay attention to that because I never want to cap our sales. So we've talked about this in the past. I'll invest in overtime, I'll invest in our people in order to meet demand. And I continue to do that, but ultimately what we're focused on is non-productive payroll. Making sure our technicians are earning their fair wages and our customers are being served.

Mike: When you look at the material margins that is partly was contributed to the decisions. We've made around the change in our tire assortment. So the team really did a nice job, bringing to life our tier one through three as we've talked about in the past that was more profitable tire better tier for our customer.

Mike: Number two is when we look at.

Mike: The tire decline, obviously, our service categories to drive a higher margin so that contributed to it and last but not least the team did a really great job of controlling payroll. When you look at over time actually we were down year over year, but sequentially, we actually invested in overtime in order to meet some of the customer demands and I really pay attention to that because I.

Michael T. Broderick: This will be driven by actions we've taken to successfully reposition our cost structure, as well as expanding our gross margin through properly training our teammates to maximize their productivity and optimizing our tire assortment for improved profitability. We will continue to remain relentlessly focused on improving 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 customers. 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 system. 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. With that, I'll now turn the call over to Brian, who will provide an overview of Monroe's third quarter performance, strong financial position, and additional color regarding the remainder of fiscal 2024.

Mike: Never want to cap our sales so we've talked about this in the past all invest in overtime.

Mike: And our people in order to meet demand and I continue to do that but ultimately what we're focused on is nonproductive payroll, making sure our technicians on our earning their fair wages and our customers are being served.

Brian: At the end of the third quarter, we had bank debt of $94 million, cash and cash equivalents of $24 million, and a net bank debt to EBITDA ratio of 0.5 times. While we're not providing guidance for the remainder of fiscal 2024, we are providing color to assist in your modeling. We expect lower year-over-year full-year sales, inclusive of an extra week in our fourth quarter. However, we expect to drive year-over-year improvements in our gross margin through pricing action, Tire Mix Optimization, and productivity improvements from our labor investors, 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 costs to support our store base, as well as the impact of inflation and lower sales volume.

Speaker Change: Just to follow up on that, to put some numbers to the pieces that Mike described, the material cost benefit was about 190 basis points in the quarter for the reasons Mike explained. The technician benefit, technician labor cost as a percent of sales improved 40 basis points year over year. And we did see a 60 basis point headwind related to distribution and occupancy costs as they delevered on lower comp sales. That nets out to the 170 basis point margin improvement.

Speaker Change: Just to follow up on that to give us put some numbers to the pieces that Mike described.

Speaker Change: The material cost benefit was about 190 basis points in the quarter for the reasons, Mike explained the technician benefit technician labor cost as a percentage of sales improved 40 basis points year over year, and we did see a 60 basis point.

Speaker Change: Headwind related to distribution and occupancy costs as they de levered on lower comp sales that nets out to the 170 basis point margin improvement.

Speaker Change: Got it thanks, guys Thats Super helpful.

Speaker Change: Got it. Thanks guys. That's super helpful.

Speaker Change: Thanks, David. Thank you.

Speaker Change: Thanks, David Thank you.

Speaker Change: Our next question is from Bret Jordan at Jefferies. Please go ahead.

Brian: Thank you, Mike, and good morning, everyone. Turning to slide 8, sales decreased 5.2% year-over-year to $317.7 million in the third quarter, which was primarily due to lower tire unit sales. Comparable store sales decreased 6.1%, and sales from new stores increased approximately $1 million. Gross margin increased 170 basis points compared to the prior year, primarily resulting from lower material costs and technician labor costs as a percentage of sales, which were partially offset by higher distribution and occupancy costs as a percentage of sales. Total operating expenses were $91.3 million, or 28.7% of sales, as compared to $89.6 million, or 26.7% of sales in the prior year period. The increase in the percentage of sales was principally due to lower year-over-year comparables to our sales. Operating income for the third quarter declined to $21.4 million, or 6.7% of sales. This is compared to $23.8 million, or 7.1% of sales in the prior year. Net interest expense decreased to $5 million as compared to $5.9 million in the same period last year.

Bret Jordan: Hey, good morning guys.

Bret Jordan: Hey, good morning, guys.

Bret Jordan: Good morning, Brett. Would you break out in a composition of car count versus price?

Bret Jordan: Good morning, Rajeev breakout other than the comp composition of car count versus price.

Brian: Our tax rate should be approximately 25% for fiscal 2024.

Bret Jordan: Sure when we look at our overall car count it was down 8%.

Brett: Sure. When we look at our overall car count, it was down 8%. Price was up, average sales price was up 3%. Let me go deeper into that. On tire, we were down 14% in units, up 5% in ticket. Once again, going back to our mix change that we started last January. When I look at our service business, it was basically down 3% and average ticket was flat.

Brian: Regarding our capital expenditures, we expect to spend approximately $30 million to $35 million in fiscal 2025. We also expect to continue improving our operating cash flow, driven by continued working capital reduction. 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.

Bret Jordan: Price was up.

Bret Jordan: Average sales price was up 3%, let me go deeper into that.

Bret Jordan: On tire were down 14% in units up 5% and ticket once again going back to our mix change that we started last January when I look at our service business. It was basically down 3% and average ticket was flat.

Brett: I do want to call out this P&L would look much different, much different if we ran down 3%. The team is doing a good job controlling expenses, contributing, moving our margins in the right direction. And I feel confident that now that we have most of the OPP tire conversation behind us, now we've lapped it a year, I feel confident we get back to a more normal conversation around our tire assortment. And I'm looking forward to a more normal customer environment where we get this thing growing again.

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

Bret Jordan: I do want to call out this P&L would look much different much different if we ran down 3% as the team is doing a good job controlling expenses.

Michael T. Broderick: Thanks, Brian. We remain laser focused on our initiatives to improve sales, expand margins, and create cash.

Bret Jordan: <unk> moving our margins in the right direction.

Bret Jordan: And I feel confident that now that we have most of the otp.

Unnamed Host: Although we still have important work to do, we are well positioned to execute our growth strategy and deliver long-term value creation for our shareholders.

Bret Jordan: Tire conversation behind US now we've locked for the year I feel confident we get back to a more normal conversation around our tire assortment and I'm looking forward to a more normal customer environment, where we get this thing growing again.

Unnamed Host: With that, I will now turn it over to the operator for questions.

Unnamed Host: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you change your mind and wish to withdraw your question, please press star 2. In the interest of time and fairness, we ask all participants to limit themselves to one question and one follow-up initially during the Q&A session. Our first question comes from David Lance from Wells Fargo.

Speaker Change: Okay, and then the contribution from working capital, you know, sort of what's left in that tank as far as incremental cash to squeeze off the balance sheet?

Speaker Change: Okay, and then the contribution from working capital.

Speaker Change: Sort of what's left in that in that tag as far as incremental cash to squeeze off the balance sheet.

Speaker Change: Yeah, Brett, as we talked about on the last call, we're in the later innings of that, but there's still opportunity. So we think that our cash flow will continue to be supported by not only the profit growth, but also working capital improvements. Certainly don't expect to give back any of that working capital and believe that there's additional benefit to come.

Speaker Change: Yes, Brett as we talked about on the last call. We're in the later innings of that but there's still opportunity. So we think that our cash flow will continue to be supported by not only the profit growth, but also working capital improvements certainly not don't expect to give back any of that working capital and believe that there is additional benefit to come.

Please go ahead. Hey, good morning, guys.

Brian: This was principally due to a decrease in weighted average debt. Income tax expense was approximately $4.2 million, or an effective tax rate of 25.8%, which is compared to $5 million, or an effective tax rate of 27.6%, in the prior year period. Net income was approximately $12.2 million, as compared to $13 million in the same period last year. Diluted earnings per share was $0.38 compared to $0.41 for the same period last year. Adjusted diluted earnings per share, a non-GAAP measure, was $0.39, and this is compared to adjusted diluted earnings per share of $0.43 in the third quarter of fiscal 2023. Please refer to our reconciliation of adjusted diluted EPS in this morning's earnings press release and on slide 8 in our earnings presentation for further details regarding excluded items in the third quarter of both fiscal years. As highlighted on slide 9, we continue to maintain a very solid financial position. We generated $130 million of cash from operations during the first nine months of fiscal 2024, including $30 million in working capital reductions.

Thanks for taking my questions. I was just curious if you could talk about the quarter to date comp trends in a bit more detail.

Michael T. Broderick: It sounds like the first half of January was pretty challenging, but the second half has improved a lot.

Speaker Change: Okay. And Brian, could you give us the monthly comps?

Speaker Change: Okay, and Brian could you give us the monthly cost.

Brian: Sure, down 5.7 in October, down 6.6 in November, down 5.6 in December, and then the preliminary January month-to-date down 6.6.

Brian: Sure down five 7% in October down six six in November down five six in December and then the preliminary January month to date are down 6%.

Michael T. Broderick: So I was just curious about that.

Michael T. Broderick: David, good morning.

Michael T. Broderick: This is Mike.

Michael T. Broderick: Just to give you clarity on what we're seeing, the first two weeks were very soft, driven by a shift in the holiday. So I basically gained two Sundays but lost two very important Mondays, and I do much more business on Monday. So that contributed to a soft comp. And then it was just a continuum of the weather story and the tire story.

Speaker Change: Okay, great, thank you.

Speaker Change: Okay, great. Thank you.

Speaker Change: Our next question from Brian Nagel Oppenheimer. Please go ahead.

Speaker Change: Our next question is from Brian Nagel at Oppenheimer. Please go ahead.

Hey, guys good morning.

Brian Nagel: Hey, guys.

Brian Nagel: Good morning, Brian.

Speaker Change: Good morning, Brian.

Brian Nagel: I guess my first question is probably a bit of a follow-up but you know just with regard to weather I mean look it was obvious

Speaker Change: I guess my first question is probably a bit of a follow up but just with regard to whether I mean look it's no secret that we had.

Michael T. Broderick: As soon as the weather came back, which happened in the last two weeks of the month, everything normalized. Our tire business came back. Our business took on a very different position, and the way we characterized it was a significant difference between the first two weeks and the second two weeks.

Brian Nagel: and many more.

Speaker Change: Warm warm start to the winter, so so to say, but.

Brian Nagel: Warm start to the winter, so to say.

Brian Nagel: Could you help us understand better, you know,

Speaker Change: Could you help us understand better.

Brian Nagel: the impact of the actual impact of that

Speaker Change: Impact of the ACA.

Speaker Change: The impact of that upon upon comp sales and then also you called out again, the sluggish consumer maybe we're starting to get some signals out there that overall consumer confidence is maybe starting to improve so the question I have for you is behind all of this noise or you've seen some indication that maybe with your consumer confidence is improving.

Brian Nagel: And then also, you know, you called out again, you know, the sluggish consumer. I mean, maybe we're starting to get some signals out there that

Brian Nagel: We're all...

Brian Nagel: The question I have for you is behind all this noise, are you seeing some indication that maybe with your consumer confidence is improving?

Got it. That's helpful.

Michael T. Broderick: And then gross margins were a standout in the quarter. So I was just curious if you could talk through what's structural there and how many overtime hours you have to reduce still and what kind of lever that could be. Sure, this is Mike again. When you look at the material margins, that partly contributed to the decisions we made around the change in our tire assortment. So the team really did a nice job bringing to life our Tier 1 through 3, as we've talked about in the past. That was a more profitable tire, and a better tire for our customer. Number two, when we look at the tire decline, obviously, our service categories drive a higher margin, so that contributed to it.

Brian: This has reduced our cash conversion cycle by approximately 60 days at the end of the third quarter compared to the prior year period. Our AP to inventory ratio at the end of the third quarter was 179% versus 178% at the end of fiscal 2023. We received $16 million in divestiture proceeds, and we invested $19 million in capital expenditures, spent $29 million in principal payments for financing leases, and distributed $27 million in dividends. Lastly, repurchases of our common stock were approximately $44 million under our share repurchase program, which allows us to repurchase up to $150 million of the company's common stock. We've used our significant cash flow to reduce invested capital by $83 million during the first nine months of fiscal 2024. At the end of the third quarter, we had bank debt of $94 million, cash and cash equivalents of $24 million, and a net bank debt to EBITDA ratio of 0.5 times.

Brian Nagel: Delayed purchases are getting

Speaker Change: The delayed purchases are getting less so.

Brian Nagel: Yeah, Brian, let me, this is Mike, let me...

Speaker Change: Yeah, Brian Let me this is Mike let me.

Mike: I don't want to give weekly cadence.

Mike: I don't want to give.

Mike: Weekly cadence.

Mike: I would say that the entire business we've talked about in the past, we were looking for a weather event. I wish we had it in the third quarter, which would have made it.

Mike: I would say that the tire business, we've talked about in the past we were looking for a weather event I wish we had it in the third quarter, which sort of meda.

Mike: Different result, but when it did come, it changed dramatically.

Mike: A different result, but when it did come it changed dramatically.

Mike: So just like what we've talked about in the past, weather did contribute to a significant tire change.

Mike: So just like what we've talked about in the past whether did.

Mike: Contribute to our.

Mike: A significant tier change.

Mike: I would look at the consumer and what we're still seeing are customers that used to buy four tires that are trading down to two tires and doing one tire now. So we are still seeing that deferral cycle. And until I see anything differently, I would probably say the consumer is in a rough patch. I should be able to see a consumer that is replacing two tires minimum. They should not be just replacing one tire. And I'm just using that as an example to say, hey, there's something there with the consumer for these high-ticket tires.

Mike: I would look at the consumer and what we're still seeing customers that used to buy for tires that are trading down to two tires and doing one tire.

Mike: So we are still seeing that deferral cycle.

Michael T. Broderick: And last but not least, the team did a really great job controlling payroll. When you look at overtime, actually, we were down year over year, but sequentially, we actually invested in overtime in order to meet some of the customer demands. And I really pay attention to that because I never want to cap our sales. So we've talked about this in the past. I'll invest in overtime, I'll invest in our people in order to meet demand, and I will continue to do that, but ultimately, what we're focused on is non-productive payroll. Making sure our technicians are earning their fair wages, and our customers are being served.

Mike: And until I see anything differently, I would probably say the consumers and the rough patch I should be able to see a consumer that is replacing two tires minimum they should not be just replacing one tire just use it as an example to say hey, there's something there with the consumer.

Brian: While we're not providing guidance for the remainder of fiscal 2024, we are providing color to assist in your modeling. We expect lower year-over-year full-year sales, inclusive of an extra week in our fourth quarter. We expect to drive year-over-year improvements in our gross margin through pricing actions, tire mix optimization, and productivity improvements from our labor investors, 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 costs to support our store base, as well as the impact of inflation and lower sales volume. Our tax rate should be approximately 25% for fiscal 2024.

Mike: These high ticket tires.

Mike: Okay.

Speaker Change: Okay I appreciate it thanks, Mike.

Speaker Change: Okay, I appreciate it. Thanks.

Speaker Change: Thank you, Brian.

Mike: Thank you Brian.

Speaker Change: Our next question is from Daniel Imbrow at Stevens Inc. Please go ahead.

Speaker Change: Our next question is from Daniel <unk> Stephens, Inc. Please go ahead.

Speaker Change: Hey, guys. This is Joe <unk> on for Daniel Thanks for taking the question.

Speaker Change: Hey guys, this is Joe Enderlin. I'm for Daniel. Thanks for taking the question.

Brian: Just to follow up on that, to put some numbers to the pieces that Mike described, the material cost benefit was about 190 basis points in the quarter for the reasons Mike explained. The technician benefit, technician labor cost as a percent of sales, improved 40 basis points year over year. And we did see a 60 basis point headwind related to distribution and occupancy costs as they declined on lower comp sales. That nets out to the 170 basis point margin improvement.

Daniel Imbrow: Morning, Joe.

Speaker Change: Good morning, Joe.

Daniel Imbrow: Morten, commentary in the release says you maintain share in those higher margin tiers. Still seems like some movement in the opening price point. Have you seen the pace of that share movement slow?

Tom: Good morning, Tom.

Joe: Commentary in the release says you maintain share in those higher margin tiers.

Joe: Still seems like some movement in the opening price point have you seen the pace of that share movement slow.

Morten: Well, just to be clear, the decisions we made last January, we knew we were going to lose market share and we were going to give up units in opening price point. That was a decision not just with price, but with assortment. The one thing that we did not factor on, and we didn't see that in the prior two years that I was here, is tier one through three declining. That is something that, as an industry, we would never have factored in or forecasted. But when I look at the customer behavior right now, without question, the customer definitely moved into tier four. But overall, tire units in the industry were down mid-single digits.

Speaker Change: Well just to be clear the decisions. We made last January we knew we were going to lose market share.

Speaker Change: We were going to give the op units and opening price point that was the decision not just with price, but with the assortment.

Michael T. Broderick: Regarding our capital expenditures, we expect to spend approximately $30 million to $35 million in fiscal 2020. We also expect to continue improving our operating cash flow, driven by continued working capital reduction. 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. And with that, I will now turn the call back over to Mike for some closing. Thanks, Brian.

Speaker Change: The one thing that we did not factor on and we didn't see that in the prior two years that I was here as tier one through three declining that is something that as an industry. We would never we would never have factored in or forecasted.

Got it. Thanks guys. That's super helpful.

Thanks, David.

Unnamed Host: Thank you. Our next question is from Bret Jordan at Jefferies. Please go ahead.

Speaker Change: When I look at the customer behavior right now without question the customer definitely moved into tier four.

Bret Jordan: Hey, good morning guys.

Michael T. Broderick: Good morning, Brett.

Bret Jordan: Would you break out in a composition of car count versus price?

But overall tire units in the industry were down mid single digits. So there is a very tough environment around the tire business right now and I'm looking forward to that.

Michael T. Broderick: Sure. When we look at our overall car count, it was down 8%. But prices were up, and average sales price was up 3%. Let me go deeper into that.

Morten: So there's a very tough environment around the tire business right now, and I'm looking forward to that actually coming back. Once again, going back to the consumer environment right now, I would say it's shared by all.

Operator: We remain laser focused on our initiatives to improve sales, expand margins, and create cash. Although we still have important work to do, we are well positioned to execute our growth strategy and deliver long-term value creation for our shareholders. With that, I will now turn it over to the operator for questions. Thank you. If you would like to ask a question, please press star one on your telephone keypad.

Michael T. Broderick: On tire, we were down 14% in units, up 5% in ticket sales.

Speaker Change: That actually coming back once again going back to the consumer environment right now I would say it's shared by all.

Michael T. Broderick: Once again, going back to our mix change that we started last January, when I looked at our service business, it was basically down 3%, and average ticket was flat. I do want to call out that this P&L would look much different, much different if we ran down 3%. The team is doing a good job controlling expenses, contributing, and moving our margins in the right direction. And I feel confident that now that we have most of the OPP tire conversation behind us, now we've lapped it a year, I feel confident we can get back to a more normal conversation around our tire assortment. And I'm looking forward to a more normal customer environment where we get this thing growing again.

Speaker Change: Got it. That's helpful. Just as a follow-up, could you provide some more color on how those 300 underperforming stores did first year expectations for the quarter?

Speaker Change: Got it that's helpful. Just as a follow up could you provide some more color on how those 300 underperforming stores did versus your expectations for the quarter.

Speaker Change: Versus expectations. They missed expectations that you actually were very consistent with the rest of my chain. There was a lot of variability in the performance in those 300 stores I would say one third over extremely successful one third met expectations and one third fell short of my expectations.

Speaker Change: versus expectations. They missed expectations. They actually were very consistent with the rest of my chain. There was a lot of variability in the performance in those 300 stores. I would say one-third were extremely successful, one-third met expectations, and one-third fell short of my expectations.

Operator: If you change your mind and wish to withdraw your question, please press star two. In the interest of time and fairness, we ask all participants to limit themselves to one question and one follow-up initially during the Q&A session. Our first question comes from David Lance from Wells Fargo. Please go ahead.

Speaker Change: and we continue to focus on driving profitable sales through those boxes.

Speaker Change: And we continue to focus on driving profitable sales through those boxes I have talked about in prior quarters that having one or two transactions.

Speaker Change: I have talked about in prior quarters that having one or two additional transactions with tires could significantly change the comp on some of these low-volume stores, just to kind of illustrate how variable some of these stores' P&L and sales performance really is.

Michael T. Broderick: Hey, good morning, guys. Thanks for taking my questions. So I was just curious if you could talk about the quarter to date Comtrends in a bit more detail. It sounds like the first half of January was pretty challenging, but the second half has improved a lot. So I was just curious about that.

Speaker Change: Additional transactions with tires could significantly change the comp on some of these low volume stores.

Bret Jordan: Okay, and then the contribution from working capital, you know, sort of what's left in that tank as far as incremental cash to squeeze off the balance sheet?

Speaker Change: Just just to kind of illustrate how variable some of these stores P&L and sales performance really is.

Michael T. Broderick: David, good morning. This is Mike. Just to give you clarity on what we're seeing, the first two weeks were very soft, driven by a shift in the holiday. So, I basically gained two Sundays but lost two very important Mondays, and I do much more business on Monday. So, that contributed to a soft comp, and then it was just a continuation of the weather story and the tire story. As soon as the weather came back, which happened in the last two weeks of the month, everything normalized, our tire business came back, and our business took a very different position. And the way we characterize it was a significant difference between the first two weeks and the second two weeks. Got it.

Michael T. Broderick: Yeah, Brett, as we talked about on the last call, we're in the later innings of that, but there's still opportunity. So we think that our cash flow will continue to be supported by not only profit growth but also working capital improvements. Certainly, we don't expect to give back any of that working capital and believe that there's additional benefit to come.

Speaker Change: Yeah.

Speaker Change: that's helpful, thank you guys Thank you Joe

Speaker Change: That's helpful. Thank you guys.

Speaker Change: Thank you Joe.

Speaker Change: Yes.

Speaker Change: Our next question is a follow up from Bret Jordan of Jefferies. Please go ahead.

Speaker Change: Our next question is a follow-up from Bret Jordan at Jefferies. Please go ahead.

Bret Jordan: Hey, guys.

Bret Jordan: Hey guys, I think you not too long ago made an announcement about a part supply deal you did with a group. Could you talk about that? Does it have any impact or material impact on margin or is it just an incremental part supply deal in addition to the ones you already had with some of the big two-step guys?

Bret Jordan: <unk> not too long ago made an announcement about our parts supply deal you did with a group could you talk about that does it have any impact or material impact on margin or is it just an incremental part supply deal. In addition to the ones you already have with it some of the big two step guys.

Speaker Change: We did make a deal. I would say it's incremental but there's nothing in this quarter to talk about and there's no margin that I would say would be something I would call out. It just gives our team another option in case they're trying to look for parts so they can better serve their customers.

Bret Jordan: There is we did make a deal I would say, it's incremental but theres nothing in this quarter to talk about and there is no margin I would say would be something I would call out just gives our team another option in case. They are trying to look for parts. So they can better serve their customers.

Bret Jordan: Okay.

Brian Nagel: And Brian, could you give us the monthly comps?

Michael T. Broderick: Sure, down 5.7 in October, down 6.6 in November, down 5.6 in December, and then the preliminary January month-to-date down 6.6.

Michael T. Broderick: That's helpful. Gross margins were a standout in the quarter. So I was just curious if you could talk through what's structural there and how much, how many overtime hours you have to reduce still and what kind of lever that has. Sure, this is Mike again. Just, when you look at the material margins, that partly was contributed to the decisions we made around the change in our tire assortment. So the team really did a nice job bringing to life our Tier 1 through 3, as we've talked about in the past.

Speaker Change: Okay. And then I guess a little bit more detail on the labor cost reduction comment. I think you said it was, you know, something in the 40 basis points benefit. Is it just reduction in labor hours or an absolute reduction in headcount? You know, sort of one of the big libraries you can pull on the labor cost side of things.

Speaker Change: Okay, and then I guess, a little bit more detail the labor cost reduction comment I think you said it was.

Bret Jordan: Okay, great, thank you.

Unnamed Host: Our next question is from Brian Nagel at Oppenheimer. Please go ahead.

Speaker Change: Something in the 40 basis points.

Speaker Change: <unk> is it just reduction in labor hours or an absolute reduction in head count sort of what are the big levers you can pull on that on the labor cost side of things.

Brian Nagel: Hey, guys.

Michael T. Broderick: Good morning, Brian.

Brian Nagel: I guess my first question is probably a bit of a follow-up, but you know just with regard to weather. I mean, look, it was obvious, and many more. A warm start to the winter, so to say. Could you help us understand better, you know, the impact of the actual impact of that And then also, you called out again, the sluggish consumer. I mean, maybe we're starting to get some signals out there that we're all... The question I have for you is, behind all this noise, are you seeing some indication that maybe your consumer confidence is improving?

Speaker Change: Yeah, we did a little bit of both. But ultimately, what we did is we reduced hours so that we could, and we just really managed hours very tightly, considering that we had a tight sales environment. And the way we did that, through less people, but more importantly, we just really restricted the hours so that we were really flexible when the customers did come into our stores. We just managed the schedule. Going back a couple of years ago, I would say from a Monroe perspective, we invested in tools, scheduling tools, to allow us to better manage our people. And the team is adapting to it. And they're doing a great job managing our biggest cost, which is our technicians.

Speaker Change: We did a little bit of both but ultimately what we did is we reduced hours.

Michael T. Broderick: That was a more profitable tire, and a better tire for our customer. Number two, when we look at the tire decline, obviously, our service categories drive a higher margin, so that contributed to it. And last but not least, the team did a really great job of controlling payroll.

Speaker Change: Or that we could and we just really managed hours very tightly considering that we had a tight sales environment.

Speaker Change: And the way, we did that through less people, but more importantly.

Speaker Change: We just really restricted the hours. So that we were really flexible when the customers did come into our stores. We just manage the schedule going back a couple of years ago, I would say from a monro perspective.

Brian: When you look at overtime, actually, we were down year over year, but sequentially, we actually invested in overtime in order to meet some of the customer demands. And I really pay attention to that because I never want to cap our sales. So we've talked about this in the past; I'll invest in overtime, I'll invest in our people in order to meet demand. And I continue to do that, but ultimately, what we're focused on is non-productive payroll. Making sure our technicians are earning their fair wages, and our customers are being served. Just to follow up on that, to put some numbers on the pieces that Mike described, the material cost benefit was about 190 basis points in the quarter for the reasons Mike explained. The technician benefit, technician labor costs as a percent of sales, improved 40 basis points year over year.

Speaker Change: We invested in tools scheduling tools to allow us to better manage our people and the team is adapting to it and they're doing a great job managing our biggest cost which is our technicians.

Michael T. Broderick: Delayed purchases are getting, Yeah, Brian, let me, this is Mike, let me... I don't want to give a weekly cadence. I would say that the entire business we've talked about in the past, we were looking for a weather event. I wish we had it in the third quarter, which would have made it. Different result, but when it did come, it changed dramatically. So just like what we've talked about in the past, weather did contribute to a significant tire change. I would look at the consumer, and what we're still seeing are customers that used to buy four tires that are trading down to two tires and doing one tire now. So we are still seeing that deferral cycle. And until I see anything differently, I would probably say the consumer is in a rough patch. I should be able to see a consumer that is replacing two tires at minimum. They should not be just replacing one tire. And I'm just using that as an example to say, hey, there's something there for the consumer for these high-ticket tires.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thanks, Brian.

Speaker Change: Thanks, Brett.

Speaker Change: If there are any follow up questions. Please press star one on your telephone keypad now.

Speaker Change: If there are any further follow-up questions, please press star 1 on your telephone keypad now.

Speaker Change: And we have no further questions on the line.

Speaker Change: We have no further questions on the line, so I will hand the call back to Michael Broderick for closing remarks.

Speaker Change: I'll hand, the call back to Michael <unk> for closing remarks.

Michael T. Broderick: 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. We look forward to keeping you updated on our progress have a great day.

Michael T. Broderick: 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.

Speaker Change: This concludes the conference call. Thank you all very much for joining. You may now disconnect your lines.

Michael T. Broderick: This concludes the conference call. Thank you very much for joining you may now disconnect your lines.

Speaker Change: Thanks for watching!

Michael T. Broderick: [music].

Brian: We did see a 60 basis point headwind related to distribution and occupancy costs as they declined on lower comp sales. That nets out to the 170 basis point margin improvement. Got it. Thanks, guys. That's super helpful.

Michael T. Broderick: Okay.

Brian Nagel: Okay, I will appreciate it.

Michael T. Broderick: Okay.

Brian Nagel: Thanks.

Unnamed Host: Thank you, Brian. Our next question is from Daniel Imbrow at Stevens Inc. Please go ahead.

Operator: Thanks, David. Thank you. Our next question is from Bret Jordan at Geoffrey's, please go ahead. Hey, good morning, guys. Good morning, Bret.

Michael T. Broderick: Okay.

Hey guys, this is Joe Enderlin. I'm on behalf of Daniel. Thanks for taking the question.

Michael T. Broderick: Morning, Joe.

Morten, the commentary in the release says you maintain a share in those higher margin tiers.

Michael T. Broderick: Could you break out the composition of car count versus price? Sure, when we look at our overall car count, it was down 8%. Price was up. Average sales price was up 3%.

Michael T. Broderick: Still seems like there is some movement in the opening price point.

Have you seen the pace of that share movement slow?

Michael T. Broderick: Well, just to be clear, the decisions we made last January, we knew we were going to lose market share, and we were going to give up units at the opening price point. That was a decision not just about price, but about assortment. The one thing that we did not factor in, and we didn't see that in the prior two years that I was here, was tier one through three declining.

Michael T. Broderick: Let me go deeper into that. On tire, we were down 14% in units, up 5% in ticket. Once again, going back to our mix change that we started last January, when I looked at our service business, it was basically down 3%, and average ticket was flat. I do want to call out that this P&L would look much different, much different, if we ran down 3%. The team is doing a good job controlling expenses, moving our margins in the right direction, and I feel confident that now that we have most of the OPP tire conversation behind us, now we've lapped it a year, I feel confident we can get back to a more normal conversation around our tire assortment, and I'm looking Okay, and then the contribution from working capital, you know, sort of what's left in that tank as far as incremental cash to squeeze off the balance sheet. Yeah, Brett, as we talked about on the last call, we're in the later innings of that, but there's still opportunity.

Michael T. Broderick: That is something that, as an industry, we would never have factored in or forecasted. But when I look at the customer behavior right now, without question, the customer has definitely moved into tier four. But overall, tire units in the industry were down mid-single digits. So there's a very tough environment around the tire business right now, and I'm looking forward to that actually coming back. Once again, going back to the consumer environment right now, I would say it's shared by all.

transcript Emily Beynon: Got it.

That's helpful. Just as a follow-up, could you provide some more color on how those 300 underperforming stores did versus first year expectations for the quarter? versus expectations.

Brian: So we think that our cash flow will continue to be supported by not only profit growth but also working capital improvements. Certainly, we don't expect to give back any of that working capital and believe that there's additional benefit to. Okay, and Brian, could you give us the monthly comps? Sure, down 5.7 in October, down 6.6 in November, down 5.6 in December, and then the preliminary January month-to-date down 6.7. Okay, great. Thank you. Our next question is from Brian Nagel at Oppenheimer. Please go ahead. Hey guys. Good morning, everyone. I guess my first question is probably a bit of a follow-up, but just with regard to weather.

Michael T. Broderick: They missed expectations, but they were actually very consistent with the rest of my chain. There was a lot of variability in the performance of those 300 stores.

Michael T. Broderick: I would say one-third were extremely successful, one-third met expectations, and one-third fell short of my expectations, and we continue to focus on driving profitable sales through those boxes.

I have talked about in prior quarters that having one or two additional transactions with tires could significantly change the comp on some of these low-volume stores, just to kind of illustrate how variable some of these stores' P&L and sales performance really is. That's helpful, thank you guys. Thank you Joe. Our next question is a follow-up from Bret Jordan at Jefferies.

Unnamed Host: Please go ahead.

Bret Jordan: Hey guys, I think you made an announcement about a part supply deal you did with a group.

Bret Jordan: Could you talk about that?

Michael T. Broderick: Does it have any impact or material impact on margin, or is it just an incremental part supply deal in addition to the ones you already had with some of the big two-step guys?

Bret Jordan: We did make a deal.

Michael T. Broderick: I would say it's incremental, but there's nothing in this quarter to talk about, and there's no margin that I would say would be something I would call out.

Operator: We got a warm start to the winter, so to say. Could you help us understand better the impact of the, the actual impact of that, upon comp sales, and then also you called out the sluggish consumer. Maybe we're starting to get some signals out there that, Ray.

Bret Jordan: It just gives our team another option in case they're trying to look for parts so they can better serve their customers.

Michael T. Broderick: Okay.

Bret Jordan: And then I guess a little bit more detail on the labor cost reduction comment.

Michael T. Broderick: I think you said it was, you know, something in the 40 basis points benefit.

Michael T. Broderick: The question I have for you is, behind all this noise, are you seeing some indication that maybe your consumer confidence is improving? Delayed Purchases are getting, Yeah, Brian, let me, this is Mike, let me... I would say that the entire business we've talked about in the past, we were looking for a weather event. I wish we had it in the third quarter, which would have given it a different result, but when it did come, it changed dramatically.

Bret Jordan: Is it just a reduction in labor hours or an absolute reduction in headcount?

Michael T. Broderick: You know, sort of one of the big libraries you can pull on the labor cost side of things. Yeah, we did a little bit of both. But ultimately, what we did is we reduced hours so that we could, and we just really managed hours very tightly, considering that we had a tight sales environment. And the way we did that was by employing fewer people, but more importantly, we just really restricted the hours so that we were really flexible when customers did come into our stores. We just managed the schedule. Going back a couple of years ago, I would say from a Monroe perspective, we invested in tools, scheduling tools, to allow us to better manage our people. And the team is adapting to it, and they're doing a great job managing our biggest cost, which is our technicians.

Michael T. Broderick: So, just like we've talked about in the past, weather did contribute to a significant tire change. I would look at the consumer, and what we're still seeing are customers that used to buy four tires that are trading down to two tires and doing one tire now. So, we are still seeing that deferral cycle, and until I see anything differently, I would probably say the consumer is in a rough patch. I should be able to see a consumer that is replacing two tires at a minimum. They should not be just replacing one tire.

Bret Jordan: Okay, great.

Bret Jordan: Thank you.

Unnamed Host: Thanks, Brett. If there are any further follow-up questions, please press star 1 on your telephone keypad now. We have no further questions on the line, so I will hand the call back to Michael Broderick for closing remarks.

Brian Nagel: And I'm just using that as an example to say, hey, there's something there with the consumer for these high-ticket tires. Okay, I appreciate it. Thanks. Thank you, Brian. Our next question is from Daniel Imbro at Stephens Inc. Please go ahead. Hey guys, this is Joe Enderlin. I'm on behalf of Daniel.

Michael T. Broderick: Thank you for joining us today.

Michael T. Broderick: This continues to be an exciting time to be part of Monroe.

Michael T. Broderick: 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.

Operator: Thanks for taking the question, Morning Joe. Morning. Commentary in the release says you maintain share in those higher margin tiers. Still seems like there is some movement in the opening price point. Have you seen the pace of that share movement slow? Well, just to be clear, the decisions we made last January, we knew we were going to lose market share, and we were going to give up units at the opening price point. That was a decision not just about price but about assortment.

Michael T. Broderick: Have a great day!

Unnamed Host: This concludes the conference call.

Unnamed Host: Thank you all very much for joining us. You may now disconnect your lines.

Unnamed Host: Thanks for watching!

Michael T. Broderick: The one thing that we did not factor in, and we didn't see that in the prior two years that I was here, is tier one through three declining. That is something that, as an industry, we would never have factored in or forecasted. When I look at the customer behavior right now, without a question, the customer has definitely moved into tier four. But overall, tire units in the industry were down mid-single digits. So there's a very tough environment around the tire business right now, and I'm looking forward to that actually coming back.

Michael T. Broderick: Once again, going back to the consumer environment right now, I would say it's shared by all. Thank you. Bye.

Michael T. Broderick: That's helpful. Just as a follow-up, could you provide some more color on how those 300 underperforming stores did versus your expectations for the quarter? They missed expectations. They actually were very consistent with the rest of my chain.

Michael T. Broderick: There was a lot of variability in the performance of those 300 stores. I would say one-third were extremely successful, one-third met expectations, and one-third fell short of my expectations, and we continue to focus on driving profitable sales through those boxes. I have talked about in prior quarters that having one or two additional transactions with tires could significantly change the comp on some of these low-volume stores, just to kind of illustrate how variable some of these stores' P&L and sales performance really is. That's helpful. Thank you, guys. Thank you, Joe. Our next question is a follow-up from Bret Jordan at Jefferies. Please go ahead.

Bret Jordan: Hey guys, I think you made an announcement about a parts supply deal you did with a group. Could you talk about that? Does it have any impact or material impact on margin? Or is it just an incremental parts supply deal? You know, in addition to the ones you already had with some of the big two step guys?

Michael T. Broderick: We did make a deal. I would say it's incremental, but there's nothing in this quarter to talk about, and there's no margin that I would say would be something I would call out. It just gives our team another option in case they're trying to look for parts so they can better serve their customers. Okay. And then I guess a little bit more detail on the labor cost reduction comment. I think you said it was, you know, something in the 40 basis points benefit. Is it just a reduction in labor hours or an absolute reduction in headcount? You know, sort of one of the big levers you can pull on the labor cost side of things. Yeah, we did a little bit of both, but ultimately, what we did was we reduced hours so that we could... And we just really managed hours very tightly, considering that we had a tight sales environment. And the way we did that, with fewer people, but more importantly, we just really restricted the hours so that we were really flexible when customers did come into our stores.

Michael T. Broderick: We just managed the schedule. Going back a couple of years ago, I would say from a Monroe perspective, we invested in tools, scheduling tools, to allow us to better manage our people. And the team is adapting to it, and they're doing a great job managing our biggest cost, which is our technicians. Great, thank you.

Michael T. Broderick: Thanks, Bret. If there are any further follow-up questions, please press star 1 on your telephone keypad now. We have no further questions on the line, so I will hand the call back to Michael Broderick for closing remarks. 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 the conference call. Thank you all very much for joining us. You may now disconnect your lines. Music Music

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