Q1 2025 Monro Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the Monro Inc. AdLibs conference call for the first quarter of fiscal 2025. At this time, all participants are in the listen-only mode.

Operator: 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 Veksler, Senior Director of Investor Relations at Monro. Please go ahead.

Unknown Attendee: for the first quarter of Fiscal 2025. At this time, all participants are in the listen-only mode.

Unknown Attendee: Later, we'll conduct a question-and-answer section, and instructions will follow at that time. If anyone should require assistance during the call, please press the star zero on your touch-tone phone.

Later, we'll conduct a question and answer section.

and instructions will follow at that time.

If anyone should require assistance during the call, please press the star zero on your touchtone phone.

Unknown Attendee: 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.

Felix Veksler: 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 Veksler, Senior Director of Investor Relations at Monro. Please go ahead.

Felix Veksler: I would now like to introduce Felix Veksler, Senior Director of Investor Relations at Monro. Please go ahead.

Unknown Attendee: Thank you.

Felix Veksler: 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 two, I'd like to remind participants that our presentation includes some forward-looking statements about Monroe's future performance, and actual results may differ materially from those suggested by our comments today.

Michael Broderick: 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's section of our website at corporate.monro.com forward slash investors.

Felix Veksler: 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-GAAP financial measures, which are intended to supplement and not be substitutes for comparable GAAP measures.

Felix Veksler: 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.monroe.com forward slash investors.

Michael Broderick: If I could draw your attention to the safe harbor statement on slide two, I'd like to remind participants that a presentation includes some forward-looking statements about Monroe's future performance. After all, 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.

Speaker Change: 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.

Speaker Change: Actual results may differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Monro's filings with the SEC and in our earnings release.

Speaker Change: The company disclaims any intention or obligation to update or revise any forward-looking statements

Speaker Change: Whether as a result of new information, future events, or otherwise, accept as required by law.

Michael Broderick: 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. Reconciliation of such supplemental information to the comparable GAAP measures will be included as part of today's presentation and in our earnings release.

Speaker Change: 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: 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. Thank you, Felix. And good morning, everyone.

Felix Veksler: 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. Thank you, Felix, and good morning, everyone.

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. Good morning, everyone. This morning, I'd like to share an update with you on our first quarter accomplishments. After that, I'll outline several objectives that we plan to achieve in the second quarter.

Michael T. Broderick: This morning, I'd like to share an update with you on our first quarter accomplishments. After that, I'll outline several objectives that we plan to achieve in the second quarter. Before I begin, I'd like to recognize and thank all of our teammates for their dedication to Monroe and our program.

Michael T. Broderick: This morning I'd like to share an update with you on our first quarter accomplishments.

Michael Broderick: Before I begin, I'd like to recognize and thank all of our teammates for their dedication to Monroe and our customers. Turning to slide three, starting with our accomplishments in the first quarter. While we are not satisfied with our top line results, we are confident that we have begun to see our recently implemented initiatives take hold. We drove a significant acceleration in our comp store sales trends as the first quarter progressed. Importantly, we turn the corner in our tire category with a return to growth in units in the month of June. We continue to leverage the strength of our manufacturer of funded promotions, which allowed us to meet the needs of a value-oriented consumer, while also optimizing the profitability of our tire assortment.

Michael T. Broderick: Before I begin, I'd like to recognize and thank all of our teammates for their dedication to Monroe and our customers.

Michael T. Broderick: Turning to slide three, starting with our accomplishments in the first quarter. While we are not satisfied with our top-line results, we are confident that we have begun to see our recently implemented initiatives take hold. We drove a significant acceleration in our comp store sales trends as the first quarter progressed. Importantly, we turned the corner in our tire category with a return to growth in units in the month of June. We continue to leverage the strength of our manufacturer-funded promotions, which allow us to meet the needs of a value-oriented consumer while also optimizing the profitability of our tires.

Michael T. Broderick: Turning to slide 3, starting with our accomplishments in the first quarter. While we are not satisfied with our top-line results, we are confident that we have begun to see our recently implemented initiatives take hold.

Michael T. Broderick: We continue to leverage the strength of our manufacturer-funded promotions, which allowed us to meet the needs of a value-oriented consumer, while also optimizing the profitability of our tire assortment.

Michael Broderick: And although we have more work to do to improve the performance of our higher margin service categories, the combination of our Comfort Drive digital courtesy inspection process, service coupon, and oil change offer allowed us to drive growth in both battery units and sales dollars in the month of June, as well as an improvement in our service categories as the quarter progressed. In parallel with our top line initiatives, we continue to drive gross margin expansion in the first quarter with labor optimization through actions to reduce non-productive labor costs, including overtime hours in our stores, labor efficiency through productivity improvements, including scheduling, training, and our attachment selling initiatives, and lower material costs.

Michael T. Broderick: And although we have more work to do to improve the performance of our higher-margin service categories, the combination of our Comfort Drive digital courtesy inspection process, Service Coupon, and Oil Change Offer allowed us to drive growth in both battery units and sales dollars in the month of June, as well as an improvement in our service categories as the quarter progressed, in parallel with our top line initiatives. We continue to drive gross margin expansion in the first quarter with labor optimization through actions to reduce non-productive labor costs, including overtime hours in our stores, labor efficiency through productivity improvements, including scheduling, training, and our attachment selling initiatives, and lower material costs. Our gross margin expansion in the quarter represents another major step toward restoring our gross margins back to pre-COVID levels. Now on to our objectives for the second quarter.

Michael T. Broderick: And although we have more work to do to improve the performance of our higher margin service categories, the combination of our ComfaDrive digital courtesy inspection process

Michael T. Broderick: in parallel with our top line initiatives.

Michael T. Broderick: We continue to drive gross margin expansion in the first quarter with labor optimization through actions to reduce non-productive labor costs.

Michael T. Broderick: including overtime hours in our stores

Michael Broderick: us. Our gross margin expansion in the quarter represents another major step toward restoring our gross margins back to pre-COVID levels.

Michael T. Broderick: Our gross margin expansion in the quarter represents another major step toward restoring our gross margins back to pre-COVID levels.

Michael Broderick: Now onto our objectives for the second quarter. We will leverage the traction from our initiatives in the first quarter to achieve our second quarter objectives, which include improving store traffic trends driven by a keen focus on oil chain services, as well as continued growth in tire units. Accelerate in the performance of our key service categories and optimizing labor and efficiencies through continued improvements in productivity and maintaining prudent cost control. In summary, our recently implemented initiatives are beginning to drive an improvement in our top line results. Our comp store sales trends accelerated as the first quarter progressed, led by our tire category, which returned to unit growth in June.

Michael T. Broderick: We will leverage the traction from our initiatives in the first quarter to achieve our second quarter objectives, which include improving store traffic trends driven by a keen focus on oil change services as well as continued growth throughout the entire year. Accelerating the performance of our key service categories and optimizing labor and efficiencies through continued improvements in productivity and maintaining prudent cost control. In summary, our recently implemented initiatives are beginning to drive an improvement in our top-line results. Our comp store sales trends accelerated as the first quarter progressed, led by our tire category, which returned to unit growth in June.

Michael T. Broderick: Now on to our objectives for the second quarter.

Michael T. Broderick: We will leverage the traction from our initiatives in the first quarter to achieve our second quarter objectives, which include

Michael T. Broderick: Improving store traffic trends driven by a keen focus on oil change services as well as continued growth in tire units.

Michael T. Broderick: In summary, our recently implemented initiatives are beginning to drive an improvement in our top-line results. Our comp store sales trends accelerated as the first quarter progressed, led by our tire category, which returned to unit growth in June .

Michael Broderick: While we have more work to do to improve the performance of our higher margin service categories, growth in batteries in June, as well as an improvement in our service categories as the quarter progressed, service evidence that our initiatives are working. Our gross margin expansion in the quarter through labor optimization, labor efficiency through productivity improvements, and lower material costs gives us further confidence 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. The initiatives we put in place will enable us to achieve our second quarter objectives.

Michael T. Broderick: While we have more work to do to improve the performance of our higher margin service categories growth in batteries in June as well as an improvement in our service categories as the quarter progressed service evidence that our initiatives are working.

Michael T. Broderick: While we have more work to do to improve the performance of our higher-margin service categories, growth in batteries in June, as well as an improvement in our service categories as the quarter progressed, is evidence that our initiatives are working. Our gross margin expansion in the quarter through labor optimization, labor efficiency through productivity improvements, and lower material costs gives us further confidence 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: The initiatives we've put in place will enable us to achieve our second quarter objective. And with that, I'll now turn it over to Brian, who will provide an overview of Monro's first quarter performance, strong financial position, and additional color regarding fiscal 2025.

Michael T. Broderick: The initiatives we put in place will enable us to achieve our second quarter objectives.

Brian: And with that, I'll now turn it over to Brian, who will provide an overview of Monroe's first quarter performance, strong financial position, and additional color regarding fiscal 2025. Brian?

Brian: And with that, I'll now turn it over to Brian who will provide an overview of Monro's first quarter performance, strong financial position, and additional color regarding fiscal 2025. Brian ?

Brian: Thank you, Mike, and good morning, everyone. Turning to slide 4, sales decreased 10.3% year-over-year to $293.2 million in the first quarter, primarily driven by a 9.9% decline in comparable store sales. As Mike just walked through, we drove a significant acceleration in our comp store sales trends as the quarter progressed. For reference, comps were down 13% in April, followed by a slight improvement to down 11% in May, and we exited the quarter down 5% in June.

Brian: Thank you, Mike, and good morning, everyone. Turning to slide four, sales decreased 10.3% year over year to $293.2 million in the first quarter, primarily driven by a 9.9% decline in comparable store sales. As Mike just walked through, we drove a significant acceleration in our comp store sales trends as the quarter progressed.

Brian: Thank you, Mike, and good morning, everyone. Turning to slide 4, sales decreased 10.3% year-over-year to $293.2 million in the first quarter, primarily driven by a 9.9% decline in comparable store sales.

Speaker Change: As Mike just walked through, we drove a significant acceleration in our comp store sales trends as the quarter progressed. For reference, comps were down 13 percent in April , followed by a slight improvement to down 11 percent in May, and we exited the quarter down 5 percent in June .

Brian: For reference, camps were down 13% in April, followed by a slight improvement to down 11% in May, and we added to the quarter down 5% in June. While tire units were down 5% in the first quarter, we returned to mid-single-digit growth in units during the month of June. Our tire market share improved as the quarter progressed, and we maintained share in our higher margin tiers.

Brian: While tire units were down 5% in the first quarter, we returned to mid-single-digit growth in units during the month of June. Our tire market share improved as the quarter progressed, and we maintained share in our higher margin tiers. Comp store sales in our 300 small or underperforming stores were consistent with our overall comp in the quarter.

Brian: Our tire market share improved as the quarter progressed, and we maintain share in our higher margin tiers.

Brian: Camps store sales and our 300 smaller under-performing stores were consistent with our overall comp in the quarter. Turning to slide five, gross margin increased 220 basis points compared to the prior year, primarily resulting from lower technician labor costs and lower material costs as a percentage of sales, which were partially offset by higher fixed occupancy costs as a percentage of sales. Total operating expenses were $95.9 million, or 32.7% of sales, as compared to $97 million, or 29.7% of sales, in the prior year period. The decrease on a dollar basis was principally due to store-stored direct costs compared to the prior year period.

Brian: Turning to slide 5, gross margin increased 220 basis points compared to the prior year, primarily resulting from lower technician labor costs and lower material costs as a percentage of sales. The decrease on a dollar basis was principally due to lower store-to-rep costs compared to the prior year period. Net interest expense decreased to $5.1 million as compared to $5.2 million in the same period last year, principally due to a decrease in weighted average debt.

Brian: Total operating expenses were $95.9 million, or 32.7% of sales, as compared to $97 million, or 29.7% of sales in the prior year period.

Brian: The decrease on a dollar basis was principally due to lower store-to-ret costs compared to the prior year period.

Brian: Operating income for the first quarter declined to $13.2 million, or 4.5% of sales. This is compared to $17.3 million or $5.3% of sales in the prior year period. Now, interest expense decreased to $5.1 million as compared to $5.2 million in the same period last year. This was principally due to a decrease in weighted average debt. Income tax expense was $2.3 million or an effective tax rate of 28.5%, which is compared to $3.4 million or an effective tax rate of 27.6% in the prior year period.

Brian: Operating income for the first quarter declined to $13.2 million, or 4.5% of sales. This is compared to $17.3 million, or 5.3% of sales in the prior year period.

Brian: Net interest expense decreased to $5.1 million as compared to $5.2 million in the same period last year. This was principally due to a decrease in weighted average debt.

Brian: Income tax expense was $2.3 million, or an effective tax rate of 28.5%, which is compared to $3.4 million, or an effective tax rate of 27.6% in the prior year period.

Brian: Net income was $5.9 million, as compared to $8.8 million in the same period last year, and on slide 9 in the appendix to our earnings presentation, we distributed $9 million in dividends. At the end of the first quarter, we had a net bank debt of $93 million, a net bank debt to EBITDA ratio of 0.7 times, and total liquidity of $477 million. Now, turning to our expectations for the second quarter and the full year of fiscal 2025, on slide 7.

Brian: $2.8 million in the same period last year. Deluted earnings per share was 19 cents. This is compared to 28 cents for the same period last year. Adjusted deluded earnings per share, a non-GAAP measure, was 22 cents. And this is compared to adjusted deluded earnings per share of 31 cents in the first quarter of fiscal 2024.

Brian: Net income was $5.9 million, as compared to $8.8 million in the same period last year. Diluted earnings per share was $0.19.

Brian: This is compared to $0.28 for the same period last year.

Brian: Adjusted diluted earnings per share, a non-GAAP measure, was $0.22, and this is compared to adjusted diluted earnings per share of $0.31 in the first quarter of fiscal 2024.

Brian: Please refer to our reconciliation of adjusted diluted EPS in this morning's earnings press release and on slide 9 in the appendix to our earnings presentation for further details regarding excluded items in the first quarter of both fiscal years.

Speaker Change: Please refer to our reconciliation of adjusted diluted EPS in this morning's earnings press release and on slide 9 in the appendix to our earnings presentation for further details regarding excluded items in the first quarter of both fiscal years.

Brian: As highlighted on slide 6, we continue to maintain a very solid financial position. We generated $26 million at cash from operations during the first quarter. This has reduced our cash conversion cycle by 15 days at the end of the first quarter compared to the prior year period. Our AP to inventory ratio at the end of the first quarter was 172% versus 164% at the end of fiscal 2024. We received $4 million in divestiture proceeds. We invested $9 million in capital expenditures, spent $10 million in principal payments for financing leases, and distributed $9 million in dividends.

Speaker Change: As highlighted on slide 6, we continue to maintain a very solid financial position. We generated $26 million of cash from operations during the first quarter.

Speaker Change: This has reduced our cash conversion cycle by 15 days at the end of the first quarter compared to the prior year period. Our AP to inventory ratio at the end of the first quarter was 172% versus 164% at the end of fiscal 2024.

Speaker Change: We received $4 million in divestiture proceeds. We invested $9 million in capital expenditures, spent $10 million in principal payments for financing leases, and distributed $9 million in dividends.

Brian: At the end of the first quarter, we had net bank debt of $93 million, a net bank debt to EBITDA ratio of 0.7 times, and total liquidity of $477 million.

Speaker Change: At the end of the first quarter, we had net bank debt of $93 million, a net bank debt to EBITDA ratio of 0.7 times, and total liquidity of $477 million.

Brian: Now, turning to our expectations for the second quarter as well as the full year of fiscal 2025 on slide 7. Although our preliminary cap store sales are down 7.6% in fiscal July, we expect to continue to deliver higher levels of profitability relative to our sales in the second quarter. Similar to the first quarter, we expect to deliver this through higher gross margins than the prior year period, primarily from lower technician pay as a percentage of sales, from continued gains in labor efficiency and productivity, as well as prudent cost control. For full year fiscal 2025, we expect gross margin expansion versus fiscal 2024.

Speaker Change: Now turning to our expectations for the second quarter as well as the full year of fiscal 2025 on slide 7.

Speaker Change: Although our preliminary comp store sales are down 7.6% in fiscal July , we expect to continue to deliver higher levels of profitability relative to our sales in the second quarter.

Brian: Similar to the first quarter, we expect to deliver this through higher gross margins than the prior year period, primarily from lower technician pay as a percentage of sales, from continued gains in labor efficiency and productivity, as well as prudent cost control. For full year fiscal 2025, we expect gross margin expansion versus fiscal 2024. We also believe our fixed occupancy costs, within cost of goods, and operating expenses will be approximately flat on a dollar basis when compared to the prior year. We expect to generate at least $120 million of operating cash flow, inclusive of continued working capital reduction. Regarding our capital expenditures, we expect to spend $25 million to $35 million in fiscal 2025.

Speaker Change: Similar to the first quarter, we expect to deliver this through higher gross margins than the prior year period, primarily from lower technician pay as a percentage of sales, from continued gains in labor efficiency and productivity, as well as prudent cost control.

Speaker Change: For full year fiscal 2025, we expect gross margin expansion versus fiscal 2024. We also believe our fixed occupancy costs within cost of goods and operating expenses will be approximately flat on a dollar basis when compared to the prior year.

Brian: We also believe our fixed occupancy costs within cost of goods and operating expenses will be approximately flat. On a dollar basis, would compare to the prior year.

Brian: Please note that fiscal 2025 is a 52-week year, while fiscal 2024 was a 53-week year that benefited from an extra week of sales in the fourth quarter. We expect to generate at least $120 million of operating cash flow, inclusive of continued working capital reductions in fiscal 2025. The strength of our financial position, including our cash flow, positions us to fund all of our capital allocation priorities, including our dividend during fiscal 2025.

Speaker Change: Please note that Fiscal 2025 is a 52-week year, while Fiscal 2024 was a 53-week year that benefited from an extra week of sales in the fourth quarter.

Speaker Change: We expect to generate at least 120 million dollars of operating cash flow, inclusive of continued working capital reductions.

Speaker Change: The strength of our financial position, including our cash flow, positions us to fund all of our capital allocation priorities, including our dividend, during fiscal 2025.

Brian: 5. Regarding our capital expenditures, we expect to spend 25 million to 35 million dollars in fiscal 2025.

Michael Broderick: And with that, I will now turn the call back over to Mike for some closing remarks. Thanks, Brian. Our business has long-term durability and an industry that remains fundamentally strong. We have implemented initiatives that are beginning to drive an improvement in our top-line results. This, along with our foundational progress to expand margins and generate cash flow, will enable Monro to reap benefits as tire volumes continue to recover. We are poised to win with our scale, strategic relationships, and our experience management team.

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

Mike: This, along with our foundational progress to expand margins and generate cash flow, will enable Monro to reap benefits as tire volumes continue to recover. We are poised to win with our scale, strategic relationships, and our experienced management team. With that, I will now turn it over to the operator for questions.

Unknown Attendee: With that, I will now turn it over to the operator for questions. Thank you, Mr. Barrett. If you would like to ask a question, please press the follow-up by one on your telephone keypad now. If you change your mind, please press the follow-up by two. When preparing to ask your question, please ensure your device is unmuted locally.

Speaker Change: Thank you, Mr. Broderick. If you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2.

Unknown Attendee: In order to allow everyone in the queue an opportunity to ask the question, please limit your time to one question and one to two follow-ups. We will pause you briefly as the question arises.

Operator: We'll pause here briefly as the question... The first question is from Brian Nagel with Oppenheimer & Co. Michael and Brian, you both talked a lot about the top line improvement. Yeah, Brian, I'll take it. It's Mike.

Brian Nagel: The first question is from Brian Nagle with Open High Marin Co. Your line is open. Hey, guys, good morning. Good morning, Brian. The first question I have is, Michael, you talked a lot about the improvement sales of the top-line improvement as the quarter progress. Could you go into a little more detail about really what, from your perspective, helped you drive that the more significant improvement in the month of June. And it sounds like it was more in the tire category. I guess the question I'm asking is that, did you see it? Is it your initiatives, and maybe you can describe that more?

Speaker Change: The first question is from Brian Nagel with Oppenheimer & Co.

Brian William Nagel: Hey guys, good morning.

Brian William Nagel: Good morning, everyone.

Brian William Nagel: Congrats on the progress, sir.

Brian William Nagel: So, the first question I have is...

Speaker Change: Michael and Brian , you both talked a lot about the improvement, the top line improvement.

Speaker Change: As the quarter progressed, could you go into a little more detail about really what, from your perspective, helped to drive that?

Speaker Change: , and the more significant improvement in the month of June . And it sounds like it was more in the tire category. I guess the question I'm asking is that, you know, did you see, is it your initiatives? And maybe you can describe that more. Or are you starting to see also an improving sector backdrop? Because I know in the Visso Velocity Quarters we talked about a really, you know,

Brian Nagel: Or are you starting to see also an improving sector backdrop? Because I know this, over the last few quarters, have talked about a really difficult backdrop of the sector.

Michael T. Broderick: First of all, we are on a journey for profitable growth. So I kind of looked at it. We started with tires going through this. I would say the consumer. We don't see anything different in the consumer from the last time we talked. So we did talk about the fact that the tire category is very much in our control, and the decisions that we made going back to when we last presented in May were that we were going to become highly promotable, and we were going to lead with tires, and we were going to get the tires back.

Michael Broderick: Brian, I'll take its mic. First of all, we are on a journey for profitable growth. So I kind of looked at it. We started with tires going through this. I would say the consumer; we don't see anything different in the consumer from the last time we talked. But we did talk about the fact that the tire category is very much in our control. And the decisions that we made going back to when we last presented in May is that we were going to become highly promotable and we were going to lead with tires. And we were going to go get the tires back.

Speaker Change: [inaudible]

Speaker Change: Yeah, Brian , I'll take it. It's Mike. First of all, we are on a journey for a profitable growth So I kind of looked at it. We started with tires going through this. I would say the consumer We don't see anything different in the consumer from the last time we talked

Speaker Change: So but we did talk about the fact that the tire category is very much in our control

Speaker Change: and the decisions that we made going back to when we last presented in May is that we were going to become highly promotable and we were going to lead with tires and we're going to go get the tires back although we were

Michael Broderick: Although we were tire units are down in the industry. We talked about that. That still hasn't changed. There's still a lot of tires being sold. And we were going to get more than our fair share. That was the decision that we made. We were going to rely on our vendor partners to help support us, making sure that they are helping us drive value with the tire category. I would say that we started seeing unit growth in June. We expected that. And I would say that we're going to continue literally, as long as the consumers, the way they're acting right now, we're going to stay very high promotions or strong promotions in order to drive the tire category.

Michael T. Broderick: Although we were, tire units are down in the industry, we talked about that, that still hasn't changed. There are still a lot of tires being sold, and we were going to get more than our fair share. That was the decision that we made.

Speaker Change: Tire units are down in the industry, we talked about that, that still hasn't changed.

Speaker Change: There's still a lot of tires being sold, and we were going to get more than our fair share. That was the decision that we made. We were going to rely on our vendor partners to help support us, making sure that they are helping us drive value with the tire category.

Michael T. Broderick: We were going to rely on our vendor partners to help support us, making sure that they are helping us drive value with the tire category. I would say that we started seeing unit growth in June, but we expected that.

Speaker Change: I would say that we started seeing unit growth in June , we expected that, and I would say that we're going to continue literally as long as the consumers, the way they're acting right now, we're going to stay very high promotions or strong promotions in order to drive the tire category.

Michael T. Broderick: And I would say that we're going to continue, literally, as long as the consumers act right now; we're going to continue to offer very high promotions or strong promotions in order to drive the tire category. Now let's turn the conversation, which really is the focus of my attention, my organization's attention. The service categories, highly profitable service categories, are still underperforming. I like what batteries are doing. I actually wonder if we had a little weather bump in June because we got a lot of hot weather?

Michael Broderick: Now, let's turn the conversation, which really is the focus of my attention, my organization's attention, the service categories; highly profitable service categories are still underperforming. I like what batteries are doing. I actually consider, hey, did we have a little weather bump in June because we got a lot of hot weather. And I can credit a little bit of that to weather, but we also really put together an inspection process. We call it Comfort Drive, driving a better process in the store. And we continue in the month of July strong battery performance. So I really do credit a lot of the focus on batteries to just a better inspection process, but I'm not happy with our service categories.

Speaker Change: Now, let's turn the conversation, which really is the focus.

Speaker Change: of my attention, my organization's attention.

Speaker Change: There's service categories, highly profitable service categories are still underperforming. I like what batteries are doing. I actually consider...

Michael T. Broderick: And I can accredit a little bit of that to the weather, but we also really put together an inspection process. We call it CompaDrive, driving a better process in the store. And we continue to see strong battery performance in the month of July. So I really do credit a lot of the focus on batteries to just a better inspection process. But I'm not happy with our service category. I don't think the consumer has changed. Just like we did with tires, we're going to get back our service categories, and that's across the board.

Speaker Change: Hey, did we have a little weather bump in June because we got a lot of hot weather? And I can credit a little bit of that to weather, but we also really put together an inspection process. We call it ComforDrive, driving a better process in the store. And we continue in the month of July , strong battery performance. So I really do credit.

Speaker Change: A lot of the focus on batteries to just a better inspection process, but I'm not happy with our service category.

Michael Broderick: I don't think the consumer has changed. Just like we've done with tires, we're going to go get back our service categories. And that's across the board. And I really feel that's very much in our control; has nothing to do about the consumer. There's still a lot of breaks being sold in the marketplace. And we're going to get more than our fair share of breaks.

Speaker Change: I don't think the consumer is...

Speaker Change: has changed. Just like we've done with tires, we're gonna go get back our service categories. And that's across the board. And I really feel that's very much in our control, has nothing to do about the consumer. There's still a lot of brakes being sold in the marketplace, and we're gonna go get more than our fair share of brakes.

Michael T. Broderick: And I really feel that's very much in our control, has nothing to do with the consumer. There's still a lot of brakes being sold in the marketplace, and we're going to go get more than our fair share of brakes. And last, Brian, none of this has to do with staffing.

Michael Broderick: And last, Brian, just none of this has to do with the staffing. We're in good shape. We have more technicians than we did last year. When I talk about technicians. These are flat rate technicians. Most of our productivity initiatives that we've put in place are making our hourly employees become more productive. In the past, I talked about them. It's taken as long as 90 days to get them productive. And now we're talking about three weeks. And that's the big change in our organization. And it's really a Monroe story. And I talked talked about this before, Brian.

Michael T. Broderick: We're in good shape. We have more technicians than we did last year. When I talk about technicians, These are flat rate technicians. Most of the productivity initiatives that we've put in place are making our hourly employees more productive. In the past, I've talked about them. It took as long as 90 days to get them productive, and now we're talking about three weeks. And that's the big change in our organization, and it's really a Monroe story. And I've talked about this before, Brian, it's a self-help story, and I still believe it's very much a self-help story.

Speaker Change: And last, Brian , just none of this has to do with the staffing. We're in good shape. We have more technicians than we did last year when I talk about technicians. These are flat rate technicians.

Speaker Change: Most of our productivity initiatives that we put in place are making our hourly employees become more productive. In the past, I've talked about them.

Speaker Change: It's taken as long as 90 days to get them productive, and now we're talking about three weeks. And that's the big change in our organization, and it's really a Monroe story. And I've talked about this before, Brian , it's a self-help story, and I still believe it's very much of a self-help story.

Brian Nagel: It's a self-help story. And I still believe it's very much of a self-help story. And I just follow up. So, if I'm hearing you correctly, even the tire categories, you've gotten more promotional. And that's helping to drive this better unit than the applicant. So they don't make sure I heard that correctly.

Brian William Nagel: If I could just follow up, so if I'm hearing you correctly, in the tire categories,

Brian William Nagel: You've gotten more promotional, and that's helping to drive this better unit than they have. So, I want to make sure I heard that correctly. Help me understand. A big bright spot in the quarter was, in my mind, a close margin. Yeah, that's right, Brian. Thank you. Your line is open.

Speaker Change: You've gotten more promotional, and that's helping to drive this better unit demand. I want to make sure I heard that correctly, but I guess, help me understand, a big bright spot in the quarter was, in my mind, the close margins. So you're driving the close margin gains to Skype and more promotional in the entire category?

Brian: But I guess, help me understand, I mean, what a big bright spot in the quarter was, in my mind, the close margin. Yeah, that's right, Brian. So, as Mike mentioned, we are promoting more in our tier one through three. So we've got great offers across our screen, but we're really doing it led by manufacturer-funded promotions. There are some Monroe funding, but it's happening primarily through our manufacturer partners, which is allowing us to. To preserve and expand material margins in our entire category, more preserve our material margins on the tire side, while also driving more units through providing a better value at those tiers.

Brian William Nagel: Yeah, that's right Brian . So, as Mike mentioned, we are promoting more in our Tier 1 through 3, so we've got great offers across our screen.

Speaker Change: But we're really doing it led by manufacturer funded promotions.

Speaker Change: There is some Monroe funding, but it's happening primarily through our manufacturer partners, which is allowing us...

Speaker Change: to preserve and expand material margins.

Brian William Nagel: [inaudible]

Brian Nagel: And so our tire unit growth that we saw as the quarter one on really was led by an accelerating tier one through three category based on those promotional activities that are vendor funded. Thanks, Brian. Thanks, Mike. Appreciate it. Thank you.

Brian William Nagel: at those tiers.

Brian William Nagel: And so our tire unit growth that we saw as the quarter went on really was led by an accelerating tier 1 through 3 category based on those promotional activities that our vendors funded.

Brian William Nagel: You got it. Thanks, Brian . Thanks, Mike. I appreciate it. Thank you.

Brad Jordan: The next question is from Brad Jordan with Jeffries. Your line is open. Thank you, morning guys. Can you talk about what the price versus unit or traffic impact was on the Q1 complex? Yeah, price was slightly up, and you can do the math on the rest, and ticket was, when I look at traffic, significantly down, and that's what we're focused on. When I look at June and specifically on the tire category, it was basically flattened units and flattened ticket. Okay, and then the oil price promotional strategy, I think Bridgestone Firestone is doing similar. Do you see sort of a broader traffic driver in the oil category?

Speaker Change: Thank you. The next question is from Bret Jordan with Jeffreys. Your line is open.

Brian William Nagel: Could you talk about, I guess, what the price versus unit or traffic impact was on the Q1 competition? Okay, and then the oil price promotional strategy. I think Bridgestone Firestone is doing similar. Do you see sort of a broader, you know, traffic driver in the oil category? And is it sort of a managed discounting or are things getting more competitive out there? Yeah, I, yeah.

Bret David Jordan: Hey good morning guys. Could you talk about I guess what the price versus unit or traffic impact was on the Q1 comp list?

Speaker Change: Yeah, price was slightly up and you can do the math on the rest and ticket was when I look at traffic it was significantly down and that's what we're focused on.

Speaker Change: When I look at June and specifically on the tire category, it was basically flattened units and flattened ticket.

Speaker Change: Okay, and then the oil price promotional strategy, I think Bridgestone and Firestone's doing similar. Do you see sort of a broader, you know, traffic driver in the oil category? Is it sort of a, is it a managed discounting or are things getting more competitive out there?

Brad Jordan: Is it a managed discounting, or things getting more competitive out there? It's a managed discounting. It's really very much of a focus on making sure that we say yes to our consumers. I would say that as the consumers are looking for more value, they can see the promotions that we have. And then really the work that we have to do, Monro has to do, is making sure that when these customers walk in, that we can take care of their needs within 45 minutes. And as we do that, we get rewarded with sales. Yeah, I see.

Speaker Change: It's a managed discounting. It's really very much of a focus on making sure that we say yes to our consumers.

Speaker Change: I would say that as the consumers are looking for more value they can see the promotions that we have and then really the work that we have to do, Monro has to do, is making sure that when these customers walk in that we can take care of their their needs within 45 minutes.

Speaker Change: And as we do that, we get rewarded with zilch.

Brad Jordan: Can I, on the 300 units you call out in line with the company average, I guess, what was the two-year stack for those? Are they generally in line with the company that they're no longer underperforming, or was that, you know, are there two-year basis still dispersion? We didn't disclose that the two-year numbers, but I mean, there's still opportunity in those stores. So, you know, the run rate has slowed down versus the outsized performance that they saw relative to the chain when we launched the initiative. But we expect that over time and in an improving tire environment moving forward, at least tire productivity from Monro.

Speaker Change: Yeah, I, yeah, see.

Speaker Change: Michael Broderick, CFO Alphabet and Google

Brian: We didn't disclose the two-year numbers, but there's still opportunity in those stores. The run rate has slowed down versus the outsized performance that they saw relative to the chain when we launched the initiative, but we expect that over time and in an improving tire environment moving forward, at least tire performance, and productivity for Monroe, we'll see those stores respond in an outsized way from a top line. So those are still multi-year comp growers.

Speaker Change: We didn't disclose that the two-year numbers but I mean there's still opportunity in those stores so there you know the run rate has slowed down versus the outsized performance that they saw relative to the chain when we launched the initiative but we expect that over time and what in a in a in improving tire environment moving forward at least tire tire

Brad Jordan: So, we'll see those stores respond in an outsized way from a top line. So, those are still multi-year comp growers.

Speaker Change: productivity for Monroe, we'll see those stores respond in an outsized way from a top line. So those are still multi-year comp growers.

Brad Jordan: Great. Thank you. Thanks for that. Thank you.

Speaker Change: Great, thank you.

Operator: Thank you. The next question is from David Lantz with Wells Fargo. Your line is open.

David Lawrence: The next question is from David Lawrence with Love Spargo. Your line is open. Hey, guys, good morning, and thanks for taking my question. I guess in relation to gross margin being up 220 basis points in the quarter, curious if you can talk about how that ship out relative to internal expectations and for guidance and QQ being up, you know, curious if you can give a little bit more color there as well. Yeah, it exceeded our expectations. So, obviously, when we talked last, we said that if we continue to run where we were running through the first half of the quarter, we expected to be flat in EPS and really the bridge between flat EPS and then the 22 cents adjusted for the quarter was driven by, first of all, a comp beat.

Bret David Jordan: Thanks Bret.

Speaker Change: Thank you. The next question is from David Lantz with Wells Fargo. Your line is open.

David Michael Lantz: Hey guys good morning and thanks for taking my questions. I guess in relation to gross margin being up 220 basis points in the quarter, curious if you can talk about how that shook out relative to internal expectations and for guidance in Q2 being up, you know, curious if you can give a little bit more color there as well.

David Michael Lantz: Yeah, it exceeded our expectations. So obviously, when we talked last, we said that if we continue to run where we were running through the first half of the quarter, we expected to be flat in EPS. And really, the bridge between flat EPS and then the 22 cents adjusted for the quarter was driven by, first of all, a comp beat. So we didn't run down 12, we ran down 10 relative to that run rate, and that's about seven cents.

Speaker Change: Yeah, it exceeded our expectations. So obviously when we talked last

Speaker Change: We said that if we continue to run where we were running through the first half of the quarter, we expect it to be flat in EPS.

Speaker Change: Really the bridge between flat EPS and then the 22 cents adjusted for the quarter was driven by first of all a comp B So we we didn't run down 12. We ran down 10 relative to that run rate and that's about 7 cents

David Lawrence: So, we didn't run down 12. We ran down 10 relative to that run rate, and that's about seven cents. And then the balance is gross margin that exceeded our expectations. It was really driven by really strong productivity in the back half for technician productivity. The team did a great job of responding to those higher tire volumes than we were running in a really productive way without having to add a lot of labor to meet that demand. And so, we saw productivity really increase in the back half. What I would say is that there is still durability to those productivity levels and that our expectations are that we can continue to achieve similar gross margin results as we move forward here into Q2.

David Michael Lantz: And then the balance is gross margin that exceeded our expectations. It was really driven by really strong productivity in the back half for technician productivity. The team did a great job of responding to those higher tire volumes than we were running in a really productive way without having to add a lot of labor to meet that demand. And so we saw productivity really increase in the back half.

Speaker Change: And then the balance is gross margin that exceeded our expectations.

Speaker Change: It was really driven by really strong productivity in the back half for technician productivity. The team did a great job of responding to those higher tire volumes than we were running in a really productive way without having to add a lot of labor to meet that demand.

David Michael Lantz: What I would say is that there is still durability to those productivity levels, and that our expectations are that we can continue to achieve similar gross margin results as we move forward here into Q2. Got it. That's helpful. And then on the gross margin buckets, can you help with the gross margin buckets in a little bit more detail between, you know, material costs and technician labor?

Speaker Change: And so we saw productivity really increase in the back half.

What I would say is that there is still durability to that productivity, those productivity levels, and that our expectations are that we can continue to achieve similar gross margin results as we move forward here into Q2.

David Lawrence: And just to clarify that, the similar gross margin results are you talking about on a neurovere basis or a rate basis. More of a rate basis that the eurovere year fluctuates a little bit. Mostly they stay in the 35s for the balance of the year, but more on so that the delta isn't too different either way you look at it. But 37s is something that we have our sights on for the quarter as well for Q2. And that certainly will be supported by what Mike was talking about earlier with improvements in our higher margin service category.

Speaker Change: And just to clarify that, the similar adverse margin results are you talking about on a year-over-year basis or a rate basis?

Speaker Change: More of a rate basis, the year over year fluctuates a little bit, mostly they stay in the 35s for the balance of the year, so the delta isn't too different either way you look at it, but 37s is something that we have our sights on for the quarter as well.

David Lawrence: Yes. Got it. That's helpful.

David Lawrence: And then, can you help with the gross margin? Buckets in a little bit more detail too, just between, do you know, material cost and technician labor? Yeah, absolutely. So labor was a 240 basis point improvement year over years, a percent of sales. The material costs was a 100 basis point improvement year over year, a percent of sales that was largely driven by our service categories and improvement in margin and our service categories in a flatish margin year over year, and our tire category, like we'd answered earlier, you know, preserving those margins despite the promotional activities we undertook on the backs of our vendors.

Speaker Change: Got it, that's helpful. And then on the, can you help with the gross margin buckets in a little bit more detail too, just between DNO, material cost, and technician labor?

Speaker Change: Yeah, absolutely. Yeah, absolutely. So, labor was a 240 basis point improvement year over year as a percent of sales.

Speaker Change: The material costs was a 100 basis point improvement year over year as a percent of sales.

Speaker Change: That was largely driven by our service categories and improvement in margin in our service categories and a flattish margin year over year in our tire category. Like we answered earlier, preserving those margins despite the promotional activities we undertook on the backs of our vendors.

David Lawrence: And then, we saw 120 basis points of the leverage in our occupancy costs relative to the lower sales against the fixed occupancy costs. Got it. That's really helpful.

Speaker Change: And then we saw 120 basis points of de-leverage in our occupancy costs relative to the lower sales against the fixed occupancy costs.

David Michael Lantz: Got it. That's really helpful. And then last one for me, the, you know, quarter to date comps for July are a bit weaker than June. Curious if you can talk about the drivers of that and if it's just really a function of comparisons or if there's something else.

Michael Broderick: And then last one for me, the, you know, quarter to day calms for July are a bit weaker than June. I'm curious if you can talk about the drivers of that. And if it's just, you know, really a function of compares, or if there's something else going on. David, this mic; I'll take that. There's nothing going on. I would say that it is a soft to compare, but we're very focused on just continuing to get to improving quarter to quarter since I don't have a crystal ball of what's going to happen for the rest of the year.

Speaker Change: Got it, that's really helpful. And then last one for me, the, you know, quarter-to-day comms for July are a bit weaker than June . Curious if you can talk about the drivers of that and if it's just really a function of compares or if there's something else going on.

Michael T. Broderick: David, this is Mike. I'll take that. There's nothing going on. I would say that it is too early to compare, but we're very focused on just continuing to get better quarter over quarter since I don't have a crystal ball of what's going to happen for the rest of the year.

Speaker Change: David, this is Mike. I'll take that. There's nothing going on. I would say that it is a soft to compare but we're very focused on just continuing to get to improving quarter over quarter since I don't have a crystal ball of what's going to happen for the rest of the year.

Michael T. Broderick: And last but not least, I want to leave you happy with the tire. We'll continue with the tire unit. Great. Thank you. Thank you. Thank you. We currently have no further questions, so I'll hand over to Mr. Broderick for closing remarks.

Michael Broderick: And last but not least, I will, I'll leave with happy with the tire. We'll continue with the tire unit story, and now it's all about moving to service categories that obviously have significant margin opportunity for our company. Great. Thank you.

Speaker Change: And last but not least, I want to leave with happy with the tire, we'll continue with the tire unit story and now it's all about moving to service categories that obviously have significant margin opportunity for our company.

Michael T. Broderick: Great, thank you.

Unknown Attendee: We currently have no further questions.

Speaker Change: Thank you.

Michael Broderick: So I'll hand back over to Mr. Barbara 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 of our stakeholders. I look forward to keeping you updated on our progress.

Speaker Change: Thank you. We currently have no further questions, so I'll hand back over to Mr. Broderick 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 of our stakeholders. I look forward to keeping you updated on our progress. Have a great day.

Unknown Attendee: Have a great day. Thank you.

Unknown Attendee: This concludes today's call. Thank you all for joining. You may not disconnect your lines. Thank you.

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