Q4 2025 Monro Inc Earnings Call
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Operator: Good morning, ladies and gentlemen, and welcome to Monro Inc's earnings conference call for the fourth quarter and full year of Fiscal 2025. 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 and zero.
Good morning, ladies and gentlemen.
Welcome to Monro, Inc. 's earnings conference call for the fourth quarter and full year.
Fiscal 2025 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 then gave rise 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.
Operator: 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: I would now like to introduce Felix Veksler, Vice President of Investor Relations at Monro. Please go ahead. Thank you. Hello, everyone. And thank you for joining us on this morning's call. Before we get started, please note that as part of this call, we will be referencing a presentation that is available on the investor section of our website at corporate.monroe.com forward slash investors. If I could draw your attention to the safe harbor statement on slide two, I'd like to remind participants that our presentation includes some forward looking statements about Monroe's future performance. Actual results may differ materially from those suggested by our comments today.
Speaker Change: I would now like to introduce <unk> Vice President.
Speaker Change: <unk> Investor Relations at <unk>. Please.
Please go ahead.
Speaker Change: 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 Monro Dot com.
Speaker Change: Slash investors, if I could draw your attention to the safe Harbor statement on slide two 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.
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. Reconciliations 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: 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: Additionally on today's call management's statements include a discussion of certain non-GAAP financial measures, which are intended to supplement and not be substitutes for comparable GAAP measures reconciliations of such supplemental information to the comparable GAAP measures will be included as part of today's presentation and in our earnings release.
Felix Veksler: Lastly, unless otherwise noted, all references to comparable store sales, category sales, and units on today's call will be made on an adjusted for basis, which adjusts for six fewer selling days in the current year quarter due to an extra week of sales in fiscal 2024 and a shift in the timing of the Christmas holiday from the fourth quarter in fiscal 2024 to the third quarter in fiscal 2025.
Speaker Change: Lastly, unless otherwise noted all references to comparable store sales category sales and units on today's call will be made on an adjusted for days basis, which adjusts for six fewer selling days in the current year quarter due to an extra week of sales in fiscal 2024, and a shift in the timing of the Christmas holiday.
Speaker Change: <unk> from the fourth quarter and fiscal 2024 to the third quarter and fiscal 2025 with that I'd like to turn the call over to <unk>, President and Chief Executive Officer, Peter Fitzsimons.
Peter Kucinich: With that, I'd like to turn the call over to Monroe's President and Chief Executive Officer, Peter Kucinich. Thank you, Felix. And thanks to everyone for joining us this morning. It's terrific to be part of the Monroe team.
Speaker Change: Felix and thanks to everyone for joining us. This morning, it's terrific to be part of the Monroe team as many of you already know my primary objective is to work with the Companys management team and board to develop and execute our performance improvement plan that will enhance monroe's operations drive.
Peter Kucinich: As many of you already know, my primary objective is to work with the company's management team and board to develop and execute a performance improvement plan that will enhance Monroe's operations, drive profitability, and increase operating income and total shareholder return. I've successfully led similar improvement plans at other companies, and I intend to leverage my extensive background and experience to do the same at Monroe. I've now spent about eight weeks in Rochester at the company and have been fully immersed in our business. I've spent a lot of time with the senior leadership and also engaging with our talented teammates in the field, as well as visiting many stores, both Monroe's stores and our competitors.
Speaker Change: Profitability and increase operating income and total shareholder returns.
Speaker Change: I have successfully led similar improvement plans at other companies and I intend to leverage my extensive background and experience to do the same at Monroe.
Speaker Change: I've now spent about eight weeks in Rochester at the company and had been fully immersed in our business.
Speaker Change: <unk> spent a lot of time with the senior leadership and also engaging with our talented teammates in the field as well as visiting many stores, both Munro stores and our competitors. This is all only confirmed the positive view I had about Monroe before I decided to join the company, let's start with Monroe strengths.
Peter Kucinich: This has all only confirmed the positive view I had about Monroe before I decided to join the company.
Peter Kucinich: Let's start with Monroe Strength. First, this business has shown impressive durability through business cycle. We are positioned as one of the leading players in a highly fragmented industry. Monroe has significant scale that gives us important competitive advantages over smaller players in our industry. And we can leverage this scale in our financial position to make critical investments in our business, our people, and our technology to deliver an outstanding guest experience.
Speaker Change: First this business has shown impressive durability through business cycles, we are positioned as one of the leading players in a highly fragmented industry.
Speaker Change: Monroe has significant scale that gives us important competitive advantages over smaller players in our industry and we can leverage the scale and our financial position to make critical investments in our business, our people and our technology to deliver an outstanding guest experience.
Peter Kucinich: Second, certain fundamentals in our industry remain strong. These fundamentals include. Continued growth of vehicles on the road, which now exceeds 280 million in the United States. vehicle miles traveled have returned to pre-COVID level. And importantly, the average vehicle life of cars on the road today is more than 12 and a half years. Further, an increase in the complexity of vehicles continues to drive a shift from do-it-yourself to do-it-for-me, with future technology advances expected to accelerate this shift. Third, and finally, our business is a consistent cash generator with ample liquidity, a solid balance sheet, and low leverage.
Speaker Change: Second certain fundamentals in our industry remains strong.
Speaker Change: Fundamentals include <unk>.
Speaker Change: Continued growth of vehicles on the road, which now exceeds $280 million in the United States.
Speaker Change: Vehicle miles traveled have returned to pre COVID-19 levels and importantly, the average vehicle life of cars on the road today is more than 12 and a half years further.
Speaker Change: An increase in the complexity of vehicles continues to drive a shift from do it yourself to do it for me with future technology advances expected to accelerate this shift.
Speaker Change: Third and finally, our business is a consistent cash generator with ample liquidity, a solid balance sheet and low leverage.
Speaker Change: All of this coupled with our compelling consumer offerings gives us confidence that we can successfully execute on and accelerate the pace of the company's improvement plan as well as better capitalize on positive industry trends to unlock monroe's full potential.
Peter Kucinich: coupled with our compelling consumer offerings gives us confidence that we can successfully execute on and accelerate the pace of the company's improvement plan as well as better capitalize on positive industry trends to unlock Monroe's full potential.
Peter Kucinich: Now I'd like to share my initial assessment of the business, which highlights four key areas of focus that we've identified as opportunities for improvement and is shown on slide three of our presentation materials. These include closing unprofitable stores. improving our customer experience and selling effect. driving profitable customer acquisition and activation, and increasing merchandising productivity, which includes mitigating tariff risk.
Speaker Change: Now I'd like to share my initial assessment of the business, which highlights four key areas of focus.
Speaker Change: We've identified as opportunities for improvement and as shown on slide three of our presentation materials. These include closing unprofitable stores, improving our customer experience and selling effectiveness.
Speaker Change: Driving profitable customer acquisition and activation.
Speaker Change: And increasing merchandising productivity, which includes mitigating tariff risk.
Peter Kucinich: Let's start with closing unprofitable stores. In the past few weeks, we conducted a comprehensive store portfolio review that identified 145 underperforming stores to prioritize for closure. Our review included an evaluation of store performance, as well as market segmentation and demographic data specific to the geographic areas of each location. We are now setting into motion a process to close these locations during the first quarter of fiscal 2026. The closure of these stores will have a limited impact on our total sales, but is expected to deliver meaningful improvement in profitability. The 145 stores generated approximately 5% of our total sales in fiscal 2025, and we're likely to recapture some of those sales in locations near the closing stores.
Speaker Change: Let's start with closing unprofitable stores in.
Speaker Change: In the past few weeks, we conducted a comprehensive store portfolio review that identified 145 underperforming stores to prioritize foreclosure.
Speaker Change: View, including an evaluation of store performance as well as market segmentation and demographic data specific to the geographic areas of each location. We are now setting into motion a process to close these locations during the first quarter of fiscal 2026.
Speaker Change: The closure of these stores will have a limited impact on our total sales, but is expected to deliver meaningful improvement in profitability. The 145 stores generated approximately 5% of our total sales in fiscal 2025, and we're likely to recapture some of those sales in locations.
Speaker Change: Near the closing stores.
Peter Kucinich: Improving our customer experience and selling effect. We reviewed stores across our portfolio, from low to high performers, to understand the store experience from both the customer and teammate perspective. Our analysis indicates the customers have had an uneven experience in our stores, largely due to inconsistent teammate execution of core processes. including scheduling and appointments, communication and quality of service. By breaking down the customer journey, we are developing an approach to address customer pain points that we believe will improve the customer experience and unlock value in our selling effect. The company's CONFIDRIVE Digital Courtesy Inspection, which you're all familiar with, will continue to be a key component of our in-store experience.
Speaker Change: Improving our customer experience and selling effectiveness.
Speaker Change: We reviewed stores across our portfolio from low to high performers to understand the store experience from both the customer and teammate perspective.
Speaker Change: Our analysis indicates the customers have had an uneven experience in our stores largely due to inconsistent teammate execution of core processes, including scheduling an appointment communication and quality of service.
Speaker Change: By breaking down the customer journey, we are developing an approach to address customer pain points that we believe will improve the customer experience and unlock value in our selling effectiveness.
Speaker Change: The company's currently drive digital courtesy inspection, which you're all familiar with we will continue to be a key component of our in store experience.
Peter Kucinich: We have many stores that serve our customers very well. Unfortunately, we have others that don't always live up to customer expectations. Addressing this is a high-priority item that we will be working hard to improve and with a high sense of urgency.
Speaker Change: We have many stores that serve our customers very well. Unfortunately, we have others that don't always live up to customer expectations. Addressing this is a high priority item that we will be working hard to improve and with a high sense of urgency.
Speaker Change: Third.
Peter Kucinich: Driving Profitable Customer Acquisition and Activation. As all of you are aware, Monroe sales have declined sequentially for the past three fiscal years, driven largely by declines in store traffic. Our work indicates that recently there's also been a decline in the quality and retention of new customers. We believe this has been driven by suboptimal marketing, insufficient clarity on who Monroe's target customers are. What these customers value and how we fulfill their needs. Our analysis also uncovered that Monroe's highest value customers deliver 25 times more profit than our lowest tier of customers. As a result, we are in the process of converting our market testing into a reallocation of marketing dollars aimed at higher value and more profitable customers.
Speaker Change: Driving profitable customer acquisition and activation.
Speaker Change: As all of you are aware Monroe sales have declined sequentially for the past three fiscal years, driven largely by declines in store traffic.
Speaker Change: Our work indicates that recently there has also been a decline in the quality and retention of new customers.
Speaker Change: We believe this has been driven by sub optimal marketing insufficient clarity on cumin rose target customers are.
Speaker Change: What these customers value and how we fulfill their needs.
Speaker Change: Our analysis also uncovered that monroe's highest value customers deliver 25 times more profit than our lowest tier of customers.
Speaker Change: As a result, we are in the process of converting our market testing into a reallocation of marketing dollars aimed at higher value and more profitable customers.
Peter Kucinich: The early results from our tests are encouraging. We expect that our approach to improvement in this area will include additional testing of marketing, which will touch such things as messaging, type of media, and promotional We will then scale the tests that deliver the most value across all of our stores.
Speaker Change: The early results from our tests are encouraging.
Speaker Change: We expect that our approach to improvement in this area will include additional testing of marketing, which will touch such things as messaging type of media and promotional offers we will then scale the tests that deliver the most value across all of our stores.
Peter Kucinich: Fourth and finally, increasing merchandising productivity as well as mitigating tariff risk. The company has a broad tire assortment. Our work on the company's current merchandising shows that this broad assortment may not be aligned with what our customer really wants. We expect to narrow the breadth of our core tire assortment, which will simplify the in-store selling process. for both our customers and our Monroe teammates. of course, we will continue to get any tire the customer wants through our many distribution channels, but our core in-store offering will likely be simplified. This will allow us to lean into stronger strategic partnerships with important tire manufacturers.
Speaker Change: Fourth and finally, increasing merchandising productivity as well as mitigating tariff risk.
Speaker Change: The company has a broad tire assortment.
Speaker Change: Our work on the company's current merchandising shows at this broad assortment may not be aligned with what our customer really wants.
Speaker Change: We expect to narrow the breath of our core tire assortment, which will simplify the in store selling process for.
Speaker Change: For both our customers and our Monroe teammates.
Speaker Change: Of course, we will continue to get any tire the customer wants to our many distribution channels, but our core in store offering will likely be simplified this will allow us to lean into stronger strategic partnerships with important tire manufacturers in.
Peter Kucinich: In addition, we are reviewing our pricing and promotions across tires and services to ensure we deliver value to our customers while also achieving appropriate levels of profitability.
Speaker Change: In addition, we are reviewing our pricing and promotions across tires and services to ensure we deliver value to our customers, while also achieving appropriate levels of profitability.
Peter Kucinich: A Word About Terror. No company today, especially in the automotive sector, can look at the current landscape without considering tariffs. While it is still an obviously uncertain environment, tariffs are expected to drive cost increases across almost all of our major product categories. We have mobilized an internal team for fact-based negotiations with top suppliers to mitigate as much of that anticipated tariff as possible. We expect that we may need to adjust prices to our consumers to counter the impact of tariff related costs.
Speaker Change: A word about tariffs.
Speaker Change: No company today, especially in the automotive sector can look at the current landscape without considering tariffs.
Speaker Change: While it is still on obviously uncertain environment tariffs are expected to drive cost increases across almost all of our major product categories.
Speaker Change: We have mobilized an internal team for fact based negotiations with top suppliers to mitigate as much of that anticipated tariff as possible.
Speaker Change: We expect that we may need to adjust prices to our consumers to counter the impact of tariff related cost increases. We are currently evaluating the full impact.
Peter Kucinich: We are currently evaluating the full.
Peter Kucinich: To conclude, as I reflect on my first eight weeks at Monroe, I think we've conducted a very detailed preliminary assessment of the business, and I believe the opportunities that we've uncovered and plans that we're putting into place will accelerate the pace of the company's performance improvement and unlock Monroe's full potential. We don't expect to see improvement overnight, but I feel pretty confident that we will drive enhanced profitability and increase operating income along with total shareholder returns during fiscal 2026.
Speaker Change: To conclude as I reflect on my first eight weeks at Monroe.
Speaker Change: We have conducted a very detailed preliminary assessment of the business and I believe the opportunities that we've uncovered and plans that we're putting into place will accelerate the pace of the company's performance improvement and unlock monroe's full potential.
Speaker Change: We don't expect to see improvement overnight, but I feel pretty confident that we will drive enhanced profitability and increased operating income along with total shareholder returns during fiscal 2026.
Peter Kucinich: Before I hand the call over to Brian, I'd like to thank our dedicated teammates for their commitment to our customers. Thanks also to our shareholders and our suppliers for their continued support.
Brian: Before I hand, the call over to Brian I'd like to thank our dedicated teammates for their commitment to our customers.
Speaker Change: Thanks also to our shareholders and our suppliers for their continued support.
Brian Nagel: And with that, I'll turn the call over to Brian. Thank you, Peter, and good morning, everyone. Before I get into more specific details, I'd like to briefly touch upon just a few highlights from our fourth quarter performance. While our results are far from where we want them to be, we drove positive comparable store sales growth for the full quarter. Sequential improvement in comp sales and gross margin as the month of the quarter progresses. Comp sales and unit growth in our tire category and our high-margin service categories, including front-end shocks, batteries, brakes, and maintenance service, and a year-over-year store traffic increase in March.
Brian: And with that I'll turn the call over to Brian.
Brian: Thank you Peter and good morning, everyone.
Brian: Before I get into more specific details I'd like to briefly touch upon just a few highlights from our fourth quarter performance. While our results are far from where we want them to be we drove positive comparable store sales growth for the full quarter.
Speaker Change: Sequential improvement in comp sales and gross margin as the months of the quarter progressed.
Speaker Change: Comp sales and unit growth in our tire category and our high margin service categories, including front end shocks batteries brakes, and maintenance service and a year over year store traffic increase in March our overall gross margin and profitability in the quarter was negatively impacted by extreme weather.
Brian Nagel: Our overall gross margin and profitability in the quarter was negatively impacted by extreme weather in the first half of the quarter, which resulted in temporary store closures and lower store traffic primarily in January. The second half of the quarter saw better operating profitability.
Speaker Change: Other than the first half of the quarter, which resulted in temporary store closures and lower store traffic primarily in January.
Speaker Change: The second half of the quarter saw better operating profitability.
Brian Nagel: Now turning to slide four for more specific details. Sales decreased 4.9% to $295 million in the fourth quarter, primarily driven by six fewer selling days compared to the fourth quarter of fiscal 2024, resulting in a sales decrease of $18.9 million. Comstore sales increased 2.8% and decreased 3.6% unadjusted for days. For reference, comps were down 2% in January and rebounded to up 2% in February. We exited the quarter up 8% in March. Tire units were up mid-single digits in the fourth quarter, driven by growth in units above 10% during the month of March. We also gained higher market share in our higher margin tiers in the quarter.
Speaker Change: Now turning to slide four for more specific details.
Speaker Change: Sales decreased four 9% to $295 million in the fourth quarter, primarily driven by six fewer selling days compared to the fourth quarter of fiscal 2024, resulting in a sales decrease of $18 $9 million.
Speaker Change: Comp store sales increased two 8% and decreased three 6% unadjusted for days.
Speaker Change: For reference comps were down 2% in January and rebounded to up 2% in February.
Speaker Change: During the quarter up 8% in March.
Speaker Change: Tire units were up mid single digits in the fourth quarter driven by growth in units above 10% during the month of March.
Speaker Change: We also gained tire market share in our higher margin tiers in the quarter.
Brian Nagel: Turning to slide 5, gross margin decreased 250 basis points compared to the prior year, primarily resulting from higher material costs due to mix within tires from a value-oriented consumer that traded down more of their tire purchases to our Tier 3 offering. and an increased level of self-funded promotion. Technician labor costs also increases the percentage of sales, primarily due to wage inflation.
Speaker Change: Turning to slide five gross margin decreased 250 basis points compared to the prior year, primarily resulting from higher material costs due to mix within tires from a value oriented consumer the traded down more of their tire purchases to our tier three offerings.
Speaker Change: And an increased level of self funded promotions.
Speaker Change: Technician labor costs also increased as a percentage of sales primarily due to wage inflation.
Brian Nagel: Total operating expenses were $121.1 million, or 41.1% of sales, as compared to $99.7 million, or 32.2% of sales in the prior year period. Importantly, the increase was principally due to an increase of $20.9 million in store impairment costs related to certain owned and leased assets. Operating loss for the fourth quarter was $23.8 million, or negative 8.1% of sales, and was negatively impacted by the store impairment costs just discussed. This is compared to operating income of $10.3 million or 3.3% of sales in the prior year period. Net interest expense decreased to $4.4 million as compared to $5 million in the same period last year.
Speaker Change: Total operating expenses were $121 1 million or 41, 1% of sales as compared to $99 7 million or <unk> 32, 2% of sales in the prior year period.
Speaker Change: Importantly, the increase was principally due to an increase of $29 million in store impairment costs related to certain owned and leased assets.
Speaker Change: Operating loss for the fourth quarter was $23 8 million or negative eight 1% of sales and was negatively impacted by the store impairment costs just discussed.
Speaker Change: This is compared to operating income of $10 3 million or three 3% of sales in the prior year period.
Speaker Change: Net interest expense decreased to $4 $4 million as compared to $5 million in the same period last year. This was principally due to a decrease in weighted average debt.
Brian Nagel: This was principally due to a decrease in weighted average debt.
Brian Nagel: Income tax benefit was $6.8 million, or an effective tax rate of 24.3%, which is compared to an income tax expense of $2 million, or an effective tax rate of 35% in the prior year period. The year-over-year difference in effective tax rate is primarily related to an increase in valuation allowances, as well as the impact from other adjustments, none of which are significant, on the change in pre-tax loss or income. Net loss was $21.3 million, as compared to net income of $3.7 million in the same period last year. Diluted loss per share was $0.72. This is compared to diluted earnings per share of $0.12 for the same period last year.
Speaker Change: Income tax benefit was $6 8 million or an effective tax rate of 24, 3%.
Speaker Change: Which is compared to income tax expense of $2 million or an effective tax rate of 35% in the prior year period.
Speaker Change: The year over year difference in effective tax rate is primarily related to an increase in valuation allowances as well as the impact from other adjustments none of which are significant on the change in pre tax loss of income.
Speaker Change: Net loss was $21 3 million as compared to net income of $3 7 million in the same period last year.
Speaker Change: Diluted loss per share was <unk> 72.
Speaker Change: This is compared to diluted earnings per share of <unk> 12 for the same period last year.
Brian Nagel: Adjusted diluted loss per share, a non-gap measure, was 9 cents. This is compared to adjusted diluted earnings per share of 21 cents in the fourth quarter of fiscal 2024.
Speaker Change: Adjusted diluted loss per share a non-GAAP measure was <unk>.
Speaker Change: This is compared to adjusted diluted earnings per share of <unk> 21 in the fourth quarter of fiscal 2024.
Brian Nagel: 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 fourth 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 nine and the <unk> to our earnings presentation for further details regarding excluded items in the fourth quarter of both fiscal years.
Brian Nagel: As highlighted on slide six, we continue to maintain a strong financial position. We generated $132 million of cash from operations, including $43 million of working capital reductions during fiscal 2025. Our AP to inventory ratio improved to 177% at the end of fiscal 2025 versus 164% at the end of fiscal 2024.
Speaker Change: As highlighted on slide six we continued to maintain a strong financial position, we generated $132 million of cash from operations, including $43 million of working capital reductions during fiscal 2025.
Speaker Change: Our AP to inventory ratio improved to 177% at the end of fiscal 2025 versus 164% at the end of fiscal 2024.
Brian Nagel: We received $12 million in divestiture proceeds, as well as $9 million from the sale of our corporate headquarters. We invested $26 million in capital expenditures, spent $40 million in principal payments for financing leases, and distributed $35 million in dividends.
Speaker Change: We received $12 million in divestiture proceeds as well as $9 million from the sale of our corporate headquarters, we invested $26 million in capital expenditures spent $40 million in principal payments for financing leases and distributed $35 million in dividends.
Brian Nagel: At the end of the fourth quarter, we had net bank debt of $40 million, availability under our credit facility of approximately $509 million, and cash and cash equivalents of approximately $21 million.
Speaker Change: At the end of the fourth quarter, we had net bank debt of $40 million availability under our credit facility of approximately $509 million in cash and cash equivalents of approximately $21 million.
Brian Nagel: Now, turning to our expectations for the full year of fiscal 2026 on slide 7.
Speaker Change: Now turning to our expectations for the full year of fiscal 2026 on slide seven.
Brian Nagel: Given the uncertainties surrounding a fluid tariff situation, we are not providing guidance for fiscal 2026 at this time. However, we are providing the following assumptions to assist in your modeling. We expect to deliver year over year comparable store sales growth in fiscal 2026, primarily driven by the improvement plan that Peter discussed earlier, as well as any tariff related price increases to our customers. Encouragingly, our sales momentum has continued into the first eight weeks of our fiscal first quarter with preliminary quarter-to-date comps that are up approximately 7%. We expect the results of our store optimization plan to reduce total sales by approximately $45 million in fiscal 2026.
Speaker Change: Given the uncertainties surrounding a fluid tariff situation, we are not providing guidance for fiscal 2026 at this time. However, we are providing the following assumptions to assist in your modeling.
Speaker Change: We expect to deliver year over year comparable store sales growth in fiscal 2026, primarily driven by the improvement plan that Peter discussed earlier as well as any tariff related price increases to our customers.
Speaker Change: Encouragingly our sales momentum has continued into the first eight weeks of our fiscal first quarter with preliminary quarter to date comps that are up approximately 7%.
Speaker Change: We expect the results of our store optimization plan to reduce total sales by approximately $45 million in fiscal 2026.
Brian Nagel: Given expected baseline cost inflation, as well as our exposure to tariff-related cost increases, we expect that our gross margin for the full year of fiscal 2026 will continue to remain pressured, particularly as it relates to a tough gross margin comparison in the first quarter of the prior year period. We expect to partially offset some of this baseline cost inflation, as well as some of the tariff related cost increases with benefits from closing stores and operational improvements from our improvement plan. We believe this will allow us to deliver a year-over-year improvement in our adjusted diluted earnings per share in fiscal 2026.
Speaker Change: Given expected baseline cost inflation as well as our exposure to tariff related cost increases we expect that our gross margin for the full year of fiscal 2026, we will continue to remain pressured, particularly as it relates to a tough gross margin comparison in the first quarter of the prior year period.
Speaker Change: We expect to partially offset some of this baseline cost inflation as well as some of the tariff related cost increases with benefits from closing stores and operational improvements from our improvement plan.
Speaker Change: We believe this will allow us to deliver a year over year improvement in our adjusted diluted earnings per share in fiscal 2026.
Brian Nagel: As a result of our store portfolio optimization plan, we expect to incur store closure costs of approximately $10 million to $15 million, primarily during the first quarter of fiscal 2026. We expect to generate sufficient operating cash flow that will allow us to maintain a strong financial position and to fund all of our capital allocation priorities, including our dividends during fiscal 2026. Regarding our capital expenditures, we expect to spend $25 million to $35 million.
Speaker Change: As a result of our store portfolio optimization plan, we expect to incur store closure costs of approximately 10 million to $15 million, primarily during the first quarter of fiscal 2020.
Speaker Change: We expect to generate sufficient operating cash flow that will allow us to maintain a strong financial position and to fund all of our capital allocation priorities, including our dividend during fiscal 2026.
Speaker Change: Regarding our capital expenditures, we expect to spend $25 million to $35 million.
Peter Kucinich: And with that, I will now turn the call back over to Peter for some closing remarks. We believe our business is durable. Monro has a solid balance sheet and cash flow profile and the fundamentals of our industry are strong.
Speaker Change: And with that I will now turn the call back over to Peter for some closing remarks. Thanks, Brian.
Speaker Change: We believe our business is durable.
Speaker Change: <unk> has a solid balance sheet and cash flow profile and the fundamentals of our industry are strong.
Peter Kucinich: We believe that we can capitalize on positive industry trends through the four key areas of our improvement plan to unlock Monroe's full potential as we enhance operations, drive profitability, and increase operating income and total shareholder return.
Speaker Change: We believe that we can capitalize on positive industry trends through the four key areas of our improvement plan to unlock monroe's full potential as we enhance operations drive profitability and increase operating income and total shareholder returns.
Operator: With that, I will now turn it over to the operator for questions. Thank you. We will now begin the question and answer session. If you would like to ask a question at this time, please press star followed by one on your telephone. If for any reason you'd like to remove that question, you can press star then two. And we do ask that you please limit yourself to one question and one or two follow up questions.
Speaker Change: With that I will now turn it over to the operator for questions.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: We'd like to ask a question at this time. Please press star followed by one when Youre kind of thank you Pat.
Speaker Change: If any reason you got to meet that question you can press Star then case.
Speaker Change: And we do ask that you. Please limit yourself to one question and one or two follow up questions and.
Operator: And if you did have any more, you will need to rejoin the And as a final reminder, that is star one to register for.
Speaker Change: And if you did have anymore, you will need to rejoin the queue.
Speaker Change: And as a final reminder, that is star one can register for a question.
Thomas Wendler: We have a question from Thomas Welder with Stevens. Please go ahead. Hey, good morning, everyone.
Thomas: We have a question from Thomas <unk> with Stephens.
Speaker Change: Please go ahead.
Speaker Change: Hey, good morning, everyone.
Brian Nagel: Thomas Wendler, Felix Veksler, Unknown Attendee, Michael Lasser, Thomas Wendler, Felix Veksler, Thanks for the question, Tom.
Speaker Change: Good morning, Thomas Hi, Tom.
Speaker Change: Okay nice.
Speaker Change: First quarter lots of moving pieces here I'm going to kick things off maybe with the gross margins Youre willing. Some self funded promotions are these additional savings I see as an offering from the usage of the drive card and then with these promotions and the wage inflation is there any additional color.
Speaker Change: You can provide as we're thinking about gross margins moving forward.
Speaker Change: Thanks for the question Tom This is Brian I'll take that so the gross margin impact related to the self funded promotions is really our our tire promotions and it includes some of the drive card promotions that you are seeing but it also includes.
Brian Nagel: This is Brian. I'll take that. So the gross margin impact related to self funded promotions is really our, our tire promotions. And it includes some of the drive car promotions that you're seeing, but it also includes everyday offers on buy three, get one certain brand, buy one, get one of other brands. These have been in place for a good portion of our FY 25 and have been a consistent impact of year over year gross margins during the fiscal year. There's been no real change in the use of those self funded promotions sequentially, but year over year we are, we do have more self promotions, self funded promotions running than we had in the prior year.
Speaker Change: Everyday offers on <unk> got one certain brands buy one get one of other brands. These have been in place for a good portion of our FY 'twenty five and have been a consistent impact of year over year gross margins during the fiscal year, there's been no real change in the use of those self funded promotions.
Speaker Change: But year over year, we are we do have more self promotion self funded promotions running than we had in the prior year.
Brian Nagel: Related to gross margins going forward, as we said, we expect them to remain pressured, primarily due to the baseline cost increases and potential tariff impacts. Those are going to be offset somewhat by the impact of closing the 145 underperforming stores, as well as some of the benefits of our improvement plan. But as a reminder, Q1s are particularly tough gross margin comp. But we expect that the comp related to gross margin year over year will continue to be pressured. Perfect. I appreciate that.
Speaker Change: Related to gross margins going forward.
Speaker Change: As we said, we expect them to remain pressured primarily.
Speaker Change: Primarily due to the baseline cost increases and potential tariff impacts those are going to be.
Speaker Change: Offset somewhat by the impact of closing the 145 underperforming stores as well as.
Speaker Change: Some of the benefits of our improvement plan.
Speaker Change: But as a reminder, Q1s are typically, particularly tough gross margin comp but.
Speaker Change: But we expect that.
Speaker Change: Related to gross margin year over year will continue to be pressure.
Speaker Change: Perfect I appreciate that and then maybe shifting gears a bit to customer acquisition and the Monroe experience can you provide any color on like who these higher value targets are and kind of what you're doing on the marketing front to convert them to customers and then maybe some color on your approach.
Peter Kucinich: Then maybe shifting gears a bit to customer acquisition and the Monroe experience. Can you provide any color on like who these higher value targets are, and kind of what you're doing on the marketing front to convert them to customers? And then maybe some color on your approach towards the customer experience changes moving forward. Sure, thanks for that question.
Speaker Change: <unk>.
Speaker Change: Or experience changes moving forward.
Speaker Change: Sure. Thanks for that question Peter.
Peter Kucinich: This is Peter. One thing we've done in the last couple of months is look very closely at where we generate the most revenue and profit by customer. And it's very clear that what we're looking for are repeat customers who appreciate that we provide a range of services. When you look at a three year period, you see, as we've suggested on this call, that there's dramatically higher sales and profitability for those customers. Now, I think one of the things that the Alex Partners team can bring to the table is a full understanding of the range of marketing and advertising that we can undertake in order to meet the needs of those customers that have proven to be the best customers for us.
Speaker Change: One thing we've done in the last couple of months since look very closely at.
Speaker Change: Where we generate the most revenue and profit.
Speaker Change: By customer.
Speaker Change: And it's very clear that what we're looking for our repeat customers, who appreciate that we provide a range of services.
Speaker Change: When you look at a three year period, you can see as we've suggested on this call that there is dramatically higher sales and profitability for those customers now.
Speaker Change: Now I think one of the things that the Alix partners team can bring to the table is a full understanding of the range of marketing and advertising that we can undertake in order to meet the needs of those customers that have proven to be the best customers for us and so what youre going to see over the next couple of quarters.
Peter Kucinich: And so what you're going to see over the next couple of quarters is a reallocation of our marketing investment towards targeting new customers that fit the profile that we're really looking for. I'm pretty confident we're going to be able to find a much better targeted way of attracting incremental customer traffic. So we haven't completed all of the analysis. This is something that takes a couple of months to fully understand, but it's very clear that there are customers in all of our markets that are preferred, and we're going to chase them. Perfect. I appreciate you answering my questions.
Speaker Change: <unk> is a reallocation of our marketing investments towards targeting new customers that fit the profile that we're really looking for I'm pretty confident we're going to be able to find a much better.
Speaker Change: Targeted way of attracting incremental customer traffic.
Speaker Change: No.
Speaker Change: We havent completed all of the analysis. This is something that takes a couple of months to fully understand but its very clear that there are customers in all of our markets that are preferred and we're going to chase them.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Perfect I appreciate you answering my questions.
Peter Kucinich: Sure, thank you for the question.
Speaker Change: Sure. Thank you for the questions.
Speaker Change: Yes.
David Lantz: Thank you, we now have David Lantz with Wells Fargo on the line, please go ahead. Hey, good morning, guys. And thanks for taking my questions.
Speaker Change: Thank you we now have David Lawrence with Wells Fargo on the line.
Speaker Change: Please go ahead.
Speaker Change: Yeah.
Speaker Change: Hey, good morning, guys and thanks for taking my questions. Brian I was curious if you could parse out the 250 basis point decline in gross margin and a bit more detail between material cost distribution and occupancy and then technique technician labor cost as well.
Brian Nagel: Brian, I was curious if you could parse out the 250 basis point decline in gross margin in a bit more detail between material cost distribution and occupancy, and then technician labor costs as well. Good morning, David. Absolutely. Related to the gross margin, 250 basis points. Unknown Attendee, Michael Lasser, Unknown Attendee, Unknown Attendee, Unknown Attendee, Unfunded tire promotions we discussed earlier, about 80 basis points of technician labor costs, primarily driven by year over year wage inflation and then the balance is just a little bit of de-leverage on the fix occupancy costs given the loss of the extra week in the prior year.
Speaker Change: Good morning, David absolutely.
Speaker Change: Related to the gross margin 250 basis point decrease quarter over quarter from the prior year. The 106, there was 160 basis points of the $2 50 related to material costs and that due to trade down within the tire category as well as well as a self funded tire promotions, we discussed earlier.
Speaker Change: About 80 basis points, a technician labor costs, primarily driven by year over year wage inflation and then the balance is just a little bit of deleverage on the fixed occupancy costs given the loss of the.
Speaker Change: The extra week in the prior year.
Brian Nagel: Got it. That's helpful. And then, you know, I understand that gross margins will be down or pressured for 26. But curious if you can help think through kind of the trajectory in a bit more detail. I recognize, you know, compares get a lot easier when you go through the year. So, you know, is it fair to assume that there could be some expansion later in the year, but still for the full year, there's pressure?
Speaker Change: Got it that's helpful and then I understand the gross margins there will be downward pressure for 26, but curious if you can help think through kind of the trajectory in a bit more detail I recognize compares get a lot easier. When you go through the year. So is it fair to assume that there could be some expansion later in the year, but still for the full year there.
Speaker Change: Sure.
Brian Nagel: Yeah, I think that's right. I think as you think about gross margins this past year, it's been kind of a quarter over quarter sequential decline. And I think next year, the gross margins while still, you know, a little bit pressured versus the overall gross margin percent for FY 25, that the the cadence of that gross margin will be much more even throughout the year where we'll likely underperform in Q1 because of the tough compare, but make up for that in the back half of the year.
Speaker Change: Yes, I think Thats right I think as you think about gross margins. This past year, it's been kind of a quarter over quarter as to kind of the sequential decline and I think next year the gross margins while still.
Speaker Change: A little bit pressured versus the overall gross margin percent for FY 'twenty five.
Speaker Change: The cadence of that gross margin will be much more even throughout the year, where we will likely underperform in Q1 because of the tough compare but make up for that in the back half of the year.
Brian Nagel: Got it. That's helpful.
Speaker Change: Got it that's helpful and then with respect to comps in the quarter can you talk about the dynamics between traffic and ticket as well and what you're kind of embedding.
Brian Nagel: And then with respect to comps in the quarter, can you talk about, you know, the dynamics between traffic and ticket as well? And what you're kind of embedding for, you know, the improvements in 26? Yes, for the quarter traffic was down low single digits ticket was up mid single digits to blend out to the adjusted comp of up about three 2.8%. Encouragingly, we saw positive store traffic in March, and our comps in April and May are supported by better traffic trends as well. So I think we feel, you know, a little bit courage there in terms of the bending of the traffic trends in the recent months.
Speaker Change: The improvements in 'twenty six.
Speaker Change: Yes for the quarter traffic was down low single digits ticket was up mid single digits to blend out to the adjusted comp of up about 328% Encouragingly, we saw positive store traffic in March.
Speaker Change: Our comps in April and May are supported by better traffic trends as well so I think we feel.
Speaker Change: A little bit encouraged there in terms of the bending of the traffic trends in the recent months.
Operator: Thank you. You're welcome. Thank you.
Speaker Change: Thank you.
Speaker Change: Youre welcome.
Operator: Just as a reminder, if you would like to ask any further questions, you can press star 1 on your telephone keypad.
Speaker Change: Thank you just as a reminder, if you'd like to ask any further question Keith Your question Juan.
Speaker Change: Pat.
Bret Jordan: We now have a question from Bret Jordan.
Bret Jordan: We now have a question from Bret Jordan with Jefferies.
Brian Nagel: Good morning, guys. Hey, breakfast or you mean of supply? Morning. On the ATD relationship, did the economics of that change with their final payment of the earn out? It seemed in that press release to talk about like commercially reasonable Unknown Attendee, Michael Lasser, Unknown Attendee, Michael Lasser, Unknown Attendee, Unknown Attendee, Michael Lasser, Unknown Attendee, Michael Lasser, Unknown Attendee, Yeah, Brett, this is Brian, there's nothing material that's changed in our relationship with them. There was a couple things that we just clarified from the original agreement related to service levels, just given current operating environments, but nothing that materially impacts our business, or our relationship with with a TD going forward.
Bret Jordan: Hey, good morning, guys.
Speaker Change: Hey, Brian.
Speaker Change: Hi, Thanks, good morning on the HED relationship does the economics of that change.
Speaker Change: Their final payment of the earn out in the press release, it talked about commercially reasonable.
Speaker Change: Fort efforts is there anything that either either promotions or.
Speaker Change: Supply fill that has changed with them or pricing.
Speaker Change: Yes, Brett this is Bryan there's nothing material that's changed in our relationship with them. There was a couple of things that we just clarify from the original agreement related to service levels.
Bret Jordan: Given current operating environments, but nothing that materially impacts our business or our relationship with up with ACD going forward.
Peter Kucinich: Great. And then when you think about the store closures, I mean, what's the common denominator? Is there a specific region or a class of stores that are underperformed? So Bret, it's Peter, it's space throughout the network. We haven't produced a list of those stores and obviously we need to communicate with our teammates before we do that. I would say that when you build a brand over decades in the retail and auto aftermarket industry, you always have places that are gaining in momentum and other locations that probably aren't as strong. And so what we've chosen to do in the last two months is look very closely at those stores that we don't think can ever really produce the earnings profile that we're looking for.
Bret Jordan: Okay, Great and then when you think about the store closures I mean, what's the common denominator is there a specific region or a class of stores.
Bret Jordan: Okay.
Bret Jordan: Our underperformed.
Bret Jordan: Or is it sort of space throughout the network.
Peter Fitzsimons: So Brett its Peter.
Bret Jordan: Space throughout the network.
Bret Jordan: We haven't.
Bret Jordan: Produced a list of those stores and obviously, we need to communicate with our teammates before we do that.
Bret Jordan: I would say that when you build.
Bret Jordan: Rand over decades in the retail and auto aftermarket industry. You always have places that are gaining in momentum in other locations that probably arent as strong and so what we've chosen to do in the last two months is look very closely at those stores that we don't think in.
Bret Jordan: Ever really produce the earnings profile that we're looking for and those are the ones that we addressed in the 145 store closings.
Peter Kucinich: And those are the ones that we addressed in the 145 store closings. I think that There will continue to be evaluation of stores over every year, but I don't anticipate any other store closings this year. And I'm very confident that the remaining stores are well positioned to improve their performance as time passes.
Bret Jordan: <unk>.
Bret Jordan: I think that.
Bret Jordan: There will continue to be.
Bret Jordan: <unk> of stores over every year, but I don't anticipate any other store closings this year and I'm very confident that the remaining stores are well positioned to improve their performance as time passes.
Peter Kucinich: And then a quick final question, I guess. Unknown Attendee, Michael Lasser, Unknown Attendee, Unknown Attendee, Unknown Attendee, What do you attribute that to? Has there been, have you been more promotional? Is the broader market getting a lift? I mean, obviously not haven't been there a long time to make big operational changes. But how do you see the backdrop? Relative to the Well, I think that the economic environment favors our type of service. For example, I would be surprised if there isn't downward pressure on people buying new and used cars. And for automotive aftermarket service companies like ourselves, there's going to continue to be a need to replace tires and provide other services.
Speaker Change: Okay, and then a quick final question I guess, so significant improvement in performance recently and I guess, what do you attribute that to is there been more promotional as the broader market getting a lift I mean, obviously not haven't been there a long time to make big operational changes, but how do you see the backdrop of the industry.
Speaker Change: Relative to the comp lift you've seen recently.
Speaker Change: Well I think that the economic environment favors our type of service.
Speaker Change: For example.
Bret Jordan: I would be surprised if there isn't downward pressure on people buying you new and used cars and for automotive aftermarket service companies like ourselves. There is going to continue to be a need to replace tires and provide other services. So I think the industry dynamics are quite positive for what we do even if we.
Peter Kucinich: So I think the industry dynamics are quite positive for what we do, even if we have some slowdown in the economy, which I think we saw in the first quarter. I think that over a longer period of time, the things that we're putting into place that will improve our performance means that we can increase our operating income this year without significant improvement in the economy. And I think that the need for the company right now is to focus on the continuing stores and produce the sort of results that we can, I think, ultimately appreciate with time during this year by quarter to see the improvement actions that we're putting into place now take effect.
Bret Jordan: Have some slowdown in the economy, which I think we saw in the first quarter.
Bret Jordan: I think that over a longer period of time.
Bret Jordan: The things that we're putting into place that will improve our performance means that we can increase our operating income this year without significant improvement in the economy.
Bret Jordan: And I think that the need for the company right now is to focus on the continuing stores.
Bret Jordan: And produce the sort of results that we can.
Bret Jordan: I think ultimately.
Bret Jordan: I appreciate with.
Bret Jordan: Time during this year by quarter to see the improvement actions that we're putting into place now take effect.
Bret Jordan: Great.
Bret Jordan: Great. Thank you.
Bret Jordan: Thank you. Thanks, Bret. Thank you.
Bret Jordan: Thanks, Brett.
Operator: Just another reminder, if you would like to ask any further questions, you can do so by pressing star 1.
Bret Jordan: Thank you.
Bret Jordan: I'll remind you if you would like to ask any further questions you can describe by pressing star one.
Bret Jordan: Yeah.
Peter Kucinich: I can confirm that does conclude the Q&A session today, and I would now like to hand it back to our CEO, Peter Fitzsimmons, for some final closing comments. So thanks again for joining us today. I think we're all very optimistic about the opportunities in front of us, and I'm confident that Monroe is well positioned to capitalize on some of the strong industry trends for a company like ours as we go forward. I know we have significant room for improvement as we implement our performance improvement plan. I know we have a lot of work to do, but I really do think that there's a solid foundation for us to create long-term value for all of our shareholders.
Speaker Change: I can confirm that does conclude the Q&A session today, and I would now like to hand, it back to <unk> CEO, Peter Shannon for some final closing comments.
Speaker Change: So thanks again for joining us today I think we're all very optimistic about the opportunities in front of us and I am confident that Monroe is well positioned to capitalize on some of the strong industry trends for a company like ours as we go forward.
Speaker Change: I know, we have significant room for improvement as we implement our performance improvement plan.
Bret Jordan: No we have a lot of work to do but I really do think that there is a solid foundation for us to create long term value for all of our shareholders. We look forward to keeping you updated on our progress in the quarters to come and thanks again for joining today.
Peter Kucinich: We look forward to keeping you updated on our progress in the quarters to come, and thanks again for joining today.
Operator: Thank you all for joining today's conference call with Monro.
Bret Jordan: Thank you for joining today's conference call with one way from today's coats has now concluded. Thank you all of you.
Operator: I can confirm today's call has now concluded. Thank you all for your participation and you may now disconnect.
Bret Jordan: Participation and you may now disconnect.
Bret Jordan: Yes.
Bret Jordan: Okay.
Bret Jordan: Yeah.