Q1 2020 Earnings Call
Welcome to the Biomed Conference Center. The next available conference specialist will be with you momentarily.
[noise].
[noise].
Welcome to the Vivek Conference Center next available conference specialist will be with you momentarily.
Welcome to the Vivek Conference Center next available conference specialist will be with you momentarily.
And things that are going to get your name.
Yes, Kevin will flow K.E. Lee I am.
A.S.L.A. and E.
Okay and for which call.
Monroe earnings call.
Okay right through tire stores were.
Well when we identified targeted demographics that favor a tire store format.
To this end, we rebranded selected pilot stores.
Two a tire oriented brand in a district in mid Atlantic region last year, consistent with our plan to enhance local brand awareness. We will also consolidate our brands and banners as part of the 50 store refresh initiated in the first quarter.
Overall the results of the two pilot programs launched last year are tremendously positive the outperformance of our pilot stores materialized into comparable store sales growth, notably above our chain average in the first quarter of fiscal 2020, as well as a dramatic improvement across key guest satisfaction metrics at these stores. These compelling results reinforce our confidence in the execution of our store refresh and brand consolidation strategy going forward.
Building upon the success, we will continue to leverage customer data analytics and local brand awareness to rollout our brand operational standards and increase our relevancy in the marketplace.
As we modernize our store portfolio over the next three to five years, we will prioritize both our newly acquired stores and targeted markets, where we see the strongest potential.
For increased visibility and traction of our tire banners in order to achieve the highest possible returns.
Turning to slide six our efforts to enhance customer satisfaction are reflected in our average 4.7 star rating during the first quarter.
Which brings our all time average star rating to a new high of 4.6 stars as compared to 3.6 stars before we launched our customer satisfaction and online reputation program. We're proud of these results and continue to leverage customer feedback to drive operational improvement and deliver a consistent five star experience in each of our stores.
This is further supported by our customer centric engagement initiatives. We are pleased with the progress of our new data analytics base CRM platform and are continuing to invest in data driven customer relationship marketing and customer acquisition campaigns to meet our current and future customers where they are.
Additionally, developing our online presence has been a critical component of our marketing strategy to enhance the level of engagement with our customers.
We are pleased to report that we have significantly increased our online visibility since the modernization of our retail web sites last year as evidenced by our websites sessions and listing views doubling year over year.
Improved content and functionality is also drove a notable increase in our consumer online actions, including clicks to call driving directions and appointment of requests both year over year and sequentially.
In order to ensure we are capitalizing on these improvements in our marketing efficacy. We continue to invest in in store technology and are introducing a new digital phone system, which will be rolled out across our store base over the remainder of the fiscal year.
Successfully executing on the phone is critical to driving customers to our stores and we are confident this new system will drive greater visibility and more consistent phone execution to better serve our customers. This is a major step to upgrade our network infrastructure and create a unified communication strategy, which we believe will support the ongoing rollout of our marketing initiatives and importantly lead to substantial improvements in the customer experience for years to come.
Turning to our omni channel strategy at the beginning of the first quarter, we announced the expansion of our collaboration with Amazon Dot Com to provide tire installation services to their customers at over 800 stores across 21 states representing approximately two thirds of our store footprint.
We have been very pleased with a smooth rollout of this program launched a year ago.
And we are on track to expand this program to all Monroe retail locations across 30 states.
Turning to our initiatives to optimize our product and service offering our strategy to provide customers with clearly defined options relevant to all consumer price points drove higher in store conversion again this quarter. Despite lapping the successful launch of our good better best merchandising strategy in the first quarter of last year, we continue to see a meaningful year over year increase in demand for brakes this quarter.
In addition, we remain focused on optimizing our tire assortment to create the best value for our customers and further our goal of becoming the number one destination for tires at any price point.
As previously mentioned, we introduced new tier two branded tires last quarter rounding out our assortment mix, while optimizing branded tire margins.
To complement our entire portfolio, our private label tires, representing approximately 40% of tire units remain a key competitive differentiator and allow us to provide our customers significant value at opening price point levels.
Overall, the optimization of our product and service offering is one of our strategic priorities and we'll look for opportunities to continue to advance our category management and pricing capabilities going forward.
Lastly, I would like to provide an update on our productivity and team engagement initiatives.
The personal and professional development of our teammates as one of our key priorities to attract and retain talent.
In fact, we view increase teammate engagement and higher satisfaction as key drivers to accelerate productivity.
Throughout our organization.
We are in the process of rolling out Monroe University, our cloud based learning management system across our store base.
As part of the rollout we are prioritizing our newly acquired stores to facilitate the onboarding of our new teammates and are pleased to report that the deployment of our Monroe University training platform.
It has been a key tool for the integration of our California stores.
Importantly, Monroe universities significantly enhances our employer value proposition. The platform is not only designed to provide our 8700 teammates with best in class trainings to better serve our customers, but also help them grow and advance their career at Monroe.
Our robust curriculum will also prepare them to handle future technician requirements as vehicles become more complex with the increased adoption of technology.
To further enhance store productivity. We're also kicking off the second phase of our store staffing optimization.
In the second quarter as we look to create flexibility in our staffing model. We are implementing a cloud based data driven store staffing and scheduling system to drive further staffing efficiency by more accurately rebalancing the level of tech medical skills in each store, ensuring our stores our staff with technicians that have the appropriate skill level for the services required to complement this initiative. We will also launch a mobile app, allowing our teammates to easily pickup shifts and give them the option to increase their hours and earnings.
To conclude I'm very proud of what we've accomplished as an organization since I joined Monroe, almost two years ago I would like to thank our customers and shareholders for their continued support and our team mates for their exceptional work and commitment I look forward to building upon our strong business momentum.
With that I'll turn the call over to Brian who will provide additional detail on our first quarter financial performance in fiscal 2020 outlook.
Thank you Brad and good morning, everybody.
Turning to slide seven.
We delivered solid top line performance and margin expansion in the first quarter.
Sales increased 7.2% year over year to a record $317.1 million driven by same store sales increase of 2.8% and sales from new stores of $19.6 million, including $16.6 million from recent acquisitions.
Partially offset by a decrease in sales from closed stores of approximately point $7 million. The first quarter of fiscal 2020 had 90 selling days in line with the previous year period.
Gross margin increased 80 basis points to 40.4% in the first quarter of fiscal 2020 from 39.6% in the prior year period. This increase was largely due to the continued benefits from the optimization of our store staffing model and product and service offerings as well as from leverage from higher comparable store sales, partially offset by the impact of sales mix from the free service tire acquisition.
Operating expenses for the quarter increased $7.6 million and were $91.8 million or 28.9% of sales as compared with $84.2 million or 28.5% of sales in the prior year period.
Net interest expense for the quarter increased point $6 million as compared to the same period last year.
Weighted average debt outstanding for the first quarter of fiscal 2020 increased by approximately $18 million as compared to the prior year period.
The increase is primarily related to an increase in finance lease debt recorded in connection with our fiscal 2020 acquisitions and Greenfield expansion.
The weighted average interest rate for the first quarter increased by approximately 30 basis points year over year, largely due to the higher interest expense associated with finance leases.
Our effective tax rate was 23.1% for the first quarter compared to 22.7% for the same period last year.
This compares to 62 cents in the prior year period, which included two cents per share in one time costs related to Monroe forward investment.
As of June 29, 2019, the company had 1251 company operated stores and 98 franchise locations as compared with 1164 company operated stores and 98 franchise locations as of June Thirtyth 2018 during the quarter. We added 55 company operated stores and closed one store.
Turning to slide eight as we continue to execute on our growth strategy, we remain committed to our disciplined approach to capital allocation.
Our capital expenditures were $14 million in the first quarter of fiscal 2020.
Of which approximately $1 million was related to investments in our Monroe forward initiatives.
Our Monroe forward strategy is progressing on track and we continue to expect an incremental $75 million in capital expenditures above our normal run rate over five years to support investments in store Reimage and technology.
Additionally, we will continue to execute on accretive acquisition opportunities, which is a pillar of our growth strategy. During the first quarter, we spent approximately $55 million on acquisitions, including one to four store acquisitions completed as part of our Greenfield expansion strategy.
We are also committed to returning capital to shareholders through our dividend program and paid about $7 million in dividends during the first quarter.
Finally, we remain focused on maintaining a solid balance sheet with ample flexibility to support our growth and profitability initiatives. We entered the first quarter with strong leverage ratios and have ample room under our financial covenants, we generated approximately $58 million of cash flow from operating activities. During the first quarter of fiscal 2020 debt under our revolver increased by approximately $22 million during the first quarter.
Before moving onto our guidance I would like to note that we adopted a new lease accounting standard during the first quarter of fiscal 2020, which require substantially all leases to be recognized on the balance sheet.
The adoption of this new standard had a material impact on our balance sheet due to the recognition of operating lease right of use assets and liabilities. However, it did not have a material effect on our net income or cash flow.
Now turning to our outlook for fiscal 2020 on slide nine we have updated our fiscal 2020 comparable store sales guidance range, two an increase of 1% to 3% to reflect the unfavorable weather conditions in certain regions that negatively impacted comparable store sales trends fiscal year to date.
This compares to our previous guidance, which called for an increase of 2% to 4%.
Based on the updated comparable store sales guidance and the contribution from today's announced acquisitions. We now anticipate fiscal 2020 sales to be in the range of $1.285 billion to $1.315 billion, an increase of 7.1% to 9.6% as compared to fiscal 2019 sales. This compares to the previous sales guidance range of $1.295 billion to $1.325 billion.
Based on these assumptions, we expect to generate earnings growth on a comparable store sales increase above approximately 1%.
Overall, we continue to expect fiscal 2020 earnings per diluted share to be in the range of $2.55 to $2.75 representing earnings growth of 8% to 16%.
This guidance includes approximately four cents to six cents and accretion from fiscal 2019 acquisitions.
Acquisitions announced and completed in fiscal 2020 are expected to be breakeven to diluted earnings per share during the year.
At the midpoint of our guidance range, we expect an operating margin of approximately 11.3%.
Interest expense to be approximately $30 million depreciation and amortization to be approximately $67 million and EBITDA to be approximately $215 million, we expect capital expenditures to be approximately $65 million. This year. This guidance reflects an effective tax rate of approximately 23.5% and is based on 34 million diluted weighted average shares outstanding.
As always our guidance does not assume any future acquisitions or greenfield store openings.
I will now turn it over to Brad to provide some closing remarks before we move onto acuity.
Thanks, Brian .
In summary, we had a solid start to the year, we delivered our sixth consecutive quarter of comparable store sales growth driven by improving execution across our business and are pleased to see this continue through July our Monroe forward initiatives are progressing on schedule and we firmly believe the strong traction of our reimaged location underscores the success of our strategy.
Importantly, we are continuing to execute our disciplined acquisition strategy and we are making solid progress integrating our new West coast operations. Looking ahead, we are confident in our outlook for fiscal 2020, and we believe our commitment to operational excellence, coupled with execution of our growth strategy will drive continued value for our shareholders with that I will now turn the call over to the operator for questions.
Thank you.
We will now be conducting a question and answer session.
If you would like to ask a question. Please press Star then one on your telephone keypad.
The consummation will indicate your line is in the question Ki.
You may Chris.
Then to you.
If you would like to turn the field questions from the key.
Okay since using speaker equipment, it may be necessary pickup your handset before pressing the star Kane.
One moment, please folly Paul for the question.
Thank you. Your first question comes from Brian Nagel I couldn't high Mark go ahead. Please.
Hi, good morning.
Good morning, Rob.
Congrats on the continued progress in your repositioning.
Good morning, Bob I'll address the first question I wanted to ask just on topline and maybe a couple of parts to it but.
You discussed obviously sales in the fiscal first quarter, and then sales quarter to date fiscal Q2.
So as we look at that I guess the joke, what's called the July performance.
This isn't an ROE still facing external pressures from weather.
Or other factors so I'm getting at is that 1% should we think about that as a decent run rate or is that still being held back by external factors and the second question have you.
Relatively early in the year you are you.
Trim, some somewhat not dramatically that somewhat your sales guidance for the year, how should we interpret that as just your thinking towards the overall environment as well as your internal initiatives.
Sure.
Brian I'm going to start with I think.
We don't like to talk about the weather in our business of course, but I think it's difficult to ignore the factor as a realistic impact that it has on the tire and our service space and.
First on our our quarter one performance.
Ladies wear.
The quarter started in April .
We came out of the gate pretty strong and we would characterize the weather backdrop as being very consistent with what we saw last year in April which was kind of a slow start to.
Two of the spring selling season.
Near the end of May.
First.
[noise] throughout May and June as we.
Ladies.
Yes.
As we think about July going forward.
And and as it relates to our guidance for the year.
As we think about our business first half second half we knew coming into this year that.
Our comparable.
Our comps were a little bit harder in the first half of the year.
And get progressively easier in the second half.
So, although we didn't provide quarter to quarter guidance. This year as you know.
We were fully expecting a little bit harder start to the year and as our initiatives mature we get more stores Reimaged, which we're pleased with the performance of that.
We feel pretty confident in our full year guidance and.
The comp sale guidance, we provided today is basically a reflection of our first quarter softness.
That we as we have talked about.
Okay got you then if I could follow up would be I guess longer term a bigger picture question clearly we discuss this a lot in the past your acquisitions are a key part of the demand growth strategy. You continue to push forward successfully with your acquisition strategy question I have always.
Given what I think most of us consider improving backdrop of space and now you are pushing into new geographies such as California has your has the historic range of multiples you pay changed much or are you still are you still paying basically the same if you had historically for these acquired chains.
Kinda details in terms of exact multiples that we pay for competitive reasons of course, but but I would characterize it vary.
You mean, the values that were paying clients day are consistent with what we've paid historically, we haven't seen.
Measurable appreciation in terms of values that we're seeing we're very pleased with our entry point and California in particular to acquire a platform and three.
Distinct dnase with a distribution center.
At multiples in line with historical averages, we feel pretty good about it but I look at our pipeline.
Going forward I would reiterate what I said last quarter and that's this is the most robust pipeline that I've seen since I've been at Monroe.
And then part of that is given the fact, we have opened up new geography of course, and deeper south and as we push west and with our West Coast operations that certainly opens the door for.
For a much more robust pipeline. So we're very pleased with where we're at how lower position how quickly we integrated the west coast operations and have built I think an infrastructure here at our headquarters. It gives me confidence that we can scale this more more rapidly.
Thanks, a lot congrats again.
Thank you Brian .
Thank you. Your next question comes from Brett Kiloton from Jefferies Go ahead. Please.
This is mark Jordan on for Brett Good morning.
Hi, Mark.
Just thinking about your Reimaged stores, how did they outperform compared to the company average do you have the comp difference there.
We.
We didnt provide details on on exactly that as I mentioned in our prepared remarks, we're very pleased with the performance of the stores are they did significantly outpace the company average.
But the reason why we're not going to provide any more detail on that yet mark is.
If you look at the number of stores that we've kind of completed to this point, it's in the neighborhood of low fortys.
With a small sample size like we're seeing and combined efforts across the a true reimage along with a pilot market on rebranding.
Given the small sample size, we're reluctant to kind of get ahead of ourselves if you will and and share information I think it's just not reflective yet of a full blown.
Rollout so.
But having said that I think we're very encouraged by what we're seeing so far if I look at the customer satisfaction metrics, which I think are a leading indicator on future traffic trends were very encouraged by that and the outsize performance that we're seeing in the collective store base relative to our company average is is very encouraging as well.
Great and does that outperformance carrying over into July as well.
Today, yes. It is.
Okay, and we're opening up in three additional markets in this current quarter.
Are you able to disclose what.
What those markets might be.
I will disclose the region. We're we're doing three markets in the Midwest region.
Are we re image.
And maybe just to provide a little more color on that are our focus has been on leverage in the analytic tool that we've installed in our business to help us prioritize the markets, where we believe.
Through a reimage slash rebranding initiative will provide the biggest lift to our.
Sales performance.
So needless to say, we are certainly prioritizing the markets, where we feel like we have.
The best opportunity to do that in this particular case, it's going to take us through the Midwest. The other consideration that drives the decisions certainly weather.
I don't want to we want to move into Midwestern markets in northern markets, while we still have whether to paint the exteriors or buildings and that will redirect our focus as the winter months come around to our southern markets and as always we got to be conscientious I think of acquired stores, because we certainly want to.
Immediately put.
Those stores on the Monroe playbook, as well as rebrand them to Monroe banner.
As quickly as possible.
Okay perfect. Thank you very much and one quick housekeeping question for Brian are you able to provide the monthly comp breakdown.
Yes, sure. We were we were up four in April .
Down one in May and flat in June .
All right. Thank you very much.
Thanks Mark.
Thank you I will take this opportunity to remind everyone. It is star followed by one on your telephone keypad to register for a question today I will just give everyone a mine it.
Thank you there are no further questions at this time I would now like to turn they flow back over to Brett go ahead. Please.
Thank you all for joining us today and for your interest and support of Monroe, Our first quarter performance demonstrates our continued focus on driving operational excellence and delivering a consistent five star experience to all our customers. We are excited about the prospects across the business for the remainder of the year and look forward to updating you.
All on our continued progress next quarter have a great day.