Monro(MNRO) - 2023 Q1 - Quarterly Report

PART I Item 1. Financial Statements (Unaudited) Monro, Inc.'s unaudited consolidated financial statements for Q1 FY2023 show increased sales but decreased net income and EPS Consolidated Balance Sheets Total assets and liabilities decreased as of June 25, 2022, primarily due to reductions in goodwill, inventories, and long-term debt Consolidated Balance Sheet Highlights (in millions) | Account | June 25, 2022 (in millions) | March 26, 2022 (in millions) | | :--- | :--- | :--- | | Total Assets | $1,815.7 | $1,871.4 | | Cash and equivalents | $30.6 | $7.9 | | Inventories | $128.7 | $166.3 | | Goodwill | $730.3 | $776.7 | | Total Liabilities | $1,046.1 | $1,088.5 | | Long-term debt | $110.0 | $176.5 | | Total Shareholders' Equity | $769.7 | $782.9 | Consolidated Statements of Income and Comprehensive Income Q1 FY2023 sales increased by 2.3% to $349.5 million, but net income and diluted EPS declined due to lower gross and operating profit Q1 Fiscal 2023 Income Statement Summary (in millions, except per share data) | Metric | Q1 FY2023 (ended June 25, 2022) | Q1 FY2022 (ended June 26, 2021) | Change | | :--- | :--- | :--- | :--- | | Sales | $349.5 | $341.8 | +2.3% | | Gross Profit | $122.2 | $125.9 | -3.0% | | Operating Income | $26.3 | $27.9 | -6.0% | | Net Income | $12.5 | $15.7 | -20.4% | | Diluted EPS | $0.37 | $0.46 | -19.6% | Consolidated Statements of Cash Flows Operating cash flow increased, investing activities provided cash due to divestiture, while financing activities used cash for debt and repurchases Cash Flow Summary (in millions) | Activity | Three Months Ended June 25, 2022 (in millions) | Three Months Ended June 26, 2021 (in millions) | | :--- | :--- | :--- | | Cash provided by operating activities | $77.2 | $62.7 | | Cash provided by (used for) investing activities | $48.9 | $(66.8) | | Cash used for financing activities | $(103.4) | $(9.0) | | Increase (decrease) in cash and equivalents | $22.7 | $(13.1) | - The significant positive cash flow from investing activities in Q1 2023 was driven by $56.6 million in proceeds from a divestiture, compared to the prior year's quarter which included $62.1 million used for acquisitions[18][112][113] Notes to Consolidated Financial Statements Notes detail business operations, accounting policies, the ATD divestiture, share repurchases, and revenue by category - Monro operates 1,303 company-operated retail stores and 80 franchised locations in 32 states, focusing on automotive undercar repair and tire services[23] - On June 17, 2022, Monro divested its wholesale tire and internal tire distribution operations to ATD for $102 million, consisting of $62 million at closing and a $40 million earnout, resulting in a pre-tax gain of $2.4 million[46] Revenue by Category (as % of Total) | Category | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Tires | 50% | 52% | | Maintenance | 26% | 25% | | Brakes | 14% | 14% | | Steering | 9% | 8% | | Exhaust | 1% | 1% | - The company repurchased 413.6 thousand shares for $17.2 million during the quarter under a $150 million share repurchase program authorized in May 2022[69][70] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 FY2023 financial results, noting sales growth, operating income decline, and strategic capital allocation Q1 FY2023 Financial Summary | Metric | Q1 FY2023 | Q1 FY2022 | Change | | :--- | :--- | :--- | :--- | | Sales | $349.5M | $341.8M | +2.3% | | Comparable Store Sales | +0.4% | N/A | N/A | | Operating Income | $26.3M | $27.9M | -6.0% | | Diluted EPS | $0.37 | $0.46 | -19.6% | | Adjusted Diluted EPS (Non-GAAP) | $0.42 | $0.55 | -23.6% | - The decrease in gross profit margin by 180 bps was primarily driven by a 200 bps negative impact from increased technician labor costs and a 60 bps impact from higher distribution and occupancy costs[85][86] - The company expects capital expenditures for fiscal 2023 to be between $40 million and $50 million[100] Analysis of Results of Operations Sales increased by 2.3% driven by new stores and comparable sales, while gross profit margin declined due to higher costs Drivers of Sales Percentage Change | Driver | Contribution to Sales Change | | :--- | :--- | | New store sales | 3.3% | | Comparable store sales | 0.4% | | Closed store sales | (1.3)% | | Total Sales Change | 2.3% | Comparable Store Product Category Sales Change (YoY) | Category | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Tires | 0% | 25% | | Maintenance service | 1% | 42% | | Brakes | 2% | 57% | | Alignment | (2)% | 54% | | Front end/shocks | 5% | 40% | | Exhaust | 5% | 35% | - OSG&A expenses decreased by $2.1 million, driven by a $3.9 million reduction in litigation settlement costs and a $1.2 million net gain from the sale of wholesale assets[87][89] Non-GAAP Financial Measures Non-GAAP measures, adjusted net income and diluted EPS, are presented to enhance comparability by excluding non-recurring items Reconciliation of Net Income to Adjusted Net Income (in millions) | Description | Q1 FY2023 (ended June 25, 2022) (in millions) | Q1 FY2022 (ended June 26, 2021) (in millions) | | :--- | :--- | :--- | | Net income (GAAP) | $12.5 | $15.7 | | Gain on sale of assets, net | $(1.2) | — | | Litigation settlement costs | — | $3.9 | | Certain discrete tax items | $2.6 | — | | Other adjustments | $0.0 | $0.1 | | Adjusted net income (Non-GAAP) | $14.3 | $18.8 | Reconciliation of Diluted EPS to Adjusted Diluted EPS | Description | Q1 FY2023 (ended June 25, 2022) | Q1 FY2022 (ended June 26, 2021) | | :--- | :--- | :--- | | Diluted EPS (GAAP) | $0.37 | $0.46 | | Gain on sale of assets, net | $(0.03) | — | | Litigation settlement costs | — | $0.09 | | Certain discrete tax items | $0.08 | — | | Other adjustments | $0.00 | $0.00 | | Adjusted diluted EPS (Non-GAAP) | $0.42 | $0.55 | Analysis of Financial Condition The company maintains strong liquidity, prioritizing acquisitions, debt reduction, dividends, and share repurchases in its capital allocation - Capital allocation strategy focuses on acquisitions, debt repayment, dividends, and share repurchases[98] - As of June 25, 2022, the company had $30.6 million in cash and equivalents and $460.4 million available under its Credit Facility[106] - Cash used for financing activities of $103.4 million included $66.5 million in net debt payments, $17.2 million in share repurchases, and $9.5 million in dividend payments[114] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its floating-rate debt, impacting annual interest expense - The company's primary market risk is interest rate risk on its floating-rate debt[125] - A 100 basis point change in interest rates would impact annual interest expense by approximately $1.1 million based on the debt position at June 25, 2022[125] Item 4. Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures with no material changes in internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 25, 2022[128] - No material changes were made to the internal control over financial reporting during the quarter ended June 25, 2022[129] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, with no material adverse impact currently anticipated - The company is involved in legal proceedings incidental to its business, but notes that the ultimate resolution is subject to inherent uncertainties[131] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company authorized a new $150 million share repurchase program, repurchasing $17.2 million in Q1 FY2023 - A new share repurchase program for up to $150 million was authorized on May 19, 2022[132] Share Repurchase Activity (Q1 FY2023) | Total Shares Purchased | Average Price Paid per Share | Total Cost (in millions) | Remaining Authorization (in millions) | | :--- | :--- | :--- | :--- | | 413,600 | $41.60 | $17.2 | $132.8 | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including key agreements and executive certifications - The exhibit list includes key agreements related to the ATD transaction and required executive certifications[134] Signatures Signatures The report is signed by the CEO and CFO, authorizing its content on August 1, 2022 - The Form 10-Q was signed on August 1, 2022, by the company's Principal Executive Officer and Principal Financial Officer[137][139]