Monro(MNRO) - 2024 Q4 - Annual Report

PART I Cautionary Note Regarding Forward-Looking Statements Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from projections - Forward-looking statements are subject to risks, uncertainties, and other important factors that could cause actual results to differ materially from those expressed[11] - Key risk categories include competitive services and pricing, economic conditions and geopolitical uncertainty, advances in automotive technologies (including EVs), dependence on third-party vendors, debt obligations, cash needs, anticipated sales and profit margins, income tax liabilities, critical accounting policies, industry regulation, litigation, business interruptions, cybersecurity, acquisitions, store operations, dividend payments, brand protection, human capital, and climate change impacts[12] Item 1. Business Monro, Inc. operates 1,288 retail tire and automotive repair stores nationwide, offering services and focusing on customer experience and growth - Monro, Inc. is a leading nationwide operator of retail tire and automotive repair stores, offering replacement tires, tire-related services, undercar repair, and routine maintenance[16] Company-operated Store Brands as of March 30, 2024 | Company-operated Store Brands | Stores | | :------------------------------ | :----- | | Monro Auto Service and Tire Centers | 360 | | Tire Choice Auto Service Centers | 349 | | Mr. Tire Auto Service Centers | 317 | | Car-X Tire & Auto | 72 | | Tire Warehouse Tires For Less | 55 | | Ken Towery's Tire & Auto Care | 34 | | Mountain View Tire & Auto Service | 30 | | Tire Barn Warehouse | 27 | | Other | 44 | | Total | 1,288 | - The company serviced approximately 4.7 million vehicles in fiscal 2024[17] - Monro operates in one segment, encompassing retail and commercial locations, and maintains its corporate headquarters in Rochester, New York[23][24] General This section provides a general overview of Monro's business operations and market position Business Strategy This section outlines Monro's strategic initiatives for enhancing customer experience, optimizing offerings, and driving growth Purchasing and Distribution This section describes Monro's processes for acquiring and distributing tires and automotive parts to its store network Human Capital This section details Monro's approach to managing its workforce, including recruitment, training, and employee relations Competition This section analyzes the competitive landscape within the automotive repair and tire industry where Monro operates Regulation This section addresses the various governmental regulations and compliance requirements affecting Monro's business operations Seasonality This section discusses the seasonal fluctuations in demand for Monro's products and services throughout the year Available Information This section specifies where public information about Monro, Inc. can be accessed by investors and the public Item 1A. Risk Factors This section details significant risks, including competition, economic sensitivity, EV adoption, vendor reliance, debt compliance, and cybersecurity, that could materially affect Monro's operations - The automotive repair industry is highly competitive and fragmented, with competition based on price, reputation, name awareness, customer service, and store location[65] - Economic conditions, including inflation and interest rates, impact consumer spending, potentially leading to reduced demand for services or 'trading down' to lower-priced options[66] - Advances in electric vehicle technology and longer-lasting automotive parts may decrease demand for traditional services like oil changes and exhaust repairs[70][71] - The company relies on key vendor relationships, particularly with American Tire Distributors (ATD), for most tire inventory, and changes in U.S. trade policies (e.g., tariffs) could increase costs[72][73][79] - Failure to generate sufficient cash flows or comply with debt covenants (e.g., interest coverage ratio, adjusted debt to EBITDAR) could impair liquidity, growth, and dividend payments[80][81][85] - Cybersecurity threats, data breaches, and the inability to attract and retain skilled personnel are also significant operational risks[96][115] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments[123] Item 1C. Cybersecurity Monro maintains a comprehensive cybersecurity program aligned with NIST standards, with Board oversight and CISO/CLO operational responsibility - Monro's cybersecurity program is aligned with NIST Cybersecurity Framework, prioritizing prevention, protection, detection, assessment, and response to threats[124] - Key controls include quarterly cybersecurity awareness training, monthly phishing simulations, a 24/7 dedicated security operations team, intrusion detection/prevention, vulnerability management, and multi-factor authentication[125] - The Board of Directors delegates cybersecurity oversight to the Audit Committee, which receives quarterly presentations from the CISO[130][132] - The CISO and Chief Legal Officer (CLO) have primary operational responsibility for assessing and managing cybersecurity risks, supported by a well-defined Incident Response Plan (IRP)[128][131] Item 2. Properties As of March 30, 2024, Monro operated 1,288 stores, mostly leased, with its corporate headquarters held for sale pending relocation Company-operated Stores and Other Properties as of March 30, 2024 | | Stores | | :------------------------ | :----- | | Owned | 330 | | Leased | 902 | | Owned buildings on leased land | 56 | | Total | 1,288 | - The company's corporate headquarters building in Rochester, New York, was classified as held for sale as of March 30, 2024, with a carrying value of $5.9 million, as the company plans to relocate[138] - Approximately 59% of store leases (569 stores) expire after March 2034, considering all renewal options[135] Item 3. Legal Proceedings Monro is involved in various legal proceedings, which management believes are not materially adverse, though outcomes are inherently uncertain - Monro is a party to various claims and legal proceedings incidental to its business, but management does not believe they will have a material adverse effect on financial condition or results of operations[139] - Litigation is subject to inherent uncertainties, and unfavorable rulings could potentially have a material adverse impact[139] Item 4. Mine Safety Disclosures This item is not applicable to Monro, Inc - Not applicable[140] PART II Item 5. Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Monro's common stock is listed on Nasdaq, with an authorized share repurchase program and dividends subject to Board discretion - Monro's common stock is listed on the Nasdaq Stock Market under the symbol 'MNRO'[143] - As of May 17, 2024, 29,916,345 shares of common stock were outstanding[5] Share Repurchase Program Activity (as of March 30, 2024) | Program Authorization | Repurchased Shares | Total Investment | Remaining Value | | :-------------------- | :----------------- | :--------------- | :-------------- | | $150 million | 3.7 million | $140.9 million | $9.1 million | Dividends Declared Per Common Share | Fiscal Year | Dividend Per Share | | :---------- | :----------------- | | 2024 | $1.12 | | 2023 | $1.12 | | 2022 | $1.02 | - An agreement was made in May 2023 to reclassify the equity capital structure to eliminate the Class C Preferred Stock, with mandatory conversion expected by 2026[143][397] Market Information This section provides details on the trading market for Monro's common stock and related market data Share Repurchase Activity This section outlines the company's share repurchase program and recent activity regarding equity buybacks Holders of Record This section reports the number of record holders for Monro's common stock as of a specified date Dividends This section details the company's dividend policy and historical dividend payments to common shareholders Stock Performance Graph This section presents a graphical comparison of Monro's cumulative total return against market indices Item 6. [Reserved] This item is reserved and contains no information - Item 6 is reserved[150] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Monro focuses on strategic investments for growth, with fiscal 2024 sales and EPS decreasing, while leveraging operating cash flow and its Credit Facility - Monro's strategy focuses on improving guest experience, enhancing customer-centric engagement, optimizing product and service offerings, and accelerating productivity and team engagement[151] - The company completed the divestiture of its wholesale tire operations and internal tire distribution operations to American Tire Distributors, Inc. (ATD) in June 2022 for $102 million[153] - The U.S. economy experienced high inflation and increased interest rates in fiscal 2023 and 2024, potentially leading to an economic slowdown and impacting demand for products and services[154] Fiscal 2024 Financial Summary | Metric | 2024 ($M) | 2023 ($M) | % Change | | :--------------------- | :-------- | :-------- | :------- | | Sales | 1,276.8 | 1,325.4 | (3.7)% | | Operating Income | 71.4 | 79.8 | (10.4)% | | Net Income | 37.6 | 39.0 | (3.6)% | | Diluted EPS | $1.18 | $1.20 | (1.7)% | | Adjusted Diluted EPS | $1.33 | $1.36 | (2.2)% | - Sales decreased primarily due to closed stores and a 2.0% decrease in comparable store sales (3.9% adjusted for days), driven by low-to-middle income consumers trading down to lower-margin tires and milder weather impacting tire sales[161][164] - Gross profit as a percentage of sales increased by 100 basis points in 2024, mainly due to tire mix improvement and opportunistic pricing actions, partially offset by increased retail occupancy and technician labor costs[169][170] - Net interest expense decreased by $3.2 million in 2024 due to lower weighted average debt outstanding, despite an increase in the weighted average interest rate[173] - The effective income tax rate decreased to 27.6% in 2024 from 31.7% in 2023, primarily due to discrete tax impacts from the divestiture and revaluation of deferred tax balances in 2023[174] - Monro expects to generate positive operating cash flow and plans to use it for business operations, acquisitions, debt reduction, and dividend payments[181] Cash Flow Summary (Fiscal Years Ended March) | (thousands) | 2024 | 2023 | 2022 | | :------------------------------ | :-------- | :-------- | :-------- | | Cash provided by operating activities | $125,196 | $215,016 | $173,759 | | Cash (used for) provided by investing activities | $(1,956) | $26,546 | $(109,801) | | Cash used for financing activities | $(121,563) | $(244,626) | $(85,970) | | Increase (decrease) in cash and equivalents | $1,677 | $(3,064) | $(22,012) | | Cash and equivalents at end of period | $6,561 | $4,884 | $7,948 | - On May 23, 2024, Monro entered into a Fourth Amendment to its Credit Facility, providing additional flexibility by reducing the minimum interest coverage ratio and modifying the EBITDAR definition for a 'Covenant Relief Period' through Q4 fiscal 2026, while increasing the interest rate spread by 25 basis points and imposing restrictions on share repurchases during this period[152][205][206][207][208] Executive Overview This section provides a high-level summary of Monro's financial performance and strategic priorities for the fiscal year Recent Developments This section highlights significant events and changes that have impacted Monro's business recently Economic Conditions This section discusses the prevailing economic environment and its potential effects on Monro's operations and consumer demand Financial Summary This section presents a concise overview of Monro's key financial results for the reporting period Analysis of Results of Operations This section provides a detailed discussion of Monro's revenues, expenses, and profitability trends Other Performance Factors This section examines additional factors influencing Monro's operational and financial performance Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures used by Monro to provide additional insights Analysis of Financial Condition This section analyzes Monro's balance sheet, liquidity, and capital resources to assess its financial health Critical Accounting Estimates This section discusses accounting estimates that require significant judgment and could materially impact financial results Accounting Standards This section outlines the new and recently adopted accounting standards relevant to Monro's financial reporting Item 7A. Quantitative and Qualitative Disclosures about Market Risk Monro is exposed to market risk from interest rate changes on its floating-rate debt, with a 100 basis point SOFR change impacting annual interest expense by $1.0 million - Monro is exposed to market risk from potential changes in interest rates, specifically on its floating-rate debt[220] - As of March 30, 2024, a 100 basis point change in SOFR would result in approximately $1.0 million in annual interest expense fluctuations[220] - Long-term debt had a carrying amount and fair value of $102.0 million as of March 30, 2024[220] Item 8. Financial Statements and Supplementary Data This section presents Monro's audited consolidated financial statements for fiscal years 2022-2024, including core statements and notes, along with management and auditor reports - Management assessed the effectiveness of the Company's internal control over financial reporting as of March 30, 2024, and determined it was effective[227] - PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of March 30, 2024[233] - A critical audit matter identified was the evaluation of long-lived assets for impairment for certain asset groups, due to significant management judgment in developing recoverability estimates and high auditor judgment in evaluating assumptions[240][241] Consolidated Balance Sheet Highlights (thousands) | Metric | March 30, 2024 | March 25, 2023 | | :------------------------- | :------------- | :------------- | | Total Current Assets | $253,289 | $258,467 | | Property and equipment, net | $280,154 | $304,989 | | Goodwill | $736,435 | $736,457 | | Total Assets | $1,692,814 | $1,776,877 | | Total Current Liabilities | $455,156 | $449,177 | | Long-term debt | $102,000 | $105,000 | | Total Liabilities | $1,036,039 | $1,081,955 | | Total Shareholders' Equity | $656,775 | $694,922 | Consolidated Statements of Income and Comprehensive Income Highlights (thousands, except per share data) | Metric | 2024 | 2023 | 2022 | | :------------------------- | :---------- | :---------- | :---------- | | Sales | $1,276,789 | $1,325,382 | $1,359,328 | | Gross profit | $452,103 | $456,175 | $481,836 | | Operating income | $71,425 | $79,750 | $101,298 | | Net income | $37,571 | $39,048 | $61,568 | | Diluted EPS | $1.18 | $1.20 | $1.81 | Consolidated Statements of Cash Flows Highlights (thousands) | Activity | 2024 | 2023 | 2022 | | :------------------------- | :---------- | :---------- | :---------- | | Operating activities | $125,196 | $215,016 | $173,759 | | Investing activities | $(1,956) | $26,546 | $(109,801) | | Financing activities | $(121,563) | $(244,626) | $(85,970) | | Cash and equivalents at end of period | $6,561 | $4,884 | $7,948 | Report on Management's Assessment on Internal Control Over Financial Reporting This section presents management's assessment of the effectiveness of the company's internal control over financial reporting Report of Independent Registered Public Accounting Firm This section contains the independent auditor's opinion on the consolidated financial statements and internal controls Audited Financial Statements This section includes the complete set of Monro's audited consolidated financial statements Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[402] Item 9A. Controls and Procedures Monro's management concluded that disclosure controls and internal control over financial reporting were effective as of March 30, 2024 - The Company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 30, 2024[404] - Management concluded that Monro's internal control over financial reporting was effective as of March 30, 2024[405] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended March 30, 2024[406] Item 9B. Other Information Monro amended its Credit Facility on May 23, 2024, establishing a 'Covenant Relief Period' through Q4 fiscal 2026, adjusting covenants, interest rates, and capital distribution restrictions - On May 23, 2024, Monro entered into a Fourth Amendment to its Credit Facility, establishing a 'Covenant Relief Period' from Q1 fiscal 2025 through Q4 fiscal 2026[407] - During the Covenant Relief Period, the minimum interest coverage ratio will be reduced from 1.55x to 1.00x, gradually increasing to 1.55x by Q1 fiscal 2027[408] - The amendment modifies the EBITDAR definition to permit add-backs for non-cash and up to 20% cash expenses related to store closures (decreasing to 15% after Q4 fiscal 2026)[410] - The interest rate spread on borrowings increases by 25 basis points during the Covenant Relief Period[411] - Restrictions on dividends and share repurchases are adjusted, requiring minimum liquidity of at least $400 million for these activities during the Covenant Relief Period[412] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Monro, Inc - Not applicable[413] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from Monro's 2024 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement[416][417] Item 11. Executive Compensation Information concerning executive compensation is incorporated by reference from Monro's 2024 Proxy Statement - Information on executive compensation is incorporated by reference from the 2024 Proxy Statement[418] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners, management, and equity compensation plans is incorporated by reference from Monro's 2024 Proxy Statement - Information on security ownership of certain beneficial owners and management, and equity compensation plan information, is incorporated by reference from the 2024 Proxy Statement[418] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related party transactions, and director independence is incorporated by reference from Monro's 2024 Proxy Statement - Information on certain relationships, related party transactions, and director independence is incorporated by reference from the 2024 Proxy Statement[419] Item 14. Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from Monro's 2024 Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement[419] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the filed financial statements, including core statements, notes, and the auditor's report, plus a comprehensive list of exhibits - The report includes audited financial statements: Consolidated Balance Sheets, Statements of Income and Comprehensive Income, Statements of Changes in Shareholders' Equity, and Statements of Cash Flows, along with Notes to Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm[426] - A comprehensive list of exhibits is provided, covering organizational documents, stock incentive plans, deferred compensation plans, credit agreements, and other material contracts[427][429] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[431] Signatures This section contains the required signatures of Monro, Inc.'s principal executive officer, principal financial officer, and Board members, certifying the report filing - The report is signed by Michael T. Broderick (President and Chief Executive Officer) and Brian J. D'Ambrosia (Executive Vice President – Finance, Chief Financial Officer and Treasurer) on May 28, 2024[434][435] - Members of the Board of Directors also signed the report, with Michael T. Broderick acting as Attorney-in-Fact for some directors[435]