Monro(MNRO) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Sales decreased by 10.3% YoY to $293.2 million in Q1, primarily driven by a 9.9% decline in comparable store sales [8] - Gross margin increased by 220 basis points YoY, driven by lower technician labor costs and lower material costs, partially offset by higher fixed occupancy costs [9] - Operating income declined to$ 13.2 million (4.5% of sales) compared to $17.3 million (5.3% of sales) in the prior year [9] - Net income was$ 5.9 million, down from $8.8 million YoY, with diluted EPS at$ 0.19 compared to $0.28 in the prior year [10] - Adjusted diluted EPS (non-GAAP) was$ 0.22, compared to $0.31 in Q1 of fiscal 2024 [10] Business Line Performance - Tire units were down 5% in Q1 but returned to mid-single-digit growth in June, with improved market share and maintained share in higher-margin tiers [8] - Battery units and sales dollars grew in June, driven by the ConfiDrive digital inspection process and service coupon initiatives [5] - Service categories, particularly higher-margin ones, remain underperforming despite some improvement [7][17] Market Performance - Comparable store sales trends improved as the quarter progressed, with comps down 13% in April, 11% in May, and 5% in June [8] - The 300 smaller underperforming stores showed comp store sales consistent with the overall company comp [8] Strategy and Industry Competition - The company is focusing on improving store traffic through oil change services and tire unit growth, while optimizing labor efficiency and cost control [6] - Monro is leveraging manufacturer-funded promotions to drive tire sales and improve profitability [4][19] - The company aims to restore gross margins to pre-COVID levels and achieve double-digit operating margins over the long term [7] Management Commentary on Operating Environment and Outlook - Management noted that the consumer environment remains challenging, but initiatives are driving improvement in topline results [4][7] - The company expects to deliver higher profitability in Q2 through continued gross margin expansion and cost control [12] - Full-year fiscal 2025 expectations include gross margin expansion, flat fixed occupancy costs, and at least$ 120 million in operating cash flow [12] Other Important Information - The company generated $26 million in cash from operations in Q1, reducing the cash conversion cycle by 15 days YoY [11] - Net bank debt stood at$ 93 million, with a net bank debt-to-EBITDA ratio of 0.7x and total liquidity of $477 million [11] - Capital expenditures for fiscal 2025 are expected to be between$ 25 million and $35 million [13] Q&A Session Summary Question: What drove the significant improvement in sales, particularly in June? - The improvement was driven by promotional activities in the tire category, supported by manufacturer-funded promotions, which led to unit growth in June [15][16][19] Question: How did price versus unit or traffic impact Q1 comps? - Price was slightly up, but traffic was significantly down, with June showing flat units and ticket in the tire category [23] Question: What is the strategy for oil price promotions? - The strategy is managed discounting, focusing on providing value to consumers and ensuring quick service turnaround [24] Question: How did gross margin performance compare to internal expectations? - Gross margin exceeded expectations, driven by strong technician productivity and lower labor and material costs [28][29] Question: What are the gross margin expectations for Q2? - The company expects similar gross margin results on a rate basis, with a target of 37% for Q2 [30] Question: What drove the weaker July comps compared to June? - The weaker comps were attributed to a soft comparison period, with no significant underlying issues [32]