Monro Continues Rebranding, Reimaging Initiative; Acquisitions Remain A Priority

During the company’s Jan. 30 earnings conference call, Monro Inc. President and CEO Brett Ponton walked analysts through progress made on management’s “Monro Forward” strategy, beginning with the ongoing shop rebrand and reimage initiative.

The program focuses on creating a more consistent shop appearance while also implementing standardized in-store operating procedures, which the company refers to as the “Monro Playbook.”

Additionally, the company is rebranding select shops to a tire-oriented banner where demographics favor this type of format. Here, the goal is to increase tire sales without sacrificing service revenue.

During the first half of its fiscal 2020 (the six months ended Sept. 28, 2019), Monro finalized the transformation of 44 locations in Rochester, NY and the Mid-Atlantic, as well as 43 shops in its southern markets.

During the fiscal third quarter (the three months ended Dec. 28, 2019), the company moved forward with the transformation of 74 shops in four markets and 42 of its recently acquired California locations. Monro has now completed the transformation of the 74 shops and has substantially completed the California stores, which are being rebranded under the company’s Tire Choice Auto Service Centers banner in an attempt to drive higher awareness for tires.

“We operate in two store formats: our service brand stores, which generate approximately $600,000 per store in annualized sales, and our tire brand stores, which generate approximately $1.20 million per store in annualized sales,” Ponton said on the call. “Prior to any rebrand activity, we operated 555 service brand stores and 734 tire brand stores. As we work to create a nationwide chain of consistently operated stores, we are prioritizing the higher-volume tire brands. Throughout this process, we will be consolidating our regional brands.”

It’s worth noting that Monro defines reimaging as modernizing the appearance of its shops with no associated brand change.

“As we’re making decisions regarding rebranding versus reimaging stores, we are leveraging our analytical model as well as taking into account our brand equity in that market,” Ponton pointed out.

Through the end of the 2020 fiscal year (the three months ending in March 2020), Monro is focused on finalizing the transformation of its recently acquired California shops while starting the transformation of approximately 80 more locations that should be completed in the first quarter of fiscal 2021 (the three months ending in June 2020).

In other “Monro Forward” news, the company began modernizing the IT infrastructure at all of its shops during the fiscal third quarter.

“This new infrastructure enables state-of-the-art technology, including our new digital phone and texting system, which is a major step toward improving the overall customer experience,” Ponton stated. “This system will allow us to better track customer execution, driving a more consistent phone strategy and improved conversion.”

Management expects the shop infrastructure modernization to be completed by the end of the first quarter of fiscal 2021.

Ponton also told analysts that Monro is on track to roll out a tire category management and pricing system beginning in the first quarter of fiscal 2021, which he said will enable a more dynamic and sophisticated approach to real-time pricing.

“We believe this will be critical to driving long-term margin expansion by providing improved visibility into demand dynamics, allowing us to better refine our assortment and execute our strategy,” he explained.

Additionally, management expects Monro to roll out a cloud-based shop scheduling model pilot by year-end. “Gaining real-time visibility into our labor model via the cloud will help us be more effective and strategic,” Ponton said, “ensuring we are not understaffed and losing sales or overstaffed when there’s a lack of demand.”

Despite all that’s going on, acquisitions remain a cornerstone of Monro’s growth strategy. During the fiscal third quarter, the company closed on the previously announced acquisitions of three companies: one with 14 locations in Las Vegas and 4 in Boise, ID; as well as two companies, which included nine stores in Northern California, bolstering Monro’s burgeoning position in the western United States.

“Our presence in this region allows us to better service national accounts as well as benefit from the high concentration of vehicles in this market and the potential long-term consumer shift to ride sharing,” Ponton told analysts on the call.

He added: “We operate in a very fragmented industry with significant opportunities for further consolidation, and we believe we are well-positioned to continue to execute on our robust pipeline of attractive M&A targets. We currently have over 10 NDAs signed with opportunities ranging from five to 40 stores, which we believe will allow us to maintain our leadership position in the markets we serve while continuing to expand our geographic footprint into attractive and underserved regions.”            — Marc Vincent