For the fiscal third quarter ended Dec. 24, 2022, Monro’s sales decreased 1.9% to $335.19 million, attributable to the divestiture of its wholesale tire and distribution assets in 2022. However, Monro’s comparable-store sales rose 5.6% for the quarter, with a 12% comp-store sales increase from roughly 300 small or underperforming locations. Comp-store sales in the company’s remaining shops were up approximately 5%.
Adjusted for one additional selling day in the current-year quarter, we see that the company’s comp-store sales grew 4.4% year over year. A closer look shows that comp-store sales, adjusted for days, increased 8% for tires; grew 7% for maintenance services; and decreased 5% for brakes, alignments and front end/shocks.
From a regional standpoint, all regions were up, with the West being a little bit weaker than others but not meaningfully different, according to management.
By month, comp-store sales were +3.7% in October, +3.5% in November and +10.5% in December (+4.4% adjusted for days).
Meanwhile, Monro’s gross profit declined 5.9% to $113.45 million in the quarter, and its gross margin decreased 150 basis points to 33.8%, primarily because of a higher mix of tire sales in the company’s retail locations, customer trade down to opening-price-point tires and parts inflation that Monro intentionally did not fully pass through to consumers. This resulted in an increase in material costs, as a percentage of sales, compared to the prior year.
Additionally, incremental investments in technician labor and wages increased labor costs by 80 basis points.
“The voice of our customer has indicated that raising prices at a time when they’re struggling to accept them would likely result in the immediate loss of a sale and has the potential to jeopardize a longer-term relationship,” President and CEO Mike Broderick told analysts on Monro’s Jan. 25 earnings call. “And, as a reminder, developing this longer-term relationship with our customers is a key element of our strategy.”
Monro’s net income fell 20.0% to $13.03 million for the quarter.
EXPANSION … During the quarter, the company opened one shop and closed two locations. Monro ended the quarter with 1,296 company-operated shops and 79 franchised locations.
Monro also has announced a definitive asset purchase agreement to acquire four shops in Iowa and one shop in Illinois, expanding the company’s reach in the Midwest. The locations are expected to add roughly $6 million in annualized sales.
Broderick told analysts on the call that Monro continues to have “significant capacity to acquire businesses which fit into our overall strategic plan.”
NEW INITIATIVES … During the call, Broderick outlined a series of customer-focused initiatives being implemented, starting with a new approach to batteries.
“While batteries currently represent a small fraction of our overall sales, the battery market is large and growing. In response to this, we have made changes in the way we sell and service batteries,” he explained. “We now offer free battery checks, and, in a departure from industry standards, we are waiving installation charges for most batteries.”
Broderick added: “When we install the battery, it gives us an opportunity to assess a vehicle’s entire electrical system through a free, quality courtesy inspection to ensure that everything is in good working order.”
Monro also has introduced a walk-in oil service option; good, better, best oil service package updated to give customers options that meet their budgets; and a callback program to remind customers when their next oil service is due.
Additionally, a new integration with Carfax provides customers with a vehicle’s service history and manufacture recalls while in store.
MISCELLANEOUS … Other items of interest from Monro’s quarterly report and conference call …
• Management did not provide full-year financial guidance; however, preliminary results show that comp-store sales in January were up roughly 8%.
• Over the first nine months of its fiscal year, Monro generated a record operating cash flow of approximately $171 million. And, as of Dec. 24, 2022, the company had cash and cash equivalents of roughly $13 million and availability on its revolving credit facility of approximately $440 million.
• During the quarter, Monro repurchased roughly 584,000 shares of its common stock. — Marc Vincent