Monro Inc. saw its net income fall 33.6% to $5.86 million for the first fiscal quarter ended June 29, 2024. Adjusted net income declined 30.3% to $6.90 million.
Gross profit decreased 4.6% to $109.19 million; however, the company’s gross margin expanded 220 basis points to 37.2%, primarily attributable to lower technician labor costs and lower material costs. This was partially offset by higher fixed occupancy costs. Notably, the company’s gross margin expansion exceeded management’s expectations.
Monro’s sales declined 10.3% to $293.18 million for the quarter.
Comparable-store sales decreased 9.9% up against an increase of 0.5% in the prior-year period for a two-year stack of -9.4%. It’s worth noting that Monro experienced a rebound in its comp-store sales trends as the quarter progressed, as comps were down 13% in April, down 11% in May and down 5% in June.
A closer look shows that …
• Comps fell 15% for front end/shocks for the quarter
• Comps declined 13% for brakes.
• Comps decreased 10% for maintenance services.
• Comps slipped 9% for alignments.
• Comps declined 8% for tires.
• Comps decreased 6% for batteries.
“We drove a significant acceleration in our comp-store sales trends as the first quarter progressed. Importantly, we turned the corner in our tire category with a return to growth in units in the month of June,” President and CEO Mike Broderick told analysts on Monro’s July 31 earnings call. “We continue to leverage the strength of our manufacturer-funded promotions, which allowed us to meet the needs of a value-oriented consumer while also optimizing the profitability of our tire assortment.
“And, although we have more work to do to improve the performance of our higher-margin service categories, the combination of our ConfiDrive digital courtesy inspection process, service coupon and oil change offer allowed us to drive growth in both battery units and sales dollars in the month of June as well as an improvement in our service categories as the quarter progressed.”
Broderick stated that the company will leverage the traction from its initiatives in the first quarter to achieve management’s second quarter objectives, which include …
• Improving store traffic trends “driven by a keen focus on oil change services as well as continued growth in tire units.”
• Optimizing labor and efficiencies through continued improvements in productivity and maintaining prudent cost control.
• Accelerating the performance of key service categories.
Management did not provide formal full-year financial guidance. However, Executive Vice President and CFO Brian D’Ambrosia did tell analysts on the call that preliminary comp-store sales were down 7.6% in July and that management expects to continue to deliver higher levels of profitability relative to sales in the fiscal second quarter.
“Similar to the first quarter, we expect to deliver this through higher gross margins than the prior-year period, primarily from lower technician pay as a percentage of sales, from continued gains in labor efficiency and productivity, as well as prudent cost control” D’Ambrosia said. “For full year fiscal 2025, we expect gross margin expansion versus fiscal 2024. We also believe our fixed occupancy costs within cost of goods and operating expenses will be approximately flat on a dollar basis when compared with the prior year.”
Analysts with Jefferies LLC pointed out in a July 31 report that pressure from continued customer traffic declines weighed on all segments in the fiscal first quarter.
“Looking ahead, we think manufacturer-funded promotions should help stabilize recent underperformance but note improvement in service-related categories likely remains key to sparking healthy growth, with July preliminary comps of -7.6% suggesting more challenges likely in the interim,” Bret Jordan and Patrick Buckley wrote. — Reporting by Marc Vincent, Editor
