Monro (MNRO) Q1 FY27 earnings call: guidance and Q&A

Can you elaborate on the benefits seen from marketing efforts, especially pay-per-click and CRM, in stabilizing tire volumes?

Management attributed stable tire volumes to a combination of digital marketing (pay-per-click for new customer acquisition) and CRM (specific offers for existing customers). Pay-per-click is cost-effective as it only incurs cost when a customer is in-market, while CRM targets existing customers with offers for high-volume services.

“I think it's the combination of both digital and CRM that's helped us maximize the performance on tires at a time that the industry has not done particularly well.”

asked by Tom Wendler · answered by Peter Fitzsimmons

What were the specific drivers of the negative 1.2% comp in July, and were there any particular product or service call-outs?

The July comp decline was primarily attributed to continued consumer pressure from high gas, food, and healthcare prices. While Monro's offerings are non-discretionary, consumers are making choices about spending. No specific product or service call-outs were made beyond the general macro environment.

“I think more than anything, it's that current environment condition that affected our comps in the month that just ended.”

asked by Tom Wendler · answered by Peter Fitzsimmons

How do fluctuating oil/gas prices specifically impact your business, particularly regarding deferral of high-ticket items?

Elevated gas prices lead to deferral of high-ticket investments like tires and brakes. Customers may delay brake repairs even if recommended by inspections, and for tires, they tend to buy fewer per transaction or trade down to lower-tier products, impacting sales in Tier 2, 3, and 4.

“Where you see it affecting our business is in deferral of high ticket investment, mainly tires but also brakes.”

asked by Brian Nagel · answered by Peter Fitzsimmons

If oil prices remain elevated, what levers can Monro pull to offset the negative impact on the business?

Monro can continue to optimize marketing by directing investment to specific regions or customer profiles that would benefit most from increased traffic. An example was given of increased pay-per-click and adjusted oil product offers in South Florida leading to significant unit increases.

“Yes, we can continue to optimize marketing. We can look where in our network we need to invest a little bit more in driving traffic into the stores.”

asked by Brian Nagel · answered by Peter Fitzsimmons

How should investors think about the prioritization of funding capital allocation priorities, especially the dividend, given current muted results?

The company intends to fund historical capital allocation priorities, including the dividend. However, the dividend is subject to a quarterly review by management and the board, considering cash flows, current and projected performance, and compliance with credit facility covenants.

“So we have, as we said, the intention and expectation to fund our historical capital allocation priorities, and that includes the dividend. But as historically been the practice and what will continue to be the practice is that's a quarterly review, a review done by management and the board, taking into account everything, cash flows, current performance, projected performance, compliance with covenant requirements.”

asked by Brian Nagel · answered by Unknown Speaker

Can you detail the drivers of the 50 basis point gross margin decline in Q1 and explain the glide path for gross margin to be flat for the full year?

The Q1 gross margin decline was due to a 90 bps increase in occupancy costs as a percentage of sales, partially offset by a 40 bps decrease in technician labor costs as a percentage of sales, with material costs flat. For the full year, gross margin consistency is expected due to improved comparable store sales, which will provide better leverage on fixed occupancy and technician labor costs, especially in the back half of the year.

“So as it relates to the 50 basis point decline in the quarter, occupancy costs increased as a percentage of sales by about 90 basis points. That's really reflective of the leverage of those largely fixed costs on the lower comparable store sales levels. Offsetting that or partially offsetting that was technician labor costs that were lower by 40 basis points as a percentage of sales.”

asked by David Lance · answered by Unknown Speaker

With adjusted SG&A up over $5 million year-over-year in Q1 and guidance for higher full-year SG&A, what is the expected glide path for Q2 to Q4?

Q2 is expected to see continued year-over-year pressure on SG&A, similar to Q1, primarily driven by increased marketing costs. This pressure will lap in Q3, with operating expenses expected to come more in line with prior years in Q3 and Q4.

“Yes, to your point, Q2 is going to be the most year-over-year continued pressure, similar, maybe not to the full order of magnitude that we saw in Q1, but similar to Q1 and Q2, driven by the increase in marketing costs year-over-year. we'll lap that in Q3 and see operating expenses come in more in line with prior years. We get into Q3 and then into Q4.”

asked by David Lance · answered by Unknown Speaker

Can you break out the 1.7% comp decline in Q1 into traffic and ticket components?

The Q1 comparable sales decline was composed of a low-to-mid single-digit increase in ticket (approximately 4%) and a mid-single-digit decrease in traffic.

“Yes, THE COMP WAS UP ABOUT LOW MID-SINGLE DIGITS IN in ticket, so up about 4% in ticket, and down mid-single digits in traffic.”

asked by David Lance · answered by Unknown Speaker

Given the decrease in the AP to inventory ratio and potential pressure on factoring costs with higher leverage, is there any pressure on the factoring program or bias to fund more inventory?

The company has seen good support for its supply chain program from banks and vendors, with no issues funding the program. The working capital deficit in Q1 was primarily due to timing of payments, including amounts due on the factoring program from prior year's elevated purchases. This is expected to retrace over the next couple of quarters, and working capital is not expected to be a significant use of cash for the full year. The company's current borrowing rate increment on its revolver is SOFR plus 225.

“Yes, we've seen, you know, in the supply chain program, really good support from the bank group, right? We've had some turnover of funding sources, but still able to fully fund the program and, you know, obviously great participation from our vendors as well. So nothing to really report on the factoring program.”

asked by Brett Jordan · answered by Unknown Speaker