Monro, Inc. Common Stock 2027 Q2 Earnings Call

Please go ahead. Hello, everyone, and thank you for joining us on this morning's call.

Before we get started, please note that as part of this call, we will be referencing a presentation that is available on the Investors section of our website at corporate.monro.com/investors. If I could draw your attention to the safe harbor statement on slide 2, I'd like to remind participants that our presentation includes some forward-looking statements about Monro's future performance. Actual results may differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Monro's filings with the SEC and in our earnings release. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Additionally, on today's call, management statements include a discussion of certain non-GAAP financial measures, which are intended to supplement and not be substitutes for comparable GAAP measures. Reconciliations of such supplemental information to the comparable GAAP measures are included as part of today's presentation and in our earnings release. With that, I'd like to turn the call over to Monro's President and Chief Executive Officer, Peter Fitzsimmons.

Thank you, Felix, and thanks to everyone for joining us. Great to be with you today. I want to start by saying that while our fiscal second quarter presented some real headwinds, I remain genuinely encouraged by the progress our team continues to make in executing against our performance improvement plan. The environment we're operating in is not without its challenges. Consumer spending pressures, category softness, and a dynamic macroeconomic backdrop have all created friction. But what I hope comes through clearly this morning is that the work we are doing at Monro is deliberate, it is gaining traction, and it is positioning us well for the road ahead. This morning, I'd like to update you on our progress and the momentum we've continued to build despite a challenging fiscal second quarter.

Since we completed our store closure program over a year ago, my comments today will focus on the three remaining key performance improvement initiatives you are already familiar with, which are driving profitable customer acquisition and activation, improving our store-based customer experience and selling effectiveness, and increasing merchandising productivity, including mitigating the impacts of trade and supply disruptions. After that, I will briefly touch upon our fiscal second quarter results as we continue to implement our performance improvement plan to enhance Monro's operations, drive profitability, and increase total shareholder returns. Let's start with driving customer acquisition and activation on slide 3. Many of you have heard us talk about marketing optimization over the last several quarters, and I am pleased to report that this work continues to yield tangible results, even in a difficult demand environment.

During the second quarter, we continued to refine our digital marketing and leveraged the strength of our CRM platform through targeted promotional investments designed to address specific opportunities in both our brakes and oil categories. Importantly, the increased precision of our marketing execution also resulted in a year-over-year reduction in our cost per lead during the quarter. That combination, better outcomes at a lower cost, is exactly the kind of marketing efficiency we have been working to build. On the oil side specifically, we have been testing two promotional approaches. One combines transparent everyday pricing with additional promotional offers, while the other emphasizes compelling percentage and dollar-off discounts without displaying the underlying price. We believe that these promotional offerings helped us to support the improvement in store traffic we saw in September relative to July and August.

We have also seen a significant increase in the average repair order for oil change visits scheduled through both our customer call center and our online appointment system, which speaks to the quality of the customer engagement these channels are generating. When you factor in service attachments, the average ticket size of these transactions grows to roughly two to three times the dollar value of an oil change by itself. That's a compelling illustration of how a well-executed traffic-driving strategy can translate into broader revenue opportunity. Beyond the transaction-level data, we are also seeing improvement in customer call volume in certain pockets of the country, another encouraging sign that our marketing programs are resonating.

We will continue to direct our marketing spend into the areas with the highest potential return on investment, and we remain confident that this disciplined, data-driven approach will continue to strengthen our customer acquisition and activation efforts going forward. Now let's discuss the things we are doing to improve the customer experience and selling effectiveness in our stores. You have also heard us talk about the rollout of our enhanced District Manager Toolkit over the last several quarters, and I want to take a moment to share some of the meaningful progress we have made in this area. I believe it represents one of the most important structural improvements that we are making to how we operate at the store level. As a reminder, this is a metrics-driven toolkit specifically designed to help us identify and address sub-optimal operating performance with the goal of improving store profitability at the local level.

I would add that data alone doesn't drive results. The difference comes from using it to coach and train effectively at every level, from store managers and assistant store managers to skilled technicians. We previously indicated that we have rolled this out to approximately 340 store locations, and we are encouraged by the early results we've seen in a subset of those stores, where we've already observed a meaningful improvement in just the past several months. As an example, 146 of the stores that have received DM toolkit and coaching support achieved mid-single-digit growth in sales with a bottom-line improvement of more than 20% year over year in the second quarter. This early traction gives us real confidence in the toolkit's ability to drive change at scale. During the second quarter, we took an important step to further accelerate that progress by establishing a dedicated operating efficiency team.

This team was created specifically to leverage and scale the toolkit's capabilities more broadly and more rapidly across our network. As part of this effort, three of our most talented and experienced field leaders have stepped into coaching and training roles, working directly with store teams in the areas of the country where the opportunity for improvement is greatest. Their presence in the field is already making a difference, and we expect their impact to compound as their work takes hold. I'm pleased to report that we have now rolled the District Manager Toolkit out to a majority of our store locations. This is a significant milestone. With many stores now operating with access to this tool, we have a consistent data-informed foundation from which to drive continued profitability improvements across the entire chain, and we intend to build on that foundation with urgency and focus in the quarters ahead.

Now let's turn to merchandising, including mitigating the impacts of trade and supply disruptions. After successfully completing an update in our tire assortment, our merchandising team has shifted their focus to working closely with our parts suppliers to ensure that our stores are stocking the right products at the best price to meet the needs of our customers. More specifically, we currently have an initiative underway aimed at improving the overall quality of our brake assortment in many of our store locations. Continuing to work as a strong partner with our existing core vendors, while at the same time identifying new vendors that can help us meet customer needs, is key to helping us drive improved sales as well as better margins. On the category performance front, I'm pleased to report that we saw year-over-year comparable store sales growth in both batteries and maintenance services during the second quarter.

While sales comps in our brake category were down in the quarter, we leaned in with targeted promotional activity that enabled us to drive unit growth in this high-margin service category, which we view as an important indicator of underlying demand that we can continue to build on as our assortment improvements take hold. Our ConfiDrive inspection tool continues to play a meaningful role here as well, helping our store teams better educate customers on their vehicle needs and creating natural opportunities to connect customers with the services that matter most to their safety and their vehicle's performance. For the second consecutive quarter, the combination of improvements to our in-store stocking programs and our front-of-shop presentation drove 8% growth in our battery comps.

This kind of consistent, repeatable performance in a specific category is a direct reflection of disciplined execution at the store level, and it gives us a useful model to apply more broadly. As it relates to product access, our supply has been largely uninterrupted by the extended geopolitical tensions in the Middle East, at least so far. While the availability of oil has impacted some players in our industry, we have continued to receive the supply necessary to meet the needs of our customers. With that said, the costs for oil have definitely risen in the current environment. We continue to partner with our vendors to understand and manage costs in what continues to be a dynamic environment. We expect to continue to strike the right balance between potential pricing adjustments to protect gross margins while also remaining competitive and delivering value to our customers.