ROCHESTER, N.Y. — Monro Inc. suffered a 33.8% drop in operating income for the quarter ended June 24, due in part to lower sales of higher-margin services and reduced overall revenue.
Operating income for the first quarter of fiscal 2024 was $17.4 million, or 5.3% of sales, as compared with $26.3 million, or 7.5% of sales in the prior year period, Monro said.
Sales for period fell 6.5% to $327million, a decline attributed to the divestiture of the firm's Tires Now wholesale tire and distribution assets in the first quarter of fiscal 2023 to American Tire Distributors Inc. Net income dropped 29.6% to $8.8 million.
Comparable store sales increased 0.5% for the period, Monro said, driven by an approximate 1% comparable store sales increase in approximately 300 of the company's small or underperforming stores. This compares with an increase in comparable store sales of 2.8% in the company's retail locations in the prior year period. Sales from new stores increased $1.6 million, primarily from recent acquisitions.
Comparable store sales increased approximately 18% for batteries, 3% for maintenance services and 1% for tires compared with the fiscal 2023 period. Comparable store sales decreased approximately 2% for brakes and alignments and 9% for front end/shocks.
Monro President and CEO Mike Broderick said the first-quarter revenue shortfall was driven primarily by lower-than-expected sales due to customer deferrals in some of the firm's key service categories in June.
"Broad-based inflationary pressures have persisted such that the consumer slowed their purchases of some of our higher-ticket service categories," Broderick said.
"While our comps in the quarter fell short of expectations, customer traffic counts were in line with our expectations and remained consistent with improving traffic trends in the back half of fiscal 2023."
Margins in the tire sector returned to solid footing, he said, but the overall gross margin was impacted by a lower-sales mix of high-margin service categories, which resulted in higher material costs and continued labor cost pressures.
"As a result, we took swift actions to reduce non-productive labor costs, including overtime hours in our stores, which allowed us to preserve margins and profitability," Broderick said, noting that Monro likely needs to see an improvement in the overall health of the consumer before it can capitalize fully on longer-term industry tailwinds.
Nevertheless, the CEO added, "we will remain relentlessly focused on achieving our mid-single-digit comp store sales expectations through accelerating growth in our 300 small or underperforming stores, maintaining a balanced approach between tire and service categories with competitive pricing to drive store traffic and continuously improving our customer experience."
On the positive side, preliminary comp store sales for fiscal July are up approximately 1%, Broderick said, which is a positive rebound off of the sales trends that we saw in fiscal June and a step in the right direction.
"Given the current pressures on the consumer, we are also laser focused on maximizing profitability through prudent cost control, which includes right sizing our fixed costs and rationalizing unproductive labor.
"In addition, we will continue to create cash by optimizing inventory and leveraging the strength of our vendor partners for better availability, quality and cost of parts and tires in our stores," Broderick said.
Monro reported that sales from new stores increased $1.6 million, primarily from recent acquisitions.
Monro said it did not open or close any stores during the quarter, ending it with 1,299 company-operated stores, under brands such as Allen Tire, Car X Tire, Ken Towery's Tire & Auto, Monro Auto, MountainView Tire, Mr. Tire, Tire Barn, Tire Choice and Tire Warehouse, and 77 franchised Car X Tire locations.
Monro made no forecasts for the remainder of fiscal 2024, saying only that it expects "significant growth prospects in the attractive and dynamic Western region" and that it continues to evaluate a "robust pipeline" of attractive merger/acquisition opportunities that support its growth strategy while maintaining strong financial discipline.