ROCHESTER, N.Y. — Monro Inc. posted slightly lower operating income for the quarter ended Sept. 28 on higher sales, prompting management to lower the fiscal-year 2020 earnings outlook.
Monro President and CEO Brett Ponton said management was "disappointed" in the second-quarter results, which he said were tied to gross-margin pressures related to higher-than-expected tire and labor costs.
Mr. Ponton added, however, that the firm took action to rectify the margin pressures in the near-term and is implementing initiatives to drive margin expansion moving forward.
"… we remain confident our transformation is creating a sustainable platform for long-term value creation," he said, calling the second-quarter results a "low water mark" for the Rochester-based company.
Operating income for the second quarter was $33.4 million, or 10.3% of sales, as compared with $34.5 million, or 11.2% of sales in the prior-year period.
Sales for the quarter increased 5.5% to $324.1 million, with the increase driven completely by sales from new stores, including recent acquisitions. Comparable store sales were flat, Monro said, reflecting a 1% increase for brakes and maintenance services, flat for tires and front end/shocks and a decrease of 1% for alignments.
The company added 13 stores and closed two during the quarter and now has 1,262 company-operated stores and 98 franchised locations.
For the six-month period, operating income was up 3.1% to $69.7 million, or 10.9% of sales, which grew 6.3% to $641.2 million. Net income for six months was $42.9 million, up slightly.
At the same time, Monro said it has a pending agreement to buy 14 stores in Nevada, nine in California and four in Idaho. Nevada and Idaho would be new states for Monro. These locations are expected to add approximately $45 million in annualized sales
Monro also has "substantially completed" the re-imaging of approximately 120 stores across a number of markets, representing a "significant step forward" in the company's store refresh program, which is a critical component of the firm's "Monro.Forward" strategy.
Mr. Ponton said the store refresh initiative "underpins our ability to drive sustainable growth, as evidenced by the double-digit increase in comparable store sales our pilot stores have generated following the completion of their re-image.
"While the disruption at the stores being re-imaged this quarter was more than anticipated, we believe the larger base of refreshed stores will be instrumental in driving comparable store sales improvement as we progress through the remainder of fiscal 2020 and beyond.
Monro also remains committed to executing on "attractive acquisition opportunities," he said, as evidenced by the continued expansion to the West Coast.
To reflect the impact of the second quarter performance, the company now anticipates reporting diluted earnings per share of $2.45 to $2.55, versus the previous range of $2.55 to $2.75. This guidance compares with diluted earnings per share of $2.37 in fiscal 2019, Monro said.