ROCHESTER, N.Y. — Citing "persistent inflationary pressures" that are causing consumers to defer tire and other high ticket purchases, Monro Inc. reported lower operating income for the three- and six-month periods ended Sept. 23 on lower sales for both periods.
Comparable store sales decreased 2.3% during the quarter, Monro said, with revenue from the sales of tires and alignments down 4%, for brakes down 3% and for front-end/shocks down 5% compared with the prior-year period.
"Our second-quarter comparable store sales decline … reflects topline results that were challenged," Monro CEO Mike Broderick said. "This was due to consumers' deferring tire purchases as persistent inflationary pressures impacted purchases of higher-ticket items across the retail spectrum."
Broderick noted there was an industry-wide slowdown in tire unit sales in the regions of the country where a vast majority of Monro's stores are concentrated. That slowdown led to reduced store traffic, he added, which affected sales of higher-margin service categories in the quarter.
Monro's tire unit sales fell approximately 10% in the quarter, but by leveraging the strength of its manufacturer-funded promotions the company was able to optimize its assortment and improve tire profitability in the quarter. The company is focused on improving sales of Tier 1 through 3 tires, Broderick told analysts during the quarterly conference call, because they are tied more often to other service work and a larger average ticket.
Monro's experience is that customers for lower-priced Tier 4-type tires do not add other services to their purchase, he said.
For the quarter, operating income fell 4.8% to $22.4 million on 2.3% lower revenue of $322.1 million, resulting in a slightly lower operating margin of 7%. Net income dipped 1.9% to $12.9 million.
For the six-month period, operating income was off 20.2% to $39.7 million on 4.5% lower revenue of $649.1 million, lowering the operating margin 1.2 points to 6.1%. Net income fell 15.2% to $21.7 million.
On the positive side, Monro noted that its gross margin increased 30 basis points from a year ago due primarily to lower material costs as a percentage of sales, which were offset partially by higher distribution and occupancy costs as well as higher technician labor costs due to wage inflation.
In addition, Monro said it mitigated an industrywide slowdown in the vehicle repair sector by reducing "non-productive" labor costs, including overtime hours in its stores.
The company closed one store during the quarter, leaving it with 1,298 company-operated stores and 77 franchised locations. There were no acquisitions during the period.
Monro did not publish a forecast for the remainder of fiscal 2024 — preliminary comparable store sales for October are down approximately 5% — but Broderick said the firm's stores are "properly staffed and ready for the back-half of the year. The company also is looking forward to the inevitable fall "weather event" — i.e., first snowfalls — in key markets to help jumpstart sales in the firm's third and fourth quarters.
"We will remain relentlessly focused on achieving comp sales growth through accelerating growth in our 300 small or underperforming stores, maintaining a balanced approach between our tire and service categories with competitive pricing to drive store traffic and continuously improving our customer experience," Broderick said, noting the company is "laser focused" on maximizing profitability through prudent cost control, which includes "right-sizing" fixed costs and rationalizing unproductive labor.
"While we take these actions," he added, "we will not cut productive labor at the sacrifice of our standards and to the detriment of our long-term service model. In addition, we will 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."
The company paid a cash dividend of 28 cents per share for the second quarter of fiscal 2024.