Monro's Q1 earnings pummeled by pandemic

ROCHESTER, N.Y. — Monro Inc.'s operating income for the quarter ended June 27 plunged 68.7% to $11.4 million, as sales fell 22.1% to $247.1 million on the negative effects of COVID-19-related business and travel restrictions.

Net income plummeted 86.8% to $2.99 million

During the fiscal first quarter Monro closed 36 stores, ending the quarter with 1,247 company-operated stores and 97 franchised locations.

Monro said the closures were part of its planned real estate portfolio optimization. Besides the 36 stores closed during the first quarter, six stores were closed in the fourth quarter of fiscal 2020.

Monro said it assessed its real estate portfolio and identified a total of 42 underperforming stores for closure as part of its Monro.Forward strategy, not as a response to the pandemic.

As a result of the 42 store closures, Monro recorded $2.5 million in one-time store closing costs in the first quarter but said the closures will improve operating income by about $5.1 million on an annual basis.

The total sales decrease was driven by a comparable store sales decline of 25.8%, partially offset by sales from new stores of $12.7 million, including sales from recent acquisitions of $11.1 million, the company said.

"The decline in comparable store sales was primarily driven by a substantial decrease in traffic related to the ongoing COVID-19 pandemic during the first quarter," Monro said.

Comparable store sales fell 14% for tires, 32% for alignments, 35% for maintenance services, 36% for front end/shocks and 41% for brakes compared to the prior year period.

However, monthly comparable store sales performance across all product and service categories improved sequentially throughout the quarter.

Other factors impacting earnings included lower vendor rebates due to slower inventory turns, compared with the prior year period, and a higher sales mix of tires, which resulted in higher material costs as a percentage of sales. This was partially offset by lower technician labor costs as a percentage of sales related to the company's store staffing optimization initiative.

Total operating expenses decreased 17.1% to $76.1 million as a result of targeted cost reductions in response to COVID-19 and lower expenses from a net reduction of four stores, compared to the year-ago period, the company said.

This was partially offset by $2.5 million in planned store closing costs.

"Our first quarter performance demonstrates solid execution despite the unprecedented challenges related to the COVID-19 pandemic, and I would like to thank all of our Monro teammates for their hard work and dedication to safely serving our customers," Brett Ponton, Monro president and CEO, said.

"In line with our expectations, April represented a low point in our sales performance, with May and June improving sequentially as government restrictions gradually abated through the quarter. Encouragingly, the demand recovery continued in fiscal July with comparable store sales down approximately 12%.

"Since the beginning of the pandemic, we have taken a number of proactive steps to mitigate near-term headwinds while maintaining our focus on our Monro.Forward initiatives, including our technology-based store staffing model and our tire category management and pricing system, and are pleased that these efforts have begun to bear fruit.

"In addition to streamlining our operations, we have redirected our marketing efforts towards higher ROI digital channels and made strategic investments in technology, which we believe have been critical in helping us navigate the current environment," he said.

"Despite the challenges presented by COVID-19, we are encouraged by the outperformance of our rebranded stores during the first quarter, reinforcing our confidence in our store rebrand and reimage initiative. Our solid financial position will allow us to gradually resume this program in the second quarter as we continue our disciplined approach to capital allocation," he said.

Due to the ongoing uncertainty caused by COVID-19, Monro said "it remains difficult to accurately predict the full impact of the pandemic on overall demand and Monro's operations for the remainder of the year. Therefore, the company is not providing fiscal 2021 guidance at this time."