ROCHESTER, N.Y. — Monro Inc. reported a 67.4% jump in fourth-quarter operating income despite 0.2% lower sales, as consumers deferred tire purchases or turned increasingly to lower-tier tire brands.
Operating income in the quarter jumped to $10.3 million on sales revenue of $310.1 million, resulting in a 3.3% earnings margin, up from 2% a year ago. Net earnings were up nearly 10-fold over the year-ago period at $3.7 million.
Monro said the revenue drop was due in large part to low- to middle-income consumers who traded down or deferred high-ticket tire purchases, resulting in lower year-over-year comparable store sales.
Monro attributed the earnings improvement to a number of measures it undertook, including tire mix optimization, labor optimization through actions to reduce nonproductive labor costs, including overtime in our stores, and labor efficiency through productivity improvements, including scheduling, training and "attachment-selling" initiatives.
For the fiscal year ended March 25, Monro's operating income fell 10.5% to $71.4 million on 3.7% lower sales of $1.28 billion. Fiscal 2024 was a 53-week year with 368 selling days versus 361 selling days in fiscal 2023, and therefore included $24.4 million for an extra week of sales in the fourth quarter.
Net income fell slightly to $37.6 million.
Comparable store sales decreased 2% on a reported basis and 3.9% adjusted for days, compared with increases of 2.8% for total company and 3.5% for retail locations in the prior year. Adjusted for days, comparable store sales fell 1% for batteries, 4% for alignments, 6% for tires, 7% for maintenance services, 9% for brakes and 14% for front end/shocks compared with fiscal 2023.
Tires account for around 50% of Monro's overall business.
Looking the current situation since the close of the fiscal year, Monro CEO and President Michael Broderick said tires are having a "temporary yet meaningful negative impact" on Monro's bottom line.
Broderick told financial analysts in a conference call that the trend of consumers' trading down or deterring tire purchases is being supported by an "oversupply of lower-margin tires in the U.S."
In addition, he noted that mild weather contributed to downturn.
"The overall impact of this is fewer U.S. tire replacement units being sold at a lower overall average selling price," he said. "This has led to pressured store traffic for us, which is not supportive to attachment of our higher margin service categories."
Tire units in the quarter were down 11%, Monro said, noting that the gross margin increased 210 basis points over the prior year, resulting from lower technician labor costs, including a 15% reduction in overtime hours, and lower material costs as a percentage of sales.