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May 28, 2020 04:51 PM

Monro execs 'encouraged' by gradual rebound in store traffic

Bruce Davis
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    ROCHESTER, N.Y. — Monro Inc. executives are "encouraged" by the gradual rebound in customer traffic at its 1,280 retail stores across the U.S. after suffering 41% and 24% drops in business in April and May, respectively.

    Monro President and CEO Brett Ponton told the financial community in a May 28 conference call management feels that April was the trough of the COVID-19 pandemic business implosion as states throughout the U.S. imposed stay-at-home orders and travel restrictions.

    Mr. Ponton added that while Monro stores continue to impacted "significantly" by COVID-19, "we are encouraged by the gradual improvement in traffic we have seen towards the end of May as stay-at-home orders are lifted across the nation."

    He noted that the rebound is stronger in the South and Midwest, where restrictions are being eased more rapidly, while operations in the Northeast and Mid-Atlantic states — which were hit more dramatically and sooner — are recovering more slowly.

    Monro at this time did not issue a forecast for the remainder of fiscal 2021, which runs through March 2021.

    "While we navigate this uncertain environment, we are focused on the elements of the business within our control," Mr. Ponton said.

    Among the initiatives Monro undertook was reducing store hours (to 8 a.m. to 5 p.m., Monday through Saturday, at most locations) and operating "at appropriate labor capacity to match lower demand," Mr. Ponton said without elaborating on how many employees were furloughed.

    The company also is scaling down and "strategically redirecting" its marketing spend to bolster its digital presence and continues to leverage its diversified supply chain without significant disruption and has put contingency plans in place to ensure it can meet customer needs.

    Mr. Ponton stressed that Monro remains committed to its Monro.Forward strategy, but for now has put on hold its store reimage and rebrand initiative and paused all merger/acquisition activity.

    During fiscal 2020, Monro spent approximately $104 million on the acquisition of 89 retail stores and one distribution center, which together represent $120 million in annualized sales potential.

    The acquisitions were spread out among a dozen separate deals, the largest of which was the purchase of 40 Certified Tire & Service Centers retail locations and one distribution center in California in May 2019.

    During the fourth quarter, Monro closed six "underperforming" stores as part of a planned "portfolio optimization" under it Monro.Forward strategy, and is planning to close 36 more in the quarter ending June 29.

    These closings, which Monro stressed are not in response to the COVID-19 pandemic, are expected to result in $6.8 million in impairment costs but yield $5.1 million in improved operating income on an annual basis.

    At the same time, Monro has expanded its collaboration with Amazon.com Inc. to over 1,000 locations with the addition of 224 stores throughout western and eastern U.S. The delivery option is expected to be available at all of Monro's 1,280-plus locations in 32 states by July.

    While stopping short of issuing a business forecast for the current quarter or rest of fiscal 2021, Mr. Ponton told analysts during the conference call that Monro management believes the company is well-positioned to take advantage of market opportunities as they arise.

    "Overall, we believe consumers will drive more, supported by low gas prices, as well as the fact that they may be less likely to fly or take public transportation given the circumstances," he said.

    "Additionally, in a recessionary environment, consumers will be less likely to buy new cars and more likely to repair the existing cars they own, making our industry quite resilient. Monro is currently making changes across our business to capitalize on these favorable trends and drive an improved operating performance going forward.

    Mr. Ponton noted that Monro noticed business picking up in late April and into May as the federal stimulus checks began arriving in customers' accounts. This affected tires in particular, he said, because tire purchases tend to be a higher value ticket and consumers have a tendency to shop that a little more than other services.

    Overall, Monro's top executive tied his company's recovery longer term to miles driven.

    "I think we need consumers out of their homes driving vehicles," he said. "And the more they drive those vehicles, the more maintenance and repairs are required on those vehicles. So as I commented before I think we saw our performance track pretty comparably to the miles-driven metrics that the industry is tracking pretty closely, as well as mobility metrics provided by technology companies."

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