ROCHESTER, N.Y. — Monro Inc. suffered a 31.9% drop in operating income for the quarter ended Sept. 24 on 5.1% lower sales, declines the company attributed in part to the divestiture of its wholesale business earlier in the year.
Second-quarter operating income fell to $23.5 million on revenue of $329.8 million, resulting in an operating margin of 7.1%, down from 9.9% a year ago.
The sales decline of $17.9 million was due to the divestiture of the Tires Now wholesale tire and distribution assets in the first quarter to American Tire Distributors Inc.
Sales for these divested assets were $28.8 million in the quarter, offsetting some marginal sales gains in the firm's retail business.
Comparable store sales increased 1.3% for the period, Monro said, driven by an approximate 10% comparable store sales increase in approximately 300 of the company's small or underperforming stores. Comparable store sales increased approximately 6% for tires and 1% for maintenance services compared with the prior-year period, with revenue from brakes and front end/shocks down 5% and 8% for alignments.
Sales from new stores increased $8.1 million, primarily from recent acquisitions. During the second quarter Monro closed six stores, ending the period with 1,297 company-operated stores and 80 franchised locations.
"While our topline results do not fully reflect the good work of all of our teammates, we continued to make progress on our overall strategy in the second quarter," Monro President and CEO Mike Broderick said.
Regarding the company's second-quarter performance and fiscal 2023 outlook, Broderick said Monro is seeing "stretched consumers" trade down to lower-priced tire options and defer vehicle maintenance in some of the firm's key service categories.
In an effort to keep Monro a viable source for auto service for the longer term, the company opted to "not fully offset parts inflation" through additional increases in prices charged for those services, Broderick said.
The company also kept staffing up throughout its store network "in order to preserve our long-term service model," he added, although investments in price and labor impacted the gross margin.
Monro claims it gained market share in tire category in the quarter, a gain Broderick partially attributed to the new supply partnership with American Tire Distributors. That allowed Monro to reposition its tire assortment to give customers the right tire at the right price.
"We remain confident that as long as our stores are properly staffed, our pricing is competitive with the right assortment and we continue to improve our in-store execution," Broderick said, "we will be able to drive traffic to our stores to serve the needs of our customers and capture market share gains."
Net income for the second quarter of fiscal 2023 was $13.1 million, down from $21 million a year ago.
For the six months ended Sept. 24, Monro's operating income fell 20% to $49.6 million on 1.5% lower sales of $679.4 million. The operating margin fell to 7.3% from 9%.
Comparable store sales in the first of Monro's fiscal 2023 year increased 0.8%, compared to an increase of 23.8% in the prior year period.
During the quarter, Monro repurchased approximately 1.2 million shares of its common stock as part of a longer-term share repurchase program. In total, the company has repurchased approximately 1.6 million shares at an average price of $44 per share for approximately $71 million.
