ROCHESTER, N.Y. — Downsizing at Monro Inc. stores helped the tire and auto repair retailer weather the impacts of COVID-19, but their lingering effects also are impacting earnings.
For the quarter ended Dec. 26, Monro's operating income fell 40.8% to $15.7 million on 13.6% lower sales of $284.6 million. That lowered the operating income ratio four points to 5.5%. Net income fell 64.5% to $6.7 million.
"While there are a number of reasons for this, including general market conditions, the principal reason was our earlier success in downsizing our store staff levels to align effectively our operations with the impact that the COVID-19 pandemic had on our revenues," Chairman and Interim CEO Rob Mellor told analysts on a conference call.
Eliminating positions earlier in 2020 helped Monro match expenses with revenues, but the move also meant the company needed to hire hundreds of new employees as business started to return.
"Our prompt and decisive management actions allowed us to stay ahead of the curve. At the outset of the pandemic we focused our efforts on rightsizing technician staffing levels at each store to meet lower demand," Mr. Mellor said.
"When demand picked up we had to recruit hundreds of technicians. And, in fact, we have recruited over 700 technicians since July. But ramping up this number of new teammates presented a challenge," he said.
Hiring the workers and teaching them Monro operating standards is a process, Mr. Mellor said. "Each new recruit takes time before they can become fully productive and some just don't work out. This was reflected in our October and November labor productivity levels and directly impacted our top line."
While fiscal year third quarter results were impacted, the company did indicate finances are trending in the right direction as each month has been an improvement upon the previous one.
"Our new technicians are making significant contributions to sales, margins and earnings. January is looking even better with positive comparable store sales with last year," he said. "We are encouraged by these positive trends and we are well-positioned to drive higher same-store sales and profitability going forward."
"We look forward to fiscal 2022 with confidence," Mr. Mellor said.
While the company has a positive outlook for the next fiscal year, which starts in late March, Monro is not providing any earnings guidance due to the uncertainties caused by COVID-19, Chief Financial Officer Brian D'Ambrosia said.
He added that technician labor costs expressed as a percentage of sales are trending in the right direction as they gain more experience on the job.
Technicians are relied upon by the company to identify needed repairs in vehicles brought in for service. Those needs are then relayed to store managers who then work with customers.
For the nine month period, operating income fell 49.1% to $51.5 million on 15.5% lower sales of $820.8 million, lowering the operating ratio four points to 6.2%. Net income was off 63.6% to $22.5 million.
Monro had 1,260 stores open at the end of the latest fiscal quarter, down from 1,289 a year earlier.
During the quarter Monro completed the acquisition of Allen Tire Co., adding 17 stores in California that should generated up to $20 million in annualized sales, the company said.
Monro also completed the transformation of 104 Monro-badged stores to its tire-centric brands and said these rebranded and reimaged stores are outperforming the chain average.