Monro, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended March 26, 2022, compared primarily with the year ended March 27, 2021. Although the request identifies “2021 Q4,” this filing reports a full fiscal year, not a quarterly period. The filing was signed May 23, 2022.
Business context and financial performance
Monro operates retail tire and automotive repair stores, with wholesale, retread and franchise activities. At year-end it had 1,304 company-operated stores in 32 states, 79 Car-X franchised locations, seven wholesale locations and three retread facilities. It serviced approximately 5.2 million vehicles during the year and reports one operating segment.
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Sales | $1,359.3 million | $1,125.7 million | +20.8% |
| Comparable-store sales | +15.2% | Not stated here | Growth driven by higher average ticket and guest traffic |
| Gross profit | $481.8 million; 35.4% of sales | $395.2 million; 35.1% | +21.9%; margin +30 bps |
| Operating income | $101.3 million | $72.2 million | +40.2% |
| Net income | $61.6 million | $34.3 million | +79.4% |
| Diluted EPS | $1.81 | $1.01 | +79.2% |
| Adjusted diluted EPS (non-GAAP) | $1.85 | $1.14 | +62.3% |
| Net interest expense | $24.6 million | $28.2 million | Down $3.6 million |
| Cash provided by operations | $173.8 million | $184.9 million | Down $11.1 million |
Financial position, cash flow and liquidity
- Cash and equivalents were $7.9 million at March 26, 2022, down from $30.0 million a year earlier. Cash flow from operations was $173.8 million; investing used $109.8 million and financing used $86.0 million.
- Investing outflows included $83.3 million for acquisitions and $27.8 million for capital expenditures. Financing outflows included $39.4 million of finance-lease principal, $34.7 million of dividends and $13.5 million of net Credit Facility repayments.
- Credit Facility borrowings were $176.5 million, with $393.9 million available at year-end. The facility’s stated capacity is $600 million, with an accordion permitting a requested increase of up to $250 million. Monro reported compliance with all debt covenants. As of May 13, 2022, it reported $11.3 million of cash and $430.4 million of facility availability.
- In addition to bank debt, the balance sheet included $399.6 million in present-value finance lease and financing obligations and $227.3 million in present-value operating lease liabilities. Total undiscounted finance lease/financing and operating lease commitments were $499.8 million and $260.8 million, respectively.
- The company declared $1.02 per common share in dividends for FY2022. A May 2022 dividend of $0.28 per share was declared for payment in June.
Material changes and management commentary
- Sales growth reflected 15.2% comparable-store growth, 6.2% from new stores and a 0.5% reduction from closed stores. Monro acquired 47 stores, rebranded and reimaged 53 stores, and ended the year with 1,304 company-operated locations.
- Comparable sales increased across reported product categories: tires 11%, maintenance 16%, brakes 29%, alignment 26%, front end/shocks 16% and exhaust 14%. Tires represented 53% of sales, down from 55%; maintenance was 24%, brakes 13%, steering 8% and exhaust 2%.
- Gross margin improved mainly from lower material costs as a percentage of sales, favorable mix toward higher-margin services, improved gross profit per tire and leverage on distribution and occupancy costs. These gains were partly offset by higher technician labor costs, which reduced margin by 220 bps; management said it expected further investment in staffing.
- OSG&A was $380.5 million, or 28.0% of sales, versus $323.0 million, or 28.7%. Higher comparable-store and new-store expenses and litigation settlement costs were partly offset by leverage on sales and expenses avoided at closed stores.
- Management expects positive operating cash flow and considers cash, operating cash flow and Credit Facility availability adequate for at least the next 12 months. It intends to fund operations, staffing, acquisitions, capital needs, dividends and potentially share repurchases. The filing does not provide specific FY2023 sales or earnings guidance.
Outlook, risks and unusual items
- In May 2022, Monro agreed to sell its wholesale tire and internal tire distribution operations to American Tire Distributors for approximately $105 million: $65 million expected at closing in FY2023 and up to $40 million in per-tire earnout payments. The sale was subject to closing conditions. Monro expected to enter into supply, managed-services and data-services arrangements with the buyer and stated it did not expect a significant loss based on the assets’ carrying value.
- Management cautioned that the transaction could disrupt sourcing and operations, may not close, and may not deliver anticipated savings. If completed, Monro expects to rely on the buyer for most retail tire supply.
- Key operating risks include inflation and consumers deferring maintenance, labor shortages and wage pressure, supply-chain and import disruption, fuel prices and miles driven, weather and seasonality, competitive pricing, COVID-19 effects, and longer-term changes in vehicle technology, including electric vehicles.
- Other significant risks include variable-rate debt and covenant compliance, acquisitions and goodwill impairment, cybersecurity and data protection, environmental and employment regulation, litigation, and the concentration of voting control in Class C preferred stock. Management described ordinary-course litigation as not expected to have a material adverse effect overall, while noting inherent uncertainty.
- A $3.8 million settlement of the Cerini wage-and-hour matter was recorded in FY2022 OSG&A and paid during the year; the company said it did not expect further expense from that settlement. Adjusted net income and adjusted EPS exclude specified items and are non-GAAP measures; FY2022 net income was $61.6 million versus adjusted net income of $63.1 million.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified valuation of certain acquired right-of-use assets as a critical audit matter. Management reported effective internal controls. The filing also disclosed an immaterial cash-flow statement misclassification in FY2021, with no effect on operating cash flow or the other listed financial statements.
Important facts for investors to verify
- Whether the American Tire Distributors sale closed on the anticipated timetable, the cash received at closing, and the likelihood and terms of earnout payments and related supply agreements.
- Whether sales growth, comparable-store trends and service-category mix can be sustained, and how inflation, tire pricing and technician compensation affect margins.
- Cash conversion, capital spending and acquisition costs, available revolving-credit capacity, variable interest expense and covenant headroom.
- Lease commitments and other fixed obligations, particularly alongside the company’s acquisition and dividend plans.
- Potential outcomes of litigation, labor, cybersecurity, environmental and impairment risks, and the governance implications of Class C preferred voting control.