Monro, Inc. — FY2019 Form 10-K Summary
Reporting period: Fiscal year ended March 30, 2019 (52 weeks), compared with fiscal 2018’s 53 weeks. The filing also reports fourth-quarter results. Monro operates automotive undercar repair and tire businesses; at year-end it had 1,197 company-operated stores, 98 franchised locations, eight wholesale locations, three retread facilities and two dealer-operated stores in 28 states.
Financial performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Sales | $1,200.2 million | $1,127.8 million |
| Gross profit / margin | $465.2 million / 38.8% | $435.6 million / 38.6% |
| Operating income / margin | $126.7 million / 10.6% | $127.3 million / 11.3% |
| Net income | $79.8 million | $63.9 million |
| Diluted EPS | $2.37 | $1.92 |
| Cash provided by operations | $152.9 million | $121.2 million |
| Capital expenditures | $44.5 million | $39.1 million |
- Sales rose 6.4%, largely from new stores and acquisitions; comparable-store sales increased 0.4% as reported and 2.3% adjusted for selling days. FY2019 had seven fewer selling days.
- Gross margin improved 0.2 percentage points, helped by lower labor costs as a share of sales. Acquired commercial and wholesale businesses contributed about $28.5 million of additional revenue but reduced consolidated gross margin by approximately 70 basis points.
- Operating income declined 0.4% and operating margin fell 0.7 percentage points. Operating expenses increased 9.8%, including $6.4 million of Monro.Forward initiative costs, of which $2.2 million were one-time costs.
- Net income increased 24.7%, primarily reflecting the lower effective tax rate: 20.5% versus 38.2%. FY2019 included a $2.0 million tax benefit from an IRS examination; FY2018 included $4.7 million of Tax Act-related tax expense.
- Fourth-quarter sales were $287.2 million versus $285.6 million; net income was $16.8 million versus $17.5 million, and diluted EPS was $0.50 versus $0.52. The company reported no material, extraordinary, unusual or infrequently occurring fourth-quarter items.
Cash flow, debt and liquidity
- Operating cash flow was $152.9 million. Investing activities used $105.9 million, including $62.4 million for acquisitions and $44.5 million for capital expenditures. Financing activities used $42.7 million, including $26.8 million of dividends. Cash ended the year at $6.2 million.
- Working capital was $21.5 million; current assets were $239.9 million and current liabilities $218.4 million.
- At year-end, the company had $137.7 million outstanding on its $600 million revolving credit facility, $430.9 million of net availability and $31.4 million of outstanding letters of credit. It reported compliance with all debt covenants.
- Capital lease and financing obligations totaled $260.3 million. Total contractual commitments disclosed were $548.9 million, including operating leases. The company’s debt is predominantly floating-rate; a 1% change in LIBOR was estimated to change annual interest expense by approximately $1.4 million.
- On April 25, 2019, Monro extended its revolving facility to April 2024 and increased its accordion feature to as much as $250 million. The regular quarterly dividend was set at $0.22 per share beginning in fiscal 2020.
Changes, outlook and material considerations
- Store count increased from 1,150 to 1,197; 60 company-operated stores were added and 13 closed. FY2019 acquisitions cost $61.6 million. After year-end, Monro acquired 12 Louisiana stores and 40 California stores plus a distribution center.
- Management planned approximately 20–30 greenfield stores in fiscal 2020 and expected to continue pursuing acquisitions. It did not provide specific fiscal 2020 revenue or earnings guidance.
- Management cited lower traffic offset by higher average ticket in comparable-store sales. Brakes and tire sales grew on a comparable, selling-day-adjusted basis, while front-end/shocks declined and maintenance and alignment were relatively flat.
- Monro.Forward focuses on customer experience, customer engagement, product and service offerings, and productivity and employee engagement. The company planned a three-to-five-year store refresh and operating-standards rollout after completing a 31-store pilot. Management reported an all-time-high 4.5-star average online rating and the lowest quarterly turnover since fiscal 2015’s fourth quarter.
- Key risks include intense competition and pricing pressure; consumer spending, weather and miles-driven variability; tariffs and dependence on concentrated vendors; skilled-technician availability and labor costs; acquisition integration and returns on store and technology investments; leverage and interest-rate exposure; cybersecurity and business interruption; regulation, litigation and potential asset impairment. Goodwill was $565.5 million; no goodwill impairment was recorded.
- Fiscal 2019 acquisitions generated $49.1 million in sales and a $0.5 million net loss from acquisition dates through year-end; purchase-price allocations remained preliminary. The company also disclosed $1.8 million of maximum potential lease-guarantee payments, with an immaterial related liability, and ordinary-course litigation it did not expect to have a material overall effect.
Investor verification priorities
- Separate organic performance from acquisition contributions and assess comparable-store traffic, ticket and selling-day effects.
- Evaluate whether store staffing savings and Monro.Forward spending can restore operating margin as initiatives and store refreshes expand.
- Review acquisition integration, preliminary purchase accounting, goodwill exposure and returns on the announced California and Louisiana additions.
- Assess total fixed commitments, including lease and financing obligations, and the sensitivity of borrowing costs to rates and covenant requirements.
- Confirm the sustainability of cash generation, dividend growth and the planned store-opening pace alongside acquisition spending.
- Monitor tariff and vendor developments, technician retention, and cyber, regulatory and litigation exposures.
Audit and controls: PwC issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of March 30, 2019.