Business context and reporting period
Monro, Inc. operates automotive undercar repair, tire replacement and related service locations. This fiscal 2024 first-quarter 10-Q covers the three months ended June 24, 2023, compared with the three months ended June 25, 2022. At quarter-end, Monro had 1,299 company-operated stores in 32 states and 76 franchised locations.
Financial performance
| Metric | Q1 FY2024 | Prior-year quarter |
|---|---|---|
| Sales | $327.0 million | $349.5 million |
| Gross profit / margin | $114.4 million / 35.0% | $122.2 million / 35.0% |
| Operating income | $17.3 million | $26.3 million |
| Net income | $8.8 million | $12.5 million |
| Diluted EPS | $0.28 | $0.37 |
| Adjusted diluted EPS (non-GAAP) | $0.31 | $0.42 |
| Cash provided by operations | $71.7 million | $77.2 million |
Operating income fell 33.9%; operating margin was approximately 5.3%, versus 7.5% a year earlier. Gross margin was flat at 35.0%. Cash and equivalents were $15.3 million at quarter-end. Long-term debt was $65.0 million, with $504.9 million available under the $600 million revolving facility; Monro reported compliance with its debt covenants. Working capital was negative $230.1 million, compared with negative $39.4 million at fiscal year-end.
Material changes versus the prior period
Sales declined 6.5%, primarily because the wholesale tire and internal distribution operations divested in June 2022 contributed approximately $23.9 million of prior-year sales. Comparable-store sales increased 0.5% overall (0.8% at retail locations); new-store sales contributed 0.5%. Tire sales decreased to $152.1 million from $173.1 million, while maintenance sales increased to $92.9 million from $90.3 million.
Gross profit declined 6.4% in dollars, while the margin remained level. Management cited retail material-cost inflation and technician wage and labor investment as pressures, partly offset by the effects of the wholesale divestiture and improved leverage on distribution and occupancy costs. SG&A increased 1.2% to $97.0 million; as a share of sales it rose to 29.7% from 27.4%. Net income and diluted EPS declined despite a lower effective tax rate, 27.6% versus 39.6%; the prior-year rate included discrete tax effects related to the divestiture.
Operating cash flow was lower year over year. Investing used $2.6 million, compared with $48.9 million provided in the prior-year quarter, which included $56.6 million of divestiture proceeds. Financing used $58.7 million, including net debt repayments, finance-lease principal and dividends. Cash increased $10.4 million during the quarter.
Outlook, risks and unusual items
Monro expects fiscal 2024 capital expenditures of $35 million to $45 million and stated that available cash, operating cash flow and credit-facility availability should provide adequate liquidity for the next 12 months and longer term. It expects to continue quarterly dividends, subject to Board discretion; it paid $0.28 per share in the quarter. No specific sales or earnings guidance is provided in the filing.
Management warned that elevated inflation, constrained labor availability, rising labor costs and higher interest rates could pressure costs and demand; a potential U.S. slowdown or recession could materially affect results. Other disclosed risks include seasonality, competition, vendor dependence, technology changes, labor retention, cyber and data-security events, acquisitions, regulation and litigation. A 100-basis-point change in SOFR would affect annual interest expense by approximately $0.7 million at the reported debt level.
Adjusted net income was $9.9 million versus GAAP net income of $8.8 million; adjusted diluted EPS was $0.31 versus GAAP EPS of $0.28. Adjustments included costs tied to shareholder matters and back-office optimization. These non-GAAP measures are not substitutes for GAAP results. A voluntary supplier-finance program supported operating cash flow by approximately $24.5 million during the quarter; eligible supplier obligations included in accounts payable were $194.9 million. The filing says these are trade payables, not borrowings. The company also disclosed a proposed Class C preferred-stock reclassification, subject to shareholder approval, that would ultimately convert remaining preferred shares into common stock at an adjusted conversion rate.
Important facts for investors to verify
- Whether retail comparable-store sales and demand improve as inflation and consumer pressures continue.
- How margin and SG&A performance develop given material, labor and wage-cost pressures.
- The sustainability of operating cash flow and working-capital support from supplier financing, including the $194.9 million of eligible supplier obligations.
- Progress on debt repayment, lease commitments and the $35 million to $45 million capital-expenditure plan.
- The terms, timing and shareholder approval of the preferred-stock reclassification, and its potential dilution effects.
- Developments in pending legal matters and other contingencies; the filing does not provide a clear quantified exposure.