Monro, Inc. — Q3 Fiscal 2022 Form 10-Q
Quarter ended December 25, 2021; nine-month comparison is against the period ended December 26, 2020. Monro operates automotive repair, tire replacement and related service businesses as one segment. At quarter-end it had 1,303 company-operated stores, 81 franchised locations, seven wholesale locations and three retread facilities.
Key financial results
| Metric | Q3 FY2022 | Q3 FY2021 | Change |
|---|---|---|---|
| Sales | $341.8 million | $284.6 million | +20.1% |
| Gross profit / margin | $120.6 million / 35.3% | $96.1 million / 33.8% | Margin +150 bps |
| Operating income | $27.4 million | $15.7 million | +74.9% |
| Net income | $16.3 million | $6.7 million | |
| Diluted EPS | $0.48 | $0.20 | +140.0% |
| Adjusted diluted EPS (non-GAAP) | $0.49 | $0.22 | +122.7% |
For the first nine months, sales were $1.031 billion, up 25.7%; operating income was $89.8 million, up 74.4%; net income was $53.0 million versus $22.5 million; and diluted EPS was $1.56 versus $0.67. Gross margin was 36.6%, compared with 35.1%.
Q3 comparable-store sales increased 13.8%, primarily from higher average ticket; new-store sales contributed 6.5 percentage points and closed stores reduced growth by 0.1 point. Growth was broad across categories, including brakes and alignment, each up 28% on a comparable-store basis. Nine-month comparable-store sales rose 20.3%.
Cash flow, balance sheet and capital
- Nine-month operating cash flow was $127.2 million, down from $159.2 million. Investing used $99.5 million, including $83.2 million for acquisitions and $17.4 million for capital expenditures. Financing used $48.2 million; cash declined $20.4 million to $9.5 million.
- At December 25, 2021, long-term debt was $195.0 million, with $375.4 million available under the $600 million revolving credit facility and $29.6 million in outstanding letters of credit. The company reported compliance with all debt covenants. Debt bears floating interest; a 100-basis-point rate change was estimated to affect annual interest expense by about $2.0 million.
- Total current assets were $251.2 million and current liabilities were $312.1 million. Lease-related liabilities and commitments are substantial: contractual finance and operating lease payments totaled $604.3 million, including $98.7 million due within one year, according to management.
- Dividends paid in the first nine months totaled $25.7 million, or $0.76 per share. The company declared $0.26 per common share or equivalent for Q3.
Changes, outlook and notable items
- Sales and earnings rose sharply from the prior-year period, when comparable sales had declined. Gross-margin improvement reflected sales mix shifting toward higher-margin services, improved gross profit per tire and fixed-cost leverage. Higher technician labor costs partly offset those gains.
- Management cited labor shortages and overtime, which could constrain sales and pressure margins if costs are not offset. COVID-19 effects remain uncertain, including potential impacts on demand, staffing, supply chains and costs.
- Monro acquired 47 stores during the first nine months, including 30 Mountain View locations and other California and Iowa stores. Aggregate consideration was $83.2 million; preliminary purchase accounting recorded $89.7 million of goodwill. Acquired stores contributed $33.1 million of sales from their acquisition dates through quarter-end.
- A $3.7 million settlement of a former store manager overtime case was expensed in fiscal 2022 and paid in Q3; the company said it did not expect further expense for this matter. Adjusted results exclude selected items and are non-GAAP measures.
- Management expected fiscal 2022 capital expenditures of $30–$40 million and stated that available funding sources should provide adequate liquidity for the following 12 months and longer term. The filing does not provide a specific sales or earnings forecast.
Important facts for investors to verify
- Whether elevated comparable-store sales and average tickets persist as prior-year comparisons normalize.
- Whether staffing availability and higher technician labor costs affect service capacity, gross margin and earnings.
- Acquisition integration and the final valuation of acquired assets, liabilities and goodwill.
- Cash-flow conversion, lease obligations, floating-rate debt exposure and continued covenant compliance.
- Potential effects of COVID-19, supply costs, seasonality, competition and other litigation or contingencies.