Monro, Inc. — Fiscal 2023 Form 10-K
Reporting period: Fiscal year ended March 25, 2023 (52 weeks), compared with the year ended March 26, 2022. The filing is an annual report, not a calendar-quarter report.
Business context
Monro operates retail tire and automotive repair stores in the United States, with 1,299 company-operated locations across 32 states, 76 Car-X franchised locations, and approximately 8,600 employees at year-end. It serviced approximately 5.0 million vehicles during the year. In June 2022, Monro sold its wholesale tire and internal distribution operations to American Tire Distributors (ATD), refocusing on retail operations.
Financial results and liquidity
| Metric | Fiscal 2023 | Fiscal 2022 |
|---|---|---|
| Sales | $1,325.4 million | $1,359.3 million |
| Gross profit / margin | $456.2 million / 34.4% | $481.8 million / 35.4% |
| Operating income | $79.8 million | $101.3 million |
| Net income | $39.0 million | $61.6 million |
| Diluted EPS | $1.20 | $1.81 |
| Adjusted diluted EPS (non-GAAP) | $1.36 | $1.85 |
| Cash from operating activities | $215.0 million | $173.8 million |
- Sales fell 2.5%, primarily because the divested wholesale operations contributed approximately $90.6 million less sales. Comparable store sales rose 2.8% overall (3.5% for retail stores); new-store sales partly offset the divestiture impact.
- Gross margin declined 100 basis points. Management cited higher retail material costs, a greater tire mix, customers trading down to lower-priced tires, and increased technician labor costs. Operating income declined 21.3%.
- Net interest expense was $23.2 million, down from $24.6 million, despite higher floating borrowing rates; weighted-average debt was lower. The effective tax rate increased to 31.7% from 20.3%, in part because of divestiture-related tax effects.
- Operating cash flow included a $120.5 million benefit from the supply chain finance program. Cash and equivalents were $4.9 million at year-end. Working capital was negative $190.7 million, versus negative $76.5 million a year earlier, mainly reflecting higher accounts payable associated with that program.
- Capital expenditures were $39.0 million. Investing cash flow was positive $26.5 million, including divestiture proceeds; financing cash outflow was $244.6 million, including $96.9 million of share repurchases, $36.4 million of dividends, and net debt repayments.
- Credit Facility borrowings were $105.0 million at year-end, with $465.4 million available; Monro reported compliance with covenants. The $600 million revolving facility was extended to November 2027 and now uses a SOFR-based rate. Finance lease and financing-obligation liabilities totaled $335.3 million, and operating lease liabilities totaled $228.6 million.
Material changes, outlook, and risks
- The ATD transaction had total consideration of $102 million: $62 million at closing (with $5 million held in escrow) and up to $40 million in quarterly payments tied to tire purchases; $8.7 million of deferred proceeds was received in fiscal 2023. The sale and related warehouse sales generated reported gains, while restructuring and executive-transition costs were $1.3 million.
- Management said inflation, high fuel prices, constrained labor availability, rising wages, and interest-rate increases could pressure costs and demand. It expected the inflationary environment to continue affecting customers in fiscal 2024 and warned a slowdown or recession could materially reduce demand. The filing provides no numerical fiscal 2024 earnings or sales guidance.
- Other significant risks include intense price competition; seasonality and weather; dependence on ATD and other suppliers; tariffs and import disruption; technician recruitment and retention; electric-vehicle and other automotive technology changes; cyber and data-security incidents; environmental and labor regulation; and acquisition, store-closure, and impairment risks.
- Monro recorded a $1.0 million long-lived-asset impairment charge. Management identified impairment testing for certain asset groups as involving significant judgment; the auditor also identified this as a critical audit matter. Goodwill impairment was not recorded.
- A California wage-and-hour matter remained subject to court approval of a settlement; Monro recorded $2.0 million of expense in fiscal 2023. A separate $3.8 million wage settlement was paid in fiscal 2022. The company said ordinary-course claims were not expected to have a material adverse effect, while noting litigation outcomes remain uncertain.
- Monro repurchased 2.2 million shares at an average $44.00 per share under a $150 million authorization; $53.1 million remained authorized at year-end. Dividends paid were $1.12 per common share. A May 2023 agreement proposed eliminating Class C preferred stock, subject to shareholder approval, but increases the conversion rate and preserves preferred-holder board appointment rights during a sunset period.
- The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of March 25, 2023.
Most important facts for investors to verify
- How much of fiscal 2023 operating cash flow was attributable to the $120.5 million supply-chain-finance benefit, and whether that benefit recurs or reverses.
- The terms, timing, and collectability of ATD’s remaining deferred purchase payments, including the escrow amount and purchase-volume conditions.
- Whether retail comparable-sales growth and gross-margin performance improve after the wholesale divestiture, given tire mix, price sensitivity, and labor costs.
- Available revolving-credit capacity, floating-rate exposure, covenant headroom, and the substantial future lease commitments.
- Final court approval and payment obligations for the California settlement, and shareholder approval and dilution implications of the proposed Class C preferred-stock conversion.