Monro, Inc. — Fiscal 2022 Second-Quarter Form 10-Q
Reporting period: Three and six months ended September 25, 2021; comparisons are to the periods ended September 26, 2020. Monro operates automotive repair, tire replacement and related services. At quarter-end it had 1,288 company-operated stores, 92 franchised locations, seven wholesale locations and three retread facilities.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Sales | $347.7 million, up 20.5% | $689.5 million, up 28.7% |
| Comparable-store sales | Up 14.8% | Up 23.8% |
| Gross profit / margin | $130.7 million / 37.6% (36.2% prior year) | $256.6 million / 37.2% (35.8% prior year) |
| Operating income | $34.5 million, up 41.2% | $62.4 million, up 74.2% |
| Net income | $21.0 million, versus $12.8 million | $36.7 million, versus $15.8 million |
| Diluted EPS | $0.62, versus $0.38 | $1.08, versus $0.47 |
| Operating cash flow | Not reported separately for the quarter | $102.3 million, versus $125.7 million |
Second-quarter adjusted diluted EPS, a non-GAAP measure, was $0.62 versus $0.39; six-month adjusted diluted EPS was $1.17 versus $0.54. The six-month adjusted result excludes, among other items, a $3.9 million litigation settlement charge. Gross-margin improvement reflected more higher-margin service sales, lower material costs as a percentage of sales, tire pricing, and fixed-cost leverage; higher technician labor costs partly offset these gains. Second-quarter operating expenses were 27.7% of sales, compared with 27.8%.
Cash, debt and liquidity
- Cash and equivalents were $6.6 million at September 25, 2021, down from $30.0 million at fiscal year-end.
- Six-month operating cash flow was $102.3 million. Investing used $71.2 million, including $62.3 million for acquisitions and $10.0 million for capital expenditures. Financing used $54.4 million, including debt and lease payments and $17.0 million of dividends.
- Credit Facility debt was $170.0 million, down from $190.0 million at March 27, 2021; $400.4 million remained available. Outstanding letters of credit were $29.6 million. The company reported compliance with all debt covenants.
- Undiscounted finance and operating lease commitments totaled approximately $774.5 million; the company reported $603.7 million in contractual lease payments in its liquidity discussion, including $96.8 million due within one year. The filing’s commitment table also lists $170.0 million of debt principal.
- Dividends declared were $0.26 per common share for the quarter and $0.50 per share for the six months. Management said existing liquidity sources should be adequate for the 12 months following quarter-end.
Changes, outlook and risks
- Sales growth reflected stronger traffic and average ticket, with prior-year comparisons affected by pandemic-related declines. The acquired 30 California stores contributed $11.4 million of second-quarter sales and $19.4 million for the six-month period from acquisition.
- Management expected fiscal 2022 capital expenditures of $30 million to $45 million and anticipated positive operating cash flow. It gave no specific full-year sales or earnings guidance in the provided filing text.
- After quarter-end, Monro signed agreements to acquire six California and 11 Iowa stores, expected to close in fiscal Q3 and be financed through its credit facility. It also amended the credit facility’s interest-rate floor from 0.75% to 0.00% after quarter-end.
- Management cited store labor shortages and overtime as constraints that could raise costs or limit sales. COVID-19’s duration and effects on demand, staffing, vendors and the economy remained uncertain. Other disclosed risks include seasonality, competition, supply-chain and import costs, interest rates, acquisitions, leases, technology and litigation.
- A court-approved settlement resolved the Cerini wage-and-hour action. Monro recorded $3.9 million in first-quarter fiscal 2022 operating expenses and did not expect further settlement expense after fiscal Q3 2022.
Key facts for investors to verify
- Whether comparable-sales momentum and improved service-category mix persist beyond pandemic-affected comparisons.
- Whether technician hiring and labor costs constrain sales or reverse margin improvement.
- Acquisition integration, purchase-price accounting and financing for the 17 stores announced after quarter-end.
- Cash conversion and liquidity after acquisitions, lease payments, capital spending and dividends.
- Floating-rate exposure: the filing estimates annual interest expense would change by approximately $1.7 million for a 100-basis-point rate move based on quarter-end debt.