Monro, Inc.
Third Quarter Fiscal
2020
Earnings Call
January 30, 2020
Safe Harbor Statement and Non-GAAP Measures
Certain statements in this presentation, other than statements of historical fact, including estimates, projections, statements related to our business plans and operating results are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Monro has identified some of these forward-looking statements with words such
as "anticipates," "believes," "expects," "estimates," "is likely," "predicts," "projects," "forecasts," "may," "will," "should," and
"intends" and the negative of these words or other comparable terminology. These forward-looking statements are based on Monro's current expectations, estimates, projections and assumptions as of the date such statements are made, and are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward- looking statements. Additional information regarding these risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission, including in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of our most recently filed periodic reports on Forms 10-K and Form 10-Q, which are available on Monro's website at https://corporate.monro.com/investors/financial-information/. Monro assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
In addition to including references to diluted earnings per share ("EPS"), which is a generally accepted accounting principles ("GAAP") measure, this presentation includes references to adjusted diluted earnings per share, which is a non- GAAP financial measure. Monro has included a reconciliation from adjusted diluted EPS to its most directly comparable GAAP measure, diluted EPS in Slide 8. Management views this non-GAAP financial measure as a way to better assess comparability between periods because management believes the non-GAAP financial measure shows the Company's core business operations while excluding certain non-recurring items and items related to our Monro.Forward or acquisition initiatives.
This non-GAAP financial measure is not intended to represent, and should not be considered more meaningful than, or as an alternative to, its most directly comparable GAAP measure. This non-GAAP financial measure may be different from similarly titled non-GAAP financial measures used by other companies.
2
Third Quarter Fiscal 2020 Highlights
Achieved Record Sales of $329.3 Million, Up 6.2% Year-Over-Year
Quarterly Comps Trends
3.5% | |||||
3.0% | |||||
2.5% | |||||
2.0% | |||||
1.5% | |||||
1.0% | |||||
0.5% | |||||
0.0% | |||||
3QFY191 | 4QFY191 | 1QFY20 | 2QFY20 | 3QFY20 | |
-0.5% | |||||
-1.0% | |||||
-1.5% | |||||
3QFY20
Key Highlights
- Sales increased 6.2% to a record $329.3M
- Comparable store sales of-0.9% drove EPS decline year-over-year
- Sales from new stores added $22.7M, including sales from recent acquisitions of $20.7M
2-Year Stacked Quarterly Comps Trends
3.5% | ||||
3.0% | ||||
2.5% | ||||
2.0% | ||||
1.5% | ||||
1.0% | ||||
0.5% | ||||
0.0% | ||||
3QFY191 | 4QFY191 | 1QFY20 | 2QFY20 | 3QFY20 1 |
3QFY20
Key Highlights
- Maintenance: Flat
- Tires:-1%
- Front End/Shocks:-1%
- Brakes:-3%
- Alignments:-3%
1Results are adjusted for days | 3 |
Store Rebrand & Reimage Initiative
Moving Forward with Store Rebrand & Reimage Rollout Across Base
Improve Customer Experience
- Completed 74 stores and substantially completed 42 recently acquired California locations during the quarter
- Sustained performance of locationspost-transformation reinforces strength of strategy
- Modernized store layout and consolidated brand strategy on track to be rolled out across the Company's remaining markets and store formats over 3 to 5 years
4
Store Rebrand & Reimage Initiative
Making Strong Progress Through the Early Innings of a Strategic Transformation
Monro Store Footprint Prior to Rebrand
Service Brand Stores (~$600K in annual revenue/store): 555
- ~15% tires and ~85% service
Tire Brand Stores (~$1.2M in annual revenue/store): 734
- ~60% tires and ~40% service
- Transitioning to higher mix of tire stores
Scope of Company Rebrand and Reimage
~900
134 | ~150 |
69 | |
Comp Stores | Non-comp Stores |
Total Stores Substantially Completed Stores (as of 3QFY20)
1Note: CarX is our franchised brand
2Performance data only includes comp stores that have been reimaged/rebranded for at least one full quarter
Migrating Portfolio to Tire-Oriented Brands
Service | Tire |
1
- Opportunity to consolidate brands and improve marketing efficiency
Store Comparable Store Sales Performance
post-Rebrand/Reimage2
Rebranded Stores | Reimaged Stores |
(30 stores) | (30 stores) |
+18% | -2% |
➢Rebranded stores to | ➢No retail brand change |
Tire Choice or Mr. Tire |
- 74 comparable stores completed in the quarter are excluded as they do not have a full quarter of salespost-rebrand/reimage
5
Monro.Forward Progress Update
Critical Investments In Technology On-Track to Support Broader Strategy
Improve Customer Experience
Enhance Customer- Centric Engagement
Optimize Product & Service Offering
Accelerate Productivity & Team Engagement
-
Executing customer satisfaction and online reputation management program across
Monro's store base - Focus on thein-store experience is having significant impact on Company online reviews and has increased "Star Ratings" to 4.6All-time
- Investing in technology with the rollout of modernized store infrastructure, including new digital phone system, expected to be completed by 1QFY21
- Collaboration with Amazon.com at more than 800 stores supports omnichannel efforts
- Launching second phase ofomni-channel strategy in FY21
- Improving category management to drive margin improvement and optimize product portfolio with new pricing technology to be implemented by end of FY20
- Continued momentum ofGood-Better-Best product and service packages
- Data-drivenstore scheduling and staffing software to be piloted by 4QFY20
- Scaling Monro University across store base and implementing mandatory onboarding training to better support new hires
6
A Scalable Platform: Recent Acquisitions
Acquisitions Announced and Completed in Fiscal 2020 Represent $120M in Annualized Sales
Completed Acquisitions
- Completed acquisitions of 18 stores, including 14 in Nevada and four in Idaho
▪Represents two new states and further expands the Company's geographic footprint into the Western United States ▪$20M in annualized sales, dilutive to EPS in FY20
- Sales mix of 75% service and 25% tires
- Completed acquisitions of nine stores in California
- Expanded market position in recently entered state
- $25M in annualized sales, dilutive to EPS in FY20
- Sales mix of 55% service and 45% tires
Greenfield Openings1
- Added one greenfield location during the third quarter
1Greenfield stores include new construction as well as the acquisition of one to four store operations | 7 |
Third Quarter Fiscal 2020 Results
Achieved Record Sales of $329.3 Million, Up 6.2% Year-Over-Year
3QFY20 | 3QFY19 | FY20 YTD | FY19 YTD | |||||
Sales (millions) | $329.3 | $310.1 | 6.2% | $970.5 | $913.0 | 6.3% | ||
Same Store Sales1 | -0.9% | 3.3% | (420 bps) | -0.1% | 2.8% | (290 bps) | ||
Gross Margin | 37.8% | 38.0% | (20 bps) | 38.6% | 38.9% | (30 bps) | ||
Operating Margin | 9.6% | 9.9% | (30 bps) | 10.4% | 10.8% | (40 bps) | ||
Diluted EPS | $.56 | $.61 | (8.2%) | $1.82 | $1.87 | (2.7%) | ||
Excluded Costs2 | $.04 | $.02 | - | $.09 | $.07 | - | ||
One-time income tax benefit | - | ($.06) | - | - | ($.06) | - | ||
Adjusted Diluted EPS3 | $.60 | $.57 | 5.3% | $1.91 | $1.88 | 1.6% | ||
13QFY19 and FY19 same store sales results are adjusted for days | |
2In 3QFY20 diluted earnings per share included $.03 per share of costs related to Monro.Forward initiatives and $.01 per share of costs related to acquisition due diligence and integration. In 3QFY19 diluted earnings per share included $.01 per share of costs related to Monro.Forward initiatives | |
and $.01 per share of non-recurring corporate and field management costs. In the first nine months of fiscal 2020, there was $.06 of costs related to Monro.Forward initiatives and $.03 of costs related to acquisition due diligence and integration, compared to $.05 of costs related to Monro.Forward | |
initiatives, $.01 per share of non-recurring corporate and field management realignment costs and $.01 per share of costs related to acquisition due diligence and integration in the first nine months of fiscal 2019. | |
3Adjusted Diluted EPS is a non-GAAP measure that excludes certain non-recurring items and items related to our Monro.Forward or acquisition initiatives. A reconciliation of net income to adjusted net income and diluted EPS to adjusted diluted EPS is included in our earnings release dated | 8 |
January 30, 2020. | |
Disciplined Capital Allocation
Executing on Growth Strategy While Maintaining a Disciplined Approach to Capital Allocation
Investing in the Business
- Capex of $42.2M in the first nine months of fiscal 2020
- Continue to expect ~$75M of incremental Capex over 5 years to invest in storere-image and technology
Executing on M&A Opportunities
- Spent $104.3M on acquisitions in the first nine months of fiscal 2020
- Acquisitions announced and completed in fiscal 2020 represent $120M in expected annualized sales
Returning Cash to Shareholders
- Paid $22.3M in dividends in the first nine months of fiscal 2020
- Currently $.22 per share quarterly, an increase of 10% from 3QFY19
Utilizing Strong Balance Sheet
- Generated $124.7M of operating cash flow in the first nine months of fiscal 2020
- Debt-to-EBITDAratio as of December 2019 of 2.3x provides significant flexibility to fund M&A strategy
9
Fiscal 2020 Outlook
Updates Fiscal 2020 Comparable Store Sales and EPS Guidance Ranges
Operating Margin
FY20 | FY19 | ||
Sales (millions) | $1,275 to | $1,200 | 6.2% to 7.5% |
$1,290 | |||
Same Store Sales | -1% to flat | 2.3% | -330 bps to |
-230 bps | |||
Diluted EPS | $2.25 to $2.35 | $2.37 | -5.1% to -0.8% |
Adjusted Diluted EPS1 | $2.35 to $2.45 | $2.39 | -1.7% to 2.5% |
Stores
- Guidance includes recently completed acquisitions and excludes any additional potential acquisitions
- Guidance includes sevenground-up greenfield store openings in FY20
- Assumes operating margin of ~10.2% at midpoint of FY20 sales guidance
- Expect relatively stable tire and oil costsyear-over-year
- Expect to generate earnings increase on a comparable store sales increase above ~1%
Additional Guidance Assumptions (at the midpoint)
- Interest expense of ~$29 million
- Depreciation and amortization of ~$65 million
- EBITDA of ~$196 million
- Tax rate of ~23.5%
- Capital expenditures of ~$60 million
- 34 million weighted average number of diluted shares outstanding
1Adjusted diluted EPS is a non-GAAP measure. FY20 adjusted diluted EPS guidance excludes estimated Monro.Forward initiative costs and acquisition due diligence and integration costs, compared to adjusted earnings per share in FY19, which excluded Monro.Forward initiative costs, | 10 |
non-recurring corporate and field management realignment costs, acquisition due diligence and integration costs and benefit from a one-time income tax adjustment as shown in further detail on Slide 8. |
Third Quarter Fiscal 2020 Key Takeaways
- Continued progression of store rebrand and reimage initiative with 203 stores substantially completed through 3QFY20
- Strong performance of transformed stores underscores strength of strategy
- Investing in technology to drivelong-term margin expansion
- Completed acquisitions of 27 stores, entering two new states and expanding presence in Western United States
- Updates fiscal 2020 comparable store sales guidance and EPS guidance ranges
11
Appendix
12
Store Refresh Transformation Timeline
7 Stage Transformation Process from Beginning to End Takes ~17 Weeks
BEFORE | AFTER | |||
Store Readiness | Parts Inventory | Store Inventory Storage | Inventory Assortment | Store Team Trained | Store Interior Remodel | Store Exterior Painted |
on New Operating | and Technology | and New Signage | ||||
for Change | Rebalanced1 | Configured for Tires1 | Reset for Tire Focus1 | |||
Procedures | Installed | Installed | ||||
1Steps are only required for stores that are being rebranded from service format to tire format
~17 WEEKS
13
Store Rebrand & Reimage Initiative
Store Refresh Program On Track To Be Rolled Out Across Base
Q3 FY19 | Q4 FY19 | Q1 FY20 | Q2 FY20 | Q3 FY20 | Q4 FY20 | Q1 FY21 | Q2 FY21 | Q3 FY21 | Q4 FY21 | ||
Group 1 | |||||||||||
44 stores | |||||||||||
Group 2 | 43 stores |
Group 3 | |||
116 stores | |||
Group 4 | ~80 stores |
Group 5 | |||
~70 stores | |||
Group 6 | ~70 stores |
14
Monro.Forward: Investments in Technology
Significant Investments in Technology to Support Monro.Forward Strategy
Area | Strategic Rationale | Timing |
Business Intelligence
Monro University
Learning Management System
Store Network
Infrastructure Upgrade
Digital Phone and Customer
Communication System
Store Staffing Model &
Scheduling System
Tire Category Management & Pricing System
Cloud-Based Car Inspection
Scanning Tool
- KPI dashboards for stores and management
- Ensures consistent onboarding and teammate training
- Develop clear career paths
- Deliver standard operating procedure training
- Enable and support cloud based merchandising strategy
- Enablecustomer-facing technology
- Eliminate cost of analog phone system
- Simplify phone execution for store personnel
- Enablecustomer-centric call and text messaging management
- Eliminatepaper-based scheduling
- Optimizes store staffing and day part scheduling
- Improvespart-time scheduling capabilities
- Enterprise solution to dynamically manage pricing at the SKU level
- Partially automates optimization of tire volume/margins by providingreal-time elasticity
- State of the art technology for technicians to provide industry- leading service
- Provides efficient tool for actively managing customer needs
- Launched in Q4 FY18
- Ongoingcompany-wide expansion
- Launched in Q3 FY19
- Ongoing expansion across store base
- Installed in 140 stores
- To be implemented across base by Q1 FY21
- In 100 stores
- To be implemented across base by Q1 FY21
- Pilot in Q4 FY20
- To be launched across base in Q1 FY21
- On track to be operational by end of FY20
- In pilot stages
- To be implemented in FY21
15
Monro.Forward Strategic Initiatives
Q4 FY18
Improve Customer
Experience
Enhance Customer-
Centric Engagement
Optimize Product &
Service Offering
Accelerate
Productivity
& Team Engagement
Foundational
Technology & Tools
FY19 | Q2 FY19 | Q3 FY19 | Q4 FY19 | FY20 | Q2 FY20 | Q3 FY20 | Q4 FY20 | FY21 |
Pilot store refresh & | Scale store refresh & operational | |||||||
operational excellence | excellence | |||||||
Technology based in-store experience | ||||||||
Scheduled maintenance | ||||||||
in-store selling | ||||||||
Data-driven CRM | Digital phone and customer | |||||||
communication system | ||||||||
New websites | Data-driven "new customer" | Monro omnichannel & e-commerce | ||||||
marketing | ||||||||
New in-store sales | Optimize tire assortment | |||||||
packages | ||||||||
New store comp plans | Monro University pilot |
(includes career path, | |
LMS) | |
Store staffing & | |
scheduling system | |
Store network | |
infrastructure upgrade | |
Business intelligence | Tire category management |
system | |
& pricing system | |
Cloud based | |
car inspection tool |
= Completed Initiatives | 16 |
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Monro Muffler Brake Inc. published this content on 30 January 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 January 2020 15:19:07 UTC