High inflation is causing consumers to defer tire purchases and in the latest period at Monro Inc., that added up to an overall 10% decrease in total tire units.
Mike Broderick, president and CEO, says the company’s stores are stocked, staffed and ready for a winter weather event that would reverse that trend.
“We look at this winter selling season as being short. When it comes, it’s going to come strong,” Broderick told investors Oct. 25.
Given the company’s results from the second fiscal quarter, which ended in September, there’s plenty of room to grow. Comparable store sales were down 2.3%, and tire sales within those stores were off by 4%. Alignments were also down 4%, while brakes were down 3% and front end/shocks were off 5%. Battery sales were up 12%.
Monro reported sales of $322.1 million for the period, down from $329.8 million a year ago. Net income for the quarter was $12.9 million, down from $13.1 million in fiscal 2023.
Operating expenses for the period totaled $92.6 million, or 28.8% of sales, compared to $93.3 million and 28.3% of sales a year ago. Monro says the increase as a percentage of sales can mostly be attributed to the lower comparable store sales.
“Our second quarter comparable store sales decline of approximately 2% reflects topline results that were challenged. This was due to consumers deferring tire purchases as persistent inflationary pressures impacted purchases of higher-ticket items across the retail spectrum. This was clearly evidenced by an industry-wide slowdown in tire unit sales in the regions of the country where a vast majority of our store footprint is concentrated. This led to pressured store traffic, which was not supportive to sales of our higher-margin service categories in the quarter.
“While our tire units were down approximately 10%, leveraging the strength of our manufacturer-funded promotions allowed us to optimize our assortment for improved tire profitability in the quarter. And, while continued consumer trade down dynamics led to a higher proportion of lower-margin opening price point tires within overall industry unit sales, we remained focused on maintaining a healthy mix of opening price point tires in the quarter.”
Broderick cited retail sell-out data from Torqata, a business owned by American Tire Distributors Inc. (ATD), and noted Monro “maintained our tire market share in our higher-margin tiers.”
And despite the tough environment, Broderick said Monro’s focus on reducing “non-productive labor costs” — which he later clarified as being overtime — Monro maintained “year-over-year profitability even on lower tire sales volumes.”
Yet, he noted Monro’s preliminary comp store sales are down 5% in October.
“We will remain relentlessly focused on achieving comp sales growth through accelerating growth in our 300 small or underperforming stores, maintaining a balanced approach between our tire and service categories with competitive pricing to drive store trac and continuously improving our customer experience. We will also strive to expand our gross margins through properly training our teammates to maximize their productivity.
“Given the current pressures on the consumer, we are also laser focused on maximizing profitability through prudent cost control, which includes right sizing our fixed costs and rationalizing unproductive labor. While we take these actions, we will not cut productive labor at the sacrifice of our standards and to the detriment of our long-term service model.”
A half-year review
For the first six months of Monro’s 2024 fiscal year — which began at the end of March — the company has recorded a 4.5% drop in sales, $649.1 million, down from $679.4 million a year ago. Comparable store sales have dropped 0.9%, compared to an increase of 0.8% a year ago.
Net income is lower so far in fiscal 2024, at $21.7 million, down from $25.6 million for the first six months of fiscal 2023.
