Good morning, ladies and gentlemen, and welcome to Monro Inc. Earnings Conference Call for the Second Quarter Fiscal 2021. [Operator Instructions]. I would now like to introduce Ms. Maureen Mulholland, Senior Vice President, Monro Counsel and Secretary at Monro. Please go ahead.

Thank you. Hello, everyone, and thank you for joining us on this morning's call. Before we get started, please note that as part of the call this morning, we will be referencing a presentation that is available on the Investors section of our website at corporate.monro.com/investor/investorresources. If I could draw your attention to the safe harbor statement on Slide 2, I'd like to remind participants on this morning's call that our presentation includes some forward-looking statements about Monro's future performance. Actual results may differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Monro's filings with the SEC and in our earnings release and could include the significant uncertainty relating to the duration and scope of the COVID-19 pandemic and its impact on our customers, executive officers and employees. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, on today's call, management statements include a discussion of certain non-GAAP financial measures, which are intended to supplement and not to be substitutes for comparable GAAP measures. Reconciliations for such supplemental information to the comparable GAAP measures will be included as part of today's presentation and in our earnings release. With that, I'd like to turn the call over to Monro's Board Chairman and Interim Chief Executive Officer, Rob Mellor, who is joining us this morning remotely during this call. Rob?

Thank you, Maureen, and good morning, everyone, and thank you for joining us. Today, I'll provide an overview of our second quarter performance, and then we'll pass the call over to our senior leadership team. Rob Rajkowski, Executive Vice President, Chief Operating Officer, will walk us through the progress we've made executing our Monro forward strategic initiatives. And Brian D'Ambrosia, Executive Vice President and Chief Financial Officer, will discuss our financial performance and broader outlook before we open up the call for questions. As we continue our path forward, I have had the privilege to step into the role of interim CEO, while the board works to identify a new permanent CEO. As you may know, I served on Monro's Board of Directors from 2002 to 2007 and rejoined the board in 2010 before being appointed Board Chair in 2017. Earlier in my career, I served for 13 years as Chairman of the Board and CEO of Building Materials Holding Corporation, a leading provider of building materials & construction services to the professional homebuilders and contractors. I worked closely with the senior leadership team throughout the development and execution of our Monro.Forward strategy, and I remain very positive about the opportunities in front of us. We have built a solid foundation and made tremendous progress in our transformational journey to create a scalable platform for long-term sustainable growth. As the Board Chair, I have direct insight into the strategic priorities of the board. The continued execution of Monro.Forward has been the highest priority. While my tenure as CEO is only temporary, I am deeply committed to ensuring continuity. I also plan to continue in my role as Chair after the Board appoints a permanent CEO to ensure a smooth transition. Importantly, we have a team of highly talented and seasoned…

Thank you. Good morning, everyone. As an introduction, I've been Chief Operating Officer here at Monro for over a year. After spending almost 15 years in the automotive industry across a number of operational and marketing roles in corporate, franchisees and franchise or business models. We have established a clear path for growth at Monroe, and I'm pleased with the significant progress we have made so far. We remain focused on the aspects of our business within our control. As a reminder, our Monro.Forward strategy is focused on 4-key pillars: number one, improve the customer experience; number two, enhance the level of engagement with our customers, leveraging data-driven marketing strategies; number three, optimize our product and surface offerings, in-store and online; and number four, accelerate our in-store productivity and teammate engagement. Starting with our largest strategic initiative, we're pleased to have resumed our store rebrand and reimage program. During the second quarter, we substantially completed the transformation of 43 stores. This included the rebranding of 18 select stores to a tire-oriented banner and the remainder related to consolidating our tire brands. The objective of our store rebranding initiative is to drive higher awareness for tires and increase tire sales without sacrificing service revenues. To date, we have completed the transformation of approximately 250 stores in a number of key markets, including rebranding approximately 85 service branded stores to tire-oriented banners. Importantly, our rebranded stores outperformed again this quarter with comparable store traffic trends significantly above our non-rebranded stores. These encouraging results reinforce our confidence in the benefits of our reimage and retail brand portfolio consolidation strategy as we are on track to transform 100 to 150 stores in fiscal 2021. Moving on to our customer-centric engagement initiatives, as we mentioned before, we accelerated the strategic shift of our marketing efforts…

Thank you, Rob, and good morning, everyone. Turning to Slide 7. I'd like to provide more detail on our definitive agreement to acquire 17 stores in Southern California. This acquisition further solidifies our growing presence in this attractive region. These locations are expected to add approximately $20 million in annualized sales representing a sales mix of 60% tires and 40% service. Additionally, this acquisition is expected to close in the third quarter of fiscal 2021 and be slightly dilutive to diluted earnings per share in fiscal 2021. We have a robust pipeline in our M&A, including over 10 NDAs signed with opportunities ranging from 5 to 40 stores. We believe we are well positioned to continue to execute on our accretive acquisition opportunities, which is a pillar of our growth strategy. Moving on to Slide 8. I'd like to provide a more detailed overview of our second quarter performance. Given the ongoing challenges and uncertainties that persist in the operating environment, we have remained focused on rightsizing our solar operations, driving variable margin improvement in our key categories and executing targeted cost reductions. Our second quarter results clearly reflect this strategic focus. Sales fell 11% year-over-year to $288.6 million, primarily driven by an 11.4% decline in same-store sales. In response to lower demand levels, we continue to operate at reduced store operating hours in the second quarter, down approximately 13% compared to the prior year period. Sequentially, we were encouraged by our top line performance from the first quarter as we saw strengthening traffic and demand trends. Sales from new stores increased by $9.4 million, including $8.4 million from recent acquisitions. This was partially offset by a decrease in sales from closed stores of approximately $6.5 million. The second quarter of fiscal 2021 had 91 selling days, in line with…

Thank you, Brian. We continue to improve our business profitability and generate significant cash flow while making solid progress on some of our most important growth initiatives, including our store rebrand and reimage initiative and the acquisition of 17 stores in Southern California. Overall, we remain well positioned to capitalize on improving demand trends and have the financial flexibility to execute our strategy to deliver long-term value for our shareholders. Now before turning over the call to Q&A, I'd like to provide a brief update on our CEO search. The process is progressing well, and the Board is assessing both internal and external candidates. Our priority is to find the right leader who can continue to build upon the momentum that we've seen from our Monro.Forward strategy. We have a number of transformational initiatives underway that are critical to driving sustainable growth, and we believe our next CEO will be well equipped to join with and lead our team on the path towards long-term tests. As we have recently onboarded new teammates, I'd like to take this opportunity to highlight our corporate social responsibility efforts, which are ongoing across our organization. Monro strives to maintain an environmentally and socially conscious corporate culture, and our core values have an important role in our strategic planning. Chief among our initiatives is strengthening our relationships with our diverse employee base as well as our customer and communities in which we operate. And which we know will be an integral part of our success going forward. With that, I'll now turn the call over to the operator for questions.

[Operator Instructions]. Our first question comes from Brian Nagel with Oppenheimer.

So I've got a couple of questions just with regard to sales. And I apologize for the near-term nature of the call -- questions. I mean, clearly, the environment is extraordinarily fluid, as you mentioned, and as we've seen elsewhere. But is there any way to explain more in depth, what seems to be a sales moderation in the month of October from trends in the quarter? And then the second question, as you talked about, within the quarter, a number of your stores or a larger number of stores, now comping positive. But the total comps are still -- for the company were down 11% or so. What explains that variability? Is that largely virus or COVID related? Or are there other factors at play between those markets?

Yes, Brian. I'll start, and I'll let Rob Rajkowski to add any color. I think if you look at the performance, as we've targeted it out on Slide 5 of the materials, we are clearly -- with our service categories being as you know, oil, brakes and tires, very highly correlated to vehicle miles traveled, I think that as you look at October, the moderation that we saw in our top line is very much in line with moderation in that key indicator. And the do it for me side of the business has been typically more sensitive to those to those vehicle miles traveled. And if we saw that, not only as we saw a strengthening September with vehicle miles traveled improving, but also as it fell off into late September and early October, our correlation to that as well. What we are happy about and encouraged by, as we said in our prepared remarks, is the outperformance of our key category being tires against retail, other U.S. retail tire unit sales. And you can see the correspondence and the correlation between those sales as well against vehicle miles traveled. We just did a really good job as a company and really utilizing our new category management tool to what we see as outsized performance in our tire category during that period.

Yes. So Brian, to the point around our comp stores, I think if we take a step back, I think we've seen sequential improvement in growth in the number of comp stores throughout the pandemic as demand has increased. And we're seeing, and I'll call it an outsized percentage of comp stores really coming from our tire and our tire focused formats. And as such, the Northeast has been outpacing the rest of the country with the number of comp stores due to the nature of the format.

Our next question comes from Jonathan Lamers with BMO Capital Markets.

Question for Robert Mellor on the CEO search. Can you tell us which search firm was hired and maybe what length of time you would consider appropriate for the search?

I think that's a fair question. Spencer Stuart is leading the search along with our Board. And you obviously recognize the firm and they've worked with Monroe in the past. We're actively moving forward, and we are in the process of interviewing candidates at the present time. And so it's actively being pursued. And I think, as you know, it's a complex search firm, and we're fully engaged in it. As to a timeline on that, I think it's key that we get the right individual that has the qualities that, obviously, you're familiar with. And so we're not rush to -- what should I say? Rush to judgment, but we are pursuing it actively, and we hope that in the near future, we'll have the candidate in place.

Okay. And for Rob and Brian, on the IT side. Can you expand on where the implementations of the 2 new systems, the new staff scheduling system and the dynamic tire pricing system were in the quarter? And maybe for Brian, can you give us a sense for how much more room for improvement there might be or the ROI you're modeling out from those projects?

Yes, absolutely, Jonathan. If you look at the -- in terms of where we have rolled out so far, related to the store staffing model, we're just over 1,000 stores rolled out as we sit today. The remaining will be completely rolled out by the end of our Q3 so still -- the benefit is still ramping there. I think we continue to see as more and more stores move to that new staffing model. We're obviously seeing the benefit ramp through our financial performance and our ability to drive efficiency in our labor model. And I think we saw more of that in Q2 than we saw in Q1, and I would expect we would see additional benefit in Q3 with more stores on the program. And obviously, any time you roll something out, there will always be continuous improvement that you'll drive off of that. And this now gives us the tool to do that. Importantly, I think it really positions us well to react to demand going down or up, right? We know that there's uncertainty ahead, and we're hoping for the best, obviously, in terms of the COVID pandemic. But this really gives us a much tighter control in place to be able to manage demand in either direction as we move forward. The second one is the tire category management tool has rolled out to more than 800 stores as we sit today, and those will also be fully rolled out by the end of Q3. And I do think, again, it's a very similar commentary of where we expect continued benefits from that as they roll out and also really gives us much better control over a key category that is obviously going to be important to us regardless of the macro demand trend environment.

And Brian, a question on the acquisitions. For the 17 stores acquired in Q2 and the groups where you signed NDAs, how does the long run margins for those compared to Monro's existing operations? I'm thinking about the operations on the East Coast where you have your own distribution?

That's a great question. We obviously have invested in a platform out on the West Coast. And we did that through a great acquisition out there with Certified Tire and those stores are performing very well and give us great encouragement to continue to add additional stores to that. So I think the primary benefit really there is as we add scale, and add storefronts out West, we will continue to leverage the investment we already made with our initial acquisition of Certified out there that will continue to drive profitability across the entire group of California stores. Related to distribution, we do have owned distribution out west through a warehouse we acquired as part of the certified acquisition, and that's really allowed us, along with really good partnerships with our secondary supply points and manufacturers out there to maintain a pretty consistent -- I'm sorry, cost of goods sold profile out on the West Coast. So I think we are encouraged by the performance there, really performing as expected in our pro formas, and we will expect the same out of these 17 stores that we're now acquiring.

And Brian, could you just break out the monthly comps for us in the Q2 and Q3 to date?

Yes. We were down 12% in July, 13% in August, 8% in September, and we said we're down 12% for fiscal October.

Our next question comes from Bret Jordan with Jefferies.

I think you called out the South maybe being the stronger region relative to the North or the East Coast. Could you give us the spread sort of how many basis points difference. And then, I guess, since we are getting a bigger West Coast presence, could you sort of give us a ballpark for how the Western stores did relative to the company average?

Yes. Certainly. So the South and the Midwest, I think we kind of said last call, they were about 500 basis points performing better than the Northeast. That's been pretty consistent, maybe narrowed a little bit in the second quarter, but pretty consistent. As far as the West Coast, it's a little more difficult just because we don't have a comparable store sales base to talk to it in the frame of reference of growth year-over-year. But like I said earlier in my comments, performing in line with our pro forma expectations of that business when we acquired them.

Okay. And then I guess to understand the pricing system for tires, I mean you called out that your gross margin in tires was up as a result of it. I guess, I would expect the pricing system that drives volume would be more inclined to cut prices. Is it more identify a tire that generates a higher-margin to you and offer to the customer when they come in looking for a comparable product? Or could you maybe describe how that is either adjusting tire prices on a like-for-like basis or what really about it is driving the margin improvement?

It really -- the tool looks at the price elasticity and compares what we believe the velocity will be in the volume versus the margin and makes decisions on our pricing versus what we're seeing in the competitive market. And then it will adjust and at the end of the day, the tool can optimize for volume or margin. Currently, we have -- we need to make sure that we're competitive across the line, but skewed towards increasing the margins. And we can do that in real time. All the tool allows us to look at the entire portfolio, which we haven't been able to do in the past to make those real-time decisions and changes to our mix.

And I think, Bret, just to add on to that, importantly, you saw absolute expansions in our margin percentages for within our tire category. And you saw relative strength in our volume compared to what we presented as the U.S. tire retail industry unit sales. So I think it's accomplishing both. And it's going to depend kind of tire by tire, whether there's more of a volume or a margin opportunity. But I think the tool is doing both at the same time, given our performance against the benchmark as well as our margin expansion.

Okay. I guess on that theme, you've commented in the past as you see a lot of competitors numbers via your M&A, what's your take on market share? How do you feel you are doing relative to the underlying market in these last couple of quarters?

Yes. Great question. And I think our view on that is really kind of looking at the prepared remarks. The information that we prepared related to vehicle miles traveled and the U.S. tire industry unit sales, it's consistent with what we're seeing in our 10 NDAs -- over 10 NDAs that we have signed as well as consistent with what we see from our franchisees in the Car X model, so we feel that the information we presented on Slide 5 is representative of our view of the industry. And I think what you see there is that our trend lines are at or above on the tire side, at least, where the industry is at, which gives us confidence that we're maintaining our competitive positioning.

Our next question comes from Rick Nelson with Stephens.

Just to follow-up on a -- to comments about market share. Curious, we've had a number of franchise dealers report their September quarter. And we got severance parts segment, same-store growth, kind of looks like Monro is tracking well behind those companies, particularly if we exclude collision repair from their numbers. I guess we pulled tires out of your numbers, if you could speak to that differential? Do you think you're losing share compared to franchise dealers or if so, why?

Yes. Thanks for the question, Rick. I think that if you look at -- I think you did a good job there kind of explaining the two parts of our business in tires and parts. I think the other large difference in us and a lot of the other public numbers available as comes down to geography. And I've listened, obviously, to a lot of the same calls that you have. And really, what I hear is the themes coming through is a lot of strength in Mountain and Plains regions and pressure in the Northeast and mid-Atlantic. And obviously, we have a disproportionate geographic exposure to the Northeast and Mid-Atlantic and nearly no exposure to mountain and plains. So I think as we see, there's a lot of differentiation between geographies. And my sense is that, that's driving a large portion of that. It's consistent with if you look at vehicle miles traveled as well as tire unit sales by geography, we presented the consolidated view to kind of show that we're tracking in line with the national averages. But there's a large amount of disparity in that data between the Northeast and mid-Atlantic underperforming against much better looking trends in other parts of the country. So we feel good relative to our performance and our geographic exposure there.

Okay. Got you. How do you get customers comfortable that you're taking COVID protections with their vehicles?

Yes. We have -- from the very onset, I think we have taken stringent measures that are still in place today. Stringent measures around cleaning, sanitizing, shields, face shields, masks as well as social distancing within the stores. We continue to communicate that not only into teammates, but communicate those measures that we've taken digitally and to consumers, reassuring them that it is absolutely a safe environment to bring their vehicle in and conduct business with us. And we continue to do that. And I think that helps us also understand if the pandemic continues or takes a different twist. We're well prepared to execute those measures and recommunicate those to the guests and or teammates. It's obviously been our #1 concern and continues to be that.

And finally, a question for Rob Mellor. The new CEO, do you expect is individual is going to carry on the existing rebranding, reimaging, all the strategies that were in place with -- perhaps -- or are you looking for new ideas and is e commerce, do you see that being a part of the business, particularly in tires in the future?

Sure. We're not going to diverge from the strategy that we put in place. Obviously, it's been successful. It's been in place for 2 years, 3 years, and I think we're really executing on it very well. So we're not into a change mode, if you will. So I think we're going to continue on that same path. And of course, part of the persons qualifications goes without saying is leadership and integrity and working well with the teammates we have in place. As the e-commerce, I think we've been on a certainly, and you follow the company closely in the last 2 or 3 years, we pushed forward on technology, not only from the sales side, but also from the employee or our teammate side and sizing the business. And I think we benefited greatly from that during this COVID-19 period. So we're not going to divert from that. And I think on e-commerce, I think that's just going to continue on. I mean, you followed the company, you've seen that we've pushed forward on that, and I don't see any, what should I say, retreat from that path. That's -- it's in place with strategies in place, and I think it was well conceived, well adopted by the teammates throughout the company, and we're not -- what should I say, we're not going back. We're just going forward with it. And I think we've got a good foundation in place. I'm very, very proud and feel good about that. And as you know, we've certainly put the CapEx behind that strategy and behind if you will, e-commerce. So I see the path going forward straight and up and to the right.

Our next question comes from David Bellinger with Wolfe Research.

So first recognizing the comp sales decline in Q2 was mostly traffic driven. I'm curious on what you're seeing in terms of ticket trends, any meaningful changes there or indications of trade down among your customer base?

Yes, great question. No, in Q2, really, sequentially over Q1, the improved performance was driven largely by traffic. We saw consistent ticket quarter-over-quarter.

Got it. And then just following up on the regional trends. Some of those underperforming markets like the Northeast and the Atlantic. Are you seeing any early signs of stabilization there? Or maybe some indications of the same type of recovery curve now beginning to play out in those markets versus what you've seen across other parts of the country?

When we take a step back and look at the markets, they -- in September, late in Q2, it looks like they were recovering. Very consistent with the tire performance. And then in October with the tire retail units dropping, that part in the geography has stayed in line with that and has reflected the tire unit decline as well.

Our next question comes from Stephanie Benjamin with Truist.

I wanted to discuss same-store sales a little bit. I believe in the first quarter and kind of some commentary in July, you guys called out some headwinds on the top line just from store closures or labor shortages. So wanted to know if you saw anything similar to that in the second quarter as you kind of navigated this environment that weighed down on your comp growth?

Yes, great question. And we did talk about the need to increase staffing to respond to some improving demand trends, which, as we talked about, we did add 700 new teammates, primarily technicians in the second quarter. I think as we look at it and kind of triangulate those adds against the demand levels that we saw during the quarter. We feel good that the staffing was there to support the demand that was there. And there wasn't anything significant, if you will, left on the table regarding understaffing against demand. So -- and most importantly, we feel really good about where we're staffed as of right now, as we head into what we hope to be some colder weather and some snow.

Perfect. And then I wanted to discuss a little bit, I think, with both the store staffing tool and the tire tool to be fully launched, as you said, by the end of the 3Q. Just curious, what is the next big leg to the story or big investment that we should be looking out for? Is there an opportunity for you to include a pricing tool across another service level, or what's going to be the big initiative that we should be watching out as we get through the third quarter?

Yes. I mean, most importantly, and primarily, our big focus, both from a resources standpoint and obviously, capital will be to continue to reimage and rebrand our stores. Technology has been the foundation with which Monro.Forward is built. But certainly, we do know that improving the guest experience and driving incremental traffic to our stores is really dependent on our reimage and our brand standards. And making ourselves more relevant to a large portion of our customers and consumers with a more tire oriented banner. So that will remain our focus and really as we exit. I think as we talked earlier, there'll be continuous improvement around what we've already launched, including our Monro University platform and how do we really drive that to continue to improve teammate productivity as well as our ability to continue to improve our business overall. So I think those are the big areas. I know, Rob, it does have some category work being done outside of tires that will also come into focus as we move through the year.

At this time, I would like to turn the call back over to Mr. Mellor for closing comments.

Thank you, and thank you all for joining us today and for your continued interest and support of Monro. When I say Monro, I mean, that means your support of all of its teammates. But I want to let you know, and I'm sure you do know, they're doing a terrific job in what we know is a very difficult environment. So your support and tuning in today is very much appreciated. And we look forward to providing you with an update on our progress next quarter. And also, we hope all of you have a great day and stay healthy and stay safe, and we look forward to speaking with you again. Take care.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.