Good morning, ladies and gentlemen, and welcome to Monro, Inc.'s Earnings Conference Call for the First Quarter of Fiscal 2022. [Operator Instructions] And as a reminder, ladies and gentlemen, this conference call is being recorded and may not be reproduced in whole or in part without permission from the company. I would now like to introduce Ms. Maureen Mulholland, Executive Vice President and Chief Legal Officer 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 this call, we will be referencing a presentation that is available on the Investors section of our website at corporate.monro.com/investors/investor-resources. If I could draw your attention to the Safe Harbor statement on Slide 2, I would like to remind participants 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 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's statements include a discussion of certain non-GAAP financial measures, which are intended to supplement and not to be substitute for comparable GAAP measures. Reconciliations of 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 would like to turn the call over to our President and Chief Executive Officer, Mike Broderick, Mike?

Thank you, Maureen and good morning everyone, thanks for joining us. We had a great start to the new fiscal year with topline performance above pre-pandemic levels. We delivered double-digit comparable store sales growth across all our regions and categories driven by strong demand, progress on our in-store operational excellence initiatives, and consistent execution across the entire organization. Over the last few months, I've enjoyed diving into the business with the support of our senior leadership team and getting to know our teammates better. I would like to thank them for their outstanding efforts and continued dedication to our customers. Turning to Slide 3, while we're not completely out of the COVID tunnel. We're encouraged by our strong fiscal first quarter performance and our outlook for the remainder of the year. Our first quarter performance reflects higher traffic and higher average ticket sales compared to the same period last year. Importantly, we exited the first quarter with strong momentum in our fiscal second quarter-to-date with comps up approximately 15% in fiscal July, compared to comps down 12% in the same period last year. This represents an acceleration from June and we're encouraged to see comparable store sales levels trending above pre-COVID performance. We're seeing continued improvements in vehicle miles driven as more consumers start to re-engage in their daily activities and commute miles return. We're particularly encouraged to see oil change customers starting to migrate back to our full-service offering. Additionally, consumers are holding onto their cars longer as evidenced by lower new car sales, which means they continue to invest in their vehicles. As a best-in-class service provider, we believe we're well positioned to capitalize on these favorable trends and the strengthening demand environment. Moving on to Slide 4. We have a clear path forward and our teammates will…

Thank you, Mike and good morning everyone. Let me take a few minutes to talk about our first quarter performance and the meaningful progress we made in the quarter. Turning to Slide 6, sales increased 38.4% year-over-year to a record $341.8 million in the first quarter, up approximately 8%, compared to pre-COVID levels in fiscal 2020. Same-store sales increased 34.5% driven by our key service categories and continued strength in tires. Sales from new stores increased by $14.1 million including $13.6 million from recent acquisitions. Gross margin increased 140 basis points from the prior-year to 36.8%. The year-over-year increase was due to higher comparable store sales, which resulted in lower fixed distribution and occupancy costs as a percentage of sales also contributing with a higher sales mix of service categories, compared to the prior year period. Variable gross profit was positively impacted by an 8% year-over-year increase in gross profit per tire, reflecting the benefits of our tire category management and pricing tool. Regarding labor costs, our training initiatives continue to drive increased labor productivity. However, we experienced higher technician labor costs as a percentage of sales due to more technicians working overtime in order to meet the surge in demand. We expect this to moderate as we increased staffing levels. We also expect continued gross margin improvement versus prior year as our service category sales continue to strengthen. We continue to execute disciplined cost controls with total operating expenses of $98 million or 28.7% of sales as compared to $76.1 million or 30.8% of sales in the prior year period. The year-over-year dollar increase included $3.9 million in one-time litigation settlement costs. We also had higher store management in advertising expenses in the quarter to support higher consumer demand. The remaining dollar increase was from the expenses of 44…

Thanks, Brian. We're very encouraged by our robust performance in the first quarter, and optimistic about the outlook of our business. Overall, we continue to be well positioned to capitalize on strengthening demand and have the financial flexibility to execute our growth strategy to deliver long-term value for our shareholders. As highlighted in Slide 9. I would like to update you on our corporate responsibility efforts, which continue to be the lens for evaluating risks and opportunities that could materially impact our business over the long-term. As part of our commitment to accountability and transparency in this area. I'm excited to report that we increased the oversight of our ESG strategy at the senior leadership and Board levels and recently launched Monro.Forward responsibly. Our first corporate responsibility report. We view our responsibility to our teammates, customers, the communities in which we operate and doing our part to take care of the environment as not only the right thing to do. But as an integral component of our long-term planning and success. While we're early in our formalized ESG journey, our report maps to the appropriate size be standards for the multi-line and specialty retailers and auto parts industry and we're committed to increasing our disclosures over time. Working with Matt Henson, our new Chief Human Resource Officer. We're excited to further align talent development with our business goals and solidify our diversity equity and inclusion strategy, which we believe will be instrumental in driving an engaged workforce to better serve our customers and communities. We look forward to sharing additional information on these important initiatives in the quarters and years ahead. With that, I'll now turn the call over to the operator for questions.

[Operator Instructions] Our first question is from Jonathan Lamers with BMO Capital Market. Please proceed with your question.

For July, how close were the service categories to returning to fiscal 2020 levels?

Yes, this is Brian Jonathan. I appreciate the question. If you look at our performance in the service categories you can obviously see for the quarter. Nice sequential progress in those categories, as well as outperformance related to the overall comp. So, we saw leadership in Q1 from our service categories, which as we noted really helped us to improve our year-over-year and sequential gross margins. We saw those continued trends into July with are up 15 being led higher by the service categories, which is creating a nice trajectory in our growth continue increase in our gross margin performance year-over-year. So we are I think making good progress overall. Our comparable store sales are trending higher than they were in FY 2020, but we still have opportunities to strengthen our service categories to get to pre-COVID levels.

And just a follow-up on that with vehicle travel stabilizing is there any reason that sales mix will not return to historical levels has recruitment been a constraint or have there been any market share changes we should be aware of?

Jon, this is Mike. Thanks for the question. I don't see any constraints. I would say that the biggest opportunity that we've is on the recruitment and development side, a lot of the focus that we've really starting before 2022 was really bringing our team on back from to enable our stores getting back to staffing levels that they can handle the surge in business. And what you're seeing right now is a very healthy shift in mix on the categories. So we just need to make sure that we've the technicians and we're constantly recruiting just like pre-pandemic levels we're constantly recruiting to make sure that we're staffed for the jobs that our customers requires to perform.

Thanks. And on the acquisition pipeline. Is there any further color you can share with us in the past you've talked about the number of LOI's you've signed, for example and are you seeing any change in multiples or willingness to sell at this stage?

Jonathan, I'll start I think there's a lot of activity going on right now, we don't have anything to talk about in this earnings release. But I would say there is a lot of opportunity out there. So we're as aggressive as ever. We're financially positioned extremely well and where we can just like in my prepared remarks if we can’t buy we'll build. And I feel very strongly that there's a lot of green space for us, especially as we go out West. And when you look at these market places such as Colorado, Arizona, Texas and then filling out California it's just fantastic opportunity. So not specifically talking about anything, but we look forward to sharing with you some more good news on future earnings calls.

And Jonathan, the only thing I would add to that is, while we didn't comment on the 10 plus NDAs. We're still at those levels like we have been historically. So to Mike's point the level of activity is strong and historical multiples are still within the ranges of where we've been or current multiples are still in the range of where we've been historically.

And apart, although with greenfields there is longer time for development of the stores, are there some advantages to building out greenfield versus acquiring brownfield in some of these regions?

Jonathan, this is Mike, I'll handle that, good question. I've actually spent time this weekend in our greenfields down South. The biggest upside is literally you're creating a best-in-class experience. You have your model, it's just, really clean, it's a beautiful looking store and not only that it's been built to be very efficient and we're not dealing with 30 old problems we're dealing with really. When we introduce our new team there actually senior shiny penny are and I do believe on the greenfields what I'm receiving from in my travels over this weekend is the customers like to come to these new stores, to in many cases. But with that being said, I think that's where our focus right now, especially on some of the acquisitions that we've done in the past. Our focus out West is really to get these acquisitions up to speed, getting our rebrand reimage caught up on the acquisitions in California, so that we've a best-in-class environment for not only our customers, but also for our teammates.

Our next question is with the Brian Nagel with Oppenheimer and Company. Please proceed with your question.

Congratulations on a nice quarter. Nice start to the year.

Thank you.

So the question want to ask is and I understand is going be difficult to answer, but we look at this, the improvement in sales here in this quarter, any parts should that be how do you think this as we try to gauge the sort of say sustainability of it. And I think you recognize that you gave some nice parameters, how we should think about that through the balance of the year? But if you look at the quarter, because the question is I mean, how much do you think that is pent up demand on the heels of the pandemic. And then second, probably more importantly, you see in evidence that the Monro.Forward initiatives are helping the company to perform better as this demand is returning?

Brian, let me take a shot. This is Mike, thanks for the question. I would say that with regards to Monro.Forward remember. Just to remind everybody we touched people product promotion technology. And then on top of that we re-brand and re-image so we touched a lot. So, most of my focus right now is really how do we bring this to life, not only for our customers for our teammates. So it's all about in-store execution. What I would like to point you to is when we talked about some of what I'm proud of the team and what they delivered is our tire business was up 25%, our alignments are truly attachment. And that's all about the culture, making sure we're taking care of the customers properly that's up significantly over our tire performance. So I'm actually seeing our teammates react and they're doing the right thing for the customer. That's some of what I believe is very sustainable in our business model going forward.

Then the second question I want to ask you mentioned it was mentioned in the prepared comments just about cost inflation, to what extent have you been able to pass these cost along and any thoughts on that going forward?

Okay. This is Mike again, but I welcome Brian's comments also. But let me just give context. I've been calling on Monro for 20 years. Monro has done an excellent job managing expenses over the 10 years that I've been involved with Monro. As a supplier, I can definitely relate to that. So we've done an excellent job with that. But let me give you broader context, when you look at inflation, this is a lot of conversation about inflation on the service categories. Most of the cost is around people when you look at the repair order the cost of labor is the biggest component and Brian talked about that in the prepared remarks, managing over time make sure we're scheduled properly, making sure people are not spending the over time because we have enough people to be able to manage to the demand. Now that's half our business. The other half of the business is very much tires now that's a different story. Most of the cost is tires. So our tire category management is very relevant and I see that really driving significant value in our company. I believe it's very sustainable and it's really just managing good-better-best traditional retail methodology of managing costs.

Yes, and I would - the only thing I would add to that Brian is that - that's exactly why we highlighted the 8% year-over-year improvement in gross profit for tire. It really shows that category management tool and our attention to managing the tire category is allowing us to navigate any inflation that we may be seeing.

Our next question is from Bret Jordan from Jefferies. Please proceed with your question.

On the labor inflation on X over time, could you talk about sort of maybe what a regular hour inflation rate might be at the labor side?

Yes, this is Brian, Bret. We haven't seen significant labor pressure related to the rate, as you know, our compensation plans for our technicians are incentive based and productivity based and so most of our technicians are earning a wages in excess of our any stated clock rate, so that allows us to be very competitive with those programs and really reward productivity and reward volume and sales and throughput of the stores. So I think our model has allowed us to mitigate any of that labor inflation that might be out there in other parts of retail. So really the driver for the quarter was really driven by that over time differential.

Okay. And I guess when you think about investment in the infrastructure distribution in the Southeast or the West, are you thinking you've got enough scale in those markets to build out distribution infrastructure?

Bret, let me take that, this is Mike. Thanks for the question. We're looking at building or partnering and that's probably the best way to say, there is a lot of partners that are looking to do business with Monro to enable our stores to be able to properly take care of their customers. So in the three or four months that I've been here, I'm really trying to develop partnerships on who is looking to support Monros. The good news is, there is a lot of people that want to do a lot of business with Monro. So if we can find the appropriate partnerships will built similar to our Greenfield strategy, but I feel confident that we can partner in a long-term relationship that will enable us to continue to grow our service business.

And then, Brian, just a housekeeping, could you give us the monthly product work?

Yes, sure. We were up by 76% in April, 28% in May, 14% in June, and then again 15% in July. And that trend is obviously reflective of prior-year comparable trends as well.

Our next question is from Stephanie Moore with Truist. Please proceed with your question.

I wanted to touch on the SG&A side of this for a second. I know you talked about having to step up some overall labor expenses just to meet staffing means, but also have a pretty nice structural cost savings baked into expectations for this year. So as you kind of look at local texture here, do you think that there is an opportunity maybe to exceed the structural cost savings target that you align maybe as you get revenue up to - called the pre-COVID levels, kind of look at the business model over the course of the last year and make some changes, any color there would be helpful. Thanks.

Yes. I appreciate the question. Stephanie. I think if you look at our excluding the legal settlement. If you look at that 27.5% G&A as a percent of sales, I think that's right on our internal expectations in right where we expect to continue to trend is the quarters move forward. So I think we're happy with the leverage that we're seeing in our business in the flow-through that those higher sales are driving, as we certainly would have expected and did expect, we added back advertising expenses versus the prior year levels, which were pretty much completely just to emergency levels last year from an advertising standpoint as the lockdowns in the consumer environment did not lend itself to marketing, But we're back to levels that we feel are appropriate to support the demand, much more efficient than entering COVID with our digital strategy and our CRM strategy. So we're getting better return on advertising dollar spent, but still bringing advertising levels to be supportive of our current demand environment. So I think we've got the G&A structure right where we want it at the levels I described, and we'll look for that to continue as we move through Q2 and Q3.

Our next question is from David Bellinger with Wolfe Research. Please proceed with your question.

Thanks for taking my question. Then another one on labor constraints in inflation we're seeing across the marketplace. Is there any comment on effect got better or worse through the quarter? Any impact from the child tax credit that we saw more recently and how long do you think these labor issues persist before we get back to call in normalized labor environment?

David, this is Mike. Thanks for the question. I'll start. I'm sure, Brian will file on with the labor conversation. Let me just make sure everybody goes back even before pre-COVID labor the technician development, a lot of what we've talked about in the past with training, how we develop our technicians that's been paramount. None of that's changing is actually just been elevated as we continue to invest in our training initiatives building out of a best-in-class training organization, so that we can take people who are entering into our service community, and really developing their skills to be able to take care of the car. So that's what we've done before pre -COVID, it's just been enhanced really in fiscal 2022. Now from a recruiting perspective, I want to be clear. We've over 5,000 technicians, and I appreciate every one of them. We do have hot spots, where there is hotspots, we're incredibly focused on making sure that we're staffed and that we're building out the team with qualified technicians that can do all jobs both around the wheel and under hood because that's where the business is going. That is what our customers expect from a full service provider that is always going to be a challenge. But it starts with bringing people on early and then investing in with training, so that we can really drive the full service offering in the communities that we serve. Now is that a challenge? Yes. But it's something that's been challenge for the industry for many years. I do believe that we will be the destination for our - because we're focused on our technicians first, we will be the destination for the best technicians in the marketplace. That's the goal that we've for our organization.

Very helpful. Appreciate all that. And just my follow-up, you mentioned potentially building more locations as opposed to buying. Are you factoring higher cost now - steel and other commodities moving up any quantification of that if you could?

Sure, it goes back to thank you for the question. It goes back to my other comment, when you look at raw materials, please that's more on the service side of the business. So when you look at brakes, routers, that's a smaller component of actually our true cost. Most of it's all about labor managing labor Brian talked about the overtime that we've to mitigate overtime through proper staffing levels. So we give our teammates days off and they stay very productive when they do come to work for us. So that is the focus that we've right now, with regards to the commodities and what those, we're able to obviously continue to manage those expenses. And then we've always been able to prove to pass along those expenses to the consumer, at the same time staying extremely competitive to our - competition in the marketplace.

Thank you. Our next question is from Rick Nelson from Stephens. Please proceed with your question.

Like to ask about tire units in the quarter how those changed and what you think industry growth was in that period?

I'll take that Rick, this is Brian. Thanks for the question. We had, we were up 25% as we said in our tire category, and that was really kind of equal parts of units in price mix. And so, we feel good about the balance there. And then certainly helped us to deliver that 8% gross profit per tire that I discussed and I think that as we look at our performance versus the tire industry throughout the pandemic. And certainly as we've entered into fiscal 2022, we feel like we've said that our unit performance has been at or slightly above the U.S. tire industry. So, continued good performance there, driving units, driving average selling price and driving margin, a lot of the benefits from our category management.

Any thoughts on why tire sales are lagging, are you in fact trading the sales from margin in the tire category?

Rick, I'll take that this is Mike. I would say that I think it's not the tire sales are lagging it just our focus on the service categories that's how I looked at it. We're seeing extremely competitive. We're focused on profitable sales, but as the - I think the theme that we should walk away from this conversation is that, is the fact that we are now focused on the service business. We love selling tires. But we love selling service and the fact that our service business now is getting the attention and the focus forward to continue to grow and that should enable consistent comp sales growth quarter-over-quarter and also significant margin improvement.

So also curious on the Mountain View stores, how those stores are performing relative to your expectation any changes you're putting into those stores are you rebranding those stores?

Thanks, Rick. This is Mike I'll take that. I was out there, I love those stores. They've been a very successful for us. I've been extremely pleased with the first three months. I remember just so everybody, that was an April 26 close, so we did talk about that in the last call. But they are contributing immediately just quality people. They're heavy service business and they just have a great reputation in the marketplace. Now we are with Mountain View and Allen Tire now we're in the process of re-imaging those stores, making sure that they are up to snuff. On the, with regards everything we've done with Monro.Forward and that's for the back half of the year, we're really going to get those stores cleaned up.

Our next question is from Scott Stember with C.L. King & Associates. Please proceed with your question.

Just want to dig a little bit more into the sales versus pre-pandemic levels or I guess the first quarter of Q1. Brian, you did say that I guess, across the board that you're generally and again this is on the same-store sales basis, you are up versus two years ago at this time. Could you quantify how much and maybe also our all categories up, is there - any other low hanging fruit that we can expect as business comes back?

Well I think, I think what I said was in the prepared remarks that were up 8% in total sales. So that would take into account any stores that we've added since the pandemic. From a comparable store sales standpoint in the first quarter we were back at slightly above so I'm not going to quantify, but slightly above pre-pandemic levels. We've seen that accelerate in July, we're moving beyond pre-pandemic levels and we're seeing that acceleration. As we described in the prepared remarks, and we're also seeing that acceleration in margin as we kind of have a target of getting back to pre-pandemic levels as well.

And just by category, is there any area that's been lagging that we could expect to really kick in, or are we seeing that already in July?

Well, I think what you're seeing is just to kind of remember during COVID, we talked about in FY 2021 that our service category lagged and our tire category held up relatively and was in line with the industry still down but not down as much as our service categories. And Mike's comments to the last question around our focus on service and making sure that we are staffed for service to say yes to service is paramount in us continuing to recover and see the strengthening in our service categories. And we made tremendous amount of progress in Q1 with our service categories up some of them double where tires were. And we expect that to continue. It certainly continued into July and we expect that to continue. It will be a big component of our margin improvement going forward.

We've reached the end of the question-and-answer session. I would like to turn the call back to Broderick for closing remarks.

Thank you for joining us today. This is an exciting time to be part of Monro. We've a strong foundation to build upon to create long-term value for our stakeholders. I look forward to keeping you updated on our progress. Have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.