Good morning, ladies and gentlemen, and welcome to Monro Inc.'s Earnings Conference Call for the Third Quarter of Fiscal 2024. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference call is being recorded and may not be reproduced in whole or in part without permission from the company. I'd now like to introduce Felix Veksler, Senior Director of Investor Relations 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. If I could draw your attention to the Safe Harbor statement on slide two, I’d 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. 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 be substitutes 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'd like to turn the call over to Monro’s President and Chief Executive Officer, Michael Broderick.

Thank you, Felix and good morning, everyone. I'd like to spend the first part of our call this morning walking through our third quarter performance, which reflected top line results that were challenged. This was due to milder weather as well as a pressured low to middle income consumer that continued to defer purchases in our high ticket tire category. 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. We continued to mitigate the impact of this slowdown with actions to reduce non-productive labor costs. Despite a tough macroeconomic environment, the resiliency of our business model and the actions that we've taken allowed us to expand gross margin in the quarter. I'll also discuss our plans to deliver an improvement in our diluted earnings per share this fiscal year despite some of the consumer related headwinds that we and others in our industry are experiencing. Before I get started, I'd like to recognize and thank all our teammates for serving the needs of our customers. Now, turning to our third quarter results. Our third quarter comparable store sales declined approximately 6% from the prior year period. Comp store sales in our 300 small or underperforming stores were consistent with our overall comp in the quarter. As I stated earlier, our sales results in the quarter continue to be challenged by consumer deferrals of tire purchases as evidenced by an industry-wide slowdown in tire unit sales. 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 14%, leveraging the strength of our manufacturer funded promotions allowed us to optimize our assortment for improved tire…

Thanks Brian. We remain laser-focused on our initiatives to improve sales, expand margins, and create cash. Although we still have important work to do, we are well-positioned to execute our growth strategy and deliver long-term value creation for our shareholders. With that, I will now turn it over to the operator for questions.

Thank you. [Operator Instructions] Our first question comes from David Lantz from Wells Fargo. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. So, I was just curious if you could talk about the quarter-to-day comp trends in a bit more detail. It sounds like the first half of January was pretty challenging, but the second half has improved a lot, so I was just curious about that.

David, good morning. This is Mike. Just to give you clarity on what we're seeing, the first two weeks were very soft, driven by a shift in the holiday. So, I basically gained two Sundays, but lost two very important Mondays, and I do much more business on Monday, so that contributed to a soft comp. And then it was just a continuon of a weather story and the tire story. As soon as the weather came back, which happened in the last two weeks of the month, everything normalized. Our tire business came back. Our business turned in a very different position. And the way we characterized it was a significant difference between the first two weeks and the second two weeks.

Got it. That's helpful. And then gross margins were a standout in the quarter, so I was just curious if you could talk through what's structural there and how many much -- how many overtime hours you have to reduce still and what kind of lever that could be.

Sure. This is Mike again. Just -- when you look at the material margins, that partly was contributed to the decisions we made around the change in our tire assortment. So, the team really did a nice job bringing to life our tier one through three as we've talked about in the past. That was a more profitable tire, better tire for our customer. Number two is when we look at the tire decline, obviously our service categories drive a higher margin, so that contributed to it. And last but not least, the team did a really great job of controlling payroll. When you look at overtime, actually we were down year-over-year, but sequentially we actually invested in overtime in order to meet some of the customer demands. And I really pay attention to that because I never want to cap our sales. So, we've talked about this in the past. I'll invest in overtime. I'll invest in our people in order to meet demand. And I continue to do that, but ultimately what we're focused on is non-productive payroll, making sure our technicians are earning their fair wages and our customers are being served. Brian D’Ambrosia: Just to follow up on that to give -- put some numbers to the pieces that Mike described, the material cost benefit was about 190 basis points in the quarter for the reasons Mike explained. The technician benefit, technician labor cost as a percent of sales improved 40 basis points year-over-year. And we did see a 60 basis point headwind related to distribution and occupancy costs as they delevered on lower comp sales. That nets out to the 170 basis point margin improvement.

Got it. Thanks guys. That's super helpful.

Thanks David. Brian D’Ambrosia: Thank you.

Our next question is from Bret Jordan at Jefferies. Please go ahead.

Hey, good morning, guys.

Good morning, Bret.

Could you break out -- in the composition of car count versus price?

Sure. When we look at our overall car count, it was down 8%. Price was up, average sales price was up 3%. Let me go deeper into that. On tire, we were down 14% in units, up 5% in ticket. Once again, going back to our mix change that we started last January. When I look at our service business, it was basically down 3% and average ticket was flat. I do want to call out this P&L would look much different, much different if we ran down 3%. The team is doing a good job controlling expenses, contributing -- moving our margins in the right direction. And I feel confident that now that we have most of the OPP tire conversation behind us, now we've lapped it a year, I feel confident we get back to a more normal conversation around our tire assortment. And I'm looking forward to a more normal customer environment where we get this thing growing again.

Okay. And then the contribution from working capital, sort of what's left in that tank as far as incremental cash to squeeze off the balance sheet? Brian D’Ambrosia: Yeah. Bret, as we talked about on the last call, we're in the later innings of that, but there's still opportunity. So, we think that our cash flow will continue to be supported by not only the profit growth, but also working capital improvements. Certainly don't expect to give back any of that working capital and believe that there's additional benefit to come.

Okay. And Brian, could you give us the monthly costs? Brian D’Ambrosia: Sure. Down 5.7% in October, down 6.6% in November, down 5.6% in December, and then the preliminary January month to date down 6%.

Okay. Great. Thank you.

Our next question is from Brian Nagel at Oppenheimer. Please go ahead.

Hey, guys. Good morning.

Good morning, Brian.

I guess my first question is probably a bit of a follow-up. But just with regard to weather, I mean, look, it's no secret that we had a warm start to the winter, so to say. But could you help us understand better the actual impact of that upon comp sales? And then also, you called out again the sluggish consumer. I mean, maybe we're starting to get some signals out there that overall consumer confidence is maybe starting to improve. So, the question I have for you is behind all this noise, are you seeing some indication that maybe with your consumer experience, the confidence is improving, the delayed purchases are getting less so?

Yeah. Brian, let me -- this is Mike. Let me -- I don't want to give weekly cadence. I would say that the entire business we've talked about in the past, we were looking for a weather event. I wish we had it in the third quarter. We'd sure have made a different result. But when it did come, it changed dramatically. So, just like what we've talked about in the past, weather did contribute to a significant tire change. I would look at the consumer and what we're still seeing are customers that used to buy four tires that are trading down to two tires and doing one tire now. So, we are still seeing that deferral cycle. And until I see anything differently, I would probably say the consumer is in a rough patch. I should be able to see a consumer that is replacing two tires minimum. They should not be just replacing one tire. And I'm just using that as an example to say, hey, there's something there with the consumer for these high ticket tires.

Okay. I appreciate it. Thanks Mike.

Thank you, Brian.

Our next question is from Daniel Imbro at Stephens Inc. Please go ahead.

Hey, guys. This is Joe Enderlin. I'm for Daniel. Thanks for taking the question.

Morning, Joe.

Morning. Commentary in the release says you maintain share in those higher margin tiers. Still seems like some movement in the opening price point. Have you seen the pace of that share movement slow?

Well, just to be clear, the decisions we made last January, we knew we were going to lose market share and we were going to give up units in opening price point. That was a decision not just with price, but with assortment. The one thing that we did not factor on, and we didn't see that in the prior two years that I was here, is tier one through three declining. That is something that, as an industry, we would never have factored in or forecasted. When I look at the customer behavior right now, without question, the customer definitely moved into tier four. But overall, tire units in the industry were down mid single digits. So, there's a very tough environment around the tire business right now, and I'm looking forward to that actually coming back. Once again, going back to the consumer environment right now, I would say it's shared by all.

Got it. That's helpful. Just as a follow-up, could you provide some more color on how those 300 underperforming stores did versus your expectations for the quarter?

Versus expectations? They missed expectations. They actually were very consistent with the rest of my chain. There was a lot of variability in the performance in those 300 stores. I would say one-third were extremely successful, one-third met expectations, and one-third fell short of my expectations. And we continue to focus on driving profitable sales through those boxes. I have talked about in prior quarters that having one or two transactions -- additional transactions with tires could significantly change the comp on some of these low volume stores. Just to kind of illustrate how variable some of these stores' P&L and sales performance really is.

That's helpful. Thank you, guys.

Thank you, Joe.

Our next question is a follow-up from Bret Jordan at Jefferies. Please go ahead.

Hey, guys. I think you not too long ago made an announcement about a parts supply deal you did with a group. Could you talk about that? Does it have any impact or material impact on margin, or is it just an incremental parts supply deal in addition to the ones you already had with some of the big two-step guys?

There is -- we did make a deal. I would say it's incremental, but there's nothing in this quarter to talk about. And there's no margin that I would say would be something I would call out. It just gives our team another option in case they're trying to look for parts, so they can better serve their customers.

Okay. And then I guess a little bit more detail on the labor cost reduction comment. I think you said it was something in the 40 basis points benefit. Is it just reduction in labor hours or an absolute reduction in headcount? Sort of what are the big levers you can pull on the labor cost side of things?

Yeah. We did a little bit of both, but ultimately what we did is we reduced hours so that we could -- and we just really managed hours very tightly, considering that we had a tight sales environment. And the way we did that is through less people, but more importantly, we just really restricted the hours so that we were really flexible when the customers did come into our stores. We just managed the schedule. Going back a couple of years ago, I would say from a Monro perspective, we invested in tools, scheduling tools, to allow us to better manage our people, and the team is adapting to it. And they're doing a great job managing our biggest cost, which is our technicians.

Yeah. Great. Thank you.

Thanks Bret.

[Operator Instructions] We have no further questions on the line, so I will hand the call back to Michael Broderick for closing remarks. End of Q&A:

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

This concludes the conference call. Thank you all very much for joining. You may now disconnect your lines.