Good morning, ladies and gentlemen. And welcome to Monro Inc. Earnings conference call for the fourth quarter and full year fiscal 2025. 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. If anyone should require assistance during the call, please press star then zero. 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 would now like to introduce Felix Veksler, Vice President 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 investor 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 included the 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. Lastly, unless otherwise noted, all references to comparable store sales, category sales, and units on today's call will be made on an adjusted for days basis, which adjusts for six fewer selling days in the current year quarter due to an extra week of sales in fiscal 2024 and a shift in the timing of Christmas holiday from the fourth quarter in fiscal 2024 to the third quarter in fiscal 2025. With that, I'd like to turn the call over to Monro's President and Chief Executive Officer, Peter Fitzsimmons.

Thank you, Felix. And thanks to everyone for joining us this morning. It's terrific to be part of the Monro team. As many of you already know, my primary objective is to work with the company's management team and board to develop and execute a performance improvement plan that will enhance Monro's operations, drive profitability, and increase operating income and total shareholder returns. I successfully led similar improvement plans at other companies, and I intend to leverage my extensive background and experience to do the same at Monro. I've now spent about eight weeks in Rochester at the company and have been fully immersed in our business. I've spent a lot of time with the senior leadership and also engaging with our talent teammates in the field, as well as visiting many stores. Both Monro stores and our competitors. This is all only confirmed the positive view I had about Monro before I decided to join the company. Let's start with Monro's strengths. First, this business has shown impressive durability through business cycles. We are positioned as one of the leading players in a highly fragmented market. Monro has significant scale that gives us important competitive advantages over smaller players in our industry. And we can leverage this scale in our financial position to make critical investments in our business, our people, and our technology to deliver an outstanding guest experience. Second, certain fundamentals in our industry remain strong. These fundamentals include continued growth of vehicles on the road, which now exceeds 280 million in the United States, vehicle miles traveled have returned to pre-COVID levels. And importantly, the average vehicle life of cars on the road today is more than twelve and a half years. Further, an increase in the complexity of vehicles continues to drive a shift from…

Thank you, Peter, and good morning, everyone. Before I get into more specific details, I'd like to briefly touch upon just a few highlights from our fourth quarter performance. While our results are far from where we want them to be, we drove positive comparable store sales growth for the full quarter sequential improvement in comp sales and gross margin, as the months of the quarter progressed, Comp sales and unit growth in our tire category and our high margin service categories including front end shocks, batteries, brakes, and maintenance service, and a year-over-year store traffic increase in March. Our overall gross margin and profitability in the quarter was negatively impacted by extreme weather in the first half of the quarter which resulted in temporary store closures, and lower store traffic primarily in January. The second half of the quarter saw better operating profitability. Now turning to slide four for more specific details. Sales decreased 4.9% to $295 million in the fourth quarter. Primarily driven by six fewer selling days compared to the fourth quarter of fiscal 2024. Resulting in a sales decrease of $18.9 million. Comp store sales increased 2.8% and decreased 3.6% unadjusted for days. For reference, comps were down 2% in January, and rebounded to up 2% in February. And we exited the quarter up 8% in March. Tire units were up mid-single digits in the fourth quarter driven by growth in units above 10% during the month of March. We also gained tire market share in our higher margin tiers in the quarter. Turning to slide five, gross margin decreased 250 basis points compared to the prior year. Primarily resulting from higher material costs due to mix within tires from a value-oriented consumer that traded down more of their tire purchases to our tier three offerings.…

Thanks, Brian. We believe our business is durable, Monro has a solid balance sheet and cash flow profile, and the fundamentals of our industry are strong. We believe that we can capitalize on positive industry trends through the four key areas of our improvement plan, to unlock Monro's full potential as we enhance operations, drive profitability, and increase operating income. And total shareholder returns. With that, I will now turn it over to the operator for questions.

Thank you. We will now begin the question and answer session. And we do ask that you please limit yourself to one question and one or two follow-up questions. And if you did have any more, you will need to rejoin the queue.

And as a final reminder, that is star one to register for a question.

We have a question from Thomas Wendler with Stephens. Please go ahead.

Hey. Good morning, everyone.

Good morning, Thomas.

Hi, Tom.

Nice comps this quarter. Lots of moving pieces here. I'm gonna kick things off, mate, with the gross margins. You're running some self-funded promotions. Are these the additional savings I see as an offering from the usage of the drive card? And then with these promotions and the wage inflation, is there any additional color you can provide as we're thinking about gross margins moving forward?

Thanks for the question, Tom. This is Brian. I'll take that. So the gross margin impact related to the self-funded promotions is really our tire promotions and it includes some of the drive card promotions that you're seeing, but it also includes everyday offers on buy three get one brands, buy one, get one of other brands. These have been in place for a good portion of our FY25 and have been a consistent impact of year-over-year gross margins during the fiscal year. There's been no real change in the use of those self-funded promotions sequentially. But year-over-year, we do have more self-funded promotions running than we had in the prior year. Related to gross margins going forward, as we said, we expect them to remain pressured primarily due to the baseline cost increases and potential tariff impacts. Those are gonna be, you know, offset somewhat by the impact of closing the 145 underperforming stores as well as some of the benefits of our improvement plan. But as a reminder, Q1 is a particularly tough gross margin comp, but we expect that the comp related to gross margin year-over-year will continue to be pressured.

Perfect. I appreciate that. And then maybe shifting gears a bit to customer acquisition and the Monro experience. Can you provide any color on, like, who these higher value targets are and kinda what you're doing on the marketing front to convert them to customers? And then maybe some color on your approach towards the customer experience changes moving forward.

Sure. Thanks for that question. This is Peter. One thing we've done in the last couple of months is look very closely at where we generate the most revenue and profit. By customer. And it's very clear that what we're looking for are repeat customers who appreciate that we provide a range of services. When you look at a three-year period, you see as we've suggested on this call, that there's dramatically higher sales and profitability for those customers. Now I think one of the things that the Alex Partners team can bring to the table is a full understanding of the range of marketing and advertising that can undertake in order to meet the needs of those customers that have proven to be the best customers for Monro. And so what you're gonna see over the next couple of quarters is a reallocation of our marketing investment towards targeting new customers that fit the profile that we're really looking for. I'm pretty confident we're gonna be able to find a much better-targeted way of attracting incremental customer traffic. So we haven't completed all of the analysis. This is something that takes a couple of months to fully understand, but it's very clear that there are customers in all of our markets that are preferred, and we're gonna chase them.

Perfect. I appreciate you answering my questions.

Sure. Thank you for the questions.

Thank you. We now have David Lantz with Wells Fargo on the line. Please go ahead.

Hey, good morning, guys, and thanks for taking my questions.

Brian, I was curious if you could parse out the 250 basis point decline in gross margin in a bit more and then technician labor cost as well.

Morning, David. Absolutely. Related to the gross margin 250 basis points quarter over quarter from the prior year. Hundred and sixty there was a hundred and sixty basis points of the 250 related to material costs. And that due to trade down within the tire category as well as well as the self-funded tire promotions we discussed earlier. About eighty basis points of technician labor costs primarily driven by year-over-year wage inflation. And then the balance is just a little bit of deleverage on the fixed occupancy cost given the loss of the extra week in the prior year.

Got it. That's helpful. And then you know, I understand that gross margins will be down or pressured for 2026. We're curious if you can help think through kind of the trajectory in a bit more detail. I recognize, you know, compares get a lot easier when you go through the year. So, you know, is it fair to assume that there could be some expansion later in the year, but still for the full year, there's pressure?

Yeah. I think that's right. I think as you think about gross margins, this past year, it's been kind of a quarter over quarter to kind sequential decline, and I think next year, the gross margins, while still you know, a little bit pressured versus the overall gross margin percent for FY25, that the cadence of that gross margin will be much more even throughout the year where we'll likely underperform in Q1 because of the tough compare, but make up for that in the back half of the year.

Got it. That's helpful. And then with respect to comps in the quarter, can you talk about, you know, the dynamics between traffic and ticket as well and what you're kind of embedding for you know, the improvements in 2026?

Yes. For the quarter, traffic was down low single digits. Ticket was up mid-single digits to blend out to the adjust comp of up about three, 2.8%. Encouragingly, we saw positive store traffic in March, and our comps in April and May are supported by better traffic trends as well. So I think we feel, you know, a little bit encouraged there in terms of the bending of the traffic trends in the recent months. Thank you.

You're welcome.

Thank you. Just as a reminder, if you would like to ask any further questions, you can press star one on your telephone keypad. We now have a question from Bret Jordan with Jefferies.

Hey. Good morning, guys.On the ATD relationship, did the economics of that change with their final payment of the earn-out? Seemed in that press release. They talked about, like, commercially reasonable support efforts. Is there anything that either either promotions or supply fill that has changed with them or pricing?

Yep. Bret, this is Brian. There's nothing material that's changed in our relationship with them. There was a couple things that we just clarified from the original agreement related to service levels. Just given current operating environments, but nothing that materially impacts our business. Or our relationship with ATD going forward.

Okay. Great. And then when you think about the store closures, I mean, what's the common denominator? Is there a specific region or a class of stores that are underperforming cleanup or is it sort of spaced throughout the network?

So, Bret, it's Peter. It's spaced throughout the network. We haven't produced a list of those stores and, obviously, we need to communicate with our teammates before we do that. I would say that when you build a brand over decades, in the retail and auto aftermarket industry, you always have places that are gaining in momentum and other locations that probably aren't as strong. And so what we've chosen to do in the last two months is look very closely at those stores that we don't think can ever really produce the earnings profile that we're looking for. And those are the ones we addressed in the 145 store closings. I think that there will continue to be evaluation of stores over every year, but I don't anticipate any other store closings this year. And I'm very confident that the remaining stores are well positioned to improve their performance as time passes.

Okay. And then a quick final question. I guess, significant improvement in performance recently, and I guess what do you attribute that to? --- Have you been more promotional? Is the broader market getting a lift? I mean, obviously, not having been there a long time to make big operational changes, but how do you see the backdrop on the industry relative to the comp lift you've seen recently?

Well, I think that the economic environment favors our type of service. For example, I would be surprised if there isn't downward pressure on people buying new and used cars. And for automotive aftermarket service companies like ourselves, there's gonna continue to be a need to replace tires and provide other services. So I think the industry dynamics are quite positive for what we do even if we have some slowdown in the economy, which I think we saw in the first quarter. I think that over a longer period of time, the things that we're putting into place that will improve our performance means that we can increase our operating income this year without significant improvement in the economy. And I think that the need for the company right now is to focus on the continuing stores, and produce the sort of results that we can I think, ultimately, appreciate with time during this year by quarter to see the improvement actions that we're putting into place now take effect?

Great. Thank you.

Thanks, Bret.

Thank you. Just another reminder, if you would like to ask any further questions, you can do so by pressing star one. I can confirm that does conclude the Q&A session today. And I would now like to hand it back to our CEO, Peter Fitzsimmons, for some final closing comments.

So thanks again for joining us today. I think we're all very optimistic about the opportunities in front of us. And I'm confident that Monro is well positioned to capitalize on some of the strong industry trends for a company like ours as we go forward. I know we have significant room for improvement, as we implement our performance improvement plan. I know we have a lot of work to do, but I really do think that there's a solid foundation for us to create long-term value for all of our shareholders. We look forward to keeping you updated on our progress in the quarters to come. And thanks again for joining today.

Thank you all for joining today's conference call with Monro. I can confirm today's call has now concluded. Thank you for you all for your participation, and you may now disconnect.