Morning, ladies and gentlemen, and welcome to Monro, Inc. Earnings Conference Call for the 2026. 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 followed by 0 on your touch-tone phone. 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 Investors section of our website at corporate.monroe.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. Of such supplemental information to the comparable GAAP measures are 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, Peter Fitzsimmons. Thank you, Felix, and thanks to everyone for joining us.

Great to be with you today. This morning, I'd like to update you on our progress. And the momentum we've continued to build at Monro during our fiscal third quarter. As we have done before, I will focus on the four key areas identified as opportunities for performance improvement which are shown on slide three of our presentation materials. As a reminder, these are driving profitable customer acquisition and activation, improving our store-based customer experience and selling effectiveness, increasing merchandising productivity, which includes mitigating tariff risk and real estate dispositions related to the previous closure of 145 underperforming stores. After that, I'll briefly touch upon our fiscal third quarter results, which represent another step forward as we continue to implement our performance improvement plan to enhance Monro's operations drive profitability and increase total shareholder returns. Let's start with driving customer acquisition and activation. During the third quarter, we continued to advance our acquisition marketing efforts through the expansion of a multichannel digital media plan, to target high-value potential audiences. We expanded marketing to more than 340 additional store locations in the third quarter, while maintaining a disciplined phase rollout to ensure appropriate returns. We also completed an operational readiness assessment to determine which stores were best positioned to receive marketing support. As part of these efforts, we implemented a measurement framework that provides visibility into marketing's impact on key performance indicators, including calls, sales, and gross profit dollars. We also continue to activate Monro's customer relationship marketing or CRM, database to attract existing customers to revisit our stores through specific offers for additional services that would improve the overall safety of their vehicles. And as a third component of our marketing efforts, we have added call center support to 114 additional store locations. We now have more than 830 stores…

Thank you, Peter, and good morning, everyone. Turning to slide five. Sales decreased 4% to $293,400,000 in the third quarter. This was primarily driven by a reduction in sales from the closure of 145 underperforming stores in the 2026. Partially offset by a 1.2% increase in comparable store sales from continuing store locations. For reference, comps were down 2% in October, up 4% in November, and we exited the quarter up 1% in December. Our tire category was up 5%. And while tire units were down 1%, we believe we outperformed the industry in the quarter. Gross margin increased 60 basis points compared to the prior year. This primarily resulted from lower material costs and lower occupancy costs as a percentage of sales. Which were partially offset by higher technician labor costs as a percentage of sales. Mostly due to wage inflation. Total operating expenses were $83,800,000 or 28.6% of sales. As compared to $94,800,000 or 31% of sales in the prior year period. The decrease was primarily driven by $14,000,000 of net gains from closed store real estate dispositions and $7,300,000 of lower cost from the closure of 145 underperforming stores in the 2026. This was partially offset by $6,200,000 increased marketing costs to support top-line growth and $4,700,000 of costs incurred in connection with consultants related to our operational improvement plan. Operating income for the third quarter was $18,600,000 or 6.3% of sales. This is compared to operating income of $10,000,000 or 3.3% of sales in the prior year period. Adjusted operating income, a non-GAAP measure, for the third quarter was $10,300,000 or 3.5% of sales. As compared to $11,700,000 or 3.8% of sales in the prior year period. Net interest expense decreased to $4,000,000 as compared to $4,200,000 in the same period last year. This was principally…

Thanks, Brian. As previously indicated, through our national retail network, economies of scale, and durable business model, we believe we can provide our customers with the services they need and generate meaningful value for our shareholders. In any economic environment. Our balance sheet is strong, and our business generates healthy cash flow. We remain encouraged by the progress we've made and are keenly focused on executing our plan to improve operations, drive profitability and enhance total shareholder returns. With that, I will now turn it over to the operator for questions.

Thank you. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. Please note we request that you limit yourself to one question with one or two follow-up questions only. First question comes from Thomas Wendler from Stephens. Your line is now open, Thomas. Please go ahead.

Hey, good morning, everyone. Congratulations on the great quarter. Happy to see another quarter of positive comps here. I wanted to dig in on the digital marketing efforts can you maybe help us gauge the impact it had on the the same store sales this quarter?

Hi, Tom. Sure. As you will remember, we have steadily increased the amount of digital marketing we provide to our store network. And we significantly increased it in the third quarter, month by month. And as you will also remember, every time we've done that, the stores that get additional support perform better than they did before, and the rest of the network on calls comp store sales, and gross margin dollars. That has absolutely continued. I also wanna call out that it's not just digital marketing. We also use our CRM and our call center to support our stores. And so I think the collective impact of our marketing efforts are gonna continue to drive incremental comp store sales.

Perfect. Thank you. And maybe just one more follow-up there on that. How should we be thinking about the rollout of the digital marketing to the remainder of the stores? I think you mentioned the operational readiness of the location plays into the rollout. What are you seeing for operational readiness at the remaining stores?

So one of the benefits of the way we've approached this is we're pretty about looking at return on investment. We're gonna continue to invest significantly in marketing, And which stores which regions, when, how much dollars we invest will vary based on what we think we're getting from all of that investment. There are some stores that haven't yet received digital support, and I wouldn't read anything into that other than they might be understaffed. They might have other issues that would make us think we should wait before we provide support there. In some cases, we might decide that they're going to more from CRM than from digital marketing. So, again, I would say it's the collective impact of marketing that's the most important thing. And all of the stores will get some support.

Perfect. Thanks for the color, guys. And, again, great quarter.

Thanks for that, Tom. Much appreciated.

Thank you. Our next question comes from David Lantz from Wells Fargo. Your line is now open, David. Please go ahead.

Hi, good morning, and congratulations on a nice quarter. I was just curious if you could talk about the puts and takes in gross margin in a little bit more detail for Q3 across distribution and occupancy and material costs in technician labor as well as what the expectations are for Q4?

Absolutely, David. So we were 60 basis points better than the prior year in our gross margin as we said, at 34.9%. That was benefited by lower material costs of 80 basis points primarily driven by better price and mix in both our service and tire categories offset by a little bit of a headwind related to a higher tire mix in the quarter. We also saw 30 basis points of benefit from our occupancy cost as a percentage of sales. Largely related to higher comparable store sales as well as the benefit from our store closures. Those were both partially offset by 50 basis points of technician labor costs going up as a percentage of sales. Primarily due to, wage inflation, but noting that that's a better run rate number than than where we are from a year to date standpoint. So seeing improvement in Q4 relative to The the fur Q3. Through relative to the first six months of the year. As it relates to our fiscal fourth quarter, we said in our prepared remarks that we expect our full year gross margin to be consistent with the prior year through nine months we're about 20 basis points behind largely driven by the tough Q1 compare that we had earlier in the year. But what that means is we expect to have gross margins above prior year in Q4 in order to achieve that consistency on a full year basis.

Got it. That's helpful. And I recognize we're only a couple days after winter storm burn, but curious if you can help us frame what you think the potential benefits from that for your store base and and comps could be over the next couple months.

Sure. First of all, as the threat of the storm unfolded towards the end of last week, we were able to meet consumer demand in all the stores across our network, which is terrific. We were ready for that. Second, I think everybody in the world or at least the North American world, has been impacted by the storm. And so we have got all of our stores back online by now. And expect that over the next couple of weeks, we're gonna see some nice incremental sales resulting from people recognizing that they really need need to these do something to keep their vehicle safe. So really good positive impact from the developing storm and we're in pretty good shape going forward.

You're welcome. Thank you.

Thank you. Our next question comes from Bret Jordan from Jefferies.

Hey, guys. Good morning, Brett. Did you talk about the comp ticket versus traffic contribution?

Yes. Our traffic was down mid single digits. In the quarter, offset by mid single digit, repair order increase, so average ticket increase. Netting out to the, the up 1.2% total comp.

Okay. Any regional dispersion?

And We we saw, strength in the in the Northeast. consistent performance performance in the Mid Atlantic and South. If there if there was any weakness, it was in the West. Okay.

I guess when you think about the 15 locations left to be sold, the value is probably roughly similar to what you've already sold? I mean, think about the cash contribution for those coming forward.

Well, not all of the stores that are left are owned stores. There's there's a good amount of leases as well. But for the owned stores that we have remaining to be sold, we have them reported on our balance sheet as a separate line called assets held for sale. It's approximately $5,000,000 a little less than $5,000,000. And that's kind of the minimum value we expect to achieve. So, you know, something there or higher, related to our own stores.

Great. Thank you.

Yep. Thanks, Brad.

Thank you. Our next question comes from Brian Nagel from Oppenheimer. Your line is now

Hey, good morning. Hey, Brian. Congratulations

Hey, Thanks.

So I wanna ask maybe a little longer term question. Right? You're is there seeing the, you know, you've had a number of initiatives now that are taking hold. I think we're starting to see those results know, the effects of those those efforts you know, show up in the results. I guess and I've asked this question before, but I'll ask again. Like, if you look at the the model now, what are we playing for? You know, and I guess obviously, there's a lot of, you know, transitory factors that can impact your sales such as weather. You talked about the tax refunds etcetera. But, you know, as as you're watching these initiatives take hold, I mean, how should we be thinking about know, what comp store sales your chain should be? And then with that, at at what point do we get expense leverage as a result of these these improving sales?

Sure. So I think from experience, the impact of marketing and the store improvement efforts takes quarters to really fully reveal itself. I do think that we have stayed focused on the things that we think are most impactful, and we've seen good results. I think that our expectation is that as the quarters pass, fourth quarter or first quarter next year and so on, we'll see a lift in comp store sales, and we'll see solid gross margin. And the combination of those two things together with managing our operating expenses well should drive incremental profit. It there'll be ups and downs, and if when I look at the period that's just passed, if you look at November through January, we had a really good early winter. With good tire sales, good service, There are many things that are clicking, that over the longer term will impact continued growth in comp store sales. So I do think we're going to get some operating leverage benefits, but there are those other factors that we have to remember, which is we've got wage pressure in the stores, And to be honest, we have some other initiatives that we wanna put into place that may require some additional investment. But the key will be increasing the comp store sales and having a very good solid gross margin rate, you know, aligned with where we are and and you know, the product of good vendor relationships good marketing support for our vendors, and other things that we're doing as a good partner with both our consumers and our suppliers.

That's very helpful. And then I go I wanna go back. I think someone you know, kind of asked this question before, and I'll ask it a little maybe differently. So as you look at these potential benefits, you're in the near term. You know, with the the weather, you know, with with the the for how storm Fern and potentially other storms coming here. And then you have, you know, these a lot of people are talking about this, you know, higher what are what's expected to be higher tax refunds, you know, in in twenty six. How do you think about the duration of those benefits? Is you know, it it would it we're gonna see the majority here in in the fiscal Q4. It was a longer tail on these type of these type of drivers.

So I think a challenging winter, which we're in the middle of right now, is good for us. Of course, there's gonna be disruption as there was with with the severity of the storm that just ended, but as long as we can work our way through the disruptions, it creates consumer need and immediacy. So I really like fact that the winter right now seems to be a difficult one. And the fact that consumers may have a little bit more money in their pockets You know, if you think back to COVID, when the government distributed quite a bit of cash to consumers, they spent it. And they spent it on things that they needed to spend it on. We know that there's a need to continue to keep your vehicle safe. And so the combination of the tax refunds and the likely tough February, let's call it that, are are pretty important to to short term growth. Now in the longer term, as we move our way into the spring selling season, we do sell a lot of tires in the early spring. And if you think about the things we put into place, which includes ConfuDrive, in January alone, we drove some incremental service revenue, which is all the result of the inspection tool. And as that continues to mature month by month by month, that will also drive incremental high margin revenue because service, is a higher margin than tires.

Appreciate all the color. Congrats again. Thank you.

Thank you.

Thank you. As a reminder to ask a question, please press We currently have no further questions, and I would like to hand back to CEO, Peter Fitzsimmons, for any closing remarks.

Well, thank you again, everyone, for joining us today. We're pleased with the progress Monro has made this fiscal year and we're optimistic about the opportunities in front of us. I believe the company is now well positioned to capitalize on the additions to the team and the operating improvements we put in place during fiscal twenty twenty six. Together with positive industry trends, we're well positioned for growth. I look forward to keeping you updated on our progress in the quarters to come. Have a great day. Thank you.

Thank you. This now concludes today's call. You all for joining. You may now disconnect your lines.