MONRO, INC. Q2 FY2025 earnings call

• Q2 accomplishments: Sequential improvement in comp store sales, tire units improved sequentially from Q1, service category sales improved, battery and alignment units/sales grew. - Q3 objectives: Improve store traffic via Oil Change Services, continue tire unit growth, accelerate key service category performance, utilize ConfiDrive, optimize labor and efficiencies, maintain cost control. - Financial position: Strong financial position with $88 million cash from operations, $9 million divestiture proceeds, $9 million from sale of corporate headquarters, net bank debt $41 million, net bank debt-to-EBITDA ratio 0.3x, total liquidity $529 million.

In the second quarter, comparable store sales were $301.4 million, a year-over-year decrease of 6.4%. There was a sequential improvement in year-over-year comp store sales percentage change from the first quarter, with comps down 8% in July, 6% in August, and 3% in September. The tire category saw flat year-over-year units in Q2 but had low single-digit unit growth in September. The service category sales improved sequentially from the first quarter, with battery units and sales dollars growing year-over-year, and alignments having year-over-year growth in September. Gross margin was impacted by a value-oriented consumer trading down to Tier 3 tires, pressuring material margins. Tire revenue contribution: Tier 1 and 2 shifted to Tier 3, with Tier 3 growing ~30%, while the industry also shifted into Tier 3 and 4, with Monro gaining market share in Tier 1-3.

• Full-year fiscal 2025: Expect gross margin expansion vs 2024, fixed occupancy costs flat on dollar basis, expect at least $120 million operating cash flow, capital expenditures $25 million to $35 million.

• Tire mix shift to Tier 3 affecting gross margin. - Macro trade-down dynamics impacting material margins. - Impact of American tire distributors bankruptcy (currently no reported impact).

Q: Thomas Wendler asked about the impact of American tire distributors bankruptcy and tire mix shift.

A: Michael Broderick said no impact currently, and the tire mix shifted to Tier 3 with Tier 3 growing ~30% while the industry shifted into Tier 3 and 4.

Q: David Lantz asked about gross margin buckets and traffic/ticket trends.

A: Brian D'Ambrosia explained material costs were the biggest pressure, and Michael Broderick noted improved trends month over month.

Q: Bret Jordan asked about ASP tailwinds and October traffic/price.

A: Michael Broderick discussed Tier shift pressure on ASP and Brian D'Ambrosia said comp led by price mix with improving traffic.

Q: Brian Nagel asked about gross margin and top line dynamic.

A: Brian D'Ambrosia explained trade-down dynamics and promotional effects on gross margin, and the path to improving gross margins.