Monro Is Trying to Beat the Winter Weather Blues

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Though Monro Inc. leaders told investors many times they didn’t want to talk about the weather, the company’s latest quarterly results are largely driven by the weather, and specifically, a shortage of snowfall.

Overall sales for the fiscal third quarter, ending Jan. 28, 2020, were up 6.2% — $329.3 million compared to $310.1 million for the same period a year ago. But the $19.2 million increase in sales was driven by sales of $22.7 million by acquired of stores.

Comparable store sales were down 0.9%. Here’s the breakdown by category:

  • Maintenance services: flat
  • Tires: down 1%
  • Front end/shocks: down 1%
  • Brakes: down 3%
  • Alignments: down 3%

The weather

The company has a strong presence of stores in the Northeast and Midwest, which typically translates to higher sales in the winter as the snow falls.

Brett Ponton, CEO and president of Monro, says the company’s southern stores outperformed its northern locations in the period. He told analysts “it’s difficult to say what we would have done” with a typical snowy season, and added, “we were expecting positive comps in the quarter.” Internally, the expectation was an increase of 1-1.5%.

“We felt really good coming out of October and November given the strength of last year’s numbers that we were comping against; but we didn’t get the cooperation from the weather in December that we were expecting. We don’t like talking about the weather, but we can’t ignore the fact when 50% of our business is tires (and) we have a high concentration (of stores) in the Northeast and Midwest.”

So far for January, Ponton said Monro’s same-store sales are down 4%.

The numbers

While sales for the quarter were up, Monro’s net income for the period was down 8%, $18.88 million compared to $20.53 million a year ago.

Monro has added 103 stores in the last 12 months, and has 1,289 open stores compared to 1,186 a year ago.

When looking at the last nine months (Monro’s fiscal year will end in late March), sales are up 6.3% — $970.5 million compared to $913.0 million. Net income for the last three quarters is down 1.8%, $61.8 million in fiscal year 2020 compared to $62.9 million for fiscal year 2019.

The market trends prompted Monro to lower its guidance for the full fiscal year. The company expects sales to fall between $1.275 billion and $1.290 billion, down from the previous guidance of $1.295 billion to $1.315 billion.

Same-store sales, which had been expected to increase by 1-2% for the year, are now expected to be flat or even down 1%.

Ponton says the company isn’t satisfied with those results, but continues to work on its rebranding and reimaging efforts at stores across the country. Monro is also converting an unknown number of service-focused stores into stores that offer both tires and services. The average tire store rings up about twice as much in sales as an average Monro service store, the company says.

“We are in the early innings of a significant company transformation,” Ponton said.

Back to the weather

So, does that broader focus on tires expose Monro to even more risk of unpredictable weather, and in particular, unpredictable winter seasons?

Ponton doesn’t think so. He said the company won’t migrate to a tire-only model of business for that reason.

“We like the diversification of services. We like being really relevant on frequently purchased items like scheduled maintenance for cars and certainly brakes and other undercar services. As we increase our total business, certainly we’re going to pick up more exposure to tires as we convert more stores in the north. But the broader company strategy is to diversify our store footprint more into the south and out west … in those regions where you don’t see the level of volatility that comes with … what you would find in the Northeast and Midwestern market.”

Monro's acquisitions have shown proof of that model in recent years. The company is building out its footprint in Florida and has entered new southern markets like Louisiana. It entered California in 2019, and immediately began rebranding those stores and utilizing its Monro.Forward initiative to improve and standardize in-store processes.

"We're invested in technology, better training people, executing better on the phones," Ponton said. "All the initiatives in Monro.Forward are designed to drive performance in our stores regardless of the weather, which I think will help neutralize some of the impact that we see from the volatility of snow and colder temperatures."

The acquisitions

While acquisition announcements have become a staple of Monro’s quarterly results reports, this time, the company didn’t announce any newly completed deals. It did finalize previously announced acquisitions — 14 stores in Nevada, four in Idaho, and nine in California.

Combined, those 27 stores are expected to add approximately $45 million in annualized sales.

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