Monro Inc. sold 14% fewer tire units in the final three months of 2023, and that contributed to a decrease in overall fiscal third quarter sales. But President and CEO Mike Broderick said the tide turned in mid-January.
Winter weather has so far made January a month with two stories — sales were soft in the first two weeks of January, but “comparable store sales have accelerated materially in the last two weeks with the return of normal seasonal weather.”
Preliminary comparable store sales for January show a decrease of 6% year-over-year, Broderick said.
Sales for the fiscal third quarter, which ended Dec. 23, 2023, totaled $317.7 million, down from $335.2 million a year ago. That’s a 5.2% drop. In the quarter, comparable store sales were down 6.1%, which Monro attributed to mild weather, as well as “a pressured low-to-middle income consumer that continued to defer purchases in the company’s high-ticket tire category.”
In tires specifically, Broderick said the deferral cycle continues. Consumers who used to buy four tires are purchasing two. And those who used to purchase two tires, are now buying one. When the company realigned its tire brands and positioning a year ago, it didn’t forecast tiers in tiers one through three all declining. “That is something as an industry we would never have factored in.”
He said customers are definitely purchasing tier-four products.
Comparable store sales were also down 1% for brakes, 3% for maintenance services, 5% for alignments and front end/shocks. The tire sales category was down 9%, compared to the same period a year ago. Battery sales were flat.
Broderick noted that while tire units were down 14% for the quarter, tire tickets were up 5%. The overall service business was down 3%, but average service tickets were flat.
Net income for the quarter totaled $12.2 million, down from $13 million a year ago.
Broderick said mild weather plus economic pressures on the consumer made for a tough quarter. But he noted the entire tire industry experienced the same pain points.
“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. 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 profitability in the quarter. And, while continued consumer trade down dynamics led to a higher proportion of lower-margin opening price point tires within overall industry unit sales, we remained focused on maintaining a healthy mix of opening price point tires in the quarter.
“Encouragingly, based on retail sell-out data from Torqata, a subsidiary of American Tire Distributors, our tire market share remained broadly in-line with the overall market in our higher-margin tiers. We continued to mitigate the impact of this industry-wide slowdown with actions to reduce non-productive labor costs, including overtime hours in our stores. Despite a tough macro-economic environment, the resiliency of our business model and the actions that we’ve taken allowed us to expand gross margin in the quarter.”
Broderick said existing pressures on the consumer will mean Monro won’t increase full-year sales. (The Monro fiscal year ends in late March.) “But we do expect diluted earnings per share to be higher versus prior year.
“This will be driven by actions we’ve taken to successfully re-position our cost structure as well as expanding our gross margin through properly training our teammates to maximize their productivity and optimizing our tire assortment for improved profitability.”
Broderick says the company remains “relentlessly focused” on improving its previously-identified 300 small or underperforming stores, while “maintaining a balanced approach between our tire and service categories with competitive pricing to drive store traffic and continuously improving our customer experience.
“In addition, we will continue to create cash by optimizing inventory and leveraging the strength of our vendor partners for better availability, quality and cost of parts and tires in our stores.”