Monro, Inc.

Good morning, ladies and gentlemen, and welcome to Monroe, Inc.' 's earnings conference call for the second quarter of fiscal 2022. 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 operator assistance during the call, please press star zero on your touchtone phone. And as a reminder, ladies and gentlemen, this conference call is being recorded and may not be pre-produced in whole or in part without permission from the company. I would now like to introduce Ms. Maureen Mulholland, Executive Vice President and Chief Legal Officer at Monroe. 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 forward slash investors forward slash investor hyphen resources. 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 Monroe'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 Monroe's filings with the SEC and in our earnings release. and include the significant uncertainty relating to the duration and scope of the COVID-19 pandemic and its impact on our customers, executive officers, and employees. 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 statements include a discussion of certain non-GAAP financial measures, which are intended to supplement and not to 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. With that, I'd like to turn the call over to Monroe's President and Chief Executive Officer, Mike Broderick. Mike?

Thank you, Maureen, and good morning, everyone. Thanks for joining us. We had another strong quarter to round out a great first half of the fiscal year. Top line performance surpassed pre-pandemic levels and we achieved another record sales quarter. We delivered double digit comparable store sales growth across all our regions and categories. This was driven by strong demand, continued implementation of our Monroe Forward initiatives, and consistent execution across the organization. Our last few quarters, I've witnessed the skill and determination of our seasoned leadership team and our teammates across the nation. I'm appreciative of the hard work they're doing to drive our business towards the goals we have set while navigating through a challenging environment over the last 18 months. Turning to slide three, as we continue to deal with COVID-19 and its impact on our stores, teammates, and customers, We are encouraged by our strong fiscal first half performance and remain confident in the strength of our business for the remainder of the fiscal year. Encouragingly, vehicle miles traveled continues to improve as drivers return to the road. Additionally, consumers are holding onto their cars longer, as evidenced by lower new car sales. As a best-in-class service provider, we believe we are well-positioned to capitalize on these favorable trends. and the strengthening of the demand environment. We are particularly encouraged to have increased our service sales as a percentage of total sales during the quarter, contributing to improved gross margins. Our second quarter performance reflects both higher traffic and higher average ticket. We continue to manage our business to ensure our staffing levels are appropriate and our marketing efforts are optimized with the intention to efficiently match capacity with demand. Notably, on slide four, we exit the second quarter with strong momentum into our fiscal third quarter with comps up approximately 14% in fiscal October compared to comps down 12% in the same period last year. Moving to slide five, we are relentlessly focused on improving our in-store operational execution in the five key areas, or what we call the big five. staffing, scheduling, training, attachment selling, and outside purchase management. We've already made investments in technology to assist us in delivering improvements in these areas, specifically our technology-based labor and scheduling tool and our online learning management system, Monroe University, which provide the foundation for managing and developing our most important asset, our teammates. We are now using this foundation to drive tangible improvements in our business. regarding staffing and scheduling. We are optimizing our staffing levels and store schedules to ensure that every store is staffed with the right number and skill level of technicians every hour we are open. This ensures we can perform our services at a time convenient for our customers and has directly contributed to the outperformance of our service category comp sales during this fiscal year. While we are encouraged by the results to date, We have a significant amount of opportunity in this area. Over the past 90 days, we have made considerable inroads against a historically tight labor market by hiring over 250 net new technicians. Although the environment remains challenging, this marks a positive inflection where we were in the first quarter of the year. We strive to be the employer of choice in the auto aftermarket service industry as we recognize that our highly adept technicians are integral to the success of the entire organization. Regarding training, we are augmenting our online learning management system with virtual instructor-led training, as well as with in-store training performed by our highly skilled field trainers. We are using these different training methods to support not only our focus on the Big Five, but to deliver other important content to our teammates, This content centers around the critical factors that make a store successful and is tailored and targeted to both store management and technicians. We've laid out a clear path for how our teammates will be the key enabler for us to realize the full potential of our growth strategy. Operational excellence starts with our teammates, and we continue to make investments to drive motivated, inclusive, and high-performing teammates. The next item in the Big Five is attachment selling. As customers come to our store, they want to make sure they are receiving top-tier care from someone they trust to work on one of their most valuable possessions. Our complimentary inspection ensures that not only is the customer's car being serviced appropriately, but also that any other problem associated with this vehicle can be addressed. This also provides us with the opportunity to offer additional products and services. We are committed to ensuring that our technicians perform the complimentary courtesy inspection on every customer vehicle. This allows our store managers to present the needed work and provide our customers with a solution to their car care needs. Improvements in our execution of the courtesy inspection and the related selling of the additional services was another contributor to the outperformance of our service category comp sales during the fiscal year. Again, encouraging, but we still have opportunity in this area. Our objective is to be the trusted partner for any automotive issue, and the courtesy inspection helps to quickly establish a relationship with the customers that can last for years. Which brings us to the last item in the Big Five, outside purchase management. We continue to consolidate our purchasing power behind our preferred suppliers within both the tire and parts categories to take full advantage of our buying power and scale. This allows us to leverage relationships with key suppliers while maintaining appropriate diversification in our sourcing strategy. An important part of this consolidation is making sure that any purchases made by our store teams are being made with our preferred suppliers. We have made improvements in this area through training, technology, and process that have been a contributing factor to our gross margin improvement. This consolidation in tandem with an increased focus on our company-owned distribution positions us to support continued growth and profitability going forward. Our experienced management team has been instrumental in driving our business forward and navigating through COVID, and I cannot thank them enough. They have been motivated and focused, and we look to continue to build upon our accomplishments to drive operational excellence. At the heart of our mission is being a best-in-class, service-first organization that prioritizes its customers and the communities it serves. We are focused on bringing customers the professionalism and high-quality service they expect from a national retailer with the convenience and trust of a neighborhood garage. We also remain committed to our store re-image program. We are currently focused on bringing the stores that were currently acquired on the West Coast in line with our standards. and kicked off this work at the beginning of October. Following the completion of comprehensive review of our various brands, we will move forward with the re-image of our remaining stores as needed. We are also performing a review of the inventory stocking plan needed to support any store-level brand changes. Turning to slide six, our strong cash flow and balance sheet positions us to take advantage of strategic and value-enhancing consolidation opportunities in a fragmented industry. Similar to the past quarters, we are and will continue to be a key acquirer of family-owned businesses. We are excited about the 17 stores we are expecting to add to our portfolio in the next quarter with six in Southern California and 11 in Iowa. These stores are expected to add annualized sales of $25 million and will further our geographical expansion. This will bring our year-to-date acquisition total to 47 stores. with expected annualized sales of $70 million. We are looking to expand upon this success, and we still have a large runway to deliver more store openings. With regards to our corporate responsibility and ESG efforts, we've been taking these months following the release of our inaugural corporate responsibility report to work with our senior leadership team, and to engage with our field managers to continue creating a framework of new and current initiatives against which we can measure our progress in this area. Our efforts are structured around the pillars of teammates, customers, communities, and environments, which include business practices throughout Monroe that we believe can aid our resilience over time. The Board of Directors, through our recently renamed Nominating and Corporate Responsibility Committee, is engaged with us on these issues as we continue along our journey. We look forward to sharing additional information on these important initiatives in the quarters and years ahead. Ultimately, we delivered improved performance this quarter and see a number of opportunities for both top line and margin expansion going forward. We believe our steadfast commitment to operational execution will continue to drive strong cash flow that will enable us to invest in attractive acquisitions to build a strong, scalable platform for sustainable growth. As we look ahead, our focus on our customers, teammates, and in-store execution will be the key drivers to realize the full potential of our Monroe Forwarding Strategy. We will focus on advancing our vision to be a best-in-class field-led service organization to increase the overall lifetime value to our customers and stakeholders. With that, I'll now turn the call over to Brian, who will provide an overview of Monroe's second quarter performance and strong financial position. Brian?

Thank you, Mike, and good morning, everybody. Let me take a few minutes to talk about our second quarter performance and the meaningful progress we made in the quarter. Turning to slide seven, sales increased 20.5% year-over-year. to a record $347.7 million in the second quarter, up approximately 7% compared to pre-COVID levels in fiscal 2020. Same-store sales increased 14.8%, driven by broad-based strength across all product and service categories. Sales from new stores increased by $17.8 million, including $17.2 million from recent acquisitions. Gross margin increased 140 basis points from the prior year to 37.6%. The year-over-year increase was due to higher comparable store sales, which resulted in lower fixed distribution and occupancy costs as a percentage of sales. Also contributing was a higher sales mix of service categories compared to the prior year period. Variable gross profit was positively impacted by a 10% year-over-year increase in gross profit per tire, reflecting the ongoing benefits of our tire category management and pricing tool. Regarding labor costs, our training initiatives continue to drive increased labor productivity. However, our technician labor as a percent of sales increased from the prior year period due primarily to overtime hours worked to service increased demand. We expect overtime hours to decrease as we continue to hire additional technicians in our stores. We also expect continued gross margin improvement versus prior year as our service category sales strengthen. We continue to execute discipline cost control with total operating expenses of $96.2 million or 27.7% of sales as compared to $80.1 million or 27.8% of sales in the prior year period. The dollar increase is due to higher store management and advertising expenses in the quarter to support strong consumer demand. The remaining dollar increase was from the expenses of 46 net new stores. Operating income for the second quarter grew substantially to $34.5 million, or 9.9% of sales, as compared to $24.4 million, or 8.5% of sales in the prior year period. Net interest expense decreased to $6.3 million as compared to $7.3 million in the same period last year. This was principally due to a decrease in weighted average debt. Income tax expense was $7.3 million, or an effective tax rate of 25.7%, compared to $4.3 million, or an effective tax rate of 25.2%, in the prior year period. Net income was $21 million as compared to $12.8 million in the same period last year. Diluted earnings per share was 62 cents compared to 38 cents for the same period last year. And adjusted diluted earnings per share, a non-GAAP measure, was also 62 cents. This compares to 39 cents in the prior year period, which excluded a penny per share in Monroe Forward initiatives and management transition costs. As highlighted on slide eight, we continue to maintain a solid financial position to support our operations and enable the execution of our long-term growth strategy. We generated $102 million of cash from operations in the first half of fiscal 2022, and we maintained our measured approach to capital allocation and invested $10 million in capital expenditures, paid $62 million for acquisitions, and spent $19 million in principal payments for financing leases. Additionally, we distributed $17 million in dividends. Our balance sheet and liquidity position remained strong. At the end of the second quarter, we had net bank debt of $163 million and a net bank debt to EBITDA ratio of 0.9 times. We had cash and cash equivalents of $7 million and availability under our revolving credit facility of $400 million. Earlier this month, we amended our credit agreement primarily to reduce our LIBOR interest floor from 0.75% to 0%. We expect this will contribute $1 million in annualized interest expense savings at our current debt levels. As we progress through fiscal 2022, we remain committed to managing our business for maximum cash flow. First, we plan to continue to make operational enhancements across our business to expand margins. These efforts combined with top line improvement will drive EBITDA growth and increase cash flow generation. In fiscal 2022, we continue to expect approximately $15 to $20 million in structural cost savings in addition to $5 million in benefits from store closures compared to fiscal 2020. In addition, we remain focused on working capital improvement we believe we have additional opportunity in this area. Turning to our outlook on slide nine, the COVID-19 situation remains fluid, which makes it difficult to accurately forecast the impact of the ongoing pandemic on our future operations. While we're not providing formal guidance for the remainder of fiscal 2022, we remain optimistic given our second quarter momentum and strong third quarter to date sales trajectory. In addition, We have provided some financial assumptions to assist with your forecasting. We expect tire and oil costs to continue to increase year over year. Considering the inflationary environment, we will continue to optimize our supply chain, leverage our strong strategic partnerships, and capitalize on our cost leadership position. We have a long history of managing the business successfully through periods of inflation. Lastly, regarding our capital expenditures, we expect to add approximately $30 to $45 million of CapEx in fiscal 2022, depending on the amount of store refresh activity that we undertake. And with that, I will now turn the call back to Mike for some closing remarks. Thanks, Brian.

We're encouraged by our robust performance in the second quarter and optimistic about the outlook of our business for the fiscal second half. Overall, we believe we remain well positioned to capitalize on strong demand while having the financial flexibility to execute our growth strategy. and deliver long-term value for our shareholders. With that, I will now turn the call over to the operator for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first questions come from the line of Jonathan Lammers with BMO Capital. Please proceed with your questions.

Good morning. Good morning, Jonathan. Mike, now that you've been in the seat for another quarter, you've indicated you see a number of opportunities for top line and margin expansion going forward. Is there anything further you can tell us about changes you're planning to make to the retailing strategy or the acquisition strategy? Just trying to get a sense of what types of opportunities we should be thinking about.

That's a good question, Jonathan. I would say very much so, even in my prepared remarks, I'm very focused on in-store execution. And a lot of my attention is being spent, a majority of my time is being spent on making sure that comes to life. My number one focus is getting comp sales to significantly expand, where we can show that we have a very strong model, which will then make us a better acquirer of family-owned businesses, because they can trust that we know how to run a business. We could actually be a better employer to new teammates, because they actually see that they're able to make a living working for Monroe. And then last but not least, I think that we share with... I can actually... basically contribute that conversation or the shareholders will actually see the benefit of our performance at the store level in our earnings performance. So very much for the first six months I've been with the company, it's focused on bringing that store experience to life. And I spent a lot of time in my prepared remarks basically highlighting the big focuses for the business. In the future, there is more to retail than store execution. It's a very fair question. I look forward to sharing that to you over the next six months to a year.

Okay, great. And Mike, maybe one follow-up on your prepared remarks. You mentioned courtesy inspection services were a strong contributor to the comp this quarter. Was there a step change in training to support that or the rollout of that, or was it just sort of a highlight this quarter?

That courtesy inspection, I'm glad you brought that up also. It's so important to our organization. Going back to some of the tools that the team have actually deployed, even before I came on board when we talked about the labor scheduling system, we are actually giving our teammates time in order to perform that courtesy inspection. That is a big unlock to making sure our teammates, our qualified technicians, can actually be properly scheduled, that they're available for the services that our customers are expecting. So what I actually feel like what happened over the last six months is the fact that we brought our in-store focus execution, combined that with our labor scheduling, and one of the things that really came to life was having time and technicians who are properly skilled to be able to do the courtesy inspections. And that's an expectation in our business model.

Got it. And a lot of the issues people are worried about for the industry, like labor shortages and supply chain challenges, you seem to have blown through those this quarter. Are you able to comment on any change in your ability to maintain staffing or recruit technicians recently and what effect the supply chain snarls might be having on operations?

Let me start by recognizing our HR organization driven by a recent add to the organization, Matt Henson. I said it was going to be a very important hire of mine. It has come to life in his short tenure and the whole HR organization teaming up with our operations team. Lo and behold, we now have a system to be able to tell us where the greatest needs are and what needs, the skilled employees that we actually need. So when you look at the combination of a very strong HR organization coming to life, teaming up with a seasoned operational organization, and then using technology, I would say when you put those three things together, it is actually literally giving us momentum, and we have a long way to go. But we are making significant, that is an achievement of our organization, and I look forward to even bigger and better numbers to share with you. Now, let's go back with inflation and supply chain. This really goes back to I've been in the business for 30 years. It's all about partnerships. It's all about relationships. For us to be a great customer to these preferred suppliers, we need to share with them like our, we need to be better as a customer and to our customers, but we should be able to be very reliable so that they can really factor our demand into their overall service so that they basically manage capacity for us as well as that we share with them what is our demand forecast and they can incorporate that into their supply chain. And I think these are the things both on tires and parts that are just coming to life over the last six months.

Thanks. And one more. Brian, you mentioned you're expecting further mix improvement. to benefit gross margin into the next quarter. To be clear, are you seeing continued improvement in service sales in October versus September? Or is the comment more that the service sales are, I mean, have they returned to pre-pandemic levels? And if so, when did they? And can you comment on the October versus September?

Yeah, I would say, Jonathan, that related to the trends, we saw the outperformance of service in Q1 continued into Q2, those same trends that we've been reporting on are continuing into October. So the constitution of that plus 14% is very similar with service leading, but continued strength in tires. And in most categories, we are back to pre-pandemic levels. There are a few maintenance categories that are not, but our main categories like brakes, obviously tires are back to pre-pandemic levels.

Thanks. I'll pass the line. Thanks, Jonathan.

Thank you. Our next question has come from the line of Brian Nagel with Oppenheimer. Please proceed with your questions.

Good morning. Congrats on another nice morning. So I'm going to ask, I think this is somewhat a question I've asked in prior quarters, but just as we look at the results today, and particularly the impressive comp store sales gain, in recognizing that you have a very, very fluid backdrop for your space and really consumer broadly. But, I mean, how much of it – could you parse out the sales growth we're seeing, the improvement of the business versus what's a rebounding healthy backdrop versus the internal initiatives at Monroe?

Brian, it's a good question. I would say that we're really focused on just the health of the business. So in the past, we shared with you our mix of tire and service was approximately 56% to 44%, and that's navigating to 53-47. I think that that ultimately is driven through the store execution, bringing to life the service categories. Now, we don't want to stop there. We want to have a healthy tire business, but it needs to be complemented with a healthy service business, and our ratio should be more like 50-50. I think as we move to a 50-50, I give credit to the team, most definitely the team. of really bringing that to life. And that all goes back to making sure our stores are ready for the customers, doing the routine inspections, and that's something that's very much in our control.

Perfect. And then maybe as a follow-up to that, again, recognizing just the fragment nature of your space, but Is there any data you're looking at to give us a better idea of market share here, market share for Monroe lately?

Yeah, I think, Brian, we've talked about market share in the past. We've kind of broken it up because we've got different pieces to our business that not everybody has where you're trying to compare to. As you look on the tire side of our business, You know, we are tracking at or above industry units, and we continue to do that. We did that throughout the pandemic, so we feel good about our unit share on the tire side. With that, though, we're driving significant average selling price improvements as we improve our mix there. And we talked about our gross profit per tire being up 10% year over year, so continuing to see profit while we drive that volume. So I think on the tire side, we feel good about our market share position and the profitability that we're driving while continuing to hold and grow that market share. On the service side, it's a little more difficult, a little more fragmented, and we probably look at a lot of the same data points that you do. But that being said, we feel really good about our service business being up 50 plus percent in Q1 and being up in the 30 plus percent in Q2. And we think that that holds up very well to what we are seeing out of the other data points that we observe.

I appreciate it. Congrats again. Thank you. Thanks, Brian.

Thank you. Our next questions come from the line of Brett Jordan with Jefferies. Please proceed with your questions.

Hey, good morning, guys.

Morning, Brett. Could you talk a little bit and maybe sort of parse out the impact of inflation, I guess, labor versus parts versus tires? And when you think about your comment, traffic and ticket were both up, could you maybe give us a feeling for like what we're seeing in ticket from pricing?

Brett, I said both ticket and average ticket and traffic actually were contributors to our success in the second quarter. If I can just remind everybody about the inflation in our business. Labor, on the parts side, the labor inflation on parts is a very small part of the service performance. On the tire side, Brian talked about it in his prepared remarks, that is an opportunity that we're going to have to manage. We're not seeing a lot of inflation because our customers are choosing to go through good, better, best. So as prices are starting to move up, they're starting to make decisions around our choices. And it's always about the value that we bring at Monroe to our customers. We're giving our customers a lot of choice so that they can actually manage what's happening in the price marketplace. Lastly, Monroe is very competitive. Through our category management tool, we understand what the prices are in the marketplace, and we're staying right on the market. And we're actually giving our customers through just strong category management that appropriate choice at every store and every community that we serve.

We're hearing about mid-single-digit price increase from the parts side. Are you passing those through or are you eating some of the cost inflation?

We will continue to do just like Monroe has always done because I've been calling on it for 20 years. If we do take a cost increase, we will pass them through, but our number one goal is always to stay competitive. Part of that cost increase, if we do need to pass it on, it's actually to give our customers more choice so that we can manage the overall gross margin and gross profit from those sales.

Okay. And then a question on M&A. You're picking up 11 stores in Iowa, sort of a new market. What's your thought, I guess, as far as M&A geographic targeting? Are you pretty much open to all markets, or are you trying to remain sort of contiguous? I mean, when you think about buying, are there areas of focus?

I would say that I love the opportunity that we walked into Iowa, so I really look forward to bringing that acquisition to life and working with that team. But I've said in the past, I'm very focused on the Southwest and California.

Okay, great. And I guess in the past, prior to your arrival, there was talk about adding distribution as you got density in some of these new regions. Do you think more around partnerships for supply as opposed to self-distribution? Or do you think about building out markets and adding distribution infrastructure yourself?

It's a really good question. I would say that that's something I would like to talk to more in the future. But in the meantime, to answer your question very directly, I really do believe in partnerships. on the part side and especially on the tire side. There's a lot of capacity out there. And then augment that with our own distribution. We're just really in an incredible position to be able to navigate the next six months to a year if there is any supply issues in order to support our stores and customers.

Great. Thank you.

Thanks, Brett.

Thanks, Brett.

Thank you. Our next question has come from the line of Rick Nelson with Stevens. Please proceed with your question.

Thanks. Good morning. I'd like to follow up on the acquisition environment M&A opportunities. If you could speak to the multiples that you're seeing, perhaps the 17 stores you announced today, and do you expect to rebrand those stores?

Rick, good talking to you. Great question. So the multiples that we're seeing on the deals that we've gotten done over the last 18 months are consistent with the multiples that we've talked about historically. So nothing to call out from a multiple standpoint on these deals. Related to the brand choice, we'll be looking at all of them, but most likely the Iowa stores will be part of our CarX brand. And then also the Southern California stores will be part of our brands that we're going through right now. We talked about a brand study, and we'll be making sure that we bring those stores into the right family of brand to maximize the opportunity there. Right now we've got Mountain View stores in California, Allen Tire stores in California, and Tire Choice stores in California. So there's a choice for us to make there that we're working through.

Did you forecast that show narrowed those three brands to one in California?

I think that's very fair to say that that's part of the brand studies to understand what is relevant to our customers. All three brands have relevance to the consumer. But more importantly, what we're trying to figure out with the brand is, What do our customers need to know about the brand to really make it relevant in the communities that we serve? So it's a two-pronged approach when we're looking at this brand study. Obviously, we want to make it very consistent. We want scale. We want to be able to make sure people understand the Monroe family of brands and what they stand for.

Okay, Jim, thanks for that. Also, it was mentioned you added 250 taxes. I'm curious how many you think you need at this point to meet demand and eliminate some of the overtime that you've incurred.

I look forward. I don't think I'm going to share that specific number, but I think that what you'll hold me accountable for in the future is the appropriate number, and I think how it's going to flow through to the P&L is really the drastic reduction in overtime. and the fact that we can manage capacity in a much bigger, better way so that we can have some outperformance on total comp.

Thanks for that. Also, as I look to the tire category, lagging brakes and alignments, any drivers there, I'm curious how tire units perform in the quarter, how you think the industry is

grew in that period Now we do have industries probably very similar industry data that everybody else is looking at one thing that Brian already highlighted it was the fact that we actually from what we look at we actually took Unit share in over the last over this time period so we feel very strongly about the growth of our tire category now I've talked about this previously Although 10% comps are lagging the other categories, I look at that still as a very strong contributor to our business model. We're very focused on tires, but what I'm excited about is how our service categories are really coming to life in a big way along that tire category. Once again, going back to in the past, we were 56-44 on a mix, and we are trying to narrow down that very healthy range, that ratio of 50-50. And we believe for our shareholders, they're going to see that in our margin improvement, as well as our teammates are going to be able to see that in ticket and in their compensation.

That makes sense. Thanks a lot, and good luck.

Thanks, Rick. Thanks, Rick. Thank you. Our next questions come from the line of David Bellinger with Wolf Research. Please proceed with your questions.

Hey, everyone. Good morning. Thanks for taking my question. So comps rebounded nicely into the mid-teens here, but as you look across the business and the labor constraints that are out there broadly, even with these 250 new hires, do you think that the tighter labor situation is still holding back sales in some way?

I've been a long-term retailer. It's always focused on the people. So the easy answer to that question is the fact that, yes, I would always like more people. But I do believe that it needs to be a combination of not only more people, but more skilled people. So that's why we're focusing more on training and making sure that when we bring these people on, we're bringing them on properly. And lastly, it's about retention of those teammates. We do have a lot of technicians, over 5,000 technicians right now. How do I maintain, keep them employed? and actually make sure they make a living. That's some of the focus that we're talking about when we are looking at our advertising, managing our advertising, really starting to capture that service category as well as continue to capture our tire categories. Finally, when I look at the capacity, we're coming into the winter selling season. And I really want to recognize the team's work on bringing on more technicians. I do believe we are positioned extremely well to capture market share over the winter selling season.

Got it. Okay. And then my follow-up, Brian, you mentioned most categories were back to pre-pandemic levels. What are you seeing in regard to transaction counts? Are those still normalizing? And do you expect to see more of a shift to ticket growth versus transactions ahead, just given the inflationary backdrop we're seeing?

Yeah, related to last year, we said it's traffic and ticket. I would say that as you look at pre-pandemic levels, we've done a good job of building ticket between now and then, but traffic is continuing to improve. So I think we've got the opportunity as traffic fully recovers to pre-pandemic levels with the average ticket that we've built in. That's really where we start to see outperformance, significant outperformance from pre-pandemic levels. But as it relates to the year-over-year improvement, it was driven by both ticket and traffic.

Great. Thank you very much.

Thanks, David. Thank you. Our next questions come from the line of Stephanie Moore with Truist. Please proceed with your questions.

Hi, good morning. Thank you for the question.

Good morning.

I believe in the past it was discussed about the potential to build out density or your store base through greenfields. I would love to hear an update on any update on just the strategy to grow via greenfields and not just acquisitions. Thanks.

Good question, Stephanie. Thank you. Yes, I absolutely brought that up. If we can't acquire properly, then we would build in the communities that we want to go to. There's a lot of green space out there, and we're just looking at that as an opportunity to bring that to life. But right now, it seems like there's a tailwind on acquisitions, and we're going to continue taking advantage of it, and the team is very focused on bringing those acquisitions to life.

Understood. Thank you. And then as my follow-up, you know, also I think there's some online initiatives built through partnerships with, you know, call it Amazon, but also some of the own investments that were made behind some of your mid-row brands. So maybe just where you stand on just building out more of an online platform as well. Thank you.

Yes, Stephanie. Related to our online presence, I think that the areas that we've made some really significant strides with our technology is our ability to accept online appointments and efficiently communicate with the guests related to those appointments, how that translates into the store and the store's ability to communicate with those guests after an appointment is made. So I think that's a big part of our focus has been really taking some of the friction out of that and in particularly doing that obviously for mobile, which is where the most of those appointments come through. As it relates to actually transacting online through e-commerce, that's been something we've had on our roadmap at a lower priority just due to the limited share of transactions that occur online, particularly in our categories. Our partnerships with our online tire sellers remain important to us. There's been no real changes in terms of how much those represent as a percentage of our sales or how much we see those sales in general represent of the industry. So we've appropriately continued to manage those relationships and use them for what they are, which is a great way to speak to guests that we wouldn't have necessarily talked to otherwise, get them into our store to be able to build that relationship through the courtesy inspection like Mike talked about. and then be able to convert them into a loyal Monroe customer for the services that we can provide them and the other cars in their household. So that's a key part of it. But at the same time, it's still tracking where it historically has.

Got it. Thank you. And then lastly for me, more so a strategic question about the future with EVs. And I think in the prepared remarks, you walk through being able to service all vehicles which I would imply, you know, obviously EVs and others. But, you know, have you in certain markets, you know, maybe just your presence in California where you do have high EV penetrations and actually getting now an EV used vehicle market or a little bit older, have you had to build out some additional or make investments in new technology that supports the maintenance of EVs? I know the maintenance looks a lot different, but From what I hear, it certainly does happen in certain areas. There's still a need for it, so to speak. So maybe you could just talk about small pockets of investments maybe made behind EVs. Thanks.

Stephanie, good question. This is Mike. We have not invested for EV, but I absolutely am taking advantage of the EV marketplace right now, and the teams are servicing those cars extremely well. We are replacing tires and brakes on electric vehicles right now. I'm sure we have in some of our shops. But going back to how we're going to position ourselves for the future, it really does go back to our training initiatives, hiring initiatives, scheduling initiatives. We want those vehicles to come into our shops. We want to be ready to be able to service those vehicles. And, yes, when we need to make investments in order to become relevant in that space, and that space becomes extremely relevant to our car park, we'll be ready for it.

Great, thank you so much. Thank you, Stephanie.

Thank you. Our next questions come from the line of Scott Stember with CL King. Please proceed with your questions.

Good morning, guys. Morning, John. I jumped on a little late, but did you give the comps by month in the quarter?

I did not, but I'll just say that they were all between 14% and 15% for all three months. very tight group and a very consistent, and obviously that carried on into October at 14%.

Okay, and what about regional performance? Are you seeing strong growth across the board, whether it's up at Mid-Atlantic, Northeast? Did you talk about that?

Yeah, all regions were double digits. The Northeast and the West outperformed a little bit year over year, just because I think they were underperformed last year at this time, so they caught up on a two-year basis, everything's pretty consistent.

And you said that basically everything or most everything is back to pre-pandemic levels. Could you share with us if there's any category in particular that is not and why that's not the case?

Yeah, I think, I mean, the only area where we're seeing some pressure still is on our oil change business. The The consumer is migrating back to our full-service offering. It's taken a little bit longer than some of the other categories, but we look at that still as a positive trend in our oil category, just lagging the other categories.

All right, just a last question, bigger picture. You guys are not giving out guidance still, and clearly it seems like the business is back on the much more farmer footing. Are we getting closer in the next quarter or so if things remain at this level to reinstating guidance?

Scott, it's something that we're considering. We're asking ourselves that ourselves, but right now we're still very much managing COVID, and we don't want to really put the cart before the horse. We want to get through the winter selling season.

Scott, that's fair enough. Thanks again. Thank you. Thanks, Scott. Thanks, Scott.

Thank you. Our next questions come from the line of John Healy with North Coast Research. Please proceed with your questions.

Thanks. Mike, I wanted to ask a big picture question. I know numerous times in the call you talked about in-store execution, but just as it relates to the initiative of outside purchase management and kind of sourcing and product screens, any sort of takeaways there now that you're six months into being with the company that might be more major initiatives that could take place on that front? And now that you're kind of inside the company as opposed to kind of selling to the company or working with the company externally, any sort of observations on product screens and sourcing and, you know, the type of product that you're ultimately putting on vehicles?

That's really a good question, and thank you for asking that, John. Let me separate the two on tires, starting with tires and separate it from parts. On the tire category, just-in-time inventory is extremely important. as well as parts, but the tire category, I can't stock all the tires in my back rooms. So relying on partnerships and becoming bigger with fewer, I think is very relevant to the tire category. There's a lot of capacity out there, and our stores really demand everyday delivery, and that's gonna require partnerships on tires. It also navigates our supply chain issues and any constraints that we might have in the future on supply. Now, in the parts category, I think this has been really a success of the team is funneling all our purchases to our preferred suppliers on the parts side. And that way we can manage the quality, which you already highlighted, also the assortment that we bring to life for our customers so they can choose good, better, best. And it gives our team an opportunity to potentially sell through new categories. In the past, I've talked about How do we bring to life, we're very good around the wheel, meaning brakes and tires. How do we start moving into that very profitable business of underhood? And that's going to require us to really expand beyond our internal supply chain and really, really, really relying on our preferred providers to bring the training to life as well as the parts to life at the local level.

Great. That's super helpful. And then just wanted to ask another question on EV. You know, we've heard this kind of talked about a little bit in the industry that electric vehicles, one of the observations byproduct of them is that it seems to create more and different type of wear on tires and that tire replacement activity actually maybe is increased because of EV. Just kind of curious, like if you have seen anything like that, Anecdotally, is that a conclusion you guys have made by looking at your stores, or just your view on what the EV category could do to ultimate tire replacement demand longer term?

On the EV side, I have nothing new to share around the EV on the category management perspective. We are actually seeing the cars in our shops. We are replacing tires on the electric vehicle, and that's all mixed models. We just feel a lot of upside. When you look at the functional fluids, everything is changing in that business model, and we'll be ready for it. Now, in the meantime, changing out tires on an electric vehicle, just like an internal combustion engine vehicle, is exactly the same in many ways. So our teams are very much ready to take care of those cars, and then we can expect the brakes. They have suspension problems because of weight capacity. We just see a lot of upside as the industry, if it does go quicker, we'll be ready for it, and there's a lot of upside for Monroe.

Great. Thank you so much. Thank you.

Thank you. There are no further questions at this time. I would like to turn the call back over to management for any closing remarks.

Thank you for joining us today. This is an exciting time to be part of Monroe. We have a strong foundation to build upon to create long-term value for all our stakeholders. I look forward to keeping you updated on our progress. Have a great day.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.