Monro, Inc.

Good morning ladies and gentlemen and welcome to Monroe, Inc's earnings conference call for the third 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 telephone keypad. As a reminder ladies and gentlemen, This conference 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 Wechsler, Senior Director of Investor Relations at Monroe. Please go ahead, sir.

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 investor section of our website at corporate.monroe.com. forward slash investors, forward slash investor 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 be substitutes for comparable gap measures. Reconciliations of such supplemental information to the comparable gap measures will be included as part of today's presentation in an earnings release. With that, I'd like to turn the call over to Monroe's President and Chief Executive Officer, Mike Broderick.

Thank you, Felix, and good morning, everyone. Thanks for joining us. Let me start off by saying that our Monroe Forward Strategy and the meaningful investments we are making are driving significant change. We are on a journey to transform this great organization and unleash its full potential. Our accomplishments in the third quarter indicate clear progress towards the achievement of our transformational goals. As highlighted on slides three and four, we delivered another solid quarter and continued our momentum from the first half of the fiscal year. Q3 marks our third consecutive quarter of double-digit comparable store sales growth. Top line performance also exceeded pre-pandemic sales levels for the third straight quarter. We once again posted double-digit comp sales growth across all of our regions and categories. Our comp sales growth was led by our key break and alignment service categories, both of which grew 28% in the quarter. We are confident that normal fall and winter weather in the Northeast would have more positively impacted our tire category, which would have helped us to deliver an even stronger top line result. Encouragingly, tire unit sales were in line with the industry trends and variable gross profit per tire increased 9% year over year. The overall strength of our sales in the third quarter reflects robust demand for our product and service categories, as well as the quality of our execution and the continued traction of our Monroe Forward strategy. We continue to increase the mix of our higher margin service sales, which contributed to the improvement in gross margin during the quarter. I will discuss the specific progress we made in the critical area of staffing in just a few moments. I do want to highlight that in the third quarter, we saw higher technician payroll costs as a percentage of sales. This was largely driven by incremental investments to increase the quantity and strengthen the quality of technicians in our stores. The investments in technician staffing were critical to delivering improved top-line performance in the quarter. We were staffed and ready for winter and believed top-line performance would have been even higher with a more normal weather backdrop. As I will discuss in greater detail, we will continue to increase our technician staffing levels and ensure that we have the right mix of trained technicians in each of our stores. We are fully committed to building a best-in-class service model that our customers can rely on for their car care needs. Capitalizing on robust industry demand and multi-year industry tailwinds, this service model will position us for outsized sales and earnings growth. Moving to our fourth quarter, our preliminary fiscal January comparable store sales increased 1% compared to fiscal January of last year, and we're 4% above pre-COVID levels. Our incremental staffing has allowed us to manage through a particularly difficult six weeks, with COVID-related absences increasing significantly in our stores. Our higher staffing levels have allowed us to keep our stores open and our hours of operations normal. We expect that once this COVID wave has passed, our teammates will once again be fully focused on delivering top line growth. I'd like to use this as an opportunity to discuss the true impact of COVID on our business. We've incurred incremental expenses necessary to keep our teammates, customers, and community safe. These expenses include items such as personal protective equipment, hand sanitizer, and retrofitting our stores to allow for appropriate social distancing. Due to the service-based nature of our business, the largest impact of the pandemic has been on our teammates. COVID has required a high level of resiliency and flexibility from the teammates in our retail, commercial, and wholesale locations, as well as those in our distribution centers and store support center. We've experienced substantial disruption to our store operations throughout the pandemic, and we have always treated the costs associated with this disruption as part of our normal operating results. These include appropriate investments and necessary adjustments to our in-store procedures and business operations. We recognize COVID as a significant challenge for us to overcome, and we believe we are making meaningful progress. Leveraging the collective experience of our senior leadership team, we have driven double digit top line growth, expanded margins, significantly grown earnings per share, and generated significant amounts of cash. We have done all this while also completing value creating acquisitions and positioning our business for the future. I would be remiss if I didn't use this as an opportunity to recognize all of our teammates across the country for the incredible job they have done taking care of our customers' needs and providing stability to our business. Our people are our most important asset, and I am proud and grateful for their perseverance and unwavering dedication to Monroe and our customers. Now let's talk about the progress we made on our operational execution in the third quarter. Moving on to slide five, I'd like to update you on the critical in-store initiatives we refer to as our Big Five, as well as our store re-image program. As a reminder, our Big Five are the key areas of staffing, scheduling, training, attachment selling, and outside purchase management. These initiatives, along with the investments we are making to support them, are the single best path to sustainable comp sales growth and are expected to lead to improvements in gross profit and operating margins. And ultimately, these improvements allow us to create additional value for our shareholders through enhanced earning per share, significant cash generation, and higher returns on invested capital. Starting with the first two, which are staffing and scheduling, in the third quarter, we added over 200 high-quality net new technicians. This is incremental. to the more than 250 technicians we added in the prior quarter. Embedded within our net new technician ads is a sequential improvement in turnover of approximately 10% between the second and third quarter. This is a significant accomplishment for two reasons. First, the fact that we are adding technician headcount during the historically tight labor market demonstrates that we are progressing towards our goal of becoming the employer of choice in the auto service aftermarket industry. And second, the investments we are making in labor, particularly in our low-volume stores, represents both an important organizational pivot and essential cultural change at Monroe. Let me provide some additional context to this pivot and why this cultural change represents a critical component of Monroe's future success. Many of our stores are understaffed with some technicians working upwards of 70 hours per week with little to no time off. Amongst other things, this leads to unwanted turnover of experienced technicians. The turnover of these technicians leads to stores that are further understaffed and a customer experience that is inconsistent and far from desirable. This results in lower sales and is a key contributor to inconsistent operating performance. The investments we are making in labor are specifically aimed at addressing and resolving these issues and ensuring a more sustainable business model longer term. This is exactly the pivot and cultural change that we must undertake to assure that we can capitalize on incremental sales opportunities that will ultimately bring more consistency to our operating results. Nothing will deter us from continuing to invest in high-quality labor in our stores as we develop a reliable service model that our customers can count on and trust. This will position us to take disproportionate gains in the future as our business will be better equipped to capitalize on customer demand from multi-year tailwinds, such as an improvement in vehicle miles traveled and consumers that are holding on to their cars longer. In lockstep with our additions to in-store labor, we are also utilizing our scheduling tool to manage and control variability in labor costs so that we can match capacity with demand. and allocate resources appropriately between front of shop and back of shop activities. Our focus on staffing and scheduling resulted in a 24% sequential reduction in overtime hours in the third quarter. This reduction, along with our pricing power, allowed us to significantly offset wage pressures. Next, regarding training, we continue to significantly expand our team-made training through our online Learning Management System, Monroe University, as well as instructor-led sessions held virtually and hands-on developments done in store. Serving as a key enabler of future growth, training has been embedded in every aspect of our other initiatives, which will ensure we have the right skill set to deliver a best-in-class service model. The next item is attachment selling. Attachment selling was a critical factor in driving our comp sales growth in the third quarter. Our comp sales performance in alignments during the quarter is a great example of the headway we are making in this area. Alignment comp sales grew approximately two and a half times more than our tire category. This clearly shows how our store teams are more consistently recommending alignments to our guests, purchasing new tires, and is another example of our improving in-store execution. In addition, courtesy inspections on our customer vehicles were also critical in driving outperformance in our service categories during the quarter. We look forward to providing more insight into the benefits of our courtesy inspections as we continue to make opportunistic investments in this important area of the business. And lastly, on outside purchase management, we are consolidating our purchasing behind our high quality, high availability, low cost preferred suppliers to gain important economies of scale. This allows us to build strong partnerships with fewer suppliers. This consolidation, along with our pricing power and category management, has allowed us to significantly offset cost pressures in tires and parts. While our focus is on the Big Five initiatives, we made important advancements in our store re-image program. We initiated and substantially completed the re-image of 53 of our recently acquired stores on the West Coast in the third quarter. Most of these stores have now been equipped with our consistent approach to merchandising as well as marketing and branding elements such as new digital signage. This new digital signage displays various promotions and seasonal messages with the objective of conveying a modernized look and feel to the in-store experience for our customers. In addition, improvements such as upgraded service pods, the installation of new flooring and brighter lighting, more comfortable waiting room chairs, as well as the bathroom renovations have also created a more inviting guest experience. And while still early, we are pleased with our customer's initial response to this program. We are in the process of finalizing a full review of our portfolio of brands. And once complete, we intend to expand our store re-image program to a broader number of stores across the country. We're also continuing to perform 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 continues to position us to capitalize on strategic and value-enhancing consolidation opportunities in our fragmented industry. As part of our growth strategy, we are and will continue to be a key acquirer of successful businesses. In the third quarter, we completed the previously announced acquisitions of 17 stores with six stores added in Southern California and 11 in Iowa. As a reminder, these stores are expected to add annualized sales of approximately $25 million and further expands our geographic reach. This brings our year-to-date acquisition total to 47 stores with expected annualized sales of $70 million. Next, I'd like to provide an update on our corporate responsibility and ESG efforts. In keeping with the Monroe Ford Responsibly report that we issued last year, we are continuing to integrate elements of ESG into all facets of our business. Demonstrating the fundamental importance of these efforts, our board of directors has been engaged with us as we work to establish measurable ESG goals that not only create value for our shareholders, but also hold us accountable to our teammates, customers, and the communities where we do business. Additionally, we have been meeting with investors to take in valuable feedback as we actively incorporate ESG initiatives as a regular part of our operations and further increase the transparency of future disclosures. And while we are still formalizing our plan, some examples of ESG topics that we look forward to updating you on in the future quarters and in our next corporate responsibility report include our approach to human capital, supply chain, and other assessments, and vital enhancements being made to our customer experience. In summary, we have made significant progress this quarter as we continue to drive top-line growth and margin improvement. This ultimately enhances our earnings potential and provides higher returns on invested capital. As shown on slide seven, we are committed to the highest standards of operational excellence that will enable a virtuous cycle of earnings growth and cash flow generation, allowing us to continue investing in value-enhancing acquisitions. We will continue to build a strong, scalable platform for long-term sustainable growth. Looking ahead, our focus remains on our teammates, customers, and in-store execution, as the critical drivers to realizing the full potential of our Monroe Forward strategy. Our leadership team and our teammates are aligned with our vision. They are energized by our mission of being a best-in-class, service-first organization that prioritizes its customers and the communities it serves. Together, we are keenly 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. This focus will maximize the value that we can create for our customers and all of our stakeholders. With that, I'll now turn the call over to Brian, who will provide an overview of Monroe's third quarter performance and strong financial position. Brian.