Monro, Inc.

Good morning, ladies and gentlemen, and welcome to Monroe Inc's earnings conference call for the first quarter of fiscal 2023. 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 assistance in the call, please press star zero on your touchtone phone. And as a reminder, this conference call 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.

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. 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 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, Michael Broderick.

Thank you, Felix, and good morning, everyone. I'll spend the first part of our call this morning recapping our strategy and the progress we've made, as evidenced by our first quarter's results. I'll then discuss the divestiture of our non-core wholesale and tire distribution assets completed in the quarter as well as provide an update on our capital allocation. We are a leader in the highly resilient and largely non-discretionary auto service aftermarket industry. Given the resiliency of our business model and the robust demand for our products and services, our success remains in our hands. We are intently focused on continuous improvement of in-store execution. Over the last 12 months, we have increased staffing levels in our stores in order to meet the needs of our customers. We are focused on productivity improvement plans to drive more sales and profit at our locations. We are also executing our strategy to improve our underperforming stores, which represent about a quarter of our overall store base. Our first quarter results for this group of stores show that this strategy is working. In the first quarter, our retail comp store sales grew approximately 3%. Comp store sales in our 300 small or underperforming stores increased 15% in the quarter. As a reminder, comp store sales at these stores decreased by 8% in fiscal 2022 compared to fiscal 2020. The acceleration in sales at these 300 stores was the result of improved technician staffing levels and trading to meet customer demand. Comp sales in our remaining stores were approximately flat. These stores experienced softer consumer demand in the quarter. While a number of factors can impact demand, this softness was at least partly due to a broad-based inflationary pressures impacting the consumer, including higher fuel prices and the negative impact on miles driven. We are not satisfied with our top-line results, but we are encouraged that our entire unit market share increased in the quarter. Regarding staffing, we are in the final stages of right-sizing our store labor and believe we have built the labor capacity in our stores to meet customer demand. These investments in additional headcount and inflationary wage pressures increased our technician labor costs as a percentage of sales in the quarter by 200 basis points versus the same period last year. This was a 50 basis points sequential improvement resulting from an increase in sales per tech hour and a 9% reduction in overtime hours. Our first quarter demonstrates clear progress. In order to meet our mid single digit comp store sales growth expectations, we still have important work to do. It is now about properly training our technicians and reallocating resources between the front of shop and back of shop investments to maximize store productivity. We are focused on training our new and existing teammates on the key in-store processes that drive sales and deliver an outstanding guest experience. These include store scheduling, phone skills, courtesy inspections, and becoming our customers' most trusted vehicle advisor. we continue to improve in these operational areas. While comparable store sales in our 300 small or underperforming locations were up nearly 10 percent, continued softness in consumer demand in our remaining locations resulted in a decrease in preliminary comp store sales for fiscal July of less than 1 percent. Now that our staffing initiatives are almost complete, we are carefully managing expenses in the business, which we expect to drive profitably. As we continue to capture productivity improvements from our technician staffing investments, we expect to deliver better sales and gross margin results as fiscal 2023 progresses. Now turning to the divestiture we announced last quarter. In June, we successfully completed the divestiture of our wholesale and tire distribution assets to American tire distributors for a total transaction value of $102 million. We received $62 million at closing and the remaining $40 million will be paid to us quarterly over approximately two years based on our tire purchases from or through ATD in connection with the supply agreement we entered into with them. We are pleased to report that our partnership with ATD is off to a great start. giving us much better availability, quicker delivery, and better pricing. Aside from the cash flow generated from this transaction, it has sharpened our focus on our retail store operations. This is our core strength and where we will concentrate all of our energy and resources. I'd like to thank all of our teammates for their hard work in bringing this transaction over the finish line and for their ongoing dedication to our customers. I'd also like to wish those teammates who transitioned over to our partner at ATD all the best in the future. Lastly, an update on our capital allocation. The proceeds received from the completed divestiture, excess cash being generated by our retail operations, and the strength of our balance sheet allows us to continue to return capital to our shareholders at the same time as we pursue our growth strategy. During the first quarter, we expanded our long-standing policy of sharing our results with our shareholders through an increase in our dividend, and we began executing on our share repurchase program, which authorizes us to repurchase up to $150 million of the company's common stock. As part of our growth strategy, we continue to carefully review value-enhancing acquisitions while maintaining our disciplined approach in evaluating multiples. We believe we have significant capacity to acquire businesses which fit into our overall strategic plan. In summary, as we continue to navigate an uncertain macro environment, there is robust demand for our products and services. In-store execution is our greatest opportunity for improving results and is firmly in our control. Our staffing initiatives and focus on our small or underperforming stores delivered retail comp store sales growth in the first quarter. As our training and productivity initiatives take hold, we expect to deliver continued improvements in sales and earnings. The divestiture of our non-core wholesale entire distribution assets will allow for a sharper focus on our retail operations. Significant cash flow generation will allow us to return capital to shareholders through healthy dividend and share repurchase programs, as well as capitalize on acquisitions. With that, I'll now turn the call over to Brian, who will provide an overview of Monroe's first quarter's performance, strong financial position, and additional color regarding fiscal 2023. Brian?