Monro, Inc.

Good morning, ladies and gentlemen, and welcome to Monroe, Inc.'s earnings conference call for the second quarter of fiscal 2027. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. If anyone should require assistance during the call, please press star 0 on your touchtone phone. As a reminder, this conference call is being recorded and may not be reproduced in whole or part without permission from the company. I would now like to introduce Felix Veksler, Vice President of Investor Relations at Monroe. Please go ahead.

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. 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 gap measures are 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, Peter Fitzsimmons.

Thank you, Felix, and thanks to everyone for joining us. Great to be with you today. I want to start by saying that while our fiscal second quarter presented some real headwinds, I remain genuinely encouraged by the progress our team continues to make in executing against our performance improvement plan. The environment we're operating in is not without its challenges. Consumer spending pressures, category softness, and a dynamic macroeconomic backdrop have all created friction. But what I hope comes through clearly this morning is that the work we are doing at Monroe is deliberate, it is gaining traction, and it is positioning us well for the road ahead. This morning, I'd like to update you on our progress and the momentum we've continued to build despite a challenging fiscal second quarter. Since we completed our store closure program over a year ago, my comments today will focus on the three remaining key performance improvement initiatives you're already familiar with, which are driving profitable customer acquisition and activation, improving our store-based customer experience and selling effectiveness and increasing merchandising productivity, including mitigating the impacts of trade and supply disruptions. After that, I'll briefly touch upon our fiscal second quarter results as we continue to implement our performance improvement plan to enhance Monroe's operations, drive profitability, and increase total shareholder returns. Let's start with driving customer acquisition and activation on slide three. Many of you have heard us talk about marketing optimization over the last several quarters, and I'm pleased to report that this work continues to yield tangible results, even in a difficult demand environment. During the second quarter, we continued to refine our digital marketing and leverage the strength of our CRM platform through targeted promotional investments designed to address specific opportunities in both our breaks and oil categories. Importantly, the increased precision of our marketing execution also resulted in a year-over-year reduction in our cost per lead during the quarter. That combination, better outcomes at a lower cost, is exactly the kind of marketing efficiency we've been working to build. On the oil side specifically, We have been testing two promotional approaches. One combines transparent everyday pricing with additional promotional offers, while the other emphasizes compelling percentage and dollar-off discounts without displaying the underlying price. We believe that these promotional offerings helped us to support the improvement in store traffic we saw in September relative to July and August. We've also seen a significant increase in the average repair order for oil change visits scheduled through both our customer call center and our online appointment system, which speaks to the quality of the customer engagement these channels are generating. When you factor in service attachments, the average ticket size of these transactions grows to roughly two to three times the dollar value of an oil change by itself. That's a compelling illustration of how a well-executed traffic driving strategy can translate into broader revenue opportunity. And beyond the transaction level data, we're also seeing improvement in customer call volume in certain pockets of the country, another encouraging sign that our marketing programs are resonating. We will continue to direct our marketing spend into the areas with the highest potential return on investment, and we remain confident that this disciplined, data-driven approach will continue to strengthen our customer acquisition and activation efforts going forward. Now let's discuss the things we are doing to improve the customer experience and selling effectiveness in our stores. You have also heard us talk about the rollout of our enhanced district manager toolkit over the last several quarters and I want to take a moment to share some of the meaningful progress we've made in this area. I believe it represents one of the most important structural improvements that we are making to how we operate at the store level. As a reminder, this is a metrics-driven toolkit specifically designed to help us identify and address suboptimal operating performance with the goal of improving store profitability at the local level. I would add that data alone doesn't drive results. The difference comes from using it to coach and train effectively at every level from store managers and assistant store managers to skilled technicians. We previously indicated that we have rolled this out to approximately 340 store locations, and we are encouraged by the early results we've seen in a subset of those stores where we've already observed a meaningful improvement in just the past several months. As an example, 146 of the stores that have received DM Toolkit and coaching support achieved mid single digit growth in sales with a bottom line improvement of more than 20% year over year in the second quarter. This early traction gives us real confidence in the Toolkit's ability to drive change at scale. During the second quarter, we took an important step to further accelerate that progress by establishing a dedicated operating efficiency team. This team was created specifically to leverage and scale the toolkit's capabilities more broadly and more rapidly across our network. As part of this effort, three of our most talented and experienced field leaders have stepped into coaching and training roles, working directly with store teams in the areas of the country where the opportunity for improvement is greatest. Their presence in the field is already making a difference, and we expect their impact to compound as their work takes hold. I'm pleased to report that we have now rolled the district manager toolkit out to a majority of our store locations. This is a significant milestone. With many stores now operating with access to this tool, we have a consistent, data-informed foundation from which to drive continued profitability improvements across the entire chain. And we intend to build on that foundation with urgency and focus in the quarters ahead. Now let's turn to merchandising, including mitigating the impacts of trade and supply disruptions. After successfully completing an update in our tire assortment, our merchandising team has shifted their focus to working closely with our parts suppliers to ensure that our stores are stocking the right products at the best price to meet the needs of our customers. More specifically, we currently have an initiative underway aimed at improving the overall quality of our break assortment in many of our store locations. Continuing to work as a strong partner with our existing core vendors while at the same time identifying new vendors that can help us meet customer needs is key to helping us drive improved sales as well as Better Margins. On the category performance front, I'm pleased to report that we saw year-over-year comparable store sales growth in both batteries and maintenance services during the second quarter. While sales comps in our break category were down in the quarter, we leaned in with targeted promotional activity that enabled us to drive unit growth in this high margin service category, which we view as an important indicator of underlying demand that we can continue to build on as our assortment improvements take hold. Our confit drive inspection tool continues to play a meaningful role here as well, helping our store teams better educate customers on their vehicle needs and creating natural opportunities to connect customers with the services that matter most to their safety and their vehicle's performance. and for the second consecutive quarter, the combination of improvements to our in-store stocking programs and our front of shop presentation drove 8% growth in our battery comps. This kind of consistent repeatable performance in a specific category is a direct reflection of disciplined execution at the store level and it gives us a useful model to apply more broadly. As it relates to product access, Our supply has been largely uninterrupted by the extended geopolitical tensions in the Middle East, at least so far. While the availability of oil has impacted some players in our industry, we have continued to receive the supply necessary to meet the needs of our customers. With that said, the costs for oil have definitely risen in the current environment. We continue to partner with our vendors to understand and manage costs in what continues to be a dynamic environment. We expect to continue to strike the right balance between potential pricing adjustments to protect gross margins while also remaining competitive and delivering value to our customers. Now let me briefly touch on our fiscal second quarter results, which Brian will cover in more specific detail in just a few moments. Turning to slide four of our presentation materials, our second quarter comparable store sales declined 1.8%. This reflects an operating environment which continued to challenge the full service auto aftermarket during the quarter. Our comp store sales decline was driven by lower store traffic, consumers that continued to defer higher ticket spending decisions and traded down to lower cost alternatives in tires, and our use of self-funded promotions to drive unit growth in our break category. The effectiveness of our ConfiDrive courtesy inspection process continued to demonstrate its value in a meaningful way. ConfiDrive helped us drive average repair order growth during the quarter and it was a key contributor to the comparable store sales gains we saw in batteries and maintenance services. These results reinforce that Monroe's full service model is a genuine competitive advantage and that when we execute it well, customers respond. The ability to identify a customer's vehicle needs in real time, communicate them clearly, and address them with quality and care is what distinguishes a full service provider. And our results in these categories reflect that. As it relates to the use of the District Manager Toolkit and the improved coaching and training it enables, the infrastructure we have put in place to drive consistent, data-informed performance at the store level is real, and we expect its impact to become increasingly visible in our results as the work matures. Finally, we have maintained our marketing investment during the quarter, even as sales fell short of where we wanted them to be. This was a conscious strategic choice. We believed that pulling back on marketing in a challenging demand environment would be short-sighted and that the customer acquisition and activation momentum we are building is too important to our long-term growth objectives to sacrifice for near-term cost relief. The improvement in store traffic we saw in September and the growth in average repair order for appointments booked through our online and call center channels all validate that our marketing investments are working, and we intend to keep building on that foundation. Finally, our preliminary October comp store sales are flat, which demonstrates the resiliency of our business in a challenging environment. The initiatives we have described this morning, our marketing optimization, our store-level operational improvements, and our merchandising work are designed to strengthen our competitive position through cycles like this one. We are not standing still. We are building, and we are building with purpose. And we remain confident that the foundation we are laying today will translate into improved performance as conditions normalize. This morning, we also announced the completion of a refinancing of our business. And I want to take a moment to speak to what that means for Monroe and for our shareholders. We are genuinely pleased to have secured the support of a financing partner who understands and believes in this business, in the strength of our model, and in what our talented team has the ability to accomplish over the next four years. In an environment like this one, having a committed long-term financing partner is not something we take for granted, and we are grateful for the confidence they have placed in us. That said, I want to be equally clear about what this refinancing does not represent. It does not mark the conclusion of our strategic alternatives review process. Our board remains fully engaged in that work and continues to collaborate diligently with its independent financial and legal advisors to consider and evaluate a full range of potential opportunities. That includes, but is not limited to, Asset sales, strategic acquisitions, and operational improvements, or a sale of the company. Every option remains on the table and the board is approaching this process with the seriousness and rigor that our shareholders deserve. What I can tell you is that while this important work continues in the background, our management team remains squarely focused on what we can control. delivering service excellence to our customers every day and executing against the performance improvement initiatives you've heard about this morning. I would also reiterate that there is no deadline or definitive timeline established for the completion of the strategic review, and there can be no assurance that the process will result in any particular transaction or other strategic outcome. Given that, we do not intend to make further public comments on the process unless and until we determine that additional disclosure is appropriate or required. Before I hand the call over to Brian, I'd like to use this as an opportunity to once again thank all of our teammates for their commitment to meeting the service needs of our customers in the communities where we operate and for their continued dedication to achieving our business objectives. Keeping consumers' vehicles safe across our network of more than 1,100 stores in 32 states is a job that requires skill and dedication all day, every day. We are grateful to have more than 6,200 talented teammates in our shops and at our store support center. And with that, I'll turn it over to Brian, who will provide an overview of Monroe's second quarter performance, financial position, and additional color regarding the remainder of fiscal 2027. Brian?