Monro, Inc. Q2 FY2026 earnings call

• Peter Fitzsimmons discussed 4 key areas for performance improvement: driving profitable customer acquisition/activation, improving store customer experience/selling effectiveness, increasing merchandising productivity (including tariff risk and real estate disposition of underperforming stores). - Brian D'Ambrosia provided details on second quarter results: sales, gross margin, operating expenses, cash flow position. - Progress in customer acquisition via digital marketing tools, expansion of customer call center, new merchandising team members, and store real estate disposition progress.

Sales decreased 4.1% to $288.9 million in the second quarter. This was primarily driven by the closure of 145 underperforming stores, partially offset by a 1.1% increase in comparable store sales from continuing locations. Gross margin increased 40 basis points compared to the prior year, driven by lower occupancy and material costs partially offset by higher technician labor costs. Adjusted operating income for the second quarter was $14 million or 4.8% of sales, compared to $12.6 million or 4.2% of sales in the prior year. Net income was $5.7 million, and adjusted diluted earnings per share was $0.21.

• Expect to deliver year-over-year comparable store sales growth in fiscal 2026. - Store optimization plan expected to reduce total sales by approx. $45 million in fiscal 2026. - Gross margin for full year expected to be consistent with fiscal 2025. - Expect year-over-year improvement in adjusted diluted earnings per share. - Capital expenditures expected to be $25 million to $35 million.

• Consumer demand softness reflected in preliminary October comps down 2%. - Tariff impact on product acquisition cost and market pricing. - Potential changes in tire mix and customer vehicle maintenance deferrals.

Q: Could you talk about within the comp, the price contribution versus car counts? And what are you expecting for price in the second half of the fiscal year, just given a lot of noise around tariffs?

A: Brian D'Ambrosia said in the quarter, they were down mid-single digits in traffic, up mid-single digits in ticket, netting out to the up 1% overall comp. Peter Fitzsimmons mentioned seeing consumer demand softness in September and October but expecting positive comps for the fiscal year due to marketing efforts.

Q: We saw some nice improvement in gross margins this quarter, expectations kind of flat gross margins year-over-year now. Just digging into the 50 bps improvement from material costs, can you maybe speak to the drivers there? What kind of wins are you seeing with vendors? How is this kind of being impacted by changing product assortment?

A: Brian D'Ambrosia said gross margins increased 40 basis points in the quarter, driven by higher comp sales, benefit from store closures improving occupancy costs, 50 basis points improvement in material costs due to better service category margins, partially offset by 80 bps increase in tech pay. Peter Fitzsimmons mentioned good relationships with vendors, getting more marketing support, and strengthening merchandising department.

Q: I guess tire units declined mid-single digits in the quarter. So curious how you're thinking about the overall tire backdrop as we enter peak selling season here over the next couple of months?

A: Brian D'Ambrosia said they believe they outperformed the industry, encouraged by marketing, merchandising, and in-store execution. Peter Fitzsimmons mentioned promoting tires for everyone on the website and in drop-downs, having support from vendors, and right tire positioning.

Q: I guess the next one would be just expectations on SG&A for the second half, considering softer comps in September and October. And if there's been any change to the expectation that, that should be flat on a dollar basis?

A: Brian D'Ambrosia said SG&A was $2.8 million lower than prior year quarter, adjusting for nonoperating items, they were $4.7 million lower. Expect to further invest in marketing initiatives, so G&A in Q3 and Q4 excluding nonoperating items to be above Q2 but closer to flat compared to prior year.

Q: First question I want to ask, and I apologize, it's repetitive, but just looking at the trajectory in comps. So here, you stayed positive in the current -- in the quarter which just reported, but it's moderated from basically mid-single-digit type gains a couple of quarters ago. As you mentioned, I mean, there's pressures on the consumer that's well documented. But I mean is there a better way to explain what's happening here? I mean how much of that comp deceleration is a tougher environment versus maybe something more internal at Monro?

A: Peter Fitzsimmons said it's a pause in the market, and the value from incremental marketing and store performance initiatives will show up. Data from adding stores to digital marketing shows positive calls, comp store sales, and gross margin dollars.

Q: I just want to ask to put your consulting hat on a little bit here. Maybe help us understand how you get to the conclusion that things are slowing down kind of across the industry. I mean there's a lot of mixed data points. We don't see kind of negative same-store sales of the parts and service side on the franchise dealers. And I get that the mix and the repair work is different. But would love to see how you benchmark Monro, what you benchmark it to and maybe any sort of data series or just opinions on kind of how you would look at it from a consulting lens to kind of evaluate the comp performance kind of year-to-date?

A: Peter Fitzsimmons said Monro is a service business, compares more to other service providers. Brian D'Ambrosia added they have syndicated data on tire side, and highlighted significant outperformance in service categories like brakes and front-end shocks.

Q: And then just one question on cash flow and kind of capital allocation. Any thoughts on just kind of the -- any perspective you could provide on just the safety of the dividend here? I think you guys paid out what, $17 million kind of year-to-date, but not sure we're tracking there on a kind of an earnings basis to this point this year. So just your ability and willingness to keep the dividend maybe ahead of what potentially could be just the underlying earnings of the company.

A: Peter Fitzsimmons said they look at ability to fund dividend along with capital allocation priorities, and cash flows support all capital allocation priorities, viewing the payout ratio as still making sense.