Investor Presentation February 2019 Safe Harbor Statement and - - PowerPoint PPT Presentation

Monro, Inc. Investor Presentation February 2019

Certain statements in this presentation, other than statements of historical fact, including estimates, projections, statements related to our business plans and operating results are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Monro has identified some of these forward-looking statements with words such as “anticipates,” “believes,” “expects,” “estimates,” “is likely,” “predicts,” “projects,” “forecasts,” “may,” “will,” “should,” and “intends” and the negative of these words or other comparable terminology. These forward-looking statements are based on Monro’s current expectations, estimates, projections and assumptions as of the date such statements are made, and are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward- looking statements. Additional information regarding these risks and uncertainties are described in the Company’s filings with the Securities and Exchange Commission, including in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our most recently filed periodic reports on Forms 10-K and Form 10-Q, which are available on Monro’s website at http://www.Monro.com/Corporate/SEC-filings. Monro assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. This presentation contains references to Adjusted Earnings Per Share (EPS), which is a “non-GAAP financial measure” as this term is defined in Item 10(e) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 and Regulation G under the Securities Exchange Act of 1934. In accordance with these rules, Monro has reconciled this non- GAAP financial measure to its most directly comparable U.S. GAAP measure. Management views this non-GAAP financial measure as a way to assess comparability between periods. This non-GAAP financial measure is not intended to represent, and should not be considered more meaningful than, or as an alternative to, its most directly comparable GAAP measure. This non-GAAP financial measure may be different from similarly titled non-GAAP financial measures used by other companies.

Safe Harbor Statement and Non-GAAP Measures

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Company Overview

• Dominant in the Northeastern U.S. and expanding

in Southern and Western adjacent markets

• Fiscal 2018 sales of $1,127.8 million
• 1,197 company operated stores in 28 states and

99 franchised locations as of January 31, 2019

• 29 acquisitions in the past 6 fiscal years, adding

386 locations, $520 million in revenue and entry into 8 new states

• 8 wholesale locations and 3 retread facilities

A Leading Chain of Independently Owned and Operated Tire and Auto Service Locations

Store locations as of 2/11/19

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A Strong Brand Portfolio

• 10 well-known regional brands underneath Monro’s

corporate umbrella

• Operating two store formats in key markets

− Service stores – 560 stores

• 80% maintenance services, 20% tires
• $600,000 a year in sales per store

− Tire stores - 637 stores (excluding wholesale)

• 55% tires, 45% service
• $1.2 million a year in sales per store
• 8 wholesale locations and 3 retread facilities

Multiple Store Brand Strategy Driving Increased Store Density

Brand Portfolio Service Tire

4

A Unique Operating Model

Monro Has a Diversified Supply Chain, Sourcing High Quality, Low Cost Parts Direct and a Strong Portfolio of Tire Brands

TIRES PARTS

Secondary parts distribution: The following types of parts are sourced from various cities in China:

• Brake Rotors and Pads
• Filters
• Steering and Suspension
• Wipers
• Belts

Store locations as of 2/11/19

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A Favorable Industry Backdrop

Favorable Industry Backdrop for Automotive Services with the Vehicles in Operation Expected to Grow Significantly Over the Next Few Years U.S. Annual Light Vehicle Sales Total Miles Traveled in U.S.

Source: FRED Economic data, Light weight Vehicle Sales: Autos and Light Trucks, Dec 2017 Source: Lang, IHS Markit, 2018. 2018 – 2022 are estimated figures

U.S. Light Vehicles in Operation (VIO)

200 210 220 230 240 250 260 270 280 290 300 2012 2013 2014 2015 2016 2017 2018* 2019* 2020* 2021* 2022*

• Growing total vehicle population from U.S. auto sales
• 270+ million vehicles on the road
• Increasing age of vehicles (average of ~12 years)
• Total annual miles driven up ~1.3% y/y
• Decreasing number of service outlets and bays
• Increasing complexity of vehicles
• Favorable demographics

Key Highlights

8 10 12 14 16 18 03 05 07 08 09 10 11 12 13 14 15 16 17 2,700,000 2,800,000 2,900,000 3,000,000 3,100,000 3,200,000 3,300,000 03 05 07 08 09 10 11 12 13 14 15 16 17 6

Source: FRED Economic data, Moving 12-Month Total Vehicle Miles Traveled

A Favorable Industry Backdrop

Vehicles in Operation – 0 to 5 Years Vehicles in Operation – 6 to 12 Years Monro is Well-Positioned to Capitalize on Positive Industry Trends, with Our Sweet Spot Experiencing the Fastest Growth in Vehicles in Operation

50 60 70 80 90 100 110 120 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

+6.56% CAGR

• .03% CAGR
• Strong growth in new vehicles (0-5 years) between 2012

and 2017 is creating a significant tailwind for the 6-12 year

• ld vehicle cohort for the next few years
• 6-12 year cohort expected to grow the fastest at +3.9%

CAGR for the period 2017 - 2022

• Monro’s targeted market segment is the 6-12 year cohort

50 60 70 80 90 100 110 120

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

• 3.97% CAGR

+3.90% CAGR

Vehicles in Operation – 13+ Years

50 60 70 80 90 100 110 120 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

+4.27% CAGR +1.47% CAGR

Source for all data: Lang, IHS Markit, 2018

Key Highlights

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A Favorable Industry Backdrop

Monro Operates in the $230 Billion Do-It-For-Me* Segment of $287 Billion U.S. Automotive Aftermarket Industry Automotive Aftermarket DIFM vs. DIY Sales

50,000 100,000 150,000 200,000 250,000 300,000 2012 2013 2014 2015 2016 2017

DIFM DIY

Source: Autocare Association Factbook

2008 % (outlets) 2016 % (outlets) CAGR Dealers 20,770 15.6% 16,680 12.7% (2.7%) General Repair Garages 76,564 57.4% 80,071 61.1% 0.6% Tire Dealers 18,596 14.0% 19,822 15.1% 0.8% Specialty Repair 9,674 7.3% 7,040 5.4% (3.9%) Oil Change/Lube 7,649 5.7% 7,437 5.7% (0.4%) Total 133,253 100% 131,050 100%

Source: Autocare Association Factbook

• DIFM continues to gain share from DIY

segment

• Vehicle complexity continues to drive shift to

DIFM from DIY

• Future technology advances expected to

accelerate shift to DIFM

DIFM vs. DIY Trends

• Fewer outlets/bays to work on more vehicles in
• peration in the U.S.
• Industry still highly fragmented, with significant
• pportunities for further consolidation

Key Highlights

* Includes Replacement Tire Segment

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• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

Third Quarter Fiscal 2019 Highlights

• Comparable store sales increased by 2.2%, or

3.3% when adjusted for one less selling day in the quarter, compared to a decline of 3.1% in the prior year period

• Sales from new stores added $19.8M, including

sales from recent acquisitions of $14.3M

Achieved Fourth Consecutive Quarter of Positive Comparable Store Sales Growth Quarterly Comps Trends Y/Y Comps Trends

• Brakes: 12%
• Tires: 3%
• Alignments: 1%
• Maintenance: Flat
• Front End/Shocks: -4%

3QFY19 Key Highlights3 3QFY19 Key Highlights

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1Results have been adjusted for the extra selling week 2Results have been adjusted for the Memorial Day holiday calendar shift 3Results have been adjusted for one less selling day in 3QFY19 due to the Christmas holiday calendar shift

1 2 2

• 4.0%
• 3.0%
• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19

2 1 3 3

A Scalable Platform: Recent Acquisitions

Acquisitions Completed and Announced to Date in Fiscal 2019 Represent $87M in Annualized Sales

1Greenfield stores include new construction as well as the acquisition of one to four store operations

Announced Acquisitions

• Announced a definitive agreement to acquire 12 retail locations in Louisiana
• Enters a new state, expanding the Company’s presence in the southern markets
• $15M in annualized sales, breakeven to EPS in FY19
• Sales mix of 35% service and 65% tires

Completed Acquisitions

• Completed acquisition of five retail locations in Ohio, filling in an existing market
• $5M in annualized revenue, breakeven to EPS in FY19
• Sales mix of 70% service and 30% tires
• Completed acquisition of 13 retail locations in Florida, filling in an existing market
• $12M in annualized revenue, breakeven to EPS in FY19
• Sales mix of 65% service and 35% tires

Greenfield Openings1

• Added three greenfield locations during the third quarter

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Driving Long-Term Sustainable Growth

Enhance Customer-Centric Engagement

• Customer retention
• Customer acquisition
• Omnichannel

Accelerate Productivity & Team Engagement

• Optimized store staffing model
• Clearly defined career path and

enhanced training program

• Aligned compensation

Improve Customer Experience

• Online reputation management
• Consistent in-store experience
• Consistent store appearance

Scalable Platform to Drive Sustainable Growth

Investments in Technology and Data-Driven Analytics to Support Strategic Initiatives

Optimize Product & Service Offering

• Redefined selling approach
• Optimized tire assortment

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Improve Customer Experience

 Improve SEO and local listing management  Effectively build and manage online presence

Online Reputation Management

 Deliver a best-in-class experience to all customers  Provide clear product choices and quality service to customers

Consistent In-Store Experience

 Modernize store layout  Establish clear standards for retail banners

Consistent Store Appearance

Delivering a Five-Star Experience

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 Focus marketing spend to higher ROI channels  Focus on direct marketing via new analytic-based CRM platform  Enhance private label credit card offering  Use analytics to optimize digital efforts  Leverage market segmentation and demographic information to facilitate direct marketing to target customers  Upgraded website with mobile-capable architecture  Launch e-commerce capability for online tire purchases and installations in-store  Leverage preferred tire installer agreements to drive traffic

Enhance Customer-Centric Engagement

Customer Retention Customer Acquisition Omnichannel

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Omnichannel: Expanded Amazon.com Collaboration

Expanded Collaboration With Amazon.com Supports Monro’s Online Tire Retailers Installation Strategy Expanded Amazon.com Collaboration

• Monro’s tire installation services available to customers who purchase tires
• nline from Amazon.com and select the Ship-to-Store option
• Initially launched in the greater Baltimore area, now available at nearly 400

locations operating under a number of Monro brands in Georgia, Florida, Illinois, Indiana, Ohio, Maryland, Michigan, New York, Tennessee and Virginia

• Collaboration will be expanded to provide tire installation services to

Amazon.com customers at all of Monro’s retail locations across 28 states

Increased Traffic Driven by Integration with Online Tire Retailers

• 50% of these customers are new to Monro1
• Can add newly acquired customers to CRM database, building long-term one-

to-one relationships

1Reflects historical data based on existing relationships with online tire retailers

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 Improve tire sales strategy to offer the right tires at the right price  Leverage data to optimize inventory assortment  Simplified invoices and inspection forms  Clearly defined ‘Good, Better, Best’ product options  Educate customers on new tire installation, brake and oil change service options

Optimize Product & Service Offering

Optimized Tire Assortment Redefined Selling Approach

Future Present Past

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Accelerate Productivity & Team Engagement

 Aligned store compensation model with performance  Incentives grow as sales, profits and customer experience improve

Aligned Compensation

 Achieve the right balance of labor and technical abilities across our stores  Implement data-driven store scheduling software

Optimized Store Staffing Model

 Attract, train and retain talented technicians and managers  Launched Monro University, a comprehensive learning management system, to pilot stores in January 2019

Clearly Defined Career Path and Enhanced Training Program

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Monro.Forward Progress Update

 Successfully implemented Monro playbook and store re-image initiative pilot at 31 locations in Rochester, NY during 3QFY19, leading to improved conversion and customer satisfaction  Modernized store layout to be rolled out across the Company’s remaining markets and store formats over the next 3 to 5 years

Improve Customer Experience

Monro.Forward Initiatives Well Underway and Advancing as Planned

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Monro.Forward Progress Update (Cont.)

 Continuing to execute customer satisfaction and online reputation management program across Monro’s store base  Focus on the in-store experience is having significant impact on Company online reviews and has increased “Star Ratings” to 4.7 Year-to-Date and 4.5 All-time

Improve Customer Experience

Monro.Forward Initiatives Well Underway and Advancing as Planned

*Through 1/25/19

3.7 4.0 4.2 4.3 4.4 4.5 4.1 4.5 4.7 4.7 4.7 4.7

• 20,000

40,000 60,000 80,000 100,000 120,000 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 YTD FY19

Number of Reviews

Negative Neutral Positive End of Quarter All Time Star Rating Quarterly Rating 18 *

Monro.Forward Progress Update (Cont.)

 Retail website driving increase in online appointments and mobile calls  Expanding direct marketing through CRM platform following strong pilot campaigns  Data-driven “new customer” marketing initiatives on track for 4QFY19 launch  Collaboration with Amazon.com at nearly 400 stores supports omnichannel strategy

Enhance Customer- Centric Engagement

 Optimized store staffing model after rightsizing overstaffed and understaffed stores  Data-driven store scheduling and staffing software to be implemented in FY20  Recently launched Monro University training program pilot

Accelerate Productivity & Team Engagement

 Continued momentum of Good-Better-Best product and service packages  Optimized tire sales and pricing strategy driving strength in tires  Introduction of new tire brands to optimize tire assortment in 4QFY19

Optimize Product & Service Offering

Monro.Forward Initiatives Well Underway and Advancing as Planned

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Scalable Platform to Drive Sustainable Growth

• Continue to increase store density in our 28 states
• Expand geographically into attractive markets
• On average, acquisitions represent the opportunity for 10%

annual sales growth

• Acquisition growth drives scale and operating margin expansion,

strengthening competitive advantages

Same Store Sales Growth

• Through Monro.Forward, drive higher

customer retention and acquisition rates

Acquisitions

• Create value through profitable

acquisitions

Greenfield Expansion

• Continue new store openings in existing

markets

• ~20 to 40 stores per year

A Scalable Business Model with Multiple Avenues for Growth

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A Proven M&A Strategy

Monro’s Acquisition Strategy Has Delivered Significant Growth Over the Years

Historical Acquisition Activity Average Acquisition Size

FY13 FY14 FY15 FY16 FY17 FY18 FY19 to date Number of locations 139 stores 20 stores 80 stores 35 stores and 134 franchise locations 78 stores, 4 wholesale locations and 2 retread facilities 28 stores 55 stores 15 Stores Annualized Sales growth ~$190 million ~$35 million ~$90 million ~$35 million ~$150 million $20 million $87 million ~$20 million

A Proven Track Record

• 45 acquisitions in the last 16 fiscal years, encompassing 681 locations and $900 million of revenue
• 29 acquisitions in the past 6 fiscal years, adding 386 locations and $520 million in revenue

− Entered 8 new states, expanding our presence in the Southern and Western markets

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Improving In-Store Execution Drove Strong Top-Line Performance

Strong Third Quarter Fiscal 2019 Results

3QFY19 3QFY18 Δ FY19 YTD FY18 YTD Δ Sales (millions) $310.1 $285.7 8.5% $913.0 $842.2 8.4% Same Store Sales1 3.3%

• 3.1%

640 bps 2.8%

• 0.7%

350 bps Gross Margin 38.0% 37.4% 60 bps 38.9% 38.9% 0 bps Operating Margin 9.9% 10.3% (40 bps) 10.8% 11.5% (70 bps) GAAP EPS $.61 $.35 74.3% $1.87 $1.39 34.5% One-time costs2 $.02 $.15 $.06 $.18 Christmas Holiday Shift $.04 $0.04 One-time income tax benefit ($.06) ($.06) Adjusted EPS $.61 $.50 22% $1.91 $1.57 22%

1Adjusted for one less selling day in 3QFY19 due to the Christmas holiday calendar shift 2Diluted earnings per share included $.01 per share of one-time costs related to Monro.Forward investments and $.01 per share of corporate and field management realignment costs in the third quarter of fiscal 2019, compared to $.15 per share of one-time costs in the third quarter of

fiscal 2018, including $.01 per share in management transition costs, $.04 per share in litigation settlement costs and $.10 per share related to the net impact of newly enacted tax legislation. In the first nine months of fiscal 2019, there were $.06 per share of one-time costs, compared to $.18 per share of one-time costs in the first nine months of fiscal 2018.

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FY19 FY18 Δ Sales (millions) $1,185 to $1,215 $1,128 5.1% to 7.7% Same Store Sales (on a 52-week basis) +1% to +3%

• 0.1%

110 bps to 310 bps GAAP EPS $2.30 to $2.40 $1.92 20% to 25%

Guide to Upper End of Fiscal 2019 Comparable Store Sales and Reiterate EPS Guidance

Operating Margin

• Assumes operating margin of ~11% at midpoint of FY19 sales guidance
• Expect stable tire and oil costs year-over-year
• Expect to generate earnings increase on a comparable store sales increase

above ~1%

Tax Savings

• Estimate ~$.40 tax benefit from newly enacted tax legislation
• Tax rate expected to be reduced from ~37% to ~22% in FY19

Reinvestment of Tax Savings

• Reinvestment of ~35%, or ~$.14, to support Monro.Forward strategy

($.09 of recurring expenses and $.05 of one-time items in FY19): – Improve Customer Experience – (~$.05) – Enhance Customer Engagement – (~$.01) – Accelerate Productivity & Team Engagement – (~$.08)

Additional Guidance Assumptions (at the midpoint)

• Interest expense of ~$28 million
• Depreciation and amortization of ~$56 million
• EBITDA of ~$187 million
• 33.6 million weighted average number of diluted shares outstanding

Stores and Weeks

• Guidance includes recently announced and completed acquisitions

and excludes any additional potential acquisitions

• Guidance includes eight ground-up greenfield store openings in FY19
• FY19 represents a 52 week year compared to 53 weeks for FY18

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Fiscal 2019 Outlook

Fiscal 2019 Outlook – Capital Investment

Incremental Capital Spending Focused Primarily on Store Refresh Pilot

Refresh Light Refresh Renovation Light Renovation Renovation Plus

Store Refresh Initiative

• Appropriate level of investment driven by store

age, size and market demographics

• 31 store pilot completed in Q3 FY19

Capital Investment Area

(Capital Spending by Area, $ in Million)

4.3 6.9 29.3 25.8 1.7 5.8 3.8 4.5

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY18 Actual FY19 Estimate

IT Infrastructure Monro.Forward Store Re- Image Other New Stores

$39.1 $43.0

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0.0% 1.0% 2.0% 3.0% 4.0% 5.0% FY19E FY21E

4.0% + 2.0%

10.5% 11.0% 11.5% 12.0% 12.5% 13.0% FY19E FY21E

12.0%+ 11.1%

SSS Improvement Operating Margin Expansion

Three-Year Organic Growth Financial Targets

Accelerating Same Store Sales Growth Drives Operating Leverage and Double Digit Earnings Growth  Accelerate from 2% to above 4%

Same Store Sales Growth

 Return to 12%+ Operating Margin

Operating Margin Expansion

 Deliver Consistent 10% - 15% Earnings Growth

Earnings Per Share Growth

Note: Financial targets exclude any future potential acquisitions

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Disciplined Capital Allocation

Executing on Growth Strategy While Maintaining a Disciplined Approach to Capital Allocation Investing in the Business

• Capex of $30.8M in the first nine months of fiscal 2019
• Continue to expect ~$75M of incremental Capex over the next 5 years to invest in store re-image and technology

Returning Cash to Shareholders

• Paid $20.1M in dividends in the first nine months of fiscal 2019
• Currently $.20 per share quarterly, an increase of 11% from 3QFY18

Executing on M&A Opportunities

• Spent $46.1M on acquisitions in the first nine months of fiscal 2019
• Signed definitive agreement to acquire 12 stores, bringing annualized sales from fiscal 2019 acquisitions to $87M

Utilizing Strong Balance Sheet

• Generated $128.6M of operating cash flow in the first nine months of fiscal 2019
• Debt-to-EBITDA ratio as of December 2018 of 2.1x provides significant flexibility to fund M&A strategy

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Investment Highlights

• Leading chain of Company-operated undercar care facilities in the U.S. with a wide breadth of product and service offerings
• Strong market position in Northeast, Great Lakes and Mid-Atlantic with a presence in 28 states
• 17 years of consecutive annual sales growth
• Low cost operator with strong operating margins
• Well-positioned to capitalize on a favorable industry backdrop
• Monro.Forward strategy creating a scalable platform to drive sustainable growth, with a focus on operational excellence to

increase overall customer lifetime value

• Significant growth opportunity to execute disciplined acquisition strategy in a highly fragmented industry
• Strong balance sheet and cash flow
• Delivering consistent shareholder returns with thirteen dividend increases, every year since a cash dividend was initiated

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Appendix

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Q2 FY19 Q3 FY19 Q4 FY19 Q2 FY20 Q3 FY20 Q4 FY20 Q4 FY18

FY20 FY19 FY21

Monro.Forward Strategic Initiatives

Pilot store refresh &

• perational

excellence New store comp plans Monro University pilot (includes career path, LMS) Technology based in-store experience Data-driven “new customer” marketing Monro omnichannel & e-commerce Store staffing & scheduling system

Improve Customer Experience Enhance Customer- Centric Engagement Optimize Product & Service Offering Accelerate Productivity & Team Engagement

Foundational technology & tools New in-store sales packages Scheduled maintenance in-store selling Data-driven CRM New websites Tire category management Scale store refresh & operational excellence

= Completed Initiatives

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