Monro, Inc. Fourth Quarter Fiscal 2020 Earnings Call May 28, 2020 - - PowerPoint PPT Presentation

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Monro, Inc. Fourth Quarter Fiscal 2020 Earnings Call May 28, 2020 - - PowerPoint PPT Presentation

Monro, Inc. Fourth Quarter Fiscal 2020 Earnings Call May 28, 2020 Safe Harbor Statement and Non-GAAP Measures Certain statements in this presentation, other than statements of historical fact, including estimates, projections, statements


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Monro, Inc. Fourth Quarter Fiscal 2020 Earnings Call May 28, 2020

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SLIDE 2

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

  • n 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, to 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. 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 https://corporate.monro.com/investors/financial-information/. Monro assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. In addition to including references to diluted earnings per share (“EPS”), which is a generally accepted accounting principles (“GAAP”) measure, this presentation includes references to adjusted diluted earnings per share, which is a non- GAAP financial measure. Monro has included a reconciliation from adjusted diluted EPS to its most directly comparable GAAP measure, diluted EPS in Slide 8. Management views this non-GAAP financial measure as a way to better assess comparability between periods because management believes the non-GAAP financial measure shows the Company’s core business operations while excluding certain non-recurring items and items related to our Monro.Forward or acquisition initiatives. 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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SLIDE 3

COVID-19 Response

Executing on Key Priorities During This Critical Period

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  • Protecting the well-being of our

teammates

  • Promoting the safety of our

customers and communities Prioritizing health & safety in all aspects of

  • ur business
  • Providing essential services to

support customers’ needs and delivering a consistent 5-star experience

  • Maximizing financial flexibility

and operating on a cash flow positive basis in COVID-19 environment Ensuring business continuity to serve our customers

  • Executing strategic

Monro.Forward initiatives

  • Streamlining costs and rapidly

adjusting plans to strengthen

  • perating performance

Emerging stronger post COVID-19 crisis

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SLIDE 4

COVID-19 Response

Prioritizing Health and Safety in All Aspects of Our Business

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Protecting the Health and Well-being of Our Teammates and Customers:

  • Enhanced daily cleaning procedures and rigorous hygiene protocols
  • Offering key drop and contact-less services
  • Following CDC social distancing and PPE guidelines
  • Reduced operating schedule in stores and remote working where feasible
  • Extending expiration of vacation days for teammates impacted by COVID-19
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SLIDE 5

COVID-19 Response

Ensuring Business Continuity to Serve Our Customers

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Operations Update

  • Stores remain open to provide essential services
  • Reducing store hours and aligning labor to match

demand levels

  • Opportunity to flex cost structure and accelerate

transformation initiatives

  • Leveraging diverse supply chain
  • Ready to capitalize on the improving sales

environment

Financial Update

  • Solid balance sheet and strong liquidity providing

ample flexibility to support business operations

  • Operating on a cash flow positive basis in current

environment

  • Deferring store reimage and rebrand initiative, as

well as other non-essential investments

  • Pausing M&A during this uncertain time
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SLIDE 6

Monro.Forward Progress Update

 Modernized store infrastructure, including new digital phone system, progressing as planned  Expanded Amazon.com collaboration at more than 1,000 stores, supporting

  • mnichannel efforts

Enhance Customer- Centric Engagement

Monro.Forward Progress Positions Us Well to Emerge Stronger Post COVID-19 Crisis

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 Data-driven store scheduling and staffing software in pilot stages with full rollout expected to be completed by Q2FY21  Optimizing staffing schedules during COVID-19 crisis and beyond

Accelerate Productivity & Team Engagement

 New pricing and category management technology to drive margin improvement and

  • ptimize product portfolio in pilot stages, rollout to be completed by end of Q2FY21

Optimize Product & Service Offering

 Strong performance of rebranded stores prior to COVID-19  Substantially completed transformation of 42 recently acquired California stores in Q4FY20  Pre-COVID plan to close 42 stores, six in Q4FY20 and 36 in Q1FY21, to streamline portfolio supported by data analytics

Improve Customer Experience

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SLIDE 7
  • 10.5%
  • 8.5%
  • 6.5%
  • 4.5%
  • 2.5%
  • 0.5%

1.5% 3.5% 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20

Fourth Quarter Fiscal 2020 Highlights

  • Comparable store sales of -9.5% driven by a

substantial decrease in traffic since mid-March due to COVID-19 restrictions, as well as soft winter weather conditions in January and February

  • Sales from new stores added $23.5M, including

sales from recent acquisitions of $21.9M

Navigating Uncertain Environment and Challenges Related to COVID-19

  • Maintenance: -8%
  • Tires: -9%
  • Front End/Shocks: -10%
  • Brakes: -11%
  • Alignments: -11%

Q4FY20 Key Highlights Q4FY20 Key Highlights

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Quarterly Comps Trends

1

Monthly Comparable Store Sales

1Results are adjusted for days 2Through 5/26/2020

  • 50.0%
  • 40.0%
  • 30.0%
  • 20.0%
  • 10.0%

0.0% Jan-20 Feb-20 Mar-20 Apr-20 May-20 MTD2

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SLIDE 8

Results Impacted by COVID-19 Crisis and Soft Winter Weather Conditions

Fourth Quarter Fiscal 2020 Results

1Q4FY19 and FY19 same store sales results are adjusted for days. 2Excluded costs in Q4FY20 include $.10 per share of impairment costs related to planned store closures, $.05 per share of additional store impairment costs, $.03 per share of costs related to Monro.Forward initiatives, $.01 per share of costs related to litigation settlements and $.01 per share of

  • ne-time costs related to the Company’s headquarters expansion. Excluded costs in Q4FY19 include $.01 per share of costs related to Monro.Forward initiatives and $.01 per share of costs related to acquisition due diligence and integration. Excluded costs in FY20 include $.15 per share of store

impairment costs, $.09 per share of costs related to Monro.Forward initiatives, $.03 per share of costs related to acquisition due diligence and integration and $.02 per share of additional one-time costs related to litigation settlements and the Company’s headquarters expansion. Excluded costs in FY19 include $.06 per share in costs related to Monro.Forward initiatives, $.01 per share of non-recurring corporate and field management realignment costs and $.02 per share of costs related to acquisition due diligence and integration.

3Adjusted Diluted EPS is a non-GAAP measure that excludes certain non-recurring items and items related to our Monro.Forward or acquisition initiatives. A reconciliation of net income to adjusted net income and diluted EPS to adjusted diluted EPS is included in our earnings release dated May

28, 2020.

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Q4FY20 Q4FY19 Δ FY20 FY19 Δ Sales (millions) $286.1 $287.2 (0.4%) $1,256.5 $1,200.2 4.7% Same Store Sales1

  • 9.5%

0.5% (1,000 bps)

  • 2.3%

2.3% (460 bps) Gross Margin 35.7% 38.3% (260 bps) 37.9% 38.8% (90 bps) Operating Margin 0.1% 9.9% (980 bps) 8.1% 10.6% (250 bps) Diluted EPS ($.12) $.50 (124.0%) $1.71 $2.37 (27.8%) Excluded Costs2 $.20 $.02 $.29 $.09 One-time income tax benefit

  • ($.06)

Adjusted Diluted EPS3 $.08 $.52 (84.6%) $2.00 $2.40 (16.7%)

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SLIDE 9

Fourth Quarter Fiscal 2020 EPS Bridge

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($0.30) ($0.12) $0.08 ($0.10) ($0.10) ($0.12) $0.50

  • $0.20
  • $0.10

$0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 Q4 FY19 Diluted Earnings Per Share - GAAP Impact of -9.5% Comp Sales COVID-19 Business Impact Q4 FY20 Adjusted Diluted Earnings Per Share Planned Store Closures Other N/G Adjustments Q4 FY20 Diluted Earnings Per Share - GAAP

1Other N/G Adjustments includes $.05 related to store impairment charges, $.03 of one-time costs related to the store rebrand and reimage initiative, $.01 in provisions for legal settlements and $.01 in one-time costs related to the HQ expansion.

1

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SLIDE 10

Maximizing Financial Flexibility

We Have Taken Proactive Measures to Operate on a Cash Flow Positive Basis During COVID-19 Pandemic

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Disciplined Capital Allocation

Fiscal 2020

  • Capex of $55.9M, of which $25M was related to

store rebrand and reimage

  • Spent approximately $104M on acquisitions
  • Paid $30M in dividends during FY20

Near-term Priorities

  • Deferring non-critical capex including store

rebrand and reimage initiative

  • Pausing M&A during this uncertain time
  • Paying dividend in June 2020

Additional Actions to Enhance Financial Flexibility

  • Drew down remaining $350M from revolving credit facility in March 2020
  • Reducing selling, general and administrative expenses with focus on flexing cost structure
  • Bolstering working capital position
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SLIDE 11

Strong Balance Sheet and Liquidity

Healthy Balance Sheet and Ample Liquidity to Support Ongoing Business Operations

  • Strong liquidity position of ~$375M as of May 26, 2020
  • Generated $120M of operating cash flow during FY20
  • Net bank debt of $221M as of March 2020
  • Net debt-to-EBITDA ratio as of March 2020 of 3.29x

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SLIDE 12

Fiscal 2020 Accomplishments

Strong Progress on Building a Scalable Platform For Sustainable Growth

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Store Rebrand and Refresh Initiative: Completed transformation of 219 stores to date, migrating 71 stores to a tire-oriented brand, with rebranded stores in key markets outperforming store base Investments in Technology: Launched pilot stages of network infrastructure upgrade, store staffing cloud-based model and tire category management pricing tool, which are all progressing on track Strategic Acquisitions: Completed acquisitions of 89 stores and one distribution center, expanding geographic footprint into the attractive Western region and further solidifying position in the South Expansion of Amazon.com Collaboration: Expanded collaboration to over 1,000 stores in 32 states in Q1 FY21 to support online tire retailer installation strategy and omnichannel efforts Customer Experience: Executed customer satisfaction and online reputation management program across store base to drive increased online reviews and star rating to all-time high of 4.6

1 2 3 4 5

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SLIDE 13

Fiscal 2021 Outlook

While Environment Remains Uncertain, We Are Focused on Elements in Business Within Our Control and Are Well-Positioned to Deliver Long-term Value Once the COVID-19 Crisis Subsides

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  • Not issuing FY21 guidance at this time due to uncertainty surrounding COVID-19 pandemic
  • Expect COVID-19 to have a significant impact on Q1 FY21 results
  • Streamlining costs and making continued progress on Monro.Forward initiatives to emerge

stronger once pandemic subsides

  • Rollout of cloud-based store scheduling model and tire pricing tool by end of Q2 FY21 will be

critical to driving margin improvement

  • Cautiously optimistic for demand recovery following the suspension of stay-at-home orders
  • Well-positioned to capitalize on significant opportunities for M&A post COVID-19 crisis
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SLIDE 14

Appendix

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SLIDE 15

Fiscal 2021 Outlook – Financial Assumptions

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Assumptions as of May 28, 2020 Tire and Oil Costs Stable to slight decrease year-over-year Interest Expense ~$30 million to ~$32 million Depreciation and Amortization ~$72 million to ~$78 million Tax Rate ~24% Capital Expenditures ~$25 million to ~$45 million Weighted Average Number of Diluted Shares Outstanding ~34 million Planned Store Closure Costs in Q1 FY21 ~$2.5 million Store Closure Operating Income Benefit ~$3.8 million Fixed Cost Reductions ~$10 million to ~$15 million

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7 Stage Transformation Process from Beginning to End Takes ~17 Weeks

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1Steps are only required for stores that are being rebranded from service format to tire format

BEFORE AFTER

Store Readiness for Change Parts Inventory Rebalanced1 Inventory Assortment Reset for Tire Focus1 Store Team Trained

  • n New Operating

Procedures Store Inventory Storage Configured for Tires1 Store Exterior Painted and New Signage Installed Store Interior Remodel and Technology Installed

~17 WEEKS

Store Refresh Transformation Timeline

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Monro.Forward: Investments in Technology

Significant Investments in Technology to Support Monro.Forward Strategy

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Area Strategic Rationale Timing Business Intelligence

  • KPI dashboards for stores and management
  • Launched in Q4 FY18
  • Ongoing company-wide expansion

Monro University Learning Management System

  • Ensures consistent onboarding and teammate training
  • Develop clear career paths
  • Deliver standard operating procedure training
  • Launched in Q3 FY19
  • Ongoing expansion across store base

Store Network Infrastructure Upgrade

  • Enable and support cloud based merchandising strategy
  • Enable customer-facing technology
  • Installed in 840 stores
  • To be implemented across base by Q1

FY21 Digital Phone and Customer Communication System

  • Eliminate cost of analog phone system
  • Simplify phone execution for store personnel
  • Enable customer-centric call and text messaging management
  • In more than 700 stores
  • To be implemented across base by Q1

FY21 Store Staffing Model & Scheduling System

  • Eliminate paper-based scheduling
  • Optimizes store staffing and day part scheduling
  • Improves part-time scheduling capabilities
  • Pilot in Q4 FY20
  • To be launched across base by Q2 FY21

Tire Category Management & Pricing System

  • Enterprise solution to dynamically manage pricing at the SKU level
  • Partially automates optimization of tire volume/margins by providing

real-time elasticity

  • Pilot launched in Q4 FY20
  • To be launched across base by Q2 FY21

Cloud-Based Car Inspection Scanning Tool

  • State of the art technology for technicians to provide industry-

leading service

  • Provides efficient tool for actively managing customer needs
  • In pilot stages
  • To be implemented in FY21
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SLIDE 18

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

FY20 FY21

Monro.Forward Strategic Initiatives

Data-driven “new customer” marketing Store staffing & scheduling system

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

Scheduled maintenance in-store selling Data-driven CRM New websites Scale store refresh & operational excellence

= Completed Initiatives

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Pilot store refresh &

  • perational excellence

Monro University (includes career path, LMS)

Foundational Technology & Tools

Store network infrastructure upgrade Digital phone and customer communication system Optimize tire assortment Cloud based car inspection tool Tire category management & pricing system

Q2FY21

FY19

New store comp plans New in-store sales packages