Presentation November 2019 Safe Harbor Statement and Non-GAAP - - PowerPoint PPT Presentation

Monro, Inc. Investor Presentation November 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

• 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. 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

• f 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. 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

2

Company Overview

▪ Dominant in the Northeastern U.S. and expanding in Southern and Western markets ▪ Fiscal 2019 sales of $1,200.2 million ▪ 1,271 company operated stores in 30 states and 98 franchised locations as of October 24, 2019 ▪ 33 acquisitions in the past 7 fiscal years, adding 429 locations, $630 million in revenue and entry into 9 new states ▪ Operating two store formats in key markets −Service stores – 555 stores

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

−Tire stores - 716 stores (excluding wholesale)

• 55% tires, 45% service
• $1.2 million a year in sales per store

▪ 8 wholesale locations and 3 retread facilities

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

3

Store locations as of 10/28/19

A Unique Operating Model

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

PARTS

Secondary parts distribution: Monro sources these parts from leading aftermarket parts suppliers: ▪ Brake Rotors and Pads ▪ Filters ▪ Steering and Suspension ▪ Wipers ▪ Belts

Store locations as of 10/28/19

4

TIRES

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

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 Source: Lang, IHS Markit. 2019 – 2022 are estimated figures

U.S. Light Vehicles in Operation (VIO)

▪ Growing total vehicle population from U.S. auto sales ▪ 270+ million vehicles on the road ▪ Increasing age of vehicles (average of ~12 years) ▪ 2018 total annual miles driven up ~0.4% y/y ▪ Increasing complexity of vehicles ▪ Favorable demographics

Key Highlights

5

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

2,600,000 2,700,000 2,800,000 2,900,000 3,000,000 3,100,000 3,200,000 3,300,000 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 2 4 6 8 10 12 14 16 18 20 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

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

6

A Favorable Industry Backdrop

Monro Operates in the $238 Billion Do-It-For-Me* Segment of $297 Billion U.S. Automotive Aftermarket Industry Automotive Aftermarket DIFM vs. DIY Sales

Source: Autocare Association Factbook

2010 % (outlets) 2018 % (outlets) CAGR Dealers 18,460 14.3% 16,753 12.7% (1.2%) General Repair Garages 76,108 58.8% 81,087 61.5% 0.8% Tire Dealers 18,675 14.4% 20,316 15.4% 1.1% Specialty Repair 8,663 6.7% 6,465 4.9% (3.6%) Oil Change/Lube 7,518 5.8% 7,301 5.5% (0.4%) Total 129,424 100.0% 131,922 100.0%

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

▪ Industry still highly fragmented, with significant

• pportunities for further consolidation

Key Highlights

* Includes Replacement Tire Segment

7

• 50,000

100,000 150,000 200,000 250,000 300,000 2012 2013 2014 2015 2016 2017 2018 DIFM DIY

Consensus data for 2012; estimates for 2013-2018

• 0.5%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20

Second Quarter Fiscal 2020 Highlights

▪ Sales increased 5.5% to a record $324.1M ▪ Comparable store sales were flat ▪ Sales from new stores added $17.5M, including sales from recent acquisitions of $14.2M ▪ 140 bps decrease in gross margin drove EPS decline year-over-year

Achieved Record Sales of $324.1 Million, Up 5.5% Year-Over-Year

▪ Brakes: 1% ▪ Maintenance: 1% ▪ Tires: Flat ▪ Front End/Shocks: Flat ▪ Alignments: -1%

2QFY20 Key Highlights 2QFY20 Key Highlights

8

Quarterly Comps Trends

1

2-Year Stacked Quarterly Comps Trends

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20

1

1Results are adjusted for days

1 1

Announced Acquisitions

▪ Announced definitive agreement to acquire 18 retail locations, including 14 in Nevada and four in Idaho ▪ Represents two new states and further expands the Company’s geographic footprint into the West Coast region ▪ $20M in annualized sales, breakeven to EPS in FY20 ▪ Sales mix of 75% service and 25% tires

Completed Acquisitions Greenfield Openings1

▪ Added 6 greenfield locations through 10/28/19 (excludes two California locations included above) ▪ Completed acquisition of 12 retail locations in Louisiana in 1QFY20 ▪ Entered a new state, expanding presence in the southern markets ▪ $15M in annualized sales, breakeven to EPS in FY20 ▪ Sales mix of 35% service and 65% tires ▪ Completed acquisition of 40 retail locations and one distribution center in California in 1QFY20 ▪ Entered a new state, expanding geographic footprint to the West Coast ▪ $45M in annualized sales, breakeven to EPS in FY20 ▪ Sales mix of 70% service and 30% tires ▪ Acquired two additional stores in California in 1QFY20, representing $3M in annualized sales ▪ Completed acquisition of eight retail locations in Louisiana in 2QFY20 ▪ Expanded market position in recently entered state ▪ $12M in annualized sales, breakeven to EPS in FY20 ▪ Sales mix of 50% service and 50% tires ▪ Completed acquisition of nine retail locations in Northern California in 3QFY20 ▪ Expanded market position in recently entered state ▪ $25M in annualized sales, breakeven to EPS in FY20 ▪ Sales mix of 55% service and 45% tires

A Scalable Platform: Recent Acquisitions

Acquisitions Announced and Completed in Fiscal 2020 Represent $120M in Annualized Sales

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

9

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

10

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

11

Store Refresh & Brand Consolidation Initiative

❑ 159 stores in various stages of change during 2QFY20 ❑ Double-digit increase in same store sales at pilot locations reinforces strength of store refresh/rebrand strategy ❑ Streamlined and improved refresh processes in early 3QFY20 to better prepare teammates during transformation moving forward ❑ Modernized store layout and consolidated brand strategy on track to be rolled out across the Company’s remaining markets and store formats over next 3 to 5 years

Improve Customer Experience

Making Strong Progress as Store Refresh/Rebrand Program Is Rolled Out Across Base

12

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

13

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

Performance Post-Store Refresh Program

Strong Performance of Refreshed Stores Driving Confidence In Strategy

14

Stores Comp Sales Performance Prior to Refresh1 Comp Sales Performance Post-Refresh Store Breakdown Group 1 (Pilot) 44 Stores + LSD % ~ + 14%2

• 42 Comp Stores
• 2 Non Comp Stores

Group 2 43 Stores

• LSD %

~ + 15%2

• 18 Comp Stores
• 25 Non Comp Stores

Group 3 116 Stores + MSD % No data available (in process during second quarter)

• 74 Comp Stores
• 42 Non Comp Stores

1LSD refers to low-single digit, and MSD refers to mid-single digit 2Performance data only includes comp stores

Store Refresh & Brand Consolidation Initiative

Store Refresh Program On Track To Be Rolled Out Across Base

15

Group 1 Group 2 Group 3 Group 4 Group 5 Group 6

Q1 FY20 Q2 FY20 Q4 FY20 Q1 FY21 Q3 FY21 Q3 FY19 Q4 FY19 Q3 FY20 Q2 FY21 Q4 FY21 43 stores 116 stores ~70 stores ~70 stores ~80 stores 44 stores

❑ 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

16

Omnichannel: Amazon.com Collaboration

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

17

Expanded Amazon.com Collaboration

▪ Monro’s tire installation services available to customers who purchase tires online from Amazon.com and select the Ship-to- Store option ▪ Initially launched in the greater Baltimore area, now available at more than 800 locations operating under a number of Monro brands in 21 states across the United States ▪ Collaboration will be expanded to provide tire installation services to Amazon.com customers at all of Monro’s retail locations across 30 states ▪ Increased traffic driven by integration with online tire retailers

❑ 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

18

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 and have continued to expand to additional stores

Clearly Defined Career Path and Enhanced Training Program

19

Monro.Forward Progress Update

Monro.Forward Initiatives Well Underway and Continuing to Advance

20

❑ Continued investments in in-store technology with the rollout of a new digital phone system across Monro’s store base during FY20 ❑ Collaboration with Amazon.com at more than 800 stores supports omnichannel efforts ❑ Launching second phase of omni-channel strategy in FY21

Enhance Customer- Centric Engagement

❑ Data-driven store scheduling and staffing software to be piloted by 1QFY21 ❑ Scaling Monro University across store base and prioritizing newly acquired stores to facilitate onboarding

Accelerate Productivity & Team Engagement

❑ Improving category management to drive margin improvement and optimize product portfolio with new pricing technology to be implemented by 1QFY21 ❑ Continued momentum of Good-Better-Best product and service packages

Optimize Product & Service Offering

❑ Executing 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 4.5 All-time

Improve Customer Experience

Scalable Platform to Drive Sustainable Growth

▪ Continue to increase store density in our 30 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 A Scalable Business Model with Multiple Avenues for Growth

21

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 FY20 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 38 stores, 4 wholesale locations and 1 retread facility 89 stores and one distribution center 15 Stores Annualized Sales growth ~$190 million ~$35 million ~$90 million ~$35 million ~$150 million $20 million $70 million ~$120 million ~$20 million

A Proven Track Record

▪ 49 acquisitions in the last 17 fiscal years, encompassing 724 locations and $970 million of revenue ▪ 33 acquisitions in the past 7 fiscal years, adding 429 locations and $630 million in revenue ▪ Entered 9 new states, expanding our presence in the Southern and Western markets

22

1

1Represents the average for the period FY13-FY19.

Achieved Record Sales of $324.1 Million, Up 5.5% Year-Over-Year

Second Quarter Fiscal 2020 Results

1In 2QFY19 diluted earnings per share included $.02 per share of one-time incremental costs related to Monro.Forward initiatives. In the first six months of fiscal 2020, there was $.01 of one-time cost related to increased acquisition activity, compared to $.04 of one-time costs related to

Monro.Forward initiatives in the first six months of fiscal 2019.

23

2QFY20 2QFY19 Δ 1HFY20 1HFY19 Δ Sales (millions) $324.1 $307.1 5.5% $641.2 $602.9 6.3% Same Store Sales 0.0% 3.2% (320 bps) 0.4% 2.5% (210 bps) Gross Margin 37.7% 39.1% (140 bps) 39.0% 39.3% (30 bps) Operating Margin 10.3% 11.2% (90 bps) 10.9% 11.2% (30 bps) GAAP EPS $.60 $.65 (7.7%) $1.26 $1.26 0.0% One-time Costs1

• $.02
• $.01

$.04

• Adjusted EPS

$.60 $.67 (10.4%) $1.27 $1.30 (2.3%)

Fiscal 2020 Outlook

FY20 FY19 Δ Sales (millions) $1,295 to $1,315 $1,200 7.9% to 9.6% Same Store Sales 1.0% to 2.0% 2.3%

• 130 bps to
• 30 bps

GAAP EPS $2.45 to $2.55 $2.37 3.4% to 7.6%

Updates Fiscal 2020 Comparable Store Sales and EPS Guidance Ranges1 Operating Margin

▪ Assumes operating margin of ~10.6% at midpoint of FY20 sales guidance ▪ Expect relatively stable tire and oil costs year-over-year ▪ Expect to generate earnings increase on a comparable store sales increase above ~1%

Additional Guidance Assumptions (at the midpoint)

▪ Implies EPS of $1.24 in 2HFY20, an increase of 11.7% as compared to $1.11 in 2HFY19 ▪ Interest expense of ~$29 million ▪ Depreciation and amortization of ~$65 million ▪ EBITDA of ~$205 million ▪ Tax rate of ~23.5% ▪ Capital expenditures of ~$65 million ▪ 34 million weighted average number of diluted shares outstanding

Stores

▪ Guidance includes recently announced and completed acquisitions and excludes any additional potential acquisitions ▪ Guidance includes six ground-up greenfield store openings in FY20

24

1Guidance as of October 24, 2019

Disciplined Capital Allocation

Executing on Growth Strategy While Maintaining a Disciplined Approach to Capital Allocation Investing in the Business ▪ 1HFY20 capex of $23.8M ▪ Continue to expect ~$75M of incremental Capex over 5 years to invest in store re-image and technology Returning Cash to Shareholders ▪ In 1HFY20, paid $14.8M in dividends ▪ Currently $.22 per share quarterly, an increase of 10% from 2QFY19 Executing on M&A Opportunities ▪ In 1HFY20, spent $65.0M on acquisitions ▪ Acquisitions announced and completed in fiscal 2020 represent $120M in annualized sales Utilizing Strong Balance Sheet ▪ In 1HFY20, generated $78.9M of operating cash flow ▪ Debt-to-EBITDA ratio as of September 2019 of 2.2x provides significant flexibility to fund M&A strategy

25

Investment Highlights

▪ Leading chain of Company-operated undercar care facilities in the U.S. with a wide breadth of product and service offerings ▪ Strong position in Northeast, Great Lakes and Mid-Atlantic and expanding into Southern and Western markets with a presence in 30 states ▪ 18 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 fourteen dividend increases, every year since a cash dividend was initiated

26

Appendix

27

Monro.Forward: Investments in Technology

Significant Investments in Technology to Support Monro.Forward Strategy

28

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
• Launched in 120 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 pilot stages at 30 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 in Q1 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 in Q4 FY20
• To be launched across base in Q1 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

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

FY20 FY19 FY21

Monro.Forward Strategic Initiatives

New store comp plans 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

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

= Completed Initiatives

29

Pilot store refresh &

• perational excellence

Monro University pilot (includes career path, LMS)

Foundational Technology & Tools

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