Monro Muffler Brake Q4 2023 Earnings Call Transcript

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Provided by Quartr
May 18, 2023

Key Takeaways

  • Despite delivering mid single digit comp store sales growth of 5% in Q4, profitability missed expectations due to labor cost pressures and customer trade-downs to entry-level tires, though margin improvements continued into Q1 FY2024.
  • Small or underperforming stores achieved approximately 7% comp growth in Q4—building on double-digit gains earlier in FY2023—validating the effectiveness of staffing and training initiatives.
  • Pricing actions on entry-level tires and reductions in nonproductive labor drove gross margin improvements, culminating in March being the strongest margin month of Q4.
  • Corporate governance enhancements were announced to eliminate Class C preferred stock and declassify the board, aiming to simplify the capital structure and enhance investor appeal, subject to shareholder approval.
  • Q1 FY2024 guidance forecasts sales of $330–335 million (2–3% comps), gross margins of 35.8–36.2%, and EPS of $0.36–0.42, with expectations of sustained comp growth, margin expansion, and $35–45 million in capital expenditures.
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Earnings Conference Call
Monro Muffler Brake Q4 2023
00:00 / 00:00

There are 8 speakers on the call.

Operator

Morning, ladies and gentlemen, and welcome to Monro Incorporated Earnings Conference Call for the 4th Quarter and Full Year Fiscal 2023. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. And as a reminder, this conference is being recorded and may not be reproduced in whole or in part without permission from the company. I would now like to introduce Felix Exler, a Senior Director of Investor Relations at Monro.

Operator

Please go ahead.

Speaker 1

Thank you. 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 Investors section of our website at corporate. Monroe.com/investors. If I could draw your attention to the Safe Harbor statement on Slide 2, I'd like to remind participants that our presentation includes some forward looking statements about Monro's future performance.

Speaker 1

Actual results may differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Monro'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's 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 GAAP measures will be included as part of today's presentation and in our earnings release.

Speaker 1

With that, I'd like to turn the call over to Monro's President and Chief Executive Officer, Michael Broderick.

Speaker 2

Thank you, Felix, and good morning, everyone. As we turn the page on fiscal 2023, I want to start off by thanking all of our teammates and customers This was a foundational year of investment that sets the stage for a brighter future in fiscal 2024 and beyond. Before we get into the specific details, I'd like to acknowledge that our profitability in the 4th quarter fell short of our expectations. While disappointing, we are confident that this lower profitability was isolated to the quarter and does not represent the level of profitability that And initiatives are designed to achieve over the longer term. We took decisive actions to improve our margins as the 4th quarter progressed and profitability improvements from our actions have continued into the Q1 of fiscal 2024.

Speaker 2

I'll spend the first part of our call this morning with a brief reminder about our strategy, which serves as an important context both to where we have been and where we are going as a company in the year ahead. After that, I'll provide an overview of the continued progress we've made as evidenced by our sales results in the 4th quarter. I'll also discuss the factors that impacted our margins and profitability in the Q4 and the actions we've taken to improve our margins and profitability, both as the quarter progressed and into the Q1 of fiscal 2024. Lastly, I'll conclude with an update on the progress we've To improve our corporate governance, which includes a planned recapitalization that will simplify our equity capital structure, as well as a plan to declassify our Board of Directors. Starting with our strategy, We operate in a business with growing demand for our products and services.

Speaker 2

We are a leader in the highly resilient and largely Non discretionary auto services aftermarket. We have significant scale that gives us important competitive advantages over smaller players in our industry. We leverage our scale and the strength of our financial position to make critical investments in our business, Our people and our technology to deliver an outstanding guest experience. We've been actively addressing the staffing needs of our stores. We have built the labor capacity in our stores to meet customer demand and we are now focused on continuously improving our in store execution and properly training our new and existing teammates to maximize store productivity.

Speaker 2

We also have a strategy to improve our small or underperforming Stores, which represent about a quarter of our overall store base. These stores have plenty of runway for growth ahead and improvements in their performance We are focused on gaining market share and driving traffic to our stores through competitive pricing and the right assortment to meet the needs of our customers. Developing a longer term relationship with our customers is a key element of our strategy as we look to become their trusted Our core strength as a business is to provide retail customers with superior automotive products and services. We are focusing all our energies and resources on our retail store operations. Our strategy and initiatives have been designed to drive our business towards consistently delivering mid single digit comparable store sales growth, and we are committed to maintain a balanced approach between tire and service categories that will allow us to leverage our cost structure to deliver enhanced profitability at our stores.

Speaker 2

Also, an important focus of our strategy is cash creation. We are unlocking cash from While we have made substantial progress on the sales and cash creation pillars of our overall strategy, we have significant opportunities ahead to expand margins. Now turning to the 4th quarter results. Driven by strength in tires and several of our service categories, We delivered mid single digit comp store sales growth in the Q4 of approximately 5%. We continue on our strategy to improve our 300 small or underperforming stores.

Speaker 2

These stores delivered comp store sales growth of approximately 7% in the 4th quarter, which is on top of a double digit comp growth in the 1st 9 months of fiscal 2023. Our comp store sales growth of approximately 11% for this group stores in fiscal 2023 shows that our strategy is working. As a reminder, comp store sales at these stores decreased 8% in fiscal 2022 compared to fiscal 2020. The continued acceleration in sales at these locations is a direct result of our strategy to improve technician staffing levels as well as our training initiatives that are allowing us to better meet customer demand. Comp store sales in our remaining stores were up approximately 4%.

Speaker 2

And while we delivered on our mid single digit comp store sales expectations, our margin and profitability in the 4th quarter fell short of our expectations. Our gross margin in the 4th quarter was impacted by continued labor cost pressures and continued customer trade downs to opening price point tires. Although disappointing, I want to reiterate that we took decisive actions to improve our margins as the 4th quarter progressed. Encouragingly, Our actions allowed us to exit the Q4 with a fiscal March that was the strongest month in terms of gross margin performance of the 3 month period and profitability improvements from our actions have continued into the Q1 of fiscal 2024. Consistent with the prior two quarters, we continue to see our customers trading down to lower priced tire options.

Speaker 2

As our customers continue to look for more choice and greater value, tire sales of our opening price point tires were a larger proportion of our overall tire sales. And while several of our higher margin service categories returned to growth, a larger proportion of tire sales coming from opening price points was a drag on our overall gross margin in the Q4. Recognizing the customers skewing their purchasing behaviors towards opening price points, We raised prices on our opening price point tires, which led to an improvement in our gross margins as the 4th quarter progressed. Encouragingly, our tire comp store sales grew mid single digits and based on third party syndicated U. S.

Speaker 2

Replacement tire data, We maintained our market share in terms of units versus the industry in the Q4. While the Q4 is typically our lowest sales volume Cutting the critical investments we've made in our labor force for short term profitability in the quarter would sacrifice the longer term profitability of our service model and would not allow us to take advantage of industry tailwinds over the longer term. Rather than cutting these critical investments, we reduced nonproductive labor costs, including overtime hours in our stores, which led to an improvement in our gross margins as the 4th quarter progressed. We will continue to closely manage our labor costs and expenses to maximize stores productivity. Our operating expenses as a percentage of sales were higher in the 4th quarter, primarily due to the divestiture of non core wholesale tire and distribution assets, Increased management employee costs and higher marketing spend.

Speaker 2

Our business is well positioned with the right strategy in place While the current macro environment remains challenging, we continue to maintain market share in our tire category with a keen focus on driving traffic to our stores and serving the car care needs of our customers. The largely non discretionary nature of our business gives us confidence that as long as our stores are properly staffed, our pricing is competitive with the right assortment and we continue to improve our in store execution, we'll be able to capture market share in both our tire and service categories. Our strategy and all of our initiatives are designed to restore our gross margins back to pre COVID levels with double digit operating margins over the longer term. Lastly, on to the progress we've made to improve our corporate governance. We announced some important governance enhancements this morning, specifically an agreement to eliminate the company's Class C preferred stock and an amendment to declassify our Board of Directors, so that all directors will be elected annually.

Speaker 2

Both enhancements are subject to approval by shareholders at our Annual Meeting later this year. The specific details of the preferred stock conversion and Board declassification are outlined in a press release we issued earlier today. But at a high level, We are confident these steps will make Munro a more attractive investment opportunity, simplify the company's capital structure and enhance our corporate governance by placing all shareholders on an equal footing. The conversion agreement has been a core focus of the Board for some time and is a result of a thorough and deliberate process informed by continuing dialogue with shareholders. Specifically, the Board appointed a special committee to evaluate and negotiate a recapitalization of the Class C preferred stock.

Speaker 2

Their work was supported by independent financial and legal advisors and has unanimous approval of the full Board. We are very pleased to share these governance enhancements, which we believe are in the best interest of all Monro shareholders. But we also recognize that good governance is something that should remain an area of focus. We will continue to assess potential actions to further improve Monro's governance, including adding director candidates to the Board who complement the skill sets and experience currently represented. And we will continue to seek active dialogue with our shareholder base to further these efforts.

Speaker 2

In summary, Fiscal 2023 was a foundational year of investment that sets the stage for a brighter future ahead. We delivered mid single digit comp store sales growth In the Q4, our strategy to improve our small or underperforming stores through our staffing and training initiatives is working. While our profitability in the 4th quarter fell short of our expectations, we are confident that this is not representative of what our business can achieve. We took decisive actions to improve our margins as the Q4 progressed and profitability improvements from our actions have continued into the Q1 of fiscal 2024. We that will allow us to leverage our cost structure to deliver enhanced profitability.

Speaker 2

Although we continue to navigate an uncertain macro environment, We have the right strategy in place to take advantage of longer term industry tailwinds. We are focused on gaining market share and driving traffic to our stores through competitive pricing and the right assortment to meet the needs of our customers. Our in store execution is firmly in our control and remains our greatest opportunity for improving our results. As our training and productivity initiatives continue to take hold, we expect to deliver sales growth and margin expansion that will improve our earnings. We remain on a path to return to our pre COVID gross margins with double digit operating margin performance over the longer term.

Speaker 2

The important governance enhancements we announced to eliminate the company's Class C preferred stock and declassify our Board of Directors will simplify our capital structure and will make Monro a more attractive investment opportunity. With that, I'll now turn the call over to Brian, who will provide an overview of Monro's 4th quarter performance, strong financial position and additional color regarding Q1 and fiscal 2024. Brian?

Speaker 3

Thank you, Mike, and good morning, everyone. Turning to Slide 9, sales decreased 5.2% year over year to $310,800,000 in the 4th quarter, which was due to the divestiture of our wholesale tire and distribution assets Sales for these divested assets were approximately $30,000,000 in the prior year 4th quarter. Comparable store sales increased 4.5% and sales from new stores increased approximately $2,000,000 When adjusted for 1 fewer selling day in the current year quarter due to a shift in timing of the Christmas holiday From the Q3 in fiscal 2022 to the Q4 in fiscal 2023, comparable store sales increased to 5.6%. Gross margin increased 150 basis points from the prior year to 33.4%, primarily resulting from 210 basis points of benefit from the divestiture of our wholesale tire and distribution assets, as well as material costs and distribution and occupancy costs that were lower as a percentage of sales. This was partially offset by a 160 basis point increase in technician labor costs due to an incremental investment in technician headcount as well as wage inflation.

Speaker 3

Total operating expenses were $97,600,000 or 31.4 percent of sales as compared to $93,200,000 or 28.4 percent of sales in the prior year period. The increase as a percentage of sales was principally due to the divestiture of our wholesale tire and distribution assets, Increased store management employee costs and higher marketing spend to drive additional sales in what is typically our lowest sales volume quarter of year. Operating income for the 4th quarter declined to $6,200,000 or 2% of sales. This is compared to $11,500,000 or 3.5 percent of sales in the prior year period. Net interest expense increased to $5,900,000 as compared to $5,700,000 in the same period last year.

Speaker 3

This was principally due to higher year over year interest rates. Income tax expense was approximately $200,000 which is compared to an income tax benefit of $2,400,000 in the prior year period, which included a $3,100,000 tax benefit due to differences in statutory rates from loss years in which net operating losses have been carried back. Net income was approximately $400,000 as compared to $8,600,000 in the same period last year. Diluted earnings per share was 0 point 0 $1 compared to $0.25 for the same period last year. Adjusted diluted earnings per share, a non GAAP measure was 0 point 0 $8 This is compared to adjusted diluted earnings per share of $0.20 in the Q4 of fiscal 2022.

Speaker 3

Please refer to our reconciliation of adjusted diluted EPS During the Q4, we completed our previously announced acquisition of 4 additional stores in Iowa and one additional store in Illinois. This acquisition is expected to add annualized sales of approximately $6,000,000 As part of our growth strategy, we continue to carefully review value enhancing acquisitions, while maintaining our disciplined approach in evaluating multiples. We have significant capacity to be an opportunistic acquirer of businesses, which fit into our overall strategic plan. As highlighted on Slide 10, we continue to maintain a very solid financial position. We generated a record $215,000,000 of cash from operations during fiscal 2023, including $95,000,000 in working capital reductions.

Speaker 3

This has reduced our cash conversion cycle by approximately 55 days at the end of the Q4 compared to the prior year period. Our AP to inventory ratio at the end of fiscal 2023 was 178% versus 79% at the end of fiscal 2022. We received $70,000,000 in divestiture proceeds, of which $5,000,000 are currently being held in escrow. We invested $39,000,000 in capital expenditures, Spent $40,000,000 in principal payments for financing leases and distributed $36,000,000 in dividends. Lastly, cumulative repurchases of our common stock were approximately $97,000,000 under our share repurchase program, which authorizes us to repurchase up to $150,000,000 of the company's common stock.

Speaker 3

Given the higher interest rate environment, We opted to pay down some of our debt in the 4th quarter to reduce interest expense. We have used our significant cash flow to reduce invested capital by $224,000,000 during fiscal 2023. At the end of the 4th quarter, We had bank debt of $105,000,000 cash and cash equivalents of $5,000,000 and a net bank debt to EBITDA ratio of 0.6 times. Now turning to our expectations for the Q1 as well as the full year of fiscal 2024. We are providing the following fiscal Q1 guidance.

Speaker 3

We expect to deliver total company sales in the range of 330 to $335,000,000 which factors in comparable store sales growth in the range of 2% to 3%. Our preliminary comp store sales are up approximately 2% quarter to date. Note that sales from our divested assets were approximately $24,000,000 in the Q1 of fiscal 2023. We expect a gross margin rate in the range of 35.8 percent to 36.2 percent and a diluted EPS range of $0.36 to $0.42 And while we are not providing full year guidance, we are providing color to assist in your modeling. We expect to drive higher year over year sales through continued mid single digit comparable store sales growth and continued outsized performance in our 300 small or underperforming stores.

Speaker 3

This is inclusive of an extra week of sales in our fiscal Q4. We expect to drive year over year improvements in our gross margin through a higher mix of service categories, opportunistic pricing actions, lower fixed distribution and occupancy cost as a percentage of sales due to a higher sales base and finally productivity improvements from our labor investments with reductions of non productive payroll, which will be partially offset by continued wage inflation. Total operating expenses as a percentage of sales are expected to be higher year over year due to increases in direct and departmental costs to support our store base as well as the impact of inflation. Our tax rate should be approximately 26% for fiscal 2024. Regarding our capital expenditures, We expect to spend approximately $35,000,000 to $45,000,000 in fiscal 2024.

Speaker 3

We also expect to continue improving our operating cash flow, driven by continued working capital reductions. Our balanced approach of returning capital to shareholders Through dividends and share repurchases as well as opportunistically completing value enhancing acquisitions will meaningfully increase our return on invested capital. And with that, I will now turn the call back over to Mike for some closing remarks.

Speaker 2

Thanks, Brian. We're optimistic about our outlook for fiscal 2024 and beyond. Although we still have important work to do, we remain well positioned to execute our growth strategy and deliver long term value creation for our shareholders. With that, I'll now turn it over to the operator for questions.

Operator

Thank you. Please limit to one question or two follow-up questions. Our first question comes from Brad Jordan from Jefferies. Brett, your line is now open.

Speaker 4

Hey, good morning guys.

Speaker 5

Good morning, Brett. Good morning, Brett. Could you talk about

Speaker 4

Price versus traffic in the comp?

Speaker 2

Yes, I'll address that. Comp was you already know about 5%. It was driven through flat customers and the rest obviously was price.

Speaker 4

Okay. And then could you talk about sort of a regional performance of the stores, I mean, West versus the Southeast and Northeast?

Speaker 2

Yes. Across the board, it wasn't a lot of change, but if there's anything I would highlight, it's the West was stronger and then the Northeast slowed down. And some other retailers talked about it, so I'll bring it up. There was some weather event, although we didn't focus on it and everything's kind of normalized as we've gone into Q1.

Speaker 4

Okay. And you talked about working capital obviously being $95,000,000 to the plus. How do you See, what's left in the tank there as you've shifted from an internal distribution model to more outsourced supply? Could you sort of Give us a ballpark for what we might expect to come.

Speaker 3

Brett, we're not providing specificity around The future opportunity, there's work to do to take advantage of further opportunities we have to reduce working capital. But there is opportunity there and we expect that in fiscal 2024 working capital reductions will play a large part of our continued Strong operating cash flows.

Speaker 4

Okay. And then the monthly, I'll get out of the way, the monthly comp.

Speaker 3

Sure. Yes, absolutely. January was around 8, February 5, March around 1, and then we said we were 2 quarter to date.

Operator

Thank you, Brett. We have our This question comes from Brian Nagel from Oppenheimer. Brian, your line is now open.

Speaker 5

Hey guys, good morning. Good morning, Brian. Good morning. So, the first question, Mike, you talked about in your comments, you talked about some of the corrective actions you took on the expense side. I was wondering if you could just elaborate a little bit of a little further on that.

Speaker 5

And as we're thinking about this now against steadier improving sales, Are there further actions you're going to need to take on the expense side, whether it be in the cost of sales or the SG and A? Or is this more or less a one time adjustment and You'll get the benefits going forward.

Speaker 2

I like the work that the team put in place in Q4. Brian, let me just regroup. We were very clear and I've been here for 2 years now very clear on 3 big initiatives, sales, margin and cash. It seems like the sales now we have 2 quarters in a row mid single digits and that's always been the expectation. Cash, it speaks for itself.

Speaker 2

We had a record Year in cash and we're talking about actually having another strong year in 2024. It's all about the margin. And I would say that I've been disappointed in the margin. I wasn't happy with January results and I made adjustments and the adjustments were using price. I'm very focused on having a balanced approach between Service and tires, as I see my customer count shifting and skewing to more opening price point, I would say that I'll continue making those adjustments.

Speaker 2

It's a very balanced approach. I do not want to be an only tire provider. I believe Monroe's greatest strength is that we're a full service provider. So the pricing actions that we put in place Our literally to continue to focus on a balanced approach to the business. Now on the payroll front, great work on the teams.

Speaker 2

That's just good management. What I look at on a week to week basis, where we're really just managing payroll on an everyday basis and addressing any unproductive labor, Making sure people are taking their lunches, making sure they go home on time, really talking about having a balanced approach to an employee's life. I think it's just good retail. That will continue in Q1 and in 'twenty four and beyond. I would say that we finally got traction on our expenses.

Speaker 2

I finally have traction on our margin and I look forward to providing having a strong Q1. We talked About for the first time in my 2 years giving guidance. So we're confident in our initiatives that they will carry forward.

Speaker 5

Okay. That's helpful. And then the second question I have just with respect to top line. So the goal here has been Mid single digits, you got that in the fiscal Q4 recognizing month to month trends in your company and your business can be very choppy. But Right now, you're not running that again.

Speaker 5

I mean, you're doing it too. I mean, how should we think about the current run rate here Versus that goal of getting the mid single digit type comps?

Speaker 2

I think some of the initiatives that we put in place were abrupt And they were put in place for a reason. And I would say that we are still focusing on the process at Monro, really creating the Monro way, it's Still our greatest opportunity is that we are more relevant to our guests that are coming in, doing a better job in our stores. And we're still very much focused on mid single digits. Now On the tire category, we shifted. We absolutely took advantage Our customers were showing to value.

Speaker 2

We made price adjustments up and down in order to shift From OPP up through our product screen on the tire side. You know what, if we're more expensive than we were before, we might not have attracted The lowest price consumer who's looking for the cheapest tire. So that might have slowed down some of the categories. But I do want to recognize that we didn't do anything in our brakes. We had double digit brake comps in January and that slowed down through the rest of the quarter.

Speaker 2

And that had nothing to do with pricing, that had nothing to do with our store execution, it had everything to do with probably a customer that was deferring And they're still trying to figure out their own personal balance sheet. We're very focused on getting that service mix back, and obviously having a healthy tire screen.

Speaker 5

Thanks guys. I appreciate it. Thank you, Brian. Thank

Operator

you, Brian. Our next question comes from Daniel Imbro from Stephens. Daniel, your line is now open.

Speaker 6

Yes. Thanks. Good morning. Thanks for taking my questions. I want to follow-up on that last question or that last answer, Micah.

Speaker 6

Good morning. The last question around opening price tire points, you raised prices. I think in your prepared remarks, you said in the Q4, you maintained tire share. I think if I look at the last couple of quarters, you've been saying you're gaining share in tires. So I guess it sounds like there was a shift there or willingness to be kind of paused The market share gains, I'm just curious how the competitive set has responded.

Speaker 6

Are others raising price? Are you the only one? And as we look forward, Could that continue to limit share gains? Or how do you think about the competitive longer term impacts of raising these prices under with consumers facing this pressure?

Speaker 2

So Daniel, the way category management works, we are very focused on gaining market share. Now we want to have the right mix of market share. So I don't want to be the low cost provider of tires in the marketplace and I want to be really clear on that. I have a strong assortment Of not of Tier 3, Tier 2 and Tier 1 tires in my stores. So when I started seeing our customers Skewing into Tier 4 opening price point, that wasn't healthy for Monroe.

Speaker 2

That wasn't healthy for our customers and we addressed it. Now, The way going back to market share, it goes back to the strategy. I want to have a long term relationship with my customers. Part of that has to be a value proposition that we're very careful to make sure we maintain, it's in check. At this point in time, when I'm looking at flat customer count, I'm not happy with it, but we've stopped the bleeding of customer count at Monro.

Speaker 2

And that's something that I'm very proud of. One of the tools that we're using is price, another one is assortment, but the biggest one we have is store execution And that's what we're focused on. So when I look at our market share, I'm going to say we maintain market share. I'm okay losing market share on opening price point tires As long as I have a healthy relationship in my Tier 3, Tier 2 and Tier 1 tires at the same time. Oh, and by the way, I want a very strong relationship on my service categories with my customers.

Speaker 6

Got it. That's helpful color on the strategy. Thank you. Maybe following up, on the underperforming kind of 300 store chain, I think you said they comped up a 7% in the 4th quarter. Correct me if that was wrong.

Speaker 6

I think that is the narrow gap that we've seen to the overall chain comp, call it 300 basis points of outperformance. I think the 1st part of this year that group was Comping double digits pretty comfortably. Are we just towards the tail end of the improvement here or kind of what drove that narrowing GAAP versus the chain and what does it take to maybe reaccelerate that growth at this underperforming store base? Thanks.

Speaker 2

Thank you, Daniel. Important question. We do recognize that it slowed down. 7% was the number. It is a multi year opportunity.

Speaker 2

Just like it declined over years, it's a multi year opportunity and we're still very much focused on it. I would say at this point in time that our results are not linear, but I do expect us to continue to grow double digit comps In these underperforming stores and that's what the team is focused on delivering.

Speaker 6

And so in the Q1, if we think about that 2% to 3% overall comp, Is that assuming the core chain is going to be closer to flat and this underperforming chain reaccelerates to double digits? Or how are you thinking about in this first What the breakdown is of that comp mix?

Speaker 3

Yes. Obviously, without getting into too much specifics, We expect that the underperforming stores will be leading that comp higher and the rest of the chain will be positive, but Not as high as the underperforming stores. So we expect there to be a gap between the two store sets.

Speaker 6

Great. I appreciate all the color and best of luck.

Speaker 5

Thank you.

Operator

Thank you. Our next question comes from John Healy from Northcoast Research. John, your line is now open.

Speaker 7

Thank you. We'd just love to hear a little bit more thoughts about the M and A pipeline and what might be presenting itself to you in the current environment. And as You think about M and A, I think you guys were active on the buyback front this quarter a little bit. With the stock kind of at the point of I think you guys bought stock back 44%. So, what becomes the priority at these levels?

Speaker 7

Is it the buyback? Or is it the M and A footprint for this year, do you think?

Speaker 3

Thanks, John. I'll take that. I think that Mike talks a lot about balanced approach and I think that's how we view our capital allocation strategy as well. We're we have a lot of optionality given our strong financial position, a lot of liquidity on our revolver and we're generating a lot of cash So we can address all of our capital allocation priorities and that's obviously our dividend, which we announced today. It continues to be share repurchase, opportunistic there as well as opportunistic on M and A.

Speaker 3

And so for us, we are doing all the work that we would Traditionally do around M and A opportunities and looking to grow our store footprint. We obviously have a lot of energy focused on our internal store operations at The same time and that's where we talk a lot about our business on the call today. But we feel good that we can continue to deliver shareholder Cash back to our shareholders while executing that. And I think our 0.6 times EBITDA leverage ratio really supports those comments.

Speaker 7

Okay, fair enough. And just one housekeeping question for me. I think this year you guys are calling out a 53 week year versus a 52. Can you just remind us How that 53 week in Q4 typically impacts the P and L from a margin standpoint? And with that, is that extra week included in the Mid single digit comp sales growth.

Speaker 7

So just curious if that reflects a point or 2 from that calendar item.

Speaker 3

Yes. The outlook that we had for FY 2024 mid single digit as well as our color around gross margins and Profitability is reflective of that extra week in March. The sales increase in March, it does have Fewer fixed costs to tag along with it in that extra week, but does have some fixed costs. So we'll get some leverage in that last week as you would expect. We're not quantifying that specifically, but it is reflected in our outlook.

Speaker 5

All right.

Speaker 7

Appreciate it. Thank you.

Speaker 2

Thank you.

Operator

Thank you, John. We have no more further questions on the line. I will now pass back to Mike for closing remarks.

Speaker 2

Thank you for joining us today. This continues to be an exciting time to be part of Monro. We have a strong foundation to build upon

Operator

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.

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