Monro Muffler Brake Q2 Earnings Call Highlights

Key Points

• Sales and profitability declined: Fiscal Q2 sales fell 1.8% to $283.6 million as lower traffic, consumer spending pressure and tire trade-down behavior weighed on demand. Monro reported a $1.6 million net loss, compared with $5.7 million in net income a year earlier.
• Operational initiatives showed early progress: Battery sales rose 8%, while the District Manager Toolkit helped 146 stores achieve mid-single-digit sales growth and more than 20% bottom-line improvement. Management said comparable sales were flat in September and preliminary October results were also flat.
• Monro refinanced and maintained a cautious outlook: A new $375 million Ares Capital credit facility was used to pay down about $153 million of supply-chain financing obligations. Fiscal 2027 comparable-store sales are expected to be flat to slightly down, while the company continues reviewing strategic alternatives, including a potential sale.

Monro Muffler Brake NASDAQ: MNRO reported a fiscal second-quarter sales decline and a net loss as consumer spending pressure, lower store traffic and trade-down behavior in tires weighed on demand. Management said it is continuing to invest in marketing, store-level execution and merchandising initiatives while pursuing a strategic alternatives review.

Sales declined 1.8% to $283.6 million during the second quarter, entirely reflecting a 1.8% decrease in comparable-store sales at continuing locations, Chief Financial Officer Brian D'Ambrosia said. Comparable sales declined 1% in July and 3% in August before reaching flat performance in September. Management said preliminary October comparable-store sales were also flat.

“Consumer spending pressures, category softness, and a dynamic macroeconomic backdrop have all created friction,” President and CEO Peter Fitzsimmons said. Still, he said the company’s performance improvement plan was gaining traction and positioned Monro for improved results as conditions normalize.

Profitability Declines as Sales and Costs Weigh

Gross margin declined 50 basis points from the prior-year period, primarily due to higher occupancy costs as a percentage of sales. Lower material costs as a percentage of sales partly offset that pressure. D'Ambrosia said occupancy-cost deleverage accounted for 80 basis points of the gross-margin decline, while material costs contributed a 30-basis-point offset. Technician labor was flat year over year.

Operating expenses rose to $97.4 million, or 34.3% of sales, from $90.4 million, or 31.3% of sales, a year earlier. The increase included $6.1 million in higher store-closing costs, net of gains and losses from sales of closed stores; $3.4 million in higher continuing-location costs, primarily front-shop labor; $3.2 million in higher marketing spending; and $1.7 million in higher litigation reserves.

Those increases were partly offset by a $7.1 million reduction in consulting costs connected to the company’s operational improvement plan. Fitzsimmons said the company had increasingly brought the capabilities needed to execute its turnaround internally after earlier assistance from AlixPartners and other outside advisors.

Operating income fell to $2.6 million, or 0.9% of sales, compared with $12.8 million, or 4.4% of sales, in the prior-year quarter. Adjusted operating income was $4.4 million, compared with $14 million a year earlier. Monro recorded a net loss of $1.6 million, or $0.05 per diluted share, versus net income of $5.7 million, or $0.18 per diluted share, in the prior-year period. Adjusted diluted loss per share was $0.01, compared with adjusted earnings per share of $0.21 a year earlier.

Traffic Pressures Offset Higher Ticket

Management said second-quarter traffic declined by the mid-single digits, while average ticket increased by “a few points,” resulting in the 1.8% comparable-sales decline. The company cited lower traffic, deferred higher-ticket repair decisions and consumers shifting toward lower-cost tire alternatives.

Tire-category sales fell 4%, though tire unit volume was flat. Fitzsimmons said the company saw approximately the same number of tire customers, but consumers bought lower-priced tire tiers and slightly fewer tires per transaction. He added that sales trends and tire mix showed some improvement in September and October.

Comparable sales increased year over year in batteries and maintenance services. Battery comparable sales grew 8% for the second consecutive quarter, which management attributed to in-store stocking improvements and front-of-shop presentation. In brakes, comparable sales declined, though targeted promotions drove unit growth in the higher-margin service category.

The company continued to use its ConfiDrive vehicle inspection process to identify service needs and support average repair-order growth. Fitzsimmons said oil-change appointments booked through Monro’s call center and online system generated significantly higher repair orders, with service attachments lifting average ticket sizes to roughly two to three times the value of an oil change alone.

Marketing and Store Toolkit Expansion Continue

Monro maintained its marketing investment despite the sales decline, saying it views customer acquisition as important to long-term growth. The company said it refined digital marketing, targeted brake and oil promotions, and reduced its cost per lead year over year.

Fitzsimmons said promotional testing in oil changes appeared to help improve traffic in September compared with July and August. The company is balancing higher oil costs with competitive pricing and promotional activity intended to drive traffic and additional repair attachments.

Monro also expanded its District Manager Toolkit, a metrics-driven store-performance system designed to improve local profitability through coaching and training. The toolkit has now been deployed to a majority of the company’s stores. Among 146 locations receiving toolkit and coaching support, sales increased by the mid-single digits and bottom-line results improved more than 20% year over year during the quarter, management said.

The company established an operating-efficiency team during the quarter, with three field leaders taking coaching and training roles in regions with the largest opportunities for improvement.

New Credit Facility and Updated Outlook

On Oct. 23, Monro entered a four-year credit agreement with Ares Capital Corporation providing $375 million in senior secured facilities: a $250 million term loan and a $125 million revolving credit facility, both maturing Oct. 23, 2030. The facilities replaced the company’s prior credit agreement.

Monro used the refinancing to substantially pay down its supply-chain financing obligations, including approximately $153 million, D'Ambrosia said. The company will stop accepting new supplier obligations into that program after Dec. 31, 2026. As of Oct. 24, Monro had about $27 million in cash and equivalents and $60 million available under the new facilities.

For fiscal 2027, the company now expects comparable-store sales to be flat to slightly down, citing ongoing macroeconomic pressure on consumers. Gross margin is expected to be consistent with or slightly below fiscal 2026 levels, while selling, general and administrative expense is expected to rise as Monro continues to invest in marketing. Net interest expense is projected at $28 million to $32 million, and capital expenditures are expected to total $25 million to $35 million.

Fitzsimmons said the refinancing does not conclude Monro’s strategic alternatives review. The board, with independent financial and legal advisers, continues to consider options that could include asset sales, acquisitions, operational improvements or a sale of the company. He said there is no deadline for the review and no assurance it will result in a transaction or other outcome.

About Monro Muffler Brake (NASDAQ:MNRO)

Monro Muffler Brake, Inc, doing business as Monro, is an automotive service and tire retailer headquartered in Rochester, New York. The company operates service centers across the United States under brands that include Monro Auto Service and Tire, Mr. Tire, Tire Choice, Car-X, and other regional names.

Monro provides replacement tires and a broad range of maintenance and repair services for passenger vehicles and light trucks. Its offerings include brake and exhaust work, wheel alignment, steering and suspension repairs, shocks and struts, oil changes, batteries, air-conditioning service, and other preventive maintenance.

Founded in 1957 as a single muffler shop in Rochester, the company expanded through organic growth and acquisitions into a nationwide automotive service network.

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