Monro, Inc. Investor Presentation January 2021
Safe Harbor Statement and Non-GAAP Measures
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, 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 9. 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.
2
Company Overview
A Leading Chain of Independently Owned and Operated Tire and Auto Service Locations
- Dominant in the Northeastern U.S. and expanding in Southern and Western markets
- Fiscal 2020 sales of $1,256.5 million
- 1,260 company operated stores in 32 states and 96 franchised locations as of January 25, 2021
- 39 acquisitions in the past 8 fiscal years, adding 518 locations, $710 million in revenue and entry into 13 new states
- Operating two store formats in key markets
−Service brand stores - 432 stores
- 75% maintenance service, 25% tires
- $675,000 a year in sales per store
−Tire brand stores - 828 stores (excluding wholesale)
- 55% tires, 45% maintenance service
- $1.0 million a year in sales per store
- 7 wholesale locations and 3 retread facilities
Store locations as of 1/25/21
3
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
Monro sources these parts from leading | Secondary parts distribution: | |
aftermarket parts suppliers: | ||
Brake Rotors and Pads | ||
| Filters | |
| Steering and Suspension | |
| Wipers | |
| Belts |
TIRES
Store locations as of 1/25/21 | 4 |
A Favorable Industry Backdrop
Favorable Industry Backdrop for Automotive Services with the
Vehicles in Operation Expected to Grow Significantly Over the Next Few Years
20U.S. Annual Light Vehicle Sales
18 | |||||||||||||||
16 | |||||||||||||||
14 | |||||||||||||||
12 | |||||||||||||||
10 | |||||||||||||||
8 | |||||||||||||||
6 | |||||||||||||||
4 | |||||||||||||||
2 | |||||||||||||||
0 | |||||||||||||||
04 | 05 | 06 | 07 | 08 | 09 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 |
Source: FRED Economic data, Light weight Vehicle Sales: Autos and Light Trucks
3,300,000 | Total Miles Traveled in U.S. | ||||||||||||||||||||||||||||||||
3,225,000 | |||||||||||||||||||||||||||||||||
3,150,000 | |||||||||||||||||||||||||||||||||
3,075,000 | |||||||||||||||||||||||||||||||||
3,000,000 | |||||||||||||||||||||||||||||||||
2,925,000 | |||||||||||||||||||||||||||||||||
2,850,000 | |||||||||||||||||||||||||||||||||
2,775,000 | |||||||||||||||||||||||||||||||||
04 | 05 | 06 | 07 | 08 | 09 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 |
Source: FRED Economic data, Moving 12-Month Total Vehicle Miles Traveled
U.S. Light Vehicles in Operation (VIO)
300
290
280
270
260
250
240
230
220
210
200 2012 2013 2014 2015 2016 2017 2018 2019 2020* 2021* 2022*
Source: Lang, IHS Markit. *2020 - 2022 are estimated figures
Key Highlights
- Growing total vehicle population related to consumers owning vehicles longer
- 270+ million vehicles on the road
- Increasing age of vehicles (average of ~12 years)
- Increasing complexity of vehicles
- Since March 2020, vehicle miles traveled has been negatively impacted due to the COVID-19 pandemic
5
A Favorable Industry Backdrop
Monro is Well-Positioned to Capitalize on Positive Industry Trends,
with Our Sweet Spot Experiencing the Fastest Growth in Vehicles in Operation
Vehicles in Operation - 0 to 5 Years
120 | +6.56% CAGR | -.03% CAGR | |||||||||||||||||||||
110 | |||||||||||||||||||||||
100 | |||||||||||||||||||||||
90 | |||||||||||||||||||||||
80 | |||||||||||||||||||||||
70 | |||||||||||||||||||||||
60 | |||||||||||||||||||||||
50 | |||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
Vehicles in Operation - 13+ Years
120 | +4.27% CAGR | +1.47% CAGR | |||||||||||||||||||||
110 | |||||||||||||||||||||||
100 | |||||||||||||||||||||||
90 | |||||||||||||||||||||||
80 | |||||||||||||||||||||||
70 | |||||||||||||||||||||||
60 | |||||||||||||||||||||||
50 | |||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
Source for all data: Lang, IHS Markit, 2018
Vehicles in Operation - 6 to 12 Years
120 | -3.97% CAGR | +3.90% CAGR | |||||||||||||||||||||
110 | |||||||||||||||||||||||
100 | |||||||||||||||||||||||
90 | |||||||||||||||||||||||
80 | |||||||||||||||||||||||
70 | |||||||||||||||||||||||
60 | |||||||||||||||||||||||
50 | |||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
Key Highlights
- Strong growth in new vehicles (0-5 years) between 2012 and 2017 is creating a significant tailwind for the 6-12 year old vehicle cohort for the next few years
- 6-12year 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
6
A Favorable Industry Backdrop
Monro Operates in the $246 Billion Do-It-For-Me* Segment of $308 Billion U.S. Automotive Aftermarket Industry
Automotive Aftermarket DIFM vs. DIY Sales
350,000 | |||||||
300,000 | |||||||
250,000 | |||||||
200,000 | |||||||
150,000 | |||||||
100,000 | |||||||
50,000 | |||||||
0 | |||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
DIFM | DIY | ||||||
Source: Autocare Association Factbook | Census data for 2012; estimates for 2013-2019 |
DIFM vs. DIY Trends
- DIFM continues to account for a significant percentage of the automotive aftermarket
- Vehicle complexity continues to drive shift to DIFM from DIY
-
Future technology advances expected to accelerate shift to
DIFM - DIFM is facing ongoing headwinds from the COVID-19 pandemic, while DIY has been quicker to recover
2010 | % | 2019 | % | CAGR | |
(outlets) | (outlets) | ||||
Dealers | 18,460 | 14.3% | 16,741 | 12.7% | (1.1%) |
General | |||||
Repair | 76,108 | 58.8% | 81,678 | 61.8% | 0.8% |
Garages | |||||
Tire Dealers | 18,675 | 14.4% | 20,299 | 15.4% | 0.9% |
Specialty | 8,663 | 6.7% | 6,150 | 4.7% | (3.7%) |
Repair | |||||
Oil | 7,518 | 5.8% | 7,276 | 5.5% | (0.4%) |
Change/Lube | |||||
Total | 129,424 | 100.0% | 132,144 | 100.0% | |
Source: Autocare Association Factbook
Key Highlights
- Industry still highly fragmented, with significant opportunities for further consolidation
* Includes Replacement Tire Segment | 7 |
Third Quarter Fiscal 2021 Highlights
Well Positioned to Drive Higher Sales and Profitability After Ramping Up Store Staffing
Monthly Comparable Store Sales
5%
0%
Oct-20 | Nov-20 | Dec-20 | Jan-211 |
-5%
-10%
-15%
-20%
Q3FY21
Category Summary
- Completed rollout of tire category management and pricing system, driving outperformance in our largest category
- Tires: -8%
- Alignments: -16%
- Front End/Shocks: -17%
- Maintenance: -19%
- Brakes: -21%
1Preliminary results through fiscal January ended January 23, 2021
Q3FY21
Key Highlights
- Comparable store sales of -13.0% impacted by general market conditions and lower labor productivity in October and November, which improved through December and drove positive comps in fiscal January1
- Sales from new stores increased $2.2M, including sales from recent acquisitions of $1.5M
- $159M in operating cash flow in the first nine months of fiscal 2021 driven by profitability and strong working capital management
- Net bank debt-to-EBITDA ratio of 1.3x as of December 2020
8
Third Quarter Fiscal 2021 Results
Results Impacted by General Market Conditions and Lower Labor Productivity in October and November
Q3FY21 | Q3FY20 | FY21 YTD | FY20 YTD | |||||
Sales (millions) | $284.6 | $329.3 | (13.6%) | $820.2 | $970.5 | (15.5%) | ||
Same Store Sales | -13.0% | -0.9% | (1,210 bps) | -16.8% | -0.1% | (1,670 bps) | ||
Gross Margin | 33.8% | 37.8% | (400 bps) | 35.1% | 38.6% | (350 bps) | ||
Operating Margin | 5.5% | 9.6% | (410 bps) | 6.3% | 10.4% | (410 bps) | ||
Diluted EPS | $.20 | $.56 | (64.3%) | $.67 | $1.82 | (63.2%) | ||
Excluded Items1 | $.02 | $.04 | $.09 | $.09 | ||||
Adjusted Diluted EPS2 | $.22 | $.60 | (63.3%) | $.77 | $1.91 | (59.7%) | ||
1Excluded costs in Q3FY21 include $.02 per share related to Monro.Forward initiatives and $0.01 per share of benefit related to a reserve for potential litigation that is no longer necessary. Excluded costs in Q3FY20 include $.03 of costs related to Monro.Forward initiatives and $.01 of costs related to acquisition due diligence and integration. Excluded costs in FY21 YTD include $.06 per share related to store closing costs, $.04 per share related to Monro.Forward initiatives and management transition costs and $0.01 per share of benefit related to a reserve for potential litigation that is no longer necessary. Excluded costs in FY20 YTD include $.06 of costs related to Monro.Forward initiatives and $.03 related to acquisition due diligence and integration.
2Adjusted 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 | 9 |
January 27, 2021. |
Solid Financial Position
Maintaining Ample Financial Flexibility to Support Growth Strategy and Business Operations
Disciplined Capital Allocation
First Nine Months of Fiscal 2021
- Reduced bank debt, net of cash by $56M
- Capex of $39M
- Spent $18M on acquisitions
- Paid $22M in dividends
- Strategically reduced cost structure to drive a leaner, more-focused organization
Strong Balance Sheet and Liquidity
- Generated substantial $159M in operating cash flow during FY21 YTD
- Net bank debt of $165M as of December 2020
- Net bank debt-to-EBITDA ratio as of December 2020 of 1.3x
- Liquidity position of ~$400M as of January 23, 2021
10
Driving Long-Term Sustainable Growth
Improve Customer Experience | Optimize Product & | ||
• | Online reputation management | Service Offering | |
• | Consistent in-store experience | • | Redefined selling approach |
• | Consistent store appearance | • | Optimized tire assortment |
Scalable Platform to | |
Enhance Customer-Centric | Drive Sustainable |
Engagement | Growth |
- Customer retention
- Customer acquisition
- Omnichannel
Accelerate Productivity & Team Engagement
- Optimized store staffing model
- Clearly defined career path and enhanced training program
- Aligned compensation
Investments in Technology and Data-Driven Analytics to Support Strategic Initiatives
11
Monro.Forward Progress Update
Focused on Aspects of Business Within Our Control to Drive Profitable Growth and Operational Excellence
Improve Customer Experience
Enhance Customer- Centric Engagement
Optimize Product & Service Offering
Accelerate Productivity & Team Engagement
- Substantially completed the rebrand and reimage of 104 stores in attractive markets
- Outperformance of rebranded and reimaged stores reinforces strength of strategy
- On track to complete the transformation of ~150 stores during FY21
- Optimized marketing spend towards higher ROI channels to drive improved SEO performance in tires and key service categories
- Leveraged modernized store infrastructure and phone system to improve customer execution
- Completed rollout of tire pricing and category management tool in Q3 FY21
- Dynamically tracked demand trends to drive tire volume and margin expansion
- Focused on category management to capitalize on service attachment opportunities
- Completed rollout of cloud-based store staffing and scheduling software in Q3 FY21
- Well-positionedto capitalize on improving demand trends and drive labor efficiency with right-sized store staffing
- Focused on leveraging Monro University and in-store training to drive operational excellence and improved in-store execution
12
Store Rebrand & Reimage Initiative
Store Rebrand & Reimage Initiative is an Important Part of Our Company Transformation
Improve Customer Experience
- Our largest initiative, which focuses on creating a more consistent store appearance and implementing standardized in-store operating procedures
- Have completed the transformation of ~360 stores in key markets, including rebranding ~115 stores from service branded stores
- On track to complete the transformation of ~150 stores during FY21
13
Monro.Forward: Investments in Technology
Significant Investments in Technology to Support Monro.Forward Strategy
Area | Strategic Rationale | Timing |
Business Intelligence | • KPI dashboards for stores and management |
Monro University | • Ensures consistent onboarding and teammate training |
• Develop clear career paths | |
Learning Management System | |
• Deliver standard operating procedure training | |
Store Network | • Enable and support cloud based merchandising strategy |
Infrastructure Upgrade | • Enable customer-facing technology |
Digital Phone and Customer | • Eliminate cost of analog phone system |
• Simplify phone execution for store personnel | |
Communication System | |
• Enable customer-centric call and text messaging management | |
- Launched in Q4 FY18
- Ongoing company-wide expansion
- Launched in Q3 FY19
- Ongoing expansion across store base
- Completed installation across base in Q2 FY21
- Completed installation across base in Q2 FY21
Store Staffing Model & | • Eliminate paper-based scheduling | • Completed installation across base in Q3 |
• Optimizes store staffing and day part scheduling | ||
Scheduling System | FY21 | |
• Improves part-time scheduling capabilities | ||
Tire Category Management & | • Enterprise solution to dynamically manage pricing at the SKU level | • Completed installation across base in Q3 |
• Partially automates optimization of tire volume/margins by providing | ||
Pricing System | FY21 | |
real-time elasticity | ||
Cloud-Based Car Inspection | • State of the art technology for technicians to provide industry- | |
leading service | • In pilot stages | |
Scanning Tool | ||
• Provides efficient tool for actively managing customer needs | ||
14
Omnichannel: Amazon.com Collaboration
Collaboration With Amazon.com Supports Monro's Online Tire Retailers Installation Strategy
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
- Amazon tire installation services are now offered at all of Monro's more than 1,200 locations in 32 states
- Enhances customer-centric engagement efforts and omni-channel service offerings, delivering a best-in-class customer experience and building a scalable platform for sustainable growth
15
A Proven Acquisition Strategy
Monro's Acquisition Strategy Has Delivered Significant Growth Over the Years
A Proven Track Record
- 39 acquisitions in the past 8 fiscal years, adding 518 locations and $710 million in revenue
- Entered 13 new states, expanding our presence in the Southern and Western markets
- Average acquisition size:
- 13 stores
- ~$20 million in annualized sales growth
Recently Completed Acquisitions
- Completed acquisition of 17 stores in Southern California
- Further expands the Company's geographic footprint in the Western United States
- Represents $20M in annualized sales, slightly dilutive to EPS in FY21
- Sales mix of 60% tires and 40% service
Fiscal 2021 Acquisition Outlook
- Strategically located acquisitions with attractive valuations remain a pillar of our growth and we are committed to executing on attractive opportunities in our highly fragmented industry
- Actively evaluating acquisition targets and capitalizing on robust pipeline
16
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 32 states
- 19 years of consecutive annual sales growth
- Low cost operator with solid operating margins
- Well-positionedto 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 through dividend program
17
Appendix
18
Fiscal 2021 Outlook - Financial Assumptions
Financial Assumptions as of January 27, 2021
Tire and Oil Costs | Slight increase |
Interest Expense | ~$28M to ~$30M |
Depreciation and Amortization | ~$76M to ~$80M |
Tax Rate | ~24% |
Capital Expenditures | ~$45M to ~$50M |
Weighted Average Number of Diluted | ~34M |
Shares Outstanding | |
Store Closure Operating Income Benefit | ~$3.8M |
Cost Reductions | ~$35M |
Additional Assumptions
- CapEx range accounting for rebrand and reimage of ~150 stores in FY21
- Realized ~$10M in cost savings in Q3 FY21 and expect additional savings of ~$5M in Q4 FY21
19
Store Refresh Transformation Timeline
7 Stage Transformation Process from Beginning to End Takes ~17 Weeks
BEFORE | AFTER | |||
Store Readiness | Parts Inventory | Store Inventory Storage | Inventory Assortment | Store Team Trained | Store Interior Remodel | Store Exterior Painted |
on New Operating | and Technology | and New Signage | ||||
for Change | Rebalanced1 | Configured for Tires1 | Reset for Tire Focus1 | |||
Procedures | Installed | Installed | ||||
~17 WEEKS
1Steps are only required for stores that are being rebranded from service format to tire format | 20 |
Monro.Forward Strategic Initiatives
Improve
Customer
Experience
Enhance
Customer-Centric
Engagement
Optimize
Product &
Service
Offering
Accelerate
Productivity
- Team Engagement
Foundational
Technology &
Tools
FY19 | Q2 | Q3 | Q4 | FY20 | Q2 | Q3 | Q4 | FY21 | Q2 | Q3 | Q4 |
FY19 | FY19 | FY19 | FY20 | FY20 | FY20 | FY21 | FY21 | FY21 | |||
Pilot store refresh & | Scale store refresh & operational | ||||||||||
operational excellence | excellence | ||||||||||
Scheduled maintenance | |||||||||||
in-store selling | |||||||||||
Data-driven CRM | Digital phone and customer | ||||||||||
communication system | |||||||||||
New websites | Data-driven "new customer" | ||||||||||
marketing | |||||||||||
New in-store sales | Optimize tire assortment | ||||||||||
packages | |||||||||||
New store 'comp | Monro University (includes |
career path, LMS) | |
plans | |
Store staffing & scheduling system
Store network infrastructure upgrade
Tire category management & pricing system
Cloud based car inspection tool
= Completed Initiatives | 21 |
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Disclaimer
Monro Muffler Brake Inc. published this content on 31 January 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 01 February 2021 09:23:00 UTC.