According to Monro, Inc.‘s second-quarter financial results (ending Sept. 26), sales for the second quarter of the 2021 fiscal year (ending March 27, 2021) decreased 11.0% to $288.6 million, as compared to $324.1 million for the second quarter of the 2020 fiscal year, which ended March 28, 2020.
The total sales decrease for the second quarter of $35.5 million was driven by a comparable store sales decline of 11.4% for the period and $6.5 million from closed stores, partially offset by sales from new stores of $9.4 million, including sales from recent acquisitions of $8.4 million, Monro says, adding the decline in comparable-store sales was primarily driven by reduced store traffic related to the ongoing COVID-19 pandemic and its negative impact on vehicle miles traveled in the second quarter. Comparable store sales were down approximately 3% for tires, 16% for alignments, 19% for maintenance services and front end/shocks, and 24% for brakes compared to the prior-year period, Monro says.
Due to reduced store traffic related to the ongoing COVID-19 pandemic and its negative impact on vehicle miles traveled, Monro says it has maintained store hours of operation below prior-year levels. During the second quarter, the company says it strategically added hours of operation at locations where demand improved. Similarly, the company has right-sized store staffing levels since the beginning of the pandemic and strategically added staffing back to its stores as demand improved. Actively managing store operating hours and staffing levels to match demand has been instrumental to the company’s profit and cash flow performance, Monro says in the report.
“While the disruption created by the COVID-19 pandemic has continued to weigh on our top-line results in the second quarter and third quarter-to-date, with comparable-store sales down approximately 12% in fiscal October, our performance is tracking in-line with key industry indicators. Given the ongoing challenges in the operating environment, we continue to focus on the aspects of our business within our control,” said Robert Mellor, chairman of the board of directors and interim chief executive officer. “This includes driving profitability by actively managing our store operating hours and staffing levels to match demand, as well as expanding our variable margins through improved tire pricing and labor productivity. These efforts combined with targeted cost reductions and working capital management have led to a significant increase in operating cash flow in the first half of the fiscal year. Further, we remain committed to our disciplined M&A strategy as evidenced by our continued expansion in the attractive West Coast region with the acquisition of 17 stores in Southern California.”
Gross margin decreased to 36.2% in the second quarter of fiscal 2021 from 37.7% in the prior-year period. The decrease primarily resulted from lower comparable-store sales in the second quarter of fiscal 2021, causing fixed distribution and occupancy costs to be higher as a percentage of sales compared to the previous year period, Monro says.
Variable gross margin benefited from lower technician labor costs as a percentage of sales related to the company’s store staffing optimization and productivity efforts, as well as improved tire margins, as the company says its tire category management and pricing tool continues to take hold. This was offset by a higher sales mix of tires compared to the prior-year period.
Total operating expenses decreased $8.6 million to $80.1 million, or 27.8% of sales, as compared to $88.7 million, or 27.4% of sales in the prior-year period. The year-over-year dollar decrease primarily resulted from targeted cost reductions and lower expenses from a net reduction of 20 stores compared to the prior-year period, Monro says. The slight increase in operating expenses as a percentage of sales in the second quarter of fiscal 2021 compared to the previous year period was driven by a decrease in comparable-store sales, the company adds.
Operating income for the second quarter of fiscal 2021 was $24.4 million, or 8.5% of sales, as compared to $33.4 million, or 10.3% of sales in the prior year period. Interest expense was $7.3 million for the second quarter of fiscal 2021, as compared to $7.0 million for the second quarter of fiscal 2020.
Net income for the second quarter of fiscal 2021 was $12.8 million, as compared to $20.3 million in the same period of the prior year, according to the report.
Net income for the second quarter of fiscal 2021 reflects an effective tax rate of 25.2%, as compared to 23.6% in the prior year period.
During the second quarter of fiscal 2021, the company closed six company-operated stores, of which five are temporarily closed as a result of damage sustained during Hurricane Laura in Louisiana and Tropical Storm Isaias in the Northeast. During the second quarter, Monro opened one company-operated store, ending the quarter with 1,242 company-operated stores and 97 franchised locations.
“We are firmly committed to the ongoing execution of our Monro.Forward strategy and made great progress this past quarter,” Mellor said. “Most notably, we resumed our store rebrand and reimage program and substantially completed the transformation of approximately 40 stores in the second quarter. Importantly, the changes we are implementing across our business will ensure Monro is well-positioned to capitalize on the continued demand recovery. Our healthy cash flow and solid balance sheet provide us with the financial flexibility to execute these transformational initiatives and capitalize on potential acquisition opportunities to drive sustainable growth. We are confident that our clear path forward will allow us to deliver long-term value for our shareholders.”
Monro says for the current six-month period, sales decreased 16.5% to $535.6 million from $641.2 million in the same period of the prior year. Comparable store sales decreased 18.7% compared to an increase of 0.4% in the prior-year period. Gross margin for the six-month period was 35.8% of sales, compared to 39.0% in the prior-year period. Operating income was 6.7% of sales, compared to 10.9% in the prior-year period.
The same day the financial report was released, the company also announced it has signed a definitive agreement to acquire 17 stores in Southern California.
These locations are expected to add approximately $20 million in annualized sales, representing a sales mix of 60% tires and 40% service, Monro says. The acquisition is expected to close in the third quarter of fiscal 2021 and be slightly dilutive to diluted earnings per share in fiscal 2021.