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COVID-19 Affects Monro Inc. Q4 Results, Long-Term Strategy

Government authorities’ actions to curb the COVID-19 pandemic have resulted in a substantial decrease in traffic since mid-March, Monro reports, which adversely impacted the company’s financial results in the fourth quarter of fiscal 2020 and has continued to significantly affect the company’s performance in the first quarter of the fiscal year ending March 27, 2021 (“fiscal 2021”) to date.

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Sales for the fourth quarter of the fiscal year ended March 28, 2020, and decreased 0.4% to $286.1 million, as compared to $287.2 million for the fourth quarter of the fiscal year ended March 30, 2019. The total sales decrease for the fourth quarter of $1.1 million was driven by a comparable store sales decline of 9.5%, partially offset by sales from new stores of $23.5 million, including sales from recent acquisitions of $21.9 million, Monro says, adding the decline in comparable store sales was primarily driven by a substantial decrease in traffic related to the COVID-19 pandemic late in the quarter, as well as mild winter weather in the company’s Northern markets in January and February. Comparable store sales were down approximately 8% for maintenance services, 9% for tires, 10% for front end/shocks and 11% for brakes and alignments compared to the prior year period.

In response to COVID-19, the company says it has implemented and continues to adjust comprehensive business contingency plans to ensure that its stores are operating efficiently. Given the prevailing uncertain market conditions, the company has taken precautionary steps to further mitigate near-term headwinds and strengthen its financial position, including:

  • deferring non-critical capital expenditures, including its store rebrand and reimage initiative;
  • reducing store hours and store labor to match demand;
  • reducing selling, general and administrative expenses;
  • temporarily pausing acquisition activity; and
  • bolstering its working capital position.

To maximize its financial flexibility, the company says it drew down the remaining $350 million from its revolving credit facility at the end of March. Cash and cash equivalents are approximately $375 million as of May 26, 2020.

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Expanded Collaboration with Amazon.com

The company announced May 28 it has expanded its collaboration with Amazon.com to provide tire installation services at over 200 additional Monro retail tire and automotive service locations in seven additional states across the Western and Eastern regions of the United States, increasing the amount of service locations to over 1,000 stores. By July 2020, Monro says it expects to have rolled out its Amazon tire installation services to all of its more than 1,200 locations in 32 states.

2020 Fiscal Year Report

Monro, Inc. reported sales for fiscal 2020 (April 1, 2019-March 28, 2020) increased by 4.7% to a record $1.257 billion, up from $1.200 billion in fiscal 2019.

The total sales increase of $56.3 million for the fiscal year was driven by an increase in sales from new stores of $83.3 million, including sales from recent acquisitions of $73.2 million, Monro says. Comparable store sales were down 2.3%, compared to an increase of 0.4% in the prior year on a reported basis, or an increase of 2.3% when adjusted for days. Comparable store sales were down approximately 1% for brakes, 2% for tires and maintenance services and 3% for alignments and front end/shocks compared to the prior year, the company reports.

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Gross margin for fiscal 2020 was 37.9% of sales, compared to 38.8% in the prior year, primarily due to lower comparable store sales, which resulted in higher fixed distribution and occupancy costs as a percentage of sales.

Total operating expenses for fiscal 2020 were $375.0 million, or 29.8% of sales, compared to $338.5 million, or 28.2% of sales in the prior year. The dollar increase primarily represents store impairment costs, increased costs related to the company’s Monro.Forward initiatives and expenses related to 86 net new stores, Monro says.

Operating income was $101.7 million, or 8.1% of sales, compared to $126.7 million, or 10.6% in the prior year. Interest expense was $28.2 million in fiscal 2020 as compared to $27.0 million in fiscal 2019.

Net income for fiscal 2020 was $58.0 million, as compared to $79.8 million in fiscal 2019.

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