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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________
FORM
____________________________________________________________
(Mark One)
For the quarterly period ended
OR
For the transition period from _____________ to _____________
Commission File Number:
____________________________________________________________
(Exact name of registrant as specified in its charter)
____________________________________________________________
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|
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
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(Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: (
_________________________________________
Securities registered pursuant to Section 12(b) of the Act:
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|
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes
As of January 21, 2022,
TABLE OF CONTENTS
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3 | |
4 | |
5 | |
6 | |
8 | |
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations | 15 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 23 |
23 | |
| |
24 | |
25 | |
26 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
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(thousands, except footnotes) (unaudited) |
| December 25, 2021 |
| March 27, 2021 | ||
Assets |
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Current assets |
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Cash and equivalents |
| $ | |
| $ | |
Accounts receivable |
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Federal and state income taxes receivable |
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| — |
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Inventories |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Finance lease and financing obligation assets, net |
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Operating lease assets, net |
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Goodwill |
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Intangible assets, net |
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Other non-current assets |
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Long-term deferred income tax assets |
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Total assets |
| $ | |
| $ | |
Liabilities and shareholders equity |
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Current liabilities |
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Current portion of finance leases and financing obligations |
| $ | |
| $ | |
Current portion of operating lease liabilities |
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Accounts payable |
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Federal and state income taxes payable |
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| — |
Accrued payroll, payroll taxes and other payroll benefits |
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Accrued insurance |
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Deferred revenue |
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Other current liabilities |
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Total current liabilities |
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Long-term debt |
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Long-term finance leases and financing obligations |
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Long-term operating lease liabilities |
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Other long-term liabilities |
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Long-term deferred income tax liabilities |
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Long-term income taxes payable |
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Total liabilities |
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Commitments and contingencies - Note 10 |
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Shareholders equity: |
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Class C Convertible Preferred stock |
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Common stock |
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Treasury stock |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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| ( |
Retained earnings |
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Total shareholders equity |
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Total liabilities and shareholders equity |
| $ | |
| $ | |
Class C Convertible Preferred stock Authorized
Common stock Authorized
Treasury stock
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Income and Comprehensive Income
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| Three Months Ended |
| Nine Months Ended | ||||||||
(thousands, except per share data) (unaudited) |
| December 25, 2021 |
| December 26, 2020 |
| December 25, 2021 |
| December 26, 2020 | ||||
Sales |
| $ | |
| $ | |
| $ | |
| $ | |
Cost of sales, including distribution and occupancy costs |
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Gross profit |
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Operating, selling, general and administrative expenses |
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Operating income |
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Interest expense, net of interest income |
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Other income, net |
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| ( |
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| ( |
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| ( |
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Income before income taxes |
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Provision for income taxes |
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Net income |
| $ | |
| $ | |
| $ | |
| $ | |
Other comprehensive loss |
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Changes in pension, net of tax |
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| ( |
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| ( |
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| ( |
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| ( |
Other comprehensive loss |
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| ( |
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| ( |
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| ( |
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| ( |
Comprehensive income |
| $ | |
| $ | |
| $ | |
| $ | |
Earnings per share |
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Basic |
| $ | |
| $ | |
| $ |
| $ | ||
Diluted |
| $ | |
| $ | |
| $ |
| $ | ||
Weighted average common shares outstanding |
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Basic |
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Diluted |
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See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Changes in Shareholders’ Equity
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| Class C |
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| Accumulated |
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| Convertible |
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| Additional |
| Other |
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| Preferred Stock |
| Common Stock |
| Treasury Stock |
| Paid-In |
| Comprehensive |
| Retained |
| Total | |||||||||||||
(thousands) (unaudited) | Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Loss |
| Earnings |
| Equity | |||||||
Balance at September 26, 2020 | |
| $ | |
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| $ | |
| |
| $ | ( |
| $ | |
| $ | ( |
| $ | |
| $ | |
Net income |
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Other comprehensive loss |
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Pension liability adjustment |
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| ( |
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| ( |
Dividends declared |
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Preferred |
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| ( |
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Common |
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| ( |
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Dividend payable |
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| ( |
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Stock options and restricted stock |
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| — |
Stock-based compensation |
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Balance at December 26, 2020 | |
| $ | |
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| $ | |
| |
| $ | ( |
| $ | |
| $ | ( |
| $ | |
| $ | |
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Balance at September 25, 2021 | |
| $ | |
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| $ | |
| |
| $ | ( |
| $ | |
| $ | ( |
| $ | |
| $ | |
Net income |
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Other comprehensive loss |
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Pension liability adjustment |
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| ( |
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| ( |
Dividends declared |
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Preferred |
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| ( |
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Common |
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| ( |
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Dividend payable |
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| ( |
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Stock options and restricted stock |
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| — |
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Stock-based compensation |
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Balance at December 25, 2021 | |
| $ | |
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| $ | |
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| $ | ( |
| $ | |
| $ | ( |
| $ | |
| $ | |
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Balance at March 28, 2020 | |
| $ | |
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| $ | |
| |
| $ | ( |
| $ | |
| $ | ( |
| $ | |
| $ | |
Net income |
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Other comprehensive loss |
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Pension liability adjustment |
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| ( |
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| ( |
Dividends declared |
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Preferred |
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| ( |
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| ( |
Common |
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| ( |
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| ( |
Dividend payable |
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| ( |
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| ( |
Stock options and restricted stock |
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| ( |
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| ( |
Stock-based compensation |
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Balance at December 26, 2020 | |
| $ | |
| |
| $ | |
| |
| $ | ( |
| $ | |
| $ | ( |
| $ | |
| $ | |
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Balance at March 27, 2021 | |
| $ | |
| |
| $ | |
| |
| $ | ( |
| $ | |
| $ | ( |
| $ | |
| $ | |
Net income |
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Other comprehensive loss |
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Pension liability adjustment |
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| ( |
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| ( |
Dividends declared |
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Preferred |
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| ( |
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Common |
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| ( |
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| ( |
Dividend payable |
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| ( |
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| ( |
Stock options and restricted stock |
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Stock-based compensation |
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Balance at December 25, 2021 | |
| $ | |
| |
| $ | |
| |
| $ | ( |
| $ | |
| $ | ( |
| $ | |
| $ | |
We declared $
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
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| Nine Months Ended | ||||
(thousands) (unaudited) |
| December 25, 2021 |
| December 26, 2020 | ||
Operating activities |
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Net income |
| $ | |
| $ | |
Adjustments to reconcile net income to cash provided by operating activities: |
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Depreciation and amortization |
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Share-based compensation expense |
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Gain on disposal of assets |
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| ( |
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| ( |
Impairment of long-lived assets |
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| — |
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Deferred income tax expense |
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Change in operating assets and liabilities (excluding acquisitions) |
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Accounts receivable |
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| ( |
Inventories |
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| ( |
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Other current assets |
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| ( |
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Other non-current assets |
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| |
Accounts payable |
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| |
Accrued expenses |
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| |
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| |
Federal and state income taxes payable |
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| |
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| |
Other long-term liabilities |
|
| ( |
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| ( |
Long-term income taxes payable |
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| |
Cash provided by operating activities |
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Investing activities |
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Capital expenditures |
|
| ( |
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| ( |
Acquisitions, net of cash acquired |
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| ( |
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| ( |
Proceeds from the disposal of assets |
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Other |
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| |
Cash used for investing activities |
|
| ( |
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| ( |
Financing activities |
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Proceeds from borrowings |
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| — |
Principal payments on long-term debt, finance leases and financing obligations |
|
| ( |
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| ( |
Exercise of stock options |
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| |
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| |
Dividends paid |
|
| ( |
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| ( |
Deferred financing costs |
|
| ( |
|
| ( |
Cash used for financing activities |
|
| ( |
|
| ( |
Decrease in cash and equivalents |
|
| ( |
|
| ( |
Cash and equivalents at beginning of period |
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| |
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| |
Cash and equivalents at end of period |
| $ | |
| $ | |
Supplemental information |
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|
Leased assets obtained in exchange for new finance lease liabilities |
| $ | |
| $ | |
Leased assets obtained in exchange for new operating lease liabilities |
| $ | |
| $ | |
See accompanying Notes to Consolidated Financial Statements.
INDEX TO NOTES
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| |
8 | |
9 | |
9 | |
12 | |
12 | |
12 | |
12 | |
13 | |
13 | |
14 |
Monro, Inc. and its direct and indirect subsidiaries (together, “Monro”, the “Company”, “we”, “us”, or “our”), are engaged principally in providing automotive undercar repair and tire replacement sales and tire related services in the United States. Monro had
A certain number of our retail locations also service commercial customers. Our locations that serve commercial customers generally operate consistently with our other retail locations, except that the sales mix for these locations includes a higher number of commercial tires.
As of December 25, 2021, Monro had
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial statements. While these statements reflect all adjustments (consisting of items of a normal recurring nature) that are, in the opinion of management, necessary for a fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States generally accepted accounting principles (“U.S. GAAP”) for complete financial statement presentation. The consolidated financial statements should be read in conjunction with the financial statement disclosures in our Form 10-K for the fiscal year ended March 27, 2021.
We use the same accounting policies in preparing quarterly and annual financial statements.
Due to the seasonal nature of our business, quarterly operating results and cash flows are not necessarily indicative of the results that may be expected for other interim periods or the full year.
We operate on a 52/53 week fiscal year ending on the last Saturday in March. Fiscal years 2022 and 2021 each contain 52 weeks. Unless specifically indicated otherwise, any references to “2022” or “fiscal 2022” and “2021” or “fiscal 2021” relate to the years ending March 26, 2022 and March 27, 2021, respectively.
In December 2019, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance intended to simplify the accounting for income taxes. The new guidance removes certain exceptions to the general principles in Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes,” and amends existing guidance to improve consistent application. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020. We adopted this guidance during the first quarter of 2022. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC) and the SEC did not, or are not expected to have a material effect on Monro’s consolidated financial statements.
Supplemental information
The novel strain of coronavirus (“COVID-19”) pandemic has been a highly disruptive economic and societal event that has affected our business and has a significant impact on consumer behavior. To date, our retail stores, wholesale locations and other facilities have remained open as an essential business. To serve our customers while also providing for the safety of employees, we have adapted certain aspects of the business. Throughout the pandemic, we have monitored the rapidly evolving situation and will continue to adapt our operations to (i) address federal, state and local standards, (ii) meet the demand of customers, and (iii) implement standards that we believe to be in the best interests of the safety and well-being of our employees and customers.
The full impact of the COVID-19 pandemic will depend on factors such as the length of time of the pandemic; how federal, state and local governments are responding; the efficacy of the COVID-19 vaccines; the longer-term impact of the pandemic on the economy and consumer behavior; and the effect on our customers, employees, vendors and other partners.
Monro’s acquisitions are strategic moves in our plan to fill in and expand our presence in our existing and contiguous markets, expand into new markets and leverage fixed operating costs such as distribution, advertising and administration. Acquisitions in this note include acquisitions of
2022
During the first nine months of fiscal 2022, we acquired the following businesses for an aggregate purchase price of $
On
On
On
On
On
The acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining the businesses with ours, as well as unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes.
We expensed all costs related to the acquisitions in the nine months ended December 25, 2021. The total costs related to the completed acquisitions were $
Sales related to the completed acquisitions for the three months and nine months ended December 25, 2021 totaled $
Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.
We accounted for the acquisitions as a business combination using the acquisition method of accounting in accordance with the FASB ASC Topic 805, “Business Combinations.” The assets acquired and liabilities assumed were recorded at their acquisition-date fair values and were consolidated with those of the Company as of the acquisition date. The acquisition-date fair values were assigned based on preliminary valuations and estimates, and the consideration transferred and net liabilities assumed were recorded as goodwill.
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2022 Acquisition-date Fair Values Assigned |
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(thousands) |
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Inventory |
| $ | |
Other current assets |
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Property and equipment |
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Finance lease and financing obligation assets |
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Operating lease assets |
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Intangible assets |
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Other non-current assets |
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Long-term deferred income tax assets |
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Total assets acquired |
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Current portion of finance leases and financing obligations |
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Current portion of operating lease liabilities |
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Deferred revenue |
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Other current liabilities |
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Long-term finance leases and financing obligations |
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Long-term operating lease liabilities |
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Other long-term liabilities |
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Total liabilities assumed |
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Total net identifiable liabilities assumed |
| $ | ( |
Total consideration transferred |
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Less: total net identifiable liabilities assumed |
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Goodwill |
| $ | |
The total consideration of $
We recorded $
We continue to refine the valuation data and estimates primarily related to inventory, warranty reserves, intangible assets and real property leases and certain liabilities for the 2022 acquisitions and expect to complete the valuations no later than the first anniversary date of the acquisition. We anticipate that adjustments will continue to be made to the fair values of identifiable assets acquired and liabilities assumed and those adjustments may or may not be material.
2021
On
Prior to this acquisition, our acquisition activity in 2021 was paused due to the impact of the COVID-19 pandemic.
The acquisition resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining the business with ours, as well as unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded a customer list intangible asset with a useful life of
We expensed all costs related to the acquisition in the three months ended December 26, 2020. The total costs related to the completed acquisition were $
Sales related to the completed acquisition totaled $
Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.
We accounted for the 2021 acquisition as a business combination using the acquisition method of accounting and we finalized the purchase accounting related to the 2021 acquisition during 2022. As a result of the updated purchase price allocation for the 2021 acquisition, certain of the fair value amounts previously estimated were adjusted during the measurement period. These measurement period adjustments resulted from updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates. The measurement period adjustments were not material to the Consolidated Balance Sheet as of December 25, 2021 and the Consolidated Statements of Income and Comprehensive Income for the three months and nine months ended December 25, 2021.
The acquired assets and liabilities assumed were recorded at their assigned acquisition-date fair values and were consolidated with those of the Company as of the acquisition date. The consideration transferred and net liabilities assumed were recorded as goodwill.
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2021 Acquisition-date Fair Values Assigned |
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Inventory |
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Other current assets |
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Property and equipment |
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Finance lease and financing obligation assets |
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Operating lease assets |
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Intangible assets |
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Other non-current assets |
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Long-term deferred income tax assets |
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Total assets acquired |
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Current portion of finance leases and financing obligations |
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Current portion of operating lease liabilities |
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Deferred revenue |
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Other current liabilities |
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Long-term finance leases and financing obligations |
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Long-term operating lease liabilities |
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Other long-term liabilities |
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Total liabilities assumed |
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Total net identifiable liabilities assumed |
| $ | ( |
Total consideration transferred |
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Less: total net identifiable liabilities assumed |
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Goodwill |
| $ | |
During the nine months ended December 25, 2021, we paid $
Basic earnings per common share amounts are calculated by dividing income available to common shareholders, after deducting preferred stock dividends, by the weighted average number of shares of common stock outstanding. Diluted earnings per common share amounts are calculated by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents represent potential common shares issuable from the conversion of preferred stock, as well as upon the assumed exercise of common stock options outstanding and from the vesting of restricted stock.
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Earnings per Common Share |
| Three Months Ended |
| Nine Months Ended | ||||||||
(thousands, except per share data) |
| December 25, 2021 |
| December 26, 2020 |
| December 25, 2021 |
| December 26, 2020 | ||||
Numerator for earnings per common share calculation: |
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Net income |
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| $ | |
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Less: Preferred stock dividends |
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Income available to common shareholders |
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| $ | |
| $ | |
| $ | |
Denominator for earnings per common share calculation: |
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Weighted average common shares - basic |
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Effect of dilutive securities: |
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Preferred stock |
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Stock options |
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Restricted stock |
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Weighted average common shares - diluted |
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Basic earnings per common share |
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| $ | |
| $ | |
| $ | |
Diluted earnings per common share |
| $ | |
| $ | |
| $ | |
| $ | |
Weighted average common share equivalents that have an anti-dilutive impact are excluded from the computation of diluted earnings per share.
For the three months and nine months ended December 25, 2021, our effective income tax rate was
Long-term debt had a carrying amount that approximates a fair value of $
We paid dividends of $
Note 8 – Revenues
Automotive undercar repair, tire replacement sales and tire related services represent the vast majority of our revenues. We also earn revenue from the sale of tire road hazard warranty agreements as well as commissions earned from the delivery of tires on behalf of certain tire vendors.
Revenue from automotive undercar repair, tire replacement sales and tire related services is recognized at the time the customers take possession of their vehicle or merchandise. For sales to certain customers that are financed through the offering of credit on account, payment terms are established for customers based on our pre-established credit requirements. Payment terms vary depending on the customer and generally range from
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Revenues |
| Three Months Ended |
| Nine Months Ended | ||||||||
(thousands) |
| December 25, 2021 |
| December 26, 2020 |
| December 25, 2021 |
| December 26, 2020 | ||||
Tires (a) |
| $ | |
| $ | |
| $ | |
| $ | |
Maintenance |
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Brakes |
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Steering |
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Exhaust |
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Other |
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Total |
| $ | |
| $ | |
| $ | |
| $ | |
(a) Includes the sale of tire road hazard warranty agreements and tire delivery commissions.
Revenue from the sale of tire road hazard warranty agreements is initially deferred and is recognized over the contract period as costs are expected to be incurred in performing such services, typically
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Changes in Deferred Revenue |
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(thousands) |
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Balance at March 27, 2021 |
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Deferral of revenue |
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Deferral of revenue from acquisitions |
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Recognition of revenue |
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Balance at December 25, 2021 |
| $ | |
As of December 25, 2021, we expect to recognize $
Under various arrangements, we receive from certain tire vendors a delivery commission and reimbursement for the cost of the tire that we may deliver to customers on behalf of the tire vendor. The commission we earn from these transactions is as an agent and the net amount retained is recorded as sales.
In April 2019, we entered into a new
On June 11, 2020, we entered into a First Amendment to the Credit Facility (the “First Amendment”), which, among other things, amended the terms of certain of the financial and restrictive covenants in the credit agreement through the first quarter of fiscal 2022 to provide us with additional flexibility to operate our business. The First Amendment amended the interest rate charged on
borrowings to be based on the greater of adjusted one-month LIBOR or
On October 5, 2021, we entered into a Second Amendment to the Credit Facility (the “Second Amendment”). The Second Amendment, which among other things, amends certain of the financial terms in the Credit Agreement, as amended by the First Amendment. Specifically, the First Amendment had amended the interest rate charged on borrowings to be based on the greater of adjusted one-month LIBOR or
Within the Credit Facility, we have a sub-facility of $
There was $
We were in compliance with all debt covenants at December 25, 2021.
Commitments
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Commitments Due by Period |
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| Within |
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(thousands) |
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Principal payments on long-term debt |
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Finance lease commitments/financing obligations (a) |
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| $ | |
| $ | |
Operating lease commitments (a) |
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Accrued rent |
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Other liabilities |
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Total |
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| $ | |
| $ | |
| $ | |
| $ | |
(a)
Contingencies
We are currently a party to various claims and legal proceedings incidental to the conduct of our business. If management believes that a loss arising from any of these matters is probable and can reasonably be estimated, we will record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur and may include monetary damages. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which any such ruling occurs, or in future periods.
As previously disclosed by the Company, an action was filed against us on June 12, 2020 in the U.S. District Court for the Western District of Pennsylvania by Mark Cerini. The plaintiff, who is a former service store manager, sought certification to represent similarly situated store managers in a nationwide collective action for unpaid overtime wages, damages and attorneys’ fees. Plaintiff alleged violations of the Fair Labor Standards Act and various state laws relating to, among other things, overtime and unpaid wages. The parties entered into a settlement agreement to resolve this matter that was approved by the court. The Company included the settlement amount of $
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Financial Summary
Third quarter 2022 included the following notable items:
Diluted earnings per common share (“EPS”) were $0.48.
Adjusted diluted EPS, a non-GAAP measure, were $0.49.
Sales increased 20.1 percent, driven by an increase in comparable store sales.
Comparable store sales increased 13.8 percent from the prior year comparable period, driven primarily by an increase in average ticket amount.
Operating income of $27.4 million was 74.9 percent higher than the prior year comparable period.
Net income was $16.3 million.
Adjusted net income, a non-GAAP measure, was $16.6 million.
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Earnings Per Common Share |
| Three Months Ended |
| Nine Months Ended | ||||||||||||
|
| December 25, 2021 |
| December 26, 2020 | Change |
| December 25, 2021 |
| December 26, 2020 | Change | ||||||
Diluted EPS |
| $ | 0.48 |
| $ | 0.20 | 140.0 | % |
| $ | 1.56 |
| $ | 0.67 | 132.8 | % |
Adjustments |
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| 0.01 |
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| 0.01 |
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| 0.09 |
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| 0.09 |
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Adjusted diluted EPS |
| $ | 0.49 |
| $ | 0.22 | 122.7 | % |
| $ | 1.66 |
| $ | 0.77 | 115.6 | % |
Note: Amounts may not foot due to rounding.
Adjusted net income and adjusted diluted EPS, each of which is a measure not derived in accordance with U.S. GAAP, exclude the impact of certain items. Management believes that adjusted net income and adjusted diluted EPS are useful in providing period-to-period comparisons of the results of our operations by excluding certain non-recurring items and items related to store closings as well as Monro.Forward or acquisition initiatives. Reconciliations of these non-GAAP financial measures to GAAP measures are provided beginning on page 19 under “Non-GAAP Financial Measures.”
We define comparable store sales, or same store sales, as sales for stores that have been opened or owned at least one full fiscal year. We believe this period is generally required for new store sales levels to begin to normalize. Management uses comparable store sales to assess the operating performance of the Company’s stores and believes the metric is useful to investors because our overall results are dependent upon the results of our stores. Comparable sales measures vary across the retail industry. Therefore, our comparable store sales calculation is not necessarily comparable to similarly titled measures reported by other companies.
Impact of COVID-19
The full impact of the COVID-19 pandemic will depend on factors such as the length of time of the pandemic; how federal, state and local governments are responding; the efficacy and distribution of the COVID-19 vaccines; the longer-term impact of the pandemic on the economy and consumer behavior; and the effect on our customers, referred to as “guests”; employees, referred to as “teammates”; vendors and other partners.
During this time, we are focused on protecting the health and safety of our teammates and guests, while seeking to continue operating our business responsibly.
During this period when vaccine distribution has increased and more businesses are operating at levels similar to pre-pandemic capacity, we have experienced labor inefficiencies and a shortage of teammates in some of our store locations. If we are unable to fill enough teammate positions, we may be unable to earn as much revenue as if we were fully staffed. We have had to pay more for labor because our teammates continue working overtime in order to meet the surge in demand, which, along with an incremental investment we made in technician labor costs to support current and future sales growth amidst improving consumer demand trends, increased our technician labor costs as a percentage of sales and may decrease our gross profit and net income if not offset by other factors. Although we are experiencing unprecedented challenges during this pandemic, we continue our focus to remain as efficient as possible while still offering safe and high quality service to our guests.
While we expect many teammates to return to our offices in the future, the timing of such a return could be affected by resurgences of COVID-19 in areas where our offices are located. When we return to our offices, we expect many teammates to continue to work in a hybrid of in-person and remote work. These changes to our operations going forward may present additional challenges and increased costs to ensure our offices are safe and functional for hybrid work that enable effective collaboration of both in-person and remote teammates.
Given the level of volatility and uncertainty surrounding the future impact of COVID-19, we cannot estimate with certainty the long-term impacts of the COVID-19 pandemic on our business, financial condition, results of operations, and cash flows.
Analysis of Results of Operations
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Summary of Operating Income |
| Three Months Ended |
| Nine Months Ended | ||||||||||||
(thousands) |
| December 25, 2021 |
| December 26, 2020 | Change |
| December 25, 2021 |
| December 26, 2020 | Change | ||||||
Sales |
| $ | 341,781 |
| $ | 284,591 | 20.1 | % |
| $ | 1,031,298 |
| $ | 820,237 | 25.7 | % |
Cost of sales, including distribution and |
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| 221,199 |
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| 188,453 | 17.4 |
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| 654,102 |
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| 532,119 | 22.9 |
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Gross profit |
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| 120,582 |
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| 96,138 | 25.4 |
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| 377,196 |
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| 288,118 | 30.9 |
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Operating, selling, general and administrative expenses |
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| 93,146 |
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| 80,450 | 15.8 |
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| 287,366 |
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| 236,603 | 21.5 |
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Operating income |
| $ | 27,436 |
| $ | 15,688 | 74.9 | % |
| $ | 89,830 |
| $ | 51,515 | 74.4 | % |
Sales
Sales include automotive undercar repair, tire replacement and tire related service sales, net of discounts, returns, etc., and revenue from the sale of warranty agreements and commissions earned from the delivery of tires. See Note 8 to the Company’s consolidated financial statements for further information. We use comparable store sales to evaluate the performance of our existing stores by measuring the change in sales for a period over the comparable, prior-year period of equivalent length. There were 89 selling days in the three months ended December 25, 2021 and in the three months ended December 26, 2020, and 270 selling days in the nine months ended December 25, 2021 and in the nine months ended December 26, 2020.
Sales growth – from both comparable store sales and new stores – represents an important driver of our long-term profitability. We expect that comparable store sales growth will significantly impact our total sales growth. We believe that our ability to successfully differentiate our guests’ experience through a careful combination of merchandise assortment, price, convenience, guest experience, and other factors will, over the long-term, drive both increasing guest traffic and the average ticket amount.
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Sales |
| Three Months Ended |
| Nine Months Ended | ||||||||||
(thousands) |
| December 25, 2021 |
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| December 26, 2020 |
| December 25, 2021 |
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| December 26, 2020 | ||||
Sales |
| $ | 341,781 |
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| $ | 284,591 |
| $ | 1,031,298 |
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| $ | 820,237 |
Dollar change compared to prior year |
| $ | 57,190 |
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| $ | 211,061 |
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Percentage change compared to prior year |
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| 20.1 | % |
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| 25.7 | % |
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The sales increase was primarily due to an increase in comparable store sales from an increase in average ticket amount as comparable store sales growth increased across our product categories with higher growth in our tires, maintenance and brakes categories. Additionally, there was an increase in sales from new stores. Partially offsetting these increases was a decrease in sales from closed stores. The following table shows the primary drivers of the change in sales for each of the three months and nine months ended December 25, 2021, as compared to the same period ended December 26, 2020.
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Sales Percentage Change | Three Months Ended |
| Nine Months Ended | ||||||
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| December 25, 2021 |
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| December 25, 2021 |
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Sales change |
| 20.1 | % |
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| 25.7 | % |
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Primary drivers of change in sales |
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Comparable stores sales |
| 13.8 | % |
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| 20.3 | % |
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New store sales (a) |
| 6.5 | % |
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| 6.2 | % |
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Closed store sales |
| (0.1) | % |
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| (0.6) | % |
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(a)Sales from 2022 and 2021 acquisitions contributed 6.4 percent and 6.0 percent of the sales change for the three months and the nine months ended December 25, 2021, respectively.
As the COVID-19 pandemic has evolved, demand for automotive undercar repair services as well as replacement tires and tire related services continues to be volatile. During the three months and nine months ended December 25, 2021, comparable store sales growth increased across our product categories with higher growth in our higher-margin brakes, alignment and maintenance categories, as well as our tire category, each of which experienced declines during the three months and nine months ended December 26, 2020.
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Comparable Store Product Category Sales Change | Three Months Ended |
| Nine Months Ended | ||||||
| December 25, 2021 | December 26, 2020 |
| December 25, 2021 | December 26, 2020 | ||||
Tires | 11 | % | (8) | % |
| 15 | % | (8) | % |
Maintenance | 11 | % | (19) | % |
| 22 | % | (24) | % |
Brakes | 28 | % | (21) | % |
| 39 | % | (30) | % |
Alignment | 28 | % | (16) | % |
| 37 | % | (21) | % |
Front end/shocks | 14 | % | (17) | % |
| 23 | % | (25) | % |
Exhaust | 14 | % | (17) | % |
| 18 | % | (24) | % |
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Sales by Product Category | Three Months Ended |
| Nine Months Ended | ||||||
| December 25, 2021 | December 26, 2020 |
| December 25, 2021 | December 26, 2020 | ||||
Tires | 56 | % | 57 | % |
| 53 | % | 56 | % |
Maintenance | 23 |
| 23 |
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| 24 |
| 24 |
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Brakes | 12 |
| 11 |
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| 13 |
| 12 |
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Steering (a) | 8 |
| 7 |
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| 8 |
| 7 |
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Exhaust | 1 |
| 2 |
|
| 2 |
| 1 |
|
Total | 100 | % | 100 | % |
| 100 | % | 100 | % |
(a)Steering product category includes front end/shocks and alignment product category sales.
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Change in Number of Company-Operated Retail Stores | Three Months Ended |
| Nine Months Ended | ||
| December 25, 2021 | December 26, 2020 |
| December 25, 2021 | December 26, 2020 |
Beginning store count | 1,288 | 1,242 |
| 1,263 | 1,283 |
Opened (a) | 17 | 19 |
| 47 | 20 |
Closed | (2) | (1) |
| (7) | (43) |
Ending store count | 1,303 | 1,260 |
| 1,303 | 1,260 |
(a)The stores opened are primarily stores acquired from the 2022 and 2021 acquisitions.
Cost of Sales and Gross Profit
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Gross Profit | Three Months Ended |
| Nine Months Ended | ||||||||||
(thousands) | December 25, 2021 | December 26, 2020 |
| December 25, 2021 | December 26, 2020 | ||||||||
Gross profit | $ | 120,582 |
| $ | 96,138 |
|
| $ | 377,196 |
| $ | 288,118 |
|
Percentage of sales |
| 35.3 | % |
| 33.8 | % |
|
| 36.6 | % |
| 35.1 | % |
Dollar change compared to prior year | $ | 24,444 |
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|
|
| $ | 89,078 |
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Percentage change compared to prior year |
| 25.4 | % |
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|
|
|
| 30.9 | % |
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|
The increase in gross profit, as a percentage of sales, of 150 basis points (“bps”) for the three months and nine months ended December 25, 2021, as compared to the prior year comparable period, was primarily due to a decrease in material costs, as a percentage of sales, as a result of a shift in sales mix from tires to our higher margin service categories. Additionally, through the use of our tire category and management pricing tool, we expanded our gross profit per tire from the prior year comparable period. The increase in gross profit, as a percentage of sales, was also partially due to a decrease in distribution and occupancy costs, as a percentage of sales, as we gained leverage on these largely fixed costs with higher overall comparable store sales. Partially offsetting these decreases was an increase in technician labor costs, which increased as a percentage of sales, as we made an incremental investment in technician labor costs to support current and future sales growth amidst improving consumer demand trends for our product and service categories.
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Gross Profit as a Percentage of Sales Change | Three Months Ended |
| Nine Months Ended | ||||||
|
| December 25, 2021 |
|
|
| December 25, 2021 |
| ||
Gross profit change |
| 150 | bps |
|
|
| 150 | bps |
|
Primary drivers of change in gross profit as a percentage of sales |
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Material costs |
| 180 | bps |
|
|
| 190 | bps |
|
Distribution and occupancy costs |
| 120 | bps |
|
|
| 160 | bps |
|
Technician labor costs |
| (150) | bps |
|
|
| (210) | bps |
|
OSGA Expenses
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OSGA Expenses | Three Months Ended |
| Nine Months Ended | ||||||||||
(thousands) | December 25, 2021 | December 26, 2020 |
| December 25, 2021 | December 26, 2020 | ||||||||
OSGA Expenses | $ | 93,146 |
| $ | 80,450 |
|
| $ | 287,366 |
| $ | 236,603 |
|
Percentage of sales |
| 27.3 | % |
| 28.3 | % |
|
| 27.9 | % |
| 28.8 | % |
Dollar change compared to prior year | $ | 12,696 |
|
|
|
|
| $ | 50,763 |
|
|
|
|
Percentage change compared to prior year |
| 15.8 | % |
|
|
|
|
| 21.5 | % |
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|
The increase of $12.7 million and $50.8 million in OSGA expenses for the three months and nine months ended December 25, 2021, respectively, as compared to the prior year comparable period is primarily due to increased expenses from comparable stores, mainly store management compensation and operating expenses needed to match demand. However, we gained leverage with higher overall comparable store sales, which resulted in the decrease in OSGA expenses, as a percentage of sales, from the prior year comparable period. The increase in OSGA expenses for the three months and nine months ended December 25, 2021 was also partially due to increased expenses from 51 new stores, as well as an increase in litigation settlement costs (mainly related to the Cerini matter described in Note 10 to the Company’s consolidated financial statements). Partially offsetting these increases were lower expenses for the three months and nine months ended December 25, 2021 from eight stores closed compared to the prior year comparable period.
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OSGA Expenses Change | Three Months Ended |
| Nine Months Ended | ||||||
(thousands) |
| December 25, 2021 |
|
|
| December 25, 2021 |
| ||
OSGA expenses change |
| $ | 12,696 |
|
|
| $ | 50,763 |
|
Drivers of change in OSGA expenses |
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Increase from comparable stores |
| $ | 8,261 |
|
|
| $ | 36,597 |
|
Increase from new stores |
| $ | 5,059 |
|
|
| $ | 12,942 |
|
Increase in litigation settlement costs |
| $ | 89 |
|
|
| $ | 4,009 |
|
Decrease from closed stores |
| $ | (713) |
|
|
| $ | (2,785) |
|
Other Performance Factors
Net Interest Expense
Net interest expense of $5.7 million for the three months ended December 25, 2021 decreased $1.1 million as compared to the prior year period, and decreased as a percentage of sales from 2.4 percent to 1.7 percent. Weighted average debt outstanding for the three months ended December 25, 2021 decreased by approximately $26 million as compared to the three months ended December 26, 2020. This decrease is primarily related to a decrease in debt outstanding under our revolving credit facility (the “Credit Facility”). The weighted average interest rate decreased approximately 60 basis points from the prior year quarter due primarily to a decrease in Credit Facility borrowing rates.
Net interest expense for the nine months ended December 25, 2021 decreased $2.6 million as compared to the same period in the prior year, and decreased from 2.6 percent to 1.8 percent as a percentage of sales for the same periods. Weighted average debt outstanding decreased by approximately $137 million and the weighted average interest rate increased by approximately 30 basis points as compared to the same period of the prior year.
Provision for Income Taxes
Our effective income tax rate for the three months and nine months ended December 25, 2021, was 25.3 percent and 25.5 percent, respectively, compared with 25.2 percent in the comparable prior year periods.
Non-GAAP Financial Measures
In addition to reporting net income and diluted EPS, which are GAAP measures, this Form 10-Q includes adjusted net income and adjusted diluted EPS, which are non-GAAP financial measures. We have included reconciliations to adjusted net income and adjusted diluted EPS from our most directly comparable GAAP measures, net income and diluted EPS, below. Management views these non-GAAP financial measures as indicators to better assess comparability between periods because management believes these non-GAAP financial measures reflect our core business operations while excluding certain non-recurring items and items related to store closings as well as Monro.Forward or acquisition initiatives.
These non-GAAP financial measures are not intended to represent, and should not be considered more meaningful than, or as an alternative to, their most directly comparable GAAP measures. These non-GAAP financial measures may be different from similarly titled non-GAAP financial measures used by other companies.
Adjusted net income is summarized as follows:
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Reconciliation of Adjusted Net Income | Three Months Ended |
| Nine Months Ended | ||||||||
(thousands) | December 25, 2021 |
| December 26, 2020 |
| December 25, 2021 |
| December 26, 2020 | ||||
Net income | $ | 16,287 |
| $ | 6,683 |
| $ | 52,953 |
| $ | 22,516 |
Store impairment charge |
| — |
|
| — |
|
| — |
|
| 99 |
Store closing costs |
| 5 |
|
| (14) |
|
| (425) |
|
| 2,496 |
Monro.Forward initiative costs |
| 418 |
|
| 1,056 |
|
| 569 |
|
| 1,510 |
Acquisition due diligence and integration costs |
| 170 |
|
| 122 |
|
| 590 |
|
| 161 |
Management transition costs |
| — |
|
| 128 |
|
| 59 |
|
| 385 |
Litigation settlement costs |
| (161) |
|
| (250) |
|
| 3,759 |
|
| (250) |
Provision for income taxes on adjustments |
| (104) |
|
| (234) |
|
| (1,101) |
|
| (1,022) |
Adjusted net income | $ | 16,615 |
| $ | 7,491 |
| $ | 56,404 |
| $ | 25,895 |
Adjusted diluted EPS is summarized as follows:
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Reconciliation of Adjusted Diluted EPS | Three Months Ended |
| Nine Months Ended | ||||||||
| December 25, 2021 |
| December 26, 2020 |
| December 25, 2021 |
| December 26, 2020 | ||||
Diluted EPS | $ | 0.48 |
| $ | 0.20 |
| $ | 1.56 |
| $ | 0.67 |
Store impairment charge (a) |
| — |
|
| — |
|
| — |
|
| 0.00 |
Store closing costs (a) |
| 0.00 |
|
| (0.00) |
|
| (0.01) |
|
| 0.06 |
Monro.Forward initiative costs |
| 0.01 |
|
| 0.02 |
|
| 0.01 |
|
| 0.03 |
Acquisition due diligence and integration costs (a) |
| 0.00 |
|
| 0.00 |
|
| 0.01 |
|
| 0.00 |
Management transition costs (a) |
| — |
|
| 0.00 |
|
| 0.00 |
|
| 0.01 |
Litigation settlement costs (a) |
| (0.00) |
|
| (0.01) |
|
| 0.08 |
|
| (0.01) |
Adjusted diluted EPS | $ | 0.49 |
| $ | 0.22 |
| $ | 1.66 |
| $ | 0.77 |
(a)Amounts, in the periods presented, may be too minor in amount, net of the impact from income taxes, to have an impact on the calculation of adjusted diluted EPS.
Note: The calculation of the impact of non-GAAP adjustments on diluted EPS is performed on each line independently. The table may not add down by +/- $0.01 due to rounding.
The adjustments to diluted EPS reflect effective tax rates of 24.1 percent and 22.5 percent for the three months ended December 25, 2021 and December 26, 2020, respectively, and 24.2 percent and 23.2 percent for the nine months ended December 25, 2021 and December 26, 2020, respectively. See adjustments from the Reconciliation of Adjusted Net Income table above for pre-tax amounts.
Analysis of Financial Condition
Liquidity and Capital Resources
Capital Allocation
We expect to continue to generate positive operating cash flow as we have done in the last three fiscal years. The cash we generate from our operations allows us to support business operations and Monro.Forward initiatives as well as invest in attractive acquisition opportunities intended to drive long-term sustainable growth, while paying down debt and returning cash to our shareholders through our dividend program.
In addition, because we believe a large portion of our future expenditures will be to fund our growth, through acquisition of retail stores and/or opening greenfield stores, we continually evaluate our cash needs and may decide it is best to fund the growth of our business through borrowings on our Credit Facility. Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early.
Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following December 25, 2021, as well as in the long-term.
See the sections below for more details regarding material requirements for cash in our business and our sources of liquidity to meet such needs.
Material Cash Requirements
We currently expect our capital expenditures to support our projects, including upgrading our facilities and systems as well as funding our Monro.Forward initiatives, to be $30 million to $40 million in the aggregate in 2022. Additionally, we have contractual finance lease and operating lease commitments with landlords through October 2040 for $604.3 million in lease payments, of which $98.7 million is due within one year. For details regarding these lease commitments, see Note 10 to the Company’s consolidated financial statements.
As of December 25, 2021, we had $195.0 million outstanding under the Credit Facility, none of which is due in the succeeding 12 months. For details regarding our indebtedness that is due, see Note 10 to the Company’s consolidated financial statements.
We paid cash dividends totaling $25.7 million ($0.76 per share) during the nine months ended December 25, 2021. For details regarding our cash dividend, see Note 7 to the Company’s consolidated financial statements.
Sources and Conditions of Liquidity
Our sources to fund our material cash requirements are predominantly cash from operations, cash and equivalents on hand, and availability under our Credit Facility.
As of December 25, 2021, we had $9.5 million of cash and equivalents. In addition, we had $375.4 million available under the Credit Facility as of December 25, 2021.
Summary of Cash Flows
The following table presents a summary of our cash flows from operating, investing and financing activities.
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Summary of Cash Flows |
| Nine Months Ended | ||||
(thousands) |
| December 25, 2021 |
| December 26, 2020 | ||
Cash provided by operating activities |
| $ | 127,237 |
| $ | 159,216 |
Cash used for investing activities |
|
| (99,460) |
|
| (55,896) |
Cash used for financing activities |
|
| (48,223) |
|
| (423,837) |
Decrease in cash and equivalents |
|
| (20,446) |
|
| (320,517) |
Cash and equivalents at beginning of period |
|
| 29,960 |
|
| 345,476 |
Cash and equivalents at end of period |
| $ | 9,514 |
| $ | 24,959 |
Cash provided by operating activities
For the nine months ended December 25, 2021, cash provided by operating activities was $127.2 million, which consisted of net income of $53.0 million, adjusted by non-cash charges of $72.7 million and by a change in operating assets and liabilities of $1.5 million. The non-cash charges were largely driven by $60.5 million of depreciation and amortization. The change in operating assets and liabilities was primarily due to our federal and state income taxes payable being a source of cash of $10.9 million due largely to an income tax refund that was received. This source of cash was partially offset by our inventory balance being a use of cash of $6.0 million due to increased inventory purchases to meet higher demand, as well as accounts payable and accrued liabilities, net of vendor rebate receivables, being a use of cash of $4.0 million driven by timing of payments.
For the nine months ended December 26, 2020, cash provided by operating activities was $159.2 million, which consisted of net income of $22.5 million, adjusted by non-cash charges of $63.7 million and by a change in operating assets and liabilities of $73.0 million. The non-cash charges were largely driven by $57.6 million of depreciation and amortization. The change in operating assets
and liabilities was primarily due to accounts payable and accrued liabilities, net of vendor rebate receivables, being a source of cash of $48.0 million driven by timing of payments, as well as our inventory balance being a source of cash of $23.8 million due to decreased inventory purchases to adjust to lower demand.
Cash used for investing activities
For the nine months ended December 25, 2021, cash used for investing activities was $99.5 million. This was primarily due to cash used for acquisitions and capital expenditures, including property and equipment, of $83.2 million and $17.4 million, respectively. Included in the $83.2 million used for acquisitions was $0.8 million paid to the seller of the 2021 acquisition as the lease assignment for one store location was finalized during the period.
For the nine months ended December 26, 2020, cash used for investing activities was $55.9 million. This was primarily due to cash used for capital expenditures, including property and equipment, and acquisitions of $39.2 million and $18.1 million, respectively.
Cash used for financing activities
For the nine months ended December 25, 2021, cash used for financing activities was $48.2 million which was primarily due to payment of finance lease principal and dividends of $29.1 million and $25.7 million, respectively. These uses of cash were partially offset by cash provided by borrowings on our Credit Facility, net of amounts paid during the period, of $5.0 million.
For the nine months ended December 26, 2020, cash used for financing activities was $423.8 million which was primarily due to payment of amounts previously borrowed on our Credit Facility and finance lease principal of $376.4 million and $24.3 million, respectively, as well as payment of dividends of $22.3 million.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with GAAP. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows may be affected.
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the economy, our business operations and financial markets. The estimates used for, but not limited to, determining fair value of long-lived assets, self-insurance reserves and our ability to realize the tax benefits associated with deferred tax assets could be impacted. We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this report. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
For a description of our critical accounting policies and estimates, refer to Part II, Item 7., “Critical Accounting Policies” of our Form 10-K for the fiscal year ended March 27, 2021. There have been no material changes to our critical accounting policies and estimates since our Form 10-K for the year ended March 27, 2021.
Recent Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 1 to our consolidated financial statements for a discussion of the impact of recently issued accounting standards on our consolidated financial statements as of December 25, 2021 and the expected impact on the consolidated financial statements for future periods.
Cautionary Note Regarding Forward-Looking Statements
This report contains “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they address future events, developments and results and do not relate strictly to historical facts. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements include, without limitation, statements preceded by, followed by or including words such as “anticipate,” “appear,” “believe,” “contemplate,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “see,” “strategy,” “vision,” “will,” “would” and variations thereof and similar expressions. Forward-looking statements are subject to risks,
uncertainties and other important factors that could cause actual results to differ materially from those expressed. For example, our forward-looking statements include, without limitation, statements regarding:
•the potential effect of general business or economic conditions on our business, including the direct and indirect effects of the COVID-19 pandemic on the economy, consumer spending levels, inflation, and unemployment in our markets;
•the uncertainty of the impact of the COVID-19 pandemic and public health measures on our business and results of operations, including uncertainties surrounding possible disruptions in our supply chain or sources of supply, the physical and financial health of our customers, the effectiveness and duration of government assistance programs to individuals, households and businesses to support consumer spending, levels of traffic in our stores, changes in customer demand for our services, labor shortages, and increased expenses for higher wages and compensation paid to employees and the cost of personal protective equipment and additional cleaning supplies and protocols for the safety of our employees;
•our expectations regarding cost increases in the future, including costs relating to our COVID-19 response initiatives, increases in the minimum wage by states and localities, potential federal minimum wage legislation, increases in distribution and fuel costs and potential new legal requirements to provide increased pay for employees who work during pandemic restrictions;
•the effect of economic conditions, seasonality and the impact of weather conditions and natural disasters on customer demand;
•the dependence on and our expectation regarding competition within the primary markets in which our stores are located;
•our growth plans, including our plans to add, renovate, re-brand, expand, remodel, relocate or close stores and any related costs or charges, our leasing strategy for future expansion, and our ability to renew leases at existing store locations;
•the impact of competitive services and pricing;
•the reliability of, and cost associated with, our sources of parts supply, particularly imported goods such as those sourced from China;
•the impact of trade relations and the ongoing trade dispute between the United States and China, including the actual and potential effect of Section 301 tariffs on Chinese goods imposed by the United States Trade Representative, uncertainties surrounding the policies of the new presidential administration, and other potential impediments to imports;
•the impact of industry regulation;
•our ability to service our debt obligations, including our expected annual interest expense;
•our cash needs, including our ability to fund our future capital expenditures and working capital requirements;
•our anticipated sales, comparable store sales, gross profit margin, costs of goods sold (including product mix), OSGA expenses and other fixed costs, and our ability to leverage those costs;
•advances in automotive technologies;
•risks relating to disruption or unauthorized access to our computer systems;
•our failure to protect customer and employee personal data;
•business interruptions;
•potential outcomes related to pending or future litigation matters;
•risks relating to acquisitions and the integration of acquired businesses with ours;
•the effect of changes in labor laws, and the effect of the Fair Labor Standards Act as it relates to the qualification of our managers for exempt status, minimum wage and health care law;
•our assessment of the materiality and impact on our business of recent accounting pronouncements adopted by the FASB;
•management’s estimates and expectations as they relate to income tax liabilities, deferred income taxes and uncertain tax positions; and
•management’s estimates associated with our critical accounting policies, including business combinations, self-insurance liabilities and valuations for our goodwill and indefinite-lived intangible assets impairment analyses.
Any of these factors, as well as such other factors as discussed in Part I, Item 1A., “Risk Factors” of our Form 10-K for the fiscal year ended March 27, 2021, as well as in our periodic filings with the SEC, could cause our actual results to differ materially from our anticipated results. The information provided in this report is based upon the facts and circumstances known as of the date of this report, and any forward-looking statements made by us in this report speak only as of the date on which they are made. Except as required by law, we undertake no obligation to update these forward-looking statements after the date of this Form 10-Q to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.
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| Monro, Inc. | |||
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from potential changes in interest rates. As of December 25, 2021, excluding finance leases and financing obligations, we had no debt financing at fixed interest rates, for which the fair value would be affected by changes in market interest rates. Our cash flow exposure on floating rate debt would result in annual interest expense fluctuations of approximately $2.0 million based upon our debt position at December 25, 2021 and approximately $1.9 million based upon our debt position at March 27, 2021, respectively, given a change in LIBOR (or replacement index) of 100 basis points.
Debt financing had a carrying amount that approximates a fair value of $195.0 million as of December 25, 2021, as compared to a carrying amount and a fair value of $190.0 million as of March 27, 2021.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that we file or submit to the SEC pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In conjunction with the close of each fiscal quarter and under the supervision of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), we conduct an update, a review and an evaluation of the effectiveness of our disclosure controls and procedures. It is the conclusion of our Chief Executive Officer and Chief Financial Officer, based upon an evaluation completed as of the end of the most recent fiscal quarter reported on herein, that our disclosure controls and procedures were effective.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 25, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we are a party to or otherwise involved in legal proceedings arising out of the normal course of business. Legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of one or more of these matters could have a material adverse impact on the Company, its financial condition and results of operations.
As previously disclosed by the Company, an action was filed against us on June 12, 2020 in the U.S. District Court for the Western District of Pennsylvania by Mark Cerini. The plaintiff, who is a former service store manager, sought certification to represent similarly situated store managers in a nationwide collective action for unpaid overtime wages, damages and attorneys’ fees. Plaintiff alleged violations of the Fair Labor Standards Act and various state laws relating to, among other things, overtime and unpaid wages. The parties entered into a settlement agreement to resolve this matter that was approved by the court. The Company included the settlement amount of $3.7 million in OSGA expenses in the Company’s Consolidated Statement of Income and Comprehensive Income during fiscal 2022. The Company paid this settlement in the third quarter of fiscal 2022 and does not expect to incur additional expenses with respect to the settlement. In resolving this matter, the Company believes the settlement was the best use of management’s time and resources.
Item 6. Exhibits
|
Exhibit Index |
101.INS - XBRL Instance Document |
101.LAB - XBRL Taxonomy Extension Label Linkbase |
101.PRE - XBRL Taxonomy Extension Presentation Linkbase |
101.SCH - XBRL Taxonomy Extension Schema Linkbase |
101.DEF - XBRL Taxonomy Extension Definition Linkbase |
101.CAL - XBRL Taxonomy Extension Calculation Linkbase |
104 - Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| MONRO, INC. | |
|
|
|
|
DATE: January 31, 2022 |
| By: | /s/ Michael T. Broderick |
|
|
| Michael T. Broderick |
|
|
| President and Chief Executive Officer |
|
|
|
|
DATE: January 31, 2022 |
| By: | /s/ Brian J. D’Ambrosia |
|
|
| Brian J. D’Ambrosia |
|
|
| Executive Vice President – Finance, Chief Financial Officer and |
|
|
| Treasurer (Principal Financial Officer and Principal Accounting Officer) |
|
|
| ||
| Monro, Inc. | |||