Good morning, everyone, and welcome to Monro, Inc’s Earnings Conference Call for the Third Quarter of Fiscal 2023. At this time, all participants are in a listen-only mode. Later, we will hold a question-and-answer session and further instructions will be provided. As a reminder, this conference call is being recorded and cannot be reproduced in whole or in part without permission from the company. I would now like to introduce Felix Veksler, Senior Director of Investor Relations at Monro. Please proceed.

Thank you. Hello, everyone, and thank you for joining us on this morning's call. Before we get started, please note that as part of this call, we will be referencing a presentation that is available on the Investors section of our website at corporate.monro.com/investors. If I could draw your attention to the Safe Harbor statement on slide two, I'd like to remind participants that our presentation includes some forward-looking statements about Monro's future performance. Actual results may differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Monro's filings with the SEC and in our earnings release. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. Additionally, on today's call, management's statements include a discussion of certain non-GAAP financial measures which are intended to supplement, and not be substitutes for comparable GAAP measures. Reconciliations of such supplemental information to the comparable GAAP measures will be included as part of today's presentation and in our earnings release. With that, I'd like to turn the call over to Monro's President and Chief Executive Officer, Michael Broderick.

Thank you, Felix, and good morning, everyone. I'll spend the first part of our call this morning outlining a series of customer-focused initiatives we recently implemented across our store base. These initiatives will enable us to drive additional sales of our higher-margin service categories and position us as an even stronger competitor in every market we serve. After that, I'll walk through our third-quarter results and the continued progress we've made despite inflationary pressures impacting the consumer and our business. I'll then conclude with an update on our cash creation and capital allocation. Before I get started, I would be remiss if I didn't recognize and thank all of our teammates for their tremendous efforts in serving the needs of our customers in the communities where we operate. Now starting with a series of customer-focused initiatives we recently implemented across our store base. While batteries currently represent a small fraction of our overall sales, the battery market is large and growing. In response to this, we have made changes in the way we sell and service batteries. We now offer free battery checks, and in departure from industry standards, we are waiving installation charges for most batteries. Our customer safety is our primary concern, and when we install the battery, it gives us an opportunity to assess a vehicle's entire electrical system through a free quality courtesy inspection to ensure that everything is in good working order. We know that our customers are busy, and they value convenience, personal service, and purchasing options tailored to their needs. To meet these demands, we've rolled out several enhanced offerings, including a walk-in oil service option to provide hassle-free service, which is in addition to our existing online appointment system. Number two, a good, better, best oil service package updates to provide customers competitively priced options that meet their budgets. Number three, a callback program to personally remind customers when their next oil service is due. Finally, a new integration with CARFAX to provide customers with their vehicle service history and manufacturer recalls while in-store with service recommendations to enable more informed decision-making. Additionally, we started offering combined tire and service packages to better connect activity and momentum in tire sales to our service categories. While these initiatives are aligned with delivering an outstanding guest experience, they have been strategically designed to boost customer traffic at our locations, enable us to drive additional sales of our higher-margin service categories, and fulfill our commitment to maintain a balanced approach between tire and service categories to deliver enhanced profitability at our stores, grow market share, and position us as an even stronger competitor in every market we serve. While these initiatives are still in their early days, we will be sure to provide updates on our progress in the quarters to come. Now, turning to our third-quarter results and how inflation pressures are impacting the consumer and our business. Driven by strength in tires, we delivered mid-single-digit comp store sales growth in the third quarter of approximately 6%. We continue to execute our strategy to improve our 300 small or underperforming stores, which represent about a quarter of our overall store base. These stores delivered comp store sales growth of approximately 12% in the third quarter, which is on top of the double-digit comp growth in the first half of this fiscal year. Our sales results for the group of stores through the first three quarters show that our strategy is working. As a reminder, comp store sales at these stores decreased 8% in fiscal 2022 compared to fiscal 2020. The continued acceleration in sales at these locations is a direct result of our strategy to improve technician staffing levels as well as our training initiatives that allow us to better meet customer demand. Comp store sales in our remaining stores were up approximately 5%. Similar to last quarter, broad-based inflationary pressures on the consumer continued to affect customer purchasing behavior in the third quarter. We saw customers trading down to lower-priced tire options. We actively repositioned our tire assortment to give our customers the right tire at the right price. We are staying relevant on opening price points to provide customers with more choice and greater value. In preparation for the winter selling season, we raised in-stock levels in our stores with an expanded snow tire offering, a more established regional inventory for opening price point and altering tires, and an upgraded inventory system to allow daily review and replenishment. We drove additional customer traffic to our store through manufacturer rebates on six tire brands and a free lifetime tire installation package. Encouragingly, our tire units were positive in the third quarter with tire comp store sales up high single digits. Based on third-party syndicated U.S. replacement tire data, all of this contributed to our outperformance in tire units versus the industry in the third quarter. We also saw consumers continue making decisions to defer vehicle maintenance, which put pressure on sales in some of our key service categories. As a result, we chose not to fully pass through inflationary cost increases to an already stretched consumer. The voice of our customer has indicated that raising prices at a time when they're struggling to accept them would likely result in the immediate loss of a sale and has the potential to jeopardize a longer-term relationship. And as a reminder, developing this longer-term relationship with our customers is a key element of our strategy. While our higher sales mix of tires versus service, customer trade down to opening price point tires. Our investment in price and continued labor cost pressures impacted our gross margin. Prudent cost control in the third quarter allowed us to leverage operating expenses on a mid-single-digit comp. As we continue to drive our business, stores consistently delivering mid-single-digit comp store sales growth, we also remain committed to a more balanced approach between the tire and service categories. That will deliver enhanced profitability of our stores. The series of initiatives that I outlined at the outset of our call this morning will allow us to achieve these expectations. Our business is well-positioned with the right strategy in place to take advantage of longer-term industry challenges. While the current macro environment remains challenging, we continue to gain market share in our tire category with a keen focus on driving traffic to our stores and serving the car care needs of our customers. The largely nondiscretionary nature of our business gives us confidence that as long as our stores are properly staffed, our pricing is competitive with the right assortment, and we continue to improve our in-store execution, we’ll be able to capture market share gains in both our tire and service categories. Encouragingly, sales momentum has continued into fiscal January with our preliminary comp store sales up approximately 8%. Lastly, an update on our cash creation and capital allocation. The strength of our financial position and cash flow is a competitive advantage which enables us to make investments in price and labor to grow market share and capture new customers for the long term. As a reminder, an important focus of our strategy is cash creation. We are continuing to unlock cash by optimizing inventory and leveraging the strength of our vendor partners for better availability, quality, and cost of tires and parts in our stores. In the third quarter, we continued to generate strong operating cash flow led by reductions in our working capital. Excess cash generated by our operations and the strength of our balance sheet allowed us to continue returning capital to our shareholders in parallel to pursuing our growth strategy. During the third quarter, we continued our long-standing policy of sharing our results with our shareholders through our dividend, and we continued deploying cash on our share repurchase program, which authorizes us to repurchase up to $150 million of the company's common stock. After a careful review, which included our disciplined approach in evaluating multiples, we executed a definitive asset purchase agreement to acquire four additional stores in Iowa and one additional store in Illinois. This acquisition is expected to close in the fourth quarter and is anticipated to add annualized sales of approximately $6 million. As part of our growth strategy, we continue to have significant capacity to acquire businesses that fit into our overall strategic plan. In summary, we have implemented a series of customer-focused initiatives that will benefit our business. We delivered mid-single-digit comp store sales growth in the third quarter; our strategy to improve our small or underperforming stores through our staffing and training initiatives is working. We will continue to drive our business towards consistently delivering mid-single-digit comp growth with a commitment to a more balanced approach between tire and service categories that will allow us to leverage our cost structure to deliver enhanced profitability. Although we continue to navigate an uncertain macro environment, we have the right strategy in place to take advantage of the longer-term industry tailwinds. We are focused on gaining market share and driving traffic to our stores through competitive pricing and the right assortment to meet the needs of our customers. Our in-store execution is firmly in our control and remains our greatest opportunity for improving our results. As our training and productivity initiatives continue to take hold, we expect to deliver improvements in sales and earnings. Significant cash flow generation through operational improvements and working capital reductions will allow us to continue returning capital to shareholders through healthy dividend and share repurchase programs, as well as capitalize on acquisitions. With that, I'll now turn the call over to Brian, who will provide an overview of Monro's third-quarter performance, strong financial position, and additional color regarding the remainder of fiscal 2023.

Thank you, Mike, and good morning, everyone. Turning to slide eight, sales decreased 1.9% year-over-year to $335.2 million in the third quarter, which was due to the divestiture of our wholesale tire and distribution assets in the first quarter of fiscal 2023. Sales for these divested assets were approximately $28 million in the prior year third quarter. Comparable store sales increased 5.6% and sales from new stores increased $6 million. When adjusted for one additional selling day in the current year quarter due to a shift in the timing of the Christmas holiday from the third quarter in fiscal 2022 to the fourth quarter in fiscal 2023, comparable store sales increased 4.4%. Gross margin decreased 150 basis points from the prior year to 33.8%. A higher mix of tire sales in our retail locations, customer trade down to opening price point tires, as well as parts inflation that we intentionally did not fully pass through to the consumer increased material costs as a percentage of sales from the prior year. In addition, incremental investments in technician, labor, and wages to support current and future top-line growth increased labor costs by 80 basis points from the prior year. These increases more than offset the benefits to gross margin from the divestiture of our wholesale tire and distribution assets. Total operating expenses were $89.6 million or 26.7% of sales compared to $93.1 million or 27.3% of sales in the prior year period. The decrease as a percentage of sales was principally due to prudent cost control, which allowed us to leverage operating expenses on mid-single-digit comparable store sales growth. Operating income for the third quarter declined to $23.8 million or 7.1% of sales. This is compared to $27.4 million or 8% of sales in the prior year period. Net interest expense increased to $5.9 million compared to $5.7 million in the same period last year. This was principally due to a higher year-over-year interest rate. Income tax expense was $5 million or an effective tax rate of 27.6% compared to $5.5 million or an effective tax rate of 25.3% in the prior year period. The increase in the effective tax rate was due to a higher discrete tax impact related to share-based awards, as well as other state income tax impacts from the divestiture of our wholesale and tire distribution assets. Net income was $13 million compared to $16.3 million in the same period last year. Diluted earnings per share was $0.41 compared to $0.48 for the same period last year. Adjusted diluted earnings per share, a non-GAAP measure, was $0.43. This compared to adjusted diluted earnings per share of $0.49 in the third quarter of fiscal 2022. Please refer to our reconciliation of adjusted diluted EPS in this morning's earnings press release and on slide eight in our earnings presentation for further details regarding excluded costs in the third quarter of both fiscal years. As highlighted on slide nine, we continue to maintain a very solid financial position. We generated a record $171 million of cash from operations during the first nine months of fiscal 2023, including $71 million in working capital reductions. This has reduced our cash conversion cycle by approximately 35 days at the end of the third quarter compared to the prior year period. Our accounts payable to inventory ratio at the end of the fiscal third quarter was 162% versus 79% at the end of fiscal 2022. We received $66 million in divestiture proceeds, of which $5 million are currently being held in escrow. We invested $29 million in capital expenditures, spent $30 million in principal payments for financing leases, and distributed $27 million in dividends. Lastly, cumulative repurchases of our common stock were approximately $97 million under our board-authorized share repurchase program. We have used our significant cash flow to reduce invested capital by $180 million during the first nine months of fiscal 2023. At the end of the third quarter, we had bank debt of $130 million, cash and cash equivalents of $13 million, and a net bank debt to EBITDA ratio of 0.7 times. While we are not providing guidance for the remainder of fiscal 2023, we are providing color to assist in your modeling. Note that our comments for the remainder of fiscal 2023 continue to factor in the divestiture, which generated about $115 million in sales in fiscal 2022. As we continue to focus on gaining market share and driving traffic, we expect to maintain appropriate staffing levels as well as competitive pricing to attract customers to our stores. This will likely continue to put pressure on gross margin in the fourth quarter of fiscal 2023. To mitigate that, we will focus on driving sales in our higher-margin service categories, managing mix within our product categories to improve profitability, and taking opportunistic pricing actions. Total operating expenses in the fourth quarter are expected to be consistent as a percentage of sales on a year-over-year basis. Our tax rate should be approximately 25% for fiscal 2023. Regarding our capital expenditures, we expect to spend approximately $35 million to $45 million in fiscal 2023. We also expect to continue improving our operating cash flow, driven by continued working capital reductions. Our balanced approach of returning capital to shareholders as well as completing value-enhancing acquisitions will meaningfully increase our return on invested capital. And with that, I'll now turn the call back over to Mike for some closing remarks.

Thanks, Brian. We're optimistic about our outlook for the remainder of fiscal 2023 and beyond. Although we still have important work to do, we remain well positioned to execute our growth strategy and deliver long-term value creation for our shareholders. With that, I'll now turn it over to the operator for questions.

Thank you. Our first question for today comes from Brian Nagel at Oppenheimer. Brian, your line is now open. Please go ahead.

Hi, good morning.

Good morning, Brian.

Good morning, Brian.

Thank you for the information. I have a couple of questions. Firstly, regarding the underperforming stores, we have noticed a trend of improving performance. How much potential remains in those stores for the significant comparable growth we have experienced?

Brian, good morning. It's Mike. I would say that it's part of our strategy. Just to remind everybody that was year-over-year declines that we are now starting to reverse. So I would look at the strategy as the exact opposite. We're actually walking these stores back year-over-year. So my expectation, and I know my field team understands the expectation, is that we're expecting double-digit comps to really start reversing. We expect this type of growth for our, I would say, the next one to two years going forward.

Got it. That's helpful. My second question is a follow-up for Mike. I might combine a couple of questions, but as you assess the results today, you're noting a shift in buying patterns due to consumers opting for lower-priced options because of economic pressures. My question is, considering the increased demand for these more affordable tires, what gives you confidence that this indicates market share gains rather than just existing customers responding to a broader range of products offered by Monro?

First of all, we look at syndicated data and we actually can see the breakdown based on Tier 1 through Tier 4 performance based on tires, opening price point being Tier 4, premium tires being Tier 1. So I can actually see our performance by tier. Now when I look at our performance right now, Brian, this is what we're focused on from the day we've been on this call together is, sales margin and cash creation. We are now finally seeing, really with our partnership with ATD, we’re actually seeing real tire unit creation. It's not just because we have a better assortment for our customers. That started with really activating on opening price point. But our greatest opportunity is, obviously, through field execution, and part of field execution's job is to really take that opening price point opportunity and sell up through the screen based on the features, benefits, and advantages. But ultimately, what drives us is market share. We can see the activities that we're deploying, the stocking decision, the assortment, the pricing decisions and it's coming to life in unit gain in the markets that we serve. I think that is the successful pathway for years to come.

That's very helpful. I appreciate it. Thank you.

Thank you, Brian.

Thank you. Our next question comes from Daniel Imbro of Stephens Inc. Daniel, your line is now open.

Hi guys. This is Joe Enderlin on for Daniel. Thanks for taking our question.

Of course. Good morning, Joe.

So it looks like the three-year stack from monthly comps accelerated sequentially from December to January pretty meaningfully. Could you maybe provide some color on how you think the consumer is receiving the increased promotional activity right now and maybe how that trended through the quarter?

Joe, I'll take that one. I would say that just on the promotional activity, very clearly what we did is we executed using our supplier partners' promotional activity, similar to really our competition in the marketplace. We are very disciplined in our approach using our vendor support to drive and attract customers through pricing incentives. I would say, going forward from December into January, I'm actually pleased with, although we had a very strong December in tires driven by tires, and you can see that in my margin. But in January, it actually flipped where I had a very strong brake month. So ultimately, January is not a trend, but I like to see how we're meeting our customers' needs, not just on tires, but also in our service categories. Most of that is driven through all the activities that we're deploying at the local level. We're really leading the customers, not just with tires, but also service categories. To really go back to the business fundamentals, we have to have a balanced approach. We have to have tires growing, and our service categories in growth, brakes leading that service category for us to drive profitable sales.

That's super helpful. Thank you. And then maybe as a follow-up, could you provide some thoughts on not this year, but maybe the long-term SG&A growth rate or margin if you are comping at your mid-single-digit comp goal?

Yes, this is Brian. Regarding our outlook for Q4, we anticipate an improvement in our gross margin, expecting it to fall between the mid-35 range we saw in Q2 and the just below 34 that we experienced in Q3. We expect to see a positive trend from Q3. As for SG&A, we anticipate it will remain fairly flat year-over-year. Historically, Q4 tends to have a lighter volume due to seasonal factors, leading to some deleveraging compared to our typical Q3 performance. Looking at the long term, we are not offering guidance for that period. However, as we've mentioned, with mid-single-digit comp growth, we aim to enhance both our margins and leverage our fixed costs and SG&A. We believe this positions us well to restore our operating margins to historical levels, certainly back to double digits.

Got it. Thanks so much, guys. That’s all from me.

Thank you, Joe.

Thank you.

Thank you. Our next question comes from John Healy of Northcoast Research. John, your line is now open.

Thank you. I wanted to discuss the supply side further. I was surprised to hear you mention that manufacturers might be offering additional support and rebates. I would appreciate it if you could share what you have observed regarding this, how it has changed, and whether it could help improve gross margins later this year. Additionally, are you noticing any manufacturers reversing previous price increases or providing more than just sales support in the field this calendar year?

John, I'll take that one. It's Mike. I think it's less about the manufacturers. It's all about Monro. As we really become a bigger customer with fewer suppliers, they're investing behind us. That's not only on the tire side but the parts side. What we deployed in the fourth quarter is really we took advantage of what they normally have in the marketplace for our competitors. Monro really stepped up, activated against it, and partnered with fewer suppliers, and we just became more relevant. That really benefited us. On top of that, we lived up to what we committed to. We deployed tires and really gave our teams the assortment that they need to compete in the marketplace. We kept them in stock. These are the things that our suppliers are looking for from a large customer like Monro. I have to give credit to not only the field team but the merchandising organization as well as our inventory teams for getting us ready for a winter season that came in over 10 days.

Great. I want to ask about the M&A pipeline, as it seems a bit different from my expectations. Can you share what you are observing? Are sellers approaching you, or are you considering larger opportunities than usual? Any insight on how the M&A pipeline is developing would be appreciated, as I thought we might be adopting a more conservative stance.

Yes. As we assess our M&A opportunities, we currently have more than 10 NDAs signed and are actively evaluating deals. We maintain a disciplined approach as a financial buyer and also as an operational buyer. This means we are interested in stores that offer a clear path to quick growth with minimal demands on our team to enhance those locations right away. We are concentrating on improving our bottom 300 stores and need to maintain that focus. Our goal is to enhance our overall business, achieve mid-single-digit comparable sales, and boost profitability across all categories. With this focus, we aim to be very strategic in our acquisition strategy. We recently announced a deal that aligns well with our criteria for successful acquisition and integration, and we anticipate closing that in Q4. We expect to pursue further M&A opportunities that are operationally and financially sound.

Great. Thank you guys.

Thank you.

Thank you. Our next question comes from Bret Jordan of Jefferies. Bret, your line is now open.

Hi, good morning, guys.

Good morning, Bret.

To adjust for, I guess, sort of a lot of the pricing moving pieces, do you have a day-adjusted car count comp that we could look at just sort of to think about traffic versus the lower price point tires and sort of the other moving parts?

Yes. We have provided a traffic number even before adjusting for days. The quarter continued to be led by ticket sales. Tire units were positive, both reported and adjusted.

Okay. And then, I guess, it sounds like the January service has picked up. But did you see anything sort of structural in the demand for the service side of the business? Was it either a feeling that maybe the surge in the prior year or pull forward or lack of weather or anything drove the negative service comp? Or is it just more focused on tires in the quarter, but service picked up in January?

I would say that it's a continuation of our strategy. I mean, we've been talking a lot about service over the last years, so having a balanced approach. I'd like to not talk so much about January because it's only one month, and there's a lot of things that changed. Like when we talked about last quarter, October had a strong service component. This will be a really important quarter for us as we continue to get this mix right. December was very strong in tires. I would say that we could potentially be going against a soft January from last year. I'm happy to see a double-digit growth in brakes. That is the expectation moving forward: continue to get the balance right. I like that double-digit number, especially in the service categories.

Okay. And then the housekeeping question. Brian, could you give us the monthlies? And is there any regional dispersion to talk about?

Yes. From a regional standpoint, all regions were up, a little bit weaker in the West, but not too meaningful. As it relates to the monthlies, 3.7% in October, 3.5% in November, 10.5% in December as reported, and that gets you to the 5.6%. December would have been 6.5% if you're looking at the 4.4%.

Okay. Great. Thank you.

You are welcome.

We have no further questions for today. So I'll hand back to CEO, Michael Broderick for any further remarks.

All right. Well, thank you for joining us today. This continues to be an exciting time to be part of Monro. We have a strong foundation to build upon to create long-term value for all our stakeholders. I look forward to keeping you updated on our progress. Have a great day.

Thank you for joining today's call. You may now disconnect your lines.