Good morning, ladies and gentlemen, and welcome to Monro Inc.'s Earnings Conference Call for the Third Quarter of Fiscal 2024. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. And as a reminder, this conference call is being recorded and may not be reproduced in whole or in part without permission from the company. I'd now like to introduce Felix Veksler, Senior Director of Investor Relations at Monro. Please go ahead.

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. 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'd like to spend the first part of our call this morning walking through our third quarter performance, which reflected top line results that were challenged. This was due to milder weather as well as a pressured low to middle-income consumer that continued to defer purchases in our high-ticket tire category. This was clearly evidenced by an industry-wide slowdown in tire unit sales in the regions of the country where a vast majority of our store footprint is concentrated. We continued to mitigate the impact of this slowdown with actions to reduce non-productive labor costs. Despite a tough macroeconomic environment, the resiliency of our business model and the actions that we've taken allowed us to expand gross margin in the quarter. I'll also discuss our plans to deliver an improvement in our diluted earnings per share this fiscal year despite some of the consumer-related headwinds that we and others in our industry are experiencing. Before I get started, I'd like to recognize and thank all our teammates for serving the needs of our customers. Now, turning to our third quarter results. Our third quarter comparable store sales declined approximately 6% from the prior year period. Comp store sales in our 300 small or underperforming stores were consistent with our overall comp in the quarter. As I stated earlier, our sales results in the quarter continue to be challenged by consumer deferrals of tire purchases, as evidenced by an industry-wide slowdown in tire unit sales. This led to pressured store traffic, which was not supportive to sales of our higher margin service categories in the quarter. While our tire units were down approximately 14%, leveraging the strength of our manufacturer-funded promotions allowed us to optimize our assortment for improved tire profitability in the quarter. And while continued consumer trade-down dynamics led to a higher proportion of lower margin opening price point tires within overall industry unit sales, we remained focused on maintaining a healthy mix of opening price point tires in the quarter. Encouragingly, based on retail sellout data from Torqata, our tire market share remained broadly in line with the overall market in our higher margin tiers. We continue to mitigate this industry-wide slowdown in tires with actions to reduce non-productive labor costs, including overtime hours in our stores, which were down 25% year-over-year. This allowed us to expand gross margin even on lower sales volumes. We will continue to closely manage our labor costs and expenses to maximize profitability. Now, concluding with our plans to deliver an improvement in our diluted earnings per share this fiscal year, despite a choppy consumer environment. While our preliminary comp store sales for fiscal January are down approximately 6% due to softness in the first half of the month, comps have accelerated materially in the last two weeks with the return of normal seasonal weather. We have some easier prior year comparisons in February and March. But given the current pressures on the consumer, we no longer expect to grow full year sales. However, we do expect full year diluted earnings per share to be higher versus the prior year. This will be driven by actions we've taken to successfully reposition our cost structure, as well as expanding our gross margin through properly training our teammates to maximize their productivity and optimizing our tire assortment for improved profitability. We will continue to remain relentlessly focused on improving our 300 small or underperforming stores, maintaining a balanced approach between our tire and service categories with competitive pricing to drive store traffic, and continuously improving our customer experience. In addition, we will continue to create cash by optimizing inventory and leveraging the strength of our vendor partners for better availability, quality, and cost of parts and tires in our stores. In closing, despite the challenges posed by the current macroeconomic environment, our business continues to be well positioned, and we are confident that we remain on a path to restore our gross margins back to pre-COVID levels with double-digit operating margins over the longer term. 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 2024.

Thank you, Mike, and good morning, everyone. Turning to slide eight. Sales decreased 5.2% year-over-year to $317.7 million in the third quarter, which was primarily due to lower tire unit sales. Comparable store sales decreased 6.1%, and sales from new stores increased approximately $1 million. Gross margin increased 170 basis points compared to the prior year, primarily resulting from lower material costs and technician labor costs as a percentage of sales, which were partially offset by higher distribution and occupancy costs as a percentage of sales. Total operating expenses were $91.3 million, or 28.7% of sales, as compared to $89.6 million, or 26.7% of sales in the prior year period. The increase as a percentage of sales was principally due to lower year-over-year comparable store sales. Operating income for the third quarter declined to $21.4 million, or 6.7% of sales. This is compared to $23.8 million, or 7.1% of sales in the prior year period. Net interest expense decreased to $5 million, as compared to $5.9 million in the same period last year. This was principally due to a decrease in weighted average debt. Income tax expense was approximately $4.2 million or an effective tax rate of 25.8%, which is compared to $5 million or an effective tax rate of 27.6% in the prior year period. Net income was approximately $12.2 million as compared to $13 million in the same period last year. Diluted earnings per share was $0.38 compared to $0.41 for the same period last year. Adjusted diluted earnings per share, a non-GAAP measure, was $0.39. And this is compared to adjusted diluted earnings per share of $0.43 in the third quarter of fiscal 2023. 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 items in the third quarter of both fiscal years. As highlighted on slide nine, we continue to maintain a very solid financial position. We generated $130 million of cash from operations during the first nine months of fiscal 2024, including $30 million in working capital reductions. This has reduced our cash conversion cycle by approximately 60 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 third quarter was 179% versus 178% at the end of fiscal 2023. We received $16 million in divestiture proceeds, and we invested $19 million in capital expenditures, spent $29 million in principal payments for financing leases, and distributed $27 million in dividends. Lastly, repurchases of our common stock were approximately $44 million under our share repurchase program, which authorizes us to repurchase up to $150 million of the company's common stock. We've used our significant cash flow to reduce invested capital by $83 million during the first nine months of fiscal 2024. At the end of the third quarter, we had bank debt of $94 million, cash and cash equivalents of $24 million, and a net bank debt to EBITDA ratio of 0.5 times. While we're not providing guidance for the remainder of fiscal 2024, we are providing color to assist in your modeling. We expect lower year-over-year full-year sales, inclusive of an extra week in our fourth quarter. We expect to drive year-over-year improvements in our gross margin through pricing actions, tire mix optimization, and productivity improvements from our labor investments, which will be partially offset by continued wage inflation. Total operating expenses as a percentage of sales are expected to be higher year-over-year due to increases in direct and departmental costs to support our store base, as well as the impact of inflation and lower sales volume. Our tax rate should be approximately 25% for fiscal 2024. Regarding our capital expenditures, we expect to spend approximately $30 million to $35 million in fiscal 2024. We also expect to continue improving our operating cash flow driven by continued working capital reductions. Our balanced approach of returning capital to shareholders through dividends and share repurchases, as well as opportunistically completing value-enhancing acquisitions, is expected to meaningfully increase our return on invested capital. And with that, I will now turn the call back to Mike for some closing remarks.

Thanks, Brian. We remain laser-focused on our initiatives to improve sales, expand margins, and create cash. Although we still have important work to do, we are well-positioned to execute our growth strategy and deliver long-term value creation for our shareholders. With that, I will now turn it over to the operator for questions.

Thank you. Our first question comes from David Lantz from Wells Fargo. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. So, I was just curious if you could talk about the quarter-to-day comp trends in a bit more detail. It sounds like the first half of January was pretty challenging, but the second half has improved a lot, so I was just curious about that.

David, good morning. This is Mike. Just to give you clarity on what we're seeing, the first two weeks were very soft, driven by a shift in the holiday. So, I basically gained two Sundays but lost two very important Mondays, and I do much more business on Mondays, so that contributed to a soft comp. And then it was just a continuation of a weather story and the tire story. As soon as the weather came back, which happened in the last two weeks of the month, everything normalized. Our tire business came back, and our business turned in a very different position. The way we characterized it was a significant difference between the first two weeks and the second two weeks.

Got it. That's helpful. I noticed that gross margins stood out this quarter, so I'm curious about the structural factors behind that and how many overtime hours you still need to reduce and what impact that could have.

Sure. This is Mike again. Just when you look at the material margins, that partly was contributed to the decisions we made around the change in our tire assortment. The team really did a nice job bringing to life our tier one through three, as we've talked about in the past. That was a more profitable tire, better tire for our customer. Number two, when we look at the tire decline, obviously, our service categories drive a higher margin, so that contributed to it. Last but not least, the team did a really great job of controlling payroll. When you look at overtime, actually we were down year-over-year, but sequentially we actually invested in overtime in order to meet some of the customer demands. I really pay attention to that because I never want to cap our sales. We’ve talked about this in the past. I'll invest in overtime, and I’ll invest in our people in order to meet demand. I continue to do that, but ultimately what we're focused on is non-productive payroll, making sure our technicians are earning their fair wages and our customers are being served.

Just to follow up on that to put some numbers to the pieces that Mike described, the material cost benefit was about 190 basis points in the quarter for the reasons Mike explained. The technician benefit, technician labor cost as a percent of sales improved 40 basis points year-over-year. And we did see a 60 basis point headwind related to distribution and occupancy costs as they deleveraged on lower comp sales. That nets out to the 170 basis point margin improvement.

Got it. Thanks guys. That's super helpful.

Thanks, David.

Thank you.

Our next question is from Bret Jordan at Jefferies. Please go ahead.

Hey, good morning, guys.

Good morning, Bret.

Could you break down the composition of car count versus price?

Sure. When we look at our overall car count, it was down 8%. Price was up, average sales price was up 3%. Let me go deeper into that. On tire, we were down 14% in units, up 5% in ticket. Once again, going back to our mix change that we started last January. When I look at our service business, it was basically down 3%, and average ticket was flat. I do want to call out this P&L would look much different if we ran down 3%. The team is doing a good job controlling expenses, contributing to moving our margins in the right direction. I feel confident that now that we have most of the opening price point tire conversation behind us, now we've lapped it a year, I feel confident we will get back to a more normal conversation around our tire assortment. I'm looking forward to a more normal customer environment where we get this thing growing again.

Okay. And then the contribution from working capital, sort of what's left in that tank as far as incremental cash to squeeze off the balance sheet?

Yeah. Bret, as we talked about on the last call, we're in the later innings of that, but there's still opportunity. So, we think that our cash flow will continue to be supported by not only the profit growth, but also working capital improvements. Certainly, don't expect to give back any of that working capital and believe that there's additional benefit to come.

Okay. And Brian, could you give us the monthly costs?

Sure. Down 5.7% in October, down 6.6% in November, down 5.6% in December, and then the preliminary January month-to-date down 6%.

Okay. Great. Thank you.

Our next question is from Brian Nagel at Oppenheimer. Please go ahead.

Hey, guys. Good morning.

Good morning, Brian.

I guess my first question is probably a bit of a follow-up. But just with regard to weather, I mean, look, it's no secret that we had a warm start to the winter, so to say. But could you help us understand better the actual impact of that upon comp sales? And then also, you called out again the sluggish consumer. I mean, maybe we're starting to get some signals out there that overall consumer confidence is maybe starting to improve. So, the question I have for you is behind all this noise, are you seeing some indication that maybe with your consumer experience, the confidence is improving, the delayed purchases are getting less so?

Yeah. Brian, this is Mike. I don’t want to set a weekly expectation. We previously stated that we were anticipating a weather event. I wish it had happened in the third quarter; it would have changed our results. However, when the weather event finally occurred, the impact was significant. As mentioned before, the weather contributed to a notable change in tire sales. We are noticing that customers who typically purchased four tires are now opting for two and sometimes just one. This trend indicates a deferral in purchases. Until I observe a shift in this behavior, I believe consumers are facing challenges. Ideally, I would expect consumers to be replacing at least two tires, not just one. I'm sharing this to illustrate that there's an underlying issue with consumer spending on these higher-priced tires.

Okay. I appreciate it. Thanks, Mike.

Thank you, Brian.

Our next question is from Daniel Imbro at Stephens Inc. Please go ahead.

Hey, guys. This is Joe Enderlin. I'm for Daniel. Thanks for taking the question.

Morning, Joe.

Commentary in the release says you maintain share in those higher margin tiers. Still seems like some movement in the opening price point. Have you seen the pace of that share movement slow?

Well, just to be clear, the decisions we made last January, we knew we were going to lose market share and we were going to give up units in opening price point. That was a decision not just with price, but with assortment. The one thing we did not factor in, and we didn't see that in the prior two years that I was here, is tier one through three declining. That is something that, as an industry, we would never have factored in or forecasted. When I look at customer behavior right now, without question, the customer definitely moved into tier four. But overall, tire units in the industry were down mid-single digits. So, there's a very tough environment around the tire business right now, and I'm looking forward to that actually coming back. Once again, going back to the consumer environment right now, it is shared by all.

Got it. That's helpful. Just as a follow-up, could you provide some more color on how those 300 underperforming stores did versus your expectations for the quarter?

Versus expectations? They missed expectations. They actually were very consistent with the rest of my chain. There was a lot of variability in the performance in those 300 stores. I would say one-third were extremely successful, one-third met expectations, and one-third fell short of my expectations. We continue to focus on driving profitable sales through those boxes. I have talked about in prior quarters that having one or two additional transactions with tires could significantly change the comp on some of these low-volume stores. Just to kind of illustrate how variable some of these stores' P&L and sales performance really is.

That's helpful. Thank you, guys.

Thank you, Joe.

Our next question is a follow-up from Bret Jordan at Jefferies. Please go ahead.

Hey, guys. I think you not too long ago made an announcement about a parts supply deal you did with a group. Could you talk about that? Does it have any impact or material impact on margin, or is it just an incremental parts supply deal in addition to the ones you already had with some of the big two-step guys?

We did make a deal, which I would consider incremental, but there's nothing significant to discuss for this quarter. I wouldn't highlight any margins from it. It simply provides our team with an additional option for sourcing parts, enabling them to better serve their customers.

Okay. And then I guess a little bit more detail on the labor cost reduction comment. I think you said it was something in the 40 basis points benefit. Is it just a reduction in labor hours or an absolute reduction in headcount? Sort of what are the big levers you can pull on the labor cost side of things?

We made some adjustments by reducing hours to manage our staffing effectively in a challenging sales environment. This was accomplished with fewer employees, but more importantly, we limited hours to maintain flexibility for when customers visited our stores. We carefully managed the schedule. A couple of years ago, we invested in scheduling tools to help us better oversee our team, and our staff is adapting well. They are doing an excellent job managing our largest expense, which is our technicians.

Yeah. Great. Thank you.

Thanks, Bret.

We have no further questions on the line, so I will hand the call back to Michael Broderick for closing remarks.

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.

This concludes the conference call. Thank you all very much for joining. You may now disconnect your lines.