Good morning, ladies and gentlemen, and welcome to the Monro, Inc. Earnings Conference Call for the Fourth Quarter and Full Year Fiscal 2024. At this time all participants are in a listen-only mode. Later we'll 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 would 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 investor section of our website at corporate.monro.com/investors. If I could draw your attention to the Safe Harbor Statement on Slide 2. 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 statements include a discussion of certain non-GAAP financial measures which are intended to supplement and not be substitutes for comparable GAAP measures. Reconciliation 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 discussing the longer-term durability of our business within the broader auto aftermarket tire and services space. Then I'll talk about current tire dynamics as well as the actions we've taken to navigate an industry-wide deferral and trade-down cycle that has lasted longer than most in our industry would have expected. After that, I'll introduce four initiatives we've recently implemented to offset weakness in the tire market. I'll conclude my comments today with the foundational progress we've made that will enable Monro to reap benefits when tire volumes recover. Starting with the longer-term durability of our business. First, we are positioned as one of the leading players in our highly fragmented industry. At approximately 1,300 stores in 32 states, we have significant scale that gives us important competitive advantages over smaller players in our industry. We leverage this scale and the strength of our financial position to make critical investments in our business, our people, and technology to deliver an outstanding guest experience. Second, the fundamentals of the industry remain strong, as shown on Slide 3. These fundamentals include an overall growing trend of more than 280 million vehicles in operation. Vehicle miles traveled have recovered to pre-COVID levels and an average vehicle age of more than 12 years that continues to increase. Further, on Slide 4, an increase in the complexity of vehicles continues to drive a shift from do-it-yourself to do-it-for-me. With future technology advances expected to accelerate the shift to do-it-for-me. Third, while the non-discretionary nature of our products and services may result in consumers deferring purchases or trading down, they cannot eliminate these purchases altogether. And finally, we have an experienced management team that is keenly focused on maximizing efficiencies, including costs, to protect margins during what we believe to be a temporary period of challenges to our top line. All of this gives us confidence that Monro is well positioned to withstand the current downturn and poised for long-term success. Now onto the current tire dynamics as well as the actions we've taken to navigate. Turning to Slide 5, tires are providing a temporary yet meaningful negative impact given that they represent around 50% of our overall business. Strained low to middle-income consumers are deferring tire purchases in higher margin tiers and disproportionately trading down to tires at opening price points. This is being supported by an oversupply of lower margin tires in the US. Additionally, milder weather has contributed to the general tire deferral cycle. The overall impact of this is fewer US tire replacement units being sold at a lower overall average selling price. This has led to pressured store traffic for us, which is not supportive of attachment of our higher margin service categories. We are navigating the tire situation by leveraging the strength of our manufacturer-funded promotions which have allowed us to optimize our assortment for improved tire profitability with a higher average selling price per tire. Encouragingly, based on retail sellout data from Torqata, our tire market shares remain broadly in line with the overall market in our higher margin tiers. We are also responding to continued consumer trade-down dynamics by accelerating our proportion of opening price point tires. If consumers continue to stay value-oriented and our tire manufacturers don't meet our expectations with a step up in their support quickly, we are prepared to continue to meet our customers where they are by further increasing our tire mix at opening price points. Next, we recently implemented four initiatives to offset weakness in the tire market. Turning to Slide 6, the first is an investment we've made in our stores to convert our 32-point courtesy inspection from a paper-based process to a digital, tablet-based system that presents other needed services to our customers via industry data and pictures. This gives our store teams greater ability to build engagement and trust with our guests, which supports additional service attachment. This also supports the marketing back of any declined work for future visits. It also allows us to capture more structured data on the vehicles that we see and gives us more control over a key in-store process. We have now completed the rollout to all of our stores, and we are pleased with early results. We'll be sure to update you on the progress of our digital courtesy inspections in the future. The second is a service coupon where we are offering customers a $50 rebate toward the purchase of additional services with the purchase of one set of brake pads or rotors. With new pads and rotors on both axles, customers can earn up to $200 in coupons that can be applied to any additional purchase of services or tires. The goal of this promotion is to increase service attachment and add value for our customers. The third is a Buy 3 Tires; Get 1 Free Promotion we have been running with the help of three of our tire suppliers, which allows us to sell better quality tires to a value-oriented consumer. The fourth is an oil change offer that was developed as part of our renewed partnership with Valvoline, where our customers can earn cash back on an oil change. Now, concluding with the foundational progress we've made that will enable Monro to benefit when tire volumes recover. Turning to Slide 7, despite a deferral and trade-down cycle that has lasted longer than most would have expected, we have expanded our gross margins through tire mix optimization, labor optimization through actions to reduce nonproductive labor costs, including overtime in our stores, and labor efficiency through productivity improvements, including scheduling, training, and our attachment selling initiatives. We will continue to remain relentlessly focused on improving our 300 small or underperforming stores, maintaining a balanced approach between tire and service categories with competitive pricing to drive store traffic and continuously improving our customer experience. In addition, our efforts to optimize inventories by leveraging strong vendor partnerships is resulting in better availability, quality, and cost of parts and tires in our stores. It has improved our cash conversion cycle through inventory management and extended payment terms. Our solid financial position, including operating cash flow generation and a strong balance sheet, supports capital returns to shareholders through a healthy dividend program. We have positioned the business for a return to earnings growth when we're able to achieve flat tire units with appropriate attachments on service categories. In closing, our business has long-term durability, and while tires are providing a temporary negative impact, we are navigating the situation well with our actions. We have implemented initiatives to offset weakness in the tire market, and we have made foundational progress that will enable Monro to benefit when tire volumes recover. 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. Before I turn the call over to Brian, I'd like to recognize and thank all of our teammates for their efforts in serving the needs of our customers. And with that, I'll now turn it over to Brian, who will provide an overview of Monro's fourth quarter performance, strong financial position, and additional color regarding fiscal 2025.

Thank you, Mike, and good morning, everyone. Turning to Slide 8, sales decreased 0.2% year-over-year to $310.1 million in the fourth quarter, including $24.4 million for the extra week in the current year period. Comparable store sales increased 0.1% on a reported basis and decreased 7.2% when adjusted for the extra week of sales in fiscal 2024. This was driven by the consumer and tire dynamics that Mike just walked through. Tire units in the quarter were down 11%. Comp store sales in our 300 small or underperforming stores were consistent with our overall comp in the quarter. Gross margin increased 210 basis points compared to the prior year, primarily resulting from lower technician labor costs, including a 15% reduction in overtime hours, and lower material costs as a percentage of sales, which were partially offset by higher fixed occupancy costs as a percentage of sales. Total operating expenses were $99.7 million, or 32.2% of sales, as compared to $97.6 million, or 31.4% of sales in the prior year period. The increase on a dollar basis was principally due to $1.6 million of higher non-recurring costs in the quarter compared to the prior year period. Excluding these costs, total operating expenses, inclusive of an extra week, increased $500,000 compared to the prior year. Operating income for the fourth quarter increased to $10.3 million, or 3.3% of sales. This is compared to $6.2 million, or 2% 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 $2 million, or an effective tax rate of 35%, which is compared to $200,000, or an effective tax rate of 35.2% in the prior year period. Net income was $3.7 million, as compared to $400,000 in the same period last year. Diluted earnings per share was $0.12. This is compared to $0.01 for the same period last year. Adjusted diluted earnings per share, a non-GAAP measure, was $0.21. This is compared to adjusted diluted earnings per share of $0.08 in the fourth quarter of fiscal 2023. Please refer to our reconciliation of adjusted diluted EPS in this morning's earnings press release and on Slide 13 in the appendix to our earnings presentation for further details regarding excluded items in the fourth quarter of both fiscal years. As highlighted on Slide 9, we continue to maintain a very solid financial position. We generated $125 million of cash from operations during fiscal 2024. This has reduced our cash conversion cycle by 37 days at the end of the fourth quarter compared to the prior year period. Our accounts payable to inventory ratio at the end of fiscal 2024 was 164% versus 178% at the end of fiscal 2023. We received $21 million in divestiture proceeds. We invested $25 million in capital expenditures, spent $39 million in principal payments for financing leases, and distributed $36 million in dividends. Lastly, repurchases of our common stock were $44 million under our share repurchase program, which authorizes us to repurchase up to $150 million of the company's common stock. We have used our significant cash flow to reduce invested capital by $89 million during fiscal 2024. At the end of the fourth quarter, we had net bank debt of $95 million, a net bank debt to EBITDA ratio of 0.7 times, and total liquidity of $475 million.

Now, turning to our expectations for the first quarter, as well as the full year of fiscal 2025 on Slide 10. As previously discussed in our commentary on the fourth quarter, we delivered an additional $0.13 of adjusted diluted earnings per share on flat top-line sales in the fourth quarter, driven by variable margin expansion and prudent cost control. Although our preliminary comp store sales are down approximately 12% in the first quarter of fiscal 2025 to date, we expect to continue to deliver higher levels of profitability relative to sales in the quarter. If current top-line trends continue, we would expect approximately break-even adjusted diluted earnings per share for the first quarter of fiscal 2025. Note that every 1% change in comp store sales from our first quarter-to-date run rate represents more than $0.03 in adjusted diluted earnings per share in the quarter. Our earnings in fiscal 2025 will largely depend on where comp store sales land for the full fiscal year. Note that every 1% change in comps from the prior year represents about a $0.14 increase or decrease in adjusted diluted earnings per share from the prior year. This assumes our fixed occupancy costs within cost of goods and operating expenses will be flat on a dollar basis when compared to the prior year. Please note that fiscal 2025 is a 52-week year, while fiscal 2024 was a 53-week year that benefited from an extra week of sales in the fourth quarter. We expect to generate at least $100 million of operating cash flow, inclusive of continued working capital reductions in fiscal 2025. The strength of our financial position, including our cash flow, positions us to maintain our dividend during what we believe to be a temporary period of challenges to our top line. Regarding our capital expenditures, we expect to spend $25 million to $35 million in fiscal 2025. And with that, I will now turn the call back over to Mike for some closing remarks. Thanks, Brian. Our industry remains fundamentally strong. Our business has been disadvantaged by temporary challenges in the tire category. Our actions to navigate the consumer deferral and trade-down dynamics as well as our initiatives to offset weakness in the tire market and our progress to improve margins and improve cash flow will enable Monro to reap benefits when tire volumes recover. We are poised to win with our scale, strategic relationships, and our experienced management team. With that, I'll now turn it over to the operator for questions.

Thank you, Mr. Broderick. We have the first question from David Lantz with Wells Fargo. Your line is open.

Hey, good morning, guys. Thanks for taking our questions. I guess first one from me, tires have been under pressure for several quarters now. So curious if you can parse out the drivers of the weaker comps in March, April, and May to date in a bit more detail. And have you seen a step change in deferrals or trading down relative to a few months ago?

David, good morning. This is Mike. I would say, very clearly it is a tire story and it just accelerated or decelerated, depending on how you want to look at it, coming out of February. When you look at the other categories, the service categories, you had some improvement in batteries, but everything else, since it's a very high attached category, really followed along with the trends of tires when you look at brakes especially. So when I look at the comp deceleration, I would say, it's really just nothing's changed. We're very focused on our initiatives. It's not something that we've done. We're priced right. We're sorted better than ever before. And we're very focused on driving value at this point in time with where customers are actually telling us what they're looking for.

Got it. That's helpful. And then you're accelerating your OPP tires, so curious if you can help us think through the dynamics with regards to gross margins? And then, do you have any visibility into when the oversupply of these tires could be totally worked through?

I cannot predict the oversupply of tires, but I am committed to ensuring that we provide value for our customers. I continue to focus on Tier 1 through Tier 3, as that is the right selection for our customers and the quality of tire they expect. The decisions we've made regarding our offerings were aimed at meeting customer needs and expectations. We want to deliver value at Monro, which has been a longstanding commitment for us. We are utilizing promotional dollars to ensure customers are aware of their choices. Our tire mix and units have remained consistent, and we haven't observed any industry data indicating a loss of market share, even with Tier 4. Currently, there is a lot of uncertainty in the syndicated data, but our priority is to bring more customers in. Not long ago, we were seeing positive trends in tire units and proving that we could achieve mid-single-digit growth, which remains our focus.

Got it. That's helpful. I have one last question. You mentioned break-even EPS for Q1 if the top line trends continue. Could you provide some insights on the expectations for SG&A and gross margin?

Yes. Absolutely, David. So we've done a really good job, as you can see in our Q4, of increasing variable margins and also prudent cost control. So when we look at the outlook for our first quarter, it certainly expects that variable margin expansion and prudent cost control to continue. What we have baked into the breakeven is basically flatish SG&A, flatish fixed costs within cost of goods, consistent tax rate, consistent interest. So really, what you're seeing come through in the break-even as well as the sensitivity we gave on comps is the flow through of the top line.

Thank you. The next question is from Bret Jordan with Jefferies. Your line is open.

Hey, good morning, guys. This is Patrick Buckley on for Bret. Thanks for taking our question.

Good morning, Patrick.

Taking a look at the new disclosure on franchise royalty revenue in last quarter's 10-Q, we saw a pretty significant increase. Was there anything notable to call out there? And I guess what should we expect for a normal run rate moving forward?

Yes, that was really just related to timing of the recognition of royalties related to one of our franchisees. We don't expect there to be any meaningful change in our historical run rate going forward.

Got it. That's helpful. Thank you. And then, as you look at the weather impact, were there any notable regional callouts there?

Patrick, good morning. This is Mike. I would say our sales performance, if you're looking at where we had weakness, I would say, it was led by the South. I would say the North, East, and West actually performed better for us, and the Midwest was in line.

Got it. That's all for us. Thanks, guys.

Thank you.

Thank you.

Thank you. The next question is from Brian Nagel with Oppenheimer. Your line is open.

Hey, good morning. This is William Dossett on for Brian. Thanks for taking our question.

Good morning.

So our first question was on the initiative to offset tire market weakness. How do you assess the return on these initiatives? How should they impact the P&L, and how long should they be in place?

We are very focused on increasing our top line sales, as that represents our best opportunity for enhancing profitability and cash flow. In terms of margins, we depend on our vendor partners for support, and our attention is on improving productivity in our shops, which you have seen over the past three years as we have developed a detailed profit and loss statement. We have made significant progress with working capital, and I can confidently say that our margin portfolio is strong. We profitability from everything we sell, allowing us great flexibility to remain highly competitive, and we will continue to rely on our vendor partners to help drive sales. Currently, we do not anticipate losing market share; instead, we are focused on gaining market share and returning to positive unit growth in tires, which will facilitate improvements in our service category.

I appreciate that. To follow up on a previous comment about market share, you mentioned that your market share was consistent with higher margins. Can you provide insights across other tiers as well? Do you anticipate any changes in the near term with these new initiatives? Specifically, throughout this year, how does Monro compare to your baseline industry trend assumptions? Thank you.

Yes, William, I'll take that. This is Mike. Just to be very clear, we're not going to continue giving up market share and we're very focused on growing units. For the last couple of years, we've done a lot of work getting our assortment right, obviously with the divestiture of wholesale and the distribution centers. We have a lot of flexibility to be incredibly competitive in the marketplace. We're not worried as potentially prices come down or more promotional activity that's happening with our Tier 1 through Tier 3 vendors, we're very prepared to take advantage of those dollars to support our margin and also the value proposition for our consumer. So at this point in time, when I look at the data, and that's been always very important to me, I never expected Tier 1 through Tier 3 to be as negative as it is right now. I expect that to come back and I expect our participation in Tier 4 to be very healthy, just like we demonstrated in the quarter where we started out low 20%, then we moved to a mid-20% in February and to a high 20% in March. And that's our attempt to stay very competitive and at the same time we're managing our productivity, which is flowing through to our margins.

I appreciate the color. Good luck.

Thank you.

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 of our stakeholders. I look forward to keeping you updated on our progress. Have a great day. Thank you, Mr. Broderick. This concludes today's call. Thank you for joining. You may now disconnect your lines.