Good morning, everyone, and welcome to Monro, Inc.'s Earnings Conference Call for the Third Quarter of Fiscal 2025. All participants are currently in a listen-only mode. We will have a question-and-answer session later, and instructions will be provided at that time. This call is being recorded and cannot be reproduced in whole or in part without the company's permission. 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 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'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. Lastly, unless otherwise noted, all references to comparable store sales, category sales and units on today’s call will be under adjusted per day’s basis which adjusts for one fewer selling day in the current year quarter due to a shift in the timing of the Christmas holidays from the fourth quarter in fiscal 2024 to the third quarter in fiscal 2025. 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. This morning, I'd like to share an update with you on our third quarter accomplishments. After that, I'll outline several objectives that we plan to achieve in the fourth quarter. Before I begin, I'd like to recognize and thank all of our teammates for their dedication to Monro and our customers. Turning to Slide 3, starting with our accomplishments in the third quarter. We drove a sequential improvement in our year-over-year comp store sales percentage change from the second quarter and returned our business to year-over-year comp store sales growth in the month of December. We believe that our initiatives provide the foundation for continued momentum in our top line performance. Importantly, the year-over-year comp store sales percentage change in both our tire dollar and unit sales improved sequentially from the second quarter and our tire category sales comp positive in the month of December with year-over-year growth in units in the quarter. We continued to leverage the strength of our manufacturer funded promotions, which allowed us to meet the needs of a value-oriented consumer. And now that we've completed the rollout of our ConfiDrive Digital Courtesy Inspection Process, we've continued to improve communication and educational selling that has built trust and further solidified relationships with our customers. ConfiDrive and our oil change offer, as shown on Slide 4, allowed us to drive sequential improvement in our year-over-year service category comp store sales percentage change from the second quarter. We drove year-over-year growth in both units and sales dollars for batteries, alignment and front-end shocks. And while we drove sequential improvement from the second quarter in our brake category, we continued to focus on returning this high-margin category to unit and sales growth. Consistent with general industry trade down dynamics, our gross margin in the third quarter continued to be impacted by the value-oriented consumer that traded down more of the tire purchases to our Tier-3 offerings. We also increased our level of self-funded promotions to attract value-oriented consumers into our stores. And while this pressured material margins in the quarter, we continue to drive labor optimization and efficiencies through productivity improvements, including scheduling, training and our attachment selling initiatives. We remain committed to sales and unit growth and improving customer counts and we are willing to make the necessary price and promotional investments, even if it puts pressure on our profitability in the near term. Now, on to our objectives for the fourth quarter. Our preliminary fiscal January comp store sales are down 1% adjusted for one additional selling day in the month. This is driven by weakness in tire category sales that were impacted by extreme weather, which resulted in temporary store closures and lower store traffic, partially offset by strength in our service categories, including brakes. We believe the extreme weather in January will benefit us in the coming months. We expect to leverage our initiatives to achieve our fourth quarter objectives which include improving store traffic trends driven by our value-oriented oil change offerings as well as continued growth in tire units, accelerating the performance of our key service categories utilizing the benefits from ConfiDrive and optimizing labor and efficiencies through continued improvements in productivity and maintaining prudent cost control. In summary, our initiatives are driving an improvement in our top line results. Our comp store sales trends improved sequentially from the second quarter and we exited the quarter with year-over-year comp store sales growth in the month of December. This was led by our tire category sales, which comp positive in December with year-over-year unit growth in the quarter. While we have more work to do to improve the performance of our high-margin brake category, we drove a sequential improvement in our year-over-year service category comp store sales percentage change from the second quarter and year-over-year growth in batteries, alignment and front-end shocks in the quarter. And although our gross margin took a step back in the quarter, we continue to be focused on sales and unit growth and improving customer counts and are willing to make necessary investments even if it puts pressure on our profitability in the near term. 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 as we return to top line growth. The traction from our initiatives will enable us to achieve our fourth quarter objectives. And with that, I'll now turn it 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 2025.

Thank you, Mike, and good morning, everyone. Turning to Slide 5, our year-over-year comparable store sales percentage change improved 500 basis points sequentially from the second quarter of fiscal 2025. Sales of $305.8 million decreased 3.7% year-over-year which was primarily driven by a 1.9% decline in comparable store sales, unadjusted for days. Comp store sales decreased 0.8% when adjusted for days. As Mike just walked through, we returned our business to year-over-year comp store sales growth in the month of December. For reference, comps were down 1% in October and down 2% in November. We exited the quarter up 1% in December. Tire units were up low-single-digits in the third quarter, driven by mid-single-digit growth in units during the month of December. We also gained tire market share in our higher-margin tiers in the quarter. Comp store sales and approximately 300 of our small or underperforming stores were about 250 basis points higher than our overall comp in the quarter. Turning to Slide 6, gross margin decreased 120 basis points, compared to the prior year, primarily resulting from higher material costs due to mix within tires, and an increased level of self-funded promotions to attract value-oriented consumers into our stores, which was partially offset by lower technician labor costs as a percentage of sales. Total operating expenses were $94.8 million, or 31% of sales, as compared to $91.3 million, or 28.7% of sales in the prior year period. The increase on a dollar basis was principally due to higher store direct and departmental costs to support our stores. Operating income for the third quarter declined to $10 million or 3.3% of sales. This is compared to $21.4 million, or 6.7% of sales in the prior year period. Net interest expense decreased to $4.2 million, as compared to $5 million in the same period last year. This was principally due to a decrease in weighted average debt. Income tax expense was $1.2 million or an effective tax rate of 21.2%, which is compared to $4.2 million or an effective tax rate of 25.8% in the prior year period. The year-over-year difference in effective tax rate is primarily due to state taxes, discrete tax impacts related to share-based awards and an audit settlement of certain prior year state income tax returns. Net income was $4.6 million, as compared to $12.2 million in the same period last year. Diluted earnings per share was $0.15. This is compared to $0.38 for the same period last year. Adjusted diluted earnings per share, a non-GAAP measure, was $0.19 and this is compared to adjusted diluted earnings per share of $0.39 in the third quarter of fiscal 2024. Please note that the Christmas holiday shift negatively impacted both diluted EPS and adjusted diluted EPS by approximately $0.05 in the third quarter of fiscal 2025. Please refer to our reconciliation of adjusted diluted EPS in this morning's earnings press release and on Slide 10 in the appendix to our earnings presentation for further details regarding excluded items in the third quarter of both fiscal years. As highlighted on Slide 7, we continue to maintain a strong financial position. We generated $103 million in cash from operations, including $27 million of working capital reductions during the first nine months of fiscal 2025. Our AP to inventory ratio improved to 179% at the end of the third quarter versus 164% at the end of fiscal 2024. We received $9 million in divestiture proceeds, as well as $9 million from the sale of our corporate headquarters. We invested $21 million in capital expenditures, spent $30 million in principal payments for financing leases and distributed $26 million in dividends. At the end of the third quarter, we had net bank debt of $49 million, a net bank debt to EBITDA ratio of 0.4 times and total liquidity of $521 million. As we have commented earlier and on recent earnings calls, we have made significant progress in several foundational areas, including gross margin expansion in the first nine months of fiscal 2025, inventory optimization by leveraging strong vendor partnerships and our solid financial position. These foundational improvements, coupled with our market-facing initiatives, including our ConfiDrive Digital Courtesy Inspection Process, our oil change offer, and a focus on approximately 300 of our small or underperforming stores, as well as our relentless focus on improving the guest experience are setting us up for improved financial performance. Now, turning to our expectations for the remainder of full year fiscal 2025 on Slide 8. 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 remained focused on sales and unit growth and improving our customer counts, while making the necessary price and promotional investments to do so. We expect to generate at least $120 million of operating cash flow, inclusive of continued working capital reduction in fiscal 2025. The strength of our financial position, including our cash flow positions us to fund all of our capital allocation priorities including our dividend during the remainder of fiscal 2025. Regarding our capital expenditures, we expect to spend $25 million to $30 million in fiscal 2025. And with that, I will now turn the call back over to Mike for some closing remarks.

Thanks, Brian. Our business has long-term durability in an industry that remains fundamentally strong. Our initiatives are driving an improvement in our top-line results. This, along with our cash flow generation will enable Monro to reap benefits as tire volumes continue to 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.

Our first question comes from Seth Basham from Wedbush Securities. Seth, please go ahead.

Thanks a lot and good morning. Nice to see the progress on comps and gross profit comps. And wondering whether or not we’ll continue to see improvement in gross profit comps going forward or do you plan on accelerating investments in price and promotion and seeing mixed deterioration such that will not be the case. What’s the framework to work through?

Yeah, related to gross margin in the quarter, our gross margin declined a 120 basis points that was driven by material costs of 150 basis points, partially offset by a decrease in technician pay of 30 basis points. So the increase in the material costs, as you mentioned, was related to the continued trade down of consumers to our Tier-3 tires, as well as our increase of self-funded tire promotions. Going forward, we expect similar pressure related to those material costs given that consumer trade down in higher levels of promotional activity. So we remain committed to sales of unit growth and improving our customer counts and we're going to continue to make necessary price and promotional investments, which we believe this current environment requires.

Got it. Good to hear. And my follow-up question is just around the weather. You mentioned pressure in January because of the weather. I'm looking back at the full fiscal third quarter, do you think weather was a net benefit or a drag or neutral?

Seth, good morning. It's Mike. I would say the third quarter it was neutral and I would say what we experienced in January, the extreme weather I think is a good setup going forward, just like it has been. I’ve been looking for a winter and we got it. Although we had some disruptions with closed stores that affected our January’s results mostly focused on tire, we had momentum coming out of December. And our service categories, all our major service categories, including brakes, were actually up and stayed up. So I would say that we have a good setup with winter and a good setup – really the sequential improvement of our sales and our team’s performance is obviously will take us through Q4 and beyond.

Got it. Thanks a lot. Congrats on the progress.

Thanks, Seth. Thank you.

Thank you. And our next question comes from David Lantz from Wells Fargo. David, please go ahead.

Hey, good morning, guys, and thanks for taking my questions. So it seems like you're seeing the Digital Courtesy Inspection drive some improvement in service categories. I was curious if you could parse out some of the benefits in a bit more detail and then how we should think about the drivers going forward?

David, good morning. It’s Mike. I've been asked on this call in the past talking about the ConfiDrive and what would be some of the results that we should be looking for. When I look at what ConfiDrive has driven and I just look at very objectively what the results are, our traffic was down but our average ticket was up. And our average ticket was up driven by our service categories. And so, when I look at what we are doing we are attaching really well. We need more customers, and that's what I'm committed to is driving our customer count, getting low-single-digit growth in customers. But what the team is driving is strong attachment, I see it in batteries. I see it in alignments. I see it in ride control. This is the first time I’ve talked about this in that specific area. I absolutely, in Q3, was disappointed with my brake results. But January, it actually went positive. So all my major service categories are going positive. So from walking – ConfiDrive is absolutely delivering what I expected. It's a good process for our customers. It's a good process for Monro and our shareholders.

Got it. That's helpful. And then it seems like similar gross margin pressures could continue with your near-term. Curious if you can help give us some color around how we should think about SG&A in the fourth quarter and if there are any early guard rails for next year?

Yeah. As it relates to SG&A, as you saw, we had an increase in SG&A versus the prior year. And the driver of that really was our front shop labor costs, which we also refer to as store manager pay. The primary driver behind that was just an investment in front shop labor to support that ConfiDrive Inspection Process. It's really important as part of the inspection process to have the right resources and the front counter to deliver the ConfiDrive educational selling process and that guest experience. So, we believe we're seeing obviously as Mike just commented on the benefits of these investments in our service category sales. But going forward, we expect that our G&A expenses will continue to reflect this investment. Of course, we will continue to find ways to drive productivity improvements in other areas of our G&A spend. But the investment in the front counter will remain.

Got it. That's helpful. Thank you.

Thank you, David.

Thank you.

Our next question comes from Thomas Wendler from Stephens Inc. Thomas, please go ahead.

Hey. Good morning, everyone.

Good morning, Thomas.

You guys saw some continued growth in the Tier-3 tires during the quarter. What does that mix look like now? And then, are you still purposely steering customers towards the Tier-3 category with some of the promotions? And is that where your self-funded promotions is focused?

Yes, Tom, this is Mike. The mix is in the high 20s on Tier-3 and I would say that we are absolutely driving the customers. So they just don't go to Tier-4. There are definitely attributes of Tier-1 through 3 tires that we want to make sure that we are presenting to the customer. Just going to cheap tires doesn't feel like the right thing to do for Monro and its customers. What we are - what I continually emphasize is the fact that when we recommend and we provide strong promotions the customers see the benefit in that. And if they're happy with the tires, they live with it for three years, then they come back to us for - come back to us for other services which are very important to me.

Perfect.

And then, Tom, for my follow-up…

Please go ahead.

It’s about when I said, high 20s, it's about 30%. Just so on the Tier-3.

Okay, perfect. And then, for my follow-up, has there been any kind of slowdown in the manufacturer funded promotions?

Not at this point in time. I would say there's nothing changing in the consumer environment and we have - we're very focused on making sure the manufacturers come along for this journey making sure that the industry doesn’t...

All right. Thank you for answering my questions, guys.

Thank you, Tom.

Thank you.

Our next question comes from Bret Jordan from Jefferies. Bret please go ahead.

Hey, good morning, guys.

Good morning, Bret.

Can you give us a break out of traffic comp versus price in the comp in the quarter?

Bret it’s Mike. Low-single-digits down and up middle single-digits basically up in - down traffic, mid-single-digits up in ASP mid-single-digits.

Okay. Great. And then could you give us an update on where you stand with the ATD? You picked up $9 million of divestiture proceeds. Are they still paying that? I guess what's left to collect? And how is the situation given liquidity challenges?

Yeah, related to ATD, nothing has changed in terms of our commentary on the last call. We still have $6.8 million of our receivable – or not receivable owe to us. That is part - going on as part of the current process that they're going through. And we currently have no reserve against that as our expectation is to collect the full amount. Our relationship with ATD remains strong during the restructuring process and business is usual in terms of operations in deliveries to our stores.

Okay, great. And then, could you talk about regional performance? Obviously, weather has been different throughout the country but your West, Southeast, Northeast and in Atlantic, any big dispersion and anything to call out there?

Yeah, we were stronger in the South than our consolidated comp and then in the Midwest, Northeast, and the West were all a little bit weaker than consolidated comp in the quarter.

Okay, great. And I guess, oil promotion trends, I think we called out self-funded promotion. I think you talked about oil promotion in the third quarter going into the fourth quarter. How do you see the broader market there? Is that category becoming more promotional as peers are trying to drive traffic as well?

I would say the promotions have always been in place as most of it has been focused on Monro. We just got more aggressive using our vendor partners doubling making sure that we are very competitive in the marketplace and that's what we've been focused on starting the end up really when we announced in the first quarter of this year.

Thank you. Our next question comes from Brian Nagel from Oppenheimer. Brian, please go ahead.

Hey guys, good morning.

Good morning, Brian.

Good morning. So, Mike, my question is maybe a bit repetitive, but I just want to focus on gross margin. So, I think this goes back to the questions Seth asked initially. But if you look at the progression in gross margin from the fiscal second quarter to the fiscal third quarter that trend turned more negative or worse. So the question there, I mean, what changed? Is it - was it just a more of an emphasis on this serving this value customer or is this something else at play that caused that so to say incremental weakness Q2 to Q3? Then I have a follow-up.

Brian, what changed was the fact that in May, Monro and I declared on that we were going to get our tires back. Going into that May quarter we were losing, we're seeing market share Tier-1 through 3 and 4 the customers were shifting down to Tier-4. And we have a strong Tier-4 offering. So it's not about availability. It's really about price. And we've really leaned into our vendor partners along the way and really it's just a difficult consumer environment. We do see that setup improving, absolutely improving and we made sure to get the tire business back. And that's a lot of the drag on the gross margin. At the same time, I was not seeing some of our service categories come to life. And I would say, now we're starting to see those service categories coming to life. So between the vendors helping us lean in, protecting their brands and Monro driving a Quality Inspection Process and offering and selling additional services, that's how we're going to restore our margin. And we have that trajectory going back in a healthy place.

Okay. So with that Mike and I recognize that you haven’t really given guidance, but from a gross margin perspective, I know I recognize there's a lot of moving pieces here but - so should fiscal Q3 be the worst of this? I mean, do you perceive things getting better from here?

I would say at this point in time, I like where we came out of our service categories in January, but I don't have a crystal ball, Brian. I would say, we're very focused on getting a balanced approach, very focused on getting our vendor partners onboard making sure they protect their brands making sure that we are growing all our categories and getting our business back, getting our customers back. And I really do like to see what our brakes are doing right now and our other, the attachment strategy that we’ve put in place with ConfiDrive is starting to come to life. Now, as how that plays out in Q4, I look forward to talking about that in a couple months.

Okay. Then my follow-up - I guess my follow-up question you – and Brian you mentioned this a lot as well. I mean, just over time taking this gross margins back to pre-COVID level. So, the math right now is you're tracking three, maybe five percentage points below pre-COVID or historic peaks. What are the building blocks to get back there from where we are right now? We talked about this. I mean, and there is clearly a cyclical nature with the pressures on the consumer, at least we hope it’s cyclical. But we are – as you think about the builder – the bigger building blocks to get back to those historic gross margins.

I'll take that, Brian. I think the first thing that we need to see happen is, we need to see the pressure on our material costs start to abate, and I think the environment needs to improve for that to occur. So we need to see the trade down impact, the level of promotional activity needs to improve. So that's first. The second piece is we need top-line growth, because really the next leg up in our - both our technician pay as a percent of sales as well as occupancy cost percent of sales is really related to leverage, fixed cost leverage against the fixed components of both of those lines. So, top-line growth with some help from the consumer environment on the material costs, it would allow us to pull back on promotions and start to see a reversal of the trade down are really we get a - if we get a healthy dose of those two dynamics, we will see our way back to the levels you described.

Okay. Okay, I appreciate all the color. Thanks guys.

Thank you.

Thank you.

Thank you. Our final question today comes from John Healy from Northcoast Research. John, please go ahead.

Thanks for taking my question. Just wanted to ask a little bit about SG&A levels in the business. I know that that was up a little bit here in Q3, but I don’t think you guys have kept those pretty stable over a long period of time. So, we are just kind of wondering where we are at in that kind of cycle. And as you drive same-store sales hopefully in fiscal ’26, where do you think SG&A grows relative to just that comp store sales number? Thanks.

Thanks for the question, John. Yeah, we've talked about the flattish SG&A as you mentioned over the last few years, really driven by our back-office optimization initiatives, which allowed us to completely offset the effects of the inflation had on our G&A costs. They did delever on the lower sales levels, but on an absolute dollar basis it remained relatively flat. On a previous question, I talked about the current quarter dynamics really driven by the front shop labor that we've invested into support the ConfiDrive process and our expectation for that front shop labor to continue to be in place in order to continue to deliver the benefits that we are seeing in our service category top-line. I think that's the biggest item that would take G&A up off of a normal inflationary year-over-year growth next year. So, ultimately our goal is to make that inflation growth, plus the investment we're making in that front shop is obviously growing at a lower pace than our top-line. And that's how we would plan the business going forward.

Got it. Thanks. And then, I just want to ask a little bit about kind of your reference earlier to some of the tire categories here. You used the phrase here for a little bit. We are just trying to understand maybe, if you look at the different tiers, Tier 1 through 4, maybe what's the difference in price point kind of high to low? And how does the margin profile from high to low kind of compare for you guys? Thanks.

I'll take that John, I would say the - in very simple terms, it's about $20 difference. $20 to $30 difference between every tier. But there is a lot of, just use that as a kind of a parameter. And you make the margin is stronger, generally in Tier 1 through 3.

Got it. Thank you guys.

Thank you, John.

Thanks.

Thank you. That is now the end of the Q&A session. I'll hand back over 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 today's call. Thank you for joining everyone. You may now disconnect your lines.