Monro, Inc. (MNRO) Q1 2021 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. And welcome to Monro, Inc.’s Earnings Conference Call for the First Quarter Fiscal 2021. 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. [Operator Instructions] And as a reminder, ladies and gentlemen, 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 Ms. Maureen Mulholland, Senior Vice President, General Counsel and Secretary at Monro. Please go ahead.

Thank you. Hello, everyone. Thanks for joining us on this morning’s call. Before we get started, please note that as part of the call this morning, we will be referencing a presentation that is available on the Investors section of our website at corporate.monro.com/investor/investor-resources. If I could draw your attention to the Safe Harbor statement on slide two, I’d like to remind participants on this morning’s call 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 and include the significant uncertainty relating to the duration and scope of the COVID-19 pandemic and its impact on our customers, executive officers, and employees. The company disclaims any intention or obligation to update or revise any forward-looking statement 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 to 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 our President and Chief Executive Officer, Brett Ponton. Brett?

Thank you, Maureen, and good morning, everyone. Thanks for joining us. In the last few months, we have seen an unprecedented health and economic crisis and the COVID-19 situation remains extremely fluid. During this period of uncertainty, we have been committed to ensuring the safety and well-being of our teammates, customers, and communities while maintaining business continuity to support our customers’ current and future needs. Our more than 1,200 stores have remained open to provide essential services since the beginning of the pandemic and we continue to leverage our diversified supply chain without significant disruption. I am immensely proud of our teammates’ efforts and strong execution despite the ongoing challenges and I am pleased to see that our Monro.Forward initiatives continue to gain traction, which I believe will help us emerge stronger from this crisis. As highlighted on slide three, while we reduced our store operating hours at the onset of the pandemic, we have taken a measured approach to gradually return to a more normalized store schedule as the demand environment improves. We have received positive feedback from our customers regarding the safety measures we have implemented in our stores, including key drop and contactless services. Importantly, we continue to see strong teammate engagement as a result of the actions we have taken to protect and support them during this crisis. Overall, we are focused on the elements of our business within our control and have taken the appropriate steps to mitigate near-term headwinds and expect to operate on a cash flow positive basis during the COVID-19 pandemic. Our strategy is underpinned by a rigorous financial discipline and cost management and capital allocation, as well as a robust balance sheet and ample liquidity, which we believe provides us with significant financial flexibility to safely operate our business and execute our Monro.Forward initiatives. In this context, we have continued to make critical investments in technology to support our future operations and have decided to gradually resume our store rebrand and reimage initiative in the second quarter. Lastly, acquisitions remain a pillar of our growth strategy. We have a robust pipeline and are evaluating a number of quality potential targets that would fit our strategy while maintaining strong financial discipline. Moving on to slide four, I would like to take a moment to discuss our first quarter performance and our current trends we are experiencing. Government restrictions to curb the spread of COVID-19 drove a substantial decline in traffic, which translated to a 26% decrease in comparable store sales in the first quarter. While April represented a low point in our topline performance, we saw resumption in demand driven by improved traffic, as government restrictions gradually abated throughout the quarter with May and June improving sequentially. These encouraging trends continued into fiscal July with our comparable store sales down approximately 12%. Despite the COVID-19 related challenges we are facing, it’s important to note that we continue to solidify our competitive position in the current environment as evidenced by our performance tracking in line or above miles driven and other mobility metrics. While we experienced a double-digit comparable store sales decrease in all product and service categories during the first quarter, we were encouraged to see that monthly comps improved sequentially across all categories throughout the quarter, a trend that has continued in the second quarter based on our preliminary results to-date. Importantly, tires, which represents our largest category, outperformed all other product and service categories as the rollout of our tire category management and pricing system is gaining traction. With improved visibility into the price elasticity of demand and competitive dynamics in each market, it has allowed us to optimize our tire assortment, while favorably impacting tire volumes and margins during the first quarter. Geographically, our southern and Midwestern markets outperformed our northern markets where we have had a high concentration of stores as the northeast region was the most severely impacted by the COVID-19 pandemic during the first quarter. However, this outperformance has narrowed in recent weeks with strengthening performance in the northeast and a slowdown in recovery pace in our southern states as many are increasing restrictions due to higher infection rates. As mentioned before, we are also able to quick -- and quickly and thoughtfully flex down our cost structure to adapt to the lower demand environment. The pandemic gave us the opportunity to accelerate the pace of some of our transformation initiatives including our store staffing. We believe we have right-sized our store staffing and structurally changed our labor model to consistently have the right mix of technicians with the appropriate skill level and corresponding compensation aligned with demand and the level of services performed in each store. In addition, we have tightened our marketing spend and accelerated its shift towards higher ROI digital channels. Overall, we are encouraged by the cost savings that derive from these initiatives, which we believe set us up well to drive better operating performance going forward. Despite the challenging operating environment, we are strongly committed to advancing our Monro.Forward strategy to position our business for long-term sustainable growth. Turning to slide five, I would like to discuss the recent developments in greater detail. Beginning with our largest strategic initiative, our store rebrand and reimage program, which focuses on creating a more consistent store appearance and implementing standardized in-store operating procedures. To-date, we have completed the transformation of more than 200 stores in a number of key markets, including rebranding approximately 70 stores from service-branded stores, tire-branded stores, and consolidating our tire brands to optimize our brand awareness and increase our tire revenues in select markets. While we have paused this initiative since the onset of the pandemic, we are pleased to report that our rebranded stores comparable store sales continued to outperform our chain average. These positive trends reinforced our confidence in our reimage and retail brand portfolio consolidation strategy to drive long-term same-store sales growth. In light of our healthy financial position, we have decided to resume this program with a measured and moderated approach in the second quarter. Accounting for the current pandemic backdrop, our goal is to undertake the refresh of 60 to 120 stores in fiscal 2021. As part of our one-time real estate portfolio adjustment, we completed the closure of 36 underperforming stores during the first quarter, in addition to the six stores that were closed in the fourth quarter of fiscal 2020. As we previously noted, these store closures were planned in accordance with our analytic model to drive a strong -- stronger long-term performance of our company and were not in response to COVID-19. We estimate the closure of these 42 stores will improve operating income by approximately $5.1 million on an annual basis. Moving on to our customer-centric engagement initiatives, over the past few years, we have been focused on improving the experience for our customers, which has driven our all-time star rating up to 4.6 stars. Building off these strong results, we have accelerated the strategic shift of our marketing efforts towards higher ROI digital channels since the beginning of the pandemic. As part of our digital strategy, we have been focused on optimizing our SEO performance for key product categories like tires. These efforts have resulted in approximately 50% of our stores now ranking in the top three online search results, which has led to significant improvements in online consumer actions, whether that’s scheduling and appointment at the store, making a phone call to the store or clicking the get directions to a Monro location. Importantly, our targeted investments in digital marketing and advertising combined with our new digital phone system allow us to acquire and retain customers at a lower cost, while driving stronger results. As part of our broader efforts to create an omnichannel presence for our company, we are exceeded to announced -- excited to announce that we have completed the rollout of our collaboration with Amazon with all of our more than 1,200 locations in 32 states now providing tire installation services. We continue to receive positive feedback and strong customer satisfaction metrics in response to this initiative, which builds upon the success of our other online tire retailer agreements and is an important step in furthering our customer-centric engagement efforts. Turning on to our critical invest -- turning now, excuse me, to our critical investments in technology. We continue to make tremendous progress on a number of initiatives that we believe will be instrumental in driving long-term sustainable topline growth and margin expansion. During the first quarter, we substantially completed the rollout of our network infrastructure upgrade across our store base, including the new digital phone system, I just mentioned. Our modernized store infrastructure allows us to drive a more sophisticated and consistent approach to customer execution with the ability to measure the results of our marketing efforts. During the COVID-19 pandemic, we have leveraged our new technology to establish a centralized call center that provides added flexibility and significantly improves our customer responsiveness. Overall, we are encouraged by the early traction of this initiative and confident it will contribute to improve conversion and enhance customer experiences going forward. As mentioned earlier, we are in the process of rolling out our new tire category management and pricing system across our store base, which we expect to complete by the third quarter fiscal 2021. This new tool is driving relative strength in our tire category as we are better able to dynamically track demand trends at the market level and make rapid adjustments to our higher pricing and assortment strategy. This allows us to drive higher volume, as well as optimized tire pricing to expand margins in this category. Lastly, our technology-based store staffing model, has allowed us to seamlessly right-size and effectively balance our store labor in real-time since the beginning of the COVID-19 pandemic, ensuring we have the right mix of skills to match demand in each store. It is also proving critical to our ability to effectively ramp-up staffing in our stores to support improving demand trends, which is one of our important priorities right now. This program positively impacted gross margin in the first quarter and we are confident it will continue to drive significant store labor efficiency going forward. As we are rolling out our cloud-based store staffing and scheduling software across our store base, which we expect to be complete by the third quarter, we are leveraging our Monro University platform to train our teammates and have received overwhelmingly positive feedback so far. In addition to supporting the rollout of our strategic initiatives Monro University has a robust curriculum and continues to help our teammates grow and advance their career in technical skill set, which has significantly enhanced our employer value proposition as a key differentiator in the current environment. Overall, we believe these important tools will enhance our competitiveness and the marketplace will be critical to supporting our broader strategy moving forward. Before passing the call over to Brian, I would like to reiterate how proud I am of our team’s dedication to safely provide a best-in-class experience to our customers. Our teammates have demonstrated their ability to quickly adjust to the evolving environment and seamlessly embrace the structural changes we have made across our business to drive and improve operating performance and emerge even stronger when this crisis subsides. With that, I will turn the call to Brian, who will provide additional detail on our first quarter performance and strong financial position.

Thank you, Brett, and good morning, everyone. Turning to slide six, I’d like to provide a more detailed overview of our performance this quarter. Sales fell 22.1% year-over-year to $247.1 million, primarily driven by a 25.8% decline in same-store sales. As expected, the ongoing COVID-19 pandemic substantially impacted our results, as government restrictions to curb the spread significantly decreased traffic in the quarter. As Brett noted, we were encouraged to see sequential comparable store sales improvement during the quarter across all product and service categories, as restrictions have gradually abated in some of our key geographies. Sales from new stores increased by $12.7 million or $11.1 million from recent acquisitions, partially offset by a decrease in sales from closed stores of approximately $3.1 million. The first quarter of fiscal 2021 had 90-selling days in line with the previous year period. Gross margin decreased 500 basis points to 35.4% in the first quarter of fiscal 2021 from 40.4% in the prior year period. This decrease was primarily due to an increase in distribution and occupancy costs as a percentage of sales, as we lost leverage on these largely fixed costs with lower comparable store sales. Additionally, we were impacted by lower vendor rebates due to slower inventory turns, as well as higher sales mix of tires compared to the prior year period. However, this was partially offset by lower technician labor costs as a percentage of sales directly related to our store technology-based staffing model, as well as we right-size labor to match lower demand, while ensuring we have the right mix of necessary skill sets in each store. In addition, gross margin improved within the tire category, which was positively impacted by the partial rollout of our tire category management and pricing tool in the quarter. Operating expenses for the quarter decreased $15.7 million to $76.1 million or 30.8% of sales, as compared with $91.8 million or 28.9% of sales for the prior year period. As Brett previously mentioned, we took targeted action to streamline our cost structure in the first quarter, most notably, we strategically realigned our marketing spend toward higher ROI digital channels and right-size store staffing to match lower demand. The year-over-year decrease in operating expenses also reflects lower expenses from a net reduction of four stores compared to the prior year period. This was partially offset by $2.5 million in store closing costs. The increase in operating expenses as a percentage of sales compared to the previous year period was driven by a decrease in comparable store sales. Our operating income for the first quarter was $11.4 million, compared to $36.4 million for the same quarter last year. As a percentage of sales, operating income was 4.6%, compared to 11.5% in the prior year period. Net interest expense for the quarter increased 7 point -- increased to $7.4 million, as compared to $7.2 million in the same period last year. The weighted average debt outstanding for the first quarter increased by approximately $486 million as compared to the prior year period. The increase was primarily related to an increase in debt outstanding under our revolving credit facility to fund the purchase of our acquisitions and to provide financial flexibility during the COVID-19 pandemic, as well as an increase in finance lease that recorded in connection with our fiscal 2020 acquisitions and greenfield expansion. The weighted average interest rate for the first quarter decreased by approximately 350 basis points year-over-year due to lower LIBOR and prime interest rates, as well as lower borrowing rates associated with new leases. For the first quarter, income tax expense was $1million, compared to $6.8 million in the prior year period. Net income for the first quarter was $3 million, compared to net income of $22.6 million in the prior year period. Diluted earnings per share for the first quarter of fiscal 2021 was $0.09, compared to diluted earnings per share of $0.67 in the first quarter of fiscal 2020. Adjusted diluted earnings per share for the first quarter of fiscal 2021, a non-GAAP measure was $0.15, which excludes $0.06 per share of store closing costs. This compares to adjusted diluted earnings per share of $0.69 in the first quarter of fiscal 2020, which excluded $0.01 per share of costs related to Monro.Forward initiatives and $0.01 per share of costs related to acquisition due diligence and integration costs. As of July 29, 2020, the company had 1,247 company-operated stores in 97 franchise locations, as compared with 1,251 company-operated stores in 98 franchise locations as of June 29, 2019. During the first quarter, we closed 36 stores. A complete bridge comparing our first quarter fiscal 2021 earnings per share performance with the same period last year is presented on slide seven. The COVID-19-related drop in traffic significantly impacted our performance resulting in a 25.8% decrease in comparable store sales and a 77 earning -- $0.77 earnings per share decline. As we have previously noted, every 1% decline in comparable store sales translates into roughly $0.03 per share per quarter. The decrease in gross margin impacted our operations by approximately $0.20 per share. The net benefit of our cost savings and lower expenses due to a reduction in the number of stores compared to the prior year period allows us to reconcile to our adjusted earnings per share of $0.15 in the quarter. As previously noted, this excludes $0.06 per share in planned store closing costs. Turning to slide eight, I’d now like to provide an update on our strong financial position beginning with our capital allocation strategy. We paid down $240.2 million of debt our revolving credit facility in the first quarter of fiscal 2021. Our capital expenditures were $15.3 million in the first quarter, of which approximately $9.9 million was related to our Monro.Forward initiatives, including our store technology infrastructure upgrade. Additionally, we paid approximately $7.4 million in dividends during the first quarter. As Brett previously noted, we have a robust M&A pipeline and are evaluating attractive targets that support our strategy while maintaining our strong financial discipline. We also paused our store rebrand and reimage initiative in the first quarter, but we plan to resume this program during the second quarter, and we will take a measured and thoughtful approach to ensure we are protecting our financial position. Overall, we expect our focus on streamlining operations and operating costs and bolstering our working capital position to mitigate the impact of near-term headwinds and allow us to operate on a cash flow positive basis throughout this pandemic. Finally, in June we temporarily amended certain financial unrestricted covenants of our existing five-year revolving credit facility, which we believe will provide us with greater financial flexibility to operate our business. Moving on to slide nine. Our balance sheet and liquidity position remain strong and we have confidence that we are well-positioned to navigate the current environment. We generated approximately $73 million in operating cash flow during the first quarter of fiscal 2021. At the end of the first quarter, we had net bank debt of $179 million and a net debt to EBITDA ratio of 3.86. As of July 25, 2020, we had cash and cash equivalents of approximately $145 million and availability on a revolving credit facility of approximately $255 million. Turning to our financial assumptions for fiscal 2021, given the ongoing uncertainty surrounding COVID-19, it remains difficult to accurately forecast the impact of the pandemic on our future operations. Therefore, we are not providing fiscal 2021 guidance at this time. We have provided some financial assumptions on slide 10 to assist with your modeling, which we have updated for our first quarter performance. Regarding our capital expenditures, we are increasing our range to approximately $30 million to $50 million in fiscal 2021 to account for the number of stores we plan on rebranding during the year, depending on the environment. The low end of our CapEx range assumes the rebranding of approximately 60 stores, while the high end assumes the rebranding of approximately 120 stores. In addition, we will continue to leverage our diverse and global supply chain, and expect tire and oil cost to remain relatively stable to slightly lower year-over-year. As we have discussed, we completed our planned store portfolio optimization during the first quarter, and as a result, we expect the closure of these 42 stores will benefit our operating income by approximately $3.8 million in fiscal 2021. Moving on to our actions to reduce costs. As we acted quickly to align our costs with the lower demand, we recognize approximately $50 million of cost reductions in the first quarter, and for the remainder of the year, expect to realize $5 million to $10 million in additional cost benefits. We anticipate lower cost savings in the second quarter as we intend to shift some of our marketing spend to enhance our recruiting initiatives and quickly ramp-up staffing in our stores to match improving demand levels. And with that, I will now turn the call back to Brett for some closing remarks.

Thanks, Brian. Overall, we are encouraged by our gradually improving performance throughout the first quarter and second quarter to-date, and remain cautiously optimistic that demand will continue to improve as this crisis subsides. This is supported by our belief that consumers will drive more, particularly given heightened risk of flying and public transportation. Further, our industry has traditionally been resilient in the face of a recessionary environment, as consumers are more likely to visit an aftermarket retailer like Monro to repair the cars they currently own than purchase a new vehicle. While the environment remains very uncertain, I am proud of our organization in how we responded to these challenges. During the quarter, we made a number of changes to streamline our operations, which in combination with the traction we are seeing from our Monro.Forward initiatives position us well to navigate the COVID-19 pandemic and emerge stronger from this crisis. We have maintained our commitment to a strong financial position and remain extremely diligent when it comes to capital allocation. During the second quarter, we plan to resume our store rebrand and reimage initiative, which underscores the strength of our business, despite the volatility in the market. In conclusion, I’d like to thank everyone at Monro for their outstanding work to protect health and safety across all aspects of our business and drive continuity for our customers. These priorities further supported by the execution of our Monro.Forward strategy position us well to deliver long-term value for our shareholders through COVID-19 and beyond. With that, I will now turn the call over to the Operator for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your questions.

Hi. Good morning, guys.

Good morning, Brian.

Good morning.

So first question I want to ask, let me make sure I word this correctly, clearly, there’s been an improving trajectory in the business through fiscal Q1 and probably more importantly here into the early part of fiscal Q2. But the question is, what -- as you look at the business and what’s still holding it back. The negative 12 and I understand that, the Monro business is not necessarily comparable to what we see at the auto parts retailers. But I would say, generally, as the economy of the auto business has been rebounding here with COVID, we are seeing numbers that which we suggest are better than a negative comp. So, the question is, what do you think is holding back Monro at this point and not allowing the company to have an even stronger reach, improving or even better trajectory in their business?

Yeah. Well, you might expect, Brian, one of the metrics we really look at pretty closely and monitor pretty closely in our business since the onset of this pandemic has been vehicle miles traveled. Looking at that, as well as gasoline consumption, et cetera. And our performance since the onset of crisis has really correlated really pretty positively with those metrics. I think when we look at it overall, our business nationally has tracked pretty much in line with the broader national metrics. But having said that, I am actually very encouraged when you look at this more on a regional level, given Monro’s high concentration of stores in the northeast and the Baltimore and Washington area. I think our performance has actually outperformed VMT in those respective areas. Having said that, though I think, we certainly have seen in some areas a shortage of labor as we ramp our labor models back up, we feel like if we -- we are planning on making some focused investments in improving our recruiting capability in Q2 to ramp up labor faster to match the demand. And of course, in our business model as you know, every unit of labor is critical to supporting sales because all of our labor for the most part in the stores is sales-producing labor. So, I think, the topline here, Brian is, we are encouraged by our performance when looking at it on a regional basis, but feel like we have got still upside as we ramp up labor and support improving demand. And I’d just add additional color on that, just the positive results that we are seeing from the shift in our digital marketing spend has driven nice increases in our online appointment traffic, as well as phone calls to the store that we can measure. That’s really allowed us to be much more targeted in where we invest the marketing dollars at a very granular store level, to support needs there, but also helps us identify where we maybe have demand that’s being unfulfilled due to labor issues, and in Q2 we are going to refocus our energy to supporting recruiting efforts to better align our labor model with stronger pockets of demand that we are maybe underserving today.

Thanks, Brett. That’s very helpful. Second question I have is unrelated to this, I don’t know if you talked about this in your prepared comment at all, but as hopefully the economy starts to pull out of at least the depths of the COVID crisis, any update on your acquisition activity?

Yeah. As we commented, given how well the team has navigated through, I think, the crisis from cash flow point of view and the state of our balance sheet, it’s given us confidence especially in light of the improving trends that we have seen in the business to restart a couple of major strategic initiatives in our company. One is the rebrand initiatives we talked about. We are going to kick off and do 60 to 120 stores this year, but we have also reengaged our business development team, and we have got a pretty robust pipeline of M&A targets, and our team is actively engaged right now in evaluating those targets. But like always with Monro, we are going to take a very disciplined approach in how we invest our capital on acquisitions, but we certainly are in the mode right now where we are evaluating adding to our portfolio.

Thank you very much. Best of luck.

Thanks, Brian.

Thank you.

Thank you. Our next question comes from the line of Jonathan Lamers of BMO Capital Markets. Please proceed with your questions.

Good morning.

Good morning.

Good morning.

Brian, on slide seven, the EPS bridge, what is the $0.45 in the other bucket?

Yeah. That’s really driven by -- largely by the cost reductions that we described in the script and also in the footnote to that slide. So, that’s about $15 million of reductions that we were able to achieve in the first quarter and we moved very aggressively at the beginning of the quarter and really in March to meet the lower demand that we were seeing in our business with a lower cost structure in our business. And we focus really on three areas when we did that. We focused on making sure that our labor in our stores was right-sized down to meet the lower demand levels. We also as Brett talked about, we focused our marketing on responsive advertising and advertising we could measure and eliminated a lot of the other advertising. And then, we also took the opportunity to look at non-store overhead such in our warehouses and store support center and adjusted those down as well primarily through furloughing of some employees there. Now, as the quarter went on, we saw improving demand trends, and that in response to the improving demand trends, we added back appropriately to support those higher demand trends across those categories. As we move forward, we talked about $5 million to $10 million of incremental benefit for FY’21, and we talked about most of that occurring in the back half of the year, and that’s because as Brett described we are focused in Q2 on spending additional resources to continue to increase our labor in the targeted markets where we see adding labor will be appropriate to help support improving demand. Probably the biggest question is what happens outside of FY’21 and what is structural as we move forward out of those cost savings, and while it’s obviously very fluid and things change and plans will change, as we stand today what we really see is about $10 million to $15 billion of structural cost savings that will be with us going forward as we exit FY’21 and those are again across those three categories, roughly 70% coming through the labor reductions, 20% through the marketing, and another 10% through non-store overhead reductions. And if you just look at FY’20 and just assume that your same-store -- same amount of sales in FY’20, that will give you about 150 basis points to 250 basis points of structural operating margin improvement that we have created as we come out of that. So, long answer, but really within that $0.45 is that cost reduction that I just described.

Yeah. Maybe just if I can add a little color to that too as to make a longer answer longer. I might add that with these initiatives that we talked about weren’t because of COVID. They were all planned out prior to COVID as part of our Monro.Forward initiatives on all three vectors. And we just leveraged the good work that the team has done in making good progress on installing some technology that enabled us to accelerate, I think, the pace of those initiatives we were able to capitalize on throughout COVID. So, it’s the good work of the team and that gets translated the short-term benefit into a long-term structural benefit to our business going forward.

Okay. Great answer. Just to confirm one point that Brian said, at $5 million to $10 million incremental benefit, you are speaking of H2 fiscal year 2021 versus H2 fiscal year 2020. So that’s $5 million to $10 million year-over-year, is that right?

That is correct.

Okay. Thank you. Switching gears to the rebranded stores. Do you have an update on the performance of the rebrand -- previously rebranded stores versus the network this quarter?

Yeah. As we talked about, we saw outperformance in our rebranded stores versus the others. You might expect, Jon, that given the regional nature of those stores and where they land geographically speaking well tough to draw comparison. However, what we have seen is about 500 bps of comp sale improvement versus the chain average coming out of our rebranded stores.

Okay. And just on the Amazon topical announcement, I am curious for the stores that had Amazon onboard for more than 12 months. Do you have a same-store growth in online orders for that for the quarter or some updated color on how significant the economics could be there?

Yeah. I mean that’s not something we are going to comment on that level of specificity. But I would say, that we have taken a step back, Jonathan. We are pleased despite the challenges of COVID. We have completed the rollout with Amazon. We are really pleased with the relationship there now having installation services available at over 1,240 stores in our 32 states. But similar to that, we are also pleased with our relationships with the other third-party installers. What we have seen during COVID I can comment on is, although maybe not a step function change in the increase in tire installations from all of our online tire sellers, we have seen a pretty significant increase in our online appointments to get tires installed and service done at our stores. So we think that’s pretty consistent with our broader thesis around, tires go pretty confusing category for consumers to shop, consumers still see value I think in talking to professionals and experts at store location and make sure they got the right tire for their vehicle. So we think it support of a broader advantage for Monro and having 1,250 brick-and-mortar locations, but also all the way continued relationships to expand our omnichannel presence with online third-party resellers, as we also continue to pursue our efforts to build our own e-commerce capability as well.

Thanks. Just last question on the rebranded stores, I noticed that the tire category significantly outperformed the others this quarter. Does that reflect the expanded tire departments for the refreshed stores or what would you attribute that to?

Yeah. I think there’s three things as we look at our business. I think if you go back to our Q4 results, one of the things we talked about was a fairly soft January, February start to the year on tires. So I think we did see, part of the industry felt a little benefit from some pent-up demand from calendar Q1 that rolled into calendar Q2. So that’s one dynamic. However, we are really pleased with our team’s efforts on rolling out our category management pricing tool. We have that now operationalized covering just under half of our stores right now, and as you might expect, we have picked the highest volume, highest impact tire stores with that system being installed, and I think, clearly, that’s helped. The rebranding of our stores certainly has also been a self-help initiative. And the fourth variable we talked about was around the shift to digital marketing and the good work our marketing team has done on improving our SEO performance. As we talked about, we are now ranked in the top three on online search for our core categories and over right around half of our stores. So, those four things I think are coming together that’s creating outsized performance in a key category like tires.

Thank you for your comments.

Thanks, Jon.

Thank you.

Thank you. Our next question is coming from the line of Bret Jordan with Jefferies. Please proceed with your questions.

Hey. Good morning, guys.

Good morning. Bret.

Good morning, Bret.

Hi. I guess, as you think about the labor issues at the store level, do you have a feeling, I guess, in that that comp for July, how much might have been lost to the labor shortage? I mean, can you quantify, I guess, maybe through the digital phone system, the number of customer requests you get that you can’t fulfill, or I guess, sort of what’s the headwind in the market versus the headwind in your own labor capacity?

Yeah. As you might expect, it’s a little difficult to kind of parse that come up with a definitive number. I think we feel like, Bret, it’s -- we could have delivered better performance if we had the right labor, obviously, to what degree is the question. I will say, I’d point to the metrics that we are watching really closely now that we got the technology to be able to do it is, obviously, online appointments and the phone traffic that we are seeing to stores and we are really encouraged by the level of effort that the marketing team has done to translate that into very positive demand signals that we are seeing on the front end. That’s allowing us to pinpoint the investment on addressing the labor concerns. But translating that into comp sales estimates play a little more difficult for us to do. One thing I can point out for you though, however, is we are still operating on a fewer number of stores that are open on Sundays in our business. Pre-COVID, we have roughly 840 stores that are open on Sunday during Q1. We ramped that down to about 400 stores and in July right now we are up to 600 that are open on Sunday. We believe that created about a 2% comp headwind in the quarter just by having fewer stores open on Sunday. So a little easier to quantify that in terms of headwind, but the labor part, we see as an opportunity that’s unmet right now and that’s the reason why we are refocusing some of our marketing investment to market for candidates from a recruiting point of view as our consumer demand appears to be pretty strong.

Okay. Could you talk a little bit about the West Coast performance that obviously is sort of a new market that you talked about south outperforming the northeast, but how was the west in general?

Yeah. As you know, we are kind of lapping our initial acquisition into California. We are really, really pleased with the progress that we are seeing in our acquired stores, relatively speaking certainly on a year-on-year basis we saw that on our results. The integration of California has all but done. We have had a few permitting issues on signs out in California. But Las Vegas is doing performing extremely well for us relatively speaking. But we are just really encouraged by the strength of the platform that we have built now out in California that pivoting and talking about our M&A strategy, I think, gives us a lot of confidence now to look at the number of targets in our pipeline and give it really strong consideration.

Great. Thank you. And then Brian, I guess, could I get the housekeeping the monthly comps rate for April, June?

Yes. We were down 41 in April, 24 in May, 14 in June, and then, obviously, down 12 in July preliminary.

Thanks. Thank you. Thank you, guys.

Thanks, Bret.

Thank you. Our next question is coming from the line of Rick Nelson with Stephens. Please proceed with your questions.

Thanks a lot. Good morning. I’d like to…

Good morning, Rick.

Good morning.

…follow-up on July sales trend, you were down 12%. If you could speak to any sequential changes as the month progressed, are those declines narrowing?

Yeah. Well, as we have talked about, we exited, I guess, June finished that down 14%. We saw obviously a moderating improvement from June, July. As we talked about, Rick, I think, it’s a tale of two cities. We saw the improvements accelerate in the northeast. That was counteracted in the middle part of July with maybe a slowdown of the pace of recovery that we saw in the south. Exiting July now rolling into what’s our fiscal August, we are encouraged by a continued gradual improvement that we are seeing in our business overall.

And perhaps the markets where we have seen these recent COVID outbreaks in southern states, are you seeing any changes in the customer behavior or sales trends there?

Yeah. I think it’s consistent with what we said. That’s where we are largely seeing a slowdown of, I would say, the improvement. We are still seeing improvement. But the pace of the improvement certainly has slowed as we have seen the outbreaks increase. It’s a pretty tight correlation between those two variables.

Okay. Got you. And kind of curious about the independents, how you think they are performing here during the COVID challenges and your appetite to step on the gas on the acquisition front. Are there more willing sellers, less willing sellers, any comments on valuation would be helpful?

Yeah. I think there’s a couple of things that play here. I think, certainly, our pipeline is robust, as we have talked about, certainly, I think, as robust as I have seen in my tenure here at Monro. As it relates to the health of the independents, I think certainly the government programs around Paycheck Protection. It certainly helped I think a lot of those operators bridge maybe the decline in demand that we have seen during this period of time. So I wouldn’t necessarily call out anything in particular there. But I think the mood and the sentiment I think is consistent with what it was pre-COVID. I think we have got a lot of independent owners that they lack second generation succession plans to their business and they certainly are interested in exploring options to access. So we just feel really good about the improvement in our business, the state of our balance sheet and the attractiveness about the opportunities in our pipeline that we see that gives us confidence to restart rebranding initiative, as well as, obviously, conversations around acquiring companies going forward.

Yeah. And your expectation for miles driven, we have seen some challenges there. I know some businesses like Google are talking about opening out to July of 2021. Do you think there is a correlation between offices opening in miles driven or how do you think about shaping up?

Yeah. Look, I think, look, there’s still a lot to unfold there, of course, once we get through the core crisis or the core pandemic…

Okay.

…and understand what structural changes take place in the form of consumer behavior, whether it’s working in an office and commuting there or shopping behaviors and other area, I think, that’s TBD. But -- so, I think, it’s still uncertain, Bret, in terms of what -- how that plays out. I think when we look also to the countervailing measures as well that’s, probably, in our favor around the shift from mass transit to cars, less apt to be on airplanes and drive to more destinations, more willingness to have drive-away vacations versus air travel. So there’s a lot of countervailing things, I think that creates a positive offset to any of the negatives. And give you overlay just the general sentiment around potential recessionary environment and we have talked about we are pretty defensible here in our business as consumers hold onto their cars longer, become a little more of value conscience in their behavior. We feel like Monro is well-positioned with our supply chain, our cost structure and our store concentration to be well-positioned to capitalize on those future trends if they take full.

Great. Makes a lot of sense. Thanks and good luck.

Thanks, Rick.

Thanks, Rick.

Thank you. Our next question comes from the line of Stephanie Benjamin of SunTrust. Please proceed with your question.

Hi. Good morning.

Good morning.

I was hoping you could speak a bit on some of the new pricing and category management tools that you might have in place for other categories. Just remind you, I believe you have them on brakes and tires, so what might be the next leg to that stool? And then if you could also remind us, as we look for this year, what other initiatives in the Monro.Forward strategy are the big focus, obviously, you called out the rebranding, but what’s the next initiative beyond the rebranding and the tire pricing tool? Thanks.

Yeah. Thanks, Stephanie. I will let Brian handle the second part of the question. But as it relates to the category management tools, tire is over 50% of our business, the most important category. It’s also the category that lends itself to being shot by consumers and pricing is extremely important. So that’s reason why we focus there with our more sophisticated big data category management system that we are, like I have mentioned, we are operational now with about 500-plus stores that are using the system. We expect that to roll out completely across our store base by Q3. Once we get that done, certainly, the logic will apply for other core categories like brakes and certainly oil. But I will say those categories are less price sensitive with consumers outside of oil. I would say, brakes and other services in-store are normally not shopped. They are usually bought through an in-store selling/conversion process. So I think that the premise applies but the degree of improvement that we would expect to see there is probably diminished, so category is clear focus there. For us the key initiatives here, near-term for us, it’s all about rolling out the scheduling system in our business that helps us operationalize all that staffing model changes that we made during COVID around get in the staffing mix right by installing the cloud-based tool, which we now have in pilot in a couple of markets. That’s going to begin to scale and will be done by the end of Q3 as well. That just helps us operationalize that, create tighter controls over that given the cloud-based visibility that we get and allows us to make more refinements real-time given the visibility that we get in our business. But a lot of the benefits that we saw in Q1 that we expect to translate into structural changes going forward were due to the strategic moves we made, but just now enabled in a more efficient way through the cloud-based system. And Brian, do you want to add color on that go forward?

Yeah. I think as it relates to the tire category management pricing system very similar. It will be a continuation of that into Q3 as we continue to roll that out, very similar to the time line on the store staffing and scheduling. So the next couple of quarters will be getting those two initiatives firmly in place across our entire store base. We will also be continuing to leverage our -- the new store network infrastructure upgrade. So as we have now got the digital phone system on, we will be looking at other ways to leverage that. One of the items that we have talked about is cloud-based inspection and a more sophisticated way of interacting with the consumer particularly as it relates to streamlining online appointments and in further improving our omnichannel presence with the consumer now that we have got the in-store technology in place. And then, of course, we are continuing to build out and really fill in our Monro University platform to continue the career paths of our technicians, which as we exit this with the right staffing in the workforce, it’s going to be imperative for us to make sure that we have got that workforce trained and on a career path where we can continue to achieve the lower levels of turnover that we were experiencing pre-COVID based on the investments we have already made in Monro U.

So maybe just to bring it altogether, I think, if you look at what we laid out with Monro.Forward, our whole objective was to drive sustainable growth from this business organically, by creating a scalable platform that drives consistency from store to store. What I am encouraged by our progress the team has made is, year one in our transformational strategy is about building the foundation. We had installed a lot of underlying technology to help enable these next-generation tools and technology to take hold and this year has been about installing major transformational systems around labor management and tire pricing. And once those two are largely behind us, it allows us as an organization to march forward, I think, more aggressively around the M&A front, because we feel like we have got a very scalable platform built on technology with the right operational playbook that guarantees consistency from store-to-store that gives us a lot of confidence to accelerate the M&A portion of our growth strategy going forward. So we are really pleased with the progress and the acceleration we were able to do on that during the first quarter of our business.

Got it. Thanks so much for all the color. I will leave it there.

Thanks, Stephanie.

Thank you. Our next question comes from the line of Scott Stember with CL King. Please proceed with your question.

Good morning, guys.

Good morning, Scott.

Good morning, Scott.

Could you maybe dimensionalize the gap or difference, if it’s meaningful, in comp performance between the southern stores and the northern region stores?

Yeah. Well, we talked about that, and I think, we said, that we were seeing a slowdown in the south and that was about maybe in outperformance of 500 basis points plus in the north and then we saw that narrow, I am sorry, underperformance in the north and then we saw that narrow as the quarter, as we exited the quarter in July.

Okay. I got it. And just trying to touch on the point of the underperformance versus the industry, I know you guys talked about store staffing. But can you t maybe talk about the employment trends within your markets, your -- the customer you have and whether they are potentially feeling not so good and delaying some larger ticket purchases such as brakes, which were down an outsized amount in the quarter?

Yeah. I think, look, I think, that’s certainly going to be a factor, I think, going forward, Scott. So once we get through the core crisis, if you will, I think, that’s going to be the next thing, I think, we need to be very conscientious about, which is how quickly does employment levels bounce back, which is a big, I think, variable in driving the vehicle miles travel. As it relates to the comments about that in our markets, I think, we probably don’t have a ton of granularity around that. One of things we did see in our last call if that applies to this quarter as well is part of our outsized performance we believe on the tire category, given the fact it’s a higher tire or excuse me, higher ticket, normally with tires, we did see some outperformance in that category around that timeframe where the stimulus checks were hitting consumer’s households. So, we -- as we got further away from the stimulus checks, certainly, I think, that’s tempered performance. But I think you fairly characterize one element that we are going to be watching pretty closely which is how quickly employment levels bounce back. And that’s obviously part of the reason why we haven’t provided guidance is just the uncertainty still with the balance around employment levels and vehicle miles traveled post-pandemic.

Okay. Just lastly, could you talk about brakes in the quarter, I know that, you said, that everything improved sequentially as the quarter progressed. Maybe just talk about why brakes were down so much, it’s usually one of the things that you can’t defer, so I am just trying to get my hands on that?

Yeah. I think a couple things in the quarter. If you look at -- as we talked about, I think, in fact in our Q4, January and February we had maybe undersized performance as an industry in tires, but that certainly has bounced back into our Q1. Conversely, if you look at brake performance, the peak demand months for our business is usually exiting the winter months. So it puts you in the March, April, May timeframes. And needless to say that was the peak timeframe where I think we saw maximum COVID impact number one with consumer, but also we probably have tightest labor conditions in our stores during that same period of time. So, I think, if you overlay that macro dynamic with also possibly seeing some share of wallet issues with the consumer, where we have two large ticket items that need to be done on your car tires and brakes, many cases, you will have to choose one of those. So we would expect to see brakes to recover a little bit later on in a year. And also, Brian, and our team is working on secondary financing options, I think, as well as open up more credit availability to consumers that maybe getting a little tight with household discretionary funds.

That’s all I have. Thanks, guys.

Thanks, Scott.

Thanks, Scott.

[Operator Instructions] There are no further questions in the queue. I will now pass the call back over to management for any closing remarks.

Well, thank you for joining us today and for your continued interest and support at Monro. We wish you a safe and healthy rest of your week. Thank you.

This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.