Monro, Inc. (MNRO) Q2 2021 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to Monro Inc. Earnings Conference Call for the Second Quarter Fiscal 2021. [Operator Instructions]. I would now like to introduce Ms. Maureen Mulholland, Senior Vice President, Monro Counsel and Secretary 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 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/investorresources. If I could draw your attention to the safe harbor statement on Slide 2, 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 could 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 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 to be substitutes for comparable GAAP measures. Reconciliations for 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 Board Chairman and Interim Chief Executive Officer, Rob Mellor, who is joining us this morning remotely during this call. Rob?

Thank you, Maureen, and good morning, everyone, and thank you for joining us. Today, I'll provide an overview of our second quarter performance, and then we'll pass the call over to our senior leadership team. Rob Rajkowski, Executive Vice President, Chief Operating Officer, will walk us through the progress we've made executing our Monro forward strategic initiatives. And Brian D'Ambrosia, Executive Vice President and Chief Financial Officer, will discuss our financial performance and broader outlook before we open up the call for questions. As we continue our path forward, I have had the privilege to step into the role of interim CEO, while the board works to identify a new permanent CEO. As you may know, I served on Monro's Board of Directors from 2002 to 2007 and rejoined the board in 2010 before being appointed Board Chair in 2017. Earlier in my career, I served for 13 years as Chairman of the Board and CEO of Building Materials Holding Corporation, a leading provider of building materials & construction services to the professional homebuilders and contractors. I worked closely with the senior leadership team throughout the development and execution of our Monro.Forward strategy, and I remain very positive about the opportunities in front of us. We have built a solid foundation and made tremendous progress in our transformational journey to create a scalable platform for long-term sustainable growth. As the Board Chair, I have direct insight into the strategic priorities of the board. The continued execution of Monro.Forward has been the highest priority. While my tenure as CEO is only temporary, I am deeply committed to ensuring continuity. I also plan to continue in my role as Chair after the Board appoints a permanent CEO to ensure a smooth transition. Importantly, we have a team of highly talented and seasoned senior leaders who remain committed to working together to advance the strategic initiative we have underway. Looking back on the second quarter, we saw a meaningful sequential improvement in our comparable same-store sales performance compared to the first quarter. We are encouraged to see that our top line performance continues to track in line with leading industry indicators, including vehicle miles traveled and the tire retail industry unit sales, which I'll comment on in a moment. Given the ongoing challenges and uncertainties that persist in the current operating environment, we have remained committed to managing our business for maximum profit and cash flow. We delivered on this through execution in 3 key areas: first, we rightsized our business by actively managing our hours of operation and staffing levels to match the demand environment. In the second quarter, we continued to operate our stores with reduced hours of operation, in line with other aftermarket service providers. With store opening hours being approximately 13% lower than the same quarter last year, our comparable store sales per hour improved compared to the prior year period. During the quarter, we strategically added hours of operation at locations where demand improved, and we continue to assess and adjust our hours against evolving demand trends. Actively managing store operating hours to match demand, has been instrumental in our profit and cash flow performance. We have also rightsized our business by actively managing staffing levels at our stores. During the early days of the pandemic, we significantly reduced the staffing levels in our stores and have strategically added staffing back as demand has improved. Since the beginning of the second quarter, we have added approximately 700 new teammates, primarily technicians. We believe we have the right level of staffing across our stores base as we enter the higher volume winter months. The second strategic area of execution has been our ability to drive variable margin improvement in 2 key categories: tires and service labor. During the second quarter, we expanded our gross profit per tire by over 10% versus the prior year period with the ongoing rollout of our tire category management tool. We also improved labor productivity by over 20%, with our store staffing optimization efforts and our cloud-based labor scheduling tool. The variable margin improvements we have achieved in our tires and service labor category, demonstrates the significant returns that we are seeing on our Monro.Forward technology investments. The third key area has been our execution of targeted cost reductions in our business. These cost reductions totaled approximately $5 million in the second quarter and resulted from the optimization of store management staffing, the improvement of our marketing efficiency and general overhead cost reductions. Our ability to rightsize our business, drive improvement in variable margins and reduce fixed costs resulted in our strong second quarter profit and cash flow performance. We believe the progress we have made in these key areas will drive even higher levels of profitability as demand continues to improve, earning us more profit for every dollar of sales. Importantly, our financial position remains strong. Our robust operating cash flow, up 57% in the first half of fiscal 2021 compared to the prior year period, provides us with the financial flexibility to fuel our future growth, and we believe that we are well positioned to deliver strong operating cash flow in the second half of fiscal 2021. Our goal remains to generate more profit per every dollar of sales in order to invest the continued execution of our Monro.Forward initiatives and attractive acquisition opportunities while also paying down debt and continuing to pay our dividend. We are also confident that the continued progress we have made on our Monro.Forward initiatives will allow us to emerge from the current environment in a stronger competitive position. We are pleased to have resumed our store rebrand and reimage initiative with about 40 stores transformed during the second quarter, and we are encouraged to see that this initiative continues to gain traction. And lastly, I would like to reiterate that our commitment to M&A remains intact. As evidenced by today's announcement of a definitive agreement to acquire 17 stores in Southern California. This acquisition is expected to add approximately $20 million in annualized sales. As we've said in the past, M&A is a critical driver of our growth strategy, and we will continue to capitalize on attractive acquisition opportunities. Our industry is extremely fragmented. And ripe for further consolidation, and we believe we are well positioned to continue to execute on our robust pipeline of quality targets. Moving on to Slide 4. I would like to provide an overview of our second quarter sales performance and the current trends we're seeing. Overall, we are encouraged by the gradual improvement in traffic in our markets that led to an 11% decrease in comparable store sales in the second quarter, a significant improvement over the 26% decline in the first quarter. We also saw a significantly higher number of stores with positive comps in the second quarter compared to the first quarter. Following relatively consistent same-store sales trends in July and August, we saw an improvement in September. This has tempered in October with comparable store sales down approximately 12%. As you can see on Slide 5, our correlation to vehicle miles traveled is clear as brakes, oil changes, all those categories, which comprise the vast majority of our sales are all very reliant on miles driven. Our top line performance in late September and into October was consistent with both lower U.S. tire retail industry unit sales and lower vehicle sales travel, miles traveled. That said, we are encouraged that our tire unit sales outperformed the U.S. tire retail industry unit sales during this period. Our second quarter comps improved sequentially in all product and service categories, with tires outperforming all other categories again this quarter as the rollout of our tire category management and pricing system continues to gain traction. Geographically, our southern and midwestern markets outperformed our northern markets where we have a higher concentration of stores. Before returning the call over to Rob Rajkowski, who will provide additional color on more of our Monro.Forward initiatives, I would like to take a moment to thank our teammates for their incredible efforts and outstanding commitment to the safety, servicing our customers, driving operational excellence despite the ongoing challenges in the environment. And with that, I'll turn it over to Rob.

Thank you. Good morning, everyone. As an introduction, I've been Chief Operating Officer here at Monro for over a year. After spending almost 15 years in the automotive industry across a number of operational and marketing roles in corporate, franchisees and franchise or business models. We have established a clear path for growth at Monroe, and I'm pleased with the significant progress we have made so far. We remain focused on the aspects of our business within our control. As a reminder, our Monro.Forward strategy is focused on 4-key pillars: number one, improve the customer experience; number two, enhance the level of engagement with our customers, leveraging data-driven marketing strategies; number three, optimize our product and surface offerings, in-store and online; and number four, accelerate our in-store productivity and teammate engagement. Starting with our largest strategic initiative, we're pleased to have resumed our store rebrand and reimage program. During the second quarter, we substantially completed the transformation of 43 stores. This included the rebranding of 18 select stores to a tire-oriented banner and the remainder related to consolidating our tire brands. The objective of our store rebranding initiative is to drive higher awareness for tires and increase tire sales without sacrificing service revenues. To date, we have completed the transformation of approximately 250 stores in a number of key markets, including rebranding approximately 85 service branded stores to tire-oriented banners. Importantly, our rebranded stores outperformed again this quarter with comparable store traffic trends significantly above our non-rebranded stores. These encouraging results reinforce our confidence in the benefits of our reimage and retail brand portfolio consolidation strategy as we are on track to transform 100 to 150 stores in fiscal 2021. Moving on to our customer-centric engagement initiatives, as we mentioned before, we accelerated the strategic shift of our marketing efforts towards higher ROI digital channels at the onset of the pandemic, and we are pleased with the results to date. The optimization of our SEO performance for key product categories, like tires, has led to approximately 50% of our stores, ranking in the top 3 online search results. This has translated into a significant increase in online consumer actions, which we are better able to capitalize on due to our more sophisticated and consistent approach to customer execution. Turning to the optimization of our product and service offerings. Our goal is to be the number one destination for tires at every price point. We remain on track to complete the rollout of our new tire category management and pricing system across our store base by the end of the third quarter of fiscal 2021. This new sophisticated tool is driving relative strained in tires for the second quarter in a row. We are better able to dynamically track demand trends at the market level and make real-time price adjustments to our tire assortment, which allows us to drive volume as well as optimize price to drive margin expansion in our largest category. Lastly, the implementation of our technology-based store staffing model is an important step forward and has been critical to effectively and efficiently manage staffing in our stores to support improving demand trends. Our goal is to ensure that we have the right number of technicians as well as the right mix of skills to match demand in each store. As a result, we are driving increased store labor efficiency, which positively impacted gross margin again this quarter. As we have increased staffing back to our stores, we are leveraging our Monro University platform to onboard and train our new teammates. We expect labor efficiency to continue to improve as our new teammates are fully on boarded, and we complete the rollout of our cloud-based store staffing and scheduling software across our store base in the third quarter. Overall, we believe our Monro.Forward strategy and the important steps we've taken since the beginning of the pandemic will enhance our competitiveness in the marketplace and help us emerge even stronger when the pandemics subsides. Before passing the call over to Brian, I'd like to personally recognize our teammates for their outstanding customer service and efforts along the way as they have been instrumental in driving our transformation journey. With that, I'll turn the call over to Brian, who will provide additional detail on our recent acquisition and financial performance.

Thank you, Rob, and good morning, everyone. Turning to Slide 7. I'd like to provide more detail on our definitive agreement to acquire 17 stores in Southern California. This acquisition further solidifies our growing presence in this attractive region. These locations are expected to add approximately $20 million in annualized sales representing a sales mix of 60% tires and 40% service. Additionally, this acquisition is expected to close in the third quarter of fiscal 2021 and be slightly dilutive to diluted earnings per share in fiscal 2021. We have a robust pipeline in our M&A, including over 10 NDAs signed with opportunities ranging from 5 to 40 stores. We believe we are well positioned to continue to execute on our accretive acquisition opportunities, which is a pillar of our growth strategy. Moving on to Slide 8. I'd like to provide a more detailed overview of our second quarter performance. Given the ongoing challenges and uncertainties that persist in the operating environment, we have remained focused on rightsizing our solar operations, driving variable margin improvement in our key categories and executing targeted cost reductions. Our second quarter results clearly reflect this strategic focus. Sales fell 11% year-over-year to $288.6 million, primarily driven by an 11.4% decline in same-store sales. In response to lower demand levels, we continue to operate at reduced store operating hours in the second quarter, down approximately 13% compared to the prior year period. Sequentially, we were encouraged by our top line performance from the first quarter as we saw strengthening traffic and demand trends. Sales from new stores increased by $9.4 million, including $8.4 million from recent acquisitions. This was partially offset by a decrease in sales from closed stores of approximately $6.5 million. The second quarter of fiscal 2021 had 91 selling days, in line with the previous year period. Gross margin decreased 150 basis points to 36.2% in the second quarter from 37.7% in the prior year period. Within gross margin, variable margins benefited from lower technician labor costs as a percentage of sales and higher gross margin in the tire category. These margin benefits resulted from the optimization of store staffing and the ongoing rollout of our tire category management tool. These improvements were offset by a higher sales mix of tires compared to the prior year. As a reminder, also included in our cost of sales are distribution and occupancy costs, which are largely fixed in nature. We were able to reduce these fixed costs primarily through rent concessions from landlords, however, lower comparable store sales outpaced these fixed cost reductions. This caused our fixed cost to increase as a percentage of sales and largely drove our gross margin decrease compared to the previous year period. Operating expenses for the quarter decreased $8.6 to $80.1 million or 27.8% of sales as compared with $88.7 million or 27.4% of sales for the prior year period. We saw benefits from our targeted cost reductions, including the realignment of our marketing efforts towards higher ROI digital channels and the rightsizing of our store management staffing. The year-over-year decrease in operating expenses also reflects lower expenses from a net reduction of 20 stores compared to the prior year period. However, lower comparable store sales outpaced these fixed cost reductions and drove a slight increase in our operating expenses as a percentage of sales compared to the previous year period. Our operating income for the second quarter was $24.4 million compared to $33.4 million for the same quarter last year. As a percentage of sales, operating income was 8.5% compared to 10.3% in the prior year period. The decrease in operating margin is due primarily to lower comparable store sales, outpacing the previously discussed fixed cost reductions, causing fixed cost to increase as a percentage of sales compared to the previous year period. Importantly, we expect to generate operating margin expansion against this lower fixed cost structure once demand recovers. Net interest expense for the second quarter increased to $7.3 million as compared to $7 million in the same period last year. The weighted average debt outstanding for the second quarter increased by approximately $237 million as compared to the prior year period. The increase is partially related to an increase in debt outstanding under our revolving credit facility to provide financial flexibility during the COVID-19 pandemic. These borrowings are temporary, and the company paid down approximately $95 million during the second quarter, in addition to the $240 million paid back in the first quarter. Bank debt outstanding at the end of the second quarter is $335 million lower than at the end of fiscal 2020. The remaining increase in weighted average debt is due to an increase in finance lease debt recorded in connection with our fiscal 2020 acquisitions and greenfield expansion as well as lease renegotiations. The weighted average interest rate for the second quarter decreased by approximately 190 basis points year-over-year, primarily due to lower borrowing rates associated with new leases. Our effective tax rate was 25.2% for the second quarter compared to 23.6% for the same period last year. Net income for the second quarter was $12.8 million compared to $20.3 million in the prior year period. Diluted earnings per share for the second quarter of fiscal 2021 was $0.38 compared to diluted earnings per share of $0.60 in the second quarter of fiscal 2020. Adjusted diluted earnings per share for the second quarter, a non-GAAP measure, was $0.39, which excluded approximately $0.01 per share related to Monro.Forward initiatives and management transition costs. This compares to adjusted diluted earnings per share of $0.62 in the second quarter of fiscal 2020, which excluded $0.02 per share related to Monro.Forward initiatives and acquisition due diligence and integration costs. As of September 26, 2020, the company had 1,242 company-operated stores and 97 franchise locations as compared with 1,262 company-operated stores and 98 franchise locations as of September 28, 2019. During the second quarter, we added 1 company-operated store and close 6, all of which fiber temporarily closed as a result of damage sustained during Hurricane Laura in Louisiana and Tropical Storm Isaias in the Northeast. A complete bridge of our second quarter fiscal 2021 earnings per share performance with same stores -- with the same -- compared with the same period last year, as presented on Slide 9. The 11.4% decrease in comparable store sales resulted in a corresponding $0.34 earnings per share decline. As we previously noted, every 1% decline in comparable store sales translates to roughly $0.03 in earnings per share loss. Partially offsetting the comparable store sales decrease was the benefit of our cost reductions, lower expenses due to a year-over-year reduction in our number of stores and the positive impact of our non-comp stores. Also included our higher recruiting expenses, which reconciles us to our adjusted earnings per share of $0.39 in the second quarter. As previously noted, this excludes approximately $0.01 per share related to Monro.Forward initiatives and management transition costs. Turning to Slide 10. Our financial position remains strong, and we have flexibility to execute our growth strategy. As a result of our actions to drive improved business profitability and bolster our working capital position, we generated approximately $126 million in operating cash flow during the first half of fiscal 2021 compared to $80 million for the same period last year. We invested approximately $24 million in capital expenditures, primarily to support our investments in stores and technology and paid $15 million in dividends to our shareholders as well as paying approximately $15 million in principal for financing leases. We were able to reduce our bank debt net of cash by approximately $71 million during the first 6 months of fiscal 2021. We believe that we are well-positioned to continue to generate strong operating cash flow in the second half of fiscal 2021. At the end of the second quarter, we had net bank debt of $150 million, and a net bank debt-to-EBITDA ratio of 1.1x. As of October 24, 2020, we had cash and cash equivalents of approximately $55 million in availability on our revolving credit facility of approximately $365 million. Moving on to our financial assumptions for fiscal 2021. The COVID-19 situation continues to evolve with the resurgence in cases in some regions and a significant amount of uncertainty in the upcoming months. Therefore, it remains difficult to accurately forecast the impact of the pandemic on our future operations, and we are not providing fiscal 2021 guidance at this time. On Slide 11, we have provided our updated financial assumptions to assist with your modeling. We are making solid progress on our rebranding and reimaging initiatives and now expect a capital expenditure range of approximately $40 million to $50 million, assuming the transformation of approximately 100 to 150 stores. In addition, we will continue to leverage our diverse and global supply chain and expect tire and oil costs to remain relatively stable year-over-year. Moving on to our expected cost reductions. We realized approximately $5 million in additional cost savings during the second quarter on top of the $15 million achieved in the first quarter. For the second half of the fiscal year, we expect to achieve $5 million to $10 million in additional cost savings. Overall, we expect lower cost savings during the remainder of the fiscal year as we reinvest a portion of these savings in our business to drive top line growth. As a reminder, we also expect previously announced store closures to benefit our operating income by approximately $3.8 million in fiscal 2021. Looking beyond fiscal 2021, we anticipate about $15 million to $20 million in annual structural cost savings in addition to $5 million in annual benefits from store closures. And with that, I will turn it back to Rob Mellor for some closing remarks.

Thank you, Brian. We continue to improve our business profitability and generate significant cash flow while making solid progress on some of our most important growth initiatives, including our store rebrand and reimage initiative and the acquisition of 17 stores in Southern California. Overall, we remain well positioned to capitalize on improving demand trends and have the financial flexibility to execute our strategy to deliver long-term value for our shareholders. Now before turning over the call to Q&A, I'd like to provide a brief update on our CEO search. The process is progressing well, and the Board is assessing both internal and external candidates. Our priority is to find the right leader who can continue to build upon the momentum that we've seen from our Monro.Forward strategy. We have a number of transformational initiatives underway that are critical to driving sustainable growth, and we believe our next CEO will be well equipped to join with and lead our team on the path towards long-term tests. As we have recently onboarded new teammates, I'd like to take this opportunity to highlight our corporate social responsibility efforts, which are ongoing across our organization. Monro strives to maintain an environmentally and socially conscious corporate culture, and our core values have an important role in our strategic planning. Chief among our initiatives is strengthening our relationships with our diverse employee base as well as our customer and communities in which we operate. And which we know will be an integral part of our success going forward. With that, I'll now turn the call over to the operator for questions.

[Operator Instructions]. Our first question comes from Brian Nagel with Oppenheimer.

So I've got a couple of questions just with regard to sales. And I apologize for the near-term nature of the call -- questions. I mean, clearly, the environment is extraordinarily fluid, as you mentioned, and as we've seen elsewhere. But is there any way to explain more in depth, what seems to be a sales moderation in the month of October from trends in the quarter? And then the second question, as you talked about, within the quarter, a number of your stores or a larger number of stores, now comping positive. But the total comps are still -- for the company were down 11% or so. What explains that variability? Is that largely virus or COVID related? Or are there other factors at play between those markets?

Yes, Brian. I'll start, and I'll let Rob Rajkowski to add any color. I think if you look at the performance, as we've targeted it out on Slide 5 of the materials, we are clearly -- with our service categories being as you know, oil, brakes and tires, very highly correlated to vehicle miles traveled, I think that as you look at October, the moderation that we saw in our top line is very much in line with moderation in that key indicator. And the do it for me side of the business has been typically more sensitive to those to those vehicle miles traveled. And if we saw that, not only as we saw a strengthening September with vehicle miles traveled improving, but also as it fell off into late September and early October, our correlation to that as well. What we are happy about and encouraged by, as we said in our prepared remarks, is the outperformance of our key category being tires against retail, other U.S. retail tire unit sales. And you can see the correspondence and the correlation between those sales as well against vehicle miles traveled. We just did a really good job as a company and really utilizing our new category management tool to what we see as outsized performance in our tire category during that period.

Yes. So Brian, to the point around our comp stores, I think if we take a step back, I think we've seen sequential improvement in growth in the number of comp stores throughout the pandemic as demand has increased. And we're seeing, and I'll call it an outsized percentage of comp stores really coming from our tire and our tire focused formats. And as such, the Northeast has been outpacing the rest of the country with the number of comp stores due to the nature of the format.

Our next question comes from Jonathan Lamers with BMO Capital Markets.

Question for Robert Mellor on the CEO search. Can you tell us which search firm was hired and maybe what length of time you would consider appropriate for the search?

I think that's a fair question. Spencer Stuart is leading the search along with our Board. And you obviously recognize the firm and they've worked with Monroe in the past. We're actively moving forward, and we are in the process of interviewing candidates at the present time. And so it's actively being pursued. And I think, as you know, it's a complex search firm, and we're fully engaged in it. As to a timeline on that, I think it's key that we get the right individual that has the qualities that, obviously, you're familiar with. And so we're not rush to -- what should I say? Rush to judgment, but we are pursuing it actively, and we hope that in the near future, we'll have the candidate in place.

Okay. And for Rob and Brian, on the IT side. Can you expand on where the implementations of the 2 new systems, the new staff scheduling system and the dynamic tire pricing system were in the quarter? And maybe for Brian, can you give us a sense for how much more room for improvement there might be or the ROI you're modeling out from those projects?

Yes, absolutely, Jonathan. If you look at the -- in terms of where we have rolled out so far, related to the store staffing model, we're just over 1,000 stores rolled out as we sit today. The remaining will be completely rolled out by the end of our Q3 so still -- the benefit is still ramping there. I think we continue to see as more and more stores move to that new staffing model. We're obviously seeing the benefit ramp through our financial performance and our ability to drive efficiency in our labor model. And I think we saw more of that in Q2 than we saw in Q1, and I would expect we would see additional benefit in Q3 with more stores on the program. And obviously, any time you roll something out, there will always be continuous improvement that you'll drive off of that. And this now gives us the tool to do that. Importantly, I think it really positions us well to react to demand going down or up, right? We know that there's uncertainty ahead, and we're hoping for the best, obviously, in terms of the COVID pandemic. But this really gives us a much tighter control in place to be able to manage demand in either direction as we move forward. The second one is the tire category management tool has rolled out to more than 800 stores as we sit today, and those will also be fully rolled out by the end of Q3. And I do think, again, it's a very similar commentary of where we expect continued benefits from that as they roll out and also really gives us much better control over a key category that is obviously going to be important to us regardless of the macro demand trend environment.

And Brian, a question on the acquisitions. For the 17 stores acquired in Q2 and the groups where you signed NDAs, how does the long run margins for those compared to Monro's existing operations? I'm thinking about the operations on the East Coast where you have your own distribution?

That's a great question. We obviously have invested in a platform out on the West Coast. And we did that through a great acquisition out there with Certified Tire and those stores are performing very well and give us great encouragement to continue to add additional stores to that. So I think the primary benefit really there is as we add scale, and add storefronts out West, we will continue to leverage the investment we already made with our initial acquisition of Certified out there that will continue to drive profitability across the entire group of California stores. Related to distribution, we do have owned distribution out west through a warehouse we acquired as part of the certified acquisition, and that's really allowed us, along with really good partnerships with our secondary supply points and manufacturers out there to maintain a pretty consistent -- I'm sorry, cost of goods sold profile out on the West Coast. So I think we are encouraged by the performance there, really performing as expected in our pro formas, and we will expect the same out of these 17 stores that we're now acquiring.

And Brian, could you just break out the monthly comps for us in the Q2 and Q3 to date?

Yes. We were down 12% in July, 13% in August, 8% in September, and we said we're down 12% for fiscal October.

Our next question comes from Bret Jordan with Jefferies.

I think you called out the South maybe being the stronger region relative to the North or the East Coast. Could you give us the spread sort of how many basis points difference. And then, I guess, since we are getting a bigger West Coast presence, could you sort of give us a ballpark for how the Western stores did relative to the company average?

Yes. Certainly. So the South and the Midwest, I think we kind of said last call, they were about 500 basis points performing better than the Northeast. That's been pretty consistent, maybe narrowed a little bit in the second quarter, but pretty consistent. As far as the West Coast, it's a little more difficult just because we don't have a comparable store sales base to talk to it in the frame of reference of growth year-over-year. But like I said earlier in my comments, performing in line with our pro forma expectations of that business when we acquired them.

Okay. And then I guess to understand the pricing system for tires, I mean you called out that your gross margin in tires was up as a result of it. I guess, I would expect the pricing system that drives volume would be more inclined to cut prices. Is it more identify a tire that generates a higher-margin to you and offer to the customer when they come in looking for a comparable product? Or could you maybe describe how that is either adjusting tire prices on a like-for-like basis or what really about it is driving the margin improvement?

It really -- the tool looks at the price elasticity and compares what we believe the velocity will be in the volume versus the margin and makes decisions on our pricing versus what we're seeing in the competitive market. And then it will adjust and at the end of the day, the tool can optimize for volume or margin. Currently, we have -- we need to make sure that we're competitive across the line, but skewed towards increasing the margins. And we can do that in real time. All the tool allows us to look at the entire portfolio, which we haven't been able to do in the past to make those real-time decisions and changes to our mix.

And I think, Bret, just to add on to that, importantly, you saw absolute expansions in our margin percentages for within our tire category. And you saw relative strength in our volume compared to what we presented as the U.S. tire retail industry unit sales. So I think it's accomplishing both. And it's going to depend kind of tire by tire, whether there's more of a volume or a margin opportunity. But I think the tool is doing both at the same time, given our performance against the benchmark as well as our margin expansion.

Okay. I guess on that theme, you've commented in the past as you see a lot of competitors numbers via your M&A, what's your take on market share? How do you feel you are doing relative to the underlying market in these last couple of quarters?

Yes. Great question. And I think our view on that is really kind of looking at the prepared remarks. The information that we prepared related to vehicle miles traveled and the U.S. tire industry unit sales, it's consistent with what we're seeing in our 10 NDAs -- over 10 NDAs that we have signed as well as consistent with what we see from our franchisees in the Car X model, so we feel that the information we presented on Slide 5 is representative of our view of the industry. And I think what you see there is that our trend lines are at or above on the tire side, at least, where the industry is at, which gives us confidence that we're maintaining our competitive positioning.

Our next question comes from Rick Nelson with Stephens.

Just to follow-up on a -- to comments about market share. Curious, we've had a number of franchise dealers report their September quarter. And we got severance parts segment, same-store growth, kind of looks like Monro is tracking well behind those companies, particularly if we exclude collision repair from their numbers. I guess we pulled tires out of your numbers, if you could speak to that differential? Do you think you're losing share compared to franchise dealers or if so, why?

Yes. Thanks for the question, Rick. I think that if you look at -- I think you did a good job there kind of explaining the two parts of our business in tires and parts. I think the other large difference in us and a lot of the other public numbers available as comes down to geography. And I've listened, obviously, to a lot of the same calls that you have. And really, what I hear is the themes coming through is a lot of strength in Mountain and Plains regions and pressure in the Northeast and mid-Atlantic. And obviously, we have a disproportionate geographic exposure to the Northeast and Mid-Atlantic and nearly no exposure to mountain and plains. So I think as we see, there's a lot of differentiation between geographies. And my sense is that, that's driving a large portion of that. It's consistent with if you look at vehicle miles traveled as well as tire unit sales by geography, we presented the consolidated view to kind of show that we're tracking in line with the national averages. But there's a large amount of disparity in that data between the Northeast and mid-Atlantic underperforming against much better looking trends in other parts of the country. So we feel good relative to our performance and our geographic exposure there.

Okay. Got you. How do you get customers comfortable that you're taking COVID protections with their vehicles?

Yes. We have -- from the very onset, I think we have taken stringent measures that are still in place today. Stringent measures around cleaning, sanitizing, shields, face shields, masks as well as social distancing within the stores. We continue to communicate that not only into teammates, but communicate those measures that we've taken digitally and to consumers, reassuring them that it is absolutely a safe environment to bring their vehicle in and conduct business with us. And we continue to do that. And I think that helps us also understand if the pandemic continues or takes a different twist. We're well prepared to execute those measures and recommunicate those to the guests and or teammates. It's obviously been our #1 concern and continues to be that.

And finally, a question for Rob Mellor. The new CEO, do you expect is individual is going to carry on the existing rebranding, reimaging, all the strategies that were in place with -- perhaps -- or are you looking for new ideas and is e commerce, do you see that being a part of the business, particularly in tires in the future?

Sure. We're not going to diverge from the strategy that we put in place. Obviously, it's been successful. It's been in place for 2 years, 3 years, and I think we're really executing on it very well. So we're not into a change mode, if you will. So I think we're going to continue on that same path. And of course, part of the persons qualifications goes without saying is leadership and integrity and working well with the teammates we have in place. As the e-commerce, I think we've been on a certainly, and you follow the company closely in the last 2 or 3 years, we pushed forward on technology, not only from the sales side, but also from the employee or our teammate side and sizing the business. And I think we benefited greatly from that during this COVID-19 period. So we're not going to divert from that. And I think on e-commerce, I think that's just going to continue on. I mean, you followed the company, you've seen that we've pushed forward on that, and I don't see any, what should I say, retreat from that path. That's -- it's in place with strategies in place, and I think it was well conceived, well adopted by the teammates throughout the company, and we're not -- what should I say, we're not going back. We're just going forward with it. And I think we've got a good foundation in place. I'm very, very proud and feel good about that. And as you know, we've certainly put the CapEx behind that strategy and behind if you will, e-commerce. So I see the path going forward straight and up and to the right.

Our next question comes from David Bellinger with Wolfe Research.

So first recognizing the comp sales decline in Q2 was mostly traffic driven. I'm curious on what you're seeing in terms of ticket trends, any meaningful changes there or indications of trade down among your customer base?

Yes, great question. No, in Q2, really, sequentially over Q1, the improved performance was driven largely by traffic. We saw consistent ticket quarter-over-quarter.

Got it. And then just following up on the regional trends. Some of those underperforming markets like the Northeast and the Atlantic. Are you seeing any early signs of stabilization there? Or maybe some indications of the same type of recovery curve now beginning to play out in those markets versus what you've seen across other parts of the country?

When we take a step back and look at the markets, they -- in September, late in Q2, it looks like they were recovering. Very consistent with the tire performance. And then in October with the tire retail units dropping, that part in the geography has stayed in line with that and has reflected the tire unit decline as well.

Our next question comes from Stephanie Benjamin with Truist.

I wanted to discuss same-store sales a little bit. I believe in the first quarter and kind of some commentary in July, you guys called out some headwinds on the top line just from store closures or labor shortages. So wanted to know if you saw anything similar to that in the second quarter as you kind of navigated this environment that weighed down on your comp growth?

Yes, great question. And we did talk about the need to increase staffing to respond to some improving demand trends, which, as we talked about, we did add 700 new teammates, primarily technicians in the second quarter. I think as we look at it and kind of triangulate those adds against the demand levels that we saw during the quarter. We feel good that the staffing was there to support the demand that was there. And there wasn't anything significant, if you will, left on the table regarding understaffing against demand. So -- and most importantly, we feel really good about where we're staffed as of right now, as we head into what we hope to be some colder weather and some snow.

Perfect. And then I wanted to discuss a little bit, I think, with both the store staffing tool and the tire tool to be fully launched, as you said, by the end of the 3Q. Just curious, what is the next big leg to the story or big investment that we should be looking out for? Is there an opportunity for you to include a pricing tool across another service level, or what's going to be the big initiative that we should be watching out as we get through the third quarter?

Yes. I mean, most importantly, and primarily, our big focus, both from a resources standpoint and obviously, capital will be to continue to reimage and rebrand our stores. Technology has been the foundation with which Monro.Forward is built. But certainly, we do know that improving the guest experience and driving incremental traffic to our stores is really dependent on our reimage and our brand standards. And making ourselves more relevant to a large portion of our customers and consumers with a more tire oriented banner. So that will remain our focus and really as we exit. I think as we talked earlier, there'll be continuous improvement around what we've already launched, including our Monro University platform and how do we really drive that to continue to improve teammate productivity as well as our ability to continue to improve our business overall. So I think those are the big areas. I know, Rob, it does have some category work being done outside of tires that will also come into focus as we move through the year.

At this time, I would like to turn the call back over to Mr. Mellor for closing comments.

Thank you, and thank you all for joining us today and for your continued interest and support of Monro. When I say Monro, I mean, that means your support of all of its teammates. But I want to let you know, and I'm sure you do know, they're doing a terrific job in what we know is a very difficult environment. So your support and tuning in today is very much appreciated. And we look forward to providing you with an update on our progress next quarter. And also, we hope all of you have a great day and stay healthy and stay safe, and we look forward to speaking with you again. Take care.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.