Monro, Inc. (MNRO) Q3 2022 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to Monro, Inc.'s Earnings Conference Call for the Third Quarter of Fiscal 2022. 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] As a reminder ladies and gentlemen, this conference is being recorded and may not be reproduced in whole or in part without permission from the company. I would now like to introduce Felix Veksler, Senior Director of Invest Relations at Monro. Please go ahead, sir.

Thank you. Hello, everyone and thank you for joining us on this morning's call. Before we get started, please note that as part of this call, we'll be referencing a presentation that is available on the Investors Section of our website at corporate.monro.com/investors/investorresources. If I could draw your attention to the safe harbor statement on Slide 2, I'd like to remind participants that our presentation includes some forward-looking statements about Monro's future performance. Actual results may differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Monro's filings with the SEC and in our earnings release 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 statements, whether as a result of new information, future events, or otherwise except as required by law. Additionally, on today's call management's statements include a discussion of certain non-GAAP financial measures, which are intended to supplement and not be substitutes for comparable GAAP measures. Reconciliation of such supplemental information to the comparable GAAP measures will be included as part of today's presentation and in our earnings release. With that, I'd like to turn the call over to Monro's President and Chief Executive Officer, Mike Broderick.

Thank you, Felix, and good morning, everyone. Thanks for joining us. Let me start off by saying that our Monro Forward Strategy and the meaningful investments we're making, are driving significant change. We are on a journey to transform this great organization and unleash its full potential. Our accomplishments in the third quarter indicate clear progress towards the achievement of our transformational goals. As highlighted on Slide 3 and 4, we delivered another solid quarter and continued our momentum, from the first half of the fiscal year. Q3 marks our third consecutive quarter of double-digit comparable store sales growth. Top-line performance also exceeded pre -pandemic sales levels for the third straight quarter. We once again posted double-digit comp sales growth across all of our regions and categories. Our comp sales growth was led by our key Brake and Alignment service categories, both of which grew 28% in the quarter. We are confident that normal fall and winter weather in the Northeast would have more positively impacted our tire category, which would have helped us to deliver an even stronger topline result. Encouragingly, tire unit sales were in line with the industry trends and variable gross profit per tire increased 9% year-over-year. The overall strength of our sales in the third quarter reflects robust demand for our product and service categories, as well as the quality of our execution and the continued traction of our Monro Forward Strategy. We continue to increase the mix of our higher-margin service sales, which contributed to the improvement in gross margin during the quarter. I will discuss the specific progress we made in the critical area of staff in just a few moments. I do want to highlight that in the third quarter, we saw higher technician payroll costs as a percentage of sales. This was largely driven by incremental investments to increase the quantity and strengthen the quality of technicians in our stores. The investments in technician staffing were critical to delivering improved topline performance in the quarter. We were staffed and ready for winter and believe top-line performance would have been even higher with a more normal weather backdrop. As I will discuss in greater detail, we will continue to increase our technician staffing levels and ensure that we have the right mix of trained technicians in each of our stores. We are fully committed to building a best-in-class service model that our customers can rely on for their car care needs. Capitalizing on robust industry demand and multiyear industry tailwinds, this service model will position us for outsized sales and earnings growth. Moving to our fourth quarter, our preliminary fiscal January comparable store sales increased 1% compared to fiscal January of last year and were 4% above pre -C OVID levels. Our incremental staffing has allowed us to manage through a particularly difficult six weeks with COVID-related absences increasing significantly in our stores. Our higher staffing levels have allowed us to keep our stores open and our hours of operations normal. We expect that once this COVID wave has passed, our teammates will once again be fully focused on delivering topline growth. I'd like to use this as an opportunity to discuss the true impact of COVID on our business. We have incurred incremental expenses necessary to keep our teammates, customers, and community safe. These expenses include items such as personal protective equipment, hand sanitizer, and retrofitting our stores to allow for appropriate social distancing. Due to the service based nature of our business, the largest impact of the pandemic has been on our teammates. COVID has required a high level of resiliency and flexibility from the teammates in our retail, commercial, and wholesale locations, as well as those in our distribution centers and store support center. We've experienced substantial disruption to our store operations throughout the pandemic, and we have always treated the costs associated with this disruption as part of our normal operating results. These include appropriate investments in necessary adjustments to our in-store procedures and business operations. We recognize COVID as a significant challenge for us to overcome and we believe we are making meaningful progress. Leveraging the collective experience of our senior leadership team, we have driven double-digit top-line growth, expanded margins, significantly grown earnings per share, and generated significant amounts of cash. We've done all this while also completing value-creating acquisitions and positioning our business for the future. I would be remiss if I didn't use this as an opportunity to recognize all of our teammates across the country for the incredible job they have done taking care of our customers’ needs and providing stability to our business. Our people are our most important asset, and I'm proud and grateful for their perseverance and unwavering dedication to Monro and our customers. Now, let's talk about the progress we made on our operational execution in the third quarter. Moving onto Slide 5, I'd like to update you on the critical in-store initiatives we refer to as our Big Five, as well as our store re-image program. As a reminder, our Big Five are the key areas of staffing, scheduling, training, attachment selling, and outside purchase management. These initiatives, along with the investments we're making to support them, are the single best path to sustainable comp sales growth and are expected to lead to improvements in gross profit and operating margins. And ultimately, these improvements allow us to create additional value for our shareholders through enhanced earnings-per-share, significant cash generation, and higher returns on invested capital. Starting with the first two, which are staffing and scheduling, in the third quarter, we added over 200 high-quality net new technicians. This is incremental to the more than 250 technicians we added in the prior quarter. Embedded within our net new technician ads is a sequential improvement in turnover of approximately 10% between the second quarter and third quarter. This is a significant accomplishment for two reasons. First, the fact that we are adding technician headcount during the historically tight labor market demonstrates that we are progressing towards our goal of becoming the employer of choice in the auto service aftermarket industry. And second, the investments we're making in labor, particularly in our low-volume stores, represents both an important organizational pivot and essential cultural change at Monro. Let me provide some additional context to this pivot and why this cultural change represents a critical component of Monro's future success. Many of our stores are understaffed with some technicians working upwards of 70 hours per week with little to no time off. Amongst other things, this leads to unwanted turnover of experienced technicians. The turnover these technicians leads to stores that are further understaffed and a customer experience that is inconsistent and far from desirable. This results in lower sales and as a key contributor to inconsistent operating performance. The investments we're making in labor are specifically aimed at addressing and resolving these issues and ensuring a more sustainable business model longer term. This is exactly the pivot and cultural change that we must undertake to assure that we can capitalize on incremental sales opportunities that will ultimately bring more consistency to our operating results. Nothing will deter us from continuing to invest in high-quality labor in our stores as we develop a reliable service model that our customers can count on and trust. This will position us to take disproportionate gains in the future as our business will be better equipped to capitalize on customer demand from multiyear tailwinds, such as an improvement in vehicle miles traveled, and consumers that are holding onto their cars longer. In lock step with our additions to in-store labor, we are also utilizing our scheduling tool to manage and control variability in labor costs so that we can match capacity with demand and allocate resources appropriately between front-of-shop and back-of-shop activities. Our focus on staffing and scheduling resulted in a 24% sequential reduction in overtime hours in the third quarter. This reduction, along with our pricing power, allowed us to significantly offset wage pressures. Next, regarding training, we continue to significantly expand our teammates training to our online learning management system, Monro University, as well as instructor-led sessions held virtually and hands-on developments done in-store. Serving as a key enabler of future growth, training has been embedded in every aspect of our other initiatives, which will ensure we have the right skill set to deliver a best-in-class service model. The next item is attachment selling. Attachment selling was a critical factor in driving our comp sales growth in the third quarter. Our comp sales performance in alignments during the quarter is a great example of the headway we're making in this area. Alignment comp sales grew approximately two-and-a-half times more than our entire category. This clearly shows how our store teams are more consistently recommending alignments to our guests purchasing new tires and is another example of our improving in-store execution. In addition, courtesy inspections on our customer vehicles were also critical in driving out performance in our service categories during the quarter. We look forward to providing more insight into the benefits of our courtesy inspection as we continue to make opportunistic investments in this important area of the business. And lastly, on outside purchase management, we are consolidating our purchasing behind our high quality, high availability, low-cost preferred suppliers to gain important economies of scale. This allows us to build strong partnerships with fewer suppliers. This consolidation along with our pricing power and category management, has allowed us to significantly offset cost pressures in tires and parts. While our focus is on the Big Five initiatives, we made important advancements in our store re-image program. We initiated and substantially completed the re-image of 53 of our recently acquired stores on the West Coast in the third quarter. Most of these stores have now been equipped with our consistent approach to merchandising, as well as marketing and branding elements such as new digital signage. This new digital signage displays various promotions and seasonal messages with the objective of conveying a modernized look and feel to the in-store experience for our customers. In addition, improvements such as upgraded service pods, the installation of new flooring and brighter lighting, more comfortable waiting room chairs, as well as the bathroom renovations have also created a more inviting guest experience. And while still early, we are pleased with our customers’ initial response to this program. We are in the process of finalizing a full review of our portfolio of brands. And once complete, we intend to expand our store re-image program to a broader number of stores across the country. We are also continuing to perform a review of the inventory stocking plan needed to support any store-level brand changes. Turning to Slide 6, our strong cash flow and balance sheet continues to position us to capitalize on strategic and value-enhancing consolidation opportunities in our fragmented industry. As part of our growth strategy, we are, and will continue to be a key acquirer of successful businesses. In the third quarter, we completed the previously announced acquisitions of 17 stores, with 6 stores added in Southern California and 11 in Iowa. As a reminder, these stores are expected to add annualized sales of approximately $25 million and further expands our geographic reach. This brings our year-to-date acquisition total to 47 stores with expected annualized sales of $70 million. Next, I'd like to provide an update on our corporate responsibility and ESG efforts. In keeping with the Monro Forward responsibility report that we issued last year, we are continuing to integrate elements of ESG into all facets of our business. Demonstrating the fundamental importance of these efforts, our Board of Directors has been engaged with us as we work to establish measurable ESG goals that not only create value for our shareholders, but also hold us accountable to our teammates, customers, and the communities where we do business. Additionally, we have been meeting with investors to take in valuable feedback as we actively incorporate ESG initiatives as a regular part of our operations and further increase the transparency of future disclosures. And while we are still formalizing our plan, some examples of ESG topics that we look forward to updating you on in the future quarters, and in our next corporate responsibility report, include 1. Our approach to human capital, 2. Supply chain, and other assessments, and 3. Vital enhancements being made to our customer experience. In summary, we have made significant progress this quarter as we continue to drive top-line growth and margin improvement. This ultimately enhances our earnings potential and provides higher returns on invested capital. As shown on Slide 7, we are committed to the highest standards of operational excellence that will enable a virtuous cycle of earnings growth and cash flow generation, allowing us to continue investing in value-enhancing acquisitions. We will continue to build a strong, scalable platform for long-term sustainable growth. Looking ahead, our focus remains on our teammates, customers, and in-store execution as the critical drivers to realizing the full potential of our Monro Forward Strategy. Our leadership team and our teammates are aligned with our vision. They are energized by our mission of being a best-in-class, service-first organization that prioritizes its customers and the communities it serves. Together, we are keenly focused on bringing customers the professionalism and high quality service they expect from a national retailer, with the convenience and trust of a neighborhood garage. This focus will maximize the value that we can create for our customers and all of our stakeholders. With that, I'll now turn the call over to Brian, who will provide an overview of Monro's third quarter performance and strong financial position, Brian? Brian D’Ambrosia: Thank you, Mike. And good morning, everyone. Let me take a few minutes to talk about our third quarter performance and the meaningful progress we made in the quarter. Turning to Slide 8, sales increased 20.1% year-over-year to $341.8 million in the third quarter, up approximately 4% compared to pre-COVID levels in fiscal 2020. Same-store sales increased 13.8%, driven by broad-based strength across all product and service categories. Sales from new stores increased by $18.5 million, primarily from recent acquisitions. Gross margin increased 150 basis points from the prior year to 35.3%, accelerating from the 140 basis point improvement in the second quarter. The year-over-year increase was due to higher comparable store sales which resulted in lower fixed distribution and occupancy costs as a percentage of sales. Also contributing was a higher sales mix of service categories compared to the prior year period. Variable gross profit was positively impacted by a 9% year-over-year increase in gross profit per tire, reflecting the ongoing benefits of our tire category management and pricing tool. We made an incremental investment in technician payroll costs to support current and future top-line growth amidst improving consumer demand trends for our product and service categories. We estimate that this incremental investment in technician payroll, which approximated $5 million, impacted gross margin by 150 basis points in the quarter. As a reminder, we were staffed for a more supportive weather backdrop, which we believe would have resulted in higher sales. We continue to execute discipline cost controls with total operating expenses of $93.1 million or 27.3% of sales as compared to $80.5 million or 28.3% of sales in the prior year period. The dollar increase is due to higher store management payroll and store operating expenses in the quarter to support strong consumer demand. The remaining dollar increase was from the expenses of 43 net new stores. Operating income for the third quarter grew substantially to $27.4 million or 8% of sales as compared to $15.7 million or 5.5% of sales in the prior-year period. Net interest expense decreased to $5.7 million as compared to $6.8 million in the same period last year. This is principally due to a decrease in weighted average debt. Income tax expense was $5.5 million at a tax rate of 25.3%, compared to $2.3 million at a tax rate of 25.2% in the prior-year period. Net income was $16.3 million as compared to $6.7 million in the same period last year. Diluted earnings per share was $0.48 compared to $0.20 for the same period last year. Adjusted diluted earnings per share, a non-GAAP measure, was $0.49 in the quarter and excluded $0.01 per share of costs related to our Monro Forward initiatives. This compares to adjusted diluted earnings per share of $0.22 for the same period last year, which excluded $0.02 per share of costs related to our Monro Forward initiatives and a benefit related to the reversal of a reserve for potential litigation. As highlighted on Slide 9, we continue to maintain a solid financial position to support our operations and enable the execution of our long-term growth strategy. We generated $127 million of cash from operations during the first nine months of fiscal 2022. We maintained our measured approach to capital allocation and invested $17 million in capital expenditures, paid $83 million for acquisitions, and spent $29 million in principal payments for financing leases. Additionally, we distributed $26 million in dividends. Our balance sheet and liquidity position remained strong. At the end of the third quarter, we had net bank debt of $185 million, and a net bank debt-to - EBITDA ratio of one time. We ended the quarter with cash and cash equivalents of $9.5 million and availability under our revolving credit facility of $375 million. Last quarter, we amended our credit agreement primarily to reduce our LIBOR interest floor from 0.75% to 0%. We continue to expect that this will contribute $1 million in annualized interest expense savings at current debt levels. As we progress through the fourth quarter of fiscal 2022, we remain committed to comp sales growth, margin expansion, and significant cash creation. First, we plan to continue executing operational enhancements across our business to grow sales and expand margins. These efforts will drive growth in EBITDA and increase cash flow generation. In addition, we remain focused on working capital improvements and we believe we have additional opportunities in this area. Specifically, we are focused on improving our cash conversion cycle with an emphasis on inventory and payable. Turning to our outlook on Slide 10. The COVID-19 situation remains fluid which makes it difficult to accurately forecast the impact of the ongoing pandemic on our future operations. While we're not providing formal guidance for the remainder of fiscal 2022, we remain optimistic given our third quarter momentum and the positive trends in the business. In addition, we have provided some financial assumptions to assist you with your modeling. We expect tire and oil cost to continue to increase year-over-year. Considering the inflationary environment, we will continue to optimize our supply chain, leverage our strong strategic partnerships, and capitalize on our cost leadership position. We have a long history of managing the business successfully through periods of inflation. And to reiterate, we will continue to invest in high-quality labor in our stores as we develop a reliable service model. As we make these investments, we expect gross margin improvement in the fourth quarter versus prior year as our service category sales strengthen. Lastly, regarding our capital expenditures, we expect to spend approximately $30 million to $40 million in fiscal 2022. And with that, I will now turn the call back over to Mike for some closing remarks. Thanks, Brian. We're encouraged by our solid performance in the third quarter and optimistic about the outlook of our business for the fiscal fourth quarter and beyond. Overall, we remain well-positioned to capitalize on strong demand while having the financial flexibility to execute our growth strategy and deliver long-term value creation for our shareholders. With that, I will now turn the call over to the Operator for questions.

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] In the interest of time, we ask that you each keep to one question and one follow-up. We'll pause a moment to poll for questions. Thank you, our question comes from the line of Jonathan Lamers with BMO Capital Market. Please proceed with your question.

Good morning. Brian D’Ambrosia: Good morning.

Good morning, Jon.

So thanks for all the comments on labor and your efforts to increase capacity. Sequentially, did the need for overtime hours increased from Q2 into Q3 and into January?

Yes, that's a good question, because I'm very proud of the work that the team has done. I would say we addressed overtime. It was one of the big [Indiscernible] margin when we looked at the quality of our teammates and we looked at really addressing our turnover, our retention initiatives, and really our people initiatives. We looked at overtime as not only an opportunity for our financials improving our financial, but also how do we improve our business model? So when I look at the overtime, I'm very happy with the 24% reduction of where we did invest, we did invest additional -- obviously we spent on overtime when we're managing really the people agenda as people were dealing with sickness and we definitely saw that over the last six weeks, we were still investing in overtime. So when I look at our performance, 24% improvement, I do feel like we still invested in overtime. We could have seen actually better results and obviously that would have -- if we didn't have this new pandemic or the COVID wave upon us.

Okay. And just a follow-up on that. That 24% reduction, that's versus prior year?

Versus Q2.

And thanks. And just Brian, is that -- this is all separate from the investment that was made in payroll costs. And would you expect that that will reduce overtime further going forward as the pandemic recedes? Brian D’Ambrosia: Yeah, Jonathan. As we continue to invest in the high-quality technicians in our stores, we would expect to continue to see overtime come down. And as Mike said over the last six weeks, I think we would have seen an even further reduction over time than we saw. But we did augment our store staffing with overtime just to really managing get through the COVID-related absences that we saw a spike over the last period of time. But on the other side of that wave, we'll continue to see the trend as we add labor.

Okay, I'll pass the line. Thank you.

Thank you.

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

Hey, good morning, guys.

Good morning, Bret. Brian D’Ambrosia: Good morning, Bret.

Could you talk about the impact of price versus traffic in the comp in the quarter as well as January? Brian D’Ambrosia: Yeah. The comp sale was led by ticket as it has been. We're seeing better traffic trends, particularly year-over-year. But it was led by ticket and that has continued into the quarter. Our team has done a really good job of executing in-store when the guest comes in with recommending other needed work, and that's really done through our courtesy inspection. But you need the staffing and store to be able to do that and the training in the attachment selling. So all of that's really I think coming to life in that in-store selling. And that's helping to support improvements in ticket and [Indiscernible] ultimately, we believe will be supportive of our traffic trends going forward.

Okay, since I only get two questions, I'll put the two of them into the second one. But could you give us the housekeeping numbers on monthly comp for the quarter, as well as maybe some regional performance spread between West, Southeast, Northeast? Brian D’Ambrosia: Yeah, we laid out on Slide 4 the monthly comps, but it was 13.8 in October, 17.5 in November, and nine in December And geographically, we saw double-digit comps across all of our regions year-over-year, but we did see a little bit out performance in the West and in the North, a little bit only because of they're still coming out of more difficult year-over-year comparisons.

Okay. Because your comment about weather impact, I would have expected maybe under-performance in the northern markets was it not -- was the weather not enough to offset what was an easy year-over-year compare? Brian D’Ambrosia: Exactly. Exactly. I do think, though, if you look at all across our regions, we saw really good performance out of our Brake and Alignment categories. And that really helped to support the topline and us to really deliver the expectation on the topline, at least the external expectation. Our internal was that with the right weather setup that would've been a normal weather setup, tires in the Northeast would have come to life more than they did, and that would have allowed us, as we talked about, an even higher topline.

Okay. So if there was a category in the December quarter that you've sort of felt less strong, it was tires related to weather? Brian D’Ambrosia: Yes. That's right.

Okay. Great. Thank you.

Thank you.

Our next question comes from the line of Brian Nagel with Oppenheimer, please proceed with your question.

Hi. Good morning.

Good morning Brian.

I apologize, my question is a bit of a follow-up in short-term in nature, but just to understand better. Just in response to Brett's question a moment ago, you talked about the monthly cadence through the fiscal third quarter than into the fourth-quarter January. The slowdown, going from what was high-single-digit, if not double-digits to 1%. Is that weather or is there some other factor at play? And then to look at the [Indiscernible] recognizing not giving guidance for the balance of fiscal year, but how should we think about the puts and takes with regard to sales over the next several weeks or a couple of months, whatever?

Yeah. I'll take that. And obviously, Brian, you can add on. But the -- I would say that looking at the December, we were going to get some more difficult comp. And now we definitely staffed, and we had an expectation for the tire category that we would have had a very strong quarter, very strong December. The good news is we're still able to deliver a very strong service comp coming out of December. Now, when you look at the January, we're competing with stimulus dollars in the first couple of weeks, but when you look at the two-year comp, it's one of our strongest two-year comps a one on three. And then last but not least, I want to bring to your attention that the team did this all without us really doing any promotional activities. So when I look at the 9% growth in gross profit on our tire category, we really, really stuck to the position of a look, we're going to staff our stores. We are going to develop a very strong retail service organization, and we're going to be just be very rational as a competitor in the marketplace. So that we can manage the demand for the long term.

Okay, got it. And then as a follow-up, I guess then maybe we're going to take a step, still with regard to sales but stepping back. [Indiscernible] everyone we're talking to, the environment is very, very fluid out there. But as you look at just the underlying demand trends within your stores, clearly, you have made significant progress in improving your operations. So that's helping you to connect better with your consumers. Everybody's question is, how do you view this and we call like this tailwind as the economy has started to move away from the COVID crisis and people have [Indiscernible] miles driven starting to take up again? Is that still a tailwind for your business and to what extent and how long should that last?

I don't know exactly the timing, but I'll take. I absolutely view that as our tailwind in our business. So what we're doing in the third quarter is really, I would say, we started in the second quarter, really starting to talk about the investments in our people. We talked about staffing, scheduling, training, and we're getting ready for I would say the tailwinds in the industry for the service categories. It's not just tires, brakes, but it's as people get back on the road, the failure that we have to -- it's going to be more, it's going to be broader than just tires and brakes and oil change. It's going to be under hood, check engine light. These are all things that we're bringing to the marketplace, new categories that we're going to really emphasize on. What that takes though is making sure that we have a qualified service organization to be able to satisfy -- take care of the cars in the markets that we serve. Yes, we're actually building an organization, really what we see as a significant tailwind to this industry.

Got it. Appreciate. Thank you.

Thank you.

Thank you. Our next question comes from the line of Rick Nelson with Stephens Inc. Please proceed with your question.

Like to follow-up on a tech payroll gross margin headwind. How long you think those stepped-up period of leaving that spend that's going to be needed? And as we think about gross margin for next year, do you think tech payroll is a bigger percent of sales in fiscal '23?

Good morning, Rick. I would say that anything I'd tell you it's like a limiter on the investment. I will hire right now all qualified technicians and I'll find a position for them in our stores. So I would say the investment thesis and the focus on driving service categories and making sure that we're ready to be able to take care of the customers that are going to need us, that's going to be something that we're going to continue to focus on. Now, we do have a plan by store, it's -- but remember, as we drive the service categories, it's a higher-margin business. We've talked about a 70 margin compared to a tire category that does 40 margin. So we do believe these investments are going to be accretive on the margin side, as well as on the top-line.

Great. Good to hear. Curious also where you're able to pass through the way [Indiscernible] because we look at your sales categories. Where is it the easiest and maybe where does things tick here?

That's a great question, Rick. And we -- I'll divide it in two different categories. First and foremost, tires, being the -- most of the cost increases on tires, we actually flowed through. We're a rational competitor, we do the necessary price scrape so that we stay competitive in the marketplace. When our -- in this industry, the suppliers generally pass along national price increases, cost increases, so everybody acts very normal. The good news here is we actually grew 9% gross profit on our tire category. We're staying very rational to our competitors. I like the position that the industry is in and I like our position in the industry. Now on the part side and the service side. The investment parts are a very small part of the repair order. It's -- most of it is actually in our technician play. When you look at our costs and the gross profit associated with it and the way we manage that with this local labor rates, staying competitive in the marketplace. As the industry is investing in technicians, it generally invests in a higher labor rate and it's an offset. So two very different strategies inside of our buildings but both of which it seems like right now we're able to pass along the cost to our customers.

Thanks for the color, Mike. Much-appreciated. Good luck.

Thank you, Rick.

Our next question comes from the line of David Bellinger with Wolfe Research. Please proceed with your question.

Thanks for taking my question. Just another one --

Good morning.

-- further contextualize that. Good morning. Just another one to further contextualize that the January comp trends, have you seen some type of stabilization in recent weeks? I know there are a number of companies out there talking about slower late December, early January which is the spread of the new variant. But have you seen anything change in recent weeks or is this more of a continuation with lapping stimulus, the child tax credit, disbursements running out. Just any comment you could make on what you're seeing in the later stages of January. Brian D’Ambrosia: Yeah, I think that the dynamic that you just laid out is kind of true for us as well. We saw a tough six weeks in general with the COVID related absences that being a service model, as Mike said in his prepared remarks. Our labor really is our product and to have that in-store or to not have that in-store because of COVID related absences really puts pressure on our top line. So we thought that the comp trends that we were able to deliver and the team was able to deliver despite that challenge and despite some of the stimulus that you mentioned, really was a great outcome and great effort by the team. But as we move further from the December stimulus and we move to lower and lower cases with Omicron each day, that obviously abates that disruption. It allows those more supportive, longer-term trends related to VM vehicle miles traveled and cars aging out to really come through. And the good news is we've got the labor in place to kind of pivot from holding down the fort during the challenging period and really going in playing offense and executing our in-store model. As those challenges become more minimal.

Thanks, Brian. That's very helpful. And then just my follow-up here on the sequential improvement in the overtime hours. So now, as you step back, how much overtime is still in the system today? And what's the time frame to reaching call it a more normalized low level of OT and potentially better flow-through to operating margins?

Yeah. I'll take that, David. The opportunity that we have with overtime is really developing a service organization. I can't keep working people 60 hours to 70 hours a week and think that they're going to stay with me. So the opportunity is honestly that we have more normal work weeks for our teammates. We're developing a service organization in every store, but it really gives us the opportunity to flex when the demand actually hits. And that's where I am really looking forward to actually spending over time talking about the investments in overtime if that's it comes to life because what we're doing is really investing in the growth. And we have an organization that's ready and prepared for it rather than being just a normal way of doing business. We have a long way to go. Still, I'm very happy with the 24% reduction. I'm very happy with the retention improvement and the turnover improvement that we're seeing in our organization. The last thing I want to do is train our technicians for our competitors. So I like the work that the team is doing. I do believe that it's setting us up for a strong Q4 and a great 2023 as things normalize. And that's what I'm hoping for everyone. But that is just good retail. Just making sure that we are best-in-class service providers, making sure that we have a team ready to go, and they're willing to flex up, and they want to take that overtime when there's a lot of demand.

Thank you, both. Appreciate it.

Thank you. Brian D’Ambrosia: Thanks, David.

Thank you. Our next question comes from the line of Scott Stember with C.L. King & Associates. Please proceed with your question.

Good morning, guys. And thanks for taking my questions.

Good morning, Scott.

Could you guys maybe let us know how much the Tire segment underperformed due to weather? Just trying to get a sense of where Tire sales could have been, and the impact onto the bottom-line. Brian D’Ambrosia: Yes. Scott, I'll take it. This is Brian, morning. Not going to quantify it. I think that if you look at the industry trends, particularly in the Northeast, you can see the impact year-over-year in units. So we were in line with the industry, which the industry being pressured as it related to Northeast weather dynamics. What we're happy about though as we continue to grow our average selling price and our average gross profit per tire as we really lean on and optimize our tire category management tool. So that's been important for us to help manage that dynamic. But I don't think we are disappointed at all in our units relative to the industry.

Okay. Got it. And then my follow-up. With good year-and-a-half years to two years into the store reformations and a lot of these new programs going into place. With all this data and all this evidence, is there any way to talk about how those stores on balance over time have performed versus the stores that have not gone through some of these bigger changes? Brian D’Ambrosia: Yes. I mean, I think we've said historically that it's been 500 basis points of out-performance on the top line. I can't say -- there's a lot of things pushing and pulling at these stores. They really are. Remember, they're individual stores affected by all the things we talked about today, staffing levels, weather dynamics, and COVID waves. So I mean, there's a lot of I think undercurrents that prevent maybe the overall trends from coming all the way through. But because of that, we've not really talked about it anymore in our prepared remarks, but it's been 500 basis points through the last time that we disclosed that.

Got it. Thanks again.

Thank you. Brian D’Ambrosia: Thank you.

Thank you. Our next question comes from the line of Stephanie Moore with Truist Securities. Please proceed with your question.

Hi. Good morning.

Good morning. Brian D’Ambrosia: Good morning, Steph.

I just want to follow-up on a prior comment you made, Mike. And I think it's clear noting the strategy to expand further into service categories, but I think you did call out expanding further with even under-the-hood services. So maybe if you just want to follow-up on that comment or expound on the area where you would consider to further expand just your offerings within service.

No. It's a great question. So yes, just so I can be clear, we, Monro in the past has been very focused on -- I mean, we started off as the exhaust, but now we've migrated to heavy tire, we've talked about the mix between tire and service, heavy tire heavy break, oil change. But when you look at a complete car care, check engine light is a big category that I would say has -- we still have a significant opportunity to improve and that is under hood, where you have the sensors, whether it's O2, and the whole engine management category that's so significant in our industry. One of the things that comes to life is the check engine light, and we are going to continue to build out our organization. And that's really important, you have to have the technicians to be able to properly diagnose check engine light. And that's what we're focused on. It's not just tires and brakes. I mean, we're still going to do a great job doing that. But as our customers come in, there's going to be a check engine light, they're going to need to make sure that we don't let that car come off that lift without making sure that we resolved that check engine light at the same time. And I would say it's a big opportunity for our organization. And I would say it's a category that we've significantly under performed.

Got it. That's helpful. And then my second question, on M&A, can you maybe discuss your current pipeline, any kind of dollar color you can give of what you have lined up here, what competition you're seeing from an M&A standpoint, given the consolidation trends? Any M&A color would be helpful. Thank you. Brian D’Ambrosia: Yes, I will take that, Stephanie. So obviously, we've talked about the 47 stores that we've completed already, $70 million in annualized sales. So healthy rate of acquisition growth already this year through three quarters. And we continue to see a lot of opportunities for some very value enhancing acquisitions. We have 10 plus NDA sign, which is consistent with what we've had and we feel like we're in a really good position to be able to execute on some of those in order to get our -- and continue our acquisition growth strategy. We've got a strong balance sheet. We're generating a lot of cash. And we know that our acquisition growth is a great opportunity to really enhance shareholder value. We remain focused on it. It's a key pillar of our growth strategy. And I'm sure we'll have more to talk about that on future quarters.

Great. Well, thank you so much.

Thank you.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I will turn the floor back to Mr. Broderick for final comments.

Thank you for joining us today. This is an exciting time to be part of Monro. We have a strong foundation to build upon to create long-term value for all our stakeholders. I look forward to keeping you updated on our progress. Have a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.