Good morning, ladies and gentlemen, and welcome to the Monro, Inc. Earnings Conference Call for the Fourth Quarter and Full Year Fiscal 2024. At this time all participants are in a listen-only mode. Later we'll conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference call is being recorded and may not be reproduced in whole or in part without permission from the company. I would now like to introduce Felix Veksler, Senior Director of Investor Relations at Monro. Please go ahead.

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

Thank you, Felix. And good morning, everyone. I'd like to spend the first part of our call this morning discussing the longer-term durability of our business within the broader auto aftermarket tire and services space. Then I'll talk about current tire dynamics as well as the actions we've taken to navigate an industry-wide deferral and trade-down cycle that has lasted longer than most in our industry would have expected. After that, I'll introduce four initiatives we've recently implemented to offset weakness in the tire market. I'll conclude my comments today with the foundational progress we've made that will enable Monro to reap benefits when tire volumes recover. Starting with the longer-term durability of our business. First, we are positioned as one of the leading players in our highly fragmented industry. At approximately 1,300 stores in 32 states, we have significant scale that gives us important competitive advantages over smaller players in our industry. We leverage this scale and the strength of our financial position to make critical investments in our business, our people, and technology to deliver an outstanding guest experience. Second, the fundamentals of the industry remain strong, as shown on Slide 3. These fundamentals include an overall growing trend of more than 280 million vehicles in operation. Vehicle miles traveled that have recovered to pre-COVID levels and an average vehicle age of more than 12 years that continues to increase. Further, on Slide 4, an increase in the complexity of vehicles continues to drive a shift from do it yourself to do it for me. With future technology advances expected to accelerate the shift to do it for me. Third, while the non-discretionary nature of our products and services may result in consumers deferring purchases or trading down, they cannot eliminate these purchases altogether. And finally, we have…

Thanks, Brian. Our industry remains fundamentally strong. Our business has been disadvantaged by temporary challenges in the tire category. Our actions to navigate the consumer deferral and trade-down dynamics as well as our initiatives to offset weakness in the tire market and our progress to improve margins and improve cash flow will enable Monro to reap benefits when tire volumes recover. We are poised to win with our scale, strategic relationships, and our experienced management team. With that, I'll now turn it over to the operator for questions.

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

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

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

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

Unfortunately, I don't have a crystal ball on the oversupply of tires, but I'm very focused on making sure that if the customer is looking for value that we're driving value. My emphasis still stays with Tier 1 through 3, because that's the right assortment for our customers, right quality of tire. When I look at the OPP decisions that we've made, it was never an issue of not meeting the customers where they wanted -- where they needed and where they were expecting. We want to drive value at Monro. That's been something that we've stood behind for many, many years and we're using promotional dollars just to make sure they understand there's a choice. Fortunately or unfortunately, our tire mix really didn't change. Our tire units didn't change. We didn't see anything in the industry data that told us that we lost market share, even with Tier 4. At this point in time, there's a lot of noise in the syndicated data. We're just very focused on getting more customers through the door. It wasn't that long ago, David, where we were actually positive in units and tires, and we were actually really demonstrating that we can grow mid-single digits, and that's what we're focused on.

Got it. That's helpful. And then just one quick one from -- one last one is, you noted break even EPS for Q1 if top line trends continue. So curious if you can help parse out some SG&A and gross margin bucket expectations.

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

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

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

Good morning, Patrick.

Taking a look at the new disclosure on franchise royalty revenue in last quarter's 10-Q, we saw a pretty significant increase. Was there anything notable to call out there? And I guess what should we expect for a normal run rate moving forward? Brian D’Ambrosia: Yes, that was really just related to timing of the recognition of royalties related to one of our franchisees. We don't expect there to be any meaningful change in our historical run rate going forward.

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

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

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

Thank you. Brian D’Ambrosia: Thank you.

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

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

Good morning.

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

William, so we're very focused on growing top line sales. That's our greatest opportunity to drive profitability, cash flow. From a margin perspective, we're relying on our vendor partners to support us and we're very focused, obviously, on making sure that we drive productivity in our shops and that's what you see -- you've seen. For the last three years at least we've really created a P&L that's virialized. We've done a lot of work on working capital and I would say from a margin front we have a very healthy portfolio. We make money on everything that we sell. We have a lot of flexibility to be incredibly competitive, and we're going to continue to rely on our vendor partners to step up and help us drive sales. And that's where we're at right now. Although we don't see ourselves losing market share, we do see ourselves very focused on gaining market share and getting back to positive unit growth on tires, which leads to a strong service category improvement.

I appreciate that. And to follow up a bit on a comment earlier about market share. So you provided some color on this with -- I guess, higher margin, you mentioned that your market share was in line. Can you just discuss kind of across other tiers too? Would you [indiscernible] change near term with these new initiatives? And I guess in particular, over the course of this year, thinking about Monro versus like any base case industry trend assumptions that you have. Thank you.

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

I appreciate the color. Good luck.

Thank you.

Thank you. We currently have no further questions, so I'll hand back to Mr. Broderick for closing remarks.

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

Thank you, Mr. Broderick. This concludes today's call. Thank you for joining. You may now disconnect your lines.