Monro outlines positive comp store sales outlook for fiscal 2026 amid expanded marketing and store optimization

Earnings Call Insights: Monro, Inc. (MNRO) Q2 2026

MANAGEMENT VIEW

* CEO Peter Fitzsimmons highlighted the company's focus on four key performance improvement areas: driving profitable customer acquisition and activation, improving store-based customer experience and selling effectiveness, increasing merchandising productivity (including mitigating tariff risk), and real estate disposition related to the closure of 145 underperforming stores. Fitzsimmons remarked, "We have now ramped our refined targeting to almost 600 stores, and we are encouraged to see that these stores are outperforming the balance of our store chain on several key metrics such as call volumes, store traffic, sales and gross profit dollar generation."
* Fitzsimmons announced the hiring of Tim Ferrell as Vice President of Marketing in early September, noting Ferrell's experience with Valvoline and Sun Auto Tire & Service and his enhancements to Monro's marketing strategy.
* Expansion of the customer call center to all stores is planned by early November. Fitzsimmons stated, "In the more than 700 stores where our customer call center has already been implemented, we are encouraged to see that these stores are outperforming the balance of our store chain on key metrics such as sales and gross profit dollar generation."
* Regarding merchandising, Fitzsimmons reported enhanced vendor support, updated tire assortment strategies, and the use of new analytical tools for inventory and pricing. The company exited 21 leases and sold 3 owned locations in Q2, generating $5.5 million in proceeds, as part of its ongoing real estate disposition.
* CFO Brian D'Ambrosia stated, "Sales decreased 4.1% to $288.9 million in the second quarter. This was primarily driven by a reduction in sales from the closure of 145 underperforming stores in the first quarter of fiscal 2026, partially offset by a 1.1% increase in comparable store sales from continuing store locations."

OUTLOOK

* The company continues to expect year-over-year comparable store sales growth in fiscal 2026, driven by the improvement plan and potential tariff-related price adjustments. D'Ambrosia stated, "We continue to expect that the results of our store optimization plan will reduce total sales by approximately $45 million in fiscal 2026."
* Monro projects gross margin for fiscal 2026 to be consistent with fiscal 2025 and expects to deliver a year-over-year improvement in adjusted diluted earnings per share.
* The company plans capital expenditures of $25 million to $35 million for the year and expects to maintain sufficient operating cash flow to support all capital allocation priorities, including dividends.

FINANCIAL RESULTS

* Comparable store sales increased 1.1% in Q2 from continuing locations. Gross margin expanded by 40 basis points to 35.7%. Adjusted diluted earnings per share was $0.21, compared to $0.17 in the prior year’s quarter.
* Operating income for the quarter was $12.8 million. Adjusted operating income was $14 million, up from $12.6 million in the prior year period.
* The company reduced inventory by approximately $11 million in Q2. Net interest expense decreased to $4.4 million, and net income was $5.7 million. Cash from operations was $30 million in the first half of fiscal 2026.
* The AP to inventory ratio improved to 186% by quarter-end. Monro had net bank debt of $50 million, $410 million in credit facility availability, and $10 million in cash and equivalents.

Q&A

* Bret Jordan, Jefferies, asked about price versus car count and outlook for price contributions given tariff noise. D'Ambrosia replied, "in the quarter, we were down mid-single digits in traffic, up mid-single digits in ticket, netting out to the up 1% overall comp." Fitzsimmons added confidence in marketing efforts driving comps.
* Jordan queried about changes in the risk spread for the working capital program; Fitzsimmons said, "Nothing related to the risk spread. We did have a pricing adjustment... our current spread is 225 basis points over SOFR... no changes outside of that change."
* Tom Wendler, Stephens, inquired on the 50 bps material cost improvement in gross margin. D'Ambrosia attributed it to better service category margins and noted an 80 bps increase in tech pay due to wage inflation. Fitzsimmons cited improved vendor relationships and support.
* Wendler asked if lower income consumers faced more pressure. Fitzsimmons replied, "the lower income consumer is probably feeling a fair amount of pressure... but... what we offer is a service that's nondiscretionary and that everybody needs."
* David Lantz, Wells Fargo, discussed the tire units decline and SG&A outlook. D'Ambrosia stressed relative outperformance in tire sales and detailed SG&A cost controls, with expectations for increased marketing spend partially offsetting store closure savings in the second half.
* Brian Nagel, Oppenheimer, questioned comp trajectory and internal versus external drivers. Fitzsimmons cited a market pause, expressing confidence that increased marketing and call center expansion would drive comps higher.
* John Healy, Northcoast Research, probed industry benchmarking. Fitzsimmons emphasized Monro’s service business model and national scale. D'Ambrosia pointed to syndicated data for tire benchmarking and highlighted outperformance in service categories like brakes and shocks.
* Healy also asked about dividend safety. Fitzsimmons said, "our cash flows support all of our capital allocation priorities, and we believe that to be true for the balance of FY '26 and beyond that."

SENTIMENT ANALYSIS

* Analysts displayed a slightly cautious tone, with questions focusing on comp sales trajectory, margin sustainability, consumer pressures, and dividend safety.
* Management’s tone remained confident in both prepared remarks and responses, emphasizing progress in marketing and operational initiatives. Fitzsimmons used language such as "we remain pretty comfortable that we're going to see positive comps for the fiscal year."
* Compared to the previous quarter, management’s confidence remained steady, though analysts pressed more on consumer softness and sustainability of recent improvements.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language shifted from not providing fiscal 2026 guidance due to tariff and macro uncertainty in Q1, to a clearer expectation of positive comp store sales and margin stability in Q2.
* Strategic focus expanded from initial store closures and early marketing tests in Q1 to broader digital marketing rollout and call center expansion in Q2.
* Analysts’ focus shifted towards sustainability of positive comps and margin improvements, reflecting concern about softening consumer demand not as pronounced in Q1.
* Key metrics moved from mid-single-digit comp growth in Q1 to 1.1% in Q2, with gross margin stabilizing and adjusted EPS improving quarter-over-quarter.
* Management’s confidence remained robust, with a greater emphasis on marketing scalability and operational discipline.

RISKS AND CONCERNS

* Management acknowledged recent softness in consumer demand, citing preliminary October comps down 2%.
* Tariff-related cost increases and baseline cost inflation are ongoing risks, with efforts to manage through vendor negotiations and pricing adjustments.
* The company is monitoring potential changes in tire mix and customer vehicle maintenance deferrals.
* SG&A expenses are expected to rise with increased marketing investment, partially offsetting savings from store closures.

FINAL TAKEAWAY

Monro’s management reiterates confidence in achieving positive comparable store sales and improved margins for fiscal 2026, supported by expanded digital marketing, a growing call center footprint, and disciplined cost management. While recent consumer softness and tariff-related challenges remain, the company is leveraging operational improvements and vendor relationships to support profitability and cash flow priorities for the remainder of the year.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/mnro/earnings/transcripts]

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