MNRO Q1 Earnings Call: Management Details Turnaround Plan Amid Revenue Miss and Margin Pressure

Auto services provider Monro (NASDAQ:MNRO) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 4.9% year on year to $295 million. Its non-GAAP loss of $0.09 per share was significantly below analysts’ consensus estimates.

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StockStory’s Take

Monro’s first quarter results reflected operational challenges and the early impact of a newly announced performance improvement plan. CEO Peter Fitzsimmons, who joined the company eight weeks prior to the call, identified four key areas for improvement: closing underperforming stores, enhancing customer experience, targeting profitable customer acquisition, and increasing merchandising productivity. Management attributed year-over-year revenue declines primarily to six fewer selling days and ongoing store traffic weakness, while noting sequential improvement in same-store sales as the quarter progressed. Fitzsimmons acknowledged, "Our results are far from where we want them to be," and highlighted the effect of extreme weather on store traffic and profitability, particularly in January.

Looking ahead, Monro’s leadership expects to drive comparable store sales growth through targeted marketing and operational changes, although margin pressures are anticipated to persist due to inflation and potential tariff impacts. Fitzsimmons stated that the company is reallocating marketing investment toward higher-value, repeat customers, aiming to improve traffic and retention. CFO Brian D’Ambrosia cautioned that gross margins are likely to remain pressured throughout the year, especially in the first quarter, but expressed confidence that store closures and cost management initiatives will partially offset these headwinds. Management declined to provide formal guidance due to tariff uncertainty but emphasized their intent to deliver year-over-year improvement in adjusted earnings per share.

Key Insights from Management’s Remarks

Management pointed to a combination of operational inefficiencies, weather disruptions, and promotional activity as core drivers of the quarter’s performance, while outlining decisive actions to address persistent profitability challenges.

• Store closures to boost profitability: Monro will close 145 underperforming stores, representing about 5% of annual sales, with the goal of improving overall profitability and operational focus. The company expects to recapture some sales at nearby locations and does not anticipate further closures this year.
• Customer experience overhaul: Management’s assessment found inconsistent service quality across stores, prompting a renewed emphasis on process execution and digital tools like the Confy Drive inspection platform to standardize and improve the customer journey.
• Targeted marketing and customer acquisition: A new marketing strategy is being developed to focus spend on acquiring and retaining higher-value customers, who deliver significantly greater profitability. Early testing has shown encouraging results, and broader rollout is planned in upcoming quarters.
• Merchandising and tariff mitigation: Monro plans to simplify its tire assortment to better align with customer preferences and streamline in-store operations. A dedicated team is negotiating with suppliers to mitigate the impact of potential tariffs, and pricing strategies may be adjusted if input costs rise.
• Margin impact from promotions and labor: Higher self-funded promotions and wage inflation contributed to margin declines. Management noted an increase in value-conscious consumer behavior, with more customers opting for lower-tier tire products, which also weighed on profitability.

Drivers of Future Performance

Monro’s outlook is shaped by its operational turnaround plan, ongoing cost inflation, and the potential for tariffs to impact product costs.

• Store optimization expected to deliver savings: The closure of underperforming stores is projected to reduce sales volume but should improve overall profit margins by eliminating structurally unprofitable locations and redirecting resources to higher-performing sites.
• Strategic focus on high-value customers: Leadership is reallocating marketing efforts to acquire and retain customers with greater lifetime value, a shift expected to enhance both traffic and retention. This strategy depends on successful segmentation and execution of new marketing tests.
• Tariff and inflation risks: Management flagged ongoing uncertainty around tariffs on imported auto parts and tires, as well as general inflation in labor and material costs. While supplier negotiations and price adjustments are underway, these factors could continue to pressure margins through the year.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory team will monitor (1) the pace and execution of planned store closures and their effect on profitability, (2) the results of new marketing initiatives targeting high-value customers, and (3) the company’s ability to manage input cost inflation and potential tariff impacts. Progress on merchandising simplification and supplier negotiations will also be key signposts for operational improvement.

Monro currently trades at a forward P/E ratio of 15.5×. At this valuation, is it a buy or sell post earnings? The answer lies in our full research report (it’s free).

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