monro, inc. investor presentation...completed acquisition of 12 retail locations in louisiana in...
Post on 11-Jul-2020
1 Views
Preview:
TRANSCRIPT
Monro, Inc.Investor
Presentation
November 2019
Certain statements in this presentation, other than statements of historical fact, including estimates, projections, statementsrelated to our business plans and operating results are forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Monro has identified some of these forward-looking statements with words suchas “anticipates,” “believes,” “expects,” “estimates,” “is likely,” “predicts,” “projects,” “forecasts,” “may,” “will,” “should,” and“intends” and the negative of these words or other comparable terminology. These forward-looking statements are basedon Monro’s current expectations, estimates, projections and assumptions as of the date such statements are made, and aresubject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. Additional information regarding these risks and uncertainties are described in the Company’s filingswith the Securities and Exchange Commission, including in the “Risk Factors” and “Management’s Discussion and Analysisof Financial Condition and Results of Operations” sections of our most recently filed periodic reports on Forms 10-K andForm 10-Q, which are available on Monro’s website at https://corporate.monro.com/investors/financial-information/. Monroassumes no obligation to update or revise these forward-looking statements for any reason, even if new informationbecomes available in the future.
This presentation contains references to Adjusted Earnings Per Share (EPS), which is a “non-GAAP financial measure” asthis term is defined in Item 10(e) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of1934 and Regulation G under the Securities Exchange Act of 1934. In accordance with these rules, Monro has reconciledthis non-GAAP financial measure to its most directly comparable U.S. GAAP measure. Management views this non-GAAPfinancial measure as a way to assess comparability between periods.
This non-GAAP financial measure is not intended to represent, and should not be considered more meaningful than, or asan alternative to, its most directly comparable GAAP measure. This non-GAAP financial measure may be different fromsimilarly titled non-GAAP financial measures used by other companies.
Safe Harbor Statement and Non-GAAP Measures
2
Company Overview
▪ Dominant in the Northeastern U.S. and expanding in Southern and
Western markets
▪ Fiscal 2019 sales of $1,200.2 million
▪ 1,271 company operated stores in 30 states and 98 franchised
locations as of October 24, 2019
▪ 33 acquisitions in the past 7 fiscal years, adding 429 locations, $630
million in revenue and entry into 9 new states
▪ Operating two store formats in key markets
−Service stores – 555 stores
• 80% maintenance services, 20% tires
• $600,000 a year in sales per store
−Tire stores - 716 stores (excluding wholesale)
• 55% tires, 45% service
• $1.2 million a year in sales per store
▪ 8 wholesale locations and 3 retread facilities
A Leading Chain of Independently Owned and Operated Tire and Auto Service Locations
3
Store locations as of 10/28/19
A Unique Operating Model
Monro Has a Diversified Supply Chain, Sourcing High Quality, Low Cost Parts Direct and a Strong Portfolio of Tire Brands
PARTS
Secondary parts distribution:Monro sources these parts from leading
aftermarket parts suppliers:
▪ Brake Rotors and Pads
▪ Filters
▪ Steering and Suspension
▪ Wipers
▪ Belts
Store locations as of 10/28/194
TIRES
200
210
220
230
240
250
260
270
280
290
300
2012 2013 2014 2015 2016 2017 2018 2019* 2020* 2021* 2022*
A Favorable Industry Backdrop
Favorable Industry Backdrop for Automotive Services with the
Vehicles in Operation Expected to Grow Significantly Over the Next Few Years
U.S. Annual Light Vehicle Sales
Total Miles Traveled in U.S.
Source: FRED Economic data, Light weight Vehicle Sales: Autos and Light Trucks Source: Lang, IHS Markit. 2019 – 2022 are estimated figures
U.S. Light Vehicles in Operation (VIO)
▪ Growing total vehicle population from U.S. auto sales
▪ 270+ million vehicles on the road
▪ Increasing age of vehicles (average of ~12 years)
▪ 2018 total annual miles driven up ~0.4% y/y
▪ Increasing complexity of vehicles
▪ Favorable demographics
Key Highlights
5Source: FRED Economic data, Moving 12-Month Total Vehicle Miles Traveled
2,600,000
2,700,000
2,800,000
2,900,000
3,000,000
3,100,000
3,200,000
3,300,000
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
0
2
4
6
8
10
12
14
16
18
20
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
A Favorable Industry Backdrop
Vehicles in Operation – 0 to 5 Years Vehicles in Operation – 6 to 12 Years
Monro is Well-Positioned to Capitalize on Positive Industry Trends,
with Our Sweet Spot Experiencing the Fastest Growth in Vehicles in Operation
50
60
70
80
90
100
110
120
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
+6.56% CAGR -.03% CAGR
▪ Strong growth in new vehicles (0-5 years) between 2012
and 2017 is creating a significant tailwind for the 6-12 year
old vehicle cohort for the next few years
▪ 6-12 year cohort expected to grow the fastest at +3.9%
CAGR for the period 2017-2022
▪ Monro’s targeted market segment is the 6-12 year cohort
50
60
70
80
90
100
110
120
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
-3.97% CAGR +3.90% CAGR
Vehicles in Operation – 13+ Years
50
60
70
80
90
100
110
120
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
+4.27% CAGR +1.47% CAGR
Source for all data: Lang, IHS Markit, 2018
Key Highlights
6
A Favorable Industry Backdrop
Monro Operates in the $238 Billion Do-It-For-Me* Segment of $297 Billion U.S. Automotive Aftermarket Industry
Automotive Aftermarket DIFM vs. DIY Sales
Source: Autocare Association Factbook
2010%
(outlets)2018
%
(outlets)CAGR
Dealers 18,460 14.3% 16,753 12.7% (1.2%)
General
Repair
Garages
76,108 58.8% 81,087 61.5% 0.8%
Tire Dealers 18,675 14.4% 20,316 15.4% 1.1%
Specialty
Repair8,663 6.7% 6,465 4.9% (3.6%)
Oil
Change/Lube7,518 5.8% 7,301 5.5% (0.4%)
Total 129,424 100.0% 131,922 100.0%
Source: Autocare Association Factbook
▪ DIFM continues to gain share from DIY
segment
▪ Vehicle complexity continues to drive shift to
DIFM from DIY
▪ Future technology advances expected to
accelerate shift to DIFM
DIFM vs. DIY Trends
▪ Industry still highly fragmented, with significant
opportunities for further consolidation
Key Highlights
* Includes Replacement Tire Segment 7
-
50,000
100,000
150,000
200,000
250,000
300,000
2012 2013 2014 2015 2016 2017 2018
DIFM DIY
0
Consensus data for 2012; estimates for 2013-2018
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2QFY19 3QFY19 4QFY19 1QFY20 2QFY20
Second Quarter Fiscal 2020 Highlights
▪ Sales increased 5.5% to a record $324.1M
▪ Comparable store sales were flat
▪ Sales from new stores added $17.5M, including
sales from recent acquisitions of $14.2M
▪ 140 bps decrease in gross margin drove EPS
decline year-over-year
Achieved Record Sales of $324.1 Million, Up 5.5% Year-Over-Year
▪ Brakes: 1%
▪ Maintenance: 1%
▪ Tires: Flat
▪ Front End/Shocks: Flat
▪ Alignments: -1%
2QFY20
Key Highlights
2QFY20
Key Highlights
8
Quarterly Comps Trends
1
2-Year Stacked Quarterly Comps Trends
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2QFY19 3QFY19 4QFY19 1QFY20 2QFY201
1Results are adjusted for days
1
1
Announced Acquisitions
▪ Announced definitive agreement to acquire 18 retail locations, including 14 in Nevada and four in Idaho
▪ Represents two new states and further expands the Company’s geographic footprint into the West Coast region
▪ $20M in annualized sales, breakeven to EPS in FY20
▪ Sales mix of 75% service and 25% tires
Completed Acquisitions
Greenfield Openings1
▪ Added 6 greenfield locations through 10/28/19 (excludes two California locations included above)
▪ Completed acquisition of 12 retail locations in Louisiana in 1QFY20
▪ Entered a new state, expanding presence in the southern markets
▪ $15M in annualized sales, breakeven to EPS in FY20
▪ Sales mix of 35% service and 65% tires
▪ Completed acquisition of 40 retail locations and one distribution center in
California in 1QFY20
▪ Entered a new state, expanding geographic footprint to the West Coast
▪ $45M in annualized sales, breakeven to EPS in FY20
▪ Sales mix of 70% service and 30% tires
▪ Acquired two additional stores in California in 1QFY20, representing $3M
in annualized sales
▪ Completed acquisition of eight retail locations in Louisiana in 2QFY20
▪ Expanded market position in recently entered state
▪ $12M in annualized sales, breakeven to EPS in FY20
▪ Sales mix of 50% service and 50% tires
▪ Completed acquisition of nine retail locations in Northern California in
3QFY20
▪ Expanded market position in recently entered state
▪ $25M in annualized sales, breakeven to EPS in FY20
▪ Sales mix of 55% service and 45% tires
A Scalable Platform: Recent Acquisitions
Acquisitions Announced and Completed in Fiscal 2020 Represent $120M in Annualized Sales
1Greenfield stores include new construction as well as the acquisition of one to four store operations 9
Driving Long-Term Sustainable Growth
Enhance Customer-Centric
Engagement• Customer retention
• Customer acquisition
• Omnichannel
Accelerate Productivity
& Team Engagement• Optimized store staffing model
• Clearly defined career path and
enhanced training program
• Aligned compensation
Improve Customer Experience• Online reputation management
• Consistent in-store experience
• Consistent store appearance
Scalable Platform to
Drive SustainableGrowth
Investments in Technology and Data-Driven Analytics to Support Strategic Initiatives
Optimize Product &
Service Offering• Redefined selling approach
• Optimized tire assortment
10
Improve Customer Experience
❑ Improve SEO and local listing management
❑ Effectively build and manage online presenceOnline Reputation
Management
❑ Deliver a best-in-class experience to all customers
❑ Provide clear product choices and quality service to
customers
Consistent In-Store
Experience
❑ Modernize store layout
❑ Establish clear standards for retail bannersConsistent Store
Appearance
Delivering a
Five-Star
Experience
11
Store Refresh & Brand Consolidation Initiative
❑ 159 stores in various stages of change during 2QFY20
❑ Double-digit increase in same store sales at pilot locations reinforces strength of
store refresh/rebrand strategy
❑ Streamlined and improved refresh processes in early 3QFY20 to better prepare
teammates during transformation moving forward
❑ Modernized store layout and consolidated brand strategy on track to be rolled out
across the Company’s remaining markets and store formats over next 3 to 5 years
Improve Customer
Experience
Making Strong Progress as Store Refresh/Rebrand Program Is Rolled Out Across Base
12
7 Stage Transformation Process from Beginning to End Takes ~17 Weeks
131Steps are only required for stores that are being rebranded from service format to tire format
BEFORE AFTER
Store Readiness
for Change
Parts Inventory
Rebalanced1
Inventory Assortment
Reset for Tire Focus1
Store Team Trained
on New Operating
Procedures
Store Inventory Storage
Configured for Tires1
Store Exterior Painted
and New Signage
Installed
Store Interior Remodel
and Technology
Installed
~17 WEEKS
Store Refresh Transformation Timeline
Performance Post-Store Refresh Program
Strong Performance of Refreshed Stores Driving Confidence In Strategy
14
Stores
Comp Sales
Performance
Prior to Refresh1
Comp Sales
Performance
Post-Refresh
Store Breakdown
Group 1 (Pilot)
44 Stores+ LSD % ~ + 14%2
- 42 Comp Stores
- 2 Non Comp Stores
Group 2
43 Stores- LSD % ~ + 15%2
- 18 Comp Stores
- 25 Non Comp Stores
Group 3
116 Stores+ MSD %
No data available (in
process during second
quarter)
- 74 Comp Stores
- 42 Non Comp Stores
1LSD refers to low-single digit, and MSD refers to mid-single digit
2Performance data only includes comp stores
Store Refresh & Brand Consolidation Initiative
Store Refresh Program On Track To Be Rolled Out Across Base
15
Group 1
Group 2
Group 3
Group 4
Group 5
Group 6
Q1 FY20 Q2 FY20 Q4 FY20 Q1 FY21 Q3 FY21Q3 FY19 Q4 FY19 Q3 FY20 Q2 FY21 Q4 FY21
43 stores
116 stores
~70 stores
~70 stores
~80 stores
44 stores
❑ Focus marketing spend to higher ROI channels
❑ Focus on direct marketing via new analytic-based
CRM platform
❑ Enhance private label credit card offering
❑ Use analytics to optimize digital efforts
❑ Leverage market segmentation and demographic
information to facilitate direct marketing to target
customers
❑ Upgraded website with mobile-capable architecture
❑ Launch e-commerce capability for online tire
purchases and installations in-store
❑ Leverage preferred tire installer agreements to
drive traffic
Enhance Customer-Centric Engagement
Customer Retention
Customer Acquisition
Omnichannel
16
Omnichannel: Amazon.com Collaboration
Collaboration With Amazon.com Supports Monro’s Online Tire Retailers Installation Strategy
17
Expanded Amazon.com Collaboration
▪ Monro’s tire installation services available to customers who
purchase tires online from Amazon.com and select the Ship-to-
Store option
▪ Initially launched in the greater Baltimore area, now available at
more than 800 locations operating under a number of Monro
brands in 21 states across the United States
▪ Collaboration will be expanded to provide tire installation services
to Amazon.com customers at all of Monro’s retail locations across
30 states
▪ Increased traffic driven by integration with online tire retailers
❑ Improve tire sales strategy to offer the right tires at
the right price
❑ Leverage data to optimize inventory assortment
❑ Simplified invoices and inspection forms
❑ Clearly defined ‘Good, Better, Best’ product options
❑ Educate customers on new tire installation, brake
and oil change service options
Optimize Product & Service Offering
Optimized Tire Assortment
Redefined Selling
Approach
FuturePresentPast
18
Accelerate Productivity & Team Engagement
❑ Aligned store compensation model with
performance
❑ Incentives grow as sales, profits and customer
experience improve
Aligned Compensation
❑ Achieve the right balance of labor and technical
abilities across our stores
❑ Implement data-driven store scheduling software
Optimized Store
Staffing Model
❑ Attract, train and retain talented technicians and
managers
❑ Launched Monro University, a comprehensive
learning management system, to pilot stores in
January 2019 and have continued to expand to
additional stores
Clearly Defined Career Path
and Enhanced
Training Program
19
Monro.Forward Progress Update
Monro.Forward Initiatives Well Underway and Continuing to Advance
20
❑ Continued investments in in-store technology with the rollout of a new digital phone
system across Monro’s store base during FY20
❑ Collaboration with Amazon.com at more than 800 stores supports omnichannel efforts
❑ Launching second phase of omni-channel strategy in FY21
Enhance Customer-
Centric Engagement
❑ Data-driven store scheduling and staffing software to be piloted by 1QFY21
❑ Scaling Monro University across store base and prioritizing newly acquired stores to
facilitate onboarding
Accelerate Productivity
& Team Engagement
❑ Improving category management to drive margin improvement and optimize product
portfolio with new pricing technology to be implemented by 1QFY21
❑ Continued momentum of Good-Better-Best product and service packages
Optimize Product &
Service Offering
❑ Executing customer satisfaction and online reputation management program across
Monro’s store base
❑ Focus on the in-store experience is having significant impact on Company online
reviews and has increased “Star Ratings” to 4.5 All-time
Improve Customer
Experience
Scalable Platform to Drive Sustainable Growth
▪ Continue to increase store density in our 30 states
▪ Expand geographically into attractive markets
▪ On average, acquisitions represent the opportunity for 10%
annual sales growth
▪ Acquisition growth drives scale and operating margin expansion,
strengthening competitive advantages
Same Store Sales Growth
▪ Through Monro.Forward, drive higher
customer retention and acquisition rates
Acquisitions
▪ Create value through profitable
acquisitions
Greenfield Expansion
▪ Continue new store openings in existing
markets
A Scalable Business Model with Multiple Avenues for Growth
21
A Proven M&A Strategy
Monro’s Acquisition Strategy Has Delivered Significant Growth Over the Years
Historical Acquisition Activity
Average
Acquisition
Size
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 to date
Number of
locations139 stores 20 stores 80 stores
35 stores
and 134
franchise
locations
78 stores,
4 wholesale
locations and
2 retread
facilities
28 stores
38 stores, 4
wholesale
locations and
1 retread
facility
89 stores
and one
distribution
center
15 Stores
Annualized
Sales growth~$190 million ~$35 million ~$90 million ~$35 million ~$150 million $20 million $70 million ~$120 million ~$20 million
A Proven Track Record
▪ 49 acquisitions in the last 17 fiscal years, encompassing 724 locations and $970 million of revenue
▪ 33 acquisitions in the past 7 fiscal years, adding 429 locations and $630 million in revenue
▪ Entered 9 new states, expanding our presence in the Southern and Western markets
22
1
1Represents the average for the period FY13-FY19.
Achieved Record Sales of $324.1 Million, Up 5.5% Year-Over-Year
Second Quarter Fiscal 2020 Results
1In 2QFY19 diluted earnings per share included $.02 per share of one-time incremental costs related to Monro.Forward initiatives. In the first six months of fiscal 2020, there was $.01 of one-time cost related to increased acquisition activity, compared to $.04 of one-time costs related to
Monro.Forward initiatives in the first six months of fiscal 2019. 23
2QFY20 2QFY19 Δ 1HFY20 1HFY19 Δ
Sales (millions) $324.1 $307.1 5.5% $641.2 $602.9 6.3%
Same Store Sales 0.0% 3.2% (320 bps) 0.4% 2.5% (210 bps)
Gross Margin 37.7% 39.1% (140 bps) 39.0% 39.3% (30 bps)
Operating Margin 10.3% 11.2% (90 bps) 10.9% 11.2% (30 bps)
GAAP EPS $.60 $.65 (7.7%) $1.26 $1.26 0.0%
One-time Costs1 - $.02 - $.01 $.04 -
Adjusted EPS $.60 $.67 (10.4%) $1.27 $1.30 (2.3%)
Fiscal 2020 Outlook
FY20 FY19 Δ
Sales (millions) $1,295 to $1,315 $1,200 7.9% to 9.6%
Same Store Sales 1.0% to 2.0% 2.3%-130 bps to
-30 bps
GAAP EPS $2.45 to $2.55 $2.37 3.4% to 7.6%
Updates Fiscal 2020 Comparable Store Sales and EPS Guidance Ranges1
Operating Margin
▪ Assumes operating margin of ~10.6% at midpoint of FY20 sales
guidance
▪ Expect relatively stable tire and oil costs year-over-year
▪ Expect to generate earnings increase on a comparable store sales
increase above ~1%
Additional Guidance Assumptions (at the midpoint)
▪ Implies EPS of $1.24 in 2HFY20, an increase of 11.7% as
compared to $1.11 in 2HFY19
▪ Interest expense of ~$29 million
▪ Depreciation and amortization of ~$65 million
▪ EBITDA of ~$205 million
▪ Tax rate of ~23.5%
▪ Capital expenditures of ~$65 million
▪ 34 million weighted average number of diluted shares outstanding
Stores
▪ Guidance includes recently announced and completed
acquisitions and excludes any additional potential acquisitions
▪ Guidance includes six ground-up greenfield store openings in
FY20
241Guidance as of October 24, 2019
Disciplined Capital Allocation
Executing on Growth Strategy While Maintaining a Disciplined Approach to Capital Allocation
Investing in the Business
▪ 1HFY20 capex of $23.8M
▪ Continue to expect ~$75M of incremental Capex over 5 years to invest in store re-image and technology
Returning Cash to Shareholders
▪ In 1HFY20, paid $14.8M in dividends
▪ Currently $.22 per share quarterly, an increase of 10% from 2QFY19
Executing on M&A Opportunities
▪ In 1HFY20, spent $65.0M on acquisitions
▪ Acquisitions announced and completed in fiscal 2020 represent $120M in annualized sales
Utilizing Strong Balance Sheet
▪ In 1HFY20, generated $78.9M of operating cash flow
▪ Debt-to-EBITDA ratio as of September 2019 of 2.2x provides significant flexibility to fund M&A strategy
25
Investment Highlights
▪ Leading chain of Company-operated undercar care facilities in the U.S. with a wide breadth of product and service offerings
▪ Strong position in Northeast, Great Lakes and Mid-Atlantic and expanding into Southern and Western markets with a
presence in 30 states
▪ 18 years of consecutive annual sales growth
▪ Low cost operator with strong operating margins
▪ Well-positioned to capitalize on a favorable industry backdrop
▪ Monro.Forward strategy creating a scalable platform to drive sustainable growth, with a focus on operational excellence to
increase overall customer lifetime value
▪ Significant growth opportunity to execute disciplined acquisition strategy in a highly fragmented industry
▪ Strong balance sheet and cash flow
▪ Delivering consistent shareholder returns with fourteen dividend increases, every year since a cash dividend was initiated
26
Appendix
27
Monro.Forward: Investments in Technology
Significant Investments in Technology to Support Monro.Forward Strategy
28
Area Strategic Rationale Timing
Business Intelligence • KPI dashboards for stores and management• Launched in Q4 FY18
• Ongoing company-wide expansion
Monro University
Learning Management System
• Ensures consistent onboarding and teammate training
• Develop clear career paths
• Deliver standard operating procedure training
• Launched in Q3 FY19
• Ongoing expansion across store base
Store Network
Infrastructure Upgrade
• Enable and support cloud based merchandising strategy
• Enable customer-facing technology
• Launched in 120 stores
• To be implemented across base by Q1
FY21
Digital Phone and Customer
Communication System
• Eliminate cost of analog phone system
• Simplify phone execution for store personnel
• Enable customer-centric call and text messaging management
• In pilot stages at 30 stores
• To be implemented across base by Q1
FY21
Store Staffing Model &
Scheduling System
• Eliminate paper-based scheduling
• Optimizes store staffing and day part scheduling
• Improves part-time scheduling capabilities
• Pilot in Q4 FY20
• To be launched across base in Q1 FY21
Tire Category Management &
Pricing System
• Enterprise solution to dynamically manage pricing at the SKU level
• Partially automates optimization of tire volume/margins by providing
real-time elasticity
• Pilot in Q4 FY20
• To be launched across base in Q1 FY21
Cloud-Based Car Inspection
Scanning Tool
• State of the art technology for technicians to provide industry-
leading service
• Provides efficient tool for actively managing customer needs
• In pilot stages
• To be implemented in FY21
Q2 FY19 Q3 FY19 Q4 FY19 Q2 FY20 Q3 FY20 Q4 FY20Q4 FY18 FY20FY19 FY21
Monro.Forward Strategic Initiatives
New store comp plans
Technology based in-store experience
Data-driven “new customer” marketing
Monro omnichannel & e-commerce
Store staffing & scheduling system
Improve Customer Experience
Enhance Customer-Centric Engagement
Optimize Product & Service Offering
Accelerate Productivity & Team Engagement
New in-store sales packages
Scheduled maintenance in-store selling
Data-driven CRM
New websites
Scale store refresh & operational excellence
= Completed Initiatives29
Pilot store refresh & operational excellence
Monro University pilot (includes career path, LMS)
Foundational Technology & Tools
Business intelligence system
Store network infrastructure upgrade
Digital phone and customer communication system
Optimize tire assortment
Cloud based car inspection tool
Tire category management & pricing system
top related