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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/04/21 Monro, Inc. 10-Q 12/26/20 53:7.9M Certent, Inc./FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 845K
2: EX-10.73 Material Contract HTML 94K
3: EX-31.1 Certification -- §302 - SOA'02 HTML 22K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 23K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 19K
12: R1 Document and Entity Information HTML 68K
13: R2 Consolidated Balance Sheets HTML 116K
14: R3 Consolidated Balance Sheets (Parenthetical) HTML 35K
15: R4 Consolidated Statements Of Income And HTML 70K
Comprehensive Income
16: R5 Consolidated Statements Of Changes in HTML 98K
Shareholders' Equity
17: R6 Consolidated Statements Of Changes in HTML 21K
Shareholders' Equity (Parenthetical)
18: R7 Consolidated Statements Of Cash Flows HTML 98K
19: R8 Description Of Business And Basis Of Presentation HTML 38K
20: R9 Impact Of The COVID-19 Pandemic HTML 20K
21: R10 Acquisitions HTML 189K
22: R11 Earnings Per Common Share HTML 145K
23: R12 Income Taxes HTML 19K
24: R13 Fair Value HTML 20K
25: R14 Cash Dividend HTML 19K
26: R15 Revenues HTML 134K
27: R16 Long-Term Debt HTML 25K
28: R17 Commitments and Contingencies HTML 111K
29: R18 Description Of Business And Basis Of Presentation HTML 43K
(Policy)
30: R19 Acquisitions (Tables) HTML 152K
31: R20 Earnings Per Common Share (Tables) HTML 140K
32: R21 Revenues (Tables) HTML 123K
33: R22 Commitments and Contingencies (Tables) HTML 104K
34: R23 Impact Of The COVID-19 Pandemic (Narrative) HTML 20K
(Details)
35: R24 Acquisitions (Narrative) (Details) HTML 88K
36: R25 Acquisitions (Schedule Of Purchase Price HTML 77K
Allocation) (Details)
37: R26 Acquisitions (Schedule Of Intangible Assets HTML 26K
Acquired) (Details)
38: R27 Earnings Per Common Share (Narrative) (Details) HTML 18K
39: R28 Earnings Per Common Share (Reconciliation Of Basic HTML 54K
And Diluted Earnings Per Share) (Details)
40: R29 Income Taxes (Narrative) (Details) HTML 18K
41: R30 Fair Value (Narrative) (Details) HTML 18K
42: R31 Cash Dividend (Narrative) (Details) HTML 19K
43: R32 Revenues (Narrative) (Details) HTML 34K
44: R33 Revenues (Narrative) (Performance Obligation) HTML 24K
(Details)
45: R34 Revenues (Schedule Of Changes In Deferred Revenue) HTML 24K
(Details)
46: R35 Revenues (Schedule Of Disaggregated Revenue By HTML 32K
Product Group) (Details)
47: R36 Long-Term Debt (Narrative) (Details) HTML 43K
48: R37 Commitments and Contingencies (Narrative) HTML 30K
(Details)
49: R38 Commitments and Contingencies (Schedule Of HTML 77K
Payments Due By Period) (Details)
51: XML IDEA XML File -- Filing Summary XML 89K
11: XML XBRL Instance -- mnro-20201226x10q_htm XML 1.77M
50: EXCEL IDEA Workbook of Financial Reports XLSX 56K
7: EX-101.CAL XBRL Calculations -- mnro-20201226_cal XML 204K
8: EX-101.DEF XBRL Definitions -- mnro-20201226_def XML 266K
9: EX-101.LAB XBRL Labels -- mnro-20201226_lab XML 755K
10: EX-101.PRE XBRL Presentations -- mnro-20201226_pre XML 585K
6: EX-101.SCH XBRL Schema -- mnro-20201226 XSD 115K
52: JSON XBRL Instance as JSON Data -- MetaLinks 218± 323K
53: ZIP XBRL Zipped Folder -- 0001562762-21-000020-xbrl Zip 180K
| mnro-20201226x10q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________
FORM i 10-Q
____________________________________________________________
(Mark One)
i x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i December 26, 2020.
OR
i ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: i 0-19357
____________________________________________________________
i MONRO, INC.
(Exact name of registrant as specified in its charter)
____________________________________________________________
|
|
i New York | i 16-0838627 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
|
|
i 200 Holleder Parkway, i Rochester, i New York | i 14615 |
(Address of principal executive offices) | (Zip code) |
Registrant’s telephone number, including area code: ( i 585) i 647-6400
_________________________________________
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
i Common Stock, par value $0.01 per share |
| i MNRO |
| i The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
i Large Accelerated Filer x Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company i ¨ |
Emerging Growth Company i ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes i x No
As of January 22, 2021, i 33,427,406 shares of the registrant's common stock, $0.01 par value per share, were outstanding.
MONRO, INC.
|
|
Page No. | |
| |
3 | |
4 | |
5 | |
6 | |
7 | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 15 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 22 |
22 | |
| |
23 | |
23 | |
24 | |
25 |
MONRO, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
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|
|
| December 26, |
| |||
|
| 2020 |
| 2020 | ||
|
| (Dollars in thousands) | ||||
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
| $ | i 24,959 |
| $ | i 345,476 |
Accounts receivable |
|
| i 15,298 |
|
| i 14,510 |
Federal and state income taxes receivable |
|
| i 6,764 |
|
| i 8,056 |
Inventories |
|
| i 165,141 |
|
| i 187,441 |
Other current assets |
|
| i 55,193 |
|
| i 40,537 |
Total current assets |
|
| i 267,355 |
|
| i 596,020 |
Property, plant and equipment |
|
| i 711,846 |
|
| i 682,932 |
Less - Accumulated depreciation and amortization |
|
| ( i 377,553) |
|
| ( i 354,295) |
Net property, plant and equipment |
|
| i 334,293 |
|
| i 328,637 |
Finance lease and financing obligation assets, net |
|
| i 279,304 |
|
| i 196,575 |
Operating lease assets, net |
|
| i 207,508 |
|
| i 199,729 |
Goodwill |
|
| i 689,847 |
|
| i 671,843 |
Intangible assets, net |
|
| i 27,080 |
|
| i 29,781 |
Other non-current assets |
|
| i 19,375 |
|
| i 20,688 |
Long-term deferred income tax assets |
|
| i 5,915 |
|
| i 6,184 |
Total assets |
| $ | i 1,830,677 |
| $ | i 2,049,457 |
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Current portion of finance leases and financing obligations |
| $ | i 37,146 |
| $ | i 32,257 |
Current portion of operating lease liabilities |
|
| i 30,749 |
|
| i 30,181 |
Accounts payable |
|
| i 131,852 |
|
| i 99,504 |
Accrued payroll, payroll taxes and other payroll benefits |
|
| i 16,303 |
|
| i 14,429 |
Accrued insurance |
|
| i 49,323 |
|
| i 43,387 |
Deferred revenue |
|
| i 12,139 |
|
| i 13,129 |
Other current liabilities |
|
| i 33,034 |
|
| i 22,049 |
Total current liabilities |
|
| i 310,546 |
|
| i 254,936 |
Long-term debt |
|
| i 190,000 |
|
| i 566,400 |
Long-term finance leases and financing obligations |
|
| i 372,553 |
|
| i 298,373 |
Long-term operating lease liabilities |
|
| i 181,938 |
|
| i 170,954 |
Other long-term liabilities |
|
| i 25,783 |
|
| i 12,873 |
Long-term deferred income tax liabilities |
|
| i 12,306 |
|
| i 10,069 |
Long-term income taxes payable |
|
| i 1,508 |
|
| i 1,412 |
Total liabilities |
|
| i 1,094,634 |
|
| i 1,315,017 |
Commitments and contingencies |
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
Class C Convertible Preferred Stock, $ i i 1.50 /
par value, $ i i 0.064 / conversion value, |
|
| i 33 |
|
| i 33 |
Common
Stock, $ i i 0.01 / par value,
i i 65,000,000 / shares authorized; i 39,667,277
and |
|
| i 397 |
|
| i 396 |
Treasury Stock, i i 6,359,871 / shares, at cost |
|
| ( i 108,729) |
|
| ( i 108,729) |
Additional paid-in capital |
|
| i 231,708 |
|
| i 229,774 |
Accumulated other comprehensive loss |
|
| ( i 7,399) |
|
| ( i 6,889) |
Retained earnings |
|
| i 620,033 |
|
| i 619,855 |
Total shareholders' equity |
|
| i 736,043 |
|
| i 734,440 |
Total liabilities and shareholders' equity |
| $ | i 1,830,677 |
| $ | i 2,049,457 |
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
|
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| Quarter Ended |
| Nine Months Ended | ||||||||
|
| December 26, |
| December 28, |
| December 26, |
| |||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
|
| (Dollars in thousands, | ||||||||||
Sales |
| $ | i 284,591 |
| $ | i 329,281 |
| $ | i 820,237 |
| $ | i 970,458 |
Cost of sales, including distribution and occupancy costs |
|
| i 188,453 |
|
| i 204,929 |
|
| i 532,119 |
|
| i 595,886 |
Gross profit |
|
| i 96,138 |
|
| i 124,352 |
|
| i 288,118 |
|
| i 374,572 |
Operating, selling, general and administrative expenses |
|
| i 80,450 |
|
| i 92,781 |
|
| i 236,603 |
|
| i 273,273 |
Operating income |
|
| i 15,688 |
|
| i 31,571 |
|
| i 51,515 |
|
| i 101,299 |
Interest expense, net of interest income |
|
| i 6,819 |
|
| i 6,983 |
|
| i 21,526 |
|
| i 21,100 |
Other income, net of other loss |
|
| ( i 65) |
|
| ( i 274) |
|
| ( i 132) |
|
| ( i 655) |
Income before income taxes |
|
| i 8,934 |
|
| i 24,862 |
|
| i 30,121 |
|
| i 80,854 |
Provision for income taxes |
|
| i 2,251 |
|
| i 5,982 |
|
| i 7,605 |
|
| i 19,054 |
Net income |
| $ | i 6,683 |
| $ | i 18,880 |
| $ | i 22,516 |
| $ | i 61,800 |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in pension, net of tax benefit |
|
| ( i 170) |
|
| ( i 89) |
|
| ( i 510) |
|
| ( i 266) |
Other comprehensive loss |
|
| ( i 170) |
|
| ( i 89) |
|
| ( i 510) |
|
| ( i 266) |
Comprehensive income |
| $ | i 6,513 |
| $ | i 18,791 |
| $ | i 22,006 |
| $ | i 61,534 |
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | i 0.20 |
| $ | i 0.56 |
| $ | i 0.67 |
| $ | i 1.85 |
Diluted |
| $ | i 0.20 |
| $ | i 0.56 |
| $ | i 0.67 |
| $ | i 1.82 |
Weighted
average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| i 33,307 |
|
| i 33,274 |
|
| i 33,296 |
|
| i 33,234 |
Diluted |
|
| i 33,827 |
|
| i 33,973 |
|
| i 33,840 |
|
| i 33,971 |
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(Dollars and shares in thousands)
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| Class C Convertible |
| Common Stock |
| Treasury Stock |
| Additional |
| Accumulated |
| Retained |
|
|
| ||||||||||||
|
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Loss |
| Earnings |
| Total | |||||||
Balance at September 28, 2019 |
| i 22 |
| $ | i 33 |
| i 39,628 |
| $ | i 396 |
| i 6,360 |
| $ | ( i 108,729) |
| $ | i 226,948 |
| $ | ( i 4,713) |
| $ | i 619,641 |
| $ | i 733,576 | |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| i 18,880 |
|
| i 18,880 | |
Other comprehensive loss: |
|
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|
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|
|
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| |
Pension liability adjustment |
|
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|
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|
|
|
|
|
|
|
| ( i 89) |
|
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|
| ( i 89) | |
Cash dividends (1): | Preferred |
|
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| ( i 112) |
|
| ( i 112) |
| Common |
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|
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|
|
|
|
|
|
|
|
|
| ( i 7,321) |
|
| ( i 7,321) |
Dividend payable |
|
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| ( i 11) |
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| ( i 11) | |
Activity related to equity-based plans |
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| i 12 |
|
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|
| i 701 |
|
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|
|
|
|
| i 701 | |
Stock-based compensation |
|
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|
|
|
|
| i 968 |
|
|
|
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|
|
|
| i 968 | |
Balance at December 28, 2019 |
| i 22 |
| $ | i 33 |
| i 39,640 |
| $ | i 396 |
| i 6,360 |
| $ | ( i 108,729) |
| $ | i 228,617 |
| $ | ( i 4,802) |
| $ | i 631,077 |
| $ | i 746,592 | |
|
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Balance at September 26, 2020 |
| i 22 |
| $ | i 33 |
| i 39,667 |
| $ | i 397 |
| i 6,360 |
| $ | ( i 108,729) |
| $ | i 231,095 |
| $ | ( i 7,229) |
| $ | i 620,800 |
| $ | i 736,367 | |
Net income |
|
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|
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|
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|
|
|
|
| i 6,683 |
|
| i 6,683 | |
Other comprehensive loss: |
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|
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| |
Pension liability adjustment |
|
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|
|
|
|
|
|
|
|
| ( i 170) |
|
|
|
|
| ( i 170) | |
Cash dividends (1): | Preferred |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( i 112) |
|
| ( i 112) |
| Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( i 7,328) |
|
| ( i 7,328) |
Dividend payable |
|
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|
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|
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|
|
| ( i 10) |
|
| ( i 10) | |
Activity related to equity-based plans |
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|
|
|
|
|
|
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|
|
|
|
|
|
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|
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| — | |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| i 613 |
|
|
|
|
|
|
|
| i 613 | |
Balance at December 26, 2020 |
| i 22 |
| $ | i 33 |
| i 39,667 |
| $ | i 397 |
| i 6,360 |
| $ | ( i 108,729) |
| $ | i 231,708 |
| $ | ( i 7,399) |
| $ | i 620,033 |
| $ | i 736,043 | |
|
|
|
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|
|
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| |
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|
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|
|
|
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|
|
|
Balance at March 30, 2019 |
| i 22 |
| $ | i 33 |
| i 39,511 |
| $ | i 395 |
| i 6,360 |
| $ | ( i 108,729) |
| $ | i 220,173 |
| $ | ( i 4,536) |
| $ | i 592,174 |
| $ | i 699,510 | |
Accounting change - cumulative effect |
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
| ( i 582) |
|
| ( i 582) | |
Adjusted balance |
| i 22 |
|
| i 33 |
| i 39,511 |
|
| i 395 |
| i 6,360 |
|
| ( i 108,729) |
|
| i 220,173 |
|
| ( i 4,536) |
|
| i 591,592 |
|
| i 698,928 | |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| i 61,800 |
|
| i 61,800 | |
Other comprehensive loss: |
|
|
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|
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|
|
|
|
|
|
|
|
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| |
Pension liability adjustment |
|
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|
|
|
|
|
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|
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|
|
|
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|
|
|
|
| ( i 266) |
|
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|
| ( i 266) | |
Cash dividends (1): | Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( i 337) |
|
| ( i 337) |
| Common |
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|
|
| ( i 21,944) |
|
| ( i 21,944) |
Dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( i 34) |
|
| ( i 34) | |
Activity related to equity-based plans |
|
|
|
|
|
| i 129 |
|
| i 1 |
|
|
|
|
|
|
| i 5,589 |
|
|
|
|
|
|
|
| i 5,590 | |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| i 2,855 |
|
|
|
|
|
|
|
| i 2,855 | |
Balance at December 28, 2019 |
| i 22 |
| $ | i 33 |
| i 39,640 |
| $ | i 396 |
| i 6,360 |
| $ | ( i 108,729) |
| $ | i 228,617 |
| $ | ( i 4,802) |
| $ | i 631,077 |
| $ | i 746,592 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 28, 2020 |
| i 22 |
| $ | i 33 |
| i 39,645 |
| $ | i 396 |
| i 6,360 |
| $ | ( i 108,729) |
| $ | i 229,774 |
| $ | ( i 6,889) |
| $ | i 619,855 |
| $ | i 734,440 | |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| i 22,516 |
|
| i 22,516 | |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( i 510) |
|
|
|
|
| ( i 510) | |
Cash dividends (1): | Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( i 337) |
|
| ( i 337) |
| Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( i 21,978) |
|
| ( i 21,978) |
Dividend payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( i 23) |
|
| ( i 23) | |
Activity related to equity-based plans |
|
|
|
|
|
| i 22 |
|
| i 1 |
|
|
|
|
|
|
| ( i 194) |
|
|
|
|
|
|
|
| ( i 193) | |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| i 2,128 |
|
|
|
|
|
|
|
| i 2,128 | |
Balance at December 26, 2020 |
| i 22 |
| $ | i 33 |
| i 39,667 |
| $ | i 397 |
| i 6,360 |
| $ | ( i 108,729) |
| $ | i 231,708 |
| $ | ( i 7,399) |
| $ | i 620,033 |
| $ | i 736,043 | |
(1)Declared quarterly dividend of $ i i i i i i 0.22 / / / / / per common share or common share equivalent paid in each of the first, second and third quarter of fiscal 2021 and fiscal 2020.
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended | ||||
|
| December 26, |
| |||
|
| 2020 |
| 2019 | ||
|
| (Dollars in thousands) | ||||
|
| Increase (Decrease) in Cash | ||||
Cash flows from operating activities: |
|
|
|
|
|
|
Net income |
| $ | i 22,516 |
| $ | i 61,800 |
Adjustments to reconcile net income to net cash provided by operating activities - |
|
|
|
|
|
|
Depreciation and amortization |
|
| i 57,598 |
|
| i 47,329 |
Stock-based compensation expense |
|
| i 2,128 |
|
| i 2,855 |
Gain on disposal of assets |
|
| ( i 156) |
|
| ( i 918) |
Impairment of long-lived assets |
|
| i 99 |
|
| i 78 |
Deferred income tax expense |
|
| i 4,041 |
|
| i 7,426 |
Change in operating assets and liabilities (excluding acquisitions): |
|
|
|
|
|
|
Accounts receivable |
|
| ( i 788) |
|
| ( i 2,356) |
Inventories |
|
| i 23,787 |
|
| ( i 3,768) |
Other current assets |
|
| i 7,848 |
|
| ( i 447) |
Other non-current assets |
|
| i 2,288 |
|
| i 19,265 |
Accounts payable |
|
| i 32,348 |
|
| i 11,918 |
Accrued expenses |
|
| i 15,610 |
|
| i 1,097 |
Federal and state income taxes payable |
|
| i 1,292 |
|
| i 3,934 |
Other long-term liabilities |
|
| ( i 9,491) |
|
| ( i 22,954) |
Long-term income taxes payable |
|
| i 96 |
|
| i 572 |
Total adjustments |
|
| i 136,700 |
|
| i 64,031 |
Net cash provided by operating activities |
|
| i 159,216 |
|
| i 125,831 |
Cash flows from investing activities: |
|
|
|
|
|
|
Capital expenditures |
|
| ( i 39,214) |
|
| ( i 42,226) |
Acquisitions, net of cash acquired |
|
| ( i 18,095) |
|
| ( i 104,254) |
Proceeds from the disposal of assets |
|
| i 388 |
|
| i 426 |
Other |
|
| i 1,025 |
|
| i 587 |
Net cash used for investing activities |
|
| ( i 55,896) |
|
| ( i 145,467) |
Cash flows from financing activities: |
|
|
|
|
|
|
Proceeds from borrowings |
|
| — |
|
| i 356,779 |
Principal payments on long-term debt, finance leases and financing obligations |
|
| ( i 400,657) |
|
| ( i 317,039) |
Exercise of stock options |
|
| i 9 |
|
| i 5,957 |
Dividends paid |
|
| ( i 22,315) |
|
| ( i 22,281) |
Deferred financing costs |
|
| ( i 874) |
|
| ( i 1,168) |
Net cash (used for) provided by financing activities |
|
| ( i 423,837) |
|
| i 22,248 |
(Decrease) increase in cash |
|
| ( i 320,517) |
|
| i 2,612 |
Cash and cash equivalents at beginning of period |
|
| i 345,476 |
|
| i 6,214 |
Cash and cash equivalents at end of period |
| $ | i 24,959 |
| $ | i 8,826 |
Supplemental information: |
|
|
|
|
|
|
Leased assets obtained in exchange for finance lease liabilities |
| $ | i 100,755 |
| $ | i 54,286 |
Leased assets obtained in exchange for operating lease liabilities |
|
| i 20,364 |
|
| i 5,871 |
The accompanying notes are an integral part of these financial statements.
i NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
i Description of Business
Monro, Inc. and its wholly owned operating subsidiaries, Monro Service Corporation, Car-X, LLC, MNRO Holdings, LLC and MNRO Service Holdings, LLC (together, “Monro,” the “Company,” “we,” “us,” or “our”), are engaged principally in providing automotive undercar repair and tire sales and services in the United States.
Monro’s operations are organized and managed in one operating segment. The internal management financial reporting that is the basis for evaluation in order to assess performance and allocate resources by our chief operating decision maker consists of consolidated data that includes the results of our retail, commercial and wholesale locations. As such, our one operating segment reflects how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management and the structure of our internal financial reporting.
i Basis of Presentation
The accompanying unaudited, condensed consolidated financial statements (“Consolidated Financial Statements”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statement presentation. The Consolidated Financial Statements include the consolidated accounts of the Company with all intercompany transactions eliminated. In the opinion of management, the information furnished herein reflects all adjustments (consisting of items of a normal recurring nature), which are necessary for a fair statement of the results for the interim period. The Consolidated Financial Statements should be read in conjunction with the Company’s consolidated financial statements and related Notes to Consolidated Financial Statements presented in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2020 (“fiscal 2020”). Operating results and cash flows for the quarter and nine months ended December 26, 2020 are not necessarily indicative of the results that may be expected for other interim periods or for the fiscal year ending March 27, 2021 (“fiscal 2021”).
i Fiscal Year
We report our results on a 52/53 week fiscal year with the fiscal year ending on the last Saturday in March of each year. The following are the dates represented by each fiscal period reported in the Consolidated Financial Statements:
|
|
|
|
“Quarter Ended Fiscal December 2020” | September 27, 2020 – December 26, 2020 (13 weeks) |
“Quarter Ended Fiscal December 2019” | September 29, 2019 – December 28, 2019 (13 weeks) |
“Nine Months Ended Fiscal December 2020” | March 29, 2020 – December 26, 2020 (39 weeks) |
“Nine Months Ended Fiscal December 2019” | March 31, 2019 – December 28, 2019 (39 weeks) |
Fiscal 2021 is a 52 week year.
i Reclassifications
Certain amounts in these financial statements have been reclassified to maintain comparability among the periods presented.
i Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance which eliminates, adds and modifies certain disclosure requirements for fair value measurements. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019. Early adoption was permitted. We adopted this guidance during the first quarter of fiscal 2021. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.
In December 2019, the FASB issued new accounting guidance intended to simplify the accounting for income taxes. The new guidance removes certain exceptions to the general principles in Accounting Standards Codification Topic 740 Income Taxes and amends existing guidance to improve consistent application. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements.
Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification) and the Securities and Exchange Commission did not, or are not expected to, have a material effect on our Consolidated Financial Statements.
i NOTE 2 – IMPACT OF THE COVID-19 PANDEMIC
In response to the unprecedented and rapid spread of COVID-19 (coronavirus), many U.S. state governments, in states in which we operate, have taken preventative or protective actions, such as issuing stay-at-home restrictions and social distancing measures. State and local governments have ordered temporary closures of some businesses and numerous other businesses have temporarily closed voluntarily. Further, individuals’ ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of certain businesses. Substantially all Company-operated retail stores operated under a reduced schedule throughout the quarter to match lower demand.
Given the uncertainties surrounding the impacts of the COVID-19 pandemic on our future financial condition, results of operations and cash flows, we have taken a number of actions in response to prevailing uncertain market conditions. In order to enhance our liquidity position, we took a precautionary measure and borrowed $ i 350 million available to us under our Credit Facility (as defined in Note 9 below) in March 2020. We subsequently repaid the $ i 350 million previously borrowed during the nine months ended December 26, 2020. Additionally, we negotiated rent deferrals for a significant number of our stores, as well as other rent reductions. See additional discussion of these rent deferrals and reductions under Note 10.
i NOTE 3 – ACQUISITIONS
Monro’s acquisitions are strategic moves in our plan to fill in and expand our presence in our existing and contiguous markets, expand into new markets and leverage fixed operating costs such as distribution, advertising and administration. Acquisitions in this footnote include acquisitions of i five or more locations as well as acquisitions of i one to i four locations that are part of our greenfield store growth strategy.
Fiscal 2021
On i December 6, 2020, we acquired i 17 retail tire and automotive repair stores located in California from Fred Allen Enterprises, Inc. for $ i 17.4 million. These stores will operate under the Tire Choice name. The acquisition was financed through our Credit Facility. The results of operations for the acquisition are included in our financial results from the acquisition date.
Prior to this acquisition, our acquisition activity was paused due to the impact of the COVID-19 pandemic.
The acquisition resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining the business with ours, as well as unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded a customer list intangible asset with a useful life of i seven years at its estimated fair value of approximately $ i 0.4 million.
We expensed all costs related to the acquisition in the quarter ended December 26, 2020. The total costs related to the completed acquisition were $ i 0.1 million and these costs are included in the Consolidated Statements of Income and Comprehensive Income primarily under operating, selling, general and administrative expenses.
Sales related to the completed acquisition totaled $ i 0.9 million for the period from acquisition date through December 26, 2020.
Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.
The preliminary fair values of identifiable assets acquired and liabilities assumed were based on preliminary valuations and estimates. The consideration transferred and net identifiable liabilities assumed were recorded as goodwill. The preliminary allocation of the purchase price as of December 26, 2020, with respect to the acquisition during the quarter, was as follows:
i
|
|
|
|
|
|
|
|
|
| As of | |
|
| (Dollars in | |
Inventory |
| $ | i 1,220 |
Other current assets |
|
| i 149 |
Property, plant and equipment |
|
| i 683 |
Finance lease and financing obligation assets, net |
|
| i 4,328 |
Operating lease assets, net |
|
| i 9,531 |
Intangible asset |
|
| i 418 |
Other non-current assets |
|
| i 31 |
Long-term deferred income tax assets |
|
| i 1,371 |
Total assets acquired |
|
| i 17,731 |
Current portion of finance leases and financing obligations |
|
| i 657 |
Current portion of operating lease liabilities |
|
| i 1,067 |
Deferred revenue |
|
| i 697 |
Other current liabilities |
|
| i 4 |
Long-term finance leases and financing obligations |
|
| i 7,361 |
Long-term operating lease liabilities |
|
| i 7,984 |
Other long-term liabilities |
|
| i 536 |
Total liabilities assumed |
|
| i 18,306 |
Total net identifiable liabilities assumed |
| $ | ( i 575) |
Total consideration transferred |
| $ | i 17,426 |
Less: total net identifiable liabilities assumed |
|
| ( i 575) |
Goodwill |
| $ | i 18,001 |
Fiscal 2020
During the first nine months of fiscal 2020, we acquired the following businesses for an aggregate purchase price of $ i 103.7 million. The acquisitions were financed through our Credit Facility. The results of operations for these acquisitions are included in our financial results from the respective acquisition dates.
·On i November 17, 2019, we acquired i 18 retail tire and automotive repair stores located in Nevada and Idaho from Nevada Tire Holdings, LLC and Idaho Tire Holdings, LLC. These stores operate under the Tire Choice name.
·On i October 27, 2019, we acquired i six retail tire and automotive repair stores located in California from S&S Unlimited, Inc. These stores will operate under the Tire Choice name.
·On i October 27, 2019, we acquired i three retail tire and automotive repair stores located in California from Lloyd’s Tire Service, Inc. These stores will operate under the Tire Choice name.
·On i August 25, 2019, we acquired i one retail tire and automotive repair store located in Louisiana from Atlas Tire Center, Inc. This store operates under the Tire Choice name.
·On i August 25, 2019, we acquired i two retail tire and automotive repair stores located in Louisiana from LRZ3 Auto, LLC. These stores operate under the Tire Choice name.
·On i August 25, 2019, we acquired i one retail tire and automotive repair store located in Louisiana from T-Boy’s Tire and Automotive, LLC. This store operates under the Tire Choice name.
·On i August 25, 2019, we acquired i two retail tire and automotive repair stores located in Louisiana from Twin Tire & Auto Care, Inc. These stores operate under the Tire Choice name.
·On i August 25, 2019, we acquired i one retail tire and automotive repair store located in Louisiana from Twin Tire & Auto Care Team, Inc. This store operates under the Tire Choice name.
·On i August 25, 2019, we acquired i one retail tire and automotive repair store located in Louisiana from Scotty’s Tire & Automotive, Inc. This store operates under the Tire Choice name.
·On i June 23, 2019, we acquired i two retail tire and automotive repair stores located in California from BAW LLC. These stores operate under the Tire Choice name.
·On i May 19, 2019, we acquired i 40 retail tire and automotive repair stores and i one distribution center located in California from Certified Tire & Service Centers, Inc. These stores operate under the Tire Choice name.
·On i March 31, 2019, we acquired i 12 retail tire and automotive repair stores located in Louisiana from Allied Discount Tire & Brake, Inc. These stores operate under the Tire Choice name.
These acquisitions resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining these businesses with ours, as well as unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes. We have recorded finite-lived intangible assets at their estimated fair value related to customer lists.
We expensed all costs related to acquisitions in the nine months ended December 28, 2019. The total costs related to completed acquisitions were $ i 0.4 million and $ i 1.2 million for the quarter and nine months ended December 28, 2019, respectively. These costs are included in the Consolidated Statements of Income and Comprehensive Income primarily under operating, selling, general and administrative expenses.
Sales for the fiscal 2020 acquired entities for the quarter and nine months ended December 28, 2019 totaled $ i 18.5 million and $ i 38.7 million, respectively, for the period from acquisition date through December 28, 2019.
Supplemental pro forma information for the current or prior reporting periods has not been presented due to the impracticability of obtaining detailed, accurate or reliable data for the periods the acquired entities were not owned by Monro.
We have recorded the identifiable assets acquired and liabilities assumed at their fair values as of their respective acquisition dates (including any measurement period adjustments), with the consideration transferred and net identifiable liabilities assumed recorded as goodwill as follows:
i
|
|
|
|
|
|
|
|
|
| As of | |
|
| (Dollars in | |
Inventories |
| $ | i 4,433 |
Other current assets |
|
| i 706 |
Property, plant and equipment |
|
| i 2,405 |
Finance lease and financing obligation assets, net |
|
| i 29,147 |
Operating lease assets, net |
|
| i 42,680 |
Intangible assets |
|
| i 2,847 |
Other non-current assets |
|
| i 375 |
Long-term deferred income tax assets |
|
| i 4,870 |
Total assets acquired |
|
| i 87,463 |
Current portion of finance leases and financing obligations |
|
| i 2,672 |
Current portion of operating lease liabilities |
|
| i 4,416 |
Deferred revenue |
|
| i 1,618 |
Other current liabilities |
|
| i 358 |
Long-term finance leases and financing obligations |
|
| i 36,225 |
Long-term operating lease liabilities |
|
| i 43,668 |
Other long-term liabilities |
|
| i 1,747 |
Total liabilities assumed |
|
| i 90,704 |
Total net identifiable liabilities assumed |
| $ | ( i 3,241) |
Total consideration transferred |
| $ | i 103,692 |
Less: total net identifiable liabilities assumed |
|
| ( i 3,241) |
Goodwill |
| $ | i 106,933 |
The following are the intangible assets acquired and their respective fair value and weighted average useful life:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of | ||||
|
| Dollars in |
| Weighted | ||
Customer lists |
| $ | i 2,847 |
|
| i 7 years |
As a result of the updated purchase price allocations for the entities acquired during the fiscal year ended March 28, 2020, certain of the fair value amounts previously estimated were adjusted during the measurement period. These measurement period adjustments resulted from updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates.
The measurement period adjustments were not material to the Consolidated Balance Sheet as of December 26, 2020 and the Consolidated Statements of Income and Comprehensive Income for the quarter and nine months ended December 26, 2020.
We continue to refine the valuation data and estimates primarily related to inventory, warranty reserves, intangible assets and real property leases for the fiscal 2021 acquisition which closed during the quarter ended December 26, 2020, and expect to complete the valuations no later than the first anniversary date of the acquisition. We anticipate that adjustments will continue to be made to the fair values of identifiable assets acquired and liabilities assumed and those adjustments may or may not be material.
i NOTE 4 – EARNINGS PER COMMON SHARE
Basic earnings per common share amounts are computed by dividing income available to common shareholders, after deducting preferred stock dividends, by the weighted average number of shares of common stock outstanding. Diluted earnings per common share amounts are calculated by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents represent shares issuable upon the assumed exercise of common stock options outstanding.
A reconciliation of basic and diluted earnings per common share for the quarters and nine months ended December are as follows:
i
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended |
| Nine Months Ended | ||||||||
|
| December 26, |
| December 28, |
| December 26, |
| |||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
|
| (Amounts in thousands, | ||||||||||
|
| except per share data) | ||||||||||
Numerator for earnings per common share calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | i 6,683 |
| $ | i 18,880 |
| $ | i 22,516 |
| $ | i 61,800 |
Less: Preferred stock dividends |
|
| ( i 112) |
|
| ( i 112) |
|
| ( i 337) |
|
| ( i 337) |
Income available to common shareholders |
| $ | i 6,571 |
| $ | i 18,768 |
| $ | i 22,179 |
| $ | i 61,463 |
Denominator for earnings per common share calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares, basic |
|
| i 33,307 |
|
| i 33,274 |
|
| i 33,296 |
|
| i 33,234 |
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
| i 510 |
|
| i 510 |
|
| i 510 |
|
| i 510 |
Stock options |
|
| — |
|
| i 165 |
|
| i 16 |
|
| i 196 |
Restricted stock |
|
| i 10 |
|
| i 24 |
|
| i 18 |
|
| i 31 |
Weighted average common shares, diluted |
|
| i 33,827 |
|
| i 33,973 |
|
| i 33,840 |
|
| i 33,971 |
Basic earnings per common share: |
| $ | i 0.20 |
| $ | i 0.56 |
| $ | i 0.67 |
| $ | i 1.85 |
Diluted earnings per common share: |
| $ | i 0.20 |
| $ | i 0.56 |
| $ | i 0.67 |
| $ | i 1.82 |
The computation of diluted earnings per common share excludes the effect of the assumed exercise of approximately i 672,000 and i 519,000 stock options for the quarter and nine months ended December 26, 2020, respectively, and i 177,000 and i 169,000 stock options for the quarter and nine months ended December 28, 2019, respectively. Such amounts were excluded as the exercise price of these stock options was greater than the average market value of our common stock for those periods, resulting in an anti-dilutive effect on diluted earnings per common share.
i NOTE 5 – INCOME TAXES
For the quarter and nine months ended December 26, 2020, our effective income tax rate was i 25.2%, compared to i 24.1% and i 23.6% for the quarter and nine months ended December 28, 2019, respectively, as discrete items, primarily related to employee stock-based compensation as well as those that are individually insignificant, resulted in a larger tax rate benefit in the prior year periods.
i NOTE 6 – FAIR VALUE
Long-term debt had a carrying amount that approximates a fair value of $ i 190.0 million as of December 26, 2020, as compared to a carrying amount and a fair value of $ i 566.4 million as of March 28, 2020. The carrying value of our debt approximated its fair value due to the variable interest nature of the debt.
i NOTE 7 – CASH DIVIDEND
We paid dividends of $ i 22.3 million during the nine months ended December 26, 2020. However, the declaration of and any determination as to the payment of future dividends will be at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements, compliance with charter and Credit Facility restrictions, and such other factors as the Board of Directors deems relevant. Under our Credit Facility, we may declare, make or pay any dividend or distribution up to $ i 38.5 million in the aggregate for the period from June 30, 2020 to June 30, 2021 if we are in compliance with the financial covenants and other restrictions in the Credit Facility, as amended. For additional information regarding our Credit Facility, see Note 9.
i NOTE 8 – REVENUES
Automotive undercar repair and tire sales and services represent the vast majority of our revenues. We also earn revenue from the sale of tire road hazard warranty agreements as well as commissions earned from the delivery of tires on behalf of certain tire vendors.
Revenue from automotive undercar repair and tire sales and services is recognized at the time the customers take possession of their vehicle or merchandise. For sales to certain customers that are financed through the offering of credit on account, payment terms are established for customers based on our pre-established credit requirements. Payment terms vary depending on the customer and generally range from i 15 to i 45 days. Based on the nature of receivables, no significant financing components exist. Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances. We estimate the reduction to sales and cost of sales for returns based on current sales levels and our historical return experience. Such amounts are immaterial to our Consolidated Financial Statements.
Revenue from the sale of tire road hazard warranty agreements (included in the Tires product group in the second table below) is initially deferred and is recognized over the contract period as costs are expected to be incurred in performing such services, typically i 21 to i 36 months. The amounts recorded for deferred revenue balances at December 26, 2020 and March 28, 2020 were $ i 16.9 million and $ i 18.5 million, respectively, of which $ i 12.1 million and $ i 13.1 million, respectively, are reported in deferred revenue and $ i 4.8 million and $ i 5.4 million, respectively, are reported in other long-term liabilities in our Consolidated Balance Sheets.
The following table summarizes deferred revenue related to road hazard warranty agreements from March 28, 2020 to December 26, 2020:
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| Dollars in | |
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| thousands | |
Balance at March 28, 2020 |
| $ | i 18,506 |
Deferral of revenue |
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| i 10,713 |
Deferral of revenue from acquisitions |
|
| i 1,225 |
Recognition of revenue |
|
| ( i 13,524) |
Balance at December 26, 2020 |
| $ | i 16,920 |
As of December 26, 2020, we expect to recognize $ i 4.0 million of deferred revenue related to road hazard warranty agreements in the remainder of fiscal 2021, $ i 9.6 million of deferred revenue during our fiscal year ending March 26, 2022, and $ i 3.3 million of deferred revenue thereafter.
Under various arrangements, we receive from certain tire vendors a delivery commission and reimbursement for the cost of the tire that we may deliver to customers on behalf of the tire vendor. The commission we earn from these transactions is as an agent and the net amount retained is recorded as sales. (Included in the Tires product group in the following table.)
The following table summarizes disaggregated revenue by product group:
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| Quarter Ended |
| Nine Months Ended | ||||||||
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| December 26, |
| December 28, |
| December 26, |
| |||||
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| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
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| (Dollars in thousands) | ||||||||||
Revenues: |
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Brakes |
| $ | i 29,962 |
| $ | i 38,261 |
| $ | i 94,015 |
| $ | i 131,575 |
Exhaust |
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| i 5,391 |
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| i 6,256 |
|
| i 15,533 |
|
| i 20,317 |
Steering |
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| i 20,464 |
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| i 24,987 |
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| i 60,497 |
|
| i 77,397 |
Tires |
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| i 162,442 |
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| i 179,086 |
|
| i 454,217 |
|
| i 491,956 |
Maintenance |
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| i 65,648 |
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| i 79,889 |
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| i 193,754 |
|
| i 246,704 |
Other |
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| i 684 |
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| i 802 |
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| i 2,221 |
|
| i 2,509 |
Total |
| $ | i 284,591 |
| $ | i 329,281 |
| $ | i 820,237 |
| $ | i 970,458 |
i NOTE 9 – LONG-TERM DEBT
In April 2019, we entered into a new i five year $ i 600 million revolving credit facility agreement with i eight banks (the “Credit Facility”). Interest only is payable monthly throughout the Credit Facility’s term. The borrowing capacity for the Credit Facility of $ i 600 million includes an accordion feature permitting us to request an increase in availability of up to an additional $ i 250 million.
On June 11, 2020, we entered into a First Amendment to the Credit Facility (the “First Amendment”), which, among other things, amended the terms of certain of the financial and restrictive covenants in the credit agreement through the first quarter of fiscal 2022 to provide us with additional flexibility to operate our business. The First Amendment permanently amended the interest rate charged on borrowings to be based on the greater of adjusted one-month LIBOR or i 0.75%. For the period from June 30, 2020 to June 30, 2021, the minimum interest rate spread charged on borrowings will be i 225 basis points over LIBOR. Additionally, during the same period, we may declare, make or pay any dividend or distribution up to $ i 38.5 million in the aggregate and the acquisition of stores or other businesses up to $ i 100 million in the aggregate are permitted if we are in compliance with the financial covenants and other restrictions in the First Amendment and Credit Facility. Except as amended by the First Amendment, the remaining terms of the credit agreement remain in full force and effect.
In order to enhance our liquidity position during the COVID-19 pandemic, we took a precautionary measure and borrowed $ i 350 million available to us under our Credit Facility in March 2020. We subsequently repaid the $ i 350 million previously borrowed during the nine months ended December 26, 2020. The net availability under the Credit Facility was $ i 376.4 million at December 26, 2020.
We were in compliance with all debt covenants at December 26, 2020.
i NOTE 10 – COMMITMENTS AND CONTINGENCIES
Payments due by period under long-term debt, other financing instruments and commitments are as follows:
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| Within |
| 2 to |
| 4 to |
| After | ||||
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| 1 Year |
| 3 Years |
| 5 Years |
| 5 Years | |||||
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| (Dollars in thousands) | |||||||||||||
Principal payments on long-term debt |
| $ | i 190,000 |
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| — |
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| — |
| $ | i 190,000 |
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| — |
Finance lease commitments/financing obligations (a) |
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| i 525,740 |
| $ | i 55,001 |
| $ | i 109,489 |
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| i 101,296 |
| $ | i 259,954 |
Operating lease commitments (a) |
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| i 244,508 |
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| i 36,396 |
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| i 66,097 |
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| i 54,180 |
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| i 87,835 |
Accrued rent |
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| i 2,664 |
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| i 2,492 |
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| i 141 |
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| i 14 |
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| i 17 |
Other liabilities |
|
| i 1,333 |
|
| i 800 |
|
| i 533 |
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| — |
|
| — |
Total |
| $ | i 964,245 |
| $ | i 94,689 |
| $ | i 176,260 |
| $ | i 345,490 |
| $ | i 347,806 |
_______________
(a)Finance and operating lease commitments represent future undiscounted lease payments and include $ i 112.6 million and $ i 59.4 million, respectively, related to options to extend lease terms that are reasonably certain of being exercised.
/
During fiscal 2021, we negotiated rent deferrals for a significant number of our stores, with repayment at later dates, primarily in the fourth quarter of fiscal 2021 and the first and second quarters of fiscal 2022. We began repaying deferred rent primarily in the third quarter of fiscal 2021. These concessions provide a deferral of rent payments with no substantive changes to the original contract. Consistent with updated guidance from the FASB in April 2020, we have elected to treat the rent deferrals as accrued liabilities. The accrued rent reflected in the table above includes $ i 1.6 million related to rent deferrals and $ i 1.1 million due to timing of other lease related expenses. We will continue to recognize expense during the deferral periods.
In addition, during fiscal 2021, we negotiated rent reductions with certain landlords on approximately i 23% of our lease contracts in exchange for extending our current lease term. As these agreements represent substantive changes to our contractual obligations, the leases were remeasured. As a result, during fiscal 2021, finance lease and financing obligation assets, net and finance leases and financing obligations were increased by $ i 67.5 million and $ i 63.8 million, respectively, and operating lease assets, net and operating lease liabilities were increased by $ i 16.4 million and $ i 20.1 million, respectively. The negotiated terms were generally consistent with terms of normal renewal agreements.
As of the date of this report, there were no material changes to our contingencies since March 28, 2020, as reported in our Form 10-K for the fiscal year ended March 28, 2020.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including (without limitation) statements made in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, may contain statements of future expectations and other forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-Q, the words “anticipates,” “believes,” “contemplates,” “expects,” “see,” “could,” “may,” “estimate,” “appear,” “intend,” “plans,” “potential,” “strategy,” “will” and variations thereof and similar expressions, are intended to identify forward-looking statements. Forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed. These factors include, but are not necessarily limited to, product demand, dependence on and competition within the primary markets in which Monro’s stores are located, the need for and costs associated with store renovations and other capital expenditures, the duration and impact of the COVID-19 pandemic and its impact on our customers, executive officers and employees, the effect of economic conditions, seasonality, the impact of weather conditions and natural disasters, the impact of competitive services and pricing, parts supply restraints or difficulties, our dependence on vendors, including foreign vendors, changes in U.S. or foreign trade policies, including the impacts of tariffs on products imported from China, industry regulation, risks relating to leverage and debt service (including sensitivity to fluctuations in interest rates), continued availability of capital resources and financing, advances in automotive technologies, disruption or unauthorized access to our computer systems, risks relating to protection of customer and employee personal data, business interruptions, risks relating to litigation, risks relating to integration of acquired businesses, including goodwill impairment and the risks set forth in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended March 28, 2020. Except as required by law, we do not undertake and specifically disclaim any obligation to update any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. References to fiscal 2021 and fiscal 2020 in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to our fiscal years ending March 27, 2021 and March 28, 2020, respectively.
Impact of the COVID-19 Pandemic
In response to the unprecedented and rapid spread of COVID-19 (coronavirus), many U.S. state governments, in states in which we operate, have taken preventative or protective actions, such as issuing stay-at-home restrictions and social distancing measures. State and local governments have ordered restrictions on the operations of certain businesses, including temporary closures of some businesses, and numerous other businesses have temporarily closed voluntarily or transitioned their workforces to working remotely. Further, individuals’ ability to travel has been curtailed through mandated travel restrictions and may be further limited through additional voluntary or mandated closures of certain businesses.
As a result, demand for automotive undercar repair and tire sales and services declined at a rapid pace and has remained below normal levels, which has had an unprecedented and materially adverse impact on our results of operations and business operations. Although demand improved during the quarter ended December 26, 2020 from the low point during April 2020, we experienced a significant decline in store traffic throughout the quarter, as compared to the prior year, which we believe is due to the COVID-19 pandemic. During the quarter, comparable store sales decreased 13.0% from the same period in the prior year. (We define comparable store sales as sales for stores that have been opened or acquired at least one fiscal year prior to March 29, 2020.) Substantially all Company-operated retail stores operated under a reduced schedule throughout the quarter to match lower demand. We continue to address the ongoing business challenges and shifting economic dynamics as the COVID-19 pandemic has continued to evolve.
Given the uncertainties surrounding the impacts of the COVID-19 pandemic on our future financial condition, results of operations and cash flows, we have taken a number of actions in response to prevailing uncertain market conditions. In order to enhance our liquidity position, we took a precautionary measure and borrowed $350 million available to us under our credit facility in March 2020. We subsequently repaid the $350 million previously borrowed during the nine months ended December 26, 2020. To improve our liquidity, we continued to take the following measures during the quarter ended December 26, 2020 as we did in the first six months of fiscal 2021 to reduce costs and improve cash flows: (i) reduced store hours and store labor to align with reduced demand across our store locations; (ii) undertook significant reductions in operating expenses across the Company, including non-store compensation expense through the continued furlough of or other reduction to certain members of our non-store workforce as well as advertising expense through realigned marketing spend toward digital channels; and (iii) negotiated rent deferrals for a significant number of our stores, as well as other rent reductions. Although acquisition activity was paused during the first six months of fiscal 2021, we continued to evaluate potential acquisition candidates that we believe would fit our growth strategy while maintaining financial discipline, and we acquired 17 retail tire and automotive repair stores located in California during the quarter ended December 26, 2020.
As the COVID-19 pandemic has continued to evolve, our priority has been and continues to be, the health and safety of our employees and customers. To protect our employees and customers, we have implemented strict cleaning and sanitation measures. In addition, we have provided face masks and other protective equipment, including sneeze guards installed at each sales counter,
necessary to ensure the safety of our employees and customers. We have also implemented various measures intended to reduce the spread of COVID-19 among our non-store workforce including working from home and encouraging employees to adhere to prevention measures recommended by the Centers for Disease Control and the World Health Organization. Since our non-store workforce is able to work remotely using various technology tools, we are able to maintain our operations and internal controls over financial reporting and disclosures.
Despite the challenges, some positive signs have begun to emerge. Since the low point during April 2020, we have experienced improvement in sales driven by increases in store traffic. However, there can be no assurance as to the time required to fully recover operations and sales to pre-pandemic levels or if we will reach those levels again.
With sales improvement to date, we have resumed our rebrand and reimage initiatives and have substantially completed the transformation of 144 stores, including 104 stores during the quarter ended December 26, 2020.
Current Trends
Our Company-operated stores have experienced improvement in sales to date since the low point of sales during April 2020. The following table presents fiscal monthly information about our comparable store sales trends. There is no assurance that these trends will continue.
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| Fiscal Month Ended | ||||||||||||||||||||||||||||
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| May |
| June |
| July |
| Aug. |
| Sept. |
| Oct. |
| Nov. |
| Dec. |
| Jan. | ||||||||||
Comparable store sales % (year-over-year (decline) increase) | (41) | % |
| (24) | % |
| (14) | % |
| (12) | % |
| (13) | % |
| (8) | % |
| (12) | % |
| (18) | % |
| (6) | % |
| 3 | % |
As we move through this transition and anticipate sales trends to improve, we expect to incur some labor inefficiencies as we adjust to new operating models and federal and local health and safety protocols with a goal to remain as efficient as possible while still offering safe and high quality service to our customers. Those labor inefficiencies may include difficulty in hiring employees required to maintain store staffing levels needed to meet demand. We will also incur additional costs and investments in supplies necessary to keep our teams and customers safe, such as face masks, hand sanitizer and cleaning supplies, which are all expected to be ongoing costs for the duration of the COVID-19 pandemic and recovery period.
Given the unpredictable nature of this situation, we cannot estimate with certainty the long-term impacts of the COVID-19 pandemic on our business, financial condition, results of operations, and cash flows.
As of January 29, 2021, we had approximately $14 million in cash on hand. We believe we have sufficient liquidity available from operating cash flow and, if necessary, cash on hand and/or bank financing to support our operations for at least the next 12 months.
Non-GAAP Financial Measures
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes certain financial measures, such as adjusted net income and adjusted diluted earnings per common share (“EPS”) not derived in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Non-GAAP financial measures should not be used as a substitute for GAAP financial measures, or considered in isolation, for the purpose of analyzing our operating performance, financial position or cash flows, and may not be comparable to similarly titled non-GAAP financial measures used by other companies. We have included reconciliations of the non-GAAP financial measures used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to their most directly comparable GAAP measures in the section titled “Reconciliation of Non-GAAP Financial Measures” below.
Results of Operations
The following table sets forth income statement data of Monro expressed as a percentage of sales for the fiscal periods indicated:
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| Quarter Ended |
| Nine Months Ended | ||||||||
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| December 26, |
| December 28, |
| December 26, |
| |||||
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| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Sales |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
Cost of sales, including distribution and occupancy costs |
| 66.2 |
|
| 62.2 |
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| 64.9 |
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| 61.4 |
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Gross profit |
| 33.8 |
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| 37.8 |
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| 35.1 |
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| 38.6 |
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Operating, selling, general and administrative expenses |
| 28.3 |
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| 28.2 |
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| 28.8 |
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| 28.2 |
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Operating income |
| 5.5 |
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| 9.6 |
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| 6.3 |
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| 10.4 |
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Interest expense, net of interest income |
| 2.4 |
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| 2.1 |
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| 2.6 |
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| 2.2 |
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Other income, net of other loss |
| — |
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| (0.1) |
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| — |
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| (0.1) |
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Income before income taxes |
| 3.1 |
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| 7.6 |
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| 3.7 |
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| 8.3 |
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Provision for income taxes |
| 0.8 |
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| 1.9 |
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| 0.9 |
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| 1.9 |
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Net income |
| 2.3 | % |
| 5.7 | % |
| 2.7 | % |
| 6.4 | % |
The table may not subtract down by +/- 0.1% due to rounding as percentages are calculated based on unrounded numbers.
Third Quarter and Nine Months Ended December 26, 2020 as Compared to Third Quarter and Nine Months Ended December 28, 2019
Sales were $284.6 million for the quarter ended December 26, 2020 as compared with $329.3 million for the quarter ended December 28, 2019. The sales decrease of $44.7 million, or 13.6%, was due to a decrease in comparable store sales for the quarter ended December 26, 2020 of 13.0% as compared to the same period in the prior year, primarily due to general market conditions and lower labor productivity in October and November as we adjusted technician staffing levels needed to meet demand. Additionally, there was a decrease in sales from closed stores amounting to $7.2 million in the quarter. Partially offsetting these decreases was an increase of $2.2 million related to new stores, of which $1.5 million came from fiscal 2021 and fiscal 2020 acquisitions. There were 89 selling days in the quarter ended December 26, 2020 and in the quarter ended December 28, 2019.
Sales were $820.2 million for the nine months ended December 26, 2020 as compared with $970.5 million for the nine months ended December 28, 2019. The sales decrease of $150.3 million, or 15.5%, was due to a decrease in comparable store sales for the nine months ended December 26, 2020 of 16.8% as compared to the same period in the prior year. Additionally, there was a decrease in sales from closed stores amounting to $16.5 million. Partially offsetting these decreases was an increase of $24.3 million related to new stores, of which $21.0 million came from fiscal 2021 and fiscal 2020 acquisitions. There were 270 selling days in the nine months ended December 26, 2020 and in the nine months ended December 28, 2019.
At December 26, 2020, we had 1,260 Company-operated stores in operation and 96 franchised locations as compared with 1,289 Company-operated stores in operation and 99 franchised locations at December 28, 2019. At March 28, 2020, we had 1,283 Company-operated stores in operation and 98 franchised locations. During the quarter ended December 26, 2020, we added 19 Company-operated stores, including one store previously closed temporarily due to hurricane storm damage. Also during the quarter ended December 26, 2020, we closed one Company-operated store temporarily due to damage sustained during a storm and closed one franchised location. During the nine months ended December 26, 2020, we have added 20 Company-operated stores and closed 43 stores. Additionally, two franchised locations were closed during the nine months ended December 26, 2020.
Comparable store brakes, maintenance services and tires category sales for the quarter ended December 26, 2020 decreased by approximately 21%, 19% and 8%, respectively, from the prior year quarter. Additionally, front end/shocks and exhaust category sales for the quarter ended December 26, 2020 each decreased by approximately 17% on a comparable store basis as compared to the same period in the prior year. Comparable store alignment sales for the quarter ended December 26, 2020 decreased by approximately 16% from the prior year quarter. Comparable store sales were impacted by a decline in store traffic resulting from the impact of the ongoing COVID-19 pandemic in our markets, partially offset by higher average ticket.
Gross profit for the quarter ended December 26, 2020 was $96.1 million or 33.8% of sales as compared with $124.4 million or 37.8% of sales for the quarter ended December 28, 2019. The decrease in gross profit for the quarter ended December 26, 2020, as a percentage of sales, was primarily due to an increase in material costs, as a percentage of sales, as a result of a shift in sales mix to tires. However, during the quarter, we expanded our gross profit per tire from the prior year quarter with the completed rollout of our tire category management tool. The decrease in gross profit for the quarter, as a percentage of sales, was also partially due to an increase in distribution and occupancy costs, as a percentage of sales. Although we were able to reduce these largely fixed costs through rent concessions from landlords, we lost leverage on these costs with lower overall comparable store sales. Additionally,
technician labor costs increased slightly from the prior year quarter as a percentage of sales due to labor inefficiencies as we increased store staffing levels to meet demand.
Gross profit for the nine months ended December 26, 2020 was $288.1 million or 35.1% of sales as compared with $374.6 million or 38.6% of sales for the nine months ended December 28, 2019. For the nine months ended December 26, 2020, the increase in material costs, as a percentage of sales, largely resulting from a shift in sales mix to tires, as well as the increase in distribution and occupancy costs, as a percentage of sales, due to lost leverage on these largely fixed costs against lower overall comparable store sales, were partially offset by a decrease in technician labor costs, which decreased as a percentage of sales, due to our store staffing optimization initiatives, when compared to the same period in the prior year.
Operating, selling, general and administrative expenses for the quarter ended December 26, 2020 were $80.5 million or 28.3% of sales as compared to $92.8 million or 28.2% of sales for the quarter ended December 28, 2019. The decrease of $12.3 million in operating, selling, general and administrative expenses from the comparable period of the prior year is primarily due to decreased expenses as a result of focused cost reductions, including actively managing our store management staffing levels to match demand and realigned marketing spend toward digital channels. The decrease in operating, selling, general and administrative expenses from the comparable period of the prior year also reflect lower expenses from 29 fewer stores compared to the prior year period. We lost leverage on these cost reductions with lower overall comparable stores sales, which resulted in the increase in operating, selling, general and administrative expenses, as a percentage of sales, from the prior year quarter.
For the nine months ended December 26, 2020, operating, selling, general and administrative expenses decreased by $36.7 million to $236.6 million from the comparable period of the prior year and were 28.8% of sales as compared to 28.2% of sales for the nine months ended December 28, 2019. The decrease is primarily due to decreased expenses as a result of focused cost reductions and reflects lower expenses from closed stores.
Operating income for the quarter ended December 26, 2020 of approximately $15.7 million decreased by 50.3% as compared to operating income of approximately $31.6 million for the quarter ended December 28, 2019, and decreased as a percentage of sales from 9.6% to 5.5% for the reasons described above.
Operating income for the nine months ended December 26, 2020 of approximately $51.5 million decreased by 49.1% as compared to operating income of approximately $101.3 million for the nine months ended December 28, 2019, and decreased as a percentage of sales from 10.4% to 6.3% for the reasons described above.
Net interest expense for the quarter ended December 26, 2020 decreased by approximately $0.2 million as compared to the same period in the prior year, and increased from 2.1% to 2.4% as a percentage of sales for the same periods. The weighted average debt outstanding for the quarter ended December 26, 2020 increased by approximately $111 million as compared to the quarter ended December 28, 2019. This increase is primarily related to an increase in finance lease debt recorded in connection with the fiscal 2021 and fiscal 2020 acquisitions and greenfield expansion, along with renegotiated leases. The weighted average interest rate decreased approximately 120 basis points from the prior year quarter due to a decrease in borrowing rates associated with new leases.
Net interest expense for the nine months ended December 26, 2020 increased by approximately $0.4 million as compared to the same period in the prior year, and increased from 2.2% to 2.6% as a percentage of sales for the same periods. Weighted average debt outstanding increased by approximately $278 million and the weighted average interest rate decreased by approximately 230 basis points as compared to the same period of the prior year.
Income before income taxes for the quarter ended December 26, 2020 of approximately $8.9 million decreased by 64.1% as compared to income before income taxes of approximately $24.9 million for the quarter ended December 28, 2019, and decreased as a percentage of sales from 7.6% to 3.1% for the reasons described above.
Income before income taxes for the nine months ended December 26, 2020 of approximately $30.1 million decreased by 62.7% as compared to income before income taxes of approximately $80.9 million for the nine months ended December 28, 2019, and decreased as a percentage of sales from 8.3% to 3.7% for the reasons described above.
For the quarter ended December 26, 2020, our effective income tax rate was 25.2% compared to 24.1% for the quarter ended December 28, 2019, as various discrete items, each of which are individually insignificant, resulted in a tax rate benefit in the prior year period.
For the nine months ended December 26, 2020, our effective income tax rate was 25.2% compared to 23.6% for the nine months ended December 28, 2019, as discrete items, primarily related to employee stock-based compensation as well as those that are individually insignificant, resulted in a larger tax rate benefit in the prior year period.
Net income for the quarter ended December 26, 2020 of $6.7 million decreased 64.6% from net income of $18.9 million for the quarter ended December 28, 2019. Adjusted net income (a non-GAAP financial measure) was $7.5 million and $20.3 million for the quarters ended December 26, 2020 and December 28, 2019, respectively. Diluted EPS for the quarter ended December 26, 2020 of $0.20 decreased 64.3% as compared to diluted EPS of $0.56 for the quarter ended December 28, 2019. Adjusted diluted EPS (a non-GAAP financial measure) was $0.22 and $0.60 for the quarters ended December 26, 2020 and December 28, 2019, respectively. Please refer to the “Reconciliation of Non-GAAP Financial Measures” section below for a discussion of these non-GAAP financial measures, adjusted net income and adjusted diluted EPS, and the reconciliations to their most comparable GAAP measures, net income and diluted EPS, respectively.
For the nine months ended December 26, 2020, net income of $22.5 million decreased 63.6% from net income of $61.8 million for the nine months ended December 28, 2019. Adjusted net income (a non-GAAP financial measure) was $25.9 million and $64.7 million for the nine months ended December 26, 2020 and December 28, 2019, respectively. Diluted EPS for the nine months ended December 26, 2020 of $0.67 decreased 63.2% as compared to diluted EPS of $1.82 for the nine months ended December 28, 2019. Adjusted diluted EPS (a non-GAAP financial measure) was $0.77 and $1.91 for the nine months ended December 26, 2020 and December 28, 2019, respectively. Please refer to the “Reconciliation of Non-GAAP Financial Measures” section below for a discussion of these non-GAAP financial measures, adjusted net income and adjusted diluted EPS, and the reconciliations to their most comparable GAAP measures, net income and diluted EPS, respectively.
Reconciliation of Non-GAAP Financial Measures
In addition to reporting net income and diluted EPS, which are GAAP measures, this Form 10-Q includes adjusted net income and adjusted diluted EPS, which are non-GAAP financial measures. We have included reconciliations to adjusted net income and adjusted diluted EPS from our most directly comparable GAAP measures, net income and diluted EPS, below. Management views these non-GAAP financial measures as indicators to better assess comparability between periods because management believes these non-GAAP financial measures reflect the core business operations while excluding certain non-recurring items and items related to store closings as well as Monro.Forward or acquisition initiatives.
These non-GAAP financial measures are not intended to represent, and should not be considered more meaningful than, or as an alternative to, their most directly comparable GAAP measures. These non-GAAP financial measures may be different from similarly titled non-GAAP financial measures used by other companies.
Adjusted net income is summarized as follows:
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Reconciliation of Adjusted Net Income |
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| Quarter Ended |
| Nine Months Ended | ||||||||
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| December 26, |
| December 28, |
| December 26, |
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| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
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| (Dollars in thousands) | ||||||||||
Net income |
| $ | 6,683 |
| $ | 18,880 |
| $ | 22,516 |
| $ | 61,800 |
Store impairment charge |
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| — |
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| — |
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| 99 |
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| — |
Store closing costs |
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| (14) |
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| — |
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| 2,496 |
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| — |
Monro.Forward initiative costs |
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| 1,056 |
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| 1,378 |
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| 1,510 |
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| 2,685 |
Acquisition due diligence and integration costs |
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| 122 |
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| 435 |
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| 161 |
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| 1,204 |
Management transition costs |
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| 128 |
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| — |
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| 385 |
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| — |
Litigation reserve reversal |
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| (250) |
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| — |
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| (250) |
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| — |
Provision for income taxes on adjustments |
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| (234) |
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| (435) |
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| (1,022) |
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| (953) |
Adjusted net income |
| $ | 7,491 |
| $ | 20,258 |
| $ | 25,895 |
| $ | 64,736 |
Adjusted diluted EPS is summarized as follows:
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Reconciliation of Adjusted Diluted EPS |
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| Quarter Ended |
| Nine Months Ended | ||||||||
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| December 26, |
| December 28, |
| December 26, |
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| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Diluted EPS |
| $ | 0.20 |
| $ | 0.56 |
| $ | 0.67 |
| $ | 1.82 |
Store impairment charge |
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| — |
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| — |
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| — |
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| — |
Store closing costs (a) |
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| — |
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| — |
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| 0.06 |
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| — |
Monro.Forward initiative costs |
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| 0.02 |
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| 0.03 |
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| 0.03 |
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| 0.06 |
Acquisition due diligence and integration costs (a) |
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| — |
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| 0.01 |
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| — |
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| 0.03 |
Management transition costs (a) |
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| — |
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| — |
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| 0.01 |
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| — |
Litigation reserve reversal |
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| (0.01) |
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| — |
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| (0.01) |
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| — |
Adjusted diluted EPS |
| $ | 0.22 |
| $ | 0.60 |
| $ | 0.77 |
| $ | 1.91 |
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(a)For the quarter ended December 26, 2020, store closing, acquisition due diligence and integration, and management transition costs are each minor in amount, net of the impact from income taxes, to have an impact on the calculation of adjusted diluted EPS. These items, as well as items excluded in prior quarters, may also be minor in amount, net of the impact from income taxes, to have an impact on the calculation of adjusted diluted EPS for the nine months ended December 26, 2020.
The calculation of the impact of non-GAAP adjustments on diluted EPS is performed on each line independently. The table may not add down by +/- $0.01 due to rounding.
The adjustments to diluted EPS reflect adjusted effective tax rates of 22.5% and 23.2% for the quarter and nine months ended December 26, 2020, respectively, and 24.0% and 24.5% for the quarter and nine months ended December 28, 2019, respectively. These adjusted effective tax rates exclude the income tax impacts from share-based compensation. See adjustments from the Reconciliation of Adjusted Net Income table above for pre-tax amounts.
Capital Resources, Commitments and Liquidity
Capital Resources
Our primary capital requirements in fiscal 2021 are the upgrading of facilities and systems and the funding of our store expansion program, including potential acquisitions of existing store chains. For the nine months ended December 26, 2020, we spent approximately $57.3 million on these items, of which approximately $25.2 million was related to our Monro.Forward initiatives, including our store technology infrastructure upgrade project completed in the first quarter of fiscal 2021. Capital requirements were met primarily by cash flow from operations and from cash on hand. While we suspended all capital expenditures related to our store rebrand and reimage initiatives during the first quarter of fiscal 2021, we resumed this program in the second quarter of fiscal 2021.
We paid dividends of $22.3 million during the nine months ended December 26, 2020. However, the declaration of and any determination as to the payment of future dividends will be at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements, compliance with charter and restrictions under the Credit Facility, and such other factors as the Board of Directors deems relevant. Under our Credit Facility, we may declare, make or pay any dividend or distribution up to $38.5 million in the aggregate for the period from June 30, 2020 to June 30, 2021 if we are in compliance with the financial covenants and other restrictions in the Credit Facility, as amended.
Because acquisitions remain a pillar of our growth strategy, we continue to evaluate potential acquisition candidates that we believe would fit our growth strategy while maintaining financial discipline. Although acquisition activity was paused during the first six months of fiscal 2021, we acquired 17 retail tire and automotive repair stores located in California during the quarter ended December 26, 2020. We believe we have sufficient resources available (including cash flow from operations and, if necessary, cash on hand and/or bank financing) to expand our business as currently planned for the next twelve months.
Commitments
Payments due by period under long-term debt, other financing instruments and commitments are as follows:
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| Within |
| 2 to |
| 4 to |
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| Total |
| 1 Year |
| 3 Years |
| 5 Years |
| 5 Years | |||||
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Principal payments on long-term debt |
| $ | 190,000 |
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| — |
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| — |
| $ | 190,000 |
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| — |
Finance lease commitments/financing obligations (a) |
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| 525,740 |
| $ | 55,001 |
| $ | 109,489 |
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| 101,296 |
| $ | 259,954 |
Operating lease commitments (a) |
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| 244,508 |
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| 36,396 |
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| 66,097 |
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| 54,180 |
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| 87,835 |
Accrued rent |
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| 2,664 |
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| 2,492 |
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| 141 |
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| 14 |
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| 17 |
Other liabilities |
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| 1,333 |
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| 800 |
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| 533 |
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| — |
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| — |
Total |
| $ | 964,245 |
| $ | 94,689 |
| $ | 176,260 |
| $ | 345,490 |
| $ | 347,806 |
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(a)Finance and operating lease commitments represent future undiscounted lease payments and include $112.6 million and $59.4 million, respectively, related to options to extend lease terms that are reasonably certain of being exercised.
During fiscal 2021, we negotiated rent deferrals for a significant number of our stores, with repayment at later dates, primarily in the fourth quarter of fiscal 2021 and the first and second quarters of fiscal 2022. We began repaying deferred rent primarily in the third quarter of fiscal 2021. These concessions provide a deferral of rent payments with no substantive changes to the original contract. The accrued rent reflected in the table above includes $1.6 million related to rent deferrals and $1.1 million due to timing of other lease related expenses.
In addition, during fiscal 2021, we negotiated rent reductions with certain landlords on approximately 23% of our lease contracts in exchange for extending our current lease term. As these agreements represent substantive changes to our contractual obligations, the leases were remeasured. As a result, during fiscal 2021, finance lease and financing obligation assets, net and finance leases and financing obligations were increased by $67.5 million and $63.8 million, respectively, and operating lease assets, net and operating lease liabilities were increased by $16.4 million and $20.1 million, respectively. The negotiated terms were generally consistent with terms of normal renewal agreements.
Liquidity
In April 2019, we entered into a new five-year $600 million revolving Credit Facility with eight banks that will expire in April 2024. Interest only is payable monthly throughout the Credit Facility’s term. The borrowing capacity for the Credit Facility of $600 million includes an accordion feature permitting us to request an increase in availability of up to an additional $250 million. The Credit Facility bears interest at 75 to 200 basis points over LIBOR (or replacement index) or at the prime rate, depending on the type of borrowing and the rates then in effect. The Credit Facility requires fees payable quarterly throughout the term between 0.125% and 0.35% of the amount of the average net availability under the Credit Facility during the preceding quarter. There was $190.0 million outstanding under the Credit Facility at December 26, 2020.
Within the Credit Facility, we have a sub-facility of $80 million available for the purpose of issuing standby letters of credit. The line requires fees aggregating 87.5 to 212.5 basis points annually of the face amount of each standby letter of credit, payable quarterly in arrears. There was a $33.6 million outstanding letter of credit at December 26, 2020.
The net availability under the Credit Facility at December 26, 2020 was $376.4 million.
Mortgages and specific lease financing arrangements with other parties (with certain limitations) are permitted under the Credit Facility. Other specific terms and the maintenance of specified ratios are generally consistent with our prior financing agreement. Additionally, the Credit Facility is not secured by our real property, although we have agreed not to encumber our real property, with certain permissible exceptions.
On June 11, 2020, we entered into a First Amendment to the Credit Facility (the “First Amendment”), which, among other things, amends the terms of certain of the financial and restrictive covenants in the credit agreement to provide us with additional flexibility to operate our business through the first quarter of fiscal 2022. Except as amended by the First Amendment, the remaining terms of the credit agreement remain in full force and effect.
Specifically, from June 11, 2020 to June 26, 2021, the First Amendment (1) eliminates the covenant for us to maintain an interest coverage ratio above 1.55x; (2) requires us to maintain liquidity of $275 million as of the end of each fiscal month; and (3) adjusts the ratio of maximum adjusted debt to EBITDAR. The ratio of maximum adjusted debt to EBITDAR will vary by quarter as follows: (a) 5.50x in the first quarter of fiscal 2021; (b) 6.00x in the second quarter of fiscal 2021; (c) 6.25x in the third quarter of
fiscal 2021; (d) 5.50x in the fourth quarter of fiscal 2021; (e) 5.00x in the first quarter of fiscal 2022; and (f) thereafter, returning to 4.75x.
For the period from June 30, 2020 to June 30, 2021, we are permitted under the First Amendment to acquire stores or other businesses up to $100 million in the aggregate, as long as, on a pro forma basis after taking the acquisition into account, we would comply with the financial covenants and other restrictions in the First Amendment. In addition, from June 30, 2020 to June 30, 2021, we may declare, make or pay any dividend or distribution up to $38.5 million in the aggregate, if we are in compliance with the financial covenants and other restrictions in the First Amendment and Credit Facility.
The First Amendment will permanently amend the interest rate charged on borrowings to be based on the greater of adjusted one-month LIBOR or 0.75% and also added two levels of interest rate pricing applicable during the covenant relief period in the event the ratio of adjusted debt to EBITDAR is higher than 5.00x. During the covenant relief period, the minimum interest rate spread charged on borrowings will be 225 basis points over LIBOR.
We were in compliance with all debt covenants at December 26, 2020.
We believe that we can fulfill our commitments and working capital needs utilizing our cash flow from operations and, if necessary, cash on hand and/or bank financing for at least the next 12 months and the foreseeable future.
In addition, we have financed certain store properties with finance leases/financing obligations, which amounted to $409.7 million at December 26, 2020 and are due in installments through March 2049.
Recent Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 1 to our Consolidated Financial Statements for a discussion of the impact of recently issued accounting standards on our Consolidated Financial Statements as of December 26, 2020 and the expected impact on the Consolidated Financial Statements for future periods.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from potential changes in interest rates. As of December 26, 2020, excluding finance leases and financing obligations, we had no debt financing at fixed interest rates, of which the fair value would be affected by changes in market interest rates. Our cash flow exposure on floating rate debt would result in annual interest expense fluctuations of approximately $1.9 million based upon our debt position at December 26, 2020 and approximately $5.7 million based upon our debt position at March 28, 2020, respectively, given a change in LIBOR of 100 basis points.
Debt financing had a carrying amount that approximates a fair value of $190.0 million as of December 26, 2020, as compared to a carrying amount and a fair value of $566.4 million as of March 28, 2020.
Item 4. Controls and Procedures
Disclosure controls and procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that we file or submit to the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our interim Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In conjunction with the close of each fiscal quarter and under the supervision of our interim Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), we conduct an update, a review and an evaluation of the effectiveness of our disclosure controls and procedures. It is the conclusion of our interim Chief Executive Officer and Chief Financial Officer, based upon an evaluation completed as of the end of the most recent fiscal quarter reported on herein, that our disclosure controls and procedures were effective.
Changes in internal controls over financial reporting
There were no changes in our internal control over financial reporting during the quarter ended December 26, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
We are not a party or subject to any legal proceedings other than certain claims and lawsuits that arise in the normal course of our business. We do not believe that such claims or lawsuits, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.
Except as stated below, there have been no material changes from the risk factors previously disclosed in Part I – Item 1A of the Company’s Form 10-K for the fiscal year ended March 28, 2020.
Matters related to the COVID-19 pandemic have and will continue to significantly and adversely impact our business, financial position, results of operations and cash flows.
The spread of COVID-19 has created a global public health crisis that has resulted in widespread volatility and deteriorations in household, business, economic and market conditions. We have experienced negative impacts to demand for our products and services from the COVID-19 pandemic, which has and will continue to adversely affect our results of operations, and we are continuing to experience significant disruption to our normal business operations and may experience further disruption to our planned implementation of certain strategic initiatives.
Our business will continue to be affected by the broader economic effects from the COVID-19 pandemic and related regulatory and individual actions, including customer demand for our products and services. Because more people in the United States are working from home, those workers will likely drive less often, and are less likely to require our services or will require our services less often. If this trend continues, we may see a permanent decline in demand for our services. Although travel by car may replace air travel as the preferred means of transportation because of fear of the spread of COVID-19, the recessionary economic environment resulting from the COVID-19 pandemic may reduce levels of leisure travel, which would reduce the demand for our products and services. We anticipate disruption to the demand for our products and services throughout the course of the pandemic. For example, in the first nine months of fiscal 2021, we experienced significant declines in comparable store sales compared to the first nine months of fiscal 2020 due to lower store traffic and reduced store hours as a result of our, individuals’, and governmental responses to the COVID-19 pandemic. Additionally, our growth strategy was impacted by the pandemic, as we paused all store acquisition, rebrand, and reimage initiatives during the first quarter of fiscal 2021 in order to focus our efforts on determining the full impact of the COVID-19 pandemic on our business. While we resumed our rebrand and reimaging initiatives during the quarter ended September 26, 2020 and resumed our acquisition activity during the quarter ended December 26, 2020, given the continuing uncertainty during the pandemic, there can be no assurance we will be able to continue these initiatives.
While we have so far been able to source required products at reasonable cost, the pandemic may also affect our supply chain in ways that are beyond our control. We may also incur costs or experience further disruption to comply with new or changing regulations in response to the pandemic.
In addition, our continuing response to the pandemic could divert management’s attention from our key strategic priorities, increase costs as we prioritize health and safety matters for our employees and customers, cause us to reduce, delay, alter or abandon initiatives that may otherwise increase our long-term value, increase vulnerability to information technology or cybersecurity related risks as certain of our employees work remotely and otherwise continue to disrupt our business operations. For example, we have and expect to continue to incur additional costs and investments in supplies necessary to keep our employees and customers safe, such as face masks, hand sanitizer and cleaning supplies. We expect to encounter labor inefficiencies as we adjust to new protocols and operating models to adapt to operating during the pandemic while experiencing what we believe will be an increase in sales activity from the first nine months of fiscal 2021. Those labor inefficiencies may include difficulty in hiring employees if enhanced unemployment benefits are signed into law. As our employees return to more normalized store hours, there will also be increased risks to the health and safety of our employees and customers, particularly if there were to be one or more clusters of COVID-19 cases occurring at any of our stores or our corporate headquarters. We may also be subject to enhanced legal risks, including potential litigation related to the COVID-19 pandemic.
The overall magnitude of the COVID-19 pandemic, including the extent of its direct and indirect impact on our business, financial position, results of operations or liquidity is inherently uncertain due to the fluidity of the situation. Further, the ultimate impact of the COVID-19 pandemic depends on many factors that are not within our control, including, but not limited to: governmental, business and individuals' actions that have been and continue to be taken in response to the COVID-19 pandemic; the severity and duration of outbreaks of the virus; the effectiveness of vaccines; the impact of the COVID-19 pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions and
levels of economic growth; and the pace of recovery, particularly in our markets, when the COVID-19 pandemic subsides.
We are unable to estimate the impact of the COVID-19 pandemic with certainty on our business and operations at this time. The pandemic could cause us to experience impairment of our goodwill and other financial assets, further reduce demand for our products and services and other adverse impacts on our financial position, results of operations and cash flows. Sustained adverse effects may also prevent us from satisfying financial covenants in our credit agreement, which would prevent us from paying dividends, or result in downgrades in our credit ratings.
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31.1 – Certification of Robert E. Mellor pursuant to Section 302 of the Sarbanes – Oxley Act of 2002 |
101.INS - XBRL Instance Document |
101.LAB - XBRL Taxonomy Extension Label Linkbase |
101.PRE - XBRL Taxonomy Extension Presentation Linkbase |
101.SCH - XBRL Taxonomy Extension Schema Linkbase |
101.DEF - XBRL Taxonomy Extension Definition Linkbase |
101.CAL - XBRL Taxonomy Extension Calculation Linkbase |
104 - Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-Q.
** Certain portions of this exhibit have been omitted (indicated by asterisks) pursuant to Item 601(b) of Regulation S-K of the
Securities Act of 1933, as amended, because such omitted information is (i) not material and (ii) would be competitively
harmful if publicly disclosed.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| MONRO, INC. | |
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DATE: February 4, 2021 |
| By: | /s/ Robert E. Mellor |
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| Interim Chief Executive Officer |
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DATE: February 4, 2021 |
| By: | |
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| Executive Vice President – Finance, Chief Financial Officer and |
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| Treasurer (Principal Financial Officer and Principal Accounting Officer) |
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 3/26/22 | ||||
| 6/30/21 | ||||
| 6/26/21 | 10-Q | |||
| 3/27/21 | 10-K | |||
| Filed on: | 2/4/21 | |||
| 1/29/21 | ||||
| 1/22/21 | ||||
| 12/28/20 | ||||
| For Period end: | 12/26/20 | |||
| 12/15/20 | ||||
| 12/6/20 | ||||
| 9/27/20 | ||||
| 9/26/20 | 10-Q | |||
| 6/30/20 | ||||
| 6/11/20 | 4, 4/A, 8-K | |||
| 3/29/20 | ||||
| 3/28/20 | 10-K | |||
| 12/28/19 | 10-Q | |||
| 12/15/19 | ||||
| 11/17/19 | ||||
| 10/27/19 | ||||
| 9/29/19 | ||||
| 9/28/19 | 10-Q | |||
| 8/25/19 | ||||
| 6/23/19 | ||||
| 5/19/19 | ||||
| 3/31/19 | 11-K | |||
| 3/30/19 | 10-K | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 5/22/23 Monro, Inc. 10-K 3/25/23 104:19M Certent, Inc./FA 5/23/22 Monro, Inc. 10-K 3/26/22 105:20M Certent, Inc./FA 5/26/21 Monro, Inc. 10-K 3/27/21 103:19M Certent, Inc./FA |
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 12/23/20 Monro, Inc. 8-K:5,9 12/21/20 11:214K Donnelley … Solutions/FA |