[Management View]
Monro, Inc. is closing 145 underperforming stores in Q1 FY2026 to improve profitability, expecting a reduction in annual sales by about $45 million. Management is confident in achieving year-over-year improvement in adjusted diluted earnings per share (non-GAAP) in FY2026 through operational efficiencies and a targeted performance improvement plan. The company is focusing on attracting higher-value, more profitable customers.

[Outlook]
Management expects improvement in adjusted diluted earnings per share in FY2026, driven by the performance plan and operational efficiencies. Preliminary Q1 sales trend shows comparable store sales up approximately 7% in the first eight weeks of Q1 FY2026. Capital expenditures for FY2026 are expected to be between $25 million and $35 million. Tariffs are anticipated to increase costs across major product categories, with potential pricing actions for customers to offset this effect.

[Financial Performance]
Sales: $295 million, down 4.9% YoY.
Comparable Store Sales: Increased 2.8% adjusted for days, declined 3.6% unadjusted.
Gross Margin: Decreased by 250 basis points YoY.
Operating Loss: $23.8 million, compared to operating income of $10.3 million in Q4 FY2024.
Net Loss: $21.3 million, compared to net income of $3.7 million in the same period last year.
Diluted Loss Per Share: $0.72 GAAP; adjusted diluted loss per share (non-GAAP) of $0.09, compared with prior-year adjusted diluted earnings per share (non-GAAP) of $0.21.
Cash From Operations: $132 million generated during FY2025.

[Q&A Highlights]
Question 1: You're running some self-funded promotions. Are these the additional savings I see as an offering from the usage of the drive card? And then with these promotions and the wage inflation, is there any additional color you can provide as we're thinking about gross margins moving forward?
Answer: The gross margin impact related to the self-funded promotions is primarily from tire promotions, including drive card promotions and everyday offers. These promotions have been consistent throughout FY25, impacting year-over-year gross margins. Gross margins are expected to remain pressured due to baseline cost increases and potential tariff impacts, offset somewhat by store closures and benefits from the improvement plan.

Question 2: Can you provide any color on who these higher value targets are and what you're doing on the marketing front to convert them to customers? And then maybe some color on your approach towards the customer experience changes moving forward.
Answer: Monro is targeting repeat customers who appreciate a range of services, generating higher sales and profitability. The company is reallocating marketing investment towards attracting these high-value customers. The approach includes market testing and scaling successful strategies across all stores. The focus is on improving customer experience by addressing pain points and ensuring consistent execution of core processes.

Question 3: Can you help think through the trajectory of gross margins in a bit more detail? Is it fair to assume that there could be some expansion later in the year, but still for the full year, there's pressure?
Answer: Gross margins are expected to be pressured for FY2026, with a tough comparison in Q1. However, the cadence of gross margins will be more even throughout the year, with potential improvement in the back half of the year.

Question 4: Can you talk about the dynamics between traffic and ticket as well and what you're embedding for the improvements in 2026?
Answer: For the quarter, traffic was down low single digits, while ticket was up mid-single digits, leading to an adjusted comp of 2.8%. Positive store traffic trends were observed in March, and these trends have continued into April and May, supporting the outlook for FY2026.

Question 5: On the ATD relationship, did the economics of that change with their final payment of the earn-out? Is there anything that either promotions or supply fill that has changed with them or pricing?
Answer: There have been no material changes in the relationship with ATD. Some clarifications were made related to service levels, but nothing that materially impacts the business or the relationship with ATD.

Question 6: What's the common denominator for the store closures? Is there a specific region or class of stores that are underperforming?
Answer: The store closures are spaced throughout the network, targeting stores that cannot produce the desired earnings profile. The evaluation of stores will continue annually, but no further closures are anticipated this year.

Question 7: What do you attribute the recent significant improvement in performance to? Have you been more promotional, or is the broader market getting a lift?
Answer: The economic environment favors Monro's services, with a potential slowdown in new and used car purchases leading to increased demand for aftermarket services. The improvement in performance is attributed to positive industry dynamics and the implementation of performance improvement actions.

[Sentiment Analysis]
Analysts' tone was inquisitive and focused on understanding the impact of promotions, customer acquisition strategies, and gross margin trajectory. Management's tone was confident and optimistic about the improvement plan and the company's ability to capitalize on industry trends.

[Quarterly Comparison]
| Metric | Q4 FY2025 | Q4 FY2024 |
|----------------------------|--------------------|--------------------|
| Sales | $295 million | $310 million |
| Comparable Store Sales | +2.8% (adjusted) | - |
| Gross Margin | -250 bps | - |
| Operating Income/Loss | -$23.8 million | $10.3 million |
| Net Income/Loss | -$21.3 million | $3.7 million |
| Diluted EPS (GAAP) | -$0.72 | $0.12 |
| Adjusted Diluted EPS | -$0.09 | $0.21 |
| Cash From Operations | $132 million | - |

[Risks and Concerns]
- Gross margin pressure due to material cost increases, customer trade-down to lower-margin tire offerings, increased self-funded promotions, and wage inflation.
- Potential tariff impacts on costs across major product categories.
- Store closure costs of approximately $10 million to $15 million, primarily during Q1 FY2026.

[Final Takeaway]
Monro, Inc. is taking decisive actions to improve profitability by closing underperforming stores and focusing on attracting high-value customers. While gross margins are expected to remain pressured due to cost increases and potential tariffs, the company is optimistic about achieving year-over-year improvement in adjusted diluted earnings per share through operational efficiencies and a targeted performance improvement plan. The economic environment and industry dynamics are favorable for Monro's services, supporting the company's strategic initiatives and long-term value creation for shareholders.