Monro Muffler Brake (NASDAQ:MNRO) reported a challenging fiscal fourth quarter as weak tire demand, winter weather and consumer spending pressure weighed on comparable sales, even as management pointed to progress on its operational improvement plan and stronger gross margins.
On the company’s fourth-quarter and full-year fiscal 2026 earnings call, President and CEO Peter Fitzsimmons said Monro continued to build momentum in its turnaround initiatives despite a difficult operating backdrop. Those initiatives include efforts to drive customer acquisition and retention, improve the in-store customer experience and selling effectiveness, and increase merchandising productivity while managing potential tariff and cost risks.
Sales Decline Reflects Store Closures and Lower Comps
EVP and CFO Brian D’Ambrosia said fourth-quarter sales decreased 7.2% to $273.8 million. The decline was driven mainly by the closure of 145 underperforming stores in the first quarter of fiscal 2026, along with a 2.4% decrease in comparable store sales from continuing locations.
D’Ambrosia said monthly comparable sales were up 1% in January, down 5% in February and down 2% in March. Severe winter weather in February caused temporary store closures and reduced customer traffic, according to management. Fitzsimmons said the weather impact was concentrated in February, when storms affected broad portions of the company’s footprint.
Monro reported a fourth-quarter operating loss of $5.2 million, or 1.9% of sales, compared with an operating loss of $23.8 million, or 8.1% of sales, in the prior-year period. Adjusted operating loss was $2.6 million, compared with adjusted operating income of $1.4 million a year earlier. Net loss was $6.6 million, or $0.23 per diluted share, compared with a net loss of $21.3 million, or $0.72 per diluted share, in the same period last year. Adjusted diluted loss per share was $0.16, versus an adjusted loss of $0.09 in the fourth quarter of fiscal 2025.
Gross Margin Improves Despite Tire Pressure
Gross margin increased 90 basis points year over year to 33.9%. D’Ambrosia said the improvement was primarily due to lower technician labor costs as a percentage of sales, partially offset by higher material and occupancy costs as a percentage of sales.
Fitzsimmons called gross margin a “bright spot” and said the improvement reflected productivity gains from Monro’s labor force, even as customers shifted toward lower-tier tires. He said consumers continued to defer spending on higher-ticket categories such as tires and gravitated toward lower-cost options.
During the question-and-answer portion of the call, D’Ambrosia said Tier 4 tires represented about 30% of Monro’s tire sales in the fourth quarter, up from about 25% historically and a year ago. He said the price difference across tire tiers is typically $20 to $30 up or down the assortment.
Management Highlights Marketing, ConfiDrive and Merchandising Initiatives
Fitzsimmons said Monro has refined its marketing program by adjusting digital marketing spend, improving customer relationship management outreach and optimizing call center support for more than 830 stores. He said the company is now better able to tailor marketing by region and customer need, rather than using a uniform approach across the store base.
The company also emphasized its ConfiDrive inspection tool, which Fitzsimmons said is now used on nearly every customer vehicle entering Monro’s service bays. He said the tool is designed to provide customers with transparency through documented vehicle assessments and photos.
“When customers can understand exactly what we’re seeing through detailed visual documentation, it eliminates the skepticism that has historically plagued our industry,” Fitzsimmons said.
Monro also expanded use of a district manager toolkit aimed at identifying opportunities to increase sales, improve gross margin and adjust staffing. Fitzsimmons said an enhanced version focused on gross margin opportunities has been rolled out to about 150 stores, and management is encouraged by profit improvement in many of those locations.
On merchandising, Fitzsimmons said the company nearly completed a reset of tire inventory across stores in the fourth quarter, moving to a more focused assortment aligned with customer demand. Monro has also begun applying a category management framework to parts categories and is investing in demand and inventory planning capabilities.
Fiscal 2027 Outlook Calls for Positive Comparable Sales
For fiscal 2027, D’Ambrosia said Monro expects year-over-year comparable store sales growth, driven primarily by its performance improvement initiatives. The company expects the store optimization plan to reduce total sales by about $9 million in the first quarter of fiscal 2027.
Management said gross margin for fiscal 2027 is expected to be consistent with fiscal 2026, given continued cost inflation. Selling, general and administrative expenses are expected to be higher as Monro invests in additional marketing to support top-line growth. D’Ambrosia said SG&A pressure is likely to be greater in the first half of the year until the company laps higher marketing spending that began in the prior year.
Fitzsimmons said April comparable sales were up almost 1%, but May month-to-date comps were down approximately 3%. He said the company believes some customers are facing increased “pocketbook pressure” due to recent gas price increases and related costs.
In response to analyst questions, management said higher oil prices could affect oil pricing, tire input costs, freight and logistics costs. D’Ambrosia said Monro must balance the need to pass along cost increases with the reality that lower- and middle-income consumers are becoming more selective in their spending.
Cash Flow, Real Estate Sales and Strategic Review
D’Ambrosia said Monro generated $70 million in cash from operations during fiscal 2026. The company invested $32 million in capital expenditures, made $39 million in principal payments for financing leases and distributed $35 million in dividends.
Monro also continued to exit real estate tied to closed stores. During fiscal 2026, the company exited 72 leases and sold 26 locations, generating cumulative proceeds of $25 million. D’Ambrosia said 47 stores remain with potential to be monetized over the next several quarters.
At the end of the fourth quarter, Monro had net bank debt of $45 million, approximately $410 million of availability under its credit facility and about $15 million in cash and cash equivalents.
The company also referenced a strategic review that could include asset sales, refinancing, acquisitions, operational improvements or a sale of the company. Fitzsimmons said the process is in its early stages, with no deadline or definitive timeline, and cautioned that there is no assurance it will result in any transaction or strategic outcome.
“We remain focused on delivering great service for our customers while we explore all options to maximize value for our shareholders,” Fitzsimmons said.
About Monro Muffler Brake (NASDAQ:MNRO)
Monro Muffler Brake (NASDAQ:MNRO) is a leading provider of undercar repair and maintenance services for light vehicles in the United States. The company’s core offerings include brake systems, exhaust systems, steering and suspension repairs, tire sales and service, oil and lube changes, wheel alignment, multi-point inspections, and state vehicle inspections. Monro serves both retail customers and fleet accounts, focusing on fast, reliable service and preventive maintenance to help extend vehicle life and safety.
Headquartered in Rochester, New York, Monro was originally founded in 1957 and has grown through a combination of organic expansion and strategic acquisitions.
