UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________

FORM 10-Q

____________________________________________________________

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~June 25, ~~2021~~2022

¨ 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: 0-19357

____________________________________________________________

Monro, Inc.

(Exact name of registrant as specified in its charter)

____________________________________________________________


New York	16-0838627
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

200 Holleder Parkway, Rochester, New York	14615
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (585) 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

Common Stock, par value $0.01 per share

MNRO

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, 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.

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨ Emerging growth company ¨

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 x No

As of ~~January 21,~~July 22, 2022, ~~33,546,040~~32,197,220 shares of the registrant's common stock, $0.01 par value per share, were outstanding.

Table of Contents

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets	3
Consolidated Statements of Income and Comprehensive Income	4
Consolidated Statements of Changes in Shareholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk	23
Item 4. Controls and Procedures	23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	24
Item 2. UnregisteredSales of Equity Securities and Use of Proceeds	24
Item 6. Exhibits	25
Signatures	26

‎

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets



(thousands, except footnotes) (unaudited)	December 25, 2021		March 27, 2021		June 25, 2022		March 26, 2022
Assets
Current assets
Cash and equivalents	$	9,514	$	29,960	$	30,648	$	7,948
Accounts receivable		14,709		15,324		11,850		14,797
Federal and state income taxes receivable		—		10,844
Inventories		169,664		162,282		128,666		166,271
Other current assets		57,349		48,115		76,157		56,486
Total current assets		251,236		266,525		247,321		245,502
Property and equipment, net		315,302		327,063		307,932		315,193
Finance lease and financing obligation assets, net		272,550		275,360		253,259		268,406
Operating lease assets, net		222,934		203,329		209,875		213,588
Goodwill		779,091		689,524		730,293		776,714
Intangible assets, net		26,082		26,068		19,087		26,682
Other non-current assets		17,099		18,332		43,374		20,174
Long-term deferred income tax assets		4,896		5,613		4,591		5,153
Total assets	$	1,889,190	$	1,811,814	$	1,815,732	$	1,871,412
Liabilities and shareholders' equity
Current liabilities
Current portion of finance leases and financing obligations	$	41,192	$	37,803	$	41,213	$	42,092
Current portion of operating lease liabilities		34,685		30,903		34,624		34,692
Accounts payable		117,893		112,378		155,948		131,989
Federal and state income taxes payable		55		—		15,850		2,921
Accrued payroll, payroll taxes and other payroll benefits		23,634		20,842		24,344		18,540
Accrued insurance		52,906		49,681		51,251		49,391
Deferred revenue		13,833		11,956		14,500		14,153
Other current liabilities		27,923		27,053		32,084		28,186
Total current liabilities		312,121		290,616		369,814		321,964
Long-term debt		195,000		190,000		110,000		176,466
Long-term finance leases and financing obligations		362,522		366,330		339,775		357,475
Long-term operating lease liabilities		201,081		177,724		189,973		192,637
Other long-term liabilities		11,496		16,649		11,330		10,821
Long-term deferred income tax liabilities		24,259		19,783		24,552		28,560
Long-term income taxes payable		1,200		1,028		612		583
Total liabilities		1,107,679		1,062,130		1,046,056		1,088,506
Commitments and contingencies - Note 10
Commitments and contingencies - Note 9
Shareholders' equity:
Class C Convertible Preferred stock		29		29		29		29
Common stock		399		398		399		399
Treasury stock		(108,729)		(108,729)		(125,945)		(108,729)
Additional paid-in capital		243,349		238,244		245,689		244,577
Accumulated other comprehensive loss		(4,927)		(4,619)		(4,593)		(4,494)
Retained earnings		651,390		624,361		654,097		651,124
Total shareholders' equity		781,511		749,684		769,676		782,906
Total liabilities and shareholders' equity	$	1,889,190	$	1,811,814	$	1,815,732	$	1,871,412

Class C Convertible Preferred stock Authorized 150,000 shares, $1.50 par value, $0.064 conversion value; 19,664 shares issued and outstanding

Common stock Authorized 65,000,000 shares, $0.01 par value; ~~39,905,671~~39,920,441 shares issued as of ~~December~~June 25, ~~2021~~2022 and ~~39,848,093~~39,906,561 shares issued as of March ~~27, 2021~~26, 2022

Treasury stock 6,773,471 shares as of June 25, 2022 and 6,359,871 shares as of March 26, 2022, at cost

See accompanying Notes to Consolidated Financial Statements.

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Income and Comprehensive Income



	Three Months Ended				Nine Months Ended				Three Months Ended
(thousands, except per share data) (unaudited)	December 25, 2021		December 26, 2020		December 25, 2021		December 26, 2020		June 25, 2022		June 26, 2021
Sales	$	341,781	$	284,591	$	1,031,298	$	820,237	$	349,535	$	341,818
Cost of sales, including distribution and occupancy costs		221,199		188,453		654,102		532,119		227,346		215,887
Gross profit		120,582		96,138		377,196		288,118		122,189		125,931
Operating, selling, general and administrative expenses		93,146		80,450		287,366		236,603		95,934		98,014
Operating income		27,436		15,688		89,830		51,515		26,255		27,917
Interest expense, net of interest income		5,676		6,819		18,893		21,526		5,658		6,941
Other income, net		(43)		(65)		(138)		(132)		(78)		(44)
Income before income taxes		21,803		8,934		71,075		30,121		20,675		21,020
Provision for income taxes		5,516		2,251		18,122		7,605		8,191		5,339
Net income	$	16,287	$	6,683	$	52,953	$	22,516	$	12,484	$	15,681
Other comprehensive loss
Changes in pension, net of tax		(102)		(170)		(308)		(510)		(99)		(103)
Other comprehensive loss		(102)		(170)		(308)		(510)		(99)		(103)
Comprehensive income	$	16,185	$	6,513	$	52,645	$	22,006	$	12,385	$	15,578
Earnings per share
Basic	$	0.48	$	0.20	$	1.57	$	0.67	$	0.37	$	0.46
Diluted	$	0.48	$	0.20	$	1.56	$	0.67	$	0.37	$	0.46
Weighted average common shares outstanding
Basic		33,542		33,307		33,521		33,296		33,483		33,498
Diluted		34,056		33,827		34,036		33,840		33,986		34,022

See accompanying Notes to Consolidated Financial Statements.

‎

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Changes in Shareholders’ Equity



	Class C											Accumulated						Class C											Accumulated
	Convertible									Additional		Other						Convertible									Additional		Other
	Preferred Stock			Common Stock			Treasury Stock			Paid-In		Comprehensive		Retained		Total		Preferred Stock			Common Stock			Treasury Stock			Paid-In		Comprehensive		Retained		Total
(thousands) (unaudited)	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Loss		Earnings		Equity		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Loss		Earnings		Equity
Balance at September 26, 2020	22	$	33	39,667	$	397	6,360	$	(108,729)	$	231,095	$	(7,229)	$	620,800	$	736,367
Net income															6,683		6,683
Other comprehensive loss
Pension liability adjustment													(170)				(170)
Dividends declared
Preferred															(112)		(112)
Common															(7,328)		(7,328)
Dividend payable															(10)		(10)
Stock options and restricted stock																	—
Stock-based compensation											613						613
Balance at December 26, 2020	22	$	33	39,667	$	397	6,360	$	(108,729)	$	231,708	$	(7,399)	$	620,033	$	736,043

Balance at September 25, 2021	20	$	29	39,900	$	399	6,360	$	(108,729)	$	242,061	$	(4,825)	$	643,983	$	772,918
Net income															16,287		16,287
Other comprehensive loss
Pension liability adjustment													(102)				(102)
Dividends declared
Preferred															(120)		(120)
Common															(8,722)		(8,722)
Dividend payable															(38)		(38)
Stock options and restricted stock				6		—					30						30
Stock-based compensation											1,258						1,258
Balance at December 25, 2021	20	$	29	39,906	$	399	6,360	$	(108,729)	$	243,349	$	(4,927)	$	651,390	$	781,511


Balance at March 28, 2020	22	$	33	39,645	$	396	6,360	$	(108,729)	$	229,774	$	(6,889)	$	619,855	$	734,440
Net income															22,516		22,516
Other comprehensive loss
Pension liability adjustment													(510)				(510)
Dividends declared
Preferred															(337)		(337)
Common															(21,978)		(21,978)
Dividend payable															(23)		(23)
Stock options and restricted stock				22		1					(194)						(193)
Stock-based compensation											2,128						2,128
Balance at December 26, 2020	22	$	33	39,667	$	397	6,360	$	(108,729)	$	231,708	$	(7,399)	$	620,033	$	736,043

Balance at March 27, 2021	20	$	29	39,848	$	398	6,360	$	(108,729)	$	238,244	$	(4,619)	$	624,361	$	749,684	20	$	29	39,848	$	398	6,360	$	(108,729)	$	238,244	$	(4,619)	$	624,361	$	749,684
Net income															52,953		52,953															15,681		15,681
Other comprehensive loss
Pension liability adjustment													(308)				(308)													(103)				(103)
Dividends declared
Preferred															(350)		(350)															(110)		(110)
Common															(25,483)		(25,483)															(8,042)		(8,042)
Dividend payable															(91)		(91)															(14)		(14)
Stock options and restricted stock				58		1					1,975						1,976				17		1					739						740
Stock-based compensation											3,130						3,130											755						755
Balance at December 25, 2021	20	$	29	39,906	$	399	6,360	$	(108,729)	$	243,349	$	(4,927)	$	651,390	$	781,511
Balance at June 26, 2021																		20	$	29	39,865	$	399	6,360	$	(108,729)	$	239,738	$	(4,722)	$	631,876	$	758,591

Balance at March 26, 2022																		20	$	29	39,907	$	399	6,360	$	(108,729)	$	244,577	$	(4,494)	$	651,124	$	782,906
Net income																																12,484		12,484
Other comprehensive loss
Pension liability adjustment																														(99)				(99)
Dividends declared
Preferred																																(129)		(129)
Common																																(9,337)		(9,337)
Dividend payable																																(45)		(45)
Repurchase of stock																								413		(17,216)								(17,216)
Stock options and restricted stock																					13							(41)						(41)
Stock-based compensation																												1,153						1,153
Balance at June 25, 2022																		20	$	29	39,920	$	399	6,773	$	(125,945)	$	245,689	$	(4,593)	$	654,097	$	769,676

We declared ~~$0.26~~$0.28 and ~~$0.22~~$0.24 dividends per common share or equivalent for the three months ended ~~December~~June 25, ~~2021~~2022 and ~~December~~June 26, ~~2020, respectively, and $0.76 and $0.66 dividends per common share or equivalent for the nine months ended December 25,~~ 2021, ~~and December 26, 2020,~~ respectively.

See accompanying Notes to Consolidated Financial Statements.

‎

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Cash Flows



	Nine Months Ended				Three Months Ended
(thousands) (unaudited)	December 25, 2021		December 26, 2020		June 25, 2022		June 26, 2021
Operating activities
Net income	$	52,953	$	22,516	$	12,484	$	15,681
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		60,454		57,598		20,100		20,278
Share-based compensation expense		3,130		2,128		1,153		755
Gain on disposal of assets		(507)		(156)
Impairment of long-lived assets		—		99
Loss (gain) on disposal of assets						377		(168)
Gain on divestiture						(2,394)		—
Deferred income tax expense		9,633		4,041		(3,409)		2,931
Change in operating assets and liabilities (excluding acquisitions)
Accounts receivable		615		(788)		(1,038)		(98)
Inventories		(5,952)		23,787		184		(4,110)
Other current assets		(8,046)		7,848		(31)		(4,853)
Other non-current assets		26,042		2,288		9,256		7,950
Accounts payable		5,515		32,348		23,959		9,000
Accrued expenses		2,771		15,610		11,626		15,648
Federal and state income taxes payable		10,899		1,292		12,929		7,759
Other long-term liabilities		(30,442)		(9,491)		(8,020)		(8,114)
Long-term income taxes payable		172		96		29		55
Cash provided by operating activities		127,237		159,216		77,205		62,714
Investing activities
Capital expenditures		(17,445)		(39,214)		(8,213)		(5,199)
Acquisitions, net of cash acquired		(83,167)		(18,095)		(241)		(62,059)
Proceeds from divestiture						56,586		—
Proceeds from the disposal of assets		1,030		388		724		429
Other		122		1,025		—		67
Cash used for investing activities		(99,460)		(55,896)
Cash provided by (used for) investing activities						48,856		(66,762)
Financing activities
Proceeds from borrowings		139,862		—		43,909		77,000
Principal payments on long-term debt, finance leases and financing obligations		(163,985)		(400,657)		(120,588)		(78,661)
Repurchase of stock						(17,216)		—
Exercise of stock options		2,110		9		—		779
Dividends paid		(25,713)		(22,315)		(9,466)		(8,152)
Deferred financing costs		(497)		(874)
Cash used for financing activities		(48,223)		(423,837)		(103,361)		(9,034)
Decrease in cash and equivalents		(20,446)		(320,517)
Increase (decrease) in cash and equivalents						22,700		(13,082)
Cash and equivalents at beginning of period		29,960		345,476		7,948		29,960
Cash and equivalents at end of period	$	9,514	$	24,959	$	30,648	$	16,878
Supplemental information
Leased assets obtained in exchange for new finance lease liabilities	$	7,307	$	100,755
Leased assets (reduced) obtained in exchange for (reduced) new finance lease liabilities					$	(989)	$	6,599
Leased assets obtained in exchange for new operating lease liabilities	$	8,114	$	20,364	$	7,878	$	1,382

See accompanying Notes to Consolidated Financial Statements.

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

Table of Contents

INDEX TO NOTES



Notes to Consolidated Financial Statements (unaudited)
Note 1 Description of Business and Basis of Presentation	8
Note 2 ~~Impact of the COVID-19 Pandemic~~Acquisitions and Divestitures	9
Note 3 ~~Acquisitions~~	9
~~Note 4~~ Earnings per Common Share	1211
Note 4 Income Taxes	11
Note 5 ~~Income Taxes~~Fair Value	1211
Note 6 Cash Dividend	11
Note ~~6 Fair Value~~	12
~~Note~~ 7 ~~Cash Dividend~~Revenues	12
Note 8 ~~Revenues~~Long-term Debt	1312
Note 9 ~~Long-term Debt~~Commitments and Contingencies	13
Note 10 ~~Commitments and Contingencies~~Share Repurchase	14

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS

NOTES

Note 1 – Description of Business and Basis of Presentation

Description of business

Monro, Inc. and its direct and indirect subsidiaries (together, “Monro”, the “Company”, “we”, “us”, or “our”), are engaged principally in providing automotive undercar repair and tire replacement sales and tire related services in the United States. Monro had 1,303 Company-operated retail stores located in 32 states and 8180 franchised locations as of ~~December~~June 25, ~~2021.~~2022.

A certain number of our retail locations also service commercial customers. Our locations that serve commercial customers generally operate consistently with our other retail locations, except that the sales mix for these locations includes a higher number of commercial tires.

As of December 25, 2021, Monro had 7 wholesale locations and 3 retread facilities. The wholesale locations, in most cases, sell tires to customers for resale, although these tire sales do not include installation or other tire related services. The retread facilities re-manufacture tires through the replacement of tread on worn tires that are later sold to customers.

Monro’s operations are organized and managed as 1 single segment designed to offer to our customers replacement tires and tire related services, automotive undercar repair services as well as a broad range of routine maintenance services, primarily on passenger cars, light trucks and vans. We also provide other products and services for brakes; mufflers and exhaust systems; and steering, drive train, suspension and wheel alignment.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial statements. While these statements reflect all adjustments (consisting of items of a normal recurring nature) that are, in the opinion of management, necessary for a fair ~~presentation~~statement of the results of the interim period, they do not include all of the information and footnotes required by United States generally accepted accounting principles (“U.S. GAAP”) for complete financial statement presentation. The consolidated financial statements should be read in conjunction with the financial statement disclosures in our Form 10-K for the fiscal year ended March ~~27, 2021.~~26, 2022.

We use the same significant accounting policies in preparing quarterly and annual financial statements. For a description of our significant accounting policies followed in the preparation of the financial statements, see Note 1 of our Form 10-K for the fiscal year ended March 26, 2022.

Due to the seasonal nature of our business, quarterly operating results and cash flows are not necessarily indicative of the results that may be expected for other interim periods or the full year.

Fiscal year

We operate on a 52/53 week fiscal year ending on the last Saturday in March. Fiscal years ~~2022~~2023 and ~~2021~~2022 each contain 52 weeks. Unless specifically indicated otherwise, any references to “2023” or “fiscal 2023” and “2022” or “fiscal 2022” ~~and “2021” or “fiscal 2021”~~ relate to the years ending March ~~26, 2022~~25, 2023 and March ~~27, 2021,~~26, 2022, respectively.

Recent accounting pronouncements

In ~~December 2019,~~October 2021, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance ~~intended~~which requires an acquiring entity to ~~simplify~~recognize and measure contract assets and contract liabilities acquired in a business combination as if they entered into the ~~accounting for income taxes. The new guidance removes certain exceptions to~~original contract at the ~~general principles in Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes,”~~same time and ~~amends existing guidance to improve consistent application.~~same date as the acquiree. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, ~~2020.~~2022. Early adoption is permitted. We ~~adopted~~are currently evaluating the impact of adopting this ~~guidance during the first quarter of 2022. The adoption of this guidance did not have a material impact on our consolidated financial statements.~~guidance.

Other recent authoritative guidance issued by the FASB (including technical corrections to the ~~ASC)~~Accounting Standards Codification) and the SEC did not or are not expected to have a material effect on ~~Monro’s~~our consolidated financial statements.

~~Supplemental information~~Working capital management

~~Property~~As part of our ongoing efforts to manage our working capital and ~~equipment, net: Property~~improve our cash flow, we work with suppliers to optimize our purchasing terms and ~~equipment balances are shown on~~conditions, including extending payment terms. We also facilitate a voluntary supply chain financing program to provide some of our suppliers with the ~~Consolidated Balance Sheets net~~opportunity to sell receivables due from us (our accounts payable) to a participating financial institution at the sole discretion of ~~accumulated depreciation~~both the supplier and the financial institution. Should a supplier choose to participate in the program, it will receive payment from the financial institution in advance of ~~$405.2 million and $382.7 million as of December 25, 2021 and March 27, 2021, respectively.~~

agreed payment terms; our responsibility is limited to

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS

NOTES

~~Note 2 – Impact~~making payments to the respective financial institution on the terms originally negotiated with our supplier. We have concluded that the program is a trade payable program and not indicative of ~~the COVID-19 Pandemic~~a borrowing arrangement.

The novel strain of coronavirus (“COVID-19”) pandemic has been a highly disruptive economic and societal event that has affected our business and has a significant impact on consumer behavior. To date, our retail stores, wholesale locations and other facilities have remained open as an essential business. To serve our customers while also providing for the safety of employees, we have adapted certain aspects of the business. Throughout the pandemic, we have monitored the rapidly evolving situation and will continue to adapt our operations to (i) address federal, state and local standards, (ii) meet the demand of customers, and (iii) implement standards that we believe to be in the best interests of the safety and well-being of our employees and customers.Supplemental information

~~The full impact of the COVID-19 pandemic will depend on factors such as the length of time of the pandemic; how federal, state~~Property and ~~local governments~~equipment, net: Property and equipment balances are ~~responding; the efficacy of the COVID-19 vaccines; the longer-term impact of the pandemic~~shown on the ~~economy~~Consolidated Balance Sheets net of accumulated depreciation of $411.8 million and ~~consumer behavior;~~$414.2 million as of June 25, 2022 and ~~the effect on our customers, employees, vendors and other partners.~~March 26, 2022, respectively.

Note 32 – Acquisitions and Divestitures

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 note generally include acquisitions of 5 or more locations as well as acquisitions of 1 to 4 locations that are part of our greenfield store growth strategy.

2022

During the first nine months of fiscal 2022, we acquired the following businesses for an aggregate purchase price of $83.2 million. The acquisitions were financed through our Credit Facility, as defined in ~~Note 9. The results of operations for these acquisitions are included in our financial results from the respective acquisition dates.~~

On December 6, 2021, we acquired 11 retail tire and automotive repair stores operating as Car-X franchise locations in Iowa from KR Jones Enterprises, Inc. These stores will operate under the Car-X name.

~~On November 14, 2021, we acquired 3 retail tire and automotive repair stores located in California from Bud’s Tire and Wheel, Inc. These stores will operate under the Tire Choice name.~~

~~On November 14, 2021, we acquired 2 retail tire and automotive repair stores located in California from Eagle Auto & Tire, Inc. These stores will operate under the Mountain View Tire & Service name.~~

~~On November 14, 2021, we acquired 1 retail tire and automotive repair store located in California from Golden Reflections. This store will operate under the Mountain View Tire & Service name.~~

On April 25, 2021, we acquired 30 retail tire and automotive repair stores located in California from Mountain View Tire & Service, Inc. These stores operate under the Mountain View Tire & Service name. The acquisition was financed through our Credit Facility, as defined in Note 8. The results of operations for this acquisition are included in our financial results from the acquisition date.

The ~~acquisitions~~acquisition resulted in goodwill related to, among other things, growth opportunities, synergies and economies of scale expected from combining the ~~businesses~~business with ours, as well as unidentifiable intangible assets. All of the goodwill is expected to be deductible for tax purposes.

We expensed all costs related to the ~~acquisitions~~acquisition in the ~~nine~~three months ended ~~December 25,~~June 26, 2021. The total costs related to the completed ~~acquisitions~~acquisition were ~~$0.2~~$0.3 million and ~~$0.6 million for the three months and nine months ended December 25, 2021, respectively. These~~these costs are included in the Consolidated Statements of Income and Comprehensive Income primarily under operating, selling, general and administrative (“OSG&A”) expenses.

Sales related to the completed ~~acquisitions for the three months and nine months ended December 25, 2021~~acquisition totaled ~~$13.7~~$7.9 million ~~and $33.1 million, respectively,~~ for the period from acquisition date through ~~December 25,~~June 26, 2021.

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 accounted for the 2022 acquisition as a business combination using the acquisition method of accounting and we finalized the purchase accounting related to the 2022 acquisition during 2023. As a result of the updated purchase price allocation for the 2022 acquisition, 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 June 25, 2022 and the Consolidated Statement of Income and Comprehensive Income for the three months ended June 25, 2022.

The acquired assets and liabilities assumed were recorded at their assigned acquisition-date fair values and were consolidated with those of the Company as of the acquisition date. The consideration transferred and net liabilities assumed were recorded as goodwill.

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS

NOTES

We accounted for the acquisitions as a business combination using the acquisition method of accounting in accordance with the FASB ASC Topic 805, “Business Combinations.” The assets acquired and liabilities assumed were recorded at their acquisition-date fair values and were consolidated with those of the Company as of the acquisition date. The acquisition-date fair values were assigned based on preliminary valuations and estimates, and the consideration transferred and net liabilities assumed were recorded as goodwill.



2022 Acquisition-date Fair Values Assigned
(thousands)
Inventory	$	~~1,208~~937
Other current assets		~~424~~217
Property and equipment		~~1,455~~2,939
Finance lease and financing obligation assets		~~15,568~~15,758
Operating lease assets		~~35,815~~17,545
Intangible assets		~~3,120~~2,211
Other non-current assets		7963
Long-term deferred income tax assets		~~4,332~~4,001
Total assets acquired		~~62,001~~43,671
Current portion of finance leases and financing obligations		~~1,569~~1,447
Current portion of operating lease liabilities		~~3,324~~1,698
Deferred revenue		~~1,273~~955
Other current liabilities		~~273~~208
Long-term finance leases and financing obligations		~~21,584~~21,957
Long-term operating lease liabilities		~~39,401~~22,447
Other long-term liabilities		~~1,055~~754
Total liabilities assumed		~~68,479~~49,466
Total net identifiable liabilities assumed	$	~~(6,478)~~(5,795)
Total consideration transferred	$	~~83,175~~62,127
Less: total net identifiable liabilities assumed		~~(6,478)~~(5,795)
Goodwill	$	~~89,653~~67,922

The total consideration of ~~$83.2~~$62.1 million is comprised of ~~$81.7~~$61.0 million in cash and ~~$1.5~~$1.1 million ~~in payables to certain sellers, of~~ which ~~$1.1 million~~ is due upon finalization of certain lease assignment terms for one store location.

We recorded ~~$3.1~~$2.2 million to amortizable intangible assets, including a customer ~~lists~~list and a trade name, with a weighted-average amortizable period of approximately eight years. We have recorded acquired right-of-use ~~(“ROU”)~~ assets at the present value of remaining lease payments adjusted to reflect favorable or unfavorable market terms of the lease.

We continue to refine the valuation data and estimates primarily related to inventory, warranty reserves, intangible assets, ~~and~~ real property leases, and certain liabilities for the 2022 acquisitions that closed subsequent to June 26, 2021 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.

~~2021~~Divestitures

On ~~December 6, 2020,~~June 17, 2022, we ~~acquired 17~~completed the divestiture of assets relating to our wholesale tire operations (7 locations) and internal tire distribution operations to American Tire Distributors, Inc. (“ATD”). We received $62 million from ATD at the closing of the transaction, of which $5 million is currently being held in escrow. The remaining $40 million (“Earnout”) of the total consideration of $102 million will be paid quarterly over approximately two years based on our tire purchases from or through ATD pursuant to a distribution and fulfillment agreement with ATD. Under the distribution agreement, ATD agreed to supply and sell tires to retail ~~tire and automotive repair stores located in California from Fred Allen Enterprises, Inc. for $17.1 million. These~~locations we own. After ATD satisfies the Earnout payments, our company-owned retail stores will ~~operate under~~be required to purchase at least 90 percent of their forecasted requirements for certain passenger car tires, light truck replacement tires, and medium truck tires from or through ATD. Any tires that ATD is unable to supply or fulfill from those categories will be excluded from the ~~Tire Choice name.~~calculation of our requirements for tires. The ~~acquisition was financed through~~initial term of the distribution agreement is five years after the completion of the Earnout Period, with automatic 12-month renewal periods thereafter. The divestiture enables us to focus our ~~Credit Facility.~~resources on our core retail business operations. In connection with this transaction, we recognized a pre-tax gain of $2.4 million within OSG&A expenses. We also expensed $1.2 million of closing costs and costs associated with the closing of a related warehouse within OSG&A expenses. The ~~results of operation for~~divestiture did not meet the ~~acquisition are included~~criteria to be reported as discontinued operations in our consolidated financial ~~results from~~statements as our decision to divest this business did not represent a strategic shift that will have a major effect on our operations and financial results. For additional information regarding discrete tax impacts because of the ~~acquisition date.~~divestiture, see Note 4.

~~Prior to this acquisition, our acquisition activity in 2021 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 seven years at its estimated fair value of approximately $0.4 million. We have recorded acquired ROU assets at the present value of remaining lease payments adjusted to reflect favorable or unfavorable market terms of the lease.

We expensed all costs related to the acquisition in the three months ended December 26, 2020. The total costs related to the completed acquisition were $0.1 million and these costs are included in the Consolidated Statements of Income and Comprehensive Income primarily under OSG&A expenses.

~~Sales related to the completed acquisition totaled $0.9 million for the period from acquisition date through December 26, 2020.~~

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS

NOTES

We accounted for the 2021 acquisition as a business combination using the acquisition method of accounting and we finalized the purchase accounting related to the 2021 acquisition during 2022. As a result of the updated purchase price allocation for the 2021 acquisition, 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 25, 2021 and the Consolidated Statements of Income and Comprehensive Income for the three months and nine months ended December 25, 2021.


~~2021 Acquisition-date Fair Values Assigned~~
~~(thousands)~~
~~Inventory~~	$	~~1,017~~
~~Other current assets~~		~~172~~
~~Property and equipment~~		~~796~~
~~Finance lease and financing obligation assets~~		~~5,089~~
~~Operating lease assets~~		~~8,980~~
~~Intangible assets~~		~~418~~
~~Other non-current assets~~		31
~~Long-term deferred income tax assets~~		~~1,336~~
~~Total assets acquired~~		~~17,839~~
~~Current portion of finance leases and financing obligations~~		~~748~~
~~Current portion of operating lease liabilities~~		~~976~~
~~Deferred revenue~~		~~697~~
~~Other current liabilities~~		4
~~Long-term finance leases and financing obligations~~		~~7,911~~
~~Long-term operating lease liabilities~~		~~7,433~~
~~Other long-term liabilities~~		~~548~~
~~Total liabilities assumed~~		~~18,317~~
~~Total net identifiable liabilities assumed~~	$	~~(478)~~
~~Total consideration transferred~~	$	~~17,112~~
~~Less: total net identifiable liabilities assumed~~		~~(478)~~
~~Goodwill~~	$	~~17,590~~

~~During the nine months ended December 25, 2021, we paid $0.8 million to the seller of the 2021 acquisition as the lease assignment for 1 store location was finalized during the period.~~

~~Monro, Inc.~~ ~~Q3 2022 Form 10-Q~~

~~Table of Contents~~

~~CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOTES~~

Note 43 – Earnings per Common Share

Basic earnings per common share amounts are calculated 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 potential common shares issuable from the conversion of preferred stock, as well as upon the assumed exercise of common stock options outstanding ~~and from the vesting of restricted stock.~~adjusted to give effect to potentially dilutive securities.



Earnings per Common Share	Three Months Ended				Nine Months Ended				Three Months Ended
(thousands, except per share data)	December 25, 2021		December 26, 2020		December 25, 2021		December 26, 2020		June 25, 2022		June 26, 2021
Numerator for earnings per common share calculation:
Net income	$	16,287	$	6,683	$	52,953	$	22,516	$	12,484	$	15,681
Less: Preferred stock dividends		(120)		(112)		(350)		(337)		(129)		(110)
Income available to common shareholders	$	16,167	$	6,571	$	52,603	$	22,179	$	12,355	$	15,571
Denominator for earnings per common share calculation:
Weighted average common shares - basic		33,542		33,307		33,521		33,296		33,483		33,498
Effect of dilutive securities:
Preferred stock		460		510		460		510		460		460
Stock options		13		—		17		16
Restricted stock		41		10		38		18
Stock based awards										43		64
Weighted average common shares - diluted		34,056		33,827		34,036		33,840		33,986		34,022

Basic earnings per common share	$	0.48	$	0.20	$	1.57	$	0.67	$	0.37	$	0.46
Diluted earnings per common share	$	0.48	$	0.20	$	1.56	$	0.67	$	0.37	$	0.46

Weighted average common share equivalents that have an anti-dilutive impact are excluded from the computation of diluted earnings per share.

Note 54 – Income Taxes

For the three months ~~and nine months~~ ended ~~December~~June 25, ~~2021,~~2022, our effective income tax rate was ~~25.3~~39.6 percent, ~~and 25.5 percent, respectively,~~ compared to ~~25.2~~25.4 percent for the three months ~~and nine~~ended June 26, 2021. Our effective income tax rate for the three months ended ~~December 26, 2020,~~June 25, 2022 was higher by 12.8 percent because of discrete tax impacts from the divestiture of assets relating to our wholesale tire operations and internal tire distribution operations as ~~discrete items, none~~well as the revaluation of ~~which are individually significant, resulted~~deferred tax balances due to changes in ~~a larger~~the mix of pre-tax income in various U.S. state jurisdictions because of the divestiture. Our effective income tax rate ~~benefit in~~for the ~~prior year periods.~~three months ended June 25, 2022 was also higher by 0.8 percent due to the discrete tax impact related to share-based awards.

Note 65 – Fair Value

Long-term debt had a carrying amount that approximates a fair value of ~~$195.0~~$110.0 million as of ~~December~~June 25, ~~2021,~~2022, as compared to a carrying amount and a fair value of ~~$190.0~~$176.5 million as of March ~~27, 2021.~~26, 2022. The carrying value of our debt approximated its fair value due to the variable interest nature of the debt.

Note 76 – Cash Dividend

We paid dividends of ~~$25.7~~$9.5 million during the ~~nine~~three months ended ~~December~~June 25, 2021. Under our Credit Facility, we were permitted to 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 were in compliance with the financial covenants2022. The declaration and ~~other restrictions in the Credit Facility, as amended. The Credit Facility currently does not limit the amount we can pay in dividends. 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, there are no restrictions on our ability to declare dividends as long as we are in compliance with the covenants in the Credit Facility. For additional information regarding our Credit Facility, see Note 98.

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

1211

Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS

NOTES

Note 87 – Revenues

Automotive undercar repair, tire replacement sales and tire related 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, tire replacement sales and tire related 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 may vary depending on the customer and generally ~~range from 15 to 45~~are 30 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.



Revenues	Three Months Ended				Nine Months Ended				Three Months Ended
(thousands)	December 25, 2021		December 26, 2020		December 25, 2021		December 26, 2020		June 25, 2022		June 26, 2021
Tires ^(a)	$	190,086	$	162,442	$	544,395	$	454,217	$	173,064	$	176,229
Maintenance		78,363		65,648		248,793		193,754		90,292		84,459
Brakes		41,556		29,962		135,704		94,015		49,155		45,975
Steering		25,894		20,464		82,246		60,497		29,981		28,266
Exhaust		5,107		5,391		17,477		15,533		6,275		5,789
Other		775		684		2,683		2,221		768		1,100
Total	$	341,781	$	284,591	$	1,031,298	$	820,237	$	349,535	$	341,818

(a) Includes the sale of tire road hazard warranty agreements and tire delivery commissions.

Revenue from the sale of tire road hazard warranty agreements is initially deferred and is recognized over the contract period as costs are expected to be incurred in performing such services, typically 21 to 36 months. The deferred revenue balances at ~~December~~June 25, ~~2021~~2022 and March ~~27, 2021~~26, 2022 were ~~$20.1~~$21.1 million and ~~$16.7~~$20.6 million, respectively, of which ~~$13.8~~$14.5 million and ~~$12.0~~$14.2 million, respectively, are reported in Deferred revenue and ~~$6.3~~$6.6 million and ~~$4.7~~$6.4 million, respectively, are reported in Other long-term liabilities in our Consolidated Balance Sheets.



Changes in Deferred Revenue
(thousands)
Balance at March ~~27, 2021~~26, 2022	$	~~16,712~~20,632
Deferral of revenue		~~15,441~~
~~Deferral of revenue from acquisitions~~		~~2,181~~5,665
Recognition of revenue		~~(14,237)~~(5,184)
Balance at ~~December~~June 25, ~~2021~~2022	$	~~20,097~~21,113

As of ~~December~~June 25, ~~2021,~~2022, we expect to recognize ~~$4.5~~$12.0 million of deferred revenue related to road hazard warranty agreements in the remainder of fiscal ~~2022~~2023, ~~$11.2~~$7.2 million of deferred revenue during our fiscal year ending ~~March 25,~~ ~~2023~~March 31, 2024, and ~~$4.4~~$1.9 million of deferred revenue ~~thereafter~~.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.

Note 98 – Long-term Debt

In April 2019, we entered into a new five year $600 million revolving credit facility agreement with 8 banks (the “Credit Facility”). 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 initially bore interest at 75 to 200 basis points over the London Interbank Offered Rate (“LIBOR”) (or replacement index) or at the prime rate, depending on the type of borrowing and the rates then in effect.

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 amended the interest rate charged on

~~Monro, Inc.~~ ~~Q3 2022 Form 10-Q~~

~~Table of Contents~~

~~CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOTES~~

borrowings to be based on the greater of adjusted one-month LIBOR or 0.75 percent. For the period from June 30, 2020 to June 30, 2021, the minimum interest rate spread charged on borrowings was 225 basis points over LIBOR. Additionally, during the same

Monro, Inc. Q1 2023 Form 10-Q

Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS

NOTES

period, we were permitted to declare, make or pay any dividend or distribution up to $38.5 million in the aggregate and the acquisition of stores or other businesses up to $100 million in the aggregate were permitted if we were in compliance with the financial covenants and other restrictions in the First Amendment and Credit Facility. As of July 1, 2021, the ability of our Board of Directors to declare, make or pay any dividend or distribution and our ability to acquire stores or other businesses is no longer restricted by the terms of the Credit Facility, as amended by the First Amendment. The Credit Facility requires fees payable quarterly throughout the term between 0.125 percent and 0.35 percent of the amount of the average net availability under the Credit Facility during the preceding quarter.

On October 5, 2021, we entered into a Second Amendment to the Credit Facility (the “Second Amendment”). The Second Amendment, which among other things, amends certain of the financial terms in the Credit Agreement, as amended by the First Amendment. Specifically, the First Amendment had amended the interest rate charged on borrowings to be based on the greater of adjusted one-month LIBOR or 0.75 percent. The Second Amendment ~~amends~~amended the interest rate to be based on the greater of adjusted one-month LIBOR or 0.00 percent. In addition, the Second Amendment ~~updates~~updated certain provisions regarding a successor interest rate to LIBOR. Except as amended by the First Amendment and Second Amendment, the remaining terms of the credit agreement remain in full force and effect.

Within the Credit Facility, we have a sub-facility of $80 million available for the purpose of issuing standby letters of credit. The sub-facility 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 $29.6 million outstanding letter of credit at ~~December~~June 25, ~~2021.~~2022.

There was ~~$195.0~~$110.0 million outstanding and ~~$375.4~~$460.4 million available under the Credit Facility at ~~December~~June 25, ~~2021.~~2022.

We were in compliance with all debt covenants at ~~December~~June 25, ~~2021.~~2022.

Note 109 – Commitments and Contingencies

Commitments



Commitments Due by Period				Within		2 to		4 to		After				Within		2 to		4 to		After
(thousands)		Total		1 Year		3 Years		5 Years		5 Years		Total		1 Year		3 Years		5 Years		5 Years
Principal payments on long-term debt	$	195,000			$	195,000					$	110,000			$	110,000
Finance lease commitments/financing obligations ^(a)		507,093	$	58,201		113,145	$	101,795	$	233,952		475,700	$	57,188		108,474	$	98,145	$	211,893
Operating lease commitments ^(a)		271,396		41,202		75,114		60,941		94,139		257,953		40,764		74,930		60,267		81,992
Accrued rent		786		686		38		26		36		764		674		34		25		31
Other liabilities		533		533		—		—		—		92		92		—		—		—
Total	$	974,808	$	100,622	$	383,297	$	162,762	$	328,127	$	844,509	$	98,718	$	293,438	$	158,437	$	293,916

(a)Finance and operating lease commitments represent future undiscounted lease payments and include ~~$104.3~~$98.5 million and ~~$69.9~~$63.6 million, respectively, related to options to extend lease terms that are reasonably certain of being exercised.

Contingencies

We are currently a party to various claims and legal proceedings incidental to the conduct of our business. If management believes that a loss arising from any of these matters is probable and can reasonably be estimated, we will record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Litigation is subject to inherent uncertainties, and unfavorable rulings could occur and may include monetary damages. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which any such ruling occurs, or in future periods.

As previously disclosed by the Company, an action was filed against us on June 12, 2020 in the U.S. District Court for the Western District of Pennsylvania by Mark Cerini. The plaintiff, who is a former service store manager, sought certification to represent similarly situated store managers in a nationwide collective action for unpaid overtime wages, damages and attorneys’ fees. Plaintiff alleged violations of the Fair Labor Standards Act and various state laws relating to, among other things, overtime and unpaid wages. The parties entered into a settlement agreement to resolve this matter that was approved by the court. The Company included the settlement amount of $3.7 million in OSG&A expenses in the Company’s Consolidated Statement of Income and Comprehensive Income during fiscal 2022. The Company paid this settlement in the third quarter of fiscal 2022 and does not expect to incur additional expenses with respect to the settlement.

Monro, Inc. Q3Q1 2023 Form 10-Q

Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS

NOTES

Note 10 – Share Repurchase

On May 19, 2022, our Board of Directors authorized a share repurchase program for the repurchase of up to $150 million of shares of our common stock. The Board of Directors did not specify a date upon which the authorization will expire. Shares repurchased under this authorization will become treasury shares.

We periodically repurchased shares of our common stock under the repurchase program through open market transactions.


Share Repurchase Activity	Three Months Ended
(thousands, except per share data)	June 25, 2022
Number of shares purchased		413.6
Average price paid per share	$	41.60
Total repurchased	$	17,216

Monro, Inc. Q1 2023 Form 10-Q

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Recent Developments

On June 17, 2022, we completed the sale of assets relating to our wholesale tire operations (seven locations) and internal tire distribution operations to American Tire Distributors, Inc. (“ATD”). We expect to receive total consideration of $102 million, consisting of $62 million paid by ATD at closing, of which $5 million is currently being held in escrow, and the remaining $40 million will be paid quarterly over approximately two years based on our tire purchases from or through ATD pursuant to a distribution and fulfillment agreement. For details regarding the sale, see Note 2 to our consolidated financial statements.

Financial Summary

~~Third~~First quarter ~~2022~~2023 included the following notable items:

Diluted earnings per common share (“EPS”) were ~~$0.48.~~$0.37.

Adjusted diluted EPS, a non-GAAP measure, were ~~$0.49.~~$0.42.

Sales increased ~~20.1~~2.3 percent, driven primarily by an increase in ~~comparable~~new store sales.

Comparable store sales increased ~~13.8~~0.4 percent from the ~~prior year~~ comparable prior-year period, ~~driven~~ primarily bydue to an increase in ~~average ticket amount.~~comparable store sales at our retail locations of 2.8 percent driven by a 15 percent comparable store sales increase in approximately 300 of our small or underperforming locations.

Operating income of ~~$27.4~~$26.3 million was ~~74.9~~6.0 percent ~~higher~~lower than the ~~prior year~~ comparable ~~period.~~prior-year period, driven primarily by a decrease in gross profit.

Net income was ~~$16.3~~$12.5 million.

Adjusted net income, a non-GAAP measure, was ~~$16.6~~$14.3 million.


Earnings Per Common Share	Three Months Ended						Nine Months Ended						Three Months Ended
	December 25, 2021		December 26, 2020		Change		December 25, 2021		December 26, 2020		Change		June 25, 2022		June 26, 2021		Change
Diluted EPS	$	0.48	$	0.20	140.0	%	$	1.56	$	0.67	132.8	%	$	0.37	$	0.46	(19.6)	%
Adjustments		0.01		0.01				0.09		0.09				0.05		0.09
Adjusted diluted EPS	$	0.49	$	0.22	122.7	%	$	1.66	$	0.77	115.6	%	$	0.42	$	0.55	(23.6)	%

~~Note: Amounts may not foot due to rounding.~~

Adjusted net income and adjusted diluted EPS, each of which is a measure not derived in accordance with U.S. GAAP, exclude the impact of certain items. Management believes that adjusted net income and adjusted diluted EPS are useful in providing period-to-period comparisons of the results of our operations by excluding certain non-recurring items and items related to store closings as well as Monro.Forward or acquisition initiatives. Reconciliations of these non-GAAP financial measures to GAAP measures are provided beginning on page 1918 under “Non-GAAP Financial Measures.”

We define comparable store sales ~~or same store sales,~~ as sales for ~~stores~~locations that have been opened or owned at least one full fiscal year. We believe this period is generally required for new store sales levels to begin to normalize. Management uses comparable store sales to assess the operating performance of the Company’s stores and believes the metric is useful to investors because our overall results are dependent upon the results of our stores. Comparable sales measures vary across the retail industry. Therefore, our comparable store sales calculation is not necessarily comparable to similarly titled measures reported by other companies.

~~Impact of COVID-19~~

The full impact of the COVID-19 pandemic will depend on factors such as the length of time of the pandemic; how federal, state and local governments are responding; the efficacy and distribution of the COVID-19 vaccines; the longer-term impact of the pandemic on the economy and consumer behavior; and the effect on our customers, referred to as “guests”; employees, referred to as “teammates”; vendors and other partners.

~~During this time, we are focused on protecting the health and safety of our teammates and guests, while seeking to continue operating our business responsibly.~~

During this period when vaccine distribution has increased and more businesses are operating at levels similar to pre-pandemic capacity, we have experienced labor inefficiencies and a shortage of teammates in some of our store locations. If we are unable to fill enough teammate positions, we may be unable to earn as much revenue as if we were fully staffed. We have had to pay more for labor because our teammates continue working overtime in order to meet the surge in demand, which, along with an incremental investment we made in technician labor costs to support current and future sales growth amidst improving consumer demand trends, increased our technician labor costs as a percentage of sales and may decrease our gross profit and net income if not offset by other factors. Although we are experiencing unprecedented challenges during this pandemic, we continue our focus to remain as efficient as possible while still offering safe and high quality service to our guests.

While we expect many teammates to return to our offices in the future, the timing of such a return could be affected by resurgences of COVID-19 in areas where our offices are located. When we return to our offices, we expect many teammates to continue to work in a hybrid of in-person and remote work. These changes to our operations going forward may present additional challenges and increased costs to ensure our offices are safe and functional for hybrid work that enable effective collaboration of both in-person and remote teammates.

~~Monro, Inc.~~ ~~Q3 2022 Form 10-Q~~

~~Table of Contents~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

Given the level of volatility and uncertainty surrounding the future impact of COVID-19, 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.

Analysis of Results of Operations



Summary of Operating Income	Three Months Ended						Nine Months Ended						Three Months Ended
(thousands)	December 25, 2021		December 26, 2020		Change		December 25, 2021		December 26, 2020		Change		June 25, 2022		June 26, 2021		Change
Sales	$	341,781	$	284,591	20.1	%	$	1,031,298	$	820,237	25.7	%	$	349,535	$	341,818	2.3	%
Cost of sales, including distribution and ‎occupancy costs		221,199		188,453	17.4			654,102		532,119	22.9
Cost of sales, including distribution and occupancy costs														227,346		215,887	5.3
Gross profit		120,582		96,138	25.4			377,196		288,118	30.9			122,189		125,931	(3.0)
Operating, selling, general and administrative expenses		93,146		80,450	15.8			287,366		236,603	21.5			95,934		98,014	(2.1)
Operating income	$	27,436	$	15,688	74.9	%	$	89,830	$	51,515	74.4	%	$	26,255	$	27,917	(6.0)	%

Sales

Sales include automotive undercar repair, tire replacement and tire related service sales, net of discounts, returns, etc., and revenue from the sale of warranty agreements and commissions earned from the delivery of tires. See Note 87 to ~~the Company’s~~our consolidated financial statements for further information. We use comparable store sales to evaluate the performance of our existing stores by measuring the change in sales for a period over the comparable, prior-year period of equivalent length. There were 8990 selling days in the three months ended ~~December~~June 25, ~~2021~~2022 and in the three months ended ~~December~~June 26, ~~2020, and 270 selling days in the nine months ended December 25, 2021 and in the nine months ended December 26, 2020.~~2021.

Monro, Inc. Q1 2023 Form 10-Q

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

Sales growth – from both comparable store sales and new stores – represents an important driver of our long-term profitability. We expect that comparable store sales growth will significantly impact our total sales growth. We believe that our ability to successfully differentiate our ~~guests’~~customers’, often referred to as “guests”, experience through a careful combination of merchandise assortment, price, convenience, ~~guest experience,~~ and other factors will, over the long-term, drive both increasing guest traffic and the average ticket ~~amount.~~amount spent.



Sales	Three Months Ended					Nine Months Ended					Three Months Ended
(thousands)	December 25, 2021			December 26, 2020		December 25, 2021			December 26, 2020		June 25, 2022			June 26, 2021
Sales	$	341,781		$	284,591	$	1,031,298		$	820,237	$	349,535		$	341,818
Dollar change compared to prior year	$	57,190				$	211,061				$	7,717
Percentage change compared to prior year		20.1	%				25.7	%				2.3	%

The sales increase was primarily due to an increase in sales from new stores. Additionally, there was an increase in comparable store sales from an increase in average ticket amount as comparable store sales growth increased across our product categories with higher growth in our tires, maintenance and brakes categories. Additionally, there was an increase in sales from new stores.amount. Partially offsetting these increases was a decrease in sales from closed stores. The following table shows the primary drivers of the change in sales ~~for each of~~between the three months ended June 25, 2022 and ~~nine~~the three months ended ~~December 25, 2021, as compared to the same period ended December~~June 26, ~~2020.~~2021.

Sales Percentage Change
Three Months Ended
Nine Months Ended
December 25, 2021
December 25, 2021
Sales change
20.1
%
25.7
%
Primary drivers of change in sales
Comparable stores sales
13.8
%
20.3
%
New store sales ^(a)
6.5
%
6.2
%
Closed store sales
(0.1)
%
(0.6)
%



Sales Percentage Change	Three Months Ended
		June 25, 2022
Sales change		2.3	%
Primary drivers of change in sales
New store sales ^(a)		3.3	%
Comparable store sales ^(b)		0.4	%
Closed store sales ^(c)		(1.3)	%

(a)Sales from the 2022 ~~and 2021~~ acquisitions ~~contributed 6.4 percent and 6.0 percent of~~represent the ~~sales~~ change ~~for~~between the three months ended June 25, 2022 and the ~~nine~~three months ended ~~December~~June 26, 2021.

(b)Comparable store sales at our retail locations increased by 2.8 percent, driven by a 15 percent comparable store sales increase in approximately 300 small or underperforming retail locations.

(c)Sales from the wholesale locations sold to ATD primarily represent the change between the three months ended June 25, 2022 and the three months ended June 26, 2021.

Broad-based inflationary pressures impacting consumers, including higher fuel prices and the negative impact on miles driven, partly led to lower demand during the three months ended June 25, 2022. We expect the inflationary environment to continue to impact our customers throughout the remainder of 2023.


Comparable Store Product Category Sales Change	Three Months Ended
	June 25, 2022		June 26, 2021
Tires ^(a)	(0)	%	25	%
Maintenance service	1	%	42	%
Brakes	2	%	57	%
Alignment	(2)	%	54	%
Front end/shocks	5	%	40	%
Exhaust	5	%	35	%

(a)Comparable store tire sales increased five percent at our retail locations.

For the three months ended June 26, 2021, ~~respectively.~~the comparable store sales increase across all product categories reflect higher traffic and higher average ticket sales compared to the prior period in which the coronavirus (“COVID-19”) pandemic had a more volatile impact on demand.



Sales by Product Category	Three Months Ended
	June 25, 2022		June 26, 2021
Tires	50	%	52	%
Maintenance service	26		25
Brakes	14		14
Steering ^(a)	9		8
Exhaust	1		1
Total	100	%	100	%

(a)Steering product category includes front end/shocks and alignment product category sales.

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS



Change in Number of Company-Operated Retail Stores	Three Months Ended
	June 25, 2022	June 26, 2021
Beginning store count	1,304	1,263
Opened ^(a)	3	30
Closed	(4)	(2)
Ending store count	1,303	1,291

~~As the COVID-19 pandemic has evolved, demand for automotive undercar repair services as well as replacement tires and tire related services continues to be volatile. During~~(a) The stores opened in the three months ~~and nine months~~ ended ~~December 25,~~June 26, 2021 comparable store sales growth increased across our product categories with higher growth in our higher-margin brakes, alignment and maintenance categories, as well as our tire category, each of which experienced declines during the three months and nine months ended December 26, 2020.

Comparable Store Product Category Sales Change
Three Months Ended
Nine Months Ended
December 25, 2021
December 26, 2020
December 25, 2021
December 26, 2020
Tires
11
%
(8)
%
15
%
(8)
%
Maintenance
11
%
(19)
%
22
%
(24)
%
Brakes
28
%
(21)
%
39
%
(30)
%
Alignment
28
%
(16)
%
37
%
(21)
%
Front end/shocks
14
%
(17)
%
23
%
(25)
%
Exhaust
14
%
(17)
%
18
%
(24)
%

Sales by Product Category
Three Months Ended
Nine Months Ended
December 25, 2021
December 26, 2020
December 25, 2021
December 26, 2020
Tires
56
%
57
%
53
%
56
%
Maintenance
23
23
24
24
Brakes
12
11
13
12
Steering ^(a)
8
7
8
7
Exhaust
1
2
2
1
Total
100
%
100
%
100
%
100
%

~~(a)Steering product category includes front end/shocks and alignment product category sales.~~

Change in Number of Company-Operated Retail Stores
Three Months Ended
Nine Months Ended
December 25, 2021
December 26, 2020
December 25, 2021
December 26, 2020
Beginning store count
1,288
1,242
1,263
1,283
Opened ^(a)
17
19
47
20
Closed
(2)
(1)
(7)
(43)
Ending store count
1,303
1,260
1,303
1,260

~~(a)The stores opened are primarily~~relate to stores acquired from the 2022 ~~and 2021 acquisitions.~~acquisition.

Cost of Sales and Gross Profit


Gross Profit	Three Months Ended						Nine Months Ended						Three Months Ended
(thousands)	December 25, 2021			December 26, 2020			December 25, 2021			December 26, 2020			June 25, 2022			June 26, 2021
Gross profit	$	120,582		$	96,138		$	377,196		$	288,118		$	122,189		$	125,931
Percentage of sales		35.3	%		33.8	%		36.6	%		35.1	%		35.0	%		36.8	%
Dollar change compared to prior year	$	24,444					$	89,078					$	(3,742)
Percentage change compared to prior year		25.4	%					30.9	%					(3.0)	%

The ~~increase~~decrease in gross profit, as a percentage of sales, of ~~150~~180 basis points (“bps”) ~~for~~from the ~~three months and nine months ended December 25, 2021, as compared to the prior year~~ comparable prior-year period was primarily due to a decrease in material costs, as a percentage of sales, as a result of a shift in sales mix from tires to our higher margin service categories. Additionally, through the use of our tire category and management pricing tool, we expanded our gross profit per tire from the prior year comparable period. The increase in gross profit, as a percentage of sales, was also partially due to a decrease in distribution and occupancy costs, as a percentage of sales, as we gained leverage on these largely fixed costs with higher overall comparable store sales. Partially offsetting these decreases was an increase in technician labor costs, which increased as a percentage of sales, as we made an incremental investment in technician labor costs to support current and future sales ~~growth amidst improving consumer demand trends~~growth. We do not expect further significant incremental investment in technician headcount. The decrease in gross profit, as a percentage of sales, was also partially due to an increase in distribution and occupancy costs, as a percentage of sales, as we lost leverage on these largely fixed costs with lower overall comparable store sales growth. Partially offsetting these increases was a decrease in material costs, as a percentage of sales, as a result of higher selling prices and a shift in sales mix from tires to our higher margin service categories.



Gross Profit as a Percentage of Sales Change	Three Months Ended
		June 25, 2022
Gross profit change		(180)	bps
Primary drivers of change in gross profit as a percentage of sales
Technician labor costs		(200)	bps
Distribution and occupancy costs		(60)	bps
Material costs		70	bps

OSG&A Expenses



OSG&A Expenses	Three Months Ended
(thousands)	June 25, 2022			June 26, 2021
OSG&A Expenses	$	95,934		$	98,014
Percentage of sales		27.4	%		28.7	%
Dollar change compared to prior year	$	(2,080)
Percentage change compared to prior year		(2.1)	%

The decrease of $2.1 million in OSG&A expenses for the three months ended June 25, 2022 from the comparable prior-year period is primarily due to a decrease in litigation settlement costs. The decrease in OSG&A expenses for the three months ended June 25, 2022 was also due to the gain on the sale of our ~~product~~wholesale tire and ~~service categories.~~tire distribution assets, net of closing costs and costs associated with the closing of a related warehouse, as well as lower expenses from nine stores closed compared to the comparable prior-year period. Partially offsetting these decreases were increased expenses from 21 new stores and a full three months of expenses from stores acquired during the three months ended June 26, 2021. Additionally, during the three months ended June 25, 2022, OSG&A expenses from comparable stores increased from the comparable prior-year period. However, we gained leverage with higher overall comparable store sales, which resulted in the decrease in OSG&A expenses, as a percentage of sales, from the prior year, on a comparable store basis.

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

Gross Profit as a Percentage of Sales Change
Three Months Ended
Nine Months Ended
December 25, 2021
December 25, 2021
Gross profit change
150
bps
150
bps
Primary drivers of change in gross profit as a percentage of sales
Material costs
180
bps
190
bps
Distribution and occupancy costs
120
bps
160
bps
Technician labor costs
(150)
bps
(210)
bps

~~OSG&A Expenses~~

OSG&A Expenses
Three Months Ended
Nine Months Ended
(thousands)
December 25, 2021
December 26, 2020
December 25, 2021
December 26, 2020
OSG&A Expenses
$
93,146
$
80,450
$
287,366
$
236,603
Percentage of sales
27.3
%
28.3
%
27.9
%
28.8
%
Dollar change compared to prior year
$
12,696
$
50,763
Percentage change compared to prior year
15.8
%
21.5
%

The increase of $12.7 million and $50.8 million in OSG&A expenses for the three months and nine months ended December 25, 2021, respectively, as compared to the prior year comparable period is primarily due to increased expenses from comparable stores, mainly store management compensation and operating expenses needed to match demand. However, we gained leverage with higher overall comparable store sales, which resulted in the decrease in OSG&A expenses, as a percentage of sales, from the prior year comparable period. The increase in OSG&A expenses for the three months and nine months ended December 25, 2021 was also partially due to increased expenses from 51 new stores, as well as an increase in litigation settlement costs (mainly related to the Cerini matter described in ~~Note 10~~ to the Company’s consolidated financial statements). Partially offsetting these increases were lower expenses for the three months and nine months ended December 25, 2021 from eight stores closed compared to the prior year comparable period.

OSG&A Expenses Change
Three Months Ended
Nine Months Ended
(thousands)
December 25, 2021
December 25, 2021
OSG&A expenses change
$
12,696
$
50,763
Drivers of change in OSG&A expenses
Increase from comparable stores
$
8,261
$
36,597
Increase from new stores
$
5,059
$
12,942
Increase in litigation settlement costs
$
89
$
4,009
Decrease from closed stores
$
(713)
$
(2,785)



OSG&A Expenses Change	Three Months Ended
(thousands)		June 25, 2022
OSG&A expenses change		$	(2,080)
Drivers of change in OSG&A expenses
Decrease in litigation settlement costs		$	(3,920)
Decrease from gain on sale of wholesale tire and tire distribution assets, net		$	(1,180)
Decrease from closed stores		$	(512)
Increase from new stores		$	3,187
Increase from comparable stores		$	345

Other Performance Factors

Net Interest Expense

Net interest expense of $5.7 million for the three months ended ~~December~~June 25, ~~2021~~2022 decreased ~~$1.1~~$1.3 million as compared to the prior year period, and decreased as a percentage of sales from ~~2.4~~2.0 percent to ~~1.7~~1.6 percent. Weighted average debt outstanding for the three months ended ~~December~~June 25, ~~2021~~2022 decreased by approximately ~~$26~~$56 million as compared to the three months ended ~~December~~June 26, ~~2020.~~2021. This decrease is primarily related to a decrease in debt outstanding under ~~our revolving credit facility (the “Credit Facility”).~~the Credit Facility. The weighted average interest rate decreased approximately 6050 basis points from the prior year quarter due primarily to a decrease in Credit Facility borrowing rates.

Net interest expense for the nine months ended December 25, 2021 decreased $2.6 million as compared to the same period in the prior year, and decreased from 2.6 percent to 1.8 percent as a percentage of sales for the same periods. Weighted average debt outstanding decreased by approximately $137 million and the weighted average interest rate increased by approximately 30 basis points as compared to the same period of the prior year.

Provision for Income Taxes

Our effective income tax rate for the three months ~~and nine months~~ ended ~~December~~June 25, ~~2021,~~2022, was ~~25.3~~39.6 percent ~~and 25.5 percent, respectively,~~ compared with ~~25.2~~25.4 percent in the comparable ~~prior year periods.~~prior-year period. Our effective income tax rate for the three months ended June 25, 2022 was higher by 12.8 percent because of discrete tax impacts from the sale of assets relating to our wholesale tire operations and internal tire distribution operations as well as the revaluation of deferred tax balances due to changes in the mix of pre-tax income in various U.S. state jurisdictions because of the sale. Our effective income tax rate for the three months ended June 25, 2022 was also higher by 0.8 percent due to the discrete tax impact related to share-based awards.

~~Monro, Inc.~~ ~~Q3 2022 Form 10-Q~~

~~Table of Contents~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

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 our 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:


Reconciliation of Adjusted Net Income	Three Months Ended				Nine Months Ended				Three Months Ended
(thousands)	December 25, 2021		December 26, 2020		December 25, 2021		December 26, 2020		June 25, 2022		June 26, 2021
Net income	$	16,287	$	6,683	$	52,953	$	22,516	$	12,484	$	15,681
Store impairment charge		—		—		—		99
Gain on sale of wholesale tire and tire distribution assets, net ^(a)										(1,180)		—
Store closing costs		5		(14)		(425)		2,496		(4)		(272)
Monro.Forward initiative costs		418		1,056		569		1,510		23		103
Acquisition due diligence and integration costs		170		122		590		161		(10)		310
Management transition costs		—		128		59		385		—		59
Litigation settlement costs		(161)		(250)		3,759		(250)		—		3,920
Provision for income taxes on adjustments		(104)		(234)		(1,101)		(1,022)
Provision for income taxes on pre-tax adjustments										293		(997)
Certain discrete tax items ^(b)										2,644		—
Adjusted net income	$	16,615	$	7,491	$	56,404	$	25,895	$	14,250	$	18,804

(a)Amount includes gain on sale, net of closing costs and costs associated with the closing of a related warehouse.

(b)Certain discrete items related to the sale of our wholesale tire and tire distribution assets as well as the revaluation of deferred tax balances due to changes in the mix of pre-tax income in various U.S. state jurisdictions because of the sale.

Monro, Inc. Q1 2023 Form 10-Q

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

In the Reconciliation of Adjusted Net Income, we determined the Provision for income taxes on pre-tax adjustments by calculating our estimated annual effective income tax rate on pre-tax income before giving effect to any discrete tax items and applying it to the pre-tax adjustments.

Adjusted diluted EPS is summarized as follows:


Reconciliation of Adjusted Diluted EPS	Three Months Ended				Nine Months Ended				Three Months Ended
	December 25, 2021		December 26, 2020		December 25, 2021		December 26, 2020		June 25, 2022		June 26, 2021
Diluted EPS	$	0.48	$	0.20	$	1.56	$	0.67	$	0.37	$	0.46
Store impairment charge ^(a)		—		—		—		0.00
Gain on sale of wholesale tire and tire distribution assets, net										(0.03)		—
Store closing costs ^(a)(c)		0.00		(0.00)		(0.01)		0.06		0.00		(0.01)
Monro.Forward initiative costs(c)		0.01		0.02		0.01		0.03		0.00		0.00
Acquisition due diligence and integration costs ^(a)(c)		0.00		0.00		0.01		0.00		(0.00)		0.01
Management transition costs^(a)(c)		—		0.00		0.00		0.01		—		0.00
Litigation settlement costs ^(a)		(0.00)		(0.01)		0.08		(0.01)		—		0.09
Certain discrete tax items										0.08		—
Adjusted diluted EPS	$	0.49	$	0.22	$	1.66	$	0.77	$	0.42	$	0.55

~~(a)~~(c)Amounts, in the periods presented, may be too minor in amount, net of the impact from income taxes, to have an impact on the calculation of adjusted diluted EPS.

~~Note:~~ 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~~pre-tax adjustments to diluted EPS reflect estimated annual effective income tax rates on pre-tax income before giving effect to discrete items of ~~24.1~~25.0 percent and ~~22.5~~24.2 percent for the three months ended ~~December~~June 25, ~~2021~~2022 and ~~December~~June 26, ~~2020, respectively, and 24.2 percent and 23.2 percent for the nine months ended December 25,~~ 2021, ~~and December 26, 2020,~~ respectively. See the pre-tax adjustments from the Reconciliation of Adjusted Net Income table above for pre-tax amounts.

Analysis of Financial Condition

Liquidity and Capital Resources

Capital Allocation

We expect to continue to generate positive operating cash flow as we have done in the last three fiscal years. The cash we generate from our operations ~~allows~~will allow us to continue to support business operations ~~and Monro.Forward initiatives~~ as well as invest in attractive acquisition opportunities intended to drive long-term sustainable growth, ~~while paying~~pay down debt, ~~and returning~~return cash to our shareholders through our dividend program and repurchase shares of our common stock under our common stock repurchase program.

~~Monro, Inc.~~ ~~Q3 2022 Form 10-Q~~

~~Table of Contents~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

In addition, because we believe a large portion of our future expenditures will be to fund our growth, through acquisition of retail stores and/or opening greenfield stores, we continually evaluate our cash needs and may decide it is best to fund the growth of our business through borrowings on our Credit Facility. Conversely, we may also ~~from time to time~~periodically determine that it is in our best interests to voluntarily repay certain indebtedness early.

~~Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following December 25, 2021, as well as in the long-term.~~

~~See the sections below for more details regarding material requirements for cash in our business and our sources of liquidity to meet such needs.~~

Material Cash Requirements

We currently expect our capital expenditures to support our projects, including upgrading our facilities and systems, ~~as well as funding our Monro.Forward initiatives,~~ to be ~~$30~~$40 million to ~~$40~~$50 million in the aggregate in ~~2022.~~ 2023. Additionally, we have contractual finance lease and operating lease commitments with landlords through October 2040 for ~~$604.3~~$571.6 million in lease payments, of which ~~$98.7~~$97.2 million is due within one year. For details regarding these lease commitments, see Note 109 to ~~the Company’s~~our consolidated financial statements.

As of ~~December~~June 25, ~~2021,~~2022, we had ~~$195.0~~$110.0 million outstanding under the Credit Facility, none of which is due in the succeeding 12 months. For details regarding our indebtedness that is due, see Note 108 to ~~the Company’s~~our consolidated financial statements.

We paid cash dividends totaling ~~$25.7~~$9.5 million ($~~0.76~~0.28 per share) during the ~~nine~~three months ended ~~December~~June 25, ~~2021.~~2022. For details regarding our cash dividend, see Note 76 to ~~the Company’s~~our consolidated financial statements.

~~Sources~~We returned $17.2 million to shareholders through share repurchases during the three months ended June 25, 2022. For details regarding our share repurchase program, see Part II, Item 2, “Unregistered Sales of Equity Securities and ~~Conditions~~Use of ~~Liquidity~~Proceeds” of this report and Note 10 to our consolidated financial statements.

~~Our sources to fund our material cash requirements are predominantly cash from operations, cash and equivalents on hand, and availability under our Credit Facility.~~ Working Capital Management

~~As of December 25, 2021, we had $9.5 million of cash~~We work with suppliers to optimize payment terms and ~~equivalents. In addition, we had $375.4 million available under the Credit Facility as of December 25, 2021.~~

~~Summary of Cash Flows~~

~~The following table presents a summary of our cash flows from operating, investing and financing activities.~~

Summary of Cash Flows
Nine Months Ended
(thousands)
December 25, 2021
December 26, 2020
Cash provided by operating activities
$
127,237
$
159,216
Cash used for investing activities
(99,460)
(55,896)
Cash used for financing activities
(48,223)
(423,837)
Decrease in cash and equivalents
(20,446)
(320,517)
Cash and equivalents at beginning of period
29,960
345,476
Cash and equivalents at end of period
$
9,514
$
24,959

~~Cash provided by operating activities~~

For the nine months ended December 25, 2021, cash provided by operating activities was $127.2 million, which consisted of net income of $53.0 million, adjusted by non-cash charges of $72.7 million and by a change in operating assets and liabilities of $1.5 million. The non-cash charges were largely driven by $60.5 million of depreciation and amortization. The change in operating assets and liabilities was primarily due to our federal and state income taxes payable being a source of cash of $10.9 million due largely to an income tax refund that was received. This source of cash was partially offset by our inventory balance being a use of cash of $6.0 million due to increased inventory purchases to meet higher demand, as well asconditions on accounts payable ~~and accrued liabilities, net of vendor rebate receivables, being a use of cash of $4.0 million driven by~~to enhance timing of ~~payments.~~

~~For~~working capital and cash flows. As part of these efforts, we facilitate a voluntary supply chain finance program to provide suppliers with the nine months ended December 26, 2020, cash provided by operating activities was $159.2 million, which consisted of net income of $22.5 million, adjusted by non-cash charges of $63.7 million and by a change in operating assets and liabilities of $73.0 million. The non-cash charges were largely driven by $57.6 million of depreciation and amortization. The change in operating assetsopportunity to sell

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

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MANAGEMENT’S DISCUSSION AND ANALYSIS

receivables due from Monro to a participating financial institution. For details regarding our supply chain finance program, see Note 1 to our consolidated financial statements.

Sources and Conditions of Liquidity

Our sources to fund our material cash requirements are predominantly cash from operations, availability under our Credit Facility, and cash and equivalents on hand.

As of June 25, 2022, we had $30.6 million of cash and equivalents. In addition, we had $460.4 million available under the Credit Facility as of June 25, 2022.

We believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following June 25, 2022, as well as in the long-term.

Summary of Cash Flows

The following table presents a summary of our cash flows from operating, investing and financing activities.


Summary of Cash Flows	Three Months Ended
(thousands)	June 25, 2022		June 26, 2021
Cash provided by operating activities	$	77,205	$	62,714
Cash provided by (used for) investing activities		48,856		(66,762)
Cash used for financing activities		(103,361)		(9,034)
Increase (decrease) in cash and equivalents		22,700		(13,082)
Cash and equivalents at beginning of period		7,948		29,960
Cash and equivalents at end of period	$	30,648	$	16,878

Cash provided by operating activities

For the three months ended June 25, 2022, cash provided by operating activities was $77.2 million, which consisted of net income of $12.5 million, adjusted by non-cash charges of $15.8 million and by a change in operating assets and liabilities of $48.9 million. The non-cash charges were largely driven by $20.1 million of depreciation and amortization, partially offset by deferred income taxes of $3.4 million. The change in operating assets and liabilities was primarily due to accounts payable and accrued liabilities, net of vendor rebate receivables, being a source of cash of ~~$48.0~~$33.7 million driven by timing of payments as well as our ~~inventory balance~~supply chain finance program being a source of cash as we improved our cash flow by $16.2 million.

For the three months ended June 26, 2021 cash provided by operating activities was $62.7 million, which consisted of net income of $15.7 million, adjusted by non-cash charges of $23.8 million and by a change in operating assets and liabilities of $23.2 million. The non-cash charges were largely driven by $20.3 million of depreciation and amortization. The change in operating assets and liabilities was primarily due to accounts payable and accrued liabilities, net of vendor rebate receivables, being a source of cash of ~~$23.8~~$19.8 million driven by timing of payments, as well as our federal and state income taxes receivable being a source of cash of $7.8 million due largely to an income tax refund that was received. These sources of cash were partially offset by our inventory balance being a use of cash of $4.1 million due to ~~decreased~~increased inventory purchases to ~~adjust to lower~~meet higher demand.

Cash provided by / used for investing activities

For the ~~nine~~three months ended ~~December~~June 25, 2022, cash provided by investing activities was $48.9 million. This was primarily due to cash from the sale of our wholesale tire and tire distribution assets for $56.6 million, partially offset by cash used for capital expenditures, including property and equipment, of $8.2 million.

For the three months ended June 26, 2021 cash used for investing activities was ~~$99.5~~$66.8 million. This was primarily due to cash used for acquisitions and capital expenditures, including property and equipment, of ~~$83.2~~$62.1 million and ~~$17.4~~$5.2 million, respectively. Included in the ~~$83.2~~$62.1 million used for acquisitions was $0.8 million paid to the seller of the 2021 acquisition as the lease assignment for one store location was finalized during the period.

For the nine months ended December 26, 2020, cash used for investing activities was $55.9 million. This was primarily due to cash used for capital expenditures, including property and equipment, and acquisitions of $39.2 million and $18.1 million, respectively.

Cash used for financing activities

For the ~~nine~~three months ended ~~December~~June 25, 2022, cash used for financing activities was $103.4 million which was primarily due to payment on our Credit Facility, net of amounts borrowed during the period, of $66.5 million, as well as payment of finance lease principal and dividends of $10.2 million and $9.5 million, respectively. Also, we used $17.2 million to repurchase common stock during the period.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

For the three months ended June 26, 2021 cash used for financing activities was ~~$48.2~~$9.0 million which was primarily due to payment of finance lease principal and dividends of ~~$29.1~~$9.7 million and ~~$25.7~~$8.2 million, ~~respectively. These uses of cash were~~respectively, partially offset by ~~cash provided by borrowings on~~net borrowing under our Credit Facility ~~net~~ of ~~amounts paid during the period, of $5.0 million.~~

For the nine months ended December 26, 2020, cash used for financing activities was $423.8 million which was primarily due to payment of amounts previously borrowed on our Credit Facility and finance lease principal of $376.4 million and $24.3 million, respectively, as well as payment of dividends of $22.3$8.0 million.

Critical Accounting ~~Policies and~~ Estimates

The consolidated financial statements are prepared in accordance with GAAP. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows may be affected.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the economy, our business operations and financial markets. The estimates used for, but not limited to, determining fair value of long-lived assets, self-insurance reserves and our ability to realize the tax benefits associated with deferred tax assets could be impacted. We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this report. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

For a description of our critical accounting ~~policies and~~ estimates, refer to Part II, Item 7., “~~Critical Accounting Policies~~Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended March ~~27, 2021.~~26, 2022. There have been no material changes to our critical accounting ~~policies and~~ estimates since our Form 10-K for the year ended March ~~27, 2021.~~26, 2022.

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~~June 25, ~~2021~~2022 and the expected impact on the consolidated financial statements for future periods.

Cautionary Note Regarding Forward-Looking Statements

This ~~report~~Quarterly Report on Form 10-Q contains “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they address future events, developments, and results and do not relate strictly to historical facts. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements include, without limitation, statements preceded by, followed by, or including words such as “anticipate,” ~~“appear,”~~ “believe,~~” “contemplate,~~” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” ~~“see,”~~ “strategy,~~” “vision,~~” “will,” “would” and variations thereof and similar expressions. Forward-looking statements are subject to risks,

~~Monro, Inc.~~ ~~Q3 2022 Form 10-Q~~

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS~~

uncertainties, and other important factors that could cause actual results to differ materially from those expressed. For example, our forward-looking statements include, without limitation, statements regarding:

•the potential effect of general business or economic conditions on our business, including the direct and indirect effects of the COVID-19 pandemic and the Russian invasion of Ukraine on the economy, consumer demand and spending levels, ~~inflation,~~ and ~~unemployment~~labor shortages in our markets;

•the ~~uncertainty of the~~ impact of ~~the COVID-19 pandemic~~competitive services and public health measures on our business and results of operations, including uncertainties surrounding possible disruptions in our supply chain or sources of supply, the physical and financial health of our customers, the effectiveness and duration of government assistance programs to individuals, households and businesses to support consumer spending, levels of traffic in our stores, changes in customer demand for our services, labor shortages, and increased expenses for higher wages and compensation paid to employees and the cost of personal protective equipment and additional cleaning supplies and protocols for the safety of our employees;

•our expectations regarding cost increases in the future, including costs relating to our COVID-19 response initiatives, increases in the minimum wage by states and localities, potential federal minimum wage legislation, increases in distribution and fuel costs and potential new legal requirements to provide increased pay for employees who work during pandemic restrictions;pricing;

•the effect of economic conditions, seasonality, and the impact of weather conditions and natural disasters on customer demand;

•~~the dependence on and our expectation regarding competition within the primary markets~~advances in ~~which our stores are located;~~automotive technologies;

•our ~~growth plans, including our plans to add, renovate, re-brand, expand, remodel, relocate or close stores and any related costs or charges, our leasing strategy~~dependence on third-party vendors for ~~future expansion, and our ability to renew leases at existing store locations;~~certain inventory;

•the ~~impact of competitive services and pricing;~~

•~~the reliability of, and cost~~risks associated with ~~our sources of parts supply,~~vendor relationships and international trade, particularly imported goods such as those sourced from China;

•the impact of changes in U.S. trade relations and the ongoing trade dispute between the United States and China, including the actual and potential effect of Section 301 tariffs on Chinese goods imposed by the United States Trade Representative, uncertainties surrounding the policies of the new presidential administration, and other potential impediments to imports;

•~~the impact of industry regulation;~~

•our ability to service our debt obligations, including our expected annual interest expense;

•our cash needs, including our ability to fund our future capital expenditures and working capital requirements;

•our anticipated sales, comparable store sales, gross profit margin, costs of goods sold (including product mix), OSG&A expenses and other fixed costs, and our ability to leverage those costs;

•~~advances~~management’s estimates and expectations as they relate to income tax liabilities, deferred income taxes, and uncertain tax positions;

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MANAGEMENT’S DISCUSSION AND ANALYSIS

•management’s estimates associated with our critical accounting policies, including business combinations, insurance liabilities, and valuations for our goodwill and indefinite-lived intangible assets impairment analyses;

•the impact of industry regulation, including changes in ~~automotive technologies;~~labor laws;

•potential outcomes related to pending or future litigation matters;

•business interruptions;

•risks relating to disruption or unauthorized access to our computer systems;

•our failure to protect customer and employee personal data;

•~~business interruptions;~~

•~~potential outcomes related~~our ability to ~~pending or future litigation matters;~~realize the expected benefits of the transaction with American Tire Distributors, Inc.;

•risks relating to acquisitions and the integration of acquired businesses with ours;

•our growth plans, including our plans to add, renovate, re-brand, expand, remodel, relocate, or close stores and any related costs or charges, our leasing strategy for future expansion, and our ability to renew leases at existing store locations;

•the ~~effect~~impact of ~~changes in labor laws,~~costs related to planned store closings or potential impairment of goodwill, intangible assets, and ~~the effect of the Fair Labor Standards Act as it relates to the qualification of our managers for exempt status, minimum wage and health care law;~~long-lived assets;

•expected dividend payments;

•our ~~assessment of the materiality~~ability to attract, motivate, and ~~impact on~~retain skilled field personnel and our ~~business of recent accounting pronouncements adopted by the FASB;~~

•~~management’s estimates and expectations as they relate to income tax liabilities, deferred income taxes and uncertain tax positions;~~key executives; and

•~~management’s estimates associated with~~the potential impacts of climate change on our ~~critical accounting policies, including business combinations, self-insurance liabilities and valuations for our goodwill and indefinite-lived intangible assets impairment analyses.~~business.

Any of these factors, as well as such other factors as discussed in Part I, Item 1A., “Risk Factors” of our Form 10-K for the fiscal year ended March ~~27, 2021,~~26, 2022, as well as in our periodic filings with the SEC, could cause our actual results to differ materially from our anticipated results. The information provided in this report is based upon the facts and circumstances known as of the date of this report, and any forward-looking statements made by us in this report speak only as of the date on which they are made. Except as required by law, we undertake no obligation to update these forward-looking statements after the date of this Form 10-Q to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.

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DISCLOSURES ABOUT MARKET RISK & CONTROLS AND PROCEDURES

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from potential changes in interest rates. As of ~~December~~June 25, ~~2021,~~2022, excluding finance leases and financing obligations, we had no debt financing at fixed interest rates, for 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 ~~$2.0~~$1.1 million based upon our debt position at ~~December~~June 25, ~~2021~~2022 and approximately ~~$1.9~~$1.8 million based upon our debt position at March ~~27, 2021, respectively,~~26, 2022, given a change in LIBOR (or replacement index) of 100 basis points.

Debt financing had a carrying amount that approximates a fair value of ~~$195.0~~$110.0 million as of ~~December~~June 25, ~~2021,~~2022, as compared to a carrying amount and a fair value of ~~$190.0~~$176.5 million as of March ~~27, 2021.~~26, 2022.

Item 4. Controls and Procedures

Evaluation of 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 SEC pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our 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 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 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~~June 25, ~~2021~~2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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~~LEGAL PROCEEDINGS~~SUPPLEMENTAL INFORMATION

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we are a party to or otherwise involved in legal proceedings arising out of the normal course of business. Legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of one or more of these matters could have a material adverse impact on the Company, its financial condition and results of operations.

~~As previously disclosed by the Company, an action was filed against us on June 12, 2020 in the U.S. District Court~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 19, 2022, our Board of Directors authorized a share repurchase program for the ~~Western District~~repurchase of ~~Pennsylvania by Mark Cerini.~~up to $150 million of shares of our common stock with no stated expiration. Under the program, we have repurchased 413.6 thousand shares of common stock at an average price of $41.60, for a total investment of $17.2 million. The plaintiff, who is a former service store manager, sought certification to represent similarly situated store managers in a nationwide collective action for unpaid overtime wages, damages and attorneys’ fees. Plaintiff alleged violations of the Fair Labor Standards Act and various state laws relating to, among other things, overtime and unpaid wages. The parties entered into a settlement agreement to resolve this matter that was approved by the court. The Company included the settlement amount of $3.7 million in OSG&A expenses in the Company’s Consolidated Statement of Income and Comprehensive Income during fiscal 2022. The Company paid this settlement in the third quarter of fiscal 2022 and does not expect to incur additional expensestable below presents information with respect to Monro common stock purchases made during the ~~settlement. In resolving this matter,~~three months ended June 25, 2022, by Monro or any “affiliated purchaser” of Monro, as defined in Rule 10b-18(a)(3) under the ~~Company believes the settlement was the best use of management’s time and resources.~~Exchange Act.


Share Repurchase Activity						Dollar Value of
		Average		Total Number of		Shares that May
	Total Number	Price		Shares Purchased		Yet Be Purchased
	of Shares	Paid per		as Part of Publicly		Under Publicly
Period	Purchased	Share		Announced Programs		Announced Programs
March 27, 2022 through April 23, 2022	—		—		—		—
April 24, 2022 through May 28, 2022	212,400	$	41.88		212,400	$	141,104,569
May 29, 2022 through June 25, 2022	201,200		41.30		201,200		132,795,753
Total	413,600	$	41.60		413,600	$	132,795,753

Monro, Inc. ~~Q3 2022~~Q1 2023 Form 10-Q

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EXHIBITS

Item 6. Exhibits

Exhibit Index

~~10.22b~~10.1 – ~~Amendment No. 2 to Amended~~Asset Purchase Agreement among American Tire Distributors, Inc., Monro, Inc., and ~~Restated Credit Agreement,~~Monro Service Corporation, dated as of ~~October 5, 2021 (October 2021~~May 13, 2022 (May 2022 Form 8-K, Exhibit ~~No. 10.22b)~~10.1)**

10.74 – Distribution and Fulfillment Agreement by and between Monro, Inc. and American Tire Distributors, Inc., dated June 17, 2022**

31.1 – Certification of Michael T. Broderick pursuant to Section 302 of the Sarbanes – Oxley Act of 2002

31.2 – Certification of Brian J. D’Ambrosia pursuant to Section 302 of the Sarbanes – Oxley Act of 2002

32.1 – Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 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)

** Schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request.

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SIGNATURES

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.


	MONRO, INC.

DATE: ~~January 31,~~August 1, 2022	By:	/s/ Michael T. Broderick
		Michael T. Broderick
		President and Chief Executive Officer ‎(Principal Executive Officer)

DATE: ~~January 31,~~August 1, 2022	By:	/s/ Brian J. D’Ambrosia
		Brian J. D’Ambrosia
		Executive Vice President – Finance, Chief Financial Officer and
		Treasurer (Principal Financial Officer and Principal Accounting Officer)

Monro, Inc. Q3 2022 Form 10-Q