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Edited Transcript of MNRO earnings conference call or presentation 21-May-19 12:30pm GMT

Q4 2019 Monro Inc Earnings Call

Rochester Jun 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Monro Inc earnings conference call or presentation Tuesday, May 21, 2019 at 12:30:00pm GMT

TEXT version of Transcript


Corporate Participants


* Brett T. Ponton

Monro, Inc. - CEO, President & Director

* Brian J. D'Ambrosia

Monro, Inc. - Senior VP of Finance, CFO, Treasurer & Assistant Secretary

* Maureen E. Mulholland

Monro, Inc. - Senior VP, General Counsel & Secretary


Conference Call Participants


* Bret David Jordan

Jefferies LLC, Research Division - Equity Analyst

* Brian William Nagel

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

* Scott Lewis Stember

CL King & Associates, Inc., Research Division - Senior VP & Senior Research Analyst




Operator [1]


Good morning, ladies and gentlemen. Welcome to Monro, Inc.'s Earnings Conference Call for the Fourth Quarter of Fiscal 2019. (Operator Instructions) As a reminder, ladies and gentlemen, this conference call is being recorded and may not be reproduced in whole or in part without permission from the company. I would now like to introduce Ms. Maureen Mulholland, Senior Vice President, General Counsel and Secretary at Monro. Please go ahead.


Maureen E. Mulholland, Monro, Inc. - Senior VP, General Counsel & Secretary [2]


Thank you. Hello, everyone, and thank you for joining us on this morning's call. Before we get started, please note that as a part of the call this morning, we will be referencing a presentation that is available on the Investors section of our website at corporate.monro.com/investor/investor-resources.

If I could draw your attention to the safe harbor statement on Slide 2, I'd like to remind participants on this morning's call that our presentation includes some forward-looking statements about Monro's future performance. Actual results may differ materially from those suggested by our comments today.

The most significant factors that could affect future results are outlined in Monro's filings with the SEC and in our earnings release. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.

Additionally, on today's call, management statements include a discussion of certain non-GAAP financial measures. Reconciliations of such supplemental information to the comparable GAAP measures will be included as part of today's presentation.

With that, I'd like to turn the call over to our President and Chief Executive Officer, Brett Ponton. Brett?


Brett T. Ponton, Monro, Inc. - CEO, President & Director [3]


Thank you, Maureen, and good morning, everyone. Thanks for joining us today.

Before diving into our fourth quarter performance, I am very pleased to report that we delivered a very strong year in line with our guidance and made tremendous progress towards the execution of our Monro. Forward strategy that we unveiled at our Investor Day 1 year ago. We achieved several critical milestones in our effort to build a scalable platform for sustainable growth in fiscal 2019, and we are encouraged by the continued momentum we're experiencing in our business as we enter fiscal 2020.

Most recently, in our fourth quarter, we delivered solid top line growth, achieving a comparable store sales increase of 0.5% when adjusted for fewer selling days, primarily resulting from 1 less week compared to the prior year quarter.

We are pleased to have achieved positive comps on top of positive comps in the fourth quarter of last year, hosting our fifth consecutive quarter of comparable store sales growth and our first full year of comparable store sales growth since fiscal 2012 on a 52-week basis. This is a testament to our focus and efforts in driving operational excellence and the outstanding commitment of our teammates who have worked tirelessly to deliver a consistent 5-star experience to all our customers.

As illustrated on Slide 3, and in line with what we discussed on our last earnings call, we experienced temporary softness around December holiday period and in early January. We experienced a rebound in comparable store sales in February and March despite more difficult year-over-year comparisons.

As we enter the spring service selling season in the first quarter of fiscal 2020, we are encouraged to see this momentum has continued with comparable store sales up approximately 2% quarter-to-date despite cold and wet spring weather tempering performance.

Our positive fourth quarter comp performance was driven by higher average ticket from strong in-store execution as well as sustained strength in our brake category, a positive trend we expect to continue in fiscal 2020 as we capitalize on the initiatives we rolled out this year.

Moving on to our performance by category in the fourth quarter. I would like to start with the trends we saw in our tire business, our largest category which represents half of our sales. We experienced a 1% decline in entire comparable store sales adjusted for days driven by lower unit volume, partially offset by higher ticket. We believe this was partially driven by consumers making trade-offs and prioritizing brakes over tires to the lower-than-expected income tax refunds. Overall, trends in our tire business improved throughout the quarter.

Our optimized tire sales and pricing strategy continues to bear fruit, and we are encouraged to see that the optimization of our tire assortment, which I'll comment further on in a moment, is driving accelerated tire comparable sales growth in the first quarter to date.

Turning to our service and repair categories. We continue to capitalize on the strong demand for brakes, which was our strongest performing category again this quarter with an increase of 8% in comparable brake sales adjusted for days. Similar to previous quarters, our optimized Good-Better-Best brake package pricing, combined with higher brake transaction volume, contributed to gross margin expansion this quarter. In our remaining categories adjusted for days, comparable store sales were up slightly for alignments and flat for maintenance, while front end/shocks declined year-over-year.

For the fourth quarter, as a whole, our northern markets outperformed our southern markets, however, as expected, we saw our northern markets underperform in the month of January due to mild weather conditions. Lastly, new stores added $17.7 million in revenue, including $14 million from recent acquisitions.

Moving on to Slide 4. We continue to actively capitalize on acquisition opportunities which remain a core pillar of our growth strategy.

We've made significant strides in diversifying and strengthening our store footprint with the completion of our previously announced acquisition of 40 certified tire and service center stores and 1 distribution center in California. This acquisition expands our geographic footprint to the West Coast and provides us with a strong platform for further expansion into a dynamic and attractive region.

We have expanded our team, including hiring a West Coast Head of Operations and established a proper corporate infrastructure to support our California operations, demonstrating our commitment to securing a solid foundation for growth in this region.

We believe these strategic actions will position us well to capitalize on future opportunities in this market.

In addition, as part of our larger brand consolidation effort, which I will discuss further in a moment, we will be rebranding these stores under the Tire Choice Auto Service Centers banner. This acquisition closed in the first quarter of fiscal 2020 and is expected to add approximately $45 million in annualized sales, representing a sales mix of 70% service and 30% tires and to be breakeven or diluted earnings per share in fiscal 2020.

In addition, we completed the previously announced acquisition of 12 stores in Louisiana early in the first quarter of fiscal 2020, expanding our store footprint in another new state and building out our geographical presence in the South. These locations are expected to add approximately $15 million in annualized sales, representing a sales mix of 35% service and 65% tires.

Overall, acquisitions announced and completed in fiscal 2019 collectively represent an expected $132 million in annualized sales or 11% to annualized sales and our M&A pipeline remains robust with over 10 NDAs signed with opportunities ranging from 5 to 40 stores.

As you saw on this morning's press release, we are pleased to have extended our revolving credit facility to continue to take advantage of further consolidation opportunities. Importantly, we believe that the continued execution of our Monro. Forward initiatives to standardize our in-store operating procedures and brand standards will position us to more effectively and efficiently integrate these and other acquisitions.

Lastly, we opened 3 greenfield locations during the fourth quarter, bringing our total greenfield store openings to 21 in fiscal 2019.

Moving on to Slide 5. This month marks the 1-year anniversary of our Monro. Forward strategy that we unveiled at our Investor Day last year. Over the course of fiscal 2019, our team has made tremendous progress towards the execution of our initiatives across each of our 4 areas of focus, in line with our plan.

The execution of our Monro. Forward strategy has been instrumental in driving momentum this year and creating a scalable platform for future growth. Now I'd like to take a moment to provide an update on the key milestones we achieved during the fourth quarter.

First, we remain focused on improving the customer experience. Our efforts to enhance customer satisfaction has led to a dramatic improvement in our online reputation, as evidenced by our average 4.8-star rating during the fourth quarter, the highest quarterly star rating received to date, which brings our all-time average star rating to 4.5 stars as compared to 3.6 stars before we started the rollout of our customer survey and online review program.

We are very encouraged by these results and continue to believe our focus on customer satisfaction will translate into improved customer retention, which in turn, will drive more customers to our stores. Importantly, we combined the feedback we collect from customers with the implementation of our new standardized in-store operating procedures, which we call the Monro Playbook, to drive operational improvement and deliver a consistent 5-star experience in each of our stores.

Overall, we are pleased to see that our clear and consistent selling approach, coupled with our stronger merchandising strategy across Good, Better and Best product options, drove higher in-store conversion in the fourth quarter. To complement our Monro Playbook, we also established clear brand standards to align and modernize the appearance of our stores while driving further consistency across our locations that currently include a wide range of stores and formats.

Turning to Slide 6. I'd like to provide more details surrounding our brand consolidation strategy. As many of you know, we have acquired several regional brands over the years and operate 2-store formats in the majority of our key markets with a focus on increasing store density. This brings us significant competitive advantages when it comes to sharing inventory and leveraging our distribution network across our store base.

As part of our broader store refresh initiative, we will be leveraging customer data analytics and local brand awareness to consolidate our existing 9 retail banners into 5 regional power brands and take advantage of this opportunity to convert service stores to tire stores when we identify targeted demographics that favor a tire store format.

As we've mentioned previously, our service stores generate approximately $600,000 in annualized sales, while our tire stores generate approximately $1.2 million in sales. Additionally, tires make up a significant portion of the automotive aftermarket. By optimizing brand awareness and banner concentration in targeted markets, we can increase our sales and relevancy in the marketplace without sacrificing service revenues.

Importantly, last year, we piloted this rebranding strategy at a district in the Mid-Atlantic, shifting a few selected stores to a tire-oriented brand. We are pleased to report these pilot stores are showing a meaningful improvement in both conversion and traffic. Importantly, the results of this pilot program were in line with the forecast of our analytic model, which gives us confidence in the execution of our brand consolidation strategy going forward.

Building upon the results of these pilot stores, we will analyze customer data, brand awareness and banner concentration market by market, and we will be methodically prioritizing markets where we see the strongest potential for increased visibility and traction of our tire banners. Overall, our goal is to increase brand awareness in our regional markets, while aligning our store banners with market demand to optimize growth, specifically where we identify opportunities for higher tire sales.

Moving on to Slide 7. We are very encouraged by the early results of our store refresh initiative and the tremendous opportunities that lie ahead. Following the successful refresh of 31 pilot stores in Rochester, New York during the third quarter, we are very pleased to see that the implementation of our Monro Playbook and the completion of our stores' reimaging has led to a sequential improvement in traffic and comparable store sales trends at these stores from the third quarter to the fourth quarter of fiscal 2019.

Additionally, we've experienced meaningful improvement across every customer experience metric at these stores. Among the metrics we examined, we saw our average star rating at these pilot stores jump from a 4.4 prior to the reimage up to a 4.8 at the end of the fourth quarter. These results are very encouraging and reinforce the impact that operational excellence and a consistent best-in-class experience can have for our customers.

We have now begun to scale this initiative, starting with the refresh of approximately 50 stores in our Southern markets in the first quarter of fiscal 2020. We plan on rolling out our brand operational standards across our store base and modernizing our store portfolio over the next 3 to 5 years.

We are leveraging data analytics to drive this process and ensure we are investing the appropriate amount of capital and prioritizing where that capital is spent to achieve the highest possible returns. As previously discussed, we will prioritize our newly acquired stores as we believe the implementation of our standardized in-store operating procedures and brand standards will benefit our integration process and drive higher returns.

Moving on to Slide 8. I would like to provide an update on our customer-centric engagement initiatives. During fiscal 2019, we repurposed our marketing spend to invest in data-driven customer relationship marketing and customer acquisition campaigns.

Following the rollout of our new data analytics-based CRM platform, we have focused our customer retention efforts on delivering tailored messages and service recommendations to our customers based on their specific vehicle needs. Initial results show that leveraging customer data and insights leads to a notable increase in customer visits, giving us confidence that this strategy will allow us to increase the overall lifetime value of our customers.

In the fourth quarter, we also launched data-driven campaigns to acquire new customers. By leveraging market segmentation and demographic data specific to geographic areas surrounding our Monro locations, we focused our pilot campaigns on targeting high-value potential customers with a higher propensity to purchase our service and tire offerings. In fiscal 2020, we will continue to focus our investment and higher ROI channels and capitalize on the opportunities we have identified to meet our current and future customers where they are.

Moving on to our omnichannel strategy and the development of our online presence. I am thrilled to announce that we doubled the scope of our collaboration with Amazon.com to provide tire installation services to their customers at over 800 stores across 21 states.

We have been very pleased with the smooth rollout of this program since it started in July of last year and very encouraged by the positive customer feedback and average 4.6-star rating across the locations where this program has been rolled out. These services are now available to Amazon.com customers across approximately 2/3 of our store footprint, and we are on track to expand this program to all Monro retail locations across 30 states.

Our preferred tire agreements with online retailers are a key initiative of our omnichannel strategy. And this expanding collaboration underscores the strong progress we have made as we continue to develop our online presence.

Lastly, following the modernization of our retail and corporate websites in fiscal 2019, we expect to complete the final phase of our omnichannel build-out in the second half of fiscal 2020. Once fully rolled out, our customers will be able to view and purchase tires online and seamlessly schedule an appointment for in-store installation.

Turning to our initiatives to optimize our product and service offering on Slide 9. Providing customers with clearly defined options relevant to all consumer price segments is at the core of our strategy. The momentum of our Good-Better-Best merchandising strategy launched across our store base in the first quarter has carried throughout the year.

Our Good-Better-Best assortments are driving higher in-store conversion as evidenced by the significant increase in demand for brakes for the past 4 consecutive quarters. As we continue to optimize our tire assortment, we are focused on becoming the #1 destination for tires at any price point. To that end, we are leveraging our scale and choosing suppliers for optimum brand and pricing assortment to create the best value for our customers and for Monro.

Specifically, we have identified opportunities to expand our tier 2 branded tire assortments and -- as we want to offer great value for our customers at any price point. Therefore, in the fourth quarter, we introduced new branded tires rounding out our assortment mix while optimizing branded tire margins. As you may know, our private label tires continue to represent approximately 40% of tire units and remain a key competitive differentiator, allowing us to provide our customers significant value at opening price point levels.

Now I would like to provide an update on our productivity and team engagement initiatives. Following the launch of our Monro University training program pilot in the third quarter, we rolled out our comprehensive cloud-based learning management system to our recently acquired stores in California, which will be instrumental in facilitating the onboarding of our new teammates.

We plan on deploying our Monro University training platform in our remaining markets throughout the balance of the year. This is a major step to improve the experience of our teammates and provide them with best-in-class training. As part of our initiatives to attract and retain the right talent, our Monro University platform is designed to help develop a career path for our 8,600 teammates and fulfill their desire to grow and advance their career at Monro.

Importantly, we are aligning our teammates' developmental objectives with our business objectives as this training program will also provide our team with the technical skill set needed to effectively serve our customers today and tomorrow as vehicles become increasingly complex with the adoption of technology.

The feedback from our teammates who are part of the pilot program as well as our district managers has been positive, and we are confident that these training programs will contribute to improving the in-store experience along the way. Overall, our initiatives to support our teammates' professional development has resulted in increased teammate engagement, higher satisfaction and continued decline in our quarterly turnover, which reached its lowest level since the fourth quarter of fiscal 2015.

Lastly, we remain focused on accelerating store productivity and will move forward with the second phase of our stores' staffing optimization in the second half of fiscal 2020. As previously mentioned, we will implement a cloud-based data-driven store staffing and scheduling system to drive further staffing efficiency by more accurately rebalancing the level of technical skills in each store, ensuring our stores are staffed with technicians that have the appropriate skill level for the services required. This will be further supported by a mobile app allowing our teammates to easily pick up shifts and give them the flexibility they need to increase their hours and earnings.

To conclude, I would also like to thank all our teammates who have helped deliver a solid year of growth in fiscal 2019. I am very pleased with the continued traction of our Monro. Forward initiatives and look forward to continued progress in fiscal 2020.

With that, I'll turn the call over to Brian, who will provide additional detail on our quarterly and full year financial performance and discuss our fiscal 2020 outlook.


Brian J. D'Ambrosia, Monro, Inc. - Senior VP of Finance, CFO, Treasurer & Assistant Secretary [4]


Thank you, Brett, and good morning, everyone. Turning to Slide 10. We delivered solid top line performance in the fourth quarter. Sales increased 0.6% year-over-year to $287.2 million driven by sales from new stores of $17.7 million, including $14 million from recent acquisitions, partially offset by a same-store sales decrease of 5.7% on a reported basis and a decrease in sales from closed stores of approximately $0.8 million. On an adjusted basis, same-store sales increased to 0.5%.

Please note, fiscal 2019 was a 52-week year with 361 selling days as compared to 368 selling days in fiscal 2018, which included an extra week of sales in the fourth quarter.

Gross margin increased 60 basis points to 38.3% in the fourth quarter of fiscal 2019 from 37.7% in the prior year period. This increase was largely due to the ongoing benefits of our service packages as well as the continued benefits from our optimized store staffing model, partially offset by the impact of sales mix from the Free Service Tire acquisition.

As we previously mentioned, the commercial and wholesale locations we acquired as part of the Free Service Tire acquisition operate at a lower gross margin, primarily due to the higher sales mix of tires and with respect to the wholesale business, a higher sales mix of tires without installation as a reminder, we will lap the impact of this acquisition in the first quarter of fiscal 2020.

Operating expenses for the quarter increased $4.3 million and were $81.6 million or 28.4% of sales as compared with $77.3 million or 27.1% of sales for the prior year period. The year-over-year dollar increase includes $1.5 million in costs related to our Monro. Forward initiatives as well as expenses from 47 net new stores, 3 net new wholesale locations and higher incentive base pay related to improved current year financial performance.

Our operating income for the fourth quarter was $28.5 million, which decreased by 6.5% as compared to operating income of $30.4 million for the same quarter last year and decreased as a percentage of sales from 10.7% to 9.9%. The decrease in operating income is due primarily to the impact of lost selling days in the current year quarter as compared to the prior year period.

Net interest expense for the fourth quarter increased $0.5 million as compared to the same period last year. The weighted average debt outstanding for the fourth quarter of fiscal 2019 increased by approximately $2.8 million as compared to the prior year period.

The increase is primarily related to an increase in capital lease debt recorded in connection with our fiscal 2019 acquisitions and greenfield expansion, partially offset by a decrease in debt outstanding under our revolving credit facility. The weighted average interest rate for the fourth quarter increased by approximately 70 basis points year-over-year largely due to higher LIBOR and prime interest rates.

Our effective tax rate was 21.6% for the fourth quarter compared to 27.9% for the same period last year. The decrease is due primarily to a reduction in the federal income tax rate as a result of the Tax Cuts and Jobs Act.

Net income for the fourth quarter was $16.8 million compared to $17.5 million in the prior year period. Diluted earnings per share were $0.50, including $0.01 per share of onetime incremental costs related to increased acquisition activity in the fourth quarter of fiscal 2019.

This compares to $0.52 in the prior year period, which included $0.02 per share in management transition costs, $0.04 per share of benefit related to the Tax Cuts and Jobs Act and $0.10 per share of contribution from the extra week. Excluding these onetime items, diluted earnings per share was $0.51 for the fourth quarter of fiscal 2019 compared to $0.40 in the prior year period, representing a 28% increase year-over-year.

Lastly, we opened 3 greenfield locations during the fourth quarter, bringing our total greenfield store openings to 21 in fiscal 2019. As a reminder, greenfield stores include new construction as well as the acquisition of 1 to 4 store operations. These locations are expected to add approximately $1 million each in annual sales.

For the full year of fiscal '19, sales increased 6.4% to a record $1.2 billion, in line with our guidance. The total sales growth was driven by a $71.7 million increase in sales from new stores, including $53.6 million from recent acquisitions, while comparable store sales increased 2.3% on an adjusted basis compared to a 0.1% decrease in the prior year.

Diluted earnings per share were $2.37 for the full year at the high end of our guidance range. Fiscal 2019 diluted EPS included $0.05 per share and onetime cost related to Monro. Forward investments, $0.01 per share and onetime cost related to increased acquisition activity in fiscal 2019 and $0.01 per share in corporate and field management realignment costs. It also reflected $0.06 per share benefit from a onetime income tax adjustment.

As of March 30, 2019, the company had 1,197 company-operated stores and 98 franchised locations as compared with 1,150 company-operated stores and 102 franchised locations as of March 31, 2018. Please note that these numbers do not include the stores acquired in Louisiana and California as these acquisitions closed early in the first quarter of fiscal 2020. During the fourth quarter, we entered 15 company-operated stores and closed 4.

Turning to Slide 11. As we continue to execute on our growth strategy, we remain committed to our disciplined approach to capital allocation. Our capital expenditures were $44 million in fiscal 2019, of which $7 million was related to investments in our Monro. Forward initiatives. Our Monro. Forward strategy is progressing on track, and we continue to expect an incremental $75 million in capital expenditures above our normal run rate over 5 years to support investment in stores, reimage and technology.

Additionally, executing on accretive acquisition opportunities remains a pillar of our growth strategy. And during fiscal 2019, we spent approximately $62 million on acquisitions, including 1 to 4 store acquisitions completed as part of our greenfield expansion strategy.

We are also maintaining our strong commitment to returning cash to shareholders through our dividend program as evidenced by the increase in our dividend 14x since we initiated the dividend program 14 years ago, including the 10% increase in the dividend announced today. We paid approximately $27 million in dividends in fiscal 2019.

Finally, we remain focused on maintaining a solid balance sheet with ample flexibility to support our growth and profitability initiatives. We ended the quarter with strong leverage ratios and have ample room under our financial covenants. We generated approximately $153 million of cash flow from operating activities in fiscal 2019.

As we announced in this morning's press release, we entered an agreement to amend and extend our existing 5-year $600 million senior secured revolving credit facility with 8 banks. Interest only is payable monthly throughout the credit facility's term. The agreement permits the company to request up to $250 million of additional availability, an increase of $150 million from the prior financing agreement. As of today, we have approximately $441 million available to borrow under this facility.

Now turning to our outlook for fiscal 2020 on Slide 12. Based on current visibility, business and economic trends, the expected contribution of recent acquisitions and our performance quarter-to-date, we expect fiscal 2020 sales to be in the range of $1.295 billion to $1.325 billion, an increase of 8% to 10% as compared to fiscal 2019 sales. Fiscal 2020 sales guidance assumes a comparable store sales increase of 2% to 4%.

As Brett mentioned, we are off to a strong start to the year with same-store sales up approximately 2% quarter-to-date despite cold and wet spring weather. Our guidance assumes stable overall tire and oil costs compared to fiscal 2019. Amid ongoing macro concerns, including global terrorist and other material cost pressures, our vertically integrated and diversified supply chain continues to drive our cost leadership position and remains a key differentiator in our industry.

As we've mentioned previously, any tire and oil cost increase not mitigated by our differentiated supply chain are expected to be passed on to consumers. However, any such cost and related price increases are not assumed in our fiscal 2020 guidance. Based on these assumptions, we continue to expect earnings -- we expect to generate earnings growth on a comparable store sales increase above approximately 1%.

Overall, we expect fiscal 2020 earnings per diluted share to be in the range of $2.55 to $2.75, representing earnings growth of 8% to 16%. This guidance includes approximately $0.04 to $0.06 in accretion from fiscal 2019 acquisitions.

Acquisitions completed in fiscal 2020 are expected to be breakeven to earnings per diluted share during the year.

At the midpoint of our guidance range, we expect an operating margin of approximately 11.3%, interest expense to be approximately $32 million, depreciation and amortization to be approximately $67 million and EBITDA to be approximately $215 million. We expect capital expenditures to be approximately $65 million this year.

This guidance reflects an effective tax rate of approximately 23.5% and is based on 33.9 million diluted weighted average shares outstanding. Our fiscal 2020 guidance includes the recently completed acquisitions in California and Louisiana. As always, our guidance does not assume any future acquisitions or greenfield store openings.

Finally, we are reiterating our longer-term organic growth financial targets. We continue to expect that our Monro. Forward strategy will accelerate same-store sales growth, which will drive operating leverage and double-digit earnings growth. As a reminder, these targets include 4% plus in same-store sales growth, the return to 12-plus percent operating margin and consistent 10% to 15% earnings growth by 2021.

I'll now turn it over to Brett to provide some closing remarks before we move to Q&A.


Brett T. Ponton, Monro, Inc. - CEO, President & Director [5]


Thanks, Brian. In summary, we had a very good year in fiscal 2019. We delivered strong results, in line with our guidance, driven by solid comparable store sales growth throughout the year. Our Monro. Forward initiatives continue to progress well 1 year after launch.

Among the key milestones we reached in fiscal 2019: we implemented our Good-Better-Best merchandising strategy; completed the first phase of our store staffing model optimization, developed our online presence with our Amazon.com collaboration and the modernization of our website, launched our data-driven CRM platform and completed our Monro Playbook and store refresh pilot.

Disciplined acquisitions remain a cornerstone of our strategy, with the acquisitions we announced this year reaching $132 million in annualized sales. Building off this solid platform, we believe we are well positioned to capitalize on future growth prospects and drive strong value for our shareholders in fiscal 2020 and beyond.

With that, I will now turn the call over to the operator for questions.


Questions and Answers


Operator [1]


(Operator Instructions) The first question comes from the line of Brian Nagel with Oppenheimer.


Brian William Nagel, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [2]


So I have 2 questions, I guess. First off, you -- we discussed a bit in the prepared comments as weather -- obviously, there's been a lot of talk about weather once again being volatile. How should -- as -- looking at your results, how should we think about the weather impact here? And I'm thinking -- specifically if we could maybe call out the -- what -- I'm assuming negative impact in the fiscal Q4 results, potentially negative here in early in fiscal Q1. But what kind of benefit could we get from the harsher winter as we progress further into spring here into the new fiscal year?


Brett T. Ponton, Monro, Inc. - CEO, President & Director [3]


Brian, this is Brett. If you recall our last call, we talked about the pretty soft holiday selling season. December and January, pretty soft primarily on tires, in particular. As we rolled into the new calendar year, we saw our comp sales progressively improve throughout the quarter despite a strong comparable year we are up against.

I think as we think about the harsher winter, you would expect that to translate into a strong spring selling season, which we still expect, I guess just coming a little bit later in the year than we normally would see, typically around late March and April and May.

So we're optimistic. We're off to a good start, I think, in Q1 despite that. But expect some of that normalized spring service demand that you would expect to see as consumers prepare for the summer driving season. It's still ahead of us as we've yet to see the weather conditions to get consumers out and focusing on their vehicles to prepare for the summer.


Brian William Nagel, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [4]


That's helpful. And then the second question I had, with regard to Amazon and the expanding partnership there. Any update on how should we should consider or think about the economics or their financial implications of this relationship with Amazon for the Monro model?


Brett T. Ponton, Monro, Inc. - CEO, President & Director [5]


If you recall, the expansion with Amazon is just an extension of an existing strategy the company has executed before with the relationships with other online tire retailers. And we're not going to comment or parse out the performance that we enjoy with Amazon relative to others.

But we would characterize that the performance that we're seeing with Amazon certainly is in line with what we see with our other online partners and certainly the motivation behind us wanting to expand that relationship to another 400 locations this quarter.

And just to remind people on the pieces -- the benefits that we see to our company, certainly, we -- as we analyzed our historical relationships, for the most part and up to about 50% of the time, most of these consumers that we see for tire installation are new to our brand, so gives us a great opportunity, I think, to drive traffic and build a relationship with a consumer that allows us to not only convert that tire installation to other services when they are at the store but also allows us to build a long-term relationship with them via our CRM platform going forward.

The economics, certainly, we don't sell the tire as it relates to tire installation. But the installation revenue itself certainly has high margin given the high labor content and low material cost of installation as well as the opportunity for us to add on incremental high-margin sales when the consumer is at the store. So we still think this is a net accretive strategy for our company, and we'll look to expand relationships with Amazon as we progress throughout the year as well as collaborate with other online retailers going forward.

And certainly, it doesn't change our go-forward strategy to build out our own omnichannel strategy. As we commented about in the second half of this year, we intend to launch our own online transaction capability online as well as with consumers, Brian.


Operator [6]


Our next question comes from the line of Bret Jordan with Jefferies.


Bret David Jordan, Jefferies LLC, Research Division - Equity Analyst [7]


I guess to follow up, I mean not specifically on Amazon, but just as it relates to your -- all of your online installation partners, could you give us a feeling for maybe that the volume that you do for third-party install versus your sold tire?


Brett T. Ponton, Monro, Inc. - CEO, President & Director [8]


Maybe to set this up, Bret, I will remind everybody what the industry sees as the online penetration rate for consumers that buy tires online, and that's been characterized as mid- to high single digits, call it, 7% to 8% of all tires sold in the U.S. are bought online. And to give you a reference point from Monro, as we look at the amount of installations that we do, it's in line with the industry is. So call it, 7% to 8% of our installations would be incremental versus the tires that we sold and installed to consumers, direct to consumer and Monro (inaudible).


Bret David Jordan, Jefferies LLC, Research Division - Equity Analyst [9]


Okay. And then Brian, I guess housekeeping, could you give us the monthly comps breakout?


Brian J. D'Ambrosia, Monro, Inc. - Senior VP of Finance, CFO, Treasurer & Assistant Secretary [10]


Yes. Sure. January was down 2%, February up 3%, March up 1%.


Bret David Jordan, Jefferies LLC, Research Division - Equity Analyst [11]


Okay. Great. And then one final question. I guess as you think about building a more stores in the Southeast, where are we as far as distribution of the structure? I know you talked about putting in a DC down there or possibly acquiring business with a DC, but what's the timing of that incremental side of the business?


Brian J. D'Ambrosia, Monro, Inc. - Senior VP of Finance, CFO, Treasurer & Assistant Secretary [12]


Two points to consider of that, Bret. One is, now that we've made a further acquisition in Southern Florida, that takes our store count to north of 100 stores in the Florida area, which certainly warrants like a distribution center.

The second part of my answer here is related to our shift in strategy. Given the fact we've acquired a pretty strong wholesale business now that we operate under the brand tires now, our intention is to expand going forward using a Tires Now location that serves as both a distribution center but also a profit center as we look to leverage scale and build out our presence in Florida as well. We are currently considering options in Florida to expand there, and we'll likely make a decision in this next quarter for execution in the second half of FY '20.


Operator [13]


(Operator Instructions) Our next question is from the line of Scott Stember with CL King.


Scott Lewis Stember, CL King & Associates, Inc., Research Division - Senior VP & Senior Research Analyst [14]


Just a question. On the last call, I guess maybe we're talking about apples and oranges here, but you had said that your January sales were running up about 2% same store on a reported basis. But here, you're saying they were down 2% from the month of January. Was there something that happened in between, I guess, when you guys reported and towards the end of the month? Was there any different trends? Or are we just talking reported basis versus adjusted basis?


Brian J. D'Ambrosia, Monro, Inc. - Senior VP of Finance, CFO, Treasurer & Assistant Secretary [15]


Yes. Scott, this is Brian. I'll take that. The -- we reported that January was up 2% on a reported basis and lower by about 300 basis points or down 1% when adjusted for days. So that down 2% number I gave you was also adjusted for days.


Scott Lewis Stember, CL King & Associates, Inc., Research Division - Senior VP & Senior Research Analyst [16]


Okay. Got it. That clears it up. And maybe just going out to California, obviously, it looks like a very nice deal for you guys, but you're obviously in a different sandbox. Can you just talk but some of the economics of the stores there, the cost, the store density and competition? Just give us an idea of how these markets compare to some of your other core markets that you have over on the East Coast?


Brett T. Ponton, Monro, Inc. - CEO, President & Director [17]


Sure, Scott. I think maybe I'll first start with the rationale for going to California. I think it probably goes without saying, California is the single largest market for vehicles in the United States with over, I think, 15 million vehicles registered, and that puts it at roughly 2x the market potential that a state like Florida has. So tremendous amount of market potential out there that we felt like Monro is well positioned to capitalize on. And as we have a desire to become a national retailer, certainly, starting in the largest market out West and moving our way back to the East makes a lot of sense.

When you think about certified in general, we like the certified transaction because it gave us penetration in the 3 largest DMAs in California, store representation in San Diego, L.A. and San Francisco and also the fact that it came -- it had a distribution center with it that allowed us to fully capitalize on our supply chain strengths virtually immediately under our ownership.

As it relates to the economics, I won't comment on the deal dynamics here. But I will say, in terms of the price we paid for the acquisition is in line with other deals that we have done historically. It's not outsized in terms of valuation there.

The actual economics of the stores themselves, as you can see with the revenue, reported $45 million and across 40 stores. So the unit economics are in line. It's actually slightly higher than our service store revenue. As we commented on the call, we intend to banner these stores, Tire Choice Auto Service Centers to give us the opportunity to continue to maintain a focus on service but also improve our relevancy on the tile category as well.


Scott Lewis Stember, CL King & Associates, Inc., Research Division - Senior VP & Senior Research Analyst [18]


Got it. And just last question on the balance sheet at 2.15x debt-to-EBITDA ratio, what's your comfort zone? Sounds like you -- there's a good chance you'll still be highly acquisitive. So what's your comfort threshold and the max that you'll go up to?


Brian J. D'Ambrosia, Monro, Inc. - Senior VP of Finance, CFO, Treasurer & Assistant Secretary [19]


Yes. I think we've got at least another turn there. If you think about where that 2.15 is, a lot of that's capital leases on our balance sheet. We're currently less than 1 when you look at it on truly funded bank debt. So we still have a pretty conservative balance sheet and definitely have a comfort to take out a little bit more leverage here.


Operator [20]


At this time, I'll turn the floor back to management for closing remarks.


Brett T. Ponton, Monro, Inc. - CEO, President & Director [21]


Thank you all for joining us today and for your interest and support of Monro. We are very pleased with our 2019 performance and believe we are well positioned for another strong year ahead as we continue to execute our strategy. We look forward updating you all on our progress next quarter. Have a great day.


Operator [22]


This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.