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Monro Inc (NASDAQ:MNRO)
Q1 2021 Earnings Call
Jul 29, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to Monro, Inc.’s Earnings Conference call for the First Quarter Fiscal 2021. [Operator Instructions] And 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. MulhollandSenior Vice President-General Counsel and Secretary

Thank you. Hello, everyone. Thanks for joining us on this morning’s call. Before we get started, please note that as 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 two. 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, and includes a significant uncertainty relating to the duration and scope of the COVID-19 pandemic and its impact on our customers, executive officers and employees.

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, which are intended to supplement and not to be substitutes for comparable GAAP measures. Reconciliations of such supplemental information to the comparable GAAP measures will be included as part of today’s presentation and in our earnings release.

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

Brett T. PontonPresident and Chief Executive Officer

Thank you, Maureen, and good morning, everyone. Thanks for joining us. In the last few months, we have seen an unprecedented health and economic crisis, and the COVID-19 situation remains extremely fluid. During this period of uncertainty, we have been committed to ensuring the safety and well-being of our teammates, customers and communities while maintaining business continuity to support our customers’ current and future needs. Our more than 1,200 stores have remained open to provide essential services since the beginning of the pandemic, and we continue to leverage our diversified supply chain without significant disruption. I am immensely proud of our teammates’ efforts and strong execution despite the ongoing challenges, and I am pleased to see that our Monro Forward initiatives continue to gain traction, which I believe will help us emerge stronger from this crisis. As highlighted on slide three, while we reduced our store operating hours at the onset of the pandemic, we have taken a measured approach to gradually return to a more normalized store schedule as the demand environment improves.

We have received positive feedback from our customers regarding the safety measures we have implemented in our stores, including key drop and contactless services. Importantly, we continue to see strong teammate engagement as a result of the actions we have taken to protect and support them during this crisis. Overall, we are focused on the elements of our business within our control and have taken the appropriate steps to mitigate near-term headwinds and expect to operate on a cash flow positive basis during the COVID-19 pandemic. Our strategy is underpinned by a rigorous financial discipline in cost management and capital allocation as well as a robust balance sheet and ample liquidity, which we believe provide us with significant financial flexibility to safely operate our business and execute our Monro Forward initiatives. In this context, we have continued to make critical investments in technology to support our future operations and have decided to gradually resume our store rebrand and reimage initiative in the second quarter. Lastly, acquisitions remain a pillar of our growth strategy. We have a robust pipeline and are evaluating a number of quality, potential targets that would fit our strategy while maintaining strong financial discipline.

Moving on to slide four. I would like to take a moment to discuss our first quarter performance and the current trends we’re experiencing. Government restrictions to curve the spread of COVID-19 drove a substantial decline in traffic, which translated to a 26% decrease in comparable store sales in the first quarter. While April represented a low point in our top line performance, we saw a resumption in demand, driven by improved traffic, as government restrictions gradually abated throughout the quarter, with May and June improving sequentially. These encouraging trends continued into fiscal July with our comparable store sales down approximately 12%. Despite the COVID-19-related challenges we are facing, it is important to note that we continue to solidify our competitive position in the current environment, as evidenced by our performance tracking, in line or above miles driven and other mobility metrics. While we experienced a double digit comparable store sales decrease in all product and service categories during the first quarter, we were encouraged to see that monthly comps improved sequentially across all categories throughout the quarter, a trend that has continued in the second quarter based on our preliminary results to date. Importantly, tires, which represents our largest category, outperformed all other product and service categories as the rollout of our tire category management and pricing system is gaining traction. With improved visibility into the price elasticity of demand and competitive dynamics in each market, it has allowed us to optimize our tire assortment while favorably impacting tire volumes and margins during the first quarter. Geographically, our southern and midwestern markets outperformed our northern markets, where we have had a high concentration of stores, as the northeast region was the most severely impacted by the COVID-19 pandemic during the first quarter.

However, this outperformance has narrowed in recent weeks with strengthening performance in the northeast and a slowdown in recovery pace in our southern states, as many are increasing restrictions due to higher infection rates. As mentioned before, we’re also able to quick and quickly and thoughtfully flex down our cost structure to adapt to the lower demand environment. The pandemic gave us the opportunity to accelerate the pace of some of our transformation initiatives, including our store staffing. We believe we have rightsized our store staffing and structurally changed our labor model to consistently have the right mix of technicians with the appropriate skill level and corresponding compensation aligned with demand and the level of services performed in each store. In addition, we have tightened our marketing spend and accelerated its shift toward higher ROI digital channels. Overall, we are encouraged by the cost savings that derive from these initiatives, which we believe set us up well to drive better operating performance going forward. Despite the challenging operating environment, we are strongly committed to advancing our Monro Forward strategy to position our business for long-term sustainable growth. Turning to slide five, I would like to discuss the recent developments in greater detail. Beginning with our largest strategic initiative, our store rebrand and reimage program, which focuses on creating a more consistent store appearance and implementing standardized in-store operating procedures. To date, we have completed the transformation of more than 200 stores in a number of key markets, including rebranding approximately 70 stores from service branded stores tire branded stores and consolidating our tire brands to optimize our brand awareness and increase our tire revenues in select markets. While we have paused this initiative since the onset of the pandemic, we are pleased to report that our rebrand stores, comparable store sales continued to outperform our chain average. These positive trends reinforced our confidence in our reimage and retail brand portfolio consolidation strategy to drive long-term, same-store sales growth.

In light of our healthy financial position, we have decided to resume this program with a measured and moderated approach in the second quarter. Accounting for the current pandemic backdrop, our goal is to undertake the refresh of 60 to 120 stores in fiscal 2021. As part of our one-time real estate portfolio adjustment, we completed the closure of 36 underperforming stores during the first quarter, in addition to the six stores that were closed in the fourth quarter of fiscal 2020. As we previously noted, these store closures were planned in accordance with our analytic model to drive a stronger, long-term performance of our company and were not in response to COVID 19. We estimate the closure of these 42 stores will improve operating income by approximately $5.1 million on an annual basis. Moving on to our customer-centric engagement initiatives. Over the past few years, we have been focused on improving the experience for our customers, which has driven our all-time star rating up to 4.6 stars. Building off these strong results, we have accelerated the strategic shift of our marketing efforts toward higher ROI digital channels since the beginning of the pandemic. As part of our digital strategy, we have been focused on optimizing our SEO performance for key product categories like tires.

These efforts have resulted in approximately 50% of our stores now ranking in the top three online search results, which has led to significant improvements in online consumer actions, whether that’s scheduling an appointment at the store, making a phone call to the store or clicking to get directions to a Monro location. Importantly, our targeted investments in digital marketing and advertising, combined with our new digital phone system, allow us to acquire and retain customers at a lower cost while driving stronger results. As part of our broader efforts to create an omnichannel presence for our company, we are excited to announce that we have completed the rollout of our collaboration with Amazon with all of our more than 1,200 locations in 32 states now providing tire installation services. We continue to receive positive feedback and strong customer satisfaction metrics in response to this initiative, which builds upon the success of our other online tire retailer agreements and is an important step in furthering our customer-centric engagement efforts. Turning on to our critical turning now, excuse me, to our critical investments in technology, we continue to make tremendous progress on a number of initiatives that we believe will be instrumental in driving long-term sustainable top line growth and margin expansion.

During the first quarter, we substantially completed the rollout of our network infrastructure upgrade across our store base, including the new digital phone system I just mentioned. Our modernized store infrastructure allows us to drive a more sophisticated and consistent approach to customer execution with the ability to measure the results of our marketing efforts. During the COVID-19 pandemic, we have leveraged our new technology to establish a centralized call center that provides added flexibility and significantly improves our customer responsiveness. Overall, we’re encouraged by the early traction of this initiative and confident it will contribute to improved conversion and enhanced customer experiences going forward. As mentioned earlier, we are in the process of rolling out our new tire category management and pricing system across our store base, which we expect to complete by the third quarter of fiscal 2021. This new tool is driving relative strength in our tire category as we are better able to dynamically track demand trends at the market level and make rapid adjustments to our tire pricing and assortment strategy. This allows us to drive higher volume as well as optimized tire pricing to expand margins in this category. Lastly, our technology-based store staffing model has allowed us to seamlessly rightsize and effectively balance our store labor in real time since the beginning of the COVID-19 pandemic, ensuring we have the right mix of skills to match demand in each store. It is also proven critical to our ability to effectively ramp up staffing in our stores to support improving demand trends, which is one of our important priorities right now.

This program positively impacted gross margin in the first quarter, and we are confident it will continue to drive significant store labor efficiency going forward. As we are rolling out our cloud-based store staffing and scheduling software across our store base, which we expect to be complete by the third quarter, we are leveraging our Monro University platform to train our teammates and have received overwhelmingly positive feedback so far. In addition to supporting the rollout of our strategic initiatives, Monro University has a robust curriculum and continues to help our teammates grow and advance their career and technical skill set, which has significantly enhanced our employer value proposition as a key differentiator in the current environment. Overall, we believe these important tools will enhance our competitiveness in the marketplace and will be critical to supporting our broader strategy moving forward. Before passing the call over to Brian, I would like to reiterate how proud I am of our team’s dedication to safely provide a best-in-class experience to our customers. Our teammates have demonstrated their ability to quickly adjust to the evolving environment and seamlessly embrace the structural changes we’ve made across our business to drive an improved operating performance and emerge even stronger when this crisis subsides.

With that, I’ll turn the call over to Brian, who will provide additional detail on our first quarter performance and strong financial position.

Brian J. D’AmbrosiaExecutive Vice President and Chief Financial Officer

Thank you, Brett, and good morning, everyone. Turning to slide six, I’d like to provide a more detailed overview of our performance this quarter. Sales fell 22.1% year-over-year to $247.1 million, primarily driven by a 25.8% decline in same-store sales. As expected, the ongoing COVID-19 pandemic substantially impacted our results as government restrictions to curve the spread significantly decreased traffic in the quarter. As Brett noted, we were encouraged to see sequential comparable store sales improvement during the quarter across all product and service categories as restrictions have gradually abated in some of our key geographies. Sales from new stores increased by $12.7 million or $11.1 million from recent acquisitions, partially offset by a decrease in sales from closed stores of approximately $3.1 million. The first quarter of fiscal 2021 had 90 selling days, in line with the previous year period. Gross margin decreased 500 basis points to 35.4% in the first quarter of fiscal 2021 from 40.4% in the prior year period. This decrease was primarily 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 comparable store sales.

Additionally, we were impacted by lower vendor rebates due to slower inventory turns as well as higher sales mix of tires compared to the prior year period. However, this was partially offset by lower technician labor costs as a percentage of sales directly related to our store technology-based staffing model, as well as we rightsized labor to match lower demand while ensuring we had the right mix of necessary skill sets in each store. In addition, gross margin improved within the tire category, which was positively impacted by the partial rollout of our tire category management and pricing tool in the quarter. Operating expenses for the quarter decreased $15.7 million to $76.1 million or 30.8% of sales as compared with $91.8 million or 28.9% of sales for the prior year period. As Brett previously mentioned, we took targeted action to streamline our cost structure in the first quarter. Most notably, we strategically realigned our marketing spend toward higher ROI digital channels and rightsized store staffing to match lower demand. The year-over-year decrease in operating expenses also reflects lower expenses from a net reduction of four stores compared to the prior year period. This was partially offset by $2.5 million in store closing costs. The increase in operating expenses as a percentage of sales compared to the previous year period was driven by a decrease in comparable store sales. Our operating income for the first quarter was $11.4 million compared to $36.4 million for the same quarter last year. As a percentage of sales, operating income was 4.6% compared to 11.5% in the prior year period. Net interest expense for the quarter increased to $7.4 million as compared to $7.2 million in the same period last year.

The weighted average debt outstanding for the first quarter increased by approximately $486 million as compared to the prior year period. The increase is primarily related to an increase in debt outstanding under our revolving credit facility to fund the purchase of our acquisitions and to provide financial flexibility during the COVID-19 pandemic, as well as an increase in finance lease debt recorded in connection with our fiscal 2020 acquisitions and greenfield expansion. The weighted average interest rate for the first quarter decreased by approximately 350 basis points year-over-year due to lower LIBOR and prime interest rates as well as lower borrowing rates associated with new leases. For the first quarter, income tax expense was $1 million compared to $6.8 million in the prior year period. Net income for the first quarter was $3 million compared to net income of $22.6 million in the prior year period. Diluted earnings per share for the first quarter of fiscal 2021 was $0.09 compared to diluted earnings per share of $0.67 in the first quarter of fiscal 2020. Adjusted diluted earnings per share for the first quarter of fiscal 2021, a non-GAAP measure, was $0.15, which excludes $0.06 per share of store closing costs. This compares to adjusted diluted earnings per share of $0.69 in the first quarter of fiscal 2020, which excluded $0.01 per share of costs related to Monro Forward initiatives and $0.01 per share of costs related to acquisition due diligence and integration costs.

As of July 29, 2020, the company had 1,247 company-operated stores and 97 franchise locations as compared with 1,251 company-operated stores and 98 franchise locations as of June 29, 2019. During the first quarter, we closed 36 stores. A complete bridge comparing our first quarter fiscal 2021 earnings per share performance with the same period last year is presented on slide seven. The COVID-19-related drop in traffic significantly impacted our performance, resulting in a 25.8% decrease in comparable store sales and a $0.77 earnings per share decline. As we previously noted, every 1% decline in comparable store sales translates into roughly $0.03 per share per quarter. The decrease in gross margin impacted our operations by approximately $0.20 per share. The net benefit of our cost savings and lower expenses due to a reduction in the number of stores compared to the prior year period allows us to reconcile to our adjusted earnings per share of $0.15 in the quarter. As previously noted, this excludes $0.06 per share in planned store closing costs. Turning to slide eight. I’d now like to provide an update on our strong financial position, beginning with our capital allocation strategy. We paid down $240.2 million of debt under our revolving credit facility in the first quarter of fiscal 2021. The our capital expenditures were $15.3 million in the first quarter, of which approximately $9.9 million was related to our Monro Forward initiatives, including our store technology infrastructure upgrade. Additionally, we paid approximately $7.4 million in dividends during the first quarter. As Brett previously noted, we have a robust M&A pipeline and are evaluating attractive targets that support our strategy while maintaining our strong financial discipline.

We also paused our store rebrand and reimage initiative in the first quarter, but we plan to resume this program during the second quarter, and we’ll take a measured and thoughtful approach to ensure we are protecting our financial position. Overall, we expect our focus on streamlining operations and operating costs in bolstering our working capital position to mitigate the impact of near-term headwinds and allow us to operate on a cash flow positive basis throughout this pandemic. Finally, in June, we temporarily amended certain financial and restricted covenants of our existing 5-year revolving credit facility, which we believe will provide us with greater financial flexibility to operate our business. Moving on to slide nine. Our balance sheet and liquidity position remains strong, and we have confidence that we are well positioned to navigate the current environment. We generated approximately $73 million in operating cash flow during the first quarter of fiscal 2021. At the end of the first quarter, we had net bank debt of $179 million and a net debt-to-EBITDA ratio of 3.86. As of July 25, 2020, we had cash and cash equivalents of approximately $145 million in availability on our revolving credit facility of approximately $255 million. Turning to our financial assumptions for fiscal 2021. Given the ongoing uncertainty surrounding COVID-19, it remains difficult to accurately forecast the impact of the pandemic on our future operations. Therefore, we are not providing fiscal 2021 guidance at this time. We have provided some financial assumptions on slide 10 to assist with your modeling, which we have updated for our first quarter performance.

Regarding our capital expenditures, we are increasing our range to approximately $30 million to $50 million in fiscal 2021 to account for the number of stores we plan on rebranding during the year depending on the environment. The low end of our capex range assumes the rebranding of approximately 60 stores, while the high end assumes the rebranding of approximately 120 stores. In addition, we will continue to leverage our diverse and global supply chain and expect tire and oil costs to remain relatively stable to slightly lower year-over-year. As we’ve discussed, we completed our planned store portfolio optimization during the first quarter. And as a result, we expect the closure of these 42 stores will benefit our operating income by approximately $3.8 million in fiscal 2021. Moving on to our actions to reduce costs. As we acted quickly to align our costs with the lower demand, we recognized approximately $15 million of cost reductions in the first quarter and, for the remainder of the year, expect to realize $5 million to $10 million in additional cost benefits. We anticipate lower cost savings in the second quarter as we intend to shift some of our marketing spend to enhance our recruiting initiatives and quickly ramp up staffing in our stores to match improving demand levels.

And with that, I will now turn the call back to Brett for some closing remarks.

Brett T. PontonPresident and Chief Executive Officer

Thanks, Brian. Overall, we are encouraged by our gradually improving performance throughout the first quarter and second quarter-to-date and remain cautiously optimistic that demand will continue to improve as this crisis subsides. This is supported by our belief that consumers will drive more, particularly given heightened risk applying and public transportation. Further, our industry has traditionally been resilient in the face of a recessionary environment as consumers are more likely to visit an aftermarket retailer like Monro to repair the cars they currently own than purchase a new vehicle. While the environment remains very uncertain, I am proud of our organization and how we’ve responded to these challenges. During the quarter, we made a number of changes to streamline our operations, which, in combination with the traction we are seeing from our Monro Forward initiatives, position us well to navigate the COVID-19 pandemic and emerge stronger from this crisis. We have maintained our commitment to a strong financial position and remain extremely diligent when it comes to capital allocation.

During the second quarter, we plan to resume our store rebrand and reimage initiative, which underscores the strength of our business despite the volatility in the market. In conclusion, I’d like to thank everyone at Monro for their outstanding work to protect health and safety across all aspects of our business and drive continuity for our customers. These priorities, further supported by the execution of our Monro Forward strategy, position us well to deliver long-term value for our shareholders through COVID-19 and beyond.

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

Questions and Answers:

Operator

[Operator Instructions] Our first questions come from the line of Brian Nagel with Oppenheimer. Please proceed with your questions.

Brian NagelOppenheimer — Analyst

Good morning, guys.

Brett T. PontonPresident and Chief Executive Officer

Brian. Morning.

Brian NagelOppenheimer — Analyst

The first question I want to ask, let me make sure I word this correctly, clearly, there’s been an improving trajectory in the business through fiscal Q1 and then probably, more importantly, here into the early part of fiscal Q2. But the question is, what’s as you look at the business and what’s still holding it back, the negative 12%? And I understand that the Monro business is not necessarily comparable to what we see out of the auto parts retailers. But I would say, generally, as the economy the auto business has been rebounding here with COVID, we’re seeing numbers that would suggest is better than a negative. So the question is, what do you think’s holding back Monro at this point in not allowing the company to have even stronger or, well, improving or even better trajectory in their business?

Brett T. PontonPresident and Chief Executive Officer

Yes. So you might expect, one of the metrics we really look at pretty closely and monitor pretty closely in our business since the onset of this pandemic’s been vehicle miles traveled, looking at that as well as gasoline consumption, etc. And our performance, since the onset of the crisis, is really correlated really pretty positively with those metrics. I think when we look at it overall, our business nationally has tracked pretty much in line with the broader national metrics. But having said that, I’m actually very encouraged when you look at this more on the regional level, given Monro’s high concentration of stores in the northeast and the Baltimore, Washington area. I think our performance has actually outperformed VMT in those respective areas.

Having said that, though I think we certainly have seen in some areas a shortage of labor, as we ramp our labor models back up, we feel like if we are planning on making some focused investments in improving our recruiting capability in Q2 to ramp up labor faster to match the demand. And of course, in our business model, as you know, every unit of labor is critical to supporting sales because all of our labor, for the most part, in the store is the sales-producing labor. So I think the top line here, Brian, is we’re encouraged by our performance when looking at it on a regional basis, but feel like we’ve got still upside as we ramp up labor and support improving demand. And I’d just add additional color on that. Just the positive results that we’re seeing from the shift in our digital marketing spend has driven nice increases in our online appointment traffic as well as phone calls to the store that we can measure. And that’s really allowed us to be much more targeted in where we invest the marketing dollars at a very granular store level to support needs there, but also helps us identify where we maybe have demand that’s being unfulfilled due to labor issues. And in Q2, we’re going to refocus our energy to supporting recruiting efforts to better align our labor model with stronger pockets of demand that we’re maybe underserving today.

Brian NagelOppenheimer — Analyst

Brett, that’s very helpful. Second question I have, unrelated. Just I don’t know if you talked about this in your comments at all, but, again, as hopefully the economy start to pull out of the at least the depths of the COVID prices, any update on your acquisition activity?

Brett T. PontonPresident and Chief Executive Officer

Yes. We commented, given how well the team has navigated through, I think, the crisis from a cash flow point of view and the state of our balance sheet, it’s given us confidence, especially in light of the improving trends that we’ve seen in the business, to restart a couple of major strategic initiatives in our company. One is the rebrand initiatives we talked about. We’re going to kick off and do 60 to 120 stores this year, but we’ve also reengaged our business development team. And we’ve got a pretty robust pipeline of M&A targets, and our team is actively engaged right now in evaluating those targets. But like always, with Monro, we’re going to take a very disciplined approach in how we invest our capital on acquisitions, but we certainly are in the mode right now where we are evaluating adding to our portfolio.

Brian NagelOppenheimer — Analyst

Thank you very much. That’s the luckier thanks, Brian.

Brett T. PontonPresident and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question has come from the line of Jonathan Lamers of BMO Capital Markets. Please proceed with your question.

Jonathan LamersBMO Capital Markets — Analyst

Good morning. Brian, On slide seven, the EPS bridge, what is the $0.45 in the other bucket?

Brian J. D’AmbrosiaExecutive Vice President and Chief Financial Officer

Yes. That’s really driven by largely by the cost reductions that we described in the script and also in the footnote to that slide. So that’s about $15 million of reductions that we were able to achieve in the first quarter. And we moved very aggressively at the beginning of the quarter and really in March to meet the lower demand that we were seeing in our business with a lower cost structure in our business. And we focus really on three areas when we did that. We focused on making sure that our labor in our stores was rightsized down to meet the lower demand levels. We also as Brett talked about, we focused our marketing on responsive advertising and advertising we could measure and eliminated a lot of the other advertising. And then we also took the opportunity to look at non-store overhead, such in our warehouses and store support center, and adjusted those down as well, primarily through furloughing of some employees there. Now as the quarter went on, we saw improving demand trends. And that, in response to the improving demand trends, we added back appropriately to support those higher demand trends across those categories.

As we move forward, we talked about $5 million to $10 million of incremental benefit for FY 2021. And we talked about most of that occurring in the back half of the year. And that’s because, as Brett described, we are focused in Q2 on spending additional resources to continue to increase our labor in the targeted markets where we see adding labor will be appropriate to help support improving demand. Probably the biggest question is what happens outside of FY 2021 and what is structural as we move forward out of that those cost savings. And while it’s obviously very fluid and things change and plans will change, as we stand today, what we really see is about $10 million to $15 million of structural cost savings that will be with us going forward as we exit FY 2021. And those are, again, across those three categories, roughly 70% coming through the labor reductions, 20% through the marketing and another 10% through non-store overhead reductions. And if you just look at FY 2020 and just assume that your same-store same amount of sales in FY 2020, that will give you about 150 to 250 basis points of structural operating margin improvement that we’ve created as we come out of that. So long answer, but really within that $0.45 is that cost reduction that I just described.

Brett T. PontonPresident and Chief Executive Officer

Yes. Maybe just to if I can add a little color to that, too, just to make a longer answer longer. I might add that these initiatives that we talked about weren’t because of COVID. They were all planned out prior to COVID good as part of our Monro Forward initiatives on all three vectors. And we just leveraged the good work that the team has done and making good progress on installing some technology that enabled us to accelerate, I think, the pace of those initiatives we were able to capitalize on throughout COVID. So it’s the good work of the team. I think that’s translated the short-term benefit into a long-term structural benefit to our business going forward.

Jonathan LamersBMO Capital Markets — Analyst

Okay. Great answer. Just to confirm one point that Brian said. That $5 million to $10 million incremental benefit, you’re speaking of H2 fiscal year 2021 versus H2 fiscal year 2020. So it’s $5 million to $10 million year-over-year? Is that right?

Brian J. D’AmbrosiaExecutive Vice President and Chief Financial Officer

That is correct.

Jonathan LamersBMO Capital Markets — Analyst

Okay. Switching gears to the rebranded stores. Do you have an update on the performance of the previously rebranded stores versus the network this quarter?

Brett T. PontonPresident and Chief Executive Officer

As we talked about, we saw an outperformance in our rebranded stores versus the others. As you might expect, that given the regional nature of those stores and where they land, geographically speaking, it’s tough to draw a comparison. However, what we have seen is about 500 bps of comp sale improvement versus the chain average coming out of our rebranded stores.

Jonathan LamersBMO Capital Markets — Analyst

Okay. And just on the Amazon topical announcement. I’m curious. For the stores that have had Amazon on board for more than 12 months, do you have a same-store growth in online orders for that for the quarter or some updated color on how significant the economics could be there?

Brett T. PontonPresident and Chief Executive Officer

Yes. I mean, it’s not something we’re going to comment on to that level of specificity. I would say we’ve taken a step back, Jonathan, we’re but we’re pleased, despite the challenges of COVID that we’ve completed the rollout with Amazon. We’re really pleased with the relationship there, now having installation services available at over 1,240 stores in our 32 states. But similar to that, we’re also pleased with our relationships with the other third-party installers. What we have seen during COVID that I can comment on is, although maybe not a step-function change in the increase in tire installations from all of our online tire sellers, we have seen a pretty significant increase in our online appointments to get tires installed and serviced on at our stores. So we think that’s pretty consistent with our broader thesis around tire is a still pretty confusing category for consumers to shop.

Consumers still see value, I think, in talking to professionals and experts at the store location and make sure they got the right tire for their vehicle. So we think it’s support of a broader advantage for Monro in having 1,250 brick-and-mortar locations, but also overlay continued relationships to expand our omnichannel presence with online third-party resellers as we also continue to pursue our efforts to build out our own e-commerce capability as well.

Jonathan LamersBMO Capital Markets — Analyst

Just last question on the rebranded stores. I noticed that the tire category significantly outperformed the others this quarter. Does that reflect the expanded tire departments for the refreshed stores? Or what would you attribute that to?

Brett T. PontonPresident and Chief Executive Officer

Yes. I think there’s three things as we look at our business. I think if you go back to our Q4 results, one of the things we talked about was a fairly soft January and February start to the year on tires. So I think we did see probably the industry felt a little benefit from some pent-up demand from calendar Q1 that rolled into calendar Q2. So that’s one dynamic. However, really pleased with our team’s efforts on rolling out our category management pricing tool. We have that now operationalized, covering just under half of our stores right now. And as you might expect, we picked the highest-volume, highest-impact tire stores with that system being installed. And I think, clearly, that’s helped. The rebranding of our stores certainly has also been a self-help initiative. And the fourth variable we talked about was around the shift to digital marketing and the good work our marketing team has done on improving our SEO performance. As we talked about, we are now ranked in the top three on online search for our core categories and over or right around half of our stores. So those four things, I think, are coming together. That’s creating the outsized performance in a key category like tires.

Jonathan LamersBMO Capital Markets — Analyst

Thank you for your comments.

Brian J. D’AmbrosiaExecutive Vice President and Chief Financial Officer

Thanks, Jon.

Operator

Thank you. Our next question has come from the line of Bret Jordan with Jefferies. Please proceed with your question.

Bret JordanJefferies — Analyst

Hey, good morning guys. I guess, as you think about the labor issues at the store level, do you have a feeling, I guess, in that comp for July how much might have been lost to labor shortage? I mean, can you quantify, I guess, maybe through the digital phone system the number of customer requests you get that you can’t fulfill? Or, I guess, sort of what’s the headwind in the market versus the headwind in your own labor capacity?

Brett T. PontonPresident and Chief Executive Officer

Yes. As you might expect, it’s a little difficult to kind of parse that, come up with a definitive number. I think we feel like, Bret, it’s we could have delivered better performance have we had the right labor. Obviously, to what degree is the question. I will say I’d point to the metrics that we’re watching really closely, now that we got the technology to be able to do it, is, obviously, online appointments and the phone traffic that we’re seeing in two stores. And we’re really encouraged by the level of effort that the marketing team has done to translate that into very positive demand signals that we’re seeing on the front end. That’s allowing us to pinpoint the investment on addressing labor concerns, but translate that into a comp sales estimates’s probably a little more difficult for us to do. One thing I can point out for you, though, however, is we’re still operating on a fewer number of stores that are open on Sundays in our business. Pre-COVID, we had roughly 840 stores that were opened on Sunday during Q1.

We ramped that down to about 400 stores. And in July, right now, we’re up to 600 that are open on Sunday. But we believe that created about a 2% comp headwind in the quarter just by having fewer stores open on Sunday. So a little easier to quantify that in terms of headwind. But the labor part, what we see as an opportunity, that’s unmet right now. And that’s reason why we’re refocusing some of our marketing investment to market for candidates from a recruiting point of view as our consumer demand appears to be pretty strong.

Bret JordanJefferies — Analyst

Okay. Could you talk a little bit about the West Coast performance? And obviously, it’s sort of a new market, but you talked about south outperforming the northeast, but how was the west in general?

Brett T. PontonPresident and Chief Executive Officer

Yes. As you know, we’re kind of lapping our initial acquisition into California. And we are really, really pleased with the progress that we’re seeing in our acquired stores, relatively speaking, certainly on a year-on-year basis. You saw that in our results. The integration of California is all but done. We’ve had a few permitting issues on signs out in California, but Las Vegas is doing performing extremely well for us, relatively speaking. But we’re just really encouraged by the strength of the platform that we’ve built now out in California that pivoting and talking about our M&A strategy, I think, gives us a lot of confidence now to look at a number of targets in our pipeline and get a real strong consideration.

Bret JordanJefferies — Analyst

Great. And then, Brian, I guess, can I get the housekeeping, the monthly comps for April through June?

Brian J. D’AmbrosiaExecutive Vice President and Chief Financial Officer

Yes. We were down 41% in April, 24% in May, 14% in June, and then, obviously, down 12% in July. Preliminary rate.

Bret JordanJefferies — Analyst

All right, thank you.

Operator

Thank you. Our next question has come from the line of Rick Nelson with Stephens. Please proceed with your question.

Rick NelsonStephens — Analyst

Thanks. Good morning. I’d like to follow up on the July sales trend. You were down 12%. If you could speak to any sequential changes as the month progressed? Are those declines narrowing?

Brett T. PontonPresident and Chief Executive Officer

Well, as we talked about, we exited I guess, June finished up down 14%. So we saw, obviously, moderating improvement from June, July. As we talked about, Rick, I think it’s a tale of two cities. We saw the improvements accelerate in the northeast, but that was counteracted in the middle part of July with the slowdown of the pace of recovery that we saw in the south. Exiting July now, rolling into what’s our fiscal August, we’re encouraged by continued gradual improvement that we’re seeing in our business overall.

Rick NelsonStephens — Analyst

Yes. Brett, the markets, where we we’ve seen this recent COVID outbreaks to southern states, are you seeing any changes in customer behavior or sales trends there?

Brett T. PontonPresident and Chief Executive Officer

Yes, I think it’s consistent with what we said. That’s where we’re largely seeing a slowdown of, I would say, the improvement. We’re still seeing improvement, but the pace of the improvement certainly has slowed as we’ve seen the outbreaks increase. It’s a pretty tight correlation between those two variables.

Rick NelsonStephens — Analyst

Okay. Got you. Brian, curious about the independents, how you think they’re performing here during the COVID challenges and your appetite to step on the gas on the acquisition front. Are there more willing sellers, less willing sellers? Any comments on valuation would be helpful.

Brian J. D’AmbrosiaExecutive Vice President and Chief Financial Officer

Yes, I think there’s a couple of things at play here. I think, certainly, our pipeline is robust, as we’ve talked about, certainly, I think as robust as I’ve seen in my tenure year at Monro. As it relates to the health of the independents, I think, certainly, the government programs around Paycheck Protection has certainly helped, I think, a lot of those operators bridge maybe the decline in demand that we have seen during this period of time. So I wouldn’t necessarily call out anything in particular there. But I think the mood and the sentiment, I think, is consistent with what it was pre-COVID. I think we’ve got a lot of independent owners that maybe lack second-generation succession plans for their business, and they certainly are interested in exploring options to exit. So we just feel really good about the improvement in our business, the state of our balance sheet and the attractiveness about the opportunities in our pipeline that we see that gives us confidence to restart the rebranding initiative as well as, obviously, conversations around acquiring companies going forward.

Rick NelsonStephens — Analyst

Your expectation for miles driven. We’ve seen some challenges there. I know some businesses like Google are talk about opening out July of 2021. Do you think there is a correlation between offices opening and miles driven? Or how do you see that shaping up?

Brian J. D’AmbrosiaExecutive Vice President and Chief Financial Officer

Yes. Look, I think look, there’s still a lot to unfold there, of course, once we get through the core crisis of the core pandemic and understand what structural changes take place in the form of consumer behavior, whether it’s working in office and commuting there or shopping behavior is another area, I think that’s TBD. But Brett?

Brett T. PontonPresident and Chief Executive Officer

So I think it’s still uncertain, Rick, in terms of what how that plays out. I think when we look also to the countervailing measures as well that’s probably in our favor around a shift from mass transit to cars, less apt to be on airplanes and drive to more destinations, more willingness to have drive-away vacations versus air travel. So there’s a lot of countervailing things, I think, that creates a positive offset to any of the negatives. But I get the overlay, just the general sentiment around potential recessionary environment. And as we’ve talked about, we’re pretty defensible here in our business as consumers hold on to their cars longer, become a little more value-conscious in their behavior, we feel like Monro is well positioned with our supply chain, our cost structure and our store concentration to be well positioned to capitalize on those future trends, if they take fold.

Rick NelsonStephens — Analyst

Thanks and good luck. Thanks. Rick.

Operator

Thank you. Our next question has come from the line of Steph Benjamin of SunTrust. Please proceed with your question.

Brian J. D’AmbrosiaExecutive Vice President and Chief Financial Officer

Hi, good morning.

Steph BenjaminSunTrust — Analyst

Good morning. I was wondering if you could speak a bit on some of the new pricing and category management tools that you might have in place for other categories. Just maybe remind me, I believe you had some on brakes and tires. So what might be the next leg to that stool? And then if you could also remind us, as we look for this year, what other initiatives in the Monro Forward strategy are the big focus? Obviously, you called out the rebranding, but what’s the next initiative beyond the rebranding and the tire pricing tool? Yes.

Brett T. PontonPresident and Chief Executive Officer

Thanks, Stephanie. I’ll let Brian handle the second part of the question. But as it relates to the category management tools, tires is over 50% of our business, the most important category. It’s also the category that lends itself to being shopped by consumers, and pricing’s extremely important. So that’s the reason why we focus there with our more sophisticated big data category management system that we’re like I mentioned, we’re operational now with about 500-plus stores that are using the system. We expect that to roll out completely across our store base by Q3. Once we get that done, certainly, the logic will apply for other core categories like brakes and certainly oil, but I will say those categories are less price-sensitive with consumers outside of oil. I would say brakes and other services in-store are normally not shopped. They’re usually bought through an in-store selling/conversion process. So I think the premise applies that the degree of improvement that we would expect to see there is probably diminished. So category’s a clear focus there. For us, key initiatives here are near term for us. It’s all about rolling out the scheduling system in our business.

That helps us operationalize all the staffing model changes that we made during COVID around getting the staffing mix right, by installing the cloud-based tool, which we now have in pilot in a couple of markets. That’s going to begin to scale and will be done by the end of Q3 as well. That just helps us operationalize that, create tighter controls over that, given the cloud-based visibility that we get, and allows us to make more refinements real-time, given the visibility that we get in our business. But a lot of the benefits that we saw in Q1 that we expect to translate into structural changes going forward were due to the strategic moves we made that’s just now enabled in a more efficient way through the cloud-based system. And, Brian, do you want to add color on that go-forward?

Brian J. D’AmbrosiaExecutive Vice President and Chief Financial Officer

Yes. I think as it relates to the tire category management pricing system, very similar, it will be a continuation of that into Q3 as we continue to roll that out very similar to the time line on the store staffing and scheduling. So the next couple of quarters will be getting those two initiatives firmly in place across our entire store base. We’ll also be continuing to leverage our the new store network infrastructure upgrade. So as we’ve now got the digital phone system on, we’ll be looking at other ways to leverage that. One of the items that we’ve talked about is cloud-based inspection and a more sophisticated way of interacting with the consumer, particularly as it relates to streamlining online appointments and further improving our omnichannel presence with the consumer now that we’ve got the in-store technology in place. And then, of course, we’re continuing to build out and really fill in our Monro University platform to continue the career pathing of our technicians, which, as we exit this with the right staffing and the workforce, it’s going to be imperative for us to make sure that we’ve got that workforce trained and on a career path where we can continue to achieve the lower levels of turnover that we were experiencing pre-COVID based on the investments we’ve already made in Monro U.

Brett T. PontonPresident and Chief Executive Officer

So maybe just to bring it all together, I think if you literally lay out the Monro Forward, our whole objective was to drive sustainable growth in this business organically by creating a scalable platform that drives consistency from store-to-store. And what I’m encouraged by our progress the team has made is year one in our transformational strategy is about building the foundation. So we’ve installed a lot of underlying technology to help enable these next-generation tools and technology to take hold. And this year has been about installing major transformational systems around labor management and tire pricing. And once those two are largely behind us, it allows us, as an organization, to march forward, I think, more aggressively around the M&A front because we feel like we’ve got a very scalable platform built on technology with the right operational playbook that guarantees consistency from store-to-store. That gives us a lot of confidence to accelerate the M&A portion of our growth strategy going forward. We’re really pleased with the progress and the acceleration we were able to do on that during the first quarter of our business.

Steph BenjaminSunTrust — Analyst

Thanks so much for all the color. I’ll leave it there.

Brian J. D’AmbrosiaExecutive Vice President and Chief Financial Officer

Thanks, Steph.

Operator

Thank you. Our next question has come from the line of Scott Stember of CL King. Please proceed with your question.

Scott StemberCL King — Analyst

Good morning, guys. Can you maybe dimensionalize the gap or difference if it’s meaningful in comp performance between the southern stores and the northern region stores?

Brett T. PontonPresident and Chief Executive Officer

Yes. Well, we talked about that, and I think we said that we were seeing a slowdown in the south, and that was about maybe an outperformance of 500 basis points plus in the north. And then we saw that narrow I’m sorry, underperformance in the north. And then we saw that narrow as the quarter as we exited the quarter in July.

Scott StemberCL King — Analyst

Okay. I got it. And just trying to touch on the point of the underperformance versus the industry. I know you guys talked about store staffing. But can you maybe talk about the employment trends within your markets, your the customer you have and whether they’re potentially feeling not so good and delaying some larger-ticket purchases such as brakes, which were down an outsized amount in the quarter?

Brett T. PontonPresident and Chief Executive Officer

Yes, I think look, I think that’s it’s certainly going to be a factor, I think, going forward, Scott. So once we get through the core crisis, if you will, I think that’s going to be the next thing, I think, we need to be very conscientious about, which is how quickly does employment levels bounce back? Which is a big, I think, variable in driving vehicle miles traveled. As it relates to comments about that in our market, so I think we probably don’t have a ton of granularity around that. One of the things we did say in our last call that applies to this quarter as well is part of our outsized performance, we believe, on the tire category, given the fact it’s a higher tire or excuse me, higher ticket normally with tires, we did see some outperformance in that category around the time frame where the stimulus checks were hitting consumers’ households. So we as we got further away from the stimulus checks, certainly, I think that’s tempered performance. But I think you fairly characterized one element that we’re going to be watching pretty closely, which is how quickly employment levels bounce back. And that’s obviously part of the reason why we haven’t provided guidance. It’s just the uncertainty still with a balance around employment levels and vehicle miles traveled post pandemic.

Scott StemberCL King — Analyst

All right. And just lastly, could you talk about brakes in the quarter? I know that you said that everything improved sequentially as the quarter progressed. But maybe just talk about why brakes were down so much. It’s usually one of the things that you can’t defer. So I’m just trying to get my hands around that.

Brett T. PontonPresident and Chief Executive Officer

Yes. I think a couple of things in the quarter. If you look at as we talked about, I think, back in our Q4, January, February, we had maybe undersized performance as an industry in tires. That certainly has bounced back into our Q1. Conversely, if you look at brake performance, the peak demand months for our business is usually exiting the winter months. So it puts you in the March, April, May time frames and be able to say that was the peak time frame, where I think we saw maximum COVID impact, number one, with consumer, but, also, we probably had the tightest labor conditions in our stores during that same period of time. So I think if you overlay that macro dynamic with also possibly seeing some share of wallet issues with the consumer, where if you have two large ticket items that need to be done on your car, tires and brakes, in many cases, you’ll have to choose one of those. So we would expect to see breaks to recover a little bit later on in our year. And also, Brian and our team is working on secondary financing options, I think, as well, to just open up more credit availability to consumers that may be getting a little tight with household discretionary funds.

Scott StemberCL King — Analyst

Thanks guys.

Operator

[Operator Instructions] There are no further questions in the queue. I will now pass the call back over to management for any closing remarks.

Brett T. PontonPresident and Chief Executive Officer

Well, thank you for joining us today and for your continued interest and support of Monro. We wish you a safe and healthy rest of your week. Thank you.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Maureen E. MulhollandSenior Vice President-General Counsel and Secretary

Brett T. PontonPresident and Chief Executive Officer

Brian J. D’AmbrosiaExecutive Vice President and Chief Financial Officer

Brian NagelOppenheimer — Analyst

Jonathan LamersBMO Capital Markets — Analyst

Bret JordanJefferies — Analyst

Rick NelsonStephens — Analyst

Steph BenjaminSunTrust — Analyst

Scott StemberCL King — Analyst

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