Monro, Inc.: Form 10-Q for the period ended Sep 27, 2025

Recent Developments

On May 23, 2025, following an evaluation of market segmentation and demographic data specific to geographic areas where our stores are located, our Board of Directors approved a plan to close 145 underperforming stores that we identified to have failed to maintain an acceptable level of profitability (the “Store Closure Plan”). These stores were closed during the first quarter of fiscal 2026 and $14.8 million of net store closing costs were recorded during the quarter ended June 28, 2025. During the three months ended September 27, 2025, the Company sold three owned stores, early terminated three leases, and assigned 18 leases to a third party. We received net proceeds of approximately $5.5 million and recorded a net gain of approximately $7.6 million in operating, selling, general and administrative expenses in our Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the quarter ended September 27, 2025. As a result of the store closures, we recorded net store closing costs of $7.2 million during the six months ended September 27, 2025. See additional discussion related to the Store Closure Plan in Note 1 to our consolidated financial statements.

On August 18, 2025, the Company entered into Amendment 1 to Addendum 1 of its consulting agreement with AlixPartners, LLP (“AlixPartners”), effective as of July 31, 2025, pursuant to which AlixPartners will continue to provide services to implement the next phase of the plan developed from its detailed assessment of the Company (the “Operational Improvement Plan”) through November 1, 2025. Such services will include store operations and selling effectiveness, marketing and pricing, merchandising and inventory management, customer segmentation and insights. See additional discussion in Note 13 to our consolidated financial statements.

Financial Summary

Second quarter 2026 included the following notable items:

Diluted earnings per common share (“EPS”) was $0.18.

Adjusted diluted EPS, a non-GAAP measure, was $0.21.

Sales decreased 4.1 percent, due to closed stores partially offset by higher overall comparable store sales.

Comparable store sales increased 1.1 percent from the prior year period.

Operating income was $12.8 million.

Adjusted operating income, a non-GAAP measure, was $14.0 million.

Net income was $5.7 million.

Adjusted net income, a non-GAAP measure, was $6.6 million.

Note: Amounts may not foot due to rounding.

Adjusted operating income, adjusted net income and adjusted diluted EPS, each of which is a measure not derived in accordance with GAAP, exclude the impact of certain items. Management believes that adjusted operating income, adjusted net income and adjusted diluted EPS are useful in providing period-to-period comparisons of the results of our operations by excluding certain items that are not part of our core operations, such as consulting costs related to the Company’s Operational Improvement Plan, store closing costs net of gains on sales of closed stores, lease assignments and early lease terminations, transition costs related to back-office optimization, store impairment charges, write-off of debt issuance costs, and gain on the sale of corporate headquarters net of closing and relocation costs. Reconciliations of these non-GAAP financial measures to GAAP measures are provided beginning on page 19 under “Non-GAAP Financial Measures.”

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

Analysis of Results of Operations

Sales

Sales include automotive undercar repair, tire replacement and tire related service sales, net of discounts, returns, and revenue from the sale of warranty agreements and commissions earned from the delivery of tires. See Note 7 to our consolidated financial statements for further information. We use comparable store sales to evaluate the performance of our existing stores by measuring the change in sales for a period over the comparable, prior-year period. There were 91 selling days in each of the three months ended September 27, 2025 and September 28, 2024, and 181 selling days in each of the six months ended September 27, 2025 and September 28, 2024.

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

The sales decrease was due to a decrease in sales from closed stores partially offset by an increase in comparable store sales. The following table shows the primary drivers of the change in sales for the three months and six months ended September 27, 2025, as compared to the same periods ended September 28, 2024.

During the three months and six months ended September 27, 2025, comparable store sales increased in our front end/shocks category, as well as our brakes category, each of which experienced declines during the three months and six months ended September 28, 2024. The following table shows the primary drivers of the comparable store product category sales change for the three months and six months ended September 27, 2025, as compared to the same periods ended September 28, 2024.

Monro, Inc. Q2 2026 Form 10-Q 17

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

(a) We reopened a store that was temporarily closed in a prior year during the three months ended September 27, 2025.

(b) All 145 stores were closed in the first quarter of fiscal 2026 as a result of the Store Closure Plan.

Cost of Sales and Gross Profit

Gross profit, as a percentage of sales, increased 40 basis points (“bps”) for the three months ended September 27, 2025, as compared to the prior year comparable period. Occupancy costs decreased, as a percentage of sales, as we gained leverage on these largely fixed costs with higher comparable store sales and benefit from store closures. Material costs decreased, as a percentage of sales, due primarily to better material margin on our service categories. Partially offsetting this was an increase in technician labor costs, as a percentage of sales, due primarily to wage inflation. Gross profit, as a percentage of sales, decreased 70 basis points for the six months ended September 27, 2025, as compared to the prior year comparable period. The decrease in gross profit, as a percentage of sales, was primarily due to increased technician labor, due primarily to wage inflation, and increased material costs, due primarily to mix within tires, partially offset by a decrease in occupancy costs.

OSG&A Expenses

The decrease of $2.8 million in operating, selling, general and administrative (“OSG&A”) expenses for the three months ended September 27, 2025, from the comparable prior year period is primarily due to a decrease in store closing costs net of gains on the sales of closed stores, lease assignments and early lease terminations and a decrease in costs from closed stores, partially offset by consulting costs related to our Operational Improvement Plan. The following table shows the impact of these costs on the change in OSG&A expenses for the three months and six months ended September 27, 2025, as compared to the same periods ended September 28, 2024.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Other Performance Factors

Net Interest Expense

Net interest expense of $4.4 million for the three months ended September 27, 2025 decreased $0.8 million as compared to the prior year period, and decreased as a percentage of sales from 1.7 percent to 1.5 percent. Weighted average debt outstanding for the three months ended September 27, 2025 decreased by approximately $48.9 million as compared to the three months ended September 28, 2024. This decrease is primarily related to lower debt outstanding under the Credit Facility as well as lower finance lease debt related to our stores. The weighted average interest rate decreased approximately 20 basis points as compared to the same period of the prior year.

Net interest expense of $9.1 million for the six months ended September 27, 2025 decreased $1.1 million compared to the prior year period, and decreased as a percentage of sales from 1.7 percent to 1.5 percent. Weighted average debt outstanding for the six months ended September 27, 2025 decreased by approximately $55.0 million as compared to the prior year period. The weighted average interest rate for the six months ended September 27, 2025 remained relatively flat as compared to the prior year period.

Provision for Income Taxes

Our effective income tax rate for the three months and six months ended September 27, 2025 was 32.9 percent and (5.4) percent, respectively, compared with 30.9 percent and 29.7 percent in the comparable prior-year period. The year-over-year difference in effective tax rate is primarily related to the discrete tax expenses impact related to share-based awards and other adjustments, none of which are individually significant.

On July 4, 2025, the “H.R.1: One Big Beautiful Bill Act” (OBBBA) became law. The OBBBA contains a broad range of tax reform provisions with various effective dates affecting business taxpayers. The legislation did not have a material impact on our effective income tax rate for the three and six months ended September 27, 2025, and we do not expect it to have a material impact on our consolidated financial statements for the year ending March 28, 2026.

Non-GAAP Financial Measures

In addition to reporting operating income, net income (loss) and diluted earnings (loss) per common share, which are GAAP measures, this Form 10-Q includes adjusted operating income, adjusted net income and adjusted diluted EPS, which are non-GAAP financial measures. We have included reconciliations to adjusted operating income, adjusted net income and adjusted diluted EPS from our most directly comparable GAAP measures, operating income, net income (loss), and diluted earnings (loss) per common share, below. Management views these non-GAAP financial measures as indicators to better assess comparability between periods because management believes these non-GAAP financial measures reflect our core business operations while excluding certain items that are not part of our core operations, such as consulting costs related to the Company’s Operational Improvement Plan, store closing costs net of gains on sales of closed stores, lease assignments and early lease terminations, transition costs related to back-office optimization, store impairment charges, write-off of debt issuance costs, and gain on sale of corporate headquarters net of closing and relocation costs.

These non-GAAP financial measures are not intended to represent, and should not be considered more meaningful than, or as an alternative to, their most directly comparable GAAP measures. These non-GAAP financial measures may be different from similarly titled non-GAAP financial measures used by other companies.

Adjusted operating income is summarized as follows:

(a) Amounts include the closing costs and asset write-offs related to the closure of 145 underperforming stores, in accordance with the Store Closure Plan, net of gains on the sale of closed stores, lease assignments and early lease terminations.

(b) Amounts include the gain on sale of the corporate headquarters building net of associated closing and relocation costs.

Adjusted net income is summarized as follows:

(a) Amounts include the closing costs and asset write-offs related to the closure of 145 underperforming stores, in accordance with the Store Closure Plan, net of gains on the sale of closed stores, lease assignments and early lease terminations.

(b) Amounts include the gain on sale of the corporate headquarters building net of associated closing and relocation costs.

Adjusted diluted EPS is summarized as follows:

(a) Amounts include the closing costs and asset write-offs related to the closure of 145 underperforming stores, in accordance with the Store Closure Plan, net of gains on the sale of closed stores, lease assignments and early lease terminations.

(b) Amounts include the gain on sale of the corporate headquarters building net of associated closing and relocation costs.

Note: The calculation of the impact of non-GAAP adjustments on diluted EPS is performed on each line independently. The table may not add down +/- $0.01 due to rounding.

The other adjustments to diluted EPS reflect estimated annual effective income tax rates of 26.0 percent and 27.3 percent for the three months ended September 27, 2025 and September 28, 2024, respectively and 26.0 percent and 27.1 percent for the six months ended September 27, 2025 and September 28, 2024, respectively. This represents the tax effect of non-GAAP adjustments calculated at an estimated blended statutory tax rate. See adjustments from the Reconciliation of Adjusted Net Income table above for pre-tax amounts.

Analysis of Financial Condition

Liquidity and Capital Resources

Capital Allocation

We expect to continue to generate positive operating cash flow as we have done in each of the last three fiscal years. We believe the cash we generate from our operations will allow us to continue to support business operations, pay down debt, and return cash to our shareholders through our dividend program.

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

Future Cash Requirements

We currently expect our capital expenditures to support our projects, including upgrading our facilities and systems, to be $25 million to $35 million in the aggregate in fiscal 2026. Additionally, we have contractual finance lease and operating lease commitments with landlords through October 2040 for $442.3 million in lease payments, of which $95.4 million is due within one year. For details regarding these lease commitments, see Note 9 to our consolidated financial statements.

As of September 27, 2025 we had $60.0 million outstanding under the Credit Facility, none of which is due in the succeeding 12 months. For details regarding our indebtedness that is due, see Note 8 to our consolidated financial statements.

Dividends

We declared and paid dividends of $0.28 per share totaling $8.7 million for each of the three months ended September 27, 2025 and September 28, 2024 and $0.56 per share totaling $17.5 million and $17.4 million for each of the six months ended September 27, 2025 and September 28, 2024, respectively.

Working Capital Management

As of September 27, 2025, we had a working capital deficit of $268.4 million, an increase of $21.5 million from a deficit of $246.9 million as of March 29, 2025. The overall working capital deficit is a result of extended payment terms negotiated with certain suppliers. As part of our working capital management, we facilitate a voluntary supply chain finance program to provide our suppliers with the opportunity to sell receivables due from Monro to a participating financial institution subject to the independent discretion of both the supplier and participating financial institution. For details regarding our supply chain finance program, see Note 10 to our consolidated financial statements.

Sources and Conditions of Liquidity

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

As of September 27, 2025, we had $10.5 million of cash and equivalents. In addition, we had $409.9 million available under the Credit Facility as of September 27, 2025, subject to compliance with our covenants.

We believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following September 27, 2025, as well as in the long-term.

Summary of Cash Flows

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

Cash provided by operating activities

For the six months ended September 27, 2025, cash provided by operating activities was $30.4 million, which consisted of a net loss of $2.4 million, offset by non-cash adjustments of $27.1 million, and a change in operating assets and liabilities of $5.7 million. The non-cash charges were largely driven by $30.9 million of depreciation and amortization, as well as $1.2 million in share-based compensation expense, partially offset by a $5.1 million net gain on disposal of assets. The change in operating assets and liabilities was primarily driven by our inventory balance providing a source of cash of $18.0 million. This was partially offset by timing of payments that caused accounts payable and accrued expenses to be a use of cash of $13.4 million.

For the six months ended September 28, 2024, cash provided by operating activities was $88.2 million, which consisted of net income of $11.5 million, increased by non-cash adjustments of $39.0 million and net change in operating assets and liabilities of $37.7 million. The non-cash charges were largely driven by $35.2 million of depreciation and amortization, as well as $3.4 million in deferred income tax expense. The change in operating assets and liabilities was primarily due to our supply chain finance program being a source of cash as we improved our cash flow by $67.5 million. This was partially offset by accrued expenses and other current assets being a use of cash of $17.0 million, as well as our inventory balance being a use of cash of $7.7 million.

Cash (used for) provided by investing activities

For the six months ended September 27, 2025, cash used for investing activities was $2.4 million. This was primarily due to cash used for capital expenditures, including property and equipment, of $13.1 million, partially offset by subsequent proceeds from the sale of our wholesale tire locations and distribution assets and proceeds from the disposal of property and equipment of $3.5 million and $7.2 million, respectively.

For the six months ended September 28, 2024, cash provided by investing activities was $4.6 million. This was primarily due to cash provided by payments from the disposal of property and equipment, including the proceeds related to the sale of our corporate headquarters, for $9.9 million, and cash provided by the earnout payment from the sale of our wholesale tire locations and distribution assets of $8.5 million. This was partially offset by cash used for capital expenditures, including property and equipment, of $13.8 million.

Cash used for financing activities

For the six months ended September 27, 2025, cash used for financing activities was $38.3 million. This was primarily due to payment of finance lease principal and dividends of $19.1 million and $17.5 million, respectively, deferred financing costs of $0.5 million, and payments on our Credit Facility, net of amounts borrowed during the period, of $1.2 million.

For the six months ended September 28, 2024, cash used for financing activities was $78.5 million, which was primarily due to payments on our Credit Facility, net of amounts borrowed during the period, of $40.0 million, as well as payment of finance lease principal and dividends of $20.0 million and $17.4 million, respectively.

Critical Accounting Estimates

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

For a description of our critical accounting estimates, refer to Part II, Item 7., “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended March 29, 2025. There have been no material changes to our critical accounting estimates since our Form 10-K for the year ended March 29, 2025.

Recent Accounting Pronouncements

See “Recent Accounting Pronouncements” in Note 1 to our consolidated financial statements for a discussion of the impact of recently issued accounting standards on our consolidated financial statements as of September 27, 2025 and the expected impact on the consolidated financial statements for future periods.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they address future events, developments, and results and do not relate strictly to historical facts. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements include, without limitation, statements preceded by, followed by, or including words such as “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “strategy,” “will,” “would” and variations thereof and similar expressions. Forward-looking statements are subject to risks, uncertainties, and other important factors that could cause actual results to differ materially from those expressed. For example, our forward-looking statements include, without limitation, statements regarding:

• the impact of competitive services and pricing;
• the effect of economic conditions and geopolitical uncertainty, seasonality, and the impact of weather conditions and natural disasters on customer demand;
• advances in automotive technologies including adoption of electronic vehicle technology;
• our dependence on third-party vendors for certain inventory;
• the risks associated with vendor relationships and international trade, particularly imported goods such as those sourced from China and other countries targeted with import tariffs;
• the impact of changes in U.S. trade relations and ongoing trade disputes between the United States, China, and other countries and other potential impediments to imports;
• our ability to generate sufficient cash flows from operations and service our debt obligations, including our expected annual interest expense, and to comply with the debt covenants of our Credit Facility;
• our cash needs, including our ability to fund our future capital expenditures and working capital requirements;
• our anticipated sales, comparable store sales, gross profit margin, costs of goods sold (including product mix), OSG&A expenses and other fixed costs, and our ability to leverage those costs;
• management’s estimates and expectations as they relate to income tax liabilities, deferred income taxes, and uncertain tax positions;
• management’s estimates associated with our critical accounting policies, including insurance liabilities, income taxes, and valuations for our goodwill and long-lived assets impairment analyses;
• the impact of industry regulation, including changes in environmental, consumer protection, and labor laws;
• potential outcomes related to pending or future litigation matters;
• business interruptions;
• risks relating to disruption or unauthorized access to our computer systems;
• our ability to protect customer and employee personal data;
• risks relating to acquisitions and the integration of acquired businesses with ours;
• our growth plans, including our plans to add, renovate, re-brand, expand, remodel, relocate, or close stores and any related costs or charges, our leasing strategy for future expansion, and our ability to renew leases at existing store locations;
• the impact of costs related to planned store closings or potential impairment of goodwill, other intangible assets, and long-lived assets;
• expected dividend payments;
• our ability to protect our brands and our reputation;
• our ability to attract, motivate, and retain skilled field personnel and our key executives; and
• the potential impacts of climate change on our business.

Any of these factors, as well as such other factors as discussed in Part I, Item 1A., “Risk Factors” of our Form 10-K for the fiscal year ended March 29, 2025 as well as in our periodic filings with the SEC, could cause our actual results to differ materially from our anticipated results. The information provided in this report is based upon the facts and circumstances known as of the date of this report, and any forward-looking statements made by us in this report speak only as of the date on which they are made. Except as required by law, we undertake no obligation to update these forward-looking statements after the date of this Form 10-Q to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.

DISCLOSURES ABOUT MARKET RISK & CONTROLS AND PROCEDURES

We are exposed to market risk from potential changes in interest rates. As of September 27, 2025, excluding finance leases and financing obligations, we had no debt financing at fixed interest rates, for which the fair value would be affected by changes in market interest rates. Our cash flow exposure on floating rate debt would result in annual interest expense fluctuations of approximately $0.6 million based upon our debt position at September 27, 2025 and at March 29, 2025, given a change in SOFR of 100 basis points.

Debt financing had a carrying amount that approximates a fair value of $60.0 million as of September 27, 2025, as compared to a carrying amount and a fair value of $61.3 million as of March 29, 2025.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports that we file or submit to the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In conjunction with the close of each fiscal quarter and under the supervision of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), we conduct an update, a review and an evaluation of the effectiveness of our disclosure controls and procedures. It is the conclusion of our Chief Executive Officer and Chief Financial Officer, based upon an evaluation completed as of the end of the most recent fiscal quarter reported on herein, that our disclosure controls and procedures were effective.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 27, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

SUPPLEMENTAL INFORMATION