Monro (MNRO)

Auto services provider Monro (NASDAQ:MNRO) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, but sales fell by 4.9% year on year to $295 million. Its non-GAAP loss of $0.09 per share was significantly below analysts’ consensus estimates.

Company Overview

Started as a single location in Rochester, New York, Monro (NASDAQ:MNRO) provides common auto services such as brake repairs, tire replacements, and oil changes.

Cars are complex machines that need maintenance and occasional repairs, and auto parts retailers cater to the professional mechanic as well as the do-it-yourself (DIY) fixer. Work on cars may entail replacing fluids, parts, or accessories, and these stores have the parts and accessories or these jobs. While e-commerce competition presents a risk, these stores have a leg up due to the combination of broad and deep selection as well as expertise provided by sales associates. Another change on the horizon could be the increasing penetration of electric vehicles.

Auto parts and services providers include Advance Auto Parts (NYSE:AAP), AutoZone (NYSE:AZO), O’Reilly Automotive (NASDAQ:ORLY), and private company Pep Boys.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $1.20 billion in revenue over the past 12 months, Monro is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.

As you can see below, Monro struggled to increase demand as its $1.20 billion of sales for the trailing 12 months was close to its revenue six years ago (we compare to 2019 to normalize for COVID-19 impacts). This was mainly because it didn’t open many new stores and observed lower sales at existing, established locations.

This quarter, Monro’s revenue fell by 4.9% year on year to $295 million but beat Wall Street’s estimates by 1.9%.

Looking ahead, sell-side analysts expect revenue to grow 1.8% over the next 12 months. Although this projection suggests its newer products will catalyze better top-line performance, it is still below average for the sector.

Number of Stores

A retailer’s store count influences how much it can sell and how quickly revenue can grow.

Monro has kept its store count flat over the last two years while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

Note that Monro reports its store count intermittently, so some data points are missing in the chart below.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Monro’s demand has been shrinking over the last two years as its same-store sales have averaged 3.3% annual declines. This performance isn’t ideal, and we’d be concerned if Monro starts opening new stores to artificially boost revenue growth.

In the latest quarter, Monro’s same-store sales rose 2.8% year on year. This growth was a well-appreciated turnaround from its historical levels, showing the business is regaining momentum.

Monro’s unit economics are higher than the typical retailer, giving it the flexibility to invest in areas such as marketing and talent to reach more consumers. As you can see below, it averaged a decent 35.2% gross margin over the last two years. That means for every $100 in revenue, $64.82 went towards paying for inventory, transportation, and distribution.

In Q1, Monro produced a 33% gross profit margin, down 2.5 percentage points year on year and missing analysts’ estimates by 4.1%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Monro was profitable over the last two years but held back by its large cost base. Its average operating margin of 3.4% was weak for a consumer retail business.

Analyzing the trend in its profitability, Monro’s operating margin decreased by 4.5 percentage points over the last year. Monro’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Monro generated an operating profit margin of negative 8.1%, down 11.4 percentage points year on year. Since Monro’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Monro’s full-year EPS dropped 198%, or 24.4% annually, over the last five years. In a mature sector such as consumer retail, we tend to steer our readers away from companies with falling EPS because it could imply changing secular trends and preferences. If the tide turns unexpectedly, Monro’s low margin of safety could leave its stock price susceptible to large downswings.

In Q1, Monro reported EPS at negative $0.09, down from $0.21 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Monro’s full-year EPS of $0.49 to grow 68%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Monro has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 8.4% over the last two years, quite impressive for a consumer retail business. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Monro historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.6%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Monro reported $20.76 million of cash and $529.4 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $109.5 million of EBITDA over the last 12 months, we view Monro’s 4.6× net-debt-to-EBITDA ratio as safe. We also see its $18.93 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Monro beat analysts’ revenue expectations this quarter. Additionally, the market likes two additional aspects of the print: comments that sales in the current quarter are up a healthy 7% thus far and initiatives to close 145 underperforming stores. The stock traded up 8.9% to $13.90 immediately after reporting.

Updated: June 16, 2025 at 10:33 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Monro doesn’t pass our quality test. To kick things off, its revenue has declined over the last six years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its shrinking same-store sales tell us it will need to change its strategy to succeed. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Monro’s P/E ratio based on the next 12 months is 17.9x. At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $18 on the company (compared to the current share price of $15).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.