Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gross margin increased by 220 basis points compared to the prior year, driven by lower technician labor costs and lower material costs.
- Significant acceleration in comparable store sales trends as the first quarter progressed, particularly in the tire category.
- Return to growth in tire units in June, with mid-single-digit growth in units.
- Strong financial position with $26 million generated from operations and a reduced cash conversion cycle by 15 days.
- Continued focus on labor optimization and productivity improvements, contributing to gross margin expansion.
Negative Points
- Sales decreased by 10.3% year over year to $293.2 million, primarily driven by a 9.9% decline in comparable store sales.
- Operating income for the first quarter declined to $13.2 million, down from $17.3 million in the prior year period.
- Net income decreased to $5.9 million from $8.8 million in the same period last year.
- Diluted earnings per share dropped to $0.19 from $0.28 in the prior year period.
- Preliminary comp store sales for fiscal July were down 7.6%, indicating ongoing challenges in driving store traffic.
Q & A Highlights
Q: Could you go into more detail about what helped drive the significant improvement in sales in June? Was it your initiatives or an improving sector backdrop?
A: Michael Broderick, President, Chief Executive Officer, Director: The improvement was primarily due to our initiatives. We focused on becoming highly promotable and leading with tires. We leveraged vendor partners to support us in driving value in the tire category. While the consumer environment hasn't changed, our promotional activities helped us gain more than our fair share of tire sales.
Q: Despite being more promotional in the tire category, how did you manage to drive gross margin gains?
A: Brian D'Ambrosia, Chief Financial Officer, Executive Vice President - Finance, Treasurer, Assistant Secretary: We achieved this through manufacturer-funded promotions, which allowed us to preserve and expand material margins in our tire category. Our vendor partners' support was crucial in maintaining profitability while driving unit growth.
Q: What was the impact of price versus unit or traffic on the Q1 comp?
A: Michael Broderick, President, Chief Executive Officer, Director: Price was slightly up, but traffic was significantly down. However, in June, tire units and ticket were both flat, indicating stabilization.
Q: Is the oil price promotional strategy a broader traffic driver, or is it getting more competitive?
A: Michael Broderick, President, Chief Executive Officer, Director: It's a managed discounting strategy focused on providing value to consumers. Our goal is to ensure we can meet customer needs promptly, which in turn drives sales.
Q: How did the 300 smaller underperforming stores perform relative to the company average?
A: Brian D'Ambrosia, Chief Financial Officer, Executive Vice President - Finance, Treasurer, Assistant Secretary: These stores performed in line with the company average. While there's still opportunity for improvement, we expect them to respond positively to an improving tire environment and continue to grow over the long term.
Q: Can you provide more detail on the gross margin improvement in Q1 and expectations for Q2?
A: Brian D'Ambrosia, Chief Financial Officer, Executive Vice President - Finance, Treasurer, Assistant Secretary: Gross margin exceeded our expectations, driven by strong technician productivity and labor efficiency. We expect to maintain similar gross margin results in Q2, supported by improvements in higher-margin service categories.
Q: Can you break down the gross margin improvement by category?
A: Brian D'Ambrosia, Chief Financial Officer, Executive Vice President - Finance, Treasurer, Assistant Secretary: Labor costs improved by 240 basis points, material costs by 100 basis points, and occupancy costs deleveraged by 120 basis points. The improvements were driven by better productivity and vendor-supported promotions.
Q: What are the drivers behind the weaker quarter-to-date comps for July compared to June?
A: Michael Broderick, President, Chief Executive Officer, Director: The softer comps are primarily due to tougher comparisons. We remain focused on improving quarter over quarter, with a strong emphasis on tire unit growth and enhancing service categories.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
