MONRO, INC. (MNRO)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Recent Developments

On May 12, 2023, we entered into a reclassification agreement (the “Reclassification Agreement”) with the holders (the “Class C Holders”) of our Class C Convertible Preferred Stock (the “Class C Preferred Stock”) to reclassify our equity capital structure to eliminate the Class C Preferred Stock. In accordance with the Reclassification Agreement, on June 18, 2026, one business day prior to the record date for the Company’s 2026 annual meeting, all outstanding shares of the Class C Preferred Stock automatically converted into Common Stock. A total of 19,664 shares of Class C Preferred Stock, with a par value of $1.50 per share and a conversion ratio of 61.275 shares of Common Stock per preferred share, were converted into 1,204,908 shares of Common Stock. Any fractional shares resulting from the conversion were settled in cash. See additional discussion in Note 10 of our consolidated financial statements.

On May 21, 2026, we entered into an amendment (the “Sixth Amendment”) to our Credit Facility, which, among other things, amends the terms of certain of the financial and restrictive covenants in the Credit Facility to provide us with additional flexibility to operate our business. See additional discussion related to the Sixth Amendment in Note 7 to our consolidated financial statements.

Financial Summary

First quarter 2027 included the following notable items:

Diluted loss per common share was $0.08.

Adjusted diluted loss per common share, a non-GAAP measure, was $0.09.

Sales decreased 4.6 percent, due to closed stores and lower comparable store sales.

Comparable store sales decreased 1.7 percent from the prior year period.

Operating income was $3.7 million.

Adjusted operating income, a non-GAAP measure, was $2.2 million.

Net loss was $2.1 million.

Adjusted net loss, a non-GAAP measure, was $2.3 million.

Adjusted operating income, adjusted net (loss) income and adjusted diluted (loss) earnings per share, 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 (loss) income and adjusted diluted (loss) earnings per share 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 pension settlement expense, consulting costs related to the Company’s Operational Improvement Plan, transition costs related to back-office optimization, write-off of debt issuance costs, costs related to shareholder matters, and store closing costs, net of gains (losses) on sales of closed stores, lease assignments and early lease terminations. Reconciliations of these non-GAAP financial measures to GAAP measures are provided 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

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MANAGEMENT’S DISCUSSION AND ANALYSIS

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 6 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 90 selling days in each of the three months ended June 27, 2026 and June 28, 2025.

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 closed stores and lower comparable store sales. The following table shows the primary drivers of the change in sales for the three months ended June 27, 2026, as compared to the same period ended June 28, 2025.

During the three months ended June 27, 2026, comparable store sales increased in our batteries, front end/shocks and alignment categories. The following table shows the primary drivers of the comparable store product category sales change for the three months ended June 27, 2026, as compared to the same period ended June 28, 2025.

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

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Cost of Sales and Gross Profit

Gross profit, as a percentage of sales, decreased 50 basis points (“bps”) for the three months ended June 27, 2026, as compared to the prior year comparable period. Occupancy costs, as a percentage of sales, increased as we lost leverage on these largely fixed costs. Partially offsetting this was a decrease in technician labor costs, as a percentage of sales, due primarily to improvements in labor productivity and efficiency.

OSG&A Expenses

The decrease of $16.3 million in operating, selling, general and administrative (“OSG&A”) expenses for the three months ended June 27, 2026, from the comparable prior year period is primarily due to a decrease in store closing costs, net of gains (losses) on sales of closed stores, lease assignments and early lease terminations. The following table shows the impact of these costs on the change in OSG&A expenses for the three months ended June 27, 2026, as compared to the same period ended June 28, 2025.

Other Performance Factors

Net Interest Expense

Net interest expense of $4.6 million for the three months ended June 27, 2026 decreased $0.1 million as compared to the prior year period, and remained as a percentage of sales at 1.6 percent. Weighted average debt outstanding for the three months ended June 27, 2026 decreased by approximately $14.1 million as compared to the three months ended June 28, 2025. This decrease is primarily related to lower finance lease debt related to our stores. The weighted average interest rate increased approximately 10 basis points as compared to the same period of the prior year.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Provision for Income Taxes

For the three months ended June 27, 2026, our effective income tax rate was (7.7) percent compared to 24.8 percent for the three months ended June 28, 2025. The year-over-year difference in effective tax rate is primarily related to a decrease in unrecognized tax benefits as well as the impact from other adjustments, none of which are s

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

We continue to make strategic investments to support our operating and financial model designed to drive sustainable sales and profit growth. We have done this through our investment strategy focused on improving guest experience, enhancing customer-centric engagement, optimizing product and service offerings, and accelerating productivity and team engagement.

Recent Developments

On November 9, 2025, the Board of Directors approved the adoption of a limited-duration shareholder rights plan (The “Rights Plan”), intended to protect the best interests of all Company shareholders and enable them to realize the full potential value of their investment in the Company. The Rights Plan is designed to reduce the likelihood that any entity, person or group would gain control of the Company through the open-market or other accumulation of the Company’s shares without appropriately compensating all shareholders for control. The Rights Plan is not intended to prevent or interfere with any attempt to purchase the entire Company. It is also not intended to prevent or interfere with any action with respect to the Company that the Board determines to be in the best interests of the Company and its shareholders. Instead, it will position the Board to fulfill its fiduciary duties on behalf of all shareholders by ensuring that the Board has sufficient time to make informed judgements about any attempts to control or significantly influence the Company. The Rights Plan will encourage anyone seeking to gain a significant interest in the Company to negotiate directly with the Board prior to attempting to control or significantly influence the Company. Pursuant to the Rights Plan, the Company issued one right for each common share outstanding, as of the close of business on November 24, 2025. The rights will initially trade with the Company’s common stock and will generally become exercisable only if an entity, person or group acquires beneficial ownership of 17.5% or more of the Company’s outstanding shares (the “triggering event”). Under the Rights Plan, any person that owns more than the triggering percentage as of the adoptions of the Rights Plan may continue to own its shares of common stock but may not acquire any additional shares without triggering the Rights Plan. The Rights Plan has a one-year duration, expiring on November 6, 2026. The Board of Directors may consider an earlier termination of the Rights Plan as circumstances warrant. See additional discussion related to the Rights Plan in Note 17 to our consolidated financial statements.

In connection with Mr. Fitzsimmons’ appointment as President and Chief Executive Officer as of March 28, 2025, the Company entered into a consulting agreement with AlixPartners, LLP (“AlixPartners”) as of March 28, 2025, pursuant to which AlixPartners assessed the Company’s operations to develop a plan to improve the Company’s financial performance. On December 2, 2025, the Company entered into an employment agreement with Peter Fitzsimmons whereby he will continue to serve as our President and Chief Executive Officer and appointed him as a member of the Board of Directors. Prior to December 2, 2025, Mr. Fitzsimmons served as the President and Chief Executive Officer, pursuant to an engagement letter between the Company and AP Services, LLC, an affiliate of AlixPartners. Following Mr. Fitzsimmons’ departure from AlixPartners, on December 23, 2025 the Company and AlixPartners entered into a master service agreement pursuant to which AlixPartners will be able to serve promptly in consulting roles as needed at its standard engagement rates to support the development and implementation of the Company’s long-term growth strategy to improve the Company’s financial performance. See additional discussion in Note 16 to our consolidated financial statements.

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 and $14.8 million of closing costs were recorded during the first quarter of fiscal 2026. As of March 28, 2026, the Company had a remaining liability of $3.7 million, representing such costs to be settled in future periods, with $1.8 million and $1.9 million included within Other current liabilities and Other long-term liabilities in our Consolidated Balance Sheets, respectively. We expect these costs to be settled within the next one to five years.

As of March 28, 2026, the Company sold 26 owned stores and related equipment. We received net proceeds of $19.7 million and recorded a net gain of $9.9 million. Additionally, the Company assigned 36 leases to third parties and early terminated 32 leases. We received net proceeds of $5.6 million and recorded a net gain of $12.2 million, which included the derecognition of lease liabilities.

The net gain of $7.3 million was recorded in operating, selling, general and administrative expenses in our Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the year ended March 28, 2026. Net store closing costs/net gains on closings represent expected costs to be incurred related to the vacating of stores, utilities, real estate taxes, maintenance, other on-going costs related to the properties, and the disposal of inventory and other store assets, net of gains on early lease terminations, lease assignments and sales of owned locations. See additional discussion in Note 1 to our consolidated financial statements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

On May 21, 2026, we entered into an amendment (the “Sixth Amendment”) to our Credit Facility, which, among other things, amends the terms of certain of the financial and restrictive covenants in the credit agreement to provide us with additional flexibility to operate our business. See additional discussion under Part II, Item 9B, “Other Information”, and Note 6 to our consolidated financial statements.

Economic Conditions

The United States economy has experienced significant inflation and rising energy costs during fiscal 2025 and fiscal 2026 and there are market expectations that consumer prices may remain at elevated levels for a sustained period. In addition, labor availability has continued to be constrained and market labor costs have continued to increase. These conditions may give rise to an economic slowdown, and perhaps a recession, and could further increase our costs and/or impact our revenues. It is unclear whether the current economic conditions and government responses to these conditions, including inflation, rising energy costs, tariffs, changing interest rates, and geopolitical uncertainty, will result in an economic slowdown or recession in the United States. If that occurs, demand for our products and services may further decline, possibly significantly, which may significantly and adversely impact our business, results of operations and financial position.

Financial Summary

Fiscal 2026 included the following notable items:

Diluted earnings per common share (“EPS”) was $0.03.

Adjusted diluted earnings per common share, a non-GAAP measure, was $0.42.

Sales decreased 3.2 percent, due to closed stores partially offset by higher comparable store sales.

Comparable store sales increased 1.4 percent from the prior year.

Operating income of $20.0 million was 59.4 percent higher than the prior year.

Adjusted operating income, a non-GAAP measure, was $35.8 million.

Net income was $2.2 million.

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

Adjusted operating income, adjusted net income and adjusted diluted EPS, each of which is a measure not derived in accordance with generally accepted accounting principles in the U.S. (“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, transition costs related to back-office optimization, costs related to shareholder matters, management restructuring/transition costs, store impairment charges, write-off of debt issuance costs, litigation reserve costs, gain on sale of corporate headquarters net of closing and relocation costs, and net of gains (losses) on sales of closed stores, lease assignments and early lease terminations. Reconciliations of these non-GAAP financial measures to GAAP measures are provided beginning on page 28 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

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MANAGEMENT’S DISCUSSION AND ANALYSIS

We have elected to omit discussion on the earliest of the three years covered by the consolidated financial statements presented. The discussion of our fiscal 2025 performance compared to our fiscal 2024 performance and our financial condition as of March 29, 2025 is incorporated herein by reference to Part I, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in our Form 10-K for the fiscal year ended March 29, 2025, filed on May 28, 2025.

Sales

Sales include automotive undercar repair, tire replacement and tire related service sales, net of discounts, returns, etc., and revenue from the sale of warranty agreements and commissions earned from the delivery of tires. See Note 7 to the Company’s consolidated financial statements for additional 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 361 selling days in both 2026 and 2025.

Sales growth – from both comparable store sales and new stores – represents an important driver of our long-term profitability. We expect that comparabl

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