Monro Inc (MNRO) Q1 2022 Earnings Call Transcript

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Monro Inc (MNRO -3.49%)
Q1 2022 Earnings Call
Jul 28, 2021, 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 of Fiscal 2022. [Operator Instructions]

I would now like to introduce Ms. Maureen Mulholland, Executive Vice President and Chief Legal Officer at Monro. Please go ahead.

Maureen E. Mulholland -- Executive Vice President and Chief Legal Officer and Secretary

Thank you. Hello everyone, and thank you for joining us on this morning's call. Before we get started, please note that as part of this call, we will be referencing a presentation that is available on the Investors section of our website at corporate.monro.com/investors/investor-resources. If I could draw your attention to the safe harbor statement on slide two, I'd like to remind participants 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 include 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, Mike Broderick. Mike?

Michael Broderick -- President and Chief Executive Officer

Thank you, Maureen, and good morning, everyone. Thanks for joining us. We had a great start to the new fiscal year with top-line performance above pre-pandemic levels. We delivered double-digit comparable store sales growth across all our regions and categories, driven by strong demand, progress on our in-store operational excellence initiatives and consistent execution across the entire organization. Over the last few months, I've enjoyed diving into the business with the support of our senior leadership team and getting to know our teammates better. I would like to thank them for their outstanding efforts and continued dedication to our customers.

Turning to slide three. While we are not completely out of the COVID tunnel, we are encouraged by our strong fiscal first quarter performance and our outlook for the remainder of the year. Our first quarter performance reflects higher traffic and higher average ticket sales compared to the same period last year. Importantly, we exited the first quarter with strong momentum in our first second quarter -- fiscal second quarter-to-date with comps up approximately 15% in fiscal July compared to comps down 12% in the same period last year. This represents an acceleration from June, and we are encouraged to see comparable store sales levels trending above pre-COVID performance. We're seeing continued improvements in vehicle miles driven as more consumers start to reengage in their daily activities and commute miles return. We are particularly encouraged to see oil change customers starting to migrate back to our full-service offering. Additionally, consumers are holding on to their cars longer as evidenced by lower new car sales, which means they continue to invest in their vehicles. As a best-in-class service provider, we believe we are well positioned to capitalize on these favorable trends and the strengthening demand environment.

Moving on to slide four, we have a clear path forward and our teammates will be the key enabler for us to realize the full potential of our growth strategy. Operational excellence starts with our teammates, and we're committed to investing in our people to drive an engaged, inclusive, and high-performing team. It is our goal to be the employer of choice in the automotive service industry, and our deep bench of talented technicians is paramount to our success as an organization. To ensure that we attract and retain the best talent, we offer career advancement and a robust curriculum with our online training platform, Monro University. We also provide our technicians with the automotive service excellence certification to advance their technical skill set and support their career growth while increasing productivity and ensuring top-quality service for our customers. Our continued investment in highly trained and certified technicians is a key tenet of our employer value proposition and an important differentiator in the industry. Since the beginning of fiscal '22, we have continued to hire new technicians to match the surge in customer demand and to ensure we have optimal staffing levels in our stores to meet the continued growth in our service categories going forward.

In addition, we've recently added two industry veterans to our leadership team. Matt Henson, as our new Chief Human Resource Officer and David Nichols as our Senior Vice President of Marketing and Category Management. Matt brings broad experience in leading large-scale performance driven teams and will focus on advancing our vision to be a best-in-class field-led service organization. David will focus on enhancing Monro's brand position in the communities in which we serve and support our strategic customer-focused initiatives as we aim to be our customer's number one choice for automotive services. With the continued support of our Board of Directors, I am committed to ensuring the continuity of Monro's growth and transformation strategy through our Monro Forward initiatives.

In fact, my conviction has only grown stronger over the past few months that we have the right strategy for our organization. Our top priority now is to bring these initiatives to life in every store, for every guest, and for every teammate. At the heart of this strategy is our customer-centric approach and the Monro way of serving our communities. We are focused on bringing customers the professionalism and high-quality service they expect from a national retailer with the convenience and trust of a neighborhood garage. When new customers visit our stores, our technicians are able to inspect their vehicles and provide them with a clear understanding of their vehicle needs. This complementary inspection gives us the opportunity to recommend other needed services to the customer, and perform these services during the current or future visits. Our objective is to build a lifetime relationship with our customer, from their first visit to our store through the entire life cycle of their car service journey.

Turning to slide five. In addition to supporting our Monro Forward initiatives, our strong cash flow and solid financial position affords us the opportunity to take advantage of strategic and value-accretive consolidation opportunities in our fragmented industry. We closed the acquisition of the Mountain View Tire and Service in April, further solidifying our footprint in the western region with 30 retail stores in the Los Angeles area. We have been focused on seamlessly integrating this acquisition, and I'm pleased with the contribution to date. Strategically, located acquisitions at attractive valuations remain a cornerstone of our growth strategy. We have a robust acquisition pipeline and are well positioned to take advantage of the many opportunities for consolidation in our industry. We are excited about our growth prospects in the attractive and dynamic western region, and as previously mentioned, we will also leverage greenfields to fill out our footprint and optimize store density where needed. Our scalable platform allows us to quickly build new stores to meet our target customers where they are while leveraging our playbook to ensure a consistently high-quality experience in each store. We have opened six greenfields during the past 1.5 years and are currently considering several additional opportunities in markets where we are underpenetrated.

In summary, we delivered outstanding performance this quarter and see a number of opportunities for both, top line and margin expansion going forward. From a top line perspective, we believe we can drive higher traffic to our stores as vehicles miles driven improves. In addition, as we continue to drive stronger performance in our service categories, we also expect our sales mix to favorably impact our margins. As we look forward on our customers, teammates and in-store execution will be the key drivers to realize the full potential of our Monro Forward strategy. We will invest in our people who will be critical in our success through the next phase of our transformation. We will focus on advancing our vision to be a best-in-class field led service organization to increase the overall lifetime value to our customers and stakeholders. Lastly, our steadfast commitment to drive strong cash flow will allow us to continue to invest in attractive acquisitions, and greenfield expansion opportunities to build a strong, scalable platform for sustainable growth.

With that, I'll now turn the call over to Brian, who will provide an overview of Monro's first quarter performance and strong financial position. Brian?

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Thank you, Mike, and good morning, everyone. Let me take a few minutes to talk about our first quarter performance and the meaningful progress we made in the quarter. Turning to slide six. Sales increased 38.4% year-over-year to a record $341.8 million in the first quarter, up approximately 8% compared to pre-COVID levels in fiscal 2020. Same-store sales increased 34.5%, driven by our key service categories and continued strength in tires. Sales from new stores increased by $14.1 million, including $13.6 million from recent acquisitions. Gross margin increased 140 basis points from the prior year to 36.8%. The year-over-year increase was due to higher comparable store sales, which resulted in lower fixed distribution and occupancy costs as a percentage of sales. Also contributing was a higher sales mix of service categories compared to the prior year period. Variable gross profit was positively impacted by an 8% year-over-year increase in gross profit per tire, reflecting the benefits of our tire category management and pricing tool.

Regarding labor costs, our training initiatives continue to drive increased labor productivity. However, we experienced higher technician labor costs as a percentage of sales due to more technicians working overtime in order to meet the surge in demand. We expect this to moderate as we increase staffing levels. We also expect continued gross margin improvement versus prior year as our service category sales continue to strengthen. We continue to execute disciplined cost controls with total operating expenses of $98 million or 28.7% of sales as compared to $76.1 million or 30.8% of sales in the prior year period. The year-over-year dollar increase included $3.9 million in one-time litigation settlement costs. We also had higher store management and advertising expenses in the quarter to support higher consumer demand. The remaining dollar increase was from the expenses of 44 net new stores. Our decrease in operating expenses as a percentage of sales resulted from an increase in comparable store sales. And excluding litigation settlement costs, operating expenses for the first quarter were 27.5% of sales compared to 30.8% of sales in the prior year period. We previously disclosed in our periodic reports and employee wage and hour action filed against us. A settlement agreement is currently being reviewed, and we believe that the settlement is in the best interest of our company.

Operating income for the first quarter more than doubled to $27.9 million or 8.2% of sales as compared to $11.4 million or 4.6% of sales in the prior year period. Excluding litigation settlement costs, operating income for the first quarter was $31.8 million or 9.3% of sales. Net interest expense decreased to $6.9 million as compared to $7.4 million in the same period last year. This was principally due to a decrease in weighted average debt, partially offset by higher average interest rates. Income tax expense was $5.3 million compared to $1 million in the prior year period. Net income was $15.7 million as compared to $3 million in the same period last year. Diluted earnings per share was $0.46 compared to $0.09 for the same period last year. Adjusted diluted earnings per share for the first quarter, a non-GAAP measure, was $0.55, which excluded $0.09 per share related to one-time litigation settlement costs, $0.01 per share of acquisition due diligence and integration costs and $0.01 per share benefit from an adjustment to the estimate for prior year store closing costs. This compares to adjusted diluted earnings per share of $0.15 for the first quarter of fiscal 2021, which excluded $0.06 per share of store closing costs.

As highlighted on slide seven, we continue to have significant financial flexibility to support our operations and execute our long-term growth strategy. We generated $63 million of cash from operations in the first quarter. We maintain our disciplined approach to capital allocation and invested $5 million in capital expenditures, paid $62 million for acquisitions and spent $10 million in principal payments for financing leases. Additionally, we distributed $8 million in dividends. Our balance sheet and liquidity position remains strong. At the end of the quarter, we had net bank debt of $181 million and a net bank debt-to-EBITDA ratio of 1.1 times. We had cash and cash equivalents of approximately $17 million in availability under our revolving credit facility of approximately $372 million. As we progress through fiscal 2022, we remain committed to managing our business for maximum cash flow. First, we plan to continue to make operational enhancements across our business to expand margins. These efforts, combined with top line growth, will drive EBITDA growth and increase cash flow generation. In fiscal 2022, we continue to expect approximately $15 million to $20 million in structural cost savings in addition to $5 million in benefits from store closures compared to fiscal 2020. In addition, we remain focused on working capital improvement, and we believe we have additional opportunity in this area.

Turning to our outlook on slide eight. The COVID-19 situation remains fluid, which makes it difficult to accurately forecast the impact of the ongoing pandemic on our future operations. While we're not providing formal guidance for the remainder of fiscal 2022, we remain optimistic given our first quarter momentum and strong second quarter to-date sales and gross margin trajectory. However, we do expect comparable store sales growth to moderate as compared to the 34.5% we achieved in the first quarter, as comparisons get less favorable in the second quarter through the end of the year. And for the second quarter, comparisons become less favorable during the latter part of the quarter compared to July comps.

Lastly, we have provided some financial assumptions to assist with your modeling. We expect tire and oil costs to increase year-over-year, and in light of cost increases in general inflation in the current environment, we'll continue to leverage our diversified supply chain and cost leadership position. We have a successful track record of operating in an inflationary environment, while maintaining and expanding gross margins. Lastly, regarding our capital expenditures, we expect to spend approximately $30 million to $45 million in fiscal 2022, dependent upon the amount of store refresh activity that we undertake.

And with that, I'll now turn the call back to Mike for some closing remarks.

Michael Broderick -- President and Chief Executive Officer

Thanks, Brian. We're very encouraged by our robust performance in the first quarter and optimistic about the outlook of our business. Overall, we continue to be well positioned to capitalize our strengthening demand and have the financial flexibility to execute our growth strategy to deliver long-term value for our shareholders. As highlighted in slide nine, I would like to update you on our corporate responsibility efforts, which continue to be the lens for evaluating risks and opportunities that could materially impact our business over the long term. As part of our commitment to accountability and transparency in this area, I'm excited to report that we increased the oversight of our ESG strategy at the senior leadership and Board levels, and recently launched Monro Forward responsibly, our first corporate responsibility report. We view our responsibility to our teammates, customers, the communities in which we operate, and doing our part to take care of the environment as not only the right thing to do, but as an integral component of our long-term planning and success.

While we are early in our formalized ESG journey, our report maps to the appropriate SASB standards for the multiline and specialty retailers and auto parts industry, and we are committed to increasing our disclosures over time. Working with Matt Henson, our new Chief Human Resource Officer, we are excited to further align talent development with our business goals and solidify our diversity, equity, and inclusion strategy, which we believe will be instrumental in driving an engaged workforce to better serve our customers and communities. We look forward to sharing additional information on these important initiatives in the quarters and years ahead.

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

Questions and Answers:

Operator

[Operator Instructions] Our first question is from Jonathan Lamers with BMO Capital Markets. Please proceed with your question.

Jonathan Lamers -- BMO Capital Markets -- Analyst

Good morning.

Michael Broderick -- President and Chief Executive Officer

Good morning.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Good morning, Jonathan.

Jonathan Lamers -- BMO Capital Markets -- Analyst

For July, how close were those service categories to returning to fiscal 2020 levels?

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Yes. This is Brian, Jonathan. I appreciate the question. If you look at our performance in the service categories, you can obviously see for the quarter nice sequential progress in those categories as well as outperformance related to the overall comp. So, we saw leadership in Q1 from our service categories, which as we noted, really helped us to improve our year-over-year and sequential gross margins. We saw those continued trends into July with our up 15 being led higher by the service categories, which is creating a nice trajectory in our growth -- continued increase in our gross margin performance year-over-year. So we are, I think, making good progress. Overall, our comparable store sales are trending higher than they were in FY '20, but we still have opportunities to strengthen our service categories to get to pre-COVID levels.

Jonathan Lamers -- BMO Capital Markets -- Analyst

Okay, great. And just a follow-up on that. With vehicle travel stabilizing, is there any reason that sales mix will not return to historical levels? Has recruitment been a constraint, or have there been any market share changes we should be aware of?

Michael Broderick -- President and Chief Executive Officer

Jonathan, this is Mike. Thanks for the question. I don't see any constraints. I would say that the biggest opportunity that we have is on the recruitment and development side. A lot of the focus that we have really starting before '22 was really bringing our team on back from to enable our stores, getting back to staffing levels that they can handle the surge in business. And what you're seeing right now is a very healthy shift in mix on the categories. So, we just need to make sure that we have the technicians, and we're constantly recruiting just like pre-pandemic levels, we're constantly recruiting to making sure that we're staffed for the jobs that our customers requires to perform.

Jonathan Lamers -- BMO Capital Markets -- Analyst

Thanks. And on the acquisition pipeline, is there any further color you can share with us. In the past, you've talked about the number of LOIs you've signed, for example, and are you seeing any change in multiples or willingness to sell at this stage?

Michael Broderick -- President and Chief Executive Officer

Jonathan, I'll start. I think there's a lot of activity going on right now. We don't have anything to talk about in this earnings release, but I would say there's a lot of opportunity out there. So, we are as aggressive as ever. We're financially positioned extremely well. And where we can't, just like my prepared remarks, if we can't buy, we will build. And I feel very strongly that there's a lot of green space for us, especially as we go out west, and when you look at these marketplaces such as Colorado, Arizona, Texas, and then filling out California, it's just a fantastic opportunity. So, not specifically talking about anything, but we look forward to sharing with you some more good news on future earnings calls.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

And Jonathan, the only thing I would add to that is while we didn't comment on the 10-plus NDAs, we are still at those levels like we have been historically. So to Mike's point, the level of activity is strong and historical multiples are still within the ranges of where we've been -- current multiples are still in the ranges of where we've been historically.

Jonathan Lamers -- BMO Capital Markets -- Analyst

And apart although with greenfields, there is a longer time for development of the stores. Are there some advantages to building out greenfield versus acquiring brownfield in some of these regions?

Michael Broderick -- President and Chief Executive Officer

Jonathan, this is Mike. I'll handle that. Good question. I've actually spent time this weekend in our greenfields down south. The biggest upside is, literally, you are creating a best-in-class experience. You have your model. It's just really clean. It's a beautiful looking store, and not only that, it's been built to be very efficient. And we're not dealing with 30 old problems, we're dealing with really -- when we introduce our new team, they're actually seeing a shiny penny. And I do believe on the greenfield, what I'm receiving from in my travels over this weekend is that customers like to come to these new stores too, in many cases. But with that being said, I think that's where our focus right now, especially on some of the acquisitions that we have done in the past, our focus out West is really to get these acquisitions up to speed, getting our rebrand reimage caught up on the acquisitions in California so that we have a best-in-class environment for not only our customers but also for our teammates.

Jonathan Lamers -- BMO Capital Markets -- Analyst

I'll pass the line. Thanks for your comments.

Michael Broderick -- President and Chief Executive Officer

Thank you.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question is with Brian Nagel with Oppenheimer and Company. Please proceed with your question.

Brian Nagel -- Oppenheimer and Company -- Analyst

Hi, good morning.

Michael Broderick -- President and Chief Executive Officer

Good morning, Brian.

Brian Nagel -- Oppenheimer and Company -- Analyst

Congratulations on a nice quarter, nice start to the year.

Michael Broderick -- President and Chief Executive Officer

Thank you.

Brian Nagel -- Oppenheimer and Company -- Analyst

So, the question I want to ask is -- and I understand it's going to be difficult to answer but if we look at this -- the improvement in sales here in this quarter and you parse it out. I mean, how do you think this -- as we try to gauge the, so to say, sustainability of it? And I think you recognize that you gave some nice parameters how we should think about that through the balance of the year, but if you look at the quarter, I guess the question is, I mean, how much do you think that is pent-up demand on the heels of the pandemic, and then second and probably more importantly, are you seeing evidence that the Monro Forward initiatives are helping the company to perform better as this demand is returning?

Michael Broderick -- President and Chief Executive Officer

Brian, let me take a shot. This is Mike. Thanks for the question. I would say that with regards to Monro Forward, remember, just to remind everybody, we touched people, product, promotion, technology and then on top of it, we rebrand and reimage. So we touched a lot. So, most of my focus right now is really how do we bring this to life, not only for our customers, for our teammates. So it's all about in-store execution. What I would like to point you to is when we talked about some of what I'm proud of, of the team and what they delivered is our tire business was up 25%. Our alignments are truly attachment, and that's all about the culture and making sure we're taking care of the customers properly, that's up significantly over our entire performance. So, I'm actually seeing our teammates react, and they're doing the right thing for the customer. That's some of what I believe is very sustainable in our business model going forward.

Brian Nagel -- Oppenheimer and Company -- Analyst

Got it. Then the second question I wanted to ask, you mentioned -- or it was mentioned in the prepared comments, it's about cost inflation. To what extent have you been able to pass these costs along? And any thoughts on that going forward?

Michael Broderick -- President and Chief Executive Officer

Okay. This is Mike again, but I welcome Brian's comments also. But let me just give context. I've been calling on Monro for 20 years. Monro has done an excellent job managing expenses over the tenure that I've been involved with Monro. As a supplier, I can definitely relate to that. So we've done an excellent job with that but let me give you a broader context. When you look at inflation, there's a lot of conversation about inflation, on the service categories, most of the cost is around people, and when you look at the repair order, the cost of labor is the biggest component. And Brian talked about that in the prepared remarks, managing overtime, making sure we're scheduled properly, making sure people are not spending the overtime because we have enough people to be able to manage the demand. Now, that's half our business. The other half of the business is very much tires. Now that's a different story. Most of the cost is tires. So our tire category management is very relevant, and I see that really driving significant value in our company. I believe it's very sustainable, and it's really just managing good, better, best, traditional retail methodology of managing costs.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Yes. And the only thing I would add to that, Brian, is that, that's exactly why we highlighted the 8% year-over-year improvement in gross profit per tire. It really shows that, that category management tool and our attention to managing the tire category is allowing us to navigate any inflation that we may be seeing.

Brian Nagel -- Oppenheimer and Company -- Analyst

I appreciate all the color. Thank you.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Thank you.

Michael Broderick -- President and Chief Executive Officer

Thank you.

Operator

Our next question is from Bret Jordan from Jefferies. Please proceed with your question.

Bret Jordan -- Jefferies -- Analyst

Hi, good morning, guys.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Hi, Bret.

Michael Broderick -- President and Chief Executive Officer

Good morning, Bret.

Bret Jordan -- Jefferies -- Analyst

On the labor inflation on ex overtime, could you talk about sort of maybe what a regular hour inflation rate might be on the labor side? Yes. This is Brian, Bret. We haven't seen significant labor pressure related to the rate. As you know, our compensation plans for our technicians are incentive-based and productivity based. And so most of our technicians are earning wages in excess of our -- any stated clock rate. So that allows us to be very competitive with those programs and really reward productivity and reward volume and sales and throughput of the stores. So, I think that's allowed -- our model has allowed us to mitigate any of that labor inflation that might be out there in other parts of retail. So really, the drive for the quarter was really driven by that overtime differential. Okay. And I guess when you think about investment in the infrastructure, distribution in the southeast or the West, are you thinking you've got enough scale in those markets to build out distribution infrastructure?

Michael Broderick -- President and Chief Executive Officer

Bret, let me take that. This is Mike. Thanks for the question. We are looking at building or partnering. And that's probably the best way to say it. There's a lot of partners that are looking to do business with Monro to enable our stores to be able to properly take care of their customers. So in the three to four months that I've been here, I'm really trying to develop partnerships and who's looking to support Monro. The good news is there's a lot of people that want to do a lot of business with Monro. So, if we can't find the appropriate partnerships we'll build, similar to our greenfield strategy, but I feel confident that we can partner with long-term -- in a long-term relationship that will enable us to continue to grow our service business.

Bret Jordan -- Jefferies -- Analyst

Okay, great. And then, Brian, just the housekeeping. Could you give us the monthly for the quarter comp?

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Yes, sure. We were up 76% in April, 28% in May, 14% in June and then again, 15% in July. And that trend is obviously reflective of prior year comparable trends as well.

Bret Jordan -- Jefferies -- Analyst

Okay, great. Thank you.

Michael Broderick -- President and Chief Executive Officer

Thanks, Bret.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Thanks, Bret.

Operator

Our next question is from Stephanie Moore with Truist. Please proceed with your question.

Stephanie Moore -- Truist -- Analyst

Hi, good morning. Thank you for the question.

Michael Broderick -- President and Chief Executive Officer

Good morning.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Good morning.

Stephanie Moore -- Truist -- Analyst

I wanted to touch on the SG and A side of this for a second. I know you talked about having to step up some overall labor expenses just to meet staffing means, but also have a pretty nice structural cost savings baked into expectations for this year. So, as you kind of look at the whole picture here, do you think that there's an opportunity maybe to exceed the structural cost savings target that you align, maybe as you get revenue up to, call it pre-COVID levels, kind of look at the business model over the course of the last year and make some changes? Any color there would be helpful. Thanks.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Yes. I appreciate the question, Stephanie. I think if you look at our -- excluding the legal settlement, if you look at that 27.5% G and A as a percent of sales, I think that's right on our internal expectations and right where we expect to continue to trend as the quarters move forward. So, I think we're happy with the leverage that we're seeing in our business and the flow-through that those higher sales are driving. As we certainly would have expected and did expect, we added back advertising expenses versus the prior year levels, which were pretty much completely just to emergency levels last year from an advertising standpoint as the lockdowns in the consumer environment did not lend itself to marketing, but we're back to levels that we feel are appropriate to support the demand. Much more efficient than entering COVID with our digital strategy and our CRM strategy. So we're getting better return on advertising dollar spent, but still bringing advertising levels to be supportive of our current demand environment. So, I think we've got the G and A structure right where we wanted at the levels I described and would look for that to continue as we move through Q2 and Q3.

Stephanie Moore -- Truist -- Analyst

Great. Thank you so much for the color.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Thank you.

Michael Broderick -- President and Chief Executive Officer

Thank you.

Operator

Our next question is from David Bellinger with Wolfe Research. Please proceed with your question.

David Bellinger -- Wolfe Research -- Analyst

Hi, good morning. Thanks for taking the question.

Michael Broderick -- President and Chief Executive Officer

Good morning.

David Bellinger -- Wolfe Research -- Analyst

Another one on labor constraints and the inflation we're seeing across the marketplace. Is any comment on if that got better or worse through the quarter? Any impact from the child tax care -- credit that we saw more recently? And how long do you think these labor issues persist before we get back to call it a normalized labor environment?

Michael Broderick -- President and Chief Executive Officer

David, this is Mike. Thanks for the question. I'll start, and I'm sure Brian will pile on with the labor conversation. Let me just make sure everybody goes back even before pre-COVID. Labor, the technician development, a lot of what we've talked about in the past with training, how we develop our technicians, that's been paramount. None of that's changing. It's actually just been elevated as we continue to invest in our training initiatives, building out a best-in-class training organization so that we can take people who are entering into our service community and really developing their skills to be able to take care of the cost. So that's what we've done. Before pre-COVID, it's just been enhanced really in fiscal '22.

Now from a recruiting perspective, I want to be clear. We have over 5,000 technicians, and I appreciate every one of them. We do have hot spots. With those hotspots, we are incredibly focused on making sure that we're staffed and that we're building out the team with qualified technicians that can do all jobs, both around the wheel and under hood because that's where the business is going, that is what customers expect from a full service provider. That is always going to be a challenge, but it starts with bringing people on early and then investing in them with training so that we can really drive the full-service offering in the communities that we serve. Now is that a challenge? Yes, but it's something that's been challenged for the industry for many years. I do believe that we will be the destination for our -- because we're focused on our technicians first, we will be the destination for the best technicians in the marketplace. That's the goal that we have for our organization.

David Bellinger -- Wolfe Research -- Analyst

That's very helpful. Appreciate all that. And just my follow-up. You mentioned potentially building more locations as opposed to buying. Are you factoring higher cost now with steel and other commodities moving up? Any quantification of that, if you could?

Michael Broderick -- President and Chief Executive Officer

Sure. It goes back to -- thank you for the question. It goes back to my other comment. When you look at raw materials, that's more on the service side of the business. So when you look at brakes, rotors, that's a smaller component of actually our true cost. Most of it is all about labor and managing labor. Brian talked about the overtime, and we have to mitigate overtime through proper staffing levels. So, we give our teammates days off and they stay very productive when they do come to work for us. So, that is the focus that we have right now. With regards to the commodities and what those -- we are able to obviously continue to manage those expenses, and then we've always been able to prove to pass along those expenses to the consumer. At the same time, staying extremely competitive to our competition in the marketplace.

David Bellinger -- Wolfe Research -- Analyst

Great. Thanks, Mike. I appreciate it.

Michael Broderick -- President and Chief Executive Officer

Thank you, David.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question is from Rick Nelson from Stephens. Please proceed with your question.

Rick Nelson -- Stephens -- Analyst

Thanks and good morning. I'd like to ask about tire units in the quarter, how those changed and what you think industry growth was in that period?

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

I'll take that. Rick, this is Brian. Thanks for the question. We had -- we were up 25%, as we said in our tire category, and that was really kind of equal parts of units and price mix. And so we feel good about the balance there and it certainly helped us to deliver that 8% gross profit per tire that I discussed. And I think that as we look at our performance versus the tire industry throughout the pandemic and certainly, as we've entered into fiscal 2022, we feel like we've said, that our unit performance has been at or slightly above the U.S. tire industry. So continued good performance there, driving units, driving average selling price and driving margin, a lot of the benefits from our category management.

Rick Nelson -- Stephens -- Analyst

Okay, thanks for that. Any thoughts on why tire sales are lagging? Are you, in fact, trading the sales for merger in the tire category?

Michael Broderick -- President and Chief Executive Officer

Rick, I'll take that. This is Mike. I would say that I think it's not the tire sales are lagging. It's just our focus on the service categories. That's how I look at it. We're staying extremely competitive. We are focused on profitable sales but at the -- I think the theme that we should walk away from this conversation is the fact that we are now focused on the service business. We love selling tires, but we love selling service. And the fact that our service business now is getting the attention and the focus for it to continue to grow, and that should enable consistent comp sales growth quarter-over-quarter and also significant margin improvement.

Rick Nelson -- Stephens -- Analyst

[Indecipherable] That kind of makes sense. I'm so curious on the Mountain View stores, how those stores are performing relative to your expectations? Any changes you're putting into those stores? Are you rebranding those stores?

Michael Broderick -- President and Chief Executive Officer

Thanks, Rick. This is Mike. I'll take that. I was out there. I love those stores. They've been very successful for us. I've been extremely pleased with the first three months. Remember, just everybody that was an April 26 close. So we did talk about that in the last call, but they are contributing immediately. Just quality people. They are heavy service business, and they just have a great reputation in the marketplace. Now we -- with Mountain View and Allen Tire, now we're in the process of reimaging those stores, making sure that they are up to snuff on -- with regards to everything we've done with Monro Forward. And that's for the back half of the year, we're really going to get those stores cleaned up.

Rick Nelson -- Stephens -- Analyst

That's good. Thanks and good luck.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Thanks, Rick.

Michael Broderick -- President and Chief Executive Officer

Thanks, Rick.

Operator

Our next question is from Scott Stember with CL King and Associates. Please proceed with your question.

Scott Stember -- CL King and Associates -- Analyst

Good morning.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Good morning, Scott.

Scott Stember -- CL King and Associates -- Analyst

Just want to dig a little bit more into the sales versus pre-pandemic levels or, I guess, the first quarter of Q1. Brian, you did say that, I guess, across the board that you're generally and again, this is on a same-store sales basis, you are up versus two years ago at this time. Could you quantify how much? And maybe also, are all categories up? Is there any other low-hanging fruit that we could expect as the business comes back?

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Well, I think what I said was in the prepared remarks that we're up 8% in total sales. So that would take into account any stores that we've added since the pandemic. From a comparable store sales standpoint, in the first quarter, we were back at slightly above. So, I'm not going to quantify it, but slightly above pre-pandemic levels. We've seen that accelerate in July, where we're moving beyond pre-pandemic levels, and we're seeing that acceleration as we described in the prepared remarks, and we're also seeing that acceleration in margin as we kind of have a target of getting back to pre-pandemic levels as well.

Scott Stember -- CL King and Associates -- Analyst

Got it. And just by category, is there any area that's been lagging that we could expect to really kick in or are we seeing that already in July?

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Well, I think what you're seeing is just to kind of remember during COVID, we talked about in FY '21, that our service categories lagged and our tire category held up relatively and was in line with the industry. Still down, but not down as much as our service categories. And Mike's comments to the last question around our focus on service and making sure that we are staffed for service to say, yes to service is paramount in us continuing to recover and see the strengthening in our service categories, and we made tremendous amount of progress in Q1 with our service categories up, some of them double where our tires were, and we expect that to continue. It certainly continued into July, and we expect that to continue. It will be a big component of our margin improvement going forward.

Scott Stember -- CL King and Associates -- Analyst

Got it. Thanks for taking my questions.

Michael Broderick -- President and Chief Executive Officer

Thank you.

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Thanks, Scott.

Operator

We have reached the end of the question-and-answer session. I would like to turn the call back to Mr. Broderick for closing remarks.

Michael Broderick -- President and Chief Executive Officer

Well, thank you for joining us today. This is an exciting time to be part of Monro. We have a strong foundation to build upon to create long-term value for our stakeholders. I look forward to keeping you updated on our progress. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Maureen E. Mulholland -- Executive Vice President and Chief Legal Officer and Secretary

Michael Broderick -- President and Chief Executive Officer

Brian J. D'Ambrosia -- Executive Vice President and Chief Financial Officer

Jonathan Lamers -- BMO Capital Markets -- Analyst

Brian Nagel -- Oppenheimer and Company -- Analyst

Bret Jordan -- Jefferies -- Analyst

Stephanie Moore -- Truist -- Analyst

David Bellinger -- Wolfe Research -- Analyst

Rick Nelson -- Stephens -- Analyst

Scott Stember -- CL King and Associates -- Analyst

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