MNRO 10-K & 10-Q changes, risk factors and insider trading

In addition to the risks discussed elsewhere in this annual report, the following are the important factors that could cause Monro’s actual results to differ materially from those projected in any forward-looking statements:statements. These disclosures reflect Monro’s beliefs and opinions as to factors that could materially and adversely affect Monro and its securities in the future. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future.

The automotive repair industry and our financial performance are sensitive to changes in overall economic conditions that impact consumer spending, including inflation, the imposition of import tariffs, changes in interest rates and economic volatility. Future economic conditions affecting consumer income such as employment levels, business conditions, interest rates, inflation and tax rates could reduce consumer spending or cause consumers to shift their spending to other products. Sustained higher inflation following the COVID-19 pandemicInflation and importrising tariffsenergy costs may continue to cause consumers to be more sensitive to price changes and cause consumers to “trade down” in the price of products or services purchased or to delay or forgo vehicle maintenance entirely. Alternatively, during periods of good economic conditions, consumers may decide to purchase new vehicles rather than servicing their older vehicles. In addition, if automobile manufacturers offer lower pricing on new or leased cars, more consumers may purchase or lease new vehicles rather than servicing older vehicles. A general reduction in the level of consumer spending or shifts in consumer spending to other services could have a material adverse effect on our growth, sales, and profitability.

Our industry is influenced by the number of miles driven by automobile owners. Factors that may cause the number of miles driven by automobile owners to decrease include the weather, travel patterns, gas prices, trends in remote work and fluctuations in the general economy. When the retail cost of gasoline increases, such as after the war with Iran and the closing of the Strait of Hormuz, the Russian invasion of Ukraine and the imposition of economic sanctions on Russia and companies affiliated with the Russian governmentUkraine, in addition to other geopolitical events, the number of miles driven by automobile owners may decrease, which could result in less frequent service intervals and fewer repairs. The number of vehicle miles driven may also decrease if consumers begin to rely more heavily on mass transportation.

While we may be able to identify alternative sources for most of the products we sell or use at our stores, the loss of a major supplier like ATD or the loss of a combination of suppliers could have a material adverse effect on our business, financial condition, or results of operations. If any of our suppliers do not perform adequately or otherwise fail to distribute parts or other supplies to our stores, our inability to replace the suppliers in a timely manner and on acceptable terms could increase our costs and could cause shortages or interruptions that could have a material adverse effect on our business, financial condition, and results of operations.

transportation delays and interruptions, including those occurring as a result of geopolitical events, like the war with Iran and the closing of the Strait of Hormuz, the war in Ukraine, the Israel-Hamas war or public health emergencies;

In recent years, trade tensions between the U.S. government, China, and other countries targeted with tariffs have increased as the U.S. government has implemented and proposed tariffs and the Chinese government and other countries targeted with tariffs have proposed retaliatory tariffs. Although we have no foreign operations and do not manufacture any products, tariffs imposed on products that we sell, such as tires, cause our expenses to increase, which could adversely affect our profitability unless we are able to raise our prices for these products. If we increase the price of products impacted by tariffs, our service offerings may become less attractive relative to services offered by our competitors or cause our customers to trade down in price or delay needed maintenance. Given the uncertainty regarding the scope and duration of these trade actions by the U.S. or other countries, the impact of these trade actions on our operations or results remains uncertain. However, the tariffs, along with any additional tariffs or retaliatory trade restrictions implemented by other countries, could adversely affect the operating profits of our business, which could have an adverse effect on our consolidated results of operations and cash flows.

If we are not able to remain in compliance with our debt covenants, our lenders may restrict our ability to draw on our Credit Facility, which could have a negative impact on our operations, ability to pay dividends,dividends and growth potential, including our ability to complete acquisitions.potential.

The Credit Facility contains certain financial covenants that require us to maintain a minimum interest coverage ratio and a maximum ratio of adjusted debt to EBITDAR, as defined in the Credit Facility. The restrictions of the Credit Facility could adversely affect our ability to:

We have had significant changes in executive leadership, and more changes could occur. Changes to strategic or operating goals, which occur with the appointment and transition of new executives, can create uncertainty, and may ultimately be unsuccessful. In addition, executive leadership transition periods, including adding new personnel, could be difficult as new executives gain an understanding of our business and strategy. For example, the Board of Directors of the Company appointed Peter D. Fitzsimmons to serve as the President and Chief Executive Officer as of March 28, 2025, immediately upon the departure of Michael T. Broderick on March 27, 2025. Difficulty integrating new executives, or the loss of key individuals could limit our ability to successfully execute our business strategy and could have an adverse effect on our overall financial condition.

The nature of our business involves the receipt and storage of personally identifiable data of our customers and employees. This type of data is subject to legislation and regulation in many jurisdictions. We have been subject to cyber-attacks in the past and we may suffer data security breaches arising from cyber-attacks. We may currently be at a higher risk of a security breach due to cyber-attacks related to the ongoing geopolitical uncertainty. Data security breaches suffered by well-known companies and institutions have attracted a substantial amount of media attention, prompting state and federal legislative proposals addressing data privacy and security. In late 2024, we became aware of a cyber incident relating to suspicious activity in one employee’s electronic mailbox, during which incident the unknown and unauthorized actor had access to files that included certain personally identifiable information of current and former employees. After we notified affected individuals in accordance with applicable laws, multiple plaintiffs filed purported class actions against us seeking monetary damages. We have incurred and will continue to incur expenses relating to this incident, subject to the amount of our deductibles under our insurance policies. We may become exposed to additional potential liabilities with respect to the data that we collect, manage and process, and may continue to incur legal costs if our information security policies and procedures are not effective or if we are required to defend our methods of collection, processing, and storage of personal data. Investigations, lawsuits, fines from state or federal agencies, state attorneys general, or adverse publicity relating to our methods of handling personal data could adversely affect our business, results of operations, financial condition, and cash flows due to the costs and negative market reaction relating to such developments.

We may not have the resources or technical expertise to anticipate or prevent rapidly evolving types of cyber-attacks. Attacks have been targeted at us, our vendors, suppliers and customers, or at others who have entrusted us with information.

From time to time, in the ordinary course of our business, we close certain stores, generally based on considerations of store profitability, competition, strategic factors and other considerations. Closing a store could subject us to costs including the write-down of leasehold improvements, equipment, furniture, and fixtures. In addition, we could remain liable for future lease obligations. For example, we evaluated market segmentation and demographic data specific to geographic areas where our stores are located and as a result, we plan to close 145 underperforming stores in the first quarter of fiscal 2026 that we have identified to have failed to maintain an acceptable level of profitability. We recorded $20.8 million in store impairment costs in fiscal 2025 related to these stores as part of our normal long-lived asset impairment assessment. We estimate that we will incur total expenses ranging from $10 to $15 million of store closing costs as part of the Store Closure Plan as detailed below in Part II, Item 9B, “Other Information” of this Form 10-K. These expenses could have a material negative impact on our results of operations and financial condition.

The amount, timing and execution of our common stock repurchase program may fluctuate based on limits under our Credit Facility and our priorities for using cash. We may need to use these funds for other purposes, such as operational expenses, capital expenditures, acquisitions or repayment of indebtedness. Changes in operational results, cash flows, tax laws and the market price of our common stock could also impact our common stock repurchase program and other capital activities. For example, the Inflation Reduction Act of 2022 imposed a 1% excise tax on certain common stock repurchases. In addition, our Board of Directors determines whether the return of capital to shareholders, through our common stock repurchase program or dividends on the common stock, is in the best interest of shareholders and in compliance with our legal and contractual obligations. Our Credit Facility contains covenants that may limit, subject to certain exemptions, our ability to repurchase our common stock, and to declare dividends and other distributions. Holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future. This could adversely affect the market price of our common stock.

At least 60% of the shares of Class C Convertible Preferred Stock (the “Class C Preferred”) must vote as a separate class or unanimously consent to effect or validate any action taken by our common shareholders. Therefore, the Class C Preferred holders have an effective veto over all matters put to a vote of our common stock and could use that veto power to block any matter that the holders of common stock may approve. As of March 29,28, 2025,2026, Peter J. Solomon, one of our directors, and members of his family beneficially own all of the outstanding shares of Class C Preferred. Although the Class C Preferred shares are subject to mandatory conversion prior to an agreed sunset date expected in 2026fiscal 2027 (see Note 17 to the Company’s consolidated financial statements for further detail), until the Class C Preferred shares are converted into common stock after the sunset period, Mr. Solomon will be able to control matters requiring approval by our shareholders, including the election of members of our Board of Directors, the adoption of amendments to our certificate of incorporation, and the approval of any merger, consolidation, sale of all or substantially all of our assets or other major corporate transaction. Mr. Solomon may have interests that differ from our common shareholders and may vote in a way with which our other shareholders disagree or adverse to our shareholders’ interests. The concentration of voting control will limit or preclude our common shareholders’ ability to influence corporate matters and could have the effect of delaying, preventing, or deterring a change in control of our company, could deprive holders of our common stock of an opportunity to receive a premium for their shares as part of a sale of our company and could negatively affect the market price of our common stock. In addition, this concentration of voting power may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that our other shareholders or the Board of Directors may feel are in our best interest.

Provisions in our certificate of incorporationincorporation, bylaws, and bylawsshareholder rights plan may prevent or delay an acquisition of us, which could decrease the price of our common stock.

Our certificate of incorporationincorporation, bylaws, and ourshareholder bylawsrights plan contain provisions intended to deter coercive takeover practices and inadequate takeover bids and to encourage prospective acquirers to negotiate with our Board of Directors rather than to attempt an unsolicited takeover not approved by our Board of Directors. These provisions include:

Also, continued changes in the mortality assumptions can impact our funded status. Further volatility in the performance of financial markets, changes in actuarial assumptions or changes in regulations regarding minimum funding requirements could require material increases to our expected cash contributions to the pension plans in future years. See Note 13 to the Company’s consolidated financial statements for further detail on our pension plan.

On May 23,21, 2025,2026, we entered into an amendment (the “FifthSixth 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 from the first quarter of fiscal 2026 through the first quarter of fiscal 2027.business. See additional discussion under Part II, Item 9B, “Other Information”, and Note 6 to our consolidated financial statements.

The United States economy has experienced significant inflation and rising energy costs during fiscal 20242025 and fiscal 20252026 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.

Diluted lossearnings per common share (“EPS”) was ($0.22).$0.03.

Adjusted diluted earnings per sharecommon (“EPS”),share, a non-GAAP measure, werewas $0.48.$0.42.

Sales decreased 6.43.2 percent, primarily due to lowerclosed overallstores partially offset by higher comparable store sales resulting from lower store traffic and fewer selling days.sales.

Comparable store sales decreasedincreased 5.31.4 percent from the prior year, or a decrease of 3.5 percent when adjusted for days.year.

Operating income of $12.6$20.0 million was 82.459.4 percent lowerhigher than the prior year, and was negatively impacted by an increase in store impairment charges of $22.4 million from the prior year.

Adjusted netoperating income, a non-GAAP measure, was $15.6$35.8 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 storeconsulting impairmentcosts charges,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 closingimpairment charges, write-off of debt issuance costs, litigation reserve costs, costs related to shareholder matters from our equity capital structure recapitalization, net loss on subsequent inventory adjustment related to the prior year sale of wholesale tire and distribution assets, and a gain on sale of corporate headquarters net of closing and relocation costs.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 2928 under “Non-GAAP Financial Measures.”

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 2025both 2026 and 368 selling days in 2024.2025.

The sales decrease was primarily due to aclosed decreasestores partially offset by an increase in comparable store sales resulting from lower store traffic and fewer selling days. Although overall comparable sales were down for the year ended March 29, 2025, we returned to year-over-year comparable store sales growth during the fourth quarter, adjusted for selling days.sales. The following table shows the primary drivers of the change in sales between 20252026 and 2024.2025.

An increase in battery sales and front end/shocks forDuring the year ended March 29,28, 20252026, partiallycomparable offsetstore thesales decreaseincreased in salesfront inend/shocks, other categories. Broad-based economic pressures impacting consumers partly led to lower demand in tiresbrakes and our higher-margin service categories during 2025. We expect the economic environment to continue to impact our customers into fiscal 2026.tires. The following table shows the primary drivers of the comparable store product category sales change for 20252026 compared to 2024.2025.

(a)The comparableComparable store product category sales changechanges are adjusted for selling days.days for the year ended March 29, 2025, as there were fewer selling days in fiscal 2025 than fiscal 2024.

Gross profit, as a percentage of sales, decreasedincreased 50approximately 10 basis points (“bps”) in 20252026 as compared to the prior year. MaterialThe costsincrease increased,in gross profit, as a percentage of sales, duewas primarily due to mixdecreased withinoccupancy tires and increased levels of self-funded promotions. Occupancy costs,costs as a percentage of sales, increased as we lostgained leverage on these largely fixed costs.costs Partiallyas offsettinga thisresult of the Store Closure Plan and higher comparable store sales. This was apartially decreaseoffset by an increase in technician labor costs, as a percentage of sales,primarily due primarily to improvementswage in labor productivity and efficiency.inflation.

Operating, Selling, General and Administrative Expenses (“OSG&A”)

The increasedecrease of $24.4$19.8 million in operating, selling, general and administrative (“OSG&A”) expenses from the prior year is primarily due to ana increasedecrease ofin $22.4costs millionfrom closed stores and a decrease in store impairment chargescharges, partially offset by increased store advertising costs and consulting costs related to certainour ownedOperational andImprovement leased assets.Plan. The following table shows the change in OSG&A expenses for 20252026 compared to 2024.2025.

Net interest expense of $18.9$17.2 million for 20252026 decreased $1.1$1.7 million as compared to the prior year and remained at 1.6 percentdecreased as a percentage of sales.sales from 1.6 percent to 1.5 percent. Weighted average debt outstanding for 20252026 decreased by approximately $47$42.9 million as compared to 2024.2025. This decrease is primarily related to lower finance lease debt related to our stores as well as lower debt outstanding under the Credit Facility. The weighted average interest rate increased approximately 2010 basis points from the prior year due primarily to an increase in the Credit Facility’s floating borrowing rate.

Our effective income tax rate was 29.9 percent for 2026 compared to 12.4 percent for 2025 compared to 27.6 percent for 2024.2025. The change in the effective tax rate for 20252026 is primarily related to ana increasedecrease in valuation allowances as well as the impact from a decrease in unrecognized tax benefits and tax expense related to share-based compensation and other adjustments, none of which are significant, on the change in pre-tax income (loss) income.. See Note 8 to the Company’s consolidated financial statements for additional information.

In addition to reporting operating income, net income and diluted EPS, which are GAAP measures, this Form 10-K 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, and diluted EPS, 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 storeconsulting impairmentcosts charges,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 closingimpairment charges, write-off of debt issuance costs, litigation reserve costs, costs related to shareholder matters from our equity capital structure recapitalization, net loss on subsequent inventory adjustment related to the prior year sale of wholesale tire and distribution assets, and a gain on sale of corporate headquarters net of closing and relocation costs.costs, and net of gains (losses) on sales of closed stores, lease assignments and early lease terminations.

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

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,operations and pay down debtdebt. andAdditionally, we intend to return cash to our shareholders through our dividend program.

We returned $44.5 million to shareholders through share repurchases during fiscal 2024, inclusive of excise tax of $0.4 million. The excise tax is assessed at one percent of the fair market value of net stock repurchases after December 31, 2022. We did not repurchase any shares during fiscal 2026 or 2025. For details regarding our share repurchase program, see Part II, Item 5, “Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this report and Note 16 to our consolidated financial statements.report.

As of March 29,28, 2025,2026, we had a working capital deficit of $246.9$281.2 million, an increase from $201.9$246.9 million as of March 30,29, 2024.2025. The overall working capital deficit is a result of our supply chain finance program. We have agreed to contractual payment terms and conditions with our 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 Monrothe Company to a participating financial institution subject to the independent discretion of both the supplier and participating financial institution. For details regarding our supplier finance program, see Note 15 to our consolidated financial statements.

For 2024,2026, cash used for financing activities was $121.6$75.4 millionmillion. whichThis was primarily due to paymentprincipal payments on finance leases and financing obligations of finance lease principal and dividends of $39.0 million and $35.5$38.7 million, respectively, as well as dividends and payment on our Credit Facility, net of amounts borrowed during the period, of $3.0 million. Also, we used $44.0$35.0 million toand repurchase$1.3 commonmillion stock during 2024.respectively.

On May 23, 2024, we entered into a Fourth Amendment to the Credit Facility (the “Fourth Amendment”). The Fourth Amendment, among other things, amended the terms of certain of the financial and restrictive covenants in the Credit Agreement, to provide us with additional flexibility to operate our business from the first quarter of fiscal 2025 through the fourth quarter of fiscal 2026 (“the Covenant Relief Period”). We may voluntarily exitDuring the Covenant Relief PeriodPeriod, the minimum interest coverage ratio was reduced from 1.55x to 1.00x to: (a) 1.25x to 1.00x from the first quarter of fiscal 2025 through the first quarter of fiscal 2026; (b) 1.35x to 1.00x from the second quarter of fiscal 2026 through the fourth quarter of fiscal 2026; and (c) 1.55x to 1.00x for the first quarter of fiscal 2027 and thereafter. During the Covenant Relief Period, the maximum ratio of adjusted debt to EBITDAR remained at any4.75x time,to which1.00x, except that, if we completed a qualified acquisition during the Covenant Relief Period, the maximum ratio would revertincrease to 5.00x to 1.00x for a certain 12-month period after the termsqualified of the Credit Facility to the terms existing before the Fourth Amendment, with the exception of the modified definition of “EBITDAR,” described below.acquisition.

During the Covenant Relief Period, the minimum interest coverage ratio was reduced from 1.55x to 1.00x to: (a) 1.25x to 1.00x from the first quarter of fiscal 2025 through the first quarter of fiscal 2026; (b) 1.35x to 1.00x from the second quarter of fiscal 2026 through the fourth quarter of fiscal 2026; and (c) 1.55x to 1.00x for the first quarter of fiscal 2027 and thereafter. During the Covenant Relief Period, the maximum ratio of adjusted debt to EBITDAR remained at 4.75x to 1.00x, except that, if we completed a qualified acquisition during the Covenant Relief Period, the maximum ratio would increase to 5.00x to 1.00x for a certain 12-month period after the qualified acquisition. In addition, the Fourth Amendment modified the definition of “EBITDAR” to permit add-backs relating to expenses, and restrict add-backs related to gains, associated with store closures of (a) all non-cash items and (b) cash items up to 20% of EBITDA from the first quarter of fiscal 2025 through the fourth quarter of fiscal 2026 and up to 15% of EBITDA from the first quarter of fiscal 2027 and thereafter. During the Covenant Relief Period, the interest rate spread charged on borrowings increased by 25 basis points. During the Covenant Relief Period, the restrictions on our ability to declare dividends were modified to reduce the cushion inside the threshold required for us to be able to declare dividends without restriction from 0.50x to 0.25x. In addition, during the Covenant Relief Period, we were required to have minimum liquidity of at least $400 million to declare dividends. We were prohibited from repurchasing our securities during the Covenant Relief Period if there were outstanding amounts under the Credit Facility immediately before or after giving effect to the repurchase. During the Covenant Relief Period, we were permitted to acquire stores or other businesses as long as we had minimum liquidity of at least $400 million after completing the acquisition.

ThirdFirst quarter 20262027 included the following notable items:

Diluted earningsloss per common share (“EPS”) was $0.35.$0.08.

Adjusted diluted EPS,loss per common share, a non-GAAP measure, was $0.16.$0.09.

Sales decreased 4.04.6 percent, due to closed stores partiallyand offset by higherlower comparable store sales.

Comparable store sales increaseddecreased 1.21.7 percent from the prior year period.

Net incomeloss was $11.1$2.1 million.

Adjusted net income,loss, a non-GAAP measure, was $5.0$2.3 million.

Adjusted operating income, adjusted net (loss) income and adjusted diluted EPS,(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 EPS(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, store impairment charges, write-off of debt issuance costs, litigation reserve costs,and store closing costs, net of gains (losses) on sales of closed stores, lease assignments and early lease terminations, and gain on sale of corporate headquarters net of closing and relocation costs.terminations. Reconciliations of these non-GAAP financial measures to GAAP measures are provided beginning on page 2019 under “Non-GAAP Financial Measures.”

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 76 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 8990 selling days in each of the three months ended DecemberJune 27, 20252026 and DecemberJune 28, 2024, and 270 selling days in each of the nine months ended December 27, 2025 and December 28, 2024.2025.

The sales decrease was due to closed stores partiallyand offset by an increase inlower comparable store sales. The following table shows the primary drivers of the change in sales for the three months and nine months ended DecemberJune 27, 2025,2026, as compared to the same periodsperiod ended DecemberJune 28, 2024.2025.

During the three months ended DecemberJune 27, 2025,2026, comparable store sales increased in our batteries, front end/shocks category and ouralignment tires category. During the nine months ended December 27, 2025, comparable store sales increased in our front end/shocks, tires, brakes and maintenance service categories, each of which experienced declines during the nine months ended December 28, 2024.categories. The following table shows the primary drivers of the comparable store product category sales change for the three months and nine months ended DecemberJune 27, 2025,2026, as compared to the same periodsperiod ended DecemberJune 28, 2024.2025.

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

Gross profit, as a percentage of sales, increaseddecreased 6050 basis points (“bps”) for the three months ended DecemberJune 27, 2025,2026, as compared to the prior year comparable period. MaterialOccupancy costs decreased,costs, as a percentage of sales, due primarily to better material margin in our service categories. Occupancy costs decreased, as a percentage of sales,increased as we gainedlost leverage on these largely fixed costs with higher comparable store sales and benefit from store closures.costs. Partially offsetting this was ana increasedecrease in technician labor costs, as a percentage of sales, due primarily to wage inflation. Gross profit, as a percentage of sales, decreased 20 basis points for the nine months ended December 27, 2025, as compared to the prior year comparable period. The decreaseimprovements in grosslabor profit, as a percentage of sales, was primarily due to increased technician labor, due primarily to wage inflation, partially offset by decreased occupancy costsproductivity and decreased material costs, due primarily to better material margin in our service categories.efficiency.

The decrease of $11.0$16.3 million in operating, selling, general and administrative (“OSG&A”) expenses for the three months ended DecemberJune 27, 2025,2026, 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 and a decrease in costs from closed stores, partially offset by increased store advertising costs and consulting costs related to our Operational Improvement Plan.terminations. The following table shows the impact of these costs on the change in OSG&A expenses for the three months and nine months ended DecemberJune 27, 2025,2026, as compared to the same periodsperiod ended DecemberJune 28, 2024.2025.

Net interest expense of $4.0$4.6 million for the three months ended DecemberJune 27, 20252026 decreased $0.2$0.1 million as compared to the prior year period, and remained as a percentage of sales at 1.41.6 percent. Weighted average debt outstanding for the three months ended DecemberJune 27, 20252026 decreased by approximately $25.5$14.1 million as compared to the three months ended DecemberJune 28, 2024.2025. This decrease is primarily related to lower finance lease debt related to our stores. The weighted average interest rate increased approximately 3010 basis points as compared to the same period of the prior year.

In addition to reporting operating income,income (loss), net incomeloss and diluted EPS,loss per share, which are GAAP measures, this Form 10-Q includes adjusted operating income, adjusted net (loss) income and adjusted diluted EPS,(loss) earnings per share, which are non-GAAP financial measures. We have included reconciliations to adjusted operating income, adjusted net (loss) income and adjusted diluted EPS(loss) earnings per share from our most directly comparable GAAP measures, operating income,income (loss), net income,loss, and diluted EPS,loss per 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 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, store impairment charges, write-off of debt issuance costs, litigation reserve costs,and store closing costs, net of gains (losses) on sales of closed stores, lease assignments and early lease terminations, and gain on sale of corporate headquarters net of closing and relocation costs.terminations.

(ba) Amounts in fiscal 2026 include the gain on the sale of closed stores, lease assignments and early lease terminations net of closing costs and asset write-offs related to the closure of 145 underperforming stores, in accordance with the Store Closure Plan.Plan, net of related gains on the sale of owned locations, lease assignments and early lease terminations.

Adjusted net (loss) income is summarized as follows:

(ba) Amounts in fiscal 2026 include the gain on the sale of closed stores, lease assignments and early lease terminations net of closing costs and asset write-offs related to the closure of 145 underperforming stores, in accordance with the Store Closure Plan.Plan, net of related gains on the sale of owned locations, lease assignments and early lease terminations.

Adjusted diluted EPS(loss) earnings per share is summarized as follows:

(ca) Amounts in fiscal 2026 include the gain on the sale of closed stores, lease assignments and early lease terminations net of closing costs and asset write-offs related to the closure of 145 underperforming stores, in accordance with the Store Closure Plan.Plan, net of related gains on the sale of owned locations, lease assignments and early lease terminations.

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

The other adjustments to diluted EPS(loss) earnings per share reflect estimated annual effective income tax rates of 26.0 percent and 28.4 percent for the three months ended DecemberJune 27, 20252026 and DecemberJune 28, 2024, respectively and 26.0 percent and 28.0 percent for the nine months ended December 27, 2025 and December 28, 2024, respectively.2025. 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 (Loss) Income table above for pre-tax amounts.

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,operations and pay down debt,debt. andAdditionally, we intend to return cash to our shareholders through our dividend program.

As of DecemberJune 27, 20252026 we had $45.0$108.4 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 87 to our consolidated financial statements.

We declared and paid dividends of $0.28 per share totaling $8.7 million for each of the three months ended DecemberJune 27, 20252026 and DecemberJune 28, 2024 and $0.84 per share totaling $26.2 million for each of the nine months ended December 27, 2025 and December 28, 2024, respectively.2025.

As of DecemberJune 27, 2025,2026, we had a working capital deficit of $274.5$241.1 million, ana increasedecrease of $27.6$40.1 million from a deficit of $246.9$281.2 million as of March 29,28, 2025.2026. The overall working capital deficit is a result of extendedour supply chain finance program. We have agreed to contractual payment terms negotiatedand conditions with our 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 Monrothe Company 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 109 to our consolidated financial statements.

As of DecemberJune 27, 2025,2026, we had $4.9$9.5 million of cash and equivalents. In addition, we had $424.9$261.5 million available under the Credit Facility as of DecemberJune 27, 2025,2026, subject to compliance with our covenants. We are, and expect to remain, in compliance with these covenants.

We believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following DecemberJune 27, 2025,2026, as well as in the long-term.

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

Cash used for financingoperating activities

For the ninethree months ended DecemberJune 27, 2025,2026, cash used for financinginvesting activities was $71.0$4.5 million. This was primarily due to paymentcash used for capital expenditures, including property and equipment, of finance$7.5 leasemillion, principalpartially offset by proceeds from the disposal of property and dividendsequipment of $28.1 million and $26.2 million, respectively, as well as payments on our Credit Facility, net of amounts borrowed during the period, of $16.3$3.0 million.

For the ninethree months ended DecemberJune 28, 2024,2025, cash used for financinginvesting activities was $99.5$2.4 million,million. whichThis was primarily due to paymentscash onused for capital expenditures, including property and equipment, of $7.4 million, partially offset by subsequent proceeds from the sale of our Creditwholesale Facility,tire netlocations and distribution assets and proceeds from the disposal of amountsproperty borrowedand during the period,equipment of $42.8 million, as well as payment of finance lease principal and dividends of $29.8$3.5 million and $25.8$1.6 million, respectively.