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BB&T Lowers Its Estimates On Monro Muffler Brake

BB&T Capital Markets has cut its fiscal third-quarter forecast for Monro Muffler Brake based on one weather event (Hurricane Sandy) and one weather non-event (snow).

Analysts Bret Jordan and David Kelley contend in a Dec. 7 report that Sandy has created headwinds for much of Monro’s Mid-Atlantic and Metro New York markets, with residual sales softness and more than 250,000 cars removed from the regional parc via storm damage.

Additionally, they point out in their report that snow has yet to spur tire demand. In fact, no material snow is forecast in Monro’s major markets through mid-December, leading Jordan and Kelley to surmise that tire volumes will remain soft in the fiscal third quarter ending in December.

“While December is one of the first ‘easy’ comps against last year’s ‘winter that wasn’t’ (December 2011 -10 percent comp), channel checks and peer commentary lead us to believe that we remain mired in weak demand,” the BB&T analysts wrote. “Assuming weather projections are correct and there is no meaningful snow before the third week of December, we think it is unlikely that tires can compete with the Holidays for consumer spending.”

Therefore, BB&T has lowered its fiscal third-quarter comparable-store sales expectation to -4 percent, which is below management’s guidance calling for comps to come in flat (at best) to -3 percent (at worst). Similarly, BB&T has lowered its earnings per share (EPS) forecast to $0.33. This also falls outside of Monro’s guidance, calling for EPS to come in between $0.35 and $0.40 for the quarter.

Nonetheless, BB&T has a longer-term favorable view of aftermarket demand and expectations of tire recovery with winter weather, leading the analysts to retain their “buy” rating on Monro’s shares.

One thing working in Monro’s favor, Jordan and Kelley point out in their report, is that costs are improving. “While demand remains in the ditch, Monro continues to benefit from lower input costs as manufacturers continue to reduce prices and Monro’s purchasing scale improves with acquisitions,” the analysts wrote. “As we remain confident that industry tire volumes will improve with the onset of winter … we expect Monro is positioned to generate improved sales and margins in Q4.”

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