Buoyed by more normalized winter weather and the performance of recent acquisitions, Monro Muffler Brake (Rochester, NY) reported record sales and net income for the fiscal third quarter ended Dec. 28, 3013. Net sales rose 13.8 percent to $216.70 million, while net income increased 36.2 percent to $15.33 million.
John Van Heel, president and CEO, pointed out on a Jan. 28 conference call that Monro was able to continue to deliver on key objectives like increasing traffic, benefiting from lower product costs, controlling operating expenses, generating strong sales and earnings contributions from recent acquisitions, and capitalizing on opportunities to complete additional acquisitions at prices attractive to the company.
“While we benefited from more-normalized weather trends in the third quarter, the macro and retail environment remained weak and negatively influenced consumer purchasing behavior, resulting in a comparable-store sales increase of 0.3 percent,” Van Heel told analysts on the call. “We have seen budget-conscious consumers defer repairs and focus on the most necessary items, which has resulted in choppy sales across key categories throughout this year.
“Customers have also continued to trade down — particularly in tires, where direct imports were just over 30 percent of our tires sold versus mid-20s last year and mid-teens three years ago.”
Sales mix by category for the quarter was brakes (13 percent), exhaust (3 percent), steering (9 percent), tires (49 percent) and maintenance (26 percent).
In the third quarter, comparable-store oil change traffic and tire units each increased 3 percent. Comparable-store sales were up 2 percent for brakes and 1 percent for tires. At the same time, comparable-store sales decreased in the exhaust (down 1 percent), shocks (down 1 percent) and alignment (down 4 percent) categories, which are more discretionary. Maintenance comps were down 1 percent.
“We remain cautiously optimistic for improved sales performance in the fourth quarter with continued normalized weather patterns, particularly as we are cycling against two consecutive warm winters and a two-year deferral cycle,” Van Heel said. “At the end of the day, people can only defer purchases of our products and services for so long, and we have demonstrated that customers continue to turn to us as their trusted service provider.
“We are hopeful that sales improvements we are seeing in certain categories, while choppy, are signs that the expanded deferral cycle may begin to reverse in the near future. Overall, we’re encouraged that the cold winter weather and its affects on parts failures and repairs in the spring season should help our sales in the first quarter of fiscal 2015.”
Based on current visibility, business and economic trends, and recent acquisitions, management now anticipates fiscal 2014 comparable-store sales will be flat — a slightly improvement over the prior range of down 1 percent to flat. The company now expects its total sales for the year come in between $830 million and $835 million.
Monro also has revised its estimated fiscal 2014 diluted earnings per share to a range of $1.63 to $1.66 — up from the prior range of $1.58 to $1.65. This compares to diluted earnings per share of $1.32 in fiscal 2013.
For the fourth quarter of fiscal 2014, management expects comparable-store sale to range between flat and up 1 percent. The company also expects diluted earnings per share for the fourth quarter to come in between $0.32 and $0.35. This compares to $0.25 diluted earnings per share for the fourth quarter of fiscal 2013.
During the third quarter, Monro added 13 shops and closed two locations, ending the three-month period with 951 shops.
Management remains focused on increasing Monro’s market share through comparable-store sales growth, opening new stores in existing markets and acquiring competitors at attractive valuations. “As you know, we significantly accelerated acquisitions and achieved record acquisition growth in fiscal 2013. Through our successful acquisitions, we are operating with greater economies of scale that are benefiting us today as well as positioning the company to deliver strong earnings over the next several years,” Van Heel said. “In this uneven sales environment, we remain focused on increasing our market share, while strengthening our key competitive advantages and our operating leverage through accretive acquisitions.”
During the third quarter, the company closed on the previously announced acquisitions of 10 stores and $15 million in annualized sales in Delaware, Maryland and Kentucky. These deals increase Monro’s store density and leverage the existing brands Mr. Tire in Delaware and Maryland and Towery’s Tire in Kentucky.
On a combined basis, the acquisitions completed in fiscal 2014 represent nearly 5 percent of total sales.
Van Heel told analysts that management continues to still see meaningful opportunity for attractive deals in the marketplace given the current macro environment. “Owners of target independent tire dealers are individuals who are at or nearing retirement age without an internal succession option. We presently have seven [non-disclosure agreements (NDAs)] signed, compared to six at the end of the second quarter,” Van Heel said. “Five of these NDAs are within our footprint, and two are in a contiguous market, with store chains ranging in size from five to 40 locations.
“Based upon our recent transactions and our existing NDAs, we remain optimistic about opportunities for additional acquisitions in the near future. While we remain disciplined in the prices we will pay for acquisitions, as we reach acceptable turns, we are ready to act on any opportunities smaller or larger.” — Marc Vincent
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