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Monro Muffer Brake Comps Decline 4.6%

If it weren’t for sales from new stores, Monro Muffler Brake would have reported lower top-line and bottom-line results for the fiscal second quarter ended Sept. 29, 2012. As it was, net sales increased $3.22 million, or 1.9 percent, to $176.48 million, pushed positive by roughly $15.40 million in sales from new stores (including recently acquired locations). Comparable-store sales fell 4.6 percent on top of a 0.8-percent decline a year ago.

Comparable-store sales decreased 3 percent for tires, 4 percent for alignments, 9 percent for front end and shocks, 11 percent for brakes, and 16 percent for exhaust when compared to the previous year. Maintenance services comps were essentially flat year-over-year, while oil change comps rose 1 percent.

John Van Heel, president and CEO, said Monro’s second-quarter performance reflects the ongoing challenges facing consumers in the current economic environment. “With high gas and food prices, compounded by high unemployment, cautious consumers continue to defer and trade down from higher-cost automotive maintenance and repair purchase,” Van Heel explained.

Gross margin decreased from 41.2 percent in the prior year quarter to 39.6 percent because of increased tire costs, a sales mix shift to lower-margin tire and service categories, and a loss of leverage due to weaker year-over-year comparable-store sales. Net income fell 23.6 percent to $11.55 million.

Looking ahead, Monro expects third-quarter comparable-store sales to come in flat at best with a 3-percent decrease being the worst case. For the full fiscal year, comps are expected to decline between 2 percent and 3.5 percent.

Van Heel said management’s long-term outlook for the industry and the company remain very positive, though they expect that near-term trends will remain choppy as the economic environment continues to weigh on consumer purchasing behavior.

“Trends to date in the third quarter remain challenging, as October month-to-date comparable-store sales are down approximately 6 percent,” he explained. “However, we expect weather to normalize and drive improved comparable-store sales for the remainder of fiscal 2013, as customers turn to us for purchases that can no longer be delayed. We would expect our short-term visibility to improve during November, which is an important month for tire sales, in particular.

“Historically, we have leveraged our strong business model to continue to expand our operations regardless of the economic or operating environment. This is evidenced by our fiscal 2013 completed and signed acquisitions, which represent at least $122 million, or 18 percent, in annualized sales growth. These transactions continue to expand our market share which, in turn, should allow us to achieve greater economies of scale and result in higher operating margins and earnings going forward.”

On Aug. 12, Monro completed the acquisition of 17 service shops (13 locations in Milwaukee and four in South Carolina) from Tuffy Associates Corp. The transaction expanded Monro’s footprint into a new contiguous market while enabling the company to fill in an existing market. Annual sales for these stores are roughly $9 million. The Wisconsin locations were rebranded as Monro, while the South Carolina shops were rebranded as Tread Quarters Discount Tires.

Additionally, on Oct. 7, Monro completed an acquisition from ChesleyCo., a former Midas franchisee, consisting of five shops in Rochester, NY. Annual sales for these locations are approximately $3 million. Four of these stores will be rebranded to Mr. Tire, and one will be rebranded to Monro.

Monro also has a deal in place to acquire a majority of the assets of Tire Barn Warehouse, which has 31 retail tire and service shops in Indiana, Illinois and Tennessee. The transaction is expected to close Nov. 19. The acquired shops produced roughly $60 million in net sales for their previous full fiscal year and will continue to operate under the Tire Barn name post-acquisition.

Analysts from BB&T Capital Markets wrote in an Oct. 26 report that Monro’s acquisition pipeline is bearing fruit. They contend that widespread softness in aftermarket demand in 2012 and the prospect of higher capital gains tax rates in 2013 are driving a record year of acquired sales growth for the company. “With $122 million in trailing 12 months (TTM) sales expected to have closed before calendar-year end, we believe Monro is on track to exceed 20 percent in annualized sales growth from acquisition,” analysts Bret Jordan and David Kelley wrote in their report.                        — Marc Vincent

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