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Monro Muffler Brake Reports 17% Drop In Net Income

The third quarter of fiscal 2013 (the three months ended Dec. 29, 2012) was a challenging one for Monro Muffler Brake both on the top-line and on the bottom-line. While net sales increased $13.70 million, or 7.8 percent, to $190.77 million, the entire year-over-year sales increase came as the result of sales from new stores, including recently acquired stores, of $23 million.

Comparable-store sales fell 5.9 percent. Adjusting for days, comps decreased 4.9 percent on top of a 1.3-percent decrease a year ago. Comparable-store sales (adjusting for days) were flat in the maintenance services category, and down 2 percent for tires, down 6 percent for alignments, down 9 percent for front end/shocks, down 12 percent for brakes and down 20 percent for exhaust.

“The challenging economic environment continues to weigh heavily on our customers, and the weather did not provide the tailwind we had anticipated in the third quarter with the exception of the last two weeks of December, during which our markets received significant snowfall and comparable-store sales increased 10 percent,” said John Van Heel, Monro’s president and CEO. “Our customers continue to delay purchases and trade down from higher-cost automotive maintenance and repair purchases. Notably, comparable-store oil change units were flat year-over-year, demonstrating that customers continue to perform basic maintenance on their vehicles and continue to perform that basic maintenance at our stores.”

Monro’s gross margin decreased from 38.4 percent a year ago to 36.6 percent for the three months ended Dec. 29, 2012, attributable to a sales mix shift to lower-margin tire and service categories and a loss of leverage because of weaker year-over-year comparable-store sales. Total operating expenses were up. The company’s net income dropped 16.9 percent to $11.26 million in the third quarter of fiscal 2013.

“Our long-term outlook for the industry and company is very positive, though, near-term, visibility remains cloudy and we expect trends will continue to be choppy in our geographic regions as the economic environment weighs on consumer purchasing behavior,” Van Heel said. “Trends to-date in January have remained challenged as a result of these economic issues and lack of snow in our markets.”

Looking ahead, management expects Monro’s comparable-store sales (adjusted for days) to decrease between 9 percent and 6 percent in the fourth quarter of fiscal 2013. For the full year, comps are expected to fall between 5.5 percent and 6.5 percent. Management also expects Monro’s total sales for the year to come in between $725 million and $735 million.

“As we actively manage our business through this challenging environment, we are focused on driving top-line growth and leverage through acquisitions and aggressively reducing costs,” Van Heel said. “Historically, our strong business model has allowed us to continue to improve our market share and expand our operations regardless of the economic or operating environment.

“The key long-term macro-economic trends — specifically, the significant number of vehicles in operation, the increasing average age of those vehicles and the decreasing number of service bays in operation — are unchanged and remain positive for the business. Our significant acquisition growth achieved in fiscal 2013 positions the company for accelerated earnings growth over the next several years, and we continue to see increased acquisition opportunities in this challenging market.”

The company continues to take advantage of increased acquisition opportunities in this tough sales environment. During November and December, Monro completed four acquisitions totaling 79 stores generating roughly $138 million in annualized sales. These transactions fill in existing markets, as well as expand Monro’s footprint into the contiguous states of Tennessee and Kentucky.

Recapping … On Nov. 18, Monro acquired 31 Tire Barn stores with annual sales of roughly $64 million. The stores, which offer tires and alignment services similar to the company’s Tire Warehouse brand, include 27 stores in Indiana, one store in Illinois and three stores in Tennessee.

On Dec. 16, the company acquired 27 Towery’s Tire & Auto Care stores located in Louisville and Lexington, KY, as well as a related wholesale business that, combined, represent approximately $54 million in annualized sales.

On Dec 30, Monro completed the acquisition of 12 Enger Tire stores in northern Ohio, as well as nine Tire King stores in Durham, NC. The Enger Tire stores generate annual sales of roughly $9 million, while the Tire King stores generate annual sales of approximately $11 million.

Management intends to operate the Tire Barn and Towery stores under their existing brands, while the Enger Tire and Tire King locations will be rebranded as Mr. Tire.

In all, Monro added 65 locations during the quarter, giving the company a total of 918 stores by quarter’s end.

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