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Monro Reports That Comps Have Turned Positive

While management is not pleased with Monro Muffler Brake’s fiscal fourth quarter results, they are optimistic that business is strengthening with comparable-store sales trends improving in February and March after a tough start to the quarter and with April and May comps going positive.

Sales increased 14.1 percent to $195.91 million in the quarter ended March 30, 2013, which included one less week of sales than in the previous year. The sales growth for the quarter of $24.17 million came from a $43.50-million increase in sales from new stores. Comparable-store sales fell 11.4 percent.

Adjusted for days, comparable-store sales decreased 5.6 percent, which was slightly better than management’s guidance calling for comps to fall between 9 percent and 6 percent.

Adjusted for days, maintenance services comps were flat. Comps declined 6 percent for tires, alignments and exhaust; 7 percent for front end and shocks; and 11 percent for brakes. Management reports that consumers still deferred purchases and traded down from higher-cost maintenance and repair work during the quarter.

Sales started off rough in January, attributable to unusual weather conditions and deferrals. Comps were down 13 percent, adjusted for days. As weather normalized after January, comps improved. February comps were down 0.7 percent, and March comps were down 3.7 percent — both adjusted for days.

Comps turned positive in the first quarter of fiscal 2014, running up 3 percent through mid-May.

Monro’s gross profit rose 6.1 percent to $70.57 million in the fourth quarter of fiscal 2013. However, gross margin fell from 38.7 percent a year ago to 36 percent. Management attributed the decrease to a sales mix shift to the lower-margin tire category.

Net income dropped 22.6 percent to $8.13 million.

John Van Heel, president and CEO, said on a May 21 conference call that management is focused on increasing Monro’s market share through comparable-store sales growth, opening additional new stores in existing markets and acquiring competitors at attractive valuations. “While we expect that the consumer will remain cautious, we’re optimistic about the near-term based on the recent trends we are seeing in our business and easier comparisons ahead,” Van Heel told analysts on the call. “This gives us confidence in our ability to deliver comparable-store sales increases in the first quarter and for the full fiscal 2014.”

Management expects fiscal 2014 sales to come in between $840 million and $865 million, which would be up from the $732 million in sales Monro reported in fiscal 2013. Comps are expected to increase between 2.5 percent and 4.5 percent for the year.

Guidance calls for comps to increase between 3 percent and 4 percent in the first quarter of fiscal 2014. They were down 7.2 percent in fiscal 2013 first quarter. Management anticipates total sales for the quarter to range from $208 million to $212 million.

Van Heel said that management expects trends in April and May to set the tone for consumer behavior patterns through October. They are optimistic that the first quarter of 2013 may represent an end to what has been an extended deferral cycle.

“At the end of the day, people need what we sell and can only defer purchases of our products and services for so long,” Van Heel said on the call. “The extended deferral cycle we’ve been seeing seems to be reversing somewhat, and our loyal customers are turning to us for their needed purchases.”

The company added 23 locations (21 from recent acquisitions) and closed four during the quarter, ending fiscal 2013 with 937 stores.

Speaking of acquisitions, management continues to see attractive deals in the marketplace and plans to pursue these transactions in a disciplined manner.

Van Heel told analysts on the call that Monro continues to see more opportunities for attractive deals than it has in the past several years because of near-term seller concerns over the operating environment as well as taxes and healthcare, and because all of independent tire dealers Monro is looking to acquire are getting older and many are at or nearing retirement age without an internal succession option.

“We presently have eight [non-disclosure agreements] signed with store chains ranging in size from five to 40 locations. Six of these are within our footprint, and two are in contiguous markets,” he said. “Based upon these discussions, we expect to close on at least one of these opportunities early in the second quarter of fiscal 2014.

“We have plenty of liquidity, combined with strong cash flow, to complete these deals and remain very disciplined on the prices we will pay with 7 to 7.5 times EBITDA (or about 80 percent of sales) being our key metric. Importantly, we continued to compete only with the sellers’ expectations in these deals.”                        — Marc Vincent

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