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Monro Muffler Brake’s Comps Fell 7.2%

Monro Muffler Brake saw its net income fall 24.6 percent to $169.18 million in the first quarter of fiscal 2013 (the three-month period ended June 30, 2012). Gross margin decreased from 43 percent to 40.3 percent year-over-year because of increased tire and oil costs, a sales mix shift to lower-margin tire and service categories, and a loss of leverage because of weaker comparable-store sales.

Net sales rose $4.36 million, or 2.6 percent, to $169.18 million because of a $17.70-million increase in sales from new stores. Comparable-store sales were down 7.2 percent, compared to a 2.3-percent increase a year ago. Comps declined roughly 15 percent for exhaust, 12 percent for front end and shocks, 11 percent for brakes, 9 percent for alignments, 6 percent for tires, and 3 percent for maintenance services.

Rob Gross, chairman and CEO, said customers are deferring and trading down from higher-cost automotive maintenance and repair purchases. Gross pointed out that brake comps — which had held up reasonably well — reversed the positive trend seen throughout fiscal 2012. “Notably, comparable-store oil changes were up 2.5 percent year-over-year, indicating that customers continue to service their vehicles, while our recent acquisitions continue to outperform,” Gross said.

Bret Jordan and David Kelley, analysts with BB&T Capital Markets, said that consumer sentiment went into a ditch during the quarter. “While record negative comps in Q1 appear to have been impacted by weather headwinds in April, deterioration in consumer confidence appears to have been the wet blanket as the quarter progressed and continues to depress current-quarter trends,” Jordan and Kelley wrote in a July 27 report on Monro. “Of particular note, Q1 saw the first absolute decline in average ticket since 2003 — a clear indicator of a consumer bias to trade-down.”

According to BB&T, Monro’s comps were down 5.7 percent through the first three-and-a-half weeks of July. The analysts noted that, while an improvement from the 7.3-percent drop reported in the fiscal first quarter, the month-to-date comps underscore notable weakness in deferrable and discretionary categories.

The overall forecast for Monro is for limited improvement from the fiscal first quarter to the second.

Management is calling for Monro to post a comp decrease in the range of 3 percent to 6 percent in the second quarter. Full-year comps (adjusted for days) are expected to, at best, come in flat and, at worst, decrease 2 percent.

Gross said management’s long-term outlook for the industry and company remain extremely positive, though it expects near-term trends will be choppy. “While gas prices have come down recently and the weather has been more favorable, the economic environment seems to be taking a greater toll on consumer sentiment and purchasing behavior,” he explained. “Trends to-date in the second quarter remain challenging. However, we have historically leveraged our strong business model to continue to expand our operations and enhance shareholder returns regardless of the economic or operating environment.

“We continue to anticipate that trends will improve in the second half of fiscal 2013 as customers turn to us for purchases that can no longer be delayed and weather patterns normalize. We are optimistic about our ability to grow market share in fiscal 2013, which should allow us to achieve greater economies of scale while positioning the company even more strongly for the long-term.”

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