On the surface, Monro Muffler Brake ended fiscal 2012 on a high note with record sales ($171.75 million, up 13.9 percent) and record net income ($10.50 million, up 27.3 percent) for the three months ended March 31, 2012. Additionally, comparable-store sales were up 7.4 percent.
However, when you dig below the surface, you see that Monro’s numbers aren’t all that they appear.
Let’s start with the top line … Sales grew $20.94 million, or 13.9 percent, to $171.75 million. This was largely driven by sales from new stores, accounting for roughly $11.50 million of the $20.94 million year-over-year sales increase. The fact that the fiscal 2012 period had six additional selling days also boosted sales. That’s evident when you analyze Monro’s comparable-store sales.
As we previously stated, comps increased 7.4 percent year-over-year. However, adjusting for days, comps were up only 0.7 percent. This was slightly below management’s guidance calling for comparable-store sales growth between 1 percent and 4 percent, and below analysts’ consensus estimate of 2 percent. Nonetheless, the 0.7-percent increase did top flat growth from the fourth quarter of fiscal 2011.
It’s worth noting that comps (also adjusted for days) increased 4 percent for brakes and 2 percent for tires. Front-end and shocks comps were up 1 percent, while comps were down 8 percent for exhaust and down 1 percent for both maintenance services and alignments.
Moving on … While gross profit increased 10 percent to $66.49 million, gross margin fell from 40.1 percent a year ago to 38.7 percent because of increased tire and oil costs and management’s decision to not pass certain increases along to consumers. This was partially offset by reduced costs from Monro’s direct import purchasing program, as well as improved labor productivity and the leveraging of fixed occupancy costs.
Net income increased 27.3 percent to $10.50 million, and diluted earnings per share (EPS) rose 26.9 percent to $0.33. EPS was below management’s guidance and analysts’ consensus estimate. However, if you add back $0.03 in due diligence costs related to Monro’s unsuccessful pursuit of Midas Inc., you would get EPS of $0.36. That would have beaten analysts’ consensus estimate and been within management’s guidance for the quarter.
Rob Gross, the chairman and CEO of Monro, said on a May 24 conference call that the company’s performance, for the most part, was inline with — if not better than — industry trends.
“We believe these results demonstrate the flexibility of our business model, which allows us to enhance our business in both strong and weak markets,” Gross told analysts on the call. “Low-cost company-owned operations in markets with strong store density allowed us to continue to effectively serve our customers’ needs. Owning both tire and service store chains provided pivotal flexibility, as service stores fared better in a tough year for tire sales across the industry.” — Marc Vincent