Tire sales at Monro Muffler Brake Inc.'s comparable stores increased 6% in the third quarter, ended Dec. 24, 2016. Tires were the biggest help as comparable stores recorded an overall sales increase of 2.3% during the period.

The company says overall sales for its third quarter of fiscal 2017 increased 20.6%, to $288.3 million from $238.9 million a year ago. Most of that overall sales increase came from sales in 67 new stores — $46.2 million — including sales from recent acquistiions of $43.8 million.

Net income for the third quarter was $17.6 million, up from $15.2 million a year ago.

During the third quarter, Monro opened nine company-operated locations and closed eight company-operated locations, including two damaged locations expected to reopen in the fourth quarter. The company ended the third quarter with 1,098 company-operated stores and 131 franchised Car-X stores.

Acquisitions

As part of its earnings report, Monro announced it signed a definitive agreement to acquire 16 stores from a Car-X franchisee, including 13 locations in Illinois and three in Iowa. The company says the newly aquired stores are expected to add approximately $15 million in annualized sales, with a sales mix of 75% service and 25% tires. They will continue to operate under the Car-X brand, and Monro says the acquisition is expected to close in March 2017.

Combined, the company's completed and announced acquisitions in fiscal 2017 are expected to add approximately $150 million in annualized sales and represent 16% in annualized sales growth.

Monro expects these acquisitions to increase its tire purchases by about 25%.

More on comparable store sales

While tire sales were the best performers during the quarter, Monro says sales of maintenance services were flat in the period. Comparable store sales declined about 2% for alignments, 3% for brakes, and 5% for front end/shocks.

John Van Heel, CEO and president said, “Despite a challenging operating environment, the return of winter weather in the quarter, combined with solid operational execution, effective cost control and the solid integration of our recent acquisitions, allowed us to deliver earnings at the midpoint of guidance.

The 2.3% increase in comparable store sales was driven by a 2% increase in traffic, reflective of a comparable store sales lift of 11% in December, adjusted for one extra sales day in the month. Importantly, we continued to capitalize on growth opportunities in the market, having opened 67 net new stores through acquisition and greenfield growth fiscal year-to-date, while also signing a definitive agreement to acquire 16 additional stores. Combined, these acquisitions represent approximately $150 million in annualized sales, laying a solid foundation for strong earnings growth for many years to come.”    

The first nine months

For the nine-month period ended Dec. 24, 2016, sales increased 7.7% to a record $769.5 million from $714.6 million in the same period of the prior year. Comparable store sales decreased 3.1%.

Gross margin for the nine-month period was 39.5% of sales, as compared to 41.1% in the prior year period, but 41.2% in the current year on a comparable store basis. Operating margin was 12.5% of sales in the nine month period, as compared to 13.2% in the same period last year. Net income for the first nine months was $51.9 million, or $1.56 per diluted share, as compared to $52.9 million, or $1.59 per diluted share in the comparable period of fiscal 2016.

Company outlook

"Based on current visibility, business and economic trends, and recently completed and announced acquisitions, the company continues to anticipate fiscal 2017 sales to be in the range of $1.032 billion to $1.038 billion. In light of soft comparable store sales in January, fiscal 2017 comparable store sales guidance has been revised to a decline in the range of 3.0% to 2.5%, as compared to prior guidance of a decline of 2.5% to 1.5%. As a result, the company also adjusted its fiscal 2017 diluted earnings per share expectation to the range of $1.95 to $2.00, compared to previous guidance of $2.00 to $2.10. The guidance compares to diluted earnings per share of $2.00 in fiscal 2016 and is based on 33.4 million diluted weighted average shares outstanding.

"For the fourth quarter of fiscal 2017, the company anticipates sales to be in the range of $262 million to $268 million, representing an increase of 14.4% to 17.0% over sales of $229 million in the fourth quarter of fiscal 2016. Fourth quarter sales guidance is based on a comparable store sales decline of 2.5% to 1.0% and compares to an increase in comparable store sales of .5% in the prior year period. Fourth quarter comparable store sales to date are down 7%, when adjusting for one less selling day in the current year period. This compares to a comparable store sales increase of 7% in the prior year period. The company expects that comparable store sales will be positive in February and March this year versus a combined decline of 3.4% in these months last year. The company expects diluted earnings per share for the fourth quarter of fiscal 2017 to be between $.39 and $.44, as compared to $.42 in the fourth quarter of fiscal 2016.

Mr. Van Heel says, “We are pleased to have successfully added $150 million in annualized sales, representing 16% sales growth through our completed and announced acquisitions fiscal year-to-date. These acquisitions have further diversified our geographic footprint, while driving significant scale and cost competitiveness, including a 25% increase in our annual tire unit purchases. Looking ahead, we remain optimistic in our ability to complete additional accretive acquisitions, supported by our robust pipeline, while continuing to actively manage the business to maximize profitability in a choppy environment. We are confident that this proven strategy will drive bottom-line growth and market share gains, while creating long-term value for our shareholders.”

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