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Monro Applies the Good-Better-Best Strategy to Brake Service, and Sees Success

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After rolling out a new good-better-best sales strategy for brake services, Monro Inc. has watched its brake category become a sales leader. In the second quarter of fiscal 2019, brake sales at comparable stores grew 12%.  They were up 7% the previous period.

The company says it increased prices of some of its brake services during the first quarter (which ended June 30), but its volume has grown, too. In the second quarter (ended Sept. 29) Monro CEO and President Brett Ponton said brake transaction volume increased 6%.

Among Monro's in-store initiatives currently underway is providing consumers with good-better-best options in not just brakes, but tires and oil changes as well, Ponton said.

In the second quarter, the company’s net sales rose 10.5% to $307.1 million, compared to $278.0 million for the same period a year earlier. Net income improved 26% to $21.8 million, compared to $17.3 million a year ago.

Since the second quarter of last year, the company has grown to 1,178 stores, compared to 1,136.

As is typical for Monro, its sales increase is still driven largely by acquisitions. But comparable stores recorded better sales as well. Of the $19.1 million in sales, new stores accounted for $19.9 million, including $15.6 million from recent acquisitions. Comparable store sales increased 3.2%.

Brakes were the biggest factor in comparable store growth, but tire sales were also up 3%. Maintenance services and front end/shocks were both flat, while alignments were down 1%.

Operating income for the second quarter was $34.5 million, or 11.2% of sales, compared to $33.8 million, or 12.2% of sales in the prior year.

Acquisitions and new stores

During the period, Monro opened 17 new stores and closed three, ending the quarter with 1,178 company-owned stores and 97 franchise locations.

The company also announced two more acquisitions.

  • Ohio: Monro has an agreement to acquire five retail stores in Ohio. (The company didn’t identify the current owner.) The stores are expected to add about $5 million in annualized sales, and offer a sales mix of 70% service and 30% tires. The deal is expected to close during the third quarter.
  • Southeast: The company also has signed a definitive agreement to buy 13 retail locations in the Southeast. Those stores should add about $12 million in annualized sales, with a mix of 65% service and 35% tires. Again, Monro didn’t identify the stores’ current ownership or brand name. The deal is expected to close in the fourth quarter.

A seven-store acquisition previously announced, which would add $8 million in annualized sales, didn’t close during the second quarter as expected, and is now expected to close in the fourth quarter. Monro said the delay is due to “extended due diligence.”

All together, Monro says the acquisitions it has announced and completed so far in fiscal year 2019 represent $80 million in annualized sales.

From the CEO

Here’s what Ponton said about the company’s results thus far:

“We delivered another quarter of strong comparable store sales growth and robust earnings per share, driven by higher average ticket from improved in-store execution. Our sustained momentum reflects our relentless focus on driving operational excellence and delivering a consistent 5-star experience to our customers. The execution of our Monro.Forward strategic initiatives continues to progress on schedule, and we are pleased with the key milestones we achieved during the quarter. In addition to the launch of our data-analytics based CRM platform, we rolled out our new websites and expanded our collaboration with Amazon, underscoring the progress we have made in building a true omni-channel presence.

 “As we enter the second half of the year, we believe the strength of our year-to-date performance, the acceleration in our comparable store sales, up approximately 7% month-to-date in fiscal October, and the continued traction of our strategic initiatives position us well to achieve the high-end of our comparable store sales guidance, assuming normal winter weather conditions. We also believe we are well positioned to achieve our diluted earnings per share guidance. Given the success of our Monro.Forward strategy, we would like to maintain flexibility to accelerate our investments in the second half of the fiscal year and therefore are leaving our previous diluted earnings per share guidance in place. Overall, we remain confident that our Monro.Forward initiatives coupled with our disciplined acquisition strategy will allow us to drive a sustainable platform for long-term growth and strong shareholder returns.”

Outlook

For the second straight quarter, Monro improved its outlook for the fiscal year, which began in late March 2018.

The company anticipates fiscal 2019 sales to be in the range of $1.185 billion to $1.215 billion, an increase of 5.1% to 7.7% as compared to fiscal 2018 sales. This compares to the previous sales guidance range of $1.180 billion to $1.210 billion. Fiscal 2019 sales guidance continues to assume a comparable store sales increase of 1% to 3% on a 52-week basis.

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