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Acquisition strategy helps Monro thrive

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Tony Cristello, managing director of BB&T Capital Markets Equity Research, says tough winter weather in the Northeast has greatly impacted Monro Muffler Brake Inc. However, he still rates Monro's stock as a "Buy (1)."

Cristello predicts same store sales will not be as high as previously projected. He also worries about the gas price impact on spending for larger ticket items such as tires, a key category for Monro.

"In our view, as gasoline prices move well above 3.5% of disposable personal income, history shows that consumers begin to revisit their driving patterns in an attempt to rebalance their budgets, which leads to slowing -- and even declining -- miles driven."

Given that the distance a vehicle travels is "a primary determinant of future maintenance and repair needs, all else being equal, the rebalancing process does not bode well for future aftermarket sales trends."

Cristello describes Monro's ability to manage the challenging times better than many of its competitors as "a silver lining."

"Should the industry be impacted by slower discretionary spend for a prolonged period of time, it is our belief that any near-term weakness in industry fundamentals resulting from higher gas price pressures should help accelerate potential acquisition activity, thus allowing Monro to take advantage of smaller underperforming competitors."

Monro Muffler Brake Inc. recorded record net income of $11.1 million on net sales of $165.5 million for the third quarter ended Dec. 25, 2010.

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