UPDATE: Flat tire sales, but more acquisitions for Monro
Monro Muffler Brake Inc. continued its acquisitions streak during the first quarter of its 2016 fiscal year, adding 31 stores.
In August, Monro expects to finalize the purchase of 27 stores from Kost Tire and Auto Care based in Binghamton, New York. There is no association between these stores and the Kost Tire group based in Clarks Summit, Pa., which runs 23 stores.
Earlier this month, Monro closed on a deal to purchase four stores from Windsor Tire in Massachusetts. The company announced the acquisitions as part of its earnings report for the first quarter of 2016, ended June 27, 2015.
In that quarter, Monro recorded increases in both net income and net sales over the same period a year ago. Net income was $18.8 million, compared to $16.9 million, and net sales was $236.5 million, compared to $217.5 million from the prior year.
The company's income-to-sales ratio was 7.9% for the quarter.
Monro says the $19 million sales increase for the quarter was due to an increase in sales from new stores of $25.2 million, including sales from recently acquired stores of $23.1 million. Comparable store sales were down .4%
Tire sales at those comparable sales were flat, as were brake sales. Alignments were up about 8%, while maintenance and exhaust services were down 2% and 3% for front end/shocks.
Gross margin increased to 42.2% in the first quarter from 41.4% in the prior year, largely due to the benefit of lower material costs as a percentage of sales and increased payroll efficiency. Total operating expenses were $66.1 million, or 28% of sales, as compared with $60.6 million, or 27.9% of sales, for the same period of the prior year. The increase in operating expenses as a percent of sales reflects costs associated with Monro’s fiscal 2015 and 2016 acquisitions, largely offset by focused cost control.
Operating income for the quarter increased 14.3% to $33.6 million from $29.4 million in the first quarter of fiscal 2015. Interest expense was $3.4 million as compared to $2.1 million in the first quarter of fiscal 2015.
Net income for the first quarter increased 11.0% to a record $18.8 million from $16.9 million in the prior year period. Diluted earnings per share for the quarter increased 9.6% to $.57, achieving the midpoint of the Company’s estimated range of $.55 to $.59. Earnings per share are net of approximately $.01 of due diligence costs related to completed and potential acquisitions. This compares to diluted earnings per share of $.52 in the first quarter of fiscal 2015. Net income for the first quarter of fiscal 2016 reflects an effective tax rate of 38.0% as compared with 38.1% for the prior year period.
Acquisitions and new stores
The 27 stores to be acquired definitively in August -- which include two stores on the N.Y.-Pennsylvania border in Great Bend and Sayre, Pa. -- will be rebranded as Mr. Tire stores, while the four stores in Massachusetts will take on the Monro Brake & Tire name. Those new Mr. Tire stores will significantly increase Monro's market share in those markets. It also will help advance the company's two-brand strategy, in which the company operates multiple stores under different brand names in the same market.
In addition to the acquisition, Monro said it opened four locations and closed four locations during the quarter, giving the company 999 company-operated stores, plus 145 franchised Car-X stores which were acquired earlier this year.
Combined, these 31 acquired stores are expected to add approximately $31 million in annualized sales, representing a sales mix of 60% service and 40% tires. These acquisitions are expected to be breakeven in fiscal 2016.
John Van Heel, president and CEO of Monro said, “We are also pleased by the acquisitions we’ve completed and announced already this year. Looking ahead, we remain very encouraged by the opportunities we see to complete additional accretive acquisitions in fiscal 2016. Overall, we are confident that our long-term strategic plan and the flexibility of our business model will continue to deliver increased market share and shareholder returns.”
Based on current visibility, business and economic trends, and the recently completed and pending acquisitions, the company now anticipates fiscal 2016 sales to be in the range of $950 to $970 million versus the previous guidance range of $935 to $955 million. The fiscal 2016 sales guidance reflects a comparable store sales increase of 1% to 3%.
For the second quarter of fiscal 2016, the company anticipates sales to be in the range of $233 to $237 million and comparable store sales to increase 1% to 3%.
Van Heel said “Our team’s strong execution and Monro’s ability to drive lower costs, coupled with the success of our recent acquisitions, further demonstrate that our business model is working. We were also encouraged to see that following a slow start to the first quarter, comparable store sales improved, turning slightly positive in May and June and increasing approximately 2% month-to-date in July on positive traffic trends. Overall, we remain confident in our business model and in our ability to increase our market share and deliver strong overall sales and earnings growth, in both strong and weak markets.”