Retail Service

Acquisitions are desirable, says Monro CEO

Order Reprints

Monro Muffler Brake Inc. posted net income of $11.6 million on sales of $169.2 million for the first quarter of its fiscal year 2013 ended June 30, 2012. That compares to income of $15.4 million on sales of $164.8 million for the same period last year.

Comparative operating income for the quarter decreased 24.7% to $19.7 million. The company's income-to-sales ratio was 6.8%.

Comparable store sales decreased 7.2% overall. Here is a breakdown of some of the products and services offered by Monro:

* exhaust, down approximately 15%;

* front-end/shocks, down 12%;

* brakes, down 11%;

* alignments, down 9%;

* tires, down 6%;

* maintenance services, down 3%.

"We remain optimistic that normalized weather in fall and winter and lower unit prices will drive recovery in Monro's (tire) unit volumes," said Brett Jordan, an analyst from BB&T Capital Markets, which maintained its "Buy (1) rating on the company's stock. (BB&T is a division of Scott & Stringfellow Inc., a registered broker/dealer subsidiary of BB&T Corp.)

The $4.4 million sales increase for the first quarter included a $17.7 million increase in sales from new stores.

Gross margins decreased to 40.3% in the first quarter from 43.0% in the prior year quarter due to increased tire and oil costs, a sales mix shift to lower margin tire and service categories, and a loss of leverage due to weaker year-over-year comparable store sales.

“As anticipated, the first quarter was challenging as the current economic environment weighed more heavily on consumers," says Robert Gross, chairman and CEO. "Customers are deferring and trading down from higher cost automotive maintenance and repair purchases

"Comparable store brake sales, which had held up reasonably well, reversed the positive trend seen throughout fiscal 2012. Notably, comparable store oil changes were up 2.5% year-over-year, indicating that customers continue to service their vehicles, while our recent acquisitions continue to outperform.

"More importantly, the availability of suitable acquisitions candidates at highly attractive valuations has accelerated, while our business model continues to help us successfully acquire and profitably integrate target companies," says Gross.

Monro recently signed a definitive agreement to acquire 17 stores from Tuffy Associates Corp. The stores include 13 stores in Milwaukee and Wisconsin, which expands the company’s footprint into a new contiguous market, and four stores in South Carolina, enabling the company to fill in an existing market.

The Wisconsin locations will be rebranded as Monro while the South Carolina locations will be rebranded as TreadQuarters. Annual sales for these stores are approximately $9 million.The closing is expected to occur in August, 2012.

Monro says it expects its sales for the year to be in the range of $715 to $735 million. For the second quarter of its fiscal 2013, the company anticipates a comparable store sales decrease in the range of 3% to 6%.

“Our long-term outlook for our industry and company remain extremely positive, though we expect that near-term trends will be choppy," says Gross. "While gas prices have come down recently and the weather has been more favorable, the economic environment seems to be taking a greater toll on consumer sentiment and purchasing behavior.

"Trends to-date in the second quarter remain challenging. However, we have historically leveraged our strong business model to continue to expand our operations and enhance shareholder returns regardless of the economic or operating environment.

"We continue to anticipate that trends will improve in the second half of fiscal 2013 as customers turn to us for purchases that can no longer be delayed and weather patterns normalize," he says. "We are optimistic about our ability to grow market share in fiscal 2013, which should allow us to achieve greater economies of scale while positioning the company even more strongly for the long-term.”

The company added 38 locations and closed five locations during the quarter, ending the quarter with 836. It is fourth on the Modern Tire Dealer 100 list of the top independent tire dealer chains in the United States.

Related Articles

Dobbs Tire Partners With Garage Gurus for Training

How to Leverage Inspections to Drive More Business

You must login or register in order to post a comment.