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Monro posts record income, looks at acquiring more stores

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Monro Muffler Brake Inc. posted record net income of $3.7 million on sales of $80.5 million for the third quarter ended Dec. 25, 2004. That compares to net income of $3 million on sales of $64.5 million for the same period a year ago.

Comparable store sales were up 2.4% "due in large part to an approximate 15% increase in the comparable store maintenance service category, including a 15% increase in comparable store oil changes, and a 5% increase in comparable store tire sales," according to the company.

(December comparable store sales increased 5%, while January's performance month-to-date is up approximately 5.5%.)

Gross margin also improved, despite the sales mix shift toward lower margin oil changes and tires. Monro said this was largely due to the leveraging of its fixed costs.

"During the third quarter, we generated positive same store sales, as well as net income growth in excess of 20%, despite the fact that consumers continued to defer purchases of substantial items such as brakes, struts and exhaust," says CEO and President Robert Gross.

"Our same store traffic, up approximately 6% in the quarter, continues to increase and customer loyalty is strong. We believe this means we are well positioned to benefit when consumers find they can no longer defer essential higher ticket purchases."

He says Monro is rising above the competition thanks in part to "the competitive pricing of oil changes, which has proven to be a key traffic driver."

New stores contributed $14.8 million in sales during the quarter. The company added 14 stores, including five retail stores acquired from Donald B. Rice Tire Co. Monro also partnered with seven BJ's Wholesale locations. It closed two stores during the quarter.

"As we look to enhance on our industry leading position, we continue to view our acquisition strategy as an important component of our store expansion and growth objectives," says Gross. "This strategy remains on track, as evidenced by our recent agreement to acquire 10 Mr. Tire stores in southern Maryland. These stores generate approximately $12.5 million in annual sales and the purchase price of $7.5 million will be paid with $1 million in cash and $6.5 million in Monro common stock.

"We remain very focused on finding similar opportunities that will allow us to grow our store base at compelling prices, further build our market share in key geographic areas and increase profitability over the short and long term."

Sales for the nine-month period increased 20.7% to a record $256.3 million compared to $212.3 million a year ago. Net income increased 16.5% to a record $17.3 million.

Monro's stock was selling for $24.49 a share at the close of NASDAQ on Tuesday, Jan. 18. That compares to a 52-week high and low of $27 $18.78, respectively.

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