Monro has record results; enters Georgia market

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Monro Muffler Brake Inc. posted net income of $16.3 million on net sales of $221.3 million for its second quarter ended Sept. 27, 2014. That compares to income of $13.6 million on sales of $205.3 million for the same period last year. The company also announced the acquisition of nine stores in the Atlanta, Ga., area.

With the 20% increase in net income and 8% increase in sales, the company’s income-to-sales ratio was 7.3%. Net income and sales for the quarter are company records. Operating income for the quarter was up 21% to $28.9 million versus $23.9 million in prior year period.

The $16 million increase in sales was due to an increase in sales from new stores of $18.9 million, including sales from recently acquired stores of $16.5 million, offset by a comparable store sales decrease of 2%.

The decrease in comparable store sales breaks down as follows:

* alignments up 5%;

* brakes up 4%;

* front end/shocks were flat;

* maintenance services were down 2%;

* tire sales were down 4%; and

* exhaust down 6%.

The company announced it acquired nine stores with annual sales of $11 million in Georgia, a new state for Monro. The acquisition of Wood & Fullerton Inc. was completed in fiscal October 2014. The nine stores will operate under the Mr. Tire brand.

In August 2014, Monro completed the previously announced acquisition of 35 The Tire Choice locations in Florida, located in major west coast and east coast Florida markets.

On a combined basis, the company’s acquisitions completed to date in fiscal 2015 add 63 locations with total annualized sales of approximately $75 million. The acquisitions represent approximately 9% annualized sales growth with an approximate sales mix of 60% service and 40% tires.

During the second quarter, Monro added 42 locations, including 35 acquired stores and seven greenfield locations, while closing five stores. The company ended the quarter with 1,003 stores.

“We were able to expand operating margin by 140 basis points and increase net income by 20% as a result of significant contributions from our recent acquisitions, higher gross margins, and disciplined cost control,” says John Van Heel, chief executive officer and president.

“Despite a difficult macro-economic environment, consumers continued to turn to Monro as a trusted service provider to perform basic maintenance on their vehicles, as demonstrated by increases in key service categories this quarter, including brakes and alignments, which continued the positive trend we saw in the first quarter.

“For the first half of fiscal 2015, while overall traffic was up approximately 1% and comparable tire units were flat, comparable tire sales decreased 4% as consumers remained cautious and continued to trade down on higher ticket purchases.

“Looking forward, we expect this choppy market to continue in the short term, but remain focused on driving top-line growth and leverage through acquisitions while aggressively managing costs in order to continue to deliver strong earnings growth.”

Monro anticipates fiscal 2015 comparable store sales to be approximately flat versus the prior range of an increase of 1% to 3%. As a result primarily of the weaker sales guidance, the company is also revising its estimated fiscal 2015 diluted earnings per share to be in the range of $1.85 to $1.95, versus its prior range of $1.95 to $2.08.

For the third quarter of fiscal 2015, Monro anticipates comparable store sales to be in the range of a decrease of 2% to flat versus the prior year.

“Trends to date in the third quarter have remained challenging, with month-to-date comparable store sales down approximately 1.5%,” says Van Heel.

“While we are cautious in our outlook regarding near term sales trends, we believe that there is potential for upside in our comparable store sales trends in the second half of the fiscal year asmore consumers look to address their tire and service needs following last year’s harsh winter and an extended deferral cycle.

“Additionally, as a result of recent pricing increases, we anticipate that the price and mix impact on tire sales, which has pressured overall comparable store sales by approximately 1.5% in the first half of the fiscal year, will turn positive in the fourth quarter.”

For details on Monro’s first-quarter results, see “Monro 1Q: record sales due to new stores.”

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