Monro's 1Q results will reflect industry slowdown

July 23, 2012

How will Monro Muffler Brake Inc.'s first-quarter financials fare following record net income and sales for its fiscal year ended March 31, 2012?

Officially, we will find out on Thursday, July 26, when the company releases its 1Q 2013 results. However, BB&T Capital Markets automotive aftermarket analyst Bret Jordan believes Monro will post first-quarter earnings per share slightly below consensus "given widespread industry commentary around (an) aftermarket parts slowdown in June, continued soft tire demand and weather related softness in April."

Here are his comments about the performance of Monro and the automotive aftermarket in June and July.

Softening consumer confidence in June. "While we believe the street is well versed on what Monro management referenced as the worst seven-week sales period in over a decade when describing April and early May sales trends, we believe consumer softness in June may not be fully reflected in consensus numbers." Here's why:

1. Aftermarket peer O'Reilly Auto Parts announced lower than anticipated June comp.

2. A recent supplier survey was generally downbeat on the month.

3. June industry tire shipments remained stagnant regionally (Jordan says tire shipments in the Northeast declined 14.2% year to date through May compared to the previous year, and 3.2% in June alone).

"On a brighter note, aftermarket peer Genuine Parts Co. recently reported modest improvement in June trends, countering what has been thus far universally cautious industry commentary on the month."

July trends position for recovery, but at what pace? "We expect the recent heat wave in July that has engulfed the East Coast and Midwest -- encompassing Monro's entire store base -- and increasing vehicle utilization with lower gas prices will be a longer term demand driver as failure rates increase in extreme weather and tire sales correlate with miles driven.

"That said, commentary from suppliers and competitors paints a picture of only modest improvement month-to-date, with a bias to service sales rather than tires. While we expect July weather and traffic trends to drive increased demand as we progress through the summer and fall, we expect to hear commentary of more modest improvement in early Q2 sales when management provides current quarter guidance with a more bullish outlook on future demand trends."

Monro posted record net income of $54.6 million on record net sales of $686.6 million for its 2012 fiscal year. To check out the company's full-year and fourth quarter financial results for its fiscal 2012, click here.

BB&T Capital Markets is a division of Scott & Stringfellow Inc., a registered broker/dealer subsidiary of BB&T Corp.