Monro posts income, sales gains

May 25, 2005

Monro Muffler Brake Inc. posted net income of $2.8 million on sales of $81.1 million for its fiscal 2005 fourth quarter ended March 26, 2005.

That compares to net income of $2 million on sales of $67.2 million for the company's fourth quarter of fiscal 2004.

The 21% increase in sales was a result of a 4.5% gain in comparable store sales and an $11.5 million sales contribution from new stores, according to the company. The comparable store sales result was driven by a 12% increase in the comparable store maintenance service category, including a 7% growth in comparable store oil changes, and a 12% increase in comparable store tire sales.

Gross margin improved to 38.5% versus 38.2% in the comparable period last year, despite a shift in sales mix to lower margin service and tire categories, largely due to the company's leveraging of its fixed costs and a decline in labor costs as a percentage of sales.

During the fourth quarter, the company added 15 stores, including 10 Mr. Tire stores acquired from Henderson Holdings Inc. Four stores were opened in BJ's Wholesale Club locations.

"During the fourth quarter, we continued our proven strategy of driving store traffic and building loyalty through attractively priced oil changes and industry-leading customer service," says Robert Gross, CEO and president. "This, combined with continued gains in our tire and maintenance service offerings, resulted in a strong 4.5% comparable store sales increase and, with new store sales, a 21% increase in fourth quarter sales.

"Further, higher selling prices combined with improved operating leverage resulted in margin gains."

For the full year, Monro recorded net income of $19.7 million on sales of $337.4 million. That compares to net income of $16.5 million on sales of $279.5 million in fiscal 2004. New stores added $54 million to the fiscal 2005 total.

The company revised its accounting policies in fiscal 2005 to comply with generally accepted accounting principles related to the timing of rent and depreciation expense for leased locations. These revisions resulted in a cumulative, non-cash adjustment to retained earnings as of March 2004 of approximately $4.8 million after-tax, and reduced fiscal 2005 net income by $500,000.

The impact of the accounting revision was not material to any prior interim or annual period, according to Monro.

"Our achievements in the fourth quarter, combined with our sales growth and cost discipline throughout the year, drove our solid annual earnings per share of $1.39, before the impact of the lease accounting revision, which was ahead of our expectations," says Gross. "During the year, we not only achieved sales and earnings results in line with our long-term objectives of approximately 20% top line growth and approximately 15% bottom line growth, but also outperformed the industry as a whole.

"Moreover, we completed two acquisitions of tire stores, which are performing very well and are on track to being accretive to earnings in our first year of ownership."

Based on business and economic conditions, Monro anticipates fiscal 2006 sales to be in the range of $375 million to $385 million, assuming a comparable store sales increase of between 3% and 5%.

Additionally, the company anticipates that it will continue to capitalize on acquisition opportunities that will allow it to meet its long-term objective of approximately 20% annual sales growth.

The company plans to open 16 new stores in fiscal 2006, aside from acquisitions; 10 are projected to be BJ's Wholesale Club locations.