TBC Corp. expects the recently acquired 225 National Tire & Battery stores from Sears, Roebuck and Co. to improve its earnings in 2004 by 25 percent and boost sales by more than a third to $1.7 billion to $1.8 billion.
But TBC officials acknowledge the first six months are expected to be tough going in part as the company waits to introduce one of its private label lines to NTB stores as it weans them off Sears' distribution and support network. In addition, TBC expects its Tire Kingdom Inc. and Merchants Inc. stores to be negatively impacted by managers pulling double duty to integrate the NTB stores.
This effect is noted in TBC's expectations, the company said, of comparable store sales growing in line with industry estimates of 2-3 percent rather than ahead of the forecasts.
For the year, however, TBC expects earnings to reach $1.80 to $1.90 per share, up from this year's anticipated earnings of $1.43 to $1.47. The NTB stores are expected to contribute about 15 cents per diluted share. Net sales in 2003 are expected to reach $1.3 billion.
TBC said the acquisition wasn't expected to have any material impact on its 2003 results but is expected to boost earnings in 2004.
To help fund the acquisition-which was completed in early December and had a price tag of $225 million plus $35 million for inventory and assets-TBC said it raised about $135 million from selling then leasing back 86 of the 89 NTB-owned stores.
Realty Income Corp. of Escondido, Calif., acquired the properties under 20-year, triple-net lease agreements. The realty company said it bought the stores for an average cost of $1.5 million, and it plans to hold about $110 million of the properties in its core portfolio as a long-term investment.
TBC expects to take five to seven months to fully integrate the stores-an estimate brought down from six to eight months previously-during which time TBC will continue to buy distribution and support services from Sears. That means TBC's plans to add its own private label to NTB will be on hold.
``Once we have the stores fully converted from the Sears system onto our own Tire Kingdom operational and distribution system, we will very aggressively introduce our own lines of tires into this organization,'' said Larry Day, president and CEO of the Memphis-based private brand marketer, during a conference call with analysts. ``That is one area where we have demonstrated success in every single one of our acquisitions.''
Previously, Mr. Day told Tire Business that TBC's Sigma brand is most likely to appear in the NTB stores. The company also markets the Multi-Mile, Cordovan and Vanderbilt private labels and Goodyear's Fulda associate brand, but Mr. Day said he did not expect those brands to be sold through the NTB stores.
The NTB stores will be integrated into TBC's Tire Kingdom company-owned retail store chain, bringing that subsidiary's store count to more than 590. TBC also franchises some 570 Big O Tires Inc. outlets. TBC said the NTB transaction was financed through debt and sale/leaseback agreements arranged by JP Morgan. TBC's existing credit facilities were amended to allow for the acquisition as well as an additional $65 million term loan.
The company said its NTB buyout provides it with entry into new markets, including Dallas, Houston and Austin, Texas; Chicago; Birmingham, Ala.; Boston; Kansas City; Philadelphia; and Pittsburgh, while strengthening its presence in markets such as Cleveland and Columbus, Ohio, and the Washington, D.C., metro area.
While TBC's company-owned retail outlets temporarily may suffer from the integration, Mr. Day said Tire Kingdom will continue adding stores. Tire Kingdom currently operates 367 stores without counting the NTB stores.
``While we are going about integrating the 225 stores into our system, Tire Kingdom will still open 20 new ground-up stores that had been in various stages of planning for 2004,'' he told analysts. ``And then going forward we will shift our growth emphasis more to filling in existing NTB markets as well as Tire Kingdom markets.''
TBC has increased its store count by about 25 percent, to more than 1,160 locations, the company said. NTB generates annual revenues of more than $425 million.
TBC's Big O Tires franchise subsidiary is not expected to be impacted by the integration process, which Mr. Day said likely would start in the Southeast. Big O is expected to add 25 franchises in 2004 for a total of 605 stores. All told, TBC expects to oversee 1,215 outlets by year-end 2004.
In November, Mr. Day said TBC planned to expand both subsidiaries aggressively, adding as many as 500 company-owned stores within three to five years. He envisioned Big O moving east and Tire Kingdom moving west after that period. At the same time, TBC's Carroll Tire wholesale operation is forecasted to grow along with the retail networks to support the growth and future acquisitions.
In fact, Mr. Day said TBC will have acquisitions on the brain again once it finishes this one.
``Once we have fully integrated the 225 NTB stores into our system and everything is going according to plan, we will move on to our next roll-out of acquisition candidates, and fortunately we do have several queued up for us to work on,'' Mr. Day said.