Monro Muffler Brake Inc. is pushing further into the tire retail field, agreeing to buy 36 Mr. Tire outlets in Maryland and Virginia in an asset purchase transaction valued at about $29 million.
The acquisition, due to close in March, ``represents an exciting opportunity to increase our market share in the mid-Atlantic region, particularly in the important Baltimore market,'' said Monro President and CEO Robert G. Gross. ``Mr. Tire has a dominant presence, strong brand recognition and I believe the best performance in that market.''
Monro is acquiring the Mr. Tire chain from privately held Mile One Automotive, a new car dealership group that bought Mr. Tire five years ago.
The Mr. Tire chain, comprising 26 tire and automotive repair stores and 10 kiosks located in Mile One car dealerships, reported $50 million in sales last year.
Monro anticipates booking pre-tax earnings of between $5 million and $6 million in the first full year of ownership, Mr. Gross said, with a contribution of 6 to 10 cents a share in fiscal 2005, which begins March 28. Monro will finance the acquisition from its existing revolving credit facility.
Mr. Gross complimented the Mr. Tire organization, calling it a ``profitable, well-run operation with talented management and employees. We look forward to this acquisition further strengthening our business and solidifying our platform for continued growth.''
Monro expects the addition of the Mr. Tire stores, which have posted comparable store sales increases of more than 12 percent each of the past two years, to improve its tire margins companywide. Mr. Tire's revenues have more than doubled to $50 million from $20 million in the five years Mile One has owned it, Mile One Automotive CEO Steven Fader said.
``Combined with our 24 Kimmel and Speedy stores in the area and contiguous Tread Quarters tire stores in Virginia,'' Mr. Gross said, ``we anticipate near-term synergies in operations, purchasing, logistics and advertising, leading to increasing profitability beyond fiscal 2005.''
Monro said it has no plans to close any of the Mr. Tire locations, and the stores will continue to operate under the current brand name. Monro intends to retain substantially all Mr. Tire store employees.
``We considered Monro to be the best fit in the long-range plans for Mile One,'' Mr. Fader said. ``Our complementary products and services, parallel commitment to our customers and similarly dedicated employees will ensure a smooth integration. Our agreement provides for a long-term, ongoing, strategic relationship that should only reinforce our continued support for all of our customers.''
The acquisition will expand Monro's presence to more than 600 company-owned locations in 18 states, operating under the Monro Muffler Brake and Service, Speedy Auto Service by Monro, Kimmel Tires-Auto Service, Tread Quarters Discount Tires and Mr. Tire brands.
Monro's stores provide a full range of services for exhaust systems, brake systems, tires, steering and suspension systems and many vehicle maintenance services.
The firm launched its strategy to increase its tire and tire-related business in late 2000, adding the Goodyear brand to its tire product offerings.
In April 2002 Monro bought Kimmel Automotive Inc., which operated 15 Kimmel Tire & Auto Centers in metro Baltimore and 19 Tread Quarters Discount Tire outlets in Virginia's Tidewater area. In February 2003 it added Frasier Tire Service Inc.'s 10 retail outlets in South Carolina.
Monro's push in this direction probably will continue, said Robert Straus, a senior analyst at Independent Research Group who follows the company. Mr. Straus said IRG believes Monro will continue to pursue this strategy because company management ``sees the potential for continued operating improvement through cross-pollination between its scheduled services and tire businesses.''
Mr. Straus pointed out this latest move will increase Monro's long-term debt to about $75 million-still well under its revolving credit facility of $110 million. This leaves the company with enough credit room for another acquisition on the same order of size as the Mr. Tire one.
Monro's sales for the first nine months of fiscal 2004 were $212.3 million, up 8 percent from $196.6 million the previous year. Net income jumped 31.7 percent to $14.8 million from $11.3 million.
Tires and related services accounted for about 11 percent of fiscal 2003 sales, according to the company's financial documents.
Mile One is a privately held company with 45 car dealerships offering 26 brands throughout Maryland, Pennsylvania and Virginia.