Monro profits down despite higher sales

ROCHESTER, N.Y. (Jan. 30, 2013) — Monro Muffler Brake Inc. suffered double-digit drops in operating and net income for the quarter and nine months ended Dec. 29 despite higher sales in both periods.

Monro blamed the earnings declines on a shift in sales to lower-margin tire and service categories and a loss of leverage due to weaker year-over-year comparable store sales.

"The challenging economic environment continues to weigh heavily on our customers and the weather did not provide the tailwind we had anticipated in the third quarter," said Monro President and CEO John Van Heel, with the exception of the last two weeks of December when comparable store sales increased 10 percent after season snowfalls in the firm's marketing territories.

At the same time, though Mr. Van Heel noted that Monro's customers "continue to delay purchases and trade down from higher-cost automotive maintenance and repair purchases." He did note, though, that oil changes were flat year-over-year at comparable stores, demonstrating that customers "continue to perform basic maintenance on their vehicles and continue to perform that basic maintenance at our stores."

For the quarter, operating income fell 16.8 pecent to $18.8 million and net income slipped 16.9 percent to $11.3 million. Sales revenue was up 7.8 percent to $190.4 million, although the gain was attributable entirely to sales from recently acquired and newly opened stores.

Comparable store sales fell nearly $10 million on lower business in tires (down 2 percent), alignments (down 6 percent), front end/shocks (down 9 percent), brakes (down 12 percent) and exhaust (down 20 percent), Monro said. The sales contribution from new/acquired stores was $23 million.

For the nine-month period, operating income fell 21.3 percent to $58.2 million and net earnings dropped 21.9 pecent to $34.4 million. Sales increased 4.1 percent to $536.1 million, but comparable store sales were off 5.9 percent.

During November and December, Monro completed four acquisitions totaling 79 stores generating approximately $138 million in annualized sales. These transactions — 31 Tire Barn Warehouse (31 locations in Indiana, Illinois and Tennessee), Towery's Tire and Auto Care (27 stores in Kentucky and Indiana), Enger Tire (12 stores in northern Ohio) and Tire King (nine stores in North Carolina) — enable the company to fill in existing markets as well as expand its footprint into Kentucky and Tennessee.

Mr. Van Heel called Monro's long-term outlook "very positive" but cautioned that near term "visibility remains cloudy and we expect trends will continue to be choppy in our geographic regions as the economic environment weighs on consumer purchasing behavior."

Historically, he added, Monro's business model has allowed the firm to improve its market share regardless of the economic or operating environment, and the key long-term macro-economic trends — the number of vehicles in operation, the increasing average age of those vehicles and the decreasing number of service bays in operation — are unchanged and remain positive for the business.

Finally, Mr. Van Heel said Monro "continues to see increased acquisition opportunities in this challenging market."