ROCHESTER, N.Y.The specter of a new round of U.S. duties on imports of consumer tires from China is asinine, Monro Muffler Inc. Executive Chairman Robert Gross said recently, and will result in higher prices for U.S. consumers and renewed pressure on smaller independent tire dealers.
The added pressure on independents will result in additional acquisition opportunites for Monro, according to John Van Heel, president and CEO, who together with Mr. Gross spoke with financial anlaysts July 24 during a first-quarter conference call.
It's hard to understand the need for additional tariffs, Mr. Van Heel said, as major tire manufacturers have reported significantly improved margins and operating results. If additional tariffs are implemented, U.S. customers will end up paying more for every tire purchasedperiod.
That said, in the short term we will leverage our own distribution centers, logistics network and low borrowing costs...to increase our orders of direct-import tires. This will allow us to increase our competitive advantage on costs and allow us to continue to offer our customers great value.
During the conference call, Mr. Van Heel said direct imports now make up 40 percent of Monro's tire sales, nearly double the percentage it was just two years ago.
We would also expect that retail prices would begin to increase, which should cover our additional warehousing costs over the year and then some. It will likely solve our deflation impact from trade-down and help our comp tire sales if units don't suffer considerably.
Mr. Van Heel noted that Monro reported two of its best years financially during the three years that elevated tariffs were imposed on Chinese imports.
So if additional tariffs are implemented, we believe that our comps get better, our earnings get better and smaller tire dealers would find themselves under additional pressure, which would create more opportunities for us to make accretive acquisitions.
In short: Bring it on!
Mr. Gross was even more pointed in his comments during the conference call's question-and-answer session.
(The imports) didn't cost the (United Steelworkers) jobs, he said in response to a question. All these guys (tire makers) are opening plants.... It's unbelievably stupid, but then there's a lot of unbelievably stupid things going on across the country.
...(O)ur bet would be that it's likely going to go on, but it shouldn't have gotten to this point.... Be careful what you ask for, if you're the unions.... The bottom line is, the domestic manufacturers don't even compete with what's going with the imports.
Mr. Gross said Monro is even encouraged by the possibility of duties, because of the advantages Monro has with its purchasing power, low borrowing costs and existing buying relationships with Chinese suppliers.
...(T)he average retail price for the consumer and every tier high end or low end is going up, he said, which for us (Monro) will alleviate the deflation (in pricing) we've been struggling with.
Our plan is to maintain units, make more money....
Messrs. Gross and Van Heel said Monro is well positioned logistically and financially to stockpile tires from their Chinese suppliers ahead of the imposition of duties and leverage the pricing thereafter to their own advantage.