ROCHESTER, N.Y.—Monro Muffler Brake Inc. is buying 35 Tire Choice & Total Car Care stores in South Florida, laying the foundation for what could be a network of as many as 150 retail stores in Florida in the coming years, Monro President John Van Heel told analysts in a recent conference call.
Monro disclosed July 24 it had agreed to buy the 35 stores from Hennelly Tire & Auto Inc., the Fort Lauderdale, Fla.-based company owned by Dan and Diane Hennelly. Financial terms were not disclosed, but Hennelly Tire reported sales of $51 million in 2012, the last year for which data are available.
Mr. Hennelly—president of Morgan Tire & Auto Inc. in the mid-2000s prior to his founding Hennelly Tire/Tire Choice—will consult with Monro for at least three years on site selection/development of new locations, Mr. Van Heel told Tire Business.
Monro's deal with the Hennellys comes just weeks after it closed a couple of deals in Michigan to buy 19 retail stores—10 in and around Grand Rapids from Lentz USA and nine in and around Flint from Kan Rock Tire & Auto Service—that generated about $14 million in sales last year.
In the conference call, Mr. Van Heel said Monro looks for the right opportunities when entering new markets, which is why it's starting with nearly 20 stores in Michigan and now 35 in Florida.
“We are not going to a new state like Florida for five stores,” he said, “but with the tremendous opportunities that exist down there, entering with 35 stores that cover major markets on those is a perfect way for us to get into a large market there.
“And it affords us the opportunity to bolt on additional stores, which will up drive the operating synergies we get by increasing the store density in our markets.”
Mr. Van Heel said the Tire Choice stores being acquired will continue to operate under that name and that Monro likely will use the Tire Choice identity alongside the Monro name in Florida.
The Tire Choice stores are located principally in South Florida, along both the Atlantic and Gulf coasts, with significant concentrations in Fort Myers/Naples (seven stores) and the greater Tampa Bay metro areas (11 stores).
In Michigan, Monro plans to convert the Lentz and Kan Rock stores to its Monro Brake & Tire brand. Monro said the Lentz and Kan Rock deals were part of $18 million in capital spending in its fiscal 2014 first quarter.
It also said it expects the acquisitions to be neutral to slightly accretive to earnings in the first year.
These latest acquisitions will push Monro's retail holdings to 960 tire and auto service outlets in 23 states, doing business as Monro Muffler Brake and Service, Mr. Tire, Tread Quarters Discount Tires, Autotire, Tire Warehouse, Tire Barn, Tire Choice and Towery's Tire & Auto Care.
The Lentz, Kan Rock and Tire Choice acquisitions represent annual sales of about $64 million, Mr. Van Heel said, or roughly an 8-percent boost in Monro's revenue. These stores' product mix is approximately 55/45 service vs. tires.
Monro is not done growing by acquisition. Mr. Van Heel said in the conference call. The chain has 10 more non-disclosure agreements signed with dealerships ranging in size from five to 40 stores.
“We still see meaningful opportunity for attractive deals in the marketplace given the current macro environment,” Mr. Van Heel said. “...(W)e remain very optimistic about our opportunities for additional acquisitions in the near future.”
All of the existing stores are in contiguous states, stretching from Missouri to Maine and Michigan to South Carolina. The Tire Choice stores are roughly 450 miles south of the next nearest Monro locations in South Carolina.
The Hennellys started their dealership in 2006, three years after Mr. Hennelly left Morgan Tire.
The dealership opened its 35th store in December 2012—with most being eight-bay outlets.
The Hennellys did not respond to a query for comment on the pending deal.
In Michigan, the Lentz Auto stores being acquired are in Battle Creek, Grand Rapids (five locations) and Kalamazoo (four sites). Six other Lentz USA stores—in the Kentwood and Lansing areas owned by founder/CEO Gordon Lentz's sons Brad and Greg—will continue to operate under the Lentz Auto Service Center name.
Kan Rock Tire's stores are in Bay City, Caro, Clio, Fenton, Flint (three locations), Lapeer and Saginaw. Its web site states the dealership has existed for more than 60 years.
For the quarter ended June 28, Monro reported a 27.3-percent jump in operating income to $29.4 million on 5.5-percent higher sales of $217.5 million. Net income rose 24.8 percent to a record $16.9 million.
Monro attributed part of the income gain to a shift in the mix of tires sold to lower-cost direct imports, “which carry a higher margin.” Nearly 90 percent of the sales gain came from revenue attributed to stores acquired in the past year, Monro said.