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February 06, 2017 01:00 AM

Acquisitions aid Monro's Q3 operating gains

Tire Business Staff
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    ROCHESTER, N.Y. (Feb. 06, 2017) — Monro Muffler Brake Inc. reported 25.1-percent higher operating income for the quarter ended Dec. 24 on 20.6-percent higher sales, with revenue from recent acquisitions accounting for nearly all of the growth.

    Operating income grew to $33.1 million, or 11.5 percent of sales, while sales jumped to $288.3 million, Monro reported. Nearly 89 percent of the firm's growth in the quarter came from sales generated by dealerships and stores acquired in previous quarters.

    Comparable store sales growth was 2.3 percent, Monro said, driven by a 2-percent increase in traffic and one extra selling in the fiscal 2017 quarter. Sales growth was driven by tires (up 6 percent) while maintenance services were flat compared with the year-ago period.

    Monro President and CEO John Van Heel said Monro was able to deliver earnings at the "midpoint" of management's guidance despite a "challenging operating environment." Mr. Van Heel cited the return of winter weather in the quarter, "solid operational execution, effective cost control and the solid integration" of recent acquisitions as reasons for the earnings growth.

    Courtesy of John Van Heel, LinkedIn

    Monro President and CEO John Van Heel

    For the nine-month period ended Dec. 24, operating income slid 2.3 percent to $96.3 million on 7.7-percent higher sales of $769.5 million. As a result, the operating margin slipped slightly to 12.5 percent. Net income slipped 1.9 percent to $51.9 million.

    For fiscal 2017, Monro has revised downward slightly its earnings projection to a range of $1.95 to $2 per share based on "current visibility, business and economic trends." Sales should be in the $1.03 billion to $1.04 billion range, based on "soft comparable store sales" in January and the gains from acquisitions completed during the year.

    Newly acquired stores, or ones acquired before the end of the fiscal year, will contribute about $150 million in annualized sales, Mr. Van Heel said. They have diversified the firm's geographic footprint, generated "significant" scale and cost-competitiveness, including a 25-percent increase in Monro's annual tire unit purchases.

    The company has added 67 stores during the first nine months of the fiscal year and is in the process of acquiring 16 Car-X Tire & Auto stores in Illinois and Iowa from an existing Car-X franchise. Monro ended the third quarter with 1,098 company-operated stores and 131 franchised Car-X stores.

    Monro also disclosed in its third quarter 10-Q filing that it has signed definitive asset purchase agreements covering three retail tire and automotive repair stores located within its existing market footprint through two additional acquisitions. It also acquired seven retail tire and/or auto service stores during the quarter from independent dealers in Florida, Michigan, Ohio, Rhode Island and Ohio. They are:

    • One commercial tire and automotive repair store from Florida Tire Service L.L.C.; now operating as a Tire Choice outlet;
    • Retail tire and automotive repair stores in Davison and Flint, Mich., from Davco Delopment Co. and Ricketts Inc. (d.b.a. — Valley Tire & Service Center): now operating under the Monro name;
    • Three auto service centers in the Cleveland area from Parkway D/C Enterprises Inc.; now operating as Mr. Tire stores.; and
    • Hamel's Tire Center Inc. in Cumberland, R.I., now operating as a Monro outlet.

    "Looking ahead," Mr. Van Heel said, "we remain optimistic in our ability to complete additional accretive acquisitions, supported by our robust pipeline, while continuing to actively manage the business to maximize profitability in a choppy environment. We are confident that this proven strategy will drive bottom-line growth and market share gains, while creating long-term value for our shareholders."

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