Monro optimistic despite earnings drop

ROCHESTER, N.Y. — Monro Muffler Brake Inc. management is forecasting double-digit growth in sales and earnings for fiscal 2018 despite a dip in operating income and lower same-store sales for the year ended March 25.

Monro President and CEO John Van Heel attributed the company's optimism for the coming fiscal year to the expected benefits from recent acquisitions and improving sales trends, the latter driven by higher average ticket prices for tires.

"Looking ahead," he said, "we are optimistic about the opportunities we see to complete additional acquisitions, continue our greenfield expansion and benefit over the next several years from the growth in the number of vehicles six years old and older, which represent our core customer."

Fiscal 2017 operating income dropped 3.5 percent to $116.4 million on 8.3-percent higher sales of $1.02 billion. Monro cited "deleverage caused by negative comparable store sales and dilution from fiscal 2017 acquisitions" for the earnings drop.

Net income fell 7.9 percent to $61.5 million.

All of Monro's sales growth in the past year can be attributed to the first-time inclusion of business from new stores and acquisitions, which totaled $124.3 million. This gain was offset by a 4.3-percent comparable store sales decline, including drops of about 2 percent for tires, 4 percent for maintenance services, 6 percent for alignments, 8 percent for brakes and 10 percent for front end/shocks.

Mr. Van Heel attributed the same-store sales declines to a combination of unseasonable weather and a "difficult consumer spending environment."

The Monro executive noted that same store sales improved in the last weeks of fiscal 2017 and first weeks of the new fiscal year, led by higher average ticket. On a comparable store basis, he added, Monro is realizing higher margins in both tire and service categories in the first quarter.

Monro's board raised the quarterly cash dividend 5.6 percent to 18 cents per share, the 12th increase in the past dozen years, a move that "reflects the board's continued confidence in Monro's long-term strategic plan and commitment to increasing shareholder returns," Mr. Van Heel said.

Monro also reported that it has completed the previously announced acquisition of 16 Car-X stores from franchisee NONA Inc., including 13 locations in Illinois and three in Iowa.

These stores are expected to add approximately $15 million in annualized sales, representing an expected service/tires sales mix of 75/25, and will continue to operate under the Car-X brand, Monro said.

The company's acquisitions completed in fiscal 2017 are expected to add $150 million in annualized sales, or roughly 16-percent in annualized sales growth over fiscal 2016. These acquisitions are expected to increase Monro's tire purchases by approximately 25 percent over fiscal 2016, expanding the firm's tire assortment and enhancing cost competitiveness.