ROCHESTER, NY — Monro Muffler Brake has announced record financial results for the second quarter, which ended on Sept. 25.
Second quarter sales increased 19.3 percent to $88.4 million from $74.1 million in the second quarter of fiscal 2004. The sales increase was driven, in part, by a 6 percent improvement in comparable store sales, following a 6.6 percent increase in the same quarter of last year. New stores added $14.2 million, including $13 million from the acquired Mr. Tire stores. Comparable store sales benefited from one extra selling day, an approximate 15 percent increase in the number of comparable store oil changes and a 9 percent increase in scheduled maintenance services, as well as strong comparable store tire sales and an increase in comparable store traffic.
Gross profit was 42 percent of sales compared to 42.4 percent of sales in the same period last year, due to increased sales in the lower-margin tire category with the addition of Mr. Tire. Selling, general and administrative expenses increased to 28.9 percent of sales from 28.5 percent of sales, due, in large part, to higher than anticipated costs associated with Sarbanes-Oxley compliance requirements and non-capitalizable integration costs associated with Mr. Tire. Net income increased 13.1 percent to a record $6.7 million, or 46 cents per diluted share, in line with the company’s previously announced expectations. In the comparable period last year, net income was $5.9 million, or 40 cents per diluted share. The company opened three new stores and closed one during the quarter.
Sales for the six-month period increased 19 percent to a record $175.8 million from $147.8 million in the comparable period last year. Net income increased 15.5 percent to a record $13.6 million, or 94 cents per diluted share, compared to $11.8 million, or 82 cents per diluted share, in the year-ago period.
Robert Gross, president and CEO, commented, “Although we experienced challenging economic conditions and reduced consumer spending during the second quarter, we were able to again deliver record sales and earnings. Increased tire sales mix, combined with Mr. Tire integration costs and higher than anticipated Sarbanes-Oxley expenses, lowered our overall operating margins. Despite this margin pressure, diluted EPS increased 15 percent for the quarter over the same period last year.”
Separately, as announced earlier this week, the company signed a definitive agreement to acquire five retail tire stores from Donald B. Rice Tire Co., Inc. Located in the Baltimore market, the stores have combined annual sales of approximately $6.5 million. The stores will be added to the Mr. Tire division and are expected to be accretive to the company’s earnings in their first year of operation under Monro. The transaction should close this month.
“Store expansion remains a significant part of our growth and profitability objectives, and the recent weak marketplace provides the opportunity to acquire businesses at advantageous prices. We continue to evaluate attractively-priced targets which would further expand our market share and be accretive to earnings in a timely manner,” added Mr. Gross.
Mr. Gross continued, “Comparable store sales began on a weak footing early in the second quarter as our customers deferred large ticket purchases such as brakes, exhaust, shocks, and struts. However, we achieved a 6 percent comparable store sales increase in September, and this pattern of growth appears to be continuing thus far in October with an approximate 4 percent comparable store sales increase. We are encouraged by this positive sales trend as we move into the second half of the year and believe that strong customer loyalty will fuel further increases in oil changes and store traffic.”
For the third quarter, the company currently estimates comparable store sales growth to be between 3 percent and 5 percent, against 4 percent last year. The company anticipates earnings per diluted share to be between 24 cents and 26 cents versus 21 cents in the year-ago period. For the full year, the company’s revised guidance is $1.36 to $1.40 per diluted share, versus $1.18 last year.
“Our performance in the first half of the fiscal year, as well as additional non-recurring costs related to Sarbanes-Oxley and costs associated with acquisitions in the second half of this year, have caused us to reduce our previously estimated range for fiscal 2005 earnings. That said, our new range is in line with our consistent year-over-year EPS growth of 15 percent to 20 percent, and we remain confident in our ability to drive profitability and enhance shareholder value for the long-term,” concluded Gross.
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