Monro Muffler Brake, Inc. Announces Record Fourth Quarter
~ Fourth Quarter Net Income Increases 17% ~
~ Full Year EPS is $1.51 after $0.02 Per Share Charge for Stock Option Acceleration ~
~ Fiscal 2007 Estimate is for Record Earnings Per Share of $1.68-$1.76 ~
ROCHESTER, N.Y., May 23 -- Monro Muffler Brake, Inc. , a leading provider of automotive undercar repair and tire services, today announced record financial results for the fourth quarter and full year ended March 25, 2006.
Financial Results
Sales for the year increased 9.3% to $368.7 million from $337.4 million in fiscal 2005, driven by a 1.7% increase in comparable store sales and a new stores sales increase of $26.6 million. On a comparable store basis, the maintenance service and tire categories posted the strongest results with gains of approximately 8% and 7%, respectively.
Gross profit for the year increased 8.1% to $147.8 million from $136.8 million last year. Gross margin was 40.1% compared to 40.5%, due to the sales mix shift to lower-margin tire and maintenance service categories and increases in the cost of oil and tires. The Company's ability to leverage its fixed cost base resulted in selling, general, and administrative expenses, as a percentage of sales, being reduced by 100 basis points to 29.3% compared to 30.3% last year. Selling, general, and administrative expenses for fiscal 2006 include a one-time, non-cash stock based compensation charge of approximately $300,000, recorded in the fourth quarter, related to the accelerated vesting of stock options as previously announced in the Company's press release on March 27, 2006. Taken together, the above noted factors drove a 15.6% increase in operating income to a record $39.8 million and a 60 basis point improvement in operating margin to 10.8%.
Net income increased 15.2% to $22.7 million versus $19.7 million in the year-ago period. Diluted earnings per share grew 11.9% to $1.51, based on 15.0 million shares outstanding, compared to $1.35, based on 14.6 million shares outstanding, last year. Excluding the stock based compensation charge, net income would have increased by 16.6% to $22.9 million and diluted earnings per share would have increased by 13.3% to $1.53 per share.
Sales for the fourth quarter of fiscal 2006 increased 8.8% to $88.3 million from $81.1 million in the fourth quarter of fiscal 2005 despite a decrease in comparable store sales of .4%, versus a 4.5% increase last year. The increase in new stores sales of $5.0 million and the bulk sale of $3.5 million of slower moving inventory in the quarter more than offset the comparable store sales decrease. Gross margin decreased to 36.8% in the fourth quarter from 38.5% in the prior year quarter due to cost increases and the sales shift to lower margin categories in the quarter. The Company's ability to leverage its fixed cost base offset the gross margin pressures and resulted in a reduction of 170 basis points in selling, general, and administrative expenses, as a percentage of sales, to 30.5% compared to 32.2% last year.
Operating income for the quarter amounted to $5.6 million, up from $5.1 million in the prior year quarter. Net income increased 17.2% to a record $3.2 million in the quarter versus $2.8 million last year. Diluted earnings per share grew 10.5%, based on 15.1 million shares outstanding, to $0.21, which includes the one-time non-cash charge associated with the accelerated vesting of all outstanding stock options. This compares to diluted earnings per share of $0.19, based on 14.7 million shares outstanding, last year. Excluding the stock based compensation charge, net income would have increased by 27.0% to $3.5 million and diluted earnings per share would have increased by 21% to $0.23 per share.
During the quarter, the Company opened two locations and closed two locations, ending fiscal 2006 with 625 stores.
Robert G. Gross, President and Chief Executive Officer, commented, "Fiscal 2006 clearly demonstrated the strength of our operating model. Despite a challenging environment highlighted by rising gas prices, we again delivered a record year and outperformed our industry by successfully leveraging our single-digit sales increase into solid double-digit bottom line growth. To accomplish this, we continued to expand our tire and service categories, which added incremental revenue and further reduced our dependence on exhaust sales. We also capitalized on opportunities to raise prices, continued to build our reputation as a trusted service provider, and successfully leveraged our fixed cost base."
Mr. Gross continued, "At the same time, the soft market environment provided us with opportunities to further our acquisition strategy. Specifically, we made an investment in Strauss Discount Automotive and bid for the assets of ProCare Automotive Service Solutions ("ProCare"), which we acquired in April 2006. By continuing to seek out attractive acquisition candidates, we have been able to increase our market dominance and pricing power, diversify risk between our tire and service formats, and further expand our industry-leading margins."
ProCare Integration Update
As previously announced on April 28, 2006, the Company completed the acquisition of 75 ProCare locations out of Chapter 11 Bankruptcy. These new stores effectively fill in Monro's existing markets and bring Monro's total store base to 700. The Company plans to convert approximately 44 ProCare stores to the Monro Muffler Brake & Service brand and the remaining 31 locations to tire stores under the Mr. Tire brand. The Company currently expects ProCare will add $33 million to $35 million of sales during fiscal 2007, representing 11 months of ownership, and will be between break even and a loss of $.05 per share, due to the weak economic environment and integration costs.
"The integration process is already well under way and, based on what we have accomplished thus far, we continue to believe ProCare will be an excellent addition to our business," stated Mr. Gross. "We view ProCare as a very opportunistic acquisition that offers significant upside potential. Given ProCare was in bankruptcy, it will take longer to ramp up to Monro's historical margins than has been our history with prior acquisitions. However, we were able to purchase the chain at a very attractive price and are intently focused on taking advantage of the above average comparable store sales and margin growth opportunities it presents. While 2007 will be a rebuilding year for this group of stores, we expect ProCare to run double- digit comparable store sales increases and positively contribute to our earnings in fiscal 2008 and beyond."
Mr. Gross continued, "Importantly, I am confident we have the right team in place to lead our business forward and successfully capitalize on our growing store base. In that regard, I'm pleased to announce that Joe Tomarchio, Jr. has been promoted to President, Tire Group. Based on his strong contributions to-date, we believe he is the right person to lead our ever growing tire business and further increase our presence in this important category."
Company Outlook
Based on current business conditions, the integration of ProCare, and fiscal 2007 being a 53-week year, the Company currently anticipates fiscal 2007 sales to be in the range of $410 million to $420 million, assuming a comparable store sales increase of 1% to 3%. The Company expects earnings per diluted share in the range of $1.68 to $1.76 based on weighted average shares outstanding of 15.3 million as compared to earnings per diluted share of $1.51 based on 15.0 million weighted average shares outstanding in fiscal 2006, representing an 11% to 17% increase in diluted earnings per share. For the first quarter of fiscal 2007, the Company currently anticipates diluted earnings per diluted share to be between $.45 and $.48, with comparable store sales down 2% to 3%.
Mr. Gross concluded, "We expect our full year results will be very solid and represent another strong year. However, we will not generate our typical level of year-over-year growth in the first quarter due to the integration costs and operations of ProCare and the current soft environment. Thus far, we have seen a slight decrease in store traffic, and consumers continue to defer automotive maintenance and repair purchases in response to continued increases in gasoline prices and rising interest rates. That said, we believe that many of these purchases cannot be deferred indefinitely and we expect to see our consumers return to more normalized spending levels later in the year. Importantly, the steps we are taking now to integrate recently-acquired ProCare will position us for long-term growth. As such, we are particularly excited about our prospects in fiscal 2008, when we expect to more fully benefit from our ownership of ProCare and Strauss, with a Strauss transaction still on track to close by September 30, 2006."
Monro Muffler Brake operates a chain of stores providing automotive undercar repair and tire services in the United States, operating under the brand names of Monro Muffler Brake and Service, ProCare, Mr. Tire and Tread Quarters Discount Tires. The Company currently operates 700 stores and has 16 dealer locations in New York, Pennsylvania, Ohio, Connecticut, Massachusetts, West Virginia, Virginia, Maryland, Vermont, New Hampshire, New Jersey, North Carolina, South Carolina, Indiana, Rhode Island, Delaware, Maine and Michigan. Monro's stores provide a full range of services for exhaust systems, brake systems, steering and suspension systems, tires and many vehicle maintenance services.
MONRO MUFFLER BRAKE, INC.
Financial Highlights
(Unaudited)
(Dollars in thousands, except per share amounts)
Quarter Ended Fiscal March
2006 2005 % Change
Sales $88,273 $81,119 8.8%
Cost of sales, including
distribution and occupancy
costs 55,796 49,852 11.9
Gross profit 32,477 31,267 3.9
Operating, selling, general
and administrative expenses 26,888 26,153 2.8
Operating income 5,589 5,114 9.3
Interest expense, net 941 738 27.6
Other (income) expense, net (834) 232
Income before provision for
income taxes 5,482 4,144 32.3
Provision for income taxes 2,237 1,374 62.7
Net income $3,245 $2,770 17.2
Diluted earnings per share $0.21 $0.19 10.5%
Weighted average number of
diluted shares outstanding 15,135 14,663
Number of stores open
(at end of quarter) 625 626
MONRO MUFFLER BRAKE, INC.
Financial Highlights
(Unaudited)
(Dollars in thousands, except per share amounts)
Year Ended Fiscal March
2006 2005 % Change
Sales $368,727 $337,409 9.3%
Cost of sales, including
distribution and occupancy
costs 220,915 200,616 10.1
Gross profit 147,812 136,793 8.1
Operating, selling, general
and administrative expenses 108,030 102,379 5.5
Operating income 39,782 34,414 15.6
Interest expense, net 3,478 2,549 36.5
Other (income) expense, net (502) 463
Income before provision for
income taxes 36,806 31,402 17.2
Provision for income taxes 14,140 11,733 20.5
Net income $22,666 $19,669 15.2
Diluted earnings per share $1.51 $1.35 11.9%
Weighted average number of
diluted shares outstanding 15,022 14,562
MONRO MUFFLER BRAKE, INC.
Financial Highlights
(Unaudited)
(Dollars in thousands)
March 25, March 26,
2006 2005
Current assets
Cash $1,251 $888
Inventories 61,427 59,753
Other current assets 16,252 16,878
Total current assets 78,930 77,519
Property, plant and equipment, net 163,625 164,309
Other noncurrent assets 55,662 43,157
Total assets $298,217 $284,985
Liabilities and Shareholders' Equity
Current liabilities $47,965 $50,361
Long-term debt 46,327 55,438
Other long term liabilities 10,935 11,697
Total liabilities 105,227 117,496
Total shareholders' equity 192,990 167,489
Total liabilities and shareholders'
equity $298,217 $284,985