MONRO, INC. - 10-Q Filing Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for MONRO MUFFLER BRAKE, INC. for the fiscal quarter ended December 28, 2002, and the nine-month period ended on the same date. The company operates a chain of automotive repair stores. A significant event during this period was the acquisition of Kimmel Automotive, Inc. (34 stores in Maryland and Virginia) effective April 1, 2002, and the subsequent divestiture of Kimmel's Truck Tire division in June 2002.
Key Financial Metrics
| Metric | Quarter Ended Dec 28, 2002 | Nine Months Ended Dec 28, 2002 |
|---|---|---|
| Sales | $60.7 million | $196.6 million |
| Gross Profit | $22.9 million (37.8% margin) | $81.4 million (41.4% margin) |
| Operating Income | $4.5 million (7.4% margin) | $20.0 million (10.1% margin) |
| Net Income | $2.4 million | $11.2 million |
| Diluted EPS | $0.26 | $1.19 |
| Cash Flow from Operations | N/A (Quarterly not provided) | $20.7 million |
| Total Debt (Current + Long-term) | $35.1 million | $35.1 million |
| Cash and Equivalents | $0 | $0 |
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 15.8% for the quarter and 12.8% for the nine months compared to the prior year. This growth was driven primarily by new stores, including $6.0 million from the acquired Kimmel stores in the quarter and $18.6 million year-to-date.
- Comparable Store Sales: Increased 3.8% for the quarter and 1.6% for the nine months.
- Profitability: Net income increased 35.5% for the quarter and 20.0% for the nine months. Operating income rose 19.1% for the quarter.
- Margins: Gross profit margins decreased slightly (37.8% vs 37.9% for the quarter) due to the inclusion of Kimmel, which has a higher tire mix and consequently higher material costs. However, on a stand-alone basis, Monro's gross margin improved by 60 basis points.
- Interest Expense: Net interest expense decreased significantly (down $0.2 million for the quarter) due to a lower weighted average interest rate and reduced debt levels.
Guidance, Outlook, and Risks
- Outlook: Management expects the acquired Kimmel operations to be accretive to earnings for the entire fiscal year 2003. The company plans to continue store expansion and facility upgrades funded by cash flow from operations and bank financing.
- Liquidity: The company has a $135 million credit facility (expiring September 2003) with a commitment to extend the revolving portion through 2006. Cash and equivalents were $0 at period end, but management believes resources are sufficient for planned expansion.
- Risks and Contingencies:
- Synthetic Lease: The company has a synthetic lease for Speedy real estate with a guaranteed residual value of $26.4 million due in September 2003 if the lease is not renewed.
- Interest Rate Sensitivity: The company uses interest rate swaps (notional amount ~$36 million) to hedge against rate fluctuations.
- Integration Risks: Risks associated with integrating the Kimmel acquisition.
Investor Verification Checklist
- Verify the accretive impact of the Kimmel Automotive acquisition on full-year 2003 earnings as projected by management.
- Confirm the status of the credit facility renewal and the synthetic lease extension (due September 2003/2008).
- Monitor the company's ability to maintain comparable store sales growth in a competitive market.
- Review the impact of the new accounting standards (SFAS 146, EITF 02-16, SFAS 148) on future financial reporting.
- Assess the company's cash position given the $0 cash balance at period end and upcoming principal payments on the term loan.