Business Context and Reporting Period
Company: MONRO MUFFLER BRAKE, INC. (Monro)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended September 26, 2009 (Fiscal 2010)
Business Overview: Monro operates a chain of retail tire and automotive repair stores. As of September 26, 2009, the company operated 739 company-operated stores. The company reports on a 52/53-week fiscal year ending the last Saturday in March.
Key Financial Metrics
| Metric | Quarter Ended Sep 26, 2009 | Six Months Ended Sep 26, 2009 |
|---|---|---|
| Sales | $136.6 million | $264.7 million |
| Gross Profit | $58.9 million (43.1% margin) | $115.3 million (43.5% margin) |
| Operating Income | $17.5 million (12.8% margin) | $34.5 million (13.0% margin) |
| Net Income | $10.0 million | $19.4 million |
| Diluted EPS | $0.49 | $0.95 |
| Cash and Equivalents | $4.3 million | $4.3 million (Balance Sheet) |
| Operating Cash Flow (6mo) | N/A | $35.5 million |
| Total Debt (Current + Long-term) | $84.3 million | $84.3 million (Balance Sheet) |
Material Changes vs. Prior Period
- Sales Growth: Sales increased 13.9% for the quarter and 10.2% for the six months compared to the prior year. This was driven by a 7.4% comparable store sales increase and $10.0 million in sales from new stores (primarily the Autotire acquisition).
- Profitability: Net income increased 30.4% for the quarter and 25.5% for the six months. Operating income margins improved to 12.8% (quarter) and 13.0% (six months) from 11.5% in the prior year periods.
- Acquisitions: The company acquired 26 Autotire stores in June 2009 and 4 Midwest Tire stores in September 2009, contributing significantly to sales volume.
- Store Count: Total stores increased from 709 to 739. The company opened 4 stores and closed 5 during the quarter.
Guidance, Outlook, and Risks
- Outlook: Management attributes improved sales to strong execution, effective advertising, and price increases. They believe soft economic conditions are driving consumers to repair vehicles rather than trade them in, and that dealership closures by major automakers will drive additional traffic to Monro.
- Capital Resources: The company has a $163.3 million committed revolving credit facility with an accordion feature up to $200 million. Approximately $64.0 million was outstanding as of September 26, 2009. Management believes resources are sufficient for planned expansion.
- Subsequent Event: On October 4, 2009, the company closed the acquisition of 46 Tire Warehouse locations for approximately $34 million.
- Risks: Risks include dependence on primary markets, competition, economic conditions, parts supply restraints, and integration of acquired businesses. The company is under audit by certain state tax jurisdictions for fiscal years 2001-2007.
- Dividends: The Board declared a quarterly cash dividend of $0.07 per share for fiscal 2010.
Investor Verification Checklist
- Acquisition Integration: Verify the financial performance and integration progress of the recently acquired Autotire and Midwest Tire stores, as well as the subsequent Tire Warehouse acquisition.
- Debt Covenants: Confirm continued compliance with debt covenants, specifically interest and rent coverage ratios, given the increased debt load from acquisitions.
- Comparable Store Sales Sustainability: Assess whether the 7.4% comparable store sales increase is sustainable given the broader economic environment and consumer spending trends.
- Tax Contingencies: Monitor the outcome of state tax audits for fiscal years 2001-2007, which could impact unrecognized tax benefits.
- Capital Expenditures: Review the execution of the $20 million agreement to purchase 30 leased store properties, of which 21 have been purchased as of the reporting date.