Business context and reporting period
Monro Muffler Brake, Inc. operates automotive repair and tire stores. This unaudited Form 10-Q covers the quarter ended December 24, 2011, and the filing’s year-to-date period through that date; comparisons are with the corresponding fiscal 2010 periods. Fiscal 2012 ends March 31, 2012, and is a 53-week year.
Financial performance
Amounts are in millions except per-share data. The filing labels the periods as the quarter and nine months ended fiscal December.
| Metric | Quarter 2011 | Quarter 2010 | Year-to-date 2011 | Year-to-date 2010 |
|---|---|---|---|---|
| Sales | $176.7 | $165.5 | $514.8 | $485.9 |
| Gross profit / margin | $67.8 / 38.4% | $64.7 / 39.1% | $209.9 / 40.8% | $197.1 / 40.6% |
| Operating income / margin | $22.6 / 12.8% | $18.7 / 11.3% | $74.0 / 14.4% | $64.0 / 13.2% |
| Net income | $13.6 | $11.1 | $44.1 | $37.6 |
| Diluted EPS | $0.42 | $0.35 | $1.37 | $1.18 |
| Operating cash flow | Not provided | Not provided | $71.0 | $54.4 |
Quarter sales rose 6.8%, operating income 21.2%, net income 22.5%, and diluted EPS 20.0%. Year-to-date sales rose 6.0%, operating income 15.6%, net income 17.3%, and diluted EPS 16.1%. Quarter comparable-store sales declined 0.2% (1.3% after adjusting for selling days); year-to-date comparable-store sales increased 0.4%, or were flat after selling-day adjustment.
Liquidity, debt and capital
- Cash was $2.0 million at December 24, 2011, versus $2.7 million at March 26, 2011. Current assets were $131.2 million and current liabilities $111.2 million.
- Balance-sheet current and long-term debt totaled $46.3 million, versus $55.0 million at fiscal year-end. The company separately reported $44.9 million of capital leases due in installments through 2042.
- Operating cash flow of $71.0 million funded, alongside borrowings, investments and distributions. Capital expenditures were $19.0 million; acquisitions used $37.8 million. Dividends paid were $8.2 million.
- A new five-year $175 million revolving credit facility was entered into in June 2011, with an option to request up to $75 million more. At quarter-end, $0.8 million was drawn, $18.3 million of letters of credit were outstanding, and stated net availability was $155.9 million. The company reported compliance with all debt covenants.
Material changes, outlook and risks
- The company acquired 24 stores in Pennsylvania and New Jersey in the first quarter and eight stores in Ohio, Pennsylvania and Maine in the third quarter. It had 803 company-operated stores and three franchised locations at quarter-end, versus 783 and three a year earlier.
- Quarter gross margin fell 0.7 percentage points as material costs, including oil and tires, rose faster than selling prices. Year-to-date gross margin increased 0.2 points. Operating margin improved in both periods; a $1.7 million gain on the sale of seven stores benefited quarterly operating expenses.
- Management attributed weaker quarterly comparable sales, particularly tire sales, to economic weakness, high gasoline and tire prices, consumer confidence, and milder winter weather. It noted increases in comparable brake and exhaust sales and average sales per invoice.
- During the year-to-date period, a $3.2 million bulk sale of slower-moving inventory for barter credits had lower-than-normal margins. Management said it had sufficient resources to pursue planned expansion over the next 12 months; no specific earnings or sales guidance was provided.
- Risks identified include economic conditions, consumer demand, competition and pricing, parts supply, acquisition integration, capital availability, leverage and interest-rate changes. The filing noted state tax audits; unrecognized tax benefits were $5.6 million, with approximately $1.0 million of related interest and penalties accrued. Ordinary-course legal claims were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Whether comparable-store sales and tire demand recover, and how much selling-day and weather effects influenced results.
- How much margin pressure from tire, oil and other material costs persists, and the extent to which the store-sale gain affected reported operating improvement.
- Acquisition performance, final purchase-price allocations, and the effect of store expansion and capital spending on cash generation and debt.
- Future borrowing, capital-lease obligations, covenant headroom, and the board’s discretion over dividends.
- The outcome of tax examinations and any changes to uncertain tax positions. The filing’s period-date description for the year-to-date statements is not fully clear; confirm the exact comparable reporting duration when reviewing the underlying filing.