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MNRO > SEC Filings for MNRO > Form 10-Q on 30-Jul-2013All Recent SEC Filings

Show all filings for MONRO MUFFLER BRAKE INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for MONRO MUFFLER BRAKE INC


30-Jul-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts, including (without limitation) statements made in the Management's Discussion and Analysis of Financial Condition and Results of Operations, may contain statements of future expectations and other forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-Q, the words "anticipates", "believes", "contemplates", "see", "could", "estimate", "intend", "plans" and variations thereof and similar expressions, are intended to identify forward-looking statements. Forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results to differ materially from those expressed. These factors include, but are not necessarily limited to, product demand, dependence on and competition within the primary markets in which Monro's stores are located, the need for and costs associated with store renovations and other capital expenditures, the effect of economic conditions, the impact of competitive services and pricing, parts supply restraints or difficulties, advances in automotive technologies, industry regulation, risks relating to leverage and debt service (including sensitivity to fluctuations in interest rates), continued availability of capital resources and financing, disruption or unauthorized access to our computer systems, risks relating to protection of customer and employee personal data, risks relating to litigation, risks relating to integration of acquired businesses, including goodwill impairment and the risks set forth in our Annual Report on Form 10-K for the fiscal year ended March 30, 2013. Except as required by law, we do not undertake to update any forward-looking statement that may be made from time to time by us or on our behalf.

Results of Operations

The following table sets forth income statement data of Monro Muffler Brake,
Inc. expressed as a percentage of sales for the fiscal periods indicated:



                                                             Quarter Ended Fiscal June
                                                            2013                   2012
Sales                                                          100.0 %                100.0 %

Cost of sales, including distribution and
occupancy costs                                                 61.7                   59.7

Gross profit                                                    38.3                   40.3

Operating, selling, general and administrative
expenses                                                        27.1                   28.6

Operating income                                                11.2                   11.6

Interest expense - net                                            .9                     .8

Other income - net                                                -                      -

Income before provision for income taxes                        10.4                   10.9

Provision for income taxes                                       3.8                    4.0

Net income                                                       6.6 %                  6.9 %

First Quarter Ended June 29, 2013 Compared to First Quarter Ended June 30, 2012

Sales were $206.2 million for the quarter ended June 29, 2013 as compared with $169.2 million in the quarter ended June 30, 2012. The sales increase of $37.0 million or 21.9%, was partially due to a comparable store sales increase of 1.2%. Additionally, there was an increase of $36.0 million related to new stores, of which $34.4 million came from the fiscal 2013 acquisitions excluding Kramer. (The Kramer stores are considered comparable stores in fiscal 2014 as they were acquired on April 1, 2012 and in operation for a full fiscal year.) Partially offsetting this was a decrease in sales from closed stores amounting to $1.0 million. There were 90 selling days in the quarter ended June 29, 2013 and in the quarter ended June 30, 2012.

At June 29, 2013, we had 935 company-operated stores and three franchised locations as compared with 836 company-operated stores and three franchised locations at June 30, 2012. (At March 30, 2013, we had 937 company-operated stores.) During the quarter ended June 29, 2013, we added one store and closed three stores.


We believe that the 1.2% improvement in comparable store sales resulted from several factors, including an increase in sales across several product categories; specifically, maintenance services, tire and alignment sales. It is our belief that solid in-store sales execution, effective advertising campaigns and price increases in several product categories contributed to the sales improvement. Traffic also increased over the prior year first quarter. However, we believe the continued weak economic conditions resulted in lower comparable store sales than anticipated as consumers continued to defer repairs to their vehicles.

Gross profit for the quarter ended June 29, 2013 was $78.9 million or 38.3% of sales as compared with $68.1 million or 40.3% of sales for the quarter ended June 30, 2012. The decrease in gross profit for the quarter ended June 29, 2013, as a percentage of sales, is primarily due to material costs, including outside purchases, which increased as a percentage of sales as compared to the prior year. This was largely due to a shift in mix to the lower margin tire category, which had comparable store sales increases in the quarter, as well as the result of the acquisition of more tire stores in fiscal 2013. In fact, excluding the results of the fiscal 2013 acquisition stores, gross profit as a percent of sales in total was essentially flat with the prior year quarter.

The increase in total material costs was partially offset by decreases in labor and distribution and occupancy costs as a percentage of sales. Labor productivity, as measured by sales per man hour, improved over the prior year quarter. Additionally, we achieved some leverage in distribution and occupancy costs as a result of positive comparable store sales in the quarter, as well as the increased sales from last year's acquisitions.

Operating expenses for the quarter ended June 29, 2013 were $55.8 million or 27.1% of sales as compared with $48.4 million or 28.6% of sales for the quarter ended June 30, 2012.

Within operating expenses, over $7.7 million in operating expenses were directly attributable to increased expenses such as manager pay, advertising and supplies related to a full quarter of expenses for the fiscal 2013 acquisition stores. Offsetting the dollar increases in SG&A expenses were a decrease of approximately $.6 million in costs related to acquisitions and due diligence expenses in the first quarter of the prior year. Due to increased sales from the fiscal 2013 acquisitions and continued cost control, we gained leverage on these largely fixed administrative costs.

Operating income for the quarter ended June 29, 2013 of approximately $23.1 million increased by 17.4% as compared to operating income of approximately $19.7 million for the quarter ended June 30, 2012, and decreased as a percentage of sales from 11.6% to 11.2% for the reasons described above.

Net interest expense for the quarter ended June 29, 2013 increased by approximately $.5 million as compared to the same period in the prior year, and increased from .8% to .9% as a percentage of sales for the same periods. The weighted average debt outstanding for the quarter ended June 29, 2013 increased by approximately $97 million as compared to the quarter ended June 30, 2012. This increase is primarily related to an increase in debt outstanding under our revolving Credit Facility agreement for the purchase of our fiscal 2013 acquisitions, as well as an increase in capital leases recorded in connection with these acquisitions. Largely offsetting this increase was a decrease in the weighted average interest rate of approximately 250 basis points from the prior year due to a shift to a larger percentage of debt (revolver vs. capital leases) outstanding at a lower rate. Additionally, amortization of financing fees over the higher outstanding revolving credit balance for the quarter caused a decrease in the weighted average interest rate.

The effective tax rate for the quarter ended June 29, 2013 and June 30, 2012 was 36.4% and 36.9%, respectively, of pre-tax income.

Net income for the quarter ended June 29, 2013 of $13.6 million increased 16.6% from net income for the quarter ended June 30, 2012. Earnings per share on a diluted basis for the quarter ended June 29, 2013 of $.42 increased 16.7%.

Capital Resources and Liquidity

Capital Resources

Our primary capital requirements in fiscal 2014 are the upgrading of facilities and systems and the funding of our store expansion program, including potential acquisitions of existing store chains. For the three months ended June 29, 2013, we spent approximately $7.4 million on these items. Capital requirements were met primarily by cash flow from operations and from our revolving credit facility.


In May 2013, our Board of Directors declared its intention to pay a regular quarterly cash dividend of $.11 per common share or common share equivalent beginning with the first quarter of fiscal 2014. We paid dividends of $3.5 million during the three months ended June 29, 2013. However, the declaration of and any determination as to the payment of future dividends will be at the discretion of the Board of Directors and will depend on Monro's financial condition, results of operations, capital requirements, compliance with charter and credit facility restrictions, and such other factors as the Board of Directors deems relevant.

Additionally, we have signed a definitive asset purchase agreement to acquire ten retail automotive repair stores from Curry's Automotive Group. This transaction is expected to close prior to the end of the second quarter of fiscal 2014. The acquisition will be financed through our existing bank facility.

We also plan to continue to seek suitable acquisition candidates. We believe we have sufficient resources available (including cash flow from operations and bank financing) to expand our business as currently planned for the next twelve months.

Liquidity

In June 2011, we entered into a five-year, $175 million Revolving Credit Facility agreement with seven banks (the "Credit Facility"). The Credit Facility amended and restated, in its entirety, the Credit Facility previously entered into by Monro as of July 2005 and amended from time to time. The Credit Facility also provided an accordion feature permitting us to request an increase in availability of up to an additional $75 million.

In December 2012, the Credit Facility was amended to include the following: the committed sum was increased by $75 million to $250 million; the term was extended for another one and a half years, such that the Facility now expires in December 2017; and the $75 million accordion feature was maintained. There were no other changes in terms including those related to covenants or interest rates. There are now six banks participating in the syndication. There was $103 million outstanding under the Credit Facility at June 29, 2013.

Within the Credit Facility, we have a sub-facility of $40 million available for the purpose of issuing standby letters of credit. There was an outstanding letter of credit for $23 million at June 29, 2013.

The net availability under the Credit Facility at June 29, 2013 was $124 million.

Specific terms of the Credit Facility permit the payment of cash dividends not to exceed 50% of the prior year's net income, and permit mortgages and specific lease financing arrangements with other parties with certain limitations. Additionally, the Credit Facility is not secured by our real property, although we have agreed not to encumber our real property, with certain permissible exceptions. The agreement also requires the maintenance of specified interest and rent coverage ratios. We were in compliance with all debt covenants at June 29, 2013.

We have financed certain store properties and equipment with capital leases/financing obligations, which amounted to $62 million at June 29, 2013 and are due in installments through 2042.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued new accounting guidance for the reporting of amounts reclassified out of accumulated other comprehensive income. This guidance requires companies to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income when applicable, or to cross-reference the reclassifications with other disclosures that provide additional detail about the reclassification made when the reclassifications are not made to net income. This guidance is effective for fiscal years and interim periods beginning after December 15, 2012. The adoption of this guidance in the first quarter of fiscal 2014 did not have an impact on Monro's Consolidated Financial Statements.

Other recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification) and the Securities and Exchange Commission did not, or are not expected to have a material effect on Monro's Consolidated Financial Statements.

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