Next to Monro Muffler Brake
About the only way Monro's quarter looks good is if you were expecting it to be even worse. Sales were up 4% as reported, but same-store sales were down nearly 3%, as weakness in the exhaust and shock categories offset a decent performance in general maintenance and a better performance in tires.
Since Monro is partly a story about operating leverage, less-than-stellar top-line results led to more pain further down the income statement. Gross margins compressed as the revenue mix migrated to the lower-margin tire and maintenance business, and operating income dropped 17%. And even future guidance wasn't all that rosy. Looking for maybe 2% growth in comps next quarter is better than this quarter's result, but it's not exactly high-level performance, either.
So how is it that I have anything nice to say about Monro? Well, for starters, I see the company as a credible name in a fragmented market. Apart from Midas
Second, what's bad for Ford
I think it's also important to point out that Monro has been generating returns on capital that are both generally improving and approaching the cost of capital. Not so for Midas or Pep Boys, reinforcing my hunch that Monro's management may have a better plan in place.
There's plenty of opportunity for Monro to grow, and there's also ample opportunity to better leverage the infrastructure for stronger margins and returns. Even allowing for differences in the underlying business, I think Monro can get closer to the returns on capital seen at parts sellers AutoZone
For more auto-themed Foolishness:
AutoZone is a Motley Fool Inside Value recommendation. Take the newsletter for a 30-day free test-drive.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).