Monro Muffler Brakes (Nasdaq: MNRO ) moved sharply higher in recent trading, with good reason. The company hit the accelerator with strong sales and earnings gains in the fourth quarter.
Fourth-quarter revenues moved into the fast lane, increasing by 22% compared to the same period a year ago. Comparable same-store sales were equally impressive, higher by 7.3%. This time last year, comps ran on fumes, down 0.4%.
Monro's customer traffic levels benefited from double-digit gains in tire and maintenance sales, improving 18% and 11%, respectively. Once Monro managed to get cars into the shop, the company further capitalized on strong sales from its alignment service, which grew by 33%. Customers and their cars appear to have hit one too many potholes on winter weather-beaten roadways this season -- I know my poor vehicle has.
On the topic of profit margins, the picture gets a little murkier. On one hand, the company did make improvements to gross margins -- 38% this quarter compared with 36.8% last year. But one part of this improvement came at the expense of operating margins when advertising credits were shifted from its SG&A (selling, general, and administrative) line to cost of sales.
As a result, gross margin's improvement was offset by an increase in SG&A expenses as a percentage of sales. The net result? Monro's operating income growth trailed its sales growth, increasing by 16.2% compared to a 22% top-line increase.
While the margins picture is a bit fuzzy, a continued healthy sales environment promises good news ahead. The company projects a 4% to 6% increase in comps in the first quarter of fiscal year 2008; for the full year, comps are expected to come in at 3% to 5%.
This estimate is all the more impressive considering that it faces stiff competition from Midas (NYSE: MDS ) , Pep Boys (NYSE: PBY ) , Sears Holdings' (Nasdaq: SHLD ) Sears Auto Centers, and other auto repair shops. In addition, it's up against do-it-yourselfers catered to by parts suppliers like AutoZone (NYSE: AZO ) and Advance Auto Parts (NYSE: AAP ) . Perhaps this lack of a clear moat has earned Monro a one-star rating from the CAPS investment community.
But I like what one Fool had to say about the company. CAPS participant NetscribeRetail explained that the do-it-for-me part of the auto repair industry should continue to see a nice boost in business, as cars purchased during the ultra-low-interest-rate days move off manufacturer warranties. "The stock looks ready to move ahead," NetscribeRetail predicted.
It looks like the market agrees, fellow Fool.
Stay in the fast lane with related Foolishness:
AutoZone is a former Motley Fool Inside Value recommendation.
Fool contributor Jeremy MacNealy has no financial interest in any company mentioned. The Motley Fool has a disclosure policy.
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