Monro Muffler Brake: Smooth ride on a bumpy road

Gas prices are at record highs, no one can get any credit, and the housing market has collapsed, taking with it some of the most venerable names on Wall Street and anyone’s desire to go out and buy a new Escalade. That’s grim news for those in the business of selling new cars, but great news for companies such as Monro Muffler Brake (Nasdaq:MNRO), which are in the business of keeping the old ones in good repair.

Monro Muffler Brake, headquartered in Rochester, N.Y., provides automotive undercar repair and tire services in the United States. It operates over 700 company-owned stores in 17 primarily northeastern states under the brands Monro Muffler Brake and Service, Mr. Tire and Tread Quarters Discount Tire. Along with its two main competitors, Midas and Pep Boys, Monro is part of the $158 billion “Do-It-For-Me” (DIFM) U.S. automotive aftermarket industry. These companies provide brake, tire, exhaust and other maintenance services to the 77.5% of us who would rather not spend Saturday afternoons replacing our oil filters and rotating our tires.

The DIFM segment has shown an average annual growth rate of 3% from 1996 to 2006, but is poised to get a big boost from the dramatic negative forces at play in the U.S. economy. Families that can’t afford to buy groceries or pay mortgages are disinclined to go car shopping. The inevitable result is an increasing number of aging cars on the road with high mileage and a need for maintenance and parts. Auto sales are at a 16-year low and 56% of all U.S. cars on the road today are at least eight years old. Add the increasing complexity of vehicles, which discourages the DIY crowd, and you have a real opportunity for an automotive service provider . . .

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