Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Monro Muffler Brake were going in reverse today, falling as much as 11% after missing on all counts in its earnings report.
So what: The auto-repair service provider posted earnings per share of $0.42, below the analyst consensus at $0.45, while revenue growth of 21.9%, to $206.2 million, was not enough to match estimates of $210.5 million. Nearly all of that growth came from acquisition, as comparable sales rose just 1.2% in the quarter. Gross margin also fell 200 points due to a change in the sales mix toward lower-margin tires. Finally, Monro's EPS guidance for the current quarter at $0.41-$0.45 was below estimates of $0.47, and it lowered its full-year guidance from $1.65-$1.80, to $1.58-$1.70.
Now what: Management expressed confidence in the company's long-term prospects, but said that customers were putting off more expensive maintenance and repairs, pressuring sales. CEO John Van Heel also said that, over time, the company will be able to integrate the recently acquired stores to further drive profitability. I don't see any structural weakness here, but shares appear to have gotten ahead of themselves, up nearly 50% at one point this year. Monro may need a few extra quarters to grow into that valuation.
With the auto industry coming back strong, savvy investors are looking to China. It's already the world's largest auto market -- and it's set to grow even bigger in coming years. A recent Motley Fool report, "2 Automakers to Buy for a Surging Chinese Market," names two global giants poised to reap big gains that could drive big rewards for investors. You can read this report right now for free -- just click here for instant access.
The article Why Monro Muffler Brake Shares Fell originally appeared on Fool.com.Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.