National discount tire

MEMPHIS, TENN. -- The pending sale of Sears' low-performing National Tire & Battery chain to TBC Corporation will boost TBC's status as the nation's largest independent tire retailer, expanding its geographic reach by 25%.

While Sears has struggled to make the business work, with comparable-store sales down more than 4% each of the past two years, TBC's track record has been strong in the $21.6 billion replacement tire market. In fact, TBC grew sales 10% in 2002 to $1.1 billion and reported comps up 4.8% at a time when the industry suffered declines in unit tire sales.

The acquisition, expected to close in December, was the second this year for TBC, which purchased 112store Merchant's in April. Other TBC banners are 357-store Tire Kingdom and a 561-store franchised division, Big O Tires.

Once the deal is finalized, TBC's store count will grow to 1,144 stores as it moves into the new states of Texas and Illinois. In addition, TBC will enter several new cities with a significant store base, including Birmingham, Ala., Boston, Kansas City, Mo., Philadelphia and Pittsburgh, and bolster its existing retail presence in the Washington, D.C., Cleveland and Columbus, Ohio, markets.

"It is an extraordinary deal in terms of size and opportunity," TBC president and ceo Larry Day told analysts in a conference call announcing the deal. "It is a wen-run chain and not by any stretch of the imagination a fixer-upper."

Although Sears faltered at growing comps and closed more than 90 underperforming NTB stores in recent years, Day said he saw significant potential to improve revenue and profits. The average sales volume of an NTB store exceeded that of TBC's stores, Day said, due mainly to NTB's larger footprint. Day said profits will grow with the addition of TBC's successful private label tires and by bolstering the services offered in NTB stores.

"One of the major opportunities for us is in oil and lube service, which NTB doesn't currently provide," Day said.

TBC will pay $225 million in cash for NTB, which generates annual sales of more than $425 million. TBC plans to use Sears' distribution system to service the stores until it can build the two new distribution centers needed, Day said. As for changing or keeping the NTB name, that has not been decided.

The addition of NTB will boost TBC's revenue to more than $1.5 billion, placing the chain far ahead of the tire specialty segment's sales leader, privately held Discount Tire, which generated $1.5 billion last year from 524 stores.