Monro Inc (MNRO) 2005 Q1 法說會逐字稿

Welcome to the Monro Muffler's first-quarter earnings conference call. During the presentation all participants will be in a listen-only mode. Afterwards you will be invited to participate in a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. I would now like to turn the program over to Melissa Myron of Financial Dynamics.

Hello, everyone, and thank you for joining us on this morning's call with Monro Muffler. I would just like to remind you that on this morning's call management may reiterate forward-looking statements made in today's release. In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 I would like to call your attention to the risks and uncertainties related to these statements which are more fully described in the press release and the Company's filings with the Securities and Exchange Commission.

These risks and uncertainties include, but are not necessarily limited to, uncertainties affecting retail generally, such as consumer confidence and demand for auto repair; risk relating to leverage and debt service including sensitivity to fluctuation and interest rates; dependence on and competition within the primary markets in which the Company's stores are located; the need for and costs associated with store renovations and other capital expenditures. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The inclusion of any statement in this call does not constitute an admission by Monro or any other person that the events or circumstances described in such statements are material.

Now joining us for this morning's call from management are Rob Gross, President and Chief Executive Officer; and Cathy D'Amico, Chief Financial Officer. With these formalities out of the way I'd now like to turn the call over to Rob Gross. Rob, you may begin.

Thanks, Melissa. Good morning and thank you for joining us on today's call. We have completed another record quarter and would like to share these results with you as well as discuss our outlook going forward. I'll first give a brief overview of our results and will then turn the call over to Cathy D'Amico, our Chief financial Officer, who will provide additional detail on the financials.

Overall we are pleased with our first-quarter performance given the difficult retail and industry conditions. The beginning of fiscal 2005 proved challenging especially with the lower consumer spending in June which led to our customers deferring purchases of higher ticket items such as brakes, shocks and exhaust. Despite these concerns, we once again posted record sales and earnings proving the viability of our business model that is based on driving store traffic, retaining customers and maintaining operational excellence.

In terms of the top line, we were able to achieve record sales of 87 million for the quarter, a 19 percent increase as a result of positive comparable store sales and revenue from new stores. Our positive comps were driven by a 5 percent unit increase in oil changes, a 12 percent increase in maintenance services, and a 5.8 percent increase in comparable tire store sales. While we grew the top line we also leveraged our efficient infrastructure to contain costs. Selling, general and administrative expenses as a percent of sales decreased 100 basis points allowing our industry-leading operating margins to be maintained. Thus, by driving sales and controlling expenses, we delivered record earnings to our shareholders.

During the quarter Mr. Tire contributed additional tire sales, cost savings and economies of scale further proving our strategy of expansion and market share growth as a key driver of improved operating results. Also we completed the signage change of our Kimmel tire stores in Baltimore to Mr. Tire giving us 37 in retail tire locations. The name change has created excitement, operating and advertising leverage, and, most importantly, double-digit comparable store sales in the old Kimmel stores. We are so pleased with those results that in July we turned over our Tread Quarter stores in Virginia to the Mr. Tire management team. We will continue to look to expand our tire division and hope to have something to report to you shortly.

Additionally, the integration of the Mr. Tire business into Monro is proceeding quickly and smoothly including the addition of cooling, transmission and power steering flush and fill machines in all the stores. This should help them increase their maintenance business and positively impact margins.

These results wouldn't be possible if it weren't for the hard work and dedication of all members of our team. Their efforts ensure our reputation as a trusted service provider for a wide range of customers' automobile service needs. With the first quarter behind us we look to the remainder of fiscal 2005 to further advance our business.

During the second-quarter we intend to build on results achieved thus far in fiscal '05. Specifically we are encouraged by the fact that our oil change, maintenance service business and Mr. Tire acquisition are performing well. That said we will not be satisfied with past performance.

While all the positive macroeconomic trends in our business continue, rough addition, more cars, older cars, technology and demographics, the weak retail environment in June warrants response. Our response was a 3 percent price increase in July which has started to stem the tide of June's surprise -4 percent comparable store sales after April and May were up 3.4 percent. We have found that customers who can afford and need repairs trust Monro and our price increases over the last five years have been accepted.

For customers who are currently deferring repairs on major work -- brakes, shocks and exhaust -- the price does not matter. It is the size of the ticket that deters them. With a customer does have some discussion to delay certain repairs, they still must perform these repairs at some point to pass state inspections or brake repairs. And we are confident we will get the business when they are ready.

Additionally we have lowered our oil change price to 15.99 in our mass mailings. While the 5 percent comparable unit increase last quarter was strong, we think there is an opportunity in a temporarily weak market to grab new customers, market share and grow our direct-mail database for the future. We are estimating second-quarter comparable store sales growth to be between 1 and 3 percent against a solid 6.6 percent last year, and earnings per diluted share to be 46 to 50 cents versus 41 cents in the year ago period.

As for the full year, our first-quarter results have caused us to reduce the high end of our previously estimated range from $1.50 to $1.46, such that our revised full year guidance was $1.40 to $1.46. This represents a 19 to 24 percent increase over last year's $1.18. Annual sales are still expected to range between 345 million and 355 million which incorporates comparable store sales of 2 to 4 percent.

As mentioned in this morning's press release, our comparable store sales were softer last year, Q3 was +4 percent, Q4 was +2 percent in the second half of the year. Additionally we still plan to be opening 25 new stores in fiscal 2005 of which 20 are projected to be BJ's Wholesale Club locations.

Our expansion strategy continues to be an important part of our growth and with 55 million available on our credit line we are well-positioned. We are especially focused on this acquisition strategy and the current weak marketplace which impacts many of our competitors and provides us the opportunity to purchase businesses at advantageous prices. As we've always said, we definitely will not do deals just to do deals. Instead we will consider cost-effective acquisition candidates which will further expand our market share, strengthen our geographic presence and diversify our product operating. At the same time the transactions must be accretive to earnings in a reasonable timeframe.

While our customers did defer purchases during the quarter, our oil changes were up meaning we are adding new customers to our database and our traffic remains stable. We were also able to maintain our operating margins and deliver double-digit top and bottom line growth despite the somewhat sluggish environment. We remain very confident in our business model and our prospects for long-term growth and market share gains including another record performance in fiscal 2005. This completes my overview and I'd now like to turn the call over to Cathy D'Amico, our Chief Financial Officer, for a more detailed review of our financial results.

Thanks, Rob. Good morning, everyone. As Rob stated, sales for the quarter increased 18.6 percent; comparable store sales were up .9 percent; and new stores, which we define as stores that opened after March 29, 2003, added 13.6 million including 12.3 million from the acquired Mr. Tire stores, and that compares to a comparable store sales increase of 5.9 percent in the previous year quarter. Gross profit at 42.7 percent for the first quarter ended June 26, 2004 declined as a percent of sales when compared to the same quarter of last year which showed a gross profit of 43.8 percent. The decrease in gross profit as a percent of sales is primarily due to an increase in material cost caused by a shift in mix to the maintenance and tire categories which had hire material costs than brakes and exhaust.

Specifically within the maintenance service category increases in oil cost caused some deterioration. Partially offsetting this increase in material cost was a decrease in technician library as a percent of sales due to the increase in tire sales as a percent of total sales. Tire sales represented approximately 19 percent of sales as compared to 11 percent in the year ago quarter.

We believe that margin improvement is possible (technical difficulty) Mr. Tire stores take advantage of the reduced cost of parts which they obtained from Monro's central distribution system today, and as Monro Service and Tire Stores receive the benefit of reduced tire prices occurring from the buying power of Mr. Tire.

Occupancy costs are also included in the Company's cost of sales line and as a (technical difficulty) decline compared to the same quarter of last year. With positive comparable store sales the Company was able to leverage those costs. Additionally in the first quarter of last year represented the final quarter where we recorded (indiscernible) for stores under the synthetic lease amounting to approximately $0.6 million of expense. As you may recall, this debt came onto our balance sheet at the end of June 2003, occupancy expense associated with these stores today amounts to approximately 0.1 million of depreciation which is included in occupancy costs as part of cost of sales, and 0.2 million of interest expense recorded in the interest expense line in the first quarter of this year.

Operating, selling, general and administrative expenses for the current year quarter decreased to 28.9 percent of sales as compared to 29.9 percent in the same quarter of the prior year. The decrease in expense is due in part to a planned reduction in advertising expense as the Company shifted dollars from more expensive radio, newspaper and electronic advertising to the more efficient and cost-effective direct-mail marketing. The company also obtained leverage in field support and corporate overhead expenses with the increase in comparable store sales and the elimination of redundant positions in the Mr. Tire organization.

Speaking of Mr. Tire, we are very pleased with the integration thus far. As part of the integration we are modifying Monro's point-of-sale system to include items that may get more tire friendly and, among other things, make it easier for the store (technical difficulty) sales personnel to look up and sell tires. We expect to have this system installed in the Mr. Tire stores by the fall of this year. As important, this will be the system for our other tire stores and for future tire store acquisitions resulting in less disruption to the acquired businesses with a smoother and faster integration process going forward.

Operating income for the quarter ended June 26, 2004 of approximately $12 million increased 17.7 present as compared to operating income for the prior year quarter, and remained relatively flat as a percent of sales at 13.7 percent. Net interest expense for the quarter ended June 2000 was flat at $0.6 million as compared to the comparable period in the prior year, but declined as a percent of sales from 0.8 percent to 0.7 percent.

The weighted average debt outstanding increased by approximately $27 million due primarily to the additional debt incurred in the Mr. Tire acquisition. This increase was offset by a decrease in the weighted average interest rate for the current year quarter of approximately 300 basis points as compared to the prior year. The decrease in rate resulted from the Company's improved performance since last year, the expiration of an interest rate swap agreement, and the elimination of the interest premium associated with the synthetic lease.

The effective tax rate for both this year and the prior year quarter was 38 percent of pretax income. Fully diluted earnings per share for the quarter were 48 cents as compared to 41 cents for the same quarter a year ago, up 17.1 percent over the prior year.

Our balance sheet remains very strong; our current ratio is comparable to last year. Inventory turns are slightly improved as compared to year end and the year ago quarter. Current liabilities are up due to increased vendor payables and income taxes payable. We continue to try to shift more of our cash flow needs to accounts payable and vendor financing versus bank financing.

For the quarter Monro generated approximately 18.4 million of cash from operations. We received approximately 700,000 of cash from option exercises, depreciation and amortization totaled approximately $3.7 million. We spent 4.4 million on CAPEX and paid down 13.4 million of debt. As a reminder, our debt to capital ratio is 0.27 to 1, about the lowest in our history. We have $60 million of availability under our credit line and plenty of room under our debt covenants making it very easy for us to do acquisitions when they right ones present themselves.

This concludes my formal remarks on the financial statements. With that I will now turn the call over to the operator for questions.

(OPERATOR INSTRUCTIONS) Scott Stember, Sidoti & Company.

Could you maybe just talk about -- you said that some of the higher ticket items were down in the quarter. Maybe just talk about where brakes were and some of the other items -- on a comp basis if possible?

Sure (technical difficulty). Exhaust was down 70, shocks were down 6. That being said, they were down 15 in June, brakes were flat but they were down 6 in June. Front end was up 1 but was down 6 in June. Service was up 12 but was only up 5 (technical difficulty) in June. Tires were flat in June.

Okay. And maybe just talk about the price increase that you put through. when was the last price increase you put through and maybe just talk about the products? Obviously it's not on oil changes, but is this excluding oil changes?

Yes, it's across the board and it nets out to a 3 percent increase that the oil changes offset what is effectively a 4 percent price increase on other items. And the oil changes for the most part will only be impactful in our mass mailing coupon books. So it's not going to be on oil changes. It's an effort to drive more store traffic. What was the first part of your question, Scott?

Let me just follow-up. The 3 percent increase that you referred to is net of the decrease in oil changes?

Correct. Also I think you asked when the last price increase? If you remember, on our last conference call we said we increased prices in March. And so the 3 percent price increase we implemented in March obviously did not hurt our business in April and May where we were up 3.4 percent comp. So we're not worried regarding a price increase in light of the weak June.

And could you talk about how July is shaping up with this new price increase?

The price increase is holding. It's positively impacting comps, but coming off the -4 in June, we're running -1 in the first two weeks of July.

Okay. And if I could just touch on real quick on -- maybe talk about Mr. Tire. You indicated that you are starting to put some services into the fold. Can you maybe just expand on that and maybe talk about what percentage of Mr. Tire's sales are service now, and what do you think down the road you could possibly bring that up to in say a year to 18 months?

The objective is not necessarily to move service significantly higher as a percent of sales. Right now it's about 35 percent of their business. But what it is is obviously our objective is to grow the overall business by some of the economies of scale we have, growing the margins. But in a perfect world we will increase their tire store comps and I think we commented our tire store sales for the quarter were pretty strong -- as much as we increase the service side. So maybe they end up 60 percent tires/40 percent service, but the (technical difficulty) they are tire stores, it's to expand their tire sales and the margins on tires with doubling the volume of product we buy at the same time with the transmission flush and fills, the coolants, and some of the services we continue to add there continuing to grow their service business in a like fashion.

All right. Just two last quick questions. Maybe just talk about BJ's, what the sales are looking like and the numbers over there? And also, Cathy, if you just give what you expect CAPEX to be in '05?

Sure CapEx in '05 we're expecting to be $20 million, 14.5 of that being maintenance CapEx, 5.5 will be new stores. As far as the BJ's, we opened three new BJ's stores in the quarter. They're performing well. At the end of the quarter we had 17, now we have 18. We continue to be on track for the 20 this year. We have just extended our hours in all the BJ's stores, so that should help sales too, but they continue to be profitable. The ones we're opening are opening ahead of plan and very satisfied with both. What we expect to do this year with them as well as next year (technical difficulty). For us the 20 number is the right number because of other things we have going. We certainly don't want to overextend the organization and miss opportunities to grow the business in light of some of the pricing coming down on some of the acquisitions we're looking at.

That's all I have. Thank you very much.

Derrick Irwin, Advest.

Good morning. A couple quick questions for you. First of all, with regard to the weakness you saw in June, do you have a sense, and maybe yours is better than most given your CRM data, how much of that may have been driven by weather-related concerns, either milder weather versus a soft consumer? Is there any way to (technical difficulty) the way you think about that?

Not to use weather or high gasoline prices as an excuse, but those two things, Derrick, existed April to May too. I mean, obviously we're Northeast based; mid-Atlantic and the weather stunk all of April, all of May, all of June. And looking out my window today it still stinks in July. That being said we were up 3.4 in April and May with the same crummy weather and the same high gasoline prices. You could make an argument; maybe we would have been up 5. But the one thing I know is weather at some point -- summer is going to get here, the rain is going to stop and that will add some momentum. But we think June, while the weather was a factor, going from 2 straight months of 3.4 (technical difficulty) -4 is not weather. I mean, maybe we would have been -1, but there's some increment between what was our run rate consistently and what occurred in June beyond whether or high gasoline prices because those things were negatively impacting us in April and May and we were in good shape.

Got you. In terms of, as you'd mentioned, and I agree that a lot of the services are deferrable at least in the short-term. I guess under worse circumstances do you see them coming back, which may be a hard question to answer -- but more importantly, does the guidance for the quarter and the year include some of these sales you may have lost during the quarter coming back later in the year?

Certainly we expect the business to come back. I mean if your breaks are failing or they're squeaking, maybe you wait a month or two. You go around with a loud exhaust for a little while; you have an uncomfortable ride for a little while. We are still seeing traffic increases. Our oil change units were up 5 percent in the quarter on the heels of almost double-digit last year in the same quarter. So we're seeing the customers come in. What we are seeing, though, is that when we point out some of the opportunities for work that they should have done that they will absolutely be required to have done to pass things like annual state inspections and from the safety of their vehicle we anticipate they will be back.

Whether it is in Q2 or Q3 or Q4, at some point you have to get this work done. It's not a lack of confidence in Monro and our operating model that is consistently driven in new customers, it's a function of folks trying to save the money and -- I mean, tell me what 1 August is going to bring. Certainly some of the weather improvements, if we do get a summer, will help. A week of hot weather with no rain will drive more air-conditioning business and other things to be done on the car.

I think if you look at tires and as strong as our comps in our tire stores were, with some of the fear on tires people are less likely to defer that (technical difficulty) maybe before some of the problems on the vehicle with tires three year ago, that probably would have been a deferrable expenditure also and we're not seeing that obviously suffer with the comps being up 6 in those locations the same way we're seeing some of the difficulties on our core expensive services.

That actually answers my next question why tires were up and brakes were down, but that makes some sense. One quick question -- actually two more very quick questions. One, Mr. Tire locations seem to be more productive than I would have thought. Was that a surprise to you? They got what -- about 475,000, if my math is right, per store? That seems pretty good. Was that a surprise to you guys as well or what's going on there?

No, they're pretty much running right on plan on the sales side. I think where we are getting the biggest surprise is the economies of scale by changing the name of our Kimmel stores in the same market to Mr. Tire. Those stores are significantly outperforming anything we could expect. And it kind of goes to filling in the market, the marketshare play. But those stores have increased their prices; margins will be coming up, especially seeing we just got some of the new services in. As soon as we get the computer system in you'll see further margin expansion in those (technical difficulty) stores because they'll have access to all of Monro's part where they don't have total access now. Some of the new tire purchases and the pricing of those is going to help their margin.

So I think what you'll see with Mr. Tire and, again, we projected 6 to 10 cents in this fiscal year, but what's attractive about these types of acquisitions is we also get a major pop next year. So while the first year is immediately accretive and helping, additionally the second year will be every bit as much improvement as we receive from the first year, potentially 16 to 18 (technical difficulty) or an additional 6 to 8 cents off the Mr. Tire numbers just by finally being totally done with the corporate overhead, the margin expansion and (technical difficulty) with the sales expansion with the Mr. Tire management team being in the tire business for 30 years, having built a great franchise, taking over our tire locations, but also having margin expansion with some of our additional services and what we can bring to the table.

Great. (technical difficulty) I know that you're still squashing (ph) through some of the (technical difficulty) effect in given us a little higher turnover in this quarter. Any sense for the effect of that? Was it negligible or was it -- in terms of all your margins?

It was very slight, maybe a tenth of a percent increase over what we recognized last year, Derrick. Part of that is just because with the terms and a hybrid mix of the new and old agreements we still only had a small percentage of the new agreement so it wouldn't be a huge difference from last year.

Thanks a lot.

Cid Wilson, Whitaker Securities.

Good morning. A lot of my questions have been answered, but I guess one question that I would like to know is can you give us any thoughts in terms of regionally, weather certain markets did better than others and whether -- if there's anything that's basically in the month of June that might have dropped off sales more in say the New York markets versus the Baltimore markets where you have more (indiscernible) and tire sales?

Well, for good or bad, Cid, we obviously -- when things started getting week in June were evaluating all of our markets and our performance and what we were doing at the store level. We didn't get a heck of a lot dumber in June than we were in April and May and for the last 5 years. Our markets go from Indiana to New Hampshire down to the South Carolina and I can tell you pretty much across the board June fell off of the map. (technical difficulty) Similarly, with the exception of our tire stores outperforming our service locations.

I don't know what you're going to hear from the West Coast or down in Florida or Texas, areas like that. We don't compete in those areas. Certainly I saw Auto Zone's comments and CSK which is on the West Coast. And it seems to me at least that it's across the board. But I'm worried about what we're doing and our 16 states that we're in pockets of relative strength. The Company was performing on all cylinders. April and May and June for some of the reasons we talked about it just got worse coming back in July and we would anticipate that, just based on our members and what occurred, that these customers will come back whether it's this month or next month but certainly at some point to get the work done and we would hope that's some of the upside to the second half of the year. Especially in light of significantly easier comps and margin numbers to go against.

And can you talk a little bit about how the commercial portions are trending and how that did during the quarter?

Yes, the commercial business had a very poor quarter. It was down high single digits. A lot of that was generated out of used car dealerships who, from what they're portraying to us, are finding it difficult to find used cars priced attractively at the auctions so that the average guy who might be selling 250 cars a month has been selling 140. And obviously if we're working on all the used cars they purchased, that would have some negative impact. So I think with some of the spreads between new cars and some of the rebates, albeit not necessarily June. And the used car prices, they have been finding it a little bit more difficult and that has negatively impacted that piece of our business. It's been the first down quarter we've had in four years in that business and would expect that to turn around relatively quickly because that is not really a function of folks deferring, that is kind of a different segment.

Okay. And my last question is can you give us an update in terms of you mentioned that there's some opportunity to improve gross margin, but at the same time though that the tire sales are -- which is a low margin business, I know it's having some sort of impact -- but can you give us a little more color on that (technical difficulty) and the rest of the year?

Certainly adding the services to the Mr. Tire stores will help their business. Certainly on the cost side, the big cost increases are already incorporated in our numbers. Certainly the margins are going to get better with 2-3 percent price increases throughout the year. There is no way I would believe that brakes and shocks with struts and exhaust, our highest margin business. As strong as they were in April and May would continue to deteriorate to the level they did in July and obviously that had a major margin impact. And with us now being a $350 million sales company we will continue to be able to buy products better. Obviously with the pricing power and marketshare gains we've incurred, sell our products for more and certainly leverage the rest of the business whether it's overhead or advertising expenditure. And remember our margins include occupancy, so as the sales go up as quickly as they have been going up, 19 percent in the first quarter, a component of our margin is fixed and that should be generating margin percentage improvements also throughout the next three quarters.

Okay, thank you very much.

Robert Straus, Independent Research Group.

Hi, guys. Just one quick question. Could you, Rob, talk a little bit more about the competitive environment? Specifically also from the standpoint of oil changes, I believe your prices were already below most of the competition so you must be driving them down even further and I understand that reason why. And just over some of the other parts of the competitive landscape that you might be seeing out there.

Sure. On the oil change side we had taken it up over the last five years starting at 13.99 and taking it to 21.99 currently. So we were at or below most of the composition. Certainly with our units being up every year, every quarter we didn't feel compelled to reduce our prices. We felt we had built a database and built enough loyalty over the years where we just continued to take the price increases. We have not seen anything like what occurred in June and felt the opportunity to lower the price on the mass mailings that are going to customers that are not our current customers to drive additional traffic above the 5 percent unit increase we already had in the first quarter. So again we are playing marketshare whether it is buying companies in our markets and getting the operating model even more productive but to just continue to try and steal business. As far as the competitive landscape and our markets, I would be surprised if anyone comes out with stellar numbers in June as we have said all along our margins are typically twice any of our competition on the operating level. And we would be surprised to see people operating in the same territories we are from what we know posting better numbers which we are obviously negatively impacted on the quarter by one month which frankly, I know I didn't anticipate.

Thank you.

Jack Baloo (ph), Midwood (ph) Research.

Just to refresh me, in March, did you have a price increase across the board and how much was it?

3 percent across the board.

3 percent. Now you're going another 4 percent on top of that?

Correct.

I think excluding the oil. The oil price promotion, when did that start and do you anticipate it ending sometime?

It'll be starting -- I guess it started Monday of this month.

Monday this month?

Yes, you have to change the price and then you've got to mail the books out. So, there's usually a 1 month lag time between the middle of June where we might have started to see some fall off, when we decided to change price points, getting the books printed to be mailed to zip codes surrounding our stores.

And do you expect to continue that for July and August?

Yes, July and August and then we'll evaluate (technical difficulty) to see if we'd carry it over into September.

I see. (technical difficulty) For the quarter as a whole, would you have a number for the decline in exhaust and brakes?

Yes, exhaust was down 7.8 and brakes were flat.

For the entire quarter or is that just for one month?

That's for the quarter. Brakes were down 6 in June, exhaust was down 11 in June.

Oh, I didn't realize that.

So again, if you look at 3.4 percent comps for April and May, June obviously fell out of bed and we're taking steps to make sure July doesn't fall out of bed. But even though the quarter was flat in brakes, remember last year we were up 5.9 in brakes and it's a high margin category.

Right, right. It's amazing how people can postpone brakes and it's a safety thing. I just don't understand that.

Well, they do.

One last thing and that is regarding inventory you're up 18.6 percent in sales for the quarter in total. What was the increase in inventory in total year-over-year?

Inventory was 55.5 million at the end of June and at the end of March it was 54 million.

I'm talking about -- Cathy, you should have the same seasonal period as you do --.

53 million, Jack.

So that's about 4.5 percent?

Yes.

Compared to 18.6 percent sales gain?

Yes.

Do you think you're too light in inventory?

No, but keep in mind, tires turn quickly. They turn probably every two months. So that's part of -- a big part of our sales increase has to do Mr. Tire.

Jack, after five years now you're telling me to increase my inventory?

I know. It's just such a dramatic difference, you know?

I thought you'd be happy that turns were up a little, Jack.

I'm very happy, I'm very happy. Believe me. Thank you.

Larry Raider, LAR Management.

Simple question. You're a little bit on projections back end loaded, i.e. second half. Given the price increase you have, if your units were flat to the second half of the year overall you would show 3 to 4 percent same-store sales growth?

Correct.

All right. So, mathematically is this conservatism, realism? And what factors are you using because mathematically you're there? Functionally how do you get there?

Functionally -- from an operating standpoint?

From an operating standpoint. Do you push (indiscernible) at the expense of -- do you -- what do you do?

I think our objective is to grow all components of our business. We were a little less bullish on the second-quarter just in light of what occurred in June. We think we'll get it back, but the second half (technical difficulty) remember instead of the first half of the year was up 6.3 comps. So we're up against softer numbers, but with price increases obviously you get top line improvement but you also get significant operating margin improvement. So I think the sales go up. I think you'll see the margins go up and --.

Are you doing something different in the second half to get the sales moving is what I'm saying?

I think all of our business is driven off oil changes. So as those oil change units go up we're driving more customers. Our advertising becomes more efficient. Remember, tires were 90 percent of our business this last quarter, tires in the third quarter are significantly stronger than they've ever been in the Monro model which we talked about last year why the third quarter would significantly outperform the fourth quarter under our new seasonality. I think if you're asking what's going to occur, I think our projections for our results in the third and fourth quarters, while we feel are conservative, are still better than what you currently see out there from the analysts. While our second-quarter might be a little more conservative than what they have out there.

Thank you.

Jim Larkin, (indiscernible) Advisors.

Did you discuss earlier just general traffic at the stores, what that looks like for the quarter?

Traffic for the quarter was flat, hurt by June. The oil change units, which is a key driver for us, was up 5 percent. So we had a problem converting the increase (technical difficulty) units into some of the higher ticket items and also had a problem on what we would normally get as normal traffic for the higher ticket items, brakes, exhaust, shocks, coming in -- irrespective of oil changes coming in the door in June also.

Okay, that's helpful. And then was Mr. Tire in for the full quarter then?

Yet, it was. We bought it effective March 1st.

Okay, perfect. Thanks a lot.

David Fergus, (indiscernible) Specialized Funds.

It's actually Jason Croschille (ph) in for Dave. A couple of quick questions. The first would be on the acquisition sort of trail -- with the candidates out there -- did you say that the changing environment you believe will sort of lead to lower prices? And I guess the question is, does really one month of sort of bad comps lead to a lower price environment?

Yes. All I can tell you is folks that we've been talking to over the past year that price might have been an issue have called us recently. And if you think the type of businesses we're looking at, which are usually -- the founder still owns them, he's anywhere from 55 to 65 years old, doesn't have anyone do hand it down to -- during this time of year we're (technical difficulty) good. They're pulling in a lot of cash flow, when business gets a little bit weaker the sky is falling and they're more anxious to protect themselves and take their chips off the table.

Okay. So if you want to sort of (technical difficulty) would you say maybe prices have dropped 5 percent, 10 percent, more?

Prices have dropped to the point of where we walked away from deals a year ago and now we're in active negotiations and would hope to announce something shortly.

Great. The next question would be what do you think D&A is going to be for the full year?

I believe (technical difficulty) 16 million we said.

16 million.

Yes.

And what's the expectation for working capital for the full year?

I mean, it's -- $1.45, it's 53 million EBITDA.

Okay, great. Thanks.

Derrick Irwin, Advest.

I just wanted to clarify on the oil change. You said units were up 5 percent but that the promotional price didn't start until this quarter. Is that right?

That's correct (technical difficulty).

What was driving it? Any sense for what was driving oil units up? And I guess the follow-up question would be on a dollar -- on a revenue basis what was the change?

The units have been up every quarter if you remember, Derrick, for the past 5 years. So 5 percent unit increase on top of almost double-digit last year, the objective is or (technical difficulty) at least our belief is that when things get a little bit tougher, get more aggressive, and we want to drive traffic with oil changes. It's our lifeblood, it builds a business for the future, it has been a model that we've been pursuing for 5 years very successfully. Being the last 5 years bottom line has grown 20 percent over that time and continues to grow 20 percent this year.

Our objective is if we can take that 5 percent unit growth to 10 percent next quarter, giving up whatever it is, $1.00 of realizable on every oil change, that will serve us well to build the business. Oil changes people are going to continue to do because it's a $15 or $20 ticket. Brakes can be 400 or 450 as with some of the other higher priced items. They will defer that, they will continue to perform their oil changes to keep their warranties in place and things like that.

Thank you.

(OPERATOR INSTRUCTIONS) Kelly Brolin (ph), C.L. King & Associates.

I'm sorry. I jumped on the call late so I may have missed it if you went over it. Can you talk about cost trends in units and in pricing?

We'll talk about the comp for the quarter was down 7.8, it was down 11 in June.

Okay, great. And one other quick question, how -- or can you (indiscernible) about your marketshare at the moment gaining, losing, staying the same?

We believe with the comp store increase we'll see what others have to (technical difficulty) we're pretty comfortable we're gaining share in the tire stores and pretty comfortable we're continuing to gain share in the service business as we have the last three years.

Okay, great. Thanks.

At this time there are no more questions. I'll turn the call back over to the speakers.

Great. I want to thank everyone for their time today and support of Monro. We are working real hard to continue the 20 percent bottom-line improvement you've been looking for and we've delivered the past 5 years and do not see anything keeping us from getting there this year. So thanks very much and I'll see you (technical difficulty).