Monro Inc (MNRO) 2005 Q2 法說會逐字稿

Welcome to the Monro Muffler second quarter 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. Go ahead, please.

Thank you. 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 repairs; risks relating to leverage and debt service, including sensitivity to fluctuations in interest rates; dependence on and competition within the primary markets in which the Company 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.

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 would 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. I will begin with a brief overview of the second quarter, which ended September 25th, followed by our outlook going forward. Then I will turn the call over to Cathy D'Amico, our Chief Financial Officer, who will provide additional detail on the financial results. After Cathy's remarks, we will be happy to answer any questions you may have.

We're pleased with our ability to again achieve a record performance during the second quarter. Despite a challenging economic environment and reduced consumer spending, we delivered double-digit increases in both our top and bottom lines, while also taking steps towards achieving our long-term growth and profitability objectives. During the first two months of the quarter, comparable store sales were negative as our customers deferred large purchases such as brakes, shocks and exhaust. However, as we discussed on our last call, while consumers do have discretion to delay certain purchases, there is a finite limit to the time they can delay major maintenance. This trend was evidenced by our strong 6% comp increase in September when we saw consumers return, and our major maintenance categories pick up.

Our strong consumer loyalty ensured that our customers came to us versus our competitors when they were ready to start spending again. Thus, for the quarter, overall comps improved 0.6% versus a 6.6% increase last year. A 9% increase in maintenance services, strong comparable store tire sales, and increases in comparable store traffic contributed to our positive comp results.

Additionally, during the second quarter we made the decision to implement a mass mailing, promoting our $15.99 oil change. Given the temporarily weak marketplace, we saw this promotion as an opportunity to drive store traffic, attract new customers, and increase our market share with little negative impact on our gross margin. We're pleased with the results of this promotion, which served to drive a 15% increase in the number of comparable store oil changes, an important component of our positive comp results in the quarter.

As we grew the top line, we also delivered solid earnings results in spite of certain margin pressures. Our gross margin was negatively affected by the increased amount of lower margin tire sales related to the acquisition of Mr. Tire. In fact, or over 500 Monro and Speedy stores actually had a 40 basis point gross margin improvement in the quarter, reflecting the selling price increase we took in July.

Our operating margin was negatively impacted by approximately $0.02 per share from higher than anticipated non-recurring Sarbanes-Oxley expenses and non-capitalizable integration costs associated with the Mr. Tire acquisition, primarily due to the completion of the new point-of-sale system roll-out. Despite these pressures to overall margins, we were still able to increase fully diluted earnings per share by 15%.

In terms of our long-term objectives, store expansion is a significant part of our plan for growth and increased profitability. As we have said before, with our operating margins two times greater than most of our service competitors, we are uniquely positioned to weather any temporary industry or consumer weakness. This affords us the opportunity to accelerate the growth of the Company through attractively-priced acquisitions.

Along these lines, we announced earlier this week that we signed a definitive agreement to purchase five retail tire stores from Donald B. Rice (ph) Tire Company. The stores will be accretive in the first year and we expect the transaction to close this month. With combined sales of approximately 6.5 million, the stores are located in the Baltimore market and will become a part of our Mr. Tire division, increasing our market share, extending the reach of our Mr. Tire brand and further diversifying our overall sales mix.

Additionally, this acquisition, as well as future deals, will be able to be integrated much quicker and with less business disruption due to our new tire point-of-sale system going into all new tire sales stores immediately.

During the quarter, our Mr. Tire stores contributed 13 million in sales. Additionally, the former Kimmel stores now being run by Mr. Tire, were up 6% comps for the quarter. While we continue to enhance our new tire point-of-sale systems, the Mr. Tire integration has been completed. Our tire business is strong profitable, and growing. The addition of the new tire stores to our already successful Mr. Tire business will create further advertising and cost-of-goods synergies, as well as operational efficiencies. We are excited about this transaction, not only for its financial, operational and strategic benefits, but also the similar culture and high-caliber employees it brings to Monro.

Given that our success at Monro is due in large part to the hard work and dedication of all our employees, this is an important attribute of the deal. The efforts of all our members of our team allow us to maintain our reputation as a trusted service provider for a wide range of customers' automobile service needs.

As we look to the second half of the year, we have confidence in our business model, which is based on driving store traffic, retaining customers, maintaining operational excellence, driving sales, and providing superior operating margins. We're encouraged by the fact that the positive comp growth in September appears to be continuing in October, where we have recorded a 4% comparable store increase so far. And we expect to maintain our increases in store traffic and oil changes. Also, the pipeline of attractively-priced acquisition candidates remains strong.

For the third quarter, we currently estimate comparable store sales growth to be between 3 and 5% against the 4% increase last year, and earnings per diluted share to be between $0.24 and $0.26 versus $0.21 in the year-ago period.

Our performance in the first half of the fiscal year was at the low end of our previously-announced expectations, reflecting the difficult economic situation. In addition, the impact of Sarbanes-Oxley compliance for the year will be over $1 million, with approximately 700,000 non-recurring and unexpected.

Finally, the timing of our tire acquisition was advantageous in terms of the price we paid for the stores. However, we will incur costs associated with integrating this and potentially another acquisition in our seasonally slowest period, which will negatively impact our bottom line in the second half of this year, while being accretive the first 12 months. However, I believe this positions us for a strong fiscal '06, as new stores will be fully integrated and profitable when we reach our peak selling season.

As a result of these factors, we have reduced our previously-estimated range for the fiscal '05 earnings to $1.36 to $1.40 per diluted share versus $1.18 last year. Annual sales are expected to be approximately 345 to 355 million, which incorporates comparable store sales increases of 1 to 3% and the opening of approximately 25 new stores in fiscal '05, of which 20 are projected to be BJ's Wholesale Club locations. Our revised EPS range continues to be in line with our consistent year-over-year earnings per share growth of 15 to 20%, and we remain confident in our ability to further drive profitability and enhance shareholder value for the long-term.

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. Cathy?

Thanks, Rob. Good morning, everyone. As Rob stated, sales for the quarter increased 19.3%. Comparable store sales increased 6/10 of a percent, and new stores, which we define as stores opened after March 2003, added 14.3 million, including 13 million from the acquired Mr. Tire stores. And that compares to a comparable store sales increase of 6.6% in the same quarter of last year.

Year-to-date, comp store sales increased 8/10 of a percent. New stores added 27.7 million, including 25.4 million from the acquired Mr. Tire stores. And, again, that compares to a comparable store sales increase of 6.3% for the first six months of last year.

Gross profit for the quarter ended September 2004 was 42% of sales as compared to 42.4% of sales for the previous year quarter. The decrease in gross profit, as a percentage of sales, is due to an increase in total material costs caused by a shift in mix to the maintenance and tire categories, which have higher material costs than brakes and exhaust. Without Mr. Tire, gross profit for the quarter increased from 42.4% last year to 42.8% this year, partially due to a reduction in material costs, as well as through increased leveraging of distribution and occupancy costs, which are including in cost of sales.

The improvement in material costs apart from the Mr. Tire stores was due, in large part, to a reduction in outside purchases. The Company has added approximately $3 million of inventory since March in a concerted effort to reduce outbuys. With regard to stocking parts, there was some pressure on margin. As Rob mentioned earlier, the Company promoted oil changes in the quarter with a positive effect of increasing them by 15% and driving traffic. However, the reduction in price, along with an increase in the cost of oil during the quarter, had the effect of lowering margin in the maintenance category as compared to the prior-year quarter.

The shift in mix to increase tires sales also reduced margin to some extent. However, price increases in the quarter, as well as the recognition of vendor rebates against cost of goods, in concert with inventory turns, and in accordance with the new accounting rules, more than offset these pressures and helped to improve margins. Technician labor on a consolidated basis, as a percent of sales, decreased between the two quarters. Also due to the increase in tires sales as a percent of total sales.

Moving to operating, selling, general and administrative expenses. For the quarter ended September 2004, they increased 28.9% as compared to 28.4% in the prior-year quarter. The increase in SG&A expense, as a percentage of sales, is due primarily to an increase in benefits expense, Sarbanes-Oxley costs, Mr. Tire integration costs, and lower cooperative advertising credits.

Within benefits expense, health insurance costs increased, as a percent of sales, as compared to the prior-year quarter. With regard to cooperative advertising credits, there was a slight decrease in the amount recorded against SG&A costs. As previously mentioned, a portion of these credits is now recorded as the reduction of cost of sales.

Regarding Mr. Tire, the Company successfully installed its point-of-sale system in the Mr. Tire retail stores, and its merchandising system in the Mr. Tire warehouse and wholesale center during the quarter ended September 2004, with no downtime as far as business operations were concerned. However, some of costs associated with both the system and other integration-related activities are not capitalizable, thereby increasing SG&A costs as a percent of sales.

Operating income for the quarter ended September 2004 of approximately $11.5 million increased 11.4% as compared to the prior-year quarter and decreased, as a percentage of sales, from 14% to 13.1% for the same period.

Net interest expense for the quarter ended September 2004 decreased by approximately $300,000 as compared to the same period in the prior year and decreased from 1.2% to 7/10 of a percent, as a percentage of sales, for the same period.

The weighted average debt outstanding for the quarter ended September 2004 increased by approximately $1.5 million. And this after borrowing $26 million in March of this year to fund the Mr. Tire acquisition. Offsetting this, however, was a decrease in the weighted average interest rate for the current year quarter.

The effective tax rate for both quarters was 38% of pre-tax income. And net income for the quarter ended September 2004 of $6.7 million increased 13.1% over the prior-year quarter.

Fully diluted earnings per share for the quarter were $0.46 as compared to $0.40 for the same quarter a year ago, a 15% increase. For the six months ended September 2004, diluted earnings per share increased 15% to $0.94 from $0.82 for the six months of the prior year.

With regard to our balance sheet, again, it remains very strong. Our current ratio at 1.5 to 1 is comparable to year-end in the year-ago September. Inventory is up $2.7 million from March 2004, because as I previously mentioned, we are endeavoring to improve stocking levels in our mix of inventory in order to reduce the expense of outside purchases. However, turns were slightly improved from last September and year-end. Our debt balance decreased and payables increased as we continued to try to shift more of our cash flow needs to vendor financing.

For the first six months of the fiscal year, we generated approximately $26 million of cash from operations, and we received about $1 million from employees' exercise of stock options. We (indiscernible) approximately $10 million on CapEx and paid down $16 million of debt. Depreciation and amortization totaled approximately $7 million.

As a reminder, our debt to capital ratio is 25%, about the lowest in our history. We have $52 (ph) million of availability under our credit line and plenty of room under our debt covenants, which makes it very easy for us to do acquisitions when the right ones present themselves.

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

(OPERATOR INSTRUCTIONS). Scott Stember (ph) from Sidoti & Co.

Can you talk about, Rob, what was the price increase that was put through on the non-oil change business, again, in the quarter?

It netted out to about a 3% across-the-board price increase. And that was done, if you remember, in the beginning of July on the heels of a 3% increase that was implemented in March.

Okay, and obviously some of those large ticket items that were deferred have come back. Could you talk about maybe in the quarter as a whole, or in September, which areas in particular? Was it brakes or some of the other suspension groups or something?

Sure. While we don't usually specifically comment, this quarter was a little unusual. But exhaust, the first two months of the quarter was running down 12 -- it was down 1 in September. Brakes, the first two months of the quarter were running down 6, it was up 2 in September. Service business was running up 5 the first two months of the quarter, it ran up 18 in September. Tires were running up 1.5 the first two months of the quarter, it ran up 10 in September. So, again, a lot of these deferrable purchases that June, July and August people were holding off on, appear to come back in September. That coupled with the huge increase in traffic driven by the oil change promotion, I think, converted September to a very strong plus 6. And we continue the promotion, and we continue to run, as we said, up 4 the first two weeks of October.

Can you talk about the Sarbanes-Oxley costs? Maybe just get into a little bit more detail for this quarter? I think you mentioned that it was going to be about $1 million for the second half of the year, I wasn't sure whether I heard you or not.

In total, the overall Sarbanes-Oxley number will be somewhere north of a million, probably close to a million two. Of that amount, we budgeted 400,000 for the year. So that was included in all our initial members. Once we got through the second quarter, which is really where this thing started to heat up, we knew that -- you know, I had made a mistake in the number and it is going to be approximately 700,000 for the year, non-recurring, related to Sarbanes-Oxley. That being said, it will, on a continuous basis, be somewhere around 400 to 500,000 going next year. That was incorporated in our original estimate this year. We were nowhere close. So, a piece of that hit us in the second quarter. A piece of that is incorporated in our numbers in the third and fourth quarter as we got better numbers and know what the overall hit is going to be. So it is a million two for the year, it is 500,000 this year. And going forward, of recurring expenses associated with this, approximately 700,000 this full year will be non-recurring.

As far as the acquisition that you made, obviously, it sounds like it is profitable, but the back half of this year, you're going to see some integration cost you had indicated. Could you talk about that a little?

Sure. I mean, they're not going to be huge numbers. The size of the deal and all of the efficiencies we get, whether it is advertising, cost of goods sold, the fact that we buy parts 40% cheaper than they were -- those will all benefit. The integration cost of investing in the systems, investing in the training -- and also, remember, typically the last three deals we did and announced, we bought in the February/March/April timeframe, so we take them over going into the busy part of our season. As we do this deal -- and I think we alluded that we think we'll get another deal done this quarter or the beginning of the following quarter -- those transactions, with the due diligence, which are no longer capitalizable, with the integration costs associated with them, and taking them over during the slower time of the year, will have a tendency to negatively impact our numbers. And those costs are all incorporated in our most recent numbers to you.

Okay. That's all I have.

Sid Wilson, Whittaker Securities?

Just a cleanup question, what was depreciation for the quarter?

The depreciation was about $3.5 million, 7 million year-to-date.

And with regards to the inventory over the year, I think you mentioned that -- can you talk a little bit more about the inventory increase? I think you mentioned that it was partly planned or was completely planned because of --

Yes. We had obviously, in March we had added about 4 million of inventory for Mr. Tire. But since March, we have now added about another 3 million of inventory. And that was delivered in an effort to improve stocking levels of faster-moving parts, and also expand some of the parts that we're carrying in recognition of the fact that we are involved in more of this routine maintenance type services and to reduce outbuys. Because outbuys, as you probably know, costs us twice as much as it does to buy parts from the manufactures. And with our low borrowing, a lot of availability on our line of credit and low borrowing rates, we have a lot of wiggle room to trade off turns a little bit for reducing outbuys and improving margins.

My last question is -- with regards to -- I think your previous comments relating to rebates from your vendors. Any comments on any recent conversations with your vendors in terms of some of these higher expenses relating to oil prices that they may take on versus what you will take on?

We constantly have conversations with our vendors. Obviously, oil prices are going up. That ties to tire prices increasing. We have a little bit more offset than some of our competitors on tire price increases because our tire volumes, while not at our competitors' levels, are going so fast that it gives us some leverage to offset some of these increases with our increased co-op that we are getting as we grow the business. Certainly, our oil change business is growing significantly. That helps us a little bit. But both tire pricing is going up, oil pricing is going up, and that's a cost of doing business just like healthcare benefits. Whether it is through selling price increases that we pass through or becoming more efficient, we will manage the business regardless of what occurs on the vendor side.

Great. Thank you very much.

Jack Belos (ph) from Midwood (ph) Research?

Regarding tires -- what percent of sales are they now compared to a year ago?

Do you want to take that?

Approximately 20% this most recent quarter. A year ago they were about 11.5%.

Is there a positive impact on your -- to what degree is there a positive impact on your SG&A in terms of the tire stores compared to your other stores?

Well, certainly the tire stores add a lot of volume at lower margin and make us more efficient operating from an SG&A standpoint. We certainly have set up the tire business to run as a stand-alone separate division of Monro. There is some overhead costs in there that continue to be attributable to that business. We will continue to get operating leverage on SG&A once we get beyond some of these onetime things. And as we do further acquisitions, whether it's the five stores we just bought or whatever we do on the next round, you should start seeing the operating leverage in SG&A come through.

Right. What actually I was asking was, whether at the store level, the payroll or SG&A ratio to sell sales at the tire stores is lower than at the Monro stores?

At the store level, it is fairly comparable to the Monro stores.

What is, SG&A or payroll?

SG&A. Without the office, corporate costs. Just store direct costs at the tire stores are fairly comparable to the Monro stores. They can vary from quarter to quarter depending on something like advertising, which is a higher cost. And a lot of those tire stores are south, so they have less utilities. So, depending on the quarter, they could be a little bit less. But overall, to business is managed fairly similarly on store-direct costs, like bad debts and utilities and refuse. You know, they may have a little bit more in refuse because they have tires, but they have a little less in utilities because they are south. Fundamentally there's not a lot of difference in the way those stores run and their costs on the store-direct costs.

But since the gross margin in tires is lower, that would mean that the operating profit ratio at the store level for a tire store is lower than a Monro store?

As a percentage, yes. But remember a typical Monro store might be doing 550 to 600,000 sales, a typical tire store might be doing a million 2 to a million 5. So what you are giving up in margin percentage, and obviously, overall margin as the tire business grows, it puts pressure on the gross margin. You get that back with gross margin dollars because you have more sales.

Final question is, when you're only up 0.6% comp, how do you control the payroll to deal with the weaker sales?

You reduce payroll.

You reduce payroll, okay. I just didn't -- so you can keep the payroll pretty much in line with how sales trend?

Absolutely.

Larry Raider from LAR Management.

One question, BJ's -- where do you stand and what has been happening there? Where do you stand on an expansion basis and what has been happening in the recent few months?

Well, we opened two BJ's during the quarter, so we have opened five this year. And we'll probably, as we said, we'll open close to 20 this year. We'll be heavier in the second half, mainly in part, because we did the acquisition -- we're trying to integrate Mr. Tire, and with the right tire acquisition, we've closed those down a little bit.

Yes, there are operating fine. Again, as we get further into the BJ's list, number one, zoning becomes an issue; it has a tendency to slow these down. Plus, depending on the mix of stores that we choose to open or BJ's asks us to open, depending on the tire volume of the BJ's, that will affect the sales and the operations of the ones we are opening. So, this year's crop is not performing at the same level of last year's crop. That being said, I think what we said is, for the first three years, it is going to be insignificant on the sales line; it'll be insignificant on the bottom line. We might make 100,000 off of these, we might lose 100,000 off of these, but it is an investment. And the good news is, the maturity curve, as you know, we don't have a lot of positive leverage coming from opening organics stores, gaining on the maturity curve of comp sales, where typically you'd run plus 15, plus 10, plus 5 the first three years of the new store. On BJ's, what I think we would expect is, the new stores would have a tendency to grow more like 20% comp their second year, then 15, then 10. There's much more upside, albeit you're starting at a certainly lower base.

Thanks a lot.

Patrick Flavin, Flavin, Blake & Company.

Can you talk about the kiosks, Rob?

Sure. Currently we have seven kiosks, we just closed two of them. The kiosks, as we said before, is nowhere in our long-term strategic mix. This is not something that we are trying to see, unlike BJ's, which we think is a great fill-in strategy, very low-risk, very low investment. The kiosks are something that we were obligated to take as part of the Mr. Tire acquisition. Remember, we bought Mr. Tire from a car dealership that owned Mr. Tire, that part of their strategy was to have Mr. Tire kiosks in all of their locations. For us, I guess I would view it as similar to when the company bought Speedy back in 1998. We had to take 18 dealer locations as part of the deal. We were never going to be in the franchise business. We don't want to be in the franchise business. We are not in the kiosk business. We are not looking to long-term expand the number of kiosks we have. And really, it was a cost of getting the Mr. Tire deal done, and we are honoring that obligation.

Are you able to close this, then, with some expedition? Or do you have to carry these for a while?

No. We, in a perfect world, would over the next year close these. We would not lose significant volume. That being said, if they want us to keep them open for five years, there's no negative impact on earnings. Basically, a kiosk in an auto dealership is a desk, a computer and one salesperson. So to keep the relationship strong with the Mile One (ph) Automotive Group, we are happy to continue to run them. That being said, it's important to note that you are not going to see us having 60 kiosks next year. That is not the objective. We want to stick to our knitting. You'll see all of the expansion occur in muffler and brake shops and the acquisition of tire stores.

Jamie Weiland (ph) from Weiland Management.

Good quarter, fellows. Two questions, first, you mentioned that Kimmel same-store sales are up 6% now that you put them under the Mr. Tire marketing campaign. What were they running beforehand?

Anywhere from flat to plus 2. The Mr. Tire certainly helped. What we wanted to do is let you know that the tire business, both in the Monro stores, but more importantly the Tire division -- while we are going to be uncomfortable giving comparable store sales at Mr. Tire, number one, because they're not comp; it is new. But number two, it is a single market and we don't want to make it too easy for our competitors.

I will tell you that their store traffic is up, their comp store sales are up. We felt there was an obligation to report on all the other tire stores we have that are comp and are included in comp in Monro's numbers that they are running plus 6. So, the tire business is running strong. Mr. Tire has done a great job absorbing them and done a great job continuing to grow their business, in spite of having whatever disruptions come with the new computer system.

Do you expect to put the Mr. Tire name on the race tire stores as well as future tire stores that you acquire?

Yes. The first 90 days, as we said, the rights (ph) deal will close in the next week or two. And within 90 days those will be branded Mr. Tire as will future locations within the Baltimore and surrounding market. That being said, if we did a tire acquisition where the Mr. Tire name might not be as valuable, we would also potentially consider branding them something else. But for now the game plan is, we are going to have two brand names -- one, Mr. Tire on the tire side of the business, the other Monro Muffler Brake & Service on the muffler and brake shops, and go to market with two brands.

Do you still own the Tread Quarters name in Virginia? Are they still operating under that name or have they switched to Mr. Tire?

They're operating as Tread Quarters.

And no plans to --

No plans right now. We got enough on our plate. But Mr. Tire Division is now running the Tread Quarters stores.

And lastly, Rob, any idea what the rest of the industry ran in the third quarter same-store saleswise, as well as October?

Well, I think some of those folks will be reporting the 26th and later in the month. I would expect, on our comp tires sales, that we probably outperformed, I would guess, our September numbers. And what we have done so far in October is better. But, you know, I will let them tell you. It's one of the advantages of going first.

Patrick Stowe (ph), Priority Capital.

I'm wondering if you could comment a little on the competitive environment, just up and down the street. Do you feel like it's become more promotional? You talked about your oil change promotions, and I'm just wondering if you could comment on that.

The industry, as every industry, whoever is in it thinks it is wildly competitive and there's all these pressures. Ours is no different. I think we have the benefit of having significantly better operating margins, so we have more flexibility. I think we, on a day-to-day basis, competing at market level and at store level, have huge competitive advantages that come with being company-owned and having lower cost of goods and better productivity in our stores and payroll control.

As far as the specifics of pricing, if it was that competitive, we probably would not be successful raising prices 3% in March and another 3% in July. Is everyone we compete against following us up the pricing model? No. But I think, being company-owned, we're not in the commodity business; we are in a service business. And I think with our long-standing over the last five or six years, building our traffic the right way, driving it through oil changes, having strong repeat business and very high customer satisfaction ratings, that we drive new customers with the discounted oil changes and they don't leave. We see them three to five times a year and they get all their services done from Monro. And while 15% of our customer base is very concerned on price, we have a best price guarantee for that group. In fact, 40% of the customer base is most concerned that you do the job right the first time, and our track record is excellent that way. And the other 45% is most concerned that "Look, I don't care if I'm paying $250 for a brake job instead of $230. I just don't want to pay $250 for something I did not need." And I think the company over the years has built the trust with the customers. It is a long road, but we have established that and I think that's what carries the day for us.

Right. You kind of touched on my next point there. Obviously, with the price increases, you have good repeat business. And so the promotion is primarily focused on driving new business for you?

Absolutely correct.

You are not having to use price to keep your existing customers?

No. And, again, with 15% comparable store increases in oil changes, irrespective of the price -- and again, at $15.99, it's still a 40 point margin business for us. So our loss leader, or what we use as our traffic driver, we still make money. But to us the key is, we think we have superior systems at store level. We know we have a superior CRM program and the most efficient advertising out there, focused primarily on direct mail. The more we can fill the pipeline with names and market to them one-on-one inexpensively, that is building the business for next quarter, next year and beyond.

Right. And then one more, just turning to a different subject if I can. The acquisition strategy appears to continue to focus on tire stores. Do you have a target proportion of tires sales you see from Monro over the next three or five years?

As the profitability shows, we're really indifferent between buying muffler and brake shops or tire stores. That being said, what we have said is, if you look out at the likelihood of our next five acquisitions, we would see four of them being tire stores, one of them being muffler/brake shops. That is strictly a function or price and what we can buy them versus replacement costs. You know, trying to pay consistently between $0.50 and $0.60 on the dollar of sales for these things and having them be accretive in year one. So wherever they fall, we will be flexible enough. We think we gain a lot of leverage by continuing to buy them in our markets or contiguous. And there's also a lot of benefits by having two brands in a market that, I think, we're showing with our Baltimore strategy and would love to replicate that throughout the sixteen states we currently operate in.

Good. So the focus is still on filling in existing markets as opposed to expanding into new markets?

Yes, you certainly won't see us in California in my lifetime.

Good. And then one last one, if I can. On the tire stores, does a Mr. Tire banner -- can you give us a breakout of branded to -- is there any private label tire sales in those stores?

Sure. There is private label brands within the Mr. Tire locations. They focus a lot on name brands, trying to provide as a full tire store. And their average store, remember, is doing approximately a million five, a million 6. They really carry all brands, Pirelli, Michelin, Goodyear, as well as a mix of private label tires, as well as doing a great job both before we bought them with their service business, not to mention the additional upside they have from a margin standpoint, adding our parts to their service mix where there is a huge savings, but also we've put some equipment in for flush and fill and some other service and maintenance categories that they have a tendency to grow their business with. So they have a full plate, but they certainly have private label tires as well as really across-the-board all major brands.

We will take our last question from Ben Pappe (ph) from Key McDonald.

I just have a few quick questions for you. Just taking a look at the competitive landscape in a different way. If you look at just the Monro stores, how does the number of competitors, per se, square mile away from the store, changed over time? Is it staying about the same? Or are there more competitors per store? How would you look at that?

If anything, obviously, the overall industry metrics -- the little guys are disappearing at a significantly faster rate than anyone is growing. Of our competitors within that 2-mile radius, no one is really opening new stores in our market. There's competitors like NTB and merchants being acquired, and we obviously compete with them, mostly in the mid Atlantic. But Midas, Meineke, we're not seeing any new openings in our marketplace. And really, you look across any of our markets, and regardless of who they are, there will be five of us within a 2-mile radius. Either the same five, maybe in certain markets it will be reduced to four, certainly with Montgomery Ward and the Penske stores and the Kmarts closing over the last three years. That has reduced competition a little bit. But there are more cars per service bay, there's less stores per market. It's just a question of where it falls and that would be different. Certainly, no more competitive from a store count standpoint than it has ever been and getting less competitive.

And how about -- did you quantify how much same-store traffic was up in the quarter?

We did not.

Same-store traffic was up 2.7% for the quarter.

How was that last year?

It was up last year, I don't have that number totally handy. Cathy will most likely have it for you in a minute.

I can call you back --

Okay, that's fine. And lastly, just looking at the acquisition pipeline again, are we going to expect to see similar smaller acquisitions such as the recent five store acquisition that you purchased? Or can we expect to see something a little bit larger?

What's your definition of a little bit larger?

Will it be sort of like a Mr. Tire's size?

I think a five store deal is on the small side of what we're currently looking at. And Mr. Tire would probably be on the high side of what we currently are looking at. So if that gives you somewhere between five and 25 stores, I would hope you would hear from us within the next three or four months.

It appears that there are no further questions at this time.

Okay. The industry and our business fundamentals remain strong despite any minor hiccups. We firmly believe we have a better mouse trap with a simple business model, company-owned stores, operating margins double most service competitors, superior systems and marketing capabilities with our direct-mail program, and the best employees in the business. We will continue to work to expand or lead, grow the business, and enhance shareholder value. And I want to thank you for your support and your time today.

This includes today's teleconference. You may disconnect your lines. Thank you for participating.