Monro Inc (MNRO) 2005 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Monro Muffler Brake fourth quarter and full year earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions). As a reminder ladies and gentlemen, this conference is being recorded and may not be reproduced in whole or in part without permission from the Company. I would now like to introduce Ms. Melissa Myron of Financial Dynamics.

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 today'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; risks relating to leverage and debt service, including sensitivity to fluctuations 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 Munro or any other person that the events or circumstances described in such statements are material.

Joining us this morning for today's call from management are Rob Gross, President and Chief Executive Officer and Cathy D'Amico, Chief Financial Officer. And with that, I would 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 our results and progress on our strategic initiatives then Cathy D'Amico, our Chief Financial Officer, will provide additional detail on the financial results. After Cathy's remarks, we will be happy to answer any questions you may have.

Fiscal 2005 proved to be a very fruitful year for us. Yet again, we delivered a record performance and demonstrated our ability to drive organic growth as well as successfully integrate acquisitions. During the year, we not only achieved sales and earnings results in line with our long-term objectives of approximately 20% topline growth and approximately 15% bottom-line growth, but also outperformed the industry as a whole. During the fourth quarter, we saw a continuation of the trends we have experienced throughout the year, namely consumers choosing to defer the higher margin, higher ticket major maintenance services when possible. Despite this, we recorded a strong 21% increase in total sales and a 4.5% increase in comparable store sales by continuing to execute our proven strategy of driving traffic and building loyalty through attractively priced oil changes and industry-leading customer service.

Our efforts led to comparable store increases of 12% in the Maintenance Service category, including 7% growth in oil changes and a 12% increase in tire sales. Further, higher selling prices combined with improved operating leverage and lower labor cost as a percentage of sales resulted in margin gains during the quarter. Taking all of this into account, we delivered diluted earnings per share of $0.19, including the impact of a change in lease accounting practices which Cathy will explain later in more detail and a 36% increase from fiscal 2004.

For the full year, the execution of our strategies resulted in a 12% comparable store increase in maintenance services, including a 12% increase in the number of oil changes and a 6% increase in comparable store tire sales, again delivering the highest operating and net margins in the service sector. Total sales for the year increased 21% as comparable store sales increased 2% and new stores added 54 million.

This strong sales growth led to our posting of record earnings per share of $1.39 excluding the impact of the lease accounting revision which was ahead of our expectations. We are particularly pleased with achieving these results despite margin pressures related to the shift in sales mix to the service and tire categories and the substantial costs of Sarbanes-Oxley compliance we incurred in fiscal '05.

Along with these accomplishments, we also continued to execute our growth strategy through the completion of the three acquisitions. The first acquisition closed in March of 2004 where we purchased 26 Mr. Tire stores from privately held Mile One Automotive which expanded our market share in the mid-Atlantic region, particularly the Baltimore market. This purchase exceeded our expectations during fiscal 2005 as gross and net margins came in ahead of plan and earnings exceeded the high end of the $0.06 to $0.10 we originally estimated.

In October 2004, we completed the acquisition of five tire stores from Rice Tire Inc. which are now fully integrated into our tire division and are on contract to be accretive in year one. Also since our last call, we completed the acquisition of 10 Mr. Tire stores from Henderson Holdings. Located in the southern Maryland market, the stores are complementary to our existing Mr. Tire business, performing very well and running up double-digit comparable store sales and will be accretive to earnings in year one.

Our newly created Tire division is now comprised of five acquisitions, 83 stores and approximately 90 million in annual revenue operating under two brand names -- Mr. Tire and Tread Quarters and one management team. In the coming years, we can see a company of 1000 service stores and 1000 tire stores in our 17 states, creating market dominance and further pricing power, diversifying risk between the two formats, expanding the pool of acquisition candidates at attractive prices and further expanding our service industry-leading operating margins and business model.

Finally, on Friday we announced that our Board of Directors had approved the initiation of a quarterly cash dividend of $0.5 per share. We believe that returning a portion of our earnings to our shareholders is the right thing to do, particularly because we are able to do so without compromising our ability to pursue acquisitions and organic growth opportunities.

This decision to initiate a dividend program not only reflects our commitment to enhance shareholder value and encourage long-term investment in Monro Muffler Brake, but also underscores our confidence in the future prospects of the Company. Given our strong financial position and cash generation, we have the flexibility to both pay dividends and continue to invest in growing our business.

All that said, as we look ahead we are confident in the position we have established for Monro Muffler Brake in the marketplace and are optimistic about the long-term effectiveness of our operating model and our future growth prospects. We remain committed to growing our business through well-priced acquisitions that expand our store base, fill in our markets and increase our profitability.

We also remain confident that the big-ticket items can not be deferred indefinitely and therefore believe we have some upside built into our pipeline when our customer base is more confident and willing to spend. We are very pleased with our results, particularly in light of the fact that they do not reflect the full benefit from our highest margin services. This is a direct result of the many years we have worked to be the service provider of choice, build customer loyalty and the fact that fiscal 2005 was our fourth consecutive year of same-store traffic increases. We intend to continue executing our strategy to drive traffic, implement price increases where it makes sense and gain market share.

Turning to 2006, thus far in the first quarter our comp store sales are up approximately 1.5% as consumers continue to defer big-ticket items. We are optimistic however that June, July and August present opportunities for Monro based on the continued traffic increases we have achieved and going up against the weakest three-month comparable store sales we have had in years. Based on current business and economic conditions, we anticipate fiscal 2006 sales to be in the range of $375 to $385 million with the assumption of a comparable store sales increased between 3% and 5% including no acquisitions, which I feel is highly unlikely based on our current pipeline of opportunities.

We also expect earnings per diluted share to be in the range of $1.52 to $1.60, including $0.03 to $0.04 in additional expense for lease accounting. For the first quarter of fiscal 2006, we anticipate earnings per share between $0.52 and $0.55 versus $0.47 as restated in the same period last year.

Thus far, our efficient operating model, dedicated customer service and proven growth strategy have enabled us to continually gain market share and post record financial results. We look forward to continuing to focus on strengthening Monro Muffler Brake and maximizing shareholder value in the years to come.

This completes my overview and now I would like to turn the call over to Cathy D'Amico for a more detailed review of our financial results. Cathy?

Thanks, Rob, good morning everyone. As Rob stated, sales for the quarter increased 20.8%. New stores, which are defined as stores opened after March 29, 2003, added 11.5 million including 8 million from the acquired Mr. Tire stores. Comparable store sales increased 4.5% from last year and that compares to a 2% increase in comparable store sales in the fourth quarter of fiscal 2004.

Year-to-date sales increased 20.7%, new stores added $54 million including 45.7 million from the acquired Mr. Tire Stores. Comparable store sales increased 2% and that compares to fiscal 2004, comparable store sales increased to 4.7% for the year.

Gross profit at 38.5% for the fourth quarter ended March 2005 improved as a percent of sales when compared to the same quarter last year, which showed a gross profit of 38.2%. The increase is due primarily to the leveraging of occupancy costs which are largely fixed expenses and included in cost of sales. Additionally, technician labor as a percent of sales decreased between the two quarters also in part due to the increase in tire sales as a percent of total sales. Without the Mr. Tire stores, technician labor was relatively flat with the prior year.

Also in the fourth quarter of both years, there was a heightened focus on labor control by operations as well as a high number of managers who signed up for our Pay For Performance program in the service division. This program reduces technician labor by reducing assistant manager run and (ph) shop time.

Partially offsetting these improvements in margin was an increase in total material costs due to a shift in mix to the lower margin categories of tires and maintenance services. Tires represented approximately 21% of sales for the fourth quarter of fiscal year '05 as compared to 12% in the prior year quarter. Additionally included in the maintenance category are sales of oil changes which increased approximately 7% on a comparable store basis over the prior year quarter. Beginning in the Company's second quarter fiscal of 2005, we promoted oil changes to drive traffic by slightly lowering the selling price while experiencing an increase in the cost of oil during the year. This had the effect of lowering margin in the maintenance category as compared to the prior year quarter. However, price increases in the quarter as well as the recognition of vendor rebates against cost of goods in concert with inventory turns in accordance with the new accounting rules helped to partially offset the aforementioned margin pressures.

Without Mr. Tire, gross profit before occupancy costs improved by approximately 3/10ths of a percentage point due to a reduction in total material costs. The improvement in material costs apart from the Mr. Tire stores was due to a reduction in outside purchases. The Company has added inventory in fiscal 2005 and a concerted effort to reduce out bite (ph). Gross profit for the 12 months ended March 2005 was 40.5% of sales as compared to 40.8% of sales for the same period last year, again largely related to the shift in mix, causing an increase in material costs.

With regard to SG&A expenses, for the quarter ended March 2005, they were essentially flat at 32.2% of sales as compared to last year at 32.1% of sales. During the quarter, the Company experienced increases in insurance costs, Sarbanes-Oxley costs and shop supplies expense associated with new stores as a percent of sales. Largely offsetting these increases were decreases in benefits expense for the quarter, which was simply a timing issue; management bonus and utilities expense as well as an increase in cooperative advertising credits, again a timing issue. For the year, SG&A expenses were increased by approximately $18 million to $102 million and as a percentage of sales, remained flat at 30.3% as compared to fiscal 2004. The increase in expenditures is primarily due to the store direct costs associated with 35 new stores as well as increased store manager wages to improve the quality and the retention of this highly important position for the Company.

Additionally, we experienced increased insurance costs and increased expense to comply with Sarbanes-Oxley requirements. These are partially offset by an increase in cooperative advertising credits as well as a reduction in management bonus expense as the Company did not meet the minimum level of pre-tax targeted earnings for most levels of management to receive a bonus.

Net interest expense for the quarter ended March 2005 increased slightly from the prior year but was flat as a percent of sales. The weighted average interest rate for the current year quarter was approximately 100 basis points higher than the rate for the same quarter of last year. Offsetting this was a decrease in the weighted average debt outstanding in the quarter ended March 2005 of approximately $2 million from the previous year quarter. The 30-day LIBOR rate increased 176 basis points between March 2004 and March 2005 to 2.85% and prime increased 175 basis points to 5.75%.

Interest expense for the year decreased as a percent of sales slightly from 9/10ths percent in fiscal 2004 to 8/10ths of a percent in fiscal 2005. The weighted average debt outstanding for the year March 2005 increased by approximately $7 million over fiscal 2004. Largely offsetting this increase was a decrease in the weighted average interest rate for the year 2005 of approximately 90 basis points from the fiscal year 2004 resulting in a slight decrease in expense between the two years. In spite of rate increases in prime and LIBOR, the rate for fiscal year '05 was less than fiscal year '04 primarily due to approximately 200,000 less amortization of financing fees in fiscal year '05 as well as the expiration of a swap mid-year in fiscal year '04. This swap, which was entered into in 1999, contributed to raising the effective rate in fiscal year '04.

The effective tax rate for the fourth quarters of fiscal 2005 and 2004 were 33.4% and 38% of pre-tax income, respectively. In the fourth quarter of fiscal 2005, the Company reduced excessive tax cushion by approximately $200,000. The Company's effective tax rate was 37.4% and 38% of pre-tax income for the entire fiscal year 2005 and 2004, respectively.

Other expense increased by approximately $100,000 from the prior year quarter primarily related to amortization expense arising from the acquired (ph) intangibles from Mr. Tire, Rice Tire and Henderson Holdings. Other expense for fiscal 2005 for the entire year was $0.5 million consisting of $800,000 in amortization expense partially offset by $300,000 of gain on the sale of fixed assets and some miscellaneous income.

This all resulted in diluted earnings-per-share for the quarter ended March 2005 of $0.19 as compared to $0.14 for the fourth quarter of '04, an increase of 36%. For the year ended March 2005, diluted earnings-per-share increased 17% and were $1.35 as compared to $1.15 for fiscal year 2004.

Now I would like to address the accounting restatement affecting this quarter. During the quarter and as stated in our April 5, 2005 press release, we conducted a review of our lease accounting practices. As a result of this review and similar to the hundreds of other retailers who have restated before us, we found that our lease and depreciation accounting policies were in need of revision. Previously we sought (ph) the practice prevalent across the retailing industry under which we recorded straight-line rent expense for the current term of the lease only while depreciating, building and leasehold improvements over longer periods. We have revised our accounting to recognize rent expense, including rent escalations on a straight-line basis over the reasonably assured lease period and to depreciate buildings and leasehold improvements over the shorter of their estimated useful lives or the related reasonably assured lease term.

Because the cumulative effect of the accounting change was material to our fourth quarter, we were required to restate prior year's financial statements. However, the revision was not material to any prior interim or annual period. The revisions to the lease accounting resulted in a cumulative non-cash adjustment to retain earnings as of March 2004 of approximately $4.8 million after-tax and reduced fiscal 2005 net income by $0.5 million, or $0.04 per share. Of the 4.8 million after-tax income as of March 2004, approximately $0.5 million or $0.03 per share is attributable to fiscal 2004 results. The accounting revision does not affect historical or future cash flows or the timing or amounts of payments under the related leases. It is simply an issue of accounting treatment and solely affects the timing of the recognition of expense.

Moving onto our balance sheet, it remains very strong. Our current ratio at 1.5 to 1 is slightly lower than a year ago March when we were at 1.7. Inventory is up 5.7 million from March 2004 due to the addition of new stores and as we endeavor to improve stocking levels and the mix of inventory to reduce outside purchases. However, turns were slightly improved from last year end, our debt balance increased and payables and increased as we continue to try to shift more of our cash flow needs to vendor financing.

During fiscal 2005, we generated approximately $38 million of cash from operations and received $1 million from employees' exercise of stock options. We've spent approximately 19 million on CapEx and paid down 19 million of debt. Depreciation and amortization totaled approximately $16 million.

We opened 20 greenfield stores this year, including 16 BJ's and acquired 15 others. A total of 15 stores were opened or acquired in the fourth quarter, including one Munro, four BJ's and 10 Mr. Tire from Henderson Holdings. We closed four stores during the year, none in the fourth quarter.

As a reminder, our debt to capital ratio is 26%, about the lowest in our history. We have $64 million of availability under our credit line and plenty of room under our debt covenant, making it very easy for us to do the right acquisition.

With regard to guidance for fiscal year '06, as Rob stated, our EPS range of $1.52 to $1.60 assumes comparable store sales, increases of 3% to 5% and 16 new stores, including 10 BJ's stores. Total sales should be between 375 and 385 million. Gross margin should be comparable to this year in the range of 40% to 41%, including the impact of the revised lease accounting which gets recorded in occupancy costs, which is in cost of sales. SG&A expense should also be comparable to fiscal 2005, coming in at approximately 30% to 31% of sales.

Interest expense should be in the range of $2.5 to $3 million. The earnings-per-share also assumes weighted average shares outstanding of approximately 15 million and a 38% tax rate. Since we do not have to adopt FAS 123-R until fiscal year '07, the fiscal year '06 earnings assume no expense related to stock options. Depreciation should be approximately $17 million and we should generate approximately 40 million of cash from operations before CapEx of approximately 21 million, dividend payments of approximately 3 million and debt repayments of approximately 18 million. Maintenance CapEx will be approximately $17 million of the 21 with 4 million being spent on new stores. We estimate EBITDA to be approximately $55 million.

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

(Operator Instructions). Scott Stember, Sidoti & Co.

Good morning. I missed the first part of the call. I don't if you talked about how the sales trended in the quarter by month. Can you talk about that on a comp basis?

Sure. January was up 5.3, February was up 4.6 and March was up 3.7, 4.5 for the quarter.

Could you talk about how sales are trending in the quarter we are in right now?

Sure. April was stronger than May. The net of the first eight weeks of the quarter are up 1.5%.

Up 1.5% so far to date?

Correct.

And can you give a little bit more color on BJ's now that you guys are rolling in pretty heavily into a lot of these locations, how things are going and when we can start to see some material gains from this?

Again, I think the overall number we said was potentially like 85 stores, 45, 50 million in sales and potentially 1 million in profit. As you know, the stores are new stores. So on the maturity curve as we open them, we would expect them to run plus 15 comps and plus 10, plus 5. But as you continue to open them, it is going to take awhile until there is any meaningful contribution until we get a store base that the sales grow to outpace the labor and the initial investment, even though the cash piece is small.

Just to circle back, just quantify the level of services that a BJ's Store would do versus a typical Munro's Speedy Store?

They typically would do everything a Munro's Speedy Store, with the exception, remember that BJ's keeps the tire sales and then we do everything else. What that does though effectively Scott is it limits the upside of sales on those locations because it's a five-bay shop and we have an obligation to mount, balance and do all of the tire work not counting the high ticket of the rubber sale itself, but that occupies a certain percentage of the day utilization limiting the upside of these locations maybe to a sales number more in the 5 to $600,000 range as opposed to a Munro's store in five bays which can do upwards of 900,000.

That's all I have. Thanks.

David Siino, Gabelli & Company.

Hey, good morning. I think Cathy, you mentioned the fourth quarter sales breakdown by product. Do you have the full-year percentage of tires?

Yes I do. For the full year, it brakes were at about 26% compared to last year at 29%; exhaust ran at 13% compared to a year ago at 17%; steering and suspension ran at about 15% and that was flat with last year; tires was 20% for fiscal year '05 compared to 12% for the previous year and the maintenance services were flat at 26% for both years.

Okay, great. Rob, under your -- you mentioned that 1000 stores scenario. How would you envision the mix looking at that level?

Certainly, I would think tires would be closer to 35 to 40% of our business. If you just look at the weighted average of the store count now at 626, we have 83 tire stores. So as those grow, especially the volume of tires will grow, but remember our average tire store is running 60% tires, 40% service. So the service piece will grow alongside with the tire piece and that scenario was 1000 stores of each. So that incorporates in a perfect world type scenario, we feel there's room to get to those levels. In real-life, chances are we would be in contiguous markets also, whether it's Georgia, Florida, Tennessee, Kentucky. You're not going to find the absolute properties to fill out our markets to get to that level. That's more an indication that there are plenty of opportunities both on the tire side and on the service side just within our current geography, and we do not look to venture out to Colorado or California.

We think our operating model gets the most leverage by filling in within the markets we serve, putting the two formats in those markets and creating market share and pricing power, sharing advertising, sharing logistics, sharing inventory and getting the benefits of what we can derive with the two brands being in as many markets as we can physically get into within our 17 states.

That was very helpful. Could you give -- I'm sorry if I missed it -- did you give a number for fiscal '06 in terms of expected new stores/acquisitions?

We said organic growth would be about 16 stores, 10 of them being BJ's. But obviously, if we say aid our goal is to have 20% topline growth and what we have in the pipeline including stores currently open gets us in the range of 375 to 385, that's not 20% on last year's base of 337. Incorporated in us hitting our target topline growth would be a minimum of 10% of sales growth through acquisition.

Understood. Thanks a lot, Rob.

Thanks, Dave.

Cid Wilson, Monarch Research.

Good morning. My first question is that, can you touch a little bit more on the strength that you're seeing in tires because it's particularly interesting that you're seeing such strong tire comps when one of your competitors earlier this month said that their tire comps are down double digits. And so maybe you can give me a better understanding in terms of what the balance is between Monro's specific initiatives and that which may be industry phenomena that are helping your tire comps.

How about per your (ph) management, Cid? Now I think certainly the comp increases we see at Monro are held because it's off of a small base. Remember while we grew over the last number of years from zero tire sales to 8% tire sales, we have more selection, we're more in the business, so that end of it grows.

On the other side of the fence, we are taking over locations that now maybe are not as cash-strapped so we can invest in inventory. I think the management team of the tire division is taking over tire stores that Monro had typically run frankly not optimally and have done a great job, the Kimmel locations, the Tread Quarters locations, the Frasier (ph) locations, including the new acquisitions we're buying where they are just driving sales because frankly, they're better operators than we were.

Okay. And then with regards to what I'm hearing from the month of May, it sounds like it say a little of a slowdown from April. But I know if I see you are anticipating sales to pick up in June. I know that here in the Northeast, the weather has been much cooler than normal and I'm wondering if you feel that there's weather playing a role in that, or do you think it's more of the economic situation or I think maybe if you could touch a little more on that in your opinion?

I mean certainly the cool weather, we need some warm weather to help June (ph) sales. We're in the Northeast and the mid-Atlantic. It has been unseasonably cool, 10 or 15 degrees below normal. You can blame it on high gas prices, blame it on the consumer being concerned. The bottom line is we are going to do what we need to do. Obviously, we get more operating leverage when our comp store sales are better. We are a retailer in the Northeast and next year, I'm probably not going to use the crummy weather as the excuse of why we are running up bigger numbers in May than we did last year. Certainly those things have an effect. You know, probably not compelled to apologize for up 19 last year and projecting up more than 15 this year.

Okay. And then my last question, and I'm not sure if I heard you say this on the call, but if you can give us an idea in terms of maybe how SG&A would have done if you back out the impact of your increased expenses related to Sarbanes-Oxley, and also when you feel that that expense is going to sort of level off from more normal SG&A levels?

We certainly should get more leverage on SG&A. Again, the Sarbanes-Oxley costs ran about 1.5 million last year. We would expect it to on a continuing basis be about half that. So that will obviously be a benefit. It will be a little bit choppy. We're certainly comfortable with our numbers and certainly comfortable that that percentage over time should improve as we continue to leverage some of these acquisitions. But remember what's also incorporated in there, as we continue to do acquisitions and look at numerous opportunities, some getting fairly close to fruition, you're going to see due diligence expense in there also offsetting some of the gain. So as we get some of these properties under our belt and get beyond the due diligence stage like a Henderson that start contributing and running great in sales, we certainly would not expect long-term our SG&A to remain in the 30 to 31% and that should be an opportunity for us to enhance our operating margins and our net margins.

Okay, thank you very much.

John Tomlinson, Prudential Equity Group.

Just a question on the tires. I'm not sure if you really touched on this in your earlier remarks, but can you quantify how much of the comp increase in tires was related to price versus volume?

We raised our tire prices similar to what we did overall last year, which was 6%. Typically for every 3% we raise prices, we get about 2%. So I would think it falls fairly close to that number.

Okay, that is all I had. Thank you.

Jim Larkins, Wasatch.

I wanted to get a couple of details. Could you give me the CapEx number for the quarter or the full-year, whichever you have?

Sure, I have both actually.

For the fiscal year just ended?

Right. For the quarter, CapEx was about $5 million before the acquisitions of Henderson and Rice. And for the year, CapEx was $19 million.

And do you have cash flow from operations as well for the year?

Yes, $38 million.

And then I just wanted to clarify. On your guidance, the 385 range does not include acquisitions, but it does include the internal growth of new stores?

That's correct.

Okay, great. I think that's it. Thanks, guys.

Larry Raider, LAR Management.

Hi, good morning. Given the exceptionally good job you did with your gross margin, given that the sales mix was somewhat different, on a-go forward basis, would you have the room? I know you said 40 to 41% currently as a gross margin. Would you have room to improve that given the direction the mix is taking, or will all of the leverage truly come from the SG&A line?

We would hope to be able to improve it, but remember to hit our growth targets, we are going to need to add acquisitions, and the most likely acquisitions are going to be --.

Lower margin.

On the tire side of the fence also. But we certainly should see some margin expansion. We have certainly seen a slowing up of any increases in steel prices. It looks like oil, another big increase item last year and the year before, seems to have started leveling off and our tire pricing is such where we are not being hurt by manufacturers' increases to the point where we're getting it back with our price increases. All of that would lead one to think there's an opportunity to improve margins. A big piece of that margin improvement though as you can see in the fourth quarter, even with all of those things potentially working against us, we post a 3, 4, 5% comp store increase. Remember, distribution and occupancy is a fixed component of our margins and the leverage is just huge.

Okay, very good and thanks again.

(Operator Instructions). Jack Bayless (ph), Midwoods (ph) Research.

Cathy, theoretically if you had to have the stock option, the non-cash charge occur this new fiscal year, what would it amount to?

Probably in the range of $0.06 to $0.08.

Okay. For the fourth quarter alone, what was the cost of Sarbanes-Oxley? And also, did you have any increases in medical or workmen's compensation costs versus a year ago?

Overall just generally speaking, our insurance costs are higher. We have gotten to be -- we have been largely self-insured for the last two or three years in order to try to contain costs because we were heavily premiums we would've gone up a lot more. But that means we assumed more risk and we did experience higher costs in insurance overall, including health. The SOX costs for the quarter were about $0.5 million.

Additional versus nothing a year ago?

Minimal a year ago, maybe in the small tens of thousands a year ago.

Rob, if you could further clarify the 12% increase in comparable store maintenance service category, what drove that kind of an increase, excluding oil?

Well, it's tough to exclude oil. That's a big piece of what's driving the traffic. But certainly, state inspections, scheduled maintenance grew significantly; flush and fills, tranny, all of the additional services.

And I assume that there was an ongoing weakness in brake comps?

Flattish to minus 1, as opposed to what I would call ongoing weakness.

Okay. And Cathy, what is your estimate for the tax rate for the new fiscal year?

38%, Jack.

Thank you very much.

Jim Larkins,

I wanted to see if you could give some color on the traffic stats. I don't know if you've given any information on that or not.

Traffic for the quarter was up about 4% and for the year, about 3%.

And your share count guidance was 15 million. Does that reflect some shares coming in from the acquisition or potential acquisitions? Can you give me some color there?

Not from potential acquisitions, just based on the current shares outstanding and assuming which ones would be in the money, including options as well.

Did the Henderson acquisition add -- how many shares did that add?

It was 240,000 shares.

Okay. Any just any comments on turnovers, particularly among your store managers and how that force is looking?

Sure. Our turnover for the year ended up similar to the prior two years, which is as low as it has been since 1993. So our turnover continues to be strong. We are happy where we are. Obviously, we have opportunities always improve upon that. I think we're certainly helped by the performance of our company as well as the performance of some of our competitors and we would expect to try and incrementally improve those things. But when you give stock options to your best performing managers that vest over four years and we've been fortunate enough to have a pretty good performance in the stock, typically it becomes a significant number for a guy making 40 or 50,000 a year and they have a tendency not to leave.

Alright, great. I think that's it.

(Operator Instructions) Jamie Weiland (ph), Weiland (ph) Management.

Hi, fellas, nice quarter. I happened to listen to the Midas presentation this morning and if imitation is the sincerest form of flattery, they like you.

I am flattered.

In copying your game plan, how do you execute it differently as a grouping of company-owned stores versus their franchise operation and going after the various segments that they go after?

Sure. They obviously have a significantly different business model. What we try and advantage of is we are in a high-service, low-trust business, so the key is execution. The consistency we can deliver by controlling all of our stores, whether it's pricing, whether it's customer service, refund, any problems we generate obviously works to our advantage. Probably most importantly though is, it's one thing to say you're going to try and drive traffic with oil changes, in a business where the vast majority of technicians aren't in tune to and don't want to do oil changes. So by us being able to force compliance with an understanding that oil changes lead to names in our database, lead to significantly better systems than any of our competition that allows us to do direct-mail at a lower cost, to continue to drive the traffic and having the advantage of doing that over the last seven years instead of just beginning to do that I think gives us an opportunity to execute better at the store level, take those names and use them instead of increasing our advertising spending to have opportunities to lower it and get more efficient. And again just having been there from day one in our organization, it is a lot easier to get this done and not easy when you control the full operations, rather than having numerous players in the marketplace trying to generate that.

And in addition from a competitive standpoint, if you take out just the driving the traffic, effectively we are a compilation of 600 stores all working to gain efficiencies and operating leverage. Who we really compete with is not so much the business model that Midas is doing a very effective job improving from a corporate standpoint and growing their share price, but the guys that we compete with in the marketplace are typically the guys that are having difficulty in selling their operations to us. For example, if I'm in Rochester, New York with 26 stores, a Midas franchise has nine stores. So I typically have more store count, more sales, more operating leverage, lower acquisition costs of parts, don't have to pay franchise fees and that is who I worry about. In the various markets we compete against, how do we beat the 10-store franchisee, the 20-store franchisee as opposed to saying -- how do I compete against a 1900-store franchise operation that at the corporate level, is a cash flow machine and a different operating model. I need to worry about how I go about after customers on a market by market basis.

Les Bryant (ph), UBS Financial Services.

I was afraid nobody was going to tell you guys what a great job you're doing, but Jamie seems to have already done that and that's really all I have to say. Congratulations. You're coming of age and starting to pay dividends and grow too. You guys are doing a great job.

Thank you very much Les, I appreciate that.

There are no further questions. I'd like to turn the call back over to Mr. Gross for any closing comments.

Thanks, operator. Again, to all of our long-term shareholders and some new folks, we're committed to continue to growing the business. Our goals are 20% topline, 15% bottom-line growth, and doing that without taking an inordinate amount of risk. We are thrilled to be able to start our dividend program and certainly our intent is to continue to grow the Company and pay dividends out into the future to benefit both you, our employees and move the company forward. I appreciate all of your support and we will talk to you in a couple of months with the first quarter numbers. Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. Thank you.